HSBC Q2 Earnings Call Highlights

Despite Global Tensions, HSBC’s Asia Strategy Is Paying Off HSBC NYSE: HSBC reported stronger second-quarter momentum, with revenue rising 7% year over year on a constant-currency basis to $19 billion and profit before tax increasing 13% to $10.3 billion, excluding notable items. The bank posted an annualized return on tangible equity of 19.5% for the quarter and 19.1% for the first half.

Group CEO Georges Elhedery said the first-half results supported HSBC’s confidence in its strategy and medium-term targets. For the six months, revenue and profit before tax each rose 6%, while deposits increased by $129 billion, or 8%, year over year including held-for-sale balances. The deposit base stood at $1.8 trillion, while loans increased by $55 billion, or 6%.

HSBC announced a quarterly interim dividend of $0.10 per share, bringing the first-half dividend to $0.20 per share. It also restarted share repurchases with an up-to-$1 billion buyback after pausing repurchases for three quarters following the announced privatization of Hang Seng Bank.

Chief Financial Officer Pam Kaur said all four of HSBC’s businesses increased revenue in the quarter, and each generated annualized return on tangible equity above the group’s target of at least 17%, excluding notable items. Banking net interest income increased $0.8 billion year over year to $11.6 billion, supported by deposit and loan growth. HSBC raised its full-year banking net interest income guidance to at least $46 billion, citing balance-sheet growth, a favorable interest-rate outlook and reinvestment of maturing structural hedge assets.

Wealth fee and other income increased 21% in the second quarter to $2.8 billion. Growth was led by investment distribution, which rose 26%, along with insurance, private banking and asset management income. Second-quarter net new money totaled $25 billion, including $22 billion from Asia. For the first half, wealth fee and other income rose 18% to $5.5 billion, while global net new money reached $64 billion. Asia accounted for $57 billion of that total, a 32% increase from a year earlier. Elhedery said HSBC managed $1.1 trillion in wealth balances in Asia and that revenue from wealth relationships represented around one-quarter of group revenue.

Wholesale Transaction Banking fee and other income increased 7% in the quarter, accelerating from 2% growth in the first quarter. Security services revenue grew 16%, trade income rose 7%, payments increased 6%, and foreign-exchange income rose 5%. Trade balances were up 29% year over year.

HSBC added $46 billion in deposits during the second quarter and $20 billion in loans. Corporate and Institutional Banking deposits rose $42 billion in the quarter, although Kaur said about half of that increase was large and short term. She cited momentum in global payment services, new securities-services mandates and Hong Kong corporate inflows. Elhedery said loan demand had improved in Hong Kong after several quarters of contraction or flat growth, while the U.K. continued to provide strong lending growth. In the first half, commercial lending in the U.K. increased by $10 billion, or 10%, and mortgages rose by $10 billion, or 5%. In Hong Kong, HSBC increased wealth balances by 10% year over year to $0.5 trillion. The bank added 640,000 personal banking customers and 24,000 business banking customers. Elhedery also pointed to early benefits from the Hang Seng Bank privatization, saying Hang Seng nearly doubled quarterly new-customer acquisition to about 60,000 after adopting HSBC’s digital onboarding capabilities. HSBC expects approximately $500 million in reported synergie...