FORM 6-K
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a - 16 or 15d - 16 of
 
the Securities Exchange Act of 1934
 
For the month of April 2020

Commission File Number: 001-14930

HSBC Holdings plc
 
42nd Floor, 8 Canada Square, London E14 5HQ, England
 
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F).
 
Form 20-F   X             Form 40-F ......
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):   ______
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):   ______


 
This Report on Form 6-K with respect to our quarterly results for the three-month period ended March 31, 2020 is hereby incorporated by reference in the following HSBC Holdings plc registration statements: Registration Statements on Form F-3 (Nos. 333-92024, 333-135007, 333-158065, 333-180288, 333-202420, 333-223191) and Registration Statement on Form F-4 (No. 333-126531).

Neither our website referred to herein, nor any of the information contained on our website, is incorporated by reference in the Form 6-K.                                                                                          




hsbclogoa45.jpg

28 APRIL 2020
HSBC HOLDINGS PLC
1Q20 EARNINGS RELEASE
Noel Quinn, Group Chief Executive, said:
"The economic impact of the Covid-19 pandemic on our customers has been the main driver of the change in our financial performance since the turn of the year. The resultant increase in expected credit losses in the first quarter contributed to a material fall in reported profit before tax compared with the same period last year.
HSBC has always been there for our customers in times of crisis, and we are working hard to support them during this unprecedented period of disruption. We do so from a position of strength, with robust levels of capital, funding and liquidity. The market-specific support measures that we are offering our personal and business customers have had strong take-up, and we remain responsive to their changing needs. We are also working closely with governments around the world to channel fiscal support to the real economy quickly and efficiently.
I take the well-being of our people extremely seriously. We have therefore paused the vast majority of redundancies related to the transformation we announced in February to reduce the uncertainty they are facing at this difficult time. We continue to press forward with the other areas of our transformation with the aim of delivering a stronger and leaner business that is better equipped to help our customers prosper in the recovery still to come."
Financial performance (vs. 1Q19)
Reported profit before tax down 48% to $3.2bn from higher expected credit losses and other credit impairment charges (‘ECL’) and lower revenue. The reduction primarily reflected the global impact of the Covid-19 outbreak and weakening oil prices.
Reported revenue down 5% as a result of adverse market impacts in life insurance manufacturing and adverse valuation adjustments in Global Banking and Markets ('GB&M'), offsetting a resilient revenue performance, notably in Asia, Global Markets, Retail Banking and Global Private Banking ('GPB').
Net interest margin ('NIM') of 1.54%, down 2 basis points ('bps') from 4Q19 and down 5bps from 1Q19. We expect material downward pressure on NIM in future quarters as we incur the full impact of 1Q20 market interest rate reductions.
Reported ECL increased by $2.4bn to $3.0bn due to the impact of Covid-19 and weakening oil prices on the forward economic outlook and a significant charge related to a corporate exposure in Singapore. Allowance for ECL increased from $9.2bn at 31 December 2019 to $11.1bn at 31 March 2020.
During the quarter, lending increased by $41bn and deposits grew by $47bn on a constant currency basis. Lending and deposit growth included the effects of corporate customers drawing on existing and new credit lines and re-depositing these to increase cash balances. Deposit balances also reflected continued growth in Retail Banking and Wealth Management ('RBWM').
Reported operating expenses down 5% and adjusted operating expenses down 3%, despite continued investment, due to lower performance-related pay and reduced discretionary costs.
Common equity tier 1 capital (‘CET1’) ratio of 14.6% (4Q19: 14.7%), including the impact of the cancellation of the final dividend in respect of 2019. Liquidity coverage ratio (‘LCR’) of 156% (4Q19: 150%) and a deposit surplus – the excess of deposit balances over lending balances – of over $400bn.
2020 outlook
The outlook for world economies in 2020 has substantially worsened in the past two months. The impact and duration of the Covid-19 crisis will likely lead to higher ECL and put pressure on revenue due to lower customer activity levels and reduced global interest rates. We plan to reduce operating expenses to partly mitigate the reduction in revenue and we intend to continue to exercise cost discipline, while maintaining strategic investment. These factors are expected to lead to materially lower profitability in 2020, relative to 2019.
We have temporarily delayed parts of our transformation, including some elements of our cost and risk-weighted asset ('RWA') reduction programme, and expect restructuring costs for 2020 to be lower than indicated in our 2019 annual results.
We also expect mid-to-high single digit percentage growth in RWAs in 2020, including as a result of the effects of negative credit rating migration movements, impacting our CET1 ratio.
During 2020, we will continue to assess the impact of the Covid-19 crisis and review our financial performance and business plan accordingly. We will assess the appropriateness of our medium-term financial targets during that period, and will review our dividend policy at, or ahead of, our year-end results for 2020.

HSBC Holdings plc Earnings Release 1Q20
1


Earnings Release – 1Q20


Key financial metrics

Quarter ended

31 Mar

31 Dec

31 Mar


2020

2019

2019

Reported results
 
 
 
Reported revenue ($m)
13,686

13,371

14,428

Reported profit before tax ($m)
3,229

(3,897
)
6,213

Reported profit after tax ($m)
2,508

(5,024
)
4,910

Profit attributable to the ordinary shareholders of the parent company ($m)
1,785

(5,509
)
4,134

Basic earnings per share ($)
0.09

(0.27
)
0.21

Diluted earnings per share ($)
0.09

(0.27
)
0.21

Return on average ordinary shareholders' equity (annualised) (%)
4.4

(13.3
)
10.2

Return on average tangible equity (annualised) (%)
4.2

5.2

10.6

Net interest margin (%)
1.54
1.56

1.59

Adjusted results
 
 
 
Adjusted revenue ($m)
13,327
13,586

14,149

Adjusted profit before tax ($m)
3,042
4,343

6,246

Adjusted cost efficiency ratio (%)
57.6

66.6

55.9

Expected credit losses and other credit impairment charges (‘ECL’) (annualised) as % of average gross loans and advances to customers (%)
1.18

0.28

0.24

 
 
At
 
 
31 Mar

31 Dec

31 Mar

 
Footnotes
2020

2019

2019

Balance sheet
 
 
 
 
Total assets ($m)
 
2,917,810

2,715,152

2,658,996

Net loans and advances to customers ($m)
 
1,040,282

1,036,743

1,005,279

Customer accounts ($m)
 
1,440,529

1,439,115

1,356,511

Average interest-earning assets, year to date ($m)
 
1,991,702

1,922,822

1,902,912

Loans and advances to customers as % of customer accounts (%)
 
72.2

72.0

74.1

Total shareholders’ equity ($m)
 
189,771

183,955

188,362

Tangible ordinary shareholders’ equity ($m)
 
150,019

144,144

141,648

Net asset value per ordinary share at period end ($)
1
8.30

8.00

8.20

Tangible net asset value per ordinary share at period end ($)
 
7.44

7.13

7.05

Capital, leverage and liquidity
 
 
 
 
Common equity tier 1 capital ratio (%)
2
14.6

14.7

14.3

Risk-weighted assets ($m)
2
857,078

843,395

879,485

Total capital ratio (%)
2
20.3

20.4

20.2

Leverage ratio (%)
2
5.3

5.3

5.4

High-quality liquid assets (liquidity value) ($bn)
 
617

601

535

Liquidity coverage ratio (%)
 
156

150

143

Share count
 
 
 
 
Period end basic number of $0.50 ordinary shares outstanding (millions)
 
20,172

20,206

20,082

Period end basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions)
 
20,245

20,280

20,177

Average basic number of $0.50 ordinary shares outstanding (millions)
 
20,161

20,158

20,036

Dividend per ordinary share (in respect of the period) ($)
 

0.30

0.10

1
The definition of net asset value per ordinary share is total shareholders' equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue excluding shares the company has purchased and are held in treasury.
2
Unless otherwise stated, regulatory capital ratios and requirements are calculated in accordance with the transitional arrangements of the Capital Requirements Regulation in force in the EU at the time, including the regulatory transitional arrangements for IFRS 9 ‘Financial Instruments’ in article 473a. The capital ratios and requirements are reported in accordance with the revised Capital Requirements Regulation and Directive
(‘CRR II’), as implemented. Leverage ratios are calculated using the end point definition of capital.


2
HSBC Holdings plc Earnings Release 1Q20




Contents
 
Page
 
 
Page
Highlights
 
Credit risk
Key financial metrics
 
Capital adequacy
Covid-19
 
Leverage
Adjusted performance
 
Risk-weighted assets
Financial performance
 
Summary information – global businesses
Cautionary statement regarding forward-looking statements
 
Summary information – geographical regions
Summary consolidated income statement
 
Dividend on preference shares
Summary consolidated balance sheet
 
Terms and abbreviations
HSBC Holdings plc will be conducting a trading update conference call with analysts and investors today to coincide with the publication of its Earnings Release. The call will take place at 07.30am BST. Details of how to participate in the call and the live audio webcast can be found at www.hsbc.com/investors.
Note to editors
HSBC Holdings plc
HSBC Holdings plc, the parent company of HSBC, is headquartered in London. HSBC serves customers worldwide from offices in
64 countries and territories in its geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. With assets of $
2,918bn at 31 March 2020, HSBC is one of the world’s largest banking and financial services organisations.
Covid-19
Impact on our business
The outbreak of Covid-19 has had, and continues to have, a material impact on businesses around the world and the economic environments in which they operate. The outbreak has caused disruption to our customers, suppliers and staff globally. A number of jurisdictions in which we operate have implemented severe restrictions on the movement of populations, with a resultant significant impact on economic activity. These restrictions are being determined by the governments of individual jurisdictions, including through the implementation of emergency powers. The impacts of these restrictions, including the subsequent lifting of restrictions, may vary from jurisdiction to jurisdiction. We have invoked our business continuity plans at many of our sites to help ensure the safety and well-being of our staff, as well as our ability to support our customers and maintain our business operations. Many of our staff have continued to provide critical services in branches, contact and service centres, and in offices, all with heightened safety measures, and we have equipped the majority of our staff to work remotely. It remains unclear how this will evolve through 2020 and we continue to monitor the situation closely.
In many of our markets we have initiated market-specific measures to support our personal and business customers through these challenging times, including mortgage assistance, payment holidays, the waiving of certain fees and charges, and liquidity relief for businesses facing market uncertainty and supply chain disruption. These measures have been well received and we remain responsive to our customers' changing needs. We are also working closely with governments and supporting national schemes that focus on the parts of the economy most impacted by Covid-19.
The actions taken by the various governments and central banks, in particular in the UK, mainland China, Hong Kong and the US, provide an indication of the potential severity of the downturn and post-recovery environment, which from a commercial, regulatory and risk perspective could be significantly different to past crises and persist for a prolonged period. An immediate financial impact of the outbreak is an increase in ECL, driven by a change in the economic scenarios used to calculate ECL. The outbreak has led to a weakening in GDP in many of our markets, a key input used for calculating ECL, and the probability of a more adverse economic scenario for at least the short term is substantially higher than at 31 December 2019. Furthermore, ECL will arise from other parts of our business impacted by the disruption to supply chains. The impact will vary by sectors of the economy, with heightened risk to the oil and gas, transport and discretionary consumer sectors being observed in the first stages of the outbreak. The impact of the outbreak on the long-term prospects of businesses in these sectors is uncertain and may lead to significant ECL charges on specific exposures, which may not be fully captured by ECL modelling techniques. In addition, in times of crisis, fraudulent activity is often more prevalent, leading to potentially significant ECL charges.
Should the Covid-19 outbreak continue to cause disruption to economic activity globally through 2020, there could be further adverse impacts on our income due to lower lending and transaction volumes and lower wealth and insurance manufacturing revenue due to equity markets volatility. Lower interest rates globally will negatively impact net interest income and increase the cost of guarantees for insurance manufacturing, and there could also be adverse impacts on other assets, such as our investment in Bank of Communications Co., Limited.
The Covid-19 outbreak will also have material impacts on capital and liquidity. This may include downward customer credit rating migration, which could negatively impact our risk-weighted assets and capital position, and potential liquidity stress due, among other factors, to increased customer drawdowns, notwithstanding the significant initiatives that governments and central banks have put in place to support funding and liquidity. Central banks in some markets have also initiated a series of capital measures, including the reduction of certain regulatory capital buffers, to support the ability of banks to supply credit to businesses and households through this period of economic disruption.
Central bank and government actions and support measures may result in restrictions in relation to capital. These may limit management’s flexibility in managing the business and taking action in relation to capital distribution and capital allocation. In response to a written request from the UK's Prudential Regulation Authority ('PRA'), we cancelled the fourth interim dividend of $0.21 per ordinary share. Similar requests were also made to other UK incorporated banking groups. We also announced that until the end of 2020 we will make no quarterly or interim dividend payments or accruals in respect of ordinary shares. As previously disclosed in our Annual Report and Accounts 2019, we also plan to suspend share buy-backs in respect of ordinary shares in 2020 and 2021.


HSBC Holdings plc Earnings Release 1Q20
3


Earnings Release – 1Q20


Approach to risk management
We have maintained a consistent approach to risk throughout our history and have in place a comprehensive risk management framework to manage such risks. We operate a wide-ranging stress testing programme at legal entity, regional and overall Group level that is a key part of our capital and liquidity risk management and planning. Stress testing provides management with key insights into the impact of severely adverse events on the Group, and provides confidence to regulators on the Group's financial stability. As well as undertaking regulatory-driven stress tests, we conduct our own stress tests to understand the nature of material risks, quantify the impact of such risks and develop plausible business-as-usual mitigating actions. Given the novel or prolonged nature of the current crisis, additional mitigating actions may be required.
At 31 March 2020, our common equity tier 1 ('CET1') ratio was 14.6%, compared with 14.7% at 31 December 2019, and our liquidity coverage ratio ('LCR') was 156%. Our capital, funding and liquidity position will help us to continue supporting our customers throughout the Covid-19 outbreak.
There remain significant uncertainties in assessing the duration of the Covid-19 outbreak and its impact. A prolonged period of significantly reduced economic activity as a result of the impact of the outbreak would have a material adverse effect on our financial condition, results of operations, prospects, liquidity, capital position and credit ratings. This would, in turn, have an impact on our ability to meet our financial targets as set out in our business update in February 2020 and also adversely affect our future dividend policy.
Adjusted performance
Adjusted performance is computed by adjusting reported results for the effects of foreign currency translation differences and significant items, which both distort period-on-period comparisons.
We consider adjusted performance to provide useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant, and providing insight into how management assesses period-on-period performance.
Foreign currency translation differences
Foreign currency translation differences reflect the movements of the US dollar against most major currencies. We exclude them to derive constant currency data, allowing us to assess balance sheet and income statement performance on a like-for-like basis and understand better the underlying trends in the business.
Foreign currency translation differences
Foreign currency translation differences for 1Q20 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:
the income statements for 4Q19 and 1Q19 at the average rates of exchange for 1Q20; and
the closing prior period balance sheets at the prevailing rates of exchange on 31 March 2020.
No adjustment has been made to the exchange rates used to translate foreign currency-denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. The constant currency data of HSBC’s Argentinian subsidiaries have not been adjusted further for the impacts of hyperinflation. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC’s operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.
Significant items
‘Significant items’ refers collectively to the items that management and investors would ordinarily identify and consider separately to understand better the underlying trends in the business.
The tables on pages 23 to 28 detail the effects of significant items on each of our global business segments and geographical regions during 1Q20, 4Q19 and 1Q19.
Adjusted performance – foreign currency translation of significant items
The foreign currency translation differences related to significant items are presented as a separate component of significant items. This is considered a more meaningful presentation as it allows better comparison of period-on-period movements in performance.
Global business performance
The Group Chief Executive, supported by the rest of the Group Executive Committee (‘GEC’) (previously the Group Management Board), is considered to be the Chief Operating Decision Maker (‘CODM’) for the purposes of identifying the Group‘s reportable segments.
The Group Chief Executive and the rest of the GEC review operating activity on a number of bases, including by global business and geographical region. Global businesses are our reportable segments under IFRS 8 ‘Operating Segments’. Global business results are assessed by the CODM on the basis of adjusted performance, which removes the effects of significant items and currency translation from reported results. We therefore present these results on an adjusted basis as required by IFRSs.
A reconciliation of the Group’s adjusted results to the Group’s reported results is presented below. Supplementary reconciliations of adjusted to reported results by global business are presented on pages 23 to 25 for information purposes.
Management view of adjusted revenue
Our global business segment commentary includes tables that provide breakdowns of adjusted revenue by major product. These reflect the basis on which revenue performance of the businesses is assessed and managed.

4
HSBC Holdings plc Earnings Release 1Q20




Reconciliation of reported and adjusted results
 
 
Quarter ended
 
 
31 Mar

31 Dec

31 Mar

 
 
2020

2019

2019

 
Footnotes
$m

$m

$m

Revenue
 
 
 
 
Reported
1
13,686

13,371

14,428

Currency translation
 


(66
)
(257
)
Significant items
 
(359
)
281

(22
)
– customer redress programmes
 

45


– disposals, acquisitions and investment in new businesses
 
7

55


– fair value movement on financial instruments
2
(357
)
176

(22
)
– restructuring and other related costs
 
(9
)


– currency translation of significant items
 


5


Adjusted
 
13,327

13,586

14,149

Change in expected credit losses and other credit impairment charges
 






Reported
 
(3,026
)
(733
)
(585
)
Currency translation
 


11

16

Adjusted
 
(3,026
)
(722
)
(569
)
Operating expenses
 
 
 
 
Reported
 
(7,852
)
(17,053
)
(8,222
)
Currency translation
 


54

156

Significant items
 
172

7,956

155

– cost of structural reform
3

32

53

– customer redress programmes
 
1

183

56

– goodwill impairment
 

7,349


– restructuring and other related costs
 
170

400

50

– settlements and provisions in connection with legal and regulatory matters
 
1

5


– currency translation of significant items
 


(13
)
(4
)
Adjusted
 
(7,680
)
(9,043
)
(7,911
)
Share of profit in associates and joint ventures
 






Reported
 
421

518

592

Currency translation
 


4

(15
)
Adjusted
 
421

522

577

Profit/(loss) before tax
 






Reported
 
3,229

(3,897
)
6,213

Currency translation
 


3

(100
)
Significant items
 
(187
)
8,237

133

– revenue
 
(359
)
281

(22
)
– operating expenses
 
172

7,956

155

Adjusted
 
3,042

4,343

6,246

Loans and advances to customers (net)
 
 
 
 
Reported
 
1,040,282

1,036,743

1,005,279

Currency translation
 
 
(37,012
)
(29,133
)
Adjusted
 
1,040,282

999,731

976,146

Customer accounts
 
 
 
 
Reported
 
1,440,529

1,439,115

1,356,511

Currency translation
 
 
(45,453
)
(33,626
)
Adjusted
 
1,440,529

1,393,662

1,322,885

1
Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
2
Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.
3
Comprises costs associated with preparations for the UK’s exit from the European Union.

HSBC Holdings plc Earnings Release 1Q20
5


Earnings Release – 1Q20


Financial performance
Distribution of results by global business
 
 
Quarter ended
 
31 Mar

31 Dec

31 Mar

 
2020

2019

2019

 
$m

$m

$m

Adjusted profit/(loss) before tax
 
 
 
Retail Banking and Wealth Management
357

1,914

2,195

Commercial Banking
611

1,646

1,992

Global Banking and Markets
823

1,272

1,611

Global Private Banking
121

86

98

Corporate Centre
1,130

(575
)
350

Total
3,042

4,343

6,246

Distribution of results by geographical region
 
Quarter ended
 
31 Mar

31 Dec

31 Mar

 
2020

2019

2019

 
$m

$m

$m

Reported profit/(loss) before tax
 
 
 
Europe
(511
)
(3,709
)
(14
)
Asia
3,740

4,037

5,006

Middle East and North Africa
44

286

465

North America
(111
)
(278
)
379

Latin America
67

(271
)
377

Global GB&M goodwill impairment

(3,962
)

Total
3,229

(3,897
)
6,213

Adjusted profit/(loss) before tax
 
 
 
Europe
(685
)
(516
)
54

Asia
3,643

4,117

5,022

Middle East and North Africa
43

392

471

North America
(10
)
265

386

Latin America
51

85

313

Total
3,042

4,343

6,246

Tables showing adjusted profit before tax by global business and region are presented to support the commentary on adjusted performance on the following pages.
The tables on pages 23 to 28 reconcile reported to adjusted results for each of our global business segments and geographical regions.
Group
1Q20 compared with 1Q19 – reported results
Movement in reported profit before tax compared with 1Q19

 
Quarter ended
 
31 Mar

31 Mar

Variance
 
2020

2019

1Q20 vs. 1Q19
 
$m

$m

$m

%

Revenue
13,686

14,428

(742
)
(5
)
ECL
(3,026
)
(585
)
(2,441
)
(417
)
Operating expenses
(7,852
)
(8,222
)
370

5

Share of profit from associates and JVs
421

592

(171
)
(29
)
Profit before tax
3,229

6,213

(2,984
)
(48
)
Tax expense
(721
)
(1,303
)
582

45

Profit after tax
2,508

4,910

(2,402
)
(49
)
Reported profit
Reported profit after tax of $2.5bn was $2.4bn or 49% lower than in 1Q19.
Reported profit before tax of $3.2bn was $3.0bn or 48% lower, reflecting higher reported ECL and lower reported revenue. While performance in the first two months delivered good results, the global impact of the Covid-19 outbreak and weakening oil prices had a significant adverse impact on performance in March.
Results in 1Q20 included adverse market impacts in insurance manufacturing in RBWM of $689m following a weakening of global equity prices and lower interest rates (1Q19: $183m favourable), while GB&M included an adverse movement in credit and funding valuation adjustments of $346m (1Q19: $46m favourable), adverse bid-offer adjustments of $310m (1Q19: $3m favourable) and losses in Principal Investments of $235m (1Q19: gains of $83m). Results also included favourable fair value movements on our long-term debt and associated swaps in Corporate Centre of $259m (1Q19: $50m favourable). In 1Q19, results included gains on disposals in Latin America of $157m and a release of a provision in Equities in GB&M of $106m.

6
HSBC Holdings plc Earnings Release 1Q20




The reduction in reported profit before tax included a net favourable movement in significant items between the periods of $0.3bn, mainly from favourable fair value movements on financial instruments of $0.3bn. Significant items in reported operating expenses were broadly unchanged and included higher restructuring and other related costs of $0.1bn, which were broadly offset by lower structural reform costs of $0.1bn and a decrease in customer redress programmes of $0.1bn.
Excluding net favourable movements in significant items of $0.3bn and adverse foreign currency translation differences of $0.1bn, profit before tax decreased by $3.2bn or 51%.
Reported revenue
Reported revenue of $13.7bn was $0.7bn or 5% lower than in 1Q19, and included a net favourable movement in significant items of $0.3bn, mainly from fair value movements on financial instruments, which were broadly offset by adverse foreign currency translation differences of $0.3bn. The remaining reduction reflected decreases in RBWM, GB&M and Commercial Banking ('CMB'), partly offset by higher revenue in Corporate Centre.
Lower revenue in RBWM was primarily driven by adverse market impacts in life insurance manufacturing of $689m following a weakening of global equity prices and lower interest rates. This compared with favourable market impacts in 1Q19. In GB&M, lower revenue was due to adverse movements in credit and funding valuation adjustments of $346m (1Q19: $46m favourable), and losses in Principal Investments of $235m, compared with gains in 1Q19 of $83m. These reductions were partly offset by growth in Global Markets, reflecting increased client activity as a result of higher volatility, notwithstanding adverse bid-offer adjustments of $310m (1Q19: $3m favourable). In CMB, lower revenue was mainly in Global Liquidity and Cash Management ('GLCM') due to the effects of lower interest rates. These decreases were partly offset by higher revenue in Corporate Centre, driven by favourable fair value movements on our long-term debt and associated swaps and from higher revenue in Balance Sheet Management.
Excluding foreign currency translation differences and significant items, revenue decreased by $0.8bn or 6%.
Reported ECL
Reported ECL of $3.0bn were $2.4bn higher than in 1Q19, mainly from charges relating to the global impact of Covid-19 and weakening oil prices on the forward economic outlook. ECL in 1Q20 included a significant charge related to a corporate exposure in Singapore, which was the primary driver of the $0.7bn increase in ECL in CMB in Asia. We also incurred ECL charges relating to a small number of clients in GB&M.
Adjusted ECL (annualised) as a percentage of average gross loans and advances to customers was 1.18%, compared with 0.24% at 1Q19.
The estimated impact of Covid-19 was incorporated in the ECL through additional scenario analysis, which considered differing severity and duration assumptions relating to the global pandemic. This included probability-weighted shocks to annual GDP and consequential impacts on unemployment and other economic variables, with differing economic recovery assumptions. The impact of using additional scenarios to address the impact of Covid-19 was an additional ECL charge of $1.5bn, consisting of $630m in the retail portfolio and $882m in the wholesale portfolio.
Applying a range of weightings to our sensitivity analysis, our severe ECL scenario, together with historical loss experience for the remaining quarters, could result in an ECL charge for 2020 in the range of $7bn to $11bn. The severe ECL scenario is described on page 19 and considers a longer period of negative economic impacts. However, as noted on pages 3 and 4, there is significant uncertainty over the path of the pandemic, the range and duration of economic impacts (including the effects of various government support packages), and its impact on customers' ability to repay their debt obligations and, therefore, the ECL charge for the year.
For more information on the economic scenarios, see page 19.
Reported operating expenses
Reported operating expenses of $7.9bn were $0.4bn or 5% lower than in 1Q19 and included favourable foreign currency translation differences of $0.2bn. The remaining reduction reflected lower performance-related pay of $0.4bn and a reduction of $0.2bn from our cost-saving initiatives, partly offset by increased investment in business growth, including investment in digital.
Significant items remained broadly unchanged compared with 1Q19, and included restructuring and other related costs of $0.2bn, which included $125m in relation to our cost reduction plan, of which $22m related to severance.
Excluding significant items and foreign currency translation differences, operating expenses of $7.7bn were $0.2bn or 3% lower than in 1Q19. We continue to manage our costs closely and have reduced discretionary expenditure, and we are reviewing and reprioritising our spending plans in response to the current economic uncertainty resulting from Covid-19.
The number of employees expressed in full-time equivalent staff (‘FTEs’) at 31 March 2020 was 235,047, a decrease of 304 from
31 December 2019. Additionally, the number of contractors at 31 March 2020 was 6,979, a decrease of 432 from 31 December 2019.
Reported share of profit from associates and JVs
Reported share of profit from associates and joint ventures of $0.4bn decreased by $0.2bn or 29%, primarily from a reduction in income from an associate in the UK reflecting the impact of Covid-19.
Tax expense
The effective tax rate for 1Q20 of 22.3% was higher than 21.0% in 1Q19 as a result of the effect of changes in profit mix and the remeasurement of deferred tax balances in light of the cancellation of the planned reduction in the UK corporation tax rate from 19% to 17% from 1 April 2020.

HSBC Holdings plc Earnings Release 1Q20
7


Earnings Release – 1Q20


Group
1Q20 compared with 4Q19 – reported results
 Movement in reported profit before tax compared with 4Q19
 
Quarter ended

 
31 Mar

31 Dec

Variance
 
2020

2019

1Q20 vs. 4Q19
 
$m

$m

$m

%

Revenue
13,686

13,371

315

2

ECL
(3,026
)
(733
)
(2,293
)
(313
)
Operating expenses
(7,852
)
(17,053
)
9,201

54

Share of profit from associates and JVs
421

518

(97
)
(19
)
Profit before tax
3,229

(3,897
)
7,126

183

Tax expense
(721
)
(1,127
)
406

36

Profit after tax
2,508

(5,024
)
7,532

150

Reported profit
Reported profit after tax of $2.5bn compared with a loss of $5.0bn in 4Q19, primarily due to the non-recurrence of a goodwill impairment of $7.3bn.
Reported profit before tax of $3.2bn compared with a loss of $3.9bn in 4Q19, reflecting lower reported operating expenses from the non-recurrence of a goodwill impairment of $7.3bn, and as 4Q19 included the UK bank levy of $1.0bn. These movements were partly offset by an increase in ECL, mainly from charges relating to the global impact of Covid-19 and weakening oil prices on the forward economic outlook.
Reported revenue in 1Q20 included adverse market impacts in insurance manufacturing in RBWM of $689m following a weakening of global equity prices and lower interest rates (4Q19: $202m favourable), while GB&M included an adverse movement in credit and funding valuation adjustments of $346m (4Q19: $189m favourable), adverse bid-offer adjustments of $310m (4Q19: $15m favourable) and losses in Principal Investments of $235m (4Q19: gains of $45m). Results also included favourable fair value movements on our long-term debt and associated swaps in Corporate Centre of $259m (4Q19: $73m adverse).
Excluding net favourable movements in significant items of $8.4bn and a minimal effect of foreign currency translation differences, profit before tax decreased by $1.3bn or 30%.
Reported revenue
Reported revenue of $13.7bn was $0.3bn or 2% higher than in 4Q19, mainly due to a net favourable movement in significant items of $0.6bn, primarily from favourable fair value movements on financial instruments, partly offset by adverse foreign currency translation differences of $0.1bn.
Excluding foreign currency translation differences and significant items, revenue decreased by $0.3bn or 2%.
This reduction was mainly in RBWM due to adverse movements in market impacts in life insurance manufacturing following a weakening of global equity prices and lower interest rates. This compared with favourable market impacts in 4Q19. In addition, revenue in GB&M was lower from adverse movements in credit and funding valuation adjustments and losses in Principal Investments, partly offset by higher revenue in Global Markets reflecting increased client activity as a result of higher volatility, notwithstanding adverse bid-offer adjustments of $310m (4Q19: $15m favourable). In Corporate Centre, revenue increased from favourable fair value movements on our long-term debt and associated swaps and from a rise in revenue in Balance Sheet Management.
Reported ECL
Reported ECL of $3.0bn were $2.3bn higher than in 4Q19, mainly from charges relating to the global impact of Covid-19 and weakening oil prices on the forward economic outlook. In addition, ECL in 1Q20 included a significant charge in CMB related to a corporate exposure in Singapore.
Adjusted ECL (annualised) as a percentage of average gross loans and advances to customers was 1.18%, compared with 0.28% at 4Q19.
Reported operating expenses
Reported operating expenses of $7.9bn were $9.2bn or 54% lower than in 4Q19, reflecting a $7.8bn decrease in significant items. These included the non-recurrence of a goodwill impairment of $7.3bn and charges related to customer redress programmes, which were $182m lower.
Excluding significant items and foreign currency translation differences, operating expenses of $7.7bn decreased by $1.4bn or 15%, with the reduction mainly attributable to the non-recurrence of a 4Q19 charge of $1.0bn related to the UK bank levy, a reduction in performance-related pay of $0.2bn and lower discretionary expenditure. The impact of our cost-saving initiatives contributed a further $0.1bn reduction.
Reported share of profit from associates and JVs
Reported income from associates and joint ventures of $0.4bn decreased by $97m or 19%, primarily from a reduction in income from a UK associate reflecting the impact of the Covid-19 outbreak.


8
HSBC Holdings plc Earnings Release 1Q20




Retail Banking and Wealth Management
1Q20 compared with 1Q19 – adjusted results
Management view of adjusted revenue
 
 
Quarter ended
 
 
31 Mar

31 Dec

31 Mar

Variance
 
 
2020

2019

2019

1Q20 vs. 1Q19
 
Footnotes
$m

$m

$m

$m

%

Retail Banking
 
3,831

3,969

3,778

53

1

– current accounts, savings and deposits
 
2,274

2,421

2,172

102

5

– personal lending
 
1,557

1,548

1,606

(49
)
(3
)
    mortgages
 
423

386

423


0

    credit cards
 
675

701

744

(69
)
(9
)
    other personal lending
 
459

461

439

20

5

Wealth Management
 
912

1,652

1,895

(983
)
(52
)
– investment distribution
 
883

719

851

32

4

– life insurance manufacturing
 
(206
)
676

788

(994
)
>(100)

– asset management
 
235

257

256

(21
)
(8
)
Other
1
126

207

182

(56
)
(31
)
Net operating income
2
4,869

5,828

5,855

(986
)
(17
)
RoTE excluding significant items and UK bank levy (annualised) (%)

 
1.5

 
22.1

 
 
1
‘Other’ includes the distribution and manufacturing (where applicable) of retail and credit protection insurance, disposal gains and other
non-product-specific income.
2
‘Net operating income’ means net operating income before changes in expected credit losses and other credit impairment charges (also referred to as ‘Revenue’).
Adjusted profit before tax of $0.4bn was $1.8bn or 84% lower than in 1Q19. This reflected a reduction in adjusted revenue of $1.0bn, driven by adverse market impacts in life insurance manufacturing in 1Q20 of $689m following a weakening of global equity prices and lower interest rates (1Q19: $183m favourable), while retail banking and investment distribution performance remained resilient in difficult economic conditions. In addition, adjusted ECL increased by $0.8bn, mainly due to the global impact of Covid-19 on the forward economic outlook. Adjusted operating expenses rose by $0.1bn as the impact of inflation and continued investment in the business was partly offset by lower discretionary expenditure.
Commercial Banking
1Q20 compared with 1Q19 – adjusted results
Management view of adjusted revenue
 
 
Quarter ended
 
 
31 Mar

31 Dec

31 Mar

Variance
 
 
2020

2019

2019

1Q20 vs. 1Q19
 
Footnotes
$m

$m

$m

$m

%

Global Trade and Receivables Finance
 
469

431

461

8

2

Credit and Lending
 
1,382

1,322

1,337

45

3

Global Liquidity and Cash Management
 
1,333

1,422

1,486

(153
)
(10
)
Markets products, Insurance and Investments, and Other
1
478

496

574

(96
)
(17
)
Net operating income

2
3,662

3,671

3,858

(196
)
(5
)
RoTE excluding significant items and UK bank levy (annualised) (%)

 
4.1

 
13.9

 
 
1
Includes revenue from Foreign Exchange, insurance manufacturing and distribution, interest rate management and Global Banking products.
2
‘Net operating income’ means net operating income before changes in expected credit losses and other credit impairment charges (also referred to as ‘Revenue’).
Adjusted profit before tax of $0.6bn was $1.4bn or 69% lower than in 1Q19. Adjusted revenue fell by $0.2bn, mainly in GLCM (down $0.2bn) due to the lower interest rate environment, partly offset by a 6% growth in average balances. Revenue was higher in Credit and Lending, reflecting balance growth from increased customer drawdowns. Adjusted ECL increased by $1.1bn, reflecting the global impact of Covid-19 on the forward economic outlook, and from a significant charge related to a corporate exposure in Singapore. Adjusted operating expenses were $0.1bn higher, reflecting increased investment in digital capabilities to improve the client experience, partly offset by lower discretionary expenditure.

HSBC Holdings plc Earnings Release 1Q20
9


Earnings Release – 1Q20


Global Banking and Markets
1Q20 compared with 1Q19 – adjusted results
Management view of adjusted revenue
 
 
Quarter ended
 
 
31 Mar

31 Dec

31 Mar

Variance
 
 
2020

2019

2019

1Q20 vs. 1Q19
 
Footnotes
$m

$m

$m

$m

%

Global Markets
 
2,133

1,241

1,712

421

25

– FICC
 
1,844

1,067

1,340

504

38

Foreign Exchange
 
1,129

665

684

445

65

Rates
 
675

274

481

194

40

Credit
 
40

128

175

(135
)
(77
)
– Equities
 
289

174

372

(83
)
(22
)
Securities Services
 
510

516

472

38

8

Global Banking
 
942

982

921

21

2

Global Liquidity and Cash Management
 
608

670

677

(69
)
(10
)
Global Trade and Receivables Finance
 
193

196

205

(12
)
(6
)
Principal Investments
 
(235
)
45

83

(318
)
>(100)

Credit and funding valuation adjustments
 
(346
)
189

46

(392
)
>(100)

Other
1
(142
)
(120
)
(119
)
(23
)
(19
)
Net operating income
2
3,663

3,719

3,997

(334
)
(8
)
RoTE excluding significant items and UK bank levy (annualised) (%)
 
6.9

 
11.3

 
 
1
‘Other’ in GB&M includes allocated funding costs. Additionally, within the management view of total operating income, notional tax credits are allocated to the businesses to reflect the economic benefit generated by certain activities that are not reflected within operating income, such as notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits is included within ‘Other’.
2
‘Net operating income’ means net operating income before changes in expected credit losses and other credit impairment charges (also referred to as ‘Revenue’).
Adjusted profit before tax of $0.8bn was $0.8bn or 49% lower than in 1Q19. Adjusted revenue fell by $0.3bn, mainly from adverse movements in credit and funding valuation adjustments of $0.4bn and from a reduction in Principal Investments revenue of $0.3bn, mainly due to valuation losses in 1Q20. Revenue in Global Markets increased by $0.4bn, primarily due to increased client activity as a result of higher volatility, partly offset by adverse bid-offer adjustments of $0.3bn. Adjusted ECL were $0.5bn higher from charges relating to the global impact of Covid-19 on the forward economic outlook, and from charges against a small number of clients. Adjusted operating expenses fell by $0.1bn, primarily from lower performance-related pay.
Global Private Banking
1Q20 compared with 1Q19 – adjusted results
Management view of adjusted revenue
 
 
Quarter ended
 
 
31 Mar

31 Dec

31 Mar

Variance
 
 
2020

2019

2019

1Q20 vs. 1Q19
 
Footnotes
$m

$m

$m

$m

%

Investment revenue
 
255

188

185

70

38

Lending
 
113

111

97

16

16

Deposit
 
103

111

121

(18
)
(15
)
Other
 
40

44

48

(8
)
(17
)
Net operating income
1
511

454

451

60

13

RoTE excluding significant items and UK bank levy (annualised) (%)
 
15.8

 
10.9

 
 
1
‘Net operating income’ means net operating income before changes in expected credit losses and other credit impairment charges (also referred to as ‘Revenue’).
Adjusted profit before tax of $0.1bn increased by $23m or 23% compared with 1Q19. Adjusted revenue increased by $60m, mainly from growth in investment and lending revenue in Asia and in Europe, driven by high volatility in equity markets. This increase was partly offset by higher adjusted ECL from a charge relating to a single client. Adjusted operating expenses were $10m lower as we invested in the business in Asia, while reducing costs in Switzerland.
In 1Q20, we attracted $5.3bn of net new money inflows, mainly in Asia and Europe.

10
HSBC Holdings plc Earnings Release 1Q20




Corporate Centre
1Q20 compared with 1Q19 – adjusted results
Management view of adjusted revenue
 
 
Quarter ended
 
 
31 Mar

31 Dec

31 Mar

Variance
 
 
2020

2019

2019

1Q20 vs. 1Q19
 
Footnotes
$m

$m

$m

$m

%

Central Treasury
 
699

(19
)
269

430

>100

– Balance Sheet Management
1
829

450

608

221

36

– Holdings net interest expanses
 
(321
)
(318
)
(338
)
17

5

– valuation differences on long-term debt and associated swaps
 
259

(73
)
50

209

>100

– other central treasury
 
(68
)
(78
)
(51
)
(17
)
(33
)
Legacy portfolios
 
(91
)
13

(70
)
(21
)
(30
)
Other
 
14

(80
)
(211
)
225

>100

Net operating income
2
622

(86
)
(12
)
634

>100

RoTE excluding significant items and UK bank levy (annualised) (%)
 
0.9

 
(6.7
)
 
 
1
Balance Sheet Management revenue includes other internal allocations to reflect the economic benefit generated by certain activities, which is not reflected within operating income, such as notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits is included in 'other central treasury'.
2
‘Net operating income’ means net operating income before changes in expected credit losses and other credit impairment charges (also referred to as ‘Revenue’).
Adjusted profit before tax of $1.1bn was $0.8bn higher than in 1Q19. Adjusted revenue increased by $0.6bn, primarily reflecting higher disposal gains in Balance Sheet Management and favourable fair value movements of $209m relating to the economic hedging of interest rate and exchange rate risk on our long-term debt with associated swaps. Adjusted operating expenses decreased by $0.3bn due to lower discretionary expenditure. Share of profit from associates and joint ventures fell by $0.1bn, mainly from a reduction in income from a UK associate due to the impact of the Covid-19 outbreak.
Balance sheet – 31 March 2020 compared with 31 December 2019
At 31 March 2020, our total assets of $2.9tn were $203bn higher on a reported basis.
The increase in total assets included growth in derivative assets (up $128bn), mainly in Europe, reflecting mark-to-market gains on interest rate and foreign exchange derivatives and increased client activity. The increase in derivative assets was consistent with the increase in derivative liabilities as the underlying risk is broadly matched. In addition, cash collateral and settlement accounts, included within other assets, increased by $73bn due to the seasonal reduction at 31 December 2019, as clients settled trades prior to the year end.
On a constant currency basis, our total assets were $289bn higher.
Loans and advances to customers as a percentage of customer accounts were 72.2%, an increase of 0.2% compared with 31 December 2019.
Loans and advances to customers
Reported loans and advances to customers of $1,040bn were $4bn higher, which included adverse effects of foreign currency translation differences of $37bn. On a constant currency basis, customer lending increased by $41bn or 4% as we continued to support new and existing customers during the current economic uncertainty.
In GB&M, lending of $262bn was $24bn higher, mainly in the UK, Hong Kong and the US from increased term lending. In CMB, lending of $351bn was $16bn higher, mainly in term lending in the US, UK and across Asia. The growth in GB&M and CMB included the effect of customers drawing down on credit facilities and partially redeploying these funds into their customer accounts to increase cash balances during the Covid-19 outbreak. In RBWM, lending of $379bn was broadly unchanged as growth in mortgages was offset by a reduction in credit card balances.
Customer accounts
Customer accounts of $1,441bn increased by $1bn on a reported basis, including adverse foreign currency translation differences of $45bn. On a constant currency basis, customer accounts increased by $47bn or 3%. Customer accounts grew in all our global businesses and regions as corporate and personal customers consolidated their funds and redeployed them into cash, and as corporate clients drew down on credit facilities and partially redeployed the funds into their customer accounts, as a result of uncertainty due to the Covid-19 outbreak.
In GB&M, customer accounts of $307bn were $26bn higher, reflecting growth in Europe, Asia and the US. In RBWM, balances increased by $13bn to $683bn, with growth notably in the UK, Hong Kong and North America. In CMB, balances increased by $4bn to $378bn, as increases in Europe of $13bn and North America of $2bn were largely offset by a reduction in Hong Kong of $12bn due to a managed reduction in short-term time deposits and a seasonal outflow.
Risk-weighted assets – 31 March 2020 compared with 31 December 2019
Risk-weighted assets (‘RWAs’) totalled $857.1bn at 31 March 2020, a $13.7bn increase compared with 4Q19. Excluding foreign currency translation differences, RWAs increased by $40.0bn.
A $35.8bn increase in RWAs due to asset size movements reflected lending growth in GB&M and CMB, including an increase in the drawdown of facilities as a result of the Covid-19 outbreak, and increased market risk. Changes in asset quality increased RWAs by $4.3bn.

HSBC Holdings plc Earnings Release 1Q20
11


Earnings Release – 1Q20


Net interest margin

 
Quarter ended
Full year to


 
31 Mar

31 Dec

31 Mar

31 Dec


 
2020

2019

2019

2019


Footnotes
$m

$m

$m

$m

Net interest income
 
7,612

7,654

7,468

30,462

Average interest-earning assets
 
1,991,702

1,945,596

1,902,912

1,922,822


 
%

%

%

%

Gross interest yield
1
2.55

2.70

2.89

2.84

Less: cost of funds
1
(1.19
)
(1.34
)
(1.53
)
(1.48
)
Net interest spread
2
1.36

1.36

1.36

1.36

Net interest margin
3
1.54

1.56

1.59

1.58

1
Gross interest yield is the average annualised interest rate earned on average interest-earning assets (‘AIEA’). Cost of funds is the average annualised interest cost as a percentage of average interest-bearing liabilities.
2
Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate payable on average interest-bearing funds.
3
Net interest margin is net interest income expressed as an annualised percentage of AIEA.
Net interest margin ('NIM') of 1.54% was down 2bps from 4Q19. Market interest rates have fallen during 1Q20 and we expect material downward pressure on NIM in future quarters as we incur the full impact of these reductions. As disclosed in our Annual Report and Accounts 2019, a 100bps reduction in market interest rates would reduce projected net interest income by over $3bn (for more information on net interest income sensitivity, see page 140 of the Annual Report and Accounts 2019). This sensitivity does not incorporate projections of changes in balance sheet size, product mix nor product pricing strategies.
Return on Equity and Return on Tangible Equity
We provide Return on Tangible Equity (‘RoTE’) in addition to Return on Equity (‘RoE’) as a way of assessing our performance which is closely aligned to our capital position.
RoTE is computed by adjusting reported ‘profit attributable to the ordinary shareholders of the parent company’ for the post-tax movements in the present value of in-force long-term insurance business (‘PVIF’) and adjusting the reported equity for goodwill, intangibles and PVIF, net of deferred tax. The adjustment to reported results and reported equity excludes amounts attributable to other equity instrument holders and non-controlling interests.
For our global businesses, we provide RoTE excluding significant items and the UK bank levy which is more closely aligned to the basis on which the global business performance is assessed by the Chief Operating Decision Maker (further information on the basis of preparation for our global businesses is provided on page 263 of the Annual Report and Accounts 2019).
RoTE excluding significant items and UK bank levy is computed by adjusting ‘profit attributable to the ordinary shareholders, excluding PVIF’ for significant items (net of tax) and the bank levy, and adjusting the ‘average tangible equity’ for the change in fair value on our long-term debt attributable to credit spread through other comprehensive income (‘fair value of own debt’), and debt valuation adjustments (‘DVA’).
The following table details the adjustments made to the reported results and equity:
Return on Equity and Return on Tangible Equity
 
Quarter ended
 
31 Mar

31 Dec

31 Mar

 
2020

2019

2019

 
$m

$m

$m

Profit
 
 
 
Profit attributable to the ordinary shareholders of the parent company
1,785

(5,509
)
4,134

Goodwill impairment

7,349


Increase in PVIF (net of tax)
(254
)
42

(446
)
Profit attributable to the ordinary shareholders, excluding goodwill impairment and PVIF
1,531

1,882

3,688

Significant items (net of tax) and bank levy
11

 
105

Profit attributable to the ordinary shareholders, excluding goodwill impairment, PVIF, significant items and UK bank levy
1,542



3,793

Equity
 
 
 
Average ordinary shareholders’ equity
164,566

163,822

163,769

Effect of goodwill, PVIF and other intangibles (net of deferred tax)
(17,484
)
(20,724
)
(22,683
)
Average tangible equity
147,082

143,098

141,086

Fair value of own debt, DVA and other adjustments
(373
)


423

Average tangible equity excluding fair value of own debt, DVA and other adjustments
146,709



141,509

 
%

%

%

Ratio
 
 
 
Return on equity
4.4

(13.30
)
10.2

Return on tangible equity (annualised)
4.2

5.2

10.6

Return on tangible equity excluding significant items and UK bank levy (annualised)
4.2



10.9


12
HSBC Holdings plc Earnings Release 1Q20




Earnings Release – 1Q20


Return on Tangible Equity by global business
 
Quarter ended 31 Mar 2020
 
Retail Banking and Wealth Management

Commercial Banking

Global Banking and Markets

Global Private Banking

Corporate Centre

Total

 
$m

$m

$m

$m

$m

$m

Profit before tax
343

609

995

120

1,162

3,229

Tax expense
(38
)
(149
)
(167
)
(21
)
(346
)
(721
)
Profit after tax
305

460

828

99

816

2,508

Less attributable to: preference shareholders, other equity holders, non-controlling interests
(149
)
(168
)
(120
)
(3
)
(283
)
(723
)
Profit attributable to ordinary shareholders of the parent company
156

292

708

96

533

1,785

Increase in PVIF (net of tax)
(241
)
(16
)

4

(1
)
(254
)
Significant items (net of tax) and UK bank levy
11

2

(133
)

(63
)
(183
)
Balance Sheet Management allocation and other adjustments
166

180

240

16

(408
)
194

Profit attributable to ordinary shareholders, excluding PVIF, significant items and UK bank levy
92

458

815

116

61

1,542

Average tangible shareholders’ equity excluding fair value of own debt, DVA and other adjustments
24,905

44,623

47,727

2,958

26,496

146,709

RoTE excluding significant items and UK bank levy (annualised) (%)
1.5

4.1

6.9

15.8

0.9

4.2

 
 
Quarter ended 31 Mar 2019
Profit before tax
2,174

2,012

1,535

96

396

6,213

Tax expense
(410
)
(430
)
(307
)
(18
)
(138
)
(1,303
)
Profit after tax
1,764

1,582

1,228

78

258

4,910

Less attributable to: preference shareholders, other equity holders, non-controlling interests
(230
)
(241
)
(164
)
(5
)
(136
)
(776
)
Profit attributable to ordinary shareholders of the parent company
1,534

1,341

1,064

73

122

4,134

Increase in PVIF (net of tax)
(424
)
(22
)



(446
)
Significant items (net of tax) and UK bank levy
41

3

79

2

(20
)
105

Balance Sheet Management allocation and other adjustments
147

147

184

14

(492
)

Profit attributable to ordinary shareholders, excluding PVIF, significant items and bank levy
1,298

1,469

1,327

89

(390
)
3,793

Average tangible shareholders’ equity excluding fair value of own debt, DVA and other adjustments
23,800

42,916

47,743

3,330

23,720

141,509

RoTE excluding significant items and UK bank levy (annualised) (%)
22.1

13.9

11.3

10.9

(6.7)

10.9

Notes
Income statement comparisons, unless stated otherwise, are between the quarter ended 31 March 2020 and the quarter ended
31 March 2019. Balance sheet comparisons, unless otherwise stated, are between balances at 31 March 2020 and the corresponding balances at 31 December 2019.
The financial information on which this Earnings Release is based, and the data set out in the appendix to this statement, are unaudited and have been prepared in accordance with our significant accounting policies as described on pages 240 to 251 of our Annual Report and Accounts 2019.
On 31 March 2020, HSBC announced that, in response to a request from the Bank of England through the UK's Prudential Regulation Authority (‘PRA’), the Board had cancelled the fourth interim dividend of $0.21 per ordinary share, which was scheduled to be paid on 14 April 2020. The Board also announced that until the end of 2020 HSBC will make no quarterly or interim dividend payments or accruals in respect of ordinary shares. As previously disclosed on 18 February 2020 in the Annual Report and Accounts 2019, we also plan to suspend share buy-backs in respect of ordinary shares in 2020 and 2021.
The Board will review our dividend policy at or ahead of the year-end results for 2020, when the economic impact of the pandemic is better understood. We will also take into account the views of our shareholders, the interests of our other stakeholders and other factors, including our financial performance and capital position.
Cautionary statement regarding forward-looking statements
This Earnings Release contains certain forward-looking statements with respect to HSBC’s financial condition, results of operations and business, including the strategic priorities and 2020 financial, investment and capital targets described herein.
Statements that are not historical facts, including statements about HSBC’s beliefs and expectations, are forward-looking statements. Words such as ‘expects’, ‘targets’, ‘anticipates’, ‘intends’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘potential’ and ‘reasonably possible’, variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made. HSBC makes no commitment to revise or update any forward-looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statements.
Written and/or oral forward-looking statements may also be made in the periodic reports to the US Securities and Exchange Commission, summary financial statements to shareholders, proxy statements, offering circulars and prospectuses, press releases and other written materials, and in oral statements made by HSBC’s Directors, officers or employees to third parties, including financial analysts.

13
HSBC Holdings plc Earnings Release 1Q20




Earnings Release – 1Q20


Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement. These include, but are not limited to:
changes in general economic conditions in the markets in which we operate, such as continuing or deepening recessions and fluctuations in employment and creditworthy customers beyond those factored into consensus forecasts (including, without limitation, as a result of the Covid-19 outbreak); the Covid-19 outbreak, which could have adverse impacts on our income due to lower lending and transaction volumes, lower wealth and insurance manufacturing revenue, and lower interest rates globally, as well as, more generally, material adverse impacts on our financial condition, results of operations, prospects, liquidity, capital position and credit ratings; deviations from the market and economic assumptions that form the basis for our ECL measurements (including, without limitation, as a result of the Covid-19 outbreak); potential changes in future dividend policy; changes in foreign exchange rates and interest rates, including the accounting impact resulting from financial reporting in respect of hyperinflationary economies; volatility in equity markets; lack of liquidity in wholesale funding or capital markets, which may affect our ability to meet our obligations under financing facilities or to fund new loans, investments and businesses; other unfavourable political or diplomatic developments producing social instability or legal uncertainty, such as the unrest in Hong Kong, which in turn may affect demand for our products and services; climate change, which may cause both idiosyncratic and systemic risks resulting in potential financial impacts; illiquidity and downward price pressure in national real estate markets; adverse changes in central banks’ policies with respect to the provision of liquidity support to financial markets; heightened market concerns over sovereign creditworthiness in over-indebted countries; adverse changes in the funding status of public or private defined benefit pensions; consumer perception as to the continuing availability of credit; exposure to counterparty risk, including third parties using us as a conduit for illegal activities without our knowledge; the expected discontinuation of certain key Ibors and the development of alternative risk-free benchmark rates, which may require us to enhance our capital position and/or position additional capital in specific subsidiaries; and price competition in the market segments we serve;
changes in government policy and regulation, including the monetary, interest rate and other policies of central banks and other regulatory authorities in the principal markets in which we operate and the consequences thereof (including, without limitation, actions taken as a result of the Covid-19 outbreak); initiatives to change the size, scope of activities and interconnectedness of financial institutions in connection with the implementation of stricter regulation of financial institutions in key markets worldwide; revised capital and liquidity benchmarks, which could serve to deleverage bank balance sheets and lower returns available from the current business model and portfolio mix; imposition of levies or taxes designed to change business mix and risk appetite; the practices, pricing or responsibilities of financial institutions serving their consumer markets; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; the UK’s exit from the EU, which may result in a prolonged period of uncertainty, unstable economic conditions and market volatility, including currency fluctuations; general changes in government policy that may significantly influence investor decisions; the costs, effects and outcomes of regulatory reviews, actions or litigation, including any additional compliance requirements; and the effects of competition in the markets where we operate including increased competition from non-bank financial services companies; and
factors specific to HSBC, including our success in adequately identifying the risks we face, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques); our ability to achieve our targets which may result in our failure to achieve any of the expected benefits of our strategic initiatives; model limitations or failure, which may require us to hold additional capital and incur losses; changes to the judgments, estimates and assumptions we base our financial statements on; changes in our ability to meet the requirements of regulatory stress tests; a reduction in the credit rating assigned to us or any of our subsidiaries, which could increase the cost or decrease the availability of our funding and affect our liquidity position and net interest margin; changes to the reliability and security of our data management, data privacy, information and technology infrastructure, including threats from cyber-attacks, which may impact our ability to service clients and may result in financial loss, business disruption and/or loss of customer services and data; changes in insurance customer behaviour and insurance claim rates; our dependence on loan payments and dividends from subsidiaries to meet our obligations; changes in accounting standards, which may have a material impact on the way we prepare our financial statements; changes in our ability to manage third-party, fraud and reputational risks inherent in our operations; employee misconduct, which may result in regulatory sanctions and/or reputational or financial harm; and changes in skill requirements, ways of working and talent shortages, which may affect our ability to recruit and retain senior management and skilled personnel. Effective risk management depends on, among other things, our ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models it uses; and our success in addressing operational, legal and regulatory, and litigation challenges; and other risks and uncertainties we identify in ‘Top and emerging risks’ on pages 76 to 81 of the Annual Report and Accounts 2019.

For further information contact:
Investor Relations
Media Relations
UK – Richard O’Connor
UK – Heidi Ashley
Tel: +44 (0) 20 7991 6590
Tel: +44 (0) 20 7992 2045
 
 
Hong Kong – Mark Phin
Hong Kong – Patrick Humphris
Tel: +852 2822 4908
Tel: +852 2822 2052

14
HSBC Holdings plc Earnings Release 1Q20




Summary consolidated income statement
 
Quarter ended
 
31 Mar

31 Dec

31 Mar

 
2020

2019

2019

 
$m

$m

$m

Net interest income
7,612

7,654

7,468

Net fee income
3,123

2,938

3,026

Net income from financial instruments held for trading or managed on a fair value basis
3,364

2,354

2,881

Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss
(3,580
)
1,160

1,710

Changes in fair value of designated debt and related derivatives1
246

(59
)
11

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss
(373
)
195

270

Gains less losses from financial investments
312

19

99

Net insurance premium income
2,910

1,589

3,296

Other operating income
404

22

858

Total operating income
14,018

15,872

19,619

Net insurance claims and benefits paid and movement in liabilities to policyholders
(332
)
(2,501
)
(5,191
)
Net operating income before change in expected credit losses and other credit impairment charges2
13,686

13,371

14,428

Change in expected credit losses and other credit impairment charges
(3,026
)
(733
)
(585
)
Net operating income
10,660

12,638

13,843

Total operating expenses excluding goodwill impairment
(7,852
)
(9,704
)
(8,222
)
Goodwill impairment

(7,349
)

Operating profit/(loss)
2,808

(4,415
)
5,621

Share of profit in associates and joint ventures
421

518

592

Profit/(loss) before tax
3,229

(3,897
)
6,213

Tax expense
(721
)
(1,127
)
(1,303
)
Profit/(loss) after tax
2,508

(5,024
)
4,910

Attributable to:
 


 
– ordinary shareholders of the parent company
1,785

(5,509
)
4,134

– preference shareholders of the parent company
22

23

22

– other equity holders
441

176

410

– non-controlling interests
260

286

344

Profit/(loss) after tax
2,508

(5,024
)
4,910


$

$

$

Basic earnings per share
0.09

(0.27
)
0.21

Diluted earnings per share
0.09

(0.27
)
0.21

Dividend per ordinary share (in respect of the period)3


0.10


%

%

%

Return on average ordinary shareholders’ equity (annualised)
4.4

(13.3
)
10.2

Return on average tangible equity (annualised)
4.2

5.2

10.6

Cost efficiency ratio
57.4

127.5

57.0

1
The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.
2
Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.
3
Dividends recorded in the financial statements are dividends per ordinary share declared in a period and are not dividends in respect of, or for, that period.


HSBC Holdings plc Earnings Release 1Q20
15


Earnings Release – 1Q20


Summary consolidated balance sheet
 
At
 
31 Mar

31 Dec

 
2020

2019

 
$m

$m

Assets
 
 
Cash and balances at central banks
187,386

154,099

Trading assets
215,634

254,271

Financial assets designated and otherwise mandatorily measured at fair value through profit or loss
40,650

43,627

Derivatives
371,283

242,995

Loans and advances to banks
84,547

69,203

Loans and advances to customers1
1,040,282

1,036,743

Reverse repurchase agreements – non-trading
222,774

240,862

Financial investments
446,668

443,312

Other assets
308,586

230,040

Total assets
2,917,810

2,715,152

Liabilities and equity




Liabilities




Deposits by banks
75,504

59,022

Customer accounts
1,440,529

1,439,115

Repurchase agreements – non-trading
150,243

140,344

Trading liabilities
74,410

83,170

Financial liabilities designated at fair value
155,184

164,466

Derivatives
356,616

239,497

Debt securities in issue
99,410

104,555

Liabilities under insurance contracts
94,979

97,439

Other liabilities
272,664

194,876

Total liabilities
2,719,539

2,522,484

Equity


 
Total shareholders’ equity
189,771

183,955

Non-controlling interests
8,500

8,713

Total equity
198,271

192,668

Total liabilities and equity
2,917,810

2,715,152

1
Net of impairment allowances.


16
HSBC Holdings plc Earnings Release 1Q20




Credit risk
A summary of our current policies and practices for the management of credit risk is set out in ‘Credit risk management’ on page 84 of the Annual Report and Accounts 2019.
Summary of credit risk
Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at
31 March 2020
 
Gross carrying/nominal amount1
 
Allowance for ECL
 
ECL coverage %
 
 
Stage 1

Stage 2

Stage 3

POCI2

Total

Stage 1

Stage 2

Stage 3

POCI2

Total

Stage1
Stage2
Stage3
POCI2

Total

 
$m

$m

$m

$m

$m

$m

$m

$m

$m

$m

%

%

%

%

%

Loans and advances to customers
934,252

101,714

14,401

300

1,050,667

(1,498
)
(3,078
)
(5,713
)
(96
)
(10,385
)
0.2

3.0

39.7

32.0

1.0

Personal
395,313

16,860

4,839


417,012

(708
)
(1,697
)
(1,274
)

(3,679
)
0.2

10.1

26.3


0.9

– Europe
175,659

7,592

2,319


185,570

(132
)
(820
)
(659
)

(1,611
)
0.1

10.8

28.4


0.9

of which: UK
143,239

6,111

1,513


150,863

(110
)
(792
)
(406
)

(1,308
)
0.1

13.0

26.8


0.9

of which:
UK first lien
mortgages
128,177

1,802

1,036


131,015

(14
)
(17
)
(111
)

(142
)

0.9

10.7


0.1

of which: UK
other personal
lending
15,062

4,309

477


19,848

(96
)
(775
)
(295
)

(1,166
)
0.6

18.0

61.8


5.9

– Asia
169,782

5,764

751


176,297

(258
)
(359
)
(177
)

(794
)
0.2

6.2

23.6