HSBC Holdings Plc - 2020 Results
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HSBC HOLDINGS PLC
2020 RESULTS - HIGHLIGHTS
Noel Quinn, Group Chief Executive, said:
"In 2020, our people delivered an exceptional level of support for our customers in very tough circumstances, while our strong balance sheet and liquidity gave reassurance to those who rely on us. We achieved this while delivering a solid financial performance in the context of the pandemic - particularly in Asia - and laying firm foundations for our future growth. I am proud of everything our people achieved and grateful for the loyalty of our customers during a very turbulent year.
The growth plans we are announcing today aim to establish HSBC as a dynamic, efficient and agile global bank with a digital-first mindset, capable of providing a world-leading service to our customers and strong returns for our investors. We intend to deliver them at pace."
2020 financial performance (vs 2019)
• Reported profit after tax down 30% to $6.1bn and reported profit before tax down 34% to $8.8bn from higher expected credit losses and other credit impairment charges ('ECL') and lower revenue, partly offset by a fall in operating expenses. Reported results in 2020 included a $1.3bn impairment of software intangibles, while reported results in 2019 included a $7.3bn impairment of goodwill. Adjusted profit before tax down 45% to $12.1bn.
• Reported revenue down 10% to $50.4bn, primarily due to the progressive impact of lower interest rates across our global businesses, in part offset by higher revenue in Global Markets. Adjusted revenue down 8% to $50.4bn.
• Net interest margin ('NIM') of 1.32% in 2020, down 26 basis points ('bps') from 2019, due to the impact of lower global interest rates.
• Reported ECL up $6.1bn to $8.8bn , mainly due to the impact of the Covid-19 outbreak and the forward economic outlook. Allowance for ECL on loans and advances to customers up from $8.7bn at 31 December 2019 to $14.5bn at 31 December 2020.
• Reported operating expenses down 19% to $34.4bn, mainly due to the non-recurrence of a $7.3bn impairment of goodwill. Adjusted operating expenses down 3% to $31.5bn, as cost-saving initiatives and lower performance-related pay and discretionary expenditure more than offset the growth in investment spend.
• During 2020, deposits grew by $204bn on a reported basis and $173bn on a constant currency basis, with growth in all global businesses.
• Common equity tier 1 ('CET1') ratio of 15.9%, up 1.2 percentage points from 14.7% at 31 December 2019, which included the impact of the cancellation of the fourth interim dividend of 2019 and changes to the capital treatment of software assets.
• After considering the requirements set out in the UK Prudential Regulation Authority's ('PRA') temporary approach to shareholder distributions for 2020, the Board has announced an interim dividend for 2020 of $0.15 per ordinary share, to be paid in cash with no scrip alternative.
4Q20 financial performance (vs 4Q19)
• Reported profit after tax up $6.0bn to $0.9bn and reported profit before tax up $5.3bn to $1.4bn, primarily due to the non-recurrence of a $7.3bn impairment of goodwill in 4Q19. Adjusted profit before tax down 50% to $2.2bn.
• Reported revenue down 12% and adjusted revenue down 14%, primarily due to the impact of lower global interest rates. NIM of 1.22% in 4Q20 increased by 2bps compared with 3Q20.
• Reported ECL up 60% to $1.2bn, reflecting UK economic uncertainty and higher charges related to specific exposures in Commercial Banking ('CMB').
• Reported operating expenses down 42% to $9.9bn, due to the non-recurrence of a $7.3bn goodwill impairment. Adjusted operating expenses of $9.1bn down $0.1bn.
Outlook and strategic update
We recognise a number of fundamental changes, including the prospect of prolonged low interest rates, the significant increase in digital engagement from customers and the enhanced focus on the environment, and we have aligned our strategy accordingly.
We intend to increase our focus on areas where we are strongest, increase and accelerate our investments, and continue to progress with the transformation of our underperforming businesses. As part of our climate ambitions, we have also set out our plans to capture the opportunities presented by the transition to a low-carbon economy.
We will continue to target an adjusted cost base of $31bn or less in 2022. This reflects a further reduction in our cost base, which has been broadly offset by the adverse impact of foreign currency translation due to the weakening US dollar towards the end of 2020. In addition, we will continue to target a gross risk-weighted assets ('RWA') reduction of over $100bn by the end of 2022. We no longer expect to reach our return on average tangible equity ('RoTE') target of between 10% and 12% in 2022, as originally planned and will now target a RoTE of greater than or equal to 10% in the medium term.
We intend to maintain a CET1 ratio above 14%, managing in the range of 14% to 14.5% in the medium term and managing this range down in the longer term. The Board has adopted a policy to provide sustainable dividends going forward. We intend to transition towards a target payout ratio of between 40% and 55% of reported earnings per ordinary share ('EPS') from 2022 onwards, with the flexibility to adjust EPS for non-cash significant items, such as goodwill or intangibles impairments.
We have had a good start to 2021, and we are cautiously optimistic for the year ahead.