- Revenue: $37.3 billion, up 1%.
- Profit Before Tax: $21.6 billion, stable year-over-year.
- Return on Tangible Equity: 17%, excluding notable items.
- Capital Distributions: $4.8 billion announced, totaling $34.4 billion over the last 18 months.
- Banking NII Guidance: Upgraded from at least $41 billion to around $43 billion for 2024.
- ECL Guidance: Revised to 30-40 basis points for 2024.
- Cost Guidance: Reconfirmed at around 5% growth for 2024.
- Wealth Revenue: Up 12% in the first half to $4.3 billion.
- Transaction Banking Revenue: Stable in the first half, with payments up 3%.
- Profit Before Tax (Hong Kong): Up 1% on a constant currency basis.
- Profit Before Tax (UK): Up 11%, excluding the gain on SVB UK last year.
- Q2 Profit Before Tax: $8.9 billion, up $0.4 billion year-over-year.
- Q2 Revenue: $16.5 billion, up $0.3 billion year-over-year.
- Banking NII (Q2): $10.9 billion, stable excluding the impact of the Canada sale.
- Fee and Other Income (Wealth): Up 13% year-over-year in Q2.
- Invested Assets: Up 2% to $1.3 trillion in Q2.
- Insurance New Business CSM: $0.6 billion, up $0.2 billion year-over-year in Q2.
- Expected Credit Losses (Q2): $0.3 billion, equivalent to 15 basis points of average loans.
- CET1 Ratio: 15%, down 20 basis points from the first quarter.
- New Share Buyback: Up to $3 billion, expected to complete within three months.
Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HSBC Holdings PLC (HSBC, Financial) reported a strong first half performance with revenue of $37.3 billion, up 1% year-over-year.
- Profit before tax remained stable at $21.6 billion, demonstrating consistent financial performance.
- The company announced $4.8 billion in further capital distributions, bringing the total to $34.4 billion over the last 18 months.
- Return on tangible equity was 17%, excluding notable items, indicating strong profitability.
- Wealth revenue grew by 12% in the first half, driven by significant investments in people and digitization.
Negative Points
- Cost growth was 7% in the first half, exceeding the target of around 5%, primarily due to timing differences.
- Foreign exchange revenue declined by 8% compared to the previous year, reflecting high volatility in the market.
- The Hong Kong corporate loan market remains subdued, impacting overall loan growth.
- Expected credit losses (ECL) were $0.3 billion in the quarter, with stage three balances increasing to 2.4% of customer loans.
- The company faces challenges in maintaining its structural hedge in the Hong Kong dollar market due to limited instruments available.
Q & A Highlights
Q: Noel, you highlighted all the things you can be proud of, but perhaps with the benefit of hindsight, are there any thoughts on what you might have done differently? Georges, you mentioned accelerating existing execution. Can you provide tangible examples?
A: Noel Quinn (CEO): I have no regrets. Performing this role is a privilege. There's always room for continuous improvement and ambition. Georges will take it to the next level.
A: Georges Elhedery (CFO): We are confident in our strategy, particularly in Hong Kong, the UK, and our international wholesale bank. We have ample capital to support additional growth. Regarding the structural hedge, $55 billion maturing at 2.8% yield will be reinvested at higher yields, but this will be averaged over the year.
Q: The 2025 profitability target seems above consensus. Where do you see more upside? Is it mainly on revenues or cost control? Also, how do you see sustainable revenue growth with potential NII headwinds?
A: Georges Elhedery (CFO): Our mid-teens definition is around 14%-16%. Banking NII has been stabilized, and we've reduced sensitivity to interest rates. We see stabilization in loan growth, particularly in the UK and Hong Kong. Non-banking NII, especially in wholesale transaction banking and wealth, shows sustainable momentum.
Q: What would hold you back from maintaining the current level of ROTE in 2025 and 2026?
A: Noel Quinn (CEO): It's too early to call a return to substantial volume growth in the corporate loan market. We expect rates to come off, which should increase activity. Our guidance of mid-teens ROTE is reasonable given the current uncertainties.
Q: Can you explain the $6.4 billion addition to RWA and its impact on capital? Also, what is your view on the Hong Kong CRE book, particularly the unsecured loans?
A: Georges Elhedery (CFO): The $6.4 billion increase in RWA is due to adjustments in the probability of default models for banks globally. Regarding the Hong Kong CRE book, 40% is unsecured but rated strong and good. We are comfortable with the exposure and expect pressure to ease as rates reduce.
Q: How do you see the impact of falling rates on wealth income and lending growth?
A: Georges Elhedery (CFO): Wealth income may benefit from deposits moving into AUMs as rates fall. We expect continued strong deposit growth due to our attractive deposit franchise. Lower rates should support loan growth, particularly in Hong Kong and the UK.
Q: Can you provide more details on the performance-related pay and its impact on costs?
A: Georges Elhedery (CFO): We paid $3.8 billion in performance-related pay in 2023. We are accruing towards a similar number for 2024 but more evenly throughout the year. This is factored into our cost growth guidance of around 5%.
Q: What is the impact of the structural hedge on NII, and how do you see deposit passthroughs affecting it?
A: Georges Elhedery (CFO): The structural hedge will provide some tailwind as maturing assets are reinvested at higher yields. We assume a 50% passthrough rate in our NII sensitivity, which remains a good estimate.
Q: Can you explain the impact of the Hong Kong CRE book on capital and your outlook for this sector?
A: Georges Elhedery (CFO): The $3.2 billion of credit-impaired CRE loans in Hong Kong are well-collateralized with an average loan-to-value of 55%. We expect the sector's pressure to ease in the medium to long term and remain confident in its recovery.
Q: How do you see the impact of falling rates on wealth income and lending growth?
A: Georges Elhedery (CFO): Wealth income may benefit from deposits moving into AUMs as rates fall. We expect continued strong deposit growth due to our attractive deposit franchise. Lower rates should support loan growth, particularly in Hong Kong and the UK.
Q: Can you provide more details on the performance-related pay and its impact on costs?
A: Georges Elhedery (CFO): We paid $3.8 billion in performance-related pay in 2023. We are accruing towards a similar number for 2024 but more evenly throughout the year. This is factored into our cost growth guidance of around 5%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
