Good morning, ladies and gentlemen, and welcome to the Investor and Analyst Conference Call for HSBC Holdings plc's interim results for 2023. For your information, this conference is being recorded. At this time, I will hand it over to your host, Mr. Noel Quinn, Group Chief Executive. Yep. Good afternoon to those joining us here in Hong Kong, and good morning to those in London and elsewhere. Noel and George will present on strategy and the results, and we will allow plenty of time for questions from the telephone lines and the live audience here in Hong Kong. With that, over to Noel, who will host the conference. Thank you, Richard. Good afternoon to everyone in the room here in Hong Kong. Thank you for joining us, great to see you again. Good morning to everyone watching from London and elsewhere. Before George takes you through the second quarter numbers, I'll start with a summary of the first half performance and progress. First, I show this slide every quarter. It's critical in that it summarizes our strategy. Our strategy remains unchanged. It is summarized by the 4 pillars at the bottom of the slide. Let me take you through the latest outcomes of that strategy. We had a good first 6 months. I'm pleased with the broad-based profit and revenue generated by our global businesses and geographies. I'm also pleased with our strong capital generation and returns. We delivered an annualized return on tangible equity of 22.4%, including the two material notable items reported in the first quarter, or 18.5% if you exclude those notable items. We've announced a second interim dividend of $0.10 per share and a second share buyback of up to $2 billion. Today, we're also upgrading our guidance. Now, we expect to achieve a return on tangible equity in the mid-teens for 2023 and 2024. Prior to 2023, we were very focused on transforming the business. Now, while still continuing to improve operational efficiency, we are very focused on driving growth, diversifying revenue, and creating incremental value. We have a plan built around six areas. I will take you through some of these over the next few slides. Starting with our international connectivity, we grew wholesale cross-border client business in the first half by around 50%, with growth across all regions, driven by higher rates. Our international proposition in Wealth and Personal Banking continues to gain traction. We now have 6.3 million international WPB customers, and that is up 500,000, or 8%, over the last 12 months. That's significant because these international customers generate around 2.5 times the average customer revenue. Finally, we drove strong revenue growth in transaction banking, which was up 63%. There were good performances in foreign exchange and in Global Payments Solutions. Trade was slightly down year-on-year, in line with global trade volumes, but trade balances stabilized in the second quarter, particularly in Asia. HSBC was named Best Bank for Trade Finance by Euromoney for the second year in a row, as well as Best Bank in Asia. The next slide sets out our latest progress on another area of focus, the redeployment of capital from less strategic or low connectivity businesses into higher growth international opportunities. I'm pleased that we agreed new terms for the sale of our French retail banking operations in the quarter. The deal is subject to regulatory approval, and we now have a lot of work to do to complete migration in early 2024. The sale of our banking operations in Canada remains on track to complete in early 2024, with a special dividend of $0.21 per share planned thereafter. We completed the disposal of our Greek business last weekend, and we've announced the disposal of our Russian operations. We are changing the nature of our business in Oman, and we will wind down our WPB operations in New Zealand. Crucially, this is allowing us to target growth opportunities, some of which are set out on the right-hand side. The first is the continued development of our wealth business across the whole of Asia. Our digitally enabled wealth and insurance business in mainland China now has 1,400 wealth planners and is driving good new business growth. We launched global private banking in India last month. In June, we launched HSBC Innovation Banking, a strengthened, globally connected proposition on the back of our purchase of SVB UK. We will nurture the specialism that we acquired, back it with HSBC's balance sheet strength and global network, and build further innovation banking businesses in the U.S., here in Hong Kong, and Israel. The process is already well underway and will enable us to support our clients in the technology and life sciences sectors to achieve their global ambitions. Finally, we've announced today that we are also increasing our shareholding in Tradeshift, and have agreed to launch a jointly owned business in early 2024 to provide embedded financing solutions within their trade ecosystem. We believe this will help us to grow our client base in commercial banking, giving us a new avenue for growth outside of traditional relationship banking. The next slide looks at how we are diversifying revenue by growing fee income and collaboration. As I've said, our wealth strategy continues to gather momentum, especially in Asia. Net new invested assets were down in the rest of the world due to lower third-party asset management liquidity products, mainly in the US. They were up in Asia by 21% to $27 billion. Over the last 12 months, we took in a total of $75 billion of net new invested assets and grew our invested assets by 8% globally. This all underlines the growth potential of our wealth business. Fee income in Commercial Banking was up 6% in the first half, and collaboration revenues between our global businesses were up 5%. Collaboration revenue is particularly important in a relatively low growth economic environment because we can drive, drive growth from within the organization. The next slide focuses on the tight cost discipline we've maintained and how it enables us to invest in the bank of the future. We remain committed to disciplined cost management and have continued to use cost savings to increase investment in digitization. We increased spending on technology by 12.8% in the first half, and this spending now accounts for 23% of our target base operating expenses. This investment has translated into faster services, reduced friction, and more competitive products, all of which will improve the customer experience and our operational efficiency. We've made good progress in increasing digital penetration amongst personal and business customers while increasing our product release frequency. Investing in technology is also enhancing our capabilities. We now have a range of test and learn use cases for generative AI across HSBC, and are in the process of scaling up a small number of those. Last month, we became the first bank to join BT and Toshiba's Quantum Secured Metro Network. This uses quantum technology for secure transmission of data, data, which should mitigate the risk of future cyber threats. We are pleased to be working with the Hong Kong Monetary Authority on two pilots: to test the e- Hong Kong dollar in a new payments ecosystem and to trial tokenized deposits. My last slide shows how we've continued to build on our position as an enabler of the net zero transition. In the first half, we provided and facilitated $45 billion of sustainable finance and investments as we continue to work closely with our clients on their transition plans. This consisted of capital markets financing and on-balance sheet lending to clients, and included a number of key deals in Asia and the Middle East. We were recently named Best Bank for Sustainable Finance in Asia by Euromoney for the sixth consecutive year. I'll now hand over to Georges to take you through the Q2 numbers. Thank you, Noel. A warm welcome to everyone in the room with us today. It is great to be back here in Hong Kong to deliver our interim results. For those of you watching today from London and across the globe, a very good morning, and thank you for joining us. We've announced a good set of second quarter results. Reported profits before tax were at $8.8 billion, up 89% on last year's second quarter. Revenue was up 38% at $16.7 billion. This was driven by, first, NII of $9.3 billion, which was up $2.5 billion or 38% year-on-year, and second, non-NII of $7.4 billion, which was up $2.1 billion or 39% year-on-year. We booked expected credit losses of $0.9 billion in the quarter. Despite the inflationary environment, cost growth in the quarter was restricted to 1% compared to last year's second quarter, including $0.2 billion of severance costs. These severance costs were expected, and we are on track to meet our 2023 cost target to limit cost growth to around 3% on our target cost basis. Compared to the first quarter, lending and deposits were both down 1% due to subdued loan demand, deposit outflows in Global Banking and Markets in Europe, and the reclassification of our portfolio in Oman to held for sale. Our CET1 ratio remains strong at 14.7%. As Noel said, we announced a second interim dividend of $0.10 per share and a second share buyback of up to $2 billion, which we intend to complete in around three months. TNAV per share was down $0.24, due primarily to the final interim dividend for 2022 and the first interim dividend for 2023. The next slide shows another strong quarterly revenue performance, with overall growth of 38% compared to the second quarter of 2022. Three further points on this: As Noel mentioned, revenue was up in all three global businesses. Wealth was up 19% due to higher rates and a strong insurance performance, mainly here in Hong Kong. Three, across Commercial Banking and Global Banking and Markets, Global Payments Solutions reported revenues of around $4.2 billion, an increase of 115% on the second quarter of 2022. The next slide, reported NII was $9.3 billion, up $0.3 billion, or 4%, on the first quarter. We've introduced Banking NII as a new disclosure this quarter. It is derived by adjusting reported NII for the centrally allocated cost of funding trading activities and the NII generated by the insurance business. At $11.6 billion, Banking NII was up $1.3 billion on the first quarter and up $4.5 billion on last year's second quarter. The $2.4 billion centrally allocated cost of funding trading activities within Global Banking and Markets in the second quarter included a $0.4 billion year-to-date impact of methodology changes. As a reminder, the related income associated with these funding costs is reported with Non-NII. The net interest margin was 172 basis points, up 3 basis points on the first quarter of 2023, and up 43 basis points on the second quarter of 2022. We continue our structural hedging activity. Our NII sensitivity is $2.6 billion for a 100 basis point drop in rates, against a previous year-end sensitivity of $4 billion. At this point, we are adjusting our NII guidance. We now expect NII of at least $35 billion in 2023. Within this, we expect the centrally allocated cost of funding trading activities within Global Banking and Markets to be in excess of $7 billion, with associated income reported in Non-NII. We continue to reiterate that we expect to see higher pass-through rates and continued migration to time deposits, and we remain cautious on loan growth over the next 6-12 months, but we do expect it to start picking up sometime in 2024. I know that many of you will have questions about Banking NII in particular, which I'll be very happy to address as we move into Q&A later on. Moving on, Non-NII of $7.4 billion was down on the first quarter, which benefited from $3.7 billion of notable items and FX translation. However, it was up $2.1 billion, or 39%, on the second quarter of 2022. Couple of things to mention here. One, there was a strong Wealth Management performance, up $0.3 billion, or 19%, on the second quarter of last year, $0.2 billion of which came from increased life insurance income, primarily in Hong Kong. Two, markets and security services was down due to lower client activity and the methodology change that I just mentioned earlier. Fees were up $0.1 billion on the second quarter of 2022 due to higher personal banking and commercial banking fees. Turning now to credit, our second quarter ECL charge was $0.9 billion, which was $0.5 billion up on the second quarter last year. It includes $0.3 billion for our mainland China commercial real estate exposure booked in Hong Kong and a $0.3 billion charge for the UK. To remind you, this is a more normalized level of charge that we expect for this year, and is a sign that our main credit indicators are holding up. On the basis of what we have seen so far in 2023 and ongoing macroeconomic headwinds, we continue to expect a 2023 ECL charge of around 40 basis points of average gross customer lending, including held for sale balances. The next slide is our 6-monthly update on our mainland China commercial real estate portfolio. As before, our principal area of focus remains the portfolio booked in Hong Kong. At the full year, our exposure was $9.4 billion. It now stands at $8.1 billion, due primarily to repayments. The proportion of substandard and credit-impaired exposures is around 65% of the portfolio, marginally up from the full year. Of these $5.2 billion of exposures that we rate as substandard or credit-impaired, $1.1 billion is secured with minimal ECL due to the security held. Against the remaining $4.1 billion, we have increased our provisions from $1.7 billion at the full year to $1.9 billion today. Within this, our coverage ratio against the unsecured credit-impaired exposures has increased from around 55% to nearly 70%. At the end of 2022, we calculated a plausible downside scenario of $1 billion on this portfolio. As you can see, we have now crystallized some of that downside into the PNL. We remain comfortable with our coverage level. On slide 17, despite the inflationary environment, cost growth was restricted to 1% on a constant currency basis versus the second quarter last year. As you can see, a large share of this growth was technology-related. There was also a higher performance-related pay accrual and the expected severance costs, which were part offset by a write-back of software and lease impairments. We remain committed to limiting cost growth to around 3% in 2023 on our cost target basis. On this target basis, second quarter costs were up 6% year on year, of which around half was the $0.2 billion of expected severance costs. As a reminder, our cost target bases exclude notable items from constant currency operating expenses. It also excludes the impact of retranslating hyperinflationary economies at constant currency. Finally, it excludes the acquired cost base and additional investments in HSBC Innovation Banking, which are expected to result in incremental growth of around 1% above our targeted basis. The full cost target basis reconciliation will be on slide 26 of this deck. Our CET1 ratio was 14.7%, which was stable on the previous quarter. Profit generation was offset by the dividend accrual of $6.9 billion during the first half and the share buyback of $2 billion that has now completed. In summary, this was another good quarter. There were good profit and net interest income performances. Credit remains resilient. We are on track to limit cost growth in 2023 to 3% on our cost target basis. We now expect NII of at least $35 billion in 2023, as Noel said, we now expect a mid-teens return on tangible equity in 2023 and in 2024, excluding upcoming sale of Canada. Finally, we are returning capital to shareholders by way of increased dividends and share buybacks. With that, I'll ask Richard if we can open it up for questions. Richard, please. Thank you. Operator, can you open up for questions, please? Can I remind questioners to stick to 1 or 2 questions only, please. We'll take 4 or 5 from the lines, and then we'll take live questions here from Hong Kong. Just remind the analysts in Hong Kong to give your name and institution, and there'll be a mic round to enable you to be heard. With that, operator, can we take our first question from Manus Costelloe, please? Thank you, Mr. O'Connor. If you would like to ask any questions today on the line, please press star one on your telephone keypad. Please ensure to unmute yourself when your line is open. If you find your question has been answered, you may remove yourself from the queue by pressing star two. Once again, to ask a question, please press star one, and please ensure to unmute yourself when your line is open. Our first question from today is from Manus Costelloe, from Autonomous. Your line is open. Hi. Thanks very much for taking the question. I wanted to ask about NII, a couple of questions. Firstly, I noted that the NIM was flat in Asia and HSBC quarter-on-quarter. Can you give us a bit more color around that, about what you would expect in Q3? I appreciate the changes, costs have been somewhat allocated there, but I would still have thought that you might see some benefits from higher fiber in HSBC. Please elucidate that performance a little bit more. Then secondly, you've also talked about increasing hedging, and the structural hedge in order to reduce your downside risk on NII. Can you go into a bit more detail about what you've done, and how to think about that in terms of potential benefits going forward into 2024 and beyond? Thank you very much. ... Thanks, Manus. Georges, do you want to pick up both of those points, please? Sure. Thanks, all. Thank you, Manus. On NIM, NII, NIM in Asia was flat because most of the uplift from rates has translated into an uplift in the Non-NII component of the trading book funding, about $0.3 billion uplift in that space. We've introduced Banking NII. In due course, we will enhance our disclosure in the space to introduce Banking NII sensitivity and Banking NIM, which would be reflecting such an uplift. With regards to your second question, Manus, the hedging activity, so if you, if you look at our NII sensitivity, downwards 100 basis points, have reduced from $4 billion to 2.6 billion. About a third of that reduction is due to our hedging, structural hedging activity, and another third of that reduction would be effect of the change of the composition of our balance sheet. The last third is numerous other factors, including modeling enhancements. If you now look at our structural hedging activity, which we've conducted over the last 12 months, the overall impact on the reduction of Banking NII sensitivity is to the tune of $1 billion. Thank you, George. George, you just want to explain why there's been more of a move into the sort of the non-NII... Non-NII, yeah. -trading book, what the root, the underlying cause of that is? Sure. So what, due to the somewhat subdued loan growth in Asia, we have-- the management of Asia has taken the decision to allocate more funding towards supporting some of the trading activities. So the overall funding of our trading books, globally, which heavily used also in Asia, moved from about $108 billion or circa 6% of our deposit base, to around $130 billion, or about 8 to 9% of our deposit base. That additional lending, or that additional trans- transition from funds have moved NII into non-NII income. It is still rate sensitive, and it does benefit from improved level of rates, you know, particularly in US dollars, where it's coming from. Thank you. Next question, please. Thank you. Our next question is from Aman Rakkar from Barclays. Your line is open. Good morning, Noel. Good morning. Good morning, George. Good morning, Good morning, Richard. Hi, morning. I had two questions, please. Again, on net interest income, at face value, your greater than $35 billion NII guide does imply a step off in the run rate of net interest income in Q3 and Q4. I suspect you would point us to the greater than $35 billion, suggesting that there's some conservatism which may have been there. Can you talk to what the pressures are, or indeed, actually even the sources of support on the net interest income run rate from here through to year-end? Well, well, you know, I think one thing the market would love is some sense of whether this level of net interest income is sustainable beyond this year. Anything you can give us there, you know, I guess relatedly, I, I know that the UK has been very strong as well. Any kind of color you can give us on the moving parts there and the sustainability of Net Interest Income in the UK would be great. The second question was around distributions. It's specifically around your dividends, and you're reiterating your 50% payout ratio guidance this year, this year and potentially next year. You know, it does look like it's going to be quite strong earnings. I, I guess if I take consensus, looking for an underlying EPS of around $1.20, which implies an ordinary dividend of $0.60. I mean, that number feels big, it's big versus $0.51 you used to, it's big versus what you did last year. I, I guess the question is: How comfortable are you with paying a big ordinary dividend now, which might then become quite difficult to sustain in the future if, you know, rates come off and earnings kind of taper? Are you bothered that you do $0.60 this year and you do some number that's lower than that next year or, or, or thereafter? Thank you very much. Georges, you want to certainly take the NII one first and just clarify our position on that, and then we'll come to distributions. Sure. Thank you, Amanda. Kind of in turn, addressing your points, first, as you did say, we're emphasizing that this is a floor. We're emphasizing this is a guidance of greater than $35 billion. We're revising this floor because we're gaining more comfort, first halfway into the year and with the outcomes of H1. We want to remain cautious, and you may find our guidance to be cautious, given the difficulty to forecast some of the challenges I'll talk about in a second. And then in, in, you know, in, in terms of outlook for the rest of the year, look, we are not looking to change the consensus for H2 NII. We're, you know, we're comfortable where H2 NII consensus stands at this stage. Now, in terms of the pressure and the support we're seeing, what we're seeing, certainly tailwinds that we've seen already in Q2, one, in terms of additional rate hikes, to be expected very much in the major currencies, such as dollar, pounds, and, and euro. We've seen also tailwinds in the HIBOR normalization. We've seen about 1% quarter-on-quarter normalization of HIBOR. If you look at July, we continue seeing further normalization. HIBOR is now around 5%, so probably at the end of July, we'll have fully normalized. Those will provide us some, some, certainly some tailwinds as we look into, into H2. This being said, we continue to see the same headwinds we've been calling out from the year-end, and they will continue manifesting in H2. The first headwind, which we forecast to remain, is the subdued balance sheet growth, certainly subdued loan growth due to the activity. We have indicated we may see some resumption in 2024, but for this half year, for the next half year, will probably remain as a headwind. Naturally, the other headwind that is very difficult to forecast is the deposit costs, behavior, you know, what pass-through rates we will be feeding in, what is the impact of lagged migration to time deposits. In Hong Kong, we're still assuming a 1% migration per month, and whether this manifests as it is. It is very difficult to forecast, hence our cautiousness. Now, if I look forward, look, we're not guiding for NII in 2024, but there are a few things I can just give you to, to kind of bake in your analysis. The first one is you have to exclude Canada and France upon completion of these of France retail, upon completion of these transactions, which now we expect for Canada in Q1 2024, and in France, as we initially ambitioned, we're aiming 1st of January 2024. The second one, you have to expect that the balance sheet growth will resume at some stage in 2024, and that will give us support for NII. The first one is the third one is obviously the structured hedging, which I mentioned a bit earlier, and the impact they will have on more stabilization of outlook for NII. Obviously, the fourth one is what interest rate assumptions you are going to use and what pass-through rates you're going to use. Last but not least, we are investing a lot in our non-NII or fee income-earning businesses, and do expect fee income-earning businesses, you know, to continue driving some of that growth. That's it for the NII component. Now, I can talk to distribution- Please carry on with dividends as well, please. Dividend, so what, what we, what we shared is that we're going to pay a 50% dividend payout ratio, excluding notable items. I think in your math, based on consensus, you have taken out notable items. I'm not going to comment on the size of the dividend, but what I'm going to say is, in order for us to sustain dividend, you know, there are a few things we, we're working on, and, you know, you, you, you can as well do the math, Armando. The first one is share buybacks. As you know, share buybacks is reducing our share count, and to the extent we ambition to continue on the journey of share buybacks, as long as we remain capital generative, which is what we forecast, you have to adjust your denominator by the share count. The second thing is the NII stabilization actions we're taking, which should give us some protection from a reversal of the rate cycle. The third and fourth, third one is obviously our cost discipline will be maintained, even though we haven't yet we're not ready to share numbers, we will maintain the discipline. Lastly, as I again indicated, fee income growth and the investments we're putting in fee-generating areas, such as investment in wealth, are also, you know, initiatives to support, mitigate a turn in our earnings and therefore a return and, you know, possible in our dividends, you know, beyond 2024. Georges, excellent. A very comprehensive answer to both questions, so thank you. Thanks, Raul. Next question, please. Thank you. Our next question is from Raul Sinha from JP Morgan. Your line is open. Good morning. Good morning. Everybody. Thank you for taking my questions. Maybe can I have 2, please? The first one, just staying on, on distribution, is perhaps to invite Georges' thoughts on the potential for buybacks in the second half of the year. You know, looking at your capital ratio, obviously, you probably have to make a couple of adjustments to solve this COVID impact. You know, that 25 basis point, and then you've got the, the buyback that you've announced today, that's 50 basis points off the headline level. Just thinking about, you know, your RWA guidance, it doesn't like usually mean perhaps slightly less capital in the second half. Just wondering if you can scope for us, Georges, you know, what, what the buyback might be from here? Then the second one, just for Raul Sinha on that management, revenue growth. If I look at the debt management revenue this quarter, roughly $2 billion just sort of stable on Q1. I wonder if that understates some of the momentum that you are building within the business? If you could just help us understand how you expect the debt management revenues to grow from where that is? is? Thank you. Yeah, happy to do that. I'll let Georges take the buyback question first. In, in terms of the buyback, you know, obviously, the fact that today we announced a $2 billion buyback will, you know, today have an impact on our Q3 CET1 ratio of 25 basis points. You, you do expect us to continue generating profitability, which will build capital, 50% of which will be provisioned for, for the, you know, for dividend, as in dividend based on the 50% dividend payout ratio anticipation, and therefore, that buyback will take into the additional capital generation. I wouldn't look at Q3, 25 basis points as a, you know, due to the buyback we just announced, as a challenge. This is obviously, you know, this is just a fronting, if you want the profit generation that we would be doing in the quarter. Beyond that, again, at this stage, what I can say is we believe we remain capital generative for the foreseeable future, and as long as we're capital generative, we continue to ambition a rolling series of share buybacks. Obviously, we will review this on a quarter-by-quarter basis based on a number of factors, including our capital adequacy ratio. I just wanna also highlight, and probably answering your question, Raul Sinha, and complementing the question of Raul Sinha earlier, that the Canada sale expected in Q1 2024 will provide us additional capital. The priority use of the first part of it is for a $0.21 dividend, which will, you know, we will be in a position to distribute, expected in H1 2024. Then the residual part of it, we will utilize to supplement, or complement, or top up any capital buyback we're planning to do. Thank you. I think it's a fair comment on your second question that what we're talking about here is very much growth in lead indicators. You know, the $27 billion of net new invested assets here in Asia, in the first half, up 21%. Globally, net new invested assets growth of $75 billion over the past 12 months. A growth in our aggregate invested assets of 7% globally. You know, they're strong lead indicators, an additional 500,000 international customers, in the past 12 months. For me, they're the lead indicators. I think you're absolutely right. There'll be a lag effect as you turn that customer acquisition and asset acquisition into revenue. That's why we're talking about building businesses and new growth opportunities that can supplement our revenue going forward and give us some cushion and offset to any downside rate effect that may emerge, post 2023 and post 2024. We think it's the right thing to do, and you're right, the revenue will be a lag indicator on those early success criteria that we're sharing with you. If you remember our growth in our Wealth business in mainland China, you know, we started with zero wealth managers just over two years ago, we've now got 1,400. Our ambition is to get to 3,000 over the relatively near term, over the next couple of years or so. Again, that will be revenue generative as an offset, 'cause most of that is fee-based, as an offset to any downside pressure there may be on interest rates. I think your, your second comment is a fair comment, but I, I'd turn that into the positive rather than the negative. I'll just add, as you're aware, Q1 is normally seasonally a bit stronger, and IFRS 17 means you build revenue from a pretty low base, but up rapidly. Yeah. We'll take one more from the lines, Andrew Coombs, and then we'll turn to the live audience in Hong Kong, please. Thank you. Our next question is from Andrew Coombs from Citi. Your line is open. Hi, Andrew. Good morning, or good afternoon. Two questions, please. Just firstly, on Chinese Commercial Real Estate, there's a, you know, absence of charges in Q1 and more additional charges in Q2. What triggered those additional charges? When you talk about this downside scenario on slide 60, I think previously you'd said $1 billion, and you're now saying it's lower. Should we just take off the $0.2 billion, so $0.7 billion, or can you provide some framework around what you think the downside scenario now is? My second question, perhaps I could just invite you to make some comments on the FCA's 14-point plan on cash savings that was released yesterday, and any implications you think that might have for the U.K. business. Thank you. Okay. I'll take the second, but, Georges, you want to take the first? Thank you, Andrew. We have put in more charges in Q2. The total charges was $0.3 billion, or, you know, the sum of Q1 and Q2, Q1 being very benign, is $0.3 billion. Most of these charges are on Stage 3s. These are more technical adjustments over, over names that have defaulted. You know, where we stand now in terms of charges is we are comfortable with the charges we have against this portfolio on China CRE. Now, with regards to the plausible downside scenario, we indicated $1 billion at the year-end as a plausible downside. We have indeed crystallized $0.3 of it. Without being precise on the math here, it, it, it is indeed a residual circa, you know, $0.7 billion, that, you know, that remains a plausible downside, which may or may not materialize over the coming few quarters. Thank you. With regard to the FCA and the work they're doing on savings accounts, I think was your second question. Listen, we believe in both the mortgage book and the savings, the deposit book, we've tried to make sure that we are offering a good range of products to our clients, whereby they have choices. On savings, we've got a good competitive range of fixed-rate deposit accounts in the market. We also believe we've got good pricing in place for more instant access type savings accounts or deposit accounts. We will participate with the FCA and on any review they do. We believe if you take our 2-year fixed rate savings account in the UK, based on the yield curve in the UK, we're offering savers the opportunity to get 5.1% on that 2-year fixed term savings account. If you compare that to our 2-year fixed mortgage product that we're offering to our customers with a 60% loan-to-value ratio, we're in the market at around about 5.53%. For new to bank customers, we'd be in the market at about 6.1%. We believe we have the structure of the deposit book and the structure of the mortgage book in the right level. As ever, there is a price difference between term products and instant access products because of their maturity and the liquidity risk. We have tried to price our products fairly and appropriately. We're very cognizant of the pressures that UK customers face at this point in time. We've certainly tried to remain competitive and to help them navigate what is going to be a challenging year or so, with high interest rates in the yield curve and higher rates of inflation. We will fully participate with any review that the FCA take. We're also trying to encourage, through marketing prompts, customers to take advantage of those products if they want them, and they meet their circumstances. You know, we can't, can't and should not force them into term savings, but we need to make sure they're aware of our term savings products should they want to take advantage of it. Hopefully that answers your question. Can we take the next question, please? Questions from the floor in Hong Kong. We'll take two, Katherine and then Nick, and then I'll come back to you, Sam, a bit later. Okay. Hi, my name is Katherine Lei from JPMorgan, and I have two questions. One is in the more long term, and one is more near term. For the long-term questions, I would ask management if you can give us any color on potential impact of Basel III reform. Because I think one of the key support on share prices is buyback and shareholder return, right? I think the impact on capital because of this potential regulatory changes will have an impact on how we model in future capital return. This is more in the long term, I understand that. I just want to get some color, any color, particularly after the U.S. regulator released that Basel III endgame. Like, how would that change our, like, present forecast on that? This is for the long-term question. On the near term, just now, I think management gave us a number, potential additional ECL charges on China CRE is $0.7 billion. I also noticed that for our guidance for full-year credit costs is 40 basis point. If I look at the first half, it's a bit less than 30 basis point on an annualized basis, right? That additional upside on credit costs, like have we included that $0.7 billion or that $0.7 billion is outside of the 40 basis points guidance? Thank you. I think I'll take the second one first and then ask Georges to cover the more technical, difficult, Basel III question. On the, on the ECL, we decided to maintain guidance of 40 basis points on ECL because there's still a lot of economic uncertainty out there. There's economic uncertainty around China's commercial real estate. There's economic uncertainty generally in the world. We've had a good first half performance on ECL, as you say, you know, $1.3 billion is below the run rate of 40 basis points. We think we do have some capacity to absorb some of that risk that's inherent in the commercial real estate book in China. I, I think I'd be misleading you if everything was so scientifically proven, because you've got to-- it all depends on what happens elsewhere in the world. Yeah, I could easily say, "Yes, we've got capacity to absorb that," but it depends what happens elsewhere in the world, so. We do believe we have... It's right to maintain a conservative guidance at the moment on ECLs at 40 basis points, and we have capacity in the second half, relative to the first half performance, to absorb some additional shocks, should they come through from near-term economic issues. George, you want to handle Basel III? Yeah. I mean, just maybe just finishing on the ECL point. I would caution you not to annualize H1. If you look at Q2 at 0.9 is a more normalized level. Yeah. That is more a level that you can look at, whereas Q1 was in, you know, unusually quite low. This is why H1 will look low to your taste. On Basel III, look, the first thing to share about Basel III is we need to know the final rules. At this stage, most of these rules are still in draft form, and they will remain, you know, subject to change as we know the final rule. The second thing I will share is that based on the current draft rules, in, you know, as per our PRA standards for the group holdings, they will be a minor improvement initially in our RWAs. As the output flow starts kicking in 5 years into the journey, so from 25 plus 5 years, there is a likelihood that the output flow will catch us, and net, net, the impact may be immaterial up or down, but immaterial up as we look at it as at this way. This being said, I just want to caution 1 thing. The US obviously issued their draft rules last week. They came out more more severe than we initially expected. They will have an impact on our US operations. It remains a marginal impact. We're, you know, likely talking single-digit RWA uplift against a possible downward move before that. Those rules will impact our local reporting for our US entity will not change the way we report at the group level. We will need to navigate both, if you want, in parallel. ... Thank you. over to Nick. Nick? Thank you. Yeah, it's Nick Lord from Morgan Stanley. Again, a couple of questions, if I may please. I think Georges has given a very thorough description of how you might sustain earnings, sort of post-return in rates. Obviously a lot of that fee generation is gonna come at a cost. I just wonder if I could invite you to talk about how you think of balancing that fee generation with cost over the next 2-3 years. Secondly, a little bit more specific, but you're now sort of 3 or 4 months into having bought SVB. You've spoken a little about, bit about it here. I just wonder if you could give us a little bit more detail on how your plans have evolved for that business. Yeah, thanks, Nick. By costs, I'm assuming you mean investment costs to get to it? How you manage investment costs against operating costs. Yeah, that's fair. Listen, you're absolutely right. We're keeping a strong and tight cost discipline in the bank. What we're doing is we're reallocating cost from two. What we're typically reallocating is from what I call bad costs, costs that are associated with low return in portfolios, low return in business activities in certain markets, or costs that are associated with manual processes that should be digitized. If you look at our cost performance, I think we increased our investment in IT cost by 12% so far this year, first half to first half. We increased some of our investment cost in our global businesses, and we reduced costs elsewhere, and that's what's getting us back to the 3%. We're investing and saving at the same time. That is a phenomenon that probably historically HSBC has not been great at. It's typically been cost management or cost investment. It's been a cycle. You, you, you, you manage costs tight, and then you invest. We're definitely trying to do both at the same time, and there's a lot of self-funding going on to try and mitigate the overall cost base. That's how we're building out the 1,400 people in Mainland China because we're saving costs through other country exits or the market exits, reducing our support costs in some of the manual processes in our global processing centers. That's allowing that investment to take place. That's been the journey for the past 3 years. On the SVB, the integration is going well. The business, we've had no nasty surprises since the day we bought the business. It was profitable the day we bought it. It is still profitable. We're going through systems migration at the moment. One statistic, which is probably an important guide for the future, in the 3 months post-acquisition, we took in new-to-bank customers at a higher rate than the 3 months prior to acquisition. In the transition of ownership from the previous owners to us, we've seen an uptick in the momentum of customers wanting to bank with SVB in that first 3-month period. That acquisition has also given us the knowledge, the platform, the connections, and frankly, the positive brand and reputation globally, that it's allowed us to go and recruit a team in the US. We recruited a team here in Hong Kong, and we've recruited a team in Israel. My view that there is strong growth prospects in that business, not just for the next 2 or 3 years, I'm doing this because I think this will be an important business for us in the 5 to 10 to 15-year timeframe. This is an important sector of the economy, and we're willing to invest in it. I'm very pleased with how it's going. We probably do owe you, as a, as a investment community, more detail on so how material, what are the numbers? I think we'll, we'll come back to you at the end of the year with, if you add this all together, the investment and the current bought business, what could that potentially look like going forward and how material is that? That is something, if it's okay, we'll give you more toward the end of this year with the full year results. Thanks, Don. Back, back to lines and Tom Rayner, and then Sam will come back in about five minutes to you live. Okay? Operator, if you hand over to Tom Rayner. Thank you. We have a question on the line. Tom? We have a question from, Guy Stebbings. Oh. From BNP Paribas. Your line is open. Guy, hi. Yes. Hi there. Thanks for taking questions this morning, the afternoon. I have one back on cost and then one on, on specifically in the UK. I mean on costs, in the context of a very strong top line and an upgrade to the guidance this year, next, interested in how you're thinking about investment spend in that context of, of what is, you know, a better revenue backdrop than you previously anticipated. Guidance is, you know, very clear for this year, doesn't change your attitude at all for the next year, and beyond also sort of mindful consensus of spending and modest growth next year from where you're going market to this year and adjusting for things like campus. Just how deliverable or appropriate you think that is in the context of, of what is a, a better top line and, and given all the opportunity available to you. The next question was on, on the UK. You, you saw a very strong growth in the second quarter in the ring-fenced bank in, in stark contrast to some UK peers. You could talk about some of the dynamics, how you see the product mix evolving in the UK. I appreciate it's very difficult to be too specific, but any sort of perspectives there, and, and whether ultimately, you know, NIM in the UK ring-fenced bank is likely to peak now at this good level. Thank you. Thanks. Well, certainly on cost, it's a very simple answer. We're not giving any guidance at this stage on 2024. You know, we, we will give an update on 2024 guidance at the end of the year. On 2023, we've given, I think, a strong commitment on cost discipline. I also will maintain strong cost discipline in 2024, but I'm not going to quantify what that means in terms of percentage growth at this stage. On the UK, George, it would be good if you could just share some of the information that we've got on the UK, particularly the progress we're still making in the UK mortgage market, despite the pressures in the UK mortgage market. Yeah. It'd be good to put some color on that, please. Yep. Yep. Guy, maybe I'll start talking the dynamic, and I'll delve into NIM specifically. First, in terms of pass-through rates on the deposits, you know, for the last 50 basis points of the, of rate hikes from the Bank of England, we've passed through to our savings rate, retail saving rate, around 70%. We believe, you know, from a consumer point of view, we are competitive, having passed through, and obviously this is a higher than 50% pass-through. The overall book pass-through, around 40%, between 40% and 50%, but clearly the marginal pass-throughs are higher at these high level of rates. Equally, on the mortgages, we continue aiming for market share. We've grown the stock market share from 7.7 to 7.8%, and our new business market share is now just shy of 10%. We maintain a leading proposition in mortgages. If I go specifically on the NIM, look, without, without talking to, you know, to our peers, NIM, you know, some parameters that you can use when you're doing your, your assessment and your analysis. The first one is we have a very strong liquidity position with a very strong deposit franchise and a low loan-to-deposit ratio. The second one to take into account is we are relatively small in consumer finance, so that component of our portfolio is single-digit% of our retail finance. The third one to take into account is that our structural hedging is relatively young, i.e., we started the structural hedging essentially when rates started to be at higher levels. We have little, quote, unquote, "baggage" from structural hedging positions where, you know, from, from prior, i.e., when rates were very low, and this is obviously helping us in adjusting our NIM upwards, and we're not bugged by, if you want, low interest earning assets from, you know, older structural hedges. In terms of expectations, I think it's fair to expect that the increase we've seen in Q1 is unlikely to be repeated as we look into the rest of the year. Thank you. Thanks, George. Sure. Next question, please. Thank you. Our next question is from Tom Rayner from Loomis Sayles Oakland. Tom, hi. Yes, sir. Thank you very much. Good, good morning. Hi there, just on your revised ROTE guidance, 2023 and 2024, the mid-teens, excluding the material notable items. I understand when I look at your company's consensus, you have got material notable items in there. I think, for instance, the sale of Canada is boosting the consensus return. My point, I guess, and my question is, is I think that potentially obscures the size of the sort of underlying grade that you're guiding to for sort of return on tangible equity sort of in 2024. My concern is, is whether the way you now present the figures, because, you know, the notables now are part of your, your, your numbers, and therefore, I think it makes sense that the consensus looks at it that way. Just wondering whether this presentation is making it maybe more difficult for investors to understand the underlying drivers of the business and whether that may be affecting your weighting at, at some level. I just wonder if you could comment on that, please? Georges, you want to pick that up, please? Sure, Tom. Look, our ROTI guidance of mid-teens initially has been excluding notable items. For this year, we had two notable items in Q1, and the provisional gain of SVB, $1.5 billion, but also the reversal of the impairment of the French retail business, $2.1 billion. As we look to year-end, we do anticipate that we would reinstate this impairment sometime in H2 for a possible closure of the transaction on the 1st of January. That notable item, if you want, washes itself out from our full-year expectations. As regards 2024, I think the Canada impact is a couple percentage points on our ROTE. Whether you stretch the mid-teens a little bit, you know, on either side, then you, you may still be right. We would like to take it out because obviously it remains, you know, while we are very confident in the resolution, it remains an element that is subject to additional you know, to continued regulatory approvals. You know, you, you can do your math with or without. I suppose the way we're looking at mid-teens. If you look at the first half, you know, we printed a headline rate of 22.4% ROTI. If you take out the 2 notable items, you get to an 18.5% ROTI. We guide in mid-teens to be equivalent, you could say, with the 18 number, not the 22 number. If you think about 2024, there'll be a profit on sale of Canada, assuming that transaction completes. There'll be a capital policy around that in the form of dividends and in the form of buybacks. We're not including that profit on sale within our guiding, you know, we're not including that in our definition of mid-teens. That's sort of over and above. What we're trying to say is, we're giving you a mid-teens ROTI guidance for the core business, not with the big swings in M&A activity, achieving it. That's the way I'd look at it. We just want to try and make sure everyone understands what we mean by mid-teens, and it doesn't include the big one-offs, either the one-off positive or the one-off negatives. We're looking at the fundamental business in guiding to that. Adding, complementing that, we're not trying to change consensus at this stage. Okay. Okay. Thank you. Next question, please. I mean, I mean, can I just come back? You can, you can. Just quickly come back on that, because I mean, the, the real question. Thank you. Thank you. I mean, I guess my real question is, is this mid-teens, I mean, is this now what you view as more of a through the cycle type of level of profitability? Because if you look at consensus 2025 at the moment, it has that dropping away again, because I guess people, the one-offs have dropped out. I mean, it would sound to me as if you think now maybe interest rates have normalized to a level where they're probably more realistic than they've been in maybe the last decade or so, and, and maybe your profitability mid-teens is now what you're comfortable with. Is, is that what, what you're saying on a more of a through the cycle sort of basis? I think you've overread it, because what we said is the guidance is for 23 and 24. We're not giving you guidance for 25 and beyond. We will do that at some stage, so I wouldn't overread that. Clearly, in 25 and beyond, you've got interest rates that will start to come off, but I'm also talking about building alternative revenue streams, building balance sheet growth, because as interest rates come off, economic recovery improves, and the balance sheet will start to grow again. Our job as a management team, and, you know, our philosophy is we want to try and make sure we can mitigate some of that downside risk, either through hedging or alternative growth strategies to stabilize the ROTI over time. For the avoidance of doubt, we are not guiding at the moment on 2025 ROTI. We're only guiding on 2023 and 2024. We'll have to see how the economy, the economics of the world develop. I think Georges should probably reiterate what he said at the end of that, because the line went a bit hazy. Georges, on consensus. As in we're, you know, look, we're, we're not trying to change consensus where we see consensus for our ROTI for 2023 and 2024. Okay. Okay, thanks. Last question on the line from Perlie Mong, please. Thank you. Next question, please. Thank you. Our next question is from Perlie Mong, from KBW. Your line is open. Yeah. Thank you. Hello, I've just got 2 questions. The first one is part Non-Interest Income, especially in Wealth and Asia. If I look at your Asian entity for grouping, it looks like revenue is pretty high quarter-on-quarter, but NII has gone up a little bit, so that suggests to me that the Non-Interest Income could be perhaps coming down a little. Just wondering what you're seeing at front line, especially with regards to Wealth, and obviously, Hong Kong's GDP print yesterday was quite a bit, quite a bit weaker than expected. Just what you're seeing in context and also a lot of expectation about China's interest, and just to what extent do you think that that might help you? That's my first question. Then the second question is on deposit migration in Hong Kong, because I just noted in slide 41, it looks a lot like the Hang Seng, which is obviously traditionally a very strong retail saving franchise. It looks like the deposit migration is going the other way. Does that suggest that the migration is, is maybe there in Hong Kong and maybe topping out? Sure, Katie. On the, on the non-NII wealth in Asia, you will observe actually the biggest pickup is in insurance. Sorry. First, taking the, the impact of funding the trading book, which is showing under non-NII, and this material is $1.2 billion. If, if you take this one out, the growth is essentially from insurance and insurance in Hong Kong. It does appear under non-NII, but not fee income. That growth is, is kind of a reflection of the growth we've seen in Q1. It's, you know, it's in the 40 to 50% growth year-on-year. It is reflective of the opening of the border between China and Hong Kong and the additional inflow of mainland Chinese policy, new policies, non-Hong Kong business. About 30% of new policies are from mainland Chinese. As you, as you would expect, insurance is a core component of our wealth, in particular here in Hong Kong, and that's a main driver of the growth. We still see some softness in wealth with regards equities trading, and that's, you know, more reflective of the equity markets in general. I want to say while the Hong Kong GDP is a main driver of our loan portfolios in terms of growth in our balance sheet, wealth activity is not necessarily directly linked to the GDP. It is linked to investor behaviors, and it is linked to sentiment in the market. With regards to your second question on migration, so, in HSBC, we continue to see a migration of around 1% per month, although it did slow a little bit in April. That kind of continued at the trend that we have been forecasting. Whereas in Hang Seng, where the term deposit share is in the mid-thirties percent, our colleagues in Hang Seng have taken a proactive approach to manage some of the highly rate-sensitive deposits, and allowed them to accept some attrition against these highly rate-sensitive or rate-chasing deposits. This is what allowed them to maintain or slightly reduce their term deposit mix. They are benefiting from a very strong liquidity position and a strong deposit franchise, and they do not need necessarily highly rate-sensitive deposits at that margin. Thank you. We've got a question from Sam, and then we've got one last question from the lines. Sam, over to you. Thank you. Congrats on the strong results. Sam Wong from Jefferies. Just a very quick questions on Hong Kong mortgage. Mortgage rate in Hong Kong right now is well below HIBOR. Many smaller banks are actually backing off from the mortgage market. Do you see mortgage pricing in Hong Kong going up? What would be the new implications for that? That's the first question. The second question is on China. There are a lot of macro concerns going on right now. How would you nav-navigate through the macro uncertainties as a bank? Thank you. Okay. Thanks, Sam. Do you wanna handle the mortgage? I'll take the first part. Yeah. Sam, the first our mortgage. You know, we continue printing mortgages. Yes, indeed, the rates are quite attractive for, for, you know, for borrowers. We increased our mortgage book, not a smaller, not a very large amount, but we increased our mortgage book. We continue. This is despite a subdued property sales in Hong Kong. We continue increasing our book. The pricing, as you know, the mortgages are capped, the pricing is highly correlated to the savings rate. For instance, last week, we increased the saving rate by about 12.5 basis points on HKD, and automatically increases the cap, and therefore the mortgage pricing today by 12.5 basis points. You know, I, I see this as a, you know, as a natural evolution with rates, not a specific pricing for the mortgages, or specific dynamic for the mortgage pricing, if you want. In terms of China macro, we, we had a brief conversation before. You know, if you take all of the international banks' share of, you know, the corporate debt market in mainland China, I think all of us together are about 2% market share. Actually, growing your corporate banking business as an international bank, particularly if your strategy is connecting mainland China to the rest of the world in both directions, GDP is not the prime driver of growth in, in the sense of what you can do, 'cause you're, you're still relatively niche in the market. What is a huge market, so you can get growth, despite the fact that GDP... And by the way, GDP is still 5%+, so it's not bad, but you can still get growth. Similarly, in our wealth business that we're pursuing in, in mainland China, you know, we're pursuing an area which is around about, you know, helping internationally orientated personal customers. The, particularly the domestic customers in the Greater Bay Area, get access to, you know, wealth products, insurance products, to help them with their protection needs and their savings needs. That is primarily targeted at the affluent or the emerging affluent sector, rather than particularly at the high net worth or ultra-high net worth. That is the core business we have here in Hong Kong. The way I look at it is that, that proposition here in Hong Kong has been a very strong driver of growth and profitability for HSBC in Hong Kong. Well, we see that same opportunity in the Greater Bay Area. The engagement in between Greater Bay Area or, or the Guangdong Province and Hong Kong, represents a significant long-term growth opportunity for us. What we're trying to do, which is different to 3, 4 years ago, we're targeting international wealth and insurance as our primary proposition, as opposed to just becoming another mortgage provider or another card provider in, in Guangdong Province. I think we, we see opportunity for growth. Yes, you can't ignore the macro environment, but we do see conditions for good growth for our business in, in mainland China. All right, next question and last- Last question from Joseph Dickerson from the lines, please. Thank you. Thank you. We will take our last question from the phone from Joseph Dickerson. Jefferies, your line is open. Hi, it's a double header from Jefferies on the Q&A. Just a quick question. It must have been asked and answered. Just on the dividend question that Aman asked, the answer was slightly long-winded. If I, if I interpret what you're saying, it sounds like you would like the dividend, the ordinary, to be progressive. And then secondly, can you just discuss in the Hong Kong business or the HFAS business, the NIM trend that was flat quarter on quarter? You know, how much was the U.S. dollar-denominated business at play there? Because if I look at your rate sensitivity disclosures, the USD bucket is now, looks liability sensitive as opposed to asset sensitive. What-... you know, how much of the NIM movement there, say in an adverse sense, was attributed to the US dollar business, or was it something else? Okay. Okay, let me deal with the dividend one first. The guidance we've given is for 2023 and 2024, we'll have a 50% payout ratio. In addition, we've guided to the first use of proceeds of Canada's sale proceeds will be a $0.21 special dividend. We're not giving any guidance on whether the dividend's progressive or not progressive. We're only giving the guidance that we've just said, which is 50% of profits. Clearly, as a management team, our ambition is to make our profits progressive. We're not guiding on dividend as a progressive dividend policy. Our policy is 50% payout ratio. That will be a function of earnings. George, do you want to cover Hong Kong NIM? In the Hong Kong NIM, the NII increased by $0.1 billion, but the banking NIM increased by $0.4 because the non-NII component of the trading funding increased by $0.3 billion. The way the NIM, the way the NIM, sorry, the way the statutory NIM is computed is only looking at the NII component, and therefore is showing flat. As I mentioned, we will be upgrading our disclosures and enhancing our disclosure with regards banking NIM, and that will give you more visibility on the overall margin when you take into account the funding of the trading book. In terms of sensitivity to the USD, you're actually also driving towards the same kind of dynamic in the funding of the trading book. Dollars has been a currency that we fund a number of our activities with. When you look at the NII sensitivity, dollars comes opposite to all the other currencies, because that's a funding currency. Essentially, dollars is funding our funding of the trading book, and therefore, when you look at the funding book sensitivity, we've put in a few, kind of, you know, few explanations on the slides, where we estimated this to be to the tune of $1.3 billion. It is fair to assume most of it is dollars, and therefore reverses it and kind of re-normalizes our dollar sensitivity overall on the balance sheet to be that of, kind of a negative sensitivity for -100 basis points. Thank you. Back to you, Noel. Well, I just want to say thank you very much for all of your questions and your time today. Really appreciate you spending some time with us. Just to close with a couple of comments. We've had a good first six months. I'm pleased with how the business is performing. We delivered an annualized return on tangible equity of 22.4%, or 18.5%, excluding those notable items. We've increased dividends and buybacks. I'm also confident about the future. We still have opportunities to drive growth and to diversify revenue, while retaining tight cost control. We have upgraded our returns guidance for 2023 and 2024. Richard and the team are available to you if you have any further questions. In the meantime, have a good rest of the day. Thank you very much. Thank you, ladies and gentlemen. That concludes the call for HSBC Holdings PLC interim results for 2023. You may now disconnect.