NETWORK DEVELOPMENT HBMX

C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

BRANCH 0854, JARDIN, RELOCATION

HBMX 2010

Business Case

COPYRIGHT ©HSBC 2010 ALL RIGHTS RESERVED

No part of this publication may be reproduced, stored in a retrieval system, nor transmitted in any form or by
any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written
authorization of HSBC.

1
 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

History of Review
Date Version Status Description Author
November, 2010 1.0 Final Relocation Business Case JAAV

Content

I. LOCATION ASSESSMENT
II. CITY PLAN: TAMPICO
III. STRATEGY OF RETAIL TRADE ZONE – 0854 JARDIN
IV. BRIEF AND BRANCH SIZE ANALYSIS MARKET GUIDELINES
V. RE PROPOSAL: SITE OPTIONS & PROTOTYPE COSTS
VI. PROFORMA & COST BENEFIT ANALYSIS
VII. TECHNICAL CONCLUSION
VIII. SIGNATURES FOR APPROVAL

2
 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

I. LOCATION ASSESSMENT

Total Population 2005 Population 2006 Population 2007 Population 2008 Population 2009 Population 2010 ( E )
1 City 659,597 668,172 676,591 684,845 692,926 700,826
Growth 1.30% 1.26% 1.22% 1.18% 1.14%
Total Rank
2 Rank City 9.32 21
Population RTZ Households RTZ Population 3km Households 3km
3 Density 6.90 24,023 6,081 82,696 20,936
A/B C+ C D+ D E
4 SEL 11.99 45% 46% 9% 0% 0% 0%
Potencial Alto Medio Bajo
HSBC in RTZ Comp. in RTZ BBVA Bancomer Banamex Santander Scotiabank Banorte
5 Penetration 2.00 2 0
1

External Internal Visible Not Visible Obstructed

6 Visibility 5.71 X X
StreetExternalVisibl External Visible
Mall Street
X
Street
Far Corner Near Corner M Block Free Standing
7 Position 12 X X
2 1

Number of lanes Corner (If) Number of lanes Parking Spaces

8 Accesibility 13 2 X 2 27
Residential Offices Commercial Other Mix
9 RTZ Use X X Residential Commercial
Rent Maintenance Other Initial Term Renewal
10 Lease Agreement $ 124,000
Area Segments
11 Branch Modular Menu 400 Flagship
Comments
12 Restrictions / Other

Total 61

MI Abstract:

Location Proposed: Av Faja De Oro S/N & Aguda Dulce

Col. Petrolera
Tampico, Tamaulipas, C.P. 89110
Current Location: Av. Hidalgo #111
Col. Moctezuma
Tampico, Tamaulipas, C.P.89177
Investment: $ 9,320,189 MXP
Growth Required: Yr 1 26.2%
Yr 2 3.5%
Yr 3 3.5%
Pay Back: 3 years
NPV: $ 7,121,148 MXP
IRR%: 34%
Needed Revenue: Yr 1 $ 23,661,567 MXP
Yr 2 $ 24,489,722 MXP
Yr 3 $ 25,346,862 MXP

CONSTRUCTION CONSTRUCTION
MILESTONE LEASE SIGN OPENING
START FINISH
DUE DATE Ene Mar Jul, 2011 Jul, 2011 *
* Estimated/Proposed dates in terms of CRE pipeline.

3
 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

II. CITY PLAN: TAMPICO

Tampico is the main city of the state of Tamaulipas. It limits to the south with the river Panuco, which also
acts as a border with the state of Veracruz; to the east with Gulf of Mexico and to the west with the state of
San Luis Potosi.

Rivaling Veracruz as Mexico's most important seaport, Tampico is used primarily for Mexico's petroleum
industry. It possesses excellent modern facilities and also serves as an export center for Tamaulipas
state's other goods, including cattle, hides, sugar, and additional agricultural products. Besides oil,
commerce, construction and services are the most important economical activities in the city.

The population of the municipality of Tampico was of 303,924 inhabitants; while its metropolitan area
population was of 659,597 inhabitants (Tampico, Cd. Madero & Altmaira).

The following map shows the Retail Trading Zone of Jardin Branch (0854), which is located in an area
with medium high to low Socio Economic Levels mix. As the following map shows, the area has a
combination of C+, C, D+ and D segments.

SEL- Map

SEL-MAP
Posición:
H 2.1 cm desde esquina superior izquierda
V 1.92 cm desde esquina superior izquierda
Dimensiones:
A 12.81 cm desde esquina superior izquierda
B 21.41 cm desde esquina superior izquierda

Source:
Business Intelligence (2009 trend)
MXN Million figures
Ciudad (ND) Bank Branches Deposits Credits Volume Marketshare
SEL Info (2006 data) PBT Information (2009 data) TAMPICO Banamex 17 $ 3.19 $ 2.38 $ 5.58 18.3%

A/B TAMPICO Bancomer 15 $ 5.47 $ 4.64 $ 10.11 33.1%

C+ Above average TAMPICO Banorte 12 $ 3.53 $ 3.48 $ 7.01 23.0%
C PBT average TAMPICO HSBC 12 $ 1.73 $ 0.67 $ 2.40 7.9%
D+ Below average
D TAMPICO Santander 8 $ 1.31 $ 1.95 $ 3.26 10.7%
Negative PBT
E TAMPICO Scotiabank 8 $ 1.09 $ 1.05 $ 2.15 7.0%

The previous map also shows HSBC’s branch distribution in Tampico city, as it is possible to see there
are 12 branches, this including metropolitan districts like Ciudad Madero and Altamira. Although HSBC
has a strong presence in number of branches (12), its market share (7.9%) is one of the lowest in the city
and not as strong as it should be. The market leaders are Bancomer with 15 branches and 33.1% of
penetration followed by Banorte with 12 branches and 23% of total share. As seen, Banorte has tripiclate
HSBC’s penetration rate with the same business units.

4
 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

In 2009 Tampico generated almost 231 millions MXP of total income; this situated the city in the 21st
place of importance in terms of income. As for the PBT, Tampico is accountable for 0.6% of the national
PBT; the annual average generated by its branches was of 4.9 millions MXP per business unit.

The following map shows the population density of the RTZ of Jardin (0854), as it possible to see, the
population density is very similar in the entire RTZ, with high density in the entire area. The surrounding
areas are lagoons.

Density - Map

Density-MAP
Posición:
H 2.1 cm desde esquina superior izquierda
V 1.92 cm desde esquina superior izquierda
Dimensiones:
A 12.81 cm desde esquina superior izquierda
B 21.41 cm desde esquina superior izquierda

SEL Info (2006 data) Source:

Business Intelligence (2009 trend)
40 upper MXN Million figures
30 to 40
20 to 30
10 to 20 4City rank position 21 / 123
10 & lower

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 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

III. STRATEGY OF RETAIL TRADE ZONE – 0854 JARDIN

The main reasons to relocate Jardin (0854) branch are that it is branch with poor visibility and accessibility
issues. The parking area is shared with the medical dispatches at the building second floor, and the
parking unpaved lots are only 10. The socioeconomic level of the area where the branch is located is
considered low and being in a mid block location, it is not easy capture the all the transit in the avenue,
when other bank's branches are located in corners.

Another important reason for this action is the fact that the business unit still has the old image and the
parking spaces are not enough to attend all our costumers with good socio economic levels.

With this relocation, the branch will improve its performance as the site is located in an area with one of
the bests SEL in the city that is currently unattended by HSBC, also by having a large parking area and
improved visibility and accessibility, the presence of our segments with a Premier Center and a Business
Banking Center; and the possibility to have our first Auto Bank in the city will make it the best branch in the
surrounding area.

The relocation is proposed to the north of our current location, in the corner of two of the most important
avenues in the city with strong commercial growth and good socioeconomic levels. Agua dulce connects
the city from east to west and Faja de Oro does it from north to south.

In the surrounding area we can find several services providers, (Hospital Naval de Tampico, and some of
the finest schools in the city: Colegios John F. Kennedy, Columbia, Inst. Anglo Mexicano, Liceo Franco
Mexicano) as well as commerce (Plaza Aguadulce, Plaza Faja de Oro), restaurants and drugstores.

Jardin Relo Buffer 1.5Kms

GEO- Map
Poblacion Vivienda % NSE
10,697 2,708 45% A/B
1,737 440 9% A/B
11,032
7,603
2,793
1925
46% C+
38% C+
2,294
3,674 581
930 10% C
19% C
-
6,406 -
1622 D+
32% D+
-
339 -
86 D+
2% D
- - -0 0% E
24,023
19,759 6,081
5,002 100.00%
100.00%

Jardin Buffer 1.5Kms

Poblacion Vivienda % NSE

222 56 1% A/B
1,184 300 3% C+
1,917 485 5% C
20,202 5114 50% D+
16,844 4264 42% D
- 0 0% E
40,369 10,220 100.00%

Expenses Cost Income Income -

Branch Branch Name Income Distancia
Source: Finance (2009 trend) (direct) Ratio Expenses
MXN Million figures
854 SUC. JARDIN $ 18.75 $ 3.07 16% $ 15.68 3Kms

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 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

The RTZ of Jardin (0854) has a total population of 40,369 inhabitants and a total of 10,220 households.
The majority of the population belongs to the D+ SEL (50%), followed by a 42% of D SEL, 5% of C SEL,
3% of C+ SEL and 1% of A/B SEL. With the proposed relocation, the new RTZ will have 24,023
inhabitants, 6,081 households and the SEL distributed in 45% of A/B, 46% of C+ and 9% of C.

The main benefits of relocate Jardin (0854) are:

i) Improve our presence in the city by having a Flagship Branch in an area with one of the best socio
economic levels in the city.
ii) Improve our customer experience by adding more parking spaces, offering improved accessibility and
security to our costumers.
iii) Offer proper conditions to our costumers creating privacy inside the branch and having proper spaces
between sales positions.
iv) Improve our location and accessibility to our branch.
v) Comply with HSBC’s standards, the current site has Bital image.
vi) Excellent opportunity to be in one of the most important corners of the city, with residential areas and
high level commerce around.
vii) Improve HSBC image in the mind of the citizens of Tampico.

Due to le SEL segments and the commercial and offices activities in the area proposed for the relocation,
we are considering this branch to be our Flagship Branch in the city, with presence of a Premier Center
and a Business Banking Center.

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 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

IV. BRIEF AND BRANCH SIZE ANALYSIS MARKET GUIDELINES

Based on Market requirements the branches needs are:

PFS Basic Branch (1 LUN, 2 EC & 4 ES)

Basic Express Banking (3 ATM's, 1 CDM)
Two Internet Connect Features (2 Telephones, 2 Internet Sites)
Standard Back Office
Interview Room
Premier Center
Business Banking Center

Modular Branch

UNIT (Branch) Feasible to MIGRATION (AVG % Feasible to Additional

Current Total
(AVG month) month) Migration Proposed
ATM 1 1 3
11,182 TXN 3,867 TXN 35%
CDM 0 1 1

AREA MODULAR MENU M2

PFS BASIC BRANCH (1 LUN, 2 EC & 4 ES) 154

EXPRESS BANKING ATM's 3 30

EXPRESS BANKING CDM's 1 10
EXPRESS BANKING INTERNET 2 CONNECT 25
INTERVIEW ROOM YES 10
PREMIER PREMIER CENTER 141
BUSINESS BANKING BB CENTER 120

HOT DESK
(Fza Móvil, Fuduciario, Gobierno, 0 0
Premier officers, etc)

BACK OFFICE DEFAULT

TOTAL AREA 490

Required Constructed Area: 490 m2
Proposed Site Area: 400 m2

The Premier Center must include an office for Tampico's Premier Sub Director
Contact: David Deutsch
david@grupokuale.com.mx

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 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

V. RE PROPOSAL: SITE OPTIONS & PROTOTYPE COSTS

Current Site
Address: Av. Hidalgo #111
Branch Size: 175.50 M2
Monthly Occupancy Cost: $33,817 (Rent + Maintenance + others)

Parking Spaces: 10

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 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

Proposed Site
Address: Av Faja De Oro S/N & Aguda Dulce
Branch Size: 400.00 M2
Rent: $120,000
Parking Spaces: 30

11
 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

Prototype Construction Costs and Investment:

Costo Estimado por Sucursal
Costo Proyecto Ejecutivo $ 138,650.00
Costo Obra civil $ 4,410,000.00
Costo de Obra de Media Tensión $ 250,000.00
Suministro de Transformador $ 250,000.00
Honorarios Protección Civil $ 70,000.00
Costo Gerencia $ 335,000.00
Costo Gestoria Electrica $ 115,500.00
Gestoria Permisos $ 100,000.00
Renta $ 450,000.00
Marketing $ 100,000.00
Anuncio tipo paleta $ 200,000.00
Costos de suministros $ 1,604,887.73
Sistema Neumatico $ 51,500.00
ATM's & CMD's $ 429,942.00
Instalación Banca Express $ 43,930.00

Costo Total Est. Comercial $ 8,549,409.73

Costos de suministros Premier $ 598,434.70

Costo Total Sucursal $ 9,147,844.43

Otros Costos Agregados a Inversión

Costo por ajuste de área -$ 810,000.00

Guante, Traspaso, Etc $ -

Costo por reubicación $ 250,000.00

NBV agregado $ 541.52
Premier Center Extra Connect $ -

Equipo Cantidad Costo Unitario USD Costo Total USD

CPU's 12 $ 676.94 $ 8,123.28
Monitores 12 $ 157.87 $ 1,894.44
Digitalizadoras 5 $ 961.96 $ 4,809.80
Impresoras Oki 5 $ 564.97 $ 2,824.85
Teléfono 7910 4 $ 564.67 $ 2,258.68
Lectoras de Cheques 5 $ 268.62 $ 1,343.10
Scanner de Código de Barras 5 $ 184.80 $ 924.00
Scanner de Cama Plana 1 $ 629.62 $ 629.62
Teléfono 7940 1 $ 370.00 $ 370.00
Lectoras de Chip/Nip 2 $ 17.39 $ 34.78
Teléfono 7911 1 $ 370.00 $ 370.00
Equipo de Telecomunicaciones 1 $ 13,947.50 $ 13,947.50
Cableado 1 $ 10,448.00 $ 10,448.00
Gabinete 1 $ 1,726.00 $ 1,726.00
Conectividad PTT 1 $ 4,604.75 $ 4,604.75
Servicios Didata 1 $ 1,554.00 $ 1,554.00
$ 37,047.09 $ 55,862.80

EC 2
ES 4
LUN 1
Internet Connect SI
Tipo de Cambio 13.1
Total MXP $ 731,802.68

TOTAL INVESTMENT (MXP) $ 9,320,188.63

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 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

VI. PROFORMA & COST BENEFIT ANALYSIS

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total
Initial
CONCEPT Investment

Revenue 23,661,567 24,489,722 25,346,862 26,234,003 27,152,193 28,102,520 29,086,108 30,104,121 31,157,766 32,248,288 277,583,149

Investment
BUILDING 6,458,126 0 0 0 0 0 0 0 0 0 0 6,458,126
EQUIPMENT 2,130,260 0 0 0 0 0 0 0 0 0 0 2,130,260
IT COST 731,803 0 0 0 0 0 0 0 0 0 0 731,803
Total Investment 9,320,189 0 0 0 0 0 0 0 0 0 0 9,320,189

OCCUPANCY 1,440,000 1,490,400 1,542,564 1,596,554 1,652,433 1,710,268 1,770,128 1,832,082 1,896,205 1,962,572 16,893,206
PERSONNEL 1,501,598 1,554,154 1,608,550 1,664,849 1,723,119 1,783,428 1,845,848 1,910,452 1,977,318 2,046,524 17,615,841
INDIRECT COST 334,451 346,157 358,272 370,812 383,790 397,223 411,125 425,515 440,408 455,822 3,923,574
DIRECT COST 1,162,207 1,202,884 1,244,985 1,288,559 1,333,659 1,380,337 1,428,649 1,478,651 1,530,404 1,583,968 13,634,303
BUILDING DEPRECIATION 645,813 668,416 691,811 716,024 741,085 767,023 793,869 821,654 850,412 880,176 7,576,282
EQUIPMENT DEPRECIATION 426,052 440,964 456,397 472,371 488,904 0 0 0 0 0 2,284,689
IT COST DEPRECIATION 243,934 252,472 261,308 0 0 0 0 0 0 0 757,715
Total Expediture 5,754,055 5,955,446 6,163,887 6,109,169 6,322,990 6,038,278 6,249,618 6,468,355 6,694,747 6,929,063 62,685,609

LICs 0 13,695,234 13,695,234 13,695,234 13,695,234 13,695,234 13,695,234 13,695,234 13,695,234 13,695,234 13,695,234 136,952,342
PBT 4,212,279 4,839,042 5,487,741 6,429,600 7,133,969 8,369,007 9,141,255 9,940,532 10,767,784 11,623,990 77,945,199

TAX 30% 1,263,684 1,451,712 1,646,322 1,928,880 2,140,191 2,510,702 2,742,377 2,982,160 3,230,335 3,487,197 23,383,560
PAT 2,948,595 3,387,329 3,841,419 4,500,720 4,993,778 5,858,305 6,398,879 6,958,373 7,537,449 8,136,793 54,561,639

BUILDING DEPRECIATION 0 645,813 668,416 691,811 716,024 741,085 767,023 793,869 821,654 850,412 880,176 7,576,282
EQUIPMENT DEPRECIATION 0 426,052 440,964 456,397 472,371 488,904 0 0 0 0 0 2,284,689
IT COST DEPRECIATION 0 243,934 252,472 261,308 0 0 0 0 0 0 0 757,715
CASH FLOW 4,264,394 4,749,181 5,250,935 5,689,115 6,223,767 6,625,328 7,192,747 7,780,027 8,387,861 9,016,969 65,180,324

CURRENT CASHFLOW 1,154,973 1,530,930 1,920,046 2,322,781 2,739,612 3,171,031 3,617,551 4,079,698 4,558,021 5,053,085 30,147,728
ADITIONAL CASHFLOW -9,320,189 3,109,421 3,218,250 3,330,889 3,366,334 3,484,156 3,454,296 3,575,197 3,700,329 3,829,840 3,963,884 35,032,596

NPV 7,121,148
IRR 34%
PAYBACK 3

INFLATION RATE 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
CURRENT REVENUE 18,749,261 PREMIER 0 0 0 BB 0
RENT 120,000 LUN 1 GP 0 700,000 0 GBB 0
GROWTH NEEDED (1st year) 26.2% EC 2 EC Jr 0 375,600 0 EBB 0
GROWTH NEEDED (2nd year) 3.5% ES 4 EC Sr 0 561,600 0 0 0
GROWTH NEEDED (3rd year) 3.5%
DISCOUNT RATE 16.0%

1) Initial Investment: $ 9,320,189 MXP

2) Payback time of: 3 years
3) This project is cost effective with an increase to the actual income level of: 26.2%
( 34% of IRR)
4) The project NPV is: $ 7,121,148 MXP
5) Net Book Value of: $ 542 MXP

ID BRANCH TOI ID BRANCH TOI

1 273 BOULEVARD HIDALGO $ 40,588,001 1 273 BOULEVARD HIDALGO $ 40,588,001
2 797 ALTAMIRA $ 34,430,902 2 797 ALTAMIRA $ 34,430,902
3 1881 SORIANA AEROPUERTO $ 23,704,265 3 1881 SORIANA AEROPUERTO $ 23,704,265
4 272 CD. MADERO $ 20,485,424 4 854 JARDIN $ 23,661,567
5 854 JARDIN $ 18,749,261 5 272 CD. MADERO $ 20,485,424
7 957 SORIANA TAMPICO $ 15,974,807 6 957 SORIANA TAMPICO $ 15,974,807
8 457 MIRAMAR $ 15,636,701 7 457 MIRAMAR $ 15,636,701
6 270 TAMPICO CENTRO $ 14,802,762 8 270 TAMPICO CENTRO $ 14,802,762
9 447 NORTE $ 13,741,347 9 447 NORTE $ 13,741,347
10 796 UNIVERSIDAD $ 13,188,821 10 796 UNIVERSIDAD $ 13,188,821
11 1592 CENTRO HISTORICO $ 11,578,879 11 1592 CENTRO HISTORICO $ 11,578,879
12 3702 LA HERRADURA $ 8,513,604 12 3702 LA HERRADURA $ 8,513,604

13
 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

VII. TECHNICAL CONCLUSION

The main reasons to relocate '0854 Jardin' are:

1) Offer a better customer experience by establishing the new image.

2) Having a Flagship Branch in the city that will help us to improve HSBC image in the mind of
the citizens of Tampico
3) Place ourselves above the facilities offered by the competition in the surrounding area.
4) Dispatch Bital image and comply with HSBC’s group standards.
5) Take advantage of an unattended area of the city with high socio economic levels.
6) IRR of 34% with a payback time of 3 years.

15
 NETWORK DEVELOPMENT HBMX
C&D: Norte
City Plan: Tampico
RTZ: 0854 Jardin
Action: Relocation

VIII. SIGNATURES FOR APPROVAL

Sponsors Roles & responsabilities Signature

Lewis Wilson Deputy CEO

Oswaldo Ponce Head of C&D HBMX

Head of Network Development

Eduardo de la Cabada
HBMX

16