HSBC Holdings, plc.

gentlemen welcome to the investor and analyst webinar for hsbc holdings plc's 2024 annual results for your information this call is being recorded at this time i will hand the call over to george elhedri group ceo welcome all to today's call i'm joined by pam our new group cfo

We're delighted to be here in Hong Kong, the city where HSBC was founded 160 years ago. Our history and heritage stand us in good stead. In so many ways, adapting to new economic realities and technologies is what we have always done. It brings out the best in our people and culture, especially when acting as a trusted advisor to our customers as they navigate the world's economic uncertainties and look towards new opportunities. Before Pam takes you through the fourth quarter numbers, I will cover four items. First, I'll go through our full year 2024 results. Second, I will set out the changes implemented over the past few months to create a simple, more agile, focused bank addressing the ways we operate in a fundamental way. Third, I'll describe in some detail the solid foundations we are building on. And finally, I'll share with you what we plan to do next in order to deliver sustainable strategic growth and meet our return targets. So starting with the full year numbers. 2024 performance was strong. We delivered record profit before tax of $32.3 billion or $34.1 billion excluding notable items. We generated a 14.6% return on tangible equity or 16% excluding notable items in line with our mid-teens target. And we announced a total of $26.9 billion of distributions to our shareholders in respect of 2024, including 87 cents per share of dividends and $11 billion of share buybacks. When I took the role in September, my priority was to inject energy and intent in the way we deliver our strategy while maintaining continued focused cost discipline. At our third quarter results, I committed to provide you with more detail on the expected benefits from our organizational simplification. We have simplified HSBC in two important ways. We've elevated and empowered our two home markets of Hong Kong and the UK and our wealth proposition. and we have combined our two wholesale businesses. In doing so, we have eliminated large parts of our complex matrix governance structure. This significantly improved operating model is now led by a tighter group operating committee. It has clarity of accountability, fewer management lines and layers, reducing the need for the number of committees we previously ran across the bank. This has increased our agility. As an illustration, previously, every dollar of revenue we generated had at least two accountable executives at the group executive committee. Today, around 60% of our revenue has a single accountable executive at the group operating committee. This will empower our people to make faster decisions, collaborate better, and innovate for the benefits for our customers. In short, we've simplified our structure and we've aligned it to our strategy. This will enable us to deliver around $1.5 billion of annualized savings by the end of full year 2026, primarily through deduplication of roles. This represents circa 8% reduction of our global staffing costs. This will cost around $1.8 billion in severance and other upfront costs. Those $1.5 billion savings will have no meaningful impact on revenue, and they will be taken straight to the bottom line. Separately, we will redeploy circa $1.5 billion of costs from non-strategic or low-returning activities as incremental investments to our priority growth areas, where we have clear competitive advantages and generate accretive returns. We have started to do this by announcing that we will begin to wind down our M&A and ECM activities in the UK, Europe, and the US. I will cover our priority growth areas shortly. These actions give us the confidence to target a mid-teens return on tangible equity in 2025, 2026, and 2027. Each of our four businesses are firmly rooted in our core strength. In our two home markets of Hong Kong and the UK, we have two strong businesses. In both businesses, we serve personal banking customers as well as commercial banking and small and medium enterprises. We are a leading bank and are growing market share in key products. Importantly, in both, we are profitable and delivering very good returns. As for the large corporations with global banking needs in both home markets, alongside individuals with multi-country personal financial needs, they will be served by our two international businesses as I'm about to set out. Corporate and institutional banking, CIB, is a global wholesale bank with significant competitive advantages. has a powerful deposit franchise with strong financing capabilities, and it also has a market-leading transaction bank leveraging our global network. As the world's number one trade bank for the last seven consecutive years, we are exceptionally well placed to help our customers and capture global and intra-regional trade flows as supply chains reconfigure, new trade routes emerge, economies grow, and our customer expectations evolve. CIB is also well positioned to help entrepreneurs secure the capital they need to build the businesses of the future, help our customers decarbonize. International wealth and premier banking, IWPB, is ideally placed to capture the increasing number of affluent and high net worth customers, especially those with international banking needs who seek new investment opportunities to help them protect and grow their wealth. Our recognized brand, financial strength, complementary footprints across Asia and the Middle East reinforce our position in the world's fastest growing wealth markets. Let me now highlight our distinctive strength, starting with our high quality revenue streams. Our franchise generates resilient recurring revenue from three key sources. As you can see, in 2024, two-thirds of revenue was from banking and I.I. This is a result of the strong deposit and lending positions in each of our four core businesses. As you know, we have built up the structural hedge to protect this revenue stream from falling interest rates. Pam will speak more about this. The remaining third was from fee and other income. Around half of this was from our market-leading wholesale transaction banking business, which is built on our global network covering 85% of global trade and capital flows, including high growth markets such as India, ASEAN, of course, mainland China, the Middle East, Mexico. Around a third was from wealth, which I will talk about shortly. Taken together, this means that more than 90% of our revenue comes from three high-quality streams. Moving to our strong deposit franchise, our customers trust the strength of our balance sheet and have chosen us to look after their deposits. This gives us a highly liquid and profitable balance sheet, which provides greater flexibility through the cycle. Within our $1.7 trillion deposit base, we have large deposit surpluses in each of our four businesses, giving us the funding capacity to support our clients. Turning now to our high-quality loan portfolio, we've always maintained a conservative approach to risk management, as evidenced by the quality of our loan portfolio. In the period since 2018, we have experienced the global pandemic, an energy crisis, and the real estate cycle in the US, in Hong Kong, and in mainland China. Our average annual ECL charge over that period was 32 basis points of average customer loans, which is well within our medium-term planning range of 30 to 40 basis points. On our disciplined capital management, Over the last two years, our capital generation has enabled us to return $47.7 billion to our shareholders. This comprises of $27.7 billion of dividends and $20 billion of share buybacks, including those announced today. Through the rolling series of share buybacks we have undertaken since the start of 2023, we have now repurchased 11% of our year-end 2022 issued share count. We're targeting a mid-teens return on tangible equity in each of the next three years. The external environment presents us with opportunities but also challenges. The interest rate outlook is benign, but it remains volatile. We can adapt to changing patterns of trade and economic growth, but there is a risk of disruption. And we have a major opportunity in wealth in Asia and the Middle East, but it is a highly competitive space. Despite these challenges, we have levers we can pull on to support us deliver on our target. We're confident we can take decisive action to do so. These levers are, first, driving operating leverage as an ongoing process through cost efficiency and optimization, as well as continuous improvements in productivity. Second, dynamic balance sheet management and capital allocation, which I'll cover shortly. And third, investing for strategic long-term growth. Let me turn to this next. We're creating the capacity to invest for growth in the business and to drive efficiencies. We're focusing our growing investment pot as shown on this and the next slide. First, in our home markets, we intend to expand the number of wealth centers and enhance our wealth capabilities in Hong Kong, which is set to become the world's leading cross-border wealth center. We attracted around 800,000 new-to-bank personal banking customers in Hong Kong last year, and we are well-positioned to capture growth opportunities as international customers choose Hong Kong as their cross-border wealth hub. in the UK, we plan to also grow the wealth business, and we plan to improve our SME coverage and proposition. This is an extremely attractive and profitable segment where we will intensify our focus. Second, in CIB, we intend to leverage our network and further enhance our transaction banking capabilities, including in high growth markets such as mainland China, ASEAN, India, Middle East, Mexico, We are also looking to scale up our broad loan origination capabilities by underwriting more and distributing more to our institutional and wealth clients. This ability to leverage our loan origination for the purpose of distribution will give us larger opportunities to generate fee income, improve capital efficiencies, and in turn, improve CIB returns. Third, in IWPB. We intend to accelerate the wealth buildup in our home markets, and particularly also in key growth markets such as Singapore, the UAE, India, and mainland China. In each of these, we aim to accelerate the hiring of relationship managers, establish new wealth centers, and expand our product offering. While we are benefiting from an underlying growth in this segment, particularly in Asia and the Middle East, we also aim to grow our market share by, first, better driving wealth penetration within our own wholesale or premier customer. Second, better capturing cross-border flows of our own customers in their outbound location. And third, increasing the proportion of mandates within our invested assets. Finally, underpinning all of this and across the group, we aim to seize the opportunity of AI and generative AI. Our flagship initiatives will focus on improving customer service through both our mobile apps and our contact centers. We also intend to increase tech productivity with tools such as coding assistance and improve process efficiency in areas such as onboarding, KYC, credit applications, and many others. Mid-teens returns will give us a range of attractive options for capital deployment and will drive EPS and DPS growth over time. As the illustration on the right-hand side of the slide demonstrates, a mid-teens return on tangible equity will enable us to deliver the 50% dividend payout ratio in 2025 and still have sufficient capital to grow the balance sheet, buy back shares, or both. Supporting our customers will always be our first priority, and we expect our loan book to grow the mid-single digits over the medium to long term. However, fluctuations in customer demand for credit mean our loan book may grow at an uneven pace. Share buybacks remain our preferred method of returning excess capital to our shareholders because they drive growth in EPS and DPS. For instance, in 2024, while our earnings grew by circa 2%, our earnings per share grew by circa 9%, reflecting the benefit from the circa 6% reduction of share count through share buybacks in this year. So in summary, we've simplified the group, and along with our continued focus on costs, are committed to delivering circa $1.5 billion savings to the bottom line. We're focused on delivering for our customers by capturing growth opportunities where we have a clear competitive advantage and accretive returns. And we're eliminating over the medium term an additional circa $1.5 billion of costs from non-strategic or low-returning activities and redeploying them into these priority growth areas. We are targeting a mid-teens return on tangible equity in each of 2025, 2026, and 2027. And with that, let me hand over to Pap.

Thanks, George. Thank you everyone for joining. I would like to begin by sharing my approach as Group CFO. In short, I'm fully focused on discipline, performance and delivery. Discipline means prioritizing with precision, maintaining strong cost control and ensuring investment rigor for growth. Performance means gearing our financial strategy towards achieving our mid-teens returns target. Delivery means ensuring we remain agile and resilient, enhance operating leverage, and are always well positioned to support our customers. Let me now turn to the Q4 numbers. Starting with the highlights, profit before tax was $2.3 billion or $7.3 billion excluding notable items. This strong performance enabled us to announce a further $8.4 billion of distributions in respect of the fourth quarter. This consists of a fourth interim dividend of 36 cents per share and a share buyback of up to $2 billion, which we intend to complete before our first quarter results in April. On this slide, you can see the impact of notable items on year-on-year revenue and profit growth. This was principally the $5.2 billion related to historical foreign exchange translation losses from the Argentina disposal. Excluding these, profit before tax was up 10% on the fourth quarter of last year. Excluding notable items, revenue of $16.5 billion was up $1.2 billion on the fourth quarter of last year, driven by banking NII and a strong performance in wealth. On banking NII, excluding the impact of Argentina and other notable items, the banking NII run rate remained broadly stable. Deposit growth and benefits from the structural hedge were partly offset by lower interest rates. Looking ahead, we expect banking NII of around $42 billion in 2025. To be clear, this is a change to the way we have given you guidance before – Around $42 billion is not an underpin. It is our expectation at the present time based on the current market rates outlook and our own projections. We also want to give you some additional detail on the structural hedge. As you know, we have been building up the structural hedge to help manage our interest rate sensitivity. During 24, we increased the notional balance by around $50 billion. We also extended the duration from 2.8 years to 3.1 years. This contributed to a further reduction in the interest rate sensitivity of our banking NII last year. We have reduced our sensitivity to a 100 basis point rate shock from around $7 billion in June 2022 to around $2.9 billion at the end of 2024. We are also providing additional disclosures on the expected reinvestment profile of the structural hedge. We expect to reinvest around $95 billion of assets in each of 25 and 26 from a current average yield of around 2.8%. We also expect to reinvest around $90 billion of assets in 27 from a current average yield of around 3.4%. Moving to fee and other income. Wholesale transaction banking was stable on last year's fourth quarter. Excluding the impact of strategic transactions, primarily the sale of Canada, it was up by 3%. As we continue to leverage our global network and capitalize on our position as the world's number one trade bank. The standout performance was again in wealth, which was up 27% on the same quarter last year. This was our fourth consecutive quarter of double-digit year-on-year growth. I'm pleased we added 234,000 new-to-bank personal banking customers in Hong Kong in the quarter. This brings the total number added in 24 to 799,000 as Hong Kong continues to grow in importance as a cross-border wealth hub. I'm also pleased with the strong momentum in the business in January, which is in line with previous years. All of this gives us confidence that we can continue to grow this business further. Our medium-term target is to continue to grow fee and other income by double-digit CAGR. There are three trends that underpin this ambition. First, the multi-year growth in new-to-bank customers in Hong Kong underlines that the city is on track to becoming the number one cross-border wealth hub before the end of this decade. Our past experience suggests that new customers grow their total balances and wealth products over time. So this is expected to provide a tailwind. Second, the strength of our business in key international wealth hubs, particularly Hong Kong, has enabled us to grow invested assets in Asia at 17% CAGR, This was also the key driver of our 13% CAGR growth in invested assets at the group level. There have also been strong multi-year inflows of net new invested assets with Asia accounting for the majority. Finally, our CSM balance is a third bigger than it was two years ago, despite the reclassification of our French life insurance business in the fourth quarter. This reflects continued year-on-year growth in new business CSM from higher volumes, particularly in Hong Kong. As you know, the CSM balance is a store of future earnings, which released into the P&L at between 9% and 10% in the last two years. All things being equal, this means that future earnings growth has been built in. Also last year, the value of new business CSM was substantially greater than the CSM released to the P&L. On credit, our fourth quarter ECL charge was $1.4 billion. $1 billion of this was in wholesale, including around $300 million from two clients, one in the UK and one in mainland China, commercial real estate sector. Overall, our portfolios in our home markets remained strong. This brought our 24 charge to 36 basis points of average loans, which is within our medium-term planning range of 30 to 40 basis points. We expect our 25 charge to be within our medium-term planning range. On costs. We are committed to deliver $1.5 billion of simplification savings from our reorganization to the bottom line, of which around $0.3 billion will be recognized in our 25 P&L. We expect to incur around $1.8 billion of severance and other upfront costs by the end of 26. The bulk of these costs will be incurred this year. Separately, we are also aiming to reallocate a further around $1.5 billion of costs from non-strategic activities to priority growth areas. You will have seen that we have announced that we will begin to wind down our ECM and M&A activities in the UK, Europe and the US while refocusing on Asia. Those businesses were not materially profitable, and exiting them will make around $300 million of costs available for reinvestment in our priority growth areas. The slide also shows some businesses that we have recently agreed to dispose of, German private banking and French life insurance, to which I'll add the sale of our retail banking operations in Bahrain, which was announced today. These were not aligned with our four businesses, where we will focus our investment dollars and our time. Through these actions, we are creating investment space in our priority areas within our strict cost discipline. As George said, these include wealth in Asia and the Middle East, UK SME coverage and wholesale transaction banking. Entry to the extra investment list is a high hurdle requiring strategic alignment and financial returns. As we continue to work through exits of low-return and non-strategic activities, we are confident the investment dollars they provide will deliver a higher return to the bank. The actions taken last year mean that 24 costs were in line with our guidance of around 5% growth on a target basis. we remain fully committed to cost discipline. We expect 25 costs to grow by around 3% compared with 24 on a target basis, which excludes notable items and the direct costs of Canada and Argentina disposals. Our guidance of around 3% growth includes up to 4% underlying growth from inflation and investment, partly offset by around $0.3 billion of efficiency cost savings that we expect to realize this year. On loans and deposits, Loan balances were stable. Deposits were up 3% in the fourth quarter. This included an increase in Hong Kong, supported by customer growth as well as seasonality. As we have said before, I would caution you against annualizing that number. our CET1 ratio was 14.9% above our target range of 14 to 14.5%. We expect the buyback of up to $2 billion announced today to have an impact of around 0.2 percentage points in the first quarter. We have reclassified our $7 billion legacy French home loan portfolio as hold to collect and sell in the first quarter. This will lead to recognition of an estimated $1 billion pre-tax loss in other comprehensive income, equivalent to around 0.1 percentage points of CET1. In summary, we have set out our current expectations in respect of 25 and the medium term. But our key target is mid-teens return on tangible equity in each of the next three years. We will run the bank to deliver this. Neil, can we go to Q&A, please?