1Q’20 Results Presentation 29 April 2020 Please see page 18 for an explanation of some of the technical and abbreviated terms used in this document
Robust financial performance overall, with COVID-related slowdown in March and significantly higher credit impairment Encouraging growth and good cost control in 1Q’20; our main priority is supporting employees and clients • Huge effort to support employees, who continue to serve clients across 59 markets ▪ Taking action to protect jobs, ensure wellbeing and enable volunteering ▪ Maintained operational effectiveness despite fundamental shift to remote working COVID response 1 • Multiple initiatives to support individual and business clients, and communities ▪ Wide range of relief measures for individuals; at-cost funding for selected businesses ▪ Matching funds to raise $50m to help those affected by the pandemic • Solid underlying momentum continued well into 1Q’20: income up 6% 2 • Discipline over costs contributed to healthy 16% 2 pre-provision operating profit growth • Impact of COVID was felt increasingly in March, and will continue through 2Q’20 Performance • ~$1.0bn credit impairment; including modelled Stage 1/2 outcome and overlay ▪ As a result underlying operating profit reduced 36% to $1.2bn • We remain strongly capitalised and highly liquid: CET1 13.4% and LCR 142% 1. See next page for further details of our response and commitments to employees, clients and communities being affected by the COVID pandemic 2. Year-on-year change, at constant currency and excluding positive debit valuation adjustment 1
We are Here for good: Supporting our clients, colleagues and communities through COVID Supporting our colleagues Supporting our retail Supporting our business Supporting our communities banking customers clients • No redundancies imposed as a • Relationship Managers supporting • Providing $1bn of financing at cost • Launched $50m fund to help those result of the impact of COVID and clients from home, including for companies that will provide in our communities affected by ‘ MyRM ’ app in Hong Kong COVID across 59 markets 2 no colleagues have been goods and services to fight the global pandemic 2 : furloughed • Funded by the Group and our • 86% of branches open and all • Nearly 100% of colleagues working ▪ Strong demand from businesses colleagues ATMs operational at home in some markets, due to across our footprint • Phase 1 - provide $25m for • Customer relief measures include 1 : effective global virtual collaboration ▪ >$544m of funding requests immediate relief: ▪ Loan principal payment capability under active consideration ▪ $5m pledged to the Red Cross moratoriums and fee waivers for • Digital learning undertaken in ▪ >$42m approved for for medical support in Africa and extensions 1Q’20 is up 60% on FY’19 as we disbursement to clients Asia ▪ Late fee waivers support colleagues to work flexibly ▪ Funding requests under ▪ $5m pledged to UNICEF for ▪ Repayment programmes for and adapt their roles where consideration range from $0.5- education and protection of required credit cards and personal loans $50m vulnerable children in Africa and • Focus on inclusive leadership ▪ Payment holidays on lending South Asia ▪ Robust risk process - due when supporting colleagues who • In Greater China & North Asia: ▪ $15m made available to local diligence ensures companies are managing teams remotely ▪ Relief loans for customers are providing the necessary NGOs across our 59 markets • Investing in our colleagues’ equipment and meet our usual working in retail, tourism & ▪ $4.2m already allocated across wellbeing in addition to a 24/7 risk criteria hospitality, restaurant and airline 17 markets employee assistance programme industries • Offering trade facility extensions for • Phase 2 – $25m for longer term ▪ Extended insurance cover for SME clients recovery and protection of COVID hospital expenses • Opened Wuhan Bund sub-branch livelihoods – focusing on getting in April to support local businesses young people into work and supporting micro/small businesses Relief measures offered vary by market and client segment. The financial impact on the Group so far is not material; an update w ill be given at 2Q’20 results 1. 2. All figures correct as of 23.4.20 2
Encouraging underlying progress, with the external environment changing dramatically through the quarter 1Q’19 1Q’20 ($bn) YoY 1 Ccy 1 • Solid broad-based start to the year, income up 6% 2 Operating income ex DVA 3.9 4.0 4% 6% DVA (0.1) 0.3 Nm • Costs reduced 1% ccy: 6% positive jaws 2 Operating income 3.8 4.3 13% 15% ▪ Pre-provision operating profit up 16% 2 Operating expenses (2.4) (2.4) 2% 1% • Significant rise in credit impairments Pre-provision operating profit 1.4 2.0 41% 42% ▪ Stage 1 & 2 up $388m: ~1/2 modelled outcome and ~1/2 Credit impairment (0.1) (1.0) Nm management overlay Other impairment (0.0) 0.2 Nm ▪ Stage 3 up $490m: ~1/2 due to two exposures, one in Profit from associates 0.1 0.1 (17)% (18)% Commodity Traders and one in Healthcare Underlying profit before tax 1.4 1.2 (12)% (11)% • Other impairment $154m credit: reversal of prior impairment Goodwill and restructuring (0.1) (0.3) Nm partially offset by impairment on aircraft Statutory profit before tax 1.2 0.9 (29)% (28)% • $249m goodwill impairment in India: lower GDP growth outlook 268 Risk-weighted assets 273 2% • Risk- weighted assets up $9bn / 3% since 4Q’19 • NIM down 14bps to 1.52% (down 2bps QoQ) Net interest margin (%) 1.66 1.52 (14)bps CET1 ratio (%) 13.9 13.4 (50)bps • CET1% in middle of mid-term target range despite COVID stress Liquidity coverage ratio (%) 153 142 (11)%pt • LCR remains strong at 142%; broadly stable QoQ Underlying RoTE (%) 9.6 8.6 (100)bps • Return on tangible equity down 100bps to 8.6% 1. YoY: year-on-year variance is better/(worse) other than for risk-weighted assets (RWA),common equity Tier 1 (CET1) and liquidity coverage ratio (LCR), which is increase/(decrease) / Ccy: constant currency 3 2. At constant currency and excluding DVA
1Q’20 income was up 6% at constant currency and ex -DVA Income Costs Risk Capital/Liquidity Broad-based growth, with particularly strong momentum in Jan-Feb Income ($m) +6% 11 13 21 64 4,022 (63) 67 99 3,866 3,810 (56) 1% 13% 14% 27% 8% 6% (7)% 1Q’19 1Q’19 1Q’20 Currency Financial Wealth Treasury Corporate Retail Lending & Transaction ex-DVA impact constant Markets Management & Other Finance Products Portfolio Banking ex-DVA currency ex-DVA Management ex-DVA 4
The net interest margin was impacted by extremely low rates Income Costs Risk Capital/Liquidity The rate of decline slowed in 1Q’20 but we expect further NIM pressure through the remainder of 2020 Gross yield (bps) 295 318 334 345 Rate paid (bps) 165 192 199 157 1.69 1.67 1.66 1.61 1.62 Adjusted NIM 1 (%) 1.54 • Adjusted NIM 1 down 2bps QoQ 1.52 ▪ Rate cuts in 1Q’20 and prior periods ▪ ~$(20)m NII due to lower day count 8,032 2,025 2,011 1,993 1,978 1,931 8,007 • Significant liquidity crunch in mid-March ▪ See page 11 for RCF drawdowns Adjusted net interest income 1 • Interest rate risk sensitivity in the banking ($m) book increases as rates approach zero ▪ March 2020 cuts alone likely to reduce FY’20 income by a further ~$600m FY’18 FY’19 1Q’19 2Q’19 3Q’19 4Q’19 1Q’20 Average interest earning assets 1 476 495 487 511 ($bn) Average interest bearing liabilities 1 430 445 437 465 ($bn) 1. Statutory basis; the Group has changed its accounting policy for net interest income and basis of preparation of its net interest margin to better reflect the underlying performance of its banking book. See notes to the financial statements in the 2019 Annual Report for further details 5
Strong growth in networked FM business and affluent customer WM income reflect strategic priorities Income Costs Risk Capital/Liquidity Other significant sources of income include those that consume less capital and are less sensitive to interest rates Net fees and commissions 1 ($m) 3,523 927 3,492 910 889 862 796 RB + • Net fees and commissions down (5)% PVB 1 1,728 1,721 427 461 ▪ CIB + CB + C&O down 17% driven by Net fees and commissions 1 Transaction Banking ($m) CIB + ▪ RB + PvB up 8% driven by Wealth CB + 1,795 483 1,771 C&O 1 Management 401 FY’18 FY’19 1Q’19 2Q’19 3Q’19 4Q’19 1Q’20 Net trading and other income 1 ($m) 4,228 1,634 • Net trading and other income up 48% 305 3,501 DVA 1,103 1,147 ▪ Strong FX trading activity 1,051 927 ▪ $358m positive DVA movement YoY Net trading and ex other income 1 1,329 DVA 1,156 ($m) ▪ Gains in Treasury Markets -53 FY’18 FY’19 1Q’19 2Q’19 3Q’19 4Q’19 1Q’20 1. Statutory basis 6
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