Q1 2022 HSBC Holdings PLC Earnings Call
<unk> results.
I'll run quickly through the presentation and then open up for questions.
At our full year results and all and I set out a path back to double digit returns strong revenue growth driven by volumes and rising rates and tight cost discipline.
Our strategy to get there is on track all of these building blocks were reflected in our first quarter results.
Strong underlying volume growth across most of our businesses with $21 billion of lending growth.
And lending up in every global business and region.
The benefit of rate rises is now being reflected in our net interest margin net interest margin was up seven basis points in the quarter.
Our highest quarterly NIM since the second quarter of 2020.
And implied consensus policy Reits have further strengthened since full year results.
With further positive implications for our net interest margin and net interest income in 2022 and 2023.
We maintained good cost discipline with adjusted costs down 2% versus first quarter last year.
In line with our target of keeping costs flat this year and within a zero to 2% growth range for 2023.
Despite more challenged macro conditions. This quarter, we remain firmly on track at this point to deliver double digit returns in 2023.
While reported profits before tax were down on last year's first quarter. This mainly reflected a weaker quarter for wealth.
Driven by a combination of weak markets and Hong Kong Covid restrictions.
Together with a turnaround towards a more normalized level of expected credit losses from net write backs in first quarter last year.
On capital with a 14, one 1% core tier one ratio, we're now back within the 14% to 14, 5% target range.
We've completed the $2 billion buyback, we announced that our third quarter results and we expect to launch our next $1 billion buyback in early May following our annual General meeting later this week.
And with the now expected benefit of higher interest income in 2023, there should strengthen <unk> outlook and capacity to fund attractive growth in distributions.
On the next slides, we are seeing good momentum across most parts of our franchise, reflecting our focus back to areas of competitive strength.
In wealth and personal banking, our underlying insurance business performed well.
With new business levels equivalent to pre pandemic sales.
And that's despite the closure of the Hong Kong mainland, China border and the impact of Covid restrictions on Hong Kong branch openings.
And our mortgage franchise continues to underpin good growth in personal banking.
In commercial banking, we saw strong lending growth of $9 billion or 3% versus the fourth quarter.
Credit and lending up $6 billion in trade balances up $3 billion.
Commercial banking fees were also up 13% the seventh straight quarter of increased fee income and commercial banking.
We were profitable in all regions, including strong performances in the U K ring fenced bank in the Middle East.
You will have already seen sustainability announcements, which we're now working hard to implement.
And we made further progress in reducing our real estate footprint with a further seven buildings closed in the first quarter.
Our footprint is now down 25% since the end of 2019.
On the next slide we provided an update on our business in Hong Kong and mainland China in light of the material Covid restrictions so that'll be in place in both markets in Hong Kong branch closures and soft markets clearly impacted revenue.
But we continue to see good sales activity in the quarter underpinned by the increasing shift to digital sales and the investment we've made over recent years to support us.
Our remote sales capability, particularly benefited insurance, which delivered pre pandemic levels of sales volumes. Despite the branch closures and the continued closure of the mainland China border.
As we've seen globally with the short cycle of <unk> Hong Kong is now starting to reopen branches are operating normally again as of last week and we expect client activity to begin to normalize as a result.
In mainland China, we had another solid performance despite the impact of Covid restrictions on our own team and more widely.
Revenues were 9% were up 9% on last year's first quarter lending grew by $6 billion or 11%.
With a strong commercial banking performance as the standout.
Turning to slide five.
Touched on most of this already.
Adjusted net interest income was up 10% at $7 billion in the quarter.
Reflecting both rate rises in balance sheet growth.
But non interest income was down 16%, mainly due to insurance market impacts and the effects of COVID-19 restrictions on Asia well.
Tangible net asset value per share was $7 80 down eight cents with profit generation more than offset by fair value movements and the impact of FX.
Turning to revenue on the next slide while wealth and personal banking revenue was down 6%. The bulk of this was due to insurance market impacts.
We had a good personal banking performance revenues up 7% on first quarter last year benefiting from rate rises in balance sheet growth.
This was offset however by a weaker quarter in wealth with revenues down 19%.
Driven by the impact of weaker markets in Hong Kong private restrictions.
Commercial banking revenue was up 9% spread across all our main products with continued good fee income growth.
<unk> and <unk> were the standout performers <unk> up 21%, reflecting both higher balances and higher interest rates and trade, reflecting continued balance sheet balanced growth.
While global banking and markets revenue was down 4%. This was mainly from lower revaluation gains in principal investments.
Markets and security services revenues were down 2% against a strong first quarter last year.
Underpinned by good performance in FX up 15%.
Global banking was up 4%, reflecting our different business mix to many peers with <unk> revenues up 21% from higher rates and volumes.
On slide seven net interest income was $7 billion.
<unk>.
$493 million versus last year's first quarter. This was mainly driven by higher rates and volumes, particularly in wealth and personal banking and commercial banking.
On rates. The net interest margin was 106 126 basis points, that's up 70 basis points on the fourth quarter.
Implied consensus policy Reits have further strengthened since full year results with further positive implications for net interest income in 2022, and 2023, giving us even greater confidence in achieving double digit returns in 2023.
On the next slide on credit performance, we've reported a net charge of $642 million of <unk> in the quarter, some 25 basis points of average loans.
The overall quality of our loan book remains good stage III loans as a percentage of total loans are stable at one 8%.
The ECL charge includes around $250 million relating to Russia exposures and around $160 million relating to China commercial real estate.
We've released most of our remaining Tiger 19 provisions some $600 million in the quarter.
This was largely offset by additional reserves of $525 million comprising $275 million of forward economic guidance, driven additional expected credit losses.
And a $250 million central management provision, reflecting a cautious approach given the increased economic uncertainty.
We continue to expect <unk> to normalize towards 30 basis points of average loans for the year.
Turning to slide nine first quarter adjusted operating costs were down 2% over the same period last year.
Driven by continued cost control and lower performance related pay accrual relative to last year's first quarter.
As in previous quarters, we are continuing to invest in technology, while reducing other via ethos.
We've made a further $600 million of cost program savings during the first quarter with Costa achieves spend of around $400 million.
We remain on track to achieve the higher end of our five to five and a half billion of cost savings either the three years to the end of this year.
With at least a further half a billion dollars of cost savings from this program now expected in 2023.
To reiterate despite a low run rate cost to achieve in the quarter. We continue to expect to have total cost <unk> spend of around $3 4 billion. This year.
Which will complete combined clustered <unk> spend of $7 billion when the three year program ends in the fourth quarter of this year.
We remain on track to achieve stable costs this year compared with 2021 and.
And we remain committed to keeping underlying cost growth in 2023 within the zero to 2% growth range.
Turning to capital on Slide 10 core tier one ratio was 14, 1%.
Down 170 basis points on the fourth quarter and.
And back to being within 14 to 14, 5% target range.
We flagged the impact of regulatory changes and the unwind of software capitalization benefits at our full year results.
Together these reduced our core tier one ratio by around 80 basis points in the quarter.
And the dividend accrual and they announced additional $1 billion buyback accounted for another 30 basis points.
In addition, the steepening of the yield curves on financial assets designated as held to collect and sell reflected a negative after tax reserve movements of $3 1 billion.
Around 40 basis points, which was reflected in other comprehensive income and core tier one.
Reported <unk> were up $24 billion on the fourth quarter due largely to a regulatory changes and lending growth.
Partly offset by ongoing risk weighted asset saves and FX movements.
Our cumulative <unk> and now $112 billion.
We're firmly on track to achieve our new ambition of at least 120 billion of cumulative <unk> by this year end.
Just as a reminder, later this year, we expect an impact of around 35 basis points of core tier one from the sale of our French retail business, which.
Which we expect to contribute to us falling below 14% to 14, 5% target range during the coming quarters.
As I said at our full year results. Our intention is to manage within the 14 to 14, 5% range over time.
We've now completed $2 billion buyback announced in October and.
And we expect to launch our next $1 billion buyback in early May following our AGM later this week.
As we're now at the bottom of our target range due to the impact of fair value market losses.
And that we're continuing to see good expected growth in the business. We're now unlikely to announce further buybacks during 2022.
However, buybacks remain an integral part of our capital management going forward.
So to conclude despite a tougher set of operating conditions. This quarter, we remain very focused on getting back to double digit returns in 2023.
To achieve this we need to see good volume growth rising rates and cost discipline.
All of these attributes where they're in these results underlying volumes grew in most parts of our business underpinned by lending growth of $21 billion.
Our net interest margin rose seven basis points for our highest quarterly net interest margin since the second quarter of 2020.
<unk> costs declined by 2%.
So despite the macro environment impacting wealth revenues unexpected credit losses. This quarter the fundamentals of the benefit of rising rates have only strengthened since our full year results, increasing our confidence in delivering double digit returns in 2023, and our capacity to fund attractive growth in distributions.
With that Martin if we could please open up for questions.
Thank you Mr Stevenson.
You would like to ask a question today. Please press star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off.
Do you find your question has been on so do you may remove yourself from the queue by pressing the hash key.
Once again to ask a question. Please press star one please ensure that the mute function on your telephone is switched off.
Okay.
Good morning, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad.
We will now take our first question today. This comes from the line of Joseph Dickerson of Jefferies. Please go ahead.
Hi, Joseph.
Hi, Thank you for taking my question just a quick one.
Just on the Q1 noninterest income I mean, how much of this is frankly backward looking given.
<unk> got a lot of market impacts et cetera, and it sounds like your commentary from your commentary things are starting to pick up and in Hong Kong.
Can we start to see some.
Are you able to recoup.
Some of the quote unquote lost revenue from things like wealth sales in markets will do what they will but I guess it seems like most of this is backward looking youre set for quite a rebound in noninterest income over the coming quarters. So just would like your commentary on that please thank you very much.
Yes Joseph.
I think it's a mix.
So there'll be.
Insurance market impacts obviously, yes.
That will depend on the performance of markets in the second quarter, but we certainly wouldn't.
Not anticipating the same extent of negative market adjustment that we saw in Q1.
Yes, there are some line items like equity brokerage the flight business that obviously equity brokerage volumes for us in Hong Kong.
We're down almost 50% in the quarter.
We do expect that to normalize back.
Q1 is normally our strongest quarter, but we don't think we'll recoup the flow of business that we lost in Q1.
If you look at something like mutual fund sales, which in Hong Kong were down around 30% I think it will be a mix I do think part of that yes, we should recoup.
In the coming quarters.
So overall I would yes, I think youll see a decent recovery in Q2 Q3 Q4.
Yes.
Some of what happened in Q1 I think.
Is lost and just remember that Q1 was our strongest quarter normally so you have to see seasonal lies my comments that I've just made.
Thanks very much.
Thank you Bruno will take our next question does come from line of alone recall of Barclays. Please go ahead.
Good morning, Ian.
Good morning.
Two questions if I may.
One on revenue.
Slightly more firm in net interest income outlook.
Note that you retain the kind of mid single digit revenue growth aspiration for this year. So just wanted to be exactly clear on to what extent there was an offset.
And noninterest income.
<unk> because of.
The activity impact in Hong Kong, China.
What kind of assumptions, you're making about a reopening when you thinking about mid single digit revenue growth in.
In 2022.
And that was around FX.
I think this is something typically consensus struggles to model very well for HSBC.
And I know there is a pretty meaningful.
Revenue headwind from FX of about $1 4 billion based on March.
On the 100 million.
On a cost basis.
Average FX in March is also look at spot FX rates that probably even a touch weaker.
Yeah.
And particularly for revenues if I were to Rebase.
2021.
Revenue for the updated FX and factoring you mid single digit revenue guide it probably is pointing to 2022 revenues around 51 billion.
Consensus is around 53, so I mean does that sounds about right to you.
Additional color that you would add to that thank you.
Yes.
Look we do think that we'll see.
Net interest income growth.
Comfortably in excess of sort of mid single digits.
Yes.
The.
Offset by.
Slower.
Non net interest income.
Right.
Particularly given the impacts that we've seen in the first quarter on Asia wealth.
Yes, which which will hold.
<unk>.
Yes, which will impact noninterest income for the remainder of the year.
Yes, there will be an FX impact.
Yes, I do think your estimate of around 14141 5 billion is a reasonable estimate of that net interest that FX impact roughly split I guess across noninterest income.
Net interest income.
Yes.
Yes.
Forecast feels like semi.
Actually despite everything I've said about the impact of FX.
Yes, that's probably only going to say on your own forecast.
That's great. Thank you very much.
Turning to general and next question today comes from the line approach of Jpmorgan. Please go ahead.
Good morning, Thanks, very much for taking my questions.
The first one.
Focusing a little bit on the NIM trajectory.
Slide 18, you again during a very helpful breakdown in board of interesting here, the UK bank NIM actually improved quite significantly quarter on quarter.
Whereas clearly everything is picking up very nicely as we go along so I guess my question is is there anything specific in terms of repricing youre seeing in the U K.
To explain that movement and related to the Hong Kong are you seeing.
<unk>.
How should we think about the gap between Hibor and LIBOR is about 50 basis points now hybrids, obviously lagging the move up in U S interest rates, how should we think about that impacting the NII trajectory.
And then.
Unrelated.
Just another follow up question, if I can on <unk>.
We had positive credit migration again from asset quality this quarter.
I was just wondering what do you think about the moving parts in all of the ways for the rest of the year.
Yeah.
Okay.
On the NIM trajectory in the UK I think there is nothing really to call.
Al in relation to asset on the asset side.
With the pressure as you all know in the UK.
In UK mortgage market.
But yes domain.
You are seeing is the benefit of the two rate rises.
Already come through in the quarter.
And as we've talked about.
Yes deposit beta as being sort of below 50% for the first few rate rises.
Yes, we continue to think that we will see very material.
Net interest income growth in the U K is.
Policy rates continue to rise over the remainder of the year as we expect.
In Hong Kong with.
Hi, Bob.
Consensus has to be.
Yes current consensus.
And for Us at HSBC I think for a 50 basis point rise in fed funds next month on a level of 50.
In June if we get that 100 basis point right rises commentary, it's very difficult to say how high bar doesn't react.
<unk>.
So if you had asked me.
At full year results I would say, we could have envisaged set a six month lag between high bar in U S. Dollar rates given the shape of U S. Dollar rate rises that were now likely to see being much more front end loaded.
It's hard to see that gap being more than one quarter.
On risk weighted assets for the remainder of the year.
Yes in terms of things to call out you've obviously got FX.
Yes, I don't think theres any material movements from here to call out you have obviously got the impact of M&A to factor through including the.
The French retail bank exit and a few smaller acquisitions that we've made.
But the.
Q1 was definitely a quarter that.
We expected to see.
Yes, most of the activity that we've now seen so that will be a much more normalized trajectory I think.
The coming quarters.
Thank you that's really helpful. I don't know if I can follow up but on regulatory changes.
Last quarter, you called out about a 5% <unk> inflation guard for the medium term on regulatory changes how much of it.
I'm just thinking more medium term about our W. Edwards.
Yes, I think at the moment, we're through most of it.
Yes.
You then roll forward to the introduction of Basel I guess pushed to January 25, maybe.
We're actually thinking that will be a small net benefit to us.
Even further forward by the time, we're out to 2030.
Yes, we may see the impact of output floors at that point, which would be I think unless we adjusted our business model would be a negative at that point, but.
Certainly over the next few years I think we're through the bulk of it and as I say in one January 25, as we currently model, we think Boswell will be a net positive for us.
That's really helpful. Thank you.
Our next question today comes from the line of Jason Napier of UBS. Your line is now open.
Good morning, Hi, Jay it's taking my questions.
Two please both on net interest income the first is if we take.
Focus on volume growth over the year and just run it into 2023.
And then give you about 150 basis points of of kind of yield curve moves.
So the $37 billion to $38 billion of.
Net interest income.
Consensus is sort of in the 30 threes take what you're saying about FX.
But I guess, we've all got our opinions on using a 50% deposit beta in the Max.
Is there.
There anything kind of wrong with volumes plus 150 basis points that we should know about structurally as far as the walk forward into next year is concerned.
Second question.
No.
Well I don't like talking about NIM, and NII forecast, Jason but.
I think reflecting on what's happened over the last couple of months.
<unk>.
The average consensus model was probably updated following our full year results in late February .
Since then we've seen very material.
<unk>.
Right rises coming through in March and April , which I think is reflected in consensus.
So.
Yes.
Forecast are materially ahead of consensus as they currently set for net interest income in 2023.
Without commenting on your numbers.
Thank you and then the second one.
Perhaps a more useful wondering from your perspective, just in terms of the mechanics of the way that.
I've never quite been able to square.
<unk>.
The.
Five trillion number even if you are using a 50% deposit beta in today.
I myself, even less capable of doing that and I'll tell you what the unwind.
Hi.
Is it sort of a $5 billion tailwind.
Period.
Of course that only relates to $350 billion in bonds.
And you've got a trillion in loans and deposits with Mitch one another I just wonder why the rate carrying isn't substantially more than that if the golden tail wind on its own given what's happened to rates is about 5% and is it something fundamental that I am getting wrong, there that you could spot.
Yes, I'm not sure your bond trial as the bonds I think.
The way I think about it is yes, we have.
Gross and net interest rate exposure.
Yes, we hedge about.
20% of overall net interest income exposure through that bond portfolio that youre, referring to which we've just taken the fair market value losses on.
Yes that does.
Provide us with that incremental.
Yes, four 5 billion of unwind over the next five quarters, we see that benefit in the other 80% of the portfolio.
Yes, and the interest rate sensitivity that we show you is the net interest rate sensitivity of <unk> interest rate sensitivity.
If we didn't have that portfolio and hedging in place yes.
Yes that $5 4 billion is probably closer to $7 billion of sampling.
Mark.
Yes.
The benefit of higher rates that we've seen coming through that has created the fair market value losses.
The benefit of.
That higher net interest income we won't see in that portfolio, we will see in the unhedged, 80% of the portfolio that we've given your interest rate sensitivity for.
I don't know whether that helps or hinders you right.
Yes.
That's very helpful. Thank you so that's.
Thats why youre uplift.
Clifton focal in the new year 345 gets too.
Okay got it thank you.
Your next question today comes from the line of your iPhone, killing of Citigroup. Please go ahead.
Thank you I'll have Scott good morning.
Hi, good morning on the first one is around the capital markets.
Gary.
Because of market volatility just wanted to get a flavor with April volatility coming down a bit how is how are you thinking about the.
I'll take that.
The capital market side.
For second quarter.
And then secondly is to look at slide 25, where you can.
Kind of on the impact to OCI.
Just wanted to have a better understanding how should we be modeling that.
In coming few quarters at least the potential OCI impact that is going to.
Come from the higher rate.
Thank you.
Yes.
On global banking and markets in the outlook I mean, I guess, a few things there is nothing really to call out that surprised us so far in April so very much tracking.
According to underlying plans at the moment.
We haven't seen.
Any material slowdown going on in our market franchise month today.
Global banking.
But I don't know whether its us, but our pipeline continues to look pretty robust and has been pretty resilient.
Probably in part.
We are less exposed to the U S M&A and IPO markets and some of the other markets that we are exposed to a lot of the middle East.
Have been outperforming for us the other thing I would note in our global banking markets franchises.
A lot of the revenue line items are interest rate sensitive so security services.
<unk>.
They should outperform.
On the back of those beta rights environment.
Which will help cushion if there was any weakness that we saw.
And some of the sort of more traditional investment banking lines in market lines that you would compare with peers.
And I do think we're continuing to operate in an environment with higher levels of FX volatility, which again should benefit FX franchise.
On ICI I think the only thing to call out is if you take the.
If you take the.
Months to date adjustment.
The treasury portfolio, there's about an additional $1 billion pre tax of.
Fair value losses, which would obviously run three ICI in April .
Would there be anything additional.
To that 1 billion when we think about it.
Thanks.
It's very much depends on the forward curve of interest rates from here over the remainder of the quarter.
If they didn't move.
It would be about $1 billion, if they do move.
It will adjust up and down but just to give you some sense of sensitivity in <unk>.
Very broad and basic sensitivity, but.
Yes every year, approximately 25 basis points of higher rights across the curve.
<unk> adds about $1 billion of additional fair value losses.
And the reverse of that also being true.
If they were 25 basis points lower that fair value loss would come in by about $1 billion.
So I think that will give you enough to model lives.
Yes, the quarter, depending on where interest rates are relative to today.
Got it is it how many quarters.
Thanks, Dave.
<unk>.
Yes.
Would there be any.
Benefits that we shouldn't be thinking about when interest rates stabilized level from higher treasury trends.
Should we just take that into account from the net interest income to continue to provide it.
No there'll be no later than one off gain or loss at that point.
And then effectively you will see the benefit of wherever those right.
<unk> stabilized come through in net interest income on the net interest margin over time.
Got it thank you so much.
Our next question today comes from the line of Omar Keenan of Credit Suisse. Please go ahead.
Good morning, everybody. Thank you very much for taking the questions.
For us was <unk>.
Commented earlier market expectations for policy rates have moved up since since the full year.
I appreciate the.
The sensitivity that's being given on for the year one in year five.
Can I, perhaps just ask about how.
How are you thinking about things in terms of in terms of the net interest margin.
If we think about 'twenty 19, I think the fed funds rate peaked out at about 2.5.
<unk>.
Nims were quite close to $1 six I think the $1 $5 million.
Has anything changed in terms of the balance sheet structure.
That would mean pits.
Just in terms of.
10th checking.
That's tough.
Would it be achievable.
Again or is that a good.
Good targets.
Two things.
Think about.
And just on.
A related question to rates.
Cut off.
I guess, if you're thinking more over the medium term.
How comfortable are you that the through the cycle.
30 basis points.
<unk> learned of guidance as you know.
Right for a world.
Policy rates.
Close to.
3%, So I guess the crux of the question too.
Troy I understand.
With a negative from higher rates Mike.
My offset offset the positives.
It.
Is that inflection rate.
So substantially higher above 3%. Thank you.
Yes, I mean, what's changed since 2019, I mean, firstly the balance sheet is materially bigger average interest, earning assets have gone up materially so.
On the right by volume basis, we should be earning net and higher net interest income if we return to previous NIM levels. The other thing is I think the market is.
Implied rights, particularly in some markets are actually higher than 2019.
So.
Yes, we certainly expect to see a very strong recovery back in NIM.
As you model it through it might be in some markets that gets you back to higher levels of men in different currencies than you had previously and the balance sheet is larger.
On.
On the 30 on the negative impacts of higher rights.
There's a few things I mean, firstly on costs, yes, the higher rates reflects higher inflation.
<unk>.
Yes, if you looked at a fixed pie increases this year that will more than double.
The fixed pay increases that we put through in <unk>.
2000 2020.
For the year before.
Our.
We do think we're managing to offset that inflation at the moment by additional cost saves and we've committed.
And continue to commit to flat costs this year.
And keeping cost growth within the zero to 2% range next year, the higher end of that range reflects very much the impact that we're seeing of inflation.
Now on ACL was I think rates need to go up materially higher than what are currently being worked.
We're currently seeing in forward right because remember we're starting from.
Yes decades, so with century century lows in terms of the start of this rate cycle.
So we do think that would have to go up materially further than what we currently see implied.
So just as a reminder, we said 30 to 40 basis points during the cycle.
Not 30.
But how can we continue to be comfortable with that guidance.
Thank you very much.
Our next question today comes from alone of Tom Rayner Numis. Your line is now open.
Yes, good morning, Ian.
Could you sort of talk us through.
So in a bit more detail sort of the impact of these OCI movements on the capital ratio and how you might expect that to impact to reverse over the next four to six quarters, because I guess my concern is the consensus forecast may have already factored in the benefits of.
Interest rates based on your sensitivity disclosures on the forward curve.
<unk> factored in the negative impacts that you'll have you'll know flagging on the capital ratio. So I'm. Just wondering is there a danger that consensus sort of equity tier one ratio versus consensus NIM might be somehow out of line and let's see if that.
Maybe talk us through that please.
Yeah, so on ICI movements.
Yeah, Yeah, as we talked about today that would be about another $1 billion pretax movement in April based on how rates have strengthened further in April .
The.
And yes, there was a sort of a multiplicative effect on our threshold deductions of 41 declines then you also I think youll see in the numbers. There is also a meaningful chunk of.
Of <unk> payment that's come through.
As a result of the reduction in core tier one and the impact that has on threshold deductions together with.
The increases we've seen in <unk> and now the acquisition of extra Singapore.
Yes, rolling forward, it's not the unwind of just to repeat to what I was saying with Jason Thats not the unwind of the fair value losses that benefits net interest income and capital.
The impact of higher rates on the 80% of the book roughly that's not hedged.
And therefore.
Therefore, we expect it will take about five quarters for that higher net interest income to get us back to the same place.
Yes.
Thing because I've said earlier.
Yes, the rate rises implied rate rises that we've seen coming through in March and April are reflected in consensus.
If we look at our internal numbers Theyre materially ahead of consensus for 2003.
Based on the latest rate curves.
I think what you will see therefore is that it translates into core tier one.
As you should get back to the same point on core tier one.
Sometime next year.
But in the near term where we've had.
40 basis point impact from.
The fair value losses, we've had three first quarter, we've got about another 10 basis points, if you adjust for <unk>.
Fair value losses in.
April will just under 10 basis points.
Yes, we will recoup that through higher net interest income by over the following five quarters or so.
There'll be a timing mismatch on capital.
It's that timing mismatch on capital, which causes us to say today that we think it is now unlikely that we will do further buybacks in the second half of this year.
But the reverse of that should be.
Much higher.
Much higher net interest income much of returns.
I'm not sure distribution capacity in 2023 and beyond.
Okay.
If you are putting through.
Net interest income based on future rate moves we have to consider the capital implications of those rate movements as well.
Is that fair.
So I think.
If I look at consensus today, why hasnt that reflect that it didn't hadn't reflected the impact of the fair value losses on capital equally it hadn't reflected the benefit of those interest rate rises on net interest income over time.
Okay.
Also secondly, just very quick one just on.
Q1 ECL.
ECL numbers, obviously, there's lots of.
Moving parts here and I guess the provisions you've taken.
And for China CRA.
Reflect everything that you expect at this moment in time, so when do you expect I guess to be taking similar to <unk>.
<unk> those issues, and then and with the economic uncertainty as well that was a challenge in there I think maybe that's just a change in assumptions, but these are all things, which we can look at it and so the Q1 noise and really going forward, we should think more about the underlying.
Sort of the run rate challenge that you've flagged that you expect this year.
Yeah, well, so for Russia, I would say.
Yes.
Obviously spent a lot of time in Russia or exposure, we've been able to do.
Pretty good estimate of where we think losses will come through we think that $250 million charge, we've taken for Russia.
Yes. It is a good estimate of what we can see today, so something dramatic would have to change in relation to the Russia, Ukraine wall for physician on our Russian subsidiary to to get to a different outcomes and what we've announced today.
On.
On the $160 million.
China commercial real estate, yes, I would not make the same statement.
Yes, <unk> got a very fluid situation and the China commercial real estate sector.
Theres been too big.
Factors going on one has been policy tightening that we saw at the back end of last year that started to get unwind unwound at the beginning part of this year.
That created a liquidity squeeze that is now ease substantially.
But the underlying <unk>.
Credit conditions of the China commercial real estate markets continued to be weak.
Yes, we did see a number of small names go into default this quarter.
Yes, the $160 million charge was a mix of stage, one two and three.
It's down materially from the half a billion or so that we took in Q4.
But I wouldn't say, yes, it would be a big coal tell them to say that was it in relation to the.
The remaining provisions required from the China commercial real estate market.
But we're not anticipating it will be a material number.
And it is contained within the guidance that we've given for.
Full year provisions side.
Yes that statement is that we expect to trend towards.
30 basis points of ACL provisions this year.
Q1 was 25 basis points.
Yes.
Okay. Thanks, a lot.
Our next question today comes from the line of Ed first of BW. Your line is now open.
Hi, good morning.
Yes, hi.
Two questions both on culturally.
One with respect to the cost to achieve charge.
You're obviously running well below that.
It will be annualized rate I guess the expectation again, we just think about the expectation is to pick up in the rest of the year.
But in the policy.
Haven't spent the money you then roll it forward into the next year, so should we be expecting that as the sort of the core scenario.
It's not the way we should be thinking about that as we as we look over the rest of this year and I guess, that's the first question.
And then the second point is if I look at your cost guidance of flat this year and flattish flat to 2% next year.
Yes.
Quite markedly different from another a number of other global banks, who are talking about the need for additional investment, particularly digital and payments et cetera et cetera and.
And I'm just wondering why why that is.
Do you feel that you are over investing in the past and therefore, you know you can bring it back a bit or are they doing stuff that you're not doing or why is that sort of difference in terms of the cost.
Okay.
On the first one.
Shouldn't think of the program drifting into 2023.
We have a board approved program that expires at the end of this year.
Yes, we will spend the.
Remaining $2 $9 billion I think it is.
Between now and the end of the year and if we don't we lose it.
Our intention is to spend that money.
We think it is sensible to spend the money because we can drive incremental cost savings.
And that thinking is factored into our competence in keeping.
Cost growth to zero to 2% next year.
So.
Yes, our current intention is that we will run very close to spending that $2 9 billion.
For the remainder of the year.
So if you don't see it coming in next quarter, just the same making exactly the same comment.
When they get interim results about the flow through into the second half.
Yes on the cost program might be I should say thanks.
Yes.
The cost program, so look I can't comment on other banks, but.
I think.
What's clear here is that no top down is very very committed to delivering on the targets that we've announced to the market.
Yes, we've got.
Very detailed plans in relation to achieving the.
Flat costs for this year I would say for next year, we need to find about on incremental cost savings of about $1 billion.
We are working hard on that at the moment, we expect to have that solution by the time that we get.
Interim results at the beginning of August .
And that sort of cost that is not unusual relative to previous guidance that we've given for future years at this time of the year.
We're well developed across a number of work streams and identifying areas that we can strip out the incremental cost.
So, yes, I would say the cost management here is being transformed over recent years and you can see that in terms of the overall cost trajectory that we've had.
From.
The change from 2019 onwards, where we broadly cap costs flat now.
18, 1920, sorry 90.
<unk> 19 322.
Yes, okay.
Given the inflationary environment. That's obviously a much you are actually improving your cost savings.
Rather than an older plant.
Yes, no we understand that.
And that's why we've got a degree of a range for next year.
Consistent with that.
Great.
Thanks, so much.
Our next question today comes from the line of going stepping so of BNP Paribas. Your line is now open.
Hi, guys. Good morning, good morning, Ian.
Most of my questions.
Austin answer so just a couple on capsules throughout them.
Could you expand on the hit from a threshold deductions in Q1 I recognized some of it was simply a reflection of the move in the equity basis. So how much is through residual stuff and was it particularly odd quarters for Bocom treatment should we worry about a similar move in the future. We're actually want you to see a partial reversal if bocom dividends come through.
And then on customer longer term and it's great to be able to quantify the helpful commentary on Basel III. One is supposed to be a net positive now premium portfolio.
Great Bob talking low single digit percentage is dropping all day.
Sort of macro <unk> any additional color there very helpful. Thanks.
Okay.
Yes in terms of the.
The increase in threshold deductions about one $3 billion if it comes from the growth in.
The value of investments in.
Axa, which is about 600 million and Bocom, which is about $700 million.
And then there's about $800 million is due to the threshold being lower because we've got a lower core tier one ratio, which is as a result of the fair value losses.
The loss of core tier one treatment for software intangibles, the dividend accrual and a $1 billion share buyback.
I would take it from all of our comments, we've been saying that.
We think we're back into a cycle of Machar returns.
What should drive.
<unk> core tier one improvement and therefore.
Helped mitigate some of the impacts that we've seen this quarter.
So the second question.
The second question.
The second question was just almost $3 one that color you gave.
Yes.
As we said we think.
2025 will say a modest benefit from but modest.
From the introduction of <unk>.
Basel reform, partly yes, almost entirely driven by the fact that we've taken.
Most of the impacts upfront <unk>.
<unk> in this quarter.
I do think over the next couple of years Youll see a much cleaner <unk> trajectory for us with the only thing to pay attention to which we'll need to give you color on is the impact of M&A, both buy side and sell side.
Okay. Thank you.
Our next question today comes from the line of Manus Costello Autonomous. Please go ahead. Your line is now open.
Moving my math right.
I wanted to ask about the macro situations. Please because there are some negative macro signals coming out of China.
Lockdowns the FX is volatile for you premium to the U S.
Now you seem to remain quite confident in the outlook, but haven't really.
So much I was just wondering if you could give us more color on where you're more worried about the way Tyler is put out of the picture at the moment, whether I misread what your comments were.
Yes.
Probably.
I mean as you know as we think about credit China and India.
The impact.
Hong Kong is a far more dominant driver of what happens to us.
Yes, we are confident that a combination in Hong Kong a combination of.
The market reopening as lockdown restrictions get lifted together and importantly, the likelihood that we're seeing material movements in high bull in the coming quarters will mean that we will see a strong recovery in Hong Kong in ins in mainland China are itself I think it reflects a few things.
Yes, firstly, just an observation that wed.
That despite being the biggest bank in China.
We are small we have biggest foreign bank in China, we have less than 2% market share.
If you look last year, we agreed the line broke by 11%.
Which was far in excess of underlying GDP growth.
Our ability to grow the loan book is not.
As correlated to underlying economic growth in <unk>.
If we were a big lender as we are in Hong Kong So yes.
Yes, we are somewhat insulated to some extent.
I think with Pinnacle again, our life insurance venture, we're continuing to actually to see very good traction in that business.
And see nothing in relation to what's happening that would cause us to slow down the plans for that business.
We also have a lot of revenue connected with trade in China.
And somewhat perversely if there.
There is a disruption in supply lines. It means people are going to run they could trade.
Balances.
With us as we've seen in our overall <unk> franchise with the disruption in supply lines side.
Again, you've got a number of things in our book.
Yes, we're not perfect.
Yes, it's different in the UK and Hong Kong.
We very much track macro in a market like China or it's much more micro.
Okay. Thank you can we just ask a very quick follow up on Nio as well just because you commented that you're expecting.
Come through more quickly in high vol to vessel rise more quickly than previously what point to the mortgage comes in Hong Kong.
<unk>.
How material might that be if the rate hikes are coming through.
Sooner or larger does that mean.
Peter and therefore.
It's flattened out quick enough.
Yes ill get right.
Hi.
Our investor relations team to follow up matters, but I think it's around 160 basis points is where it starts to have an impact on NOI growth and I'll get our investor relations team to follow up.
Okay. Thank you very much.
Thank you we will now take our last question today from the line of Martin.
<unk> of Goldman Sachs. Please go ahead your line is open.
Thank you, Greg and good morning.
Thank you for taking my question I have just two questions. Please one on UK NIM.
And a follow up on capital.
The reporting HSBC Keybank vse shows that NIM increased by 15 basis points to 163.
And I was just wondering if you could.
Sure Youre thinking on on the phasing of freight benefits coming through in the U K to what extent does hedging delay the impact because it seems like from the increase you had in the first quarter.
Hedging is comparatively smaller box.
Of the of the rate sensitivity, if you like and Thats actually a good part of the rate sensitivity comes through quite quickly would you be able to share how big the structural hedges in the UK ring fence.
Get a better sense on phasing of any.
Further rate hikes on the P&L.
I Couldnt capital I was just wondering the leverage ratio is up.
Meaningfully in the quarter following obviously the changes.
Does that impact how you see certain businesses.
We have a low risk weighting of the high comparatively high asset.
Say trade finance repo is there more opportunity to engage stronger in some of these business lines. Thank you.
Yeah looking at the second one Martin I think.
That's a very complex question that you need to drive down into the individual legal entities because.
Yes, we're sort of relatively unique and that we don't have a single balance sheet. If you look at the average pay of probably 70 plus percent of their <unk>.
So within a single balance sheet, where for US I don't think a single balance sheet has more than about 30% of our total balance sheet. So yes.
Yeah, where leverage constrains capital constraints stress constraints impact as a entity by entity discussion.
But I don't think fundamentally anything has changed our strategy in any of those legal entities.
Over the last one to two quarters.
On UK NIM.
I think we are hedged lowered to much lower than some other banks.
We also have I think higher levels of liquidity and short dated.
Liquid assets.
So I do think we probably have more interest rate sensitivity.
Peers.
Without commenting on their interest rate sensitivity.
Yes, as you saw in our disclosures that full year Sterling is sensitive.
Currency.
And we do think what we're seeing in terms of rate rises therefore should correspond link.
Very immaterial net interest income growth not only in the ring fenced bank, but also.
In the non ring fenced bank that has exposure to <unk>.
Sterling interest rate sensitivity.
Very clear thank you very much.
There are numerous further questions at this time back to you.
Okay, well look thank you everyone to joining appreciated the discussion and look forward to catching up with you in.
Interim results.
If you do have any immediate follow up.
Our Investor Relations team is here to help so thank you all for joining.
Thank you, ladies and gentlemen that concludes the call for the HSBC Holdings Plc's earnings release for the first quarter 'twenty 'twenty. Two you may now disconnect.
Okay.
Okay.
[music].
Yeah.
Okay.
[noise] [music].