Q1 2021 HSBC Holdings PLC Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Investor and Analyst Conference call for HSBC Holdings Plc's earnings release for the first quarter 'twenty to 'twenty one.
Information. This conference is being recorded at this time I will hand, the call is the choice Mr. Noel Quinn group Chief Executive.
Thank you thank you Sir.
Hi, Good morning in London, and good afternoon in Hong Kong I've got you and with me today.
And I wanted to start by sharing on screen all purpose ambition on all four strategic pillars.
The focus on Australia.
Digitize the scale.
To energize the growth on to lead the transition to net zero.
I will return to the ease in the moment.
First of all run through some highlights before you and takes you through our financial performance.
Yeah.
We've got a good start to the year.
I've seen excellent energy within the business strong collaboration on the determination to get things done for our customers.
I'm very grateful to all of my colleagues for the way they've managed grubbing demands since the turn of the year on for the single minded way that helps our customers the.
Capture both present and future opportunities.
There are many parts of the world, where the pandemic remains a very very real part of People's lives.
All sorts of with the people of India in particular.
And we're working hard to support our colleagues and customers.
In India through this very tough time.
In terms of our financial performance.
A good business performance supported by a net release of expected credit losses delivered reported pretax profits of $5.8 billion.
Which were up 79% of last year's first quarter.
We strengthened our lending pipelines across all of personal and commercial banking businesses.
Which bodes well for our future revenue.
Yeah.
But cost of the law of there'll be wide programs remain on track with $443 million of quarterly cost program savings.
On $9 billion of gross I'll go the way savings in the quarter.
Yeah.
And we retained a strong capital ratio of 15, 9%.
With further growth in both deposits and lending.
Coming out of few highlights on slide three.
The combination of all the digital campaigns on grubbing customer confidence.
So a strong credit card sales growth in Hong Kong.
We saw a good mortgage growth.
Drawdowns up 60% in the U K and 37% in Hong Kong.
Yeah.
Our wealth strategy got off to a strong start with 23% growth inaugural wealth balances.
We attracted $13 billion of net new money into the private banking in the quarter.
And the 11 billion of lack of new money into asset management.
We saw good loan volume growth in commercial banking.
On month by month increases in alignment of approvals.
Nearly double the approvals in March of any one month in 'twenty two 'twenty.
Global banking of markets had a good quarter.
Supported by strong customer activity in capital markets.
We like more than $567 billion of capital markets financing.
Across the global debt and equity markets on syndicated loans.
Including the Orion $40 billion.
Social on COVID-19 response problems.
But she's Orion 'twenty like the sense of the total market.
This was the global performance with good profitability in all regions.
And growth of $3.2 billion in profits booked outside of Asia, compared with last year's first quarter.
Moving to slide four.
I said in February that our growth and transformation plans were already in motion.
And you can see the evidence of that here.
On the focusing on our strengths.
We've already crowded wealth balance sheets in Asia by 18% year on year.
We've grown our Asia wealth ftes by more than 600 <unk>.
Including the Orion 100 of new client facing wealth balance in mainland China.
Yeah.
And we've brought on trade finance lending in Asia by around $3 billion.
Mainly in China on Hong Kong.
On the digitize that scale.
We started to integrate to our market leading pay me out the in Hong Kong.
The into much in checkouts.
And officially launched Patriots P C kinetic for rest of the knees in the U K.
With a range of 6000 customers already signed up.
On their energize for growth.
We're applying all of that we've learned through lock day combined with all the digital investment to improve the way we work.
We're moving to a hybrid model wherever possible given all the people of the flexibility to work in a way the suits both of them on their customers.
We will need less office space as a result.
And we have a plan to reduce our global office footprint by more than three 6 million square feet.
Or a range, 20% by the end of 2021.
We're also relocating three of our global basically see all of us to Asia on a permanent basis.
Taking them closer to our customers and so the core of our business.
On the transition to net zero.
We publish details of the climate resolution that will put the shareholders at our AGM in may.
Well one of the find the members of the global net zero of banking of lives that launch last week.
We maintained our leadership position in sustainable finance following a record quarter for global ESG bond issuance.
With policy and the new told in the U K.
<unk> per sami's, that's the understand that ESG performance.
And to prepare to take action.
It's early days, but we're carrying good momentum into the second quarter.
You and we'll now take you through our results.
Ah Thanks and out on good morning, or afternoon, all our we had a good quarter against the backdrop of ultra light rights.
Reported post tax profits of $4.6 billion, that's up 82% on lots of each phase of call it out.
And an annualized return on tangible equity of 10.2 the St.
Adjusted revenues were down 3% on last day as first quarter.
Largely due to the impact of ultra low interest rates.
But that wasn't notably good performances in some segments, including Asia wealth and wealth and personal banking.
Actually I tried financing commercial banking and capital markets and advisory debt trading and equities and global banking of markets.
Relative to the first quarter of 2020 adjusted revenues also benefited from the reversal of negative of insurance market impacts and global banking and market valuation adjustments.
Expected credit losses had of $485 million net release that's true.
Reflects spice on improved economic outlook for our central scenario is and in the U K and the U S. Now of probabilities attached to downside scenarios.
Operating expenses were up 3% the swaps due to a shift in variable pay of crows to reflect the quarterly profitability.
We remain on track to deliver on target of broadly stable cost for the year ex the bank Levy.
Subject to final decisions on the variable people later in the year.
Lending and deposit balances were both up 1% with confidence and higher loan growth in the remainder of the year.
I call. It tier one ratio remained stable at 15, 9% and a tangible net asset value per share of $7 78.
Out of three cents on the fourth quarter, whereas the retained profits more than offsetting negative reserve movements.
Turning to slide six and looking at the first quarter adjusted revenues across the three global businesses.
In wealth and personal banking revenues were down 1% on a year of guy.
Wealth management revenues grew by just under $1 billion each of the turnaround in the insurance market impacts from the big the loss last year.
And the good performance in equity and mutual fund sales in Hong Kong.
Personal banking revenues fell by $819 million to each of the impact of low interest rates on the deposit margins.
Commercial banking revenues were 14% lower due mainly to the impact of a lot of interest rates on the global liquidity and cash management.
With a good bounce back in trade balances in the quarter and growing confidence on the lending pipelines of the coming quarters.
In global banking and markets revenues were up 10% with strong performances in global debt markets and equities.
52 per cent and 55% respectively.
And capital markets and advisory up more than 100%.
Just to remind you we now have significant exposure to the specs, where some pay of banks benefited from exceptionally high activity levels in the first quarter.
On slide seven net interest income was $6 $5 billion down 14% against the first quarter of 2020 on a reported basis on.
On the rights the net interest margin was 121 basis points down one basis point on the fourth quarter pardon.
Primarily reflecting the fall in high ball of during the first quarter.
On the volumes, we still continued good volume growth in mortgages and by the Hong Kong on the U K.
And strong commercial applications that we expect to translate into volumes in the coming quarters.
Looking forward to the remainder of the year. Despite some continuing rolling impact of last year's shift in interest rates.
We expect volume growth to support net interest income levels broadly in line with the third quarter.
On the next slide net interest income of $6 $8 billion up 15% against last year's first quarter.
But now you're saying last year was negatively impacted by volatile items due to COVID-19.
Overall net interest income stabilized in the quarter compared with four of the previous three quarters.
Wealth and personal banking and global banking on market benefited from higher volumes.
The equity and mutual fund sales on stronger capital market activity.
FX revenues were down year on year, but this was still a good performance again, its an exceptional first quarter of 2020.
Commercial banking was down slightly reflecting lower trade in payment volumes to each of the continuing impact of COVID-19 on activity levels.
Looking forward, we expect customer activity and fee income to continue to recover as economic activity recovers.
Although the solvency remains subject to the impact of new kind of of 19 variants and the continuing success, we've seen to date and the rollout of the global vaccination program.
Yeah.
On the next slide we had a net release of $435 million of expected credit losses in the quarter.
This compares with a threep on $1 billion charge in the first quarter of 2020.
The net release was across all global businesses and reflecting on improvement on the economic capital up notably in the U K, including a reduction in downside probabilities.
Last year's first quarter included a large charge related to one single name corporate exposure in Singapore.
But this year's first quarter was still very benign per stage III charges the.
Kelly on the wholesale side.
We've retained E C. L on series G. I the lives of one $5 billion we're on.
The same as the fourth quarter, recognizing the rest of that still exists from the pandemic.
But based on the current economic outlook, we now expect the ECL charge for the full year to be below the median pay on three of the cycle planning range of 30 to 40 basis points.
Turning to slide 10 first quarter adjusted operating costs were $220 million higher than the same period last year.
This was driven by higher performance related pay accrual of $474 million.
Primarily due to a shift in our career and a higher percentage of variable pay this quarter relative to the first quarter of 2000 on 'twenty.
We made a further $443 million of cost program savings in the quarter with on our side she added costs to achieve of $319 million.
To date on cost programs have achieved annualized saves of.
Some $2 $2 billion against our target of five to $5 5 billion.
With the cumulative cost of Stuart's ive spend of $2 $2 billion.
We're not softening of vigorous approach on costs. We continue to expect on 2000 on 'twenty one cost to be broadly in line with 2020, excluding the benefit from a reduced bank levy.
This is subject to final decisions on our variable pay cold later in the year, which will be primarily driven by the pretax profitability of the group.
Turning to capital on Slide 11, the impact of profit generation in the quarter was offset by fair value movements on other deductions.
Including around 10 basis points for foreseeable dividends.
As a result on core tier one ratio was unchanged at 15, 9%.
In line with our shift to a payout ratio of approach going forward, but the deal.
<unk> for the foreseeable dividends was based on one quarter of the 2020 15, saying dividend.
We expect to make the same capitals of action of the next two quarters.
Just on the same trailing dividend the assumptions.
But to be clear, we're not settling with the soar 2021 dividend intentions.
Excluding FX movements risk weighted assets fell by $6 billion in the first quarter due to changes in two of our portfolio of mix and methodology and model updates.
Mind, you, we do accept expect southern core tier one headwinds going forward from regulatory changes.
They haven't changed from the full year.
So in summary against the backdrop of ultra low interest rates.
This was the strong quarter for us our best and reported profits since the onset of COVID-19.
And an annualized return on tangible equity of 10, 2%.
While the results were flattered by a net release of Ecl's, we sell of strong performances across their various parts of the bank with.
With continued strength in Asia, despite the impact of of very low high ball and I'm the chair of recovery in profitability outside of Asia.
As we look out there of remains heightened levels of uncertainty.
Particularly driven by the continuing emergence of COVID-19 variants.
So I would expect us to retain the conservative position on capital funding and liquidity for the time being.
However, based on the first quarter performance and the strength of the economic outlook, Noel and I am more optimistic about this year, albeit cautiously than we were at our full year results in mid February.
With that Sharon if we could please open up for questions.
Thank you Mr. Stevenson she would like to ask the question stayed please press star one on your telephone keypad and please limit yourself to two questions. Anthony Please do so without the need of function on your telephone is switched off if you find your question has been on since you've made the move yourself from the queue by pressing star on to once again to ask the question.
Jim Please press star one on please limit yourselves to two questions only Pisa true without the need function on your telephone is switched off.
Your first question today comes from the line of at fast Kpis of the please go ahead your line of Dayton Alright.
Right.
Yeah, good morning, everybody.
I guess, what's the two questions actually if that's okay I didn't expect to get on first of its a bit of a surprise you called me out on the first question was on capital I was sort of surprised that the the capital ratio of wasn't stronger given the the earnings beat and risk weighted assets falling and I just wondered if you could give us some.
On some more color around the minus 440 basis points I'm hitting the chart exactly what's driving that and how we might expect that to progress going forward.
I guess that was the first question and then the second question was the restructuring charge you seem to be running some way lower than you are.
Perhaps in formally guiding to anyway at the full year should we expect the used to pick up during the rest of the year on can you give us sort of any kind of on on how that might that might end up.
Yeah look on the restructuring charges, we're not changing our full year guidance. We gave the full year results you're right Q1 was unusually low. So yes, you should expect those to pick up as the year progresses.
On capital Yeah, a few things the way deductions for fair value reserve movements.
On cash flow of negative FX movements.
There was the high deduction from Baidu com as its profits increased and again night that we talk about a 10 basis point deduction for the.
The foreseeable dividend, which is the need for us that represents the change in policy, because we've shifted to a payout ratio policy.
Okay. So good.
Based on what we can see the bulk of the sound to me like that the acute it to this quarter. That's of note does not on sort of on the long yes, yeah. The purely after this quarter.
Perfect. Okay. Thanks, so much.
Yeah.
Thank you. Your next question comes from the line of thought Kumar from but then please go ahead. Your line is open.
I'm wondering how did the couple of questions. The first one of the margins and you gave the color on the during the call, but some of it gets the downgrade in all your major regions, just just to understand how much of that is.
I'm kind of lower rates feeding through previous you know raised slightly the other hard work and is there anything on the competitive pressure that's good from those margins down to the whereas the all about the background yield Kevin rates. The second question is just on the white box actually so it does look like.
The Lord of the Black box from the U K Q you get commercial a he's got right where they made the use of promotion would be what did you see that was driving that within the outlook on the backs of you've rolled out with it.
The points that you were seeing on the corporates, who you get closer on that that would be okay. Thank you.
Yeah on on.
Mmhmm that was I think almost exclusively driven by the shift in the yoga is I mean, what what we're actually saying yeah, we broadly repriced.
All of our liabilities now.
On on the asset side actually we're seeing some opportunity for margin expansion. So for example in the U K, we increased margins to try and slow down some of the in flight that we were saying.
And we have for several quarters seen some opportunity to reprice in Asia on the commercial side.
Hum.
So we do think the we are now close to trough ing on NIM I mean, obviously highball.
Slipped a little bit further in the tier one but as you know if that translates very rapidly into the.
The books, given the share what type of nature of assets and liabilities from the Hong Kong.
And the net interest income.
Yeah, a lot of and growth in the P. One was sort of.
Please the fendt and we're signaling that we expect.
Single digit growth over the full year, so that does imply.
The much higher growth rates and lending volumes in the in the remaining three quarters.
Which we've got confidence in getting the pipelines that we can see.
Which should help support net interest income over the remainder of the year, even if there is.
So some of residual NIM pressure coming from the roll off the books as a result of last year's interest rate shift.
On.
Write backs are youre right that there was.
The larger write back and commercial particularly in the UK commercial I think in part that reflected the very large reserve.
Buildup that we had last year.
Look over all our debt, we're sort of various things going on which might this an unusual quarter for us Firstly, we had very low.
Stage three losses, yeah around about a 300 million analysts out on the quarter.
Which was unusually low we think.
And secondly on stage one on stage two of them okay.
Hey, thanks for laying on improvement in our economic forecast the central scenarios in most places that we do business coupled with as you know we went into the full year of with.
A very large probability of particularly in the U K against downside scenarios, which we have reduced on the back of the very successful vaccination program here and we would expect we're all sort of thing that in the U S and we would expect to see that in other markets with the vaccine programs ramp up elsewhere.
That's great. Thank you.
Thank you. Your next question comes from the line of aim of opinion from Credit Suisse. Please go ahead your line of Saipem.
Good morning.
Okay got it.
Great, but my question is but thank you for your questions. Most of my questions with the welcome per school banking rationalization.
And from the U S. I was just wondering what the appetite might be to use released the risk weighted assets to potentially excess capital.
For the near all of the markets, where it makes sense.
The large group of bankers puts up the consumer balance sheets per se.
Go to market.
So just wondering what you know way of what have you.
Yeah, Mark it's more of it I think the joke with peace of mind I hate to speak to.
Makes sense to be up because of all of its model N.
Keith.
Okay. Thank you.
As you know our primary focus in the top of your P. D business used to grow all well part of that business.
And therefore, we are looking at opportunities for both the organic.
On bolt on inorganic opportunities, but it is primarily focused on the wealth businesses.
Either acquiring products or the distribution capability in wealth management insurance and private banking.
The primary focus.
Rather than just the geographic expansion of retail banking capability.
So we're more focused on that.
Or opportunity.
Yeah.
He will be out of Asia based largely.
Great. Thanks.
So actually.
The way that we should revert to the the.
It's got to be net balance sheet bolt on M&A that would confuse many of excess capital. Its really just you'll take the still more on the organic strategy. We would use of capital has to do an M&A deal, but it would be it would be one way volume is the less retail banking assets more wealth management capabilities. So we will we.
Use of free we will use free the capital if we see bolt on acquisition opportunities.
But as I say, it's more around wealth management.
Capabilities Sunny day retail banking capabilities, we will look at opportunities outside of as very much.
Yeah, and I would use on Mexico, you listened to the word bolt on we're not instead of planning anything substantive so yeah, well at Eaton to some of the excess capital, yes, but it will be relatively modest if we choose to do anything.
Yes.
Maybe it yourself the quick follow up on.
Having said that and.
Just very good months of comments from the cool too.
On from the notes, we expect fully backs this year.
Perhaps the paint the pole sort of towards yeah, because I mean.
The capital, which HSBC the critical thing.
Yeah.
Yeah. So I mean, I think we think clear on our distribution.
Policy suddenly on dividend policy reshaped Lugano shafts, two out of 40% to 55% payout ratio from next year.
That's gonna be old cash our cash she able kind of transitioning towards that.
And we were close to 19% at rates you had last year.
But we do expect yeah subject of seeing how the second quarter guidance to be in a position to pay an interim dividend.
In the middle of the year.
And then reevaluate whether or not we'll shift the quarterly dividends from at the end of this year.
On buybacks look.
Look we continue to have now the current intention to do buybacks this year United that we've used buybacks in the past. So they are certainly something that we do and do actively consider as a tool of capital management.
And we are committed.
Committed the active capital management, Yeah, we do think at the moment debt.
Yeah, when we look at consensus versus where we are we do see IW one of your growth probably being a tad higher than is in most people's models.
We see library of thing Fuller, then I think on all of your currently are currently modeling yeah. That's on the back I think of.
You had very strong growth that we continue to see in mortgages across the U K and Hong Kong.
Yeah. The a commercial pipeline that is building nicely and just in context and one of the slide you'll see that on the national pipeline is running price of 50% higher than it was in Q4 and Q1.
And we do think auto segments like consumer credit will bounce back as we recover out of COVID-19.
Yeah.
Yes, there are about $20 billion of regulatory headwinds that we see this year.
Offsetting that is the sort of $30 billion or so of a run down that we expect.
We're making good progress on that and we did about 9 billion on the first quarter.
And the last thing is we're still cautious on credit rating migration.
Yeah, particularly as some of the government support packages roll off yeah from here in the U K. For example, it's the law of raw was off on what impact that has on quite up later in the year.
So I, yeah, we are probably slightly more cautious on the <unk>.
Capital and the excess capital then would be in your numbers at the moment.
That's one of the cool thank you very much.
Thank you. Your next your next question comes from.
The line of Tom Rain on Umass. Please go ahead your line of Dayton.
Yes, there's the morning and both of them going on just some questions. That's.
Two questions the safest on credit quality.
And you don't see released 7 billion from stage one to the guys.
The Q1, I think we like $6 $8 billion still left.
On the balance sheet and you'll.
Your guidance and if I could.
Most of it the Osage and now you're saying it could be but I would suggest it's.
So the pool, we have challenge of somewhere around three if they didn't the little lower.
One is that guidance of itself what does that imply in terms of the stage one two the leases for the rest of the 2021 and then I know you've already touched on this I was going to on seats and then just to expand on your thoughts about when the government programs actually do and what's your thoughts on the sort of release each day.
Well the to get to the pay the debt with the first question in on the second one on cost space.
Okay, well look on on E sales out of Manhattan.
Sat on my.
Remarks that we retained uncertainty I realize of about $1.5 billion.
The way, we think we're retaining currently about 70 per cent of the reserve build up in stage, Brian on the stage two.
If we were sort of stick to the central economic scenario I would think you would see some of that debt relief. This year, maybe some of the get released in the first half of next year I think we're kind of continued to be pretty cautious about how we do relief.
We're not expecting a repeat of Q1 incentive pay of the retail performance during the remainder of the year.
And the stellar as I am a pretty broad array of outcomes I think depending on yeah.
Yeah, how we progress out of kind of the and obviously they're out of few risks on the horizon, particularly around.
The variance on whether any of those become vaccine resistant.
Yeah, where we land below 50.
50 basis points, we will see but you should assume that the within that that way of confident that we will end up below the 30 basis points.
Okay.
I mean, you know as well you can pull on the way we had talked to a cautiously optimistic approach the reserves on the way the economy will develop you know we're optimistic we're seeing good signs.
But it's still relatively early days of the vaccination program. So that's why we wanted to Italian of around 70% of the provisions of we created last year.
We've had a very good stage three quarter in Q1, with only 300 million of of stage three.
<unk> that's below the normal trend line the one would expect.
So I think it's right to be cautiously optimistic on it.
Continue to position the balance sheet cautiously.
Yeah, I mean, I think I was supposed to be the evening to all of you being too cautious now the I completely get the point about the uncertainty of either.
The government of effect.
And we kind of just you know us the as the year develops we look just on a quarterly basis all of you of what the future of holes.
Okay, Let me thanks.
On cost.
The.
Your comments on book will be stable pool of the full year fall in the.
The related issues.
I mean it relative.
The last year and I, just you know to Q1. It was very neat 25 per cent of the pool of weird Tokyo ex the levy and if I annualize Q1 this year on on Nokia.
So the sleep of St twice, I'm, just trying to get the filter.
The way of confidence is coming from the it's just the incremental cost savings or.
Oh, you're really building in an expectation that the Stifel was related pace is going to push the shifts away from that broadly stable.
If the A's performance related that's not a bad thing I, the necessarily but just trying to get a feel for how confident you all the idea on that pool of the stable I'm kind of it.
Yeah, So look on in the first quarter of.
The.
There was about a.
Three to 400 million dollar adjustment due to the.
Uh huh.
Taking a high at.
A higher accrual for variable pay you can pay at the Q1 last year.
I think if you back that number out.
What you'll see is the yeah, we were broadly flat costs in the quarter of and you would expect the variable pay accrual of rather than being equal to be a few hundreds of millions of dollars lower for the remaining quarters if the yeah.
So I think gives you confidence on that stay.
The statement.
Secondly on the variable pay accrual I think what we saw.
And as part of the full year results as you will all know there was a very different approach across the sector in terms of.
Performance pay we took out of pulled down by close to 20 per cent for the full year, but we saw some peers, particularly U S. P is and particularly from European peers. They were concentrated on the wealth and investment banking space pay in very different places so I would guess.
And on since of the fact that for competitive reasons, we may need to top off of our current pool the assumptions as the year progresses.
But I need to be done on the context of improve profitability.
But absent that change and again in context, we paid about $2.8 billion on variable pay last year. So you can the are unmatched in size what that risk is but absent that we're very confident that we're on track to deliver a broadly flat cost of there's yeah and I would stress there.
No change at all in the intent of old management focus on the cost program.
Okay. Thanks, a lot.
Yeah.
Thank you and your next question comes from the line of Guy Stebbins Exxon. Please go ahead your line is anytime.
Good morning, everyone.
Thanks for taking the questions I had.
Firstly on all of those guys and then just if we could come back on course as from the check them on the other.
The age of your commentary that you see all of the rates being higher than consensus is that the reference the old entrenched and sort of people I'm just as we looked at Q1 on encouraging cool. So you can take the FX gross sales. So it didnt really start Q2 sort of the.
Of course, they used to come with the strike with the consensus slips.
On 2021 of them.
Perhaps you're more cautious in terms of credit migration and on the body of guys I just want to check if it's the 'twenty one will be on the story the.
And then some of that's just on costs should come back to your commentary on performance of cool I think Rishi said it would be driven by P. B T soldiers ship was that more weighted to the pre provision profit with independents book.
Two below the low.
So on cost of risk.
That could be of factual as it moves with the competitive pressures that you just talked to the Detroit the Lucky.
Yeah, I mean, the variable pay as set yeah, largely on bottom line profitability, but we do take some of them for example last year.
I think profits fell by around the food and we took the variable people down by 20%. If we sold the reverse guy who does it.
The Sky this year and it was largely driven by ECL outperformance I don't think we would take all of that outperformance into a change of variable probably correct.
You got remember we.
What we would be managing to is leaving the piece of one side. We're on track on confidence of our ability to deliver the transformation cost savings that we talked about.
In February on the February before the so the underlying cost position of the bank is well positioned.
And on track to meet those expectations.
We kind of strong profit performance in Q1.
On the Fool you know, we've we've talked up the V P for the Q1 performance.
We'll have to see what happens in Q2, Q3 and Q4.
But the most important message for you is we're on track for all of the line transformation cost savings.
On the question on out of your eyes.
Yeah, just in terms of 22 again I think.
Yeah, we would be confident of achieving mid single digit loan growth.
We've probably got another 20 or so billion to go on our on debit or a reduction program next year.
But then we will have.
Yeah the Boswell.
Free reform coming through which will probably lead to a 4% to 5% uplift in February of next year. So.
I don't know how that compares with consensus, but broadly that slips and I head up the mine them.
Okay. Thank you.
Thank you. Your next question comes from the line of Manus Costello from Autonomous. Please go ahead your line of Saipem.
Hi, Matt.
The only thing.
Come back on the the point on the coast piece I just wanted to understand the more.
How it would of both going forward because from what you're saying it sounds as if to the extent that.
Revenues of being led by areas like well from Nokia that will drive potentially on a.
The variable.
And therefore on expenses than you'd been guiding of pool, but on my right to say if revenue growth of hands off to more balance sheets of light type.
And I on the commercial banking and we wouldn't see that.
Yeah.
Hum.
The man, if there's always kind of wake up the mix of.
Our internal metrics of what we think yeah, we can afford based on the profitability of the group, but we can never be on I'm cognizant of what's going on on the market and so if we are seeing competitive pressure in areas like Asia wealth and.
Investment banking more broadly.
Yeah, we have to be in a position to respond to those competitive pressures, but I think the statement goes right to the extent of what will you see is a rebalancing of.
Profitability being driven out of the commercial bank in the retail bank are that won't necessarily drive the same.
Competitive pressure on the performance, but none of us the only other thing I'll say is when we talked about our future growth plans in February.
We assumed a growth in the revenue coming.
In trucking back to 10% ROE to the plus.
We had a rebound in sales we had for the poll of the phone calls take Oh, we had a reboot of revenue from a reboot of the economy and incremental activity that we're investing in so we had assumed revenue growth.
Going forward.
In 2021 and 'twenty two on deal.
Therefore, we had assumed the growth in profit.
Therefore, we had assumed the growth in variable pay so much stuff not the path.
It was all the inherent in the cost statements we made back in February.
So we have put into our future forecasts a growth N V T too much the growth in the P&L that we expect to see.
One of the thank you saw in Q1 is.
As the particularly strong performance in Q1.
The well, it's over and above the underlying cause of that gets us to that 10% rote.
But it's a part.
Part of the performance continues in future quarters than maybe a lot of assumes growth in V. P.
It will be higher in the future of then was in that original assumption, but so too would be the P. P T and so two would be the revenue.
I assume the reason of growth in V P inherent in the plunge the.
On the pinned the journey to a 10% ROE Tse if that makes sense.
It does thank you that's clear thank you very much.
Yeah.
Thank you.
Your next question comes from the line of Yeah five P. M from Citigroup. Please go ahead your line of Saipem.
Oh. Thank you for the question I have a question related to the topline really trying to understand there could be also on non interest income I forgot wealth in particular of strong on the slide for you mentioned attached to the net.
Money for private banking, you see very strong growth in the school today as well just trying to separate some of the internal.
The internal changes.
Well, it's that you'll have dogs on the sustainable basis from a more volatile market trends would you be able to give us on some more detailed guidance in terms of how much well it should be like.
The new clubs you are expecting for this year puppy awful kind of yeah.
On the economy, a tiny thank you.
Yeah. It was hard to hear you book I think what you were looking for was more of an indication of where the growth in wealth is coming from them.
And let me also because we started that journey of investing in our wealth businesses last year.
And that was invested in <unk>.
The build out of our product capability some of them.
We were investing in both physical non Paolo to drive that.
Growth in the wealth managers, but we're also investing in digital infrastructure, So our insurance business in on cold, particularly.
The launch of a lot of new initiatives last year, a new products digital base supported by extra sales people and that's what's been driving the growth of our wealth revenues.
In Asia.
I would it's it's not just market sentimental market valuations of there are driving the growth it's actual underlying growth is coming through.
Still have more to do we recruited an extra 600 wealth managers in Asia in the first quarter of load 100 of those in China as part of an expansion of our clinical opportunities.
Acuity.
The conversion where are we getting the business, where how we source in the wealth of opportunity.
Well I'm pleased to say, we're sourcing a lot of it from our existing client base.
Iran about 60% of the net new money that goes into our private bank comes from commercial banking clients and global banking clients the owners of those businesses.
Putting that personal wealth with us.
The same is true of asset management around <unk> 75 per cent of the net new money for asset management is coming from internal H S. P C clients.
So it's true organic growth on an underlying level not just growth in assets as a consequence of market revaluation of those assets. There is an element of that in Q1 as markets revalued.
It's there's a lot of it coming from underlying growth.
Thank you, possibly just give us some the guidance.
Guidance in terms of the well that's on your growth outlook.
Oh, okay.
We we talked about our revenue growth outlook of the.
In February.
Were assuming for Asian wealth, we're assuming close the double digit growth in assets as we said in February on mid single digit growth you know the regions outside of Asia.
And that's.
Well, the resulting probably Asia wealth revenues to grow at around about 10% CAGR over the next few years.
Thank you.
If I remember correctly.
I think if you look on market sentiment of market that you're probably looking at the on the line market in the Asia probably growing.
The 678% so we're trying to I pulled on the market.
On the organic investment program that we're putting in place.
Okay. Thank you.
Thank you. Your next question comes from the line of Mouse and a day people again. Please go ahead. Your line is open.
All right.
Good morning here at the moment.
Thanks, much for taking my questions the.
The first one is just on on loan book loan demand.
I was trying to understand a couple of points firstly, how sustainable do you think the current activity spike in the UK mortgage market is obviously.
With all of the U K banks of benefited from very strong mortgage pipeline is.
And on.
Pricing I'm, just wondering tie that into your overall comedies on loan demand the war games.
Fucking stood out to the rest of the year.
And then just related to that.
There's the element of pent up demand in other areas of loans.
On the U K is on the they'll be across your footprint as well.
The bulk of that out if you could talk a little bit about where you see pent up demand and loan growth.
Yeah, Let me deal with the consumer book for the retail of the retail banking businesses.
Well I think in the U K.
It's true that there is a strong.
The strong activity at the moment the.
Absolutely be an element of the which is driven by the stomach juicy of holidays.
Put in place.
Is that a likely to come to an end shortly.
But I also believe there is some structural changes taking place in the U K in the the the housing market in the U K I think will remain active for quite a period of time as the housing stock has continued to be built out.
So I think there's there's an underlying growth curve there on this.
The potential temporary growth curve as a consequence of the stomach jutzi of holiday.
We I think we'll see a pick up in activity of all consumer lending unsecured lending and credit card activity in the second half of the year not just in the U K, but across the world.
You just take our own balance sheet, we grew last year of deposit balances by around about 170 billion of last year.
Elements of the hundreds of seven 2 billion will turn into cash spend by consumers and businesses in the second half of this year. We'll start you know already started but will continue to pick up.
So I think you're going to see traditional unsecured lending and credit card activity see an increase in the second half of this year.
Hong Kong remains strong demands on mortgage growth and we're pleased on the.
More broadly into the wholesale business.
What I saw at the end of last year, particularly in Q4 was a lot of activity from corporate borrowers seek.
Speaking of facility renewals of facility extensions to get ready to get their balance sheet ready for the upturn in the economy as they started to see vaccines come on stream, but I didnt see the <unk>.
Translate into long term loan draw does in Q4 of last year I have started to see that take place in Q1 of this year.
So for example.
The trade balance sheets in Asia grew by 3 billion in the first quarter of this year.
That's an indication of underlying economic growth.
If the vaccine programs continue as they currently all of you could assume that that trend will continue on could well pick up.
And then more generally there was a girl of starting to see a drawdown in those facilities that were negotiated at the end of last year.
The in place in Q1, so overall, our commercial banking balance sheet grew by 2 billion in Q1 of this year.
And all of personal banking loan book grew as well.
I think its early stage of growth on <unk>.
I could expect the trend to pick up as over the next three quarters.
Thank you very much the that's really helpful. I was wondering if I can oh.
One more on capital of just a very quick clarification I was wondering if you have any further thoughts on the stress testing timeline. This year instead of any scope for the regulatory restrictions in the U K to come on here.
For yourselves.
Well I mean, I think you know the there's a sort of a kind of many of the stress tests being done by the bank of England on the P. R. A M.
And and that was in the absence of them haven't done of annual cyclical scenario of the backend of last year.
As we sit here today, I guess, we're not expecting any surprises out of that given.
Yeah, we've been extensively ER stress testing on our books through the pandemic and in recent months, obviously outlook is improved side.
Yeah.
Not expecting them.
The bank of England at this point to be it we're expecting us to be the driver of of five distribution policy I guess, it's the better way of describing it.
Got it okay.
Thank you we will now take our last question on the question comes from the line of Martin Light get from Goldman Sachs. Please go ahead. Your line is open.
Hi, Martin.
So you didn't hang on.
Thank you for taking my question I, just think of flow.
Flow up on an earlier comment on on margin outlook from here and I was just wondering if.
If you could maybe shed a little bit of light and how we should think of a linear progression here for that for the main business lines, So sort of age bumps of Hong Kong.
On the Shanghai Banking Corporation, and then because of the U K ring fenced bank.
I was just wondering if it's fair to assume debt did not incorporate the kind of the 80 Bucks is but I know the true.
In Hong Kong from here.
Should see stability and if anything it's on boarding some good ones and if anything some of the remaining Muslim pressures coming from from.
The structural hedge the Aloha.
In the U K and I was just wondering should we assume margins the remainder or do you feel that in terms of loan she loves what we have seen.
Voice there.
It's the guidance. So I think you said earlier that the voyage, you and I used broadly representative of the four.
For the year, sorry, if I missed the right does that imply the somebody.
The loan growth you would expect some sort of margin compression.
The 2021 of them.
And then just a follow up on the Cup of Tea lovers, just wondering as you put the update us on how much progress you made in the course of you cover the inefficiencies within the group whether you could let us know how big the principal investment book is at this stage.
And what bush of Nichols from throws into Asia as opposed to flow.
Thank you.
Yeah on the.
The NIM question.
You know the mountain that not all of our.
Interest rate sensitivity is in the first year I mean, there was a degree which we talked about previously about a billion dollars of.
Interest rate pressure coming from the law of rights into 'twenty, One and then obviously highball.
Yes, it did drop a meaningfully in the first quarter has.
Remaining broadly stable on the second quarter of the levels of the first quarter of so far.
So we do think yeah, we are getting towards the trough of net.
Net and pressure.
But it would be of big cold decided that keep on most of the trough, but I still think there will be an element of.
An element of pressure into the second quarter, and then obviously the volume growth there and provides us confidence that the impact on net interest income is negligible.
I would say about the growth that will be back end loaded as we go progressively through the year and as confidence builds during the year and therefore, yeah, you won't get much as much of that benefit into 'twenty, one, but you won't get all of that benefit into 'twenty two.
Yeah, I talked about earlier of saving that the you want on net interest income was a good guide to the annualized net interest income for the full year.
But you should take away from that day for the World is that confident about decent net interest income growth into 'twenty two.
Oh on the Hong Kong are most of the impact of lot of the high ball gets translated into our books within three months.
So the equity the reverse is true if we were to get back to a better.
At the shortly in the high book is we would see that very rapidly translate into improved net interest income and non call.
I'm, sorry, I didn't quite catch the second question.
Yeah I was just wondering on the only a couple of the inefficiencies. So previously on spoke of.
I think the company.
Right right.
Multi year program of web.
Yeah. We've got for example would probably $5 billion plus of excess capital in the U S.
That will come out, we expect diver of saver or seek out of cycles.
As far as capital optimization opportunities that we're working on on Asia of which will take of he is to effect.
So I would say, it's I sort of multiyear program of work.
We know what that program of work is and where just the aggressively working on our and some of it is driven by.
By sort of ongoing discussions with regulators.
And I think the confidence and write down eight of the seed capital release coming out of places will obviously improve as we see a stronger path out of COVID-19.
Very clear thank you very much.
Thank you I will now hand, the cool that gave it to know for any closing remarks.
Sharp.
So to summarize we've heard of good start to the year with good business growth on an improved lending pipeline moving into the rest of the 'twenty to 'twenty one.
We're making good progress on our growth and transformation plans.
And remain on track to deliver what we promised day in February.
We remain absolutely committed to our cost of transformation plans.
We're feeling more optimistic about the rest of the year than we did in February.
But we remain cautious around the uncertainties that remain.
If you have any further questions. Please do pick them up with Richard and the team.
Thank you once again for joining us today.
Thank you, ladies and gentlemen that concludes the call for the H S. P. C Holdings Plc's earnings release for the first quarter 'twenty 'twenty. One you may now disconnect.
Yeah.
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