2010 was a year when the global economic recovery took hold, led once again by strong growth in the emerging markets, especially Asia. In this environment, as a globally connected bank with a growing presence across the world’s faster-growing regions, combined with our continued conservative management of the balance sheet, HSBC achieved improved financial performance in 2010 and a strengthened capital position.

As Group Chief Executive, my clear objective is to deliver sustainable long-term value for shareholders consistently in a manner that maintains the confidence of all other key stakeholders in our businesses including depositors, counterparties, long-term creditors, customers, employees, regulators and governments.

Everything we do is governed by the imperative of upholding HSBC’s corporate reputation and character at the highest level and adding further strength to our brand. It is regrettable that a number of weaknesses in regulatory compliance, particularly in the US, were highlighted in 2010 and we are resolved to remedy these and reinforce the high standards we demand of ourselves.

Underlying financial performance continued to improve in 2010 and shareholders continued to benefit from HSBC’s universal banking model. All regions and customer groups were profitable, as Personal Financial Services and North America returned to profit.

Profit before tax improved year on year. On a reported basis, profits increased by nearly USD 12 billion from USD 7.1 billion to USD 19 billion. On an underlying basis, profits increased by 36%, or almost USD 5 billion, from USD 13.5 billion to USD 18.4 billion.

The cost efficiency ratio rose to 55.2%, which is above our target range and unacceptable in my view. The causes were constrained revenues and, in part, investment in strategic growth initiatives across the business together with higher staff costs. It additionally reflected some one-off costs, but it is clear that we need to re-engineer the business to remove inefficiencies.

Return on average total shareholders' equity rose from 5.1% to 9.5%, reflecting increased profit generation during the year. HSBC continued to grow its capital base and strengthen its capital ratios further. The core tier 1 ratio increased from 9.4% to 10.5%, as a result of capital generation and lower risk-weighted assets.

Global Private Banking delivered a resilient performance in a business environment that remains challenging for the private banking industry.

The contribution to Group pre-tax profits from Private Banking, of which HSBC Private Banking Holdings (Suisse) SA is the principal component, decreased by 5% with pre-tax profits in 2010 of USD 1,054 million. Asia and the Americas performed strongly, details of which are contained in the Chief Executive Officer’s Letter. HSBC Private Banking Holdings (Suisse) SA posted a pre-tax profit of USD 918 million, a decline of 14.5% over 2009.

Following an investigation into the data theft that occurred in 2006-07, the Swiss Financial Market Supervisory Authority (FINMA) on 28 February 2011 has criticised deficiencies in the internal organisation and controls of the bank’s IT activities and has requested that HSBC complete the measures already initiated to restore a state of compliance. Over the past 12 months we have conducted a comprehensive review of our information security procedures, formulated and continued to implement major security upgrade programmes, and continue a multi-million Swiss franc investment programme to ensure industry-leading security standards. We have also reviewed and strengthened risk management and operational controls and will continue to invest in these areas.

In the short-term, risks to global growth remain, not least from an elevated oil price. We therefore expect cyclical volatility to continue - including in emerging markets – and progress is unlikely to be linear. In the longer-term, we believe that growth rates in many Western markets will continue to significantly underperform those of the emerging world.

The global economy’s structural position still requires fundamental readjustment as many Western economies must still deal with a large overhang of household and government debt, and weak growth and high unemployment will make this a slow and painful process. As faster-growing nations seek to limit the effect of Western monetary policy on their own economies, we cannot discount the risk of increased tension over exchange rate and trade issues.

HSBC's balance sheet remains strongly positioned to benefit from future interest rate rises. Whilst low rates may constrain income growth in the near-term, maintaining a conservative liquidity position is core to our proposition and to our funding strength. We also fully recognise the importance of ever more robust cost management discipline and the need to continue re-engineering the business to improve efficiency.

The private banking industry faces challenges on the regulatory, economic and competitive fronts. Persistent low interest rates are impacting net interest income, regulatory pressures are forcing the offshore model to adapt as well as raising compliance costs, and competition for experienced bankers remains acute. However, wealth creation continues to be strong in the emerging markets and client risk appetite has improved. With its scale and diversity combined with HSBC’s brand strength and unique positioning in faster-growing markets, HSBC Private Bank is well positioned to remain a competitive force in international private banking and a core part of HSBC’s wealth management strategy.

On behalf of the Board of Directors
Stuart Gulliver
Geneva, 22 March 2011