HSBC Holdings Management Discuss Q2 2012 (H1 2012) Results - Earnings Call Transcript

HSBC Holdings (HBC)

H1 2012 Earnings Call

July 30, 2012 6:30 am ET

Executives

Douglas Jardine Flint - Group Chairman

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

Analysts

Alastair Ryan - UBS Investment Bank, Research Division

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

Raul Sinha - JP Morgan Chase & Co, Research Division

Chris Manners - Morgan Stanley, Research Division

Rohith Chandra-Rajan - Barclays Capital, Research Division

Cormac Leech - Liberum Capital Limited, Research Division

Ronit Ghose - Citigroup Inc, Research Division

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

Christopher Wheeler - Mediobanca Securities, Research Division

Arturo de Frias Marques - Grupo Santander, Research Division

Thomas Rayner - Exane BNP Paribas, Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Investors and Analysts Conference Call for HSBC Holdings plc's 2012 Interim Results. For your information, this conference is being recorded. At this time, I will hand the call over to your host, Mr. Douglas Flint, Group Chairman.

Douglas Jardine Flint

Good morning from London, and welcome to our 2012 HSBC Interim Results Webcast and Conference Call. With me are Group Chief Executive, Stuart Gulliver; and Group Finance Director, Iain Mackay. In a moment, Stuart will set out the major points for the first half's performance. Iain will talk through the financial detail, and Stuart will then cover the strategic progress made before opening the call to questions. Stuart, over to you.

Stuart T. Gulliver

Thank you, Douglas. You all have seen the report from the United States Senate Permanent Subcommittee on Investigations, which has been extensively covered in the media and which has revealed our past shortcomings in relation to compliance with U.S. regulations, including anti-money-laundering laws and the Office of Foreign Assets Control sanctions. We said in our annual results for 2011 and 2010 that we have been cooperating closely with U.S. authorities, but the subcommittee hearing will have been the first time most of you will have seen the detail. I very much regret HSBC's past failures, and I apologize for them. Our controls should have been stronger and more effective. As you would expect, HSBC has a number of means to discipline people who fall short of our standards, including clawing back bonuses and dismissal, and a number of people have left the company.

But I also want to explain what we're doing to make HSBC more resilient and less likely to see a recurrence of these problems. When the new leadership team came in, in 2011, we recognized that immediate action was required. First, we changed our organizational structure. In the past, we were organized along country lines so over 80 separate businesses. Our new structure, with 4 global businesses and 10 global functions plus HSBC technology and services, makes it easier to manage and control the firm. Basic global integration allows for a coordinated and consistent approach to compliance and to risk. We've made HSBC simpler through our Five Filter process. We have announced 36 disposals and closures since the start of 2011, exiting nonstrategic markets and selling businesses and non-core investments. These disposals make the firm more manageable, reduce risk and let us concentrate on our strengths as an internationally connected bank.

We have also put a sharper focus on compliance and increased our spending on it to over USD 400 million. Under our new structure, Group Compliance has authority over all personnel all over the world. This puts us in a better position to detect and address compliance risk globally. We are adopting and importing adherence to a single regulatory standard globally that is determined by the highest standard we must apply anywhere, and this will typically be U.S. standards. This means, among other things, that we are maximizing information sharing for risk management purposes across HSBC to the extent permitted by privacy laws.

We're also applying a globally consistent approach to Know Your Customer regulations, and all group affiliates are therefore now required to complete due diligence on any other HSBC affiliate with which they have a correspondent banking relationship. We're developing a global risk filter which will standardize which countries are viewed as high risk, and this will become the sixth filter. And we are putting in place a global sanctions policy which will mean that we'll be screening for all illicit actors designated by the Office of Foreign Assets Control in all jurisdictions and in all currencies. We are committed to doing whatever it takes to make sure that the organization is able to detect and prevent unacceptable behavior.

Before moving on, please, can I draw your attention to the cautionary slide on forward-looking statements, and I'll now turn to the first half results. Reported profit before tax was USD 12.7 billion, up 11% compared to the first half of 2011. Our underlying profit before tax at $10.6 billion was down around USD 400 million, reflecting a number of notable items, including U.K. customer redress at $1.3 billion and $700 million of provisions for U.S. law enforcement and regulatory matters.

First and foremost though, the most important thing I want to highlight in these numbers is that we have generated revenue growth. Underlying revenues are up 4%. We have top line revenue growth. We've also continued to simplify and restructure the business with 19 transactions announced this January 2012 to sell or dispose nonstrategic businesses and investments, bringing the total since the start of 2011 to 36. These transactions release about $55 billion in risk-weighted assets. These disposals are also making HSBC easier to manage and control and so too is the organizational effectiveness program.

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