HSBC Holdings Plc (LON:HSBA), today announced interim results.
Financial Performance
• Reported revenue of $27.3bn was 4% higher, with growth in all of our global businesses. This was mainly driven by higher deposit margins and balance growth in RBWM, and GLCM growth within CMB, mainly in Hong Kong, as well as the favourable effects of currency translation. These increases were partly offset by lower revenue in Corporate Centre. Adjusted revenue of $27.5bn was 2% higher, excluding the effects of currency translation and movements in significant items.
• Reported operating expenses of $17.5bn were 7% higher, primarily reflecting investments to grow the business, mainly in RBWM and GB&M, and continued investment in digital across all our global businesses. Adjusted operating expenses of $16.4bn were 8% higher, excluding the effects of currency translation and movements in significant items.
• Reported profit before tax of $10.7bn was 5% higher, reflecting a net favourable movement in significant items and favourable currency translation. Adjusted profit before tax of $12.1bn was 2% lower, as revenue growth and lower expected credit losses were partly offset by higher operating expenses.
• Lending growth in 1H18 was $43bn, increasing net loans and advances to customers by 5% since 1 January 2018.
• Strong capital base with a common equity tier 1 (‘CET1’) ratio of 14.2% and a CRD IV leverage ratio of 5.4%.
HSBC, John Flint, Group Chief Executive, said:
“We are taking firm steps to deliver the strategy we outlined in June. Today’s results, which are in line with our expectations, show strong revenue growth in our global businesses. This is creating room to invest while maintaining our commitment to full-year positive adjusted jaws. We are investing to win new customers, increase our market share, and lay the foundations for consistent growth in profits and returns.”
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Financial highlights and key ratios |
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Half-year to 30 Jun |
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2018 |
2017 |
Change |
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Footnotes |
$m |
$m |
% |
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Reported profit before tax |
|
10,712 |
|
10,243 |
|
4.58 |
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Adjusted profit before tax |
1 |
12,139 |
|
12,364 |
|
(1.82 |
) |
|
|
|
% |
% |
|
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Return on average ordinary shareholders’ equity (annualised) |
|
8.7 |
|
8.8 |
|
|
|
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Adjusted jaws |
2 |
(5.6 |
) |
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We use adjusted performance to understand the underlying trends in the business. The main differences between reported and
adjusted are foreign currency translation and significant items.
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Capital and balance sheet3 |
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At |
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30 Jun |
31 Dec |
Change |
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2018 |
2017 |
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Footnote |
% |
% |
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Common equity tier 1 ratio |
4 |
14.2 |
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14.5 |
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|
|
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Leverage ratio |
4 |
5.4 |
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5.6 |
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|
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|
$m |
$m |
$m |
|||
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Loans and advances to customers |
|
973,443 |
|
962,964 |
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10,479 |
|
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Customer accounts |
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1,356,307 |
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1,364,462 |
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(8,155 |
) |
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Risk-weighted assets |
4 |
865,467 |
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871,337 |
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(5,870 |
) |
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Highlights |
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Half-year to 30 Jun |
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2018 |
2017 |
||
|
|
Footnote |
$m |
$m |
||
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Reported |
|
|
|
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Revenue |
5 |
27,287 |
|
26,166 |
|
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Change in expected credit losses and other credit impairment charges |
|
(407 |
) |
N/A |
|
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Loan impairment charges and other credit risk provisions |
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N/A |
(663 |
) |
|
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Operating expenses |
|
(17,549 |
) |
(16,443 |
) |
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Profit before tax |
|
10,712 |
|
10,243 |
|
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Adjusted |
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|
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Revenue |
5 |
27,535 |
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26,957 |
|
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Change in expected credit losses and other credit impairment charges
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(407 |
) |
N/A |
|
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Loan impairment charges and other credit risk provisions |
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N/A |
(657 |
) |
|
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Operating expenses |
|
(16,370 |
) |
(15,195 |
) |
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Profit before tax |
|
12,139 |
|
12,364 |
|
|
|
|
|
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Significant items affecting adjusted performance |
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Revenue |
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Customer redress programmes |
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(54 |
) |
(299 |
) |
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Disposals, acquisitions and investment in new businesses |
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(145 |
) |
348 |
|
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Fair value movements on financial instruments |
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(152 |
) |
(245 |
) |
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Operating expenses |
|
|
|
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Costs to achieve |
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– |
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(1,670 |
) |
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Costs of structural reform |
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(211 |
) |
(180 |
) |
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Restructuring and other related costs |
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(24 |
) |
– |
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Settlements and provisions in connection with legal and regulatory matters |
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(841 |
) |
322 |
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Statement by Mark E Tucker, Group Chairman
At the start of the year, I spoke of the Board’s focus on enhancing HSBC’s performance and reputation. The Group has made a good start in both regards.
The strength of our global businesses underlines the potential of the Group to make further revenue and market share gains, and provides room to invest in revenue growth, resilience, and technology to support our customers. These are all necessary to further strengthen HSBC’s reputation among our many stakeholders.
The strategy that John Flint, the Group Chief Executive, unveiled in June is designed to unlock this potential. We have created a strategy that builds on past achievements to improve the Group’s competitiveness and increase value for shareholders. It focuses on areas where HSBC is already strong, but which also hold the greatest capacity for revenue growth and value creation. This demonstrates the many competitive advantages the Group already enjoys.
Investing in the future of the business is a key pillar of the bank’s strategy. No business can hope to thrive unless it anticipates and adapts to the changes around it. Technological change, in particular, will only accelerate in the coming years. Being able to invest thoughtfully and at scale at this point in the cycle will differentiate future winners from the rest of the industry.
This edge was evident in the first half of 2018. Our award-winning PayMe app acquired its millionth user and is now an established part of the daily lives of people and business in Hong Kong. In May, HSBC executed the first ever live trade finance transaction using scalable blockchain technology, making an important breakthrough in an area previously rich in potential but low on delivery. In July, we announced an expansion of our use of Google Cloud technology, increasing access to some of the leading machine learning and data analytics technology in the world. These are just a few examples of how we are marrying emerging technology with the needs and expectations of our customers.
We are also investing to keep our customers safe. Both the Board and management remain unequivocally committed to safeguarding our clients and delivering industry-leading financial crime standards. This is a permanent priority for everyone at HSBC.
Our global businesses continue to benefit from the economic growth trends we identified at our 2017 Annual Results presentation. The diversity of the Group underpins our ability to manage the external environment effectively. We remain cautiously optimistic for global growth in the remainder of the year. In particular, the fundamentals of Asia remain strong despite rising concerns around the future of international trade and protectionism.
The Board has appointed Jonathan Symonds as the Deputy Group Chairman of HSBC Holdings plc. Jon already serves as the senior independent director. He takes up this new role today and steps down as Chairman of HSBC Bank plc. I am delighted that Jon has agreed to support me in this new capacity.
I am very grateful to all our people for the excellent work that they do in service of the bank, our customers and each other. Our results for the first half demonstrate that the Group has strong foundations. I have every confidence that we will build on them further.
Review by John Flint, Group Chief Executive
In June this year, I announced eight strategic priorities for the bank between now and 2020. These have two aims – to get HSBC back to growth and to create value.
We will seek to achieve these aims by increasing returns from the Group’s areas of strength, particularly in Asia and across our network; turning around low-return businesses of high strategic importance, particularly in the United States; investing in building a bank for the future with the customer at its centre; and making it easier for our colleagues to do their jobs.
Our first-half performance both reflected these intentions and met our expectations. We grew reported and adjusted revenue in our four global businesses relative to the same period last year, creating the room to invest at the start of this strategy phase while remaining committed to achieving full-year positive adjusted jaws.
Our investment in the first half included hiring more front-line staff in our strongest businesses and expanding our digital capabilities in core markets, both of which will improve the service we offer customers. Our first-half reported and adjusted operating expenses rose as a consequence, which contributed to a drop in adjusted profit before tax. We continued to benefit from a low credit-loss environment in the first half.
Retail Banking and Wealth Management, and Commercial Banking were again our strongest performing businesses. Both continued to gain from a positive interest rate environment, and used the benefits of past investment to grow lending and deposit balances, particularly in Asia and the UK.
Strong adjusted revenue growth in Commercial Banking was supported by our leading transaction banking capabilities. Global Liquidity and Cash Management had another excellent six months, and Global Trade and Receivables Finance made further progress in its core markets.
Adjusted revenue growth in Retail Banking and Wealth Management was underpinned by higher retail deposit balances and strong Wealth Management product sales in Hong Kong. We also grew our share of the UK mortgage market.
Global Banking and Markets had a steady first half. Strong performances from Global Liquidity and Cash Management, Securities Services and Foreign Exchange more than covered the impact of lower client activity in Rates and Credit.
Global Private Banking enjoyed a successful six months, growing adjusted revenue and attracting net new money through collaboration with our other global businesses.
HSBC UK Bank plc – our UK ring-fenced bank – commenced business on 1 July, six months ahead of the legal deadline. Ringfencing presents a major opportunity to get closer to our 14.5 million personal and business customers in the UK.
HSBC is a strong business with a number of clear commercial advantages. In particular, we are a leading international bank with a network that gives us unparalleled access to high-growth markets, particularly in Asia and the Middle East. Our aim for this next strategy phase is to build on these strengths to grow profits consistently, leading to the creation of value for shareholders. With a period of significant restructuring now behind us, and with monetary policy in the US-dollar bloc normalising, it is now time to realise the potential of the Group.
