The singer Lulu says the sixties were not about "sex & drugs"; they were about "rock & roll"! What would be a comparable statement about the credit boom decade and the credit crunch disaster years? Maybe Lulu has already summed it all up.The noughties, the years that gave us the Credit Crunch (are defined in the HSBC 2008 annual report out today - Chairman Stephen Green's Statement - who did so without any new insight to offer!) nothing new, that is not until Green, on BBC radio 4 today, called those years "the GO GO years"! Green is also a Church of England reverend and was saying that while banks had always had a moral obligation governing their behaviour, it had "not always been honoured in the observance".
"I think there is an important need to underscore the critical necessity of good ethical principles in banking and in the markets," adding that there will be a reversion to some older principles of banking, in terms of "a simpler sense of providing good customer service, good relationship management, and a sensible approach to liquidity". he mentioned St.Paul before using the expression GO-GO years - a gift to the headline writers when Green has personally just let 16% of his bank's share value go, or was it just bad luck to announce a rights issue on such a sensitive day hit by the huge write-down at AIG, which needs another $30bn. Or, despite the respect for Stephen Green and Michael Geoghegan (let's call them G&G) among analysts, can they any longer be the right traffic-light KRI for HSBC? Is calling for a rights issue and the reasons given for this a major error and unnecessary blow to shareholder value and to confidence in HSBC?
G&G were admired for having maintained market and shareholder confidence in the bank, for the bank's transparency about write-downs at Household, and improved risk management and sound strategy. But G & G were able to do that also by doing nothing that risked confidence such as seeking government funding or rights issues - until now?
Why should a bank making substantial $9bn profits now decide to dilute its shareholder capital at a deep discount to get $12bn at this highly stressed sensitive time? One reason is that just as short-sellers claim they don't drag down bank shares, rights-issuing banks don't believe they drag down the share price either. You've got to laugh - till it hurts! Even if the logic makes sense, has the business risk of a rights issue and possible reputational risk been fully considered? Did anyone suggest this could trigger a 20% share price fall?
[Note: next day Tuesday,after writing this blog on Monday, HSBC shares dropped to their lowest in nearly 10½ years, dragging down the Hang Seng index as Hong Kong investors had their first chance to react to the bank’s discounted share sale plan and dividend cut that hit the stock in London overnight. The bank's shares fell 18.8% in Hong Kong to close at HK$46.25 after being suspended from trading prior to the announcement. The fights issue represents 41.7% dilution of existing issued ordinary share capital.]
Is the answer that HSBC's G & G do not believe their own bank's share value (clearly under-pricing the bank) and care less at this time about share movements when prices are so volatile (a favourite word of Green's)? Is it just a matter of getting the money in and hope for the best, trading on the confidence and respect that bank has already won for itself? But, when other truly great banks can be dragged so low, when markets are not behaving rationally, however the rights issue is computed it is a risk, and I suggest not one worth taking! This is not helped by having opposing reasons for the right issue - on the one hand to shore up capital reserves, on the other to build an acquisition pot. Banks that have grabbed the carpet-bagger opportunities to buy other banks at fire-sale prices have not prospered from this so, notably Citigroup, Bank of America, Lloyds Banking Group. Does HSBC full appreciate the confidence factors in various solvency definitions and measures? Has he strategy been fully scenario stress-tested? How do reputational and business risk stack up against the Basel II capital ratios (that Green does know about and yet oddly describes as also "volatile")? Does he understand the banks full working capital picture given how it is spread across so many business units and countries - of course he does? OK, so 2008 was back to 2006 profit performance, 20% worse than 2007, plus a third off the profits because of goodwill write-downs. That is a great result - so why blow it on a paltry rights issue?If the bank can say it is generating capital well internally, and when distressed bank assets can be share purchases, why go for a rights issue? If the result of this is severe dilution and share price falling down to what i call 'postage stamp prices' maybe the bank should just go to Government now and ask for 20% nationalisation - why wait? This is obviously the risk of what could happen later this year, maybe by mid-summer - so get it over with now and spare shareholders further shameful abuse! How might the share price have behaved differently, positively, if the bank had not announced capital-raising measures? Here is the 2007 picture. For 2008 see numbers in the attached comment below or on www.asymptotix.eu where this essay is easier to read.
G & G say the following directly self-contradictory things to characterise their strategy and excuse why they are diluting share-value at this extremely sensitive time for all and any banks:1. generating capital internally remains strong
2. financials are highly stressed, but HSBC competitiveness is gaining
3. capacity of financial firms is constrained by capital funding
4. all are focusing more on domestic markets
5. more HSBC capital will absorb impacts of economy and unforeseen events?
6. giving HSBC options re. opportunities which present themselves to superior banks.
All the above are precisely reasons that absolutely do not justify a rights issue! Either a rights issue is a forced choice that the bank must resort to to get desperately needed capital to repair its reserves, or (as G & G are trying to say) this is a 'nice-to-have' sensible option to get a bit more fuel in the tank to take in more of the scenery on this rough ride - and do some carpet-bagging - some acquisitions to be paid for in cash! This is madness and if you want to know how I can say that, it's simple; Chairman's report reads like it was written by a Rumsfeldian -wordsmith. Read the HSBC report and compare it with RBS and LBG. HSBC's mindset of what and where banking is today is stuck in the past - you can tell that from the language, the hackneyed phrasing, outmoded cliches, complete failure to say one thing new or different, G & G write their reports like wind-up automatons, talking 'speak-your-weight' language of an era that is now past, over, gone, but they don't see that. They are living on the heights and really that's all they know. Why should a bank making half a billion declarable net profit a month and with only a 12% 'funding gap' need to take the second to last, least attractive, option for capital-raising? Can this $2-3 trillion assets bank not squeeze £12 billion out of its net of its net assets and apply them to capital reserves. Of course, it can. Despite $41bn write-downs, mainly in US, the confidence in HSBC and its share price remained stubbornly strong. HSBC did not know how lucky it was to only fall to 750p from 900p in the 3 months after Lehman collapsed. Then in the last two months the share price falls from 750p to 480p, and today to under 430p with 350p as the next support level, maybe? Rights issues by banks are like pouring blood into a piranha shoal.
G & G don't like volatility and here they are inviting all that directly onto themselves. Maybe they know they can't hold on any longer to their management positions and it's best to go now while there's still a chance of multi-million pension top-up and contract-severance deal.
So now the market rightly assumes the bank has hidden major problems, whether the bank knows that itself or not, who cares now, its figures are no longer to be trusted, the markets will see to that, and HSBC's hard-won, or very lucky, but extremely valuable, credibility is blown - 20% of its share value, all its intangible goodwill as reflected in net unsecured borrowing - all heading for the cliff! HSBC, led by a cash-flow man and a marathon runner, is now just another lemming running with the pack.
HSBC was a bank apart and above nearly all others, but G & G did not seek to understand that properly and how to build the lessons of that into their strategy! Whoever are the business-planning boffins in the bank, can they compute external hurdle rate risks as well as internal hurdle rates across the group, in the context today of no bank being too big to fall over a capital hurdle. HSBC only needed to keep a firm grip on the tiller, head down, least said the better, stick the toxic Household US mortgage business into a bad bank for long term work-out, fix up the accounts and accounting system, further improve economic capital risk systems, remain conservative, and manage all other non-performing and under-performing loan-books better. Green is right, yes, it was Go Go years, but now they are gone, is his bank still wanting to play GO, GO by buying other banks' assets because that is cheaper than expanding via new loans? This is high risk and if it fails and the share price hits the postage stamp level alongside many others who are there already, then (in a famous Irish reverend doctor's words) Green & Geoghegan must Go!" Shareholders may as well call for that now - why wait - get the embarrassment over with. The rights issue may be a corporate suicide note, and for G & G become a "sack or resign issue". Just unbelievably risk-taking, so disappointing - making shareholders nervous in one of the few banks where they were least anxious until now!
2 comments:
HSBC HOLDINGS REPORT FOR 2008
PRE-TAX PROFIT OF US$9,307 MILLION
HSBC made a profit before tax of US$9,307 million, a decrease of US$14,905 million, or 62 per cent, compared with 2007.
Net interest income of US$42,563 million was US$4,768 million, or 13 per cent, higher than 2007.
Net operating income before loan impairment charges and other credit risk provisions of US$81,682 million was US$2,689 million, or 3 per cent, higher than 2007.
Total operating expenses (excluding goodwill impairment) of US$38,535 million declined by US$507 million, or 1 per cent, compared with 2007. On an underlying basis, and expressed in terms of constant currency, operating expenses were broadly unchanged.
HSBC’s cost efficiency ratio* was 47.2 per cent compared with 49.4 per cent in 2007.
Loan impairment charges and other credit risk provisions were US$24,937 million in 2008, US$7,695 million higher than 2007.
The tier 1 ratio and total capital ratio for the Group remained strong at 8.3 per cent and 11.4 per cent, respectively, at 31 December 2008.
The Group’s total assets at 31 December 2008 were US$2,527 billion, an increase of US$173 billion, or 7 per cent, since 31 December 2007.
* Excluding goodwill impairment. The cost efficiency ratio including goodwill impairment was 60.1 per cent.
SUICIDE NOTE IN FOOL
02 March 2009
Profitable business model
* Pre-tax profit for 2008, excluding goodwill impairment, of US$19.9 billion, down 18 per cent. On a reported basis, pre-tax profit was US$9.3 billion, down 62 per cent.
* Diversified business model delivers profits in every region except North America and every customer group except Personal Financial Services.
* Earnings per ordinary share excluding goodwill impairment down 18 per cent to US$1.36 (2007: US$1.65). On a reported basis, earnings per share was US$0.47, down 72 per cent (2007: US$1.65).
Maintaining our traditional financial strength
* Capital generation remains strong. Tier 1 ratio of 8.3 per cent and total capital ratio of 11.4 per cent at 31 December 2008.
* Fully underwritten Rights Issue announced to enhance our capital strength.
* Subject to shareholder approval on 19 March 2009, Rights Issue will add 150 basis points to our capital ratios, strengthening the core equity tier 1 ratio to 8.5 per cent and the tier 1 ratio to 9.8 per cent, both on a pro forma basis as at 31 December 2008.
* Enhances our ability to respond to unforeseen events as well as provide opportunities to grow through targeted acquisitions.
* Total dividends in respect of 2008 of US$0.64 including fourth interim dividend of US$0.10, down 29 per cent, around 15 per cent in sterling terms. Total value of dividends for 2008 of US$7.7 billion.
* Customer advances to deposits ratio of 84 per cent at 31 December 2008.
Managing our business in a challenging environment
* Supporting our customers: grew our lending to personal, commercial and corporate customers by 9 per cent on an underlying basis.
* Writing no further consumer finance business in the US through the HFC and Beneficial brands and closing the majority of the network.
* Growing in emerging markets:
- Mainland China profit before tax of US$1.6 billion, up 25 per cent excluding 2007 dilution gains;
- India profit before tax of US$666 million, up 26 per cent;
- Middle East profit before tax of US$1.7 billion, up 34 per cent.
* Emerging markets acquisitions in banking in Taiwan and Indonesia and in retail brokerage in India.
* Difficult outlook for 2009.
* Strong performance in January 2009 ahead of expectations, particularly in Global Banking and Markets.
HSBC HOLDINGS REPORTS PRE-TAX PROFIT OF US$9,307 MILLION
HSBC made a profit before tax of US$9,307 million, a decrease of US$14,905 million, or 62 per cent, compared with 2007.
Net interest income of US$42,563 million was US$4,768 million, or 13 per cent, higher than 2007.
Net operating income before loan impairment charges and other credit risk provisions of US$81,682 million was US$2,689 million, or 3 per cent, higher than 2007.
Total operating expenses (excluding goodwill impairment) of US$38,535 million declined by US$507 million, or 1 per cent, compared with 2007. On an underlying basis, and expressed in terms of constant currency, operating expenses were broadly unchanged.
HSBC’s cost efficiency ratio* was 47.2 per cent compared with 49.4 per cent in 2007.
Loan impairment charges and other credit risk provisions were US$24,937 million in 2008, US$7,695 million higher than 2007.
The tier 1 ratio and total capital ratio for the Group remained strong at 8.3 per cent and 11.4 per cent, respectively, at 31 December 2008.
The Group’s total assets at 31 December 2008 were US$2,527 billion, an increase of US$173 billion, or 7 per cent, since 31 December 2007.
* Excluding goodwill impairment. The cost efficiency ratio including goodwill impairment was 60.1 per cent.
Geographical distribution of results
Year ended 31 December
2008 2007
US$m
%
US$m %
Europe 10,869 116.7 8,595 35.5
Hong Kong 5,461 58.7 7,339 30.3
Rest of Asia-Pacific 6,468 69.5 6,009 24.8
North America (15,528) (166.8) 91 0.4
Latin America 2,037 21.9 2,178 9.0
9,307 100.0
24,212
100.0
Tax expense (2,809)
(3,757)
Profit for the year 6,498 20,455
Profit attributable to shareholders of the parent company 5,728 19,133
Profit attributable to minority interests 770 1,322
Distribution of results by customer group and global business
Year ended 31 December
2008 2007
US$m
%
US$m %
Personal Financial Services (10,974) (117.9) 5,900 24.4
Commercial Banking 7,194 77.3 7,145 29.5
Global Banking and Markets 3,483 37.4 6,121 25.3
Private Banking 1,447 15.6 1,511 6.2
Other 8,157 87.6 3,535 14.6
9,307 100.0 24,212 100.0
Statement by Stephen Green, Group Chairman
2008 was the most extraordinary year for the global economy and financial services in well over half a century. It marked the first crisis of the era of globalised securitisation. And it also marked the first crisis of the just-in-time global economy as the impact of the financial crisis fed rapidly straight into the performance of the real economy.
Causes of the crisis
The causes of the crisis are complex and interrelated. But we can clearly see that a number of different factors contributed:
* First, the global financial imbalances that arose from the accelerating global economic shift towards emerging markets. The rapid growth of emerging economies created a macro-economic triangle, made up of: the major consumer markets, in particular the US but also a number of other Western economies; major producer nations - notably a number of fast-growing emerging markets which have been manufacturing a vast range of goods for consumption in the West; and resource providers whose wealth of hydrocarbons and other commodities have helped power the producer economies and have thus commanded such high prices until recently. This macro-economic triangle delivered high rates of growth, but also created major financial imbalances as producer nations and resource providers accumulated massive reserves whilst the US and other consumer markets ran significant and growing deficits.
* Second, cheap credit. A large proportion of the accumulated savings of the producers and resource providers were invested in the world's reserve currency, the US dollar, keeping rates low. This cheap money fuelled a consumer boom and rising house prices. It encouraged increased borrowing by banks and by their customers, fuelling asset price bubbles particularly in housing markets. Loose monetary conditions in the US and in much of the emerging world gave added strength to this already potent cocktail.
* Third, securitisation based on overly complex product structures. The complexity and opacity of certain financial instruments reached a point where even senior and experienced bankers and professional investors had trouble understanding them. This meant that people were selling and buying assets whose risks they had not properly assessed.
* And finally, excessive gearing. Many banks became overgeared and too dependent on wholesale funding, which they assumed, incorrectly, would never dry up. Assets were created on the back of ever higher leverage, both direct and indirect. And when the securitisation market began to collapse, banks found themselves with assets that they could neither sell nor fund, so forcing large losses on the asset side and a funding challenge on the liability side for which they were entirely unprepared.
The result has been unprecedented stress in the financial system, and it has led to a major breakdown in trust. In many countries, huge support from taxpayers has been required in order to stabilise the system.
Failings in the banking industry
The industry has done many things wrong. It is important to remember that many ordinary bankers have always sought to provide good service to their customers; but we must also recognise that there have been too many who have profoundly damaged the industry's reputation.
Inappropriate products were sold inappropriately by many. Compensation practices ran out of control and perverse incentives led to dangerous outcomes. There is genuine and widespread anger that the contributors to the crisis were in some cases amongst the biggest beneficiaries of the system.
Underlying all these events is a question about the culture and ethics of the industry. It is as if, too often, people had given up asking whether something was the right thing to do, and focused only whether it was legal and complied with the rules. The industry needs to recover a sense of what is right and suitable as a key impulse for doing business.
HSBC strategy intact
We at HSBC were not immune from the crisis. But we have built our business on very strong foundations and are able to report results which demonstrate our ability to withstand the storm.
Our strategy has been tested and remains intact. We will continue to build our business by focusing on faster-growing markets around the world and on businesses where international connectivity is important - all from a position of financial strength. If anything, the current crisis validates our renewed focus over the last few years on fast growing economies, since it will accelerate the shift in the world's centre of economic gravity from west to east.
Our robust balance sheet and liquidity means that we have continued to lend. In 2008, we grew our lending to commercial customers by 10 per cent on an underlying basis. Lending to personal customers increased in all regions except North America. And our brand strength continues to underpin our performance. It was noticeable that, at times of stress in many markets, HSBC was a beneficiary of funds flowing in. Recently, the HSBC brand was recognised as the number one brand in banking by Brand Finance.
Profitable from a broad-based earnings platform
Excluding the goodwill impairment on our North American Personal Financial Services business, HSBC reported a pre-tax profit for 2008 of US$19.9 billion, a decline of 18 per cent. On a reported basis, pre-tax profit was US$9.3 billion, down 62 per cent. Within this were some strong regional and business line performances which are covered in the Group Chief Executive's review. However, there is one area on which I would like to comment.
For North America, we reported a loss of US$15.5 billion including the goodwill impairment charge of US$10.6 billion in Personal Financial Services. The significant deterioration in US employment and economic outlook in the fourth quarter of 2008 were the primary factors in causing us to write off all the remaining goodwill carried on our balance sheet in respect of our Personal Financial Services business in North America.
The management team has worked tirelessly to address this problem acquisition in the US and we have considered all viable options. We saw the disruption in sub-prime lending as early as 2006 and sharply scaled back in 2007 while others continued to grow. We also devoted considerable resources to helping our customers. Virtually no one then foresaw the subsequent scale of the deterioration in the US economy and financial markets. It is now clear that models of direct personal lending that depend on wholesale markets for funding are no longer viable. In light of this, we have taken the difficult decision that, with the exception of credit cards, we will write no further consumer finance business through the HFC and Beneficial brands in the US and close the majority of the network. Thus, in terms of new business, we are drawing a line and we will run off our existing business, providing all necessary support to HSBC Finance to enable it to do so in a measured way and meet all its commitments.
HSBC has a reputation for telling it as it is. With the benefit of hindsight, this is an acquisition we wish we had not undertaken.
The US remains the world's largest economy and HSBC remains committed to the US, which we see as a core market for HSBC. HSBC Bank in the US is not affected by the restructure. In the immediate future we will focus on those businesses and customers for whom our global connectivity gives us advantage - primarily in corporate and commercial business, and in Private and Premier banking.
Performance overview and strategic activity
In this difficult environment, we missed our profitability targets. We hit our capital target with our tier 1 ratio at 8.3 per cent. We maintained a very conservative advances to deposits ratio of 84 per cent. We grew lending in each region outside North America on an underlying basis. And we constrained costs, with the cost efficiency ratio improving to 47.2 per cent, excluding the goodwill impairment mentioned above. We also continued implementation of OneHSBC, our programme to enhance customer experience and improve cost efficiency through standardising products, processes and technology around the world.
We also acquired businesses in strategic areas - we acquired the assets, liabilities and operations of The Chinese Bank in Taiwan in March; IL&FS Investsmart, a retail brokerage in India in May; and, in October, the acquisition of Bank Ekonomi in Indonesia was announced. The first two are complete and being integrated, the last is expected to be completed in the second quarter. The most notable disposal was the sale of our regional branch network in France for a consideration of US$3.2 billion.
Thank you to our people
This was an extraordinary year and made extraordinary demands on many of our people. I want to express my sincere thanks for all their efforts and achievements. Our industry has rightly been under considerable public scrutiny and banks have been indiscriminately bunched together. It is through our staff that HSBC's distinctive character stands out for our customers and it is they who ensure that not all banks are the same.
Dividend declaration and progressive dividend policy
The directors have declared a fourth interim dividend for 2008 of US$0.10 per ordinary share (in lieu of a final dividend) which, together with the first three interim dividends for 2008 of US$0.18 already paid, will make a total distribution in respect of the year of US$0.64 per ordinary share. The payments in total represent a decrease of 29 per cent in US dollar terms compared with 2007 and of 15 per cent in sterling terms. The dividend will be payable on 6 May 2009, to shareholders on the register at the close of business on 20 March 2009.
After 15 years of double-digit dividend growth, we did not make the decision to lower the dividend lightly. Very careful consideration was given to the current operating environment and the increased uncertainty over both the supply of capital required in an increasingly volatile financial world and a pro-cyclical regulatory capital framework.
For 2009, HSBC has rebased the envisaged dividend per share for the first three interim dividends to US$0.08 to reflect the impact of the enlarged ordinary share capital following the Rights Issue we are announcing today, prevailing business conditions and capital requirements. The dividend payments remain substantial and reflect management's long-term confidence in the business. HSBC will continue to aim to pay progressive dividends in line with the long-term growth of the business.
Maintaining HSBC's financial strength
The logic of maintaining HSBC's distinctive financial strength which we have applied to our dividend also applies to our capital position. We have announced today a Rights Issue to strengthen further our capital ratios. We propose to raise, on a fully underwritten basis, approximately US$17.7 billion of equity which will increase our capital ratios by 150 basis points, strengthening the core equity tier 1 ratio to 8.5 per cent and the tier 1 ratio to 9.8 per cent, both on a pro-forma basis as at 31 December 2008. I shall be writing to all shareholders with full details.
Over the past 12 months, many of our competitors have received significant government capital injections - something we said we could not envisage - or have raised capital from shareholders and other investors. Higher regulatory capital requirements, in part from the effect of the economic downturn on capital requirements under the Basel II regime, as well as changing market sentiment on appropriate levels of leverage, have also raised expectations regarding capital levels. We are determined that HSBC should maintain its signature financial strength and we are now raising the top of our target range for our tier 1 ratio so that the range will be from 7.5 per cent to 10 per cent.
Planned internal capital generation remains strong and this capital raising will enhance our ability to deal with the impact of an uncertain economic environment and to respond to unforeseen events. Importantly, it will also give us options with respect to opportunities which we believe will present themselves to those with superior financial strength. These may involve organic investment in the continued taking of market share from more capital constrained competitors. There may also be opportunities to grow through targeted acquisitions by taking advantage of attractive valuations where the opportunities in question align with our strategy and the risks are understood.
Culture and compensation
We believe in the profound importance of culture and ethics in business. HSBC's longstanding traditions of financial strength, long-term customer relationships and conservative management are as important today as ever. They have not always been fashionable and we have not always been perfect. One of the consequences of the crisis - and rightly - is that we are going to see a fundamental re-evaluation of the rules and regulations that govern our business. But we should remember that no amount of rules and regulation will be sufficient if the culture does not encourage people to do the right thing. It is the responsibility of boards to supervise and management to embed a sustainable culture into the very fibre of the organisation. For HSBC, there is nothing more important.
We also intend to play our part in rebuilding public trust in our industry. This means we must be willing to take part in and shape the debate on how our industry should evolve in the coming years, based on the lessons which must be learnt from this crisis. In particular, we strongly believe that the industry must respond to the requirement for a more sober and reasonable approach to compensation. At HSBC, we are committed to the principle of sensible market-related pay, structured to align executive actions with long-term shareholder interests. A small number of individuals in a market system will inevitably receive compensation that is high in absolute terms, but this must be genuinely linked to long-term shareholder interests. It is clear that the banking industry got it wrong in the go-go years: we will play our part in helping the industry respond appropriately to the new realities.
It is right therefore that in HSBC's case, I outline our present position. As Chairman I elected in 2007 to no longer receive any cash bonus award; any variable compensation would be delivered through performance share awards - which would only vest if performance hurdles are met. No performance share awards will be made in the Group in respect of 2008. Mike Geoghegan, Group Chief Executive, Stuart Gulliver, Chief Executive of Global Banking and Markets and HSBC Global Asset Management, and Douglas Flint, Group Finance Director have asked the Remuneration Committee not to consider them for any bonus award for 2008. No cash bonus award will be made to any Executive Director for 2008. Full details on Directors' remuneration can be found in the Annual Report.
Learning the lessons
We are living through a genuinely global crisis; it cannot be solved by one nation alone. Governments need to work together with our industry to tackle the root causes of the crisis, while maintaining the open, globalised markets that have helped spread prosperity in the last two decades. Protectionism, both in trade and in capital flows, is a threat and in all its forms must be resisted.
We must also urgently improve governance and regulation to create a more stable financial framework. The globalisation of financial markets contrasts sharply with the domestic agenda of the regulatory regimes that underpin it. We support intergovernmental efforts to enhance the coordination of regulatory oversight, since we believe that this is essential to the stable development of the international capital markets for the benefit of the common good.
Continued economic strain
The coming twelve months will be difficult. We expect parts of Asia, the Middle East and Latin America to continue to outperform Western economies, but to be constrained by the global downturn.
We see unemployment rising through 2009 into 2010 in both the US and the UK, together with continuing declines in housing markets. We should remember that the US is the driver of the global economy and global growth depends on the US recovery.
We remain confident that HSBC is well-placed in today's environment and that our strength leads to opportunity. Our strategy has served HSBC well and positions it for long-term growth with attractive returns. HSBC continues to combine its position as the world's leading emerging markets bank with an extensive international network across both developed and faster growing markets. At the same time, as the financial system exhibits stress, our competitive position is improving as the capacity and capabilities of financial institutions are constrained by lack of capital and funding; many of them are also focusing more on their domestic markets.
Further strengthening our capital base will enhance our ability to deal with the impact of an uncertain economic environment and to respond to unforeseen events, as well as giving us options regarding opportunities which will undoubtedly present themselves to those with superior financial strength.
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