HSBC Holdings, plc.

This presentation and subsequent discussion may contain certain forward-looking statements with respect to the financial condition, results of operations, capital position and business of the group. These forward-looking statements represent the group's expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Additional detailed information concerning important factors that could cause actual results to differ materially is available in our earnings release. Past performance cannot be relied on as a guide to future performance. This presentation contains non-GAAP financial information. Reconciliation of the difference between the non-GAAP financial measurements with the most directly comparable measures under GAAP is provided in the earnings release available at www.hsbc.com. The Analyst and Investor Conference Call for HSBC Holdings PLC's earnings release for 3Q 2020 will begin in five minutes. Following the presentation, there will be the opportunity to address questions to HSBC's Executive Directors. To ask a question today, please press star and 1. This presentation and subsequent discussion may contain certain forward-looking statements with respect to the financial condition, results of operations, capital position and business of the group. These forward-looking statements represent the group's expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Additional detailed information concerning important factors that could cause actual results to differ materially is available in our earnings release. Past performance cannot be relied on as a guide to future performance. This presentation contains non-GAAP financial information... Reconciliation of the difference between the non-GAAP financial measurements with the most directly comparable measures under GAAP is provided in the earnings release available at www.hsbc.com. The Analyst and Investor Conference call for HSBC Holdings PLC's earnings release for 3Q 2020 will begin in two minutes. Following the presentation, there will be the opportunity to address questions to HSBC Executive Directors. To ask a question today, please press star and one. Amen. Thank you. Good morning, ladies and gentlemen, and welcome to the Investor and Analyst Conference call for HSBC Holdings PLC's earnings release for 3Q 2020. For your information, this conference is being recorded. At this time, I will hand the call over to your host, Mr. Noel Quinn, Group Chief Executive.

Thank you, and good morning in London, good afternoon in Hong Kong, and thank you all for joining us. Let me start by saying that I'm pleased with our third quarter performance. and the way that our business and our people have continued to respond to a challenging environment. We're doing all we can to support our customers, communities and colleagues through the ebb and flow of COVID restrictions and are committed to helping them manage the uncertainty that remains. As far as our business is concerned, we are more optimistic than when we last spoke in July. Economic forecasts are looking brighter particularly in Asia. As you can see from our Q3 results, expected credit losses have now stabilized. And we've got a clear plan to accelerate growth and adapt the business to the ultra-low interest rate environment. Looking further ahead, we are also committed to helping our clients make the transition to a low-carbon economy. You'll have seen our announcement two weeks ago that we're aiming to align our financed emissions to the Paris Agreement goal to achieve net zero by 2050 or sooner. The COVID-19 pandemic has been a huge wake-up call for us all, and a climate crisis has the potential to be much more drastic in its consequences and longevity. We're therefore stepping up support for our clients in a material way, as we work together to build a thriving low-carbon economy and focus in every part of our business on helping achieve that goal. Turning to our third quarter performance, these were promising results set against the continuing economic impact of COVID-19 with significantly smaller expected credit losses, good strategic progress, a growing capital ratio, good customer retention, and an improved economic outlook. Our Asia businesses continue to show good resilience, contributing $3.2 billion of reported pre-tax profit. And global markets grew adjusted revenue by 16% versus last year's third quarter. Our capital markets revenue is up 21% year-to-date on the back of strong collaboration across commercial banking and global banking and markets. And our global markets revenues are up 31% year-to-date, largely in the areas we have targeted for continued investment. Our profitability was challenged by the impact of interest rate reductions earlier in the year on our deposit franchises across all our global businesses. As a result, Reported pre-tax profits of $3.1 billion were down 36% and adjusted profits were down 21% on last year's third quarter. ECLs of $785 million were down significantly on the previous two quarters and broadly stable versus the same period last year. We maintained a firm grip on costs down 3% on last year's third quarter, with an ambition to go further than previously promised. Deposits of $1.6 trillion were 12% higher than last year's third quarter. We strengthened our capital ratio further to 15.6%. And despite headwinds, we made good progress in reducing risk-weighted assets in low-returning areas. and reducing our cost base in a sustainable way. Turning to slide three, the revenue impact of lower for longer interest rates is going to continue over coming quarters as the impact of interest rate cuts unwinds through the P&L. In response, we're accelerating all areas of our strategy with a particular focus on boosting sustainable non-interest income and going further on costs. The three main levers for this are going to be an acceleration and an increase in our investment in and across Asia. Faster digitization through higher levels of technology investments and the extensive restructuring of the businesses we talked about in February. Starting with Asia. As you can see from slide four, Asia's rebounding strongly, much more than the rest of the world. Given our ability to connect the world to Asia and support growth in the region, our Asian opportunity is growing, and we're stepping up investment to capture it. Previously, just under half of our growth investment was aimed at Asia. Now a large majority of our future growth investment will go to growing our Asia wealth, wholesale, and sustainability franchises, as well as reinforcing our position in Hong Kong and extending our position across the Greater Bay Area and South Asia. In the last 12 months, Asia's share of group risk-weighted assets increased by three percentage points to 44%, and that number will keep growing as we reallocate additional capital to the region as a whole. our recent investments have helped launch new initiatives aimed at supporting both our clients and business growth. These include Vision Go, a platform connecting SME service providers and customers in Hong Kong, which has onboarded more than 8,000 members since its launch in April. Pinnacle, supported by its new FinTech subsidiary, which is a first for a foreign financial institution in China. And in Southeast Asia, a new capability to onboard SMEs to multiple markets simultaneously, as well as a new multi-currency digital wallet for international SMEs, piloted by our GLCM business in Singapore. Our Asian franchise saw more good growth in the quarter with higher deposits and stable lending, supported by strong credit quality. But we can go much further, and we're backing up our ambition with investment to match. Turning to slide five, our technology investment is critical, not just to provide new capabilities to our customers, but also to boost efficiency and reduce long-term costs. For that reason, we'll maintain technology investment throughout the cycle, even as we reduce spending elsewhere. HSBC is already a substantially digital bank. A large proportion of our global payments already flow through digital channels, and downloads of HSBC Net are up 155% for the first nine months of the year. But we have further opportunities to meet growing market need for sophisticated, robust, rapid payment solutions, and to lead our industry in applying digital solutions to analog services like trade. Despite the current economic environment, we forecast to spend more in 2020 on technology than ever before, including investments to further digitize our key retail and wealth platforms. Enhance transaction banking for high net worth clients in Asia. Build a new trade services operating model fit for a digital future. Build and expand HSBC Kinetic, a UK mobile SME bank that uses cloud to deliver a faster same-day service for customers. And launch and enhance HSBC Evolve, a new FX execution platform enabling greater collaboration and better digital solutions for large and small corporate clients. This investment is helping to redesign our cost base while building the future of HSBC, and we won't sacrifice it for short-term gain. Moving to slide six. We're making good progress in restructuring our U.S. and European businesses, achieving $41 billion of RWA saves, largely through actions in global banking and markets, and around $600 million of cost program savings so far this year. In the U.S., Michael Roberts and the team have already reduced RWAs by 8% year on year, adjusted costs by 7%, FTEs by 11%, and branches by more than 30%. I'm pleased with this progress so far, but given the current economic climate, we are looking at options to accelerate. We'll provide an update on this at our full year results in February. In our non-ring-fenced bank in the UK and Europe, Nuno Matos and the team have delivered more than $18 billion of gross RWAs, reduced FTEs and contractors by 7%, and initiated plans to reduce global banking and market FTEs in our European hub in France by 38%. The strategic review of our French retail operations is ongoing, but nearing completion. We will announce the outcome by our full year results in February. In the meantime, we have announced the acquisition of the minority interest in HSBC Germany, enabling us to fully integrate the largest and most export-orientated European market into our strategy and business model. The combination of our current progress and increased ambition means that we now expect to exceed our $100 billion RWA gross reduction target in 2022, with around $50 billion of that total expected by the end of 2020. In summary then, our 2020 to 2022 transformation plan is fully on track, and we'll go further and faster wherever we can. We are pushing harder on costs and now expect to beat our target to reduce group costs to 31 billion or lower in 2022. We expect to achieve around $50 billion of low performing RWA gross reductions by the end of 2020 and to exceed our $100 billion target by the end of 2022. We will provide an update on our plans for our France and US businesses by our full year results. And we'll provide an update on our dividend policy in February. We are working hard to get back to being able to pay dividends. And we seek to pay a conservative dividend if circumstances allow with respect to the 2020 financial year. The board's decision on whether to pay a dividend will depend on economic conditions in early 2021 and be subject to regulatory consultation. With that, I'll pass over to Ewan to go through the numbers.

Thanks Noel and good morning or afternoon all. Against the continuing economic impact of COVID-19, these were a decent set of results, which coupled with further good progress against our strategic objectives Additional strengthening in our core tier 1 ratio and tail risks in aggregate having diminished over recent months have Noel and I in a more optimistic mood than last time we spoke at our second quarter results. Post-tax profits of $2 billion, while down 46% versus the third quarter last year, were up materially on a weak second quarter. Adjusted revenues were down 10%, mainly reflecting the impact of interest rate reductions, which impacted all of our global businesses and particularly our deposit franchises. Near zero interest rates will be a persistent revenue shock to our business over the next few years. We're actively adjusting our business model to address this, building sources of non-interest income, implementing asset-side repricing where we can. adjusting the revenue model for some product and customer segments, and materially reducing our cost structure through digitization and automation. ECLs were significantly lower than the second quarter at $785 million, or 30 basis points of gross loans, with Stage 1 and Stage 2 allowances broadly unchanged. With ECLs at $7.6 billion for the first nine months, We're now guiding to the lower end of our previously announced $8 billion to $13 billion range for the full year. We're continuing to take action on costs. Our adjusted operating costs fell by 3% against the third quarter of last year and down 4% year to date. Our balance sheet metrics continue to improve. Our quarter one ratio was up a further 60 basis points to 15.6% in the quarter. and customer deposits and lending were broadly stable from the second quarter with deposits up 12% or $164 billion year on year. Our tangible net asset value per share of $7.55 was up 21 cents on the second quarter due to both retained profits and currency movements. Turning to slide 10 and looking across the three global businesses, In wealth and personal banking, revenues were down 13%, with retail banking revenues falling by just under $1 billion, due largely to the impact of falling interest rates on deposit margins. At a headline level, wealth management revenues grew by $177 million, but excluding positive market impacts in insurance manufacturing, were down 8%, due mainly to lower insurance new business volumes. Commercial banking revenues were 17% lower, due mainly to the impact of lower margins on global liquidity and cash management. In global banking and markets, revenues were up 3%, despite the impact of lower interest rates. Global markets grew by 16%, reflecting continued good performance in credit and FX. Equity revenues also increased by 39%. Looking forward, assuming economies continue to rebound from COVID-19 lows, we would expect some increase in corporate investment and loan growth from the low levels seen in second and third quarters this year. We also expect global markets revenues to now normalise as volatility reduces and corporates complete their bond and equity fundraisings. Also, don't forget the fourth quarter is normally a seasonally weaker quarter for revenues for us in both global markets and wealth. On slide 11, net interest income was $6.5 billion. That's down 6% against the second quarter. The net interest margin was 120 basis points, down 13% on the second quarter. 13 basis points, sorry, reflecting the continuing impact of near zero interest rates with our Asian franchise in particular seeing material deposits spread compression. The UK ring-fenced bank NIM was stable quarter-on-quarter, excluding significant items. As we look forward, and assuming interest rates remain unchanged, we expect further modest net interest income headwinds in the fourth quarter, with some quarter-on-quarter stabilization from there, We still expect approximately $3 billion lower net interest income in 2020 versus 2019. On the next slide, given the forward outlook for net interest income, we're focused on building our non-interest income revenues. We've already substantial fee income businesses to invest in, particularly in wealth and private banking. We're also one of the global leaders in FX, and are increasingly building out our strength into Asia for global markets and global banking. We're also looking at new revenue models in other areas, such as global liquidity and cash management and retail banking that have previously relied on deposit spreads to drive economic returns. Fee income showed some recovery in the third quarter from the COVID-related lows seen earlier in the year, up 4% versus the second quarter. Turning to slide 13, adjusted operating costs were 3% lower than the third quarter in 2019 and down 4% for the first nine months. This continues to reflect the impact of our cost reduction actions and lower spending on discretionary cost line items as a result of COVID-19. Relative to the plan we announced in February, we now plan to exceed our cost targets set for 2022 with gross cost savings exceeding our previously announced $4.5 billion in that year, while still sustaining investment in technology spending in areas of focus. In part, this reflects change customer and employee behavior as a result of COVID-19, namely substantially increased digital engagement from our customers, and using the benefits of technology to adopt a hybrid working model for most of our employees with materially lower internal travel requirements going forward. These customer and employee trends are also consistent with our sustainability goals, opening up further opportunities to materially reduce our own carbon footprint in line with our commitment to be net zero operationally by 2030. To help achieve these additional cost savings, we now plan to spend more than the $6 billion in costs to achieve by 2022, with around $1.6 billion of the total expected to be spent in 2020. We'll provide a more detailed and quantified plan in February when we announce our full year results. On the next slide, ECOs were much lower than first half trends, some $785 million or 30 basis points of gross loans. This reflects a more stable economic outlook and a significant reserve build in the first half, while overall ECO allowances remain broadly unchanged. The stage one and stage two P&L charge for the year to date is around $4.2 billion. of which just $300 million was incurred in the third quarter. The Stage 3 charge for the quarter was around $500 million, relating primarily to a small number of wholesale exposures across various sectors and a stable level of retail defaults. This was partially offset by $300 million of releases relating to pre-COVID-19 cases. The $785 million ECL charge we believe is unusually low at this point in the economic cycle, benefiting from releases. So I would discourage you from using this as a new baseline. While ECLs have started to stabilize, we do still expect them to remain higher than normalized levels over the coming quarters. With ECLs at $7.6 billion for the first nine months, for 2020 as a whole, We now expect to be towards the lower end of the $8 billion to $13 billion range, although uncertainties remain around COVID-19 and Brexit in particular. On slide 15, our quarter one ratio at the end of the third quarter was 15.6%, up 60 basis points in the quarter. This was driven by RWA reductions on a constant currency basis, profit generation, and FX translation differences. Excluding FX movements, RWIs fell by $11.8 billion, primarily as a result of our risk-weighted asset reduction program. As previously signaled at the second quarter and relative to guidance we gave in February, we've made good progress this year in reducing portfolios of higher stress and enhancing capital levels at the holding company. As such, we now expect to be able to target a 14% to 14.5% core tier one ratio when we can begin to normalize our core tier one position again. On slide 16, we're making good progress against our $100 billion gross reduction target of low returning risk weighted assets by the end of 2022. For the first nine months, we've achieved $41.5 billion and expect to have achieved approximately half of the $100 billion target by year end. As a result, we now expect to exceed this target and to do so without exceeding our $1.2 billion spend target that we announced in February. So in summary, against the backdrop of COVID-19, this was a decent quarter for us. Another resilient Asian performance and a decent quarter for fixed income. a more optimistic credit outlook, and further progress on cost reduction and quarter one build. As we look out, without discounting the continuing high levels of uncertainty, we think the combination of tail risks has diminished relative to the last quarter, and therefore we're now more confident on the outlook. We recognize that we've still got a tough period ahead of us, given the very material impact of near zero interest rates over the next few years, coupled with a gradual recovery in customer activity in some segments from COVID-19 lows. But we think the building blocks are now being put in place for substantially enhanced returns in the coming years, a change of revenue model that will be less reliant on deposit spreads, a normalisation of credit costs from 2020 highs, lower operating costs using the benefits of digitalisation and automation, and increased confidence in being able to operate the bank at reduced capital levels once the economic environment stabilizes. Noel and I are very focused on the path back to paying dividends. With a core tier one ratio of 15.6% relative to a target of 14 to 14.5%, we're now accruing meaningful capital buffers. However, I would caution about getting ahead of yourselves on distributions. When we start, we'll start conservatively and look to build sustainably from there. With that, Sharon, if we could please open up for questions.