HSBC HOLDINGS(HSBC) - 2024 Q2 - Quarterly Report

Overview Performance in 1H24 HSBC's first half of 2024 was characterized by a strong return on average tangible equity of 21.4%, a stable profit before tax of $21.6 billion, and significant strategic progress 1H24 Key Performance Indicators | Indicator | Value | Note | | :--- | :--- | :--- | | Financial Performance | | | | Return on average tangible equity (annualised) | 21.4% | 1H23: 22.4% | | Profit before tax | $21.6 bn | 1H23: $21.7 bn | | Operating expenses | $16.3 bn | 1H23: $15.5 bn | | Common equity tier 1 capital ratio | 15.0% | 1H23: 14.7% | | Second interim dividend per share | $0.10 | Same as 2023 second interim | | Strategic Performance | | | | Net new invested assets | $32 bn | $38bn were in Asia | | Digitally active Commercial Banking customers | 84% | 1H23: 82% | | Wholesale multi-jurisdictional client revenue | 61% | Same as 31 Dec 2023 | | Women in senior leadership roles | 34.4% | 31 Dec 2023: 34.1% | | Cumulative sustainable finance and investment | $339.9 bn | Since Jan 2020 | Highlights HSBC reported stable financial performance in 1H24 with a profit before tax of $21.6 billion, announced a new $3 billion share buy-back, and upgraded its banking NII guidance for 2024 Financial Performance in 1H24 vs 1H23 | Metric | 1H24 | 1H23 | Change | | :--- | :--- | :--- | :--- | | Profit before tax | $21.6bn | $21.7bn | Stable | | Profit after tax | $17.7bn | $18.1bn | -2% | | Revenue | $37.3bn | $36.9bn | +1% | | Net Interest Income (NII) | $16.9bn | $18.3bn | -7% | | Net Interest Margin (NIM) | 1.62% | 1.70% | -8 bps | | Expected Credit Losses (ECL) | $1.1bn | $1.4bn | -$0.3bn | | Operating Expenses | $16.3bn | $15.5bn | +5% | | CET1 Capital Ratio | 15.0% | 14.7% | +0.3 p.p. | - The Board approved a second interim dividend of $0.10 per share and initiated a new share buy-back of up to $3 billion[40] - The bank updated its outlook, now targeting a mid-teens RoTE (excluding notable items) for both 2024 and 2025, with banking NII guidance for 2024 raised to around $43 billion[42][43] - HSBC continued to reshape its portfolio by completing the sales of its businesses in Canada (recognizing a $4.8bn gain), France, and Russia, while also announcing the planned sale of its Argentina business (recognizing a $1.2bn impairment)[44][46] - The Group advanced its ESG goals by providing and facilitating $45.5bn in sustainable finance and investments in 1H24, bringing the cumulative total since January 2020 to $339.9bn[47] Who we are HSBC is a leading global financial services organization with a strategy centered around four pillars and operations structured into three global businesses - HSBC's core values are: We value difference, We succeed together, We take responsibility, and We get it done[48] Strategic Pillars | Pillar | Key Focus Areas | | :--- | :--- | | Focus | Maintain leadership in scale markets, double-down on international connectivity, diversify revenue, maintain cost discipline and reshape portfolio. | | Digitise | Deliver seamless customer experiences, ensure resilience and security, embrace disruptive technologies, automate and simplify at scale. | | Energise | Inspire leaders to drive performance, unlock our edge to enable success, deliver a unique colleague experience, prepare our workforce for the future. | | Transition | Support our customers, embed net zero into operations, partner for systemic change, become net zero in operations by 2030 and financed emissions by 2050. | - The Group operates through three global businesses: Wealth and Personal Banking (WPB), Commercial Banking (CMB), and Global Banking and Markets (GBM)[51][52][54] Group Chief Executive's review The Group Chief Executive highlighted a strong first-half financial performance, a new $3 billion share buy-back, and confidence in achieving a mid-teens RoTE for 2025 1H24 Performance Highlights | Metric | Value | | :--- | :--- | | Return on average tangible equity (annualised) | 21.4% | | Reported Revenue | $37.3 bn | | Profit before tax | $21.6 bn | - The bank announced a second interim dividend of $0.10 per share and a new share buy-back of up to $3 billion, bringing total announced distributions to $4.8 billion[62] - The 2024 banking net interest income guidance was upgraded from at least $41 billion to around $43 billion[66][72] - HSBC is confident in its ability to achieve a mid-teens RoTE (excluding notable items) for both 2024 and 2025, driven by international connectivity, home market leadership, and revenue diversification[73][74][76][77] Our strategy HSBC's strategy drove strong 1H24 results, with progress across its 'Focus', 'Digitise', 'Energise', and 'Transition' pillars - Focus: The bank is capturing growth from diversified revenue streams, with global wealth revenue up 12% to $4.3bn and transaction banking market share increasing[86][87][88] - Focus on Home Markets: Profit before tax reached $6.1bn in Hong Kong and $3.7bn in the UK, with strong customer and loan growth[89][90][91] - Focus on International Connectivity: Wholesale multi-jurisdictional client revenue increased by 4%, and WPB revenue from international customers grew by 6% to $5.4bn[94][95][96] - Digitise: Customer adoption of digital services continued to rise, with 83.9% of CMB customers digitally active, supported by investments in AI and blockchain[97][98][101] - Energise: The bank advanced its diversity goals, achieving 34.4% female representation in senior leadership, on track for its 35% target by 2025[102][103] - Transition: HSBC supported the transition to net zero by providing and facilitating $45.5bn of sustainable finance and investments in 1H24[106][108] ESG overview HSBC's ESG strategy focuses on transitioning to net zero, building inclusion, and acting responsibly, with progress in sustainable finance and diversity goals - HSBC's ESG approach focuses on three core areas: the transition to net zero, building inclusion and resilience, and acting responsibly[115] - To support the transition to net zero, the bank has established a new business, HSBC Infrastructure Finance, to focus on infrastructure and project finance opportunities[117] - HSBC UK has partnered with Greenly to help SME customers measure and reduce their carbon footprint[118] - The bank is progressing towards its diversity goals, with 34.4% of senior leadership roles held by women and 3.1% by Black heritage colleagues in the UK and US combined as of 1H24[122] - HSBC continues to invest in employee skills through initiatives like the Sustainability Academy and the Accelerating Wealth Programme to support strategic priorities[124][125] Financial overview HSBC's 1H24 financial performance was strong, with an annualized RoTE of 21.4%, a stable profit before tax of $21.6 billion, and a robust CET1 ratio of 15.0% Group Financial Targets and 1H24 Performance | Target | 1H24 Performance | Outlook/Guidance | | :--- | :--- | :--- | | RoTE excluding notable items | 17.0% (annualised) | Target mid-teens for 2024 and 2025 | | Cost Growth (Target Basis) | 7% vs 1H23 | Approx. 5% for 2024 vs 2023 | | CET1 Ratio | 15.0% | Manage within 14% to 14.5% medium-term range | | Dividend Payout Ratio | $0.10 second interim dividend | Target 50% payout ratio for 2024 | 1H24 Reported Results vs 1H23 | Metric | 1H24 | 1H23 | | :--- | :--- | :--- | | Profit before tax | $21,556m | $21,657m | | Profit after tax | $17,665m | $18,071m | | Net interest margin | 1.62% | 1.70% | | Basic earnings per share | $0.89 | $0.86 | | Total assets | $2,975bn | $3,041bn (at 30 Jun 23) | - Reported profit before tax of $21.6bn was stable, including a $4.8bn gain on the Canada disposal, offset by a $1.2bn impairment on the planned Argentina sale[156] - Reported operating expenses increased by 5% to $16.3bn, driven by higher technology costs, inflation, and an increased performance-related pay accrual[162][166] - The balance sheet remains strong with total assets of $3.0tn, customer loans stable at $0.9tn, and customer accounts at $1.6tn[185][186][187] Global businesses This section provides an overview of the performance of HSBC's three global businesses and the Corporate Centre for 1H24 Risk overview HSBC's risk overview highlights a complex global environment with persistent inflation, geopolitical tensions, and challenges in the real estate sector - The global economy grew faster than expected in 1H24, but persistent services inflation has made the path of central bank interest rate cuts volatile[271] - Significant geopolitical risks remain, including the Russia-Ukraine and Israel-Hamas wars, complex sanctions regimes, and strategic competition between China and other countries[272][273][274][279] - The real estate sector faces challenges, with softness in Hong Kong's commercial market and a subdued commercial real estate sector in mainland China[277] Key Risk Appetite Metrics (1H24) | Component | Measure | Risk Appetite | 1H24 Status | | :--- | :--- | :--- | :--- | | Capital | CET1 ratio | ≥13.0% | 15.0% | | ECL | Retail (WPB) ECL as % of advances | ≤0.50% | 0.22% | | ECL | Wholesale (GBM, CMB) ECL as % of advances | ≤0.45% | 0.38% | - Top risks with a heightened trend in 1H24 include Technology and cybersecurity, ESG risks, Financial crime risk, and Model risk[303] Interim management report Financial summary This section details HSBC's 1H24 financial performance, including a net interest income of $16.9 billion, a 5% rise in operating expenses, and a robust balance sheet with $3.0 trillion in assets 1H24 Income Statement Summary | Metric | 1H24 | 1H23 | | :--- | :--- | :--- | | Net interest income | $16,911m | $18,264m | | Net fee income | $6,200m | $6,085m | | Net operating income (Revenue) | $37,292m | $36,876m | | Total operating expenses | ($16,296m) | ($15,457m) | | Profit before tax | $21,556m | $21,657m | | Profit after tax | $17,665m | $18,071m | | Basic earnings per share | $0.89 | $0.86 | - Net interest income (NII) decreased by 8% to $16.9bn, and Net Interest Margin (NIM) fell by 8 basis points to 1.62%[343][345] - Banking NII, which adjusts for the impact of funding trading activities, was $22.2bn in 1H24, up from $21.9bn in 1H23[351][353] - Operating expenses rose 5% to $16.3bn, driven by higher technology costs ($0.3bn), inflation, and an increased performance-related pay accrual ($0.3bn)[371] Balance Sheet Summary (at period end) | Metric | 30 Jun 2024 | 31 Dec 2023 | | :--- | :--- | :--- | | Total assets | $2,975bn | $3,039bn | | Net loans and advances to customers | $938bn | $939bn | | Customer accounts | $1,594bn | $1,612bn | | Total shareholders' equity | $183bn | $185bn | Global businesses This section provides supplementary financial analysis for HSBC's global businesses, detailing profit contributions and the significant impact of strategic transactions 1H24 Constant Currency Profit Before Tax by Global Business | Global Business | Profit Before Tax ($m) | | :--- | :--- | | Wealth and Personal Banking | 6,458 | | Commercial Banking | 6,463 | | Global Banking and Markets | 3,813 | | Corporate Centre | 4,822 | | Total | 21,556 | - Strategic transactions had a significant positive impact on 1H24 results, contributing $3.9bn to revenue and $3.7bn to profit before tax, mainly driven by the gain on the sale of the Canada business[435] - WPB's life insurance manufacturing operations generated a profit before tax of $543m in 1H24, with a new business contractual service margin of $1.3bn, a 77% increase from 1H23[445][449] WPB Wealth Balances (Reported) | Metric | 30 Jun 2024 | 31 Dec 2023 | | :--- | :--- | :--- | | Reported invested assets | $1,271bn | $1,191bn | | Wealth deposits | $530bn | $536bn | | Total reported wealth balances | $1,801bn | $1,727bn | - Net new invested assets for WPB in 1H24 were $32bn, with The Hongkong and Shanghai Banking Corporation Limited contributing $38bn[470][471] Legal entities This section breaks down HSBC's financial results by its main legal entities and key geographic markets, highlighting the significant profit contributions from its Hong Kong and UK operations 1H24 Reported Profit Before Tax by Major Legal Entity | Legal Entity | Profit Before Tax ($m) | | :--- | :--- | | The Hongkong and Shanghai Banking Corporation Limited | 10,893 | | HSBC UK Bank plc | 3,734 | | Holding companies, shared service centres and intra-Group eliminations | 2,848 | | HSBC Bank plc | 1,436 | | Other trading entities | 1,034 | | HSBC Bank Middle East Limited | 536 | | Grupo Financiero HSBC, S.A. de C.V. | 466 | | HSBC North America Holdings Inc. | 423 | | HSBC Bank Canada | 186 | - The 'Holding companies' segment profit includes a $4.8bn gain on the disposal of the Canada business, partly offset by a $1.2bn impairment related to the planned sale of the Argentina business[336] 1H24 Profit Before Tax by Key Country/Territory | Country/Territory | Profit Before Tax ($m) | | :--- | :--- | | Hong Kong | 6,216 | | Canada | 4,714 | | UK | 4,108 | | Mainland China | 1,910 | | India | 798 | | Singapore | 732 | - The Middle East, North Africa and Türkiye (MENAT) region generated a profit before tax of $1,260m in 1H24, down from $1,349m in 1H23[503] Reconciliation of alternative performance measures This section provides definitions and reconciliations for the alternative performance measures (non-GAAP) that HSBC uses to supplement its IFRS-based reporting Reconciliation of RoTE to RoTE excluding Notable Items (annualised) | Metric | 1H24 | 1H23 | | :--- | :--- | :--- | | Return on average ordinary shareholders' equity | 19.8% | 20.8% | | Return on average tangible equity (RoTE) | 21.4% | 22.4% | | RoTE excluding notable items | 17.0% | 18.5% | Reconciliation to Target Basis Operating Expenses | Metric ($m) | 1H24 | 1H23 | | :--- | :--- | :--- | | Reported operating expenses | 16,296 | 15,457 | | Less: Notable items & other adjustments | (244) | (474) | | Target basis operating expenses | 16,052 | 14,983 | Reconciliation of Basic EPS | Metric ($) | 1H24 | 1H23 | | :--- | :--- | :--- | | Basic earnings per share | 0.89 | 0.86 | | Basic EPS excluding material notable items | 0.68 | 0.70 | - Wholesale multi-jurisdictional clients generated $9.7 billion in revenue in 1H24, representing 61% of total wholesale client revenue[538] Risk This section provides a comprehensive analysis of HSBC's risk management framework, key exposures, and developments in managing geopolitical, credit, and climate risks Interim condensed consolidated financial statements Notes on the interim condensed consolidated financial statements The notes provide detailed explanations supporting the interim financial statements, including disclosures on dividends, segmental analysis, and significant legal matters - The financial statements were prepared in accordance with IAS 34 'Interim Financial Reporting', with accounting policies consistent with the 2023 Annual Report[931][935] Dividends Paid to Shareholders of HSBC Holdings plc (1H24) | Dividend Type | Per Share ($) | Total ($m) | | :--- | :--- | :--- | | 2023 Fourth interim | 0.31 | 5,872 | | 2024 First interim | 0.10 | 1,877 | | Special dividend (Canada sale) | 0.21 | 3,942 | | Total Ordinary Shares | 0.62 | 11,691 | | Coupons on capital securities | - | 526 | | Total Dividends | - | 12,217 | - A second interim dividend for 2024 of $0.10 per share was approved on July 31, 2024, to be paid on September 27, 2024[946] - The Group's investment in Bank of Communications Co., Limited ('BoCom') had a carrying amount of $22.1bn against a fair value of $11.1bn, with no further impairment recognized in 1H24[993][996][999] - As of June 30, 2024, assets held for sale totaled $5.8bn, primarily related to the Argentina business, a significant decrease from $114.1bn at year-end 2023[1060][1061][1064] Additional information Shareholder information This section provides key information for shareholders, including details on share buy-back programs, dividend policy, and significant shareholdings - During 1H24, HSBC conducted multiple share buy-backs, repurchasing a total of 652,656,004 ordinary shares for an aggregate consideration of £2.12bn and HK$20.76bn[1107][1108][1109][1110] - A second interim dividend for 2024 of $0.10 per ordinary share was approved, payable on 27 September 2024[1119] - The dividend policy targets a payout ratio of 50% of earnings per share for 2024, excluding material notable items[1129] - The largest notifiable interests in HSBC's share capital are held by BlackRock, Inc. (8.89%) and Ping An Asset Management Co., Ltd. (7.98%)[1117]