HSBC Holdings, plc.

Good morning, ladies and gentlemen, and welcome to the Investor and Analyst Conference call for HSBC Holdings PLC's earnings release for the first quarter 2021. 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. Thank you, Sharon. Good morning in London and good afternoon in Hong Kong. I've got Ewan with me today, and I wanted to start by sharing on screen our purpose, ambition, and our four strategic pillars, to focus on our strengths, to digitize at scale, to energize for growth, and to lead the transition to net zero. I will return to these in a moment. But first, I'll run through some highlights before Euan takes you through our financial performance. We've had a good start to the year. I've seen excellent energy within the business, strong collaboration, and a determination to get things done for our customers. I'm very grateful to all of my colleagues for the way they've managed growing demand since the turn of the year and for the single-minded way they've helped our customers to capture both present and future opportunities. There are many parts of the world where the pandemic remains a very real part of people's lives. Our thoughts are with the people of India in particular, and we're working hard to support our colleagues and customers in India through this very tough time. In terms of our financial performance, our good business performance supported by a net release of expected credit losses delivered reported pre-tax profits of $5.8 billion, which were up 79% on last year's first quarter. We strengthened our lending pipelines across our personal and commercial banking businesses, which bodes well for our future revenue. Our cost and RWA programs remain on track, with $443 million of quarterly cost program savings and $9 billion of gross RWA savings in the quarter. And we retained a strong capital ratio of 15.9%, with further growth in both deposits and lending. Putting out a few highlights on slide three. The combination of our digital campaigns and growing customer confidence saw strong credit card sales growth in Hong Kong. We saw good mortgage growth with drawdowns up 60% in the UK and 37% in Hong Kong. Our wealth strategy got off to a strong start with 23 percent growth in overall wealth balances. We attracted $13 billion of net new money into private banking in the quarter and $11 billion of net new money into asset management. We saw good loan volume growth in commercial banking and month-by-month increases in lending approvals, with nearly double the approvals in March of any one month in 2020. Global banking and markets had a good quarter, supported by strong customer activity in capital markets. We led more than $567 billion of capital markets financing across global debt and equity markets and syndicated loans, including around $40 billion of social and COVID-19 response bonds, which is around 29% of the total market. This was a global performance with good profitability in all regions and growth of $3.2 billion in profits booked outside of Asia compared with last year's first quarter. Moving to slide four. I said in February that our growth and transformation plans were already in motion, and you can see the evidence of that here. Under focusing on our strengths, we've already grown wealth balances in Asia by 18% year on year. We've grown our Asia wealth FTEs by more than 600, including around 100 new client-facing wealth planners in mainland China. And we've grown trade finance lending in Asia by around $3 billion, mainly in China and Hong Kong. Under Digitize at Scale, we started to integrate our market-leading PayMe app in Hong Kong into merchant checkouts and officially launched HSBC Kinetic for SMEs in the UK with around 6,000 customers already signed up. And they're energized for growth. We're applying all that we've learned through lockdown combined with our digital investment to improve the way we work. We're moving to a hybrid model wherever possible, giving our people the flexibility to work in a way that suits both them and their customers. We will need less office space as a result, and we have a plan to reduce our global office footprint by more than 3.6 million square feet or around 20% by the end of 2021. We're also relocating three of our global business CEOs to Asia on a permanent basis, taking them closer to our customers and to the core of our business. On the transition to net zero, we've published details of the climate resolution that we'll put to shareholders at our AGM in May. We are one of the founder members of the Global Net Zero Banking Alliance that launched last week. We maintained our leadership position in sustainable finance, following a record quarter for global ESG bond issuance. And we're piloting a new tool in the UK to help SMEs better understand their ESG performance and to prepare to take action. It's early days, but we're carrying good momentum into the second quarter. Ewan will now take you through our results.

Thanks, Noel, and good morning or afternoon all. We had a good quarter against the backdrop of ultra-low rates, reported post-tax profits to $4.6 billion, that's up 82% on last year's first quarter, and an annualised return on tangible equity of 10.2%. Adjusted revenues were down 3% on last year's first quarter, largely due to the impact of ultra-low interest rates, but there were notably good performances in some segments, including Asia Wealth and Wealth and Personal Banking, Asia Trade Finance and Commercial Banking, and Capital Markets and Advisory Debt Trading and Equities in Global Banking and Markets. Relative to the first quarter of 2020, adjusted revenues also benefited from the reversal of negative insurance market impacts and global banking and markets valuation adjustments. Expected credit losses had a $435 million net release. This reflects both an improved economic outlook for our central scenarios and in the UK and the US, lower probabilities attached to downside scenarios. Operating expenses were up 3%. This was due to a shift in variable pay accruals to reflect quarterly profitability. We remain on track to deliver our target of broadly stable costs for the year X the bank levy, subject to final decisions on the variable pay pool later in the year. Lending and deposit balances were both up 1%, with confidence in higher loan growth in the remainder of the year. Our core tier one ratio remained stable at 15.9%, and our tangible net asset value per share of $7.78 was up 3 cents on the fourth quarter, with retained profits more than offsetting negative reserve movements. Turning to slide six and looking at first quarter adjusted revenues across the three global businesses, in wealth and personal banking, revenues were down 1% on a year ago, Wealth management revenues grew by just under $1 billion due to the turnaround in insurance market impacts from a big loss last year and a good performance in equity and mutual fund sales in Hong Kong. Personal banking revenues fell by $890 million due to the impact of low interest rates on deposit margins. Commercial banking revenues were 14% lower due mainly to the impact of low interest rates on global liquidity and cash management, but with a good bounce back in trade balances in the quarter and growing confidence in the lending pipeline for the coming quarters. In global banking and markets, revenues were up 10% with strong performances in global debt markets and equities up 52% and 55% respectively and in capital markets and advisory up more than 100%. Just to remind you, we've no significant exposure to SPACs where some peer banks benefited from exceptionally high activity levels in the first quarter. On slide seven, net interest income was $6.5 billion, down 14% against the first quarter of 2020 on a reported basis. On rates, the net interest margin was 121 basis points, down one basis point on the fourth quarter, primarily reflecting the fall in high bore during the first quarter. On volumes, we saw continued good volume growth in mortgages in both Hong Kong and the UK, and strong commercial applications that we expect to translate into volumes in the coming quarters. Looking forward to the remainder of the year, Despite some continuing rolling impact of last year's shift in interest rates, we expect volume growth to support net interest income at levels broadly in line with the first quarter. On the next slide, net interest income was $6.8 billion, up 15% against last year's first quarter, but noting last year was negatively impacted by volatile items due to COVID-19. Overall, net interest income stabilized in the quarter compared with falls over the previous three quarters. Wealth and personal banking and global banking and markets benefited from higher volumes, better equity and mutual fund sales, and stronger capital market activity. FX revenues were down year on year, but this was still a good performance against an exceptional first quarter of 2020. Commercial banking was down slightly reflecting lower trade and payment volumes due to the continuing impact of COVID-19 on activity levels. Looking forward, we expect customer activity and fee income to continue to recover as economic activity recovers. Although this obviously remains subject to the impact of new COVID-19 variants and the continuing success we've seen to date in the rollout of a global vaccination program. On the next slide, we had a net release of $435 million of expected credit losses in the quarter. This compares with a $3.1 billion charge in the first quarter of 2020. The net release was across all global businesses and reflected an improvement in the economic outlook, notably in the UK, including a reduction in downside probabilities. Last year's first quarter included a large charge related to one single name corporate exposure in Singapore, but this year's first quarter was still very benign for stage three charges, particularly on the wholesale side. We've retained ECL uncertainty overlays of $1.5 billion, broadly the same as the fourth quarter, recognizing the risks that still exist from the pandemic. But based on the current economic outlook, we now expect the ECL charge for the full year to be below medium term through the cycle planning range of 30 to 40 basis points. Turning to slide 10, first quarter adjusted operating costs were $220 million higher than the same period last year. This was driven by higher performance related pay accrual of $474 million primarily due to a shift in accruing a higher percentage of variable pay this quarter relative to the first quarter of 2020. We made a further $443 million of cost program savings in the quarter with an associated cost to achieve of $319 million. To date, our cost programs have achieved annualized saves of some $2.2 billion against our target of $5 billion to $5.5 billion, with cumulative costs to achieve spend of $2.2 billion. We're not softening our vigorous approach on costs. We continue to expect our 2021 costs to be broadly in line with 2020, excluding the benefit from a reduced bank levy. This is subject to final decisions on our variable pay pool later in the year, which will be primarily driven by the pre-tax profitability of the group. Turning to capital on slide 11, the impact of profit generation in the quarter was offset by fair value movements and other deductions, including around 10 basis points for foreseeable dividends. As a result, our quarter one ratio was unchanged at 15.9%. In line with our shift to a payout ratio approach going forward, the deduction for foreseeable dividends was based on one quarter of the 2020 15 cent dividend. We expect to make the same capital deduction in the next two quarters based on the same trading dividend assumption. But to be clear, we're not signaling with this our 2021 dividend intentions. Excluding FX movements, risk-weighted assets fell by $6 billion in the first quarter due to changes to our portfolio mix and methodology and model updates. To remind you, we do expect some Q1 headwinds going forward from regulatory changes. These haven't changed from the full year. So in summary, against the backdrop of ultra-low interest rates, This was a strong quarter for us, our best in reported profits since the onset of COVID-19 and an annualized return on tangible equity of 10.2%. While the results were flattered by a net release of ECLs, we saw strong performances across various parts of the bank with continued strength in Asia, despite the impact of a very low highball and a material recovery in profitability outside of Asia. As we look out, there remains heightened levels of uncertainty, particularly driven by the continuing emergence of COVID-19 variants. So expect us to retain a conservative position on capital funding and liquidity for the time being. However, based on the first quarter performance and the strengthened economic outlook, Noel and I are more optimistic about this year. albeit cautiously, than we were at our four-year results in mid-February. With that, Sharon, if we could please open up for questions.