Performance in the first half of 2020 was heavily impacted by the Covid-19 outbreak, geopolitical risk and market factors. The outlook is highly uncertain and dependent on the path and speed of economic recovery.
Financial performance (vs 1H19)
• Reported profit after tax down 69% to $3.1bn and reported profit before tax down 65% to $4.3bn from higher ECL and lower revenue. Reported profit in 1H20 also included a $1.2bn impairment of software intangibles, mainly in Europe.
• In Asia, we reported profit before tax of $7.4bn in 1H20, despite higher ECL, demonstrating the strength and continued resilience of our operations in the region and underlining the importance of Asia to the Group. Higher ECL charges materially impacted profitability in our markets across the rest of the world, notably in our operations throughout Europe.
• Reported revenue down 9% to $26.7bn, reflecting the impact of interest rate reductions, as well as adverse market impacts in life insurance manufacturing and adverse valuation adjustments in GBM, notably in 1Q20. These factors more than offset higher revenue in Global Markets.
• Net interest margin ('NIM') of 1.43% in 1H20, down 18 basis points ('bps') from 1H19. NIM in 2Q20 was 1.33%, down 21bps from 1Q20, primarily reflecting the initial impact of the reduction in interest rates due to the Covid-19 outbreak.
• Reported ECL increased by $5.7bn to $6.9bn due to the impact of the Covid-19 outbreak and the forward economic outlook, and due to an increase in charges related to specific wholesale customers. ECL (annualised) as a percentage of average gross loans and advances to customers was 1.33% in 1H20, while allowance for ECL against loans and advances to customers increased from $8.7bn at 31 December 2019 to $13.2bn at 30 June 2020.
• Reported operating expenses down 4%, despite a $1.2bn impairment of software intangibles. Adjusted operating expenses fell 5%, despite continued investment, due to lower performance-related pay and reduced discretionary costs.
• In 1H20, lending decreased by $18bn on a reported basis. On a constant currency basis, lending increased by $12bn, reflecting corporate customers drawing on existing and new credit lines and re-depositing these to increase cash balances in 1Q20, which was partly offset by paydowns in 2Q20. Deposits grew by $93bn on a reported basis and $133bn on a constant currency basis, with growth in all global businesses, including through the depositing of loans from government-backed schemes.
• Common equity tier 1 capital ('CET1') ratio of 15.0%, up 30bps from 4Q19, as higher CET1 capital, which included an increase from the cancellation of the 4Q19 dividend and the current suspension of dividends on ordinary shares, more than offset the impact of RWA growth.
Financial performance (vs 2Q19)
• Reported profit after tax down 88% to $0.6bn and reported profit before tax down 82% to $1.1bn due to higher ECL and lower revenue, which included the non-recurrence of a 2Q19 dilution gain of $0.8bn. This was partly offset by a reduction in operating expenses, despite a $1.2bn impairment of software intangibles.
Financial performance (vs 1Q20)
• Reported profit after tax down 75% to $0.6bn and reported profit before tax down 66% to $1.1bn, reflecting higher ECL, primarily in CMB, which reported a loss before tax in 2Q20. Lower revenue reflected the impact of interest rate reductions, with net interest margin falling by 21bps to 1.33%. This was partly offset by the partial reversal of the adverse market impacts in life insurance manufacturing and valuation adjustments in GBM recorded in 1Q20. Results in 2Q20 were also adversely impacted by a $1.2bn impairment of software intangibles.
Outlook for 2020
• We continue to face a wide range of potential economic outcomes for the second half of 2020 and into 2021 , partly dependent on the extent of any potential impacts from new waves of Covid-19, the path to the development of a possible vaccine and market and consumer confidence levels. Heightened geopolitical risk could also impact a number of our markets, including Hong Kong and the UK.
• Applying a range of weightings to our ECL sensitivity analysis, as disclosed on pages 56 to 62, could result in an ECL charge in the range of $8bn to $13bn for 2020. This range, which continues to be subject to a high degree of uncertainty due to Covid-19 and geopolitical tensions, is higher than at 1Q20 given the deterioration in consensus economic forecasts and actual loss experience during 2Q20.
• Lower global interest rates and reduced customer activity have put increasing pressure on revenue, and are expected to continue to do so.
• We intend to accelerate our transformation programme and execute additional cost actions to help mitigate pressures on revenue and create capacity for further investments in technology.
• We expect mid-to-high single-digit percentage growth in RWAs in 2020, primarily from credit rating migration movements, which is expected to have an adverse impact on our CET1 ratio. We will continue to aim to reduce RWAs in low-returning areas, and improve efficiency to allow resources to be further and faster allocated to areas of competitive advantage, higher returns and growth.
• Given the current high degree of uncertainty, we are continuing to monitor closely the implications on our business plan and medium-term financial targets, while also undertaking a review of our future dividend policy. We intend to provide an update on our medium-term financial targets and dividend policy at our year-end results for 2020.
Key financial metrics
|
|
Half-year to |
|||||
|
Reported results |
30 Jun 2020 |
30 Jun 2019 |
31 Dec 2019 |
|||
|
Reported revenue ($m) |
26,745 |
|
29,372 |
|
26,726 |
|
|
Reported profit before tax ($m) |
4,318 |
|
12,407 |
|
940 |
|
|
Reported profit after tax ($m) |
3,125 |
|
9,937 |
|
(1,229 |
) |
|
Profit attributable to the ordinary shareholders of the parent company ($m) |
1,977 |
|
8,507 |
|
(2,538 |
) |
|
Cost efficiency ratio (%) |
61.8 |
|
58.4 |
|
94.3 |
|
|
Basic earnings per share ($) |
0.10 |
|
0.42 |
|
(0.13 |
) |
|
Diluted earnings per share ($) |
0.10 |
|
0.42 |
|
(0.13 |
) |
|
Return on average ordinary shareholders' equity (annualised) (%) |
2.4 |
|
10.4 |
|
(3.0 |
) |
|
Net interest margin (%)1 |
1.43 |
|
1.61 |
|
1.58 |
|
|
|
|
|
|
|||
|
Alternative performance measures |
|
|
|
|||
|
Adjusted revenue ($m) |
26,477 |
|
27,815 |
|
26,632 |
|
|
Adjusted profit before tax ($m) |
5,635 |
|
12,273 |
|
9,660 |
|
|
Adjusted cost efficiency ratio (%) |
56.4 |
|
56.6 |
|
61.8 |
|
|
Annualised expected credit losses and other credit impairment charges ('ECL') as a % of average gross loans and advances to customers (%) |
1.33 |
|
0.22 |
|
0.30 |
|
|
Return on average tangible equity (annualised) (%)1,2 |
3.8 |
|
11.2 |
|
8.4 |
|
|
|
|
|
|
|||
|
|
|
At |
|
|||
|
Balance sheet |
30 Jun 2020 |
30 Jun 2019 |
31 Dec 2019 |
|||
|
Total assets ($m) |
2,922,798 |
|
2,751,273 |
|
2,715,152 |
|
|
Net loans and advances to customers ($m) |
1,018,681 |
|
1,021,632 |
|
1,036,743 |
|
|
Customer accounts ($m) |
1,532,380 |
|
1,380,124 |
|
1,439,115 |
|
|
Average interest-earning assets ($m)1 |
2,034,939 |
|
1,912,708 |
|
1,922,822 |
|
|
Loans and advances to customers as % of customer accounts (%) |
66.5 |
|
74.0 |
|
72.0 |
|
|
Total shareholders' equity ($m) |
187,036 |
|
192,676 |
|
183,955 |
|
|
Tangible ordinary shareholders' equity ($m) |
147,879 |
|
145,441 |
|
144,144 |
|
|
Net asset value per ordinary share at period end ($)3,4 |
8.17 |
|
8.35 |
|
8.00 |
|
|
Tangible net asset value per ordinary share at period end ($)4 |
7.34 |
|
7.19 |
|
7.13 |
|
|
|
|
|
|
|||
|
Capital, leverage and liquidity |
|
|
|
|||
|
Common equity tier 1 capital ratio (%)5 |
15.0 |
|
14.3 |
|
14.7 |
|
|
Risk-weighted assets ($m)5 |
854,552 |
|
885,971 |
|
843,395 |
|
|
Total capital ratio (%)5 |
20.7 |
|
20.1 |
|
20.4 |
|
|
Leverage ratio (%)5 |
5.3 |
|
5.4 |
|
5.3 |
|
|
High-quality liquid assets (liquidity value) ($bn) |
654 |
|
533 |
|
601 |
|
|
Liquidity coverage ratio (%) |
148 |
|
136 |
|
150 |
|
|
|
|
|
|
|||
|
Share count |
|
|
|
|||
|
Period end basic number of $0.50 ordinary shares outstanding (millions) |
20,162 |
|
20,221 |
|
20,206 |
|
|
Period end basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions) |
20,198 |
|
20,286 |
|
20,280 |
|
|
Average basic number of $0.50 ordinary shares outstanding (millions) |
20,162 |
|
20,124 |
|
20,191 |
|
|
Dividend per ordinary share (in respect of the period) ($)1 |
– |
|
0.20 |
|
0.30 |
|