HSBC Holdings Regulatory News (HSBA)

HSBC HOLDINGS PLC

3Q22 EARNINGS RELEASE

Noel Quinn, Group Chief Executive, said:

"We maintained our strong momentum in the third quarter and delivered a good set of results. Our strategy produced good organic growth in all three global businesses, and net interest income increased on the back of rising interest rates. We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023. We are focused on executing our plans and delivering our returns target of at least 12% from 2023 onwards and, as a result, higher distributions to our shareholders."

Financial performance (3Q22 vs. 3Q21)

• Reported profit after tax decreased $1.7bn to $2.6bn and reported profit before tax fell $2.3bn to $3.1bn. Our 3Q22 results included an impairment of $2.4bn following the reclassification of our retail banking operations in France to held for sale, as well as a net charge for expected credit losses and other credit impairment charges ('ECL'), compared with a net release in 3Q21. There was continued strong growth in net interest income. Adjusted profit before tax increased $1.0bn to $6.5bn.

• Reported revenue decreased 3% to $11.6bn, reflecting an impairment on the planned disposal of our retail banking operations in France, as well as adverse foreign currency translation impacts of $1.0bn. However, net interest income increased in all of our global businesses due to interest rate rises. Adjusted revenue rose 28% to $14.3bn.

• Net interest margin ('NIM') of 1.57% increased 38 basis points ('bps') compared with 3Q21, and by 22bps from 2Q22.

• Reported ECL were $1.1bn, including allowances to reflect increased economic uncertainty, inflation, rising interest rates and the ongoing developments in mainland China's commercial real estate sector. This compared with a $0.7bn net release in 3Q21.

• Reported operating expenses were unchanged from 3Q21. The benefits of our cost-saving initiatives and favourable foreign currency translation impacts of $0.7bn were offset by an increase of $0.3bn in restructuring and other related costs, higher investments in technology, an increase in the performance-related pay accrual due to the expected phasing of our profits for the year, and the impacts of rising inflation. Adjusted operating expenses rose 5% due to a higher performance-related pay accrual and increased investment spend, mainly in technology. Compared with 2Q22, adjusted operating expenses were broadly stable.

• Customer lending balances fell $61bn in the quarter on a reported basis. On an adjusted basis, lending balances fell $18bn, reflecting a $23bn reclassification of loans relating to the planned disposal in France to assets held for sale, partly mitigated by growth in mortgage balances of $2bn in the UK and $1bn in Hong Kong.

• Common equity tier 1 ('CET1') capital ratio of 13.4% fell 0.2 percentage points from 2Q22, including a 0.3 percentage point impact from the reclassification of our French retail banking operations to held for sale and a 0.1 percentage point impact from further losses in equity from financial instruments as yield curves steepened.

Financial performance (9M22 vs. 9M21)

• Reported profit after tax decreased $0.9bn to $11.8bn, which included a $1.8bn deferred tax gain. Reported profit before tax fell $3.9bn to $12.3bn, including an impairment on the planned disposal of our retail banking operations in France of $2.4bn. Adjusted profit before tax increased $0.1bn to $17.2bn.

• Reported revenue decreased 2% to $36.9bn, including a $2.1bn adverse impact of foreign currency translation differences, the impairment on the planned disposal of our retail banking operations in France and adverse movements in market impacts in insurance manufacturing in Wealth and Personal Banking ('WPB'). These reductions were in part offset by a $3.3bn rise in net interest income, with growth in all of our global businesses. Adjusted revenue increased 11% to $40bn.

• Reported ECL were $2.2bn, including allowances to reflect increased economic uncertainty, inflation and rising interest rates, as well as the ongoing developments in mainland China's commercial real estate sector, in part offset by the release of most of our remaining Covid-19-related reserves. This compared with releases of $1.4bn in 9M21. ECL charges were 30bps of average gross loans.

• Reported operating expenses decreased $0.7bn or 3%, and included a favourable impact of foreign currency translation differences of $1.5bn. There was a lower performance-related pay accrual and a positive impact from our cost-saving initiatives, which in part mitigated higher restructuring and other related costs, investments and inflationary pressures. Adjusted operating expenses were broadly stable (up $0.2bn or 1%).

Outlook

• Our outlook on revenue remains positive and we have upgraded our net interest income guidance for 2022 to $32bn, based on the current market consensus for global central bank rates. In 2023, we now expect net interest income of at least $36bn (on an IFRS 4 basis), with the reduction from the at least $37bn guidance provided at our interim results reflecting the impact of sterling depreciation against the US dollar and a higher cost of funding in our trading book. We continue to monitor the expected path of interest rates. This is expected to be supported by low-single-digit percentage lending growth.

• We expect ECL charges to be around 30bps of average loans in 2022. Macroeconomic headwinds, including higher inflation and a weaker outlook, continue to weigh on the global economy. However, our stage 3 losses in 9M22 remained stable and the credit indicators in our wholesale and retail portfolios remain relatively benign compared with historical levels. For 2023 we expect to be at the higher end of our planning range of between 30bps to 40bps, and continue to monitor economic developments closely, including the impact of rising interest rates and the ongoing developments in mainland China's commercial real estate sector.

• We remain on track for 2022 adjusted operating expenses to be broadly stable compared with 2021. Notwithstanding increasing inflationary pressures, we continue to maintain strict cost discipline and target 2023 adjusted cost growth of approximately 2%, compared with 2022 (on an IFRS 4 basis).

• The impact of our growth and transformation programmes, as well as the impact of higher global interest rates, mean we continue to target a return on average tangible equity ('RoTE') of at least 12% from 2023 onwards, and expect a dividend payout ratio of 50% for 2023 and 2024.

• While our CET1 position of 13.4% is below our medium-term target range of 14% to 14.5%, we intend to manage it back to within our target range by 1H23 through revenue growth and cost control, as well as through risk-weighted asset ('RWA') and capital actions. Once we are back within our target range, we intend to continue to manage capital efficiently, returning excess capital to shareholders where appropriate. 

For reconciliations of our reported results to an adjusted basis, including lists of significant items, see page 31. Definitions and calculations of other alternative performance measures are included in 'Alternative performance measures' on page 28.

1 Profit attributable to ordinary shareholders, excluding impairment of goodwill and other intangible assets and changes in present value of in-force insurance contracts ('PVIF') (net of tax), divided by average ordinary shareholders' equity excluding goodwill, PVIF and other intangible assets (net of deferred tax).

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, including the regulatory transitional arrangements for IFRS 9 'Financial Instruments'. For further details, see pages 25 to 27. Leverage comparatives for 2021 are reported based on the disclosure rules in force at that time, and include claims on central banks. Current period leverage metrics exclude central bank claims in accordance with the UK leverage rules that were implemented on 1 January 2022.

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 will restate in subsequent periods.

HSBC Holdings plc will be conducting a trading update conference call with analysts and investors today to coincide with the publication of its Earnings Release. The call will take place at 08.30am BST. Details of how to participate in the call and the live audio webcast can be found at www.hsbc.com/investors.

About HSBC

HSBC Holdings plc

HSBC Holdings plc, the parent company of HSBC, is headquartered in London. HSBC serves customers worldwide from offices in 63 countries and territories in its geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. With assets of $2,992bn at 30 September 2022, HSBC is one of the world's largest banking and financial services organisations.

HSBC's purpose is 'Opening up a world of opportunity'. Our strategy, announced in February 2021, aims to deliver against our purpose and our ambition of being the preferred international financial partner for our clients. It has four key pillars:

• focus on our strengths - investing in the areas where we see significant opportunities for growth;

• digitise at scale - increasing our investment in technology to improve how we serve customers and increase efficiency;

• energise for growth - building a strong culture, introducing simpler ways of working, and by equipping staff with the future skills they need; and

• transition to net zero - becoming a net zero bank and helping our customers capture the opportunities presented by the transition to a net zero future.

The macroeconomic environment has deteriorated during 2022 as the war between Russia and Ukraine and the ongoing impacts of the Covid-19 pandemic have led to higher inflation, a resulting increase in interest rates and slower growth for the global economy. This has created volatility within equity markets, adversely affecting market impacts within our insurance manufacturing business, and a reduction in real wages for many people, which has contributed to an increase in our ECL provisions. In addition, recent economic policy in the UK caused the value of sterling to fall and yields on government securities to rise sharply, increasing uncertainty around the path of future Bank of England policy rates. We are closely monitoring the impact of these developments and any implications on our business.

On 30 September 2022, we classified our retail banking operations in France to held for sale, as part of our actions to simplify our operations in continental Europe. Upon classification to held for sale, we recognised an impairment of $2.4bn. Any remaining gains or losses not previously recognised, including from the recycling of foreign currency translation reserves and the reversal of any remaining deferred tax assets and liabilities, will be recognised on completion. The sale is currently anticipated to complete in the second half of 2023. For further details of the planned sale of our retail banking operations in France, see page 10.

We regularly review our businesses in all markets and are currently exploring a potential sale of the Group's 100% equity stake in HSBC Bank Canada. No decisions have been made and updates will be provided as required.

We continued to make progress on our net zero ambition. On 22 September 2022, HSBC Asset Management announced its thermal coal phase-out policy, which builds on the principles of the Group's policy published in December 2021 and factors in Asset Management's fiduciary duties and influence as an investor.

We plan to release by the end of the year an update of our thermal coal phase-out policy and a new energy policy that covers our approach for the wider energy sector. We are also working on our approach to mitigating deforestation risk, and plan to replace our existing forestry and agricultural commodity policies with the intention of releasing a holistic deforestation policy in 2023.

Expanding on the financed emissions targets to 2030 that we released earlier this year for the oil and gas, and power and utilities sectors, we are currently assessing financed emissions and initial targets for additional sectors to be disclosed at the time of our annual results for 2022. These include coal mining, aluminium, cement, iron and steel, and transport (including automotive, aviation and shipping). We are monitoring the progress of the Partnership for Carbon Accounting Financials' guidance on facilitated emissions and we intend to publish facilitated emissions targets to capture capital markets activities for the oil and gas, and power and utilities sectors in due course.

We intend to publish a climate transition plan in 2023. This plan will bring together our climate strategy, science-based targets for 2030 and 2050, and details on how we plan to embed this into our processes, policies and governance. We intend to report annually on progress against the plan in our Annual Report and Accounts.

The delivery of our financial targets remains on track. Cumulatively, since the start of our cost-reduction programme in 2020, we have delivered savings of $4.9bn, with costs to achieve of $5.3bn. We expect to spend moderately less than our planned $7bn in costs to achieve by the end of 2022, at which time the programme will conclude. We continue to expect to deliver total savings at the high end of our $5bn to $5.5bn range, with an estimated $1bn of additional savings expected in 2023.

At 30 September 2022, we had delivered cumulative gross RWA reductions of $120bn, relative to our ambition to achieve gross RWA reductions of $120bn or more by the end of 2022.

During 3Q22, we renamed our Global Liquidity and Cash Management business Global Payments Solutions as we reshape our payments proposition into a technology-enabled, globally connected payments franchise, enabling us to better support our clients' needs and facilitate commerce.

Adjusted performance is computed by adjusting reported results for the effects of foreign currency translation differences and significant items, which both distort period-on-period comparisons.

We consider adjusted performance to provide useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant, and providing insight into how management assesses period-on-period performance.

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the US dollar against most major currencies. We exclude them to derive constant currency data, allowing us to assess balance sheet and income statement performance on a like-for-like basis and to better understand the underlying trends in the business.

Significant items

'Significant items' refers collectively to the items that management and investors would ordinarily identify and consider separately to improve the understanding of the underlying trends in the business.

The tables on pages 32 to 42 detail the effects of significant items on each of our global business segments and geographical regions during 9M22, 9M21, 3Q22, 2Q22 and 3Q21.

Adjusted performance - foreign currency translation of significant items

The foreign currency translation differences related to significant items are presented as a separate component of significant items. This is considered a more meaningful presentation as it allows better comparison of period-on-period movements in performance.

Global business performance

The Group Chief Executive, supported by the rest of the Group Executive Committee ('GEC'), is considered to be the Chief Operating Decision Maker ('CODM') for the purposes of identifying the Group's reportable segments.

The Group Chief Executive and the rest of the GEC review operating activity on a number of bases, including by global business and geographical region. Our global businesses - Wealth and Personal Banking, Commercial Banking and Global Banking and Markets - along with Corporate Centre are our reportable segments under IFRS 8 'Operating Segments'. Global business results are assessed by the CODM on the basis of adjusted performance, which removes the effects of significant items and currency translation from reported results. Therefore, we present these results on an adjusted basis.

As required by IFRS 8, reconciliations of the total adjusted global business results to the Group's reported results are presented on page 31. Supplementary reconciliations of adjusted to reported results by global business are presented on pages 32 to 36 for information purposes.

Management view of adjusted revenue

Our global business segment commentary includes tables that provide breakdowns of adjusted revenue by major product. These reflect the basis on which revenue performance of the businesses is assessed and managed.

1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.

2 Includes $2.4bn losses relating to the planned sale of the retail banking operations in France.

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

4 Includes an interim dividend of $0.09 per ordinary share in respect of the financial year ending 31 December 2022, paid in September 2022, and an interim dividend of $0.18 per ordinary share in respect of the financial year ending 31 December 2021, paid in April 2022.

1 Adjusted net operating income before change in expected credit losses and other credit impairment charges including the effects of foreign currency translation differences and significant items, also referred to as adjusted revenue.

Tables showing adjusted profit before tax by global business and region are presented to support the commentary on adjusted performance on the following pages.

The tables on pages 32 to 42 reconcile reported to adjusted results for each of our global business segments and geographical regions.

Group

3Q22 compared with 3Q21 - reported results

Reported profit

Reported profit after tax of $2.6bn was $1.7bn or 40% lower than in 3Q21.

Reported profit before tax of $3.1bn was $2.3bn or 42% lower. The reduction was primarily driven by an impairment of $2.4bn recognised following the reclassification of our retail banking business in France as held for sale on 30 September 2022. In addition, a net ECL charge in 3Q22, notably due to a deterioration in the forward economic outlook from heightened levels of uncertainty, inflation and rising interest rates, compared with a net release in 3Q21. These factors were partly offset by continued growth in net interest income reflecting the impact of interest rate rises. Reported operating expenses were unchanged as continued investment in technology, a higher performance-related pay accrual and a rise in restructuring and other related costs were largely offset by a favourable impact of foreign currency translation differences and our cost-saving initiatives.

IFRS 17 'Insurance Contracts' sets the requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds. IFRS 17 is effective from 1 January 2023 and could have a significant adverse impact on the profitability of our insurance business. For further details of the impact of IFRS 17 on the results of our insurance operations, see page 318 of the Annual Report and Accounts 2021.

Reported revenue

Reported revenue of $11.6bn was $0.4bn or 3% lower, primarily due to an impairment of $2.4bn recognised following the classification of our retail banking business in France as held for sale on 30 September 2022. The reduction also included an adverse impact of foreign currency translation differences of $1.0bn, and adverse market impacts in life insurance manufacturing in WPB of $0.4bn, primarily reflecting weaker performances in equity markets, compared with adverse market impacts of $40m in 3Q21.

Investment distribution revenue in WPB fell due to muted customer sentiment, which reduced activity in equity markets, while lower Capital Markets and Advisory revenue in Global Banking and Markets ('GBM') reflected a reduction in market activity. Additionally, revenue fell in Markets Treasury from lower net interest income due to the impact of rising interest rates on our funding costs and flattening yield curves across all regions, as well as from lower disposal gains related to risk management activities. This revenue is allocated to our global businesses.

These reductions were partly offset by continued growth in net interest income of $2.0bn, reflecting the impact of interest rate rises and balance sheet growth, mainly in Global Payments Solutions ('GPS') in Commercial Banking ('CMB') and GBM, and in Personal Banking in WPB. In GBM, Global Foreign Exchange revenue reflected a strong trading performance and higher client activity.

Reported ECL

Reported ECL were a net charge of $1.1bn, compared with a net release of $0.7bn in 3Q21. The 3Q22 charges related to heightened economic uncertainty, inflation and rising interest rates, as well as from ongoing developments in the commercial real estate sector in mainland China. This compared with a net release in 3Q21 relating to Covid-19-related allowances previously built up in 2020.

Reported operating expenses

Reported operating expenses of $8.0bn were unchanged compared with 3Q21, which included favourable impacts from foreign currency translation differences of $0.7bn and our cost-saving initiatives of $0.6bn. These factors mitigated cost growth from increased investment in technology, a rise in restructuring and other related costs of $0.3bn, a higher performance-related pay accrual for which the Group-wide phasing of the accrual is driven by the expected profile of full-year profits, and inflationary impacts. In addition, investment in wealth in Asia increased, while operations costs rose due to business volume growth.

Reported share of profit from associates and JVs

Reported share of profit from associates and joint ventures of $0.6bn was $0.1bn or 19% lower than in 3Q21, primarily as 3Q21 included a higher share of profit from Business Growth Fund ('BGF') due to the recovery in asset valuations.

Group

3Q22 compared with 3Q21 - adjusted results

Adjusted profit

Adjusted profit before tax of $6.5bn was $1.0bn or 18% higher than in 3Q21, reflecting an increase in adjusted revenue in all of our global businesses, mainly due to a rise in net interest income as global interest rates rose, and balance sheet growth. This increase was partly offset by ECL charges in 3Q22 compared with net releases in 3Q21. The ECL charge in 3Q22 reflected a deterioration in the forward economic outlook due to the impact of heightened economic uncertainty, inflation and rising interest rates. Adjusted operating expenses increased compared with 3Q21, mainly driven by our continued investment in technology, a higher performance-related pay accrual and the impact of inflation, while adjusted share of profit from associates and joint ventures was lower.

Adjusted revenue

Adjusted revenue of $14.3bn was $3.1bn or 28% higher than in 3Q21. The increase was mainly from higher net interest income from the positive impact of interest rate rises and balance sheet growth, mainly in GPS in CMB and GBM, and in Personal Banking in WPB. In GBM, Global Foreign Exchange revenue benefited from a strong trading performance and higher client activity.

These increases were partly offset by a net adverse movement in market impacts in life insurance manufacturing of $375m, and lower investment distribution revenue in WPB as muted customer sentiment led to reduced activity in equity markets. In GBM, Capital Markets and Advisory revenue fell due to a reduction in market activity, and a decline in Principal Investments revenue reflected lower revaluation gains relative to 3Q21.

Revenue relating to Markets Treasury fell by $0.1bn from lower net interest income due to the impact of rising interest rates on our funding costs and flattening yield curves across all regions, as well as from lower disposal gains related to risk management activities. This revenue is allocated to our global businesses.

Adjusted ECL

Adjusted ECL, which removes the period-on-period effects of foreign currency translation differences, were a net charge of $1.1bn, compared with a net release of $0.6bn in 3Q21. The 3Q22 charge related to heightened economic uncertainty, inflation and rising interest rates, as well as from ongoing developments in the commercial real estate sector in mainland China. This compared with the net release in 3Q21 of Covid-19-related allowances previously built up in 2020.

Adjusted operating expenses

Adjusted operating expenses of $7.3bn were $0.4bn or 5% higher. The rise in costs reflected growth in technology investment of $0.3bn, notably investments in our digital capabilities, and a higher performance-related pay accrual of $0.2bn for which the Group-wide phasing of the accrual is driven by the expected profile of full-year profits. Inflation and the impact of retranslating the prior year results of our operations in hyperinflationary economies at current quarter average rates of foreign exchange also contributed to higher costs. In addition, investment in wealth in Asia rose by $0.1bn and operations costs increased by $0.1bn reflecting business growth. These increases were in part mitigated by the impact of our cost-saving initiatives of $0.6bn.

Adjusted share of profit from associates and JVs

Adjusted share of profit from associates and joint ventures of $0.6bn decreased by $0.1bn or 14%, primarily as 3Q21 included a higher share of profit from BGF due to the recovery in asset valuations.

Group

9M22 compared with 9M21 - reported results

Reported profit

Reported profit after tax of $11.8bn was $0.9bn or 7% lower than in 9M21, despite the impact of a $1.8bn gain in 9M22 on the recognition of a deferred tax asset from historical losses. This gain was as a result of improved profit forecasts from the UK tax group, which accelerated the expected utilisation of these losses.

Reported profit before tax of $12.3bn was $3.9bn or 24% lower than in 9M21. The decrease reflected lower revenue, despite the increase in net interest income from the positive impact of interest rate rises in all of our global businesses. This was mainly due to an impairment of $2.4bn recognised following the reclassification of our retail banking business in France as held for sale on 30 September 2022, an adverse impact of foreign currency translation differences and unfavourable market impacts in life insurance manufacturing in WPB. In addition, the net ECL charge in 9M22 was $2.2bn, reflecting stage 3 charges of $1.2bn, in part relating to the commercial real estate sector in mainland China, as well as from the impact of heightened economic uncertainty, inflation and rising interest rates. This compared with a net release in 9M21.

These factors were partly offset by a 3% decrease in reported operating expenses, primarily reflecting the favourable impact of foreign currency translation differences, while restructuring and other related costs increased.

Reported revenue

Reported revenue of $36.9bn was $0.7bn or 2% lower than in 9M21, primarily due to an impairment of $2.4bn recognised following the reclassification of our retail banking business in France as held for sale on 30 September 2022, as well as losses of $0.4bn associated with the planned sales of our branch operations in Greece and our operations in Russia. Reported revenue included an adverse impact of foreign currency translation differences of $2.1bn, and unfavourable market impacts in life insurance manufacturing in WPB of $1,072m, compared with favourable movements in 9M21 of $373m. There was also a decrease in Markets Treasury revenue, which is allocated to our global businesses, due to lower net interest income from the impact of rising interest rates on our funding costs and flattening yield curves across all regions, as well as from lower disposal gains related to risk management activities.

In WPB, lower investment distribution revenue reflected muted customer sentiment resulting in reduced activity in equity markets, and Covid-19-related restrictions in Hong Kong in 1Q22, which resulted in the temporary closure of parts of our branch network. In GBM, there was a reduction in Capital Markets and Advisory revenue, reflecting reductions in the global fee pool, while lower revaluation gains resulted in a reduction in Principal Investments revenue relative to 9M21. Global Debt Markets revenue also fell due to lower primary issuances and challenging market conditions.

These reductions were partly offset by a $3.3bn increase in net interest income from the positive impact of interest rate rises, mainly in GPS in CMB and GBM, and in Personal Banking in WPB. In GBM, Global Foreign Exchange revenue benefited from continued elevated levels of market volatility. In addition, there were strong sales in our life insurance manufacturing business in WPB, with growth in the value of new business, while insurance revenue also included a gain following a pricing update for our policyholders' funds held on deposit with us in Hong Kong to reflect the cost to provide this service.

Reported ECL

Reported ECL were a net charge of $2.2bn, which reflected stage 3 charges of $1.2bn, including charges related to the commercial real estate sector in mainland China. We also recognised additional stage 1 and stage 2 allowances to reflect heightened levels of economic uncertainty, inflation and rising interest rates, in part offset by the release of most of our remaining Covid-19-related allowances. This compared with a net release of $1.4bn in 9M21 relating to Covid-19-related allowances previously built up in 2020.

For further details on the calculation of ECL, including the measurement uncertainties and significant judgements applied to such calculations, the impact of the economic scenarios and management judgemental adjustments, see pages 21 to 24.

Reported operating expenses

Reported operating expenses of $24.4bn were $0.7bn or 3% lower than in 9M21, primarily as foreign currency translation differences resulted in a favourable impact of $1.5bn.

Reported operating expenses also included the positive impact of our cost-saving initiatives of $1.7bn and a lower performance-related pay accrual of $0.4bn (including the impact of cost saves), for which the Group-wide phasing of the accrual is driven by the expected profile of full-year profits. Given profits in 9M21 benefited from significant ECL releases, we recognised a larger share of the accrual in the first nine months of the year relative to 9M22. These reductions were partly offset by an increase due to our continued investment in technology of $0.5bn, including investments in our digital capabilities, increases in restructuring and other related costs of $0.5bn, and inflationary impacts.

Reported share of profit from associates and JVs

Reported share of profit from associates and joint ventures of $2.0bn was $0.3bn or 15% lower than in 9M21, primarily as 9M21 included a higher share of profit from BGF due to the recovery in asset valuations.

Tax expense

Tax in 9M22 was a charge of $0.5bn and included a $1.8bn credit arising from the recognition of a deferred tax asset from historical tax losses in HSBC Holdings. This was a result of improved profit forecasts for the UK tax group, which accelerated the expected utilisation of these losses and reduced uncertainty regarding their recoverability. Excluding this, the effective tax rate for 9M22 was 19%, which was 3 percentage points lower than in 9M21. The effective tax rate for 9M22 was decreased by the remeasurement of deferred tax balances following the substantive enactment in 1Q22 of legislation to reduce the rate of the UK banking surcharge from 8% to 3% from 1 April 2023.

In September 2022, the UK government announced that existing legislation to increase the main rate of UK corporation tax from 19% to 25% and to reduce the rate of the UK banking surcharge from 8% to 3% from 1 April 2023 would be cancelled. A further announcement on 14 October 2022 confirmed that the main rate of corporation tax from 1 April 2023 would be 25%, as currently legislated. However, the future rate of the UK banking surcharge is yet to be clarified. The UK government announcements of September and October are not reflected in the 3Q22 financial results as no legislation to effect any changes was substantively enacted.

Group

9M22 compared with 9M21 - adjusted results

Adjusted profit

Adjusted profit before tax of $17.2bn was $0.1bn or 1% higher than in 9M21, reflecting higher adjusted revenue, mainly from net interest income growth following global interest rate rises. This increase was partly offset by an ECL charge in 9M22, compared with a net release in 9M21. The ECL charge in 9M22 reflected stage 3 charges, as well as the impact of heightened economic uncertainty, inflation, and rising interest rates. Adjusted profit from associates and joint ventures decreased, while adjusted operating expenses were broadly stable compared with 9M21, reflecting continued cost discipline.

Adjusted revenue

Adjusted revenue of $40.0bn was $4.1bn or 11% higher than in 9M21. The increase was driven by net interest income growth of $4.4bn following global interest rate rises, mainly in GPS in CMB and GBM, and Personal Banking in WPB. Global Foreign Exchange in GBM benefited from elevated market volatility, and there were strong sales in our insurance business in WPB, with the value of new business up by $0.3bn or 34%. In addition, insurance revenue included a $0.3bn gain following a pricing update for our policyholders' funds held on deposit with us in Hong Kong to reflect the cost to provide this service.

These increases in adjusted revenue were partly offset by unfavourable movements in market impacts in life insurance manufacturing in WPB of $1.4bn. Revenue was also lower in investment distribution, as muted customer sentiment led to reduced activity in equity markets, and Covid-19-related restrictions in Hong Kong in 1Q22 resulted in the temporary closure of parts of our branch network. In GBM, Capital Markets and Advisory revenue decreased reflecting a reduction in the global fee pool, and Principal Investments revenue fell due to lower revaluation gains relative to 9M21. In addition, Global Debt Markets revenue fell due to lower primary issuances and challenging market conditions.

Revenue relating to Markets Treasury decreased by $0.5bn due to lower net interest income from the impact of rising interest rates on our funding costs and flattening yield curves across all regions, as well as from lower disposal gains related to risk management activities. This revenue is allocated to our global businesses.

Adjusted ECL

Adjusted ECL were a net charge of $2.2bn, which reflected stage 3 charges of $1.2bn, including charges related to the commercial real estate sector in mainland China. The charge also included stage 1 and stage 2 allowances to reflect heightened economic uncertainty, inflation and rising interest rates, in part offset by the release of most of our remaining Covid-19-related allowances. The net ECL release of $1.2bn in 9M21 related to Covid-19 allowances previously built up in 2020.

Adjusted operating expenses

Adjusted operating expenses of $22.7bn were broadly stable compared with 9M21. Increases reflected our continued investment in technology of $0.7bn, including investments in our digital capabilities, inflation, and the impact of retranslating the prior year results of our operations in hyperinflationary economies at current year average rates of foreign exchange. These increases were broadly offset by the impact of our cost-saving initiatives of $1.7bn and a lower performance-related pay accrual of $0.3bn (including the impact of cost saves), which reflected the expected phasing of our profits for the year.

We remain on track for 2022 adjusted operating expenses to be broadly stable compared with 2021. Notwithstanding increasing inflationary pressures, we continue to maintain strict cost discipline and target 2023 adjusted cost growth of approximately 2%, compared with 2022 (on an IFRS 4 basis). During 9M22, the impact of foreign exchange rate movements resulted in a decrease in our operating expenses. Our adjusted operating expenses for 2021 were $32.1bn at the average rates of exchange for 2021. Based on the average rates of exchange for September 2022 year-to-date, our adjusted operating expenses retranslate to approximately $30bn.

The number of employees expressed in full-time equivalent staff ('FTE') at 30 September 2022 was 220,075, an increase of 378 compared with 31 December 2021. The number of contractors at 30 September 2022 was 6,755, an increase of 563, primarily as a result of our growth and transformation initiatives.

Adjusted share of profit from associates and JVs

Adjusted share of profit from associates and joint ventures of $2.0bn was 13% lower than in 9M21, primarily as 9M21 included a higher share of profit from BGF due to the recovery in asset valuations.

Net interest margin

1 Gross interest yield is the average annualised interest rate earned on average interest-earning assets ('AIEA'). Gross interest payable is the average annualised interest cost as a percentage of average interest-bearing liabilities.

2 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate payable on average interest-bearing funds.

3 Net interest margin is net interest income expressed as an annualised percentage of AIEA.

Net interest margin ('NIM') of 1.39% was 19 basis points ('bps') higher compared with 9M21, driven by higher market interest rates. The yield on AIEA increased by 51bps, partly offset by a 38bps rise in the funding cost of average interest-bearing liabilities. The increase in NIM in 3Q22 included the adverse impact of significant items and foreign currency translation differences. Excluding these, NIM increased by 20bps.

NIM was up 38bps compared with 3Q21, predominantly driven by improved asset yields as a result of higher interest rates.

In 2023, we now expect net interest income of at least $36bn (on an IFRS 4 basis), with the reduction from the at least $37bn guidance provided at our interim results reflecting the impact of sterling depreciation against the US dollar and a higher cost of funding in our trading book, with an associated benefit in non-net interest income. We continue to monitor the expected path of interest rates. Within net interest income, we expect an increase in the interest expense from the funding of our trading activities. However, this increase is expected to be mitigated by growth in trading income.

Results from insurance operations

IFRS 17 'Insurance Contracts' will be effective from 1 January 2023, with comparatives restated from 1 January 2022. The standard sets out the requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds, and applies retrospectively. The main changes arising from IFRS 17 are the removal of the present value of in-force long-term insurance business ('PVIF') asset in respect of unearned profits, the recognition of a contractual service margin ('CSM') liability, the measurement of insurance liabilities, and the redesignation of financial assets held to support insurance liabilities currently measured at amortised cost, to fair value under IFRS 9. All of these impacts will be subject to deferred tax.

The Group continues to make progress on the implementation of IFRS 17 with accounting policies, data and models in place, with the focus now on finalising the opening balance sheet and rehearsing our operational readiness. However, industry practice and interpretation of aspects of the standard are still evolving, and there remains uncertainty around the likely financial impact of its implementation. As previously guided, our preliminary management estimate of the impact of applying IFRS 17, compared with our current accounting policies for insurance contracts, is an approximate two-third reduction in total equity of our insurance operations at 1 January 2022. Work is ongoing to estimate the impact on the 2022 income statement, which will form the basis of comparative period results after adoption of the standard in 2023. It will also support an update to our previously communicated planning assumption of a reduction in profitability of approximately two-thirds, albeit within a range of expected outcomes and before the effect of market volatility in specific periods.

Planned sale of the retail banking business in France

On 25 November 2021, HSBC Continental Europe signed a framework agreement with Promontoria MMB SAS ('My Money Group') and its subsidiary Banque des Caraïbes SA, regarding the planned sale of HSBC Continental Europe's retail banking business in France.

The sale, which is subject to regulatory approvals and the satisfaction of other relevant conditions, includes: HSBC Continental Europe's French retail banking business; the Crédit Commercial de France ('CCF') brand; and HSBC Continental Europe's 100% ownership interest in HSBC SFH (France) and its 3% ownership interest in Crédit Logement.

The sale is currently anticipated to complete in the second half of 2023. As a result, in accordance with IFRS 5, the disposal group was classified as held for sale on 30 September 2022, at which point the Group recognised the estimated impairment of $2.4bn, which included impairment of goodwill of $0.4bn and related transaction costs. The disposal group will be remeasured at the lower of carrying amount and fair value less costs to sell at each reporting period. Any remaining gains or losses not previously recognised, including from the recycling of foreign currency translation reserves and the reversal of any remaining deferred tax assets and liabilities, will be recognised on completion.

The deferred tax liability of $0.4bn that was previously recognised as a consequence of the temporary difference in tax and accounting treatment in respect of the provision for loss on disposal was reversed on classifying the disposal group as held for sale.

The impact of classifying the disposal group as held for sale resulted in a 0.3 percentage point reduction in the Group's CET1 ratio at 30 September 2022. This impact will be partly offset by the reduction in RWAs upon closing.

At 30 September 2022, total assets of $23.5bn, including $23.3bn of loans and advances to customers, and total liabilities of $25.5bn, including customer accounts of $20.9bn, were reclassified as held for sale.

1 Includes the write-down of the disposal group to fair value less costs to sell, net of fair value gains and losses on financial liabilities designated at fair value held for sale and related derivatives.

1 The contributions are reported within 'Cash and balances at central banks' on the Group's consolidated balance sheet.

2 'Disposal group post-cash contribution' includes the net asset value of the transferring business of €1.6bn ($1.6bn) and $0.2bn of additional items to which a nil value is ascribed per the framework agreement.

Under the financial terms of the planned transaction, HSBC Continental Europe will transfer the business with a net asset value of €1.6bn ($1.6bn), subject to adjustment (upwards or downwards) in certain circumstances, for a consideration of €1. Any required increase to the net asset value of the business to achieve the net asset value of €1.6bn ($1.6bn) will be satisfied by the inclusion of additional cash. The value of cash contribution will be determined by the net asset or liability position of the disposal group at the point of completion. Based upon the net liabilities of the disposal group at 30 September 2022, HSBC would be expected to include a cash contribution of $3.9bn as part of the planned transaction. 

Balance sheet - 30 September 2022 compared with 30 June 2022

At 30 September 2022, our total assets of $3.0tn were $7bn higher on a reported basis and included adverse effects of foreign currency translation differences of $124bn. On a constant currency basis, total assets were $131bn higher, which included a rise in derivative assets, driven by mark-to-market movements on interest rate and foreign exchange swaps, mainly in the UK, and an increase in reverse repurchase agreements - non-trading.

Reported loans and advances to customers as a percentage of customer accounts was 61.7%, which was lower compared with 62.3% at 30 June 2022.

Loans and advances to customers

Reported loans and advances to customers of $1.0tn were $61bn lower, which included adverse effects of foreign currency translation differences of $43bn. On a constant currency basis, customer lending balances were $18bn lower due to the reclassification of $23bn of loans within our retail banking operation in France to held for sale, partly offset by mortgage growth and higher balances in GBM and CMB. The commentary that follows is on a constant currency basis.

Customer lending fell in WPB by $21bn to $432bn due to the reclassification of $23bn to held for sale and from a fall in Global Private Banking as clients deleveraged due to market volatility. These reductions were in part mitigated by higher mortgage balances in the UK (up $2bn) and Hong Kong (up $1bn). Customer lending also grew in North America and Latin America, notably in mortgages and unsecured lending.

In CMB, customer lending of $335bn was $1bn higher, as growth in the UK in term and trade lending was partly offset by reductions in Hong Kong, which reflected a more subdued performance in trade.

In GBM, lending of $201bn increased by $3bn, driven by higher overdrafts in the UK, as a seasonal reduction of loans and deposits for clients' half-year reporting at 30 June 2022 was reversed during 3Q22.

Customer accounts

Customer accounts of $1.6tn decreased by $84bn on a reported basis, which included adverse effects of foreign currency translation differences of $68bn. On a constant currency basis, customer accounts were $16bn lower due to the reclassification of $21bn to held for sale of our retail banking operations in France.

Customer accounts in WPB also fell by $9bn in Hong Kong, which included the impact of deposit outflows into investments, resulting in positive net new invested assets in Wealth. In addition, there was a migration from interest-bearing current accounts to term deposits in Hong Kong, as customers took advantage of preferable rates of interest on those accounts. These decreases were partly offset by increases in GBM of $10bn, as customers redeployed their commercial surplus to cash as interest rates rose, notably in Europe, and from a reversal of a seasonal reduction at 30 June 2022 for their half-year reporting.

Financial investments measured at fair value through other comprehensive income

As part of our interest rate hedging strategy, we hold a portfolio of financial investments measured at fair value through other comprehensive income ('FVOCI'), which are classified as hold-to-collect-and-sell. As a result, the change in value of these instruments is recognised through 'debt instruments at fair value through other comprehensive income' in equity. At 30 September 2022, we held $271bn of these instruments.

The increase in term market yield curves in 3Q22 drove a pre-tax FVOCI loss of $1.1bn on hold-to-collect-and-sell positions, with a post-tax FVOCI loss of $0.9bn. In the 9M22 period, the pre-tax FVOCI loss was $7.4bn, with a post-tax loss of $5.8bn. Overall, the Group is positively exposed to rising interest rates through net interest income, although there is an impact on our capital base due to the fair value of hold-to-collect-and-sell instruments. These instruments are reported within 'financial investments'. There is an initial negative effect materialising through reserves, after which the net interest income of the Group is expected to result in a net benefit over time, provided policy rates follow market implied rates.

Over time, these adverse movements will unwind as the instruments reach maturity, although not all will necessarily be held to maturity.

It is currently estimated that it will take approximately four quarters for the benefit to Group net interest income to offset the adverse impact of the adverse revaluations recognised during 9M22, provided the composition of the portfolio were to remain static.

Risk-weighted assets - 30 September 2022 compared with 30 June 2022

Risk-weighted assets ('RWAs') fell by $23.4bn during the quarter. Excluding foreign currency translation differences, RWAs rose by $4.4bn, reflecting the following movements:

• a $9.6bn increase in asset size, primarily due to heightened market risk volatility, as well as from growth in loans in CMB and WPB in our main regions;

• a $3.2bn decrease due to changes to methodology and policy, predominantly from risk parameter refinements in our global businesses; and

• a $1.3bn decrease from the implementation of a new retail model in France.

Wealth and Personal Banking - adjusted results

1 'Other' includes Markets Treasury, HSBC Holdings interest expense and hyperinflation. It also includes the distribution and manufacturing (where applicable) of retail and credit protection insurance, disposal gains and other non-product-specific income.

2 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

9M22 compared with 9M21

Adjusted profit before tax of $5.4bn was $0.2bn or 3% lower than in 9M21, and included an adverse movement of $1.4bn in market impacts in life insurance manufacturing. There was also a net ECL charge in 9M22 of $0.9bn, compared with a release of $0.2bn in 9M21, as well as higher operating expenses. Despite the adverse movement in market impacts, adjusted revenue increased from rising interest rates.

Adjusted revenue of $17.2bn was $1.2bn or 7% higher. Growth in Personal Banking net interest income of $2.2bn from rising interest rates and balance sheet growth in the UK, Hong Kong, North America and Mexico was partly offset by lower revenue in life insurance manufacturing, despite strong insurance sales, due to a net adverse movement in market impacts of $1.4bn.

In Wealth, revenue of $6.0bn was down $0.8bn or 12%, notably from an adverse movement of $1.4bn in market impacts in life insurance manufacturing. However, our investments in Asia contributed to the delivery of net new invested assets of $91bn since 30 September 2021.

• Investment distribution revenue was $0.3bn or 10% lower, as muted customer sentiment led to lower activity in equity markets, which compared with a strong 9M21, and as Covid-19-related restrictions in Hong Kong in 1Q22 resulted in the temporary closure of parts of our branch network.

• Life insurance manufacturing revenue was $0.7bn or 34% lower due to a net adverse movement in market impacts of $1.4bn. In 9M22, an adverse movement of $1.1bn compared with favourable impacts of $0.3bn in 9M21, reflecting a weaker performance in equity markets. However, the value of new business written increased by $0.3bn or 34%, reflecting the launch of new products. In addition, there was a $0.3bn gain following a pricing update for our policyholders' funds held on deposit with us in Hong Kong to reflect the cost to provide this service. We also recognised a $0.1bn provisional gain on the completion of our acquisition of AXA Singapore.

• Global Private Banking revenue was $0.1bn or 9% higher due to the positive impact of rising interest rates on net interest income. This increase was partly offset by a decline in brokerage and trading revenue, reflecting reduced client activity compared with a strong 9M21.

• Asset management revenue was $18m or 2% lower, as adverse market conditions led to valuation losses on our seed investment book. This was partly offset by growth in management fees from net new invested assets of $41bn in 9M22.

In Personal Banking, revenue of $10.9bn was up $2.2bn or 26%.

• Net interest income was $2.2bn or 29% higher due to the benefit of interest rate rises. This was supported by strong balance sheet growth in the UK, Asia, North America and Latin America. Compared with 9M21, deposit balances in HSBC UK increased by $9bn or 5%, and mortgage lending rose in the UK by $9bn and in Hong Kong by $4bn. In addition, unsecured lending increased in Mexico and the UK.

Adjusted ECL were a net charge of $0.9bn, reflecting a more normalised level of charges, including provisions relating to a deterioration in the forward economic outlook from heightened levels of uncertainty and inflationary pressures. This compared with a net release of $0.2bn in 9M21 from Covid-19-related allowances previously built up in 2020.

Adjusted operating expenses of $11.0bn were $0.2bn or 2% higher, mainly due to continued investments, notably in wealth in Asia, and the impact of higher inflation, which were partly offset by the benefits of our cost-saving initiatives and the Group-wide phasing of the performance-related pay accrual.

The reported results of our WPB business included an impairment of $2.4bn recognised following the reclassification of our retail banking business in France as held for sale on 30 September 2022. This impairment is excluded from our adjusted results. At 30 September 2022, related loans and advances to customers of $23.3bn and customer accounts of $20.9bn were reclassified as held for sale.

3Q22 compared with 3Q21

Adjusted profit before tax of $2.4bn was $0.6bn or 35% higher than in 3Q21. This was driven by a $1.2bn increase in adjusted revenue, reflecting the benefit of interest rate rises and balance sheet growth in the UK and Hong Kong. A reduction in Wealth revenue of $0.2bn was driven by a net adverse movement of $0.4bn in market impacts in life insurance manufacturing and a reduction in investment distribution, as muted customer sentiment led to lower activity in equity markets, although the value of new business in insurance increased by 22%. The increase in revenue was partly offset by higher adjusted ECL reflecting the deterioration in the forward economic outlook, compared with a net release in 3Q21 of Covid 19-related allowances. Adjusted operating expenses increased by $0.1bn or 3%, mainly due to continued investments in wealth in Asia and an increase of the performance-related pay accrual, which were partly offset by the benefits of our cost-saving initiatives.

Commercial Banking - adjusted results

1 Includes CMB's share of revenue from the sale of Markets and Securities Services and Banking products to CMB customers. GBM's share of revenue from the sale of these products to CMB customers is included within the corresponding lines of the GBM management view of adjusted revenue. Also includes allocated revenue from Markets Treasury, HSBC Holdings interest expense and hyperinflation.

2 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

9M22 compared with 9M21

Adjusted profit before tax of $5.6bn was $0.7bn or 13% higher than in 9M21. This was driven by an increase in adjusted revenue across all CMB products and in all regions, notably in Asia and the UK, and included a 97% increase in Global Payments Solutions ('GPS') net interest income. This was partly offset by a net ECL charge compared with a net release of ECL in 9M21. Adjusted operating expenses remained stable, as increased investment spend was mitigated by continued cost discipline.

Adjusted revenue of $11.5bn was $2.1bn or 22% higher:

• In GPS, revenue increased by $1.8bn or 71%, with double-digit percentage growth in all regions, particularly in Asia and the UK, driven by a 7% increase in average deposit balances at improved margins, reflecting interest rate rises and business repricing actions. There was also a 21% increase in fee income, with growth in all regions, as we delivered on our strategic fee initiatives.

• In Global Trade and Receivables Finance ('GTRF'), revenue increased by $0.2bn or 18%, with double-digit percentage growth in all regions, notably in Asia and the UK, driven by an increase in average balances, which rose by 22% compared with 9M21 at improved margins. In addition, fee income grew by 7% compared with 9M21.

• In Credit and Lending, revenue increased by $0.2bn or 4%, with growth in all regions, driven by wider margins and a 2% growth in average balances. Period end balances were 5% higher compared with 31 December 2021, with growth across all regions notably in Asia and North America. In addition, fee income grew by 2%.

• In GBM products, Insurance and Investments, and Other, revenue decreased by $0.1bn or 6%, reflecting the adverse effects of hyperinflation accounting in Turkey and Argentina, coupled with lower Markets Treasury and insurance revenue. This was partly offset by a 21% increase in collaboration revenue from GBM products, notably Foreign Exchange.

Adjusted ECL were a net charge of $1.0bn, compared with a net release of $0.5bn in 9M21. The charge in 9M22 mainly related to exposures in the commercial real estate sector in mainland China and a deterioration in the forward economic outlook from heightened levels of uncertainty and inflationary pressures. This compared with a larger net release in 9M21 of Covid-19-related allowances previously built up in 2020.

Adjusted operating expenses of $4.9bn remained stable. The continued investment in technology and the impact of higher inflation were mitigated by continued cost discipline on discretionary spend and through hiring efficiencies, as well as from the impact of our cost-saving initiatives and the Group-wide phasing of the performance-related pay accrual.

3Q22 compared with 3Q21

Adjusted profit before tax of $2.1bn was $0.3bn or 17% higher than in 3Q21, primarily due to an increase in adjusted revenue in GPS, driven by higher net interest income from the positive impact of interest rate rises. This was partly offset by an increase in adjusted ECL of $0.9bn, reflecting the effects of deterioration in the forward economic outlook from heightened levels of uncertainty and inflationary pressures, as well as from ongoing developments in the commercial real estate sector in mainland China. Adjusted operating expenses remained stable, as increased investment in technology and an increase of the performance-related pay accrual were mostly offset by the impact of our cost-saving initiatives and continued disciplined hiring.

Global Banking and Markets - adjusted results

1 Includes portfolio management, earnings on capital and other capital allocations on all Banking products.

2 Includes notional tax credits and Markets Treasury, HSBC Holdings interest expense and hyperinflation.

3 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

9M22 compared with 9M21

Adjusted profit before tax of $4.4bn was $0.1bn or 3% lower than in 9M21. Growth in adjusted revenue of $0.9bn or 8% was more than offset by a net ECL charge in 9M22 of $0.3bn, compared with a net release in 9M21 of $0.5bn, and from an increase of $0.1bn in adjusted operating expenses.

Adjusted revenue of $11.7bn was $0.9bn or 8% higher, reflecting a strong Markets and Securities Services performance driven by increased client activity and disciplined risk management, and growth in GPS net interest income from higher interest rates.

In Markets and Securities Services, revenue increased by $0.8bn or 13%.

• In Global Foreign Exchange, revenue growth of $0.9bn or 41% reflected increased client activity due to elevated market volatility and the combined macroeconomic impacts of rising inflation, increased interest rates and a strengthening of the US dollar, as well as from disciplined risk management.

• In Securities Services, revenue grew by $0.1bn or 10% from higher net interest income as global interest rates rose, partly offset by reduced fee income from lower market levels.

• In Securities Financing, revenue increased by $0.1bn or 14%, driven by client franchise growth and disciplined risk management.

• In Global Debt Markets, revenue fell by $0.3bn or 34%, reflecting lower primary issuances and challenging market conditions.

• In Equities, revenue fell by $0.1bn or 7% in the context of a strong 9M21, and as capital markets activity was subdued in 9M22.

In Banking, revenue increased by $0.5bn or 11%.

• In GPS, revenue increased by $0.7bn or 57%, driven by margin growth from the rising global interest rate environment and higher global average deposit balances. Fee income grew in all regions from continued delivery on our strategic initiatives.

• Capital Markets and Advisory revenue decreased by $0.3bn or 31%, in line with the reduced global fee pool.

In GBM Other, Principal Investments revenue declined by $0.3bn or 81%, as 9M22 included lower revaluation gains compared with 9M21. There was also a reduction in revenue from Markets Treasury and the impact of hyperinflationary accounting, which is allocated to the global businesses.

Adjusted ECL were a net charge of $0.3bn, reflecting a deterioration in the forward economic outlook due to the heightened levels of uncertainty and inflationary pressures. This compared with the net release of $0.5bn in 9M21 of Covid-19-related allowances previously built up in 2020.

Adjusted operating expenses of $6.9bn increased by $0.1bn or 2% from the impact of higher inflation and strategic investments, partly offset by the impact of our cost-saving initiatives and the Group-wide phasing of the performance-related pay accrual.

3Q22 compared with 3Q21

Adjusted profit before tax of $1.5bn was $0.2bn or 15% higher than in 3Q21. Adjusted revenue was $0.5bn or 16% higher, mainly from increased revenue in GPS and Global Foreign Exchange. GPS performance reflected the impact of rising interest rates, growth in deposit balances and higher fees through strategic initiatives. Global Foreign Exchange revenue increased from a strong trading performance and higher client activity. These increases were partly offset by a decrease in Capital Markets and Advisory revenue, reflecting reduced market activity, a fall in Principal Investments valuations and a lower allocation of revenue from Markets Treasury. Adjusted ECL were a net charge of $0.1bn in 3Q22, compared with a net release of $0.1bn in 3Q21. Adjusted operating expenses were $0.1bn or 5% higher, and included an increase in the performance-related pay accrual.

Corporate Centre - adjusted results

1 Central Treasury comprises valuation differences on issued long-term debt and associated swaps.

2 Revenue from Markets Treasury, HSBC Holdings net interest expense and hyperinflation are allocated out to the global businesses, to align them better with their revenue and expense. The total Markets Treasury revenue component of this allocation for 9M22 was $1,240m (9M21: $1,754m; 3Q22: $365m; 2Q22: $358m; 3Q21: $485m).

3 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

9M22 compared with 9M21

Adjusted profit before tax of $1.8bn was $0.2bn or 11% lower than in 9M21 due to a reduction in adjusted share of profit from associates and joint ventures, partly offset by lower operating expenses.

Adjusted negative revenue was $0.1bn or 25% lower, mainly due to transactional foreign currency-related valuation losses on hedges and revaluation losses on properties, compared with gains in 9M21.

Adjusted operating expenses decreased by $0.1bn, reflecting an increase in costs allocated to our global businesses.

Adjusted share of profit from associates and joint ventures of $2.0bn decreased by $0.3bn or 13%, primarily as 9M21 included a higher share of profit from BGF due to a recovery in asset valuations.

3Q22 compared with 3Q21

Adjusted profit before tax of $0.5bn was $0.1bn lower than in 3Q21. This was mainly driven by a decrease in the share of profit from associates and joint ventures, primarily from BGF due to the non-recurrence of prior year asset valuation gains, together with higher operating expenses. This was partly offset by higher adjusted revenue due to transactional foreign currency-related valuation gains on hedges and losses in 3Q21 related to the disposal of legacy portfolios in the US.

• Income statement comparisons, unless stated otherwise, are between the nine-month period ended 30 September 2022 and the nine-month period ended 30 September 2021. Balance sheet comparisons, unless otherwise stated, are between balances at 30 September 2022 and the corresponding balances at 30 June 2022.

• The financial information on which this Earnings Release is based, and the data set out in the appendix to this statement, are unaudited and have been prepared in accordance with our significant accounting policies as described on pages 318 to 328 of our Annual Report and Accounts 2021.

• On 1 August 2022, the Directors approved an interim dividend for the 2022 half-year of $0.09 per ordinary share, which was paid on 29 September 2022 in cash. The sterling and Hong Kong dollar amounts of approximately £0.078821 and HK$0.706305 were calculated using the forward exchange rates quoted by HSBC Bank plc in London at or about 11.00am on 20 September 2022. On 1 August 2022, it was also announced that we intend to revert to paying quarterly dividends in 2023.

We aim to use a comprehensive risk management approach across the organisation and across all risk types, underpinned by our culture and values. This is outlined in our risk management framework, including the key principles and practices that we employ in managing material risks, both financial and non-financial. The framework fosters continual monitoring, promotes risk awareness and encourages sound operational and strategic decision making. It also supports a consistent approach to identifying, assessing, managing and reporting the risks we accept and incur in our activities. We continue to actively review and develop our risk management framework and enhance our approach to managing risk with clear accountabilities.

We operate a wide-ranging stress testing programme, which is a key part of our risk management and capital and liquidity planning. Stress testing provides management with key insights into the impacts of severely adverse events on the Group, and provides confidence to regulators on the Group's financial stability.

We continue to develop our climate change capabilities and methodologies, and are currently executing an internal climate scenario analysis to identify challenges and opportunities to our net zero strategy, as well as to inform capital planning and risk appetite.

At 30 September 2022, our CET1 ratio decreased to 13.4%, from 13.6% at 30 June 2022, and our liquidity coverage ratio ('LCR') was 127%.

The Russia-Ukraine war has continued to elevate geopolitical instability and resulted in the use of significant sanctions and trade restrictions against Russia by the US, the UK and the EU, as well as other countries. To date these include sanctions against numerous Russian government officials and individuals with close ties to the Russian government, as well as Russian financial institutions and companies. They also include general restrictions on certain activities relating to Russia. Russia has implemented certain countermeasures in response.

The Russia-Ukraine war, alongside the economic impacts that continue to result from the Covid-19 pandemic, has increased commodity prices, with the resulting sharp increase in inflation creating further challenges for monetary authorities and our customers. Central banks both in developed and emerging markets have stepped up the pace of monetary policy tightening in 2022 in an attempt to help ease inflationary pressures. It is presently unclear whether inflation will abate in the coming months as the ongoing Russia-Ukraine war is likely to keep energy and food prices at high levels. Central banks are set to continue to tighten monetary policy as they have done through 2022. Alongside China's Covid-19 policies and uncertainty in its real estate sector, this could lead to a significant economic slowdown and potential recession in some parts of the global economy.

Fiscal deficits are likely to increase in both developed and emerging markets as substantial public spending is rolled out to help the private sector manage rising prices, against a backdrop of higher interest rates. This could increase the strains on highly leveraged sovereigns, corporates and households. While the average maturity of sovereign debt in developed markets has lengthened, rising interest rates could reduce the affordability of debt and may eventually bring into question its sustainability in some countries. Among emerging markets, those that need to refinance maturing US dollar-denominated debt in the context of a strengthening dollar may face increasing difficulties. Our businesses also continue to consider the wider conduct implications of the increasing cost of living. We are engaging closely with our key regulators to ensure we continue to meet their expectations of financial institutions' activities within volatile markets.

Following the fiscal statement of 23 September 2022 by the UK government of large spending commitments, there was a fall in the value of sterling and a sharp rise in the yields of UK government securities, known as gilts. This prompted the Bank of England to reverse its plan to begin selling its gilt holdings from September, and ultimately for the UK government to reverse most of the previously announced fiscal measures. While these measures helped to stabilise markets for the time being, market perceptions of UK macroeconomic policy may remain unsettled, given the uncertain political and economic outlook and the likely impact of energy price increases in 2023.

Higher inflationary and interest rate expectations around the world - and the resulting economic uncertainty - are having an impact on ECL. In line with existing practice we have continued to carry out enhanced monitoring of model outputs and the use of model overlays, including management adjustments based on the expert judgement of senior credit risk managers to reflect current market and interest rate conditions where they have not been incorporated in the underlying macroeconomic scenarios. Inflation and rising interest rates have been considered both directly in certain models, and assessed via adjustments where not directly considered. Management adjustments have been made to our calculations of ECL to address the market uncertainty that followed the UK government fiscal statement on 23 September. While many of the government programmes implemented during the Covid-19 pandemic to support businesses and individuals have largely ceased, this has impacted the level of credit losses, which in turn may have impacted the longer-term reliability of loss and capital models.

The US, the UK, the EU, Canada and other countries have imposed various sanctions and trade restrictions on Chinese persons and companies, and may continue to impose further measures. In response to foreign sanctions and trade restrictions, China imposed sanctions and trade restrictions, and enacted laws that could impact the Group and its customers. Further sanctions and counter-sanctions, whether in connection with Russia or China, may affect the Group and its customers by creating regulatory, reputational and market risks.

Negotiations between the UK and the EU over the operation of the Northern Ireland Protocol are continuing and appear set to intensify in the coming months. While there are signs that differences may be diminishing, it remains the case that failure to reach agreement could have implications for the future operation of the EU-UK Trade and Cooperation Agreement.

In August 2022, the US Inflation Reduction Act introduced a minimum tax of 15% with effect from 1 January 2023. This is expected to accelerate the timing of US federal tax payments, and result in an estimated additional $900m of tax becoming payable by HSBC within the next 10 years. In addition, potential changes to tax legislation and tax rates in the countries and territories in which we operate could increase our effective tax rate in the future.

We continue to monitor, and seek to manage, the potential implications of all the above developments on our customers and our business.

While the impact of the Covid-19 pandemic on the global economy has largely abated in most markets, it continues to disrupt economic activity in mainland China where stringent health polices continue to remain in place. These have adversely impacted China's economy, Asia tourism and global supply chains. A full return to pre-pandemic levels of social interaction across all our key markets remains unlikely in the short to medium term.

We continue to monitor the situation closely and, given the remaining uncertainties related to the post-pandemic landscape, additional mitigating actions may be required.

The pace of regulatory developments focusing on climate risk management, disclosures, and stress testing and scenario analysis has continued to increase through the year. Geopolitical tensions continue to drive high commodity and energy prices, causing macroeconomic volatility and uncertainty for the pace of the energy transition. While this may affect the near-term climate transition path for HSBC and our customers, we remain committed to our climate ambition to align our own operations and supply chain to net zero by 2030, and the financed emissions from our portfolio of customers to net zero by 2050.

During 2022, we continued to develop our climate risk management capabilities across our key risk areas through our dedicated climate risk programme. We have further enhanced our risk appetite and metrics, and made enhancements to our product governance process to include climate risk considerations. We also continue to incorporate findings from regulatory stress tests into our internal climate scenario analysis and our key risk management activities.

The publication of sterling, Swiss franc, euro and Japanese yen Libor interest rate benchmarks, as well as Euro Overnight Index Average ('Eonia'), ceased from the end of 2021. Our interbank offered rate ('Ibor') transition programme - which is tasked with the development of new near risk-free rate ('RFR') products and the transition of legacy Ibor products - has supported the transition of the majority of the remaining contracts in these benchmarks to RFRs, or alternative reference rates, with a limited number of contracts remaining.

During the first nine months of 2022, we continued to develop processes, technology and RFR product capabilities throughout the Group, particularly in entities that have US dollar Libor contracts that require transition. Additionally, we implemented controls to help ensure we do not undertake any new US dollar Libor contracts outside of agreed-upon exemptions, and are monitoring new trade activity to control the associated risks. We have begun to engage with our clients to support them through the transition of their US dollar Libor and other demising Ibor contracts, with progress made on the transition of trade, hedging and lending facilities.

We continue to actively engage in market and industry discussions around the transition of US dollar Libor and other demising Ibors, and are prepared for the impacts related to the upcoming cessation of one-month and six-month 'synthetic' sterling tenors and Japanese yen Libor.

We continue to be exposed to risks associated with Ibor transition. These key risks remain unchanged and include regulatory compliance risk, resilience risk, financial reporting risk, legal risk, model risk and market risk. We have implemented mitigating controls, where required, and continue to actively manage and monitor these risks.

Summary of credit risk

At 30 September 2022, gross loans and advances to customers and banks of $1,077bn decreased by $63.3bn, including adverse foreign exchange movements of $98.6bn, compared with 31 December 2021. They were $58.6bn lower compared with 30 June 2022, including adverse foreign exchange movements of $46.9bn.

The commentary that follows compares our summary of credit risk at 30 September 2022 with 31 December 2021.

Excluding foreign exchange movements, growth was driven by a $22.6bn increase in wholesale loans and advances to customers and a $22.1bn increase in loans and advances to banks, partly offset by a $9.4bn decrease in personal loans and advances to customers.

The underlying increase in wholesale loans and advances to customers was driven mainly in the UK (up $8.0bn), the US (up $4.2bn), Canada (up $4.1bn), India (up $2.7bn), mainland China (up $1.9bn), Australia (up $1.9bn), Japan (up $1.5bn) and South Korea (up $1.3bn), partly offset by Hong Kong (down $6.8bn).

The underlying decrease in personal loans and advances to customers was driven mainly by decreases in France (down $21.3bn) and Switzerland (down $1.8bn), partly offset by the UK (up $7.4bn), Australia (up $1.7bn), Hong Kong (up $1.5bn), Mexico (up $1.1bn) and Canada (up $0.9bn). The decrease in France was mainly due to our retail banking business being classified as assets held for sale.

At 30 September 2022, the allowance for ECL of $11.4bn decreased by $0.8bn compared with 31 December 2021, including favourable foreign exchange movements of $1.0bn. The $11.4bn allowance comprised $10.8bn in respect of assets held at amortised cost, $0.4bn in respect of loan commitments and financial guarantees, and $0.2bn in respect of debt instruments measured at fair value through other comprehensive income ('FVOCI').

Excluding foreign exchange movements, the allowance for ECL in relation to loans and advances to customers decreased marginally from 31 December 2021. This was attributable to broadly unchanged allowances for ECL in wholesale and personal loans and advances to customers. In wholesale lending, a $0.1bn increase driven by stage 1 and stage 2 allowances was offset by a $0.1bn decrease in stage 3 and purchased or originated credit impaired ('POCI') allowances, while in personal lending a $0.3bn decrease driven by stage 3 allowances was offset by a $0.3bn increase in stage 1 and stage 2 allowances.

The ECL charge for the first nine months of 2022 was $2.2bn, inclusive of recoveries. This was driven by higher ECL charges related to increasing inflationary pressures, rising interest rates, Chinese commercial real estate exposures and economic uncertainty, partly offset by a release in Covid-19-related allowances at the beginning of the year.

The ECL charge comprised: $1.3bn in respect of wholesale lending, of which the stage 3 and POCI charge was $0.8bn; $0.8bn in respect of personal lending, of which the stage 3 charge was $0.4bn; and $0.1bn in respect of debt instruments measured at FVOCI.

1 The total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a provision.

2 Includes $23,493m gross carrying amounts and $89m allowances for ECL related to the planned sale of HSBC Continental Europe's retail banking business in France (31 December 2021: $nil), and $3,139m gross carrying amounts and $65m allowances for ECL related to assets held for sale in Greece and Russia. At 31 December 2021, $2,424m gross carrying amounts and $39m allowances for ECL were related to assets held for sale due to the exit of domestic mass market retail banking in the US.

3 Includes only those financial instruments that are subject to the impairment requirements of IFRS 9. 'Other assets' as presented within the summary consolidated balance sheet on page 12 comprises both financial and non-financial assets, including cash collateral and settlement accounts.

4 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

5 Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is recognised in 'Change in expected credit losses and other credit impairment charges' in the income statement.