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 October
 
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 whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934).
 
Yes  No X
 
(If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-   ).
 
 
 
  
 
 27 OCTOBER 2020
 
 HSBC HOLDINGS PLC
 
3Q20 EARNINGS RELEASE
 
 
 
 
Noel Quinn, Group Chief Executive, said:
 
"These were promising results against a backdrop of the continuing impacts of Covid-19 on the global economy. I'm pleased with the significantly lower credit losses in the quarter, and we are moving at pace to adapt our business model to a protracted low interest rate environment. We are accelerating the transformation of the Group, moving our focus from interest-rate sensitive business lines towards fee-generating businesses, and further reducing our operating costs. We also intend to increase our rate of investment in Asia, particularly in wealth, the Greater Bay Area, south Asia, trade finance and sustainable finance.
 
The Group's capital and liquidity ratios strengthened further in the quarter despite the challenging economic conditions. A decision on whether to pay a dividend for the 2020 financial year will depend on economic conditions in early 2021, and be subject to regulatory consultation. We will seek to pay a conservative dividend if circumstances allow."
 
 
 
 
Financial performance (vs. 3Q19)
 
●    Reported profit after tax down 46% to $2.0bn and reported profit before tax down 36% to $3.1bn, mainly from lower revenue. Results in 3Q20 included our share of an impairment of goodwill by our associate, The Saudi British Bank ('SABB'), of $0.5bn. Adjusted profit before tax down 21% to $4.3bn.
 
●    Our operations in Asia continued to perform resiliently with reported profit before tax in 3Q20 of $3.2bn, despite interest rate headwinds.
 
●    Reported revenue down 11% to $11.9bn, reflecting the impact of interest rate reductions on our deposit franchises across all global businesses, partly offset by favourable market impacts in life insurance manufacturing. Reported revenue was also partly offset by a favourable movement in credit and funding valuation adjustments and higher revenue in Global Markets.
 
●    Net interest margin ('NIM') of 1.20%, down 36 basis points ('bps') from 3Q19. NIM was down 13bps from 2Q20, reflecting the continuing impact of interest rate reductions due to the Covid-19 outbreak.
 
●    Reported expected credit losses and other credit impairment charges ('ECL') down $0.1bn to $0.8bn. The 3Q20 charge reflected a stabilisation of the forward economic outlook from 2Q20, while wholesale stage 3 charges were in part offset by increased releases related to historical default cases.
 
●    Reported operating expenses down 1% and adjusted operating expenses down 3%, despite continued investment, due to the impact of our cost-saving initiatives, reduced discretionary expenditure and a lower performance-related pay accrual.
 
●    Common equity tier 1 capital ('CET1') ratio of 15.6%, up 0.6% from 15.0% at 2Q20, reflecting a decrease in RWAs (on a constant currency basis), capital generation through profits and foreign currency translation differences.
 
Financial performance (vs. 9M19)
 
●    Reported profit after tax down 62% to $5.2bn and reported profit before tax down 57% to $7.4bn from higher ECL and lower revenue, partly offset by a fall in operating expenses. Reported results included a $1.3bn impairment of software intangibles and the non-recurrence of an $828m dilution gain in 9M19. Adjusted profit before tax down 44% to $9.9bn.
 
●    Reported revenue down 9% to $38.7bn, primarily due to the progressive impact of interest rate reductions across our global businesses, in part offset by higher revenue in Global Markets. Adjusted revenue down 6% to $38.5bn.
 
●    Reported ECL up $5.6bn to $7.6bn, mainly due to the impact of the Covid-19 outbreak and the forward economic outlook. Allowance for ECL on loans and advances to customers up from $8.7bn at 31 December 2019 to $13.7bn at 30 September 2020.
 
●    Reported operating expenses down 3% and adjusted operating expenses down 4%, as a reduction in the performance-related pay accrual and lower discretionary expenditure more than offset the impact of continued investment.
 
Outlook
 
●    Geopolitical risk, particularly relating to trade and other tensions between the US and China, remains heightened. There also remains uncertainty regarding the UK's withdrawal from the European Union ('EU'). Trade talks between the UK and the EU are ongoing and there remains a possibility that there may not be a trade deal agreed by the end of 2020.
 
●    We expect lower global interest rates to continue to put pressure on net interest income. Based on current interest rates, we expect further net interest income headwinds in 4Q20, with some stabilisation as we move into 2021.
 
●    Our ECL charge for 2020 is currently trending towards the lower end of the $8bn to $13bn range. This latest guidance, which continues to be subject to a high degree of uncertainty due to Covid-19 and geopolitical tensions, assumes that the likelihood of further significant deterioration in the current economic outlook is low, and that stage 3 impairments from now until the end of 2020 are broadly in line with the average quarterly charge for the year to date.
 
●    We expect to reduce the Group's 2022 annual cost base beyond our original $31bn target, through exceeding our $4.5bn gross cost savings target. We expect to incur more than $6bn in 'cost to achieve' expenditure to generate these saves.
 
●    We expect to exceed our $100bn gross risk-weighted asset ('RWA') reduction target by the end of 2022. This is expected to allow more resources to be allocated to areas of competitive advantage, higher returns and growth.
 
●    We intend to provide a more detailed and updated transformation plan at our 2020 full-year results, as we finalise our work on costs, capital and RWA deployment. We also intend to provide an update on our medium-term financial targets.
 
●    Based on our results for 2020 and our forecasts for 2021, the Board will consider whether to pay a conservative dividend for 2020. Any such dividend would be dependent on the economic outlook in early 2021, and be subject to regulatory consultation. A final determination is expected to be made and communicated in February 2021 with our 2020 full-year results. We also expect to communicate our revised policy for dividends for 2021 and beyond at the same time.
 
 

 
Key financial metrics
 
 
 
 
Nine months ended
 
Quarter ended
 
 
 
30 Sep
 
30 Sep
 
30 Sep
 
30 Jun
 
30 Sep
 
 
Footnotes
 
2020
 
2019
 
2020
 
2020
 
2019
 
Reported results
 
 
 
 
 
 
 
Reported revenue ($m)
 
 
38,672 
 
42,727 
 
11,927 
 
13,059 
 
13,355 
 
Reported profit before tax ($m)
 
 
7,392 
 
17,244 
 
3,074 
 
1,089 
 
4,837 
 
Reported profit after tax ($m)
 
 
5,164 
 
13,732 
 
2,039 
 
617 
 
3,795 
 
Profit attributable to the ordinary shareholders of the parent company ($m)
 
 
3,336 
 
11,478 
 
1,359 
 
192 
 
2,971 
 
Cost efficiency ratio (%)
 
 
63.5 
 
59.2 
 
67.4 
 
66.4 
 
61.0 
 
Basic earnings per share ($)
 
 
0.17 
 
0.57
 
0.07 
 
0.01 
 
0.15 
 
Diluted earnings per share ($)
 
 
0.16 
 
0.57
 
0.07 
 
0.01 
 
0.15 
 
Net interest margin (%)
 
 
1.35
 
1.59 
 
1.20 
 
1.33 
 
1.56 
 
Alternative performance measures
 
 
 
 
 
 
 
Adjusted revenue ($m)
 
 
38,542
 
41,162 
 
12,065 
 
13,433 
 
13,347 
 
Adjusted profit before tax ($m)
 
 
9,939
 
17,693 
 
4,304 
 
2,596 
 
5,418 
 
Adjusted cost efficiency ratio (%)
 
 
58.0
 
56.7 
 
61.4 
 
55.4 
 
57.0 
 
Expected credit losses and other credit impairment charges ('ECL') (annualised) as % of average gross loans and advances to customers (%)
 
 
0.96 
 
0.25 
 
0.30 
 
1.49 
 
0.32 
 
Return on average ordinary shareholders' equity (annualised) (%)
 
 
2.7 
 
9.2 
 
3.2 
 
0.5 
 
7.0 
 
Return on average tangible equity (annualised) (%)
 
1
 
3.5 
 
9.5 
 
2.9 
 
3.5 
 
6.4 
 
 
 
 
 
 
At
 
 
 
30 Sep
 
30 Jun
 
31 Dec
 
 
Footnotes
 
2020
 
2020
 
2019
 
Balance sheet
 
 
 
 
 
Total assets ($m)
 
 
2,955,935 
 
2,922,798 
 
2,715,152 
 
Net loans and advances to customers ($m)
 
 
1,041,340 
 
1,018,681 
 
1,036,743 
 
Customer accounts ($m)
 
 
1,568,714 
 
1,532,380 
 
1,439,115 
 
Average interest-earning assets, year to date ($m)
 
 
2,070,703 
 
2,034,939 
 
1,922,822 
 
Loans and advances to customers as % of customer accounts (%)
 
 
66.4 
 
66.5 
 
72.0 
 
Total shareholders' equity ($m)
 
 
191,904 
 
187,036 
 
183,955 
 
Tangible ordinary shareholders' equity ($m)
 
 
152,260
 
147,879
 
144,144
 
Net asset value per ordinary share at period end ($)
 
2,3
 
8.41
 
8.17 
 
8.00 
 
Tangible net asset value per ordinary share at period end ($)
 
3
 
7.55
 
7.34 
 
7.13 
 
Capital, leverage and liquidity
 
 
 
 
 
Common equity tier 1 capital ratio (%)
 
4
 
15.6 
 
15.0 
 
14.7 
 
Risk-weighted assets ($m)
 
4
 
857,024 
 
854,552 
 
843,395 
 
Total capital ratio (%)
 
4
 
21.2 
 
20.7 
 
20.4 
 
Leverage ratio (%)
 
4
 
5.4 
 
5.3 
 
5.3 
 
High-quality liquid assets (liquidity value) ($bn)
 
 
654 
 
654 
 
601 
 
Liquidity coverage ratio (%)
 
 
147 
 
148 
 
150 
 
Share count
 
 
 
 
 
Period end basic number of $0.50 ordinary shares outstanding (millions)
 
 
20,173
 
20,162 
 
20,206 
 
Period end basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions)
 
 
20,227
 
20,198
 
20,280
 
Average basic number of $0.50 ordinary shares outstanding (millions)
 
5
 
20,164 
 
20,162 
 
20,158 
 
Dividend per ordinary share (in respect of the period) ($)
 
5
 
 
 
0.30 
 
 
1   Annualised profit attributable to ordinary shareholders, excluding impairment of goodwill and other intangible assets and changes in present value of in-force insurance contracts ('PVIF') (net of tax), divided by average ordinary shareholders' equity excluding goodwill, PVIF and other intangible assets (net of deferred tax).
2   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.
3   Excludes impact of $0.10 per share dividend in 1Q19, following a June 2019 change in accounting practice on the recognition of interim dividends, from the date of declaration to the date of payment.
4   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 and the IFRS 9 regulatory transitional arrangements.
5   For these metrics, 31 December 2019 is calculated on a full-year basis.
 
 
 
 
Contents
 
Page
 
 
 
Page
 
Highlights
 
1
 
 
Summary consolidated balance sheet
 
19
 
Key financial metrics
 
2
 
 
Credit risk
 
19
 
Business highlights
 
3
 
 
Capital adequacy
 
29
 
Approach to risk management
 
3
 
 
Leverage
 
30
 
Geopolitical and macroeconomic risks
 
3
 
 
Risk-weighted assets
 
30
 
Adjusted performance
 
5
 
 
Summary information - global businesses
 
32
 
Financial performance
 
7
 
 
Summary information - geographical regions
 
38
 
Cautionary statement regarding forward-looking statements
 
16
 
 
Dividend on preference shares
 
43
 
Summary consolidated income statement
 
18
 
 
Terms and abbreviations
 
44
 
 
 
 
 
 
 
 
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 GMT. 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 $2,956bn at 30 September 2020, HSBC is one of the world's largest banking and financial services organisations.
 
Business highlights
 
On 18 February, the Group announced a substantial transformation programme designed to ensure HBSC is fit for the future, with plans to reshape underperforming businesses, simplify the organisation and reduce costs. During the third quarter, we continued to make progress with this programme, including further reducing RWAs in our Global Banking and Markets ('GBM') business. In addition, we continued to increase investments in technology to improve the customer experience and efficiency, including a new digital multi-currency wallet, launched in Singapore for our Global Liquidity and Cash Management customers. Also, we launched VisionGo in Hong Kong, a digital community platform for small businesses and entrepreneurs, which has already attracted over 8,000 members.
 
However, given the significant changes in the operating environment, we intend to accelerate the transformation of the Group. We expect to reduce the Group's 2022 annual cost base beyond our original $31bn target, while sustaining investment in our focus areas. We also expect to exceed our target to reduce RWAs by $100bn in low-returning areas. This is expected to allow more resources to be allocated to areas of competitive advantage, higher returns and growth. We are finalising our work on costs, capital and RWA deployment and intend to provide a more detailed and updated transformation plan with our full-year results in February 2021.
 
We are continuing with the strategic review of our retail banking operations in France and we will provide an update on our plans at or before our 2020 full-year results.
 
In the US, the management team is making good progress in executing the current business plan at pace. RWAs in our US business at 3Q20 were 8% lower than at 3Q19. In addition, full-time equivalent staff ('FTE') were 9% lower than at 31 December 2019 and 80 US retail branches have been successfully closed and consolidated. However, given the current economic climate, we are pursuing options to accelerate the transformation of this business and intend to provide an update at our 2020 full-year results.
 
Approach to risk management
 
We have in place a comprehensive risk management framework. We operate our own wide-ranging stress testing programme, as well as regulatory driven stress tests, to assess risk impacts of severe, adverse, but plausible events at legal entity, regional and overall Group levels. This stress testing programme is a key part of our capital and liquidity risk management and planning. Stress testing provides management with key insights into the potential impacts of, and mitigants to, severely adverse events on the Group, and provides information to regulators on the Group's financial stability. Given the nature of the Covid-19 crisis, additional mitigating actions may be required.
 
At 30 September 2020, our CET1 ratio was 15.6%, compared with 14.7% at 31 December 2019, and our liquidity coverage ratio ('LCR') was 147%. Our capital, funding and liquidity positions are expected to help us to continue supporting our customers throughout the current geopolitical and macroeconomic uncertainty.
 
Geopolitical and macroeconomic risks
 
The Group's results and outlook continue to be impacted by developments in the external risk environment, including the items referred to below, which detail the key developments in the third quarter of 2020. For further information on the risks that the Group faces, see pages 76 to 83 of the Annual Report and Accounts 2019 and pages 50 to 54 of the Interim Report 2020.
 
Geopolitical risk to our operations and portfolios
 
US-China tensions remain heightened. In June 2020, the National People's Congress of China enacted the Hong Kong national security law. In response, among other steps, the US President signed into law the Hong Kong Autonomy Act, and issued Executive Order 13936, providing authority to impose sanctions against entities and individuals determined to have undermined Hong Kong's autonomy.
 
The Hong Kong Autonomy Act also provides authority to impose secondary sanctions against non-US financial institutions determined to have knowingly conducted a significant transaction for any individual or entity subject to primary sanctions under the act.
 
On 7 August, the US Department of Treasury imposed sanctions on 11 individuals under Executive Order 13946. Following this, on 14 October 2020, the US State Department released the list of 'Foreign Persons Materially Contributing to the Failure of the PRC To Meet Its Obligations Under the Joint Declaration and Basic Law' as required under the Hong Kong Autonomy Act, which largely overlapped with the list of persons already designated under Executive Order 13936. Further individuals or entities could be identified under Executive Order 13936 and/or the Hong Kong Autonomy Act. We are reviewing the operational impact of these developments. Pursuant to the Hong Kong Autonomy Act, within 30 to 60 days following the publication of the 14 October list, the US State Department is expected to publish a second report listing any non-US financial institutions that have knowingly conducted a significant transaction for any individual or entity named in the 14 October report. This report is the basis for the potential imposition of secondary sanctions. In addition, the forthcoming US presidential election is creating further geopolitical uncertainty.
 
Investor and business sentiment in some sectors in Hong Kong remains dampened and ongoing tensions could result in an increasingly fragmented trade and regulatory environment. The retail and leisure sectors also remain particularly affected by a decrease in tourism, resulting from both ongoing tensions and the Covid-19 pandemic. However, the financial services sector in Hong Kong has remained strong and has benefited from stable liquidity conditions.
 
The financial impact to the Group of geopolitical risks in Asia is heightened due to the strategic importance of the region, and Hong Kong in particular, in terms of profitability and prospects for growth. We continue to monitor the situation.
 
Risks related to Covid-19
 
After an initial decrease in levels of Covid-19 in the third quarter in many regions, further waves of infections are now emerging. While governments in some countries and territories have continued to ease the broad restrictions that had been imposed to limit the spread of Covid-19, social distancing and tight border restrictions remain commonplace, and are limiting the extent and pace of economic recovery.
 
The Covid-19 outbreak has led to a significant weakening in GDP in many of our markets, although regions and sectors have rebounded to differing levels from their previous low points. Economic consensus forecasts have stabilised in recent months and monthly changes to the forecasts have become smaller, while notably the consensus forecast for UK GDP for 2020 deteriorated in September 2020. However, the economic consensus forecasts for key markets continue to predict a 'V-shaped' recovery in 2021, albeit there is wide dispersion in forecast expectations.
 
While the longer-term effects of the outbreak on businesses are uncertain, we believe HSBC's financial position allows us to continue to help support our customers. The management of capital and liquidity remains a key focus area and is being continually monitored both at Group and entity levels.
 
The nature and scale of the Covid-19 crisis has necessitated strong responses from governments, central banks and regulators, and the outbreak has also resulted in changes in the behaviours of our retail and wholesale customers. These factors have impacted the performance of our expected credit loss models, requiring enhanced monitoring of model outputs and use of compensating controls, specifically model adjustments based on the credit expert judgement of senior risk managers. In addition, we have built up our operational capacity rapidly in response to government and central bank support measures aimed at combating the impacts of the Covid-19 outbreak, and have been responding to complex conduct considerations and heightened risk of fraud related to these programmes.
 
UK withdrawal from the European Union
 
The UK left the EU on 31 January 2020 and entered a transition period until 31 December 2020. During the transition period, the UK continues to be bound by EU laws and regulations. Beyond that date, there is no certainty on what the future relationship between the UK and the EU will be. Trade talks are ongoing and there remains a possibility that there may not be a trade deal agreed by 31 December 2020. This possible outcome is only partly reflected in our probability-weighted ECL at 3Q20 and, therefore, there is a risk of additional ECL charges, particularly in the UK in 4Q20, if the UK and the EU fail to reach a trade agreement. 
 
Our global presence and diversified customer base is expected to help mitigate the direct impacts on our financial position in a scenario where the transition period ends without a UK-EU trade agreement being in place. Our existing footprint in the EU, and in particular our French subsidiary, provides a strong foundation for us to build upon, which will be retained regardless of the outcome of our strategic review of our retail banking operations in France. As part of our stress testing programme, a number of internal macroeconomic and event-driven scenarios were assessed to support our planning for, and evaluation of, the impact of the UK's withdrawal from the EU without a trade agreement. These stress scenarios incorporate risks associated with the UK withdrawal from the EU and the impact of the Covid-19 outbreak. As part of this analysis, HSBC Bank plc, our non-ring-fenced bank in Europe, and HSBC UK Bank plc, our ring-fenced bank in Europe, have also considered a range of internal strategic management actions to further support our ability to withstand potential shocks. However, the prospect of exiting the transition period without a trade agreement is likely to increase market volatility and economic risk, particularly in the UK, which could adversely impact our profitability and prospects for growth in this market. 
 
Market environment
 
Central banks have reduced interest rates in most financial markets due to the adverse impact on the timelines and the path for economic recovery from the Covid-19 outbreak, which has in turn increased the likelihood of negative interest rates. This raises a number of risks and concerns, such as the readiness of our systems and processes to accommodate zero or negative rates, the resulting impacts on customers, regulatory constraints and the financial implications given the significant impact that prolonged low interest rates are likely to have on our net interest income. For some products, we have floored deposit rates at zero or made decisions not to charge negative rates. This, alongside loans repriced at lower rates, will result in our commercial margins being compressed, which is expected to be reflected in our profitability. The pricing of this risk will need to be carefully considered. These factors may challenge the long-term profitability of the banking sector, including HSBC, and will be considered as part of the Group's transformation programme.
 
Implications on our financial performance
 
The above factors continue to cause disruption to economic activity globally and 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 market volatility. Lower interest rates globally will negatively impact net interest income and increase the cost of guarantees for insurance manufacturing. There could also be adverse impacts on other assets, such as our investment in Bank of Communications Co., Limited ('BoCom'), given the difference between the fair value and the carrying value of that investment. The excess of the value-in-use of BoCom and its carrying value has reduced over the period, increasing the risk of impairment in the future.
 
There may also be material balance sheet impacts. These may include downward customer credit rating migration, which could negatively impact our RWAs and capital position, and potential liquidity impacts due, among other factors, to increased customer drawdowns, notwithstanding the significant initiatives that governments and central banks have put in place to support the economy following the Covid-19 outbreak. 
 
 
 
 
 
 
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 9M20 and 3Q20 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:
●    the income statements for 9M19 at the average rate of exchange for 9M20;
●    the income statements for quarterly periods at the average rates of exchange for 3Q20; and
●    the closing prior period balance sheets at the prevailing rates of exchange at 30 September 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 improve the understanding of the underlying trends in the business.
 
The tables on pages 30 to 39 detail the effects of significant items on each of our global business segments and geographical regions during 9M20, 9M19, 3Q20, 2Q20 and 3Q19.
 
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.
 
Effective from 2Q20, we made the following realignments within our internal reporting to the GEC and CODM:
 
●    We simplified our matrix organisational structure by combining Global Private Banking and Retail Banking and Wealth Management to form Wealth and Personal Banking ('WPB').
 
●    We reallocated our reporting of Balance Sheet Management, hyperinflation accounting in Argentina and Holdings net interest expense from Corporate Centre to the global business.
 
Comparative data have been re-presented accordingly. Supplementary reconciliations of adjusted to reported results by global business are presented on pages 30 to 34 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.
 
 
 
 
Reconciliation of reported and adjusted results
 
 
Nine months ended
 
Quarter ended
 
 
 
30 Sep
 
30 Sep
 
30 Sep
 
30 Jun
 
30 Sep
 
 
 
2020
 
2019
 
2020
 
2020
 
2019
 
 
Footnotes
 
$m
 
$m
 
$m
 
$m
 
$m
 
Revenue
 
 
 
 
 
 
 
Reported
 
1
 
38,672 
 
 
42,727 
 
 
11,927 
 
 
13,059 
 
 
13,355 
 
 
Currency translation
 
 
 
(605)
 
 
 
279 
 
 
76 
 
 
Significant items
 
 
(130)
 
 
(960)
 
 
138 
 
 
95 
 
 
(84)
 
 
-  customer redress programmes
 
 
22 
 
 
118 
 
 
48 
 
 
(26)
 
 
118 
 
 
-  disposals, acquisitions and investment in new businesses
 
 
 
 
(823)
 
 
 
 
 
 
 
 
-  fair value movements on financial instruments
 
2
 
(310)
 
 
(260)
 
 
(11)
 
 
58 
 
 
(210)
 
 
-  restructuring and other related costs
 
3
 
150 
 
 
 
 
101 
 
 
58 
 
 
 
 
-  currency translation of significant items
 
 
 
 
 
 
 
 
 
 
Adjusted
 
 
38,542 
 
 
41,162 
 
 
12,065 
 
 
13,433 
 
 
13,347 
 
 
Change in expected credit losses and other credit impairment charges
 
 
 
 
 
 
 
Reported
 
 
(7,643)
 
 
(2,023)
 
 
(785)
 
 
(3,832)
 
 
(883)
 
 
Currency translation
 
 
 
92 
 
 
 
(118)
 
 
40 
 
 
Adjusted
 
 
(7,643)
 
 
(1,931)
 
 
(785)
 
 
(3,950)
 
 
(843)
 
 
Operating expenses
 
 
 
 
 
 
 
Reported
 
 
(24,568)
 
 
(25,296)
 
 
(8,041)
 
 
(8,675)
 
 
(8,147)
 
 
Currency translation
 
 
 
376 
 
 
 
(226)
 
 
(78)
 
 
Significant items
 
 
2,215 
 
 
1,578 
 
 
630 
 
 
1,461 
 
 
620 
 
 
-  costs of structural reform
 
4
 
 
 
126 
 
 
 
 
 
 
35 
 
 
-  customer redress programmes
 
 
53 
 
 
1,098 
 
 
 
 
49 
 
 
488 
 
 
-  impairment of goodwill and other intangibles
 
 
1,082 
 
 
 
 
57 
 
 
1,025 
 
 
 
 
-  restructuring and other related costs
 
5
 
1,072 
 
 
427 
 
 
567 
 
 
335 
 
 
140 
 
 
-  settlements and provisions in connection with legal and regulatory matters
 
 
 
 
(66)
 
 
 
 
 
 
(64)
 
 
-  currency translation of significant items
 
 
 
(7)
 
 
 
48 
 
 
21 
 
 
Adjusted
 
 
(22,353)
 
 
(23,342)
 
 
(7,411)
 
 
(7,440)
 
 
(7,605)
 
 
Share of profit in associates and joint ventures
 
 
 
 
 
 
 
Reported
 
 
931 
 
 
1,836 
 
 
(27)
 
 
537 
 
 
512 
 
 
Currency translation
 
 
 
(32)
 
 
 
16 
 
 
 
 
Significant items
 
 
462 
 
 
 
 
462 
 
 
 
 
 
 
-  impairment of goodwill
 
6
 
462 
 
 
 
 
462 
 
 
 
 
 
 
-  currency translation of significant items
 
 
 
 
 
 
 
 
 
 
Adjusted
 
 
1,393 
 
 
1,804 
 
 
435 
 
 
553 
 
 
519 
 
 
Profit before tax
 
 
 
 
 
 
 
Reported
 
 
7,392 
 
 
17,244 
 
 
3,074 
 
 
1,089 
 
 
4,837 
 
 
Currency translation
 
 
 
(169)
 
 
 
(49)
 
 
45 
 
 
Significant items
 
 
2,547 
 
 
618 
 
 
1,230 
 
 
1,556 
 
 
536 
 
 
-  revenue
 
 
(130)
 
 
(960)
 
 
138 
 
 
95 
 
 
(84)
 
 
-  operating expenses
 
 
2,215 
 
 
1,578 
 
 
630 
 
 
1,461 
 
 
620 
 
 
-  share in profit of associates and joint ventures
 
 
462 
 
 
 
 
462 
 
 
 
 
 
 
Adjusted
 
 
9,939 
 
 
17,693 
 
 
4,304 
 
 
2,596 
 
 
5,418 
 
 
Loans and advances to customers (net)
 
 
 
 
 
 
 
Reported
 
 
1,041,340 
 
 
1,017,833 
 
 
1,041,340 
 
 
1,018,681 
 
 
1,017,833 
 
 
Currency translation
 
 
 
24,480 
 
 
 
23,303 
 
 
24,480 
 
 
Adjusted
 
 
1,041,340 
 
 
1,042,313 
 
 
1,041,340 
 
 
1,041,984 
 
 
1,042,313 
 
 
Customer accounts
 
 
 
 
 
 
 
Reported
 
 
1,568,714 
 
 
1,373,741 
 
 
1,568,714 
 
 
1,532,380 
 
 
1,373,741 
 
 
Currency translation
 
 
 
31,188 
 
 
 
32,692 
 
 
31,188 
 
 
Adjusted
 
 
1,568,714 
 
 
1,404,929 
 
 
1,568,714 
 
 
1,565,072 
 
 
1,404,929 
 
 
 
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 losses associated with the RWA reduction commitments we made at our business update in February 2020.
4   Comprises costs associated with preparations for the UK's exit from the European Union.
5   Includes impairment of software intangible assets of $173m (of the total software intangible asset impairment of $1,320m) and impairment of tangible assets of $124m.
6   During the year, The Saudi British Bank ('SABB'), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal bank in 2019. HSBC's post-tax share of the goodwill impairment was $462m.
 
Financial performance
 
 
Distribution of results by global business
 
Nine months ended
 
Quarter ended
 
 
30 Sep
 
30 Sep
 
30 Sep
 
30 Jun
 
30 Sep
 
 
2020
 
2019
 
2020
 
2020
 
2019
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
Adjusted profit/(loss) before tax
 
 
 
 
 
 
Wealth and Personal Banking
 
3,121 
 
 
6,798 
 
 
1,426 
 
 
994 
 
 
1,973 
 
 
Commercial Banking
 
1,360 
 
 
5,540 
 
 
1,176 
 
 
(502)
 
 
1,631 
 
 
Global Banking and Markets
 
3,780 
 
 
3,960 
 
 
1,232 
 
 
1,684 
 
 
1,223 
 
 
Corporate Centre
 
1,678 
 
 
1,395 
 
 
470 
 
 
420 
 
 
591 
 
 
Total
 
9,939 
 
 
17,693 
 
 
4,304 
 
 
2,596 
 
 
5,418 
 
 
 
 
 
Distribution of results by geographical region
 
Nine months ended
 
Quarter ended
 
 
30 Sep
 
30 Sep
 
30 Sep
 
30 Jun
 
30 Sep
 
 
2020
 
2019
 
2020
 
2020
 
2019
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
Reported profit/(loss) before tax
 
 
 
 
 
 
Europe
 
(2,976)
 
 
(944)
 
 
84 
 
 
(2,549)
 
 
(424)
 
 
Asia
 
10,556 
 
 
14,431 
 
 
3,187 
 
 
3,629 
 
 
4,651 
 
 
Middle East and North Africa
 
(326)
 
 
2,041 
 
 
(300)
 
 
(70)
 
 
305 
 
 
North America
 
16 
 
 
1,045 
 
 
(7)
 
 
134 
 
 
299 
 
 
Latin America
 
122 
 
 
671 
 
 
110 
 
 
(55)
 
 
 
 
Total
 
7,392 
 
 
17,244 
 
 
3,074 
 
 
1,089 
 
 
4,837 
 
 
Adjusted profit/(loss) before tax
 
 
 
 
 
 
Europe
 
(1,561)
 
 
295 
 
 
398 
 
 
(1,294)
 
 
84 
 
 
Asia
 
10,568 
 
 
14,509 
 
 
3,215 
 
 
3,742 
 
 
4,695 
 
 
Middle East and North Africa
 
200 
 
 
1,226 
 
 
186 
 
 
(30)
 
 
303 
 
 
North America
 
588 
 
 
1,101 
 
 
375 
 
 
222 
 
 
319 
 
 
Latin America
 
144 
 
 
562 
 
 
130 
 
 
(44)
 
 
17 
 
 
Total
 
9,939 
 
 
17,693 
 
 
4,304 
 
 
2,596 
 
 
5,418 
 
 
 
 
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 30 to 39 reconcile reported to adjusted results for each of our global business segments and geographical regions.
 
Group
3Q20 compared with 3Q19 - reported results
 
Movement in reported profit before tax compared with 3Q19
 
Quarter ended
 
 
30 Sep
 
30 Sep
 
Variance
 
 
2020
 
2019
 
3Q20 vs. 3Q19
 
 
$m
 
$m
 
$m
 
%
 
Revenue
 
11,927 
 
 
13,355 
 
 
(1,428)
 
 
(11)
 
 
ECL
 
(785)
 
 
(883)
 
 
98 
 
 
11 
 
 
Operating expenses
 
(8,041)
 
 
(8,147)
 
 
106 
 
 
 
 
Share of profit from associates and JVs
 
(27)
 
 
512 
 
 
(539)
 
 
(105)
 
 
Profit before tax
 
3,074 
 
 
4,837 
 
 
(1,763)
 
 
(36)
 
 
Tax expense
 
(1,035)
 
 
(1,042)
 
 
 
 
 
 
Profit after tax
 
2,039 
 
 
3,795 
 
 
(1,756)
 
 
(46)
 
 
 
 
Reported profit
Reported profit after tax of $2.0bn was $1.8bn or 46% lower than in 3Q19.
 
Reported profit before tax of $3.1bn was $1.8bn or 36% lower, primarily reflecting a reduction in reported revenue. Reported revenue fell mainly from the impact of lower interest rates on our deposit franchises, and lower share of profit from our associate SABB, reflecting our share of an impairment of the goodwill it recognised on the completion of the merger with Alawwal bank in 2019. These factors were in part offset by lower reported operating expenses and a reduction in reported ECL.
 
Reported profit before tax also included favourable market impacts in life insurance manufacturing in WPB of $126m (3Q19: $225m adverse), favourable credit and funding valuation adjustments in GBM of $32m (3Q19: $160m adverse), and adverse fair value movements on our long-term debt and associated swaps in Corporate Centre of $32m (3Q19: $76m favourable).
 
Reported revenue
 
Reported revenue of $11.9bn was $1.4bn or 11% lower than in 3Q19. The reduction primarily reflected lower net interest income as a result of the progressive impact of lower interest rates across our major markets, notably affecting our deposit franchises in WPB and in Global Liquidity and Cash Management ('GLCM') in Commercial Banking ('CMB') and GBM. While we grew average interest-earning assets compared with 3Q19, interest-bearing liabilities also increased. As a result, in conjunction with the rate environment, there continued to be downward pressure on NIM, which we expect to continue in future quarters. The reduction in net interest income was partly offset by favourable market impacts in life insurance manufacturing, compared with adverse movements in 3Q19, following a continued recovery of global equity prices after the large reductions in 1Q20.
 
In addition, revenue increased in GBM, despite lower revenue in GLCM. This was mainly due to a favourable movement in credit and funding valuation adjustments and higher revenue in Global Markets.
 
There was a net adverse movement in significant items of $0.2bn, which was partly offset by favourable foreign currency translation differences of $0.1bn. The movement in significant items primarily related to fair value movements on financial instruments of $0.2bn. In addition, 3Q20 included restructuring and other related costs of $0.1bn associated with disposal losses related to the RWA reduction commitments we made at our business update in February 2020. We expect to incur additional disposal losses in future quarters as we progress with these reductions.
 
Reported ECL
 
Reported ECL were $0.8bn in 3Q20, $0.1bn lower compared with 3Q19. The charge in 3Q20 reflected the significant build up of stage 1 and stage 2 allowances in both 1Q20 and 2Q20 to reflect the worsening forward economic outlook due to the Covid-19 outbreak. In 3Q20, that outlook stabilised, which resulted in stage 1 and stage 2 allowances being broadly unchanged and a significantly lower ECL charge compared with 2Q20. In addition, the stage 3 charge in 3Q20, which primarily related to a small number of wholesale exposures, was partly offset by an increase in releases related to historical defaulted wholesale exposures.
 
The estimated impact of the Covid-19 outbreak has been incorporated in the ECL through additional scenario analysis, which considered differing severity and duration assumptions relating to the global pandemic. These included probability-weighted shocks to annual GDP and consequential impacts on unemployment and other economic variables, with differing economic recovery assumptions. Given the severity of the macroeconomic projections and the complexities of various government measures, which have never been modelled, additional judgemental adjustments have been made to our provisions.
 
For further details on the calculation of ECL, including the measurement uncertainties and significant judgements applied to such calculations, the impact of alternative/additional scenarios and post model-adjustments, see page 21.
 
Reported operating expenses
 
Reported operating expenses of $8.0bn were $0.1bn or 1% lower than in 3Q19 despite the impact of inflation and continued investment in business growth, including investments in our digital capabilities. This reflected reductions from our cost-saving initiatives, a reduction in discretionary expenditure and a lower performance-related pay accrual.
 
Significant items were broadly in line with 3Q19. This included:
 
●    a $0.5bn fall in customer redress programme costs, primarily related to the mis-selling of PPI.
 
This was broadly offset by:
 
●    higher restructuring and other related costs of $0.4bn, including a $0.1bn charge related to the impairment of tangible assets in France and the US; and
 
●    a 3Q20 charge related to the impairment of intangibles of $0.1bn, which included the impairment of software intangibles in the US.
 
Foreign currency translation differences had an adverse impact of $0.1bn.
 
Reported share of profit from associates and JVs
 
Reported share of profit from associates and joint ventures was a net loss of $27m in 3Q20, primarily as we recognised our share of SABB's impairment of the goodwill it recognised on the completion of its merger with Alawwal bank in 2019. This compared with net income of $512m in 3Q19.
 
Group
 
3Q20 compared with 3Q19 - adjusted results
 
Movement in adjusted profit before tax compared with 3Q19
 
Quarter ended
 
 
30 Sep
 
30 Sep
 
Variance
 
 
2020
 
2019
 
3Q20 vs. 3Q19
 
 
$m
 
$m
 
$m
 
%
 
Revenue
 
12,065 
 
 
13,347 
 
 
(1,282)
 
 
(10)
 
 
ECL
 
(785)
 
 
(843)
 
 
58 
 
 
 
 
Operating expenses
 
(7,411)
 
 
(7,605)
 
 
194 
 
 
 
 
Share of profit from associates and JVs
 
435 
 
 
519 
 
 
(84)
 
 
(16)
 
 
Profit before tax
 
4,304 
 
 
5,418 
 
 
(1,114)
 
 
(21)
 
 
 
 
Adjusted profit
Adjusted profit before tax of $4.3bn was $1.1bn or 21% lower than in 3Q19, primarily reflecting a decline in adjusted revenue due to interest rate reductions, which affected all global businesses and particularly our deposit franchises. This was partly offset by lower adjusted operating expenses and a reduction in adjusted ECL.
 
Adjusted revenue
Adjusted revenue of $12.1bn was $1.3bn or 10% lower than in 3Q19, reflecting reductions in WPB and CMB, partly offset by an increase in GBM.
 
The reduction in revenue was primarily in net interest income due to the impact of the interest rate reductions during the first half of the year, mainly affecting our deposit franchises within WPB and in GLCM in CMB and GBM. This was partly offset by net favourable movements in market impacts in life insurance manufacturing in WPB of $333m due to the continued recovery in global equity prices following the reductions in 1Q20. In GBM, Global Markets revenue also increased, reflecting increased market volatility in our FICC business, and we recorded favourable movements in credit and funding valuation adjustments of $199m.
 
Adjusted ECL
Adjusted ECL were $0.8bn in 3Q20, $0.1bn lower than in 3Q19. The charge in the quarter primarily reflected the significant build up of stage 1 and stage 2 allowances in both 1Q20 and 2Q20 to reflect the worsening forward economic outlook due to the Covid-19 outbreak. In 3Q20, that outlook stabilised, which resulted in stage 1 and stage 2 allowances being broadly unchanged and a significantly lower ECL charge compared with 2Q20. In addition, the stage 3 charge in 3Q20, which primarily related to a small number of wholesale exposures across various sectors, was partly offset by an increase in releases related to historical defaulted wholesale exposures.
 
Adjusted operating expenses
Adjusted operating expenses of $7.4bn were $0.2bn or 3% lower than in 3Q19, notwithstanding the impact of inflation and continued investment in our digital capabilities. This reflected reductions from our cost-saving initiatives, lower discretionary expenditure and a lower performance-related pay accrual.
 
Adjusted share of profit from associates and JVs
Adjusted share of profit from associates and joint ventures of $0.4bn decreased by $0.1bn or 16%, primarily from a reduction in share of profit from BoCom.
 
Group
 
9M20 compared with 9M19 - reported results
 
Movement in reported profit before tax compared with 9M19
 
Nine months ended
 
 
30 Sep
 
30 Sep
 
Variance
 
 
2020
 
2019
 
9M20 vs. 9M19
 
 
$m
 
$m
 
$m
 
%
 
Revenue
 
38,672 
 
 
42,727 
 
 
(4,055)
 
 
(9)
 
 
ECL
 
(7,643)
 
 
(2,023)
 
 
(5,620)
 
 
>(200)
 
Operating expenses
 
(24,568)
 
 
(25,296)
 
 
728 
 
 
 
 
Share of profit from associates and JVs
 
931 
 
 
1,836 
 
 
(905)
 
 
(49)
 
 
Profit before tax
 
7,392 
 
 
17,244 
 
 
(9,852)
 
 
(57)
 
 
Tax expense
 
(2,228)
 
 
(3,512)
 
 
1,284 
 
 
37 
 
 
Profit after tax
 
5,164 
 
 
13,732 
 
 
(8,568)
 
 
(62)
 
 
 
 
Reported profit
Reported profit after tax of $5.2bn was $8.6bn or 62% lower than in 9M19.
 
Reported profit before tax of $7.4bn was $9.9bn or 57% lower than in 9M19, due to a rise in reported ECL, primarily reflecting the impact of the Covid-19 outbreak on the economic outlook, and lower reported revenue, mainly due to the impact of interest rate reductions. Lower revenue also included the non-recurrence of an $828m dilution gain in 9M19 recognised on the completion of the merger of our associate SABB with Alawwal bank in Saudi Arabia. In 9M20, we incurred our share of an impairment of goodwill by SABB of $462m, which contributed to a reduction in reported share of profit from associates. These factors were in part mitigated by lower reported operating expenses.
 
Results in 9M20 included the impact of certain volatile items, notably adverse movements in market impacts in life insurance manufacturing in WPB of $218m (9M19: $72m adverse) and adverse credit and funding valuation adjustments in GBM of $322m (9M19: $147m adverse). Results also included favourable movements on our long-term debt and associated swaps in Corporate Centre of $163m (9M19: $219m favourable). Additionally in 9M19, results included disposal gains in WPB and CMB of $157m.
 
Reported operating expenses in 9M20 included a $1.3bn impairment of capitalised software, with $1.0bn included as a significant item within 'impairment of goodwill and other intangibles', and $0.2bn included within 'restructuring and other related costs'. This primarily related to businesses within HSBC Bank plc, and to a lesser extent our businesses in the US, reflecting underperformance and a deterioration in the future forecasts of these businesses, substantially relating to prior periods in HSBC Bank plc.
 
Reported revenue
Reported revenue of $38.7bn was $4.1bn or 9% lower than in 9M19, reflecting the progressive impact of 1Q20 interest rate reductions on net interest income across our global businesses, most notably in Retail Banking in WPB and GLCM in CMB and GBM. In addition, the reduction reflected the effects of a sharp fall in equity markets and a widening of credit spreads towards the end of 1Q20. There has been a partial recovery in equity markets and a narrowing of credit spreads in subsequent quarters. However, this has resulted in adverse market impacts in life insurance manufacturing in WPB, and adverse valuation movements in GBM compared with 9M19.
 
These factors were partly offset by growth in Global Markets revenue throughout the first nine months, as increased market volatility supported an improved FICC performance across Foreign Exchange, Rates and Credit.
 
Lower reported revenue included net adverse movements in significant items of $0.8bn primarily from the non-recurrence of a $0.8bn dilution gain in 9M19, as mentioned above. Significant items in 9M20 included restructuring and other related costs of $0.2bn associated with disposal losses related to the RWA reduction commitments we made at our business update in February. Foreign currency translation differences resulted in a further adverse movement of $0.6bn compared with 9M19.
 
Reported ECL
Reported ECL of $7.6bn were $5.6bn higher than in 9M19, with increases across all global businesses, primarily from charges relating to the global impact of the Covid-19 outbreak on the forward economic outlook.
 
The ECL charge in 9M20 reflected a significant increase in stage 1 and stage 2 allowances, notably in the first half of the year, to reflect the deterioration in the forward economic outlook globally as a result of the Covid-19 outbreak. Economic conditions subsequently stabilised, and as a result stage 1 and stage 2 allowances were broadly unchanged in 3Q20. Stage 3 charges in 9M20 increased compared with 9M19, with the rise largely related to wholesale exposures, including a significant stage 3 charge related to a CMB client in Singapore in 1Q20. Notably, stage 3 charges in 3Q20 were in part offset by an increase in releases related to historical defaulted wholesale exposures.
 
 
 
Reported operating expenses
Reported operating expenses of $24.6bn were $0.7bn or 3% lower than in 9M19, primarily reflecting a lower performance-related pay accrual and a reduction in discretionary expenditure, while we continued to invest in technology. In addition, the reduction included favourable foreign currency translation differences of $0.4bn. This was partly offset by a net adverse movement in significant items of $0.6bn, which included:
 
●    a $1.1bn impairment of goodwill and other intangibles in 9M20, primarily capitalised software related to the businesses within HSBC Bank plc, and to a lesser extent our businesses in the US. It reflected underperformance and a deterioration in the future forecasts of these businesses, substantially relating to prior periods in HSBC Bank plc; and
 
●    restructuring and other related costs of $1.1bn in 9M20, of which $0.4bn related to severance, $0.2bn related to an impairment of software intangibles and $0.1bn related to the impairment of tangible assets in France and the US. This compared with restructuring and other related costs of $0.4bn in 9M19. We expect to incur 'costs to achieve' expenditure of $1.6bn for the 2020 full year.
 
This was partly offset by:
 
●    customer redress programme costs of $0.1bn in 9M20, compared with $1.1bn in 9M19.
 
Reported share of profit from associates and JVs
 
Reported income from associates and joint ventures of $0.9bn decreased by $0.9bn or 49%, primarily reflecting our share of SABB's impairment of the goodwill it recognised on the completion of its merger with Alawwal bank in 2019. The remaining reduction reflected a lower share of profit recognised from our associates due to the impact of the Covid-19 outbreak and the lower interest rate environment.
 
Group
 
9M20 compared with 9M19 - adjusted results
 
Movement in adjusted profit before tax compared with 9M19
 
Nine months ended
 
 
30 Sep
 
30 Sep
 
Variance
 
 
2020
 
2019
 
9M20 vs. 9M19
 
 
$m
 
$m
 
$m
 
%
 
Revenue
 
38,542 
 
 
41,162 
 
 
(2,620)
 
 
(6)
 
 
ECL
 
(7,643)
 
 
(1,931)
 
 
(5,712)
 
 
>(200)
 
Operating expenses
 
(22,353)
 
 
(23,342)
 
 
989 
 
 
 
 
Share of profit from associates and JVs
 
1,393 
 
 
1,804 
 
 
(411)
 
 
(23)
 
 
Profit before tax
 
9,939 
 
 
17,693 
 
 
(7,754)
 
 
(44)
 
 
 
 
Adjusted profit
 
Adjusted profit before tax of $9.9bn was $7.8bn or 44% lower than in 9M19, primarily from a rise in adjusted ECL and a fall in adjusted revenue. Adjusted ECL increased by $5.7bn, mainly from charges relating to the global impact of the Covid-19 outbreak on the forward economic outlook in the first half of 2020. Adjusted revenue decreased by $2.6bn or 6%, primarily from the progressive impact of interest rate reductions in all our global businesses, notably in our deposit franchises, partly offset by higher revenue from Global Markets. Adjusted operating expenses decreased by $1.0bn or 4% as we lowered the performance-related pay accrual and reduced discretionary expenditure while continuing to invest in our businesses.
 
Adjusted revenue
 
Adjusted revenue of $38.5bn was $2.6bn or 6% lower than in 9M19, reflecting falls in WPB (down $2.4bn) and CMB (down $1.3bn), partly offset by higher revenue in GBM (up $0.7bn) and Corporate Centre (up $0.4bn).
 
The reduction in adjusted revenue reflected the progressive impact of lower interest rates in many of the key markets in which we operate. This had an adverse impact on revenue in Retail Banking within WPB, and in GLCM within CMB and GBM, although we grew deposit balances across these businesses compared with 30 September 2019. In addition, the fall in revenue reflected the effects of a sharp fall in equity markets and a widening of credit spreads towards the end of 1Q20. There has been a partial recovery in equity markets and a narrowing of credit spreads in subsequent quarters. However, this resulted in an adverse movement in market impacts in life insurance manufacturing in WPB of $0.2bn. It also resulted in an adverse movement in credit and funding valuation adjustments of $0.2bn and a $0.2bn reduction in revenue in Principal Investments in GBM.
 
These reductions were partly offset by higher revenue in Global Markets as market volatility remained elevated. Revenue also rose in Corporate Centre.
 
Revenue relating to Balance Sheet Management ('BSM'), HSBC Holdings net interest expense and Argentina hyperinflation was $0.5bn higher, primarily due to disposal gains in BSM. This revenue is allocated to our global businesses.
 
Adjusted ECL
 
Adjusted ECL, which removes the period-on-period effects of foreign currency translation differences, were $7.6bn, an increase of $5.7bn from 9M19. This increase occurred in WPB (up $1.6bn), CMB (up $3.0bn) and GBM (up $1.1bn) and mainly reflected charges related to the global impact of the Covid-19 outbreak and the forward economic outlook in all of our global businesses.
 
The ECL charge in 9M20 reflected a significant increase in stage 1 and stage 2 allowances, notably in the first half of the year, to reflect the deterioration in the forward economic outlook globally as a result of the Covid-19 outbreak. Economic conditions subsequently stabilised and as a result, stage 1 and stage 2 allowances were broadly unchanged in 3Q20. Stage 3 charges in 9M20 increased compared with 9M19, with the rise largely related to wholesale exposures, including a significant stage 3 charge related to a CMB client in Singapore in 1Q20. Notably, the stage 3 charge in 3Q20 was in part offset by an increase in releases related to historical defaulted wholesale exposures.
 
Adjusted ECL (annualised) as a percentage of average gross loans and advances to customers was 0.96%, compared with 0.25% in 9M19.
 
 
 
 
 
Adjusted operating expenses
 
Adjusted operating expenses of $22.4bn were $1.0bn or 4% lower than in 9M19, as we continued to review and reprioritise costs and investments to help mitigate revenue headwinds. The decrease primarily reflected a $0.7bn reduction in performance-related pay accrual and lower discretionary expenditure, including marketing (down $0.3bn) and travel costs (down $0.2bn). In addition, our cost-saving initiatives resulted in a reduction of $0.7bn, of which $0.6bn related to our cost-to-achieve programme. These decreases were partly offset by an increase of $0.3bn in investments in technology to enhance our digital and automation capabilities to improve how we serve our customers.
 
The number of employees expressed in full-time equivalent staff ('FTE') at 30 September 2020 was 230,317, a decrease of 5,034 compared with 31 December 2019. The number of contractors at 30 September 2020 was 6,131, a decrease of 1,280 from 31 December 2019.
 
Adjusted share of profit from associates and JVs
 
Adjusted share of profit from associates of $1.4bn fell $0.4bn or 23%, compared with 9M19, primarily reflecting the impact of the Covid-19 outbreak and the lower interest rate environment on the share of profit we recognised from our associates.
 
Wealth and Personal Banking - adjusted results
 
Management view of adjusted revenue
 
 
Nine months ended
 
Quarter ended
 
 
 
30 Sep
 
30 Sep
 
Variance
 
30 Sep
 
30 Jun
 
30 Sep
 
 
 
2020
 
2019
 
9M20 vs. 9M19
 
2020
 
2020
 
2019
 
 
Footnotes
 
$m
 
$m
 
$m
 
%
 
$m
 
$m
 
$m
 
Retail Banking
 
 
9,895 
 
 
11,639 
 
 
(1,744)
 
 
(15)
 
 
2,999 
 
 
3,133 
 
 
3,990 
 
 
-  net interest income
 
 
8,987 
 
 
10,394 
 
 
(1,407)
 
 
(14)
 
 
2,686 
 
 
2,882 
 
 
3,585 
 
 
-  non-interest income
 
 
908 
 
 
1,245 
 
 
(337)
 
 
(27)
 
 
313 
 
 
251 
 
 
405 
 
 
Wealth Management
 
 
5,765 
 
 
6,491 
 
 
(726)
 
 
(11)
 
 
2,160 
 
 
2,214 
 
 
1,983 
 
 
-  investment distribution
 
 
2,473 
 
 
2,541 
 
 
(68)
 
 
(3)
 
 
872 
 
 
726 
 
 
844 
 
 
-  life insurance manufacturing
 
 
1,188 
 
 
1,780 
 
 
(592)
 
 
(33)
 
 
601 
 
 
800 
 
 
408 
 
 
-  Global Private Banking
 
 
1,339 
 
 
1,410 
 
 
(71)
 
 
(5)
 
 
418 
 
 
420 
 
 
485 
 
 
net interest income
 
 
514 
 
 
668 
 
 
(154)
 
 
(23)
 
 
142 
 
 
163 
 
 
227 
 
 
non-interest income
 
 
825 
 
 
742 
 
 
83 
 
 
11 
 
 
276 
 
 
257 
 
 
258 
 
 
-  asset management
 
 
765 
 
 
760 
 
 
 
 
 
 
269 
 
 
268 
 
 
246 
 
 
Other
 
1
 
356 
 
 
574 
 
 
(218)
 
 
(38)
 
 
93 
 
 
148 
 
 
171 
 
 
Balance Sheet Management, Holdings interest expense and Argentina hyperinflation
 
 
676 
 
 
388 
 
 
288 
 
 
74 
 
 
189 
 
 
248 
 
 
86 
 
 
Net operating income
 
2
 
16,692 
 
 
19,092 
 
 
(2,400)
 
 
(13)
 
 
5,441 
 
 
5,743 
 
 
6,230 
 
 
RoTE excluding significant items and UK bank levy (annualised) (%)
 
 
7.6
 
17.9 
 
 
 
 
 
 
 
 
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 change in expected credit losses and other credit impairment charges (also referred to as 'revenue').
 
9M20 compared with 9M19
 
Adjusted profit before tax of $3.1bn was $3.7bn or 54% lower than in 9M19. This reflected a fall in adjusted revenue and an increase in adjusted ECL from the impact of the Covid-19 outbreak. The reduction in revenue was mainly as a result of the fall in interest rates, which adversely affected deposit margins. There was lower revenue in life insurance manufacturing, which included negative market impacts due to a fall in equity markets in 1Q20, although these losses partly reversed in 2Q20 and 3Q20 as equity markets recovered.
 
Adjusted revenue of $16.7bn was $2.4bn or 13% lower, and included the non-recurrence of 9M19 disposal gains in Argentina and Mexico of $133m.
 
In Retail Banking, revenue of $9.9bn was down $1.7bn or 15%.
 
●    Net interest income was $1.4bn lower due to narrower margins as global interest rates fell as a result of the Covid-19 outbreak. This reduction was partly offset by deposit balance growth of $57bn or 9%, particularly in Hong Kong and the UK, and higher mortgage lending, mainly in the UK.
 
●    Non-interest income fell by $0.3bn from lower fee income earned on unsecured lending products.
 
In Wealth Management, revenue of $5.8bn was down $0.7bn or 11%.
 
●    In life insurance manufacturing, revenue fell by $0.6bn or 33%, which included an adverse movement in market impacts of $159m (an adverse movement of $218m in 9M20 compared with an adverse movement of $59m in 9M19). The value of new business written fell by $0.4bn or 37% due to a reduction in volumes resulting from the Covid-19 outbreak, in part mitigated by continued actions to support customers by improving our digital channels.
 
●    In investment distribution, revenue was $0.1bn or 3% lower, reflecting adverse market conditions in Hong Kong, which resulted in lower mutual fund sales. This was partly offset by higher brokerage fees from increased transaction volumes.
 
●    In Global Private Banking, revenue was $0.1bn or 5% lower, as net interest income fell as a result of the fall in global interest rates, although investment revenue increased, reflecting market volatility and higher fees from advisory and discretionary mandates.
 
Adjusted ECL of $2.5bn were $1.6bn higher than in 9M19, reflecting the global impact of the Covid-19 outbreak on the forward economic outlook, mainly recorded in the first half of 2020. The increase also included higher charges, notably in the UK, Asia and the US against unsecured lending, driven by moderate credit deterioration.
 
Adjusted operating expenses of $11.0bn were $0.4bn or 3% lower, as a decrease in performance-related pay accrual and reduced discretionary expenditure more than offset the impact of inflation and our continued investment in digital and wealth initiatives.
 
 
 
3Q20 compared with 3Q19
 
Adjusted profit before tax of $1.4bn was $0.5bn or 28% lower than in 3Q19. This reflected a $0.8bn or 13% fall in adjusted revenue due to the impact of lower interest rates in Retail Banking and Global Private Banking, partly offset by a favourable movement in market impacts in life insurance manufacturing. The fall in revenue was partly offset by a $0.2bn or 4% reduction in adjusted operating expenses, reflecting a lower performance-related pay accrual and reduced discretionary expenditure, as well as a $0.1bn reduction in adjusted ECL.
 
Commercial Banking - adjusted results
 
Management view of adjusted revenue
 
 
Nine months ended
 
Quarter ended
 
 
 
30 Sep
 
30 Sep
 
Variance
 
30 Sep
 
30 Jun
 
30 Sep
 
 
 
2020
 
2019
 
9M20 vs. 9M19
 
2020
 
2020
 
2019
 
 
Footnotes
 
$m
 
$m
 
$m
 
%
 
$m
 
$m
 
$m
 
Global Trade and Receivables Finance
 
 
1,321 
 
 
1,388 
 
 
(67)
 
 
(5)
 
 
429 
 
 
432 
 
 
467 
 
 
Credit and Lending
 
 
4,183 
 
 
4,072 
 
 
111 
 
 
 
 
1,442 
 
 
1,394 
 
 
1,387 
 
 
Global Liquidity and Cash Management
 
 
3,283 
 
 
4,497 
 
 
(1,214)
 
 
(27)
 
 
936 
 
 
1,034 
 
 
1,510 
 
 
Markets products, Insurance and Investments, and Other
 
1
 
1,231 
 
 
1,515 
 
 
(284)
 
 
(19)
 
 
341 
 
 
421 
 
 
460 
 
 
Balance Sheet Management, Holdings interest expense and Argentina hyperinflation
 
 
147 
 
 
(26)
 
 
173 
 
 
>200
 
17 
 
 
62 
 
 
(24)
 
 
Net operating income
 
2
 
10,165 
 
 
11,446 
 
 
(1,281)
 
 
(11)
 
 
3,165 
 
 
3,343 
 
 
3,800 
 
 
RoTE excluding significant items and UK bank levy (annualised) (%)
 
 
1.1 
 
 
14.0 
 
 
 
 
 
 
 
 
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 change in expected credit losses and other credit impairment charges (also referred to as 'revenue').
 
9M20 compared with 9M19
 
Adjusted profit before tax of $1.4bn was $4.2bn or 75% lower than in 9M19. Adjusted ECL were higher, reflecting the impact of the Covid-19 outbreak, and adjusted revenue fell, which was primarily due to the impact of lower interest rates.
 
Adjusted revenue of $10.2bn was $1.3bn or 11% lower.
 
●    In GLCM, revenue decreased by $1.2bn or 27% due to the impact of the lower global interest rate environment, mainly in Hong Kong and the UK. This was partly offset by a 15% increase in average deposit balances, across all regions, particularly in the UK and the US.
 
●    In Global Trade and Receivables Finance ('GTRF'), revenue decreased by $67m or 5% from lower fees and lending balances, notably in Hong Kong and the UK, reflecting a reduction in global trade volumes as a result of the Covid-19 outbreak. This was partly offset by wider margins in Asia and Latin America.
 
●    In 'Other' products, revenue was $0.3bn lower, reflecting the impact of lower interest rates on income earned on capital held in the business, as well as lower revenue from Insurance, Investments and Markets products. In addition, 9M19 included a disposal gain of $24m in Latin America.
 
This was partly offset:
 
●    In Credit and Lending, revenue increased by $0.1bn or 3%, reflecting growth in average balances driven by the uptake of government-backed lending schemes.
 
Adjusted ECL of $3.9bn were $3.0bn higher than in 9M19. The increase reflected the global impact of the Covid-19 outbreak on the forward economic outlook, mainly in the UK and Asia. There were charges against specific customers in 9M20, particularly in the oil and gas and wholesale trade sectors, including a significant charge related to a corporate exposure in Singapore in 1Q20.
 
Adjusted operating expenses of $4.9bn were $0.1bn or 2% lower, reflecting a reduction in performance-related pay accrual and as we maintained control of discretionary expenditure, while we continued to invest in digital and transaction banking capabilities to improve customer experience.
 
In 2020, we delivered around $10bn of RWA reductions as part of our transformation programme. This partly mitigated growth of $13bn due to asset quality deterioration.
 
3Q20 compared with 3Q19
 
Adjusted profit before tax of $1.2bn was $0.5bn or 28% lower than in 3Q19, primarily reflecting the impact of lower interest rates, notably on revenue in GLCM, which fell by $0.6bn. These decreases were partly offset by a reduction in adjusted operating expenses of $0.1bn, as we controlled discretionary expenditure while continuing to invest, and from a reduction of $47m in our adjusted ECL charge.
 
Global Banking and Markets - adjusted results
 
Management view of adjusted revenue
 
 
 
 
 
Nine months ended
 
Quarter ended
 
 
 
30 Sep
 
30 Sep
 
Variance
 
30 Sep
 
30 Jun
 
30 Sep
 
 
 
2020
 
2019
 
9M20 vs. 9M19
 
2020
 
2020
 
2019
 
 
Footnotes
 
$m
 
$m
 
$m
 
%
 
$m
 
$m
 
$m
 
Global Markets
 
 
5,859 
 
 
4,468 
 
 
1,391 
 
 
31 
 
 
1,588 
 
 
2,177 
 
 
1,373 
 
 
-  FICC
 
 
5,209 
 
 
3,655 
 
 
1,554 
 
 
43 
 
 
1,296 
 
 
2,107 
 
 
1,163 
 
 
Foreign Exchange
 
 
2,683 
 
 
1,995 
 
 
688 
 
 
34 
 
 
766 
 
 
803 
 
 
720 
 
 
Rates
 
 
1,583 
 
 
1,175 
 
 
408 
 
 
35 
 
 
232 
 
 
685 
 
 
311 
 
 
Credit
 
 
943 
 
 
485 
 
 
458 
 
 
94 
 
 
298 
 
 
619 
 
 
132 
 
 
-  Equities
 
 
650 
 
 
813 
 
 
(163)
 
 
(20)
 
 
292 
 
 
70 
 
 
210 
 
 
Securities Services
 
1
 
1,353 
 
 
1,502 
 
 
(149)
 
 
(10)
 
 
409 
 
 
444 
 
 
516 
 
 
Global Banking
 
1
 
2,897 
 
 
2,877 
 
 
20 
 
 
 
 
953 
 
 
1,024 
 
 
990 
 
 
Global Liquidity and Cash Management
 
 
1,552 
 
 
2,047 
 
 
(495)
 
 
(24)
 
 
457 
 
 
494 
 
 
690 
 
 
Global Trade and Receivables Finance
 
 
584 
 
 
601 
 
 
(17)
 
 
(3)
 
 
192 
 
 
204 
 
 
202 
 
 
Principal Investments
 
 
40 
 
 
215 
 
 
(175)
 
 
(81)
 
 
52 
 
 
226 
 
 
94 
 
 
Credit and funding valuation adjustments
 
 
(322)
 
 
(153)
 
 
(169)
 
 
(110)
 
 
32 
 
 
(9)
 
 
(167)
 
 
Other
 
2
 
(453)
 
 
(532)
 
 
79 
 
 
15 
 
 
(153)
 
 
(145)
 
 
(201)
 
 
Balance Sheet Management, Holdings interest expense and Argentina hyperinflation
 
 
282 
 
 
79 
 
 
203 
 
 
>200
 
84 
 
 
108 
 
 
18 
 
 
Net operating income
 
3
 
11,792 
 
 
11,104 
 
 
688 
 
 
 
 
3,614 
 
 
4,523 
 
 
3,515 
 
 
RoTE excluding significant items and UK bank levy (annualised) (%)
 
 
6.9
 
10.0 
 
 
 
 
 
 
 
 
1   From 1 June 2020, revenue from Issuer Services, previously reported in Securities Services, was reported within Global Banking. This resulted in $55m additional revenue being recorded in Global Banking for 9M20 (3Q20: $40m). Comparatives have not been restated.
2   'Other' in GBM 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'.
3   'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').
 
9M20 compared with 9M19
 
Adjusted profit before tax of $3.8bn was $0.2bn lower than in 9M19, mainly due to higher adjusted ECL, which reflected the global impact of the Covid-19 outbreak and included charges relating to specific exposures. The rise in adjusted ECL was partly offset by higher adjusted revenue and from lower adjusted operating expenses.
 
Adjusted revenue of $11.8bn increased by $0.7bn compared with 9M19, which included adverse movements in credit and funding valuation adjustments of $0.2bn. We grew adjusted revenue while reducing adjusted RWAs by $29bn, compared with 30 September 2019.
 
●    In Global Markets, revenue increased by $1.4bn or 31%, as higher volatility levels supported an improved FICC performance, particularly in Credit, in both primary and secondary markets, and in Foreign Exchange. Rates also had a strong performance due to increased trading activity in government bonds.
 
●    In Global Banking, revenue of $2.9bn remained broadly unchanged. Revenue in capital markets increased and corporate lending net interest income rose due to higher average balances. These were offset by lower real estate and structured finance fee income as well as losses on legacy corporate restructuring positions.
 
These were partly offset by:
 
●    In GLCM, revenue decreased $0.5bn or 24% due to the impact of lower global interest rates, although average balances grew, notably in the US, the UK and Asia.
 
●    In Principal Investments, revenue fell by $0.2bn, reflecting revaluation losses incurred in 1Q20 as a result of the Covid-19 outbreak, mainly in Europe, which partly reversed in the remainder of the period.
 
●    In Securities Services, revenue fell by $0.1bn or 10%, due to lower interest rates, notably in Asia and Europe, although fees increased.
 
●    In GTRF, revenue decreased by $17m or 3%, reflecting lower fees in Europe, partly offset by higher net interest income in Asia.
 
Adjusted ECL were $1.2bn, up $1.1bn compared with 9M19 from charges relating to the global impact of the Covid-19 outbreak on the forward economic outlook, and as charges against a small number of clients in 9M20 were higher than those recorded in 9M19.
 
Adjusted operating expenses of $6.8bn were $0.2bn or 3% lower, primarily from a lower performance-related pay accrual, which more than offset growth in regulatory programme costs and investments in technology.
 
In 9M20, RWAs fell by $8bn. We delivered around $30bn of RWA reductions as part of our transformation programme. This mitigated growth in RWAs from asset quality deterioration, increased activity on client facilities and elevated market volatility as a result of the Covid-19 outbreak, as well as from regulatory changes.
 
 
3Q20 compared with 3Q19
 
Adjusted profit before tax of $1.2bn was unchanged compared with 3Q19.
 
Adjusted revenue was $0.1bn or 3% higher, reflecting a $0.2bn or 16% increase in Global Markets, as ongoing market volatility resulted in an improved performance in FICC, and from favourable movements in credit and funding valuation adjustments of $0.2bn. This increase was partly offset by the impact of lower global interest rates, leading to a reduction of $0.2bn in GLCM and $0.1bn in Securities Services. The increase in adjusted revenue was largely offset by higher adjusted ECL, which rose by $80m to $100m, from higher charges against specific customers and provisions relating to the Covid-19 outbreak, although adjusted operating expenses remained broadly unchanged.
 
Corporate Centre - adjusted results
 
Management view of adjusted revenue
 
 
Nine months ended
 
Quarter ended
 
 
 
30 Sep
 
30 Sep
 
Variance
 
30 Sep
 
30 Jun
 
30 Sep
 
 
 
2020
 
2019
 
9M20 vs. 9M19
 
2020
 
2020
 
2019
 
 
Footnotes
 
$m
 
$m
 
$m
 
%
 
$m
 
$m
 
$m
 
Central Treasury
 
1
 
169 
 
 
226 
 
 
(57)
 
 
(25)
 
 
(32)
 
 
(64)
 
 
88 
 
 
Legacy portfolios
 
 
(20)
 
 
(124)
 
 
104 
 
 
84 
 
 
28 
 
 
43 
 
 
(41)
 
 
Other
 
2
 
(256)
 
 
(582)
 
 
326 
 
 
56 
 
 
(151)
 
 
(155)
 
 
(245)
 
 
Net operating income
 
3
 
(107)
 
 
(480)
 
 
373 
 
 
78 
 
 
(155)
 
 
(176)
 
 
(198)
 
 
RoTE excluding significant items and UK bank levy (annualised) (%)
 
 
4.6
 
1.3 
 
 
 
 
 
 
 
 
1   Central Treasury includes favourable valuation differences on issued long-term debt and associated swaps of $163m (9M19: gains of $219m; 3Q20: losses of $32m; 2Q20: losses of $64m; 3Q19: gains of $76m).
2   In 2Q20, we began allocating the revenue from BSM, Holdings net interest expense and Argentina hyperinflation out to the global businesses, to align them better with their revenue and expense. The total BSM revenue component of this allocation for 9M20 was $2,206m (9M19: $1,660m; 3Q20: $671m; 2Q20: $783m; 3Q19: $551m).
3   'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').
 
9M20 compared with 9M19
 
Adjusted profit before tax of $1.7bn was $0.3bn higher than in 9M19, and mainly comprised our share of profit in associates and joint ventures, which decreased by $0.4bn due to the impact of falling interest rates and the Covid-19 outbreak. This reduction was more than offset by higher adjusted revenue and lower adjusted operating expenses.
 
Adjusted revenue increased by $0.4bn, mainly in 'Other' income, which increased by $0.3bn due to a net favourable movement of intersegment eliminations that have no impact on Group results. In addition, certain funding costs that were retained in Corporate Centre during 2019 have been allocated to global businesses with effect from 1 January 2020. Revenue in our legacy portfolios rose by $0.1bn due to the non-recurrence of portfolio losses in 9M19. These factors were partly offset by lower favourable fair value movements of $56m relating to the economic hedging of interest rate and exchange rate risk on our long-term debt with associated swaps.
 
Adjusted operating expenses, which are stated after recovery of costs from our global businesses, decreased by $0.3bn due to lower discretionary expenditure.
 
3Q20 compared with 3Q19
 
Adjusted profit before tax of $0.5bn was $0.1bn lower than in 3Q19. This was primarily due to a reduction in share of profit from BoCom, reflecting the impact of the Covid-19 outbreak. In addition, operating expenses increased by $0.1bn. These factors were partly offset by higher revenue, which included favourable valuation movements in legacy credit in 3Q20, compared with adverse movements in 3Q19.
 
Balance sheet - 30 September 2020 compared with 30 June 2020
 
At 30 September 2020, our total assets of $3.0tn were $33bn higher on a reported basis, and included the favourable effects of foreign currency translation differences. On a constant currency basis, our total assets were $37bn lower.
 
This reduction in total assets, on a constant currency basis, reflected lower derivative asset balances, notably from adverse revaluation movements as market volatility fell compared with 30 June 2020. The reduction also included a decline in financial assets as we decreased our holdings of treasury bills and debt securities. These were partly offset by a rise in cash and balances at central banks as we maintained our liquidity to support customers.
 
Loans and advances to customers as a percentage of customer accounts were 66.4%, a decrease of 0.2% compared with 30 June 2020.
 
Loans and advances to customers
 
Reported loans and advances to customers of $1.0tn were $23bn higher, which included favourable effects of foreign currency translation differences of $23bn. On a constant currency basis, customer lending balances were broadly in line with 2Q20.
 
Customer lending increased in WPB by $19bn to $460bn. This was mainly due to an increase in term lending in Hong Kong (up $11bn), as customers borrowed to fund investments in initial public offerings, as well as from higher mortgage balances, mainly in the UK (up $5bn), as activity in the housing market rose after lockdown restrictions were eased. In CMB, lending of $344bn was $8bn lower, mainly from a reduction in term lending in the US, Asia and Europe. In GBM, lending of $237bn fell by $11bn, mainly from lower term lending in Asia and the US, partly offset by higher overdraft balances in the UK.
 
Customer accounts
 
Customer accounts of $1.6tn increased by $36bn on a reported basis, including favourable foreign currency translation differences of $33bn. On a constant currency basis, customer accounts were broadly in line with 2Q20 across all of our global businesses. This reflected customers continuing to hold consolidated funds. There has been a movement of funds from term accounts to call accounts as customers show a preference for liquidity while interest rates are low.
 
Risk-weighted assets - 30 September 2020 compared with 30 June 2020
 
Risk-weighted assets ('RWAs') totalled $857.0bn at 30 September 2020, a $2.4bn increase compared with 2Q20. Excluding foreign currency translation differences, RWAs decreased by $11.8bn.
 
A $10.8bn decrease in RWAs due to asset size movements reflected lending reduction of $14.2bn in GBM and CMB, including the effect of management initiatives, and a fall in market risk RWAs of $5.3bn. The reduction was partly offset by an $8.9bn increase in WPB, mostly in short-term lending in Hong Kong.
 
A $4.3bn reduction in RWAs due to changes in methodology and policy was primarily due to GBM and CMB initiatives in Asia and Europe. Changes in asset quality increased RWAs by $3.0bn, which included the impact of credit migration of $7.3bn, mostly in CMB and GBM, largely offset by decreases due to changes in portfolio mix.
 
 
Net interest margin
 
 
 
Nine months ended
 
Quarter ended
 
 
 
30 Sep
 
30 Sep
 
30 Sep
 
30 Jun
 
30 Sep
 
 
 
2020
 
2019
 
2020
 
2020
 
2019
 
 
Footnotes
 
$m
 
$m
 
$m
 
$m
 
$m
 
Net interest income
 
 
20,959 
 
 
22,808 
 
 
6,450 
 
 
6,897 
 
 
7,568 
 
 
Average interest-earning assets
 
 
2,070,703 
 
 
1,915,149 
 
 
2,141,454 
 
 
2,078,178 
 
 
1,919,955 
 
 
 
 
%
 
%
 
%
 
%
 
%
 
Gross interest yield
 
1
 
2.09 
 
 
2.89 
 
 
1.76 
 
 
2.01 
 
 
2.83 
 
 
Less: cost of funds
 
1
 
(0.89)
 
 
(1.53)
 
 
(0.68)
 
 
(0.81)
 
 
(1.49)
 
 
Net interest spread
 
2
 
1.20 
 
 
1.36 
 
 
1.08 
 
 
1.20 
 
 
1.34 
 
 
Net interest margin
 
3
 
1.35 
 
 
1.59 
 
 
1.20 
 
 
1.33 
 
 
1.56 
 
 
 
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 1.35% was 24 basis points ('bps') lower compared with 9M19, as the reduction in the yield on AIEA of 80bps was partly offset by the fall in funding cost of average interest-bearing liabilities of 64bps. The decrease in NIM in 9M20 included the favourable impact of significant items and the adverse effects of foreign currency translation differences. Excluding these, NIM fell by 23bps.
 
NIM for 3Q20 was 1.20%, down 36bps compared with the previous year, and down 13bps compared with the previous quarter, predominantly driven by the impact of lower market interest rates.
 
Notes
 
●    Income statement comparisons, unless stated otherwise, are between the nine-month period ended 30 September 2020 and the nine-month period ended 30 September 2019. Balance sheet comparisons, unless otherwise stated, are between balances at 30 September 2020 and the corresponding balances at 30 June 2020.
 
●    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.
 
●    Based on our results for 2020 and our forecasts for 2021, the Board will consider whether to pay a conservative dividend for 2020. Any such dividend would be dependent on the economic outlook in early 2021, and be subject to regulatory consultation. A final determination is expected to be made and communicated in February 2021 with our 2020 full-year results. We also expect to communicate our revised policy for dividends for 2021 and beyond at the same time.
 
Cautionary statement regarding forward-looking statements
 
This Earnings Release 3Q20 contains certain forward-looking statements with respect to HSBC's: financial condition; results of operations and business, including the strategic priorities; 2020 financial, investment and capital targets; and ESG targets/commitments 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, information, data, 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.
 
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 will have adverse impacts on our income due to lower lending and transaction volumes, lower wealth and insurance manufacturing revenue, and lower or negative interest rates in markets where we operate, as well as, more generally, the potential for 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 or the UK's exit from the EU); 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; geopolitical tensions or diplomatic developments producing social instability or legal uncertainty, such as the unrest in Hong Kong, the existing US-China tensions and the emerging challenges in UK-China relations, which in turn may affect demand for our products and services and could result in (among other things) regulatory, reputational and market risks for HSBC; the efficacy of government, customer, and HSBC's actions in managing and mitigating 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; societal shifts in customer financing and investment needs, including 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; passage of the Hong Kong national security law and restrictions on telecommunications, as well as the US Hong Kong Autonomy Act, which have caused tensions between China, the US and the UK; 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 financial, investment, capital and ESG targets/commitments, which may result in our failure to achieve any of the expected benefits of our strategic initiatives; model limitations or failure, including, without limitation, the impact that the consequences of the Covid-19 outbreak have had on the performance and usage of financial models, which may require us to hold additional capital, incur losses and/or use compensating controls, such as overlays and overrides, to address model limitations; changes to the judgements, 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 diverse 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
 
 
Summary consolidated income statement
 
 
 
Nine months ended
 
Quarter ended
 
 
30 Sep
 
30 Sep
 
30 Sep
 
30 Jun
 
30 Sep
 
 
2020
 
2019
 
2020
 
2020
 
2019
 
 
$m
 
$m
 
$m
 
$m
 
$m
 
Net interest income
 
20,959 
 
22,808 
 
6,450 
 
6,897 
 
7,568 
 
Net fee income
 
8,907 
 
9,085 
 
2,981 
 
2,803 
 
2,961 
 
Net income from financial instruments held for trading or managed on a fair value basis
 
7,768 
 
7,877 
 
2,000 
 
2,404 
 
2,546 
 
Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss
 
(254)
 
2,318 
 
1,036 
 
2,290 
 
122 
 
Changes in fair value of designated debt and related derivatives1
 
278 
 
149 
 
81 
 
(49)
 
61 
 
Changes in fair value of other financial instruments mandatorily measured at fair valuethrough profit or loss
 
259 
 
617 
 
179 
 
453 
 
160 
 
Gains less losses from financial investments
 
599 
 
316 
 
133 
 
154 
 
115 
 
Net insurance premium income
 
7,798 
 
9,047 
 
2,779 
 
2,110 
 
2,724 
 
Other operating income
 
805 
 
2,935 
 
334 
 
67 
 
863 
 
Total operating income
 
47,119 
 
55,152 
 
15,973 
 
17,129 
 
17,120 
 
Net insurance claims and benefits paid and movement in liabilities to policyholders
 
(8,447)
 
(12,425)
 
(4,046)
 
(4,070)
 
(3,765)
 
Net operating income before change in expected credit losses and other credit impairment charges2
 
38,672 
 
42,727 
 
11,927 
 
13,059 
 
13,355 
 
Change in expected credit losses and other credit impairment charges
 
(7,643)
 
(2,023)
 
(785)
 
(3,832)
 
(883)
 
Net operating income
 
31,029 
 
40,704 
 
11,142 
 
9,227 
 
12,472 
 
Total operating expenses excluding impairment of goodwill and other intangible assets
 
(23,207)
 
(25,268)
 
(7,968)
 
(7,451)
 
(8,143)
 
Impairment of goodwill and other intangible assets
 
(1,361)
 
(28)
 
(73)
 
(1,224)
 
(4)
 
Operating profit
 
6,461 
 
15,408 
 
3,101 
 
552 
 
4,325 
 
Share of profit in associates and joint ventures
 
931 
 
1,836 
 
(27)
 
537 
 
512 
 
Profit before tax
 
7,392 
 
17,244 
 
3,074 
 
1,089 
 
4,837 
 
Tax expense
 
(2,228)
 
(3,512)
 
(1,035)
 
(472)
 
(1,042)
 
Profit after tax
 
5,164 
 
13,732 
 
2,039 
 
617 
 
3,795 
 
Attributable to:
 
 
 
 
 
 
-  ordinary shareholders of the parent company
 
3,336 
 
11,478 
 
1,359 
 
192 
 
2,971 
 
-  preference shareholders of the parent company
 
67 
 
67 
 
22 
 
23 
 
22 
 
-  other equity holders
 
1,066 
 
1,148 
 
449 
 
176 
 
484 
 
-  non-controlling interests
 
695 
 
1,039 
 
209 
 
226 
 
318 
 
Profit after tax
 
5,164 
 
13,732 
 
2,039 
 
617 
 
3,795 
 
 
$
 
$
 
$
 
$
 
$
 
Basic earnings per share
 
0.17
 
0.57
 
0.07 
 
0.01 
 
0.15
 
Diluted earnings per share
 
0.16
 
0.57
 
0.07 
 
0.01 
 
0.15
 
Dividend per ordinary share3
 
 
0.41
 
 
 
0.10
 
 
%
 
%
 
%
 
%
 
%
 
Return on average ordinary shareholders' equity (annualised)
 
2.7 
 
9.2 
 
3.2 
 
0.5 
 
7.0 
 
Return on average tangible equity (annualised)
 
3.5 
 
9.5 
 
2.9 
 
3.5 
 
6.4 
 
Cost efficiency ratio
 
63.5 
 
59.2 
 
67.4 
 
66.4 
 
61.0 
 
 
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 and paid in the period and are not dividends in respect of, or for, that period.
 
Summary consolidated balance sheet
 
 
 
At
 
 
30 Sep
 
30 Jun
 
31 Dec
 
 
2020
 
2020
 
2019
 
 
$m
 
$m
 
$m
 
Assets
 
 
 
 
Cash and balances at central banks
 
285,508 
 
 
249,673 
 
 
154,099 
 
 
Trading assets
 
222,355 
 
 
208,964 
 
 
254,271 
 
 
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss
 
44,253