Our strategy is aligned to two long-term trends:
Financial flows – The world economy is becoming evermore connected. Growth in world trade and cross-border capital flows continues to outstrip growth of gross domestic product. Financial flows between countries and regions are highly concentrated. Over the next decade, we expect 35 markets to represent 90 per cent of world trade growth and a similar degree of concentration in cross-border capital flows.
Economic development – By 2050, we expect economies currently deemed 'emerging' to have increased fivefold in size, benefiting from demographics and urbanisation, and they will be larger than the developed world. By then, we expect 19 of the 30 largest economies will be markets that are currently described as emerging.
HSBC is one of the few truly international banks, and our advantages lie in our network of markets relevant for international financial flows, our access and exposure to high-growth markets and businesses, and our strong balance sheet generating a resilient stream of earnings.
Based on these long-term trends and our competitive position, our strategy has two parts:
- Network of businesses connecting the world – HSBC is ideally positioned to capture the growing international financial flows. Our franchise puts us in a privileged position to serve corporate clients as they grow from small enterprises into large and international corporates, and personal clients as they become more affluent. Access to local retail funding and our international product capabilities allows us to offer distinctive solutions to these clients in a profitable manner
- Wealth management and retail with local scale – We will leverage our position in faster-growing markets to capture social mobility and wealth creation through our Wealth Management and Private Banking businesses. We will only invest in retail businesses in markets where we can achieve profitable scale
Implementing this strategy relies on actions across three areas:
- Capital deployment (five filters) – We are improving the way we deploy capital as part of our efforts to achieve our targeted return on equity of between 12 per cent and 15 per cent over the business cycle. We have introduced a strategic and financial framework assessing each of our businesses on a set of five strategic evaluation criteria, namely international connectivity, economic development, profitability, cost efficiency and liquidity. The results of this review determine whether we invest in, turn around, continue with or exit businesses
- Cost efficiency (four programmes) – We have launched four programmes which we believe will achieve sustainable savings of between USD2.5 billion and USD3.5 billion by the end of 2013, resulting in a leaner and more values-driven organisation. These are: (i) implement consistent business models, (ii) re-engineer operational processes, (iii) streamline IT, and (iv) re-engineer global functions. Sustainable cost savings are intended to facilitate self-funded growth in key markets and investment in new products, processes and technology, and provide a buffer against regulatory and inflationary headwinds
- Growth – We continue to position ourselves for growth. We are increasing our relevance in fast-growing markets and in wealth management, and are improving the collaboration between our international network of businesses, particularly between Commercial Banking and Global Banking and Markets
If we are successful in executing this strategy, we will be regarded as 'The world's leading international bank'. We have defined financial targets to achieve a return on equity of between 12 per cent and 15 per cent with a core tier 1 ratio of between 9.5 per cent and 10.5 per cent, and achieve a cost-efficiency ratio of between 48 per cent and 52 per cent. We have also defined Key Performance Indicators to monitor the outcomes of actions across the three areas of capital deployment, cost efficiency and growth.