HSBC Holdings plc Q3 FY2025 earnings call

Key Points

• Announced intention to privatize Hang Seng Bank, citing alignment with growth criteria, Hong Kong market potential, operational leverage, high pre-impairment margins, and capital inefficiency removal.
• Upgraded 2025 banking NII to $43 billion or better and 2025 RoTE (excluding notable items) to mid-teens or better.
• Progressed on exit of nonstrategic activities: announced exits of HSBC Malta and Retail Banking in Sri Lanka, and strategic review of Egyptian retail banking (wholesale banking remains important).
• Strong deposit growth: including held-for-sale balances, $86 billion growth in deposits over 12 months.
• Banking NII returned to growth, driven by deposit volumes.
• Wealth segment showed robust performance with 29% fee and other income growth.
• Credit ECLs flat Y/Y with modest Q/Q decline.
• On track to achieve ~3% cost growth in 2025 compared to 2024 on a target basis.

Banking NII

• This quarter, banking NII was $11 billion, a return to growth driven by deposit volumes. Full year guidance raised to $43 billion or better. Drivers include HIBOR recovery, deposit growth, Fed rate cuts, and a structural hedge of $585 billion rolling to higher yields.

Wholesale Transaction Banking

• Strong customer engagement; payments and trade grew in Q3. Security services fee and other income up 15% due to higher asset balances and new customer mandates. FX performance strong at $1.3 billion, reflecting lower currency volatility and prior year comparison.

Wealth

• Fee and other income grew 29% to $2.7 billion. Net new invested assets were $29 billion (over half from Asia), total invested assets $1.5 trillion. Insurance CSM balance up $2.5 billion YTD. Private banking up 8%, asset management up 6%, investment distribution up 39%. Wealth has double-digit growth across Asian franchise.

Credit

• ECL $1 billion flat Y/Y, down modestly Q/Q. Includes $0.2 billion HK commercial real estate, $0.15 billion Middle East, $0.3 billion UK, $0.2 billion Mexico, and $0.1 billion release due to improved economic assumptions.

Guidance

• Upgraded 2025 banking NII to $43 billion or better.
• 2025 RoTE (excluding notable items) expected to be mid-teens or better.
• Full year banking NII guidance raised to $43 billion or better.
• Suspension of share buybacks for the next 3 quarters due to the Hang Seng Bank privatization offer.

Risks

• Credit cycle uncertainty.
• Potential impact of trade tariffs on transaction banking performance.
• Exposure to private credit sector (direct exposure single billion, but conservative underwriting applied).
• Litigation risks related to historical matters, such as the $1.1 billion Madoff litigation provision, which does not impact dividends but affects litigation outlook.

Q: Aman Rakkar asked about banking NII expectations for Q4 and sustainability of deposit growth.

A: Manveen Kaur stated banking NII guidance is $10.6 billion minimum for Q4, with HIBOR, structural hedge as tailwinds but U.S. dollar rate curve as headwind. Deposit franchise is strong across markets, with Hong Kong being a key driver.

Q: Guy Stebbings inquired about banking NII drivers beyond HIBOR and insurance CSM growth.

A: Manveen Kaur mentioned deposits strength and structural hedge as key banking NII drivers. Insurance growth includes ~$150 million one-offs from assumption changes, with CSM balances providing underpinning.

Q: Katherine Lei asked about Hong Kong CRE and NII deposit cost trends.

A: Manveen Kaur noted Hong Kong residential properties stabilized, retail sales grew, but office sector remains challenging. On NII, deposit cost trends factored into guidance, with banking NII supported by HIBOR and structural hedge.

Q: Ben Toms asked about Madoff litigation and disposal impact on PBT.

A: Manveen Kaur explained Madoff provision is best judgment based on legal advice, and disposals are reinvested into growth areas with accretive returns.

Q: Joseph Dickerson questioned why RoTE is mid-teens instead of higher.

A: Manveen Kaur stated targets are to be achieved or better, and the target for mid-teens RoTE remains, with ongoing reflection and improvement efforts.

Q: Kendra Yan asked about Wealth growth sustainability and credit risk in private credit.

A: Manveen Kaur said Wealth growth is on strong trajectory with equity markets and new clients, and HSBC's private credit exposure is single billion with conservative underwriting.

Q: Kian Abouhossein asked about NBF exposures and tariff impact.

A: Manveen Kaur confirmed conservative approach to NBF exposures and tariff impact guidance remains unchanged with diversified corridor presence.

Q: Amit Goel asked about U.K. business investments and Madoff litigation range.

A: Manveen Kaur discussed U.K. business investments in Wealth and corporate lending, and Madoff provision is based on latest appeal outcome with legal advice.

Q: Chen Li asked about Wealth growth with rate cuts and nonresident customers.

A: Manveen Kaur stated Wealth growth continues from existing clients, with no expectation of nonresident customer slowdown due to normalized HIBOR.

Q: Alastair Warr asked about Hong Kong CRE collateral and ECLs.

A: Manveen Kaur explained Hong Kong CRE retail stabilized, residential improved, but office sector remains challenging, with ECLs reflecting steady net provisioning.

Q: Andrew Coombs asked about divestments in Australia/Indonesia and Hong Kong customer split.

A: Manveen Kaur said divestment reviews are ongoing, and Hong Kong customer split shows nonresident customers drive activity, with Wealth products offering growth opportunities post-Hang Seng integration