HSBC Holdings Plc (HSBC) Q2 2016 Earnings Call

Douglas Jardine Flint – Group Chairman

A diversified business model is helpful in tough times

“The first half of 2016 was characterized by spikes of uncertainty, which greatly impacted business and market confidence. This was reflected in lower volumes of customer activity and higher levels of market volatility. We came through this period securely, as our diversified business model and geographic profile again demonstrated resilience in difficult market conditions.”

Stuart Thomson Gulliver – Group CEO & Executive Director

Revenue growth is stifled by stagnant global growth

“Now a slowdown in global trade has hampered our ability to deliver growth above GDP from our international network.”

An uncertain operating environment mean targets will not be met

“Now the economic and geopolitical environment remains uncertain. Negative rates and the likely deferral of interest rate rises put increasing stress on banks. Since 2007 we’ve seen our net interest margins contract from 2.9% to 1.8%, which we largely compensated for with around 33% growth in interest earning assets. We continue to see higher margin business roll off with heightened competition for new lending. And in the light of this, we will not now hit our return on equity target of more than 10% by the end of 2017.”

On demand for credit after the Brexit

“we had a slowdown in SME activity, basically kicking off from early June, which is still reasonably slow in terms of applications for new financing…So people have I think postponed getting financing for OpEx. But I imagine that come September, we’ll see that pick up again, because obviously the process of negotiation is going to take a number of years. So I don’t think that that OpEx will be postponed. The large companies haven’t missed a beat, because they’re multinational, and they’re in many countries. And therefore they have continued to operate at the previous levels”

Iain James Mackay – Executive Director & Group Finance Director

Strong performance in commercial banking

“The standout performance in the quarter came from Commercial Banking, which continued to grow in spite of the slowdown in global trade. This was driven by higher lending and deposit balances in the UK on the back of market share gains.”

Cost cutting continues in low revenue growth environment

“We delivered $497 million of cost savings in the second quarter, which was $132 million more than we delivered in the first. We were therefore able to achieve positive jaws in the second quarter, despite the difficult revenue environment. On a run rate basis we have now achieved more than $2 billion of cost savings, which represents nearly 40% of the overall savings required to achieve our 2017 exit rate.”