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04 Nov 2013

3Q 2013 Interim Management Statement

  • Reported profit before tax (‘PBT’) up 30% in the third quarter of 2013 (‘3Q13’) at US$4,530m compared with US$3,481m in the same period in 2012 (‘3Q12’).
  • Underlying PBT was US$5,056m, up 10% in 3Q13, compared with US$4,603m in 3Q12.
  • Reported PBT for nine months to 30 September 2013 up 15% at US$18,601m, US$2,383m higher than in the same period in 2012.
  • Underlying PBT for the nine months to 30 September 2013 up 34% at US$18,145m, US$4,640m higher than the prior year period.
  • Earnings per share and dividends per share for the nine months to 30 September 2013 were US$0.71 and US$0.30, respectively, compared with US$0.58 and US$0.27 for the equivalent period in 2012.
  • Annualised return on equity 1.5 ppt higher – nine months to 30 September 2013 annualised return on average ordinary shareholders’ equity (‘RoE’) was 10.4% compared with 8.9% in the equivalent period in 2012.
  • Our home markets of UK and Hong Kong contributed more than half of the Group’s underlying PBT in the quarter and year to date. We expect both to see GDP growth in 2014 over 2013.
  • Stable revenue – 3Q13 underlying revenue of US$15,588m was broadly unchanged compared with US$15,661m in 3Q12. Notwithstanding this, we achieved broad-based revenue growth in Hong Kong.
  • Lower 3Q13 underlying operating expenses – 3Q13 underlying operating expenses were US$9,572m, down 4% from US$9,952m in 3Q12. Excluding notable items, operating expenses increased reflecting higher investment expenditure, wage inflation and litigation and regulatory-related costs.
  • Maintained momentum in sustainable savings – during 3Q13 we achieved US$0.4bn of additional sustainable cost savings across all regions, taking the annualised total to US$4.5bn since the start of 2011. This exceeds our target for the end of 2013.
  • Further progress on capital generation but regulatory uncertainty remains – our core tier 1 ratio was 13.3% and our common equity tier 1 ratio was 10.6% in 3Q13.

Business performance
Revenue was stable in the third quarter, influenced by the mixed global macroeconomic picture set against a backdrop of our continuing implementation of Global Standards and ongoing regulatory uncertainty.

Our home markets of the UK and Hong Kong contributed more than half of the Group’s underlying profit before tax. Hong Kong performed well in the quarter, reflecting broad-based revenue growth. Hong Kong continues to benefit from its close economic relationship with mainland China. We remain well positioned to capitalise on improving economic conditions in these markets.

In addition, we continued to remodel our business in North America to improve profitability and growth. The ongoing recovery of the US housing market and increased investor appetite may provide further opportunities to accelerate the run-down of our US Consumer Mortgage and Lending portfolio.

Global Banking and Markets performed resiliently, notwithstanding a challenging environment over recent months. This reflects our distinctive business model with its broad international focus, emphasis on customer connectivity, product capability and balance sheet strength.

We continued to focus on managing our cost base, generating an additional US$0.4bn of sustainable savings over the quarter and bringing the total annualised sustainable savings achieved since the start of 2011 to US$4.5bn. This is well in excess of the target we set out to achieve by the end of 2013. We re-invested part of these savings in risk and compliance, increasing headcount by 1,600 since December 2012.

We grew underlying revenue 9% faster than costs for the first nine months.

We also made further progress towards simplifying and restructuring HSBC. In particular, we recently completed the sale of our Panama business in October.

Our capital position has strengthened during the quarter with an improvement in the core tier 1 ratio to 13.3%. Our estimated CRD IV end point basis common equity tier 1 ratio also improved to 10.6%. There continues to be significant regulatory uncertainty on the horizon.

Outlook
We see reasons for optimism with some evidence of a broadening recovery. Indications are that economic growth in mainland China is stabilising with positive implications for Hong Kong and the rest of Asia-Pacific. The US should continue to grow, albeit at a low rate by historical standards. The UK should see positive growth and outperform the eurozone. We expect GDP growth in Latin America to remain slow, although the Mexican economy should strengthen in 2014. Our forecasts for global growth remain constant at 2.0% in 2013 and 2.6% in 2014.

We remain focused on delivering organic growth, streamlining the businesses and implementing Global Standards, and so supporting a progressive dividend.

Read the 3Q 2013 Interim Management Statement.

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