HSBC SFH (France) Investor Presentation – September 2019
Overview 1 Executive Summary 2 2 HSBC performance 4 3 French Home Loan Market 9 4 HSBC SFH (France) 13 5 Appendices 18 1
Executive Summary Key takeaways Issuer Cover pool • Specialised credit institution licensed as a • 100% prime home loans, all fixed-rate, HSBC SFH 100% Société de Financement de l'Habitat with first-lien mortgage (10.6%) or France Prime Home Loans guaranteed by Crédit Logement (89.4%) • Fully-owned by HSBC France • France only • Jointly regulated by the European Central ECB / ACPR AA- / Aa3 / AA- • All originated by HSBC France (rated AA- Bank (ECB) and the Autorité de Contrôle Prudentiel et de Résolution (ACPR) / Aa3 / AA- by S&P / Moody’s / Fitch) with • Programme rated AAA/Aaa by S&P and 100% income verification and focus on 108.9% Moody’s affluent and high net worth individuals AAA / Aaa Committed OC • Full recourse obligation of the Issuer • Granular pool with 39k loans against HSBC France • Voluntary over-collateralisation of 129%, Specialised 61.3% above the regulatory minimum of 105% Credit Inst. Average Indexed LTV • Weighted average indexed LTV at 61.3% Supervision Market standards • Cover pool compliance monitored by an • Member of the European Specific independent Specific Controller Covered Bond Council Controller • Regulatory limits on ALM risks measured • Compliant with the Covered between the cover pool and the covered Bond Label 180 Days bonds for: • Quarterly Harmonised Liquidity - 180 days liquidity requirements Transparency Template published and monthly Asset - Maturity mismatch Maturity Cover Test published on HSBC HTT • Stress tests on the renewal of the cover Mismatch France website (hsbc.fr) pool • Series in EUR eligible to the level • Bankruptcy remoteness of the covered Stress Tests Level 1B HQLA 1B LCR HQLA and to the bonds favourable risk-weighting 2
Overview 1 Executive Summary 2 2 HSBC performance 4 3 French Home Loan Market 9 4 HSBC SFH (France) 13 5 Appendices 18 3
HSBC performance HSBC France key facts 1/4 Key financial metrics 1H19 PBT Revenue CET1 ratio ECL / LICs A/D ratio 1H18: € 900m 1H18: € 31m 1H18: 12.2% charge/(release) 1H18 : 115% 1H18: € 15m € 95m € 1,134m € 54m 103% 13.4% LCR Customer loans Customer deposits RWAs Total Capital Ratio 1H18: € 45bn 1H18: € 39bn 1H18: € 36bn 1H18: 169% 1H18: 15.2% € 56bn € 55bn € 47bn 123% 16.6% HSBC France France is the 6th largest global economy based on GDP 1 and a key member of the Eurozone. It also is the 6th largest trade nation 2 and it has a wealthy population, ranking 3rd in wealth per adult among large countries 3 France is one of HSBC Group’s leading international markets and one of the largest balance sheets Benefits from an international network Positioned as the largest foreign bank in the French market, by assets Acting as the HSBC Group’s Global Markets strategic platform for Euro rates products Several EEA branches and subsidiaries of HSBC Bank plc were transferred to HSBC France during 2018 and the first half of 2019. HSBC France continues to build strong business relationships with the clients of these entities and strengthens its position as the leading international bank in France in GB&M and CMB activities. Comparatives have not been restated on a proforma basis following the acquisition of the branches. Denotes an adjusted measure Corresponding reported figures and reconciliation of non-GAAP financial measures are presented in the HSBC France 2019 Interim Financial Report available at www.hsbc.com HSBC France key figures on both reported and adjusted basis are presented in Appendix 4 1. Source: IMF (2018) 2. Source: World Trade Statistical Review (2018) 3. Source: Wealth per adult among Top 10 GDPs (Credit Suisse Global Wealth Databook 2018)
HSBC performance HSBC France key facts 2/4 1H19 HSBC France adjusted results Adjusted revenue, € m Adjusted operating expenses, € m 1,205 985 1,134 1,049 854 826 791 900 1H16 1H17 1H18 1H19 1H16 1H17 1H18 1H19 1H19 adjusted PBT distribution, € m 1H19 adjusted revenue by global 124 France business, % International 1 3% 29% RBWM 38% CMB 4 1 134 4 GB&M (5) GPB 30% (32) Corporate RBWM CMB GB&M GPB Centre 5 1. International is mainly composed of the activity generated within the EEA branches of HSBC France in Greece, Spain, Italy, the Netherlands, Belgium, Poland, the Czech Republic, Ireland, Luxembourg, and the UK
HSBC performance HSBC France key facts 3/4 Capital structure 23.5% 23.3% 22.5% 19.5% 7.8% 5.9% 7.9% HSBC France’s capital position as at 30 June 2019: 5.6% 2.1% − Stable CET1 ratio of 13.4% 1.2% 1.6% 1.1% 1.4% 0.8% 0.6% − Total Capital Ratio of 16.6% net of prudential deductions ; 2019 requirement of 13.5% Executed CET1 increase of € 1.6bn and issuance of € 0.45n Tier 2 in H1 2019 in connection with the Brexit related transfers from HSBC Bank plc 13.4% 13.1% 13.2% 13.1% Stable stock of € 2.8bn prepositioned intragroup funding for MREL Dec-16 Dec-17 Dec-18 Jun-19 Senior MREL T2 AT1 CET1 6
HSBC performance HSBC France key facts 4/4 Funding and liquidity Advances / Deposits Ratio Liquidity Coverage Ratio Net Stable Funding Ratio (A/D Ratio) (LCR) (NSFR) LCR requirement 121% 120% 149% 117% 116% 113% 112% 111% 128% 103% 122% 123% 100% 100% 80% 70% Dec-16 Dec-17 Dec-18 Jun-19 Dec-16 Dec-17 Dec-18 Jun-19 Dec-16 Dec-17 Dec-18 Jun-19 Dec 2018 Liquid Asset Buffer Maturity profile of benchmark issuances 6.0 3% 0% € 17.8bn 2.5 2.3 1.0 1.0 1.0 1.0 0.7 97% - - - Level 1 Level 2a Level 2b 2H19 2020 2021 2022 2023 2024 2025 2026 2027 2028 > 2028 1 Benchmark bond Covered Bond TLTRO Source: Bloomberg 7 1. Targeted long-term refinancing operations
Overview 1 Executive Summary 2 2 HSBC performance 4 3 French Home Loan Market 9 4 HSBC SFH (France) 13 5 Appendices 18 8
French home loans market Main characteristics 1/2 French market – home loan security type French home loan market in a nutshell Dynamic production (+5.2% from June 2018 to June 2019) driven by the low rate environment Fixed rate for the entire length of the home loan Fully amortising , not “re - advanceable” High level of home loans guaranteed Regulated product environment High penetration of life and disability insurance Continuous decrease in rates (-20 bps from June 2018 to June 2019) with an average rate of 1.25% as at June 2019 Source: ACPR, Banque de France French market – home loans outstanding amount Home loans – Fixed rates evolution since Dec. 2012 Source: Banque de France Source: Crédit Logement 9
French home loans market Main characteristics 2/2 French market – Breakdown per insurance type French market – Historical LTV Source: ACPR, Banque de France Source: ACPR, Banque de France French market – home loans production amount in EURbn Doubtful home loans Source: ACPR, Banque de France Source: ACPR, Banque de France 10
French home loans market Crédit Logement Crédit Logement’s business model Fully regulated financial institution with a strong balance sheet Capital structure as at June 2019 Credit Logement’s main features – Market leader for residential home loan guarantees Equity participation from – Specialised credit institution regulated by the French regulator all major French retail banks, with – Owned by the major French banks commitment to Main features for the lender rebuild capital in proportion to – A second risk review, with regular feedback to the lending institution: their share if ever ▪ Crédit Logement accepts or refuses each guarantee application necessary following its independent credit review and scoring ▪ Statistics are given on the lender’s position (especially on risk) Average Estimated 1y Probability of Default against Crédit Logement average – A complete financial guarantee ▪ A complete alternative to the mortgage: • Crédit Logement guarantee is not limited to a first loss tranche • 100% of the amount of the loan is guaranteed ▪ A complete range of guarantees. • From bridge loans to long term loans (up to 30 years) • For a maximum amount of EUR 2m per loan or borrower • Also covers buy to let loans – A collections service takes over recovery of loans in default: ▪ From the guarantee exercise, normally after three unpaid instalments ▪ To the recovery completion (loan put back on track or totally repaid Aa3 (stable) / AA Low (stable) to the lending institution), with full collection carried out by Crédit Logement Long-term ratings granted by Moody’s and by DBRS 11
Overview 1 Executive Summary 2 2 HSBC performance 4 3 French Home Loan Market 9 4 HSBC SFH (France) 13 5 Appendices 18 12
HSBC SFH (France) Cover Pool – Cash flow priorities high quality and diversified collateral Main cover pool metrics Regional distribution Loan security EUR 5.7bn Pool notional 22.2% 100% prime home Collateral loans Number of loans 40.7k loans LTV range Seasoning EUR 140k Average loan balance Max loan amount EUR 1m Loan purpose Occupancy type 38 months WA seasoning WA remaining term 164 months WA indexed LTV 61.3% 13
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