HSBC Holdings plc 1Q 2022 Earnings Release
Noel Quinn, Group Chief Executive, said:
“I’m encouraged by our start to the year. Our strategy is on track, with organic growth and good momentum across most parts of the Group. While profits were down on last year’s first quarter due to market impacts on Wealth revenue and a more normalised level of ECL, higher lending across all businesses and regions, and good business growth in personal banking, insurance and trade finance bode well for future quarters. We have further reduced costs while maintaining high levels of technology investment, and remain on track to achieve our cost and RWA reduction targets for 2022. Although the economic outlook remains uncertain, the continued upward path of interest rates since our full year results has further strengthened our confidence in delivering a double-digit return on average tangible equity in 2023.
The Russia-Ukraine war continues to have devastating consequences both within Ukraine and beyond. Our thoughts are with the many thousands who have lost their lives, their families and the many more whose lives will never be the same. We are supporting our colleagues in the region while implementing the sanctions put in place by the UK and other governments. HSBC Russia is not accepting new business or customers and is consequently on a declining trend. The vast majority of our business in Russia serves multinational corporate clients headquartered in other countries, and as a global bank, HSBC has a responsibility to help them manage these challenging circumstances.”
Financial performance (vs. 1Q21)
- Reported profit after tax down $1.1bn to $3.4bn and reported profit before tax down $1.6bn to $4.2bn. The decrease reflected a net charge for expected credit losses and other credit impairment charges (‘ECL’) in 1Q22, compared with a net release in 1Q21, as well as lower revenue. Adjusted profit before tax down $1.6bn to $4.7bn.
- All regions continued to be profitable. In 1Q22, our Asia operations contributed $2.8bn to Group reported profit before tax, and HSBC UK contributed $1.2bn.
- Reported revenue down 4% to $12.5bn, primarily in Wealth and Personal Banking (‘WPB’), reflecting unfavourable market impacts in life insurance manufacturing and lower investment distribution revenue in Hong Kong, as well as lower Global Debt Markets and Principal Investments revenue in Global Banking and Markets (‘GBM‘). Net interest income increased in all global businesses from balance sheet growth and interest rate rises. Adjusted revenue down 3% to $12.5bn.
- Net interest margin (‘NIM’) of 1.26% increased by 5 basis points (‘bps‘) compared with 1Q21, and by 7bps compared with 4Q21.
- Reported ECL were a charge of $0.6bn, compared with a release of $0.4bn in 1Q21. Increased ECL primarily reflected the direct and broader economic impacts of the Russia-Ukraine war and inflationary pressures on the forward economic outlook, although were in part mitigated by the release of substantially all of the remaining Covid-19 reserves. Stage 3 charges of $0.4bn remain low relative to historical experience.
- Reported operating expenses down 3%, and adjusted operating expenses down 2%, as continued growth in technology investment and the effects of higher inflation were more than offset by the impact of our cost-saving initiatives and a lower performance-related pay accrual due to the expected phasing of our profits for the year.
- Customer lending balances up $9bn in the quarter on a reported basis and $21bn on an adjusted basis, reflecting growth in mortgage balances of $5.8bn, as well as term and trade lending, notably in Commercial Banking (‘CMB‘).
- Common equity tier 1 (‘CET1’) capital ratio of 14.1%, down 1.7 percentage points from 4Q21, as a result of an $11.2bn reduction in CET1 capital and a $24.0bn increase in risk-weighted assets (‘RWAs‘). The reduction was driven by a 0.8 percentage point impact from regulatory changes that took effect in 1Q22, and a 0.4 percentage point impact from a $3.1bn valuation loss in equity from financial instruments as yield curves steepened. These instruments are held as economic hedges of net interest income. The reduction also included the share buy-back of up to $1bn announced at our full year 2021 results.
- The share buy-back of up to $2bn announced at our third quarter 2021 results concluded on 20 April 2022, resulting in $2.0bn being purchased and cancelled. We intend to initiate the further share buy-back of up to $1bn, announced at our full year 2021 results, after our annual general meeting on 29 April 2022.
- The revenue outlook remains positive, with growth in net interest income expected to continue as implied market consensus policy rate movements have improved since our full year 2021 results. This is expected to be supported by mid-single-digit percentage lending growth for 2022. While Covid-19-related restrictions in Hong Kong resulted in a comparatively muted 1Q22 for our Wealth business, we expect a recovery when restrictions are lifted. We continue to expect mid-single-digit percentage revenue growth in 2022.
- The Russia-Ukraine war has exacerbated inflationary pressures, and increased uncertainty on the forward economic outlook, contributing to higher ECL charges for 1Q22. We are monitoring developments closely, although we continue to expect ECL charges to normalise towards 30bps of average loans in 2022, based on current consensus economic forecasts and default experience.
- We are on track to deliver 2022 adjusted operating expenses in line with 2021, despite inflationary pressures, and we expect over $2bn of cost savings to be delivered during 2022 with associated costs to achieve spend of $3.4bn. We continue to target 2023 cost growth at 0% to 2%, compared with 2022 on an IFRS 4 basis.
- With an improved revenue outlook, including the potential upside on our net interest income since our full year 2021 results, we continue to expect a return on average tangible equity (‘RoTE‘) of at least 10% in 2023.
- Our CET1 position fell from 15.8% at 31 December 2021 to 14.1% at 31 March 2022. With profit generation and continued RWA actions, we aim to manage within our target CET1 range of 14% to 14.5% in the medium term. However, we note that volatility in equity from financial instruments held as economic hedges of net interest income may result in our CET1 position temporarily falling below our target range during 2022, making further buy-backs in 2022 unlikely at this stage. The planned disposal of our French retail operations is expected to adversely impact CET1 by approximately 35bps in the second half of 2022.
For further information contact:
UK – Richard O’Connor
Telephone: +44 (0)20 7991 6590
Hong Kong – Mark Phin
Telephone: +852 2822 4908
UK – Gillian James
Telephone: +44 (0)20 7992 0516
UK – Heidi Ashley
Telephone: +44 (0)20 7992 2045
Hong Kong – Jessica Lee
Telephone: +852 2822 1268