HSBC Holdings plc Presents at Bank of America 25th Annual Financials CEO Virtual Conference 2020, Sep-24-2020 07:00 AM - SEHK:5

SEHK:5

Noel Paul Quinn, the Group CEO of HSBC, provided insights on various aspects of the bank’s operations and strategies during the 25th Bank of America Financials CEO Virtual Conference in 2020. Here’s a detailed summary of his responses:

On Global Economic Impacts and Recovery

• Economic Impact of COVID-19:

  • Noted that the economic impact of COVID-19 varied across regions.
  • China entered the crisis first, faced a strong lockdown, and subsequently experienced a sharp recovery.
  • Europe and the Americas faced the crisis later, with Europe showing a significant recovery in recent weeks and months.
  • The U.S. had a strong recovery, but there were concerns about potential second and third waves of infections.
  • Latin America faced a slower recovery and more challenges in controlling the infection rate.

• Trade Patterns:

  • Observed shifts in trade patterns due to geopolitical challenges and supply chain diversification.
  • Supply chains were diversifying to reduce concentration risk, especially regarding China.
  • Some supply chains were moving to other parts of Asia and Mexico.

On Hong Kong

• Hong Kong Performance:

  • Hong Kong’s deposits and assets were up year-over-year, despite the combined challenges of COVID-19, geopolitics, and social unrest.
  • The Expected Credit Loss (ECL) had risen slightly but remained manageable.
  • Hong Kong’s liquidity and strong asset coverage enabled it to withstand economic shocks.

• Capital Flows:

  • There was no evidence of significant capital flight from Hong Kong.
  • Deposits had grown rather than shrunk, indicating strong liquidity.
  • High net worth individuals had made contingency arrangements but had not activated them to a significant degree.

On the UK Market

• UK Challenges:

  • Acknowledged that the UK faced challenges due to the combination of Brexit and COVID-19.
  • Supported customers through COVID-19 by extending credit and working with the government.
  • Early signs indicated that customer behavior post-payment holidays was better than expected, but cautioned that it was still early days.

• Mortgage Market:

  • HSBC had a relatively low share of the mortgage market, providing room for targeted market share gains.
  • Focused on the premier part of the market and maintained strong liquidity and capital.

On Commercial Banking

• Commercial Banking Performance:
  • Described the first half of the year as tough, driven by accounting under IFRS 9 and the slowdown in global trade.
  • Excess deposits over assets in a low-interest-rate environment negatively impacted earnings.
  • Emphasized the importance of maintaining liquidity in commercial banking.

On Global Banking and Markets (GB&M)

• Strengths and Weaknesses:
  • Confirmed that the strategy outlined in February was validated by the performance of the GB&M business.
  • Areas performing well included Asia, Middle East, foreign exchange, and debt capital markets.
  • Planned to double down on growth in strategic areas while running down underperforming parts of the business.

On Cost Reduction Program

• Cost Ambition:
  • Delayed providing an updated cost ambition for 2021 and 2022, preferring to evaluate the evolving economic situation.
  • Original ambition was to achieve a cost base of $31 billion or less in 2022, including reinvestment in growth and technology.
  • Considered the possibility of reducing or increasing the cost reduction target based on economic conditions.

On Impairment Charges

• Impairment Cycle:
  • Noted the difficulty in predicting future Expected Credit Losses (ECL) due to the unique nature of the COVID-19 crisis.
  • Provided a range of $8 billion to $13 billion for the year’s bad debts.
  • Indicated that the economic forecast would determine the direction of ECLs in Q3 and Q4.

On Capital and Risk-Weighted Assets

• Capital Ratio:
  • HSBC’s strong capital ratio of 15% provided a good buffer during the crisis.
  • Intended to manage the capital position carefully to ensure readiness for economic shocks and eventual resumption of dividend payments.
  • Actively worked on reducing risk-weighted assets (RWA) to mitigate RWA inflation caused by credit migration.

On Asia’s Future

• Strategic Focus on Asia:

  • Remained confident in Asia’s strategic importance for HSBC, citing its growing consumption market and evolving trade dynamics.

  • Continued to invest in Asia, focusing on wealth management and strengthening positions in Asia and the Middle East.