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 3Q 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. Good morning or afternoon, wherever you are. Ewan's going to take the bulk of the call today, and he will do that in the future Q1 and Q3 announcements. For today, though, let me start by saying that I'm really pleased with our third quarter performance. We've had a strong quarter of profit generation across all regions, supported by another quarter of net ECL releases. But most pleasing is the underlying revenue growth we're now seeing across the business. We feel that we're turning the corner on revenue after absorbing interest rate impacts over the last few quarters. We've got strong fee growth in all businesses. In global banking and markets, revenue is starting to stabilise. And that's against the backdrop of a large managed reduction in risk-weighted assets and lending balances, as we indicated back in February 2020. In terms of customer behavior, we've seen a strong deposit performance without any material drawdown on the liquidity that we built up over the last two years. The lending market was softer than we anticipated in the quarter, particularly in corporate loans. But the pipelines that we built up position as well for when companies start investing in both the recovery and the low-carbon transition. On capital, as our revenue starts to normalize, we've also looked to normalize our capital positions. Capital returns to shareholders will be a big component of this, and I'm pleased to announce the share buyback of $2 billion, which we expect to start shortly. On our strategy, we're executing with exactly the kind of pace I promised in February. We've made some important announcements in the quarter, including the acquisition of AXA Singapore. This complements our existing Singapore business very well and accelerates the build-out of our product and distribution capabilities in one of the world's most important wealth markets. Pre-COP26, we've been working incredibly hard with clients, governments and our industry peers on accelerating the low-carbon transition. We're working with a range of partners to find new ways to open the sustainable finance market for projects and investors. A fortnight ago, we announced the pioneering partnership with Temasek to create a debt financing platform for sustainable infrastructure in Southeast Asia, which I believe provides an important model for others to follow. This is just one of a number of sustainability partnerships that we hope to announce in the coming weeks, and I look forward to updating you on those shortly. In terms of the financial industry's contribution, the task force of international banks that I've been privileged to chair over the recent months just released a guide for banks on setting and delivering net zero targets. This is an unprecedented collaboration that makes an important contribution to help all banks operationalize the targets they've set. And importantly, to bring consistency and coherence for our customers, regulators, and investors. I'm really excited about the months ahead. There's real dynamism and optimism within the business. And we're focused on delivering growth in the areas we've targeted. With the added benefit of interest rate rises on the horizon, we're in a strong position moving into 2022. With that, I'll hand over to Ewan to take you through the detail.

Thanks Noel, and good morning or afternoon all. We had another good quarter, reported pre-tax profits of $5.4 billion, up 76% on last year's third quarter. with an annualized return on tangible equity of 9.1% for the year to date. Adjusted revenues were down 1% on last year's third quarter, but up 1% excluding certain volatile items, with a welcome return to more consistent top line growth across most of our business lines. Expected credit losses were a $659 million net release our third quarter in a row of net releases, with net releases for the year to date of some $1.4 billion. We still retain 31% of Stage 1 and 2 ECL reserve build-up we made in 2020. Operating expenses were broadly stable. Increases in investment and technology spend were offset by the impact of our cost-saving initiatives. But due to some inflationary pressures, ongoing investment into growth and additional costs due to the impact and timing of recently announced M&A activity, we now expect our adjusted costs for 2021 and 2022 to remain broadly stable at around $32 billion, excluding the UK bank levy. Lending balances were down by $6 billion, or 1%. This was due to the repayment of $14 billion of short-term IPA lending in Hong Kong. Stripping out the impact of the IPA loans, lending grew by $8 billion, or 3% annualized during the quarter, with further good growth in mortgage lending and trade finance. Our quarter one ratio was up 30 basis points at 15.9%. primarily due to a reduction in risk-weighted assets. We now intend to reach our target for Core Tier 1 of 14 to 14.5% by the end of 2022. This will reflect a combination of some regulatory-driven RWA impacts, balance sheet growth, and capital return. Today's $2 billion buyback announcement is part of this commitment to accelerate the normalization of our Core Tier 1 position. Our tangible net asset value per share of $7.81 was unchanged in the second quarter. Turning to slide four, we're seeing good signs of growth returning across our global businesses. In wealth and personal banking, we've continued to grow Asian net new money in private banking and asset management. We've increased the value of new business and insurance by 59% year on year. We've hired 450 new wealth planners in Pinnacle, our new Chinese insurance venture. We've kept our UK flow market share comfortably above our stock share, and we've made good progress on new customer acquisition. In commercial banking, we're seeing encouraging trends in global trade with good market share growth in key markets such as Hong Kong and Singapore. and we've maintained a strong business pipeline with $64 billion of new approved limits. In global banking and markets, we saw more stable revenue compared to a strong performance in the third quarter last year, with good revenue growth in both security services and equities, and GBNM's performance was achieved despite a 7% reduction in risk-weighted assets year on year. Looking geographically, In Asia, we're seeing strong underlying revenue trends. Excluding insurance market impacts, revenues were up 7% quarter on quarter and 5% year on year. And in the UK ring fence bank, revenues were up 2% quarter on quarter and 6% year on year, with fee income up 25% over the third quarter last year. Finally, and importantly, we're delivering on our goal to be a leader in the transition to net zero. We've helped issue $170 billion of green bonds year to date, including leading on a number of pioneering green bond offerings, such as the first UK Green Guild. And we're making good progress against the commitments we made in our AGM special resolution in May. Turning to slide five and looking at third quarter adjusted revenues as a whole, In wealth and personal banking, headline revenues were down 3% on a year ago, but excluding insurance market impacts, wealth management revenues grew by $145 million, or 7%. This was mainly due to higher fee income and asset management in private banking, together with insurance sales growth. Personal banking revenues fell by $31 million due to the continuing impact of low interest rates on deposit margins. Commercial banking revenues were 4% higher, driven by higher fee income across all products and growth in trade lending and deposit balances. In global banking and markets, revenues were down 3%. This was due to slower customer activity in fixed income markets versus a strong third quarter last year. However, equities benefited from both higher client activity and volatility in Asia, and security services grew through higher fee fee income and assets under custody. Slide six shows the revenue trend quarter on quarter with growth in all three global businesses excluding insurance market impacts. This has been driven by a combination of more stable net interest income together with good fee income growth across all our businesses up 10% year on year. We're increasingly confident that we're turning the corner on revenue growth Commercial banking is growing, wealth and personal banking is growing, and wealth management and stabilizing and retail banking, and global banking and markets is close to that inflection point, now that the bulk of its planned RWA reductions in the business are now complete. With the expectation of policy rates from 2022 onwards, we're now confident in seeing sustained revenue growth this coming year and beyond. which together with strong cost control will help drive a sustained improvement in core returns and operating jaws. On slide seven, net interest income was $6.6 billion, up 2% against the third quarter of 2020 on a reported basis, and broadly stable compared with the second quarter of 2021. On rates, the net interest margin was 119 basis points, down one basis point on the second quarter, primarily reflecting changes in balance sheet mix and continued weakness in the highball. Lending volumes were down on the quarter, but excluding the repayment of IPA loans, lending grew by $8 billion. With continued good loan growth in mortgages in Hong Kong and the UK, together with the on-going growth in our global trade franchise. For 2022, with our net interest margin stabilizing, policy rate rises on the horizon, and loan growth building, we're increasingly confident on the outlook for net interest income. On the next slide, we reported a net release of $659 million of ECLs in the quarter, compared with an $823 million charge in the third quarter of 2020. The net release was across all our global businesses, reflecting a more stable economic outlook, together with Stage 3 charges that remained very low. Despite the net releases, we continue to retain a conservative outlook on risk. We still hold $1.2 billion, or 31% of our 2020 COVID-19 uplift to Stage 1 and 2 ECL reserves. For the full year, we now expect net releases to be broadly in line with the net release in the first nine months, with perhaps a very modest net release in the fourth quarter after stage three charges. For 2022, we continue to expect the ETL charge for the full year to be lower than our medium term through the cycle planning range of 30 to 40 basis points. with more modest ECL releases expected to continue into the first half of 2022, albeit with an expected net charge after stage three impairments. Turning to slide nine, third quarter adjusted operating costs were broadly stable on the same period of last year. A $263 million increase in technology spending and a $340 million increase in investment and other costs were offset by a further $600 million of cost program savings compared with the prior year, with an associated cost to achieve of $400 million. To date, our cost programs have achieved savings of $2.6 billion relative to our end 2022 target of at least $5 billion in cost savings. And cumulative cost to achieve spend to date has been $3.1 billion, with an intention to still spend $7 billion through the end of 2022. In terms of outlook, with some inflationary and performance-related pay pressures, ongoing investment spend and additional costs due to the impact and timing of recently announced acquisitions and disposals, we now expect 2021 and 2022 adjusted costs, excluding the UK bank levy, to be around $32 billion. This is relative to our previous FX adjusted guidance of $31.3 billion for 2022, which included the bank levy. Turning to capital on slide 10, our quarter year one ratio was 15.9%, up 30 basis points in the quarter. This reflected a decrease in risk-weighted assets from lower short-term lending. favorable asset quality movements and FX, partially offset by a decrease in CET1, including around $1.7 billion for foreseeable dividends. Excluding FX movements, risk-weighted assets fell by $14.4 billion in the third quarter, driven by lower short-term IPO loan exposures in Hong Kong and positive movements in asset quality. In the third quarter, we made a regulatory deduction of 20 basis points for foreseeable dividends in the quarter. This was based on 47.5% of our third quarter EPS of 18 cents, which is the midpoint of our 40 to 55% target payout ratio. The dividend accrual for 2021 so far is $3.8 billion after payment of the 7 cent per share interim dividend. Please remember that this is not guidance of our full year 2021 dividend intentions. The dividend accrual is purely a formulaic calculation that will draw up at the full year based upon the results and outlook at the time. When thinking about the payout ratio for 2021, we'll attach a much lower weight to unusually low ECLs as part of our EPS this year. together with a desire to see higher dividends per share in 2022 relative to 2021. We intend to normalize our quarter one ratio over the coming quarters to be back within our 14 to 14.5% target range by the end of 2022, driven by a combination of balance sheet growth, capital returns, and regulatory impacts. Various things to note for your capital modeling through the end of 2022. We expect today's buyback announcement, the loss on sale of our French retail banking operations, and the reversal of the current software capitalization benefit to each impact our core tier one ratio by around 25 basis points. And we also expect some $20 to $35 billion of regulatory-driven RWA uplifts in 2022. So in summary, this was another good quarter, good earnings diversity across the group, a broad-based return to top-line growth in most of our businesses, and continued strong control on costs. While the results were flattered by net ECL releases, we're happy to be turning the corner on revenue with robust lending platforms, growth in trade and mortgage balances and the likelihood of earlier pipeline rate rises than previously anticipated, we're increasingly confident on the revenue growth outlook for 2022. We've included a few IFRS 17 slides in the appendix. We intend to go through this in more detail on our follow-up call on Wednesday for sell-side analysts. Overall, we expect an initial downside adjustment to our insurance profits of around two-thirds and a smaller percentage adjustment to insurance's tangible equity. Importantly, there will be no significant impact on the group's regulatory capital and there will be no impact on the dividend flows from our insurance businesses to the group. Despite inflationary cost pressures and the impact of IFRS 17 implementation, we remain confident in achieving returns at or above our cost of capital over the next three years, together with delivering attractive growth and attractive capital returns. Finally, we're looking to normalize our quarter run ratio over the coming quarters, of which today's buyback announcement is an important first step. With that, Sharon, if we could please open up for questions.