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HSBC Holdings (HBC)

Q1 2013 Interim Management Statement Call

May 07, 2013 6:00 am ET

Executives

Stuart T. Gulliver - Chairman of Group Management Board, Group Chief Executive Officer and Executive Director

Iain James MacKay - Group Finance Director, Member of Group Management Board and Executive Director

Analysts

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

Rohith Chandra-Rajan - Barclays Capital, Research Division

Raul Sinha - JP Morgan Chase & Co, Research Division

Chris Manners - Morgan Stanley, Research Division

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Thomas Rayner - Exane BNP Paribas, Research Division

Alistair Scarff - BofA Merrill Lynch, Research Division

Michael Trippitt - Numis Securities Ltd., Research Division

Ian Gordon - Investec Securities (UK), Research Division

Arturo de Frias Marques - Grupo Santander, Research Division

Ronit Ghose - Citigroup Inc, Research Division

Michael Helsby - BofA Merrill Lynch, Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Investors and Analyst Conference Call for HSBC Holdings plc's Interim Management Statement for First Quarter 2013. For your information, this conference is being recorded. At this time, I will hand the call over to your host, Mr. Stuart Gulliver, Group Chief Executive.

Stuart T. Gulliver

Thank you. Welcome, everyone. Iain is with me today. So we're going to give you a quick overview and then take questions.

Our reported profit before tax for the first quarter was USD 8.4 billion, which is up 95% on the same period last year. The underlying profit before tax is up 34% at $7.6 billion. These results are good because of the progress we have made in implementing the strategy we set out in May of 2011 and our continued focus on capital, cost and governance.

So whilst macroeconomic uncertainty has created a relatively-muted environment for revenue growth, we have increased revenues in key areas, including residential mortgages and Commercial Banking in both of our home markets of Hong Kong and the U.K., and in our Financing and Equity Capital Markets business.

Loan impairment charges are down in every region, including a significant improvement in North America. Also, our continued focus on cost management with a further $0.4 billion of sustainable cost savings this quarter has helped us achieve an improvement in our underlying cost efficiency ratio.

Now we've also achieved further progress on the journey we started in 2011 to make HSBC easier to manage and to control. Firstly, since the start of 2013, we've announced another 9 transactions to dispose of or close nonstrategic businesses, bringing the total, since the start of 2011, to 52. And in addition, the implementation of global standards will help ensure that we meet the commitments we made to the U.S. and U.K. authorities as part of the settlement agreements reached at the end of last year.

Our performance in April continued the trend we saw in the first quarter. There are challenges ahead, but we expect the mainland Chinese economy to accelerate after a slower-than-expected start to the year. We think the U.S. economy will continue to outperform its peers, though the pace of growth will be slow compared to past standards. We think the Eurozone will contract, that emerging markets will grow at around 5%, so that global growth will be around 2% this year.

We have strengthened our capital position and remain one of the best capitalized banks in the world, and this gives us a firm base both to invest in organic growth and to grow dividends.

So summing up. In a microeconomic environment of muted growth, our successes in implementing our strategy have been the key to delivering a good result. Our strategic direction remains unchanged. And later this month, we will update investors on the next phase of its implementation.

Iain will now talk through the financial performance in some detail.

Iain James MacKay

Thanks, Stuart. You all have seen the statement at this point. So I'll dig into some of the key details now.

As Stuart mentioned, reported profit before tax for the first quarter was $8.4 billion. This includes adverse movements of $243 million in the fair value of our own debt from changes in credit spreads and gains of $1.1 billion from disposals and the reclassification of an associate as a financial investment.

Profit before tax was also up in an underlying basis at $7.6 billion. It was up $1.9 billion in the same period last year. This increase reflects $800 million of higher revenues, $900 million of lower loan impairment charges, including a significant improvement in the U.S. CML mortgage portfolio and $200 million in reduction costs.

Underlying revenues of $17.6 billion in the first quarter of '13 were $800 million higher than the first quarter last year. This included items totaling $1.1 billion, as follows: a net gain recognized on completion of the sale of our remaining shareholder in Ping An of $600 million; a favorable debit valuation adjustment of $500 million in Global Banking and Markets; foreign exchange gains and sterling debt issued BY HSBC Holdings of $400 million; a loss of $300 million relating to the write-off of allocated goodwill recognized following the reclassification of a nonstrategic business to an asset held for sale; and a loss of $100 million on the sale of the secured loan portfolio in HFC Bank U.K.

Remaining revenues were broadly unchanged. Global Banking and Markets had a strong quarter but was lower than the first quarter of 2012 for 2 reasons: Firstly, rates had the particularly strong first quarter last year due to a tightening of spreads in Eurozone bonds following the ECB's announcement of the long-term pre-financing operation, although this reduction in revenue was partly offset by lower adverse fair value movements on structured liabilities. And secondly, Balance Sheet Management revenues also declined as a result of lower net interest income as the proceeds from maturing investments and disposals were reinvested at prevailing rates. In addition, there were lower gains on the disposals of available-for-sale debt securities in the U.K. However, these factors were partially offset by higher revenues from Financing and Equity Capital Markets, driven by higher lending spreads, together with higher fees in our financing, advisory and underwriting businesses and the non-recurrence of losses on the sale of certain syndicated loans in the first quarter of last year.

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