HSBC Holdings plc, Q1 2020 Earnings Call, Apr 28, 2020 - SEHK:5

SEHK:5

Ewen James Stevenson, the Former Member of the Group Management Board at HSBC, provided detailed insights into the bank's financial performance and strategies during the Q1 2020 Earnings Call. Here’s a summary of his statements:

• Financial Performance Overview:

  • Reported pre-tax profit dropped by 48%, and adjusted pre-tax profit fell by 51% compared to the same period last year.
  • Reported revenue decreased by 5%, but excluding volatile items, it remained stable.
  • Adjusted operating expenses decreased by 3%.
  • Tangible net asset value per share was $7.44, including a $0.17 own credit adjustment or reserve.

• Revenue Breakdown:

  • Total adjusted revenues were $13.3 billion, down 6% year-over-year, but up 6% excluding volatile items.
  • Retail Banking and Wealth Management revenues declined 17%, but were stable before accounting for negative market impacts in insurance manufacturing.
  • Global Private Banking revenues increased 13%.
  • Commercial Banking revenues decreased 5%.
  • Global Banking and Markets revenues decreased 8% overall, but Global Markets grew 25%.

• Costs:

  • Adjusted costs fell by 3% compared to Q1 2019, reflecting reduced variable pay accruals and lower discretionary spending.
  • Full-year 2020 costs are expected to be below 2019's run rate, with further reductions possible depending on profitability and activity levels.

• Expected Credit Losses:

  • Expected credit losses were $3 billion or 118 basis points of gross loans.
  • A range of $7 billion to $11 billion was provided for expected credit losses for 2020, based on varying economic scenarios.
  • The midpoint of the range reflects the $3 billion charge in Q1 2020, historic average run rates, and the impact of a severe scenario.

• Balance Sheet and Capital Position:

  • Customer loans and advances grew by $41 billion, and customer deposits grew by $47 billion.
  • Core Tier 1 ratio was 14.6%, down 10 basis points from the end of 2019.
  • Risk-weighted assets rose by $13.7 billion, primarily due to loan growth.
  • Mid- to high-single-digit RWA growth is expected for 2020 due to procyclicality impacts.

• Impact of COVID-19:

  • The bank expects a significant impact on revenue and profitability, with a weaker economic outlook for the remainder of 2020.
  • The bank is taking necessary actions on costs and retaining capacity to mitigate the impact of reduced revenue.
  • The core Tier 1 ratio is expected to decline in coming quarters, and the bank is comfortable with falling below its 14% target if necessary.

• Questions and Answers:

  • Stevenson addressed questions regarding the Hong Kong ECL charge, noting that it benefited from the release of overlays built up in the previous year.
  • He discussed the impact of lower interest rates on net interest income, indicating that the bank has a short-dated book, especially in Hong Kong, which leads to a significant impact in the first year.
  • Stevenson explained the guidance around RWA inflation, noting that the bulk of the expected increase is due to anticipated credit rating migrations.
  • He provided insights into the bank's cost reduction measures, including reduced variable pay accruals and lower spending on travel and entertainment.
  • Stevenson clarified that the $7 billion to $11 billion expected credit loss guidance is not directly tied to specific GDP assumptions, but rather reflects a range of scenarios, including the impact of government support schemes.
  • He discussed the bank's plans for RWA reduction, indicating that while some aspects of the $100 billion RWA reduction program have been delayed, the bank intends to proceed with the program over time.

These points provide a comprehensive overview of Stevenson's contributions to the earnings call, detailing the bank's financial performance, strategies, and responses to the challenges posed by the COVID-19 pandemic.

**- Noel Quinn expressed that HSBC has a significant role in supporting communities, ensuring stability, and aiding economic growth during the unprecedented times of the COVID-19 pandemic.

• He highlighted the bank's resilience with 80% of branches open and over 90% of staff working from home.

• HSBC has issued over 28,000 laptops to facilitate remote work and increased its VPN capacity to 250,000.

• The bank introduced customer support measures and worked closely with governments and regulators to provide state support efficiently.

• In Hong Kong, HSBC approved HKD 30 billion in liquidity relief and granted extensions to import trade loan facilities.

• In the U.K., HSBC granted over 118,000 payment holidays and approved GBP 1.9 billion in financial support for small and medium-sized businesses.

• HSBC has grown group lending by $41 billion and seen $47 billion in deposit growth in the quarter.

• The bank paused most redundancies associated with its transformation program to support employees and communities.

• HSBC invested $1.2 billion in business growth and digital improvements.

• The board canceled the fourth-quarter 2019 dividend and decided not to pay interim dividends in 2020.

• Despite a challenging March, HSBC saw good performance in Asia, particularly in Retail Banking, Global Markets, and Global Private Banking.

• The bank added over 100,000 Retail Banking customers and grew retail deposits by over $13 billion.

• HSBC enhanced its digital capabilities and saw significant increases in mobile app downloads and mobile payments.

• Global Private Banking added $5.3 billion in net new money in the quarter.

• HSBC provided $19.9 billion in financing for clients to support the COVID-19 relief effort.

• The bank expects the rest of 2020 to be challenging but is confident in its capital and liquidity strength.**