HSBC HOLDINGS PLC
2021 RESULTS – HIGHLIGHTS
Noel Quinn, Group Chief Executive, said:
“We made good progress against our strategy in 2021, which contributed to a strong financial performance that was supported by the global economic recovery. All of our regions were profitable and we saw growth in the fourth quarter of 2021 in many of our business lines.
We have good momentum coming into 2022 and are confident that we can continue to execute against our strategy. We also remain cognisant of the potential impact that further Covid-19-related uncertainty and continued inflation might have on us and our clients.”
2021 financial performance (vs 2020)
• Reported profit after tax up $8.6bn to $14.7bn and reported profit before tax up $10.1bn to $18.9bn. The increase was driven by a net release of expected credit losses and other credit impairment charges ('ECL') and a higher share of profit from our associates. Adjusted profit before tax up 79% to $21.9bn.
• All regions were profitable in 2021, notably HSBC UK Bank plc, where reported profit before tax increased by $4.5bn to $4.8bn. Our Asia operations contributed $12.2bn to reported profit before tax and all other regions reported a material recovery in profitability, reflecting favourable ECL movements.
• Reported revenue down 2% to $49.6bn, primarily reflecting the impact of lower global interest rates and a decrease in revenue in Markets and Securities Services ('MSS') compared with a strong comparative period. Notwithstanding these factors, we saw revenue growth in areas of strategic focus, including Wealth, in part due to favourable market impacts in life insurance manufacturing, and Global Trade and Receivables Finance ('GTRF'). Adjusted revenue down 3% to $50.1bn.
• Net interest margin ('NIM') of 1.20%, down 12 basis points ('bps') from 2020, with stabilisation in the second half of 2021.
• Reported ECL were a net release of $0.9bn, compared with an $8.8bn charge in 2020, reflecting an improvement in economic conditions relative to 2020, and better than expected levels of credit performance.
• Reported operating expenses broadly unchanged at $34.6bn. Adjusted operating expenses down 1% to $32.1bn , despite inflationary pressures, as the impact of our cost-saving initiatives and a reduction in the UK bank levy charge absorbed higher performance-related pay and continued growth in technology investment.
• Customer lending balances in 2021 up $8bn on a reported basis and $23bn on a constant currency basis, primarily driven by growth in mortgage balances, mainly in the UK and Hong Kong.
• Common equity tier 1 ('CET1') capital ratio of 15.8%, down 0.1 percentage points. Capital generation was more than offset by dividends, the up to $2bn share buy-back announced in October, foreign exchange movements and other deductions. Risk-weighted assets ('RWAs') reduced despite new Pillar 1 requirements for structural foreign exchange, reflecting actions under our transformation programme.
• The Board has approved a second interim dividend of $0.18 per share, making a total for 2021 of $0.25 per share. We also intend to initiate a further share buy-back of up to $1bn, to commence after the existing up to $2bn buy-back has concluded.
4Q21 financial performance (vs 4Q20)
• Reported profit after tax up $1.1bn to $2.0bn and reported profit before tax up $1.3bn to $2.7bn, reflecting lower ECL charges, lower operating expenses and revenue growth. Adjusted profit before tax up 79% to $4.0bn.
• Reported revenue up 2% to $12.0bn, mainly in Commercial Banking ('CMB') from growth in Credit and Lending and GTRF. Adjusted revenue up 2% to $12.1bn.
• Reported ECL were a net charge of $0.5bn, which included an increase in allowances to reflect recent developments in China's commercial real estate sector.
• Reported operating expenses down 3% to $9.5bn due to a lower UK bank levy and further cost savings, partly offset by a $0.6bn impairment of goodwill related to our Wealth and Personal Banking ('WPB') business in Latin America. Adjusted operating expenses down 8% to $8.3bn.
Outlook
We carry good business momentum into 2022 in most areas and expect mid-single-digit lending growth over the year. However, we expect a weaker Wealth performance in Asia in the first quarter of 2022.
We expect ECL charges to normalise towards 30bps of average loans in 2022, based on current consensus economic forecasts and default experience, noting we retain $0.6bn of Covid-19-related allowances as at the end of 2021. Uncertainty remains given recent developments in China's commercial real estate sector, while inflationary pressures persist in many of our markets.
We continue to target 2022 adjusted operating expenses in line with 2021, despite inflationary pressures, with cost to achieve spend of $3.4bn expected to generate over $2bn of cost savings in 2022. In 2023, we intend to manage growth in adjusted operating expenses to within a range of 0% to 2%, compared with 2022 (on an IFRS 4 basis), with cost savings of at least $0.5bn from actions taken in 2022 helping to offset inflation.
We expect mid-single-digit RWA growth in 2022 through a combination of business growth, acquisitions and regulatory changes, partly offset by additional RWA savings. This growth, together with capital returns are expected to normalise our CET1 position to be within our 14% to 14.5% target operating range during 2022.
Our net interest income outlook is now significantly more positive. If policy rates were to follow the current implied market consensus, we would expect to deliver a RoTE of at least 10% for 2023, one year ahead of our previous expectations.
We continue to target dividends within our 40% to 55% dividend payout ratio range.