Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's HSBC 4Q 2020 Income Results Conference Call. At this time, all participants are in only listen mode. There'll be some opening remarks followed by question and answer session. At this time, if you wish to ask a question, you will need press star one on your telephone and wait for your name to be announce. I like to advice you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Ewen Stevenson. Please go ahead, sir. Thank you. Good morning or afternoon, all. It's Ewen here, the Group Chief Financial Officer. I'm joined today by Iain MacKinnon, Group Treasurer, and Greg Case, Head of Fixed Income Investor Relations. Given COVID-19, we're actually all in separate locations, so please bear with us if we talk over each other during Q&A. There's a fixed income-specific slide deck that's available on our investor relations website. We don't plan to speak to those slides in our introductory comments. We'll try to keep our comments brief, as I know a bunch of you will have already listened to various things, including our equity call this morning, U.K. time. I'll quickly run through what we've announced today, then I'll hand over to Iain for more detail on capital and funding before we open up the floor for Q&A. Today, as you're aware, we announced our full year 2020 results, together with a business update with a refreshed strategy and some new financial targets, including a new dividend policy. For the full year 2020 results, I describe them as a solid set of results, particularly against the backdrop of COVID-19 and a now ultra-low interest rate environment. Adjusted pre-tax profits of $12.1 billion, reported pre-tax profits of $8.8 billion. Our core capital base strengthened nicely with a year-end CET1 of 15.9%. That's up 30 basis points in the fourth quarter and 120 basis points over the full year. Deposits grew over $170 billion in the year on a constant currency basis, a growth rate of 12%. Relative to the plan that we announced in February last year, the three-year target to achieve $100 billion of gross risk-weighted assets saved in targeted areas, we delivered over half of that in the first year of the program, that we're very pleased about. On operating costs, we reduced those by $1.1 billion or 3% in 2020. We committed today to achieve a further $1 billion of savings by 2022 relative to our previous target. However, the impact of the ultra-low rate environment means that we no longer expect to hit our 10%-12% return on tangible equity target in 2022. We've reset that target to at least 10% over the medium term, which we've described as three to four years. That's premised on a similar rate environment to what we see in the markets today. Underpinning this is a much stronger set of growth aspirations for us in Asia, both in wealth and in wholesale banking, with a target of increasing our capital allocated to Asia from 42% currently to over 50% over the coming years. On the fourth quarter, again, a decent set of results. Reported pre-tax profits of $1.4 billion. Adjusted revenues were down 14% on last year's fourth quarter, which was mainly driven by the progressive impact of ultra-low interest rates. Operating expenses were up 1% ex the bank levy, this was mainly due to an increase in the variable pay accrual in the quarter, with the variable pay pool for the full year down 17% on 2019. Expected credit losses were $1.2 billion in the quarter, bringing total expected credit losses for the full year to $8.8 billion. That's at the lower end of the targeted $8 billion-$13 billion range that we announced earlier in the year. While we do remain cautious on the outlook for credit for 2021, we still expect the ECL charge to be lower than 2020, with no update to the guidance that we gave on this at the third quarter, which was broadly a range of 40-60 basis points for the full year. By 2022, we expect ECLs to have fallen materially from the 81 basis point charge we had last year towards or even below the lower end of our 30-40 basis point normalized range. With that, I'll pass over to Iain. Thanks, Ewen. Hi, everyone. Iain MacKinnon here. Thanks for dialing in. I'll just continue with the script here. Despite the weak macro environment, the balance sheet metrics continue to show strength. Our CET1 ratio was up 30 basis points in the fourth quarter to 15.9%. The $0.15 per share dividend announced today has impacted the ratio by around 40 basis points. During 2020, customer deposits grew by over $200 billion. Our loan balances remained broadly flat, resulting in a loan-to-deposit ratio of 63.2%, and by 8.8 percentage points since the start of the year. The group remains very liquid, with gross high-quality liquid assets of over $850 billion to hand. Despite this, our consolidated liquidity coverage ratio was down 11 percentage points at 139% versus 2020, largely reflecting technical consolidation adjustments in the calculation of the consolidation rather than an increase in liquidity risk. Note that this may decline further as we implement further regulatory adjustments, but the decline will have no material implications for the group's overall liquidity risk management. On issuance, I'm pleased with what we achieved in 2020. During the year, we took a lot of action to reduce our refinancing risk in 2021 and 2022, while delivering negative net issuance. By tendering for nearly $12 billion of MREL in 2020, we've reduced this year's refinancing requirements from $12 billion to less than $6 billion, and next year's from $15 billion to less than $11 billion. Looking out over this year, we expect to issue around $15 billion of MREL against maturities and calls of nearly $6 billion. The difference is the fact that in this year, it marks the final year of material increases in the amount of Senior HoldCo debt needed to meet regulatory requirements. From 2022 onwards, we expect the balance of senior holdco debt to follow the progression of the group's RWAs. For AT1, we broadly expect to refinance our instruments that we choose to redeem or where they lose capital eligibility. This is in line with what we did in 2020, where we redeemed nearly $2 billion worth of bonds and issued $1.5 in return. For Tier 2, we have no plans to issue in 2021. On IBOR, our guiding principle is to work with bondholders to transition where we can. We look forward to bringing forward transition offerings this year. With that, I'll hand back to Ewen. Thanks, Iain. Before we open up for Q&A, I did want to take this opportunity with all of you on the call actually to say many thanks to Iain. It's actually his last fixed income call for us as Group Treasurer. Iain's retiring over the next month or so after many years with us, both in tax and treasury. On the next of these calls, we'll have our new Group Treasurer, who'll be known to a number of you, Carlo Pellerani, who was the recent Group Treasurer of UBS. Carlo starts on Monday, so be with us. With that, if we could now open up for some questions. Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star and two. Once again, please press star and one if you wish to ask a question. Your first question comes from Paul Fenner, Societe Generale. Please go ahead. Your line is open. Hi. Good afternoon, gentlemen. Iain, congratulations, and best of luck for the future. I've really just got, I guess two connected questions. On Stage 2, and forgive me if this came up this morning, I may have missed it, but obviously the Stage 2 exposures ticked up again in the fourth quarter. Not by much, but by something. They basically doubled during the year. I think I'm right in saying that your Stage 2 element that is past due has not changed at all during the year. I was just trying to understand what's happening there between the relationship between Stage 2 that is still paying and those that are not paying. Is there a connection? If there is, what is it? What might we expect from Stage 2 balances during the course of 2021? Leading on to my next question, where do you see for Stage 3 I hear what you're saying about cost of risk, but if we think about an NPL ratio, a Stage 3 ratio, do you think it peaks in 2021? How far from the peak are we right now? Thank you. Sorry about the long-winded question. It's Richard O'Connor here. I'll start. Greg, if you may chip in. Look, Stage 2 is primarily due to the forward economic guidance, and those calculations, and indeed overlays. Obviously when we get to the year end, then clearly in the last few weeks, maybe the economic outlook improved a little bit due to the vaccines. Clearly there was still some deterioration, for example, in the U.K. You're right to say that we've had a remarkably low sort of level of default throughout the year. We've obviously had some hits. In terms of Stage 3, look, we're obviously not going to get drawn too much on specific forecasts. Clearly, Stage 3 defaults in some sense are a lagging indicator. Certainly, as government schemes mature this year, you may see a pickup in Stage 3 from some of those elements. Hopefully not. If forward economic guidance improves during the year, then you may see a move back from Stage 2 to Stage 1. I think there's a lot of moving parts there. Broadly, as you heard from Ewen today, our overall expectation for the charge this year remains in the 40-60 basis points of loans. That's been unchanged since Q3 Stage. You've seen a stabilization in the last few months, and indeed some better macro trends in the last few weeks. Greg, anything to add to that? Yeah, just on the Stage 2 side, it's worth noting that about a quarter of our corporate loans in Stage 2 right now are within the risk grade that we would classify as effectively investment grade. Obviously with those type of exposures that are relatively low PDs, it doesn't take a particularly big shift for the PD to degrade to such an extent that it falls into Stage 2. Obviously, while there have been a significant number of downgrades across the portfolio, it's worth noting that there have been some upgrades as well. That has been reflected in the numbers somewhat. Thank you. Thank you. Your next question comes from the line of Lee Street from Citigroup. Please go ahead. Your line is open. Hello. Good afternoon. Thanks for doing the call. Three questions from me. Firstly, on Stage 2 as well now. In the fixed income slide deck, you've got that chart on page 11 that shows the strong or good quality credit. Obviously that's gone from 75% of the book down to 70.3% over the year. Stage 2 loans have increased by a sort of bigger proportion from 7.7% to 15.5%. I'd like to compare those things together, and I suppose my question is, given the movement of Stage 2 loans, shouldn't I have seen a sort of greater reduction in the strong or good quality credit? That'd be my first one. Obviously it's an if, but if you sell the French retail operations and you sell the U.S. retail operations, would that be sufficient to alter your funding plans in terms of holding company senior debt for the year, given the reduction in risk-weighted assets that might entail? Finally, on the Bank of England legacy capital review. Obviously you refer to determining whether any action is required. In terms of making that determination, is it a question of how you interpret the Capital Requirements Regulation, or is it a question of materiality on how much of the debt, as broken parts of debt you have outstanding? That'd be my three questions. Thank you. Okay. Good. Maybe Greg can take the first. Not much to add to Stage 2. Look, you're right to say that clearly the strong or good has gone down in the year, as we've shown in our charts. There's another chart in the deck. Sorry, we've got a lot of graphs here, which showed actually is more on that credit rating migration, that there was a bit more of a stabilization across the grades in Q4. Albeit clearly we had some Stage 3 hits in Q4 as well. Look, the other thing I would say is clearly you're right to point out the Stage 2 movements for us. What I would say is we do use more scenarios than other banks, particularly in Europe. Sometimes you just need to go through all our workings, and that can obviously give you a slightly different picture to other banks who may use slightly fewer or different scenarios in their IFRS 9 modeling. Yeah, on the question on French and U.S. retail, without confirming whether or not we will sell them. If we were to sell them, I don't think that would change our issuance plans. They're not big enough to have any material impact. Greg, do you want to take the third question on the legacy capital instrument? Yeah, of course. On the legacy piece, the wording we used in that slide was effectively to mirror the wording that the Dear CFO letter used. It's not necessarily pointing toward the fact that we think that there may be any actions to take at this Stage. I think it's too early to say. As we've heard, I think, from some of our U.K. peers over the last week or so, we're busy looking over the various bonds that we have. As you know, we've got a relatively small amount of bonds that are grandfathered to 2021. We're going to share the analysis with the PRA and have a discussion from then on. All right. Is it interpretation of the rules or materiality, or is it both? I think that's still for discussion. All right. All right. Thanks very much. Thank you. Thank you. Your next question comes from Daniel David from Autonomous. Please go ahead, your line is open. Hi, Daniel. Good afternoon. Good afternoon, and thanks for the call. Just a quick one, hopefully on legacy capital. I just wanted to touch upon your OpCo Tier 2. Although they might not cause an infection risk, I suppose they could be deemed an impediment to resolution. My question is: Do you expect the PRA to consider other factors such as retail holdings or non-resolution entity impediments as part of the process, which is going on this year? Secondly, just on ESG. Noting your issuance from the past. Is there a% of your issuance plan this year that we should think of to be targeted in green format? More broadly, the EU Taxonomy is kind of a positive step, I guess, to improve ESG disclosure. Can you comment on how this factors into the broader ESG strategy at HSBC? Thanks. Right. Greg, do you want to start off on the legacy question and the question? Sure. Of course. On the OpCo Tier 2, I think it's still a discussion with the PRA over the course of this year, be it either as part of the Dear CFO letter and what comes out of that during the course of the next month or so. Also, of course, a part of the Resolvability Assessment Framework that obviously was pushed back by 12 months, of course is very much an agenda item for us for this year. At this Stage, as I say, there's not a huge amount to say on the subject. Obviously, from an impediment to resolution perspective, we can have a view on that, and we can take that to the PRA and have a discussion. I think it's going to have to be a two-sided discussion, and we wouldn't want to prejudge that. Just to touch on green bonds. We have, as you can imagine, a portfolio of green assets that we can put together things like green bonds. In recent years, we've been prioritizing some client business that is backed by green collateral. We have a number of client facilities like a green CD program. We have green structured notes. For this year, I think we would very much like to come to the market with a benchmark green deal. It has been a year or so since we've last been to the market. Great. Just on the EU Taxonomy. I guess many market participants, it's quite a big step forward in terms of improving disclosure. I was just wondering, more broadly, if you're observing it and if you're factoring into the way that it's progressing as a ESG aligned bank. I'll kick off here. I've not 100% understand the question, but clearly, as an ESG bank, we're looking at a variety of frameworks. Sadly, the one which we're looking at particularly is the WEF framework, World Economic Forum. Clearly, we've been a leader in TCFD disclosures. We've made substantial disclosures today in the ESG report, in the TCFD report, and in the ESG data pack. Clearly we are working hard with all the relevant providers. I think the one we're moving forward for more general ESG disclosures is the WEF framework. I'm not sure if that answers the question, but that's how we're currently thinking about it. Okay. Thank you very much. Thanks. Thank you. Your next question comes from Alvaro Ruiz de Alda from Morgan Stanley. Please go ahead. Your line is open. Thank you very much for taking my call. I have three questions. The first question is regarding Discos. Should we think differently about the security that is issued from the Hong Kong subsidiary as the LCR from this entity is quite high, and the security will not be ever liable after January 2022? My second question is a more broader question, is regarding any impact because of the movement to Hong Kong in terms of regulatory environment. My third question is regarding ratings. If you guys have any comments or thoughts about moving from fixed aggregate. Yeah. Greg, do you want to take the first and third, and then I'll pick up the second one? Yeah, of course. Yes, I think to an extent, you should think about the Hong Kong and the U.K. discos separately, and that they are issued by two different banks with different regulatory regimes. Obviously, as he notes, different liquidity positions now. I'm not saying that we're necessarily going to look at them differently. That one is more likely to be looked at as something to take out in the future or not. I think it's worth bearing in mind that they are under two very different regulatory regimes. Something that's important to note. On the rating side of things, I think we're broadly comfortable with the ratings that we have. Obviously, we'd always like them to be higher. There's not really much we can add beyond, I think, what the various rating agencies have said publicly on the subject at this Stage. Obviously, if you want to engage with them directly, you can feel free, but we're not going to put words in their mouth. Yeah, on the regulation point, you may need to clarify the question, but there's nothing behind what we've announced today or Noel's comments around considering moving some members of his senior management team to Hong Kong that's driven at all by regulation. We are very much domiciled here in the U.K. Noel and I for the foreseeable future are based here in the U.K. There's nothing in today's announcement that's driven by either a push factor from the PRA or a pull factor from the HKMA. Okay. That's it. Thank you very much. Thank you, ladies and gentlemen. Your next question comes from Tom Jenkins from Jefferies. Hi, Tom. Thank you. Hello. Thank you very much. Hello, everybody. I'm going to throw Greg under the bus one more time on something on Discos, but it's an easy one, I hope. Then I've got a couple of questions on the asset sales, if I may. Firstly, on the legacies. If you, like me, you're basically homeschooling several impatient and petulant traders, then the 31st of March has become quite a big date in the calendar for the PRA review submissions. What sort of communication do you think, I know I'm probably asking this a bit early, do you have any plans to communicate to the market what your submissions either looks like or rough ideas, or are you going to wait until the latter discussions with the PRA are concluded? If that's the case, what sort of timeframe, best guess, and I promise I'm not going to hold you to it, but best guess would you put on that before you deserve a market communique? Secondly, the asset sales. Really when I'm looking at the U.S., I'm just wondering what package you're looking to sell. Is it just HSBC Bank USA N.A., the bulk of it, the retail business? Is it the intermediate holdco that sits above the HSBC USA Inc. as a package? Or are you pretty much open to just selling parcels of loans if that's all you can get a bid for? I guess the same thing goes for France, really. Maybe looking more at the liability side, if seeing, as I understand, already separated retail from commercial lending to a larger extent there. Is it your anticipation at this Stage that the package you're looking to sell in France would include CCF bonds or not? Would be my questions. Thank you. Yeah. Greg, do you want to pick up the FSA question, then I can pick up the M&A questions? Yeah, of course. Look, and generally speaking, across the piece, obviously the March 31st deadline is the deadline for us to submit our initial analysis and thoughts. How long that conversation goes on, very hard for us to guide on. I think it will be a function of many things and obviously many different priorities. I'm afraid I'm going to have to disappoint you there, Tom, and not give you, again, specific. Look, on the market disclosure and things like that, look, it really depends on whether or not there's anything to tell you. That's the first point. If there is something to tell you, then of course, we're very conscious that there may be price-sensitive information in the mix here, and if we need to make a disclosure, we'll make a disclosure. We're not planning at this Stage, like a wholesale disclosure piece, to be quite honest with you. It's more around if we do become party to anything, we'll say something. Right. Okay. I figured as much. Just wanted to check. Look, I'm obviously somewhat constrained, Tom, on what I can say about the M&A processes. I think if M&A processes do eventuate, there'll be parts. France won't include the bonds, and the U.S. wouldn't be a legal entity. It would not be a legal entity? Sorry, because I was just cracking up a bit there. If that theoretical were to happen. Yeah, sure. Okay, interesting. Thank you very much. Thank you. Your next question comes from the line of Robert Smalley, UBS. Please go ahead. Your line is open. Hi. Thanks very much for taking my questions, and good luck to you. Greg, thanks very much for the package that you send every quarter. Very helpful. Two topics. One, I guess they're both following on from Tom. In the call earlier this morning, the idea of trapped capital in the U.S. was brought up. How much capital is trapped in the U.S.? How would you plan on getting it out? Are there tax implications to that? What's changed? Because I imagine that you've wanted to get some of this out for a while. I guess secondly, if you could follow up on the comment you just made on legal entity, non-legal entity. The call broke up, and I'm not really sure what you were referring to. Thanks. Well, on the second question, I think the question was, are we contemplating selling a legal entity in the U.S.? The answer is no. Okay. On trapped capital, this has been an issue that has persisted for a number of years. Today, order of magnitude, probably something in the order of about $5 billion of capital. You don't see it at the group level because effectively we take on additional double leverage. What we'd like to do is pay the capital out and pay the double leverage down. We think it'll be a three, four-year journey for us of restructuring the U.S. business and getting the regulators comfortable that we've got a sustainably profitable business in the U.S. Then through several CCAR cycles, effectively getting approval to pay that capital up to the group. There's no tax implications about the normal dividend upstreaming. Okay. Makes sense. Thank you. Thank you. Your next question comes from the line of James Hyde from PGIM. Please go ahead. Your line is open. Hi. Hi, everyone. Yeah, my question is more slightly philosophical one about where you're going, especially for us as for the developed market investment portfolios that my company runs. 42% tangible equity invested in Asia goes to 50%. Why stop at 50% given the ROE differential? Is that a sort of stop that then makes you have to revisit domicile? Is this to do with balance for the rating agencies? I just want to understand the thinking of any such benchmark. Well, that's the first question. Well, I guess it was driven by a sort of realistic medium to longer term target of shifting of capital. When you do the math on it, there's a fairly material reallocation of capital from West to East over that period or West. Yeah, I wouldn't fixate on 50%, but we are a global business today, and a lot of the value in Asia is driven by that global connectivity out of customers in the U.S. and Europe and the U.K. Therefore, there will always, I think, for the foreseeable future, be material amounts of capital invested outside of Asia to support and self-reinforcing with the Asian business. Jim, the time frame here was three, four, five years, depending on which particular targets. Clearly as we go through that time period, we'll roll forward our plans to suit on the opportunities which we see at those particular times. It's very much meant to be a pathway for the next few years. Thank you, and thanks, Richard. Another question on these proposals regarding ESG that, well, particularly climate concerns that you're going to put to the AGM. I just want to understand. Can you give us some color on what's going to change? Is it going to be a formal refusal to do any more coal anywhere or any other fossil fuels? Want to understand what would satisfy some of the ESG shareholders that are being vocal. I'll take that. Look, we've obviously received the ShareAction resolution and indeed the resolution which was co-filed by other institutional and retail shareholders. We are in positive discussions with that group. Clearly we'll have to put out our AGM notice sometime towards the end of March. In any event, there will be a climate resolution filed. Clearly, as you saw with Barclays last year, there were actually two resolutions filed. Ultimately, a number of investors would prefer there was just one resolution filed. We're still in that process, Jim. I'm afraid we can't be too specific. As the CEO, Noel Quinn, said today, clearly, there would be an element of a commitment to end the finance of coal during a certain period of time. Clearly, we'll also be making greater disclosures in terms of sectors and sector pathways towards the net zero goal for 2050. That's still very much a work in progress, and we can obviously update you as and when or before we file the AGM notice in a few weeks' time. Great. Thanks very much, Richard. See you. Thank you. We will now take our final question. Your final question for today comes from the line of Dan Crowe from Goldman Sachs. Please go ahead. Your line is open. Hi there. Hi. Thanks for the call. Just a quick one, my line broke up a little earlier, so it's more of a clarification on issuance in AT1. I assume there that the refinancing includes both the $2 billion in AT1 coming and then the $1.8 billion in legacy Tier 1. A kind of follow on from that. If the PRA asks you to remove some of the OpCo debt that is counted in your Tier 2, would that change your issuance there? I'm sure this was covered in the call earlier, but I had to drop off. Just trying to tie a few numbers on your RWAs. I don't think I'm missing something in terms of increases for this year. It just looks like you simply reached next year with pretty significant excess capital. I guess that's the hence of talk of buybacks. Is there something this year that I should take note of? Richard, do you want to take the first part of that question, and I'll pick up on RWAs? Yeah. I'll take the AT1. On the AT1, what we said was that we would continue with the pattern of replacing when appropriate. I don't really think we want to go beyond that. On the Tier 2, we're not seeing any particularly vigorous action from the PRA beyond the conversations we're having with them on the legacy instruments. I don't think there would be anything happening this year that would force us to change the assurance plans. I think that's where we are. On RWA, on the equity call with Murat. Firstly, we haven't guided to the capital ratios at the end of one. What I did say was the following. Firstly, we are probably more broader than consensus on loan growth, as you would expect us to be. We are targeting mid-single-digit loan growth over the next couple of years. We have about $10 billion of RWA uplift from regulatory pressures this year, and probably a combined $40 billion-$50 billion over the period through 2023. We've got the RWA rundown program that's still ongoing. We did $52 billion in the first year. We've got another $30 billion to do this year, we think, and the remainder the year after. You'll have your own views on credit rating migration. There could be a degree of that this year. For conservative reasons, we'll assume that there is until there isn't. I think you're right that some of the equity analysts had assumed that that led to significant capital surpluses. I did say this morning to the sell side that we weren't planning any buybacks on top of dividends this year. Okay, perfect. There's nothing beyond that I should be taking? That's all stuff I'd assumed. No Under the woodwork? No. Okay, perfect. Thank you very much. Okay. Well, look, thanks everyone for joining the call today. If you've got any follow-up questions, please follow up with Greg Case, who's been on the call, and your normal investor relations channels. Greatly appreciate you taking the time to join the call today. Thank you. Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.