Santander Financiero - PDF

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					Grupo Financiero
     HSBC
in Mexico and Panama
     ------------------
   Sandy Flockhart
      Group General Manager &
CEO Grupo Financiero HSBC, S.A. de C.V.


                                          1
        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 Annual Report.


                                                            2
               Content

The Mexican market.
HSBC’s competitive advantage.
2005 financial results & achievements.
Peer bank comparisons.
Investment in Financiera Independencia.
Managing for Growth in Mexico.




                                          3
                 Vision
To become Mexico´s leading
 financial services company
      in the eyes of our
 customers within the next 3
            years.




                               4
             Mexican market – upside for banking
   •    Improving macroeconomic fundamentals: steady GDP growth and low inflation
   •    Fiscal accounts strengthened by high oil prices and record levels of foreign
        remittances.
   •    Economy strengthened by the pickup in domestic demand and foreign exports.
   •    Low credit penetration vs. other countries.

                        Consumer                                      Users of financial            Amount of wage
                                              Housing credit
                        lending as %                                  services as % of total        remittances (USD
                                              as % of GDP*
                        of GDP*                                       population*                   million)*

         Mexico                1.9%                   0.9%                        25                        16,613


           USA                17.7%                  61.4%                        93                         N.A.


            UK                 N.A.                   91%                         95                         N.A.

          Brazil              5.23%                  1.37%                       N.A.                       1,711



*Sources: Bloomberg, Institute of International Finance, Bank of England, Banco Central do Brasil, Banco de México; for 2004.
                                                                                                                                5
          Grupo Financiero HSBC in Mexico
•   Large and Growing National Franchise
      –   6.5 Million Customers (plus 11 million non customers that use our branch network)
      –   1,400 Branches (20% market share*)
      –   5,200 ATMs (24% market share*)
      –   22,000 well-motivated FTE

•   Market positioning
      –   Mass-market retail bank but moving up-market following rebranding
      –   Now a player in corporate banking

•   Multi-Line Financial Services Group
      –   Commercial Bank (All traditional services, Private Banking in Mexico & Panama)
      –   Insurance Company
      –   Retirement Services (Afore)
      –   Bonding Company
      –   Trust Services
      –   Stock Brokerage
      –   Asset Management

* Source: CNBV, Press Releases and Peer Bank Financial Statements


                                                                                              6
       Grupo Financiero HSBC in Panama

•   65,000 retail customers, mostly up-market clientele (3,000 Premier
    customers)
•   1,000 CMB and CIB corporate clients
•   19 branches
•   73 ATMs
•   646 employees
•   Strengths in residential mortgages, credit cards, and commercial lending
•   Acquisition in AUG05 of Financomer, a finance company in Panama with a
    focus on lending to civil service and pensioners, via direct deduction at source
    of borrowing. This added 12 points of sale to HSBC Panama's branches, and
    will aid HSBC in becoming a more mass market, retail bank in Panama.




                                                                                       7
                       Competitive Strengths
• Mexico’s longest bank opening hours (8 a.m. to 7 p.m.) & weekends
• Lowest cost of funds in the market (150 bps below competitor avg.)
• Young & sales-focused workforce
    – Average employee age of 25
    – 50% of branch compensation is incentive-based
• Premier – soon Premier International
• HSBC Global network & NAFTA region strength
• International management team (blend of HSBC & Bital)
• Product & Process innovations
    – Tu Cuenta, integrated pkg. suite for retail customer, selling at rate of 2,300 per day (90% are new
      customers).
    – Estímulo, only packaged product for small businesses
    – Sale of personal loans, credit cards, & insurance products via ATM network
    – Cross-border mortgage product
    – 20% market share of international remittances (driven by the strong performance of La Efectiva,
      electronic remittances cards, and joint initiatives with HSBC Finance Corp.)


                                                                                                            8
       Leveraging synergies with the
              HSBC Group
     IMPORTS              EXPORTS
                                     Customer Relationship
Experienced, international           Management (CRM) know-how, to
management team
                                     Americas
Credit Card system implementation,
from HSBC Finance Corp. (formerly    ATMs business & strategy, to
Household)                           Group sites worldwide
   – Cost savings
   – Flexibility
                                      – Direct sales channel
   – Ability to white label           – Location selection techniques

Credit scoring methodologies,        Variable pay compensation
models, and know-how, from HSBC      techniques, to Group sites
Finance Corp.
                                     worldwide
Premier

                                                                        9
           Grupo Financiero HSBC
      2005 Financial Results - Highlights
• For the year:
   – Profit before tax up 17% to USD 951m
   – Cost efficiency ratio improved to 57.7% from 58.7% in 2004
   – Impaired Loans / Total Loans ratio improved from 3.1% at DEC04 to
    2.6% at DEC05.
   – Capital ratio (local basis) increased from 13.7% at DEC04 to 14.3%
    at DEC05.


• Significant investment has supported these results and provides a
  robust platform for future growth. Over USD 400m has been
  invested in the last 3 years in property (including new head office),
  technology, and security.

                          Figures in USD millions
                          Under IFRS
                                                                          10
                    PFS 2005 Achievements
•   The numbers of credit cards in circulation in Mexico grew by 80 per cent to
    1.1 million, driving a 85 per cent increase in fee income.
•   HSBC Mexico received the Gartner Award for CRM excellence, competing
    amongst 150 global companies. The evaluation criteria included vision,
    strategy, client experience, organisational collaboration, processes, information,
    technology and measurement systems. In 2005, CRM accounted for 71 and 64
    per cent of HSBC Mexico’s personal loan and credit card sales, respectively.
•   In Mexico, Premier has enrolled over 100,000 customers, with an average
    cross-sales ratio of 3.6.
•   The number of HSBC’s Internet Banking customers in Mexico grew by 50% to
    over 260,000 during the year.
•   The HSBC D-2 fund is now the largest mutual fund for individual investors in
    Mexico, having assets of over MXN 20 bn (USD 1.9 bn) at year-end, and
    representing growth of over 40% from prior year.

                                                                                         11
               CMB 2005 Achievements
Estimulo, the only integrated banking product for small businesses in Mexico,
was well received by the market, with USD 155m in lending, over 4,600 accounts
now open and average cross-sales ratio of 4.6.

CMB won the mandate to structure and disburse a USD100m, 5 year loan, to
HOMEX, the market leading housing developer, for the acquisition of the BETA
corporation.

Trade Services increased its market share from 4.5% to 8% during the year,
generating revenue growth of 44% over prior year. (Source: CNBV)

HSBC maintained its position as market leader within the Agricultural lending
sector with a 20.3% share. (Source: CNBV)

An Agricultural Insurance product was developed and launched in 1Q05, the
first of its kind in Mexico with USD1.7m of premium income.

Mutual Fund investments by CMB customers increased by 43%.

                                                                                 12
               CIBM 2005 Achievements
Global Markets generated an increase in net interest income from higher
customer and trading volumes, and successful strategic positioning in 1H05’s
rising short-term interest rate environment. In the second half of the year, trading
income benefited from the proper positioning of the accrual book when interest
rates declined.
Higher profits in the money market trading and derivatives portfolio were
achieved due to the implementation of a new Group-standard derivatives system
in 1Q05.

The newly-formed Group Investment Banking Financing (GIBF) team is off to a
                                                           (GIBF
good start, with the joint placement of a Petroleos Mexicanos (PEMEX) debt
offering for MXN 10 bn, several mandates to underwrite bridge loan and
mortgage securitizations, and the sole lead arranger for a MXN 2 bn debt offering
for the Interamerican Development Bank.

The CIB loan portfolio (excluding IPAB) more than doubled from prior year. CIB
refinanced a MXN 24 bn loan with the IPAB, protecting ourselves against further
prepayments, in addition to granting another MXN 5 bn.

                                                                                  13
                        Peer Bank
                       Comparisons


Source: CNBV, Press Releases and Peer Bank Financial Statements.
All figures in MXN millions, under MEXGAAP and represent banking subsidiaries only
(HSBC México, S.A.).



                                                                                     14
Figures in MXN Millions
under MEXGAAP
At December 2005
Only banking subsidiaries

                                      Net Income 2005
                            14,653


               9,356

                                             6,738
                                                            5,411
                                                                           3,600           4,199
                                                           4,615*


             Bancomer       Banamex       Santander        Banorte       Scotiabank        HSBC




     * Adjusted due to non-recurrent events: Banorte’s 2Q05 results were affected by non-current events for
     MXN 796 m .


                                                                                                              15
Figures in MXN Millions
under MEXGAAP
At December 2005
Only banking subsidiaries    Net Income / Avg. Total Capital
                                         (ROE)
                • HSBC HAS AMONG THE HIGHEST ROE IN THE MEXICAN MARKET.

                                                             31.7%
                                                                           28.2%          27.6%

                                21.2%         18.5%         27.1%
                    14.7%




                  Bancomer    Banamex       Santander       Banorte      Scotiabank       HSBC

     * Adjusted due to non-recurrent events: Banorte’s 2Q05 results were affected by non-current events for
     MXN 796 m .


                                                                                                              16
Figures in MXN Millions
under MEXGAAP
At December 2005
Only banking subsidiaries      Peso Customer Deposits
                             Market share                                       Growth FEB06 vs. FEB05
                               FEB06

                                                                                                                           19.1%
     28.2%                          Up from
                                    14.5%                                               16.5% 16.5%
               24.6%
                                     in February
                                    2005                                      10.5%
                                                                                                              10.0%
                            15.4%                          16.0%

                                     9.3% 6.6%




    Bancomer   Banamex Santander    Banorte   Scotiabank   HSBC    -5.1%
                                                                   Bancomer   Banamex   Santander   Banorte   Scotiabank    HSBC




    Source: CNBV, Press Releases and Financial Statements.

                                                                                                                                   17
Figures in MXN Millions
under MEXGAAP
At December 2005
Only banking subsidiaries             Cost of Funds

             • HSBC CONTINUES TO INCREASE ITS DEPOSITS, WHILE MANTAINING
             ITS FUNDING COST ADVANTAGE.
                            Cost of Peso Customer Deposits at FEB06
                                         6.3%
                                                                5.4%
                            4.0%                    4.1%
                     3.8%
                                                                           3.2%




                 Bancomer   Banamex    Santander   Banorte    Scotiabank   HSBC




                                                                                  18
Figures in MXN Millions
under MEXGAAP
At December 2005
Only banking subsidiaries        Strong Growth in Mortgages
                                       & Credit Cards
       Growth in Peso Mortgage Balances                                     Growth in Credit Card Balances
                 vs. prior year                                                     vs. prior year

     221.2%                                                                                                            78.7%
                          Includes transfer                            73.7%
                          of business from                                                57.5%     55.5% 61.0%
                          Sofol Hip. Nac.
                                                                                45.1%


                65.3%                                          68.7%
                            45.8%
                                                  42.6%
                                        27.4%


    Bancomer    Banamex     Santander   Banorte   Scotiabank   HSBC    Bancomer Banamex Santander   Scotia   Banorte   HSBC




Source: CNBV, Press Releases and Financial Statements.


                                                                                                                              19
  Investment in Financiera Independencia
• In March 2006, HSBC acquired 19.99% of Financiera
  Independencia, one of Mexico’s leading consumer finance
  companies, for US$ 65 million.
• Founded in 1993, Financiera Independencia has 500,000
  customers and 189 branches in 69 cities throughout Mexico.
• Access to salaried sub-prime and informal personal loan
  market, targeting micro-entrepreneurs.
• A key market which HSBC has identified for its high growth
  potential.
   – Large market – over half Mexico’s economically active population in this
     segment.
   – Little bank competition (segment attended by pawn shops, loan sharks,
     and store credits, all averaging APRs of 80-200% annually).


                                                                            20
                   Strategy for Growth
•   Mexico is a “key” market. We have 20-25% of the banking
    infrastructure and a respected brand. We will continue to grow
    into our infrastructure, thereby significantly growing our market
    share.

•   Increase cross sales / share of wallet among our extensive
    payroll customer base, which currently amounts to 2.3 million
    customers.

•   Much of our PFS business is non-prime. Continued growth into
    non-prime and the informal economy/SMEs is a key focus and
    presents great opportunities going forward.

•   Youth Market. There are currently 45m Mexicans less than 19
    years old. Over the next 10 years this means 10m new potential
    bank customers.

                                                                        21
Thank you




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