Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's HSBC's 2021 annual results fixed income call. At this time, all participants are in a listen-only mode. There will be some opening remarks followed by a question- and- answer session, at which time, if you wish to ask a question, you will need to press star and one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Carlo Pellerani, Group Treasurer. Thank you very much, Martin, and good afternoon, everyone. This is Carlo. I'm joined today by two individuals that need no introduction, Richard O'Connor, Global Head of Investor Relations, and Greg Case, Head of Debt Investor Relations. I'm not gonna go through the slides that we posted, nor gonna give a very long speech. I'll limit myself to making a few highlights about the results, and then I'll go through into a bit more detail on the financial resources and then pretty quickly go into Q&A. In terms of the highlights for the results, 8.3% return on tangible quite helped by the release of ECL provisions. We had very good earning participation with all the regions being profitable. Revenues grew by 2% in the quarter, and we have, given the rate environment, more confidence on a positive NII trend. You would have seen that we have announced that we are now flagging a 10% return on tangible for 2023 onwards, one year earlier than previously planned. In terms of balance sheet dynamics, we had $38 billion of loan growth across wealth and personal banking and commercial banking. As well, we had $24 billion of growth in deposits for the quarter. Our credit quality remains good. We had low Stage 3 charges, and you would have seen that our Stage 3 loans represent about 1.8% of the total loans, and they have been stable at that level. We have now released about 85% of the COVID reserve that we put during 2020, and we have $600 million of those still remaining. We are expecting our ECL charges to normalize somewhere around 30 basis points during 2022. You would have seen that we took some charges on China CRE, and we have given you some slides in the document and some more information where you can see our exposure and details around those. Turning to financial resources, taking each of them in turn. First, from a capital perspective, our capital ratios continue to be quite strong. 15.8% CET1 ratio at the end of the year, dividend of $0.25, and we have announced a new $1 billion buyback on top of the up to $2 billion that we had announced in the last quarter. As a reminder, we have flagged that we are planning to be back within our target range of 14%-14.5% CET1 ratio from this year onwards. From a liquidity perspective, liquidity continues to be super strong. LCR of 138%, but that of course masks the surplus liquidity we have in all the subsidiaries, which gets deducted from the HQLA ratio. If you were to take into account that, the total HQLA that we have as a group is $880 billion. We continue to pursue initiatives to increase the returns and efficiency on the excess liquidity, in addition to our desire to increase our customer lending book. MREL ratio, very, very healthy at the end of the year. Please note that our requirements have actually gone down by 170 basis points on the back of the U.K. leverage capital computations, which affect both the leverage-based requirement, but also the sum of the parts, given that a lot of the entities are leverage-constrained from an MREL perspective. From a funding perspective, we have been until now in a building out phase of our MREL stack. We have ended that phase, and now we're getting into a refinancing and rebalancing mode of the stack. We should be expecting pretty much zero net senior HoldCo issuances for the year. We are flagging about $10 billion from a growth perspective. We are likely to be in the market for AT-1 this year. We don't quite have much of a need. Of course, we reserve the right to be in the market should we think that's appropriate. We are conversely planning to return to the Tier 2 market. We have been absent from that market for about five years, and you would have seen that we are saying that we are planning to have around $4 billion of issuance for the year. We have added some disclosures in terms of our legacy capital stack and some update on our position on IBOR. That's all I wanted to say. In summary, a very strong year. Return of targets have been brought forward by about a year. Improved rate environment, which gives you a nice tailwind. Capital funding and liquidity positions are all very, very strong. Net issuance substantially down on prior years, and our MREL stack now at a steady state. With that very brief introduction, I'll open up for question. Martin, back to you, please. Thank you. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel that request, please press the hash key. Once again, it's star and one on your telephone if you wish to ask a question. Your first question today comes from the line of Lee Street from Citigroup. Please go ahead. Hello. Thanks for doing the call. Thanks for taking my questions. I have three for you. Firstly, just on the slide 21, the fixed income slide. We've had a fair few questions almost about how the financial contagion works that you highlight there. Now, to me, it doesn't rely on anything new, but could you just clarify exactly, how that works? Secondly, as you highlighted, you're returning to the Tier 2 market, I think you flagged about $4 billion of issuance. Obviously, you've got a significant volume of, operating company Tier 2 still outstanding. A lot of that's not gonna work any longer. I guess the question is, why wouldn't you look to do some form of liability management? Then finally, on additional Tier 1, I mean, you highlight limited needs, just any thoughts around that. Because obviously, it looks like you've got quite a few sub bonds coming up to call over the forthcoming year and why you need to be quite so limited. They would be my three questions. Thank you. Thanks very much for the questions, Lee. On the first one, on infection risk, infection risk can be mitigated when we voluntarily derecognize the securities. You would have seen that that is kind of the plan that we have for each of the components of the stack. We don't think that that poses any issue at the moment that each of the securities lose kind of eligibility. In terms of Tier 2, yes, you're right. We have a number of Tier 2 outstanding that have, you know, lost, as well, some value and some of those that will lose value in the future. Liability management is always one of the potential options that we'll have. We will look at, you know, each of those, in turn. We will continue to look at all our options available. In terms of AT1, yes, I mean, you should for now assume, and that's what we have in the plan, that we will let those transactions come, and we wouldn't be replacing them. We have no plan at the moment to replace those AT1 for this year. Again, depending on market conditions, we may wanna get ahead of next year or two years of AT1. Just to clarify, you've no plans to replace them, or you will only look to replace them? I'm not sure I understood. Yeah. We have no plan for issuing any AT1 this year. Okay. Can I read anything into that in terms of your intentions regarding the calls that are coming up? No, you shouldn't. All right. I'll leave it there. Thank you for your time. Thank you. Your next question today comes from the line of Daniel David of Autonomous. Please go ahead. Hey, thanks for the call and taking my questions. I also want to focus on the legacy area because I think there's quite a lot of interest there. Just focusing on the legacy Tier 1, I'm noting your comments. I can see that they're not MREL or capital. Can you just help me with the rationale for leaving these bonds outstanding given the CET1 headroom you've got and what they're costing you? Are these bonds swapped? So could the interest rate be hedged when you come to do potentially a make-whole? The second question I have just goes back to your point on derecognition from a financial contagion point of view. I had understood that EBA guidance is quite clear that you can't do this unless you call, change terms or LME to mitigate the financial contagion. My question is the U.K.'s approach different to the EBA's, as the PRA, I guess, rolled over and let you take this treatment? I'm just a bit surprised to read this. Finally, just on the Resolvability Assessment Framework. Could you just help us understand the timeline? Have you submitted all your information, when do you expect the results? And do you expect to be told the PRA stance before the public disclosure in June? Thanks. Thanks. Thanks, Daniel. On the legacy security, when we're assessing the legacy securities that are outstanding, we always look at issue on three different components, and the blended result of those three components drives whether we will be taking any action on those securities. Those components are, first of all, the regulatory requirement. We are in, you know, ongoing discussions with the regulators around those. Maybe we'll get more information around mid-year about those. It's fair to say that the regulatory treatment of the legacy securities is not black and white. I mean, there are shades of gray there in, you know, in all sorts of securities. I would note that some securities are particularly challenging and that includes near-low securities, where, as you know, even if we wanted, it would be impossible to pretty much eliminate a full stack. The point I'm trying to make is this is not a black and white. Obviously, from a regulatory perspective, it would be better for those securities not to be there. Given the complications and all the different components, I think the regulatory treatment tends to be a little bit grayer than that. The second component is, of course, you know, yours and investors' interest. We are a long-term issuer in the market, and we want to have a long-term constructive relationship with investors, and as such, we will take those interests in mind. Finally, very importantly, we look at the economics of those securities. The economics of those securities, you know, as an outsider, outside in from the firm, is not totally straightforward for you to see how those economics play out because you need to look at the accounting treatment that we have for those securities internally. We need to look indeed as to whether we have those securities hedged or unhedged from an interest rate perspective. We need to look at what is the optionality value of those securities for future funding, like, for example, we have at the moment in the case of the DisCos. There is all sorts of economic components that affect whether those securities are or not in our interest to be called. Clearly, I'll leave it at that, but that basically drives whether we would or not call some of the securities. In terms of hedging, we're not gonna comment on individual hedging on individual securities. But likewise, we shouldn't assume that we have hedged them all. In terms of the recognition, I think you pretty much answered it in your question. It is the U.K. rather than the EBA approach. From a U.K. perspective, we can deal with that by voluntarily derecognizing the securities. That is an acceptable way of dealing with financial contagion in the U.K. In terms of the RAF timeline, we submitted our self-assessment last year. We have been in contact with the Bank of England and PRA. They have sent a number of questions. On the back of those, we actually sent an update to that, a couple of weeks ago, in line with everyone else in the market. The next step of the process is mid-year, just in June, there is gonna be a public disclosure made by both the Bank of England and ourselves on the status of that assessment. I guess we'll have to wait for that one. Obviously, we will have discussions with them ahead of that in terms of what is it that we're gonna be disclosing, and we'll be aligning communication. Thanks, Carlo Pellerani. Could I just double-check this? On the voluntary direct recognition point, on the slide you say subject to regulatory approval. Has this been approved, or is it waiting to be approved? That is part of the discussion on the self-assessment and on the RAF, and you'll see, I guess, the effect of that at middle of the year. Okay. All right. Thanks. Thank you. Your next question today comes from the line of Robert Smalley of UBS. Please go ahead. Hi, thanks for doing the call. Just following up on one point, then another subject. You mentioned the DisCos. If you were to leave those outstanding, how would they be categorized within the liability stack? Two other questions. One, you made a large provision for real estate in China. Could you talk about the Hong Kong real estate market, and if there's gonna be any need for provisions there given the economic slowdown and the moves we've seen of personnel out of Hong Kong? Third, on U.K. mortgages, swap rates moving much faster than you could probably reprice mortgages. Could you talk about the impact on your margin for the next couple of quarters on that? Thanks. Yeah. Thanks. Thanks, Robert. In terms of the DisCos, they de facto become senior debt. That senior debt is actually not that expensive. The DisCos are LIBOR+ 10 to LIBOR+ 25 perpetual funding. We looked at them in the context of, you know, funding value. Most of the DisCos are issued out of the non-ring-fenced bank, which is an entity that is naturally in funding need long term. Having that optionality is actually quite valuable. That's how we look at the DisCos. No, go ahead. Sorry. In terms of China CRE, yeah. Yes, I think the segment of the China CRE that is most impacted is the offshore segment. We have exposures to that segment in Hong Kong. We have about $11.6 billion of exposure there. About half of that book is in what we call enhanced monitoring mode. The other half is investment grade or an investor. So there is always, of course, chance that you will get more, you know, more impact. At this stage, we have reserved what we think is appropriate for where we are. Just note that we have announced or we have mentioned that we're expecting that we will be returning to around a normalized 30 basis points of provisions for the year. That 30 basis points includes as well any foreseeable impact that we can at this stage see on the CRE market. Having said that, of course, the situation is fluid, and we will continue to look at it. I mean, if you were to look at developments this year, there seems to be a little bit more support for the China CRE market coming in terms of commentary and some of the dynamics in the market. But again, you know, trying to predict that ahead is treacherous. I think we will have to see how that develops. Let me just add one thing. Clearly, the property companies you've read about having liquidity and other issues are mainly China property companies, much of which is collateral exposure but offshore. The question was very much more, I think, about Hong Kong incorporated public companies we've had very strong relationship with for decades, tend to be very well resourced, very conservative LTVs. The Hong Kong property market has been very resilient. Indeed, still very good prices clearing in both the commercial and residential property market in Hong Kong. Clearly, we keep an eye on all our portfolios, but the issue is really at that mainland China offshore market at the moment. In terms of U.K. mortgage pricing, yes, your observation is right. I mean, a lot of the mortgages in the U.K., of course, are fixed and the dynamics of the swap markets are, you know, slightly different to the dynamics on the short end. Yes, it is quite possible that market will continue to have a little bit of competitive pressure. It is a very competitively priced market. We continue to originate new mortgages at returns that are higher than our cost of capital. At the moment we are comfortable with those mortgages even at the compressed spreads. Of course, it's something that we'll keep an eye on. I don't know, Richard, if you want to add on. Yeah. The other thing is clearly the market tends to look at mortgage prices in the newspapers today versus swap rates today. Clearly there's a lag between swap rates either moving up or down and companies such as ourselves moving mortgage pricing. We don't move it every day. Clearly we move it on a regular basis, but there's always a lag between mortgage pricing going up and down versus swap rates. So clearly that's just bear that in mind that swap rates have moved and interest rates have moved dramatically in the last six weeks. Just bear that in mind. There's normally a lag there before mortgage pricing starts to reflect that. Thanks. That's very helpful. Appreciate it. Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel that request, please press the hash key. Your next question today comes from the line of Alvaro of Morgan Stanley. Please go ahead. Thank you very much for taking my questions. Apologies because I have three questions and all of them about legacy. The first one is about HSBC 5.844. If I follow with what you just said, that there are three angles to the exercise and make-whole call of this security. You are looking at regulatory requirements, investor interest and accounting treatment. I think it's quite clear that this security is useless from a capital perspective, issued from an SPV and with all the details that you already said in the Pillar 3. If you can provide some color on this security, that would be great. The second one is about Tier 2 more broadly. You said that you are going to issue Tier 2 for first time this year. In order to call the opco Tier 2 securities, do you need to issue first? In other words, the approval to call the securities is subject to replacement for other Tier 2 securities, assuming from obviously from the holding company. My third question is about the DisCos. I think we discussed this point in the past, but one of the DisCos is issued from the Hong Kong subsidiary. Can you please confirm that you look at this security in a different way to the other three? Thank you. Thank you, Alvaro. Despite the questions are all on legacy. The first, your first question, I think, is on the non-ring-fenced bank trust preferred security. Yes, you have identified correctly, I think one of the three conditions, you know, the regulatory treatment. I mean, we haven't called the securities, so it must mean that the other conditions kind of affect why we haven't made a decision. I'll leave it- Sorry, so sorry. Which condition? Investor interest? I mean, or accounting treatment? Well, it must be also the economics. It's not economical to exercise and make-whole call of the securities is what you're saying. That could be one of the conclusions. Overall, we haven't made a decision to call them because on balance that doesn't work for us at this stage. We will continue to look at it. Okay. In terms of the Tier 2s, no, I think we don't have a specific requirement on the Tier 2 stack, right? We have a capacity to have Tier 2 in our stack up to a certain amount that at the moment we have on the way, right? It's not a precondition for one is not a precondition to the other. We will continue to look at all the options for Tier 2. I mean, that could include LMEs, it could exchanges, it would be issuances. We will look at all of the above. In terms of DisCos, yes, I think the only similarity between the Hong Kong securities and the ones for non-ring-fenced is the type of instrument. The two are very different because the legal entities have very different needs. You could say that our Hong Kong entity is less of a natural funding need entity than it is the non-ring-fenced bank. Also from a regulatory perspective, the Hong Kong DisCos are no longer counting from a regulatory perspective. We don't treat them the same. We would make those decisions individually in each of the entities. Okay. Thank you very much, and I apologize again because these legacy questions are always horrible. Thank you, Alvaro. Thank you. We do have one more question at this time. This comes from a line of Tom Jenkins of Jefferies. Please go ahead. Hello. Sorry and thanks so much. Don't keep you very much longer. Guess what? It's on legacies, which you should be very proud of because it means no one's concerned about anything fundamentals or anything else. It's actually quite a good thing that we focus on these, you know, in minutiae of these securities. I've got one question, which I don't know if I missed earlier. You heard me on the first one, which is normally the first question, so I don't think I missed anything. LIBOR. I know you put a slide in there. I think it's slide 22 on the slide deck. How are you thinking in terms of your fallback language on the CoCos? It's really not clear. It talks about sort of lowest deposit rate, so you know as a base of the fallback of LIBOR. SOFR is not based on deposits. So I was just wondering what you're thinking in terms of whether you fix, whether you've got an alternative. Is there an alternative that I don't know about? I'm sure there is. Just talk to me a little bit about your fallback language on the DisCos, if you may. Thank you. Hi, Tom. Thanks for the question. Yes. Sterling New York law instruments, for those, the U.S. legislative solution doesn't quite work. Of course, the conundrum with those securities, like for all the New York law securities, is that we will not be able to successfully consent for 100% of the securities given the dynamics of the New York law. We are looking at the options with those securities. I mean, just Sorry. I don't wanna waste your time. We're talking at cross-purposes. I was thinking of the DisCos. Under English law, and what the transference would be into LIBOR. Oh, yes. I'm assuming the DisCos. Yeah. No. No, no. Please don't apologize. It's, I obviously wasn't clear. Yes. In terms of those securities, we are looking to offer similar consent solicitation as we did with all the other securities, we'll come with those in due course. I mean, those securities, we have time until 2023 for them. Sure. Well, do you think based on the language in the documentation that you can use SOFR, and then maybe upscale the coupon as competition as you did with the sterling LIBOR bonds, or would you use a different base rate? I mean, can't square the circle in terms of what the language in the bond says about the lowest deposit rate and what you're talking about in terms of offering a new what the lowest deposit rate sort of replacement would be if it's not SOFR. You know, it's not. Yeah. Tom- It's a treasury rate. Yeah. The fallbacks on those securities are questionable at this stage. Okay. Yeah. It's not Would you consider fixing, or would you consider just actually getting rid of the damn things and stopping these irritating questions from people like me? It is tempting. It is definitely tempting. We will... Listen, we will leave our options open at this stage. I mean, overall, we are committed in seeking to remediate or mitigate anything around IBOR domains, and we are gonna work together with investors to find a solution that works for everyone. This is a complex space, highlighted by the call. You should go into politics, honestly. Right. Okay. Basically, there's no firm answer. There's no guidance. It's just, "Let's hope for the best and not for the worst." Is that the kind of thing? Yes. I think it's more than that, right? In terms of the English law securities, including the DisCos, we expect to offer a similar consent solicitation as the one we did for your LIBOR securities. I think that's the best I can say at this stage. Okay. All right. Well, as and when you know what the possible base might be, do please let the market know. We'd be, I'm sure, very interested. Thank you. Thanks very much. Thank you. There are no further questions at this time. Mr. Pellerani, back to you. Okay. Thank you very much for the call and for the interest in legacy securities in particular. You know, I hope that the call was helpful for you. If you have any more questions, please pick it up with Greg and the IR team, and we will endeavor to answer, especially if they're not around legacy securities. Thank you very much. That does conclude our conference for today. Thank you all for participating.