HSBC North America Holdings Inc.

1. HSBC North America Holdings Inc. 2007 North American Six Sigma Excellence Awards Best Six Sigma Project in Financial Services Improve HFC and Beneficial Branch Banking Process Team Resources: Branch Operations, Consumer Lending (CL) Business Performance Group, CL Product, Program & Delivery, CL Deposit Services, Operations Division. HSBC Technology and Services Unit HSBC Payments and Cash Mgmt. Project Management, Ops Division Remittance Processing, Ops Division Accounts Reconciliation, Corporate Remote Processing Center, Corporate Treasury Operations, Corporate Champions: Steve Nesbitt, MD, Business Quality Mgmt. Thomas Kaiser, EVP Operations Division Ned Hennigan, Director, CL Branch Ops Six Sigma Quality Leaders: Michael Dougherty, Director, Consumer Lending Dave Bobeck, Director, HSBC Bank Team Leaders: Prashant Goenka, Black Belt, CL Lawrence Mazuchowski, SVP, Ops Division

2. The HSBC Group is one of the largest banking and financial services organizations in the world, with well established businesses in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. HSBC Holdings plc is incorporated in England, with its head office in London. HSBC North America Holdings Inc. is one of the top 10 financial services organizations in the United States with assets totaling more than $300 billion. HSBC -North America is the holding company for all of HSBC’s U.S. and Canadian businesses, including the former Household International Inc. businesses. The company’s businesses serve more than 60 million customers in five key areas: personal financial services, consumer finance, commercial banking, private banking, and corporate investment banking and markets. Financial products and services are offered under the HSBC, HFC and Beneficial brands. Company Description

3. Six Sigma at HSBC began in the Americas in 2001, and has since grown into a worldwide deployment including North America, South America, Europe, the Middle East and Asia Pacific. A Six Sigma Centre of Excellence (CoE) was established in Hyderabad, India in 2005 to serve as a clearinghouse for best practices globally. The CoE maintains a global Intranet site that houses all standard tool templates, training materials, project benefits tracking, certification templates, and details on projects to be replicated and shared globally. Through its more than 200 Master Black Belts and Black Belts, hundreds more Green Belts, together resident in more than 20 countries, HSBC has achieved certified cumulative per annum hard saves of $110.28 million. HSBC’s excellence in in the field has been recognized externally by winning IQPC North American Six Sigma Excellence Awards in 2004 and 2005 and IQPC European Six Sigma Excellence Award 2006. Six Sigma in the Company

4. Project Context Background: HSBC’s 1400 Consumer Lending branches were banking with competing banks. Additionally, branch banking process could be significantly improved. • Does it make sense? • 99% of branches banking with competitors • $3+ billion deposited with competitors • 762 unique banking relationships • $2.2 million + annual fees paid to competitors A collaborative effort spanning across multiple business unit was launched to address the banking process of 1400 branches* Legislative Changes: Check 21 Legislation allowed the banks to deal with electronics checks in lieu of physical checks. Now with appropriate technology one could do “virtual” banking Link to Strategy: 2006 Strategic Lever for HSBC North America: “Collaborate Across Lines Business”. Collaboration has the greatest potential to contribute to growth…and this project does exactly that! # HSBC’s key bus. units includes Consumer Lending, HSBC Bank, Credit Cards, Retail Services, Insurance. * Branches in this project refers to Consumer Lending Branches selling real-estate and non-real estate loans to prime and sub-prime customers under the Household and Beneficial brands.

5. D M A I C DEFINE: Problem Statement: The HFC and Beneficial Branch banking process is inefficient, costly, and fails to leverage the strategic opportunity to use HSBC Bank USA, N.A. Branches hold over 700 accounts with competingbanks and pay them over $2.2 million in fees each year. In addition, it takes up to 4 days to obtain credit on $12.7million in daily check deposits. • In-Scope: • Branch check deposits and checks returned unpaid • All banks used for depository services • Metrics: • Days to obtain credit on deposited funds • Number of accounts held with competing banks • Number of and fees paid for checks deposited • Number of and fees paid for returned checks Improve HFC and Beneficial Branch Banking Process • Eliminate 75% of return check processing in HFC/ Beneficial branches. • Reduce overall banking fees paid by HFC/Beneficial by 75% and reduce per-check fees by at least 70% • Increase the HFC/Beneficial branch use of HSBC Bank USA, N.A. by 90% and capture $3.0 billion in annual deposits at Bank. • Accelerate the time it takes for deposited funds to become available for investment by at least 50% S Suppliers I Inputs P Process O Outputs C Customers • Loan Customer • Branch staff • Controllers Group • Bank Relationships • Policy /Compliance • Quality Assurance • Consumer Lending • External Customer • Reconciliation Team • Remittance Coupon • Check, Money Order • Returns Policy • Regulations • Branch Teller System • Returned check • Reversal of check return Customer Pays Loan at Branch via Check Branch Teller Posts Payment to System Branch Deposits Checks & Money Orders Controllers Group Notifies Branch of Check Returns Branch Reverses Payment & Calls Customer

6. D M A I C MEASURE Process Door Data Door Data Collection Plan Process Map Cycle Time to obtain credit for deposited checks Cust. Walks in the branch and makes the deposit Very long cycle time Branch deposits check in local bank Local bank holds the cash for 2-3 days (Float Management) HSBC Treasury sweeps the cash from local bank

7. D M A I C MEASURE • Out of total of 1400 branches, only 23 branches have a banking relationships with HSBC. (not leveraging HSBC’s banking capabilities) • Between $ 13-17 million are deposited daily. $3.76 billion was deposited in 2004. • The current average time to clear funds is 4-5 days. (Local Banks/Competition is making big money on the float) • Of the $13-17 million deposited daily, 85% of deposits are checks while 15% are cash. (Majority transaction is check based, hence we can leverage Check 21 legislation) • HSBC Finance Treasury funds each bank account with $10,000 ($8.4 million daily balance). (If we reduce the number of bank accounts, we can release a lot of cash for alternative use!) • Lot of non-value added time spent in handling NSF (returned checks) function: Branch: 1.1 hr a month (9 FTE); QAC: 7.9 hrs a month (3 FTE); Controllers: 32 hours a month (1.2 FTE) – (Opportunity to centralize this function to gain efficiency) • 44% indicated they make 1 trip to the bank a day while 55% make 2 trips a day for bank deposits (Huge opportunity to save this time) What We Learned? 762 unique banking relationships. (Too many relationships resulting in high fees and high variance in processing and cost.) Fees for 4 Branches Bank fees paid in 2004 totaled $2.2 million. (Very high fees compared to HSBC Bank fee schedule. Also, why should we increase the revenue of competition when we can bank with HSBC?) -5-

8. D M A I C Analyze Understanding the Root Cause……. Improve HFC and Beneficial Branch Banking Process Why do we pay high Bank Charges? Why does it take 4+ days on avg. to get credit on deposited funds? Local Bank charges very high returned check fees Local Bank puts us on a high float schedule this releasing our money on an average after 2 days Branch drives to Deposit in local bank after the daily cutoff and in many cases the next day. High Check Fees charged by Local Bank. Avg. 32 cents/check 762 unique local bank WHY ? Median Fee = $6/NSF; Variation: $7/NSF No Local HSBC Bank near 99% of the branches Centralize returned check handling in HSBC (cost reduces to $0.16 per NSF SOLUTION Leverage Check 21 legislation and find a technology that let’s us bank with HSBC electronically, thus eliminating our reliance on local banks 2 1

9. D M A I C Solutions Selected…. Improve Eliminate reliance on local bank Improve HFC and Beneficial Branch Banking Process 2 1 To evaluate solutions on different criteria Centralize returned check handling in HSBC Screened Solutions Pugh Matrix 1. Point of purchase: Consumer checks are scanned & converted to an electronic transaction Aquick-hit improvement idea to place the stamp on the back of deposited check to route the returned check to a centralized location in HSBC Can’t scan money orders Manual, costly & inefficient 2. Mail to RPC: Branch overnight checks to RPC Scanning technology not well developed 3. Brinks Pick up: Brinks pick up cash and scan checks. 4. Remote Deposit Capture: Scanners in each branch. Checks transmitted daily to HSBC bank Best technology supported in-house A check being scanned using the Remote Deposit Capture machine

10. D M A I C Implement Testing and implementing the solutions... A D Improve HFC and Beneficial Branch Banking Process B Pilot very successful Mitigation Plan for key Risks identified FMEA Analysis C Implementation Plan & Team Pilot in 9 branches Feb 2006 Mar 2006 Apr 2006 Q 1/2 2007 Q 3/4 2006 May 2006 G F E Install in remaining 1125 branches Install in 250 branches Received funding to install in 1375 branches

11. D M A I C Control Tracking Results: Placing this stamp on the back of a deposited check means … Improve HFC and Beneficial Branch Banking Process = Good 72% drop in checks returned to branches Branch Set-Up Form Ensures Consistency Performance Chart Tracks Progress

12. Average Check Processing Fee Average Float Time 4 days 135% 220% reduction 32 cents 4 reduction 0.4 3.5 3 0.3 1.7 days 2.5 10 cents 2 0.2 1.5 0.1 1 0.5 0 0 Before After Before After # of Branches Banking with HSBC NSFs in Branches 470% reduction 1300% 1645 1400 increase 2000 1200 1000 1500 1300+ 800 Branches 1000 600 289 23 Branches 400 500 200 0 0 Before After Before After RESULTS Improve HFC and Beneficial Branch Banking Process Financial Benefit: $7.7 Million over the next five years (hard benefits validated by Corporate Finance, HSBC)

13. REPLICATE Improve HFC and Beneficial Branch Banking Process Given the profound success of this project, we identified other areas where we were receiving lots of checks. We found that the Global Collection facilities were getting more than 15,000 checks per month and were currently banking with a competition bank. Given the availability of the technology and clear implementation plan, we quickly installed RDC in collection facility and gained hard benefit of $250K. The entire implementation took less than a month. This project had a revolutionary impact on capacity of the branches and they started asking “Why should we even accept cash in the branches? If we don’t accept cash, this will totally eliminate our need to go to local bank and other activities associated with maintaining cash in branches”. The idea got instant approval and resulted in tremendous productivity increase for branch and a success story that is being highlighted at many key leadership conference.

14. Testimonials Tom Detelich (left) CEO – HSBC Consumer Lending shakes hand with Martin Glynn (right) CEO – HSBC Bank to celebrate the collaborative results achieve through this Six Sigma project Bobby Mehta (right) CEO – HSBC North America listens attentively to the benefits of this Six Sigma project Sandy Derickson (left) CEO – HSBC Retail Services applauds the collaborative effort of the Six Sigma project team. CEO Testimonials Customer Testimonials “"WE LOVE IT! ...Saves us considerable time going to the bank. Now only going 2 times a week to drop cash deposit"” – Branch Sales Manager, Pasadena “We were the pilot branch...I feel the program is excellent. It is very easy to use....I feel the best part is no need for extra paper work. and we can make the deposit ourselves.” – Sales Assistant “"We love the Remote Deposit System. I think every branch should have it"” - Branch Sales Manager, NY “This is a slam dunk win” – Tom Detelich, CEO HSBC Consumer Lending “ Looks like a winner, Job Well Done” – Martin Glynn, CEO HSBC Bank “ A great example of collaboration. We need more initiatives like this…” - Sandy Derickson, CEO HSBC Retail Services Recognition Received: Nominated to be one of the top projects in “Senior Leadership Conference” and selected as the spotlight project in “HSBC North America Quality Fair 2006”