Morningstar DBRS Comments on HSBC's Q3 Results and Recent Global Restructuring Announcement

On 29 October 2024, HSBC Holdings plc (HSBC or the Group) announced its Q3 results and reported a profit before tax (PBT) of USD 8,476 million in Q3 2024, up 11% YoY on a constant currency basis from USD 7,714 million in Q3 2023 and below a PBT of USD 8,906 million in Q2 2024. Excluding the impact of strategic transactions (businesses that have been sold, mainly Canada for the respective periods) and excluding notable items, PBT was up 13% YoY. Results in Q3 2024 mainly benefitted from revenue growth in Wealth and Personal Banking and in Global Banking and Markets (supported by Foreign Exchange, Equities, and Global Debt Markets).

HSBC's CET1 ratio increased to 15.2% at end-Q3 2024 from 14.9% at end-Q3 2023, supported by profits, but partly offset by dividends accrual, Q2 2024 buybacks (USD 3 billion), and higher risk-weighted assets (mainly driven by asset growth). The Group announced another share buyback of up to USD 3 billion before the FY24 results announcement. This is in line with HSBC's guidance to manage its CET1 ratio in the 14-14.5% range in the medium term.

In a separate announcement, HSBC set out last week its plans for a simplified structure with the creation of four connected businesses from 1 January 2025: Hong Kong, UK, Corporate and Institutional Banking, as well as International Wealth and Premier Banking, the latter two units covering clients globally. Currently, the Group is operating with four global businesses: Wealth and Personal Banking, Commercial Banking, Global Banking and Markets and the Corporate Center. In the result announcement, HSBC's management confirmed that the primary goal of the new structure was to better serve customers, and, secondarily, to save costs. HSBC will provide more details at the Group's FY24 results announcement in February 2025.

Hong Kong is one of the two home markets for HSBC along with the UK; however, the creation of a specific business unit for this jurisdiction brings the spotlight on it. We consider it echoes interests voiced in 2022 by the Group's main shareholder, Ping An Asset Management (owned by Ping An Insurance), which called for a split of the Group's Asian and Western operations. However, this proposal was rejected by the Group at the time, in part because of the HSBC's focus to ensure a tight level of integration globally. We thus see the creation of two business units specifically for Hong Kong as unexpected. In addition, given the ongoing geopolitical tensions between the U.S. and China, we consider that whilst Hong Kong remains an important pillar of profitability of the Group it is also a potential source of revenue and capital volatility.

Notes:
All figures are in USD unless otherwise noted.