Q3 2020 HSBC Holdings PLC Earnings Call
[music].
[noise] [noise], good morning, ladies and gentlemen, and welcome to the Investor and Analyst Conference calls the hates SBC Holdings plc earnings release for Threeq 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 our third quarter performance.
The way that all business I know 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.
And all committed to helping them manage the l., so let's say 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 nice stabilize.
And we've got a clear plan to accelerate growth and adapt the business to the ultra low interest rate environment.
Looking further ahead, we are also committed to helping our clients like to transition to a low carbon economy.
You will have seen our announcement two weeks ago that were aiming to align our finance their missions to the Paris agreement goal to achieve net zero fytwenty 50 or sooner.
The COVID-19 pandemic has been a huge wakeup call for us all.
On a climate crisis has the potential to do much more dramatic.
Has the potential to be much more truck drastic and its consequences and longevity.
With that whole stepping up support for our clients immaterial 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.
Facebook promising results that's against the continuing economic impacts of covert Nancy.
We significantly smaller expected credit losses.
Good strategic progress.
Growing capital ratio.
Good customer retention.
On an improved economic outlook.
Our Asia businesses continue to show good resilience.
Contributing $3.2 billion of reports you pre tax profit.
Global markets grew adjusted revenue by 16% first these last years third quarter.
Our capital markets revenue is up 21% year to date on the Frac on the back of strong collaboration across commercial banking and global banking and markets.
[noise] global markets revenues are up 31% year 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 our deposit franchises across all global businesses.
As a result reported pretax profits of $3.1 billion were down 36%.
And adjusted profits were down 21% on last years third quarter.
<unk> sales of $785 million would tighten significantly on the previous two quarters.
Broadly stable versus the same period last year.
We maintained a firm grip on costs down 3% on last years third quarter.
With an ambition to go further than previously promised.
In phosphates of 1.6 trillion dollars were 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.
And 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 panel.
In response, where accelerates in all areas of our strategy with a particular focus on boosting sustainable noninterest income I'm going further on costs.
The three main leave us for this are going to be an acceleration and an increase in our investment in and across Asia.
[noise] faster digitization through higher levels of technology investments.
And the extensive restructuring of the businesses, we talked about in February.
Starting with Asia.
As you can see from slide for Asia is rebounding strongly much.
Much more than the rest of the world.
Given our ability to connect the world to Asia and support growth in the region.
Raising the opportunity is growing.
We stack enough investment to capture it.
Previously just under half of our growth investment was aimed at Asia.
Now a large majority of our future growth investment will go to growing our Asia well.
Wholesale and sustainability franchises.
As well as reinforcing our position in Hong Kong.
Extending our position across the greater Bay area and Southeast Asia.
In the last 12 months Asia 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 Hey.
A platform connects in SMB service providers and customers in Hong Kong.
Which has on book, which has on boarded more than 8000 members since its launch in April.
Pinnacle.
Supported by its new Fintech subsidiary, which.
Which is a first for a foreign financial 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.
International SMS.
Policy biology, LCM business in Singapore.
Our Asian franchise, so more good growth in the quarter.
With higher deposits and stable lending.
Supported by strong credit quality.
Well, we can go much further.
Way back it off our ambition with investments to match.
Turning to slide five our 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.
Even as we reduce spending elsewhere.
Hi, HSBC is already a substantially digital bank.
A large proportion of our global payments already flowing through digital channels.
Anti loads of HSBC nets are up 155% for the first nine months of the year.
Okay.
Well, we have further opportunities to meet growing market need for sophisticated robust rocket payment solutions.
And 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, our key retail and wealth platforms.
Enhance transaction banking for high net worth clients in Asia.
Build a new trade services operating model fit for a digital future.
Bill will then expand HSBC kinetic our UK mobile SMB bank that use these clive to deliver a faster same day service for customers.
Launch and enhance HSBC evolve.
A new FX execution platform, enabling greater collaboration and back to digital solutions for large and small corporate clients.
They say 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, our us and European 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 Roberts, and the team have already reduced our there'll be ways by 8% year on year.
Adjusted costs by 7%.
SCS by 11%.
Im branches by more than 30%.
I am pleased with its progress so far.
But given the current economic climate, we are looking at options to accelerate.
We'll provide an update on this at our full year results in February.
In our non ring fenced bank in the UK and Europe.
You know mattress and the team have delivered more than $18 billion of gross R.W. eisais.
Reduced Fcs and contractors by 7%.
And initiated plans to reduce global banking a market equities in our European hub in France.
38%.
The strategic review of our French retail operations is ongoing.
But meyering completion.
We will announce the outcome 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 an increase the ambition.
Things that we now expect to exceed our $100 billion R.W. way gross reduction target in Twentytwenty two.
With around $50 billion of that total expected by the end of Twentytwenty.
In summary, then I'll.
Our Twentytwenty Twentytwenty two transformation plan is fully on track.
And we'll go further and faster wherever we can.
We are pushing harder on costs and now expect to beat our target to reduce group costs to 31 billion or lower in Twentytwenty two.
We expect to achieve around $50 billion of low performing arts will be way gross reductions by the end of 2020.
And to exceed our 100 billion dollar target by the end of Twentytwenty two.
We will provide an update on our plans for our friends and U.S. businesses by our full year results.
And we'll provide an update on our dividend policy in February.
We are 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 early 2020 wall and be subject to regulatory consultation.
With that I'll pass over to you and to go through the numbers.
Thanks, Alan good morning.
Or afternoon all.
Against that continuing economic impact of cave at nine Jade, Please where a decent set of results.
Which coupled with further good progress against our strategic objectives.
Additional strengthening.
In our core tier one ratio and tower risks in aggregate haven't diminished over recent months have NOL or NIE and I'm more optimistic made 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.
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.
Near zero interest rates will be a persistent revenues shelf to our business over the next few years.
Were actively adjusting our business model to address this building sources of non interest income implement.
Implementing asset side repricing way we can.
Adjusting the revenue model for some product and customer segments.
On materially reducing our cost structure through Digitization and automation.
[noise] gallons were significantly lower than the second quarter at $785 million or 30 basis points of gross lines.
With stage, one and stage two allowances broadly unchanged.
With each sales at 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.
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 could rival businesses in wealth and personal banking revenues were down 13%.
With retail banking revenues 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 positive market impacts in insurance manufacturing were down 8% GE, 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 global markets grew by 16% represent reflecting continued good performance in credit and FX.
Equity revenues also increased by 39%.
Looking forward assuming.
Assuming economies continue to rebound from private 19, Louise we would expect some increase in corporate investment and volume growth from the low levels seen 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 weaker quarter for revenues for us and by 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.
13 basis points, sorry, reflecting the continuing impact of near zero interest rates.
With our Asian franchise in particular seeing material 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 further modest net interest income headwinds in the fourth quarter.
With some quarter on quarter stabilization from there.
We still expect approximately $3 billion lower net interest income and 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 and global banking.
We're also looking at new revenue model was 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 covered 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.
It continues to reflect the impact of our cost reduction actions.
And lower spending on discretionary cost line items as a result of cave at 19.
Relative to the plan, we announced in February we now plan to exceed our cost targets set for 2020 K.
With glorious 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 reflect 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.
These customer and employee trends are also consistent with our sustainability goals.
Hang up further opportunities to materially reduce our end 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 cost to achieve by 2022.
With around 1.6 billion up the total expected to be spent in 2020.
We'll provide a more detailed on quantified plan in February when we announce our full year results.
On the next slide he sales were much lower than first half trends, some $785 million or 30 basis points of Christ lines.
This reflects a more stable economic outlook and the significant reserve build in the first half.
While overall E C O allowances remained broadly unchanged.
The stage, one and stage GP and our charge for the year to date is around $4.2 billion.
Which just $300 million was incurred in the third quarter.
The state Street charge for the quarter 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 k. that 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 Wally.
Qualys CLS have started to stabilize we do still expect them to remain higher than normalized levels over the coming quarters.
With Hcl that 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 and 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 Ray reductions on a constant currency basis profit generation and FX translation differences.
Excluding FX movements RW 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 we've 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 at a chocolate a 14% to 14.5% core tier one ratio.
When we can begin to normalize our core tier one physician again.
On slide 16, we're making good progress against our 100 billion Grice reduction target of low returning 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 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.
Im more optimistic credit outlook and further progress on cost reduction on quoted 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 are 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 copper.
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.
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 path back to paying dividends.
With a core tier one ratio of 15.6% relative to a target of 14% to 14.5%.
We're now creating meaningful capital buffers. However.
However, I would caution about getting ahead of yourselves on distributions.
When we start we'll start conservatively and look to build sustainably from there.
With that Sharon if we could please open up for questions.
Thank you Mr. Stevenson, if you'd like to ask the question today. Please press star 100 telephone keypad. Please limit yourself to two questions. Please. Please ensure that to me is function on your telephone is switched off if you find your question has been answered you may really just thoughts on the key by pressing star on key once again I'll stick.
Question. Please press star one Steven Joe that the mute function on your telephone is switched off.
Your first question comes from the line of Raul Sinha from JP Morgan. Please go ahead. Your line is a pen.
Good morning, Rob machine learning and good morning all.
Good afternoon.
Couple of questions from my side, I guess, starting off just on the NIM PJ.
Exactly.
Couple of points related to about one if you could talk a little bit about the NIM.
Look.
So quite a big order in the quarter.
And then related to that if you could elaborate a little bit in terms of what do you expect.
Within your service.
James.
Hi Board.
Are you expecting in our books and stabilize around these levels or are you still thinking that we're going to converge towards us to reliable, which is some way below.
Hi, This is Ben.
Then the second one I guess, a little bit more broader.
In terms of the areas, where you're tweaking your guidance submission program, obviously talked about.
Little bit.
I was particularly interested in wealth management and insurance.
In terms of either one other growth initiatives.
You can you can focus to make a meaningful.
You know contribution given where you are.
When you when your notes to them.
Thank you.
Let's go to the internalization of the revenue stream.
Any sort of color.
And for your own wealth management insurance.
Material growth opportunities will be muted.
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.
Sure Austin on them or all of the things.
I mean as you know the HBAP OCA is relatively short dated say.
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 the quarter and say the net interest margin.
The.
Yes, as we look out.
Yes.
And here for seven or eight quarters now trying to predict the passive hi bore.
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.
The again that will translate.
See stabilization I think in Hong Kong, and possibly a recovery.
But if we translate all of that into an outlook.
Twentytwenty why not at an aggregate level I think yeah were broadly as we sit 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 of more rapid 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 seeing them continue that journey in 2020 and intend to continue to invest in that business and we're seeing very good results from that activity.
We've claimed reclaimed a lot of market share in all insurance business in Hong Kong.
We'll continue to invest in that business, we're 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 and increasing the number of relationship managers, we have on the graph on the product capability in Hong Kong we.
I want to take a further across into southeast Asia and into China.
Then more recently Weve talked about the investment 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 of salespeople.
Salespeople based in China, serving 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.
To serve 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 did you consider inorganic opportunities as well.
I think we always look at both organic and inorganic you know you should always place 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'll now take our next question and the question comes from Martin Leitgeb from Goldman Sachs. Please go ahead. Your line is open.
Thanks, Good morning.
Yeah.
My first question is in terms of how should we think about the company progression from here. So obviously to the very strong brand in terms of assisting going 650 influencing.
Excluding transitional influx.
And your comments on dividend dividends being conservative from that.
That means that over the near to medium term you should expect HSBC to run over and above the 14 before dinner sequentially. So do you see opportunities.
Either way either as we deploy more growth for the growing more fully to use.
As announced and when they.
Economic outlook normalizes.
The question I was just wondering if you could.
Give us a Steve Bruce to review the strategic review as your current Gamble Bacon.
This strategy laid out back in February obviously was before the Sun damage.
On the call that outgrowth that strategic review already accrued agenda. They can both in terms of.
Potentially addressing lower return areas, but also with regards to future areas of growth for the group. Thank you.
Okay I'll take the second question I'll ask you to cover the first.
Yes.
On a capital and how we think about Martin 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.
Yes, we would typically expect core tier one ratio to fall in the fourth quarter for a couple of reasons. Firstly, yeah. There things are obviously impacted in the fourth quarter by the UK Bank Levy.
Yes by seasonally lower global markets and wealth revenues.
And we signaled I think as part of my comments earlier that we expect to have a higher cgh average cost to achieve restructuring cost charge in the fourth quarter relative to what we saw at the run rate in the first three quarters.
And we also do you still expect.
Some odd that we write pressure coming from ratings migration now be it yeah, we think continuously surprised this year it.
At bout.
Yes, the degree of ratings migration, which is being less than we might have anticipated.
Yeah, we all set again in our ratios some benefit from private 19 regulatory relief currently that's around 20 basis points.
I think the regulators are always.
Guidance to back out of their numbers when I when I look at our capital ratios and think about access that we've gone up.
And I think going into 21 were always going to want to have a buffer.
The 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 two things.
Why has the.
The degree of stress that were running as a bank and we do you 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 in 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 fact capital back to the group.
As a result.
Yes, we think that we can manage the bank in the medium term to 14 in 14 and a half I think we should aspire to do better than that.
By that aspiration and I think has to be very much promised over the medium term and with us making serious inroads into reducing the grice level of 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 very material drag on on revenue.
Im not it will be a.
The holiday 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.
Gross from new areas of investment, particularly fee income generation activities, such as I talked about earlier, well see in Asia across a broad range mass affluent 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.
Growth of.
Our balance sheet, particularly in Asia, where I do believe there's still growth potential over the medium term.
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 it's 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 our 2022 target of 31 then.
So it will be a combination of those things.
If I think back to the GFC.
There is no one single solution to re boost in revenue post the GFC. It was a combination of things.
We are going to be very much focused on those same activities. This time ride.
Next question Julie much.
Yes.
Thank you. Your next question comes from the line of Monness Kastelic limits on numerous please go ahead. Your line is open.
Good morning, Matthew I'm not us.
Hi, everybody.
Hi, just wanted to ask about the balance sheet and.
Your cash position has grown again this quarter, you're up 130 billion since the end of last year I. Just wonder can you do to help manage that cash position to help.
Boost the NIM will offset the pressure on the NIM will should we assume you're just going to run restructured at very high levels of cash in your liquidity management in the future.
Well 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.
But in the middle of a quite a severe economic crisis. It's good to have a very strong liquidity position and that's being the cornerstone of HSBC. So many years.
Then allows us to have the strength.
So continue to invest in growth they.
They actually side of the balance sheet as as that grows three emerges in the economy.
The cognizant of the fact that Asia seems to be coming out of the Covis crisis.
So then the rest of the world. Therefore, I expect growth opportunities to reemerge in Asia, So that although that liquidity is not earning money in its own right. It has the potential to earn money for us.
On the asset side of the balance sheet and it gives us the comfort.
We continue to make investment decisions in that we have a strong balance sheet, both liquidity and capital.
You and you want to call it out and I think that is customer behavior has been exactly what you would have expected that to be satisfied 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 felt deposits by I think as 12% over $160 billion.
Yeah that that's not a natural year on year growth in our deposit base 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 history down substantially.
On.
She could lines they had with us start to repay those lines. So I think as both consumers and corporate is get more confidence back you'll see those cash balances reducing.
So its more about.
Customers behavior, rather than any treasury.
Groups that you might take.
Yes, correct.
Thank you.
Thank you.
Next question comes from the line of Amanda.
On the call from Barclays. Please go ahead your line is the pen.
Good morning Gents.
Yeah, just the comments.
Just just a couple please.
Just coming back on and say, thanks very much for that.
Comment around consensus next year I guess Jim.
And.
Kind of implied Q4 exit level.
Probably suggest.
An annualized number below 25 billion next year.
It's going to get to where the street is thanks.
I would be looking to do kind of.
Threefold growth.
My best estimate for now given that you probably just going to be de leveraging in the us and Europe India.
Interested in what kind of growth you're targeting in terms I congrats to Asia.
To kind of deliver there is no no.
Phones bounces.
Reasonably robust in Q3, and I guess the second is on.
Well can I just check.
It's around a billion dollar.
Charge.
The best guess of what kind of underlying.
For you guys in Q3 and.
That's the case.
Does that potentially imply a number next year.
Perhaps closer to 4 billion than the 6 billion the consensus.
Housing actually I mean does that not at full FDA or is it is there just too much uncertainty for now.
I'd like yes, as you know our EBITDA. Thank you.
Okay.
Well firstly on Europe.
And I are mass, yes, we don't disagree with the mass at an aggregate level I, yes, we do anticipate that way.
Light to mid.
Single digit loan growth next year to sort of understanding the comments I made about consensus and.
And for next year.
The yeah I would.
Yes, yes.
The part of your commentary that Europe, and the U.S. is de leveraging I think is any partly correct I think a lot of the de leveraging.
That we saw happened in the second quarter.
Yes, there is the ongoing restructuring that were doing in the run down of the out of the white box not all of that is and lending assets and were continuing yeah. We do expect a UK Europe, you asked economies to recover and 21.
And yes, we are seeing a consensus forecast for Asia.
Japan, GDP forecast I thinking a sitting about 5% for buys 21 and 22.
So yes, we do think yeah Asia growth again, well on what outperform western growth.
Oney CLS.
Your EPS consensus I think is sitting at about 6.1 billion.
22, yes.
Yes, when we for Avis, sorry for 21, when we previously guided on.
Loan loss provisioning pre k. that throughout 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 6 billion sales at that high so sort of somewhere between those two numbers, but you know there.
There is still.
Significant Don said the out there around 2021, and I would always say caveat my comments on Ngls January lay around Brexit I think our comments about.
Towards the lower end of the eight to phasing range, you're very much premised on a trade agreement happening and if I tried agreement Didnt happen. Then I think we would have to adjust stop our Hcl estimate you could easily say half a billion dollar big enough additional HCM ALS in the fourth quarter if.
In the next few weeks, we didnt have a trade agreement.
Thank you.
Thank you. Your next question comes from the line of Jason Napier. Yes. Please go ahead. Your line is open.
Good my guidance you for taking my questions Hi, there.
The first one on on loan losses, I'm afraid again.
The.
Performance 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 in just a little over 1% in stage three I Wonder did you have any steps that you might be able to share on.
The extent as well as any distortion in that your customers are.
Seeing as a consequence of the support that's around fairness schemes in moratoria and and so on or.
Is that is that really just.
Conversational in nature, and really that you'll book is this strong at this stage of the downturn.
And then the second question and I appreciate the Susan extraordinarily sensitive area.
I'm, calling were Tonami Act I wondered whether you could share what it is in you will view that HSBC needs to do to avoid.
Sanction under that act.
It appears that there is some leeway around significant transactions as regards the sanctioned individually 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 and then.
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 we 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.
Yeah.
On the rest of market.
And that's why I say I think you see.
A particularly strong performance in our retail book rather.
Relative to other banks that would also be true.
Then on call.
What we've also seen some of the government's gains 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 some normal payment patterns.
At a higher percentage than we had originally modeled.
So that's that's just some general comments.
Yes, I'd like to add a couple more things on that the.
Yes in terms of several yeah, we've obviously got a global portfolio of government support screens 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 you know that government support that we've seen I think for the corporate sector.
That has bought time for the corporate sector to the restructure its full time for the corporate sector to go out and raised debt and equity.
Say.
Sitting here six months ago, we were far.
Far more concerned about.
Downside tail risk than we would be today.
Yes in part because the government support has just allow people to time to restructure their businesses and be better prepared.
And on your second point.
No.
Jason we're confident in our ability to.
Navigate.
The increasingly complex regulatory environment.
And the.
We are committed to complying with the laws and regulations in every market. We operated we fully acknowledge that there is a level of complexity there today.
Given the geopolitics, but we confident of our ability to navigate.
That situation.
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And I think that's what's.
Thus, what I'll say to you in regards to the second part of the question.
Thank you.
Thank you.
Next question comes from the line of attributes as a b to B. Please go ahead. Your line is the pen.
Good morning.
Well I think going into it with.
Yes, just two questions again, I want to get back to net interest income, but I was more interested really in the sort of longer term outlook for net interest income rather than like this year next year.
And I guess two questions I had one.
If I look back to sensitivities you provided us in the past that business 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 that you can do or have done dependence effectively mitigate that said that the bulk of any interest rate impact we should see it to be.
Yes, plus or minus 10 basis points board being so that that would be much my first question.
And then the second question is related to that one of your.
The advantage to HSBC, but probably for the last couple of years being.
Loan deposit ratio of 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 percent of your deposits are either.
Nobody who actually lossmaking.
It is the way to think do you think.
Three four year plan that you can do.
Correct that is that something that I mean could we see that leading up to 80, 90% that to the level or should we will you will see is your preference to remain liquid logic.
Keep that roughly where it is so it was a long question.
Let me take the second part of 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 to a degree.
As you and said earlier, we've had an influx of deposits as customers have.
Borrowed less spend less on accumulated cash.
So you could expect over time that I'd ratio to change, but I think we've always as 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 we operate in markets around the world there are inherently more volatile.
And therefore, we believe strongly in having 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 on a level of 90% on a consistent basis or any point given the inherent nature of our book of business. So.
Yes.
And our first question I think was around then and our high sensitivity tables five years out the.
Yes, I do I say in a static balance sheet I do assume no management action. So I think you should as saying that.
Over a five year period, yeah, we would have some capacity.
To mitigate some of the.
Some of the risks that you shape say in that interest rate sensitivity table.
And just going back to that pulling all night, if you were going to say, but can.
It depends how you look at that surplus and is it earning money on all you remember that hi, hi, liquidity or low I'd ratio.
Is giving you access to an inherently higher return market in Asia and the Middle East.
Yes.
You don't necessarily deploy all the liquidity to get every last guidance of earnings out of it.
Having that liquidity there allows you to access I inherently higher return markets 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 Youre getting the earnings in a different way from HSBC.
Okay. So it's not like this is a strategic priority to you to find assets to try and bulk up that balance sheet.
I draw the falling growth.
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 try something like that and it didn't work out so well.
[laughter] I just wanted to see if you will.
Yeah.
No [laughter].
Thanks very much.
Thank you we will now take the next question from Tom Rayner from Numis. Please go ahead your line to see pen.
Hi, good.
Good morning.
Want to go up.
Thanks for the broad strategic question.
It is and you might sort of put me on 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.
RW a.
Reduction I'm, just trying to think in terms of the potential impact that might have on on future revenue growth and how important it they used to be seen for HSBC to be seen still having sort of gross potential almost still being a bank. That's in high growth markets you want them up.
The V. you as a potential growth still how does that sit with a focus on continuing to look for that more cost savings and a more R.W. a reduction and obviously that comment alluding to household international is quite interesting little to say get to desperate both when you buy a bad asset.
He is off to say that was my first question and then the second sort of strategic issue again, what you'll say all of the investment is being pivoted now by the sound. It towards Asia. If this continues I mean is that a risk at some point the whole question of domiciled, where it makes most sense. It just.
PC to detail the sound is that going to be a manager is that something that's been talked about discuss who decided we're not going to be back at anytime anytime soon thanks.
Yes, 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 or 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 all supportive of a growth agenda as well, so and what Weve clearly said in this state now.
Now 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 uncertainly, 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 that would be part of our agenda.
Thomas So we said on many occasions, we're not revisiting that almost all decision.
We believe there is 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.
Bridge in East and West.
Not revisiting the film a sole decision yes.
Now on.
Sort of guiding fair there on RW I redaction, Tom I mean, you can you can say in anticipation of Rick Hans and I take it back that.
Yeah, we've got a lot of capital, that's not earning appropriate returns and 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 get more capital back as a result of that.
And if we can invest that and growth, particularly in Asia. We are happy to invest 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 guys Stebbins Exane BNP Paribas. Please go ahead. Your line is a pen.
Good morning, good afternoon, everyone. Thanks for taking questions. Good morning go ahead Mike.
And I just want to come back so to speak 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 highest CCH become so perhaps earnings.
Well it might be a small headwind to comp so plus it looks like your guidance around about 30 basis points headwind from all right. So just taking that into consideration the sequence issue 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 dividend announcements.
The results.
And then the second question was just on CP 14, 20, an instruction to the mortgage drill in the UK.
Which is perhaps quite customers, who purchased BC given your low salt through the site density.
Appreciate you will what do you expect to go straight to move up given so we have the regulatory changes and I think you guided to seven rapes and previously given this further meet does it change your view at all on UK mortgage, but Greg you just I guess the diversity it could actually isn't going to tilt the book to high margin high risk business cycles on and.
Thanks.
Yes.
But weve previously guided I think to be right growth for the full year growth sort of.
But single digits.
If you look today that would imply relatively immaterial out apply growth in the final quarter.
Yeah, Yeah that looks to me as we sit today at the top end of the range of what we would expect and you would have to say a degree if.
Our Wi migration that is substantially higher than we've seen recently.
Say, 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 it is a.
The other thing 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 Apple floors. So in some ways. This is just an acceleration of that impact.
Future capital buffers, we would have had to build any way into the UK business.
Okay. Thanks.
Thank you we will take our last question from James just take him 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 Youve you.
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 reviews already noted on this call happened.
Happen when rates were higher I guess is everything on the table as regards the.
UES business, notably the retail business, which has.
I believe off the top of my head, the 50% or lower our loan to deposit ratio. Thanks.
You and I will take the first part of the question I'll say to one and I'll pick up on the U.S.
Cushion siti ones.
Our buyback.
The yeah as you said, yeah, we're certainly not adverse to doing buybacks I think you should saying what we want to do first is reestablished the dividend.
Set a sensible.
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 that is up for 21 in particular.
There continues to be meaningful levels of uncertainty around the economic outlook for 2021, so yeah 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 that true cave 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 right.
Its right nobody ways well.
Adjusted cost.
To use that 11% frankly is 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.
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 high HSBC 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 a c. 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 call to hate Sbcs Holdings plc and release the three key 2020, you may now disconnect.
Okay.
Why.
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