HSBC Strategy Update: Return to Growth and Value Creation Investor presentation, June 2018 HSBC Strategy Update Important notice and forward-looking statements Important notice The information, statements and opinions set out in this presentation and subsequent discussion do not constitute a public offer for the purposes of any applicable law or an offer to sell or solicitation of any offer to purchase any securities or other financial instruments or any advice or recommendation in respect of such securities or other financial instruments. The information contained in this presentation and subsequent discussion, which does not purport to be comprehensive nor render any form of financial or other advice, has been provided by HSBC Holdings plc and its consolidated subsidiary undertakings (the “Group”) and has not been independently verified by any person. 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Any such forward-looking statements are not a reliable indicator of future performance, as they may involve significant assumptions and subjective judgements which may or may not prove to be correct and there can be no assurance that any of the matters set out in forward-looking statements are attainable, will actually occur or will be realized or are complete or accurate. Forward-looking statements are statements about the future and are inherently uncertain and generally based on stated or implied assumptions. Certain of the assumptions and judgements upon which forward-looking statements contained herein are based are discussed under “Targeted Outcomes: Basis of Preparation”, available separately from this presentation at www.hsbc.com. The assumptions may prove to be incorrect and involve known and unknown risks, uncertainties, contingencies and other important factors, many of which are outside the control of the Group. Actual achievements, results, performance or other future events or conditions may differ materially from those stated, implied and/or reflected in any forward-looking statements due to a variety of risks, uncertainties and other factors (including without limitation those which are referable to general market conditions or regulatory changes). Any such forward-looking statements are based on the beliefs, expectations and opinions of the Group at the date the statements are made, and the Group does not assume, and hereby disclaims, any obligation or duty to update, revise or supplement them if circumstances or management’s beliefs, expectations or opinions should change. For these reasons, recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements. No representations or warranties, expressed or implied, are given by or on behalf of the Group as to the achievement or reasonableness of any projections, estimates, forecasts, targets, prospects or returns contained herein. Additional detailed information concerning important factors that could cause actual results to differ materially is available in our Annual Report and Accounts for the fiscal year ended 31 December 2017 filed with the Securities and Exchange Commission (“SEC”) on Form 20-F on 20 February 2018 (the “2017 20-F”) and in our 1Q 2018 Earnings Release furnished to the SEC on Form 6-K on 4 May 2018 (the “1Q 2018 Earnings Release”). This presentation contains non-GAAP financial information. The primary non-GAAP financial measure we use is ‘adjusted performance’ which is computed by adjusting reported results for the period-on-period effects of foreign currency translation differences and significant items which distort period-on-period comparisons. Significant items are those items which management and investors would ordinarily identify and consider separately when assessing performance in order to better understand the underlying trends in the business. Reconciliations between non-GAAP financial measurements and the most directly comparable measures under GAAP are provided in the 2017 20-F, the Reconciliations of Non- GAAP Financial Measures document and the 1Q 2018 Earnings Release which are available at www.hsbc.com. Information in this presentation was prepared as at 10 June 2018. 2 HSBC Strategy Update Summary of the strategy Leading international bank with platform for growth and signature balance sheet strength  World’s leading international bank and No 1 global transaction bank  Unparalleled access to high growth markets and coverage of trade corridors between them  Recognised for signature balance sheet strength – foundation for future growth and a stable dividend Next phase of our strategy is to return the Group to growth, improve returns, and enhance customer and employee experience  After a period of restructuring, supported by normalising interest rates and synchronised economic growth, it is time for HSBC to get back into growth mode  Accelerate growth in areas of strength with higher capital efficiency, in particular in Asia and from our international network  Leverage our size and strength to embrace new technologies over a period of disruptive technological change. Investing USD15-17bn until 2020 primarily in growth and technology while delivering positive adjusted jaws  Complete the turnaround in the US  Simplify the organisation and invest in capabilities for the future As a result of these strategic priorities, the Group targets a RoTE of >11% by 2020 while delivering positive adjusted jaws on an annual basis and sustaining our dividend 3 HSBC Strategy Update Strategic priorities to deliver growth, improve returns, and enhance customer and employee experience Strategic priorities Financial targets 1 2 3 4 5 6 7 Accelerate growth from our Asian franchise  Build on strength in Hong Kong  Invest in PRD, ASEAN, and Wealth in Asia (incl. Insurance and Asset Management) Be the leading bank to support drivers of global investment: China-led Belt and Road Initiative and the transition to a low carbon economy Complete establishment of UK ring-fenced bank, increase mortgage market share, grow commercial customer base, and improve customer service Gain market share and deliver growth from our international network Turn around our US business Improve capital efficiency; redeploy capital into higher return businesses Create capacity for increasing investments in growth and technology through efficiency gains Enhance customer centricity and customer service through investments in technology  Invest in digital capabilities to deliver improved customer service  Expand the reach of HSBC, including partnerships  Safeguard our customers and deliver industry- leading financial crime standards 8 Simplify the organisation and invest in future skills Deliver growth from areas of strength Turnaround of low-return businesses Build a bank for the future that puts the customer at the centre Empower our people RoTE1  >11% by 2020 Costs  Positive jaws (adjusted, on an annual basis) Capital and dividend  Sustain dividends through long-term earnings capacity of the businesses  Share buy-backs subject to regulatory approval 1. Return on tangible equity (‘RoTE’) is calculated as reported profit attributable to ordinary shareholders less changes in goodwill and present value of in-force long term insurance business divided by average tangible shareholders’ equity. A targeted reported RoTE of 11% in 2020 is broadly equivalent to a reported return on equity (‘RoE’) of 10%; assumes a Group CET1 ratio greater than 14% 4 HSBC Strategy Update Agenda 1 2 3 Leading international bank with platform for growth and signature balance sheet strength Next phase of strategy: Return to growth and value creation Profitable growth to deliver RoTE > 11% by 2020 5 Leading international bank with platform for growth and signature balance sheet strength Leading international bank with a platform for growth and signature balance sheet strength Who we are Strategic differentiators c.38m customers served by 229k colleagues1 67 markets Covering >90% of global GDP, trade and capital flows #1 global transaction bank2 #1 International bank in Asia3 USD182bn Total capital4 Top 3 FTSE dividend payer5 1 2 3 Leading international bank  >50% of Group client revenue connected to the network  No 1 global transaction bank, gaining market share  Recognised by customers as leading international bank Unparalleled access to high growth markets  Access to high growth developing markets in Asia, Middle East and Latin America  Investment aligned to high growth markets to deliver shareholder value Signature balance sheet strength  Strong capital, funding and liquidity position with diversified business model  Conservative approach to credit risk and liquidity management  Low earnings volatility  Strong capital position and intrinsic capital generation  Foundation for sustained dividend; strong capacity for distribution to shareholders 1. Full-time equivalent as at 31 Dec 2017 2. Based on 2017 Transaction Banking product total revenue (including Payments, Cash Management, Trade Finance, FX and Securities Services) compared with US and European peers. Source: HSBC Research 3. Based on 2017 total revenue in Asia among major international and regional banks in Asia. Peers include Standard Chartered, DBS, Citi, UOB, OCBC, Maybank and CIMB. Source: Company accounts 4. As at 31 Dec 2017 5. Total USD payout (2015-2017) 6 Leading international bank with platform for growth and signature balance sheet strength 1 Leading international bank with high return transaction banking Leading transaction banking franchises1 FY2017, revenue, USDbn Recognised as leading international bank % of large corporates choosing HSBC as their lead international bank2 Leading market positions HSBC US Bank US Bank US Bank European Bank European Bank European Bank European Bank European Bank 15.2 26% 22% 21% #1 bank for Trade Finance3 #1 bank for FX for corporates4 Asia US Europe RoTE Transaction Banking, % >20% HSBC Transaction Banking Transaction Banking Industry1 Banking Industry overall7 #1 bank for Liquidity and account management3 #2 bank for Emerging Markets Fixed Income6 #1 For Assets Under Custody in Asia Pacific5 53% of client revenue connected to international network 1. Revenue from GTRF, GLCM, FX and Securities Services, compared with peer equivalents. Source: Company financial data; HSBC adjusted revenue 2. Greenwich Associates – Large Corporate Banking 3. Oliver Wyman 4. Greenwich Survey; G10 + EM countries 5. EY, based on data provided by HSBC and Tricumen 6. EM Macro; McKinsey/ Coalition 7. McKinsey 7 9%20% Leading international bank with platform for growth and signature balance sheet strength Unparalleled access to high growth markets 2 Emerging markets remain drivers of global growth HSBC has access to high growth markets World Nominal GDP growth, 2017-20301 Asia, Market shares2 +5.8% Asia Middle East Africa Latin America N. America Europe 2017 2030E World Trade Growth, 2017-20301 +6.1% Asia Middle East Africa Latin America N. America Europe CAGR 7.4% 7.4% 6.5% 6.0% 4.3% 4.6% CAGR 7.1% 7.8% 8.0% 5.7% 4.4% 5.4% 29% Hong Kong 12% PRD4 (Share in Guangdong among foreign banks) 5% Singapore 3% Malaysia Middle East, Market shares2 8% Saudi Arabia7 4% United Arab Emirates Latin America, Market shares2 8% Mexico  Largest among international and regional banks3  50% of Group adjusted revenues and >75% of Group adjusted profits in 2017  Strong foundation in China / PRD to support future expansion  #1 DCM in Asia5 (6% market share)  #1 in offshore RMB bond underwriting with 28% market share6  Leading international bank in the Middle East8  Ranked #1 in cash management and trade finance9  Well positioned for Saudi Vision 2030 and Belt and Road Initiative10  #1 DCM in Middle East5  Top 5 bank in Mexico11  Wholesale network across LATAM region  An intra-regional strategy focused on leveraging cross-border flows, including with NAFTA 2017 2030E 1. Global Insights Jan18; World trade based on imports plus exports 2. Customer deposits, based on local regulators’ data 3. Excludes Asia-Pacific based banks where majority of revenue generated in its domestic market and excludes Japanese banks 4. CBRC/PBOC 5. Dealogic, based on 2017 full year fees 109 QFI applications approved by CMA Engagement in Saudi Arabia primarily through investment in Saudi British Bank (SABB); held as an Associate of HSBC By assets in 2017 from MENA regional bank financials Euromoney Trade Finance Survey 2018 and Euromoney Cash Management Survey 2017 6. 7. 8. 9. 10. Best International Bank for BRI in 2017 Asiamoney New Silk Road Finance Awards 11. National Commission of Banking and Securities (Mexico) 8 Leading international bank with platform for growth and signature balance sheet strength 2 Access to domestic growth in eight markets; network to connect trade and capital flows Aspiration Characteristics Markets Markets at scale “HSBC is considered one of the leading domestic banks” Markets as leading international bank “HSBC is the leading international bank in the country”  Top 5 bank, at least 3-5% market share  At least USD1bn revenue  Universal bank  Full participation across customer segments  Hong Kong  UK  Mexico  PRD  Singapore  Malaysia  UAE  Saudi Arabia1  Leading international bank  At least USD0.5bn revenue  Wholesale bank or Universal bank with very focused retail offering (where strategic)  Australia  Canada  China  France  Germany  India  Indonesia  US Markets to connect the network “HSBC is in the country to connect foreign and local customers to our network”  Targeted offering for international customers  Wholesale-focused  Branch or rep office where possible  Network markets to connect trade and capital flows (e.g. Japan, Spain, Brazil)  Supporting subsidiaries of global customers % of adj. revenue FY17 c.60% c.25% c.15% 1. Engagement in Saudi Arabia primarily through investment in Saudi British Bank (SABB); held as an Associate of HSBC 9 Leading international bank with platform for growth and signature balance sheet strength 3 Signature balance sheet strength Strong balance sheet, FY2017, USD (unless otherwise stated) Low-risk model with stable earnings, 2017 Customer accounts Balance Sheet Loans & advances to customers Total equity 1.4tn 1.0tn 198bn Total regulatory capital 182bn Capital Leverage ratio Total capital ratio 5.6% 20.9% Advances to deposits ratio 71% Funding and liquidity Liquidity coverage ratio 142% 10 year PBT volatility2 LICs / loans and advances3 Advances to deposits ratio Leverage ratio Total capital ratio Liquid asset buffer >500bn CET1 ratio Peer group average1 2.6x HSBC 1.0x 5.5%4 Source: HSBC and peers’ public filings, Bloomberg, Factset 1. Average calculated based on 2017 published figures by the following peers: Barclays, BNP, Citi, DBS, Deutsche Bank, ICBC, Itau, JP Morgan, Santander, Standard Chartered, BoAML; ICBC not included in CET1 ratio 2. Calculated as range of reported PBT divided by average reported PBT from 2008 to 2017 3. Represents gross loans and advances to customers Leverage ratio not disclosed by ICBC and Itau 4. 10 0.9%0.2%13.0%14.5%82%71%5.6%17.1%20.9% HSBC Strategy Update Agenda 1 2 3 Leading international bank with platform for growth and signature balance sheet strength Next phase of strategy: Return to growth and value creation Profitable growth to deliver RoTE > 11% by 2020 11 Strategic priorities Completing period of transformation; platform for growth Transformation since 2011 Next phase of strategy: Return to growth and value creation  Divested or exited 110 businesses and geographies, reducing Group footprint from 87 countries to 67  Reduced Risk Weighted Assets by USD349bn or 29%1  Globalised the organisation around 4 Global Businesses, supported by Global Functions  Introduced robust financial crime risk management capabilities  Invested USD7bn “Costs to Achieve” to realise cost efficiencies of USD6.1bn p.a. from our global platform and built digital capabilities  Shifted business to Asia and faster-growing markets with Asia representing c.50% of Group revenue and c.75% of Group profits2  Strengthened network to support global trade and capital flows  Demonstrated ability to execute Deliver growth from areas of strength Growth Turnaround of low-return businesses Turnaround Build a bank for the future that puts the customer at the centre Customer 1 2 3 4 5 6 7 Accelerate growth from our Asian franchise, and Insurance and Asset Management in Asia Be the leading bank to support drivers of global investment: China-led Belt and Road Initiative and the transition to a low carbon economy Complete establishment of UK ring-fenced bank, increase mortgage market share, grow commercial customer base, and improve customer service Gain market share and deliver growth from our international network Turn around our US business Improve capital efficiency; redeploy capital into higher return businesses Create capacity for increasing investments in growth and technology through efficiency gains Enhance customer centricity and customer service through investments in technology  Invest in digital capabilities to deliver improved customer service  Expand the reach of HSBC, including partnerships  Safeguard our customers and deliver industry- leading financial crime standards Empower our people 8 Simplify the organisation and invest in future skills Our People 1. Period 2015-17 2. Adjusted basis 12 Strategic priorities 1-3 Targeting revenue opportunities in high growth areas with returns well above cost of equity Revenue (reported), USDbn, 2011-2020 Targeting revenue opportunities in high growth areas with returns well above cost of equity CAGR -8% 72.3 mid single digit growth, p.a. +7% 51.4 48.0 2011 2016 2017 2020 Target 1. ROE including PVIF Market Growth Size represents targeted revenue growth, 2017-2020; equal to c.USD1bn Low carbon economy/ Sustainable Finance Asia Wealth Asset Management (Asia) Belt and Road Insurance (Asia)1 ASEAN PRD UK Ring-fenced Bank Hong Kong Transaction Banking/ International network 5.8% (World Nominal GDP Growth) Cost of Equity RoTE 13 Strategic priorities 1 Accelerate revenue growth in Asia >3bn >1bn >0.2bn Franchise in Asia (reported, ex BoCom) Opportunities and areas of investment Targeted revenue growth by 2020 USD PBT, 2017 USDbn 11.4 7.5 A Build on strength in Hong Kong  Capture growth in targeted segments  Enhance customer experience  Capitalise on China outbound investments Revenue, 2017 USDbn Hong Kong (RBWM and CMB) Hong Kong (GB&M, GPB and Corporate Centre) ASEAN China India Australia Other Asia 4.7 3.1 PRD 0.2 2.4 2.4 0.9 0.9 2.1 1.2 0.5 0.9 0.4 0.8 B Develop a leading business in the Pearl River Delta  Serve emerging middle class  Facilitate industrial up-grade and cross-border connectivity  Expand new business capabilities by further developing technology in PRD C Build leading Wealth Management business  Capture growth in financial wealth in Asia  Build leading wealth business, particular focus on Greater China and ASEAN  Grow insurance to address the protection gap  Enhance Asset Management to serve retail / institutional clients D Expand our business in ASEAN  Continue to build regional product and coverage expertise to capture opportunities from Singapore’s role as a regional hub for treasury and wealth  Support intra-ASEAN business corridor flow  Capture infrastructure opportunity (including BRI)  Targeted digital investments to enhance position 14 Strategic priorities 1A Build on strength in Hong Kong HSBC’s market share has been steady over the years… Opportunities and areas of investment Total banking assets in Hong Kong1, USDtn HSBC market share, % USD0.9tn USD2.9tn 10% CAGR 2005-17 24% 2005 10% Asset growth 25% 20172 Leading market share across major products2 …with leading positions across major products3 Customer accounts Loans and advances to customers DCM #1 #1 #1 Mortgages 37% #1 Credit cards >40% Trade finance #1 Capture growth in targeted segments Enhance customer experience Capitalise on China outbound investments  Grow millennials client base to build customer generation for the future  Enhance proposition for Non Resident Chinese customers  Invest in insurance for sustainable market share growth  Develop digital payment ecosystem  Build new capabilities in Business Banking  Explore partnerships to launch innovative solutions  Capture new growth opportunities with China, in particular: – Belt and Road Initiative – International activities of Chinese corporates and financial institutions – Greater Bay Area / Pearl River Delta – Sustainable Finance/ Hong Kong as Green Financial Centre – RMB Internationalisation 1. HKMA, Annual Report 2017 2. 3. HKMA announcements, Bloomberg, mReferaln 2017 and HSBC internal data; HSBC including Hang Seng. Mortgages - new sales count, legal mortgages; Loans – loans for use in Hong Kong; DCM - G3 currency bonds, Asia 25% asset market share; 29% deposit market share 15 excluding Japan Strategic priorities 1B Develop a leading business in the Pearl River Delta (PRD) HSBC’s business in PRD has grown steadily Opportunities and areas of investment USDbn Revenue 0.18 2014 0.22 2017 >USD1bn c.0.5 2020 target Medium- term target Loans & advances to customers >20bn 4.1 6.2 >10bn 2014 2017 2020 target Medium- term target  First JV securities company: majority-owned by a foreign bank in China, opened for business in December 2017  Headcount: >700 FTE increase in 2017; more than doubled since project launched in June 2015  Credit cards: Launched first HSBC sole-branded credit cards in December 2016; total cards in force number: c.280k in PRD as of April 2018  Grow and enhance distribution network / access to customers  Broaden product offerings and accelerate quality asset growth  Capture cross-border wealth flows, e.g. opportunities from remittances, Shenzhen-Hong Kong Stock Connect  Enhance corporate coverage to capture growth from international supply chains and industrial upgrading  Broaden client base and drive for deposit-heavy product mix Emerging Middle Class Industrial up- grade / cross- border connectivity  Fully leverage capital market capabilities of new Securities Joint Venture HSBC Qianhai Securities  Expand Global Markets capabilities arising from policy liberalisation New business capabilities 16 Strategic priorities 1C Asia expected to be the largest creator of wealth Rising wealth in Asia Private financial wealth1, USDtn 2016-21E CAGR 223 Middle class in Asia2 # of people, bn 2.5x 152 E. Europe L. America MENA N. America 34% W. Europe 25% Japan 10% Asia ex Japan 21% 166 33% 24% 9% 23% 33% 5.6% Average household annual income3 2015 2030E USD‘000 2.3x 22% 3.5% 7% 1.7% 28% 9.9% 2017 2030E HNWI financial wealth4 USDtrn 2.0x 2014 2016 2021E 1. BCG Global Wealth 2017 2. Global Economy and Development: The Unprecedented Expansion of the Global Middle Class, 2017 3. Euromonitor, disposable income by household 4. Capgemini: Asia Pacific Wealth Report, 2017 2017 2025E 17 3.51.432.614.542.120.8 Strategic priorities 1C HSBC is well-positioned to build a leading wealth business in Asia >USD1bn >0.4bn >0.1bn Wealth in Asia already a USD5.1bn business for HSBC today Revenue (reported) in USDbn, Asia, 2017 Opportunities and areas of investment Targeted revenue growth by 2020 USD Wealth in Asia Private Bank RBWM Wealth Insurance1 Asset Management1 0.3 1. Includes manufacturing revenue only Wealth management (across Private Bank and RBWM)  Hong Kong: Increase share in UHNW segment across Greater China  Singapore: Accelerate client coverage / RM growth across all segments including ASEAN new-to-bank / referred clients, and Chinese offshore wealth 0.7  China: Primary focus on Jade build-out underpinned by investment in RM and product platform  Product: Leverage transactional banking, digital, discretionary portfolio management and lombard lending Insurance  Develop product range to address the needs of new wealth customers, and strengthen front line  Deepen existing insurance specialist coverage, and open up new distribution channels  Exploring opportunities in mainland China Asset management  Leverage coverage of GB&M / CMB clients  Increase share of wallet and net new money growth via RBWM / GPB customers  Growth in Alternatives and Sustainable Investing  Exploring opportunities in mainland China 18 2.41.85.1 Strategic priorities 2 UK presents an opportunity for growth after successful completion of ring-fencing >USD1bn >0.4bn >0.1bn Targeted revenue growth by 2020 USD Ring-Fenced Bank setup close to completion Opportunities and areas of investment  HSBC is positioned for sustainable growth; 14% deposit market share1 and a 7% mortgage market share2  UK ring-fencing remains on track ahead of the July 2018 legal separation - six months ahead of the regulatory deadline: – On the 21 May 2018, the High Court approved the UK Ring- Fenced Transfer Scheme – More than 95% of technical and IT related transfers have already been successfully completed Retail banking  Target mortgage growth (high single digit) by embedding controlled intermediary channel expansion3  Enhancing the multi-brand strategy to drive growth and acquire new customers  Leverage our unique global access to support commercial customers’ trade and overseas banking needs Corporate banking  Improve penetration of mid market segment through additional on-boarding capacity and renewed focus on ‘fast growth cities or sectors’  Improve CRM and data analytics to drive better value segmentation of clients (in particular Business Banking) Digital and customer satisfaction  Target a consistent top 3 position in the UK for customer satisfaction, via journey improvements, digital investment and simplification  Capitalise on AI, Data analytics and Open Banking to develop immersive customer experiences (e.g., Connected Money app)  Grow collaboration opportunities across business lines and brands 1. Source: CACI Retail Finance Benchmark, 2017 2. Source: Council of Mortgage Lenders (CML), 2017 3. No change in risk appetite 19 Strategic priorities 3 Proven ability to grow the business and gain market share; invest for growth from our international network >USD1bn >0.4bn >0.1bn Investments are delivering Opportunities and areas of investment Targeted revenue growth by 2020 Global Trade and Receivables Finance Trade Finance rank1 Hong Kong market share2 2015 2017 #1 #1  10.8% 13.8% Global Liquidity and Cash Management Average GLCM balances c$470bn c$530bn Hong Kong market share3 22.8% 26.3% FX corporates rank4 FX institutional rank4 #1 #7  #1 #3 Assets under custody $6.2trn $7.7trn FX Securities Services Digitise and grow Trade Finance  Transform technology and business model, enabling simpler, safer and faster experiences for clients, and seamless communication with trade ecosystems  Capitalise on growth outlook for structured trade by investing in our channel and product capabilities  Extend No 1 position in both traditional and structured trade Strengthen global leadership position in GLCM  Drive sustained deposit and transaction growth by leveraging API and cloud to transform payments, liquidity and data propositions  Create new products and revenue streams - new propositions powered by machine learning, offsetting competitive pressures in traditional fees FX business growth  Grow the business through the continued development of ‘FX as a service’ engagement model  Utilise technology to deliver efficiencies and digitise the customer experience Grow Securities Services business Market share5 5.4% 5.8%  Evolve business by enhancing and develop products Asia rank6 #1 #1 1. Oliver Wyman 2. Hong Kong Monetary Authority 3. Oliver Wyman 4. Greenwich Survey and services; invest in digital future   Grow core business with Group clients, focus on asset managers and asset owners 5. Based on AUC of Top 9 providers (BM, SS, JPM, Citi, BP2S, SG, NT, RBC, HSBC) making up c.82% of the market 6. Assets Under Custody (AUC), EY, based on data provided by HSBC and Tricumen 20 Strategic priorities 4 The US is the single biggest exporter of revenue to the Group and an important part of HSBC’s proposition as leading international bank US biggest exporter of client revenue to the Group Cross-border GB&M and CMB client revenue1, 2017, USDbn Outbound client revenue: client revenue booked outside of the country where client is managed Client revenue from US-managed companies booked outside US 2 1 0 US UK China France % of Group client outbound revenue Hong Kong 24% 13% 9% 6% 6% Significant for HSBC’s global franchise USD represents 68% of payments volume for HSBC2 HSBC top 5 cross-border USD clearer3 c.19% of HSBC custody assets denominated in USD Other 32% 51% 68% USD JP Morgan Citigroup Bank of America HSBC BoNY Mellon c.19% Overall Hong Kong Germany UK 1. Client revenue is sourced from HSBC internal client MI. Client revenue excludes Business Banking and differs from reported revenue 2. 3. Clearing House Interbank Payments System (CHIPS) Internal HSBC data and SWIFT 21 16%16%29%9.2%10.4%16.2%17.1%9.4% Strategic priorities 4 Significant progress to date; targeted organic growth to bring scale to US platform The US has made progress over the past several years… …and our medium-term strategy is built on continued organic growth Adjusted PBT1, USDm RoTE2 > 6%2 1,201 974 CML US Principal 464 494 737 920 556 387 2014 2015 2016 2017 0.9%2,3 2017 PBT growth Future capital actions 2020 Capital reductions completed & Tax reform  Completed run-off of the CML legacy portfolio; reduced receivables from USD24bn at end-2014 to USD0bn at end 2017  Improved RBWM PBT, revenue and deposits; migration of >1mn customers to new core banking platform; launched CMB returns improvement and infrastructure rebuild  Achieved non-objection to US capital plan as part of CCAR in 2016 and 2017; first return of capital to the Group (USD5.4bn) since 2006  International client revenue4 booked in the US up c.10% YoY; US client revenue booked outside of the US (outbound) is up c.15% YoY  Improved profitability driven by global business organic growth in: – CMB: Targeting greater share in corporates, particularly international mid market companies and subsidiaries, through increased coverage and sector focus; supported by selected cash management and lending product expansion – RBWM: Targeted growth within international segment and higher- return products and business banking – GBM: Sector coverage and greater share of foreign multi-national clients in the US  Further efficiency gains to help fund reinvestments; invest in innovation leveraging Group technology solutions  Return to regular dividend payments to Group 1. US geographic basis 2. HSBC North America Holdings (‘HNAH’) legal entity basis. Reported RoTE for 2017 was -4.3% and included a 5.2% adverse impact from the one time write down of deferred tax assets due to US Tax Reform 3. Principal Business RoTE for 2017 excluding the one time write down of deferred tax assets due to US Tax Reform, CML and deferred tax assets disallowed for capital purposes would be 2.2% 4. Revenue from international clients is derived from an allocation of Adjusted revenue based on internal management information. International clients are businesses and individuals with an international presence; YoY growth refers 22 to 2017 Strategic priorities 5 HSBC has a strong track record in delivering RWA reductions while growing revenue; plans to further improve capital efficiencies RWA mix by Global Business Group RWAs, USDbn -29% 1,220 c.1-2% p.a. Initiatives  Embed RoTE in Global Businesses and operating entities  Link incentives to value creation RoTE implementation 871 GB&M 34% CMB 35% RBWM GPB Corp Centre 14% 2% 15% c.30% To support mid- single digit revenue growth c.35% Distribution 15-20% 2020 target c.7% RWA optimisation  Develop distribution channel and increase distribution for wholesale lending  Free up capital/ balance sheet capacity and deploy to higher return business/clients  Operating entity RWA optimisation  Improve global booking model 2014 5.0% Rev as % of RWA1 2017 RWA saves Business growth 5.9% 1. Calculated using reported revenue and reported average RWAs. The increase between 2014 and 2017 includes the RWA impact of the 2016 change in the regulatory treatment of our investment in BoCom 23 Strategic priorities 6 Maintain strong cost discipline, deliver positive jaws and create capacity for increased investment Create investment capacity and deliver overall positive adjusted jaws on a full year basis Adjusted basis, USDbn Mid single digit growth, p.a. Low to mid single digit growth, p.a. Investments of USD15-17bn (2018-2020)  Ability to invest is a prerequisite for the Group’s long-term competitiveness  Investments aligned to strategic priorities  Managed through a strong approval and prioritisation framework to deliver payback in the near to medium term  Ability to respond to changes in economic environment and 31.1 c.4 4.5-5 5.5-6 6-6.5 revenue development  No CTA2 in strategic plan; all investments to be made from within the cost base of the Group Revenue Total operating expenses Investments Costs (ex investments) Strong cost discipline and control to create investment capacity  Implement strong cost discipline and control – Continue to benchmark our costs with the market – Absorb inflation through productivity gains – Maintain focus on improving business productivity  Maintain positive (adjusted) jaws on an annual basis each year 2018-2020 2017 2018 2019 2020 Jaws1 positive positive positive positive 1. Adjusted, on an annual basis 2. Costs to Achieve 24 Strategic priorities 7 Investing in growth and technology; managed through robust investment framework Investment categories Description Investment criteria Examples of specific initiatives Share of investment Near term investments in core business  Investments to grow, improve customer service and defend competitive position of established businesses in short term  Positive Return on Investment in financial year1  Investments across Global Businesses to grow and improve customer service across core businesses (e.g. hiring Wealth RMs in Hong Kong)  Positive Return on Investment over 2-5 years1  Transaction Banking platform transformation (e.g. build new payment and liquidity platform) c.2/3  Investments to grow revenue or increase returns in the medium term (e.g., selected business turnaround, product enhancements)  Investments in new opportunities  Improve operational efficiency in order to lower cost base  Positive Return on Investment broadly in financial year1  Deliver robust solution design with additional franchise benefits  Turnaround of existing businesses (e.g. US)  Investing in expanding our businesses (e.g. PRD)  Productivity programmes (e.g. process re-design, cloud migration, use of robotics and machine learning initiatives in operations)  Core infrastructure replacement or modernisation (e.g. US) c.1/3  Implement required  Deliver in cost  Implement regulatory programmes regulatory programmes and invest in cyber security effective manner with additional franchise benefits (e.g. IFRS 9)  Strengthen capabilities to manage financial crime risk  Increase cyber security measures Total cumulative investment over 2018-2020 USD15-17bn Medium term investment in core business and new opportunities Investment in productivity programmes and core infrastructure Regulatory and mandatory investments, including service sustainability Leverage technology to enhance customer centricity and customer service, expand the reach of HSBC and safeguard our customers 1. P&L basis 25 Strategic priorities 8 Simplify the organisation and invest in future skills Reducing organisational complexity  Simplifying the organisation Simplifying processes  Improving end-to-end processes, e.g. - Client onboarding from 65 days  Strengthen accountability, decision- to 10 (Private Banking) making  Clarify roles within the organisation’s matrix - Lending: Reduce time to money from up to 2 months to 1 day for SME and mid market clients - Delivering more digital features faster; 67 features delivered in 1H18 v. 22 in 1H17  Building capabilities for continuous improvement Streamlining governance  Reducing number of committees needed to manage the business, e.g. Holdings Board committees reduced from 7 to 5  Improving the efficiency and effectiveness of governance  Embed throughout the organisation and for all legal entities A leadership encouraging the right behaviours  A connected leadership  cadre committed to reinforcing our new ways of working  Balanced scorecards to incentivise the right performance and behaviours from the leadership and across the organisation Investing in training and development  Establishing HSBC Universities in UK, China, Mexico, UAE, and online  Areas of focus: - Leadership - Technical capability - Digital & Future Skills Building a platform for future talent  Established HSBC Digital Solutions to attract and develop technology talent  Implementing agile ways of working across large parts of technology and business teams  Access to digital training and resources allowing talent to shape and develop their own career paths  Build a diverse workforce 26 Strategic priorities Deliverables for strategic priorities by 2020; continue to provide regular progress updates Strategic priorities Targeted outcome by 2020 1 2 3 4 5 6 7 Accelerate growth from our Asian franchise  Build on strength in Hong Kong  Invest in PRD, ASEAN, and Wealth in Asia (incl. Insurance and  High single digit revenue growth p.a. from Asian franchise  Market share gains in 8 scale markets Asset Management) Be the leading bank to support drivers of global investment: China-led Belt and Road Initiative and the transition to a low carbon economy  No 1 international bank for BRI  USD100bn in sustainable financing & investment1 Complete establishment of UK ring-fenced bank, grow mortgage market share, grow commercial customer base, and improve customer service Gain market share and deliver growth from our international network  Market share gains  Mid to high single digit revenue growth p.a. from international network  Market share gains in Transaction Banking Turn around our US business  US RoTE >6% Improve capital efficiency; redeploy capital into higher return businesses Create capacity for increasing investments in growth and technology through efficiency gains Enhance customer centricity and customer service through investments in technology  Invest in digital capabilities to deliver improved customer service  Expand the reach of HSBC, including partnerships  Safeguard our customers and deliver industry-leading financial crime standards  Increase in asset productivity  Positive adjusted jaws, on an annual basis, each financial year  Improve customer satisfaction in 8 scale markets2 8 Simplify the organisation and invest in future skills  Improved employee engagement  ESG rating: ‘Outperformer’3 1. Commitment by 2025; on track to deliver 2025 target (see HSBC ESG Update November 2017) 2. Top 3 or improvement by 2 ranks; measured by customer recommendation for RBWM and customer satisfaction for CMB amongst relevant competitors 3. Based on Sustainalytics 27 HSBC Strategy Update Agenda 1 2 3 Leading international bank with platform for growth and signature balance sheet strength Next phase of strategy: Return to growth and value creation Profitable growth to deliver RoTE > 11% by 2020 28 Profitable growth to deliver RoTE > 11% by 2020 Path to achieve >11% RoTE by 2020 Reported RoTE walk1 % 8.7 6.8 2017 Reported Sig items 2017 ex- sig items Interest rate rises2 UK growth Accelerate growth in Asia, BRI, Sustainable Finance Growth from the inter- national network US turn- around3 Investments Other4 ROE Reported 5.9% Interest rate rises separated from other performance improvements 1. Bars in chart are illustrative and not to scale 2. 3. Changes in equity consolidated in ‘Other’ 4. 5. Subject to regulatory approval Include LICs/ECL normalisation, profits and equity from rest of the Group, DTA write-off in US in 2017 and significant items Revenue growth supported by increasing capital and cost efficiency  Investing USD15-17bn primarily in growth and technology >11  Delivering positive adjusted jaws  Increasing capital efficiency, limited RWA growth to 1-2% and increasing asset productivity  Sustaining dividend, supported by share buy- backs5  With >14% CET1 ratio 2020 Reported (target) >10% 29 Profitable growth to deliver RoTE > 11% by 2020 Strong capital base to support future growth and shareholder distribution Group capital ratio above 14% over period of strategic plan1 Strong capital base to support growth and returns to shareholders Local CET1 ratio at legal entity level2 12-13% Surplus equity3 c.USD5bn at 31DEC17 Support asset growth in strategic priorities Capital required to support growth in Global Businesses Maintain strong balance sheet CET1 ratio greater than 14% Meet Basel III Reform requirements globally Higher RWAs under local rules driven by greater use of standardised approaches and local calculation differences4 Includes risk diversification benefits and other structural items Increasing capital requirement under stress testing Deliver 11% RoTE on a higher capital base Potential impact from Basel III reform and other regulatory changes >14% Sustain dividends, continue equity buy-backs Share buy-backs as and when appropriate, subject to regulatory approval e r u t c u r t s p u o r G y b n e v i r D s r o t c a f l a n r e t x e m o r f s k s i R Higher risk weights under local rules Diversification benefit / other Stress testing Anticipated regulatory changes Group consolidated CET1 ratio 1. Bars in chart are illustrative and not to scale 2. This represents a weighted average of legal entity CET1 ratios on a local basis 3. Surplus equity is equity held in excess of HSBC risk appetite in major operating entities that cannot be released immediately given local restrictions. Released over time or used to support growth 4. Including the application of national discretions, including RWA floors, and the extent of Basel III adoption by local regulators 30 HSBC Strategy Update Conclusion  HSBC is the leading international bank with unparalleled access to the highest growth markets  After a period of restructuring, supported by normalising interest rates and synchronised economic growth, it is time for HSBC to get back into growth mode - Accelerate growth in areas of strength with higher capital efficiency, in particular in Asia and from our international network - Leverage our size and strength to embrace new technologies over a period of disruptive technological change. Investing USD15-17bn until 2020 primarily in growth and technology while delivering positive adjusted jaws - Complete the turnaround in the US - Simplify the organisation and invest in capabilities for the future  The Group will return to value creation, targeting a RoTE of >11% by 2020 while delivering positive adjusted jaws  Our signature balance sheet strength supports future growth and is the foundation for sustained dividends 31 32