HSBC Holdings Regulatory News (HSBA)

HSBC HOLDINGS PLC

2024 Interim results

Noel Quinn, Group Chief Executive, said:

"After delivering record profits in 2023, we had another strong profit performance in the first half of 2024, which is further evidence that our strategy is working. Our investment in Wealth is delivering higher, more diversified revenue and we continue to grow our core international and scale businesses, all of which helped us to provide $13.7bn of distributions in respect of the first half. We are confident that we have the right strategy and model to grow revenue, even in a lower interest rate environment, and are therefore providing new guidance of a mid-teens return on average tangible equity in 2025.

I have always been immensely proud of the heritage of this bank and the strategic role it plays in the world. My aim when I took this job was to deliver financial performance to match our standing. Working together, I believe we have done that and created a strong platform for growth."

Financial performance in 1H24

- Profit before tax of $21.6bn was stable compared with 1H23, including a $0.2bn net favourable revenue impact of notable items relating to gains and losses recognised on certain strategic transactions. Profit after tax of $17.7bn was $0.4bn or 2% lower compared with 1H23. 

- In 1H24, we completed the disposal of our banking business in Canada, recognising a gain of $4.8bn. We also recognised an impairment of $1.2bn following the classification of our business in Argentina as held for sale. Results in 1H23 included the impact of a $2.1bn reversal of an impairment relating to the sale of our retail banking operations in France and a $1.5bn gain recognised on the acquisition of Silicon Valley Bank UK Limited ('SVB UK').

- Constant currency profit before tax excluding notable items was stable at $18.1bn compared with 1H23, as revenue growth and lower expected credit losses and other impairment charges ('ECL') were offset by a rise in operating expenses.

- Revenue rose by $0.4bn or 1% to $37.3bn compared with 1H23, including the gains and losses on certain strategic transactions described above. Net interest income ('NII') fell by $1.4bn, as growth in HSBC UK and a number of other markets was more than offset by reductions due to business disposals, deposit migration, and redeployment into the trading book in HSBC Bank plc and our main entity in Hong Kong. The increase in funding costs associated with funding the trading book resulted in an increase in banking net interest income ('banking NII') of $0.3bn or 1%.

- Revenue growth also reflected the impact of higher customer activity in our Wealth products in Wealth and Personal Banking ('WPB'), and in Equities and Securities Financing in Global Banking and Markets ('GBM'). Constant currency revenue excluding notable items rose by 2% to $33.7bn, primarily due to growth in Wealth in WPB, in Equities and Securities Financing in GBM, as well as an increase in Global Payment Solutions ('GPS').

- Net interest margin ('NIM') of 1.62% decreased by 8 basis points ('bps') compared with 1H23, reflecting a rise in the funding cost of average interest-bearing liabilities.

- ECL charges were $1.1bn, a reduction of $0.3bn compared with 1H23. The reduction reflected a release of stage 3 allowances in GBM in HSBC Bank plc, lower ECL in Commercial Banking ('CMB') in HSBC UK, and lower charges in the commercial real estate sector in mainland China. In WPB, ECL charges were broadly stable as a release of allowances in the UK was offset by higher charges in Mexico, reflecting unemployment trends and growth in our unsecured portfolio. Annualised ECL were 22bps of average gross loans, including a 4bps reduction due to the inclusion of loans and advances classified as held for sale.

- Operating expenses of $16.3bn were $0.8bn or 5% higher than in 1H23, mainly due to higher technology spend and investment, inflationary pressures and an increase in the performance-related pay accrual. Target basis operating expenses rose by 7% compared with 1H23. This is measured on a constant currency basis, excluding notable items, the impact of retranslating the prior year results of hyperinflationary economies at constant currency, and the direct costs from the sales of our France retail banking operations and our banking business in Canada.

- Customer lending balances of $938bn were stable on a reported basis, and increased by $12bn on a constant currency basis, compared with 31 December 2023. Growth included higher balances in HSBC Bank plc in both CMB and GBM, and higher term lending in CMB in our entities in mainland China and India. In addition, mortgage balances increased in HSBC UK in WPB.

- Customer accounts of $1.6tn fell by $18bn on a reported basis, and increased by $3bn on a constant currency basis compared with 31 December 2023, notably in GBM reflecting growth in time deposit balances in Asia. The increase in GBM included a short-term deposit from a single corporate customer.

- Common equity tier 1 ('CET1') capital ratio of 15.0% rose by 0.2 percentage points compared with 4Q23, driven by a reduction in risk-weighted assets ('RWAs'), partly offset by a reduction in our CET1 capital.

- The Board has approved a second interim dividend of $0.10 per share. We also intend to initiate a share buy-back of up to $3bn, which we expect to complete within three months.

Financial performance in 2Q24

- Reported profit before tax increased by $0.1bn to $8.9bn compared with 2Q23, due to a lower ECL charge, which more than offset higher operating expenses and lower revenue. On a constant currency basis, profit before tax increased by $0.4bn or 4%.

- Revenue fell by $0.2bn to $16.5bn compared with 2Q23, notably as 2Q23 included the operating results of France and Canada for which sales completed in 1Q24. In addition, 2Q24 included a loss related to the recycling of reserves following the completion of the sale of our business in Russia. This was partly offset by growth in Securities Financing and Equities in GBM and from Wealth in WPB.

- ECL of $0.3bn decreased by $0.6bn, reflecting lower charges in 2Q24 in the commercial real estate sector in mainland China, compared with 2Q23, as well as a reduction in charges in HSBC UK, and the release of stage 3 allowances in GBM in HSBC Bank plc.

- Operating expenses of $8.1bn rose by $0.3bn or 3%, due to higher technology costs, including investment, the 2Q23 reversal of historical asset impairments, which did not recur, and inflationary impacts. This was partly offset by reductions following the completion of disposals in Canada and France.

- Customer lending increased by $5bn compared with 1Q24 on a reported basis and by $8bn on a constant currency basis. The growth was mainly from CMB, notably in our entities in mainland China and India, and in WPB from mortgage balance growth in HSBC UK and our entity in the US.

- Customer accounts increased by $24bn compared with 1Q24 on a reported basis and by $27bn on a constant currency basis. The increase was across all businesses, primarily in Asia. The increase included a short-term deposit from a single corporate customer.

Outlook

- We will now target a return on average tangible equity ('RoTE'), excluding the impact of notable items, in the mid-teens for both 2024 and 2025.

- Based upon our current forecasts, we expect banking NII of around $43bn in 2024. This guidance remains dependent on the path of interest rates globally.

- While loan growth was 1% in 1H24, revenue has continued to benefit from elevated interest rates. Over the medium to long term, we continue to expect mid-single digit year-on-year percentage growth in customer lending.

- We are reiterating our cost growth guidance of approximately 5% for 2024 compared with 2023, on a target basis, and now expect ECL charges as a percentage of average gross loans in 2024 to be within our medium-term planning range of 30bps to 40bps (including customer lending balances transferred to held for sale).

- Our guidance reflects our current outlook for the global macroeconomic environment, including customer and financial markets activity. This includes our modelling of a number of market dependent factors, such as market-implied interest rates (as of mid-July 2024), as well as customer behaviour and activity levels.

- We intend to manage our CET1 capital ratio within our medium-term target range of 14% to 14.5%, with a dividend payout ratio target basis of 50% for 2024, which excludes material notable items and related impacts.

- Note: we do not reconcile our forward guidance on RoTE excluding notable items, target basis operating expenses, dividend payout ratio target basis or banking NII to their equivalent reported measures.

Key financial metrics

For reconciliations of our reported results to a constant currency basis, including lists of notable items, see page 40 of the Interim Report 2024. For detail on other alternative performance measures, including definitions and calculations, see 'Reconciliation of alternative performance measures' on pages 56 to 61 of the Interim Report 2024.

1 Dividend per ordinary share for half year to 30 June 2024 excludes the special dividend of $0.21 per ordinary share arising from the proceeds of the sale of our banking business in Canada to Royal Bank of Canada.

2 Unless otherwise stated, regulatory capital ratios and requirements are based on the transitional arrangements of the Capital Requirements Regulation in force at the time. References to EU regulations and directives (including technical standards) should, as applicable, be read as references to the UK's version of such regulation or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, and as may be subsequently amended under UK law.

3 Regulatory numbers and ratios are as presented at the date of reporting. Small changes may exist between these numbers and ratios and those subsequently submitted in regulatory filings. Where differences are significant, we may restate in subsequent periods.

4 The liquidity coverage ratio is based on the average value of the preceding 12 months.

5 We have enhanced our calculation processes during 1H24. As Group LCR is reported as a 12-month average, the benefit of these changes will be recognised incrementally over the coming year starting from 30 June 2024.

Highlights

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 Includes the reversal of a $2.1bn impairment loss relating to the sale of our retail banking operations in France in 1Q23.

3 Includes a $4.8bn gain on disposal of our banking business in Canada, inclusive of a $0.3bn gain on the foreign exchange hedging of the sale proceeds, the recycling of $0.6bn in foreign currency translation reserve losses and $0.4bn of other reserves recycling losses. This is partly offset by a $1.2bn impairment recognised in relation to the planned sale of our business in Argentina.

4 Includes the gain of $1.5bn recognised in respect of the acquisition of SVB UK in 1Q23.

5 Constant currency performance is computed by adjusting reported results of comparative periods for the effects of foreign currency translation differences, which distort period-on-period comparisons.

6 Fair value movements on non-qualifying hedges in HSBC Holdings.

7 Relates to reversals of restructuring provisions recognised during 2022.

Review by Noel Quinn, Group Chief Executive

After achieving a record profit performance in 2023, we had a strong first half financial performance that reflected our strategy execution and revenue diversification over the past five years. We remain confident that we can deliver attractive returns, even in a lower interest rate environment, as a result of macroeconomic trends that play to our strengths, market-leading businesses connecting high-growth markets that we are continuing to invest in, and ongoing cost discipline. As a result, we are providing new guidance of a mid-teens return on average tangible equity, excluding the impact of notable items, in 2025.

Over the last 18 months, HSBC's business model has delivered our highest return on average tangible equity for more than a decade. We continued to perform well in our home markets of Hong Kong and the UK - the two pillars upon which our bank is built. The international wholesale banking business that we have built on top of these pillars is mature and differentiated, and has substantial scale. It remains our biggest competitive advantage and is supported by leading transaction banking products and services in global trade, payments and foreign exchange. Finally, we are growing and investing in our international retail and wealth business to sit alongside this, which is helping to diversify revenue.

Each of these strengths contributed to a good revenue performance in the first half of 2024, supported by higher interest rates. Our strategy is working and providing attractive returns for our shareholders. We have announced a second interim dividend of $0.10 per share, further to the first interim dividend of $0.10 per share and the special dividend of $0.21 paid in June. We are also today announcing a share buy-back of up to $3bn, further to the now completed $3bn share buy-back announced at our first quarter results. This means that we are announcing a further $4.8bn in distributions with these results, taking the amount of capital distributed in respect of the last 18 months to $34.4bn.

As we look ahead, the path of interest rates and the outcomes of elections are amongst the factors that will shape the global operating environment. The progress that has been made reducing inflation has enabled central banks to start cutting interest rates. Although we expect a cautious approach, we have reduced our sensitivity to interest rates. 2024 will also be the biggest election year on record, as more than 4 billion people have an opportunity to go to the polls. The US election result will be watched particularly closely considering the potential for policy change based on the result and the impact this could have beyond its borders. We will continue to monitor these situations.

Continued strong financial performance

The first half saw another strong profit performance, driven by growth in our scale businesses and in areas where we have been investing. There was strong revenue growth in Wealth, transaction banking revenue remained stable and wholesale lending increased again in the second quarter, on a constant currency basis, after growing in the first quarter.

Profit before tax for the first half was $21.6bn, which was stable compared with the first half of 2023. This included a $4.8bn gain on the sale of our banking operations in Canada, partly offset by a $1.2bn impairment related to the planned sale of our banking operations in Argentina, which was announced in the first half. The prior year also included a $2.1bn reversal of an impairment relating to the sale of our retail banking operations in France and a $1.5bn gain recognised on the acquisition of SVB UK.

Revenue increased by $0.4bn or 1% to $37.3bn, including the aforementioned acquisition and disposal impacts, driven mainly by higher banking net interest income. We achieved an annualised return on average tangible equity of 21.4%, or 17% excluding notable items.

Our three global businesses continued to perform well. In Wealth and Personal Banking, profit before tax of $6.5bn was $2.2bn lower than in 2023 on a constant currency basis, primarily due to the non-recurrence of a $2.1bn reversal last year of an impairment relating to the sale of our retail banking operations in France and $0.1bn of profit before tax in the prior period from our Canadian banking operations. Wealth revenue of $4.3bn was 12% higher than the first half of last year, driven by increases in investment distribution and Global Private Banking, as well as growth in asset management and life insurance.

In Commercial Banking, profit before tax of $6.5bn was down by $1.5bn on a constant currency basis, primarily due to the non-recurrence of a $1.6bn gain last year on the acquisition of SVB UK. Overall performance remained good, with revenue benefiting from the higher rates environment, growth in transaction banking and higher collaboration revenue.

Global Banking and Markets delivered a good performance. Revenue grew by 5% on a constant currency basis, with good growth in areas like Equities and Securities Financing, while still benefiting from the interest rate environment.

First half operating expenses of $16.3bn were around 5% higher than in 2023, mainly due to higher technology costs including investments, inflationary pressures and different phasing of the accrual of performance-related pay compared with 2023. On a target basis, operating expenses were 7% higher than the same period last year. As we expect the overall amount of performance-related pay for 2024 not to be materially different to 2023, we expect lower performance-related pay accrual in the second half. We are therefore reconfirming our cost growth guidance of approximately 5% for 2024 compared with 2023, on a target basis.

ECL and other credit impairment charges for the first half were $1.1bn, which was a $0.3bn decrease on the first half of 2023. We now expect ECLs as a percentage of average gross loans in 2024 to be back within our medium-term planning range of 30bps to 40bps. Our CET1 ratio at the end of the first half was 15.0%.

Our first half banking net interest income performance and the improved net interest income outlook mean that we are upgrading our 2024 banking net interest income guidance from at least $41bn to around $43bn.

Further opportunities to grow revenue

We also expect to deliver a return on average tangible equity in the mid-teens for 2024 and 2025, excluding the impact of notable items. Clearly there are downside risks to net interest income when interest rates fall, but we're confident that we have the levers to achieve these targets.

The first lever is leveraging our international connectivity. We have a strong international wholesale franchise. After a softer year in 2023, international trade volumes are forecast to grow more quickly this year and next. As the world's leading trade finance bank and the third-largest bank for global foreign exchange revenue since 2021, we expect to capitalise on this. To illustrate this growth potential, we grew wholesale multi-jurisdictional client revenue by 4% in the first half of 2024, on a constant currency basis and excluding HSBC Bank Canada, from $9.4bn to $9.7bn.

Increasing global mobility amongst retail customers is also driving demand for innovative cross-border banking solutions. This helped us to grow international customers within Wealth and Personal Banking by 11%, bringing the total to 7m customers. Revenue from these customers also grew by 6% in the first half. We believe that there is still significant untapped potential amongst international wholesale and retail customers.

The third lever is investing to diversify revenue. Over the last five years, we have taken a number of actions to reduce our sensitivity to interest rates and create the bank of the future. Building our wealth business, especially in Asia, to capitalise on increasing affluence has been one of the key priorities. As a result of this, wealth revenue was up 12% in the first half, while we attracted $32.4bn of net new invested assets. Payments is another fee-based business that we are investing in to capitalise on the expected increase in global payments revenue. We are the number two bank globally by payments revenue, up from top four in 2022, with a market share of 4.8% in 2023 compared with 3.6% in the prior year. HSBC was also named 'World's Best Bank for Payments and Treasury' by Euromoney, which was one of 33 awards given to the bank in 2024 that also included 'Best Bank in Asia' and 'World's Best Bank for Sustainable Finance'.

Through HSBC Innovation Banking, we are building a global proposition that can help us to become known as the go-to bank for innovation companies. Revenue from the new proposition increased by 4% in the second quarter and we have onboarded almost 600 new-to-bank innovation companies globally since the acquisition of SVB UK.

Thank you

As I prepare to hand on the leadership of HSBC to Georges Elhedery in September, I would like to place on record what an enormous privilege it has been to lead this great institution. I never imagined when I started my career 37 years ago that I would have the honour of becoming Group Chief Executive. I have always been immensely proud of the heritage of this bank and the strategic role it plays in the world. My aim when I took this job was to deliver financial performance to match our standing. Working together, I believe we have done that and created a strong platform for growth.

The success of our transformation programme is evident in the improved returns that we have delivered. Since I became Group Chief Executive, we have returned $36bn of dividends and $18bn of share buy-backs to our shareholders, inclusive of the distributions we have announced with these results, while also successfully navigating the global pandemic.

This would not have been possible without the support and backing of the Board, my Group Executive Committee colleagues and, of course, the whole HSBC team. I have been very fortunate to work with many talented, dedicated and committed people during my career. I would like to thank them wholeheartedly for their friendship and partnership - and I wish continued success to Georges, and to all those who will write the next chapter in the story of this great bank.

Noel Quinn

Group Chief Executive

31 July 2024

Financial summary

1 The $0.62 dividend paid during the period consisted of a fourth interim dividend of $0.31 per ordinary share in respect of the financial year ended 31 December 2023 paid in April 2024, a first interim dividend of $0.10 per ordinary share in respect of the financial year ending 31 December 2024 and a special dividend of $0.21 per ordinary share from the Canada sale proceeds.

2 The definition of net asset value per ordinary share is total shareholders equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue, excluding own shares held by the company, including those purchased and held in treasury.

Distribution of results by global business

1 On 1 January 2024, HSBC Continental Europe completed the sale of its retail banking operations in France to CCF, a subsidiary of Promontoria MMB SAS ('My Money Group'). With effect from this date, we have prospectively reclassified the portfolio of retained loans, profit participation interest and licence agreement of the CCF brand from WPB to Corporate Centre.

Distribution of results by legal entity

1 Other trading entities includes the results of entities located in Oman (pre merger with Sohar International Bank SAOG in August 2023), Türkiye, Egypt and Saudi Arabia (including our share of the results of Saudi Awwal Bank) which do not consolidate into HSBC Bank Middle East Limited. Supplementary analysis is provided on page 56 of the Interim Report 2024 for a fuller picture of the Middle East, North Africa and Türkiye regional performance.

2 Includes a $4.8bn gain on disposal of our banking business in Canada, inclusive of a $0.3bn gain on the foreign exchange hedging of the sale proceeds, the recycling of $0.6bn in foreign currency translation reserve losses and $0.4bn of other reserves recycling losses. This is partly offset by a $1.2bn impairment recognised in relation to the planned sale of our business in Argentina.

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 Net interest expense recognised in the Corporate Centre includes $5.5bn (1H23: $3.8bn) of interest expense in relation to the internal cost to fund trading and fair value net assets; and the funding cost of foreign exchange swaps in our Markets Treasury function.

3 Constant currency risk-weighted assets are calculated using reported risk-weighted assets adjusted for the effects of currency translation differences.

1 Includes a $255m gain (1H23: $284m loss) on the foreign exchange hedging of the proceeds from the sale of our banking business in Canada.

2 Gain recognised in respect of the acquisition of SVB UK.

3 In the first half of 2024, a gain of $4.6bn inclusive of the recycling of $0.6bn in foreign currency translation reserve losses and $0.4bn of other reserves recycling losses on the sale of our banking business in Canada, and an impairment loss of $1.2bn relating to the planned sale of our business in Argentina was recognised. In the first quarter of 2023, the $2.1bn reversal of the held for sale classification was recognised relating to the sale of our retail banking operations in France.

4 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

1 The insurance finance reserve reflects the impact of adoption of the other comprehensive income option for our insurance business in France. Underlying assets supporting these contracts are measured at fair value through other comprehensive income. Under this option, only the amount that matches income or expenses recognised in profit or loss on underlying items is included in finance income or expenses, resulting in the elimination of income statement accounting mismatches. The remaining amount of finance income or expenses for these insurance contracts is recognised in other comprehensive income ('OCI').

2 In June 2024, HSBC Holdings issued SGD1,500m of contingent convertible securities on which there were SGD15m of external issue costs.

3 At 30 June 2024, an impairment of $2,945m of HSBC Overseas Holdings (UK) Limited was recognised post sale of our banking business in Canada, resulting in a permitted transfer from the merger reserve to retained earnings.

4 In February 2024, HSBC Holdings announced a share buy-back of up to $2.0bn, which concluded in March 2024. Additionally, in April 2024, HSBC Holdings announced another share buy-back of up to $3.0bn, which was completed in July 2024.