HSBC Holdings plc 1Q 2023 Earnings Release
Noel Quinn, Group Chief Executive, said:
“Our strong first quarter performance provides further evidence that our strategy is working. Our profits were spread across our major geographies, and all three global businesses performed well as we continued to meet our customers‘ needs through our internationally connected franchises. Our return on tangible equity was 19.3%, excluding the impact of strategic transactions. As a result, we have announced our first quarterly dividend since 2019 of $0.10 per share, as well as a share buy-back of up to $2bn. With the good momentum we have in our business, we expect to have substantial future distribution capacity for dividends and share buy-backs.
We remain focused on continuing to improve our performance and maintaining tight cost discipline, but we also saw an opportunity to invest in SVB UK to accelerate our growth plans. For 158 years, HSBC has banked the entrepreneurs who have created today’s industrial base. With the SVB UK acquisition, we have access to more of the entrepreneurs in the technology and life sciences sectors who will create the businesses of tomorrow. We believe they‘re a natural fit for HSBC, and that we‘re uniquely placed to take them global.“
Financial performance (1Q23 vs. 1Q22)
- Profit before tax rose by $8.7bn to $12.9bn. This included a $2.1bn reversal of an impairment relating to the planned sale of our retail banking operations in France, as the completion of the transaction has become less certain, and a provisional gain of $1.5bn on the acquisition of Silicon Valley Bank UK Limited (‘SVB UK‘) in March. On a constant currency basis, profit before tax increased by $9.0bn to $12.9bn. Profit after tax increased by $7.6bn to $11.0bn.
- Revenue increased by 64% to $20.2bn. The increase was driven by higher net interest income in all of our global businesses due to interest rate rises. It also included the gains related to the transactions in France and the UK. On a constant currency basis, revenue rose by 74% to $20.2bn.
- Net interest margin (‘NIM’) of 1.69% increased by 50 basis points (‘bps‘) compared with 1Q22, and by 1bps compared with 4Q22.
- Expected credit losses and other credit impairment charges (‘ECL‘) of $0.4bn were down by $0.2bn. The reduced 1Q23 charge reflected a favourable change in the probability weightings of economic scenarios and a low stage 3 charge of $0.4bn. The 1Q22 charge reflected economic uncertainty mainly due to the Russia-Ukraine war and inflationary pressures.
- Operating expenses of $7.6bn were $0.6bn or 7% lower than in 1Q22. The reduction was primarily due to lower restructuring and other related costs following the completion of our cost-saving programme at the end of 2022, and ongoing cost discipline. Higher technology costs and the impacts of rising inflation continued to affect our operating expenses. On a constant currency basis, and excluding notable items and the impact of retranslating the 1Q22 results of hyperinflationary economies at constant currency, operating expenses rose by 2%.
- Customer lending balances increased by $40bn in the quarter. On a constant currency basis, lending balances grew by $32bn, mainly as $25bn of balances associated with our retail banking operations in France were reclassified from held for sale during the period. In addition, the growth included $7bn of additional balances following our acquisition of SVB UK during the quarter. Excluding these factors, customer lending was stable.
- Customer accounts increased by $34bn in the quarter. On a constant currency basis, customer accounts increased by $21bn, mainly as $23bn of balances associated with our retail banking operations in France were reclassified from held for sale during the period. In addition, our acquisition of SVB UK resulted in growth of $8bn. Excluding these factors, deposits fell by $10bn or 0.6%, reflecting outflows in HSBC UK as customers utilised surplus deposits, as well as in Commercial Banking (‘CMB‘) and Global Banking and Markets (‘GBM‘) in Hong Kong.
- Common equity tier 1 (‘CET1’) capital ratio of 14.7% increased by 0.5 percentage points compared with 4Q22, which was driven by capital generation net of the dividend accrual and included an approximately 25bps impact from the reversal of an impairment on the planned sale of our retail banking operations in France. The acquisition of SVB UK had a minimal impact on the CET1 ratio.
- The Board has approved a first interim dividend of $0.10 per share. We also intend to initiate a share buy-back of up to $2bn, which we expect to commence following our 2023 Annual General Meeting (‘AGM‘). The share buy-back is expected to have an approximately 25bps impact on the CET1 capital ratio.
- From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts‘, which replaced IFRS 4 ‘Insurance Contracts‘. Comparative data have been restated. For further details of our adoption of IFRS 17, see page 3.
- We remain confident of achieving our return on average tangible equity (‘RoTE‘) target of at least 12% for 2023 onwards, which is not dependent on the impact of material acquisitions and disposals. Our 1Q23 annualised RoTE of 27.4% included the annualised impact of our provisional gain on the acquisition of SVB UK and the reversal of an impairment on the planned sale of our retail banking operations in France. After excluding these transactions, annualised RoTE was 19.3%. The annualised RoTE in the first quarter is likely to be higher than in other quarters due to revenue seasonality, and as we do not expect certain favourable tax impacts to recur in subsequent quarters.
- Based on the current market consensus for global central bank rates, our net interest income expectations are unchanged from our full-year guidance. After including an approximately $2bn reduction due to the implementation of IFRS 17 ‘Insurance Contracts’, we expect to achieve net interest income of at least $34bn in 2023. While the interest rate outlook remains positive, we expect continued pressure from increased migration to term deposits as interest rates rise.
- We continue to use a range of 30bps to 40bps of average loans for planning our ECL charges over the medium to long term. While the ECL charge in 1Q23 was relatively benign, given current macroeconomic uncertainty we maintain the guidance provided at our full-year 2022 results of around 40bps of average gross loans in 2023 (including lending balances transferred to held for sale). We continue to monitor risks related to our exposures in mainland China’s commercial real estate sector.
- We remain highly focused on maintaining cost discipline. Our acquisition of SVB UK, and the related investments internationally, are expected to add approximately 1% to the Group‘s operating expenses. This is in addition to our 2023 target of keeping cost growth to approximately 3%, excluding the impact of foreign currency translation differences, notable items and the impact of retranslating the 2022 results of hyperinflationary economies at constant currency. We expect the up to $300m severance costs announced at our 2022 full-year results to be concentrated in the second quarter of 2023, with the benefits expected to be realised towards the end of 2023 and into 2024.
- Our current intention is to manage the CET1 ratio within our medium-term target range of 14% to 14.5%, with a dividend payout ratio of 50% for 2023 and 2024, excluding material notable items. Given the strength of our capital position, we have announced a first interim dividend of $0.10 per share and intend to initiate a share buy-back of up to $2bn, which we expect to commence following our 2023 AGM, subject to approval of the relevant resolutions. Our intention is for this to be completed in around three months, although with an expected contractual term of five months. Further buy-backs for 2023 and beyond will be subject to appropriate capital levels. Our capital distributions are independent of both the reversal of the impairment of our retail banking operations in France and our provisional gain on the acquisition of SVB UK.
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