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HSBC HOLDINGS PLC Announces 2021 Results - Highlights

22 February 2022

Hamilton, Bermuda: 22^nd, February 2022 – In a filing with the Bermuda Stock Exchange (“BSX”), HSBC Holdings plc (Ticker: HSBC.BH) announced their 2021 Results - Highlights. The full filing stated:

22 February 2022

HSBC HOLDINGS PLC

2021 RESULTS – HIGHLIGHTS

Noel Quinn, Group Chief Executive, said:

“We made good progress against our strategy in 2021, which contributed to a strong financial performance that was supported by the global economic recovery. All of our regions were profitable and we saw growth in the fourth quarter of 2021 in many of our business lines.

We have good momentum coming into 2022 and are confident that we can continue to execute against our strategy. We also remain cognisant of the potential impact that further Covid-19-related uncertainty and continued inflation might have on us and our clients.”

2021 financial performance (vs 2020)

• Reported profit after tax up $8.6bn to $14.7bn and reported profit before tax up $10.1bn to $18.9bn. The increase was driven by a net release of expected credit losses and other credit impairment charges (‘ECL’) and a higher share of profit from our associates. Adjusted profit before tax up 79% to $21.9bn.

• All regions were profitable in 2021, notably HSBC UK Bank plc, where reported profit before tax increased by $4.5bn to $4.8bn. Our Asia operations contributed $12.2bn to reported profit before tax and all other regions reported a material recovery in profitability, reflecting favourable ECL movements.

• Reported revenue down 2% to $49.6bn, primarily reflecting the impact of lower global interest rates and a decrease in revenue in Markets and Securities Services (‘MSS’) compared with a strong comparative period. Notwithstanding these factors, we saw revenue growth in areas of strategic focus, including Wealth, in part due to favourable market impacts in life insurance manufacturing, and Global Trade and Receivables Finance (‘GTRF’). Adjusted revenue down 3% to $50.1bn.

• Net interest margin (‘NIM’) of 1.20%, down 12 basis points (‘bps’) from 2020, with stabilisation in the second half of 2021.

• Reported ECL were a net release of $0.9bn, compared with an $8.8bn charge in 2020, reflecting an improvement in economic conditions relative to 2020, and better than expected levels of credit performance.

• Reported operating expenses broadly unchanged at $34.6bn. Adjusted operating expenses down 1% to $32.1bn, despite inflationary pressures, as the impact of our cost-saving initiatives and a reduction in the UK bank levy charge absorbed higher performance-related pay and continued growth in technology investment.

• Customer lending balances in 2021 up $8bn on a reported basis and $23bn on a constant currency basis, primarily driven by growth in mortgage balances, mainly in the UK and Hong Kong.

• Common equity tier 1 (‘CET1’) capital ratio of 15.8%, down 0.1 percentage points. Capital generation was more than offset by dividends, the up to $2bn share buy-back announced in October, foreign exchange movements and other deductions. Risk-weighted assets (‘RWAs’) reduced despite new Pillar 1 requirements for structural foreign exchange, reflecting actions under our transformation programme.

• The Board has approved a second interim dividend of $0.18 per share, making a total for 2021 of $0.25 per share. We also intend to initiate a further share buy-back of up to $1bn, to commence after the existing up to $2bn buy-back has concluded.

4Q21 financial performance (vs 4Q20)

• Reported profit after tax up $1.1bn to $2.0bn and reported profit before tax up $1.3bn to $2.7bn, reflecting lower ECL charges, lower operating expenses and revenue growth. Adjusted profit before tax up 79% to $4.0bn.

• Reported revenue up 2% to $12.0bn, mainly in Commercial Banking (‘CMB’) from growth in Credit and Lending and GTRF.

Adjusted revenue up 2% to $12.1bn.

• Reported ECL were a net charge of $0.5bn, which included an increase in allowances to reflect recent developments in China’s commercial real estate sector.

• Reported operating expenses down 3% to $9.5bn due to a lower UK bank levy and further cost savings, partly offset by a $0.6bn impairment of goodwill related to our Wealth and Personal Banking (‘WPB’) business in Latin America. Adjusted operating expenses down 8% to $8.3bn.

Outlook

We carry good business momentum into 2022 in most areas and expect mid-single-digit lending growth over the year. However, we expect a weaker Wealth performance in Asia in the first quarter of 2022.

We expect ECL charges to normalise towards 30bps of average loans in 2022, based on current consensus economic forecasts and default experience, noting we retain $0.6bn of Covid-19-related allowances as at the end of 2021. Uncertainty remains given recent developments in China’s commercial real estate sector, while inflationary pressures persist in many of our markets.

We continue to target 2022 adjusted operating expenses in line with 2021, despite inflationary pressures, with cost to achieve spend of $3.4bn expected to generate over $2bn of cost savings in 2022. In 2023, we intend to manage growth in adjusted operating expenses to within a range of 0% to 2%, compared with 2022 (on an IFRS 4 basis), with cost savings of at least $0.5bn from actions taken in 2022 helping to offset inflation.

We expect mid-single-digit RWA growth in 2022 through a combination of business growth, acquisitions and regulatory changes, partly offset by additional RWA savings. This growth, together with capital returns are expected to normalise our CET1 position to be within our 14% to 14.5% target operating range during 2022.

Our net interest income outlook is now significantly more positive. If policy rates were to follow the current implied market consensus, we would expect to deliver a RoTE of at least 10% for 2023, one year ahead of our previous expectations.

We continue to target dividends within our 40% to 55% dividend payout ratio range.

Key financial metrics

	For the year ended
Reported results	2021	2020	2019
Reported revenue ($m)	49,552	50,429	56,098
Reported profit before tax ($m)	18,906	8,777	13,347
Reported profit after tax ($m)	14,693	6,099	8,708
Profit attributable to the ordinary shareholders of the parent company ($m)	12,607	3,898	5,969
Cost efficiency ratio (%)	69.9	68.3	75.5
Net interest margin (%)	1.20	1.32	1.58
Basic earnings per share ($)	0.62	0.19	0.30
Diluted earnings per share ($)	0.62	0.19	0.30
Dividend per ordinary share (in respect of the period) ($)	0.25	0.15	0.30
Dividend payout ratio (%)¹	40.3	78.9	100.0
Alternative performance measures
Adjusted revenue ($m)	50,090	51,770	56,435
Adjusted profit before tax ($m)	21,916	12,271	22,681
Adjusted cost efficiency ratio (%)	64.2	62.6	59.5
Expected credit losses and other credit impairment charges (‘ECL’) as % of average gross loans and advances to	(0.09)
customers (%)	(0.09)	0.87	0.26

Return on average ordinary shareholders’ equity (%)	7.1	2.3	3.6
Return on average tangible equity (%)²	8.3	3.1	8.4

		At 31 Dec
Balance sheet	2021	2020	2019
Total assets ($m)	2,957,939	2,984,164	2,715,152
Net loans and advances to customers ($m)	1,045,814	1,037,987	1,036,743
Customer accounts ($m)	1,710,574	1,642,780	1,439,115
Average interest-earning assets ($m)	2,209,513	2,092,900	1,922,822
Loans and advances to customers as % of customer accounts (%)	61.1	63.2	72.0
Total shareholders’ equity ($m)	198,250	196,443	183,955
Tangible ordinary shareholders’ equity ($m)	158,193	156,423	144,144
Net asset value per ordinary share at period end ($)	8.76	8.62	8.00
Tangible net asset value per ordinary share at period end ($)	7.88	7.75	7.13
Capital, leverage and liquidity
Common equity tier 1 capital ratio (%)³	15.8	15.9	14.7
Risk-weighted assets ($m)³	838,263	857,520	843,395
Total capital ratio (%)³	21.2	21.5	20.4
Leverage ratio (%)³	5.2	5.5	5.3
High-quality liquid assets (liquidity value) ($bn)	717	678	601
Liquidity coverage ratio (%)	138	139	150
Share count
Period end basic number of $0.50 ordinary shares outstanding (millions)	20,073	20,184	20,206
Period end basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions)	20,189	20,272	20,280
Average basic number of $0.50 ordinary shares outstanding (millions)	20,197	20,169	20,158

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For reconciliations of our reported results to an adjusted basis, including lists of significant items, see page 98 of the Annual Report and Accounts 2021. Definitions and calculations of other alternative performance measures are included in our ‘Reconciliation of alternativeperformance measures’ on page 117 of the Annual Report and Accounts 2021.

1 Dividend per ordinary share, in respect of the period, expressed as a percentage of basic earning per share.

• 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).

Unless otherwise stated, regulatory capital ratios and requirements are based on the transitional arrangements of the Capital Requirements Regulation in force at the time. These include the regulatory transitional arrangements for IFRS 9 ‘Financial Instruments’, which are explained further on page 195 of the Annual Report and Accounts 2021. Leverage ratios are calculated using the end point definition of capital and the IFRS 9 regulatory transitional arrangements. References to EU regulations and directives (including technical standards) should be read as references to the UK’s version of such regulation and/or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, and as may be subsequently amended under UK law.

Highlights

	Year ended 31 Dec

	2021	2020
	$m	$m

Reported
Revenue¹	49,552	50,429
ECL	928	(8,817)
Operating expenses	(34,620)	(34,432)
Share of profit in associates and joint ventures	3,046	1,597
Profit before tax	18,906	8,777
Adjusted²
Revenue¹	50,090	51,770
ECL	928	(9,282)
Operating expenses	(32,148)	(32,409)
Share of profit in associates and joint ventures	3,046	2,192
Profit before tax	21,916	12,271
Significant items affecting adjusted performance
Revenue
Customer redress programmes	11	(21)
Disposals, acquisitions and investment in new businesses	—	(10)
Fair value movements on financial instruments³	(242)	264
Restructuring and other related costs	(307)	(170)
Operating expenses
Customer redress programmes	(49)	54
Impairment of goodwill and other intangibles	(587)	(1,090)
Past service costs of guaranteed minimum pension benefits equalisation	—	(17)
Restructuring and other related costs	(1,836)	(1,908)
Settlements and provisions in connection with legal matters and other regulatory matters	—	(12)
Share of profit in associates and joint ventures
Impairment of goodwill	—	(462)

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1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

3 Adjusted performance is computed by adjusting reported results for the year-on-year effects of foreign currency translation differences and significant items which distort year-on-year comparisons.

3 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.

Statement by Mark E Tucker, Group Chairman

2021 was another challenging year. While Covid-19 vaccines were rolled out globally, some countries dealt with very significant outbreaks and many more operated under various restrictions at different points. As in 2020, this took a huge toll on our customers, our people, the communities we serve and our shareholders.

My colleagues once again demonstrated their resilience, their professionalism and, above all, their exceptional commitment to serving our customers. Our purpose as an organisation is to open up a world of opportunity. Our people have brought this to life in the way they have supported our customers and each other. On behalf of the Board, I would like to thank them warmly for everything they have done, and continue to do.

ESG was another major theme of 2021. The pandemic has exposed the fragility of the planet and society as a whole. It has also created a catalyst for change and highlighted the associated commercial opportunities. Businesses, governments, regulators and investors all continued along their ESG journeys in 2021, as public awareness grew and activism around climate change in particular increased. HSBC has long understood that good ESG performance goes hand-in-hand with good financial performance, and it is now abundantly clear that the action businesses take on sustainability is an important lens through which they are being viewed and assessed by their stakeholders.

Progress

HSBC delivered a good financial performance in 2021. Reported profit before tax was $18.9bn, an increase of $10.1bn as compared with 2020, while adjusted profit before tax was $21.9bn, up 79%. All of our regions were profitable in 2021, supported by the global economic recovery, demonstrating the value of our global network. There was also good growth in focus areas such as Asia wealth and trade. In line with the dividend policy announced in February 2021, the Board approved a second interim dividend for 2021 of $0.18, meaning the full year dividends for 2021 are $0.25.

Good progress has been made in executing our strategic plan. A number of key milestones were reached in 2021 – including resolving the future of our retail businesses in France and the US, the organic build-out of HSBC Personal Wealth Planning in mainland China, and acquisitions in Singapore and India to accelerate the development of our wealth capabilities across Asia. At the same time, our work to digitise HSBC and to play a leading role in the net zero transition has continued at pace. There is more to do – and it will be important to see successive consecutive quarters of growth – but good momentum exists across our businesses.

Board of Directors

Due to ongoing travel restrictions and safety concerns, the Board has not been able to meet in person for two years. We look forward to reconnecting with each other and welcoming those Board members we are yet to meet in person. At the same time, we have come to appreciate the benefits of this new way of working – which include more regular dialogue, less travel and reduced costs – and we will therefore use a hybrid model going forward.

We were pleased to hold our first hybrid AGM in May 2021, which the majority of shareholders attended virtually. It is a matter of deep regret to me, and to the Board as a whole, that we have been unable to meet our loyal Hong Kong shareholders face-to-face. We look forward to doing so again as soon as it is practicable and safe. In the meantime, a hybrid meeting does at least allow for constructive engagement and discussions with shareholders, which we continue to value highly.

At the 2021 AGM, Laura Cha, Henri de Castries and Heidi Miller all retired from the Board. We also recently announced that Irene Lee and Pauline van der Meer Mohr will step down from the Board at the conclusion of our 2022 AGM in April. I am enormously grateful to them all for their important and valuable contributions to the Board, the committees and the subsidiary entities on which they have served. We welcomed Dame Carolyn Fairbairn and Rachel Duan to the Board on 1 September. Both Carolyn and Rachel bring a wealth of skills and expertise that will be of great value to the Board’s discussions.

External environment

The roll-out of vaccines around the world and a robust global economic recovery mean we entered 2022 in a better state than we might have expected a year ago. There are clearly still significant challenges ahead, foremost among which is the uncertainty caused by the spread of the Omicron variant, and potentially other variants in the future. Supply chain bottlenecks, high energy and food prices, surging consumer demand and higher wages have combined to drive up inflation. Central banks have already begun to respond by tightening monetary policy and this is likely to continue in 2022.

Global economic growth forecasts are fairly resilient – our own forecast is 4.1% global GDP growth in 2022. However, there remains a great deal of uncertainty given the wide range of responses from governments to the different challenges they face.

After China’s strong recovery, growth slowed in the second half of 2021. As a result, we expect China’s government to take action to ease monetary and fiscal policies, with the aim of shoring up growth. Meanwhile, India’s economy is set to grow rapidly, but growth is expected to be slower in the UK and the US.

Global trade performed well in 2021, with volumes rising above pre-pandemic levels despite ongoing supply chain disruptions. Looking forward, trade growth could be further boosted by the lifting of restrictions on movement that remain in place in some countries. There are also signs that supply chain bottlenecks will ease as the year goes on, although when and how remains uncertain. The Regional Comprehensive Economic Partnership is expected to reinforce Asia’s central role in global trade. Along with the bilateral trade deals being struck by some countries, it also shows that trade liberalisation continues to advance in some parts of the world.

Although there is currently no long-term agreement between the UK and the EU on access to financial services, we have worked for a number of years to ensure we will be able to maintain a full service for our clients under all potential scenarios. Ideally, the temporary arrangements on access to financial services will be retained so as to minimise disruption and enable the UK financial services industry to continue to offer the many benefits it brings to the UK and EU economies. However, we are well prepared for a broad range of outcomes.

As a global bank operating in more than 60 countries and territories, with a history stretching back more than 156 years, we always have experienced – and always will experience – geopolitical tensions. However, we remain alive to the potential impact that geopolitics can have on our business, as well as on our clients. The relationship between the US and China remains a prominent feature of the external environment, but we do not currently expect it to change significantly in the near future. We also expect the mutual economic benefits brought by the UK-China relationship to outweigh any short-term pressures. We continue to engage with all governments and remain focused on serving the needs of our customers in both East and West, and the many points in between.

Stakeholder engagement

Our purpose of opening up a world of opportunity is equally applicable to our different stakeholders. For our people, it can mean helping them to develop new skills and advance in their careers, as well as being diverse and inclusive. For our shareholders, it can mean creating sustainable returns and value. For our suppliers, it can mean supporting them to grow their businesses and strengthen their own supply chains. And for the communities we serve, it can mean being a responsible citizen and leading the net zero transition.

Stakeholder engagement has been a priority for the Board in 2021. For example, the Board oversaw HSBC’s continuing work in support of our ambition to align our financed emissions to net zero by 2050 or sooner. This included engaging shareholders and leading NGOs ahead of the 2021 AGM, when our special resolution on the next steps in relation to our climate ambition was overwhelmingly approved. We also reviewed and approved a new thermal coal phase-out policy, which we announced in December 2021 and is designed to allow HSBC to help facilitate the transition to net zero in both developed and developing markets.

Thank you

Finally, I would like to reiterate how grateful I am to all my colleagues for the great dedication and care they have shown to our customers and to each other over the past year. Their tremendous efforts have, above everything else, made us what we are today – and will shape what we become tomorrow.

Mark E Tucker

Group Chairman

22 February 2022

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