Highlights

Strategy execution

  • Further reduction in RWAs through the completion of Brazil disposal and other management actions.

  • Reduction in 3Q16 operating expenses on both a reported and adjusted basis to $8.7bn and $7.2bn respectively.

  • Positive adjusted jaws of 5.6% for 3Q16, and 1.5% for 9M16.

  • Increased market share in a number of key markets and international product areas, including trade finance in Hong Kong and Singapore.

  • Share buy-back programme is now 59% complete and expect to finish in late 2016 or early 2017.

Financial performance

  • Adjusted profit before tax (‘PBT’) in 3Q16 of $5.6bn, up 7%; reported PBT of $843m.

  • Adjusted revenue in 3Q16 of $12.8bn, up $0.3bn from increases in client-facing GB&M (+11%) and Principal RBWM (+9%); reported revenue in 3Q16 of $9.5bn, down $5.6bn reflecting the impact of significant items.

  • Adjusted PBT of $16.7bn in 9M16, down 6% or $1.0bn; reported PBT of $10.6bn.

Capital

  • Strong capital base with CRD IV end point CET1 ratio 13.9%, up from 12.1% at 30 June 2016, mainly due to a change in regulatory capital treatment of BoCom.

Stuart Gulliver, Group Chief Executive, commented:

Business performance

Our third-quarter performance reflected the strength of our network and the deepening impact of our strategic actions. Reported profits were down, but adjusted profits were higher than last year’s third quarter in all four global businesses and four out of five regions. Reported profits included the impact of the disposal of our operations in Brazil, changes in the fair value of our own debt, and the costs of implementing our cost-reduction programmes.

Our global universal banking model generated higher adjusted revenue than for the same period last year, and our cost-reduction programmes continued to reduce our operating expenses. This produced adjusted positive jaws of 5.6% for the third quarter and 1.5% for the first nine months of the year.

Global Banking and Markets had strong adjusted revenue growth in the quarter, with market share gains in Debt Capital Markets globally, and Rates and Credit in Europe. We also achieved one of our best ever rankings for global cross-border mergers and acquisitions. Principal Retail Banking and Wealth Management performed relatively well due to the impact of stock market movements on our insurance business in Asia, compared with a weak third quarter of 2015. Commercial Banking revenue remained stable, as higher balances in Global Liquidity and Cash Management helped mitigate the impact of lower revenue from trade finance.

Following a change in the regulatory treatment of our investment in BoCom, our common equity tier 1 capital ratio increased to 13.9%. This is another action forming part of our ongoing capital management of the Group that reinforces our ability to support the dividend, to invest in the business and, over the medium term, to contemplate share buy-backs, as appropriate. It also provides us with a significant capacity to manage the continuing uncertain regulatory environment.

We had completed 59% of our $2.5bn equity buy-back at 31 October. We expect to finish the programme by the end of 2016 or early in the first quarter of 2017, depending on market trading volumes in the fourth quarter.

Strategy execution

We generated a further $57bn of RWA savings in the third quarter, $40bn of which came from the sale of our Brazil business. We are now more than 80% of the way to achieving our RWA reduction target.

We have also now achieved $2.8bn of annualised cost savings and are on track to achieve our 2017 cost-saving target as well. Transaction banking revenue for the first nine months is broadly level with the same period in 2015 following a good performance from Global Liquidity and Cash Management. Trade revenue remained under pressure, but we continued to make market share gains in some of the world’s biggest trade centres, including Hong Kong and Singapore.

Our US business disposed of a further $0.9bn of legacy CML assets in the third quarter. The principal US business reduced adjusted costs by 5% compared with last year’s third quarter and achieved adjusted positive jaws of 6.7% for the first nine months of 2016.

Our Mexico business remains on track to meet its profitability targets. Higher lending and deposit balances across retail and wholesale businesses, and market share gains in personal loans and mortgages helped to more than double its adjusted profit before tax compared with last year’s third quarter. We also grew adjusted revenue in Mexico by more than 20% in both Global Trade and Receivables Finance, and Global Liquidity and Cash Management.

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