-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JwxiYk6aL2nkMyVwbHLzNxKpWUKBSKvnCEIOD7g2gg9C8UAl33DDYWmEhmeVmaps laZhcJ3+J0ibQEddsxlbSw== 0000898822-02-001354.txt : 20021114 0000898822-02-001354.hdr.sgml : 20021114 20021114172655 ACCESSION NUMBER: 0000898822-02-001354 CONFORMED SUBMISSION TYPE: 425 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20021114 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HOUSEHOLD INTERNATIONAL INC CENTRAL INDEX KEY: 0000354964 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 363121988 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 425 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08198 FILM NUMBER: 02826468 BUSINESS ADDRESS: STREET 1: 2700 SANDERS RD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 BUSINESS PHONE: 8475645000 MAIL ADDRESS: STREET 1: 2700 SANDERS ROAD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HOUSEHOLD INTERNATIONAL INC CENTRAL INDEX KEY: 0000354964 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 363121988 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 425 BUSINESS ADDRESS: STREET 1: 2700 SANDERS RD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 BUSINESS PHONE: 8475645000 MAIL ADDRESS: STREET 1: 2700 SANDERS ROAD CITY: PROSPECT HEIGHTS STATE: IL ZIP: 60070 425 1 nov14hhpres.txt NOVEMBER 14, 2002 - PRESENTATION Filed by Household International, Inc. Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934 Subject Company: Household International, Inc. Commission File No. 001-8198 On November 14, 2002, Household International, Inc. used the following presentation materials in analyst and investor meetings. A TRANSFORMING TRANSACTION COMBINING TWO SUCCESSFUL BUSINESS MODELS [HSBC Logo] [Household Logo] November 14, 2002 FORWARD LOOKING STATEMENTS This presentation may contain certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of the safe-harbour provisions of the US federal securities laws. Because these forward-looking statements are subject to risks and uncertainties, actual future results may differ materially from those expressed in or implied by the statements. Many of these risks and uncertainties relate to factors that are beyond the companies' ability to control or estimate precisely, such as changes in economic and market conditions, changes in interest rates and foreign exchange rates, changes in law, governmental policy and regulation, the effects of competition, the ability of HSBC and Household to adequately identify and manage the risks they face, changes resulting from the proposed acquisition including the difficulties integrating systems, operational functions and cultures, and other risk factors detailed in HSBC's and Household's respective reports filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this announcement. Neither HSBC nor Household undertake any obligation to publicly release any revisions to these forward-looking statement to reflect events or circumstances after the date of this announcement. Investors and security holders are advised to read the prospectus regarding the business combinations transaction referenced in the announcement, when it becomes available, because it will contain important information. The HSBC prospectus will also constitute the Household proxy statement and will be filed with the Securities and Exchange Commission by both companies. Household shareholders may obtain a free copy of the proxy statement/prospectus (when available) and other related documents filed by either company at the Commission's website at www.sec.gov. When available, the proxy statement/prospectus and other documents may also be obtained from HSBC by contacting HSBC, Attention Patrick McGuinness, Investor Relations and/or Household by contacting Household, Attention Craig Streem, Investor Relations. HSBC and Household and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from Household shareholders in favour of the acquisition. Information concerning the participants will be set forth in the proxy statement/prospectus when it is filed with the Securities and Exchange Commission. STRATEGIC RATIONALE o Bringing together one of the world's top asset generators with one of the world's top deposit gatherers o Significant geographic and business line diversification o Stable and lower cost funding for Household with enhanced market access o Meaningful opportunities to broaden the product range available to both retail and commercial customers o International roll-out of Household's business model o Leveraging Household's strong marketing, credit management and technology skills [Household Logo] [HSBC Logo] CREATING A FINANCIAL SERVICES FRANCHISE BALANCED BETWEEN NORTH AMERICA, EUROPE AND ASIA CRITERIA KEY POINTS - --------------------- --------------------------------------- Strategic Fit ---------> Consumer focused asset generator Human Fit ---------> Shared vision for the future Technology Fit ---------> Complementary platforms and approach Ease of Integration ---------> Management continuity and branding to be preserved EPS Accretion ---------> Yes and risk adjusted value enhancing Manageable Risk ---------> Careful consideration of business model and controls [Household Logo] [HSBC Logo] OVERVIEW OF HSBC [Household Logo] [HSBC Logo] HSBC o Established in 1865 o Headquartered in the United Kingdom - Over 7,000 offices in 81 countries o World's 3rd largest financial institution by market capitalisation (US$107bn) o 190,000 shareholders in over 100 countries and territories - Stock listed on London, New York, Hong Kong and Paris exchanges o US$51bn of shareholders' funds; Pre-tax cash profits* of US$5.5bn for the first six months of 2002 * Cash basis pre-tax profits are derived by adjusting pre-tax profits to eliminate the impact of the amortisation of goodwill arising from acquisitions. [Household Logo] [HSBC Logo] HSBC'S GEOGRAPHIC AND BUSINESS MIX GEOGRAPHIC MIX* BUSINESS MIX* [pie chart] [pie chart] North America: 12% Private Banking: 4% Latin America: 1% Personal Financial Services: 34% Europe: 40% Commercial Banking: 28% Asia: 47% Corporate, I-Banking and Markets: 36% * Cash basis pre-tax profit for the six months ended 30 June 2002. [Household Logo] [HSBC Logo] HSBC'S OPERATING MARGIN [solid stacked graph] Left vertical axis: 0.0% to 3.5% Right horizontal axis: 1993 to 1H 02 Top curve: Operating profit before provisions, excluding goodwill amortisation as % of average risk-weighted assets. Bottom curve: Bad debt charge as % of average risk weighted assets. [Household Logo] [HSBC Logo] CHARACTERISTICS OF HSBC'S BUSINESS MODEL o Customer driven approach organised around customer segments o Fair pricing and product choice underpin customer service o Differentiation through home grown information systems o Leveraging internationality through multiple channels o Conservative and thrifty o Collective management character based on long-term careers [Household Logo] [HSBC Logo] HSBC'S PRESENCE IN THE U.S. o Long history in the United States - First agency in San Francisco in 1865 - Acquired Marine Midland in 1980 - Acquired Republic New York Corporation in 1999 o Strong U.S. banking franchise - 11th largest U.S. bank - 423 branches nationwide (plus 15 in Panama) - Total U.S. assets of US$90bn - Total U.S. deposits US$56bn o HSBC USA is AA- rated [Household Logo] [HSBC Logo] OVERVIEW OF HOUSEHOLD [Household Logo] [HSBC Logo] HOUSEHOLD o Established in 1878 o Recognised leader in U.S. consumer lending - Leading market share in all businesses - Leading brand names in consumer finance - Profitable and growing credit card businesses - private label and bank card o Extensive customer base and distribution network - 53+ million customers across the entire United States - Nationwide branch network, direct mail and e-commerce - Significant distribution through alliances and business partnerships o Consistent financial performance - US$1.8bn of after-tax profits in 2001 - US$1.2bn of after-tax profits for the first nine months of 2002 after absorbing US$333m charge - Disciplined and sustainable asset growth - Strong margins and returns on a total and risk-adjusted basis o Leads "Best Practices" in consumer finance [Household Logo] [HSBC Logo] HOUSEHOLD'S RECEIVABLES BY TYPE [pie chart] US$105.5 BILLION Data for pie chart in percentages: Auto 7% First Mortgages Correspondent 16% First Mortgages Branch 22% Second Mortgages 8% Personal Non-Credit Card 18% MasterCard/Visa Bank Card 16% Private Label Credit Card 13% Note: As of 30 June 2002. Receivables are on a managed basis. [Household Logo] [HSBC Logo] HOUSEHOLD'S CUSTOMER BASE HOUSEHOLD'S 53 MILLION CUSTOMERS HAVE THE FOLLOWING CHARACTERISTICS: - ---------------------------------------------------------------------------- o Average age between 40 - 50 o Average household income [pie chart] between US$45,000 and PRIME 63% US$60,000 NEAR PRIME 17% SUBPRIME 20% o Average home value* between US$120,000 - US$175,000 o Average auto value** between US$12,000 - US$15,000 Note: Based on outstanding managed receivables as of 30 June 2002. * U.S. real estate secured loan customers ** Auto finance customers [Household Logo] [HSBC Logo] HOUSEHOLD'S CORE CUSTOMER IS THE MIDDLE INCOME MARKET CUSTOMERS CAN BE CLASSIFIED AS PRIME, NEAR PRIME AND SUBPRIME PROBABILITY OF DEFAULT LOW MEDIUM HIGH LOW Real Estate Secured - 1st Lien EXPECTED LOSS MEDIUM Real Estate Auto* GIVEN Secured - DEFAULT 2nd Lien** HIGH Credit Card -- GM PHL; Subprime credit card Credit Card -- UP Credit Card - Branch unsecured* Private Label Household Bank** [color key: asterisks substitute for colors] * Subprime ** Near Prime Prime Probability of Default: Determined by the credit score. General bands are as follows: Low: >660 Medium: 580-660 High: <580 Expected loss given default: What percent of the loan is at risk given default Low: <25% Medium: 25% to 75% High: >75% [Household Logo] [HSBC Logo] HOUSEHOLD'S DISTRIBUTION CHANNELS [donut chart] In center of donut: Varied Distribution Channels [Pie Slice] [Annotation] Retail Merchants Over 140 retail merchants at 70,000 retail locations throughout the United States, United Kingdom and Canada Tax Preparation Services 3,500 tax preparer relationships with approximately 12,000 outlets in the United States Internet 49 Internet web sites, including Household affiliate and merchant sites Alliance Relationships Telesales Direct Mail Correspondents Over 250 correspondent relationships with mortgage bankers; broker relationships through Decision One Mortgage Auto Dealerships Over 10,500 franchised auto dealerships throughout the United States Branch Offices 1,714 Branch offices in 46 states in the United States; United Kingdom, Ireland and Canada [Household Logo] [HSBC Logo] HOUSEHOLD'S CONSUMER LENDING FRANCHISE* NATIONWIDE COVERAGE AND WELL DIVERSIFIED [Superimposed on map of the United States (in separate boxes by region)]
West (U.S. Population 8%) Midwest (U.S. Population 23%) - ----------------------------------------------- -------------------------------------------- Mortgage** 10% Mortgage** 21% Consumer Finance 10% Consumer Finance 22% Bank Card 7% Bank Card 26% Private Label CC 6% Private Label CC 19% Auto 4% Auto 17%
Northeast (U.S. Population 11%) California (U.S. Population 12%) - ----------------------------------------------- -------------------------------------------- Mortgage** 7% Mortgage** 17% Consumer Finance 12% Consumer Finance 16% Bank Card 16% Bank Card 14% Private Label CC 9% Private Label CC 13% Auto 3% Auto 14%
Southwest (U.S. Population 14%) Southeast (U.S. Population 19%) - ----------------------------------------------- -------------------------------------------- Mortgage** 11% Mortgage** 24% Consumer Finance 8% Consumer Finance 15% Bank Card 11% Bank Card 12% Private Label CC 16% Private Label CC 25% Auto 18% Auto 29%
Mid Atlantic (U.S. Population 13%) - ----------------------------------------------- Mortgage** 10% Consumer Finance 17% Bank Card 14% Private Label CC 12% Auto 15% * Represents % distribution of managed receivables as of 31 December 2001. ** Mortgages originated through correspondent channels. [Household Logo] [HSBC Logo] CHARACTERISTICS OF HOUSEHOLD'S BUSINESS MODEL o Centralised approach to business o Sales skills and culture o Partnering skills and culture o Low cost producer o "Best in Class" technology o Strong marketing and credit management analytics [Household Logo] [HSBC Logo] Opportunities [Household Logo] [HSBC Logo] CREATES A BALANCED WORLDWIDE PORTFOLIO [Pie Charts: In percentages. Slices for "North America" are separated out]
CASH BASIS PRE-TAX PROFITS MANAGED ASSETS - ---------------------------------------------- --------------------------------- [pie chart 1] [pie chart 1] Europe 40 [large downward Europe 46 Asia 47 arrow reads] Asia 34 North America 12 HSBC North America 19 Latin America 1 with Latin America 1 Household
[pie chart 2] [pie chart 2] Europe 32 Europe 40 Asia 37 Asia 29 North America 30 North America 30 Latin America 1 Latin America 1
Note: As of or for the six months ended 30 June 2002. [Household Logo] [HSBC Logo] SIGNIFICANTLY EXPANDS CONSUMER FRANCHISE [Pie Charts: In percentages.]
CASH BASIS PRE-TAX PROFITS MANAGED LOANS/RECEIVABLES - ------------------------------------------------------ --------------------------------------- [pie chart 1] [pie chart 1] Personal Financial Services 34 [large downward Personal Financial Services 37 Commercial Banking 28 arrow reads] Commercial Banking 26 CIBM 36 HSBC CIBM 33 Private Banking 4 with Private Banking 4 Household
[pie chart 2] [pie chart 2] Personal Financial Services 49 Personal Financial Services 52 Commercial Banking 21 Commerical Banking 20 CIBM 28 CIBM 25 Private Banking 3 Private Banking 3
Note: As of or for the six months ended 30 June 2002. [Household Logo] [HSBC Logo] OPPORTUNITIES FOR COST SYNERGIES o Lower cost funding o Cost benefits from consolidating HSBC's NAFTA card processing requirements, currently outsourced, into Household Technology o Administrative [Household Logo] [HSBC Logo] ADDITIONAL BUSINESS OPPORTUNITIES o Capture valuable customer business that falls below HSBC's or above Household's natural franchise o Market prime products through Household origination channels and non-prime products to HSBC's deposit customers falling below HSBC's credit origination preferences o Migrating customers into HSBC as their financial circumstance evolve o Link Household's Hispanic customer base with HSBC's Mexican banking network for remittance services o Link HSBC's Mexican banking network with Household's consumer finance capabilities to serve qualifying emigrants NOTE: HSBC'S Mexican network is dependent upon the successful completion of its acquisition of Grupo Financiero Bital SA de CV. [Household Logo] [HSBC Logo] TRANSFORM HOUSEHOLD'S STORE CARD BUSINESS o US$13.5bn in Household receivables o Capitalise on HSBC's stronger brand for B-to-B business capture o Leverage Household's partnering skills in its private label card business with HSBC's merchant acquiring, trade finance and retailer lending business to maximise sales opportunities [Household Logo] [HSBC Logo] COMPLEMENTARY TECHNOLOGY PLATFORMS o "Best in Class" technology in both organisations o Compatible systems architectures allow for cost savings through consolidation and common purchasing o Significant scalability in volume allows for low-cost expansion across wider geographic markets particularly in credit card o Household's marketing database management and credit scoring capability at the forefront of global practice to be rolled out through HSBC [Household Logo] [HSBC Logo] RISKS [Household Logo] [HSBC Logo] SALES PRACTICE SETTLEMENT o In October Household reached a preliminary nationwide settlement with state agencies regarding its branch sales practices - Established US$484 million fund to assist qualifying customers o The settlement, which is on track to be finalized by year-end, will resolve regulatory concerns without significantly impacting Household's economic model o The agreement should significantly reduce Household's risk of related civil litigation liability [Household Logo] [HSBC Logo] SETTING THE STANDARD FOR CONSUMER LENDING o Further refinement and implementation of "Best Practices" - Introduction of innovative monitoring and compliance program - Industry leading disclosures to customers o We will continue to strengthen practices together o Competitive advantage as industry evolves and consolidates [Household Logo] [HSBC Logo] CREDIT RISK MITIGATION MANAGED RECEIVABLES -------------------------------------------- [bar charts: percentages per year] Year 1997 2002 ---- ---- ---- Unsecured 69% 54% Real Estate Secured 31% 46% DIVERSIFICATION -------------------------------------------- o Move towards lower risk secured business o Increase in real-estate secured from 31% to 46% of total portfolio from 1997 to 2002 respectively o 83% of the real estate secured portfolio is 1st lien versus 65% in 1997 [Household Logo] [HSBC Logo] CREDIT RISK MITIGATION o Tightened underwriting policy criteria o Tightened lending authority and exception policies o Strengthened portfolio management o Dramatically increased the number of collectors [Household Logo] [HSBC Logo] TRANSACTION OVERVIEW [Household Logo] [HSBC Logo] TRANSACTION OVERVIEW Fixed Exchange Ratio: 2.675 HSBC shares or 0.535 ADSs for each Household share Structure: Tax-free stock-for-stock exchange Total Equity Value*: US$14.2 billion Earnings Impact: Accretive to 2003 EPS Expected Close: First quarter 2003 Required Approvals: Regulatory Household and HSBC shareholders *Based on HSBC's closing price of (pound sign)7.07 on 13 November 2002. [Household Logo] [HSBC Logo] PRO FORMA IMPACT
(US$ IN MILLIONS) HSBC HOUSEHOLD PRO FORMA - ------------------------------------------------- ---------------- -------------------- ---------------------- ASSETS Cash 5,561 347 5,908 Items in course of collection 5,894 -- 5,894 Treasury bills and debt securities 192,047 8,229 200,276 Loans & advances to banks 100,965 -- 100,965 - ------------------------------------------------- ---------------- -------------------- ---------------------- LIQUID ASSETS 304,467 8,576 313,043 - ------------------------------------------------- ---------------- -------------------- ---------------------- Loans and advances to customers 342,057 104,456 446,513 (includes receivables serviced with limited recourse -- 22,323) Total assets (excl HK notes) 737,349 119,129 856,478 (includes receivables serviced with limited recourse -- 22,323) (excludes Hong Kong certificates of indebtedness 8,986 --) - ------------------------------------------------- ---------------- -------------------- ---------------------- Deposits from banks 61,455 3,599 65,054 Customer accounts 470,778 5,612 476,390 Other funding and subordinated liabilities 44,399 95,592 139,991 (includes funding relating to receivables serviced with limited recourse -- 22,323) - ------------------------------------------------- ---------------- -------------------- ---------------------- TOTAL FUNDING 576,632 104,803 681,435 - ------------------------------------------------- ---------------- -------------------- ----------------------
MAINTAIN SUBSTANTIAL LOSS CUSHION (US$ in billions) HSBC PRO FORMA - ----------------------------- ------------------------------------- [bar chart] [bar chart] Cash Pre-tax Profits Cash Pre-tax Profits Before Provisions 12 Before Provisions 20.4 Credit Provisions 1.4 Credit Provisions 6.7 Note. First six months of 2002 annualised. [Household Logo] [HSBC Logo] LIQUIDITY AND CAPITAL REMAIN STRONG [Bar chart in percentages] Vertical axis: Gross Loans / Customer Deposits (%) Data as follows: Horizontal Axis: Percentage: HSBC 74.4% HSBC Pro Forma* 95.7% Bank of America 94.4% Citigroup 102.1% RBS 121.6% Appearing beneath the bar chart are the following data: TIER 1 RATIO Percentage: HSBC 9.7%** HSBC Pro Forma* 8.5%*** Bank of America 8.1% Citigroup 9.2% RBS 7.4% * Based on Household's managed receivables. ** As published by HSBC. *** Assumes the successful completion of Household transaction and acquisition of Grupo Financiero Bital SA de CV. [Household Logo] [HSBC Logo] SUMMARY o Bringing together one of the world's top asset generators with one of the world's top deposit gatherers o Further balances HSBC's earnings, geographic profile, business and product mix o Provides significant opportunities for cost, funding and revenue synergies o Demonstrable technology and human capital fit o Setting the standards in consumer lending o Risks are understood and manageable o Accretive to HSBC's 2003 EPS [Household Logo] [HSBC Logo] PRO FORMA FINANCIAL FIGURES The pro forma financial figures in this presentation are presented for illustrative purposes only and have been prepared by aggregating financial information as at or for the six months ended 30 June 2002 of HSBC (prepared on a UK GAAP basis) with that of Household (prepared on a US GAAP basis). Financial information prepared in accordance with US GAAP may differ in certain significant respects from such information prepared in accordance with UK GAAP and the pro forma financial figures presented might therefore be materially different if Household's financial information had been presented in accordance with UK GAAP. [Household Logo] [HSBC Logo] FORWARD LOOKING STATEMENTS This presentation may contain certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of the safe-harbour provisions of the US federal securities laws. Because these forward-looking statements are subject to risks and uncertainties, actual future results may differ materially from those expressed in or implied by the statements. Many of these risks and uncertainties relate to factors that are beyond the companies' ability to control or estimate precisely, such as changes in economic and market conditions, changes in interest rates and foreign exchange rates, changes in law, governmental policy and regulation, the effects of competition, the ability of HSBC and Household to adequately identify and manage the risks they face, changes resulting from the proposed acquisition including the difficulties integrating systems, operational functions and cultures, and other risk factors detailed in HSBC's and Household's respective reports filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this announcement. Neither HSBC nor Household undertake any obligation to publicly release any revisions to these forward-looking statement to reflect events or circumstances after the date of this announcement. Investors and security holders are advised to read the prospectus regarding the business combinations transaction referenced in the announcement, when it becomes available, because it will contain important information. The HSBC prospectus will also constitute the Household proxy statement and will be filed with the Securities and Exchange Commission by both companies. Household shareholders may obtain a free copy of the proxy statement/prospectus (when available) and other related documents filed by either company at the Commission's website at www.sec.gov. When available, the proxy statement/prospectus and other documents may also be obtained from HSBC by contacting HSBC, Attention Patrick McGuinness, Investor Relations and/or Household by contacting Household, Attention Craig Streem, Investor Relations. HSBC and Household and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from Household shareholders in favour of the acquisition. Information concerning the participants will be set forth in the proxy statement/prospectus when it is filed with the Securities and Exchange Commission. [Household Logo] [HSBC Logo] CAUTIONARY STATEMENT This presentation is directed only at persons who (i) have professional experience in matters relating to investments or (ii) are persons falling within Article 49(2)(a) to (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 or (iii) are outside the United Kingdom. Nothing in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion contained in the Financial Services and Markets Act 2000. [Household Logo] [HSBC Logo] [HSBC Logo] [Household Logo] -----END PRIVACY-ENHANCED MESSAGE-----