HSBC Shift: Interest Income Squeezed, Wealth Management Boost
New policies for the second quarter saw HSBC Holdings' net interest income fall by over 11% year-on-year to $8.26 billion; non-interest income grew by about 12% to $8.28 billion.
In the first half of 2024, HSBC Holdings' revenue increased by 1.1% year-on-year to $37.3 billion.
The outgoing Chief Executive Officer of HSBC Holdings plc (hereinafter referred to as "HSBC Holdings"), Noel Quinn, stated that even without the impetus of rising interest rates, the bank has every opportunity to grow under the leadership of his successor.
The financial report data is the latest evidence of this view.
On July 31, HSBC Holdings' financial report showed that in the second quarter, the bank's net interest income fell by over 11% year-on-year to $8.26 billion.
Over the same period, non-interest income increased by about 12% year-on-year to $8.28 billion.
Looking at the longer term, in the first half of 2024, HSBC Holdings' revenue increased by 1.1% year-on-year to $37.3 billion.
HSBC Holdings attributed the performance to increased consumer business, which includes wealth management and personal banking financial products and global banking and markets equity and securities financing.
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Quinn said that investment in the wealth management business will bring higher and more diversified revenue to HSBC Holdings.
"We believe the group has adopted the correct strategy and business model.
Even in an interest rate reduction environment, we can achieve revenue growth," he said.
In addition, HSBC Holdings also stated that it will initiate a stock buyback plan of up to $3 billion, which is expected to be completed within three months.
HSBC's revenue momentum transformation has always been the main source of income for commercial banks.
In 2023, more than half of HSBC Holdings' $66 billion in revenue came from net interest income.
Net interest income refers to the difference between loan interest income and deposit interest expenses.
However, this situation is changing.
In the second quarter, HSBC Holdings' net interest income fell by over 11% year-on-year to $8.26 billion.
In the first half of the year, this figure reached $16.91 billion, a year-on-year decrease of 7.4%.
Looking at the key indicator of bank loan profitability - net interest margin, HSBC Holdings' net interest margin has fallen from 1.7% in 2023 to 1.62%.
At the same time, in the first half of the year, HSBC Holdings' return on tangible assets was 21.4%, a decrease from the return rate of 22.4% in the same period of the previous year.
This data is another key indicator of bank profitability.
However, this situation is not unique.
Recently, the financial report data of another foreign bank focusing on Asia and other emerging markets - Standard Chartered Bank also showed that in the second quarter, the bank's net interest income fell from $2 billion in the same period of 2023 to $1.6 billion.
Against this backdrop, HSBC Holdings is looking for new business growth momentum.
The bank stated that its wealth management business, including life insurance and private banking, is becoming a "key driver" of revenue growth.
HSBC Holdings' business is divided into three departments: commercial banking, global banking and markets, and wealth management and personal banking.
"We are reducing the sensitivity of our business to interest rates and investing in businesses such as wealth management and financial transactions that are less dependent on higher interest rates," said Quinn.
In the first half of 2024, HSBC Holdings' wealth management business revenue increased by 12% to $4.3 billion, with significant growth in investment distribution, asset management, and life insurance business.
Over the same period, the bank opened new accounts with 345,000 new customers in Hong Kong, China.
In fact, this situation has been traceable for some time.
In the first quarter of 2023, the pre-tax profit of HSBC Holdings' wealth management and personal banking business was more than four times that of the same period of the previous year, accounting for more than 40% of the pre-tax profit for the quarter.
HSBC Holdings said that the reason behind this is that after the epidemic, a large number of tourists from Mainland China flocked to Hong Kong, China, boosting wealth management businesses including life insurance products.
Previously, Quinn said that by November 2023, the wealth management business from Mainland China to Hong Kong (HSBC Group) had increased by 3 to 4 times compared to before the epidemic.
Continue to focus on Asia.
The 2024 interim financial report is the last financial report released by Quinn as the Chief Executive Officer of HSBC Holdings.
Quinn said that he has no regrets about his time at the bank.
Leading the bank is a pleasure for him.
Over the past few years, under Quinn's leadership, HSBC Holdings has defeated the actions of its largest shareholder - Ping An to split the bank, acquired the Silicon Valley Bank's business in the UK, sold the bank's subsidiaries in Argentina, Canada, France, Greece, and Mauritius, and launched a cost reduction plan, including cutting tens of thousands of jobs.
In Quinn's view, HSBC Holdings is preparing for a leadership transition at a critical time.
Both HSBC Holdings and the new leader are at a "turning point."
The Chairman of HSBC Group, Douglas Flint, once said that the next Chief Executive Officer of HSBC Holdings should continue to deepen the bank's business in Asia.
The focus is on wealth management business, which can serve the rising wealth management needs of the affluent population in the region.
Just a while ago, HSBC Holdings appointed its first Chief Executive Officer who can speak Mandarin - Georges Elhedery.
He was previously a director and CFO of HSBC Holdings and has worked in various regions such as Asia, the Middle East, and Europe.
According to media reports, Elhedery speaks fluent Mandarin, making him the first Chief Executive Officer in the history of HSBC Holdings to master a key language skill.
In addition, he is also proficient in multiple languages.
The head of wealth management and personal banking business in Hong Kong, HSBC, Wu Yang Yu Ru, said that with the growth of wealth, more and more residents of Mainland China are turning to diversified investments, and Hong Kong can play the role of an offshore wealth management center for residents of Mainland China.
A report by UBS shows that in 2023, the per capita wealth of each adult in Mainland China increased by 5.3% year-on-year to $79,700, and the median increased by 0.7% year-on-year to $27,500.
In the same year, there were 6.013 million dollar millionaires in Mainland China, the second largest number in the world.
It is expected that by 2028, the number of dollar millionaires in Mainland China will increase by 8% compared to 2023.
However, HSBC Holdings is not the only bank that sees the cake of Asian wealth management.
The financial report data of Standard Chartered Bank shows that as the bank has attracted more affluent customers, the operating income of the bank's wealth business increased by 27% in the second quarter.
Driven by this, the pre-tax profit of Standard Chartered Bank in the second quarter was $1.6 billion, higher than the $1.5 billion in the same period of the previous year, and also higher than the analyst's expected $1.5 billion.
Bill Winters, the Chief Executive Officer of the Standard Chartered Group, said that these results prove the special operating value of Standard Chartered Bank as a cross-border enterprise and investment bank, as well as a leading wealth management company for affluent customers.
The bank has raised its revenue forecast for 2024 to more than 7%.
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