HSBC Holdings Plc Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Opening Remarks: Strong quarter with 11% profit before tax increase, annualized return on tangible equity (ROTE) of 18.4% (excluding notable items). Focus on executing strategy, strong balance sheet with deposit surpluses in all currencies and geographies, and resilient recurring fee income.
• Revenue Details: Revenue of $17.7 billion, up $1.1 billion year-on-year, driven by fee and other income. Debt and equity markets up $0.3 billion due to higher volatility, and $0.2 billion benefit from disposal of Argentina.
• Wealth Momentum: Fifth consecutive quarter of double-digit growth, with $22 billion net new invested assets and 300,000 new-to-bank customers in Hong Kong. Investment in wealth products, distribution, and customer journeys translating to results.
• Cost Management: On track to deliver $1.5 billion cost saves from organizational simplification and $1.5 billion from strategic reallocation of costs from non-strategic areas to core strengths.
• Tariff Impact: Plausible downside scenario models low single-digit revenue impact, with $0.5 billion incremental ECLs. Confident in mid-teens ROTE for 2025-2027.
• Share Buyback and Dividend: Announced up to $3 billion share buyback and $0.10 per share interim dividend, with share buybacks as preferred capital return method.

Segment Performance

• Wealth: Fifth consecutive quarter of double-digit year-on-year growth. Achieved $22 billion of net new invested assets and 300,000 new-to-bank customers in Hong Kong. Contributed to strong fee and other income growth.
• Transaction Banking: Wholesale transaction banking up 13% year-on-year. Strong FX performance drove growth, with Global Payment Solutions up 3% and Global Trade Solutions up 6% excluding disposals.
• Banking NII: Excluding notable items, run rate broadly stable quarter-on-quarter. Expected to be around $42 billion in 2025 based on current market rates outlook and projections.
• Credit: First quarter ECL charge $0.9 billion (annualized 37 basis points of loans and advances), including a $150 million provision for economic uncertainty. In a plausible downside tariff scenario, incremental ECLs of $0.5 billion.
• Costs: On track to achieve ~3% cost growth in 2025 compared to 2024, and $0.3 billion of simplification savings into the P&L in 2025.
• Loans and Deposits: Loan balances stable quarter-on-quarter; deposits up 6% year-on-year with growth in all entities and businesses. CET1 ratio was 14.7%.

Guidance

• Reaffirm mid-teens return on tangible equity for 2025, 2026, and 2027.
• Banking NII expected to be around $42 billion in 2025 based on current market rates outlook.
• Continue with cost actions to achieve ~3% cost growth in 2025 and deliver $0.3 billion simplification savings in 2025.
• Share buybacks to continue as preferred method of capital return based on excess capital and business needs.

Risks

• External macroeconomic uncertainty due to trade policy, potentially leading to slowdown in trade and global GDP growth, impacting revenues and ECLs.
• Uncertainty around quantifying broader impacts of current economic conditions, making it difficult to precisely predict future performance.

Question and Answer

Q: About strategic review of Malta, potential cost saves, and sustainability of fees and other income.

A: Focus on delivering $1.5 billion cost saves from organizational simplification and $1.5 billion from strategic reallocation. Wealth business has structural growth, confident in medium-term double-digit growth in wealth.

Q: Plausible downside scenarios for revenue, opportunities in trade business, new-to-bank customers in Hong Kong.

A: Trade business has expertise with over 5,000 trade specialists in 50+ markets. $0.5 billion ECL provision from tariff scenario, and 300,000 new-to-bank customers acquired in Q1.

Q: Comparison of trade scenario and ECL test assumptions, Hong Kong CRE trend.

A: Scenarios are different but both considered in RoTE guidance. Hong Kong CRE had modest impact with isolated name credit downgrades and minimal RWA impact.

Q: Customer behavior, capital returns, redeployment of costs.

A: Customers in wait-and-see mode; share buybacks based on excess capital and business needs. Redeployment of costs on track with no delays shifting the trajectory.

Q: Ring-fencing, cost efficiency ratios.

A: Ring-fencing redundant due to enhanced prudential regulations; cost guidance based on average exchange rates for Q1.

Q: Tariff impact, corridors, cost flexibility.

A: Deposit franchise robust with 50s loan-to-deposit ratio in three businesses; intra-Asia trade growing structurally. Cost trajectory on track with no slippage expected.

Q: Plausible tariff scenario vs ECL, Hong Kong/China CRE.

A: Confident in achieving mid-teens ROTE targets within the plausible downside scenario without additional cost actions. Scenarios not identical but within plausible range.

Q: Banking NII Q-on-Q, interest-earning assets growth, wealth invested assets split.

A: Banking NII flat due to fewer days in quarter, reinvestment of hedge assets, and deposit pass-through. Majority of Asian net new invested assets in Hong Kong, but detailed split to be shared later.

Q: Organization simplification costs, wealth invested assets split.

A: More thorough update on simplification at interim results. $16 billion Asian net new invested assets with majority in Hong Kong, but granularity to be communicated further.

Q: Dollar impact on costs/revenue, BoCom accounting.

A: Plausible downside scenario is more adverse but lower probability. BoCom accounting impact insignificant with no material effect on CET1 or dividend.

Q: Tariff stimulus policy, loan growth.

A: Confident in China's medium-term economic outlook; loan growth muted due to macroeconomic uncertainty with no increase in drawdowns observed.

Q: Client reaction to tariffs, new business opportunities.

A: Clients in wait-and-see mode; HSBC helps navigate via expertise, expecting to deepen relationships and acquire new clients in trade business