Half Year 2023 HSBC Holdings PLC Earnings Call
Good morning ladies and gentlemen and welcome to the investor and analyst conference call for HSBC Holdings PLC's interim results for 2023.
For your information, this conference is being recorded. At this time, I will hand it over to your host, Mr. Noel Quinn, Group Chief Executive.
Good afternoon to those joining us here in Hong Kong and good morning to those in London elsewhere. Noel and George will present a stretchy results and we'll allow plenty of time for questions from the telephone lines and the live audience here in Hong Kong without ever to know who has the conference.
Thank you, Richard. And good afternoon to everyone in the room here in Hong Kong. Thank you for joining us and great to see you again. And good morning to everyone watching from London and elsewhere.
Before George takes you through the second quarter numbers, I'll start with a summary of the first half performance and progress.
It's critical in that it summarises our strategy, and our strategy remains unchanged.
It is summarized by the four pillars at the bottom of the slide.
Let me take you through the latest outcomes of that strategy.
We had a good first six months. I'm pleased with the broad-based profit and revenue generated by our global businesses and geographies.
I'm also pleased with our strong capital generation and returns.
We delivered an annualized return on tangible equity of 22.4% including the two material and multiple items reported in the first quarter.
or 18.5% if you exclude those notable items.
Today we're also upgrading our guidance.
Now we expect to achieve a return on tangible equity in the mid-teens for 2023 and 2024.
Prior to 2023, we were very focused on transforming the business.
Now, while still continuing to improve operational efficiency, we are very focused on driving growth, diversifying revenue and creating incremental value.
We have a plan built around six areas.
I will take you through some of these over the next few slides.
Starting with our international connectivity.
We grew wholesale cross-border client business in the first half by around 50%.
with growth across all regions driven by higher rates.
Our international proposition in wealth and personal banking continues to gain traction.
We now have 6.3 million international WTV customers and that is up 500,000 or 8% over the last 12 months.
That's significant because these international customers generate around two and a half times the average customer revenue.
Finally, we drove strong revenue growth in transaction banking which was up to 63%.
There were good performances in foreign exchange and in global payment solutions.
Trade was slightly down year on year, in line with global trade volumes.
were trade balances stabilized in the second quarter, particularly in Asia.
And HSBC was named Best Bank for Trade Finance by Euro money for the second year in a row.
as well as Best Bank in Asia.
The next slide sets out our latest progress on another area of focus.
the re-department of capital from less strategic or low connectivity businesses
into higher growth international opportunities.
I am pleased that we agreed new terms for the sale of our French retail banking operations in the quarter.
The deal is subject to regulatory approval and we now have a lot of work to do to complete migration in early 2024.
The sale of our banking operations in Canada remains on track to complete in early 2024.
with a special dividend of 21 cents per share planned thereafter.
We completed the disposal of our grid business last weekend.
And we've announced the disposal of our Russian operations.
We are changing the nature of our business in Oman.
And we will wind down our WPB operations in New Zealand.
Crucially, this is allowing us to target growth opportunities, some of which are set out on the right hand side.
The first is the continued development of our wealth business across the whole of Asia.
Our digitally enabled wealth and insurance business in mainland China now has 1400 wealth plan a
and it's driving good new business growth.
launched global private banking in India last month.
In June we launched HSBC Innovation Banking, a strengthened, globally connected proposition on the back of our purchase of SBB UK.
We will nurture the specialism that we acquired.
Backit with HSBC's balance sheet strength and global network.
and build further innovation banking businesses in the US, here in Hong Kong and Israel.
The process is already well underway and will enable us to support our clients in the technology and life sciences sectors to achieve their global ambitions.
Finally, we've announced today that we are also increasing our shareholding in trade shifts.
and have agreed to launch a jointly owned business in early 2024.
to provide embedded financing solutions within their trade ecosystem.
We believe this will help us to grow our client base in commercial banking, giving us a new avenue for growth outside of traditional relationship banking.
Next slide looks at how we are diversifying revenue by growing fee income and collaboration.
As I've said, our wealth strategy continues to gather momentum, especially in Asia.
Net new invested assets were down in the rest of the world due to lower third party asset management liquidity products mainly in the US.
But they were up in Asia by 21%, to $27 billion.
Over the last 12 months we took in a total of 75 billion of net new invested assets.
and grew our invested assets by 8% globally.
This all underlines the growth potential of our wealth business.
The income in commercial banking was up 6% in the first half.
and collaboration revenues between our global businesses were up 5%.
Collaboration revenue is particularly important in a relatively low growth economic environment.
because we can drive growth from within the organization.
The next slide focuses on the tight cost discipline we've maintained.
and how it enables us to invest in the bank of the future.
We remain committed to disciplined cost management.
and have continued to use cost savings to increase investment in digitization.
We increased spending on technology by 12.8% in the first half.
And this spending now accounts for 23% of our target base operating expenses.
This investment has translated into faster services, reduced friction and more competitive products.
all of which will improve the customer experience and our operational efficiency.
We've made good progress in increasing digital penetration amongst personal and business customers.
while increasing our products release frequency.
Investing in technology is also enhancing our capabilities.
We now have a range of test and learn use cases for generative AI across HSBC.
and are in the process of scaling up a small number of those.
Last month we became the first bank to join BT and Toshiba's quantum secured Metro network.
This uses quantum technology for secure transmission of data, which should mitigate the risk of future cyber threats.
And we are pleased to be working with the Hong Kong Monetary Authority on two pilots.
To test the Hong Kong dollar in a new payment ecosystem and to trial tokenized deposits.
My last slide shows how we've continued to build on our position as an enabler of the net zero transition.
In the first half, we provided and facilitated $45 billion of sustainable finance and investments
as we continue to work closely with our clients on their transition plans.
It's consisting of capital markets financing and on balance sheet lending to clients.
and included a number of key deals in Asia and the Middle East.
We were recently named Best Bank for Sustainable Finance in Asia by Euromoney for the sixth consecutive year.
I'll now hand over to George to take you through the Q2 numbers.
Thank you, Nour.
A warm welcome to everyone in the room with us today. It is great to be back here in Hong Kong to deliver our interim results.
And for those of you watching today from London and across the globe, a very good morning and thank you for joining us.
We've announced a good set of second-quotient results.
Reported profits before tax were at $8.8 billion, up 89% on last year's second quarter.
Revenue was up 38% at $16.7 billion.
This was driven by...
First, NII of $9.3 billion, which was up 2.5 billion or 38% year-on-year.
And second, non-NII of $7.4 billion which was up 2.1 billion or 39% year-on-year.
We looked at expected credit losses of 0.9 billion in the quarter.
Despite the inflationary environment, cost growth in the quarter was restricted to 1% compared to last year's second quarter, including $0.2 billion of severance costs.
These 7 costs were expected and we are on track to meet our 2023 cost target to limit cost growth to around 3% on our target cost basis.
Compared to the first quarter, lending and deposits were both down 1% due to subdued long demand, deposit outflows in global banking and markets in Europe , and the reclassification of our portfolio in Oman to help to sale.
Our CT1 ratio remained strong at 14.7%.
As Noam said, we announced a second interim dividend of 10 cents per share and a second share buyback of up to $2bn which we intend to complete in around 3 months.
TNAF per share was down 24 cents due primarily to the final interim dividends for 2022 and the first interim dividends for 2023.
The next slide shows another strong quarterly revenue performance with overall growth of 38% compared to the second quarter of 2022.
Three further points on this.
As now mentioned, then he was up in all three global businesses.
Wealth was up 19% due to higher rates and a strong insurance performance mainly here in Hong Kong.
And three, across commercial banking and global banking markets, global payment services reported revenues of around $4.2 billion, an increase of 115% on the second quarter of 2022.
On the next slide, reported net interest income was $9.3 billion, up $0.3 billion, or 4%, on the first quarter. On the next slide, reported net interest income was $9.3 billion, or 4%, on the first quarter.
We've introduced banking NII as a new disclosure this quarter.
It is derived by adjusting reported MII for the centrally allocated cost of funding trading activities.
and the NIR generated by the insurance business.
At $11.6 billion, Banking NII was up $1.3 billion on the first quarter and up $4.5 billion on last year's second quarter.
The $2.4 billion century allocated cost of funding trading activities within global banking markets in the second quarter included a $0.4 billion year-to-date impact of methodology changes.
As a reminder, the related income associated with these funding costs is reported with MUM and II.
The net interest margin was 172 basis points, up 3 basis points on the first quarter of 23, and up 43 basis points on the second quarter of 22.
We continue our structural hedging activity. Our NII sensitivity is $2.6 billion for 100 basis points drop in rate against the previous year-end sensitivity of $4 billion.
At this point we are adjusting our NII guidance. We now expect NII of at least $35 billion in 2023.
Within this, we expect the centrally allocated cost of funding trading activities within global banking markets.
to be in excess of $7 billion with associated income reported in non-NII.
We continue to reiterate that.
We expect to see higher bath crew rates and continued migration to time deposits.
and we remain cautious on loan growth over the next 6 to 12 months.
or would you expect it to start picking up?
sometime in 2024.
I know that many of you will have questions about banking and II in particular, which I'll be very happy to address as we move into Q&A later.
Moving on.
Non-MII of $7.4 billion was down on the first quarter which benefited from $3.7 billion of notable items and FX translation. However, it was up $2.1 billion, or 39%, on the second quarter of 22. A couple of things to mention here. One, not salt, but we should mention that Palace ofpop culture doesn't hold it's own value at all. The sale by itself I usually don't have," but I disagree. Public works do not, they do not run houses in their pockets.
There was a strong wealth performance, up 0.3 billion dollars or 19% on the second quarter of last year.
More than $2 billion of which came from increased life insurance income, primarily in Hong Kong.
And two, marketing security services was down due to lower client activity and the methodology change that I just mentioned earlier.
fees were up $1 billion on the second quarter of 2022 due to higher personal banking and commercial banking fees.
Turning now to credit.
Our second quarter ECL charge was $0.9 billion, which was $0.5 billion up on the second quarter last year.
It includes...
$3 billion for our mainland China commercial real estate exposure in Hong Kong.
and a $3 billion charge for the UK.
To remind you, this is a more normalized level of charge that we expect for this year, and is a sign that our main credit indicators are holding up.
on the basis of
What we have seen so far in 2023 and ongoing macroeconomic headwinds, we continue to expect a 2023 ECL charge of around 40 basis points of average gross customer lending, including health for sale balances.
The next slide is our six-monthly update on our Mainland China commercial real estate portfolio.
As before, our principal area of focus remains the portfolio booked in Hong Kong.
At the full year, our exposure was $9.4 billion.
It now stands at $8.1 billion, due primarily to repayments.
The proportion of substandard and credit impaired exposures is around 65% of the portfolio, marginally up from the full year.
Of these $5.2 billion of exposures that we rate as substandard or credit impaired,
1.1 billion is secured with minimum ECN due to the security hit.
Against the remaining $4.1 billion, we have increased our provisions from $1.7 billion at the full year to $1.9 billion today.
Within this, our coverage ratio against the unsecured credit impaired exposures has increased from around 55% to nearly 70%.
At the end of 2022, we calculated a plausible downside scenario of $1 billion on this portfolio. As you can see, we have now crystallized some of that downside into the T&S.
We remain comfortable with our coverage level.
On slide 17.
Despite the inflationary environment, cost growth was restricted to 1% on a constant currency basis versus the second quarter last year.
As you can see, a large share of this growth was technology related.
There was also a higher performance-related pay accrual and the expected severance costs, which were part offset by a wide backlog of software and recent payments.
We remain committed to limiting cost growth to around 3% in 2023 on our cost target basis.
on this target basis.
Second quarter costs were up 6% year-on-year, of which around half was the $0.2bn of expected evidence costs.
As a reminder, our cost target bases exclude multiple items from constant currency operating expenses. It also excludes the impact of retranslating hyperinflation in economies at constant currency.
And finally, it excludes the acquired cost base and additional investments in HSBC Innovation Banking which are expected to result in an incremental growth of around 1% above our targeted basis.
The full cost target basis reconciliation will be on slide 26 of this deck.
Our CT1 ratio was 14.7% which was stable on the previous quarter. Profit generation was offset by the dividend accrual of $6.9 billion during the first half and the share buyback of $2 billion that has now completed.
Our CT1 ratio was 14.7% which was stable on the previous quarter. Profit generation was offset by the dividend accrual of $6.9 billion during the first half and the share buyback of $2 billion that has now completed. So in summary,
which was another good quarter. There were good profits and net interest in gun performances. But it remains resilient.
We are on track to limit cost growth in 23 to 3% on our cost target basis.
We now expect MII of at least $35 billion in 2013.
And as Noel said, we now expect a mid-change return on tangible equity in 23 and in 24, excluding the upcoming sale of Canada.
Finally, we are returning capital to shareholders by way of increased dividends and share buybacks.
And with that, I'll ask Richard to pick up a few questions. Richard, please. Thank you.
Thank you.
I open up for questions please in mind question ERS to stick to one or two questions I please will take four or five from the lines and in we'll take live questions here have in Kong Kong if you remind the this in Hong Kong to give you your name institution and there will be Mike well.
from Manus Cristolet please. Thank you Mr O'Connor. If you would like to ask a question today on the line, please press star 1 on your telephone keypad.
In the first half up 21% globally net new we invested assets growth.
75 billion over the past 12 months.
Growth in our aggregate invested assets of 7% globally.
That strong lead indicators, an additional half a million international customers.
In the past 12 months familiar there's a lead indicators I think youre, absolutely right there'll be a lag effects I should turn.
Customer acquisition and asset acquisition into revenue, but that's why we're talking about.
Building businesses and new growth opportunities that can supplement our revenue going forward and give us some caution on offset any downside right effects that may emerge.
I was 23 and post 'twenty school. So we think it's the right thing to do.
And you're right the revenue will be a lagging indicator on those early success quite sure that we're sharing with you.
You remember.
Growth in our wealth business in mainland China.
It started with zero wealth managers, just over 10 years ago. It was neither horsing under our ambition is to get to 3000 over the relatively near term over the next couple of couple of years or so.
Again that won't be revenue generative as an offset because most of that is fee based as an offset so any downside pressure maybe on interest rates.
So I think your second comment is a fair comment, but I'll turn that into the positive rather than negative.
Rajasthan.
Q2, Q once we receive UBS Goldman on for certain claims did you build revenue from a pretty low base Mohawk rapidly.
We'll take one more from the lines on recruiters remember in.
In terms of the liabilities in Hong Kong.
Thank you. Our next question is from Andrew Coombs from.
<unk> from Citi. Your line is open.
Good morning, all good afternoon, and two questions. Please just firstly on Chinese commercial real estate.
You bet, yeah absence of charges in Q1 more additional charges in Q2, so what triggered those additional charges and then when you talk about your downside scenario on slide 16, I think previously you had said it better.
When you go down.
Should we just take off the point right.
Or can you provide some framework around what you think the downside scenario malaise.
And then my second question, perhaps I could just invite you to make some comments on the.
14 point plan on cash savings.
Yes.
Are there any implications you think that might have to go get that business. Thank you.
Okay I'll take the second George do you want to take the first.
Things in Brazil.
We have.
Putting more charges in Q2.
Total charges was $3 billion or.
Some of Q1 and Q2, Jordan being very benign is $3 billion most of these charges.
On stage crews are these are more technical adjustments over all the names that have defaulted.
So where we stand now in terms of charges as we are comfortable with the charges, we have against this portfolio and China's really well.
With regard to the plausible downturn scenario, we indicated $1 billion at the year end as opposed to big downside, we have indeed crystallized 0.3 of it so without being precise on the math here. It is indeed, a residual circle.
<unk> seven mm.
That remains a plausible downside, which may or may not materialize over the coming few quarters.
Thank you.
Go to the FCA and the work they're doing on.
Savings accounts I think was your second question.
And we believe in.
In both the mortgage book and the savings are the deposit book, we're trying to make sure that we are offering a good range of products to our clients whereby they have choices. So on savings we've got a good competitive range of fixed rate deposit accounts in the market.
We also believe we've got good pricing in place for more instant access savings.
Savings accounts or deposit accounts.
We will participate with the FCA and on any reviews I do we believe if you take our two year fixed rate savings account in the UK based on the yield curve in the U K, we're offering save us the opportunity to get five 1% on that to fix them.
Two year fixed term savings account.
If you compare that to our two year fixed mortgage products.
That we're offering to our customers.
With a 60% loan to value ratio.
We're in the market around about 5.53%.
New to bank customers would be in the market or about six 1%. So we believe we have the structure of the deposit book on the structure of the mortgage book in the right level and as ever there is a price difference between term products.
And it's in excess products because of their maturity and liquidity risk.
So we have tried to price our products.
Fairly and appropriately we're very cognizant of the pressures that UK customers face at this point in time.
We've certainly tried to remain competitive and to help them navigate what he's going to be a challenging year or so.
With high interest rates and the yield curve.
And higher rates of inflation, but we will fully participate with any review that the FCA take we're also trying to encourage through marketing problems customers to take advantage of those products, if they want them and they need their circumstances.
We call it constant should not fulsome into term savings.
What we need to make sure. They are aware about term savings products should they want to take advantage of it.
So hopefully that answers your question can we take the next question. Please person told me affluent uncle.
It will take to Catherine and Nick and then.
I'll come back to some of it myself.
Hi, My name is Catherine Nathan J P Morgan and I have two questions.
And there are more long time, I'm wondering if one more time for the long term question.
Management would you have if you can give us any color on potential impact all our bottles.
One of the key support unsurprisingly with buyback in a handful of accounts right and then I think the impact on capital.
Let me congratulate you and changes will have an impact on how we model in.
So I'm sorry, I kept overtime. This is more in the long term I understand that I just wanted to get some color any color, particularly after the U S regulator relief, that's probably okay.
That change our.
I'll pass on that so this is a long term question on.
In the near term.
Now I think management gave us that number.
So addition, though ECL charges I'm trying to see how you throw one 7 billion and then I also noticed that for our guidance for full year credit cost is 40 basis points and if I look at the first half, it's a bit less than 30 basis points on an annualized basis right. So that they should know.
Apply on credit costs like have we included that 0.7.
<unk> 7 billion or <unk> 7 billion outside of the 40 basis points on guidance.
I think I'll take the second one first and then ask George to cover the more technical difficult ball.
All three questions.
So.
Let me see I'll, let Lee.
We decided to maintain guidance of 40 basis points on ACO, because theres still a lot of economic uncertainty out there there is economic uncertainty around China's latest state.
There is economic uncertainty generally in the world. We've had a good first half performance on Hcl, unless you say $1 3 billion.
Is is below the run rates of 40 basis points.
So we think we do have some capacity to absorb some of that risk that's inherent in the commercial real estate book in China.
But I think I'd be misleading use everything crews so scientifically proven because you've got a it all depends on what happens elsewhere in the world. So I could easily say, yes, we've got capacity to absorb that but it depends what happens elsewhere in the world. So we do believe we have it's weizmann, China Conservative guidance at the moment on the sales of 40 basis points.
And we have capacity in the second half.
Relative to the first half performance to absorb some additional shocks should they come through from its own economic issues. George do you want to handle boss right, Yeah I mean.
Just maybe just finishing on the churn point.
The Cushing or to anybody is H. One if you look at Q2 of <unk> nine is a more normalized level. So that was more of a level that you can look at where it is Q1 was an unusually quite close. So this is why each one of the nuclear toothpaste. So it doesn't look so the first thing to share about Basel III is we need to know the final rules at this stage.
Most of these resourcing and jobs for them and they will remain so.
Subject to change as we know the playbook.
The second thing that will be shared is that based on the current drop throughs in SPL with PRA standards for the group Holdings.
They will be a minor improvement.
Initially <unk>.
But as the output floor starts kicking in five years into the journey from 25, plus five years, there is a likelihood that the output for wind catcher.
Net net the impact may be in a material upward down but.
Immaterial up as we look at it.
At this way.
This being said I'll just caution one thing the U S. Obviously issued their draft rules both streak.
Came out more and.
More severe than we initially expected.
They will have an impact on our U S operations. It remains a marginal impact likely talking single digit uplift against the possible downward move before that.
Most of those will impact our local reporting to it already.
Our U S entity.
It will not change the way we report the new platform. So we will need to navigate both if you want the impediment.
Thank you.
Yeah.
Yep.
Yeah.
Yeah, So Nathan from Morgan Stanley .
A couple of questions if I may please.
I think George has given a very thorough description of how you might stay and everything's sort of post retirement rates, but.
Obviously, a lot about fee generation is going to come at a cost. So I just wonder if I could invite you to talk about how you think of balancing that BJ insurance costs over the next sort of two to three years.
And then secondly, a little bit more specific.
The amount of sort of three or four months into having bought lest we expected a little bit about it here I was just wondering if you could give us a little bit more detail on how your tons were both up business.
Yeah, Thanks, Nik and by costs I'm, assuming you mean investment cost to get to it.
That's what it cost to get out.
You're absolutely right.
We're keeping a strong and tight cost discipline in the bank, but what we're doing as we reallocate some costs.
From two and what we've typically reallocation news.
From what I call back costs costs associated with.
Low return portfolios low returning business activities in certain markets well costs, there associated with manual processes that should be digitized.
So if you look at our cost performance I think we increase our investment in <unk> costs by 12% so far this year.
The first half the first half.
We increased some of our investment call.
Global businesses, and we reduce cost elsewhere.
What's getting us back to the 3%, so we're investing and saving at the same time.
And that is a phenomenon probably historically hydro species dumping Quaker is typically being cost management.
Oh cost investment.
It's been a cycle.
You manage costs tight and then you invest with.
Definitely trying to do both at the same time, there's a lot of self funding going on to try and mitigate the overall cost base and that's how we build and I. The 1000 and 1400 people in mainland China, because we are saving costs through other country exits of the market exits.
Reducing our support costs and some of the manual processes in our global processing centers, that's allowing non investment to take place.
And that's been the journey for the past three years on the STB.
The integration is going well.
The business, we've had no nasty surprises since the day, we bought the business. It was profitable the day, we bought it it is still profitable.
Regarding through systems migration at the moment.
One statistic, which is probably an important guide for the future in.
In the three months post acquisition.
We talk in new to bank customers at a higher rate than the <unk>.
Three months prior to acquisition.
So in the transition of ownership from the previous owners to US we've seen are not taken the momentum with customers wanting to bank because we'd be enough for the three months period.
That acquisition has also given us the knowledge the platform the connections.
Frankly.
The positive brand and reputation globally.
Allowed us to go in and recruited a team in the U S. We recruited a team here in Hong Kong and we've recruited a team.
In Israel.
So my view that there is strong growth prospects in that business not just for the next two or three years I'm doing this because I think this will be an important business for us in the five to 10 to 15 year timeframe. This is an important sector of the economy.
And we're willing to invest in it.
So I'm very pleased with how it's gone.
Well you probably do are you.
Uh huh.
<unk> community.
Detail on so how material one of the numbers and I think we'll come back to you at the end of the year.
If you add this all together the investment and the current <unk> business, what could that potentially look like going forward and how material.
And that is something Keith Sultana will give you more towards the end of this year with the full year results.
Thanks, Don to lines and home right now and then some will come back in about five minutes okay.
Yeah.
Yeah.
Okay.
Thank you we have a question on the line.
[laughter].
We have a question from Geis Tobey.
From BNP Paribas Your line is open.
Yes, hi, Doug Thanks, hiking questions. Good morning, good afternoon, everyone.
And Mike one back on cost and then one on NIM and specifically in the U K. So.
Oh troughs in the context of a very strong top line and then up places like he got in 16 actions interest how youre thinking about investment spend in the context of what is now a better revenue backdrop than you'd previously anticipated guidance is very clear for this year does it change your attitude. It's a tool for the next year and beyond those sorts of a mindful consensus that's fairly.
Modest growth next year from where you go out and market to the sheet and adjusting for things like <unk>.
So just how did it below probably pretty easy nice in the context of what is a better top line.
Even though the opportunities available to you.
And then second question was on Omnia in the U K you saw very strong growth from the second quarter. The ring fence bank in Stark contrast to some U K peers.
We could talk about some of the dynamics, how you see deposit beat sort of mix evolving in the cab I appreciate it's very difficult to be too specific but any sort of perspective there.
I'm I'm, whether ultimately name in the U K ring fenced bank is likely to peaking out this sort of level. Thank you.
Thanks.
Well certainly on course, it's a very simple answer we're not given any guidance at this stage on 2024.
<unk> will give an update on 24 guidance at the end of the year.
On 2023, we've given I think a strong commitment on cost discipline.
I also will maintain strong cost discipline in 'twenty four.
But I'm not going to quantify what that means in terms of percentage growth at this stage.
On the UK George it would be good if you could just.
I'm sure some of the information that we got on the UK, particularly the progress we're still making in the UK mortgage market. Despite the pressures in the U K mortgage market because you put some color on that please.
So maybe I'll start by talking about dynamic and then been too many specifics but first.
In terms of pass through rates on the deposits.
For the last 50 basis points of film of rate hikes from the bank of England is passed through to our savings rate retail savings rate.
70%. So we believe from a consumer point of view, we're competitive having post too and obviously this is a higher than 50% both true.
Overall booked above three.
Around 40 between fortune, 50%, but clearly the margin impulse tools are higher at this high level of fleet.
Equally on the mortgages we continue.
Aiming for market share. So we brought in the stock market share from $7, 78% and our new.
New business market share is now just shy of 10% so we maintain the.
Leading proposition in mortgages.
If I go specific on women without without talking to a unit to our peers and then sometime it is that you can use when you're doing your assessment analysis. The first one is we have a very strong liquidity position with a very strong deposit franchise.
So our loan to deposit ratio.
The second one to take into account is relatively small in consumer for men. So that's component for portfolio is single digit percentage of our VP finance.
And the third one should take into account is that always structured and hedging is relatively young I E. We started the structural hedging.
Essentially when rates started to be at higher levels. So we had a blip in quote unquote baggage from structural hedging positions, where you know him from prior when rates were very low and this is obviously, helping us and adjusting upwards and we bumped by if you want.
Low interest, earning assets from older structural hedges.
And in terms of expectations I think its fair to expect that the increase we've seen in Q1 is unlikely to be repeated as we look into the rest of the year.
Thank you. Thanks, George next question. Please thank you.
Thank you. Our next question is from Tom Rayner from Numis. Your line is open.
Well, thank you very much.
Hi.
I bet, it's done your although your revised <unk> guidance.
Same time 24 I'm sorry.
<unk>, excluding them material notable items.
I understand when I look at your company consensus.
Do you have thoughts mechanical notes philosophy has been that I think are great.
Since the sale of Canada was boosting the consensus which had insights.
I guess my question is is I think that that potentially obscures the size of the sort of underlying upgrade that youre guiding to for the sort of return on tangible equity by 2024 and my concern is is whether the way you now present the figures because you know the multiples now all parts of your well known.
It doesn't and therefore I think it makes sense that the consensus looks at it that way, but just wondering whether this presentation is making it more difficult for investors to.
Understand the underlying drivers of the.
So none of that is maybe even affecting your writing at some level I just wonder if you could comment on that thank you.
George you want to pick that up.
Sure Tom.
Assuming our royalty guidance of mid teens initially has been excluding notable items. So for this year well for this year. Obviously, we had two notable items in Q1.
The provisional gain with SBB, one $5 billion, but also the <unk>.
A reversal of the impairment of some of the French retail business to $1 billion as we look to year end, we do anticipate that we would reinstate this impairment sometime in H two for a possible obviously a closure of the transaction on the first of Jan So that notable item if you want washes itself out.
From our full year expectations.
As regards 2024, I think that kind of impact as a couple percentage points on our.
Although we are voting so whether you stretch the mid teens a little bit.
On either side, then you may still be right.
But we would like to take it out because obviously it remains wide we're very confident in the resolution it remains an element.
Subject to additional due to continued regulatory approvals so.
You can do your math with or without so as far as the way.
We're looking at mid teens.
If you look at it.
First half.
We printed a headline rate at 22.4% royalty.
You take out the two notable items you get to an 18, 5% ROTC.
We guided mid teens to be equivalent.
Couldn't say with creating number not the 'twenty two number and if you think about 2024 there'll be a profit on sale of Canada, assuming that transaction completes there'll be a capital policy Orion in the form of dividend cut in the form of buybacks, but we don't include in that profit on style.
In our garden, we're not including that in our definition of mid teens sort of over and above because so what we're trying to say is we're giving you a mid teens royalty guidance for the core business now with the big swings in M&A activity achieving it that's the way I'd look at it so.
We just want to try and make sure everyone understands that what we mean by mid teens and it doesn't include the big one offs. These are the one off positive all the one off negatives.
We're looking at fundamental business in guidance for that.
Thank God, we're not trying to change consensus at this stage.
Okay.
Thank you for the question.
<unk> really just.
Can I just come back quicker.
Quickly come back on that.
The real question. Thank you okay.
I mean I guess my real question is is this mid teens I mean is this now what you view as more of a through the cycle type of.
What level of profitability for you guys. Because if you look at consensus 2025, Miami has that dropping away again, because I guess people. The one offs have dropped out but I mean, it sounds to me as if you like.
Now maybe interest rates have normalized to a level, where that's probably more of a statement you made there.
Last decade or so.
And maybe your profitability mid teens is now.
What youre comfortable with or is that what you're saying on a more of a through the cycle sort of basis.
I think you've already because what we said is the guidance is for 'twenty three and 'twenty four we're not giving you guidance for 25 and beyond we will do.
To do that at some stage, so I wouldn't over read the I clearly in 'twenty five and beyond.
You've got interest rates start to come off but I'm also talking about building alternative revenue streams building balance sheet growth because as interest rates come off economic recovery improves on the balance sheet will start to grow again, so our job as a management team.
Our philosophy is we want to try and make sure.
We can mitigate some of that downside riskiness from Virgin alternative growth strategies.
So to stabilize the road all the time, but for the avoidance of doubt we are not guiding at the moment on 2025.
We're only guiding on 'twenty, three and 'twenty four.
And we'll have to see how the economy.
The economics of the World develop and I think George should probably reiterate what he said at the end of the line when it.
Jonathan.
Look we're not trying to change consensus where we see consensus for a royalty shortly.
<unk> and 'twenty.
Okay.
Thank God.
Sometimes even longer.
Thank you.
Thank you. Our next question is from poorly Munch from K B W. Your line is open.
Yeah.
Two questions.
Good morning, Sam.
Non interest income and it's actually in involved in Asia. If I look at you haven't Yo Yo Asian entity is looking at.
It looked like revenue was really flat quarter on quarter, but NII going up in database. So that suggest to me that some noninterest income tax coming down the NATO just wondering what you're seeing in the frontline, especially.
With regards to wild and obviously, Hong Kong GDP print yesterday with them quite a bit quite a bit weaker than expected. So just what you see in that context I'm, Jim always take.
Hum expectation about that I tried it and just to what extent do you think that that might help you and so that's my first question and then the second question is on <unk>.
And on top.
Talking migration in Hong Kong, because I just noted.
Right.
41, it looks a lot like on the high side, which is obviously traditionally very strong retail saving bunch right. It looks like you did talk about guidance went the other way. So does that suggest that migration is it maybe that Hong Kong and maybe talking out.
Sure Sandy.
On the non M. I win in Asia, you wouldn't observe actually the biggest pickup is in insurance sure pacing.
They can be the impact of funding the trading book, which is showing under non NII. In this material is one 2 billion. If you take this one out.
The growth is essentially from insurance and insurance in Hong Kong. It does appear on the non NII, but not fee income.
That growth is.
As kind of a pretty friction of the growth we've seen in Q1.
And the 40% to 50% growth year on year. It is reflective of the opening of the border between China and Hong Kong and the addition of inflow of mainland Chinese policy, New policies Noah Hong Kong business is about 30% of new policies are from mainland Chinese.
These are the as you as you would expect insurance as a core component of our wealth in particular here in Hong Kong.
And that's the main driver of the growth.
<unk> seen some softness in wealth with regards.
Equities trading and that's more reflective of the equity markets in general.
And I Wanna say, the London, Hong Kong GDP is the main driver of our loan portfolios in terms of growth in our balance sheet.
<unk> activity is not necessarily directly linked to the GDP. It is linked to <unk>.
Mr behavior isn't it is linked to sentiment in the market.
With regard to your second question on migration.
So in in HSBC, we continued to see a migration of around 1% per month, although a bit slower little bit in April .
That's kind of continued that the trend that we had been forecasting.
As in Hangsang, where the term deposit share there is in the mid 30%.
Our colleagues and hang Seng has taken a proactive approach to manage some of the highly rate sensitive deposits.
And allowed them if you want to accept from attrition against these highly rated tens of people really chasing deposits and this is what allowed them to maintain or slightly reduce the term deposit mix, they're benefiting from a very strong liquidity position and a strong deposit franchise and they do not need necessarily.
Highly rate sensitive.
And that margin.
Thank you we.
Got a question from from some.
One last question from the line Simon could you.
Okay.
So someone from Jefferies. Just a very quick questions on Hong Kong mortgage mortgage rate in Hong Kong right now, it's well below high bar.
Any smaller banks are actually backing off from the mortgage market the mortgage pricing in Hong Kong going up and what would be the implications for that but that's the first question. The second question.
On China, there are a lot of macro concerns going on right now so how would you navigate through the macro uncertainties at the back. Thank you.
Okay.
So I'm sure I'll handle the mortgage system spark yep.
First our mortgage.
We continue printing mortgages, yes, indeed, the rates are quite attractive for for for borrowers.
And we increased our mortgage book multi smaller lots of a very large amount, but we increased our mortgage book. So we continue and this is despite a subdued property sales in Hong Kong, we continue to increasingly big.
The pricing as you know the mortgages are capped.
<unk> is highly correlated to the savings rate. So for instance, last week to increase the savings rate by about one for the half basis points on Hong Kong dollar and automatically increases the cap and therefore, the mortgage pricing today by chosen a half basis points, but.
I see this as a.
Natural evolution of the debates multi specific pricing for the mortgages.
Specific dynamic for the mortgage pricing if you want.
And in terms of China macro.
We had a brief conversation before.
You can take all of the international banks share.
The corporate debt market in mainland China, I think all of US together are about 2% market share.
So actually growing the corporate banking business is an international bank, particularly if your strategy is connecting mainland China to the rest of the world in both directions.
Hum.
GDP is not the prime driver of growth in the sense of what you can do because you're.
Still relatively niche in the market and warnings in huge markets and you can get growth.
Despite the fact, the GDP bound right GDP is still 5% plus so it was not bad but you can still get growth assembly in our wealth business that we're pursuing in mainland China.
We are pursuing an area which is around about.
Helping internationally orientated personal customers.
And particularly the domestic customers in the credits I get access to.
Wealth products insurance products to help them with their protection needs and their savings days notice.
And that is primarily chances are.
The affluence or the emerging affluent sector.
Raws in particularly the high net worth of Ultra high net worth now that is the core business, we have here in Hong Kong.
Now the way I look at it is that our proposition here in Hong Kong.
It's been a very strong driver of growth and profitability for HSBC in Hong Kong.
Well, we see that same opportunity in the greater Bay area.
<unk> in between Greater Bay area.
Well, the Guangdong province in Hong Kong.
It represents a significant long term growth opportunity for us.
What we're trying to do which is different to three four years ago with Tommy <unk> International.
Well on insurance as a primary proposition as opposed to just become another mortgage provider.
Under the current provider in Guangdong Province, So I think we.
Let me see opportunity for growth.
Yes, you can't ignore the macro environment, but we do see conditions for good growth for our business in mainland China.
Alright, not so much.
A question from George <unk> from the lines. Please.
Thank you we will take our last question from the phone from Joseph Dickerson.
Jefferies. Your line is open.
Hi, its a double header from Jefferies on the Q&A I'm just a quick question and most have been.
Asked and answered.
Just on the dividend question that I'm on the App.
The answer was slightly long winded, if I, if I interpret what you're saying it sounds like you would like the dividend the ordinary to be progressive.
And then secondly can you just discuss them to Hong Kong.
<unk> business with the H Bath business, the NIM trend that was flat quarter on quarter.
How much was the U S dollar denominated business a play there because if I look at your rate sensitivity.
Disclosures the U S. D bucket is now looks liability sensitive as opposed to asset sensitive so what.
How much.
Of the NIM movement.
They're saying an adverse sense was attributed to the.
The U S dollar business.
Or was it.
Thanks.
Okay, Let me deal with the dividend one first.
The guidance, we've given is for 2023 and 2024 will have a 60% payout ratio.
In addition, we guided to.
First use of proceeds as Canada's.
Sale proceeds will be in 'twenty one.
Special dividend.
So we're not giving any guidance on whether the dividends progressive or not because that says we're only giving the guidance that we've just said, which is 50% of profits clearly as a management team our ambition is to make our profits progresses.
So that's not but we're not guiding on dividends.
Progressive dividend policy, our policy is 50% payout ratio.
Hum.
And that would be a function of earnings and.
George do you want to cover Hong Kong name So in the Hong Kong NIM. So the first one on the NII increased by $1 1 billion.
The banking NIM increased by four because the non iron component of be training funding increased by $3 billion.
Now the way than the way the man the bank waiver you scratch. It isn't this computer is only looking at the NII component and therefore showing flat.
But as.
As I mentioned, we will be upgrading our disclosures in the hunting or disclosure with regards <unk>.
Ranking them and that would give you more visibility on the overall.
Margin when you take into account the fundamental fleet trading books now in terms of sensitivity to the USD and you're actually also driving towards the same kind of dynamic.
In the fall.
The trading book So the dollar has been currency that we found a number of other activities with so when you look at the NII sensitivity Duluth comes opposite to all the other currencies.
Because that's a funding currency, but essentially builders is funding our funding of the trading book and therefore, when you look at the funding book sensitivity, we've put in a few.
Kind of.
Sure explanations on the slides, where we estimated this to be to the tune of $1 $3 billion is it fair to assume most of it is deliveries and therefore reverses it and kind of any normalizes, our dollar sensitivity overall on the balance sheet to be that off.
Kind of negative sensitivity for minus 100 basis points.
Thank you.
Thank you.
Well I just want to say thank you very much for all of your questions and your time today.
We appreciate you spending some time just to close with a couple of comments.
We've had a good first six months I'm pleased to be kind of the business is performing.
We delivered an annualized return on tangible equity of 22, 4% or 18 or 5%, excluding those loans from a license.
And we've increased dividends and buybacks.
I'm also confident about the future.
We still have opportunity on opportunities to drive growth and Pseudomonas supply revenue.
While retaining tight cost control.
We have upgraded our returns guidance for 2023 and 2024.
Richard and the team are available to you if you have any further questions but.
But in the meantime have a good rest of the day. Thank you very much.
Thank you, ladies and gentlemen that concludes the call for HSBC Holdings plc interim results for 2023, you may now disconnect.
Yeah.
Yeah.
Yeah.
Okay.
Yeah.
Okay.
[music].
Okay.
Yeah.
Yeah.
Okay.
Yes.
Yes.
Yes.
Yes.
Yes.
Okay.
Yeah.
Yeah.
Yeah.
Okay.
Yes.
Yeah.
[noise].
Okay.
Yeah.
Yeah.
Yeah.
[noise].
Yeah.
Yes.
[noise].
Okay.
[noise].
Yeah.
Yeah.
Yeah.
Okay.
[music].
Right.
[music].
Yeah.
Yes.
Okay.
Yes.
Yes.
Okay.
Yes.
Yes.
Yes.
Yeah.
Yeah.
Yeah.
Okay.
[noise].
Okay.
Yeah.
Yeah.
Operator 1: Welcome to the Conference Calling Center. Please have your passcode and conference leader's name available. A coordinator will assist you momentarily. Welcome to the Conference Calling Center. Please have your passcode and conference leader's name available. A coordinator will assist you momentarily.
Operator 2: Thank you for calling. May I have your passcode, please?
[Company Representative] (HSBC Holdings PLC): Hi. The passcode is one seven eight three three one.
Operator 2: That's 178331?
[Company Representative] (HSBC Holdings PLC): Correct.
Operator 2: Okay, one moment, please. What is the name of the company hosting the conference?
[Company Representative] (HSBC Holdings PLC): It should be for HSBC Holdings PLC earnings call.
Operator 2: Okay, I tried searching with the passcode 178331. I am not showing any conference call scheduled for that passcode. I would suggest that you contact the person who sent you the invite and verify the information.
[Company Representative] (HSBC Holdings PLC): Oh, thank you. Thank you so much then.
Operator 2: You're welcome. Thank you for calling.