HSBC Holdings plc (HSBC) Q3 2025 Earnings Call Transcript
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Overview
The earnings call summary and Q&A indicate strong financial performance, strategic investments, and shareholder returns. The $0.10 dividend and $3 billion share buyback are positive catalysts. Despite some uncertainties like ECL guidance revision and challenging office sector in Hong Kong, the optimistic outlook for Wealth management and strategic investments in AI and technology bolster the sentiment. The Madoff litigation provision is a concern but doesn't alter buyback plans. Overall, positive elements outweigh negatives, suggesting a potential stock price increase of 2% to 8%.
Key Financial Performance
Total Revenue $17.9 billion, a 3% year-over-year increase driven by a return to growth in banking NII and strong fee and other income.
Wealth Fee and Other Income 29% year-over-year growth to $2.7 billion, driven by all four income lines, including strong new business in insurance and investment distribution.
Customer Deposit Balances $1.7 trillion, including held-for-sale balances, which grew by $86 billion year-over-year.
Profit Before Tax $9.1 billion, reflecting strong revenue growth and operational performance.
CET1 Capital Ratio 14.5%, supported by strong organic capital generation during the quarter.
ECL (Expected Credit Loss) $1 billion, flat year-over-year, with specific charges including $0.2 billion for Hong Kong commercial real estate and $0.3 billion in the U.K.
Banking NII $11 billion for the quarter, a return to growth driven by deposit volumes and higher yields from structural hedges.
Security Services Fee and Other Income 15% year-over-year growth due to higher asset balances and new customer mandates in Asia and the Middle East.
Private Banking Growth 8% year-over-year increase, reflecting strong performance in investment distribution and customer franchise.
Asset Management Growth 6% year-over-year increase, driven by improved market performance and customer engagement.
Net New Invested Assets in Wealth $29 billion year-to-date, with $15 billion from Asia, taking total invested assets to $1.5 trillion.
Legal Provisions $1.4 billion for historical matters, including $1.1 billion related to litigation and $0.3 billion for historical trading activities in Europe.
Customer Deposits Growth $86 billion year-over-year, with notable contributions from large client deposits and silver bond subscriptions in Hong Kong.
U.K. Lending Growth 5% year-over-year, driven by mortgages and commercial lending, despite a drag from COVID loan repayments.
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Operating Highlights
Wealth growth: 29% growth in fee and other income, driven by all four income lines. Net new invested assets were $29 billion, with more than half from Asia. Total invested assets reached $1.5 trillion.
Banking NII: Returned to growth with $11 billion this quarter, driven by deposit volumes. Full-year guidance raised to $43 billion or better.
Privatization of Hang Seng Bank: HSBC announced its intention to privatize Hang Seng Bank, citing growth opportunities in Hong Kong, operational leverage, and removal of $3 billion capital inefficiency.
New customer acquisition: 318,000 new-to-bank customers added this quarter, totaling over 900,000 year-to-date. Nonresident customers contributed significantly to deposits, investments, and insurance flows.
Cost management: On track to achieve 3% cost growth in 2025 compared to 2024. Year-to-date, $1 billion in annualized simplification savings achieved.
Exit of nonstrategic activities: Announced exits of HSBC Malta and Retail Banking in Sri Lanka. Strategic review of Egyptian retail banking business underway, excluding wholesale banking.
Target upgrades: 2025 banking NII target upgraded to $43 billion or better. 2025 RoTE target excluding notable items upgraded to mid-teens or better.
Capital allocation: Focus on investing in growth areas and exiting nonstrategic activities to redeploy costs effectively.
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Risk or Challenges
Privatization of Hang Seng Bank: While the privatization is seen as a growth investment, there are risks associated with integration, potential operational distractions, and achieving the expected synergies and efficiencies.
Exit of nonstrategic activities: The exit of businesses in Malta, Sri Lanka, and the strategic review of Egyptian retail banking could lead to transitional challenges, potential loss of market presence, and execution risks in reallocating resources effectively.
Hong Kong commercial real estate: The $0.2 billion ECL charge related to Hong Kong commercial real estate indicates ongoing credit risks in this sector, which could impact profitability.
Legal provisions: The $1.4 billion legal provisions on historical matters, including $1.1 billion related to litigation, represent a financial burden and could impact capital allocation.
Customer deposit volatility: Short-dated large client deposits and volatility in deposit movements, such as those seen in Hong Kong, could pose liquidity management challenges.
Muted credit demand in Hong Kong: Corporate deleveraging and muted credit demand, particularly in the commercial real estate sector, could limit growth opportunities in this key market.
Economic assumptions and ECL charges: Economic uncertainties, as reflected in ECL charges across regions like the Middle East, U.K., and Mexico, highlight credit risks and potential financial impacts.
Cost growth and simplification savings: While cost growth is targeted at 3%, achieving simplification savings without impacting revenues remains a challenge.
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Guidance & Outlook
2025 Banking NII: HSBC has upgraded its 2025 banking NII guidance to $43 billion or better, driven by multiple factors including HIBOR recovery, deposit growth, and higher yields from structural hedges.
2025 RoTE: HSBC expects its 2025 RoTE, excluding notable items, to be mid-teens or better.
Cost Growth: The company is on track to achieve its target of around 3% cost growth in 2025 compared to 2024 on a target basis.
Dividend Payout Ratio: HSBC continues to target a dividend payout ratio for 2025 of 50% of earnings per ordinary share, excluding material notable items and related impacts.
Strategic Exits: HSBC is progressing with the exit of nonstrategic activities, including HSBC Malta and Retail Banking in Sri Lanka, and is conducting a strategic review of its Egyptian retail banking business. Costs released from these exits will be reinvested in priority growth areas.
Capital Generation: The CET1 capital ratio stands at 14.5%, with strong organic capital generation expected to continue. However, no buybacks are expected for the next three quarters due to the Hang Seng offer.
Wealth Growth: HSBC sees significant long-term opportunities in new nonresident customers, particularly in Asia, contributing to deposit, investment, and insurance flows.
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Shareholder Return Plan
Dividend payout ratio: HSBC continues to target a dividend payout ratio for 2025 of 50% of earnings per ordinary share, excluding material notable items and related impacts.
Share buyback program: HSBC announced that they do not expect buybacks for the next 3 quarters, depending on underlying capital generation. This decision is influenced by the announcement of the Hang Seng offer and strong profitability.
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Key Q&A
Q:What are the expectations for net interest income (NII) in Q4, considering factors like HIBOR, structural hedge, and balance sheet momentum?
A:Management expects banking NII to be no less than $10.6 billion in Q4, with tailwinds from HIBOR and the structural hedge. However, the U.S. dollar rate curve is a headwind. Balance sheet momentum is expected to continue, albeit with some seasonality fluctuations.
Q:How sustainable is the 5% underlying deposit growth, and what confidence does it provide for NII growth next year?
A:Management is positive about deposit growth sustainability, citing a strong deposit franchise across all markets and currencies, with Hong Kong being a key driver. However, no specific guidance was provided for banking NII in 2026.
Q:What are the key drivers for the updated banking NII guidance, and how does yield curve steepening factor in?
A:The updated guidance is driven by deposit strength, stabilization of HIBOR, and the structural hedge. Yield curve steepening is considered, but no additional material factors beyond the structural hedge roll were highlighted.
Q:What contributed to the 46% growth in the insurance segment, and how much of it is one-off?
A:The growth includes $150 million from model changes, which are part of a normalized annual process. Management is pleased with the strong CSM balance build, which underpins growth. No material one-offs or lumpy items were noted.
Q:What is the outlook for Hong Kong CRE asset quality, given the increase in Stage III loan ratio but lower impairment charges?
A:Residential properties have stabilized, retail sales have grown, and there is slight improvement in grade A office space. However, the office sector remains challenging. The portfolio is well collateralized, and the modest ECL pickup reflects expected slippage without major surprises.
Q:What is the impact of the $1.1 billion Madoff litigation provision on future buybacks and capital plans?
A:The provision does not change the aspiration to resume buybacks in H1 2026. The provision was based on thorough legal advice, and the suspension of buybacks for up to three quarters remains unchanged.
Q:What is the annualized cumulative PBT lost due to the 11 disposals year-to-date?
A:Management did not provide specific PBT loss figures but emphasized reinvestment in areas like the U.K., Wealth, and security services to offset the impact of disposals.
Q:Why isn't HSBC targeting a high-teens RoTE post-Hang Seng integration?
A:Management reiterated the mid-teens RoTE target for the medium term but emphasized that targets are meant to be achieved or exceeded. They will review the target as part of year-end results and forward-looking guidance.
Q:What are the key drivers behind the strong Wealth management revenue growth in Q3, and is it sustainable?
A:Growth was driven by strong equity volumes, investment distribution in Hong Kong, and insurance business momentum. Management is optimistic about future growth but noted seasonal fluctuations.
Q:Does HSBC have exposure to U.S. small and medium-sized banks or private credit corporate sectors?
A:Direct exposure to private credit is in the single billion dollars, with strong credit underwriting principles applied. Exposure to smaller U.S. banks and hedge funds is conservative, and the situation is closely monitored.
Q:What is the total NBFI exposure, and how does it align with U.S. legal entity exposures?
A:Management confirmed a disciplined approach to NBFI exposures, with U.S. legal entity exposures below $10 billion. No specific changes in guidance were noted.
Q:What is the impact of tariffs on group revenues and trade performance?
A:The direct impact of tariffs on group revenues remains unchanged. Trade performance has been supported by growth in corridors outside the U.S., such as India, U.K., Middle East, and Intra-Asia.
Q:What investments are being made in the U.K. business, and what is driving the increase in impairments?
A:Investments are focused on Wealth (e.g., hiring RMs, opening Wealth centers) and business banking. Impairments increased due to a few small single-name defaults, with no specific sector concentration.
Q:What is the range of outcomes for the Madoff litigation, and why wasn't a provision taken earlier?
A:The provision reflects the best judgment based on legal advice. The appeal outcome was only known on October 24, 2023, which is why the provision was taken now.
Q:How will the migration of retail deposits into Wealth management products impact Wealth revenue?
A:Management expects continued growth in Wealth revenue, driven by both new and existing customers in Hong Kong. Normalized HIBOR rates are not expected to impact customer appetite for Wealth products.
Q:What is the outlook for Hong Kong CRE collateral values and ECL trends?
A:Collateral values are reviewed quarterly, with no major surprises noted. The net LTV for higher-risk loans has remained stable after provisions, and challenges in the office sector are expected to persist.
Q:What is the status of strategic reviews for divestments in Australia and Indonesia?
A:The strategic reviews for Australia and Indonesia are ongoing, with no new updates provided.
Q:What is the split of resident vs. nonresident customers in Hong Kong, and how does it impact revenue margins?
A:New customer growth in Hong Kong is primarily deposit-led, with nonresident customers contributing to insurance sales. The overall premier customer base remains stable at 15-16%, and revenue opportunities are expected to grow with the Hang Seng integration.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the annualized cumulative PBT lost due to disposals, the exact range of outcomes for the Madoff litigation, and the split of resident vs. nonresident customer stock in Hong Kong. Additionally, no updates were given on the strategic reviews for Australia and Indonesia.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Group CFO
Kaur Group
Pam Kaur
analyst investor
gentleman analyst
information Pam
investor webinar
result HSBC
webinar result
HSBC Transcript
HSBC Holdings plc (HSBC) Q3 2025 Earnings Call Transcript
Positive10-28
The earnings call summary and Q&A indicate strong financial performance, strategic investments, and shareholder returns. The $0.10 dividend and $3 billion share buyback are positive catalysts. Despite some uncertainties like ECL guidance revision and challenging office sector in Hong Kong, the optimistic outlook for Wealth management and strategic investments in AI and technology bolster the sentiment. The Madoff litigation provision is a concern but doesn't alter buyback plans. Overall, positive elements outweigh negatives, suggesting a potential stock price increase of 2% to 8%.
HSBC Holdings Plc (HSBC) Presents At Barclays 23rd Annual Global Financial Services Conference Transcript
Neutral9-9
HSBC Holdings plc (HSBC) H1 2025 Earnings Call Transcript
Neutral7-30
HSBC Holdings plc (NYSE:HSBC) Q1 2025 Earnings Call Transcript
Positive4-30
The earnings call summary indicates positive financial performance with a revenue increase, stable net interest income, and a significant share buyback announcement. The Q&A revealed management's confidence in cost savings and continued capital returns, despite some uncertainties. The strong CET1 ratio and dividend reflect financial health. Although there are concerns about trade flow slowdowns, the overall sentiment is optimistic, supported by client growth and strategic cost management. The lack of market cap information suggests a cautious approach, leading to a 'Positive' prediction for stock price movement.
HSBC Report
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