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HSBC Holdings (HBC)

Q3 2012 Interim Management Statement Call

November 05, 2012 6:00 am ET


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 Director


Gary Greenwood - Shore Capital Group Ltd., Research Division

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

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

Alastair Ryan - UBS Investment Bank, Research Division

Cormac Leech - Liberum Capital Limited, Research Division

Rohith Chandra-Rajan - Barclays Capital, Research Division

Robert McMillan - S&P Equity Research

Raul Sinha - JP Morgan Chase & Co, Research Division

Chris Manners - Morgan Stanley, Research Division

Alistair Scarff - BofA Merrill Lynch, Research Division

Thomas Rayner - Exane BNP Paribas, Research Division

Ronit Ghose - Citigroup Inc, Research Division

Christopher Wheeler - Mediobanca Securities, Research Division

Michael Helsby - BofA Merrill Lynch, Research Division



Good morning, ladies and gentlemen, and welcome to the Investors and Analysts Conference Call for HSBC Holdings plc Interim Management Statement for 3Q 2012. 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

Thanks very much. Good morning. Iain McKay is with me today, and first of all, I'll give you a quick overview, and then we'll take your questions.

Our strategy and our business model have enabled us to have a strong quarter. Although reported PBT for the quarter was down $3.7 billion compared with the third quarter of 2011, the underlying profit was up $2.8 billion to $5 billion, and it is obviously on an underlying basis that we measure our performance.

For the year-to-date, our underlying profit was up $2.6 billion to $14.9 billion. For both the quarter and the year-to-date, our increased profits were driven by revenue growth in Global Banking and Markets and in Commercial Banking and a significant reduction in loan impairment charges, notably in North America. The third quarter results include an additional provision of $800 million in relation to the ongoing U.S. anti-money laundering Bank Secrecy Act and Office of Foreign Assets Control investigations. Now we're actively engaged in discussions with the U.S. authorities to try to reach a resolution, but there is not yet an agreement.

U.S. authorities have substantial discretion in deciding exactly how to resolve this matter and, indeed, final amounts of financial penalties could be higher, possibly significantly higher, than the amount accrued. Further background on the investigations is set out in today's IMS and the July Interim Report. And as this is an ongoing legal process, this is all we can say on this issue at this time. We will not be able to take questions.

We also made additional U.K. customer redress provisions of $353 million, mainly in respect to Payment Protection Insurance. Underlying operating expenses for the third quarter of '12 were 16% higher than the third quarter of '11, primarily reflecting the impact of notable items, increased investment in regulatory and compliance infrastructure and higher litigation costs. Excluding these factors, operating costs were marginally higher than the third quarter of '11, reflecting additional expenses associated with the execution of our strategy. On an underlying basis, our cost efficiency ratio improved from 65.8% to 63.7% due to revenue growth and strict cost control within our operations.

We have continued to make significant progress in delivering our strategy to simplify and restructure and grow HSBC. We've announced 8 transactions since the 30th of June, 2012, bringing the total to 24 this year and 41 since the start of 2011. We disposed of 57 branches in Upstate New York in the quarter, completing our stated intention to dispose of 195 branches in New York this year. And we've also reclassified $3.7 billion of customer loans and advances net of impairment allowances from our U.S. Consumer Finance portfolios to assets held for sale. In addition, we continue to see benefits from our organization effectiveness program, achieving $0.5 billion of sustainable cost saves in 3Q '12, taking the total annualized savings achieved to $3.1 billion since the start of 2011. We expect to exceed the top end of our sustainable savings targets of $3.5 billion by the end of 2013. And we also continue to grow the business in key areas. Improved collaboration between Global Banking and Markets and Commercial Banking resulted in an increase in associated revenues of 8% for the 9 months. And underlying revenues rose in the majority of our priority growth markets compared to the third quarter of '11, notably in the United States, in France, Argentina and Brazil.

Overall, we've had a strong quarter driven by continued revenue growth, lower loan impairments and showing significant strategic progress. Now throughout our history, HSBC has been where the growth is. And with this strategy, we're ensuring that we maintain that distinctive position.

Now, Iain will talk through the financial performance in greater detail. Iain?

Iain James MacKay

Thanks, Stuart. You have seen the statements. I'll just cover a few key points in detail. Reported profit before tax for the third quarter was $3.5 billion, down $3.7 billion from the third quarter of 2011, with $5.8 billion relating to adverse movements on the fair value of our own debt.

Reported profit before tax for the year-to-date was $16.2 billion, down $2.4 billion on the same period in 2011, of which $7.9 billion related to adverse movements in the fair value of our own debt. This was partially offset by $4.5 billion of gains on business disposals. However, as Stuart said, we measured our performance against past results and on underlying basis, which exclude certain factors, including fair value movements on our own debt, which distort the period-on-period comparisons. Our IMS contains a reconciliation of reported results to underlying where relevant.

Underlying profit before tax was up $2.8 billion on the third quarter to $5 billion and for the year-to-date, was up $2.6 billion to $14.9 billion. This performance was driven by increased revenues and reduction loan impairment charges.

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