HSBC Holdings, plc.

Welcome to the Analyst and Investor presentation for HSBC Holdings PLC First Quarter 2026 Earnings. This webinar is being recorded. I will now hand over to Pam Kerr, Group Chief Financial Officer.

Welcome, everyone. Thank you for joining. We have had another quarter of positive performance, which reflects further progress towards creating a simple, More agile, growing HSBC. Annualized return on tangible equity, excluding notable items, was 18.7%. We are confident in achieving the targets we set out to you at the full year. We are updating two pieces of guidance today. Banking NII to around 46 billion dollars. and our expected ECL charge to around 45 basis points. I'll talk to the drivers of both shortly. In the quarter, we continued to make disciplined progress in simplifying the group to unlock HSBC's growth potential. We actioned a further $0.2 billion of simplification saves and remain well on course to deliver the $1.5 billion target. We completed the privatization of Hang Seng Bank, the sale of UK Life Insurance, Sri Lanka Retail Banking, and South Africa. And as you will have seen, we have agreed the sale of our retail banking business in Indonesia. we expect to realize an up to $0.4 billion gain on completion anticipated in the first half of 2027. Our CIB business in Indonesia is unaffected. On outlook, the economic landscape remains complex and uncertainty will persist. Our thoughts are with all those affected by current events in the Middle East. We are fully engaged in supporting our colleagues, customers and partners across the region. We are well positioned to work with our customers and manage the uncertainties in the global environment from a position of financial strength. Let's turn first to the income statement, where I will focus on year-on-year comparisons, unless I indicate otherwise. Profit before tax, excluding notable items, was $10.1 billion. Notable items this quarter include a loss of $0.3 billion on moving Malta to help for sale, a loss of 0.2 billion dollars on the sale of UK life insurance and 0.1 billion dollars of restructuring costs related to our simplification program. Revenue, excluding notable items, grew 4% year on year to 19.1 billion dollars This was driven by banking NII and strong growth in wealth, fee and other income. Annualized ROTI was 18.7%, not 0.3% higher than last year. It benefited from the removal of Hang Seng Bank minorities. Looking at capital and distributions. Our CET1 capital ratio is 14%, down 90 basis points on the quarter as expected following the privatization of Hang Seng Bank. Reflecting our strong organic capital generation, we are already back to our operating range of 14 to 14.5%. The dividend for the quarter is 10 cents. We continue to target a dividend payout ratio for 2026 of 50% of earnings per ordinary share, excluding material notable items and related impacts. Let's now turn to our business segment performance. Each of our four businesses grew revenues and each also delivered annualized ROTI in excess of 17% excluding notable items. This broad-based performance shows our strategy is working. I would just mention the $0.2 billion gain from a one-off property asset disposal in the corporate center which is not a notable item. Moving now to Banking NII. Banking NII increased $0.3 billion year on year to $11.3 billion. It fell by $0.5 billion quarter on quarter. $0.3 billion of this quarterly decline is day count. We also noted at the fourth quarter, $0.1 billion in gains that we did not expect to repeat. In addition, this quarter, HIBOR was lower in March, and we also recognized a $0.1 billion adverse one-off. We are now upgrading our full-year banking NII guidance to around $1. $46 billion. This reflects an improved interest rate outlook. I would highlight that interest rate curves have been volatile and can of course change further in either direction. Turning now to wholesale transaction banking. Recent economic, market and tariff situations have validated the strength of our franchise, both over the last 12 months and in this quarter. We grew fee and other income 2% year on year. Customers continue to turn to us to help them navigate volatility and uncertainty. Our balance sheet and franchise strength are particularly valuable In times like this, in the quarter, security services grew fee and other income 11%, reflecting new mandates and higher transaction volumes. Trade grew 8%, driven by continued growth in volumes. Payments grew 3%, driven by growth in volumes across most regions. Foreign exchange fell by 1% compared to a strong first quarter last year. We continue to see growth in volumes and strong client engagement. Turning now to wealth. We grew fee and other income by 15% to $2.7 billion. I remind you, that the first quarter of last year was a high base. Growth was driven by all four income lines, and we added 287,000 new-to-bank customers in Hong Kong. It is worth remembering there is typically favourable seasonality to the first quarter when compared with the fourth quarter. Having said that, we are pleased that the investments we are making in our wealth products, distribution channels and customer experience are translating into real results. Private banking grew 8% and asset management 3%. Investment distribution performed very well, up 21%, reflecting particularly strength in our customer franchise in Hong Kong. Insurance growth of 19% from a strong base was also pleasing, again with Hong Kong the standout. Our insurance CSM balance was $15.2 billion, up 19% versus the prior year. First quarter, Wealth balances were $1.6 trillion, up 12% or $170 billion year on year. Net new money in the first quarter was a strong $39 billion, of which $34 billion came from Asia. This is a broad-based and robust franchise. Our investments and focus are paying off. I will note that we saw a slowdown in flows in the early days of the conflict, but activity recovered in April across our wealth franchise in Asia. Turning now to credit. Our first quarter ECL charge was $1.3 billion, equivalent to an annualized charge of 52 basis points as a percentage of loans and advances. Given the ongoing uncertainty in the outlook, we are updating our full year 2026 credit guidance to around 45 basis points. This quarter includes a $0.3 billion charge related to the Middle East conflict, This is precautionary and related to the impact of the conflict everywhere, not just in the Middle East. We also include $0.4 billion for fraud-related secondary securitization exposure with a financial sponsor in the UK. I will emphasize that we regard the Stage 3 charge this quarter as idiosyncratic and not representative of the risks in the wider portfolio. We have completed a full review of the highest risk areas in our portfolio and have not identified any comparable fraud concerns. We have updated our risk appetite and are incorporating lessons in our due diligence processes. This remains an area in which we are comfortable, but it is not a significant growth driver in our plan. In Hong Kong commercial real estate, we had some small recoveries in the quarter, and overall it remains broadly stable. You will see our usual detailed breakdown on slide 21. On slides 15 and 16, we have also set out our private market exposure. We have made these expansive definitions to give you a full picture of our full service business in private markets. Let's now turn to costs. We continue to take a disciplined approach to cost management. We are on track to achieve our target of 1% cost growth in 2026 compared to 2025 on a target basis. Cost growth this quarter is 3% year on year. This included 1% driven by higher variable pay, accrual-based on business performance. If you exclude the variable pay accrual, target basis cost growth was around 2% year on year. We manage costs on a full year basis. So looking at a quarter in isolation is not meaningful. We remind you that our simplification actions provide a cumulative year on year benefit through 2026. For the avoidance of doubt, our 2025 target cost baseline is $34 billion when updated for FX. Now, let's turn to customer deposits and loans. Our deposits momentum continues with $99 billion of deposit growth including health for sale balances over the last 12 months. CIB deposits increased $10 billion quarter on quarter in what is usually a soft quarter. Hong Kong was a particular driver. This corporate inflow offset a slower retail flow in our Hong Kong pillar. You will see deposit seasonality on slide 20. Excluding the movement of Malta to health for sale, IWPB deposit growth was $4 billion. You will see on slides 18 and 19 that we have set out additional deposit disclosure. This shows you the deposit base split between fixed term and instant access accounts. The 70% instant access proportion should help you see the strength and breadth of our deposit base across our businesses. Turning to loans, growth picked up in the quarter. CIB mainly reflects continued momentum in GTS, higher term lending in Hong Kong, and drawdowns on committed lines by high-quality borrowers in the Middle East. We are pleased to be there for our customers when they need us most. Hong Kong returned to volume growth this quarter after a period of decline. We are pleased to see borrowing appetite return as the economy grows and as residential property prices recover. Our $13.7 billion investment in Hang Seng Bank is a signal of our confidence in the opportunity in Hong Kong. We are investing across both iconic banks and we see significant growth runway for both ahead. In the UK, we delivered another quarter of good growth. This was both mortgages and our commercial lending book. We see good momentum in our domestic portfolio. Low levels of household and corporate debt in the UK provide a platform for the continued growth of our franchise. Now, turning to capital. Our CET1 capital ratio was 14%. down 90 basis points in the quarter. This follows the 110 basis point impact of the Hang Seng Bank privatization and Malta disposal loss. We also saw a 12 basis points impact from the fair value through other comprehensive income bond portfolio as government yields rose following events in the Middle East. These were offset by ongoing strong organic capital generation. We are pleased to have remained within our CET1 operating range since the announcement of the Hang Seng Bank prioritization. A decision on future share buybacks will be taken quarterly, subject to our normal buyback considerations. Let's turn to targets and guidance. First, targets. We reiterate the targets we set out to you at the folio. Revenue rising to 5% year-on-year growth by 2028, excluding notable items. Return on tangible equity of 17% or better, excluding notable items each year. Dividends, 50% of earnings per share, excluding material notable items and related impacts. Finally, to guidance. Today, we are updating our banking NII to around $46 billion, given the higher rate outlook. And our ECL charge to 45 basis points given macroeconomic and market uncertainty. In addition to informed management planning, we have assessed a range of top-down stress scenarios. We have set these out for you on slide 17. I'm happy to discuss these further in Q&A. All other guidance set out on this slide remains unchanged. To conclude, The intent with which we are executing our strategy is reflected in the growth and momentum in our first quarter. It shows discipline, performance and delivery. Discipline in the way we are applying strong cost control and investing to deliver focused, sustainable growth. We are on track to achieve our target of around 1% cost growth in 2026 compared to 2025 on a target basis. And we are reallocating costs from non-strategic or low returning businesses towards growth opportunities while upgrading our operating model. This includes investing and artificial intelligence to empower our colleagues, simplify how we operate, and enhance the customer experience by personalizing service at scale. Performance in our earnings. Each of our four businesses grew revenues, and each also delivered annualized ROTI in excess of 17%, excluding notable items. and delivery, our first quarter results show we are creating a simple, more agile, growing HSBC built on the strong foundations of a robust balance sheet and hallmark financial strength. This is why, during periods of greater uncertainties, our customers turn to us as a source of financial strength And we remain confident in delivering against our targets. With that, I'm happy to take your questions.

Thank you, Pam. If you would like to ask a question today, please use the raise hand function in Zoom. When you are invited to ask your question, please accept the prompt to unmute your line. If you find your question has been answered, you may remove yourself from the queue by lowering your hand. Our first question today comes from Guy Stebbings at BNB Paper. Please accept the prompt to unmute your line.