Georges Elhedery, Group Chief Executive, said:
“We delivered another good quarter, which shows that our strategy is working. There was strong revenue growth and good performances in Wealth and Wholesale Transaction Banking. Our strong organic capital generation enables us to announce a further $4.8bn of distributions in respect of the third quarter, which bring the total distributions announced so far in 2024 to $18.4bn.
I’m committed to building on this strong platform for growth. HSBC is a highly connected, global business and the plans we set out last week aim to increase our leadership and market share in areas where we have competitive advantage, deliver best-in-class products and service excellence to our customers, and create a simpler, more dynamic, more agile organisation with clearer lines of accountability and faster decision-making. We will begin to implement these plans immediately and will share further details as part of a business update alongside our full-year results in February.”
Financial performance in 3Q24
- Profit before tax increased by $0.8bn to $8.5bn compared with 3Q23, primarily due to revenue growth in Wealth and Personal Banking (‘WPB‘), and in Foreign Exchange, Equities and Global Debt Markets in Global Banking and Markets (‘GBM‘). Profit before tax in 3Q24 included a $0.3bn loss on the early redemption of legacy securities. The 3Q23 period included $0.6bn of disposal losses relating to Treasury repositioning and risk management, which was partly offset by a $0.2bn gain on foreign exchange hedges relating to the disposal of our banking business in Canada. Profit after tax of $6.7bn was $0.5bn higher than in 3Q23.
- Constant currency profit before tax excluding notable items increased by $0.8bn to $8.7bn compared with 3Q23, as revenue growth and lower expected credit losses and other impairment charges (‘ECL‘) were partly offset by a rise in operating expenses. This included a $0.2bn adverse impact from strategic transactions.
- Revenue increased by $0.8bn or 5% to $17.0bn compared with 3Q23. The growth in revenue reflected higher customer activity in our Wealth products in WPB, supported by volatile market conditions, and in Foreign Exchange, Equities and Global Debt Markets in GBM. Revenue in 3Q24 included a $0.3bn loss on the early redemption of legacy securities and a loss of $0.1bn from Treasury repositioning and risk management actions. On a constant currency basis, revenue rose by 7% to $17.0bn compared with 3Q23.
- Net interest income (‘NII‘) of $7.6bn fell by $1.6bn compared with 3Q23, reflecting reductions due to business disposals, higher interest expense on liabilities and a loss on the early redemption of legacy securities. It also included an increase in funding costs associated with redeployment of our commercial surplus into the trading book, where the related revenue is recognised in ‘net income from financial instruments held for trading or managed on a fair value basis‘. Banking net interest income (‘banking NII‘) fell by $1.0bn or 9% compared with 3Q23, as increased deployment of our commercial surplus to the trading book only partly mitigated the reductions in NII. NII fell by $0.6bn compared with 2Q24, while the funding costs associated with funding the trading book increased by $0.3bn, which resulted in a fall in banking NII of $0.3bn.
- Net interest margin (‘NIM’) of 1.46% decreased by 24 basis points (‘bps‘) compared with 3Q23, mainly due to higher interest expense on liabilities because of higher interest rates. NIM decreased by 16bps compared with 2Q24, reflecting higher interest expense on liabilities and an impact from the early redemption of legacy securities.
- ECL of $1.0bn were $0.1bn lower than in 3Q23, primarily reflecting lower charges in the mainland China commercial real estate sector in Commercial Banking (‘CMB‘) and GBM, in part offset by an increase in ECL charges in WPB. ECL in 3Q24 comprised charges in CMB and GBM of $0.5bn, including against exposures in the onshore Hong Kong commercial real estate ($0.1bn) and mainland China commercial real estate sectors ($0.1bn), while charges in WPB of $0.5bn primarily related to our legal entities in Mexico, Hong Kong and in HSBC UK.
- Operating expenses of $8.1bn were $0.2bn or 2% higher than in 3Q23. The growth was primarily due to higher spend and investment in technology and the impacts of inflation, in part mitigated by continued cost discipline and the impact of our disposals in Canada and France. Target basis operating expenses were $0.4bn or 5% higher than in 3Q23, while they fell by 1% compared with 2Q24 driven by lower marketing costs and a lower performance-related pay accrual.
- Customer lending balances increased by $30bn compared with 2Q24. On a constant currency basis, lending balances increased by $2bn, including growth in WPB and CMB, notably in HSBC UK, while term lending balances decreased in GBM, notably in our main legal entity in Asia.
- Customer accounts increased by $67bn compared with 2Q24. On a constant currency basis, customer accounts increased by $20bn, mainly in our legal entity in Hong Kong due to an increase in term deposits prior to interest rate reductions and from short-term inflows into customer accounts amid equity market volatility. Deposits in GBM were broadly stable as an outflow of a large short-term deposit from a single client was partly offset by balance growth, notably in our legal entities in mainland China and the US.
- Common equity tier 1 (‘CET1’) capital ratio of 15.2% increased by 0.2 percentage points compared with 2Q24, mainly driven by capital generation, partly offset by the share buy-back announced at our interim results and an increase in risk-weighted assets (‘RWAs‘).
- The Board has approved a third interim dividend of $0.10 per share. On 25 October 2024, we completed the $3bn share buy-back announced at our interim results. We now intend to initiate a share buy-back of up to $3bn, which we expect to complete within the four-month period before our 2024 full-year results announcement.
Financial performance in 9M24
- Profit before tax increased by $0.7bn to $30.0bn compared with 9M23, including a $0.2bn net favourable revenue impact of notable items relating to gains and losses recognised on certain strategic transactions. Profit after tax increased by $0.1bn to $24.4bn compared with 9M23.
- In 9M24, we completed the disposal of our banking business in Canada, recognising a gain of $4.8bn. We also recognised a $1.2bn impairment following the classification of our business in Argentina as held for sale. Results in 9M23 included the impact of a $2.1bn reversal of an impairment relating to the sale of our retail banking operations in France, which was subsequently reinstated in 4Q23 prior to completion, and a $1.6bn gain recognised on the acquisition of Silicon Valley Bank UK Limited (‘SVB UK‘). In addition, the 9M24 period included a $0.3bn loss on the early redemption of legacy securities, while 9M23 included $0.6bn of disposal losses relating to Treasury repositioning and risk management.
- Constant currency profit before tax excluding notable items increased by $0.7bn to $26.8bn compared with 9M23, as revenue growth and lower ECL charges were partly offset by a rise in operating expenses.
- Revenue increased by $1.3bn or 2% to $54.3bn compared with 9M23, including the gains and losses on certain strategic transactions described above and a $0.3bn loss on the early redemption of legacy securities. The growth in revenue reflected the impact of higher customer activity in our Wealth products in WPB, and in Equities and Securities Financing in GBM.
- NII of $24.5bn fell by $3.0bn compared with 9M23, reflecting reductions due to business disposals, higher interest expense in part due to deposit migration, and higher funding costs associated with the redeployment of our commercial surplus to the trading book, where the related revenue is recognised in ‘net income from financial instruments held for trading or managed on a fair value basis‘. Banking NII fell by $0.5bn or 2% compared with 9M23, as increased deployment of our commercial surplus to the trading book only partly mitigated the reductions in NII, including the adverse impact of foreign currency translation differences.
- Constant currency revenue excluding notable items rose by $1.7bn to $50.9bn compared with 9M23, notably in Wealth in WPB, and in Equities and Securities Financing in GBM.
- NIM of 1.57% decreased by 13bps compared with 9M23 due to higher interest expense on liabilities because of higher interest rates and increased deployment of our commercial surplus to the trading book.
- ECL were $2.1bn, a reduction of $0.4bn compared with 9M23. The reduction included lower charges relating to exposures in the commercial real estate sector in mainland China, and lower charges in HSBC UK, partly offset by higher ECL charges in WPB, notably against unsecured lending in our legal entity in Mexico. Annualised ECL charges were 28bps of average gross loans, including loans and advances classified as held for sale.
- Operating expenses increased by $1.0bn or 4% to $24.4bn compared with 9M23, mainly due to higher spend and investment in technology and the impacts of inflation, while the performance-related pay accrual was higher than in 9M23. These increases were partly offset by reductions related to our business disposals in Canada and France. Target basis operating expenses rose by $1.4bn or 6% compared with 9M23. Target basis operating expenses are measured on a constant currency basis, excluding notable items, the impact of retranslating the results of hyperinflationary economies at constant currency, and the direct costs from the sales of our French retail banking operations and our banking business in Canada.
Outlook
- Our guidance remains unchanged from that set out at our Interim results on 31 July 2024.
- We continue to target a mid-teens return on average tangible equity (‘RoTE‘) in 2024 and 2025, excluding the impact of notable items, while acknowledging the outlook for interest rates has changed, and been volatile, since our 1H24 results announcement in July.
- Our banking NII guidance of around $43bn for 2024 remains unchanged and we continue to target cost growth of approximately 5% for 2024 compared with 2023, on a target basis. ECL charges as a percentage of average gross loans in 2024 are expected to be within our medium-term planning range of 30bps to 40bps (including customer lending balances transferred to held for sale).
- Our guidance reflects our current outlook for the global macroeconomic environment, including customer and financial markets activity. This includes our modelling of a number of market-dependent factors, such as market-implied interest rates (as of mid-October 2024), as well as customer behaviour and activity levels.
- We intend to manage our CET1 capital ratio within our medium-term target range of 14% to 14.5%, with a dividend payout ratio target basis of 50% for 2024, which excludes material notable items and related impacts.
- We continue to make progress on reshaping the Group. We expect to complete the sale of our business in Argentina in 4Q24. On completion, cumulative foreign currency translation reserves and other reserves will recycle to the income statement. These impacts have already been recognised in capital. At 30 September 2024, foreign currency translation reserve and other reserve losses stood at $5.1bn.