Hong Kong, The Roles of RMB Internationalisation Citi HK Financial mini-Conference

31 May 2011

Mark McCombe Chief Executive Officer Hong Kong The Hongkong and Shanghai Banking Corporation Limited

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 and Accounts 2010. 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 are provided in the ‘Reconciliations of reported and underlying profit before tax’ supplement available at www.hsbc.com.

2

RMB to be the third largest international currency

3

China GDPUSD 5.7tn GDP in 2010, 2nd

largest in the world 8

Rise of Greater China Significant economic benefits for Hong Kong

China is the largest exporting country

–

USD1.5tn total exports in 20103

–

Will surge to around USD2.4tn in 20204

Robust HK/China trade

–

53% exports/44% imports of HK to/from China5

China engages in active foreign asset acquisition and continued domestic infrastructure spending

Strong capital flow between China and HK

–

45% of overseas projects in China are HK related2

–

592 Mainland companies listed in HK7

Targeting full convertibility

Reserve currency?

RMB internationalisation

China has over 9mn mass affluent, growing at 13% CAGR. 825k individuals with wealth over RMB10mn4

Spending power spilled over to HK

–

In 2010,

22.7mn Mainland tourists to HK and 16.1mn to Macau 6

–

accounted for 30% of luxury retail sales1

TradePeople

CurrencyCapital

1.

Business Week. Dated April 2010.2.

World Trade Organization3.

Ministry of Commerce, PRC4.

HSBC estimates5.

Census and Statistics Department, Hong Kong SAR

6.

Tourism Commission, Hong Kong SAR; China Tourism Academy7.

HKEx

Fact Book, 20108.

CIA -

The World’s Factbook

4

China is now the 2nd largest economy and largest exporting country

1.51.3 1.3

0.7

0.0

0.4

0.8

1.2

1.6

2.0

China Germany US Japan

(USDtn) Total Exports 2010 1

14.6

5.7 5.43.3

2.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

US China Japan Germany France

Gross Domestic Product 2010 2(USDtn)

Source: 1. IMF / CIA –

The World’s Factbook

2. CIA –

The World’s Factbook

5

RMB could become the 3rd highest turnover currency in the world if RMB is fully convertible

RMB

0

500

1000

1500

2000

2500

3000

HSBC estimate(if RMB fully convertible)

Daily Avg Turnover (USDbn)

Note: Estimate of RMB daily average FX turnover is based on a turnover-to-trade ratio of 0.3, which is lower than 0.32 for EUR, 0.4 for YEN and 0.46 for GBP. The rise in use of RMB will offset the use of USD, EUR, YEN and GBP at a share of 40%, 30%, 20% and 10%.

Source: HSBC estimate

USD

EUR

RMB0

500

1000

1500

2000

2500

3000

3500

2010 BIS Data

Daily Avg Turnover (USDbn)

GBPYEN

USD

EUR

GBP YEN

6

RMB internationalisation Rapid development

Trading Currency

Investment Currency

Reserve Currency

2004 2007 2009 2010 2011 2020

•

Personal RMB business

•

RMB bonds •

RMB trade settlement pilot scheme

•

Enlarged trade pilot scheme

•

RMB wealth management products

•

Access to Mainland’s bond market

•

Case approval of RMB FDI

•

Overseas Direct Investment in RMB

•

Fully convertible ???

HSBC forecast

Source: HSBC

7

HK the launch pad for China companies “Going Out”

0

20

40

60

2006 2007 2008 2009 2010

2010 Non-financial ODI: USD59bn

USDbn

0

100

200

300

USA France Japan Germany China

USDbn

China is now the 5th largest ODI origin 2

China’s ODI continues to grow 1China is no longer only a FDI destination. It is now the 5th largest ODI origin 2

HK is PRC’s

largest ODI destination1

56% of new company accounts opened in Hong Kong are customers from China 3

Growth in SOE/POEs

using the liquidity in the Hong Kong system

HKD AD ratio: 78.1% 4

Non-bank China exposure: 12~13% HK banks’ assets 4

1. 2009 Statistical bulletin of China’s outward foreign direct investment2. National Bureau of Statistics of China3. HSBC figure4. HKMA statistics

8

RMB Trade Settlement to reach USD 2 tn by 2015 Full liberalisation

by 2020

1. HSBC in-house estimates2. HSBC Trade Confidence Index –

MAY 2011

2010 | 2011 | 2015| 2020|

57% of Hong Kong traders would use RMB for trade settlement in the coming 6 months. 2

RMB is expected to be the third most popular currency for trade settlement. 2

More than USD 2 trillion or half of China’s total trade flows with emerging markets will be settled in RMB by 2013 to 2015 1

RMB to become a fully liberalised currency by 2020.1

9

HK’s RMB deposits to reach RMB 800bn by end 2011 Or 11% of Hong Kong’s deposits

Source: CEIC,

HSBC

0

200

400

600

800

1,000

1,200

Dec07 Dec08 Dec09 Dec10 Dec11e

RMB bn

Weak

Strong

Base1Q2011 end: RMB 451bnor 5% of total HK deposits base

RMB800bn to RMB1.2tn by end of 2011

RMB deposit pool

10

Expanding leadership in Hong Kong

11

HSBC position

Continue to invest

to maintain leadership1

Key actions

Build new leadership segments1

Sustained leadership through the economic cycle

1 HSBC excluding Hang Seng Bank, 2 mReferral data

Leading player with # 1 market shares

■

# 1 in life insurance new business 18.1%

and Mandatory Provident Fund 24.8% market share

■

Building ECM capability. “Best Equity House”

2010 by Finance Asia

■

Top advertising spend (15% of industry) with # 1 in Brand Health

■

USD1.4bn IT and delivery channel spend over past three years

Ability to generate profits through the economic downturn

Continue advances and deposits growth

Hong Kong PBTUSDbn, Reported

2008 2009 CAGR (08-10)USDbn, Reported

2010

Deposits 251 275 9%297

A/D ratio 40% 36% 47%100 99Advances 19%141

5.0 5.75.5

2008 2009 2010

HSBC only1 Hong Kong

Deposits (Dec 10) 25% 34%

Mortgages 2

(Dec 10) 19% 34%

HKD Bonds (Dec 10) 34% 34%

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Premier Total new

accounts 2010

■

More use of direct channel■

Tend to use one bank only

■

Higher take up of wealth management products

■

Bigger transaction valueHigher Value

Lower cost

Business Total new

accounts 2010

Chinese diaspora: a major source of new customers1

Chinese diaspora key behaviours

1 Companies Registry, HKSAR / HSBC in-house figures, all excluding Hang Seng Bank2 FY 20103 HSBC excluding Hang Seng Bank

Ideally positioned to capture cross-border opportunities

23%

77%56%

44%

Chinese diaspora

Others

Key actions3

Leveraging on cross-border connectivity to capture commercial clients

Strengthening sales force to capture retail clients

■

35% of new locally incorporated companies in HK bank with HSBC

■

Commercial Banking referrals –

HK to mainland: +25%; –

mainland to HK: +70%

■

Recruited 1,500 frontline staff (70% Mandarin speaking)

■

112% YoY

growth in new Chinese diaspora Premier accounts2

■

Premier referrals–

HK to mainland: +332%; –

Mainland to HK: +150%

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HSBC - The leading international RMB Bank

Hong Kong RMB deposits vs. RMB trade settlement1

CNH Bond new issuance forecast3

RMBbn, cumulative

1 HKMA; 2 HSBC in-house figures (exclude Hang Seng Bank) 3 Bloomberg

0

20

40

60

80

2007 2008 2009 2010 2011f 2012f 2013fGross issuance Net issuance Redemption

Key actions

Leveraging on first mover advantage

Capitalising on international connectivity to further increase market share2

■

Joint-Listing Agent on HK’s first RMB IPO

■

First RMB structured deposits. Launched RMB insurance, RMB Bond Fund

■

Pioneered Offshore RMB (CNH) Bond Index

■

HK’s RMB deposits estimated to rise threefold in 2011

■

RMB bond issuance: #1 Rank YTD 2011. Issuance includes World Bank, Unilever, etc.

■

RMB trade services in 45 markets on all 6 continents, settlement volume reaches RMB45bn FY2010

RMBbn

RMB bn

0.1

58

Sep-09

1.963

Dec-09

6.071

Mar-10

2990

Jun-10

107149

Sep-10

315371

Dec-10Total RMB trade settlement value HK RMB deposits

Mar-11

451

681

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Product capability•

First-mover

•

Provider of Choice

HSBC is playing a leading role in developing offshore RMB business

Distribution channel

•

Convenience•

Replicating overseas

Global platform

•

Connectivity•

Building

Awareness

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HSBC leading in Offshore RMB bond issuance1

1. Bloomberg Standard League Table. As of YTD end April 20112. HSBC in-house records

Pricing Amount Coupon SyntheticDate Issuer Moody's S&P Format Tenor (RMB mn) (%) (Y / N)

31-Mar-11 Towngas A1 A+ Sr. Unsec. 5yr 1,000 1.400 N29-Mar-11 China Wind Power - - Sr. Unsec. 3yr 750 6.375 N25-Mar-11 Unilever NV A1 A+ Sr. Unsec. 3yr 300 1.150 N24-Mar-11 Bank of Communications A3 BBB+ Cert. of Depo. 3yr 1,100 1.350 N21-Mar-11 OCBC Aa1 A+ Cert. of Depo. 3yr 200 1.100 N15-Mar-11 Orix Corp - A- Sr. Unsec. 3yr 400 2.000 N14-Mar-11 TPV - - Sr. Unsec. 3yr 500 4.250 N10-Mar-11 Morgan Stanley A2 A Sr. Unsec. 5yr 400 Step Up Y9-Mar-11 UBS AG Jersey Branch Aa3 A+ Sr. Unsec. 5yr 50 0.750 Y8-Mar-11 Powerlong Real Estate B1* B+ * Sr. Unsec. 3yr 750 11.500 Y1-Mar-11 Barclays Bank PLC HK Aa3 - Cert. of Depo. 1yr 250 1.150 N

28-Feb-11 Bank of Communications A3 BBB+ Cert. of Depo. 2yr 1,000 1.000 N21-Feb-11 Road King Infratructure Ba3 * BB- * Sr. Unsec. 3yr 1,300 6.000 N20-Feb-11 ICBC (Asia) A2 A- Cert. of Depo. 2yr 3,000 1.150 N18-Feb-11 LDK Solar Co Ltd - - Sr. Unsec. 3yr 1,200 10.000 Y15-Feb-11 UBS AG Jersey Branch Aa3 A+ Sr. Unsec. 5yr 100 0.750 Y16-Feb-11 Svenska Aa2 AA- Sr. Unsec. 2yr 170 1.400 N14-Feb-11 BECL Investment HLDG - - Sr. Unsec. 3yr 1,150 4.750 N28-Jan-11 ICBC (Macau) A3 - Cert. of Depo. 1yr 1,000 1.450 N28-Jan-11 ICBC (Macau) A3 - Cert. of Depo. 2yr 1,000 1.550 N27-Jan-11 YFY Cayman - - Sr. Unsec. 3yr 300 3.100 N25-Jan-11 IFC Aaa AAA Sr. Unsec. 5yr 150 1.800 N25-Jan-11 PCD Store - - Sr. Unsec. 3yr 750 5.250 N25-Jan-11 HSBC Bank Plc Aa2 AA Sr. Unsec. 5yr 36 0.500 Y25-Jan-11 Morgan Stanley A2 A Sr. Unsec. 5yr 400 Step Up Y19-Jan-11 Shui On Land - - Sr. Unsec. 4yr 3,500 7.625 Y13-Jan-11 Evergrande B2 BB- Sr. Unsec. 3yr 5,500 7.500 Y13-Jan-11 Evergrande B2 BB- Sr. Unsec. 5yr 3,700 9.250 Y11-Jan-11 Sinochem Hong Kong Baa1 BBB+ Sr. Unsec. 3yr 3,500 1.800 N7-Jan-11 China SCE Property Holdings B2 B Sr. Unsec. 5yr 2,000 10.500 Y4-Jan-11 World Bank Aaa AAA Sr. Unsec. 2yr 500 0.950 N3-Jan-11 Bank of Communications A3 BBB+ Cert. of Depo. 2yr 500 1.400 N

Issuer RatingRed: Deals led by HSBCQ1 2011 offshore RMB bonds issued 2

3. Issue ratings

16

HK launched the first offshore RMB equity IPO Paved way for more issues in the future

Launched on 19 April 2011, the first RMB equity IPO outside mainland China

HSBC as Joint-Lead Arranger and Receiving Bank

Expanded RMB product suite. A way to deploy RMB liquidity in HK

Upcoming RMB FDI (Foreign Direct Investments) policy will drive more RMB IPOs

17

Product and Service Distribution Providing convenience; replicating overseas

•

RMB cash withdrawal now available.

•

Business Internet Banking supporting RMB transactions.

Business Internet Banking supporting RMB transaction since Jul 2010

160,000 commercial banking integrated accounts with RMB capabilities

RMB cash withdrawal available at ATMs in Hong Kong

Providing Convenience

Replicating overseas

RMB Retail Banking services offered in 9 Asia Pacific markets

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Developing global platform RMB capabilities established in over 40 markets across all 6 continents

New Zealand

JapanSouth Korea

Hong Kong

Vietnam

USA

Brunei

IndonesiaSingapore

Malaysia

Thailand

Mauritius

Australia

UK

Russia

Germany

South Africa

Argentina

Mexico Saudi ArabiaUAE

MacauPhilippines

Brazil

France

TurkeyItaly

Kazakhstan

Israel

Canada

Poland

Armenia

Czech

Uruguay

BangladeshIndia

Spain

Chile

Paraguay

Red: RMB Trade Transaction Completed Black: RMB Trade Transaction In Progress

GeorgiaSlovakia

Greece

PanamaEl Salvador

Bermuda

Switzerland

Updated: 30 April 2011

19

Promoting awareness overseas

A recent RMB Roadshow in Istanbul, Turkey: 11th

May 2011

Overseas Roadshows Regional Advertisement

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Key takeaways

Opening of China is an opportunity, not a threat

HK reinforcing its position as the logical gateway into China

Rapid rise of RMB and its eventual full convertibility shifts the dynamic in HK

HSBC has the ideal international platform - product capability and distribution - to capture the opportunity

21

Contact

Mr. Hugh PyeHead of Investor Relations Asia-PacificHSBC Holdings plcL38 HSBC Main Building, 1 Queen's Road Central, Hong KongPhone: 852 2822 4908Fax:

852 3418 4745Mobile: 852 6394 7466Email: hugh.pye@hsbc.com