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Executives

Douglas Jardine Flint - Group Chairman

Stuart Thomson Gulliver - Chairman of Group Management Board, Group Chief Executive Officer, Managing Director and Executive Director

Iain James MacKay - Group Finance Director, Member of Group Management Board and Executive Director

Simon Manwaring Robertson - Deputy Chairman, Chairman of Nomination Committee, Chairman of Group Remuneration Committee, and Member of Financial System Vulnerabilities Committee

Rafael García De Diego Barber - Head of Corporate Governance, Group Company Secretary and Chairman of Disclosure Committee

HSBC Holdings PLC (HBC) 2013 Annual General Meeting May 24, 2013 6:00 AM ET

Douglas Jardine Flint

Ladies and gentlemen, good morning, and welcome to the 2013 Annual General Meeting of HSBC Holdings plc. Before we start the formal business of the meeting, let me mention a couple of housekeeping items. First, in the unlikely event of an emergency, the Barbican's House Manager will direct an evacuation through the emergency exits. Second, I know that many of you have traveled some distance to join us today, so lunch will be available in the foyer from 1:00.

Notice of the meeting has been given in accordance with the company's Articles of Association. The report of the auditors is set out in Page 369 and 370 of the Annual Report and Accounts, and I propose to take these as read. John Thornton, whom you may have seen, has decided not to seek reelection because of his other commitments, sends his apologies for this meeting, as he is attending the annual international advisory board of a company, of which he is now the cochair. I'm very pleased to have the opportunity to update you on events since we last met.

Let me say at the outset it remains an enormous privilege to be the Group Chairman of HSBC, possibly even more so in tumultuous times. You will have noted that HSBC is now considered to be one of the 4 most systemically important global banks. This position brings with it significant responsibility, and it reinforces our commitment to support global growth by connecting our customers through our worldwide networks to the trade and investment opportunities that fit with their ambitions.

Our financial performance in 2012 showed encouraging signs that this strategy is helping to deliver growth, thereby, enabling ambitious businesses to thrive and economies to prosper. This progress is set against the background of the continuing, and in many ways, unprecedented challenges facing the banking sector. Banking has been given a huge wake-up call. And as a globally systemic bank, we are determined to play a leading part in restoring the reputation of the industry, and thereby, regaining society's trust.

Much of our strategic and managerial effort last year focused on reshaping HSBC and on banking reform. Stuart Gulliver, the Group Chief Executive, will talk later on the reshaping of HSBC, so let me turn the banking reform.

We are actively supporting the steps being taken by governments and regulators around the world to improve financial stability and the resilience of the industry. The regulatory framework needs to safeguard the financial system and, most importantly, support a sustainable supply of credit for individuals and businesses in every part of the world. The entire banking sector continues to face intense scrutiny, and let me tell you today why I welcome that scrutiny. We have a once-in-a-generation opportunity to reform banking and the broader financial industry. We need to demonstrate that the business model of banking is fair, transparent, sustainable and meeting its core purpose of serving society. The banking and economic crisis has demonstrated the need for us to explain the role of banks and their relationship with the public and the wider economy. And we need to do this to regain public trust and respect. And we can only do this if our role is understood. And without a strong banking sector, we cannot have strong economies.

And within banking, the position of the customer has to be paramount. Never has it been more important to put the customer first and to be seen to do so. And to provide the means and support to help our customers fulfill their financial aspirations and ambitions. Simply, that is our prime purpose and we should never lose sight of that.

This time last year, I said we were all living through one of the most challenging times in recent history. We still are. The challenges we face are different but still immense. Major change is taking place throughout the financial system. These changes affect us all. Across the globe, the system of financial regulation is undergoing its biggest change since the Great Depression of the 1930s. Encouraging -- encouragingly, progress has been made key elements of the G20's regulatory reform agenda have been delivered globally. However, it is worrying that an increasing number of countries appear to be acting unilaterally, and this puts at risk globally consistent regulation and also risks 'balkanizing' [ph] firms' capital under liquidity resources. And this risks a retreat from globalization and greater -- and also risks greater financial exclusion, neither of which are consistent with the pursuit of growth. So as a first priority, we need to speed up the reform process. Otherwise, investor confidence in the sector will continue to be undermined. Encouragingly, there is a shared view now amongst policymakers, regulators and within the industry that we should work together to address this.

Turning now to HSBC itself in 2012. Management made considerable progress delivering on the strategic priorities, which the board had asked management to address. The board's decision to focus on reshaping the group through targeted disposals and closures and internal reorganization is paying dividends. It is bringing greater clarity and focus and is delivering sustainable cost improvement, while ensuring that incremental investment is available and directed towards the areas of greatest opportunity.

Encouragingly, there is growing external recognition that we are delivering against our strategic objectives. And this was reconfirmed in the response to our Investor Update held last week. This recognition, together with our overweight exposure to the world's more attractive economies, contributed to a total shareholder return of 39% over last year. 7% of that came from dividends paid and 32% from share price appreciation. And since we met at last year's AGM, the share price has risen from 514p to 742p as of last night, an increase of 44%. And we paid dividends of USD 0.45 per share.

The market capitalization as of last night's close was USD 208.1 billion versus USD 144.6 billion at the same point last year. And so I'm pleased to be able to tell shareholders that their company is again worth considerably more than its contributed capital. We also remain among the highest dividend payers in the FTSE 100. Stuart will cover the performance of the business in more detail shortly, but it is pleasing that there was much to be positive about in HSBC's underlying performance in 2012.

I now would like to focus on our determination to adopt and enforce the highest behavioral and compliance standards in HSBC. The circumstances leading to major U.S. regulatory and law enforcement investigations of HSBC caused us great concern. We were humbled and horrified to discover failings of such magnitude. By demonstrating that we had taken considerable steps to restructure the group, to reinforce controls and were committed to do whatever was necessary to impose the highest global standards, we reached a settlement with applicable law enforcement agencies and regulators last December.

Under the leadership of Stuart Gulliver, management is delivering on the board's required enhancements to our control framework. On top of this, we have augmented significantly the board's oversight and governance capabilities, which I shall return to later.

As you will all be acutely aware, the last 2 years have been extremely damaging to HSBC's reputation and to our own perception of ourselves. We experienced serious historic failings, both in the application of our standards and in our ability to identify, and so prevent misuse and abuse of the financial system through our networks. We have already apologized unreservedly to all our stakeholders and have paid huge penalties, both in monetary cost and reputational damage. And I want to take this opportunity to apologize again in person to you.

More important than apologies, however, are the steps being taken to prevent recurrence. Stuart is leading the work to simplify the business and reinforce risk management and control. Our objectives and outcomes will be subject to independent validation through ongoing regulatory review. We welcome this. In addition, an independent monitor will report to both U.K. and U.S. authorities. And this will bring additional rigor to the process of upgrading and enforcing our global standards.

To reinforce the board's ability to exercise rigorous governance over these endeavors, we have created a new board committee, the Financial System Vulnerabilities Committee in January of this year. This committee is providing governance, oversight and policy guidance over our framework of controls and procedures. And these controls and procedures are designed specifically to identify areas where HSBC may become exposed to financial crime or system abuse. Five experts, drawn from the highest level of public service, are supporting the committee. Their expertise includes the combating of organized crime, terrorist financing, narcotics trafficking, tax evasion and money laundering, as well as expertise in intelligence gathering and international payment system. And they will provide invaluable guidance and advice and, most importantly, challenge as we strengthen our capabilities and enforce the highest standards.

Let me turn now to one of HSBC's most exciting long-term opportunities. HSBC is well-placed to take a leadership role in the development of China's currency, the renminbi or RMB. You will have seen from the film ahead of the AGM, that we firmly believe that will be a hugely significant driver on the world's economic stage.

China has led growth in the global economy over recent years. As this continues, China's trade with the rest of the world will grow and its domestic consumer market will become increasingly attractive. Companies competing for a share of this growth will increasingly seek to use the renminbi to settle trade, make investments and fund their business, and in fact, this trend is well underway. The RMB is increasingly part of normal day-to-day business for anyone trading with, or investing in, China. Every international business with an eye on China should be considering the potential benefits of using the RMB. And RMB investment opportunities are being created around the world, supported by thriving offshore markets, particularly offshore bond market. The gradual opening of China's financial markets is creating investment opportunities on the mainland. The process of reform is accelerating. The rise of the RMB will continue apace.

In volume terms, we expect the RMB to become a top 3 global trade currency by 2015. And within 5 years or so, we expect it to be fully convertible, taking China's financial integration with global markets to a new level.

HSBC is, today, the leading international bank for the RMB worldwide. We are already helping businesses and investors to seize the growing opportunities that the RMB represents. And this opportunity, of course, leverages our history, our networks and our trade and markets capabilities to create a growth story for the future.

Much is currently being written and debated about the role banks should play in society. We need to be and, indeed, are part of that debate. We need to regain the public's trust. We need to prove that a strong economy needs a strong banking sector. And that the economic success that underpins a harmonious society depends upon sustainable financing, confidence and trust in the financial system. And banks will only earn public trust when they fulfill their primary purpose and play an effective role in their local communities. We're committed to that. And importantly, within HSBC, many of my colleagues make tremendous personal contribution, and I want to take this opportunity to recognize and thank them.

HSBC's outreach in terms of community investment is primarily in the areas of education and the environment. In 2012, in financial terms, it amounted to some USD 120 million. We extended our commitment to support NEETS, disadvantaged and vulnerable young people who are not in education, employment nor training. We support the working of numerous local and international charities. We also run our own staff-driven Future First program. And this is a global effort that helps street children, children in care and orphans to access education. Initiatives under this program are developed and supported by nearly 3,000 HSBC colleagues around the world.

In total, during 2012, over 100,000 HSBC colleagues spent almost 0.75 of 1 million hours in voluntary activity. The launch of HSBC's water program gave me particular pride. This is a 5-year, $100-million commitment to support WaterAid, the WWF and Earthwatch. Its aim is to deliver fresh water and sanitation to poor rural communities in Asia and Africa and educate local communities on sustainable water management in 5 major river basins around the world. More than 7,500 HSBC staff will work with conservationists to address urban management issues and learn to carry out scientific water research tasks.

The past year was the most difficult that I or any of my colleagues have faced. But at the end of the year, HSBC was undoubtedly in a stronger position than it was at the beginning. People often come together in adversity, learning lessons to help build a better, more secure future. I believe that is what has happened here. Management drove through its restructuring program against the backdrop of lower economic growth, legacy issues and regulatory limitations. Our staff had to rise above the terrible damaging headlines and the general negativity around bankers and banking. I have been inspired by the sheer hard work, cooperation and focus on the future of so many of HSBC's staff. There is commitment at all levels to restoring and burnishing our distinctive reputation in banking. On behalf of the board, I would like to recognize the huge contribution being made by all of HSBC's employees. I also want to thank our clients and customers, our shareholders, our regulators and those in governments around the world who put their trust in us to serve the highest standards wherever we operate. And finally, on behalf of the board, I want to pass on our deep gratitude to you, our shareholders, for entrusting us with the levers of this great institution.

Now let me hand you over to Stuart who will talk more about our performance since we last met. Thank you.

Stuart Thomson Gulliver

Thank you, Douglas. Ladies and gentlemen, good morning, and thank you for being here.

Over the next few moments, I want to show you why you are right to own HSBC now, and how we plan to deliver even better returns for you in the future.

So let me start by taking a look at your bank's performance. HSBC made significant progress in 2012 in 2 respects. Against a challenging environment, characterized by low economic growth and a changing regulatory environment, we grew the business. Although reported profit before tax for 2012 was USD 20.6 billion, which was actually down 6% on 2011, this included a 5.2 billion debit related to changes in the fair value of our own debt. Our underlying profit before tax was USD 16.4 billion, which is actually up 18% on 2011. This was primarily due to revenue growth and lower loan impairment charges in our North American operation. On an underlying basis, that's the way we look at our performance.

Underlying revenue increased by 7%, led by our Global Banking and Markets business, and more than half of our underlying revenue came from our faster-growing regions: Hong Kong, the Rest of Asia-Pacific, the Middle East and North Africa and Latin America.

On a reported basis, we achieved record profit before tax in Commercial Banking as we maintained our position as the world's largest global trade finance bank. And while return on equity for the group was 8.4%, which is down from 10.9% in 2011, this was primarily reflecting the adverse movement in fair value of our own debt, a higher tax charge and higher average shareholders' equity. Now we also took action to strengthen our capital base, reestablishing HSBC's position as one of the best capitalized banks in the world and providing a solid platform for organic growth.

Following this strong performance, we also saw a good start to 2013. Underlying profit before tax for the first quarter of the year was USD 7.6 billion, which is up 34% on the same period in 2012. These are good results because of our continued focus on capital, because of our continued focus on costs and governance.

Alongside these achievements, there have also been challenges. As Doug has outlined, since our AGM last year, we reached agreement with the U.S. and U.K. authorities in relation to past inadequate compliance with anti-money laundering and sanction loss. This resulted in a fine of USD 1.9 billion, a deferred prosecution agreement and a huge impact on HSBC's reputation. We are doing everything we can to put right our past errors and strengthen the bank for the future, and I will come back to this point later on.

The second respect in which we have made progress over the last year was in delivering our strategy. This strategy was designed to deliver better returns for you, our owners, which I believe are clear in the results I've outlined. But it was also designed to improve our control of the bank, to create a consistent structure and strong governance, which we need to ensure that the highest standards of conduct and compliance can be delivered. I'm pleased to say that we have transformed HSBC during the first part of this journey.

When we announced the strategy in May 2011, we said we would deploy our shareholders' capital more effectively. And we have delivered on this. We set out five filters through which we continue to test the strategic relevance of all of our businesses. And we've added a sixth filter to assess whether there is an additional risk of financial crime. As a result, by the end of the first quarter of this year, we have announced a total of 52 disposals, exiting nonstrategic markets and businesses, potentially releasing approximately USD 95 billion in risk-weighted assets. We have also made significant progress in running down our legacy portfolios in the United States from USD 72 billion in 2009 to USD 41 billion in the first quarter of 2013.

Second, we said we would simplify HSBC, making it easier to manage and make the bank more efficient with a target of USD 2.5 billion to USD 3.5 billion in sustainable cost savings by the end of 2013. We have also delivered on this. We have redrawn the structure of the firm, making it easier to manage and to control. And we have actually exceeded our cost-saving target, achieving USD 4 billion of annualized savings by the end of the first quarter of this year.

Third, we said we would position HSBC for growth, and again, we have delivered. Over the period from 2010 to 2012, reported revenues in faster-growing regions increased by 25%. Reported revenues in Commercial Banking increased by 20%. And we also saw double-digit loan growth in 15 priority markets.

At the heart of the strategy was our analysis of the long-term trends, which is shaping the global economy. We argued that the center of gravity of the global economy was shifting, and that by 2050, 19 of the top 30 economies will be from those now deemed emerging markets, and that trade would continue to grow, driven by global imbalances. Since then, the global macroeconomic environment has actually deteriorated quite significantly, affecting the emerging world. But we believe the trends our strategy is based upon remain completely valid. Despite the macroeconomic slowdown, GDP growth in our faster-growing markets has been 3x higher on average than that of the mature markets.

Now while trade is clearly affected by the overall macroeconomic environment, the faster growing trade corridors remain those where HSBC is particularly well positioned, connecting faster-growing markets to each other and to mature markets. For example, here in the U.K., we set up a GBP 4 billion fund in 2012 to support U.K. SMEs, which was seeking to do business internationally. The success of this scheme meant that we exceeded our original target. And by the end of 2012, we had approved lending through the fund of GBP 5.1 billion, and we have launched a new GBP 5 billion fund for this year 2013.

So we have transformed HSBC during the first phase of our strategy, positioning the bank strongly for future growth. And we will build on this foundation over the next 3 years with a clear plan to deliver consistent and superior financial results. We have 3 priorities in particular: number one, to grow the business and to grow the dividends to you, our shareholders; number two, to execute Global Standards; and three, to further streamline processes and procedures.

HSBC remains in a unique position to connect faster growing and developed markets through our international network. HSBC bridges more than 90% of global cross-border trade and capital flows and connects customers to the world's biggest growth opportunities. Across our 22 home and priority markets, our network is expected to cover approximately 58% of relevant expected total banking revenue growth between now and 2020. Over the next 3 years, we will allocate risk-weighted assets to capture this growth and to increase the dividend.

We are the leading bank internationally for China's currency, the renminbi. And as Douglas has said, more and more companies and investors around the world are realizing the advantages and adopting the currency in their dealings with China. We're also ideally placed to win that business and benefit from this key emerging trend. And we are one of the best capitalized global banks, equipping us for regulatory change, and allowing us the flexibility to capture new opportunities as they arise.

Next, we will complete the implementation of Global Standards across HSBC and invest in world's leading risk and compliance capabilities. This phrase, Global Standards, means implementing the highest or most effective financial crime controls everywhere in the world that we operate, and we are absolutely committed to delivering on this. We have already put in place a series of demanding and clearly defined measures. Ultimately, if we can become leaders on this, I think there is a competitive advantage to be one.

30 years ago, when I first joined HSBC, actually 33 years ago, companies in Hong Kong used to record pride in their Annual Report and Accounts that their bankers were the Hong Kong and Shanghai Banking Corporation, because they thought it implied they were a decent company because HSBC would only bank decent companies. HSBC became like a Kitemark for quality, and that's what we want to get back to, and that's what we're working to achieve.

Next, we will continue to manage costs and streamline our processes and procedures. We expect this to generate a further USD 2 billion to USD 3 billion of sustainable savings over the next 3 years. We have refined our cost efficiency targets, so that now our focus is on ensuring our revenues grow at a faster pace than our cost base. Again, this will give us greater flexibility to respond to ongoing macroeconomic and regulatory uncertainty and to balance the need to invest in the business with the need for efficiency. We have also renewed our target of 12% to 15% return on equity and set a minimum Basel III common equity tier 1 target of 10%.

HSBC continues to be a strongly capital-generative business. So finally, I'd like to say a few words about how we plan to allocate our capital. Firstly, we will look to invest in attractive organic growth opportunities, assess, as I've outlined, according to their strategic fit, risk profile and financial returns across our global businesses and regions. Organic growth is our biggest priority during this next phase, so investment naturally takes precedence.

Second, we will look to return surplus capital after investments back to you, our shareholders, through our progressive dividend policy. And we have defined a target range of 40% to 60% for the dividend payout ratio, and we'll target the upper end of that range.

Third, should we find ourselves generating more capital than we can economically deploy, we will put ourselves in a position so that with regulatory and shareholder approvals, we could consider share buybacks to avoid diluting returns. But let me assure you that we will keep the scrip dividend program, because I know that it is really important for many of our retail shareholders. Our focus is on investing in our global businesses and key markets to achieve targeted returns, growing dividends progressively and, where appropriate, returning surplus capital to our shareholders.

Now throughout our history, HSBC has been where the growth is, connecting customers to opportunities around the world, enabling economies to prosper and helping people to realize their ambitions. With our strength in Asia, and our unbroken presence in China for over 148 years and our expertise in global trade, we have a fantastic platform on which to build. Today, in the new environment for the banking industry, we are maintaining a distinctive position, and we are confident that this position will deliver consistent and superior financial returns.

By focusing on delivering our priorities of growth, Global Standards and streamlining the business, we can make HSBC the world's leading international bank, recognized for its consistent high performance and distinctive positioning across the faster-growing markets and respected for its strong controls and high standards. That is how we, as senior managers, aim to repay the trust that you, as shareholders, have placed in us.

So thank you, and now let me hand you back to Douglas. Douglas?

Douglas Jardine Flint

Thank you very much, Stuart. I would now like to explain how we will conduct the voting. We will conduct the voting on each resolution on a poll. This means that each shareholder present or representative will be able to exercise 1 vote for each share held. The advantage of the electronic voting devices, that each of you has been given, is that we will know the results as quickly as we would on a show of hands. The numbers of votes cast in each resolution will appear on the screen behind me as the voting closes. Electoral Reform Services Limited and Computershare Investor Services plc will act as scrutineers for the poll. As each resolution is proposed, I will invite you to vote by pressing button 1 if you're in favor, button 2 if you wish to vote against, and button 3 if you wish to withhold your votes. If you make a mistake or wish to change your vote, all you need to do is press the correct button, 1, 2 or 3, as appropriate before voting is closed and your vote will be changed. Does anyone have any questions about the devices?

In a moment, I will propose the motion to receive the Annual Report and Accounts. We shall then answer questions shareholders may wish to ask on the report and accounts. May I remind you that the questions should be directly relevant to the item of business under consideration. If there is any matter in which a shareholder wishes to ask a question that is specific to an individual customer relationship or that is outside the scope of business before the meeting, I would ask that you direct the question to one of our directors or senior executives who will be available in the foyer after the meeting. There are also help desks in the foyer staffed by HSBC colleagues, who will be pleased to answer your questions about our products and services. Our registrars are also there to assist with shareholders' personal inquiries.

If you wish to ask a question, please raise your voting card and a microphone will be brought to you. In the interest of allowing as many shareholders as possible to participate, I would ask that you keep the questions as brief as you can and that you limit yourself to one question at a time. There are answers to a range of shareholders questions on our website, www.hsbc.com. And before asking your question, I would ask you to state your name and confirm that you are a shareholder or give the name of the shareholder that you represent. When you have asked your question, please, could you return the microphone to the attendant so that another shareholder may ask a question.

I now formally propose that the annual accounts and reports of the directors under the auditor for the year-ended 31st of December 2012, be received. So that shareholders' questions can be dealt with appropriately, I would like to take questions on the Annual Report and Accounts that relate to the business of the company under this item. The Directors' Remuneration Report, which is the subject of a separate resolution, will be considered later. And therefore, shareholders with questions on this report, please, if you could hold these back until we get to this part of the meeting. Are there any questions on the Annual Report and Accounts? So lady in the second row, #4.

Question-and-Answer Session

Unknown Attendee

Dear Mr. Chairman, my name Jessa Licus [ph] and I'm here as a proxy for Janine Languish [ph]. I understand that the company has a large number of subsidiaries in places considered tax havens, for instance, Bermudas, The Bahamas and the British Virgin Islands. Last week, at its AGM, Lloyds Banking Group confirmed its plans to stop using tax havens. Can you confirm whether HSBC subsidiaries in various tax havens exist solely for this purpose of facilitating tax avoidance? If so, can HSBC make a similar commitment to that made by Lloyds? And if not, can you explain why?

Douglas Jardine Flint

Thank you very much. It's a very good question. We have a number of subsidiaries in jurisdictions, countries that are regarded as tax havens, because many of the countries so regarded are natural home bases for us. For example, Hong Kong has a variable tax. Bermuda, where we bought the Bank of Bermuda, understandably has a number of subsidiaries there. We're very transparent in our tax policy. We do not seek to engage in artificial transactions. We apply the spirit, as well as the letter of law in all that we do. And therefore, the concerns that you have as to whether we would engage in artificial arrangements and so on, I think, are unfounded or, I can assure you, are very limited. And we're undertaking a review, and have been for some time, as to the extent to which activities through so-called tax havens continue to be appropriate where our customers have arrangements there. And I would think that over the next several years, we will significantly reduce the amount of activity that is done through so-called tax havens. But it won't be eliminated altogether because, as I said, we have many, many legitimate operations, and our customers with many, many legitimate operations in such countries. It's wrong to assume that everything done in these countries is, in some way, immoral or wrong.

Gentleman over there in 5 or 6.

Unknown Shareholder

Robin David House [ph], I'm an ordinary shareholder. Previously, at these meetings, I've addressed a couple of issues. So one, about the caste discrimination in India to which the board, then under Stephen Green, reacted very positively and made some good moves. And if there's any one here from India, I'd welcome a conversation with them about that after the meeting.

But the other issue I've raised earlier refers back to the last question also on tax evasion. And when I wasn't able to attend the meeting a couple of years ago, Mr. Chairman, I wrote to you about this topic and you wrote back. And among the other things you said that we have very high standards in terms of tax conduct. We do not condone tax evasion, and we do not condone misleading tax reporting in any way. We have strict procedures across the group, which governs staff behavior and aimed to prevent money laundering and tax evasion. And well, I think, as you've indicated, the reports over the last few months have shot those statements -- I found it very reassuring at the time, but no longer. And in the context that 3 words: Mexico, Jersey and Switzerland. You've made reference already, though not my name, to what went on in Mexico, reminding shareholders that $818 million worth of drug money was laundered through HSBC in Mexico, so much so that it's reported that some cashier's windows have to be widened in order to get the boxes of money that the drug dealers were bringing into the branches. You've been fined $1.2 billion for this, but that's not yet apparently signed off. The news today is that the judge has not get signed off, that the bank may still face criminal charges in the United States. And if you have any comments on that?

Just turning to Jersey. I'm sure you remember the headlines on the Daily Telegraph: Drug dealers, gunrunners in Britain's largest bank. You opened accounts in Jersey for serious criminals, including drug runners and gunrunners and bankers facing fraud allegations. The list released by the whistleblower, and I thank God for whistleblowers, showed over 4,000 people holding accounts worth 700 millions. Dozens of bankers are understood to have deposited 6-figure sums. Well, they're the only ones with that amount of money. And then just this month, it's been reported by Mr. Falciani, he was another HSBC whistleblower from Switzerland, who provided European tax authorities with data showing that 24,000 HSBC clients were hiding billions of dollars in secret bank accounts. Now Switzerland is a very grubby little country where they'll take anybody's money and keep it hidden, from the Nazis, from the looter in [indiscernible] or [indiscernible] in Nigeria, and the Al-Ali [ph] family from Tunisia, the Baracks [ph]. But also British people as well: Michael Shanly, a British developer, had to pay EUR 555 million in back taxes to settle his accounts. And all this money, 260 billions of it -- USD 260 billion according to the Spanish authorities all passing through HSBC accounts in spite of your statements in that letter to me 2 years ago.

So could I ask, I mean, I hear the positive commitments that you've made this morning, and the fact there'll be an independent monitor and the Vulnerabilities Committees will be set up. But firstly, is the bank involved in any way in the targeting of whistleblowers who have revealed the tax cheats that I've referred to? Are you ending the encouraging of people to open offshore accounts to dodge taxes because that's mostly what they're about? Are you cooperating fully with HMRC, the revenue authorities, in reclaiming taxes, that taxes have been dodged in Jersey, in Switzerland, in the Caymans, in Bermuda, while the rest of us are on PAYE, P-A-Y-E, and we have to pay our taxes.

So -- and perhaps also the Vulnerabilities Committee might seek advice from the Tax Justice Network who are the real experts in this field and I'm sure could advise admirably. If you want to return to a Kitemark of reliability and integrity, as Mr. Gulliver has suggested, I think the answer to all those questions needs to be yes, Mr. Chairman.

Douglas Jardine Flint

Thank you very much. One of the most humbling experience anyone can have is to discover that they're not as good as they think they are, or that there are things that they ought to have been aware of that there weren't aware of, and that was a situation we discovered ourselves in over the last 2 or 3 years. This partakes full responsibility for what happened, takes full responsibility for making sure that everything possible that can be done is done to ensure it does not repeat. And dealing with some of your specific allegations, no, we do not target whistleblowers. Included within the category of whistleblowers, regrettably, are people who steal data from the organization. And we're somewhat troubled by an almost encouragement to steal data but having said that, we want to get ourselves to a position where there's nothing worth stealing in this regard. For people now opening offshore accounts, they have to demonstrate that they're tax are up to date. For people to continue to have offshore bank accounts, we require them to state that their tax affairs are up to date. We are cooperating. You can imagine very easily that the availability of offshore tax account information that's come out from a number of sources has been of great interest to tax authorities around the world and we are openly, transparently and willingly cooperating with those tax authorities as they seek out whether there is tax unpaid by individuals. I should say that the intention is very often focused on the individuals who may well have lied to us about the source of the money when they opened the account or indeed about the up-to-date nature of their tax affair, so I think it would be wrong to imply that we are complicit in every situation. Our ambition, indeed, our intention, commitment is to make ourselves fully transparent, fully open. One of the members overtaxed, over our Financial System Vulnerabilities Committee, came from the highest levels of HMRC here and is being very helpful to us in identifying things of which we are not aware. And I think one of the things that we looked for in setting this committee up was to say there are things we knew -- there are things we know we got wrong. There are things that we didn't know that we should have known about. But there are also things that we wouldn't know we should even go looking for, that others who work in the areas of public policy, law enforcement, intelligence services, the tax services have on their worry list. And that's why we engage with individuals who come from those worlds to help us identify where the next set of challenges are going to come from so that we can get ahead of them. I fully understand your concerns and we will make ourselves as bulletproof as we can in this area. Thank you.

Unknown Shareholder

So the last question I asked about whether the Vulnerabilities Committee would consult with the Tax Justice Network. Having someone from HMRC on it is not necessarily the best thing in the world, because HMRC isn't -- hasn't got very good record in this either. So I think you should look a bit further than HMRC.

Douglas Jardine Flint

We take account of a whole bunch of organizations but the way we set the committee up at the moment is with the individuals that we've got and I have to say, we are benefiting greatly from the breadth of experience that they bring. Thank you.

Unknown Shareholder

I'm not asking you to put one on the committee, I don't think they'd join but to seek advice from them that, I'm sure, would benefit all parties.

Douglas Jardine Flint

We certainly -- they certainly engage with us. Thank you. Number 3 at the back.

Unknown Attendee

Robin Tomset. There's been various press publicity given your financial purpose [ph] regarding HSBC during the year. Apparently, you closed or dismissed many thousands of workers and closed many units. How much has this returned in cash value to HSBC, and also how much has HSBC shrunk in size due to the closures and this dismissals of personnel?

Douglas Jardine Flint

Two years ago, we had just over 300,000 staff as a result of reshaping the business and indeed disposing of a number of businesses. We're now down around -- in between 250,000 and 260,000 staff. And of those that were -- those that have left the organization other than through disposal of businesses -- and we've sold something of the order of 52 businesses over the last 2 years, have been as a result of 2 major elements, one being organizational efficiency, which I think shareholders would expect us to continue to keep under review, and also, the other piece is simply a response to a combination of regulatory changes that are changing the way that business has to be done and making some activities less attractive or less available to us to do through the networks that we have. And also, simply the way our customers are reacting, interacting with us. Very, very many more customers are dealing online, through ATMs and increasingly through smartphones. And we continue to facilitate that because it's what's customers want, and that has an impact on the network of people that would otherwise respond to phone queries or physical face-to-face contact. So that's the answer to your question. We've got -- we have sold or closed around 50 businesses in the last couple of years and we are running today at around 250,000 to 260,000 employees against 300,000 from where we were a couple of years ago. Thank you.

Unknown Attendee

Yes, Mr. Chairman, thank you. But reference to fines are imposed on HSBC by various organizations. Is there any way around these fines? Is it something that is sort of government regulatory facts that you can overcome, or is it due to perhaps not [indiscernible] but some sort of failing in HSBC to pay sums on the right time or whatever the reason is for the fine?

Douglas Jardine Flint

The major fines that we've suffered are for our failings in the areas of anti-money laundering and sanctions, and we paid those fines because they were the imposed penalties for actions for which we were responsible so there is no way around them. We were responsible, we paid the fines and we've committed to a course of future action. Thank you. Same microphone, on your left, just at the top.

Unknown Shareholder

Orijit Das, ordinary shareholder. Mr. Chairman, so my question is about compliance standards and the $1.9 billion that was paid as fine. Mr. Chairman, when we met last year at the Annual General Meeting, I had asked you if you are aware of how HSBC officials in India were taking blank letters of instructions. Mr. Chairman, in front of this entire audience or the audience back then and on camera, you had said and I quote, "HSBC does not knowingly ever take blank letters of instructions." Mr. Chairman, between then and now, a huge amount of evidence has been provided to your officials, setting out how HSBC employees, for the purposes of churning shares, portfolios, were taking blank letters of instructions. This Board was also made aware of and I quote from email sent by HSBC employees, "Sign only on the last page where it says signature. Sign a few copies of letters of instructions, FIP redemptions and SWP (the first page of the attachment). There's another email which says, "You would not need to sign any forms. I will use the signed letters of instructions, which are held with us for the investments. Please do not date the form. We can hold it in our files in case there are any further investments." On 20th of December, 2006, one of the relationship managers -- are you able to hear me? One of the relationship managers sends an email saying, "Sign the enclosed document and send me about 10 copies of each." Between last year and now, you have been provided forensic report of how 44 letters of instructions were forged. Rather than deal with this issue with courageous integrity, you continue to deny that this ever took place. Your response has been, "We conducted an internal investigation and the internal investigators have given us a clean chit of health. So what are you on about?" But Mr. Chairman, this issue has been reported widely in the Indian press, people in the United Kingdom may not have come across it but the Economic Times, which is the equivalent of the Financial Times in India published this, sold it to other journals. And then rather than correct the wrongdoing, here's what you do, you go ahead and terminate the U.K. bank account of the person who brings this concern to you. My question, Mr. Chairman, is are you going to make the same mistake that you made in the United States, where the U.S. Senate subcommittee, in its 335-pages report has gone on to say that it was a decade of compliance failure? Will you continue to deny that such blank letters of instructions were taken until such day a regulator or a court finally says, "Yes, actually, the blank letters of instructions were taken." When that happens Mr. Chairman, will you take full and absolute moral and professional responsibility for fraud which went on and that you have decided to overlook? I'd like your answer to that question, please.

Douglas Jardine Flint

Thank you for your question. First of all, we will never condone fraud and we will never turn a blind eye to it. I think, I said at the beginning of the meeting, we could not get in to discuss individual cases, but what I can say and outline and will say, is that in the particular case that you brought to our attention last year, we did investigate and we investigated it very fully. Because the matters under investigation went back some considerable time, the contemporaneous records that would validate provide evidence to support some of the allegations that were made were not available, so we took them at face value that they probably happened. We conducted an internal investigation. We then conducted an independent internal investigation from the U.K. We then engaged a third-party expert to review our own investigations and to conduct their investigation. And on the basis of all of that, we entered into correspondence. That correspondence, as you know, disputes many of the facts and that correspondence ultimately will lead to investigation by regulatory authorities in India, and we will cooperate openly and willingly with those authorities. So you made a number of assertions. I can't comment upon them because I'm not sufficiently knowledgeable to do so. All I can tell our shareholders is that we take any suggestion of fraud very seriously. We will have it investigated fully independently. And at the end of the day, if we end up with disputed facts, we will share the evidence we've got and our customer will do the same to the appropriate regulatory authorities and seek their determination as to what the judgment says and what the remediation required is. So that's all I can say.

Unknown Shareholder

Fair enough, Mr. Chairman, if I can just ask you one last question.

Douglas Jardine Flint

No, we're going to keep it to 1 at a time. I'll come back to you if we have time.

Unknown Shareholder

Fair enough. It's a continuation of the same question, Mr. Chairman.

Douglas Jardine Flint

No, no you had a very long question. Can I -- I will come back to you if we have time. Question at the front please, Number 6. You've had -- Mr. Das, you've have a very, very long statement, as well as a question. Number 6, please.

Unknown Shareholder

Phil Clark, shareholder. Would you mind if I ask a question about the Annual Report and Accounts, please? Hopefully, you'll be able to carry on the smile. Thank you for the marvelous increase in profitability, thank you for the increase in dividend and the share price, that's been great. It's noticeable that actual -- main drivers behind that has been the decreasing impairment charges. Now I think I stood up at last year's meeting and asked about what proportion of the impairment related to; the opening balance sheet, and it turned out that last year's $12 billion, about 2/3 of it related to balance sheet. So can I repeat the question please how much of the $8 billion charge related to the balance sheet at the end of 2011, i.e. how much were we underprovided at the end of 2011? Also, can you -- the report -- a lot of the rebalance was in North America, which is why the impairments have fallen so much, but can you confirm to us that the $43 billion is now -- relating to CML, is actually properly provided for and there are no more bad news to come from that, please?

Douglas Jardine Flint

I always used to say as Finance Director, hopefully there would be a question on the account so I get the chance to answer. I'm going to start and then Iain can add any color. Can I say upfront there's absolutely no question that we were underprovided in the opening balance sheet or in the closing balance sheet. We adopt very robust processes and scrutiny over our provisioning. And we would hope that the majority of our provisions does relate to what was in the opening balance sheet, because we would hope that ending wouldn't go wrong within the year in which we made it. But of course events happen to customers that are not delinquent at the beginning of the year but fall delinquent during the year, so that would be in your first instance. I don't know whether,Iain, you want to venture an estimate of how much was in the opening balance sheet?

Iain James MacKay

No, I'm happy to go into that. I think your main interest, Mr. Clark, is in the run-off portfolios in North America, the old household finance company. At the beginning of last year, the allowance for impaired loans that we carried was USD 5.8 billion. At the end of 2012, the provision that we carried was $4.5 billion. The amount outstanding at the end of the year as you say was about $43 billion. Since the end of the year, we've sold about $3.7 billion of unpaid principal balance, so that brought us down to slightly below $40 billion in terms of outstanding receivables. We'll continue to manage the runoff of that portfolio both through sales of defaulted loans, as well as just the continued payment of customers. And where customers are no longer able to pay some of those balances will be charged off at a certain point in time. But at the beginning of the year, or rather at the end of last year, we are absolutely adequately provided not only for the state of the book in North America but also for the portfolios that we carry around the rest of the world. Clearly, as experience develops over the course of the year, principally indicated by customers' payment, or perhaps more importantly, nonpayment, we revisit on a monthly basis and very rigorously so, the level of provisions that we'd require. And this is generally driven by economics, what's going on around us in terms of propensity to repay loans outstanding. But certainly at the end of the year, the provisions that we carried were more than adequate, and we revisit our requirements based on performance of the portfolios on a monthly basis.

Douglas Jardine Flint

Yes, thanks very much. Gentleman on the front, number 5.

Unknown Shareholder

John Dancy, ordinary shareholder. Does the Board think it would be in the best interest of the bank and shareholders, if the United Kingdom remained a member of the European Union? And if not, if we left, what impact do you think that might have on the very optimistic report you've given about our future?

Douglas Jardine Flint

Gosh, that's not a small question. Any trade area, and economic area exists to maximize the opportunity for activity, and I believe the EU has done a great deal in that regard, as well as the political objectives. I was asked at Davos after the Prime Minister's speech what we thought, and I said then and I'd say again, we don't have a political -- we were politically neutral but I believe it's important that out of everything that happens in the next several months and years, it's important that the product of all that happens, whatever it is, is that Europe comes out stronger and that Britain remains at the heart. And I believe that to be true. I think it's really important to be in major economic relationships, whether it's part of a union or relate -- trading relationships with it. I mean you see the strength of NAFTA. You see the strength of what is becoming an enormous trade area around Brazil, around China and around the European Union. So at a time when Europe is negotiating trade agreements with America and with Japan, you can see that at the heart of these communities is a commitment to try and drive economic growth from more trade, and that's what we're focused on. I think it's really important that we do collectively across the world everything that can be done to restore confidence that people can make economic decisions that last some years in the future and while there's certainty around what the trading relationships might be, that is not good for confidence. Thank you. There's a lady on the -- my left, number four.

Unknown Shareholder

I'm a french journalist working from France, too and actually I have this list here of the so-called list HSBC from the whistleblower.

Douglas Jardine Flint

May I ask, are you a shareholder?

Unknown Attendee

No, I'm a journalist. Can you just confirm that all the 121,414 accounts of HSBC Geneva are legal, declared to tax authorities are not offshore? Can you confirm that? It's for the French public channel, France 2.

Douglas Jardine Flint

I think this is a meeting for shareholders, and I don't have the knowledge to answer your question, so I'm sorry.

Unknown Attendee

So you don't know if there are accounts in HSBC Geneva that are undeclared that are offshore? You don't know that the accountant saw this question. It is important for your shareholders to know that.

And the question was asked several times.

Douglas Jardine Flint

This is a shareholder meeting. I've said at the beginning, we...

Unknown Attendee

Then, I'm sorry Chairman because we asked -- we requested a lot of time, interviews but all of the time, it was refused for us. So I'm obliged to ask you this question right now. And actually I have the so-called list HSBC with me.

Douglas Jardine Flint

I -- can I suggest that you talk to our press people who are here later. I think that's a very, very detailed question and I'm not going to be caught answering it in this kind of a forum. Thanks very much. Can we have another question, please? The lady to the middle there. Thank you. Can I have the question from the lady behind you, please? Thank you very much. Please. I'm not going to answer the question, I'm sorry.

Unknown Shareholder

An ordinary shareholder. Basically I'm afraid mine is slightly along the same vein. About 2.5, 3 years ago, it became clear, for whatever reason, the U.K. government was cutting back on its tax inspectors international fraud level. They were making I think about 7x as much money for the U.K. tax people than they were earning in civil-service salaries. So there was a culture. Mr. Chairman, could we have the promise that what is now in the past probably cannot be changed but this dreadful overworked word of transparency, you substitute honesty for your shareholders, so that we know in the future we are not going to get the kind of shocks that we have received during the year 2012?

Douglas Jardine Flint

Absolutely. And I think that the way to governance honesty is transparency. I think the way you can judge whether we're being honest is that we will be transparent. But yes, I can give you that commitment. Let me have another question, please. Gentleman number 5, yellow, yes.

Unknown Shareholder

I'm a shareholder and a pensioner. Independent nonexecutive directors. I read from Page 311, in accordance with the rules governing the listing of securities on the Stock exchange of Hong Kong, each nonexecutive Director determined by the Board to be independent has provided an annual confirmation of his or her independence to HSBC Holdings. How does that work in practice, sir? And does the bank also certify the independents and what criteria are used in assessing independents?

Douglas Jardine Flint

So individual directors are asked to list all the associations they have of their directorships, charities, affiliations or whatever and asked to make a judgment as to whether any of those associations or connections would put them at conflict to the role they have as an independent directors of HSBC. The Board then -- the nominations committee and then the Board reviews those certifications and determines whether there is anything in them where they would take a different view or like to get more information. And then the Board reaches its determination as to whether individual directors are truly independent. Anything else?

Unknown Executive

We use a criteria under the U.K. corporate governance code and Hong Kong corporate governance code.

Douglas Jardine Flint

So we are guided by the U.K. and Hong Kong corporate governance codes in making that determination. Okay? Mr. Mason Mahon.

Unknown Shareholder

Yes, we have listened to you. But first of all, allow me to start with thanking all the staff that I've had dealings over the years at HSBC and that is the good stuff. But I also have to -- before I start my question -- and it is only one question but it's in 3 parts, I have to state that I have never ever conducted a bitter or hatred campaign against the Executive and it's Board. This is what your staff have stated in internal documents. I have questioned the judgment of the Board. I have shown their illegal behavior around the world. I have advertised it all over. But what concerns me is why did it take threats of criminal prosecutions before HSBC group stopped its criminal behavior? U.S. Treasury from 2000, GBP 100,000 benefiting the Taliban. Stephen Green's response, this is singularly and wholly irresponsible attack on the bank's international compliance procedures. For the lady down who asked the question about tax savings. You had GBP 2.4 billion in the Cayman Islands, but you didn't have 1 office or 1 member of staff there. 2005, 2006, you were warned by your deputy Chairman, David Hodgkins of the Middle East that 90% of transactions passed through this bank accounts with no disclosure of the ties to be worn. 2006 to 2010, internal documents show HSBC declined to cut ties with the bank before reversing 1 billion. Outside auditors, Deloitte's, showed that 25,000 transactions totaling more than 19.4 billion in [indiscernible]. According to the report, twice in the past 10 years, HSBC has been cited by the U.S. Bank regulators for deficiency in anti-money-laundering policies audit to take corrective action. What did you do Mr. Flint as the Finance Director for -- and I remember last year, you pointed out 17 years, sir? And did this Board of Directors do to stop the illegal behavior? In India, the bank has treated drug cartels in business terms linked with terrorism, so much better than they have treated the innocent people in India. Even today, people are being abused by HSBC in India. Mr. Chairman, has HSBC accused an innocent man of fraud and have him put in prison for 45 days? HSBC has a history of abuse of customers not complying with rules and regulators around the world. In India, you're still abusing customers. Mr. Das came to me for help. I owe it to you that I was going to help him. Your response, close then our accounts, both of ours. But not only that I don't mind, you could be just folding me up and said "Look, Michael, go." But what you did do and this is what makes me laugh, and especially from Mr. David Lewis, Head of Customer Relations, you actually wrote to the FSC, saying, "These people will come and complain about us, just to be advised". Amazing. You run to the regulators saying, "These 2 people bad men", crying your eyes out. And I'm sorry, I'm not going to the FCA about you closing my account. I go to the FCA about your illegal behavior, yes. You talked about last year where you turned around and stated, we've never knowingly asked for blank LOIs. In India's media, a lot of it has come out. NOIs around the world are saying that you've accepted blank LOIs. And where you have just turned around and spoke to Mr. Das concerning his case, Mr. Heneti [ph] wrote to him on the 15th of March, telling him give us more documents. Amazing. You know of the documents, Mr. Heneti [ph] doesn't and he's your legal counsel. Are you asking shareholders and the world to believe, for 10 years, you and this Board of Directors knew nothing of the illegal behavior going on? The question is, have you been negligent? Have you failed in your duty as the Finance Director? You have wrote to the RBI about me, Reserve Bank of India. Shocking. Because earlier this week, I decided I'll have a conversation with Dr. Batichalia [ph], Joint Secretary, Head of Grievance of Financial Services of the Ministry of Defense in India who is writing to the RBI, asking for an investigation into the behavior of HSBC in India. Will this be another U.S, we have billions of dollars of fines? And let me look at Mexico, 47,000 people have been murdered by the Mexican drug cartel. Over 187,000 innocent people murdered by terrorists...

Douglas Jardine Flint

Is there a question Mr. Mason Mahon?

Unknown Shareholder

Yes.

Douglas Jardine Flint

Can we hear it then?

Unknown Shareholder

Why can't you tell the truth? Mr. Gulliver goes around the world telling its errors that you've done, but the fact of it is he studied law at Oxford University. Your behavior is not errant, it's criminal. You have turned around...

Douglas Jardine Flint

Is there are question Mr. Mason Mahon, please?

Unknown Shareholder

Yes, out of the 9 directors that have been here while the criminal behavior has been going on, you expect us to believe that you knew nothing about it when even your own executives were telling you about it. Please. If you want to turn around and tell the world that you have the 3 monkeys, see no evil, hear no evil, speak no evil, fine. This is a great bank with a lot of good staff in it. Problem is we need a change of leadership. Thank you.

Douglas Jardine Flint

Well, there's a great deal in that, a lot of which I don't agree with.

Unknown Shareholder

What? Criminal behavior?

Douglas Jardine Flint

Please, you've had really quite a lot of time. It took a long time to understand the depth of the problems, because there were weaknesses in our systems, of which we were unaware and we have said publicly that we are responsible for those weaknesses and not knowing what was going on. And we have been held accountable for those weaknesses. I cannot -- we cannot undo the past. As soon as we -- and if you read the full PSR report and the DOJ statement of facts, you will see many, many references not just to our corporation but to the actions that we had already taken before final settlement was reached last December to begin to remediate areas of weakness, the severity of which we were not fully aware of. And that is what this Board has consistently done and that is what our staff have consistently done. They have responded to facts as they got to know about them. Now we have freely admitted and taken responsibility that there were many areas where we should have known more, where escalation should have been stronger. And that is the centralization of control, the significant, the extraordinary increase in compliance and control resources that we are rightfully inserting into the organization today, the recruitment of a fresh set of eyes on financial crime, a refreshing of the compliance architecture around the world, the creation of the financial assisted vulnerabilities who have committed to get ahead of what might come out at us at the future. I cannot -- we cannot change the past. I can do no more than apologize but what I can tell you is that as soon as we were aware of issues, we sought to address them with the benefit of hindsight, many would say you should have done more faster. We cannot argue with that. But I don't accept your comments about our values, and I don't accept the other comments you made about the conduct of directors or other executives of the Board. We have gone through an enormous interim examination and we have been examined by our regulators and by law enforcement in many, many countries. And we are now committed and are taking the steps to put ourselves far beyond where we were. Thank you. There's another question, please. There's a gentleman in the front, second front row, number 5.

Unknown Shareholder

My name is and [indiscernible] and an ex-engineer and a shareholder. This is a question for Stuart Gulliver. Main thing this question has to do with the Premier accounts. It's been bugging me for the last 2 years and I've spoken to various people. I'm looking at the 4 competitive or -- well, I'm still happy as the other banks, where the product is divided and the facilities they gave within their range is much more than what HSBC does and I would like to discuss this fully after -- at the break. I will be grateful. And there is another issue as well. At the same time, must think positively that Richard Knight and few people, David Lewis, they've been wonderful during the year, and the past to help me as well. Thank you.

Stuart Thomson Gulliver

Thanks very much. I look forward to meeting out with you afterwards and Antonio Simoes who now runs the U.K. bank and I will talk through the Premier proposition, very happy to.

Douglas Jardine Flint

There is a gentleman on -- number 4, to your right, gentleman.

Unknown Shareholder

My name is Ugun Ruh, a shareholder. My question is this. In the day-to-day organization of the bank, will you take into interest -- will you take into account your interest in the country because not long ago, I read in the -- in a professional magazine that 1.5 billion loan has come from Israel to Britain which I find very strange because there is a looking a place like Brixton, Stoke Newington, lots of black people all unemployed, several graduates in the country underemployed. So is there a special relationship with Israel regarding this matter or what? And secondly, -- if you answer the first one please then...

Douglas Jardine Flint

You've kind of stumped me, actually. I'm not familiar...

Unknown Shareholder

What is it, 1.5 billion or 2.5 billion loan from Israel, to this country. Yes, in professional magazine. Well, I mean, this upsets the banking system of this country. I'm sure, such a large overdrafts. Why there is a lot of unemployment and underemployment, instead the Department of Employment, Department of Education is creating more graduates?

Douglas Jardine Flint

Let me answer the second part of your question. I don't think I can comment, because I'm not -- I'm just not familiar with this loan...

[indiscernible][indiscernible][indiscernible]

I'm just not familiar with this loan...

Unknown Shareholder

Yes, maybe your -- the DR[ph] division can always be aware and it seems to account...

Douglas Jardine Flint

It's a great challenge for the government, I have to say.

Unknown Shareholder

Yes, I'm surprised.

Douglas Jardine Flint

In relation to unemployed youth, we're doing a great deal in the U.K.

Unknown Shareholder

Not the youth. I thought we were talking about the grown-ups.

Douglas Jardine Flint

No. We're doing a great deal in the U.K. to help disadvantaged youth who are not in education, employment or training and working with a large number of not-for-profit organizations that work in the less fortunate communities of this city and, indeed, throughout the U.K. So we are doing a little bit, but it's actually a meaningful bit for the challenge of youth unemployments among the ethnic communities, in particular. There's always more we can do. I cannot comment on Israel.

Unknown Shareholder

Yes, maybe it's worth researching. Secondly, since the death penalty was abolished, I noticed that, well, it is common knowledge that several people with serious convictions have stick through into the professionals and into businesses. Now they are writing because of what? Those fast overdrafts. I would like that checked because this will increase violence in the community, in the country, which is bad. Especially with our relationship with the common market, a totally different part of the world.

Douglas Jardine Flint

Thank you, thank you. I don't know how to answer that. Another question, please, gentleman on the left, number 4 again, gentlemen 3 and...

Unknown Shareholder

My name is Prasad, I'm a shareholder. In the reports of the bank, there continues to be quite a lot of optimism about China. There's a stress on growth rate, urbanization, and such factors. But recently, we have been hearing about weaknesses in the financial sector, and that is the sector in which you're operating. I wonder if you can give us some assessment of these reports of weaknesses, and what is your own view? I know you stressed good platform, you have your historical involvement and so on, but there are some really serious reports, which to me, would require some cautionary approaches. I wonder if you can give us your own assessment of the financial sector in China.

Douglas Jardine Flint

That's a very thoughtful question. I'm going to ask Stuart Gulliver to answer you. Not only is he the Group Chief Executive but he chairs The Hong Kong and Shanghai Banking Corporation, through which we do most of what we do in China. Stuart?

Stuart Thomson Gulliver

Yes, it's a good question. So obviously, China's GDP has slowed from 13% that we saw a couple of years ago to being around about 8% or slightly lower in the first quarter. We still think that the full year 2013 will be about 8%, 8.2%. But there are 3 parts of the financial services industry in China that we need to focus on. One, obviously, is banks and the extent to which the banks will see greater nonperforming loans, in part, because of the hangover from the big fiscal stimulus that China did in the first quarter of 2009, when we were in the center of the global credit crisis. And the extent to which that huge stimulus resulted in some bad debts. Now our view is that most of the nonperforming loans within that, that the banks have been provided for and are conservatively provided for. So the risk sits in 2 further parts of the financial services industry in China. One, in local government funding vehicles. So there's quite a lot of local government debt because the way the system tended to work is the local governments, when they have revenue, sent it to Beijing and they therefore tended to develop property and then, sell it on to raise their own money to spend domestically. And clearly, that only works if you can actually sell the property on. So there is a local government debt overhang, which we think will get restructured, really, by the creation of a municipal bond market. If you add together local government debt with the federal government debt, the debt to the GDP of China is still very conservative. It's still under 80%. There's then a shadow banking industry that's developed in China around -- mostly around trust companies. And within that, there's a lot of wealth management products that are being developed. And this is an unregulated area that the China and banking regulatory commissioner is starting to put its hands around. I'm actually on the International Advisory Council of the CBRC, so the China Banking Regulatory Commission, and there's a lot of focus on getting regulation into that particular area. Now the longer-term impact of this is actually that as China continues to reform and actually, the reforms, I think, will continue at pace because the GDP slowed down rather than being postponed, you'll see the development of the liberalization of interest rates, you'll see the development of a bond market. And the development of bond market is much more -- a much more stable way of financing the kind of infrastructure development that China still needs to do. So there was, again, a bit of a focus on the fact that China's capital spending on infrastructure has been very high compared to other economies. The fact is they do still need to build the bridges, the roads and the railways and so on. So you're right to point this out. I don't think it's the banks. I think -- I don't actually think it's the local governments. It's actually the shadow banking industry, the so-called trust companies and so on. And the regulators in China are hugely focused on this. But it's still within an economy that's going to grow 7.75%, 8% this year. So we're absolutely aware of it. We're very, very focused on this to protect you as a shareholder. But I do not believe it represents a significant risk at this moment in time.

Douglas Jardine Flint

Thank you, Stuart. In the center please, number 6, if you can reach it. Oh, you've got one.

Bill Oddie

Yes, I've got a mic, yes. Bill Oddie, a simple shareholder. Already quite a few words today which I'm familiar with, I was handed a sustainability leaflet. The word global, mentioned quite a bit earlier on, and even one mention, I think, thanks to Mr. Gulliver, of the word organic. These are words which I'm very familiar with as an environmental -- I mean, in an environmental context, of course, usually referring to the weather, pollution, state of the ocean, wildlife or whatever. And you might say what, surely, that's not relevant to this particular meeting. Well, I think it is. We also heard what's amounted to an apology, something I never thought I'd hear, about the reputation and the image and the public trust of the bank, and the apology was yes, there have been some pretty awful stories about some pretty dreadful things over the past year or so, and you would be avoiding those things in future. And you mentioned 1 or 2, it was a list of about 6. There was narcotics, money-laundering. There was all monetary crime of various kinds. And no mention, though, no mention whatsoever of environmental damage of wildlife habitats, et cetera et cetera, whereas, in my opinion, that is a major crime. And here's the connection, in fact, HSBC, and no doubt other banks as well, have been financing that crime. And let me give you a very specific example, which shareholders here may not be aware of. In Sarawak, which is part of Borneo, 95% -- that's a sort of figure you can't ignore, 95% of the natural forest has been damaged there. There's virtually nothing left. The country is run by a ruler, he calls himself the chief politician or something -- I can't remember what it is, but no, not king or anything like that. But he and his family have ruled this country in Sarawak for a long time. He's actually under investigation by Malaysian corruption bodies and so on and so forth. And yet, and I've been to Borneo myself, I've seen it going on, the logging is completely rampant, so is the planting of palm oil. Anybody who doesn't know about palm oil, well, Google it, have a look and you'll see what I mean. It might as well be a green desert, there's nothing there. And on top of that, there've been some extremely nasty incidents of driving local people off their land. Now if that isn't a crime, I don't know what is. It's not monetary crime perhaps, you'd say, but it is a crime, and HSBC have funded -- and for some time, several of those very, very dodgy companies indeed. And you might say, "Well, okay, it's terrible isn't it, but Sarawak has a long way away. It doesn't really affect us, and so on and so forth." All too easy to say things like that. And in fact, all too untrue. Because what's happening is that those logging companies and the palm oil companies have got the confidence and the power, and if you like, even the reputation, because they have been funded by HSBC, to expand. And they are expanding right across the world. They choose countries where the government is weak, the leadership is weak. There is the African companies, Papua New Guinea and so on and so forth. And exactly the same thing is happening there. In other words, there's a huge desecration, which at root, I'm afraid, was funded by HSBC. So what are we hoping to achieve? I'm here with an organization called Global Witness, who got all the facts. Go to their website, you'll see what they do and you will see, by the way, an extraordinary film which is taken under cover of the leader in Sarawak actually, if you like, being corrupt before your very eyes, it's like something out of a James Bond movie, because he's a guy with his [indiscernible] on top and ask him why and she retorted, basically said, "You can have anything you like. All it takes is a little bit of money. Oh, that one, that's for my wife, this is for my daughter." It's quite extraordinary to actually witness that going on. So it's not formal or anything like that. That's how it's done. It's basic crime.

Unknown Attendee

[indiscernible]

Bill Oddie

Oh, I love people behaving like school children. Sorry?

Unknown Attendee

[indiscernible]

Bill Oddie

If you haven't wasted about 30 seconds there. If you won't waste your 30 seconds, they would've gotten there so much quickly. I'm here, first of all, going to actually thank HSBC. Am I allowed to do that? I'll do it quickly. Thank you for actually responding very quickly to our report. And I know you've issued a statement today, saying there will be self investigation, which is great. Obviously, that's the first intention. What we want to see now is action. And what I would like to challenge HSBC, too, is to set an example to other banks and work out a code of conduct, which isn't just sort of signed off and shows that you're doing or thinking about the right thing, you know what it is. I want to know whether -- what's going to happen next. Okay?

Douglas Jardine Flint

Thank you. Thank you very much. I'm going to pass to Stuart for the detail, because he's been tracking this since last November when Global Witness came out with this report. But just in preamble, I think HSBC were the first bank to have a policy on logging and forestry. And we absolutely welcome the opportunity to engage with NGOs to benchmark our policies against others and to identify whether there are things of which we are unaware, whether there are better standards that we can apply. And as Stuart will tell you in a minute, there's a great deal more than designing policies. We take action as well. Stuart?

Stuart Thomson Gulliver

Thank you. Thank you, Mr. Oddie. So as Doug has said, in 2004, we were the first bank to have a forestry policy on logging and timber. And the timber bit, I think, is reasonably easy to check. This was 2004, okay? Because the Forestry Stewardship Council has become the accepted external certification process. Palm oil, as you know, is more difficult, because the Roundtable on Sustainable Palm Oil only certifies about 15% of the production that's around. We have obviously responded very quickly to the Global Witness investigation, and we're not self-certifying. We've appointed Proforest, who are an independent consultant that deals with logging, timber and palm oil as a subset of it. So basically doing an analysis of our policies, and whether we're actually following our own policies, because that's what The Economist article on the original report was talking about. And also Pricewaterhouse, again, to do an audit of that. So actually, to be honest, we are frankly pointed in the same direction, and let me expand a little bit on this. There's 4 levels, and specifically, palm oil. There's 4 levels in this chain, there's the plantation owners, there's the processors and they both tend to be local. Then, you've got kind of the multinational traders, and you end up with multinational consumer goods companies. And actually, to deal with this palm oil issue, you yourself, and you as an environmentalist, are going to need to look at demand, because actually, anybody are eventually going to kill this, as an issue, is to remove the demand. And palm oil is in cosmetics, it's in food stuff and it's actually a biodiesel resource as well. And actually, clearly within Indonesia and Malaysia, it's about 5% of GDP. So it's not a massive amount of GDP, but clearly, it is an important crop to those governments. We absolutely don't pay lip services, and actually, what I'd like to do is to invite you to work with us on this. Because in all seriousness, we can be a force for good because -- and that was the whole point of the 2004 policy, because actually, we can influence the local people and we can influence the big multinational companies, because I think what we've got to aspire to do is to get the Roundtable on Sustainable Palm Oil standard, so it's an industry-certified thing, not done by independents or done by us, or anyone similar, to go from certifying about 15% of production to 30 or 40, because if we simply exit the sector, which is part of what those -- some talk about doing, you can be pretty sure the regional banks will step in, finance this, and you'll have no leverage over them. You clearly do have leverage over us. And we absolutely would like you to work with a strategy to sort this out. Now within some of this stuff as well, there's the issue of the Chief Minister in Sarawak. I can't talk about specific clients. I'm bound by the bank to secrecy. What I can tell you, though, is the Global Standards we've been talking about and in fact, the Global Standards are about -- or adopt Transparency International, which you'll be familiar with it as an NGO, which has certain standards of corruption, we apply those Global Standards and the 6 filter everywhere. So you can be absolutely certain that we're, again, aligned in our views on this. So what I would honestly ask you to do is give us the chance to actually be a force for good in this regard.

Douglas Jardine Flint

Is there another question? I can sense we're drawing to the end. Where? I beg your pardon. In front of my face.

Unknown Shareholder

I'm David Fairby, ordinary shareholder. I've come all the way from Leeds, and I'm a shareholder in 7 banks. Last year, the LIBOR scandal broke. Is HSBC under investigation for the manipulation of LIBOR?

Douglas Jardine Flint

HSBC, every single bank that's a LIBOR participant is responding to multiple inquiries in multiple jurisdictions.

Thank you. Is there a final question or should we move on? Mr. Mason-Mahon, I will give you one more question if you simply ask a question, a short question? Yes.

Michael Mason-Mahon

As I represent a lot of German shareholders, as you very well know. Germany cannot support -- the German shareholders cannot support certain people in this bank, in addition, they know that the company is under -- currently under investigation regarding certain LIBOR, Europe...

Douglas Jardine Flint

The question please?

Unknown Shareholder

Yes, we're asking about that -- what has been done with this investigation, and are you admitting the liabilities, because at the end of the day, after listening to everything you've said today and the apologies that you've made, Mr. Chairman, you're asking the world to turn around and forgive you. I'm really sorry, but Mr. Chairman, the question is what are the fines likely to be, because we've just paid GBP 300 million for offenses, again, in America. So and that was in relation to the loans and foreclosures in the U.S. So basically, in the U.S., we haven't paid 1.92 billion, we have paid somewhere in the region of 1.6 billion.

Douglas Jardine Flint

You're making a statement, what's the question, Mr. Mason-Mahon?

Michael Mason-Mahon

Are you going to resign, sir? Because for the simple reason -- Mr. Chairman, at the end of the day, after listening to this, the only thing I can say, are you Scotland and HSBC's answer to Pinocchio?

Douglas Jardine Flint

I think I can say the answer to that is no. You've made your point. No, I'm not going to resign. But because I stand, as every other member of the board stands on an annual basis for reelection, so shareholders have the chance to express their views every year on every Director. So that's my answer.

I sense we should move on, so with those in favor of the motion to receive the 2012 Annual Report and Accounts, please press button 1, with those against, please press button 2, and with those who wish to withhold their votes, press button 3. Please vote now.

[Voting]

Douglas Jardine Flint

Voting has closed. The numbers of the votes cast are on the screen behind me. The motion is carried. The next item of business is to approve the Remuneration Report for 2012. This report was prepared to meet the fuller disclosure and transparency guidelines set out in draft regulations from the U.K. Government's Departments of Business, Innovation and Skills. I hope that the comprehensive disclosures, a better remuneration strategy and structure and the details of individual awards will help to answer some of the questions frequently raised by shareholders. The quality and commitment of our people is fundamental to our success. And accordingly, the board aims to attract, retain and motivate the very best people. As trust and relationships are vital in our business, our goal is to recruit those who are committed to maintaining a long-term career with this organization.

HSBC's reward strategy supports this objective through balanced, single short-term and sustainable referral. Our reward strategy aims to reward success, not failure, and be properly aligned with our risk framework and risk outcomes. In order to ensure alignment between our remuneration and business strategy, individual remuneration is determined through an assessment of performance delivered against both annual and long-term objectives. Summarized in performance scorecards and adherence to HSBC values of being open, connected and dependable and acting with courageous integrity.

Altogether, performance is judged not only in what is achieved over the short and long term but also, how it is achieved, as the latter contributes to the sustainability of the organization.

The financial and nonfinancial measures incorporated in the annual and long-term scorecards are carefully considered to ensure alignment with the long-term strategy of the group. In addition, our funding methodology considers the relationship between capital, dividends and variable pay to ensure that the distribution of post-tax profits, among those 3 elements, is considered appropriate.

In broad terms, 2012 post-tax profits were allocated 60% to retained earnings to increase our capital base, 29% for distribution to shareholders as dividend and the 11% as a variable pay pool for all employees.

The cost of fines, penalties and redress have had direct effect on the variable pay pool through their impact on underlying profits. In 2012, the overall pool was further reduced by the Remuneration Committee to reflect the reputational damage incurred from the U.S. legal and regulatory fines and penalties, and to shift the higher proportion of the impact to the variable pay pool.

Furthermore, for the Executive Directors, the group Managing Directors and the group General Managers, the deferred elements of the 2012 incentive awards have been deferred for an extended period of 5 years, and we'll vest subject to satisfactory completion of the deferred prosecution agreements, and subject to the terms of the Group Performance Share Plan. Addressing a matter of public interest, the cost to shareholders of performance-related rewards made within Global Banking and Markets business in 2012, and during the past 4 years, amounted to some $1.2 billion and $6 billion, respectively. To put it into context, the pretax profit from Global Banking and Markets was an aggregate $35 billion in the same 4 years and represented the largest contribution of group pretax profits during that period.

I now propose that the Directors' Remuneration Report for the year ended 31st of December, 2012, be approved. Are there any questions in the Remuneration Report?

Gentleman in the -- to my middle right? Number 6, I think. 6.

David Howell

Much has already been said about the billions of pounds that have had to be paid in fines, the money laundering offenses, LIBOR rigging and there is also the mis-selling of financial products, such as inappropriate interest rate swaps, small businesses and payment protection insurance to private individuals. And Wednesday night's BBC2 program was a solitary reminder of the dubious practices that we used in the selling of these products. Dare I hasten to prophesy that the next possible crisis could possibly be interest-only mortgages. During this time, large amounts have been paid by way of salary benefits, bonuses and share incentives to you, Mr. Chairman, and various members of this and past boards, who were in situ when these offenses occurred. Would you please advise shareholders how much money has been recovered during the past 5 years by way of clawback, and specifically from whom these moneys have been recovered? Should not these figures be published in the annual accounts? And I apologize for not saying that my name is David Howell, shareholder and a retired member of staff.

Douglas Jardine Flint

You make a very good point. The Remuneration Committee has exercised clawback for the last 2 years. It's really only been in the last couple of years that the opportunity to adjust past reward has been available, and I think it's been one of the most important regulatory changes that's been basically put across the whole industry. But certainly in the U.K., a larger, around larger elements of reward to senior executives is deferred and is subject to clawback. And that gives us the ability to not to punish, because that's not the purpose of the policy, but to say, had we known at the time of making the award what we now know, we would've given a very different reward. Most of the events that you've described took place a considerable period of time ago, and therefore, not with the arrangements in place nor, indeed, where many of the people involved hid in such a way that there was anything to claw back. But I think going forward, the opportunity to do so is a really important one. And the Remuneration Report does set out the extent to which we have applied that policy. Thank you. Mr. Mason-Mahon, you've moved seats but I still see you. Just on...

Michael Mason-Mahon

In relation to -- I will -- be quickly about the German shareholder and the German shareholder proposes any remunerations in relation to LIBOR, the U.S., 1.9 billion in fines. A couple of facts. Just from 2006 to 2010, while this illegal behavior was going on, between the directors, Mr. Green, Mr. Kegan, Mr. Flint, Sir John Bond and 2 years later, Mr. Gulliver, you have turned around and received bonus awards and paid packages totaling 132,905,000 -- over 132,905,000 for 5 people. Can you tell me, and tell us, the deal that you did with the DOJ and on that 1.9 billion, was this to stop any of the director's name just now from going to prison? Did -- were shareholders' money used to stop directors from going to prison? Because at the end of the day, you are stating, and you have stated, as Chairman of HSBC Holdings plc, that you will not be asking for money back from those shareholders, but you have from one of the directors called a great man, Sandy Flockhart. And I have 1 final question, and I'll let you answer that question first, and then, I'll have 1 final question with you, if you would allow me, Mr. Chairman.

Douglas Jardine Flint

I think it's ridiculous to see...

Michael Mason-Mahon

I can make the next question very simple.

Douglas Jardine Flint

Okay. The -- there's absolutely no question that shareholders' money was used, nor would it be possible within the U.S. system, to pay to avoid individual accountability being brought upon individuals who were held accountable, so that is absolutely not true. Indeed, if you read the statement of facts, which was put out, which is a pretty sobering read, and one which we've required all our senior executives to read, it makes very clear that the reason -- the basis of reaching the agreement that was reached was founded upon through cooperation, the provision of valuable assistance, the production of more than 9 million documents, including a large number of documents from affiliates who are outside the United States. And endless -- 2 or 3 pages of commitments in terms of the actions that the leadership team would take to remove, so far as possible, repetition of the violations that were identified. So that was the basis of the settlement, and it's set out in a public document.

Michael Mason-Mahon

Well in that case, allow me, from the shareholders and customers in India and myself and customers that you've violated in the United States to offer you our bonus, and it's quite simple. It's just an orange jumpsuit, which I know the banking commission would've loved. We do have one from -- oh, this is Mr. Gulliver's one, and I know how much Mr. Gulliver likes his initials on the actual cuffs of his shirt, but the banking commission, I do believe is looking at you very seriously, because of what you've agreed to -- and I'm sorry Mr. Chairman, and this isn't an attack, obviously...

Douglas Jardine Flint

You said the question was going to be short, Mr. Mason-Mahon. We've seen your shirts, so what's the question?

Michael Mason-Mahon

The question that, how long do we have to put up with 9 board directors who have not turned around and held up being responsible. No Director has been set or resigned considering the 10 years of illegal behavior.

Douglas Jardine Flint

Well, can I reiterate what I said once before. The board individually, collectively takes responsibility for what happened and takes responsibility for its remediation. If we can move on with the business of the meeting, the opportunity to vote on individual directors' re-election will be with us very shortly, and you can express your views then.

Is there another question? Then, with those in favor of the motion to approve the Directors' Remuneration Report -- sorry, there was a question. I do apologize, sir.

David Haslam

Reverend David Haslam, just a brief observation really. So I recognize the things that you've said about remuneration and it gradually being reduced, but I think everybody needs to know that there is still a very strong feeling that bankers pay themselves too much, and this bank paid well over 100 people more than GBP 1 million this year. And for what is produced, the rest of the community, compared to what nurses, teachers, social workers and carers, it's too much. And I hope you're working on that, sir.

Douglas Jardine Flint

It's a broader issue but we understand what you say.

So if I may, with those in favor of the motion to approve the Directors' Remuneration Report, please press button 1. Those against, button 2. And those to wish to withhold their vote, press button 3.

[Voting]

Douglas Jardine Flint

Voting has closed. The motion is carried. At the end of 2012, we said farewell to Narayana Murthy, who stepped down from the board after serving with distinction for 5 years. Narayana is Co-Founder and long-term Chief Executive of Infosys, brought to the board exceptional expertise in technology, operational efficiency and outsourcing methods, as well as an in-depth knowledge of India and of international business through his experience on many multinational and educational boards. On behalf of the board and shareholders, I want to record and recognize our appreciation and gratitude for his contribution to HSBC.

On such report that John Thornton has decided, in view of his expanded responsibilities within his other business interests, not to seek reelection to the board at this Annual General Meeting. John, too, has made an invaluable contribution to the group since his appointment, not the least in his work with shareholders and his position as Chairman of the Remuneration Committee. And I would like, also, to thank him for his counsel and service and wish him all the best in his future endeavors.

We welcome 2 new directors to the board. Renato Fassbind joined the board on the 1st in January and serves in the Group Audit and Group Remuneration Committees. Renato brings to the board considerable international business and financial expertise from a distinguished career in industrial service and financial companies. Renato stepped down as the Chief Financial Officer and a Member of the Executive Board of Credit Suisse Group in September 2010, having served in that role since 2004.

Jim Comey joined the board on the 4th of March and serves in the newly created Financial System Vulnerabilities Committee. Jim brings to the board outstanding governance expertise from both the private and public sectors. In his private sector roles, he acted as General Counsel to leading international businesses and in public life, served at apex of law enforcement in the United States. Most recently, within the private sector, Jim served as counsel -- General Counsel of Bridgewater Associates, LP. And in public life from 2003 to 2005, he served as U.S. Deputy Attorney General, where he was responsible for supervising the operations of the Department of Justice and shared the President's corporate fraud task force.

the personal particulars for each Director standing for election or reelection are provided in the notice of this meeting and on pages 31 to 33 of the Annual Review and on pages 302 to 307 of the Annual Report and Accounts. I confirm that following formal performance evaluation, each Non-Executive Director standing for reelection continues to be effective and they each demonstrate commitment to their role.

Are there any questions please? I would ask that each of the Directors to stand as the resolution for his or her election is proposed. I propose that Safra Catz be reelected a Director. Would you please vote now.

[Voting]

Douglas Jardine Flint

Voting is closed. The motion is carried. I propose that Laura Cha be reelected a Director. Would you please vote now.

[Voting]

Douglas Jardine Flint

Mr. Mason-Mahon, you'd like to ask a question? Very quickly, please?

Michael Mason-Mahon

Very quickly. What is this Director's approach in that and how will she turn around and support the other directors that have been on the board for many years, while the criminal behavior went on in this bank?

Douglas Jardine Flint

I'm not sure I understood your question. Was that a question?

Michael Mason-Mahon

Yes. What is she going to do to support this Board of Directors, and in particular, the 9 directors that were passive during the illegal behavior was going on around the world and still is?

Douglas Jardine Flint

Well, as I've said now 3 or 4 times that the entire board individually and collectively takes responsibility for what happened and for remediating it. So we take it together. She will be part of -- is part of the governance that the Non-Executive Directors exercise over the executives. And that is her role and that is one she performs very well. So can we vote now, please?

Michael Mason-Mahon

I've voted.

Douglas Jardine Flint

Okay. Voting is closed. The motion is carried. I propose that Marvin Cheung be reelected a Director. Can I take it Mr. Mason-Mahon, you want to ask the same question again to every Director?

Michael Mason-Mahon

It is only with certain Directors I have to ask a question, and what did this Director do to stop the illegal behavior by the HSBC Group? And that will be for 1, 2, 3, 4, 5, 6, 7 -- 7 Directors.

Douglas Jardine Flint

The answer is the same for all of them. And let me answer, which is that the entire board governance is the executive, and they do so diligently and collectively. And they have the opportunity to take any independent advice they want and they have the opportunity, which they take at most meetings, to meet in camera without the executive to discuss matters of concern. You can be assured that the circumstances that gave rise to the deferred prosecution agreement and the other criticisms and fines and penalties and regulatory actions were subject of great concern and discussion last year by the board in aggregate and by the non-executives meeting in camera. So I can give you that assurance.

Could we vote on Marvin Cheung, please?

[Voting]

Douglas Jardine Flint

Voting is closed. Motion is carried. I now propose that Jim Comey be elected a Director. Could you please vote now?

[Voting]

Douglas Jardine Flint

Voting is closed. The motion is carried. And I propose that John Coombe be reelected a Director. Please vote now.

[Voting]

Douglas Jardine Flint

Voting is closed. The motion is carried. And I propose that Joachim Faber be reelected a Director. Please vote now.

[Voting]

Douglas Jardine Flint

Voting is closed. And motion is carried. I propose that Rona Fairhead be reelected a Director. Mr. Mason-Mahon?

Michael Mason-Mahon

I strongly object to Mrs. Fairhead being reelected as a Director. Once again, we refer to the illegal behavior of HSBC for 10 years.

Douglas Jardine Flint

Would the shareholders please vote now?

[Voting]

Douglas Jardine Flint

Voting is closed. Motion is carried. I propose that Renato Fassbind be elected a Director. Would you please vote now?

[Voting]

Douglas Jardine Flint

Voting is closed, and motion is carried. I'd now like to hand over to Sir Simon Robertson to propose my own reelection. Simon?

Simon Manwaring Robertson

The greatest pleasure in proposing Douglas Flint be reelected a Director. Please vote now.

[Voting]

Douglas Jardine Flint

Mr. Mason-Mahon?

Michael Mason-Mahon

1.4 million shares is to know I personally turned around. And does the Finance Director hold you responsible for illegal behavior of this bank throughout the world? And if you had the decency, you would actually resign because I don't know -- you are telling us that we're moving forward and this is going to be a different bank. But I don't know whether you are blind or you had -- was asleep when all of this was going on. I object you being the Chairman.

Douglas Jardine Flint

Noted.

Simon Manwaring Robertson

Can I just say, Mr. Mason-Mahon, that just to make sure all the shareholders understand that the whole board has the greatest confidence in Douglas Flint as our Chairman.

Douglas Jardine Flint

Can we vote now, please?

[Voting]

Douglas Jardine Flint

Voting is closed. Thank you very much. Thank you, ladies and gentlemen. And I propose that Stuart Gulliver be reelected a Director. Mr. Mason-Mahon, what's it?

Michael Mason-Mahon

Just to remind you, Sir Simon, your comments at last year when you turned around and talked about the Chairman's greatest -- and courageous integrity, you should look on the Internet on how the Chairman lied to shareholders concerning blank letters of instructions which you already knew about but you still supported him. We cannot support -- 1.4 million shares will not support the reelection of Stuart Gulliver. Once again, we quote the illegal behavior of the bank. I personally can't support Stuart Gulliver because of what is happening in India and the illegal behavior by HSBC persecuting Indian people for debts that they do not owe. Thank you.

Douglas Jardine Flint

Can I say -- thank you, Mr. Mason-Mahon. Can we fast-forward and say that -- are you going to -- you are going to object to every Director who is a Director during the time. So can we take that as read if we may?

Michael Mason-Mahon

[indiscernible] .

Douglas Jardine Flint

You're not going to -- okay, so we can move on. Could we vote on Mr. Gulliver, please?

[Voting]

Douglas Jardine Flint

Voting is closed. Motion is carried. I propose that James Hughes-Hallett be reelected a Director. Could you please vote now?

[Voting]

Douglas Jardine Flint

Voting is closed. The motion is carried. I propose that Sam Laidlaw be reelected as a Director. Would you please note now? Mr. Mason-Mahon?

Michael Mason-Mahon

Once again, we object to Mr. Laidlaw. Mr. Laidlaw has 2 other jobs, he's the Chief Executive of Centrica. He is also the Lead Non-Executive Director of the Department of Transport. I don't think it's fair on the other companies, and in particular, Centrica, to have Mr. Laidlaw share. He should concentrate on his own business. And I strongly object. And one point, we strongly object to the fact that in relation to what went on around the world. Mr. Chairman, very quickly. You will have all the support in the 97%, 98% for every Board of Director to be reelected. All I can turn around and personally say is that the world is turning blind eyes to your illegal behavior. And no doubt, in 5 to 10 years, and you will be the same. You will just get fines, big pockets, move on again, apologize again.

Douglas Jardine Flint

That is not where we are going.

Michael Mason-Mahon

Yes, obviously you are [indiscernible].

Douglas Jardine Flint

Everything we're doing is constructing to avoid that. Can we please have the votes?

[Voting]

Douglas Jardine Flint

Voting is closed. The motion is carried. I propose that John Lipsky be reelected a Director. Please vote now.

[Voting]

Douglas Jardine Flint

Voting is closed. The motion is carried. I propose that Rachel Lomax be reelected a Director. Could you please vote now?

[Voting]

Douglas Jardine Flint

Voting is closed. Motion is carried. I propose that Iain Mackay be reelected a Director. Any questions? Please vote now.

[Voting]

Douglas Jardine Flint

Voting is closed. Motion is carried. A great pleasure in proposing Mr. Simon Robertson be reelected as a Director. Please vote now.

[Voting]

Douglas Jardine Flint

The voting is closed. Motion is carried.

The business now before the meeting is the reappointment and remuneration of the auditor. I propose that KPMG Audit plc be and are hereby reappointed the auditor of the company from the conclusion of this meeting until the conclusion of the next general meeting, at which the company's annual cuts and reports are laid at remuneration to be determined by the Group Audit Committee. Are there any questions? Sir, #6?

Unknown Attendee

Thank you, Mr. Chairman. Just an observation that KPMG, along with BWC and Ernst & Young and so on have been party to an awful lot of tax evasion that's gone on over the last few years, and I really hope that by reappointing them that -- well, I would ask, are there no other companies apart from these 4 because of the way that their copybooks have been blotted. Can we not find someone else who can bring to the bank the kind of integrity which you seek, or if you're not. Hopefully, KPMG are moving towards that position.

Douglas Jardine Flint

We are well served by our auditors. I would say that there are no other auditing firms that can accommodate an organization of $2.7 trillion of assets in 80 countries employing 250,000 people. It takes somebody with the resources of these 4 firms to do that. So that is the case.

Another question, there in the front, #4?

Unknown Shareholder

Thank you, Mr. Chairman. My name is Louise Rice [ph]. I'm here as a proxy for a shareholder named Millicent Jed [ph]. I may be wrong, so I apologize if I am in event. Is it the case that the audit partner of KPMG that -- the audit partner for HSBC was also the audit partner for HBOS who signed off on HBOS' decision to set aside just $370 million for bad loans that turned out to be $25 billion? And given the committee hearings we've had in the last year about the collapse of HBOS and the statements that have been about the lack of oversight, regulatory and management, one can presume auditor at that bank. And how have those concerns, which would have arisen from that hearing been integrated into this election of KPMG, and in particular, the specific audit partner for the company?

Douglas Jardine Flint

None of their views that had so far been published in relation to HBOS have suggested deficiencies in the audit. I know there are those who are commenting thereon, but none of the reviews that have been done have suggested. Guy Behm Rich [ph] has been our lead audit engagement partner since 2010, and the Audit Committee has judged his performance to be extraordinarily constructive, professional, diligent and with high integrity. And so on his basis of all of KPMG stuff, what they do for us that we judge the relationship and we cannot comment on what might be suggested in relation to other accounts. Thank you. Can we have a vote, please?

[Voting]

Douglas Jardine Flint

Voting is closed. The motion is carried.

The next 2 items of business relate to granting to the Board of Directors authority to allot new shares. An ordinary resolution is required to authorize the directors to allot additional shares, and a special resolution is required to disapply preemption rights. These preemption rights would otherwise prevent shares being allotted wholly for cash to anyone other than existing shareholders in proportion to their shareholdings at the time of issue. The general purpose of these authorities is to enable the directors to issue up to a specified number of shares without having first to obtain the consent of shareholders in a general meeting. The need for such an issue of shares could arise, for example, in the context of a transaction, such as the acquisition of a company, which had to be completed speedily. The granting of such authority is common practice, and your board takes the view that it would be in the interest of the company if these authorities were to be renewed.

In addition to the ordinary shares, they need to satisfy options already granted. Under employee share plans, the director will have authority to allot about 3,712,000,000 ordinary shares, and this is equivalent to approximately 20% of the ordinary shares now in issue. Within this amount, the authority would enable the directors to allot up to about 928 million ordinary shares wholly for cash to persons other than existing shareholders. This would be equivalent to approximately 5% of the ordinary shares now in issue. The authority will also permit the issue of up to 15 million preference shares denominated in U.S. dollars, pounds sterling and euros, and these preference shares were created to underpin issues of preferred securities, which are tax efficient regulatory capital and with the attention that they may be used for the purpose of raising further regulatory capital. If any of the preference shares were to be issued, they would, subject to regulatory approval, be redeemable at the company's option. It would carry no voting rights except in exceptional circumstances, but would rank in priority to the company's ordinary shares with respect to participation in any return of capital.

Your directors have no present intention of issuing additional shares under these authorities other than in connection with the company's scrip dividend scheme and employee share plans. Your directors have also undertaken that no capital will be issued, which would effectively change the control of the company or the nature of its business without a prior approval of share -- ordinary shareholders in general meeting. I would like to thank you for having been kind enough to give us these authorities in previous years, and I now propose the adoption of Resolution #5, which is set out in the Notice of the Meeting.

There's a question in the middle of the room.

Unknown Shareholder

Myra Wallace [ph], shareholder and parent of a member staff. Would you please explain why you are stopping the share option scheme to staff? The ones I've got now you're finishing, and there will be no more to share -- product and buy shares. May I ask why...

Douglas Jardine Flint

Yes, yes. The reason is that the administrator of the scheme of -- was due. The plan is becoming increasingly complex to administer, so what we're doing at the moment is evaluating how to set up a new plan that we can get administration for. We can't self-administer, if I'm right. Ralph, is that right?

Rafael García De Diego Barber

It's that when we need a trustee.

Douglas Jardine Flint

We need a trustee. So what we're -- the currency arrangements are having to be changed because the current provider of the international shares save scheme recently withdrew, and what we're doing is getting in place something that we can replace it with. So it will be possible again.

Question at the back, on my left, #3?

Unknown Shareholder

Robin Timset [ph], Mr. Chairman. Can I just ask, from this increased share issue, will they all count for dividends?

Douglas Jardine Flint

Where we'd so issue them, yes.

Unknown Shareholder

Yes, that's what I'm saying. If you do issue shares, they will count for dividends?

Douglas Jardine Flint

Yes.

Unknown Attendee

And would they detract from the main share treasury?

Douglas Jardine Flint

We don't have any shares in treasury. I mean, these shares would only be issued in a context. I mean, the example given most likely would be in the event that the company decided to acquire something for shares, and therefore, they would be allocated to the shareholders of the other company, and we would be hopefully receiving revenues from that investment. So this -- as I said, this is a standard authority we've asked for in the past to cover circumstances today unforeseen where we might need to move quickly. But yes, they would rank for dividend.

Unknown Shareholder

Yes. Thanks, Mr. Chairman. But I just wondered if they were going to sort of come straight from the President to the market or whether they'd come from a central...

Douglas Jardine Flint

These are authorities to -- we have no shares in treasury. These have been issued. Can we vote on resolution 5, please?

[Voting]

Douglas Jardine Flint

Voting is closed. The motion is carried.

As I mentioned, the second part of the formality is relating to the authority to directors to issue additional shares, requires the passing of a special resolution. The effect of this resolution is to disapply preemption rights, which would otherwise prevent shares being allotted wholly for cash to anyone other than existing shareholders in proportion to their shareholdings at the time of issue. To be effective, a special resolution must be passed by a majority of 75% of votes cast. And I propose as a special resolution the adoption of resolution #6 set out in the Notice of the Meeting.

Are there any questions? Can we vote now, please?

[Voting]

Douglas Jardine Flint

Voting is closed. And the motion is carried as a special resolution.

Your directors are seeking authority for the company to make market purchases of up to 10% of its issued ordinary shares. I would emphasize that it remains the directors' policy to maintain a strong capital base, a policy that has served the group very well over the years. As we execute our strategy, the appropriate level of capital to be held will be continually reviewed. Having this authority will give added flexibility if your directors consider it to be in the interest of the company and shareholders to purchase ordinary shares in the market in appropriate circumstances.

Under regulations, which came into force in 2003, listed U.K. public companies that purchase their own shares are able to hold these shares in treasury rather than automatically canceling them. Approval has also been received from the relevant regulatory authorities in Hong Kong to permit any shares that may be repurchased to be held in treasury. Shares held in treasury may be sold for cash, transferred for the purposes of an employee share plan or canceled. No dividends may be paid in shares held in treasury and the shares would have no voting rights. Your directors have no immediate plans to make any purchases under this proposed authority. And I propose the adoption of resolution #7, which is set out in the Notice of the Meeting.

Are there any questions? On the front row, please.

Unknown Shareholder

Frank Busby [ph], a long-term shareholder of Midland Bank and things beforehand. This has never ever been up before adoption before, has it? Share repurchase.

Douglas Jardine Flint

Yes. Almost every year apart from...

Unknown Shareholder

Oh, sorry...

Douglas Jardine Flint

No, no. We missed a couple of years after the financial crisis because the -- even -- exactly, to do a rights issue and then ask for authority to buy back shares would've been curious.

Unknown Shareholder

But there are -- sorry, there are some points I'd like to raise on this. You have a scrip dividend system. It seems crazy to me that you are offering new shares out, then you're talking about the authority to buying back in again. I mean, it'd better to scrap the dividend and have a dividend reinvestment plan. I mean, I'd be more expensive to shareholders so I'd be unpopular there. The other thing is it's -- have you thought about it -- if you do go around -- I know this is a flavor of the month for the city. If you do go around, buying shares in the market, it won't take much for the media to find some poor HSBC customer, just this one, who's been turned down for a loan. And then they say, "They got plenty of money to give to their friends in the city to buy back the shares and they're turning down." I think it'd be a PR disaster because you're not exactly the flavor of the month, are you? Anywhere? Sorry, you are -- I think that was the thing, so think it through. I know there's all sorts of marvelous technical reasons for why we do this and why we do that. [indiscernible] science in that, but the kiddie wings and the city line. But basically, I think you'd be a big PR one. And the other thing, I just put a little plea in there, is I think you're far too kind, likeness to Green or Lord Green before you, indulging those certain shareholders who year-after-year come up and make a big effort and keep yapping on question after question all the time. And he know who I mean. I didn't recognize him here because he wasn't wearing an Indian dress.

Douglas Jardine Flint

Thanks very much. What we're seeking to do in this resolution is give ourselves the flexibility. We've had it historically for a long, long period of time and haven't used it. Because as you say, we've been building capital, and indeed, being in 80 countries, it would be our ambition that we can deploy our capital that we generate and pursuing growth that we'll generate future dividends for shareholders. What we've -- what we're saying here is if there were circumstances where we had simply too much, we ought to have the ability to at least consider, and that's what we're asking shareholders for approval.

There was a question at the back, to #3.

Unknown Shareholder

Thank you, Mr. Chairman. Robin Townsend [ph]. May I ask the terms and conditions of this buyback of shares? I mean, do you let the share market price for this happen [ph] and buy them back or do you let it up to GBP 40 and buy them back? Is there really sort of set buying-back procedure or situation here? Simply put, purchasing in the market at market price?

Douglas Jardine Flint

Yes, it's in the -- I think it's in the resolution. But this is reflectively market price. It has to be market price, and there's a complicated formula saying that it has to be within certain ranges. But basically, simple answer, it has to be at market price. And just to finish something I should have said in relation to the first question, there is no -- we like the scrip dividend scheme. Our shareholders in Hong Kong particularly like it, and there are absolutely no plans to remove that.

So can we have a vote on this resolution, please?

[Voting]

Douglas Jardine Flint

Voting is closed. And the motion is carried. Thank you.

The company's Articles of Association provide that general meetings of the company may be called on a minimum notice period in the Companies Act 2006. For meetings other than an annual general meeting, this is a period of 14 clear days. The Companies Shareholders' Rights Regulations 2009 would increase the notice period for general meetings to 21 days, unless shareholders approve a shorter notice period. The passing of this resolution will mean that general meetings other than annual general meetings may continue to be called on a minimum of 14 days' clear notice. The shorter period of between 14 and 20 days would not be used as a matter of routine, but only when the board determines that calling a meeting in less than 21 days' notice is merited by the business of the meeting and it considers to be to the advantage of shareholders as a whole. Seeking such an authority has become common practice, and shareholders have kindly given a similar approval in previous years. The approval will be effective until the company's next Annual General Meeting when it is intended with a similar resolution will be proposed. And I propose as a special resolution the adoption of resolution #8 set out in the Notice of Meeting.

Are there any questions? Can we vote? Please cast your vote on Resolution #8 now.

[Voting]

Douglas Jardine Flint

Voting is closed. And the motion is carried as a special resolution.

That, ladies and gentlemen, concludes the formal business of the meeting. I hope you will be able to join us for some refreshments in the foyer. Your directors and senior managers will be very happy to discuss with you in more detail any of the matters we've spoken about today or anything else that interest you. So please leave your voting handset on your seat when you leave. Thank you for attending today, and thank you for your support for HSBC. Thank you very much.

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