Slide 1 - HSBC

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Slide 1 - HSBC Powered By Docstoc
					HSBC Finance Corporation

                                           AFSA Conference for
                           International Fixed Income Investors

                                                21-23 April 2009
                                                                       Disclosure Statement

This presentation, including the accompanying slides and subsequent discussion, contains certain forward-
looking information with respect to the financial condition, results of operations and business of HSBC
Holdings plc and HSBC Finance Corporation. This information represents expectations or beliefs concerning
future events and is subject to unknown risks and uncertainties. This information speaks only as of the date
on which it is provided. Additional detailed information concerning important factors that could cause actual
results to differ materially is available in the HSBC Holdings plc Annual Report, and the HSBC Finance
Corporation Annual Report on Form 10-K, each for the year ended December 31, 2008. Please further be
advised that Regulation FD prohibits HSBC representatives from answering certain, specific questions during
the Q&A session. You may get copies of the HSBC Finance Corporation document referred to above free by
visiting EDGAR on the SEC website at

These materials do not constitute an offer to sell, or the solicitation of an offer to buy, any security of HSBC
Finance Corporation or any other issuer.

All amounts, unless otherwise stated, represents U.S. GAAP basis of accounting.

                                                                                                                   -1 -
Business Update

                  -2 -
                                                            Business Update

• HSBC is focused on what it can control
   • Risk reduction
   • Cost management
   • Balance sheet management

   • People

• HSBC is taking decisive action
   • Portfolios and selected businesses placed in run-off
   • Reducing the scope of others
   • Leading home preservation efforts

                                                                              -3 -
                                                                         Business Update

Card and Retail Services

• Continuing to integrate Cards into a global business line for HSBC
    • Systems platform will be utilized globally
    • Analytical expertise leveraged worldwide

• Fifth largest MC/Visa issuer in U.S. and third largest private label issuer
    • $26.8 billion in credit card receivables at December 31, 2008 at HSBC Finance
    • $18.0 billion in managed private label receivables funded by HSBC Bank USA

• MC/Visa and Private Label loan balances declined in 2008
    • Early leader in reducing mail volumes

    • Actively reduced outstanding credit lines

    • Renegotiated or terminated many merchant relationships

• Delinquencies have increased modestly in both portfolios

• Funding increasingly provided through receivable sales to HSBC Bank USA
    • $12.4 billion of GM and UP card receivables sold in January 2009

Note: Data from 2008 10-K                                                                  -4 -
                                                                       Business Update

Consumer Lending – Now in Run-off

• Discontinued all originations in Consumer Lending

• Closing substantially all of the 800 remaining HFC and Beneficial branches

• Closure costs of approximately $180 million and non-cash impairment charges of
 $50 million in 1H 09 with annualized cost savings projected at $600 million

• Decision based on two primary factors:
   • Subprime mortgage refinance model has no connectivity to other HSBC product offerings
   • Model could not be operated profitably
       – Lack of home equity
       – Deteriorating outlook for house price appreciation
       – Very limited refinance opportunities
       – Expectations for near and medium term funding environment

Note: Data from 2008 10-K                                                                    -5 -
                                                                    Business Update

Consumer Lending – Now in Run-off

• Remaining real estate portfolio will be actively managed to optimize loan performance while
  maximizing the value of customer relationships

• Portfolio is primarily held on balance sheet
   • $46.2 billion real estate portfolio / 700+ thousand accounts

• HSBC Finance is one of the largest U.S. subprime mortgage servicers
   • 4,500 employees
   • 13 global servicing locations

• Robust analytics and active campaign management deliver positive front-end collections results

• Significant scale and history in back-end practices effectively manage default experience

• Consistent and reliable customer services practices

Note: Data from 2008 10-K                                                                          -6 -
                                                                           Business Update

We are an Industry Leader in Homeownership Preservation

• Culturally, homeownership has been embedded in our operating philosophy for years
    • Owned (as opposed to serviced) portfolio
    • Mature Foreclosure Avoidance Program in place since 2003
    • Focus on borrower affordability-disposable income is a key driver

    • Data driven analytics and history of performance – solidifying relationship between payment relief and
      modification performance

• In 2008, we completed more than 95,000 loan modifications totaling approximately $14 billion
    • We increased use of our foreclosure avoidance account modification programs to qualify more customers
      with longer term assistance (generally either two or five years) due to the weak housing market and U.S.

    • Relief has increased steadily over the past two years:

                                                               12/31/06   12/31/07     12/31/08
               Total RE Modifications and/or Reages             $10B        $17B        $26B
               % of Portfolio w/Modification and/or Reage        11%        20%          36%

Note: Data from 2008 10-K                                                                                        -7 -
                                                                   Business Update


• Auto Finance portfolio reduced from $12.9 billion at December 31, 2007 to $10.4 billion at
  December 31, 2008
• Our analysis indicates the decision we made in July 2008 to discontinue dealer and direct auto
  finance originations was correct
• Auto-in-branches program discontinued in January 2009

• $3.0 billion of Auto Finance receivables sold to HSBC Bank USA in January 2009

Taxpayer Financial Services (TFS)

• Exited all independent relationships, only H&R Block remaining

Note: Data from 2008 10-K                                                                          -8 -
HSBC Finance – Financial Review

                                  -9 -
                                                                      HSBC Finance - Financial Review

Key Financials (US GAAP)

                                                                                              Year Ended          Year Ended
                                                                                               12/31/08            12/31/07

                  Net Income (Loss) ($ Millions) (1)                                             (2,783)             (4,906)

                  Provision for Credit Losses ($ Millions)                                       13,430              10,470

                  Net Interest Income ($ Millions)                                               8,850               9,795

                  Net Interest Margin                                                            6.35%               6.39%

                  Consumer Two-Months and Over Contractual Delinquency               (2)        12.52%               7.56%

                  Consumer Net Charge-offs (annualized)         (2)                              7.58%               4.22%

                  Total Receivables ($ Billions)                                                   125                 146

                  (1)        Includes the change in the credit risk component of our fair value optioned debt, which reduced net
                             loss by $2.0 billion (after tax) in 2008 and $1.0 billion (after tax) in 2007. Results were also
                             impacted by goodwill impairment charges of $415 million (after tax) in 2008 and goodwill and other
                             intangible asset impairment charges of $3.9 billion (after tax) in 2007.
                  (2)        Continuing and discontinued operations

 Note: Data from 2008 10-K                                                                                                         - 10 -
                                                                    HSBC Finance - Financial Review

Consumer Receivables Mix

          December 31, 2008                                                                December 31, 2007

                      Consumer Lending 64%                                                 Consumer Lending 60%

         Mortgage Services 36%                                            Mortgage Services 40%

                          $124.9 Billion                                                          $145.8 Billion

        Note: $6.3 billion of GM Card, $6.1 billion of Union Plus
        Card and $3.0 billion of auto finance receivables sold to
        HSBC Bank USA in January, 2009.

  Note: Data from 2008 10-K                                                                                        - 11 -
                                                     HSBC Finance - Financial Review

                         Credit Loss Reserves                                    Capital Ratios

($ Billions)

                                                             (PAA = HSBC acquisition purchase accounting adjustments)

                                                              NOTE: $131 million capital contribution and $275 million
                                                                    conversion of trust preferred to common stock
                                                                    occurred in February, 2009.

   Note: Data from 2007 and 2008 10-Q’s and 10-K’s                                                                       - 12 -
Funding Update

                 - 13 -
                                                               Business Update

Funding Environment

• Cost of liquidity will be both elevated and volatile
• Funding remains tight for all financial institutions
   • Investors remain cautious
   • Deposit funding versus capital markets funding
   • Government insured programs versus non-guaranteed debt
• In the near and intermediate term, HSBC Finance is not projected to have access to term
  funding at cost effective levels

                                                                                            - 14 -
                                                                Funding Update

2009 Funding Plan

• Maturing secured and unsecured debt will be funded through:
   • Internal and external asset sales
   • Continued balance sheet attrition
   • Cash generated from continuing operations
   • Capital support provided by HSBC Group
• Maximize deposit based funding through originations and sale of card receivables to HSBC
 Bank, USA

• Daily cash management requirements will be funded through an active, direct commercial paper

   • $9.8 billion in back up lines at December 31, 2008
       – $3.8 billion maturing in April, 2009

• Contingent liquidity covered by CPFF and affiliate lines

• Current funding requirements can be achieved with no term debt issuance

Note: Data from 2008 10-K                                                                        - 15 -
                                                                    Funding Update


• Expect a weak and challenging economic environment throughout the year
• Reducing risk across all entities
• Leading home preservation efforts
• Further leveraging U.S. cards expertise globally
• Achieve balance sheet size that optimizes own risk profile and our liquidity and capital constraints
• Rigorous cost management

                                                                                                         - 16 -

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