HSBC Holdings plc (HSBC) Earnings

Management highlights

### Overall Financial Performance - Q2 2026: Revenue grew 7% year-on-year to US$19 billion; profit before tax (PBT) rose 13% year-on-year to US$10.3 billion; annualized ROTE was 19.5%; deposits grew US$46 billion; loans grew US$20 billion. - H1 2026: Revenue and PBT both grew 6% year-on-year; annualized ROTE was 19.1%; total deposits grew 8% year-on-year to US$1.8 trillion; total loans grew 6% year-on-year to US$55 billion. - Declared a 10 cent per share quarterly interim dividend (20 cents for H1), and restarted share buybacks with an up to US$1 billion program after a 3-quarter pause for the Hang Seng Bank privatization. ### Strategic Priorities: Simplification & Agility - Completed organizational restructuring and leadership team overhauls; now focused on embedding enterprise-wide collaboration and a high-performance culture. - Revised up annualized organizational simplification savings target to US$2 billion (from original US$1.5 billion), with US$1.7 billion in actioned saves already achieved, against a total one-time restructuring cost of US$1.8 billion (lower than originally budgeted). All additional saves will be completed by end-2026. - Announced 15 business/market exits since 2025 (most recently: Singapore insurance business, Australia retail banking, Egypt retail banking), which will free up US$1.5 billion in cost for reallocation to high-return strategic growth areas; US$0.3 billion of this reallocation is planned for 2026. - Has decommissioned ~50% of planned non-strategic applications by 2028 (20% decommissioned in H1 2026), and is re-engineering ~50 core processes with AI to simplify operations, empower employees, and improve customer personalization. ### Strategic Growth Execution - **Hong Kong**: The Hang Seng Bank privatization is delivering early synergies: after adopting HSBC's digital onboarding, Hang Seng nearly doubled quarter-on-quarter new customer acquisition to ~60,000; ~80% of synergy workstreams are complete, with full confidence in hitting the targeted US$900 million in total synergies and related benefits. - **Wealth**: Holds the number one position in Asian wealth management, with strong structural growth driven by cross-border wealth flows through Hong Kong. - **CIB**: As the world's leading trade bank, gained market share amid shifting global trade patterns, with resilient and broadly geographically distributed growth. Chinese mainland clients already contribute 10% of multi-jurisdictional client revenue (75% booked cross-border), and this is expected to be a key medium-term growth driver as Chinese firms expand globally.

Guidance

- Reiterates all long-term baseline targets: annual revenue growth rising to 5% by 2028; 17% or better ROTE (excluding notable items) for 2026, 2027, and 2028; 50% dividend payout ratio for 2026 (excluding material notable items). - Upgraded full-year 2026 banking net interest income (NII) guidance to at least US$46 billion, reflecting stronger than expected balance sheet growth (both loans and deposits) and a continued favorable interest rate outlook. - Maintains full-year 2026 guidance for around 1% cost growth (compared to 2025, on a target basis). If strong business performance continues, modest additional performance-related pay may increase 2026 costs slightly, but the 1% growth target remains achievable. - Reiterates full-year 2026 credit guidance for an expected annualized ECL charge of around 45 basis points as a percentage of total loans. - Management noted that if strong growth momentum continues, accelerated investment spending will likely increase 2027 costs, but this will be partially offset by the additional US$0.5 billion in annualized simplification savings. All investment will be focused on high-return strategic priority areas.

Segment performance

HSBC's four business segments all grew revenues, with each delivering an annualized return on tangible equity (ROTE) above 18% (exceeding the group's 17%+ target). - **Hong Kong**: Grew wealth balances by 10% year-on-year to US$0.5 trillion, added 640,000 new personal banking customers and 24,000 new business banking customers. Grew deposits by US$9 billion in Q2 2026, and returned to loan growth after multiple quarters of stagnation/contraction. - **UK (home market)**: Delivered 10% commercial lending growth (US$10 billion additional loans) and 5% mortgage growth (US$10 billion additional mortgages) in H1 2026. Grew active Premier customers by 7% and new-to-bank business banking customers by 48% year-on-year, and grew deposits by US$3 billion in Q2 2026. - **Wealth**: Holds US$1.1 trillion in global wealth balances, contributing ~25% of total group revenue. Generated US$64 billion in global net new money (US$57 billion from Asia, 32% year-on-year growth) in H1 2026. Grew fee and other income 18% year-on-year to US$5.5 billion in H1 2026, and 21% year-on-year to US$2.8 billion in Q2 2026. - **Corporate and Institutional Banking (CIB)**: 85% of client revenue comes from multi-jurisdictional clients, with cross-border client revenue up 15% year-on-year. Grew client deposits 16% year-on-year, grew wholesale transaction banking fee and other income 4% in H1 2026 (7% in Q2 2026), with trade volumes up 7% year-on-year. Delivered a first half annualized ROTI of over 18%. CIB deposits grew US$42 billion in Q2 2026, with ~half of this growth from large short-term inflows.

Risks & headwinds

- Q2 2026 ECL included US$0.2 billion in additional Stage 3 charges for Hong Kong commercial real estate. While Hong Kong residential prices and prime office markets have improved, there is ongoing pressure in non-core office (e.g. East Kowloon) and non-core retail segments. - Small pockets of mid-market credit stress have been observed in the UK and across Asia, linked to elevated energy prices and high interest rates; management is monitoring these developments closely. - Short-term volatility in HIBOR and Sterling FX rates create uncertainty for banking NII, which was explicitly accounted for in the updated full-year guidance with a built-in buffer. - All announced divestments remain subject to relevant regulatory and third-party approvals, which may delay or alter completion timelines. - Geopolitical escalation in the Middle East remains a downside risk, though the US$300 million reserve built in Q1 2026 remains in place, and actual credit losses from Middle East exposures have so far been benign.

Analyst Q&A

• Q: Analyst asks how HSBC prioritizes capital allocation between organic growth and buybacks, and asks for clarification on why banking NII guidance was not higher given the strong Q2 run rate. /

  A: Management states dividend payouts to hit the 50% target are the first capital priority. Second priority is organic growth in core strategic areas where HSBC has market leadership and can generate high returns within risk appetite, which is currently seeing strong momentum (including renewed loan growth in Hong Kong and double-digit commercial growth in the UK). Excess capital after these priorities is returned via buybacks. The guidance of at least $46 billion includes a buffer for near-term volatility in HIBOR and FX rates, even though the underlying outlook is strong. (338 characters)

• Q: Analyst asks where the additional $500 million in simplification savings comes from, and what the long-term trend for cost growth will be as revenue growth rises to 5%. /

  A: Management says the extra savings come from original program conservatism, cost savings from natural attrition instead of severance for headcount adjustments, and new identified opportunities that fit within the original $1.8 billion restructuring budget. Strong first-half momentum could lead to modest additional performance-related pay in 2026, but the full-year 1% cost growth target remains on track. In 2027, accelerated investment in core growth areas will increase costs, but this will be partially offset by extra simplification savings and cost reallocation from divestments, with strict discipline maintained on baseline operating costs. (451 characters)

• Q: Analyst asks how the additional accelerated investment will impact the earnings timeline, and if investment spending will drop after 2027. /

  A: Management confirms cost discipline remains a core priority, and the accelerated investment is not new unplanned spending — it is bringing forward already approved strategic investments to capture faster market share gains sooner. Payoffs from focused investments can come quickly (for example, 2025 investments in security services generated new mandates in 2025 and 2026). All investments must meet strict return hurdle rates to be approved. No formal 2028 guidance is provided. (342 characters)

• Q: Analyst asks for clarification on China's new cross-border outbound investment regulations, and HSBC's engagement with regulators on the new rules. /

  A: Management states HSBC maintains constant, ongoing engagement with regulators in mainland China and Hong Kong on all regulatory changes. The firm already operates with robust, compliant client onboarding procedures and supports the new clarifications, which are intended to provide clear guidelines for compliant activity rather than restrict cross-border flows. Client onboarding volumes have not been impacted by the new rules so far, and management remains confident in the long-term outlook for Hong Kong as a leading global cross-border wealth hub. (367 characters)

• Q: Analyst asks for the strategic logic behind exiting markets like Egypt that have large populations, and asks if HSBC will use its strong share price as currency for inorganic acquisitions. /

  A: Management's strategy is to focus investment on core areas where HSBC has clear market leadership, structural growth opportunities, and can generate high returns: UK, Hong Kong, Asian wealth management, and global corporate/institutional banking. Non-core businesses where HSBC cannot achieve scale/leadership are sold to free up capital for higher-return core investments; for example, HSBC retains its strong wholesale business in Egypt, only exiting the non-core retail business. Inorganic acquisitions will only be pursued if they are fully aligned with strategy and accretive to shareholder value compared to buybacks, as seen with the Hang Seng Bank privatization. (443 characters)