HSBC Holdings plc (LON:HSBA) has announced its 2023 results.
2023 financial performance (vs 2022)
– Profit before tax rose by $13.3bn to $30.3bn, primarily reflecting revenue growth. This included a favourable year-on-year impact of $2.5bn relating to the sale of our retail banking operations in France, which completed on 1 January 2024, and a $1.6bn provisional gain recognised on the acquisition of Silicon Valley Bank UK Limited (‘SVB UK’) in 2023. These were partly offset by the recognition of an impairment charge in 2023 of $3.0bn relating to the investment in our associate, Bank of Communications Co., Limited (‘BoCom’), which followed the reassessment of our accounting value-in-use. On a constant currency basis, profit before tax increased by $13.8bn to $30.3bn. Profit after tax increased by $8.3bn to $24.6bn.
– Revenue rose by $15.4bn or 30% to $66.1bn, including growth in net interest income (‘NII’) of $5.4bn, with rises in all of our global businesses due to the higher interest rate environment. Non-interest income increased by $10.0bn, reflecting a rise in trading and fair value income of $6.4bn, mainly in Global Banking and Markets. The associated funding costs reported in NII grew by $6.2bn. The increase also included the impact of the strategic transactions referred to above, partly offset by disposal losses of $1.0bn relating to repositioning and risk management activities in our hold-to-collect-and-sell portfolio.
– Net interest margin (‘NIM’) of 1.66% increased by 24 basis points (‘bps’), reflecting higher interest rates.
– Expected credit losses and other credit impairment charges (‘ECL’) were $3.4bn, a reduction of $0.1bn. The net charge in 2023 primarily comprised stage 3 charges, notably related to mainland China commercial real estate sector exposures. It also reflected continued economic uncertainty, rising interest rates and inflationary pressures. ECL were 33bps of average gross loans, including a 3bps reduction due to the inclusion of loans and advances classified as held for sale.
– Operating expenses fell by $0.6bn or 2% to $32.1bn, mainly due to the non-recurrence of restructuring and other related costs following the completion of our cost to achieve programme at the end of 2022. This more than offset higher technology costs, inflationary pressures and an increase in performance-related pay. We also incurred a higher UK bank levy and a charge relating to the Federal Deposit Insurance Corporation (‘FDIC’) special assessment in the US. Target basis operating expenses rose by 6%. This is measured on a constant currency basis, excluding notable items and the impact of the acquisition of SVB UK and related investments internationally. It also excludes the impact of retranslating the prior year results of hyperinflationary economies at constant currency.
– Customer lending balances rose by $15bn on a reported basis, but fell by $3bn on a constant currency basis. Growth included a $7.8bn reclassification of secured loans in France from held for sale, an addition of $8bn from the acquisition of SVB UK, and higher mortgage balances in HSBC UK and Hong Kong. These increases were more than offset by a reduction in wholesale term lending, notably in Asia, and from business divestments in Oman and New Zealand.
– Customer accounts rose by $41bn on a reported basis, and $13bn on a constant currency basis, primarily in Wealth and Personal Banking, reflecting growth in Asia, partly offset by reductions in HSBC UK, reflecting cost of living pressures and the competitive environment, despite an increase of $6bn from the acquisition of SVB UK. There was also a reduction due to the sale of our business in Oman.
– Common equity tier 1 (‘CET1’) capital ratio of 14.8% rose by 0.6 percentage points, as capital generation was partly offset by dividends and share buy-backs.
– The Board has approved a fourth interim dividend of $0.31 per share, resulting in a total for 2023 of $0.61 per share. We also intend to initiate a share buy-back of up to $2.0bn, which we expect to complete by our first quarter 2024 results announcement.
4Q23 financial performance (vs 4Q22)
– Reported profit before tax down $4.1bn to $1.0bn. The reduction included the recognition of an impairment charge in 4Q23 of $3.0bn relating to the investment in our associate BoCom, and the impact of a 4Q23 impairment relating to the sale of our retail banking operations in France of $2.0bn as we reclassified these operations as held for sale. On a constant currency basis, profit before tax down $4.0bn to $1.0bn. Reported profit after tax down $4.4bn to $0.2bn.
– Reported revenue down 11% to $13.0bn, due the impact of 4Q23 impairment relating to the sale of our retail banking operations in France, as mentioned above, disposal losses relating to repositioning and risk management activities in our hold-to-collect and sell portfolio and the impact of hyperinflationary accounting in Argentina. These factors were in part offset by revenue growth in Global Payments Solutions, Capital Markets and Advisory and Markets and Securities Services (‘MSS’).
– Reported ECL down $0.4bn to $1.0bn. The charge in 4Q23 included $0.2bn of charges relating to exposures in the mainland China commercial real estate sector.
– Reported operating expenses down 2% to $8.6bn, as lower restructuring expenses following the completion of our cost-saving programme at the end of 2022, more than offset growth from a higher UK bank levy, the FDIC special assessment in the US, the impact of rising inflation and higher performance-related pay.
Outlook
– We continue to target a return on average tangible equity (‘RoTE’) in the mid-teens for 2024, excluding the impact of notable items (see page 25 of our Annual Report and Accounts 2023 for information on our RoTE target for 2024). Our guidance reflects our current outlook for the global macroeconomic environment, including customer and financial markets activity.
– Based upon our current forecasts, we expect banking NII of at least $41bn for 2024. This guidance reflects our current modelling of a number of market dependent factors, including market-implied interest rates (as of mid-February 2024), as well as customer behaviour and activity levels, which we would also expect to impact our non-interest income. We do not reconcile our forward guidance on banking NII to reported NII.
– While our outlook for loan growth remains cautious for the first half of 2024, we continue to expect year-on-year customer lending percentage growth in the mid-single digits over the medium to long term.
– Given continued uncertainty in the forward economic outlook, we expect ECL charges as a percentage of average gross loans to be around 40bps in 2024 (including customer lending balances transferred to held for sale). We continue to expect our ECL charges to normalise towards a range of 30bps to 40bps of average loans over the medium to long term.
– We retain a Group-wide focus on cost discipline. We are targeting cost growth of approximately 5% for 2024 compared with 2023, on a target basis. This target reflects our current business plan for 2024, and includes an increase in staff compensation, higher technology spend and investment for growth and efficiency, in part mitigated by cost savings from actions taken during 2023.
– Our cost target basis for 2024 excludes the impact of the disposal of our retail banking business in France and the planned disposal of our banking business in Canada from the 2023 baseline. Our cost target basis is measured on a constant currency basis and excludes notable items and the impact of retranslating the prior year results of hyperinflationary economies at constant currency. We do not reconcile our forward guidance on target basis costs to reported operating expenses.
– We intend to continue to manage the CET1 capital ratio within our medium-term target range of 14% to 14.5%.
– HSBC’s dividend payout ratio target remains at 50% for 2024, excluding material notable items and related impacts. We have announced a further share buy-back of up to $2.0bn. Further buy-backs remain subject to appropriate capital levels.
Key financial metrics
| For the year ended | |||
| Reported results | 2023 | 20221 | 2021 |
| Profit before tax ($m) | 30,348 | 17,058 | 18,906 |
| Profit after tax ($m) | 24,559 | 16,249 | 14,693 |
| Cost efficiency ratio (%) | 48.5 | 64.6 | 69.9 |
| Net interest margin (%) | 1.66 | 1.42 | 1.20 |
| Basic earnings per share ($) | 1.15 | 0.72 | 0.62 |
| Diluted earnings per share ($) | 1.14 | 0.72 | 0.62 |
| Dividend per ordinary share (in respect of the period) ($) | 0.61 | 0.32 | 0.25 |
| Dividend payout ratio (%)2 | 50 | 44 | 40 |
| Alternative performance measures | |||
| Constant currency profit before tax ($m) | 30,348 | 16,541 | 17,400 |
| Constant currency cost efficiency ratio (%) | 48.5 | 64.8 | 70.0 |
| Expected credit losses and other credit impairment charges (‘ECL’) as % of average gross loans and advances to customers (%) | 0.36 | 0.36 | (0.07) |
| Expected credit losses and other credit impairment charges (‘ECL’) as % of average gross loans and advances to customers, including held for sale (%) | 0.33 | 0.35 | (0.07) |
| Basic earnings per share excluding material notable items and related impacts ($) | 1.22 | N/A | N/A |
| Return on average ordinary shareholders’ equity (%) | 13.6 | 9.0 | 7.1 |
| Return on average tangible equity (%) | 14.6 | 10.0 | 8.3 |
| Return on average tangible equity excluding strategic transactions and impairment of BoCom (%) | 15.6 | 11.3 | N/A |
| Target basis operating expenses ($m) | 31,614 | 29,811 | N/A |
| At 31 December | |||
| Balance sheet | 2023 | 20221 | 2021 |
| Total assets ($m) | 3,038,677 | 2,949,286 | 2,957,939 |
| Net loans and advances to customers ($m) | 938,535 | 923,561 | 1,045,814 |
| Customer accounts ($m) | 1,611,647 | 1,570,303 | 1,710,574 |
| Average interest-earning assets ($m) | 2,161,746 | 2,143,758 | 2,209,513 |
| Loans and advances to customers as % of customer accounts (%) | 58.2 | 58.8 | 61.1 |
| Total shareholders’ equity ($m) | 185,329 | 177,833 | 198,250 |
| Tangible ordinary shareholders’ equity ($m) | 155,710 | 146,927 | 158,193 |
| Net asset value per ordinary share at period end ($) | 8.82 | 8.01 | 8.76 |
| Tangible net asset value per ordinary share at period end ($) | 8.19 | 7.44 | 7.88 |
| Capital, leverage and liquidity | |||
| Common equity tier 1 capital ratio (%)3 | 14.8 | 14.2 | 15.8 |
| Risk-weighted assets ($m)3,4 | 854,114 | 839,720 | 838,263 |
| Total capital ratio (%)3,4 | 20.0 | 19.3 | 21.2 |
| Leverage ratio (%)3,4 | 5.6 | 5.8 | 5.2 |
| High-quality liquid assets (liquidity value) ($m)4,5 | 647,505 | 647,046 | 688,209 |
| Liquidity coverage ratio (%)4,5 | 136 | 132 | 139 |
| Net stable funding ratio (%)4,5 | 133 | 136 | N/A |
| Share count | |||
| Period end basic number of $0.50 ordinary shares outstanding (millions) | 19,006 | 19,739 | 20,073 |
| Period end basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions) | 19,135 | 19,876 | 20,189 |
| Average basic number of $0.50 ordinary shares outstanding (millions) | 19,478 | 19,849 | 20,197 |
For reconciliation and analysis of our reported results on a constant currency basis, including lists of notable items, see page 111 of the Annual Report and Accounts 2023. Definitions and calculations of other alternative performance measures are included in ‘Reconciliation of alternative performance measures’ on page 130 of the Annual Report and Accounts 2023.
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the financial year ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.
2 In 2023, our dividend payout ratio was adjusted for material notable items and related impacts, including all associated income statement impacts relating to those items. In 2022, our dividend payout ratio was adjusted for the loss on classification to held for sale of our retail banking business in France, items relating to the planned sale of our banking business in Canada, and the recognition of certain deferred tax assets. No items were adjusted for in 2021.
3 Unless otherwise stated, regulatory capital ratios and requirements are based on the transitional arrangements of the Capital Requirements Regulation in force at the time. References to EU regulations and directives (including technical standards) should, as applicable, be read as references to the UK’s version of such regulation or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, and as may be subsequently amended under UK law.
4 Regulatory numbers and ratios are as presented at the date of reporting. Small changes may exist between these numbers and ratios and those subsequently submitted in regulatory filings. Where differences are significant, we may restate in subsequent periods.
5 The liquidity coverage ratio is based on the average value of the preceding 12 months. The net stable funding ratio is based on the average value of four preceding quarters.
Highlights
| Year ended 31 Dec | ||
| 2023 | 2022¹ | |
| $m | $m | |
| Reported | ||
| Revenue2,3,4,5 | 66,058 | 50,620 |
| Change in expected credit losses and other credit impairment charges | (3,447) | (3,584) |
| Operating expenses | (32,070) | (32,701) |
| Share of profit in associates and joint ventures less impairment9 | (193) | 2,723 |
| Profit before tax | 30,348 | 17,058 |
| Tax charge | (5,789) | (809) |
| Profit after tax | 24,559 | 16,249 |
| Constant currency6 | ||
| Revenue2,3,4,5 | 66,058 | 49,871 |
| Change in expected credit losses and other credit impairment charges | (3,447) | (3,630) |
| Operating expenses | (32,070) | (32,302) |
| Share of profit in associates and joint ventures less impairment9 | (193) | 2,602 |
| Profit before tax | 30,348 | 16,541 |
| Tax charge | (5,789) | (649) |
| Profit after tax | 24,559 | 15,892 |
| Notable items | ||
| Revenue | ||
| Disposals, acquisitions and related costs3,4,5 | 1,298 | (2,737) |
| Fair value movements on financial instruments7 | 14 | (618) |
| Restructuring and other related costs8 | – | (247) |
| Disposal losses on Markets Treasury repositioning | (977) | – |
| Operating expenses | ||
| Disposals, acquisitions and investment in new businesses | (321) | (18) |
| Restructuring and other related costs9 | 136 | (2,882) |
| Impairment of interest in associate10 | (3,000) | – |
| Tax | ||
| Tax credit on notable items | 207 | 1,026 |
| Recognition of losses | – | 2,333 |
| Uncertain tax positions | 427 | (142) |
1 From 1 January 2023, we adopted IFRS 17 ‘Insurance Contracts’, which replaced IFRS 4 ‘Insurance Contracts’. Comparative data for the year ended 31 December 2022 have been restated accordingly.
2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
3 Includes losses from classifying businesses as held for sale as part of a broader restructuring of our European business which includes the impact of the sale of our retail banking operations in France.
4 Includes fair value movements on the foreign exchange hedging of the expected proceeds from the planned sale of our banking business in Canada.
5 Includes the provisional gain of $1.6bn recognised in respect of the acquisition of SVB UK in 1Q23.
6 Constant currency performance is computed by adjusting reported results of comparative periods for the effects of foreign currency translation differences, which distort period-on-period comparisons.
7 Fair value movements on non-qualifying hedges in HSBC Holdings.
8 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.
9 Amounts in 2023 relate to reversals of restructuring provisions recognised during 2022.
10 Relates to an impairment loss of $3.0bn recognised in respect of the Group’s investment in BoCom. See Note 18 on page 391 of our Annual Report and Accounts 2023.
Noel Quinn, HSBC Group Chief Executive, said:
“Our record profit performance in 2023 enabled us to reward our shareholders with our highest full-year dividend since 2008, three share buy-backs last year totalling $7bn, and a further share buy-back of up to $2bn. This reflected four years of hard work and the strength of our balance sheet in a higher interest rate environment.
We have a strong platform for growth with the opportunities that exist within our two home markets and across our international wholesale, market-leading transaction banking, and wealth management businesses. We are focused on capturing these growth opportunities, improving our earnings sustainability and targeting mid-teens returns in 2024.”
