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Banking in the NAFTA Region

Banking in the NAFTA Region. A Practitioners Landscape. Ian Graham Director Treasury & Risk Management Saxon Energy Services. Aaron Martin Payments and Cash Management Senior Sales Manager HSBC Bank Canada. Rebecca Mcculloch Payments and Cash Management Senior Sales Manager

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Banking in the NAFTA Region

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  1. Banking in the NAFTA Region A Practitioners Landscape Ian Graham Director Treasury & Risk Management Saxon Energy Services Aaron Martin Payments and Cash Management Senior Sales Manager HSBC Bank Canada Rebecca Mcculloch Payments and Cash Management Senior Sales Manager HSBC Bank USA • April 21st, 2013 INTERNAL - 1

  2. Disclaimer • This presentation is provided in part by HSBC Bank Canada and in part by HSBC Bank USA, N.A. (collectively "HSBC"), is for information purposes only and may not be used or relied upon for any other purpose. In addition, these materials may not be disclosed, in whole or in part, or summarized or otherwise referred to except as agreed in writing by HSBC. The information contained herein is derived from sources we believe to be reliable, but which we have not independently verified. To the extent such information includes estimates and forecasts of future financial performance obtained from public sources, we have assumed that such estimates and forecasts have been prepared on bases. HSBC makes no representation or warranty (express or implied) of any nature nor is any responsibility of any kind accepted with respect to the completeness or accuracy of any information, projection, forecast, representation or warranty (expressed or implied) in, or omission from, this document. HSBC expressly disclaims any and all liability that may be based on any information contained herein, errors therein or omissions there from and any obligation to update any of such information. In particular, Nno liability is accepted whatsoever by HSBC for any direct, indirect or consequential loss arising from the use of or reliance on this presentation or any information contained herein by the recipient or any third party. • These materials are intended solely for your information and HSBC assumes no obligation to update or otherwise revise these materials. Any examples given are for the purposes of illustration only. The information, analysis and/or opinions in this presentation constitute our present judgment, which is subject to change without notice. This presentation does not constitute an offer or solicitation for, or advice that you should enter into, the purchase or sale of any security, commodity or other investment product or investment agreement, or commitment to provide any financing, or any other contract, agreement or structure whatsoever and is intended for institutional, professional or sophisticated customers and is not intended for the use of private individual or retail customers. Nothing contained herein should be construed as tax, investment, accounting or legal advice. No consideration has been given to the particular service needs, investment objectives, financial situation or particular needs of any recipient. Recipients should not rely on this document in making any investment decision and should make their own independent appraisal of and investigations into the information and any investment, product or transaction described in this presentation. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment or product mentioned in this presentation. This presentation, which is confidential and not for public circulation, must not be copied, transferred or the content disclosed, in whole or in part, to any third party. This presentation should be read in its entirety. • No part of this presentation may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC. All the information set out in this presentation is provided on the best of HSBC's current knowledge and understanding of the relevant law, rules, regulations, directions and guidelines governing or otherwise applicable to the subject matter thereof but HSBC makes no guarantee, representation or warranty and accepts no liability as to its accuracy or completeness. If a report or other source is referenced within this presentation, you should read the disclaimers and disclosures which form part of the relevant report or source. The opinions expressed and information provided are as at the date that this presentation was made and HSBC and such opinions and information may change; HSBC is under no obligation to update such opinions or information if they do change. • Please note the following with regard to certain products which may be discussed in connection with these materials: • HSBC Bank Canada and HSBC Bank USA, N.A are members of the HSBC Group of entities. • In the United States, deposit, credit and other banking products are offered by HSBC Bank USA, N.A., Member FDIC., and an Equal Credit Opportunity Lender. • In Canada, deposit, credit and other banking products are offered by HSBC Bank Canada, Member CDIC. • For all HSBC products, certain terms and restrictions may apply and the products are offered subject to applicable terms and conditions n. Certain products, including, without limitation, loans, are subject to approval. • All United States persons (including entities) are subject to U.S. taxation on their worldwide income and may be subject to tax and other filing obligations with respect to the U.S. and non-U.S. accounts. U.S. persons should consult a tax advisor for more information. INTERNAL - 2

  3. Banking in the NAFTA RegionAgenda • Learning Objectives • NAFTA Overview • Saxon Introduction • Economic Comparison • Banking Landscape • Liquidity • Clearing Systems • Future Payment Trends • Key Learnings • Q&A INTERNAL - 3

  4. Banking in the NAFTA RegionLearning Objectives • Understand key differences among banking systems across the NAFTA region • Understand the strengths of each system in order to enhance the effectiveness of your cross-border treasury operations • Recognize the impact of future changes to cross-border banking services • Understand best practices and identify opportunities to optimize cross-border operations INTERNAL - 4

  5. NAFTA Overview INTERNAL - 5

  6. Did you know? • NAFTA went into effect on January 1, 1994. • NAFTA created the world's largest free trade area. • NAFTA links 450 million people producing $17 trillion worth of goods and services. • Approximately $462.3 billion in trade between Canada and the USA during the same time frame. This is ahead of China, which is at $389.7 billion and Mexico, with $369.5 billion. North American Free Trade Agreement (NAFTA)History and Background INTERNAL - 6

  7. Did you know? • Canada is the leading exporter of natural resources, resource-based technology and knowledge. • Home to the second biggest oil reserve and thriving mining sector. • Canada is the second-largest country in the world, behind Russia. • As of 2013, Toronto is fourth-largest city in N.A. after Mexico City, New York and Los Angeles • Canada has the fourth lowest population density in the world, averaging three people per square kilometre. CanadaFacts about Canada INTERNAL - 7

  8. CanadaOverview of Banking Sector • There are currently 49 commercial banks (25 domestic banks and 24 foreign bank subsidiaries) which offer whole sale and retail banking services, 27 branches of foreign banks and 6 federally regulated cooperative credit associations in Canada. • Canada's domestic banking sector is dominated by five commercial banks: Royal Bank of Canada (RBC), TD Bank Financial Group (TD), Scotiabank Group, BMO Financial Group and CIBC (Canadian Imperial Bank of Commerce). These banks account for around 90% of the Canadian banking sector's total assets. • Many of Canada's leading banks have expanded in the US. Royal Bank of Canada, BMO Financial Group, TD Bank Financial Group and HSBC Bank Canada have banking affiliates among the top 50 US banks. • 7 Largest Banks in Canada by asset size (C$ BN as at Oct 2012): • Royal Bank of Canada $825 • TD Bank $811 • Scotiabank$668 • BMO $525 • CIBC $393 • National Bank of Canada $184 • HSBC Bank Canada* $81 (as at Dec, 31, 2012) INTERNAL - 8

  9. Did you know? • Mexico is the twelfth-largest economy in the world in terms of GDP and second largest in Latin America (Latam). • Mexico’s President is elected every 6 years and cannot be re-elected. • Mexico is the 2nd most liquid exchange in Latin America, behind Brazil. • The Mexican stock exchange is highly concentrated, with the top five stocks accounting for 63% of the market universe and the top 10 for 81% (May 2012). • Mexico has hosted the FIFASoccer World Cup in 1970 and 1986 and the Summer Olympics in 1968. MexicoFacts about Mexico INTERNAL - 9

  10. MexicoOverview of Banking Sector • There are currently 26 financial groups, 43 multiple banks, six development banks, 22 financial companies with limited operations and 81 representative offices of foreign banks operating in Mexico. • Legislation passed in Dec 1998 allowing foreign investment in Mexico's leading banks. • Following extensive privatization and consolidation, approximately 75% of total banking assets, and five of the six largest banks in Mexico are now foreign owned. • 7 Largest Banks in Mexico by asset size (USD BN July 2012): • BBVA Bancomer (Spain) $102 • Banamex (US) $92 • Banorte (Mexico) $ 67 • Santander (Spain) $ 63 • HSBC (UK) $ 38 • Inbursa (Mexico) $ 25 • ScotiabankInverlat (Canada) $ 16 INTERNAL - 10

  11. Saxon Overview INTERNAL - 11

  12. Saxon Energy ServicesCompany Overview • Saxon is a land based drilling and workover service company providing services to oil and gas exploration and production companies • Specialized “Fit For Project” rigs • Worldwide fleet of drilling and work over rigs – footprint extends across four continents • Contracts with National Oil Companies (“NOCs”) and International Oil Companies (“IOCs”) • Fleet Overview Revenue Breakout by Geography • Saxon’s fleet includes 94 Drilling and Workover rigs • Saxon supports an additional 30+ rigs through various Operational and Technical Services Agreements (TSAs) – all TSA rigs are owned partially or fully by Schlumberger • Drilling Rigs (76) • Emphasis on modular and highly mobile drilling equipment • Focus on drilling intensive, large scale development projects • Workover Rigs (18) • Small but growing fleet • Focus on large scale development projects TSA – Turkey PAK – Pakistan OMN – Oman VEN – Venezuela PER – Peru ECU – Ecuador COL – Colombia MEX – Mexico NAM – North America AUS - Australia INTERNAL - 12

  13. Saxon Energy ServicesDiverse Geographic Footprint (94 Drilling & Workover Rigs) Saxon Direct Operations/Rig Targeted Growth Territories Technical Services Agreements (TSA) w/ SLB Canada (10) 5 x 700-850 HP Rigs2 x 660 HP Rigs3 x 400-450 HP Rigs Mexico (16) 3 x 1000 HP Rigs3 x 800-850 HP Rigs4 x 600 HP Rigs4 x 750 HP Rigs2 x Workover Rigs USA (10) 5 x 1150 HP Rigs1 x 1000 HP Rigs4 x 700-750 HP Rigs Australia (16) 4 x ATS 600 HP Rigs4 x ATS 1250 HP Rigs3 x ATD 1250 HP Rigs 5 x Workover Rigs Colombia (14) 1 x 2000 HP Rigs4 x 1500 HP Rigs1 x 865 HP Rigs6 x 750 HP Rigs1 x 650 HP Rigs1 x Workover Rig Pakistan (4) 1 x 2500 HP Rigs2 x 2000 HP Rigs1 x 1200 HP Rigs Venezuela (8) 1 x 3000 HP Rigs2 x 2000 HP Rigs1 x 1500 HP Rigs1 x 1000 HP Rigs3 x Workover Rigs Ecuador (7) 7 x Workover Rigs Oman (7) 5 x 2000 HP Rigs2 x 1000 HP Rigs Peru (2) 2 x 2000 HP Heli Rigs Total of 3,800 employees representing 30+ nationalities INTERNAL - 13

  14. Saxon Energy ServicesGlobal Employee Base w/ International Industry Experience INTERNAL - 14

  15. Saxon Energy ServicesCompany Overview • Strong, Committed Shareholders • Saxon was taken private in Q3-2008 (previously a publicly listed company trading on the TSX) by First Reserve Corporation (FRC) & Schlumberger (SLB) who are equal 49.5% shareholders in Saxon (remaining % held by Saxon Management) • Acquisition rationale: Mutual view by shareholders on long term strategic importance and enhanced value of international drilling operations • High Quality, Advanced Technology Rigs • Approximately 80% of rigs are Tier 1 / Tier 2 • Since 2007, Saxon has invested ~$600 MM in acquisitions, new build, and major rig upgrade programs • Fit-for-project drilling solutions provided by Saxon’s highly nimble and agile fleet • Premier supplier of land-based drilling and workover operations in Shallow to Deep oil and gas reservoirs • Strong Financial Outlook Underpinned by Long-Term Contracts • Historically, Saxon’s customer base has been comprised of ~60% IOCs and ~20% NOCs • Currently ~70% of 2013 revenue is currently contracted with a substantial amount of the remaining revenue projected accruing from probable renewals and extensions • 2013 Projections: $650MM + USD in Revenue world-wide; $1.1B+ in Assets INTERNAL - 15

  16. Economic Comparison INTERNAL - 16

  17. Economic Comparison INTERNAL - 17

  18. Economic Comparison INTERNAL - 18

  19. Banking Landscape INTERNAL - 19

  20. Banking Landscape INTERNAL - 20

  21. Banking Landscape INTERNAL - 21

  22. Banking Landscape INTERNAL - 22

  23. Banking Landscape Payment Systems INTERNAL - 23

  24. Banking Landscape Payment Systems INTERNAL - 24

  25. Cash Management Capabilities INTERNAL - 25

  26. Cash Management CapabilitiesPayments and Disbursements INTERNAL - 26

  27. Cash Management CapabilitiesCollections and Receivables INTERNAL - 27

  28. Cash Management CapabilitiesLiquidity Management INTERNAL - 28

  29. Trends in the Marketplace INTERNAL - 29

  30. Trends in the MarketplacePayment Trends • Convergence of business and consumer payments • B2B payment alternatives converging with consumer payments • Corporate credit cards, travel & entertainment, purchasing, etc. • Online payments supported for both corporate and consumers • Online bill payments • Online tax payment and filing • Online consumer debits • SWIFT for corporates • Migration to electronic payments away from cash and paper methods: • Migration to chip technology for cards* • Mobile technology taking hold • Migration to online payments • Move toward real-time payments • E-Mail Money Transfer (EMMT) - person to person funds transfers in real-time INTERNAL - 30

  31. Trends in the MarketplacePayment Trends • CHIP Technology • EMV CHIP is currently one of the most secure technologies available to protect payment information and prevent payment card fraud • The EMV CHIP can be found in over 65 countries • Migration to CHIP affects payment brands, issuers, acquirers, merchants and consumers • Training of retail staff is important. The migration requires the upgrade and/or replacement of POS terminals, ABMs/ATMs and payment cards • More secure payment infrastructure that bolsters consumer and retailer confidence INTERNAL - 31

  32. Trends in the MarketplacePayment Trends INTERNAL - 32

  33. Trends in the MarketplaceInternational Financial Reporting Standards (IFRS) • A single set of high-quality, understandable and enforceable global accounting standards. • Over 100 countries report under IFRS, more countries are adopting it as a local accounting standard. • Publically listed entities, including those in finance and insurance sectors, are regulated by the National Banking and Securities Commission (CNBV), which mandated a 2012 adoption of IFRS (early adoption permitted). • Mexico: IFRS transition date is January 1, 2011; first reporting date for Mexican public companies (excluding FIs)is December 31, 2012 • Canada: IFRS transition by 2011, new standards in IFRS and Canadian GAAP will take effect during the transition period which may cause complications • IFRS helps companies increase global reach, provides financial information with enhanced comparability and transparency, and easier access to international capital, funding and investment opportunities INTERNAL - 33

  34. Questions/Discussion INTERNAL - 34

  35. References: Banking in the NAFTA Region • 2012 Financial Reports • Bank of Montreal, Year End Consolidated Financial Statements, Oct 31st, 2012. Accessed March 2013. http://www.bmo.com/ar2012/downloads/bmo_ar12_cfs.pdf • Bank of Nova Scotia, Year End Consolidated Financial Statements, Oct 31st, 2012. Accessed March 2013. http://media.scotiabank.com/AR/2012/en/downloads/Scotiabank_AR_2012_FS.pdf • Canadian Imperial Bank of Commerce, Year End Consolidated Financial Statements, Oct 31st, 2012. Accessed March 2013. https://www.cibc.com/ca/pdf/investor/ar-12-en.pdf • Toronto Dominion Bank, Year End Consolidated Financial Statements, Oct 31st, 2012. Accessed March 2013. http://www.td.com/document/PDF/ar2012/AR2012_FS&Notes_E.pdf • Royal Bank of Canada (RBC), Year End Consolidated Financial Statements Oct 31st, 2012. Accessed March 2013. 11 direct clearers + Bank of Canada • “2012-2013 Economic Outlook – Economy Battles Strong Headwinds: Modest Growth Ahead”, Canadian Chamber of Commerce, December 2011, http://www.chamber.ca/images/uploads/Reports/2011/EconomicOutlook111228.pdf) • “Automated Clearing Settlement System” Canadian Payments Association. Accessed March 2013. https://www.cdnpay.ca/imis15/eng/Clearing_Settlement/Automated_Clearing_Settlement_System/eng/sys/Automated_Clearing_Settlement_System.aspx • Bain, B and Jonathan, J, Levin. “Mexico Banks Target Wealthy in Booming Home Market: Mortgages”, Bloomberg, Accessed March 2013. http://www.bloomberg.com/news/2012-11-23/mexico-s-banks-target-wealthy-in-booming-home-market-mortgages.html • “Bank Operating in Canada” Canadian Bankers Association, November 14, 2012. http://www.cba.ca/en/component/content/category/61-banks-operating-in-canada • Bloom, David, Daragh Maher, Paul Mackel et al. “Currency Outlook – USD, Heads I win, tails you lose” HSBC Global Research – Macro Currency Strategy, March, 2013, Accessed March 18, 2013. https://research.uk.hibm.hsbc/midas/Res/RDV?p=pdf&$sessionid$=KcAyac0iBrb2fCW_pE_IlBB&key=lcXeQbArrL&n=364177.PDF • “Canada’s Major Payment Systems” Bank of Canada, Accessed March 2013, http://www.bankofcanada.ca/financial-system/payments/canadas-major-payments-systems/ • “Canadian Economic Month at a Glance” Conference Board of Canada, May 11, 2012, http://www.conferenceboard.ca/reports/cmaag/2012/cmaag052012.aspx • Dhillon, Sunny. “Toronto is the fourth-largest city in North America” Wary Centrists Posing Challenge in Health Care Vote.” The Globe and Mail, March 5, 2013. Accessed March 5, 2013. http://www.theglobeandmail.com/news/toronto/toronto-now-the-fourth-largest-city-in-north-america/article9317612/) • “Federally Regulated Financial Institutions” Office of the Superintendent of Financial Institutions Canada, February 23, 2012. http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?DetailID=568 • “Fun facts about Winnie the Pooh and his friend” Accessed from the New York Public Library website March 2013. http://www.nypl.org/locations/tid/36/node/49187 • International Financial Reporting Standards website. Accessed March 2013, http://www.ifrs.org/Pages/default.aspx • “Large Value Transfer System”, Canadian Payments Association Website. Accessed March 2013. https://www.cdnpay.ca/imis15/eng/Clearing_Settlement/Large_Value_Transfer_System/eng/sys/Large_Value_Transfer_System.aspx • Martin, Sergio, and Juan Carlos Mateos. “In the spotlight…Mexico Handbook – Competitive, open and only a truck drive away” HSBC Global Research – Economics and Equity Strategy - Mexico: October 2012. Accessed March 5, 2010. https://research.uk.hibm.hsbc/midas/Res/RDV?p=pdf&$sessionid$=rWYSPhTNh_HCtR9a_lplftb&key=mWEGLYsvGK&n=344846.PDF • “North American Free Trade Agreement” Office of the United States Trade Representative, Accessed March 20, 2013, http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-agreement-nafta • Watt, David. “Canada – Bank of Canada to keep rates lower for longer” HSBC Global Research – Macro Economics Canada, March 13, 2013, Accessed March 18, 2013. https://research.uk.hibm.hsbc/midas/Res/RDV?p=pdf&$sessionid$=KcAyac0iBrb2fCW_pE_IlBB&key=bqxJLb5yJM&n=363873.PDF • Woellert, Lorraine. “Gains in Permits Signal Sustained U.S. Housing Rebound: Economy” Bloomberg, March 19, 2013. INTERNAL - 35

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