HSBC Holdings Plc Q3 FY2026 earnings call

• Financial Discipline & Capital Return: Actioned $2.2 billion of simplification savings against a $2 billion half-year target; announced an additional share buyback of up to $1 billion. CET1 ratio stood at 13.9%, with an estimated 40-50 basis point benefit from Basel 3.1 adoption in Jan 2027.
• Deposit Strategy & Mix: Deposits increased $105 billion over the last 12 months. In Hong Kong, time deposit migration occurred as rates rose, peaking near 40% historically but settling at 38% this quarter. The UK maintains the lowest loan-to-deposit ratio among major banks, allowing flexibility to manage competitive pressure without aggressive funding.
• Strategic Execution: Completed privatization of Hang Seng Bank, integrating operations to improve efficiency. Captured $14.5 billion in FCNR deposits via the Reserve Bank of India scheme. Moved $26 billion Australian retail portfolio to held-for-sale.
• Cost Management: Target cost growth for 2026 is maintained at 1% YoY on a target basis ($33.9 billion baseline). Variable pay increases may occur if performance exceeds targets, modestly impacting costs.
• Risk Profile: Credit loss charges were $0.8 billion (31 bps annualized); Hong Kong commercial real estate showed very low net charges. Guidance remains stable at ~45 bps for full-year 2026.

Revenue grew 5% year-on-year to $18.7 billion, with profit before tax up 10% to $10 billion (excluding notable items). All four business segments delivered annualized return on tangible equity exceeding 17%. International Wealth and Private Banking (IWPB) revenue fell slightly due to a $0.1 billion strategic transaction impact and the non-recurrence of last year's $0.1 billion insurance one-offs, which offset underlying growth. Commercial and Investment Bank (CIB) was the standout performer, driven by strong Foreign Exchange (+19%) and Wholesale Transaction Banking fee income (+11%). Wealth management net new money reached $38 billion in Asia (totaling >$95 billion YTD), though fee income was flat YoY due to one-offs and strategic divestments. Private banking fees grew 16%, while asset management AUM growth was offset by margin compression.

• Revenue: Reiterated full-year guidance of 5% revenue growth by 2028 (excluding notable items).
• Profitability: Maintained target of Return on Tangible Equity of 17% or better annually (excluding notable items).
• Banking NII: Reiterated full-year Banking NII guidance of at least $46 billion.
• Credit Costs: Maintained full-year 2026 credit cost guidance of around 45 basis points.
• Cost Growth: Confirmed target of 1% cost growth in 2026 compared to 2025 on a target basis.
• Capital: No change to dividend policy (50% payout ratio); capital deployment priorities remain dividends, organic growth, and share buybacks.

• Deposit Competition: Intense competition in Hong Kong and the UK for retail deposits has led to margin pressure and migration from CASA to time deposits.
• Regulatory Impact: New Chinese regulations regarding ODI and individual investor registration require continued compliance upgrades, potentially affecting customer acquisition speeds temporarily.
• Market Volatility: Higher market volatility impacts FX revenues positively but creates uncertainty in wealth flows and investment distribution products.
• Strategic Divestments: Revenue attrition of $2.2 billion cumulative from disposals (e.g., Australia retail wind-down) affects top-line growth trajectories through 2028.

Q: Guy Stebbings asked about Hong Kong deposit mix dynamics and Basel 3.1 capital relief breakdown. / A: Pam Kaur clarified that time deposit shifts are rate-driven, peaking near 40% historically but currently at 38%; Hibor sensitivity remains positive despite reduced magnitude. Regarding Basel 3.1, the 40-50 bps CET1 benefit stems from lower sovereign risk weights, SME exposure recalculations, and foundational IRB changes, with minor Pillar 2A benefits.

Q: Ben Toms questioned the conservatism in maintaining 45 bps credit cost guidance despite low Q3 charges, and the revenue headwinds from disposals in 2027-2028. / A: Kaur stated no concerns exist for Q4, attributing the unchanged guidance solely to the extended January reporting window. She detailed disposal impacts: $700 million in 2026 (fee-skewed), $900 million incremental in 2027 (balanced), and $600 million in 2028 (NII-skewed), noting high rates support NII via hedge reinvestment.

Q: Joe Dickerson asked if HSBC is penalized for its strong funding position and whether the deposit-to-NII growth relationship is sustainable. / A: Kaur corrected that time deposits were 38%, not 40%, and emphasized HK’s superior funding quality vs. market averages. She affirmed comfort with current levels, stating loan-to-deposit ratios allow disciplined growth without rushing to meet demand, ensuring NII remains accretive.

Q: Aman Rakkar asked if rising UK deposit costs constrain asset growth appetite and sought clarity on Wealth’s long-term trajectory given soft equities. / A: Kaur confirmed strict risk-return hurdle rates govern all UK lending, with no shift in appetite despite funding costs. For Wealth, she highlighted it as a long-term strategic opportunity, pointing to $38 billion Asia net new money and 16% private banking growth as evidence of resilience beyond quarterly product mix fluctuations.

Q: Andrew Coombs asked about Basel 3.1 capital deployment plans and whether cost reallocation from disposals will outpace the $2.2 billion revenue attrition. / A: Kaur stated capital deployment priorities (dividends, growth, buybacks) remain unchanged, with Basel relief enhancing flexibility. She expressed confidence that reallocating costs to scale businesses will generate more than the displaced revenue quickly, acknowledging only a short lag in realization.