HSBC Holdings Plc Q4 FY2024 earnings call

• Full-year 2024 performance was strong with record profit before tax of $32.3 billion (excluding notable items $34.1 billion) and 14.6% return on tangible equity (16% excluding notable items).
• Simplified HSBC by elevating home markets (Hong Kong and UK) and Wealth proposition, combining wholesale businesses, eliminating complex governance structure, leading to increased agility and annualized savings of $1.5 billion by end-2025.
• High-quality revenue streams: two-thirds from Banking NII, remaining third from fee and other income, with over 90% from three streams.
• Strong deposit franchise with $1.7 trillion deposit base and large surpluses in businesses.
• High-quality loan portfolio with conservative risk management, average annual ECL charge 32 basis points of average gross loans.
• Capital management: returned $47.7 billion to shareholders over two years through dividends and buybacks.

HSBC has four core businesses. In the home markets of Hong Kong and the UK, the businesses are profitable and growing market share in key products. Corporate and Institutional Banking (CIB) is a global wholesale bank with significant competitive advantages, including a powerful deposit franchise and market-leading transaction bank. International Wealth and Premier Banking (IWPB) is well positioned to capture affluent and high-net-worth customers, especially those with international banking needs. In 2024, two-thirds of revenue was from Banking NII, with the remaining third from fee and other income. More than 90% of revenue comes from three high-quality streams.

• Target mid-teens return on tangible equity in 2025, 2026, and 2027.
• Expect Banking NII of around $42 billion in 2025.
• Wealth business aims for double-digit CAGR growth in fee and other income.
• Plan to invest $1.5 billion from non-strategic activities into priority growth areas like Wealth in Asia/Middle East, CIB transaction banking, and IWPB.

• Interest rate outlook is benign but volatile.
• Risk of disruption in adapting to changing trade and economic growth patterns.
• Highly competitive wealth space in Asia and the Middle East.

Q: On CIB RoTE and incremental capital allocation?

A: CIB will benefit from cost synergies and investment in originate and distribute model. It has strong transaction banking capabilities and deposit franchise.

Q: On International Wealth and Premier Banking incremental technology?

A: Invest in more relationship managers, wealth centers, products, and technology like Zing to capture cross-border flows and grow market share.

Q: On $1.5 billion reallocation of costs?

A: Reallocate from non-strategic to strategic areas, expecting higher returns. Wind-down of M&A and ECM activities in certain regions frees up $300 million for reinvestment.

Q: On CET1 ratio and cost shape?

A: CET1 ratio at 14.9% above target range. Cost growth expected at 3% in 2025 with $0.3 billion efficiency savings, severance costs as notable items.

Q: On global trade and wealth trends?

A: Global trade expected low-single-digit growth with reconfigured routes. Wealth in Asia/Middle East to grow high single-digit to 10% CAGR. Revenue structure to tilt towards fee income-driven areas over time.

Q: On capital distribution and loan growth?

A: Prefer share buybacks to return excess capital, aiming 50% dividend payout. Loan growth expected to stabilize and grow as interest rates stabilize and customer demand returns.