HSBC Holdings plc 1Q 2017 Earnings Release
- Strong momentum in Asia with customer advances in the Pearl River Delta up 17% on 1Q16, new insurance sales up 13% and growth in assets under management of 15%.
- Achieved annualised run-rate savings of $4.3bn since inception, while continuing to invest in growth, and regulatory programmes and compliance. Incremental $0.4bn savings in 1Q17.
- Adjusted profit before tax growth in all three NAFTA countries. Lower LICs in the US and Canada; revenue growth in Mexico.
- Exceeded our RWA reduction target (FX rebased).
- Completed our $1.0bn share buy-back in April.
Stuart Gulliver, Group Chief Executive, said:
“This is a good set of results. The increase in adjusted profit was driven by strong performances in three of our four global businesses. Global Banking and Markets had a great quarter; Commercial Banking delivered higher revenue from our liquidity and cash management activities; and Retail Banking and Wealth Management was supported by rising interest rates and renewed customer investment appetite.
“In addition, we completed a $1bn buy-back, and made progress on our cost-saving programmes, giving us further confidence in our ability to hit the higher cost-saving target that we announced at our annual results.”
- Reported profit before tax of $5.0bn down $1.1bn or 19%, primarily due to adverse movements in significant items including fair value movements on our own debt from changes in our own credit spread in 1Q16; adjusted profit before tax of $5.9bn, up $0.6bn or 12% compared with 1Q16, reflecting lower LICs and higher revenue.
- Reported revenue of $13.0bn was 13% lower primarily due currency translation differences and the absence of fair value movements on our own debt and revenue from the operations in Brazil that we sold, which were the key elements of the adverse movement in significant items; adjusted revenue of $12.8bn, up $0.3bn or 2%, mainly in RBWM from life insurance manufacturing and growth in current accounts, savings and deposits, and in GB&M from Rates and Credit.
- Reported operating expenses of $8.3bn were $0.1bn or 1% higher; adjusted operating expenses of $7.2bn were $0.2bn or 3% higher, mainly due to a credit in the prior year relating to the 2015 UK bank levy. Excluding this, inflation and continued investment in our regulatory and growth programmes were partly offset by the impact of our cost-saving initiatives.
- Adjusted jaws was negative 0.6%.
- Compared with 4Q16, reported profit before tax was up $8.4bn; adjusted profit before tax was up $3.3bn.
- Strong capital base with a common equity tier 1 (‘CET1’) ratio of 14.3% and a leverage ratio of 5.5%.
Review by Stuart Gulliver, Group Chief Executive
HSBC performed well in the first quarter.
Reported profits were down, due largely to a change in the accounting treatment of the fair value on our own debt. In addition, last year’s first-quarter reported profit included the operating results of the Brazil business that we sold in July 2016. Both of these items will feature in comparisons with 2016 reported results throughout 2017.
Adjusted profit and revenue both grew as our global businesses maintained their momentum from the end of 2016.
Global Banking and Markets had a strong quarter, with large adjusted revenue increases in the majority of businesses compared with the same period last year. Retail Banking and Wealth Management also performed well, supported by rising interest rates, renewed customer investment appetite, the impact of market movements on our life insurance manufacturing business, and strong wealth product and insurance sales across all categories. Rising interest rates and increased balances in Global Liquidity and Cash Management helped deliver improved adjusted revenue in Commercial Banking.
We continued to grow lending in support of increased economic activity in the quarter, particularly in Commercial Banking in Hong Kong and the UK.
We further strengthened our common equity tier 1 ratio to 14.3%, while completing in April the $1bn equity buy-back that we announced at our annual results.
2017 is the final year of our programme to complete the strategic actions announced at our 2015 Investor Update.
Targeted initiatives removed another $13bn of risk-weighted assets in the first quarter. We have now exceeded the risk-weighted asset reduction target that we set in 2015 and will continue to remove low-return risk-weighted assets.
Our cost-saving programme remains on track to hit the higher cost-saving target we announced at our annual results.
Our pivot to Asia continues. We increased advances to customers and grew mortgages and business lending in the Pearl River Delta. Insurance sales grew by 13% in Asia, and assets under management increased by 15%. We also launched new insurance products in China, and generated further business around the China-led Belt and Road initiative.
All three of our North American businesses delivered material increases in profit before tax.
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