Q3 2020 HSBC Holdings PLC Earnings Call
Good morning.
Good morning, ladies and gentlemen, and welcome to the Investor and Analyst Conference call for hates SBC Holdings plc earnings release for Threeq you 2020 for your information. This conference is being recorded at this time I will hand, the call is a jewel Hurst Mr. know Quinn <unk> Chief executive.
Thank you and good morning in London. Good afternoon on call. Thank you all for joining us.
Let me start by saying that I'm pleased with all third quarter performance and the way that all business and all people have continue to respond to a challenging environments.
We're doing all we can to support our customers communities and colleagues through the ebb and flow of covert restrictions.
No committed to helping them manage they also see that remains.
As far as our business is concerned we are more optimistic than when we last spoke in July.
Economic forecasts are looking brighter, particularly in Asia.
As you can see from our Q3 results expected credit losses have not stabilized.
And we've got a clear plan to accelerate growth and adopt the business to the ultra low interest rate environment.
Looking further ahead, we are also committed to helping our clients like the transition to a low carbon economy.
You have seen our announcement two weeks ago that were aiming to align all finance their missions to the Paris agreement goal to achieve zero Fytwenty 50 or sooner.
The Covidien on same pandemic has been a huge wakeup call for us all.
Got a climate crisis has the potential to do much more dramatic.
Has the potential to be much more truck drastic and its consequences on longevity.
With that whole stepping up support for our clients and material way.
As we work together to build a thriving low carbon economy unfold.
Unfocused in every part of our business on helping achieve that goal.
Turning to our third quarter performance.
These were promising results that's against the continuing economic impact of covert long thing.
With a significantly smaller expected credit losses.
Good strategic progress.
Growing capital ratio.
Good customer retention.
On an improved economic outlook.
Our Asia business is continue to show good resilience.
Contributing $3.2 billion of reports you pre tax profit.
Global markets grew adjusted revenue by 16% versus last years third quarter.
Our capital markets revenue is up 21% year today on the profit on the back of strong collaboration across commercial banking.
Well, thanks to the markets.
[noise] global markets revenues are up 31% you have today.
Largely in the areas we have targeted for continued investment.
Our profitability was challenged by the impact of interest rate reductions earlier in the year on all deposit franchises across all global businesses.
As a result reported pretax profits of $3.1 billion were down 36%.
On the adjusted profits were down 21% on last years third quarter.
<unk> sales of $795 million would that significantly on the previous two quarters.
Broadly stable versus the same period last year.
We maintained a firm grip on costs down to 3% on last years third quarter.
With an ambition to go further than previously promised.
Deposits of 1.6 trillion dollars, what 12% higher than last years third quarter.
We strengthened our capital ratio further to 15.6%.
And despite headwinds we made good progress in reducing risk weighted assets in low returning areas.
On reducing our cost base in a sustainable way.
Turning to slide three.
The revenue impact of lower for longer interest rates.
It's going to continue overcoming courses as the impact of interest rate cuts unwind through the piano.
In response, where accelerates in all areas of our strategy with a particular focus on boosting sustainable noninterest income.
Going further on costs.
The three main leave us for this all going to be an acceleration and an increase in our investment in and across Asia.
[noise] fastest digitization through higher levels of technology investments.
On the extensive restructuring of their businesses, we talked about in February.
Starting with Asia.
As you can see from slide for Asia is rebounding strongly.
Much more than the rest of the world.
Given our ability to connect the world to Asia I support growth in the region.
Asian opportunity is growing.
We stuck enough investment to capture it.
Previously just under half of our growth investment was aimed at Asia.
Not a large majority of our future growth investment will go to growing our Asia well.
Oh, so I sustainability franchises.
As well as reinforcing our position in Hong Kong.
An extended off position across the greater Bay area outside of Asia.
In the last 12 months I use your share of group risk weighted assets increased by three percentage points to 44%.
And that number will keep growing as we reallocate additional capital to the region as a whole.
Our recent investments have helped launch new initiatives aimed to supporting both our clients and business growth.
These include.
Vision go <unk>.
<unk> home connected in SMB service providers and customers in hone call, which has I'm book, which has onboarded more than 8000 members since its launch in April.
Pinnacle supported by its new Fintech subsidiary, which.
Which is I hurt us for a far national institution in China.
And in Southeast Asia.
New capability to onboard smbs to multiple markets simultaneously.
As well as a new multi currency digital wallets <unk>.
<unk> International S. amaze.
Oh lets say biology, LCM business in Singapore.
Our Asian franchise, so I'm all good growth in the quarter.
With higher deposits and stable lending.
Supported by strong credit quality.
Well, we can go much further.
Backing up our ambition with investment so much.
Turning to slide five.
Technology investment is critical.
Not just to provide new capabilities to our customers, but also to boost efficiency and reduce long term costs.
For that reason, we'll maintain technology investment throughout the cycle.
When I was when I read your spending elsewhere.
Hi, HSBC is already a substantially digital bank.
A large proportion of our global payments already flow through digital channels.
And downloads of HSBC now are.
155% for the first nine months of the year.
But we have further opportunities to meet growing market needs a sophisticated robust rocket payments solutions.
To lead our industry in applying digital solutions to analog services like trade.
Despite the current economic environment.
We forecast to spend more in 2020 on technology than ever before.
Including investments to further digitize, okay retail and wealth platforms.
And hands transaction banking for high net worth clients in Asia.
Build a new trade services operating model fit her a digital future.
They will then expand HSBC kinetic our UK mobile all I say me by the U.S, It's Clive to deliver a faster same day service for customers.
Okay.
Launching enhanced HSBC evolve.
A new FX execution thoughtful enabling greater collaboration.
That's a digital solutions for large and small corporate clients.
Its investment is helping to redesign our cost base, while building the future of HSBC.
And we won't sacrifice it for short term guy.
Moving to slide six.
We're making good progress in restructuring all U.S. and Youre paying businesses.
Achieving $41 billion of our Wi Sys.
Largely through actions in global banking and markets.
At around $600 million of cost program savings so far this year.
In the U.S., Michael Robertson, the team have already reduced or there will be ways by 8% year on year.
Adjusted cost by 7%.
After <unk> by 11%.
Branches by more than 30%.
I'm pleased with its progress so far but.
But given the current economic climate.
Looking at options to accelerate.
Well provide an updates on this at all full year results in February.
And on non ring fenced bank in the UK and Europe.
No no that's us and the team have delivered more than $18 billion of gross all Wi sys.
Reduced after using contractors by 7%.
And initiated plans to reduce global banking a market theories in all European hub in France by 38%.
The strategic review of our French retail operations is ongoing but.
Nearing completion.
We will announce the I've come by our full year results in February.
In the meantime, we have announced the acquisition of the minority interest in HSBC, Germany.
Enabling us to fully integrate the largest most export oriented youre paying market into our strategy and business model.
The combination of our current progress and increase the ambition.
Means that we now expect to exceed a $100 billion odd WH crush reduction target in Twentytwenty two.
With a rising $50 billion of that total expected by the end of twice expenses.
In summary, then.
Twentytwenty Twentytwenty two transformation plan is fully on track.
I won't go further and faster wherever we can.
Well pushing harder on costs and I expect to be autologous to reduce group costs to 31 billion or lower in 2022.
We expect to achieve arrive $50 billion of low performing auto body weight grossed reductions by the end of 2020.
On to exceed our 100 billion dollar target by the end of 20 to 22.
We will provide an update on our plans for our friends and U.S. businesses by our full year results.
I will provide an update on our dividend policy in February.
Well working hard.
To get back to being able to pay dividends and.
And we seek to pay a conservative dividend if circumstances alive with respect to the Twentytwenty financial year.
The boards decision on whether to pay a dividend will depend on economic conditions in already 2020 well.
And be subject to regulatory consultation.
With that I'll pass over to you want to go through the rest of us.
Thanks, Alan good morning or afternoon all.
[noise] against that's continuing economic impact of kind of a nine day. These were a decent set of results.
Which coupled with further good progress against our strategic objectives.
Additional strengthen that.
In our core tier one ratio and tower risks in aggregate hasn't diminished over recent months had an older NIE and I'm more optimistic mood than last time, we spoke at our second quarter results.
Nice tax profits of $2 billion, while down 46% versus the same quarter last year.
Were up materially on a weak second quarter.
Adjusted revenues were down 10%, mainly reflecting the impact of interest rate reductions, which impacted all of our global businesses and particularly our deposit franchises.
[noise] nears zero interest rates will be a persistent revenue shelf to our business over the next few years.
Were actively adjusting our business model to address this building sole source of non interest income and.
Implementing asset side repricing way we can.
Adjusting the revenue model for some product and customer segments.
And materially reducing our cost structure through digitization and automation.
He shelves were significantly lower than the second quarter at $795 million or 30 basis points of gross lines.
With stage, one and stage two allowances broadly unchanged.
With each day out that 7.6 billion for the first nine months, we're now guiding to the lower end of our previously announced $8 billion to $13 billion range for the full year.
Were continuing to take action on costs, our adjusted operating costs fell by 3% against the third quarter of last year.
And down 4% year to date.
Our balance sheet metrics continue to improve our.
Core tier one ratio was up a fair the 60 basis points to 15.6% in the quarter.
Customer deposits and lending were broadly stable from the second quarter with deposits up 12% or $164 billion year on year.
Our tangible net asset value per share of $7 55 was up 21 cents on the second quarter due to both retain profits and currency movements.
Turning to slide 10, and looking across the three global businesses in wealth and personal banking revenues were down 13%.
With retail banking revenue is falling by just under a billion dollars due largely to the impact of falling interest rates on deposit margins.
At a headline level wealth management revenues grew by $177 million.
But excluding all sort of mock it impacts in insurance manufacturing were down 8% due mainly to lower insurance new business volumes.
Commercial banking revenues were 17% lower June.
Due mainly to the impact of lower margins on global liquidity and cash management.
In global banking and markets revenues were up 3%, despite the impact of lower interest rates.
No markets grew by 16% represent reflecting continued good performance and credit and FX.
Equity revenues also increased by 39%.
Looking forward I.
Assuming economies continue to rebound from private 19, Louise we would expect some increase in corporate investment and volume growth from the low levels say in second and third quarters. This year.
We also expect global markets revenues to now normalize as volatility reduces and corporates complete their bond and equity Fundraisings.
Also don't forget the fourth quarter is normally a seasonally weak quarter for revenues for us in both global markets and well.
On slide 11, net interest income was $6.5 billion, that's down 6% against the second quarter.
The net interest margin was 120 basis points down 13% on the second quarter.
Basis points, sorry, reflecting the continuing impact of near zero interest rates.
<unk> Asian franchise in particular seeing material with deposit spread compression.
The UK ring fenced bank NIM was stable quarter on quarter, excluding significant items.
As we look forward and assuming interest rates remain unchanged, we expect fed a modest net interest income headwinds in the fourth quarter with.
With some quarter on quarter stabilization from there.
We still expect approximately $3 billion lower net interest income in 2020. This is 2019.
On the next slide given the forward outlook for net interest income we're focused on building our noninterest income revenues.
We've already substantial fee income businesses to invest in particularly in wealth and private banking.
We're also one of the global leaders in FX and are increasingly building at our strength into Asia for global markets in global banking.
We're also looking at new revenue model is in other areas, such as global liquidity and cash management and retail banking that have previously relied on deposit spreads to drive economic returns.
Fee income showed some recovery in the third quarter from the Capex related lows seen earlier in the year.
Up 4% versus the second quarter.
Turning to slide 13, adjusted operating costs were 3% lower than the third quarter, and 2019 and down 4% for the first nine months.
This continues to reflect the impact of our cost reduction actions.
And lower spending on discretionary cost line items as a result of Capex at 19.
Relative to the plan, we announced in February we now plan to exceed our cost targets set for 2022.
With Grace cost savings exceeding our previously announced $4.5 billion in that year.
While still sustaining investment in technology spending in areas of focus.
[noise] and pop this reflects change customer and employee behavior as a result of cave at 19.
Namely substantially increased digital and get engagement from our customers and using the benefits of technology, Georgia dock to hybrid working model for most of our employees.
With materially lower internal travel requirements going forward.
Based customer and employee trends are also consistent with our sustainability goals.
Hang up further opportunities to materially reduce our carbon footprint in line with our commitment to be net zero operationally by 2030.
To help achieve these additional cost savings, we now plan to spend more than the $6 billion and costs to achieve by 2022.
With around 1.6 billion up the total expected to be spent in 2020.
Well provide a more detailed unquantified plan in February when we announce our full year results.
On the next slide he sales were much lower than first half trends, some $795 million or 30 basis points of Christ lines.
This reflects a more stable economic outlook and the significant reserve build in the first half.
Well overall E C O allowances remained broadly unchanged.
The stage, one and stage G.P. and L. charge for the year to date is around $4.2 billion of.
What's just $300 million was incurred in the third quarter.
The state Street jobs for the quota was around $500 million.
Relating primarily to a small number of wholesale exposures across various sectors.
And a stable level of retail defaults.
This was partially offset by $300 million of releases relating to pre cave at 19 cases.
The $785 million LCM charge, we believe is unusually low at this point in the economic cycle.
Benefiting from releases.
So I would discourage you from using this as a new baseline.
While the CLS have started to stabilize we do still expect them to remain higher than normalized levels over the coming quarters.
With any sales at 7.6 billion for the first nine months for 2020 as a whole we now expect to be towards the lower end of the $8 billion to $13 billion range.
Although uncertainties remain around kind of at 19, then Brexit in particular.
On slide 15, our core tier one ratio at the end of the third quarter was 15.6% up 60 basis points in the quarter. This.
This was driven by our deputy <unk> reductions on a constant currency basis profit generation and FX translation differences.
Excluding FX movements on revenue I always fell by $11.8 billion.
Primarily as a result of our risk weighted asset reduction program.
As previously signaled at the second quarter and relative to guidance we gave in February.
Weve made good progress this year on reducing portfolios of highest stress.
And enhancing capital levels at the holding company.
As such we now expect to be added saga of 14% to 14.5% core tier one ratio.
When we can begin to normalize our core tier one physician and again.
On slide 16 were making good progress against our 100 billion Grice reduction target of live are tuning risk weighted assets by the end of 2022.
For the first nine months, we've achieved $41.5 billion and expect to have achieved approximately half with a $100 billion target by year end.
As a result, we now expect to exceed this target.
And to do so without exceeding 1.2 billion dollar spend.
Target that we announced in February.
So in summary against the backdrop of private 19. This was a decent quarter for us another resilient agent performance and a decent quarter for fixed income.
I'm more optimistic credit outlook and further progress on cost reduction unquote one boat.
As we look out without discounting the continuing high levels of uncertainty. We think the combination of tower risks has diminished relative to the last quarter and therefore, we're now more confident on the outlook.
We recognize that we still got a tough period ahead of us given the very immaterial impact of near zero interest rates over the next few years.
Coupled with a gradual recovery in customer activity in some segments from private 19 lows.
But we think the building blocks are now being put in place for substantially enhanced returns in the coming years.
A change of revenue model that will be less reliant on deposit spreads.
A normalization of credit costs from 2020 Hys law.
Lower operating costs, using the benefits of digitalization and automation and.
And increased confidence and being able to operate the bank of reduced capital levels once the economic environment stabilizes.
No and I are very focused on the pop back to paying dividends.
With a core tier one ratio of 15.6% relative to a target of 14% to 14.5%.
Wed now recruiting meaningful capital buffers. However.
However, I would caution about getting ahead of yourselves on distributions.
When we stop will start conservatively and look to build sustainably from there.
With that Sharon if we could please open up for questions.
Thank you Mr. Stevens and if you'd like to ask a question today. Please press star one on the telephone keypad. Please limit yourself to two questions. Only please ensure that to me is function on your telephone is switched off.
If you find your question has been answered you may we need your thoughts on the key by pressing star onto once again to ask a question. Please press star one season show that the mute function on your telephone is switched off you will.
First question comes from the line of Raul Sinha from JP Morgan. Please go ahead. Your line is a pen.
Good morning, Rob.
Looking good morning Ochsner.
A couple of questions from my side, I guess I'm just on the NIM.
Exactly.
Couple of points relates to about one if you could talk a little bit about the EPS maybe outlook.
Look.
Yes, quite a big order in the quarter.
Then related to that if you could elaborate a little bit in terms of what you expect.
Within your sort of kind of your assumptions.
Hi Board.
Are you expecting it might go to sort of stabilize around these levels or are you still thinking that we're going to converge towards you at store level, which is somewhere below.
Hi, It is.
And the second one I guess, a little bit more broader you know.
In terms of the areas, where you're tweaking your transformation program.
It's about.
Little bit I was particularly interested in wealth management and insurance in terms of what other growth initiatives. You can you can focus to make a meaningful.
No contribution given where your plan.
When you when you announced it.
Barry you.
Obviously go to.
That makes sense to revenue.
I mean, any sort of commentary on wealth management and insurance.
Material growth options for baby.
Okay I'll take the second question, but I'll ask you and to answer the first part of the question if that's okay.
Yeah sure on on NIM Rolla pick things.
I mean as you know the HBAP OCA is relatively short dated say Ah we had we did say a material contraction.
In high Bar I think it was down over 60 basis points quarter on quarter.
The and as a result that translates very quickly within quarter and say the net interest margin.
The.
Yeah, as we look out.
Yes.
And here for seven or eight quarters now trying to predict the path of high before.
As always been difficult, but I think.
Yes, we do think that.
Yes, we've seen for the time being a bottoming that as being a bit higher so far in October.
They again that will translate.
See stabilization I think in Hong Kong, and possibly a recovery.
But you know if we translate all of that into an outlook.
Twentytwenty one on an aggregate level I think yes broadly as we said today comfortable with where consensus is.
Or a range around consensus.
Okay, and with respect to wealth management in Asia.
We started our journey on Oh more profit expansion actually before we announced the results in February Oh, they'll citing February we've been growing our market share in insurance in Hong Kong.
Throughout 2009, saying continue that journey in 2020 and intend to continue to invest in that business and we've seen very good results from that activity.
Claims reclaimed a lot of market share on all insurance business in Hong Kong.
We'll continue to invest in that business.
Looking to expand our insurance proposition beyond Hong Kong into other markets, Singapore, India.
And in China.
With respect to the broader wealth agenda, we again started a program of the expansion of our private banking in Asia.
The increase in the number of relationship managers, we have on the ground, but product capability in Hong Kong, we want to take a further across into southeast Asia and into China.
Then more recently Weve talked about the investments we've made in pinnacle, which is a wealth management platform in China.
Which is a combination of around about an extra two to 3000 miles salespeople based in China.
So in the wealth management needs of the China population.
We expect to put those people on the ground over the next two to three years, but we're also building a technology platform.
To provide those salespeople with the product capability.
So the market as well so we see that as an area of growth and further investment.
It will be.
Protect Hong Kong and continue to take market share in Hong Kong penetrate into China.
Expand across the southeast Asia.
Given the amount of jump you Bill would you consider inorganic opportunities as well.
I think we always look at both organic and inorganic you know you should always faced a strategy on an organic plan first which is what we do it.
But we're open minded as to where the right opportunities for growth will come.
Okay.
Okay.
Thank you we will now take our next question and the question comes from Martin Leitgeb from Goldman Sachs. Please go ahead. Your line is open.
Yes, that's one morning.
Yes, good morning.
[music].
My first question is in terms of how should we think about the topic of progression from here. So obviously to the very strong brand in terms of assisting going stick so 54 into [noise].
Excluding transitional impacts.
And your comments on dividend dividend being conservative from D.. So does that mean that over the near to medium term you should expect HSBC to run over and above the 14 to fourth inning stretch also do you see opportunities either.
Either way either due to deploy most of growth for deploying multiple returns.
Yes, I was asking Glenn.
Economic outlook normalizes.
The question I was just wondering if you could.
Give us a feel how grow to review the strategic review as you are currently undertaking this.
This strategy laid out back in February obviously was before the Sun damage.
On all that.
Oh brought the strategic review all your crude agenda that they can both in terms of.
Potentially addressing lower return areas, but also with regards to see drivers of growth for the group. Thank you.
Okay I'll take the second question I'll ask you in to cover the first.
Yes.
On a capital and how we think about a lot and I guess, a few things firstly yeah.
Yeah in terms of todays ratio just to put a couple of qualifies around that I mean, firstly in Q4 as you know I.
Yeah, we would typically expect core tier one ratio to fall in the fourth quarter for a couple of reasons firstly yeah.
Yeah. The ratings are obviously impacted in the fourth quarter by the UK Bank Levy.
Yes by seasonally low a global markets and wealth revenue.
And we signaled I think as part of my comments earlier that we expect to have a higher C.G.H. average cost to achieve restructuring cost charge in the fourth quarter relative to what we saw with a run rate in the first three quarters.
And we also gave you still expect.
Some odd that we write pressure coming from ratings migration now be it yes, we think continuously surprised this year it at.
About.
Yes, the degree of ratings migration, which is being less than we might have anticipated.
Yeah. We also again in our ratios some benefit from private 19 regulatory relief currently that's around 20 basis points.
I think the regulators are always.
Got into the back half of their numbers when I when I look at our capital ratios and think about access that we've got.
And I think going into 21 were always going to want to have a buffer.
Contingency given 2021 will continue to be relatively uncertain.
As we said today.
Yeah, I do think that if you went back to the start of the year and you think about what we're managing to and our capital wise is ready to things.
One as.
The degree of stress that were running as a bank.
We do think the restructuring plan that we've announced and the areas that is targeting is going after some of the highest stress portfolio as we have in the bank. So over the next few years, we think the aggregate level of stress.
Stress, you'll see from us getting reported in the annual stress testing cycle.
We'll reduce.
And secondly.
As I think you're aware, we've been holding excess capital and some of our subsidiaries for example in the U.S. and as we continue to restructure I think we'll be able to get more of that capital back to the group.
As a result.
Yes, we think that we can manage the bank in the medium term to 14 or 14, and a half I think we shared a spot to do better than that.
By that aspiration I think has to be very much promised over the medium term and with us making serious inroads into reducing the grace level to stress that exists in the bank.
I'm confident we can get there, but I wouldn't bake it into your numbers today.
And on the second part of your question, we recognize that it's a.
The lower interest rate environment is a very material drag on on revenue.
I'm not it will be a.
Hard on a road to recover that lost revenue.
I also fully recognize there's no one silver bullet to addressing that gap.
It has to be a combination off.
Growth from new areas of investment, particularly fee income generation activities, such as I talked about earlier, well see in Asia across a broad range.
Soft flu in private banking and asset management insurance.
Gross from our transaction banking business on the fee income generation from that in foreign exchange trade.
And payments and cash management.
And growth of our balance sheet, particularly in Asia, where I do believe there's still growth potential over the medium term for the assay side of the book overall.
Well, we're also going to be looking at pricing pricing of our assay book.
Pricing overall fee income.
I think he is going to be a combination of those activities coupled with a continued focus on prudent cost management.
With an expectation as you and said to exceed all 2022 target of 31 than.
So it will be a combination of those things.
If I think back to the the J.F.C.
There is no one single solution to reverse in revenue post the GFC. It was a combination of things.
And we are going to be very much focused on those same activities next time ride.
Next question Julie much.
Thank you. Your next question comes from the line of Monness Castello from Autonomous. Please go ahead. Your line is open.
Good morning, Matthew I'm at US Hi, everybody I, just wanted to ask about the balance sheet and.
Cash position has grown again this quarter, you're up 130 billion since the end of last year I. Just wanted to book can you do to help manage that cash position to help.
The NIM will offset the pressure on the NIM or should we assume you're just going to run we structured it very high levels of cash and your liquidity management in the future.
Well I'll I'll give a quick instinctive reaction to that minus I mean, I'm a strong believer in a strong balance sheet.
Very liquid balance sheet, so I understand that at the moment that liquidity is not only in a NIM.
In the middle of a quite a severe economic crisis. It's good to have a very strong liquidity position on us being the cornerstone of HSBC. So many years.
Then allows us to have the strain.
So continue to invest in growth.
They actually side of the balance sheet as as that grows three emerges in the economy.
On the cognizant of the fact that Asia seems to be coming out of the covis crisis faster than the rest of the world. Therefore, I expect growth opportunities to reemerge in Asia. So that although that is not in accordance seasonal earning money in its own right. It has the potential to have money for us.
On the EPS decided the balance sheet and it gives us the comfort.
We continue to make investment decisions in that we have a strong balance sheet post liquidity on capital.
You and you want to call it or not I think that is customer behavior has been exactly what you would have expected it to be so during the crisis, which both on the retail side on the corporate side.
I desire to retain.
Retain liquidity at the moment, given all of the uncertainty that exists.
Yes, I have the last year, we built deposits by I think as 12% over $160 billion.
Yeah that that's not a natural year on year growth that deposit buys and reflects very much I think.
Customer behavior said, yeah as people get more comfortable with the trajectory out of kind of at 19.
Thank you, we'll begin to see that reversed.
Yeah on the corporate side, Yeah, we've already seeing relative to the first quarter went a lot of corporate straight down substantially.
On.
She could lines they had with us start to repay those line. So I think as I can say mezz and corporate skate more confidence back you'll see those cash balances are reducing.
So its more about your customer's behavior, rather than any treasury approach that you might take.
Yes, correct.
Got it thank you.
Thank you.
Next question comes from the line of I'm on the call from Barclays. Please go ahead. Your line is open.
Good morning, Gents, Yeah, just the comment.
Just a just a couple of days I'm, just kind of I don't know I say, thanks very much for that.
Comment around consensus next year I guess just.
Kind of implied Q4 exit level probably suggests.
Analyze number below 25 billion next year, so thats going to get to where the street is actually going to be looking to do kind of.
Three 4% loan growth.
My best estimate for now given that you'll you'll probably just going to be de leveraging in the U.S. and Europe.
Interested in what kind of growth you're targeting in terms of loan growth in Asia.
To kind of deliver there's no no.
Phones bounces a reasonably robust in Q3 and I guess the second is on E.
PCL can I just check EM is.
He is around a second billion dollar.
The best guess of what kind of underlying.
Hcl for you guys in Q3 and.
If that's the case.
Is that potentially employ a number next year.
That's perhaps closer to 4 billion than the 6 billion that consensus.
Housing actually I mean does that not at full theory or is it is just too much uncertainty for now.
I'd like yeah, as you know our EBITDA. Thank you.
Okay.
Well firstly on Europe.
And I only math, yes, we disagree with the mass at an aggregate level I, yes, we do anticipate that way.
Like a mid.
Single digit loan growth next year to sort of understand the comments I made about consensus and.
ER and IR for next year.
They would.
Yeah, you did the pot of your commentary that Europe and the U.S. is deleveraging I think is any partly correct I think a lot of the de leveraging.
That we saw happened in the second quarter.
Yeah. There is the ongoing restructuring that were doing in the rundown of the out of the white box and Autoliv that isn't linear.
Lending assets.
And were continuing yeah, we do expect.
UK Europe, you asked economies to recover and 21.
And yes, we are seeing a consensus forecast for Asia ex Japan, GDP forecast I thinking a setting about 5% for buys 21 and 22.
So yeah, we do think yeah Asia growth again, well on what outperform western growth.
Oney CLS or your EPS consensus I think is sitting at about 6.1 billion or 22.
Yeah, when we frame us sorry for 21, when we previously guided on.
Line loss provisioning print carry that through the cycle, we talked about 30 to 40 basis points.
Yeah, right 40 basis points at the top end of that you get to just over 4 billion yes.
Yeah, Yeah that feels to me intuitively as we look at it but low at the moment equally six but in fields that high so sort of somewhere between those two numbers, but you know there is still.
Significant onset the out there around 2021, and I would always say caveat my comments on Ngls generally around Brexit I think <unk> comments about.
Towards the lower end of the eye to fading range, you're very much premised on a trade agreement happening and if I tried agreement didn't happen then I think we would have to adjust stop our ngls that much you could easily say half a billion dollar big enough additional aid shales and the fourth quarter if.
And the next few weeks, we didnt have a trade agreement.
Perfect. Thank you.
Thank you. Your next question comes from the line of Jason Napier. Yes. Please go ahead. Your line is open.
Good morning, Thank you for taking my questions Hi, there.
The first one on on loan losses, I'm afraid again the.
Moments of your loan book has been quite frankly, Stella if you look at the stage data.
With only 6% of retail loans in stage two even then a little over 1% in stage three I Wonder did you have any steps that you might be able to share on.
The extent of any distortion in that that your customers are.
Seeing as a consequence of the support that's around fairness schemes and Moratoria and and so on oil.
Is that is it really just converts.
Conversational in nature and really that book is this strong at this stage of the downside.
And then the second question and.
And I. Appreciate this is an extraordinarily sensitive area Hong Kong autonomy Act.
I wondered whether you could share.
What it is in your views at HSBC needs to do to avoid.
Sanction under that act.
It appears that there is some leeway around significant transactions as regards the sanctioned individual what did what do you see as your responsibilities on on that please.
Okay, great. Thank you let me.
Let me I'll add a couple of comments on the quality of the loan book in them.
Hung on to you and if he wants to add some comments and then I'll pick up on the Hong Kong will tell me that.
Firstly, the first thing about the nature of the book is.
Inherently weak, particularly in our consumer banking business, we have a high quality secured book at the heart of what we do so we're primarily a secured book rather than an unsecured clearly we do some unsecured lending book report.
But from pro proportionately, we have a much higher percentage of secured lending for example here in the UK.
And then the rest of market.
And that's why I say I think you see.
Particularly strong performance in our retail book.
Relative to other banks that would also be true in Hong Kong.
What we've also seen some of the government's games of unwind.
Payment holidays of unwind, we are seeing a better performance on the unwind of governments games than we had previously modeled or expected.
People are reversing so normal payment patterns.
At a higher percentage than we had originally modeled.
So that's that's just some general comments.
Yes, that's right now is to add a couple of more things on that the.
Yes in terms of some yeah, we've obviously got a global portfolio, our government support schemes and I think as we've seen some of them roll off, particularly on the retail side our experience so far Jason has being.
I would describe it as marginally better than what we had modeled and so.
Say it has been sort of encouraging signs that.
Yeah, the the credit assumptions that we've got a holding up.
And secondly, I think yeah that government support that was saying I think for the corporate sector.
That has bought time for the corporate sector. They restructure its full time for the corporate sector, the gotten rise debt and equity.
Say.
Sitting here six months ago, we were far more concerned about.
Downside tail risk than we would be today.
Yeah in part because the government support has just allowed people to time to restructure their businesses and be better prepared.
And on your second point you know.
Jason we are confident in our ability to navigate.
The increasingly complex regulatory environment.
And we're committed to complying with the laws and regulations and every market. We operated we fully acknowledge that there is a level of complexity that today given.
Given the geopolitics, but we confident of our ability to navigate that situation.
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I don't think you know that's that's that's what I'd say to you in regards to the second part of the question.
Thank you.
Thank you. Your next question comes from the line of Edwin SAS, a b to B. Please go ahead. Your line is a pen.
Good morning.
Well I think going into <unk>.
Yeah, just two questions again, I want to get back to that.
Interest income, but I would say.
More interested really in the sort of longer term outlook for net income rather than like this year next year.
And I guess two questions I had one and if I look back to sensitivities you provided us in the past.
Just sort of broadly if you look out five years its about double the one year impact is that is that still the way should we should think about it or other things you can do or have done dependents effectively mitigate that said that the bulk of any interest rate impact we should see it to the board.
So minus 10 basis points board meeting, so that that would be much less.
Next question.
And then the second question is related to that one of your biggest.
Big advantage to HSBC for probably the last 100 years has been.
Legs to deposit ratio around 70% and I guess, it's a bit low now, but it has been a bit high but that's brought you why you stuck it.
And I guess in this environment that means what's the percentage of your deposits are either.
Nobody who actually lossmaking.
Is there anything you think.
Three four year plan that you can do.
To address that and is that something that I mean could we see that leading up to 80, 90%. That's at a level or should we where youre, Egypt preference or liquid like to keep that roughly where it is sorry that was a long question.
Uh huh.
Let me take the second part the I'd ratio, yes at the moment is is it showing a significant surplus.
At different points in the economic cycle lot moves around and if you. If you were to go back a couple of years you started to see quite significant loan growth with slightly slower deposit growth. So you started to see the I'd ratio.
Narrow three degree.
As you and said earlier you know we've had an influx of deposits.
Customers have.
Borrowed the less spend less on accumulated cash so.
So you could expect over time that I'd ratio to change, but I think we've always has a bank had a history of having a strong liquidity position. So I don't see is really operating at a 90% I'd ratio in the future even in great times, because you know we operate in markets around the world that are inherently more volatile.
And therefore, we believe strongly in having a nice a strong liquidity position to manage through that volatility in difficult times. So you get some movement in the I'd ratio going forward, but I don't think you're going to get us.
Operating at a level of 90% on a consistent basis or any point given the inherent nature of our book of business.
Yes.
And our first question I think was around then and high sensitivity tables five years out the yeah.
Yes, I do I say in a static balance sheet I do as saying no management action. So I think you should assume that.
Over a five year period, yeah, we would have some capacity or.
To mitigate some of the.
Some of the risks that you shape, saying that interest rate sensitivity table.
And just going back to that point all night, if you were going to say, but how.
It depends how you look at that surplus in is it earning money on all you remember that hi, hi, liquidity, all low I'd ratio yes.
Giving you access to an inherently higher return market.
In Asia.
Middle East so.
So.
You don't necessarily deploy all the liquidity to get every last times of earnings out of it.
But having that liquidity there allows you to access I inherently higher return market Asia Middle East emerging markets.
That gives you a higher level of compensation for the amount of lending that youre doing so you own it in a different way than full deployment into low volatility low return markets, you're getting the earnings in a different way from HSBC.
Okay. So it's not like a set of strategic priorities you to find assets to try and bulk up that balance sheet.
I draw the falling growth a good sustainable revenue growth.
Rather than just buying books of assets for the sake of buying books of assets to use of liquidity.
Sustainable revenue growth is what we are motivated to.
EBITDA for the 20 years ago, we tried something like that and it didn't work out so well.
[laughter] I just wanted to see if you will.
No [laughter].
Thanks very much.
Thank you we will now take the next question from Tom Rayner from Numis. Please go ahead your line open.
Okay.
Hi, good.
Good morning.
Thanks for the bullets strategic questions.
Yeah. It is and you might sort of cut me off and say wait until the full year, but in terms of what Youve said today on the restructuring plan you you're flagging additional cost savings.
Making additional.
W.A. reduction I'm, just trying to think in terms of.
The potential impact, but that might have on on future revenue growth and how important it used to be seems like just b C to be seen and still having sort of gross potential almost still being a bank. That's in high growth markets you want the market to be you as a potential growth. So how does that sit.
With a focus on continuing to look for more cost saving even more R.W., a reduction and obviously that comment alluding to outside internationally quite interesting little to say get to desperate pick both when you buy a bad asset.
As is often said that was my first question and then the second sort of strategic issue again, what you're saying all of the investment is being pivoted now by the sound it towards Asia.
If this continues I mean is there a risk at some point the whole question of Dahlman saw them when it makes no sense.
HSBC to detail the Saudi is that going to be in a situation that some minutes.
So it's about disgusted decided we're not going to be the back that anytime anytime soon thanks.
[noise] Yeah, let me a couple of comments on that let me first of all say I don't think pursuing a more efficient organization necessarily means you cannot produce gross all pursue growth I.
I think all the cost reduction, we going full of good sensible cost reduction ambitions, reducing bureaucracy.
Simplifying processes, increasing automation improving customer experience.
All of those things are supportive of our growth agenda as well, so and what Weve clearly said in this state.
No we are going to continue to invest in technology to further digitize the bank on.
And out of that Digitization will come a lower cost base, a better customer experience and growth opportunities as you top more market opportunity. So I don't think they are incompatible and certainly we don't want to be a growth only transformation story, we must also be a growth story and particularly with the footprint.
We have.
As an Asian Bank, and an international Asian Bank.
Would be part of our agenda.
On the alma so we've said on many occasions, we're not revisiting that almost all decision.
We believe as a powering being a global international bank with a strong.
Focus on Asia, a strong focus on the middle East the strong business in the UK.
We're in International Bank.
Bridge in East and West.
We're not revisiting that almost all decision yeah.
Yeah now on the.
Okay Fair, there and I'd have to I redaction, Tom I mean, you can you can say and the disposition of Rick Hans and I take it back that.
Yes, we've got a lot of capital, that's not earning appropriate returns, adding well below cost of capital returns and I think you and everyone else on the call should welcome. The fact that we're trying to accelerate that and take more of those assets off our balance sheet at more capital back as a result of that.
And if we can invest that in growth, particularly in Asia, we are happy to invest it and if we can't we'll find a way of returning it to shareholders.
Okay, Let me thanks a lot.
[laughter].
Thank you we will now take our next question from the line of CGI Stebbins Exane BNP Paribas. Please go ahead. Your line is a pen.
Good morning, good afternoon, everyone. Thanks for taking the questions. Good morning go ahead.
And I just want to come back to us the topic. So specifically joint applies to some of the headwinds coming in the fourth quarter and you called out the typical seasonal impact from the levy in global markets being a bit lower plus the heart of CCH become so perhaps earnings themselves might be a small headwind to comp so plus it looks like your guidance.
To round about 30 basis points headwind from all right. So just taking that into consideration as each completion could drop maybe towards 15%, but I think you previously guided to so for intangible benefit around about 20 basis points. So is it reasonable to think you should still be some way about 15% full and equal school did.
And announcements items like full year results.
And then the second question was just on CP 14, 20, an instruction of the mortgage store in the UK, which.
Which is perhaps quite doesn't pull for HSBC given your low salty with freight density.
Appreciate you will what do you expect to go straight to move up given some of the regulatory changes and I think you guided to seven rapes and previously but given this further move does it change your view at all on UK mortgage book breaks in the future I guess the diversity it could actually isn't going to tilt the bit to high margin high risk business second is on.
Thanks.
Yes, I, but weve previously guided I think to not everywhere I growth for the full year of sort of.
Mid single digits.
If you look today that would imply relatively immaterial lot supply growth and the final quota.
Yes.
That looks to me as a said today at the top end of the range of what we would expect than you would have to say a degree if.
Audibly like migration that is substantially higher than we've seen recently.
So I, yes, we could well see a core tier one ratio that yeah at the end of the year about 15 I think.
The.
Yeah on your comment on UK mortgages, even with those high risk weights, we still think that we make sensible economic returns.
On the mortgage lending we do in the UK. So.
Yes. It is a they have like I would say is that.
The UK is one of those businesses that are in the outer years of the plan would have been impacted by outflows. So in some ways. This is just an acceleration of that impact of future capital buffers, we would have had to build any way into the UK business.
Okay. Thanks Victor.
Thank you we will take our last question from Joseph Dickerson from Jefferies. Please go ahead. Your line is open.
Hi, good morning.
Just a couple of quick ones. Please just on the trajectory of getting down your targeted C. T. One range I guess, how do you think about buybacks in that context, particularly in the near term.
Given the various capital treatment of buybacks and you've you've.
Done buybacks before so any any thoughts there would be helpful. And then as you seek to move towards.
More sustainable sources of non interest income.
And deemphasize the spot deposit spread.
Businesses Youve mentioned that Youre reviewing the U.S. business that obviously the last review as already noted on this call happen when rates were higher I guess is.
Is everything on the table as regards the.
U.S. business, notably the retail business, which has.
I believe off the top of my head, 50% or lower our loan to deposit ratio. Thanks.
[noise] you run it will take the first part of the question I'll say to one and I'll pick up on the U.S.
Cushion can own 51.
Our buyback of.
The yeah as you said, yeah, we're certainly not adverse to doing buybacks I think you should as saying what we want to do first is re establish the dividend.
Said, I sensible and sustainable dividend policy for 21 and beyond.
And then yes to the extent that there is excess capital on top of that.
Think about buybacks as part of that I would caution, though that for 21 in particular.
There continues to be meaningful levels of uncertainty around the economic outlook for 2021, So yes, dying to expect us to try to seek to rapidly normalize our capital structure during 2021.
Until we see genuine sustained and comp rate recovery in the global economy, and where it truly capex at 19 in a very meaningful way.
With respect to the U.S. I just want to reiterate Michael in the same in the U.S. together with Greg and George running global banking and markets.
Have really made very strong progress in the first nine months of this year.
Reiterate nobody ways well adjust.
Adjusted cost.
He is down 11% branches reduced by 30% so they've made great progress, but they're also very cognizant of the fact that the circumstances are more challenging today than they were in February and therefore, they're looking at ways to accelerate.
The road to improve returns, but I won't go into any more detail on that at the moment, we will do that with our Q4 results, but I'm pleased with what we've achieved so far.
Thanks [noise].
Okay. Thank you.
That was our final question I will now hand back for closing remarks.
Thank you. Thank you Sir I just wanted to say thank you to all of you for dialing in today for your interest in height USBC and your questions.
I'll summarize by saying that we are making good progress on our transformation agenda.
We are investing in new growth opportunities, particularly across Asia.
I'm pleased that we were able to produce $3.1 billion of reported profits in Q3.
And we were able to finish the quarter with I see one ratio of 15.6.
I look forward to speaking to you again at the full year results in February Thank you.
Thank you, ladies and gentlemen that concludes the cool to hate to Sbcs Holdings plc and release. The three key 2020, you may now disconnect.
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