HSBC Holdings PLC 2026 Q2 Earnings Call

Hello everyone, thank you for joining our first half 2026 Fixed Income Investor Call. I'm Fas Yousaf, Group Treasurer, and I'm joined today by Greg Case, Head of Debt Investor Relations, and Mark Phin, Head of Equity Investor Relations. Many of you will already have had an opportunity to go through the results materials and listen to the equity investor call, I'll focus my remarks on the areas most relevant to fixed income investors. I'll cover three areas. First, I'll provide a brief overview of the group's performance and progress against our strategic priorities in the first half. Second, I'll focus on the strength and resilience of our balance sheet, including capital generation, asset quality, funding, and liquidity. Finally, I'll look ahead, covering targets and guidance, the regulatory outlook, and our issuance plans.

As I speak, we'll show a small selection of slides from our first half 2026 Fixed Income Investor presentation, which is available on our website. Once I've finished, we'll move straight into Q&A. Turning first to performance. Our strong first half results reinforce the strength of our diversified and capital generative businesses, as well as the disciplined execution of our strategic priorities. I will refer to our results excluding notable items with comparisons on a constant currency basis. Further details are set out in the appendix to our first half results presentations available on the investor relations page of hsbc.com. Group revenue for the first half was $38.2 billion, up 6% year-on-year. Profit before tax was $20.4 billion, up 6% on last year.

The group generated an annualized return on tangible equity of 19.1% for the first half, consistent with our guidance of 17% or better for the full year. Importantly, performance was broad based, with all four of our global businesses generating returns in excess of 17%. Turning to revenue drivers. The revenue base continues to be well diversified, reflecting our two scale home market positions, our global CIB business, and our international wealth and premier banking division, with its primary focus on Asia. Banking NII for H1 was $22.9 billion, an increase of 5% year-on-year, We have upgraded our full-year Banking NII guidance to at least $46 billion. In fee and other income, our wholesale transaction bank showed year-on-year growth of 7% in the second quarter, driven by strength across all product areas.

We continue to see strong demand for trade and payments products with accelerated income streams in the second quarter. Our wealth business continues to show a high level of growth in fee and other income at 21% year-on-year in the second quarter. We saw net new money of $64 billion in the first half with $57 billion coming from Asia. Our wealth balances are now $1.6 trillion globally, and we are Asia's number 1 wealth manager with $1.1 trillion of wealth balances across the region. Turning briefly to strategic execution. As George set out in detail earlier today, we have made significant progress in creating a simpler, more agile, and customer-focused bank better positioned to deliver sustainable growth. Today, we revised upwards our total organizational simplification saves target to $2 billion.

We also remain on track to deliver our $1.8 billion target of cost reallocation away from non-strategic businesses, having now announced 15 business or market exits since the beginning of 2025. These changes provide investment capacity to drive franchise growth in our strategic growth areas. At the full year 2025 analyst call, I spoke about the development of our digital asset and artificial intelligence capabilities. Both continue to progress at pace. In digital assets, our activity remains client-driven and focused on building out our custody, tokenization capabilities, and market infrastructure. During the first half, we extended our tokenized deposits product into the U.A.E., building on our existing capability in the U.K., Hong Kong, the U.S., Singapore, and Luxembourg, providing stronger connectivity for clients internationally.

Our digital bond issuance platform, HSBC Orion, continues to set the benchmark, most recently delivering the largest ever digital bond issuance, US$1.5 billion equivalent for The Hong Kong Mortgage Corporation Limited in June across HKD and CNH. As I mentioned in February, the HSBC Orion platform secured the U.K. government's Digital Gilt Instrument, or DIGIT mandate, we're positioning to issue the first sterling digital sovereign bond by early next year. Work is also progressing on a U.K. bank digital bond issuance program on Orion as part of the Great British Tokenized Deposit pilot, that is also expected in the first half of 2027. In Hong Kong, following the HKMA stablecoin issuer license grant in April, we're planning to launch a HKD-denominated stablecoin later this year. Next, briefly on artificial intelligence.

We are investing in deploying AI to re-engineer, simplify, strengthen, and accelerate activity across the bank. Our ambition is to empower colleagues to use AI, delivering end-to-end process re-engineering and enhancing our customer experience whilst keeping human judgment, decision-making, and accountability at the core. Next, moving on to the second area, our balance sheet, asset quality, funding, capital, and liquidity. We continue to operate from a position of strength, which is supported by our deep customer relationships. Our deposit base grew $129 billion year-on-year to $1.8 trillion, including balances classified as held for sale. In the first half of the year, we saw customer accounts increase by $56 billion, primarily in CIB, driven by continued momentum in global payment services and security services. Alongside the deposit growth, we've seen increased momentum in loan growth. Loan balances are up 6% year-on-year, including held for sale.

The growth is broad-based, with particular strength in trade and commercial lending in the U.K. and Hong Kong. Turning to asset quality. The annualized cost of risk was around 47 basis points, with an ECL charge of GBP 2.4 billion for the first half. The charge was 41 basis points in the second quarter, including GBP 0.2 billion related to Hong Kong commercial real estate. The Hong Kong residential market has continued to recover, supported by consecutive quarters of price and volume growth, while leasing activity in the prime office market has also strengthened. Although pressures remain in parts of the office and retail CRE markets, particularly outside the prime segment, the overall picture has improved. Beyond Hong Kong, there is no broad-based pattern emerging. However, we continue to monitor closely, particularly against the backdrop of geopolitical tensions in the Middle East, elevated energy prices, and higher interest rates.

For full year 2026, we are reiterating our guidance of around 45 basis points. Our CET1 ratio was 14.1% and is inside our 14-14.5 medium-term planning range. We generated 1.9 percentage points of organic capital in the first half, demonstrating the earning strength of the franchise. Our CET1 ratio remains around three percentage points above our MDA hurdle rate of 11.2%. Today, we announced that we are restarting share buybacks. We plan to buy back up to GBP 1 billion, three quarters after pausing them following the announcement of the Hang Seng Bank privatization. We were also pleased to see that S&P revised the outlook on our ratings to positive in May, recognizing the structural improvement in profitability alongside our consistent balance sheet strength.

We continue to engage constructively with the rating agencies, and it is our desire to maintain a rating at the upper end of our peer group. We recognize this is a decision for the agencies, and we will continue to focus on delivering our strategy, which we believe is supportive of our credit profile over time. Our MREL. We have a 33% MREL ratio, a 3.9 percentage point buffer to our minimum requirement, plus buffers of 29.1%. This is equivalent to a buffer of around GBP 36 billion. Our liquidity position also remains exceptionally strong with a Group LCR of 134%, which excludes GBP 153 billion of HQLA. The total HQLA on hand is now GBP 9.9 trillion, covering around half our total GBP 1.8 trillion customer deposit base. The 56% loan-to-deposit ratio generates a GBP 9.8 trillion surplus.

Our deposit-led funding model, low loan-to-deposit ratio, and substantial stock of high-quality liquid assets provides considerable resilience and results in a very low reliance on wholesale funding. Finally, targets, guidance, regulation, and issuance plan. Today, we reiterated the targets that we set out at the full year. Revenue rising to 5% year-on-year growth by 2028. Return on tangible equity at 17% or better each year to 2028. Both excluding notable items and % of EPS, excluding material notable items and related impacts. Touching briefly on regulation. Last month in the U.K., the Financial Policy Committee set out further details of its review of the U.K. bank capital framework. The FPC and PRA announced changes to improve the usability of capital buffers under stress and indicated that they would expect to consult in late 2026 or early 2027 on potential amendments to the leverage ratio framework.

We expect the impact of these changes to be immaterial at the HSBC Group level, with a potential 10 basis points increase in the Group's minimum leverage requirements, which are not currently binding. We welcome the direction of the FPC's review. At the same time, we believe there is scope to go further and faster in simplifying the U.K. capital framework, improving international alignment and enhancing the competitiveness of the U.K. banking sector. We remain committed to constructive engagement with the Bank of England and the U.K. government as that work progresses. I'll finish on issuance. We've been active during the first half, I'm pleased to say that our issuance program for the year is largely complete. In Senior Holdco, we've issued $18 billion against our plan of circa $20 billion. In the second half, we have around $6 billion of calls and maturities.

In Tier 2, we have no issuance plan this year. In AT1, we have issued $4 billion, completing our planned issuance for the year. Last week, we announced a call of our sterling AT1 effective in September. Our OpCos remain well-funded with only modest needs for wholesale issuance. At this stage, we have no notable needs to call out. Looking forward, as we complete our plan, we may look at opportunities for pre-financing should markets be attractive. We will consider the carry cost and prevailing spreads balanced against next year's maturities. To conclude, the first half demonstrates the continued strength of HSBC's franchise and the resilience of our balance sheet. Our strong capital generation, robust asset quality, alongside the substantial capital and liquidity buffers, provide us with considerable financial flexibility to invest in our strategic priorities, grow the business sustainably, and support our customers.