HSBC Holdings plc 3Q 2021 Earnings Release

Noel Quinn, Group Chief Executive, said:

“We had a good third-quarter performance, with strong growth in profits supported by additional credit provision releases. Our strategy remains on track, with good delivery in all areas. This was reflected in more consistent top-line growth, robust lending pipelines across our businesses, and rising trade and mortgage balances.

While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us. This confidence, together with our strong capital position, enables us to announce a share buyback of up to $2bn, which we expect to commence shortly.”

Financial performance (vs. 3Q20)

• Reported profit after tax up $2.2bn to $4.2bn and reported profit before tax up $2.3bn to $5.4bn. The increase was driven by a release of expected credit losses and other credit impairment charges (‘ECL’) and a higher share of profit from our associates.
• All regions profitable in 3Q21, demonstrating continued earnings diversity. Asia contributed $3.3bn to Group reported profit before tax, while in HSBC UK reported profit before tax increased by $1.0bn to $1.5bn.
• Reported revenue up 1% to $12.0bn, including a favourable foreign currency translation movement. Adjusted revenue down 1% to $12.2bn, primarily reflecting unfavourable market impacts in life insurance manufacturing in Wealth and Personal Banking (‘WPB’) and lower revenue in Markets and Securities Services (‘MSS’). Notwithstanding these factors, we have seen continued good performances in areas of strategic focus, including wealth and trade finance products.
• Net interest margin (‘NIM’) of 1.19% was broadly stable compared with 3Q20 and 2Q21.
• Reported ECL were a net release of $0.7bn, compared with a $0.8bn ECL charge in 3Q20, reflecting continued stability in economic conditions and better than expected levels of credit performance.
• Reported and adjusted operating expenses were broadly unchanged as increases, including growth in technology investment, were offset by the impact of our cost-saving initiatives.
• Reported customer lending balances down $20bn in the quarter, including adverse foreign currency translation movements. On a constant currency basis, customer lending balances down $6bn, mainly from the repayment of $14bn of short-term borrowing to fund investments in initial public offerings in Hong Kong, partly offset by continued growth in mortgage balances of $7bn.
• Common equity tier 1 (‘CET1’) capital ratio of 15.9%, up 30 basis points (‘bps’) from 2Q21, reflecting a reduction in risk-weighted assets (‘RWAs’), partly offset by a decrease in CET1 capital, net of foreseeable dividends.

Financial performance (vs. 9M20)

• Reported profit after tax up $7.5bn to $12.7bn and reported profit before tax up $8.9bn to $16.2bn. Lower revenue was more than offset by net releases in ECL. Reported profit in 9M20 included an impairment of software intangibles of $1.3bn, mainly in Europe, and our share of an impairment of goodwill recorded by an associate.
• Reported revenue down 3% to $37.6bn, primarily reflecting 2020 interest rate reductions and lower revenue in MSS in Global Banking and Markets (‘GBM’). These reductions were partly offset by net favourable movements in market impacts in life insurance manufacturing and valuation adjustments in GBM.
• Reported ECL were a net release of $1.4bn, compared with a $7.6bn ECL charge in 9M20. The net release in 9M21 primarily reflected an improvement in the economic outlook since 2020. The reduction also reflected low levels of stage 3 charges in 9M21, as well as the non-recurrence of a large charge in 9M20 related to a corporate exposure in Singapore.
• Reported operating expenses up 2% as a higher performance-related pay accrual and increased investment in technology were in part mitigated by the impact of our cost-saving initiatives.
• Return on average tangible equity (‘RoTE’) (annualised) of 9.1%, up 5.6 percentage points from 9M20.

Outlook

• We continue to make progress on our environmental, social and governance (‘ESG’) agenda, including our climate commitments announced in October 2020, and work is ongoing to deliver on the commitments in the special resolution on climate change that was passed at the AGM in May 2021.
• The revenue outlook is becoming more positive, with fee growth across many of our businesses and a stabilisation of net interest income, which we expect to begin to increase in the coming quarters from lending growth and earlier than anticipated policy rate rises.
• Given current consensus economics and default experience, we expect a net release of ECL for 2021, with the potential for a further small net release of ECL in 4Q21, dependent on offsetting levels of stage 3 charges. We now have around $1.2bn remaining of the stage 1 and stage 2 ECL allowance uplift we made during 2020. We do not currently expect ECL charges to normalise towards our medium-term range of 30bps to 40bps of average loans until the second half of 2022.
• We continued to demonstrate strong cost control over the course of the year. Given inflationary pressures, continued investment and the impact and timing of recently announced acquisitions and disposals, we now expect adjusted costs of approximately $32bn for 2021 and 2022, excluding the estimated UK bank levy charge of $0.3bn. With an improved revenue outlook and the prospect of rising policy rates, we remain committed to achieving a RoTE of greater than or equal to 10% over the medium term.
• We remain well placed to fund growth and step up capital returns, and now intend to normalise our CET1 position to be within our 14% to 14.5% target operating range by the end of 2022. We intend to achieve this through a combination of growth and capital returns, as well as from an expected $20bn to $35bn uplift in RWAs in 2022 due to regulatory developments. Given our strong capital position and notwithstanding growth opportunities available to us, we intend to initiate a share buyback of up to $2bn, which we expect to commence shortly.

For further information contact:

Investor Relations

UK – Richard O’Connor
Tel: +44 (0) 20 7991 6590

Hong Kong – Mark Phin
Tel: +852 2822 4908

Media Relations

UK – Heidi Ashley
Tel: +44 (0) 20 7992 2045

Hong Kong – Jessica Lee
Tel: +852 2822 1268