HSBC announces SGD 8NC7 Senior notes at IPG of 3.70%

HSBC Holdings plc (“HSBC”) plans to issue new SGD senior unsecured notes at the initial price guidance (“IPG”) of 3.70%. The new notes are expected to be issued on 28 March 2025, with the first call date on 28 May 2032. If uncalled, the coupon will reset based on the prevailing 1-year SORA OIS and a spread.

HSBC is one of the world’s largest banking and financial services organisations, serving around 41 million customers across 58 markets. With total assets of about USD 3.0 trillion as of 31 December 2024, HSBC has approximately 211,000 full-time equivalent employees across the globe. Late last year, HSBC underwent significant restructuring and reorganisation to make the Group simpler and maintain its focus on growth. Its business divisions have been restructured into (1) Corporate and Institutional Banking, (2) International Wealth and Premier Banking, (3) Hong Kong, and (4) UK.

For the quarter ended 31 March 2025 (“1Q25”), HSBC continues to report resilient financial performance. Revenue fell slightly by +2.7% YoY, to USD 17.6b in 1Q25 (1Q24: USD 20.4b). Excluding notable items (non-recurring items that occur outside the normal course of business), revenue grew 1.1% to USD 17.7b in the same period (1Q24: USD 16.6b), driven by improved fees and other income as well as resilient banking net interest income (“NII”).

Banking NII remains a key source of revenue for HSBC. The Group reported a 4% YoY growth in banking NII of USD 10.6b in 1Q25 (1Q24: USD 10.2b) despite the impact from interest rate cuts, excluding the contribution from Canada and Argentina (which were divested in FY24). The increased position in HSBC’s structural hedge in recent years has helped to reduce its banking NII’s sensitivity to interest rate cuts. Per guidance, banking NII is expected to be USD 42.0b in FY25, which suggests management expects banking NII to remain resilient over the coming quarters.

For fee and other income, Wholesale Transaction Banking unit reported a 13% YoY growth to USD 2.9b in 1Q25 (1Q24: 2.5b), fuelled by a strong FX performance (due to higher demand for hedging solutions) which surpasses the quarterly average recorded in FY24. The Wealth unit also reported strong 23% YoY growth to USD 2.3b in 1Q25 (1Q24: 1.9b), due to higher levels of client activity in Asia.

HSBC’s profit before tax (“PBT”) fell 24% YoY to USD 9.5b (1Q24: USD 12.5b). In line with revenue, excluding the notable items, the Group reported PBT growth of 11% YoY to USD 9.8b (1Q24: USD 8.8b). While costs for HSBC remain largely unchanged YoY, higher expected credit losses and other credit impairment charges (“ECL”) weighed on the Group’s PBT. This was due to a USD 150m provision, added to reflect heightened economic uncertainty, which raised ECL charge to USD 0.9b in 1Q25 (1Q24: USD 0.7b). 

Regarding the capital profile, HSBC retains a strong capital position with the Common Equity Tier 1 (“CET1”) ratio at 14.7% as of 31 March, around a 360 bps buffer to regulatory requirements. The ratio remains above HSBC’s guided operating range of 14.0% - 14.5%. HSBC’s resilient profit has allowed for steady capital generation, which offsets higher risk-weighted assets and regulatory deductions, supporting its CET1 ratio. We expect this to continue and, considering the buyback announced in 1Q25, we expect the CET1 ratio to stay within/ or above the Group’s target range.

HSBC continues to hold a robust liquidity and funding profile. The liquidity coverage ratio and net stable funding ratio at 139% and 146% as of 31 March, respectively, greatly exceed the regulatory minimum of 100%. Other signs of a comfortable liquidity include 1) an improvement in high-quality liquid assets (“HQLA”) to USD 660b in 1Q25, as compared to 4Q24 (4Q24: USD 649b), and a 2) healthy loans to deposits ratio of 56%, which has fallen over the past four quarters.

Table 1: Comparable SGD bonds

At the IPG of 3.70%, HSBC’s new senior paper appears a tad more attractive over other SGD banking senior papers with comparable tenor – against STANLN 4.500% 14Jun2033 Corp (SGD), BNP 3.310% 23May2032 Corp (SGD), and SANTAN 3.600% 23Oct2030 Corp (SGD). Furthermore, HSBC’s new senior paper is likely to be assigned stronger credit ratings than STANLN 4.500% 14Jun2033 Corp (SGD), the highest-yielding comparable paper.

That said, we expect the final price guidance to adjust considerably downwards from the IPG of 3.7%, given HSBC’s likely strong demand in the SGD debt space. Overall, we think HSBC’s new senior paper would be suitable for investors looking for a longer-tenor paper by an established issuer with strong credit ratings. The new paper would also provide a decent yield pickup over the 10-year Singapore treasury.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report holds an NIL position in the abovementioned securities.