HSBC Holdings plc 3Q 2022 Earnings Release
Noel Quinn, Group Chief Executive, said:
“We maintained our strong momentum in the third quarter and delivered a good set of results. Our strategy produced good organic growth in all three global businesses, and net interest income increased on the back of rising interest rates. We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023. We are focused on executing our plans and delivering our returns target of at least 12% from 2023 onwards and, as a result, higher distributions to our shareholders.”
Financial performance (3Q22 vs. 3Q21)
- Reported profit after tax decreased $1.7bn to $2.6bn and reported profit before tax fell $2.3bn to $3.1bn. Our 3Q22 results included an impairment of $2.4bn following the reclassification of our retail banking operations in France to held for sale, as well as a net charge for expected credit losses and other credit impairment charges (‘ECL’), compared with a net release in 3Q21. There was continued strong growth in net interest income. Adjusted profit before tax increased $1.0bn to $6.5bn.
- Reported revenue decreased 3% to $11.6bn, reflecting an impairment on the planned disposal of our retail banking operations in France, as well as adverse foreign currency translation impacts of $1.0bn. However, net interest income increased in all of our global businesses due to interest rate rises. Adjusted revenue rose 28% to $14.3bn.
- Net interest margin (‘NIM’) of 1.57% increased 38 basis points (‘bps‘) compared with 3Q21, and by 22bps from 2Q22.
- Reported ECL were $1.1bn, including allowances to reflect increased economic uncertainty, inflation, rising interest rates and the ongoing developments in mainland China‘s commercial real estate sector. This compared with a $0.7bn net release in 3Q21.
- Reported operating expenses were unchanged from 3Q21. The benefits of our cost-saving initiatives and favourable foreign currency translation impacts of $0.7bn were offset by an increase of $0.3bn in restructuring and other related costs, higher investments in technology, an increase in the performance-related pay accrual due to the expected phasing of our profits for the year, and the impacts of rising inflation. Adjusted operating expenses rose 5% due to a higher performance-related pay accrual and increased investment spend, mainly in technology. Compared with 2Q22, adjusted operating expenses were broadly stable.
- Customer lending balances fell $61bn in the quarter on a reported basis. On an adjusted basis, lending balances fell $18bn, reflecting a $23bn reclassification of loans relating to the planned disposal in France to assets held for sale, partly mitigated by growth in mortgage balances of $2bn in the UK and $1bn in Hong Kong.
- Common equity tier 1 (‘CET1’) capital ratio of 13.4% fell 0.2 percentage points from 2Q22, including a 0.3 percentage point impact from the reclassification of our French retail banking operations to held for sale and a 0.1 percentage point impact from further losses in equity from financial instruments as yield curves steepened.
Financial performance (9M22 vs. 9M21)
- Reported profit after tax decreased $0.9bn to $11.8bn, which included a $1.8bn deferred tax gain. Reported profit before tax fell $3.9bn to $12.3bn, including an impairment on the planned disposal of our retail banking operations in France of $2.4bn. Adjusted profit before tax increased $0.1bn to $17.2bn.
- Reported revenue decreased 2% to $36.9bn, including a $2.1bn adverse impact of foreign currency translation differences, the impairment on the planned disposal of our retail banking operations in France and adverse movements in market impacts in insurance manufacturing in Wealth and Personal Banking (‘WPB‘). These reductions were in part offset by a $3.3bn rise in net interest income, with growth in all of our global businesses. Adjusted revenue increased 11% to $40bn.
- Reported ECL were $2.2bn, including allowances to reflect increased economic uncertainty, inflation and rising interest rates, as well as the ongoing developments in mainland China‘s commercial real estate sector, in part offset by the release of most of our remaining Covid-19-related reserves. This compared with releases of $1.4bn in 9M21. ECL charges were 30bps of average gross loans.
- Reported operating expenses decreased $0.7bn or 3%, and included a favourable impact of foreign currency translation differences of $1.5bn. There was a lower performance-related pay accrual and a positive impact from our cost-saving initiatives, which in part mitigated higher restructuring and other related costs, investments and inflationary pressures. Adjusted operating expenses were broadly stable (up $0.2bn or 1%).
- Our outlook on revenue remains positive and we have upgraded our net interest income guidance for 2022 to $32bn, based on the current market consensus for global central bank rates. In 2023, we now expect net interest income of at least $36bn (on an IFRS 4 basis), with the reduction from the at least $37bn guidance provided at our interim results reflecting the impact of sterling depreciation against the US dollar and a higher cost of funding in our trading book. We continue to monitor the expected path of interest rates. This is expected to be supported by low-single-digit percentage lending growth.
- We expect ECL charges to be around 30bps of average loans in 2022. Macroeconomic headwinds, including higher inflation and a weaker outlook, continue to weigh on the global economy. However, our stage 3 losses in 9M22 remained stable and the credit indicators in our wholesale and retail portfolios remain relatively benign compared with historical levels. For 2023 we expect to be at the higher end of our planning range of between 30bps to 40bps, and continue to monitor economic developments closely, including the impact of rising interest rates and the ongoing developments in mainland China’s commercial real estate sector.
- We remain on track for 2022 adjusted operating expenses to be broadly stable compared with 2021. Notwithstanding increasing inflationary pressures, we continue to maintain strict cost discipline and target 2023 adjusted cost growth of approximately 2%, compared with 2022 (on an IFRS 4 basis).
- The impact of our growth and transformation programmes, as well as the impact of higher global interest rates, mean we continue to target a return on average tangible equity (‘RoTE‘) of at least 12% from 2023 onwards, and expect a dividend payout ratio of 50% for 2023 and 2024.
- While our CET1 position of 13.4% is below our medium-term target range of 14% to 14.5%, we intend to manage it back to within our target range by 1H23 through revenue growth and cost control, as well as through risk-weighted asset (‘RWA‘) and capital actions. Once we are back within our target range, we intend to continue to manage capital efficiently, returning excess capital to shareholders where appropriate.
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)7584 404 238
UK – Kirsten Smart
Telephone: +44 (0)7725 733 311
Hong Kong – Aman Ullah
Telephone: +852 3941 1120