HSBC Stock

Good morning, London. Good afternoon, Hong Kong. Thank you very much for joining us today for our U.K. investor breakfast. I'm going to be super brief. Thank you for those who have joined in the room for braving the closed Elizabeth line and making it here. If there's 1 or 2 people squeezing in late, we won't judge them quite as harshly as we usually would because we understand.

I'll be hosting Q&A with David and Jon. At the end, there will be time for people in the room. Those on Zoom should put their hands up in the usual way.

With that, our U.K. Chief Executive, David Lindberg. Thank you.

Good morning, everybody. Thank you for coming so early in the morning on a Monday, and I hear there's all sorts of fun with the trains. So thank you for making it. I'm David Lindberg. Pleased to see you all here. I'll be joined by Jon Bingham, who I know you'll all know, who'll be familiar to you as he was the acting Group CFO, and also, more recently, the Group Financial Controller.

Now, a lot of what we're going to talk about today is going to be familiar to you from presentations I know many of you saw in Birmingham in 2018 and also in 2022, also from our interim results and our seminar in Hong Kong in May. But this is a story of consistency and commitment, but also one of growth potential in the U.K. as a home market for the bank. Our strategy is simple, and we've already been executing on this strategy.

Now, we'll be disciplined on new disclosures today, but I really hope there's enough new information for you to make this valuable. I'll spend a few minutes outlining our overall presence in the U.K. before diving into our larger U.K. businesses. But I want to stop and give my 3 key messages for today. First, we are the leading international bank in the U.K. We're a scale player for the largest corporates through to a full-service retail bank. And our market position is unique. We are leading in trade and payments for international businesses. And as you know, the U.K. is an extremely open economy.

Second, we're growing what is already a market-leading commercial bank. We're investing more, and importantly, we're leaning on our strengths. Our ability to pool our investment with CIB in Hong Kong into shared capability and infrastructure is a strength that is unique to HSBC. Our share in the fast-growing middle corporates is lower than our capability should allow.

Third, we intend to thoughtfully grow our retail bank. Retail is the largest profit pool in the U.K., and we've allowed our share to slide in recent years. We'll focus more on this segment, but with disciplined margin management and an ambition to build market-leading digital capabilities that will provide better service to our customers, and importantly, operating leverage over time.

Now behind me here, this is a slide you'll have seen before. It demonstrates our scale and the connected nature of our business. Within the U.K., we are a top 3 bank, and relative to our peers, we're overweight in commercial, and we're underweight in retail. This reflects our heritage as a global commercial and institutional bank. Our ring-fenced bank is a leading player, but we add 1/3 to revenues and more than half to deposits if we include the U.K. operations of CIB.

An important differentiator for us lies in our ability to invest with the other 3 core businesses of HSBC to deliver capability to our customers that our local competitors struggle to match, leveraging our global scale to give customers world-class capabilities. We think this advantage is underappreciated. Now, I know you'll be interested in margin and you'll be interested in competition, and Jon and I will be happy to talk about that during Q&A. But you can see that this business is at scale and this business is growing. We grew revenue by 7% year-on-year and 7% growth in our commercial loans or customer loans.

The U.K., as you know, is a competitive deposit market. You saw in the group presentations recently, the strength of our deposit position. In the U.K., we have more deposits relative to our loan book compared to competitors. Our deposit base is more weighted to current and operating accounts. And that gives us the capacity to grow loans to core clients when we see opportunities.

Now this slide here shows some new disclosures to help you see our leading position. Some of our payments and trade business is booked in the ring-fenced bank and some in the non-ring-fenced bank, and that largely reflects client scale or clients that are connected with international parents. By putting them together, you see that of the top 5 U.K. banks, we have a 29% market share in corporate payments with a substantial lead to our closest peer and have a 27% market share in trade where the lead is even larger. We're the world's largest trade bank, especially in the U.K.

For an economy as internationally active as the U.K., this is a material differentiator for our clients. And it's interesting to note that so many of our peers shrank back to a domestic focus over the course of the last 15 years. We have commercial capabilities peers struggle to match, and we have the opportunity to drive our leading trade and payments capabilities further down our customer base.

Now, let's turn to our U.K. operating segment, which you'll be familiar with from our quarterly reporting. The U.K. segment has a return on tangible equity of 21.4%, and the U.K. segment is already very cost-efficient with a cost-to-income ratio of 41%. We already have world-class capabilities that we think should allow us to grow in profitable segments. And we're investing across retail and our commercial bank to improve our digital capabilities and our end-to-end customer journeys.

Importantly, we're also staying true to our future state technology architecture road map. This investment will enable us to improve NPS. It's going to drive operating leverage and position us for long-term growth in segments where we think we have the right to win. Our strategy is to build on our strengths, to grow our leading position in corporate banking for large corporates, and importantly, middle corporates where our share is lower than it should be given the capabilities that we've already built to bring more of our leading commercial capabilities to the SME market and to build world-leading digital capabilities in retail.

So let me get into the detail. First, in Commercial Banking. Of the total U.K. revenue I showed on Slide 3, we earn around 1/3 from this business. Of our U.K. operating segment, it's around half the revenue, though strong cost control means this business drives more than half of our profit before tax. These 2 views are reconciled for you in the appendix, but our commercial business is truly market-leading.

Now, you see on the left hand of this slide, the pyramid breaks down our customer base. And as you can see, we're #1 for large corporates, where we have a relationship with around 2/3 of customers in the market. But in middle market, we rank second with significant room to grow. And we're #4 for smaller businesses where market share is a clear opportunity. Our innovation bank is market leading. We participate in 4 in 10 Series A funding rounds. And this business gives us access to the broader innovation ecosystem and is deeply integrated with our global innovation banking capabilities. Innovation is global and so is our offering, and no other U.K. bank has this offering.

The Commercial Bank is well diversified with meaningful contributions from each of our 4 segments and attractive returns across them. Before I turn to the growth plan, let me spend a little time on the benefits of our integrated global presence. We support customers banking across the 56 markets in our network. Our strong product capabilities are enhanced by our dollar and local currency liquidity in our key markets. And we can leverage HSBC's scale. As I said, the U.K., Hong Kong and CIB invest together, and the benefits are enjoyed by customers of all 3 businesses.

Think of the digital innovation that my colleague, Manish, shared with you while in Hong Kong in May. We launched HSBCnio, a digital solution that is already globally market leading. And also, it's already been deployed to our U.K. corporates. These world-class capabilities allow us to serve our largest corporate clients, but there are also capabilities that are equally important for our U.K. middle corporates. The scale of HSBC Global Investment gives us a real competitive advantage. And we also work to capture the full client wallet, including continuing to refer our business owners to our private bank.

Let me tell you about our growth strategy, starting with business banking. As one of the group's home markets, we're building our leadership position in this segment, as we already do in Hong Kong. And this is already about 1/3 of CMB revenue, and we have not done this segment justice under our old matrix reporting structure. We lack management focus, and we underinvested. Average onboarding time for customers used to be around 30 days. With one team now accountable for the U.K., we're back in competition.

You already heard Georges talk last year about the investments that we're making. We now onboard a majority of our customers in 24 hours. Our pricing is also now more competitive. We've added RMs, and they sit across the country close to our customers. Our investments are also now beginning to deliver results. New customer numbers were up 23% versus last year, and our service score improved 9 points, the largest improvement of any provider in the U.K.

We're looking to build on this, and we're looking to take market share. And we will be focused on strengthening our digital offering through our dedicated business banking platform, sharing more of our leading transaction banking with business banking clients and acquiring more business banking customers.

Turning now to Corporate Banking. As the largest bank for U.K. corporates, this is our true leadership position in the U.K. Our offering is comprehensive, covering both domestic and international corporates, and this is where our network gives us a particular edge. And mid-market is the fastest-growing commercial segment in the U.K.

Now I want to talk about mid-market even more. With a 33% market penetration, we've got room to grow, and we're investing, and this is a priority for us now. In 2025, we built a proprietary database of target middle market prospects so our bankers know who to call and why. Since the end of 2024, we've added around 500 new customers, equivalent to about 8% of our existing stock. This contributed to a 15% year-on-year increase in lending, and we see a substantial runway of prospects in sectors that we know and we also know we can serve well.

Improving frontline capacity is another way we'll drive growth even further. The complexity of some of our internal processes have limited how much time our RMs spend with clients. We've really under-supported our own bankers, and we're fixing that. Procedures are being simplified, queries are being routed to the right person the first time and AI insights are better informing our bankers. We're not using this efficiency to reduce bankers. Instead, we're using it to grow. In fact, we are adding frontline bankers. And as with so much else, we're doing this work leveraging our global scale.

And turning now to our retail bank. As with commercial, it contributes around 1/3 of our total U.K. revenue and the remaining half of the U.K. operating segment. It's a significant proportion of our balance sheet and provides funding and liquidity to the broader U.K. business. This business is already a substantial scale with about 14.7 million customers. The deposit strength I mentioned is evident here. We have an 8.8% share of deposits, where 72% of those deposits are instant access. We've been working to improve the experience our customers have with us.

The progress we've made is evident across our 3 brands, as you can see on the left of this slide. But having said that, retail banking is shifting, and we must improve our performance. We're investing in retail to have the very best app anywhere in the world. The very best customer journeys leveraging our group-wide value stream framework, thoughtful and purposeful use of AI to improve customer experience and still the best human support when our customers need it. AI will make humans more valuable to our customers, not less.

Now, in the U.K., digital capabilities are already world-leading. Having great apps and digital journeys are key to deepening relationships and driving customer primacy. And they're also key to creating operating leverage for our business. Operating leverage is absolutely necessary to competing and to growing in this market. So let me talk about our app, which is the key customer service tool in retail banking.

We launched North Star in 2025. This was a collaborative investment between markets across the group. Again, you can see the theme I keep talking about, leveraging HSBC's scale to serve U.K. customers better. We initially launched North Star in the U.K. and Hong Kong, and it marked a significant improvement to the look and feel of customers' everyday banking. We're in the process of rolling it out across several IWPB markets, as Barry would have mentioned in June.

And customers are responding. We now rank third amongst major U.K. banks for digital engagement. Our mobile ranking is up 3 places over the past 12 months. And it's also reducing call center volumes, improving both service and efficiency. But we've only just begun with the journey of this app. But our future digital priorities are now incredibly clear. We will offer the best banking app anywhere in the world. We're going to digitize our end-to-end processes. We're going to use AI to improve service to our customers whilst providing human support when our customers need it. We're going to simplify underlying platforms with discipline, and we're going to leverage the scale of HSBC's global investment. You'll see major improvements in the coming months.

Let me turn now to platform simplification and why it's so important. Disciplined platform investment reduces costs over time. Let me bring this to life for you using mortgages as an example. We're a leading mortgage provider. We have an 8.3% market share in mortgages, but legacy platforms still constrain capacity and consistency of service. So we're moving to a common platform, which will enable faster decisions for customers, will increase capacity and lower the cost to serve. It will soon be possible for customers to get a mortgage approval with HSBC in 15 minutes.

Finally, let me spend a minute on the strength of our mass affluent franchise. You remember, Barry, Maggie and others spoke about HSBC Premier at our May seminar. We launched Premier 26 years ago as the first global financial service for personal banking customers. That heritage helped us build a significant customer base of affluent customers in the U.K. with just under 1.1 million affluent customers at year-end 2024. It's an attractive segment in terms of profitability, though this means it's obviously also very keenly contested in our market. And our international capabilities give us an advantage.

Around 80% of Premier customers are international. We relaunched Premier in late 2024 adding more than 40 new or enhanced features, and Premier deposits are up 8%. Our NPS ranking has improved by 3 places since 2022. We intend to protect and also to keep growing this segment with improvements to our offering planned, enhancements to our product suite, upgrades to our reward platform and a shift in wealth from an adviser-heavy model to a more digitally focused one, although still offering clients adviser support when they need it. We're increasingly embedding wealth solutions in our app because that's what customers want. We'll have the full range of products and tax wrappers that customers need, but all in their app. And again, we're leveraging platform capabilities from our Asia Wealth Management business wherever possible.

So to close, I hope today, we've demonstrated the scale of the U.K. franchise across the ring-fenced and non-ring-fenced banks, clarity on how we plan to invest to win in each of the segments of this U.K. franchise along with clear room to do just that. The advantages we can deliver to customers by working together across the wider HSBC business, unmatched scale should create unmatched capability. Our focus on simplification through digitization and systems discipline; and finally, the strength of our balance sheet and the options our balance sheet gives us to maximize returns across the ring-fenced and the non-ring-fenced portions of the U.K. business. So thank you very much, and I'd like to invite Jon now to take some Q&A.

Thank you, David. Welcome, Jon. We have plenty of time for questions. We wanted to move through that at pace. I suspect over the last couple of weeks, you've developed a few questions for our U.K.-focused businesses. We'll take questions first from the room. Thank you for joining us. We'll give people in Asia the opportunity to ask online as well if anybody wishes to. One per company, please, until we go around. And then finally, if there's any space, anyone in London online.

So with that, I'm in charge of the microphone as well. So -- I can see Alvaro first. Just introduce yourselves. We'll go to Kian second.

Alvaro Serrano from Morgan Stanley. A couple of questions, please, on -- you've mentioned market share wins in both in middle market segment and retail. Maybe you can give us a flavor of what you think your natural market share should be in the long term? What are your ambitions in terms of market share?

And second, I had to ask about deposit competition. You've got an offer out there of 4.5, which for the incumbents or the leaders in the market is probably on the more aggressive side. So can you sort of maybe talk us through the rationale for the pricing, why now? And also, you've got multi-brand strategy. So sort of how did you think about sort of doing what you ended up doing versus sort of focusing on a different brand, the main brand?

Thank you. Why don't I start with the market share question, and then, maybe Jon can talk to what we're doing on deposits and pricing more generally. I think through the course of time, we obviously already have a dominant position in corporate. But if you look into that, we have just over 70% market penetration, but our share is a bit lower than that. So we think the opportunity to deepen in that segment is a real opportunity for large corporates.

As I said, middle corporates is a business we never even had 6 years ago. And it leverages all the same capabilities that large corporates have. And so we think the opportunity to grow there is really quite large, and we should be able to get close to our share in large corporate over time in the middle market segment.

Business banking, again, fourth, we've taken our eye off the ball there probably for 4 or 5 years. We're slowly getting that back. And again, we can start to creep that up, although I think in fairness, that probably lags a little bit where we would be in the 2 corporate segments.

And then, I want to be pretty clear on retail. Most of what I've talked about today and most of the big investments we're making early are digitization. That fundamentally is about getting current accounts. It's about getting operating deposits. It's about giving us liquidity and optionality into the future with our balance sheet. And so we think we can slowly start to grow that share. But I also want to be very clear that we're trying to grow value, and we're not chasing market share. And so if you think about some of our assets, particularly on mortgages, there'll be times when we like the margin in mortgages, there'll be times we like it a little bit less. And our balance sheet gives us all sorts of options for where we place our liquidity across our asset classes.

And so you just expect us to be rational. We're not going to lurch in and lurch out, but we'll rationally look to take a little bit more share, say, in mortgages, when we're pleased with the deposits and maybe look to support more corporate lending when that's the rational choice on the margin side of things.

Maybe, Jon, talk a little bit about the pricing on deposits.

And I suspect this audience is very familiar with some of the deposit competition trends, but just to level set. So we did see increased competition in deposits through Q3. That's a mixture of a number of system-wide factors. So you've got lending growth, which the whole market and we are seeing specifically. We've seen some quantitative tightening, and we see certain deposits being used by non-lending organizations. We have seen some of that, and we've seen some modest moves into term deposits, but those have been relatively modest, and -- but we start from a very strong position. So as you saw on the slide, we've got $0.5 trillion of deposits across the U.K. franchise.

The U.K. has one of the leading loans-to-deposit ratios. And crucially, we have a lot of options because a number of our deposits come from corporate customers as well. So we will take -- in some cases, we will take opportunities, particularly with interest rate volatility to put out fixed rate products, which are attractive. But those are to maintain competitiveness. We will continue to be very disciplined, and we're not seeking or don't need to chase deposits to fund our growth at the minute. And what will become evident, we've had the recent interest rate change in last Thursday. We stuck to our standard across the various products. We vary by products. But if you aggregate that, we stuck to our standard 50% pass-through assumption.

Thank you. We'll take Kian next.

Kian Abouhossein from JPMorgan. You had a good Slide 7, where you have the triangle with the different segments and growth segments that you want to focus on. If you can maybe bring that up as possible and discuss a little bit how you think this should be changing over time? Yes, exactly. Considering you're more focusing at the lower end of that triangle, growing that piece. I just want to understand how that should change over time? And how we should think the journey to get there in terms of timing?

And secondly, just very briefly, if you can also -- you talked about positive operating leverage, how should we think about positive operating leverage considering the ongoing investments over the medium term?

Great. Thank you for the question. So -- I mean, it's difficult to give targets based on numbers as aggregated as these. You can see that we have 4 segments. If you loop the innovation banking in with large corporates, we probably do 1/3, 1/3, 1/3 in terms of revenue. Each of those segments has ROE well above the cost of capital, and we're happy with those. Although as you probably would know, the ROE might move up a little bit as you move down the segments and also the liquidity value might move up as you move down the segments as well.

So I'll be cautious, I would say the Innovation Bank is probably a place that we're looking to grow. And that's consistent with these are high-growth businesses, and we have a dominant market position in that segment. As I said, over the shorter term, we're looking to grow the middle market segment relative to the corporate segment. And you've seen that in the last quarter, and in fact, the last year of our results, where we've been growing that middle market segment at roughly 15% lending growth, which we're happy to fund, and those are good returns. So maybe a little bit more in that segment.

And then business banking is a platform play. This is a business that will grow slowly over time. But once you have scale, once you have capabilities, once we've invested more, not just in the marketing and the pricing, which we've already done, but in the platform to give us advantage and over time to suck down the capabilities that we're already putting into a system like Nio into the business banking platform, we think that will build capability and share over time. I'd be remiss to give you exact guidance in terms of how these move, but roughly, that's how I think about it.

I'll pick up on the operating leverage. So we're very pleased with our operating leverage, if you express it as a cost-to-income percentage. So I think David quoted 41%, which is including notables; ex notables, that's closer to 38%. I think how you should think about that is we are driving operating leverage through the business, but we do want to make a number of investments. So I would see that remaining relatively static over the medium term in that we can fund our investments through the gains we're making out of driving platform operating leverage.

And I'll just add to that because I'm obsessed with operating leverage. I think there's a race, particularly in U.K. retail banking, to achieve operating leverage as quickly as possible. I think our ability to grow transactions and grow customers without that resulting growth in costs is essential. All else being equal, that would drive costs down.

Having said that, it's a competitive market, and we're going to have to start reinvesting those savings over time in growth. So again, I don't know that you'll necessarily see that in a significant reduction in the overall cost-to-income ratio. But what you will see is our ability to reduce the cost to serve customers, giving us the ability to remain competitive and serve our customers and grow.

It's James Invine here from Rothschild & Co Redburn. I've got 2, please. The first is just on your structural hedge in the U.K., just to help us understand your U.K. numbers, could you please give us the size and yield of your structural hedge at the moment?

And then the second question is about the structure. So you are presenting HSBC in the U.K. here this morning, but that is spread across 2 legal entities with 2 different CEOs. How much of that is an impediment to your business? And is there anything that you can do in terms of the structure of what sits in one entity or the other to improve the performance of the business going forward?

Why don't I take the second, and then, Jon can take the first? I would take a step back and ask how did we deal with this through the course of the last 5 years? And I think arguably, it has been an impediment. We have certain restrictions relating to ring-fencing. I think today, with 4 businesses and also with my seat at the Group OpCo, we have a much more collaborative relationship.

And Michael Roberts obviously runs CIB, Barry runs IWPB, but the 3 of us really work on one go-to-market strategy in the U.K., and take large corporate, there are some large corporates that happen to sit in CIB, that some happen to sit in the ring-fenced bank. But we work together with one go-to-market strategy there.

As it relates to fungibility on the balance sheet, there are restrictions that ring-fencing does sort of give us. But there's also a lot that we can do. And there's a lot of business that, say, a CIB could write that we can have choices around which balance sheet it sits on. And so I have the opportunity to think about that. But my goal, and Michael's goal, and Barry's goal, is to optimize for the U.K., not to optimize for each of those 3 businesses. And I think today, we have the cultural maturity to do that. That's a real opportunity. I don't think we've been leveraging in the past.

On the structural hedge, you'll be very well aware, we don't give the U.K. individual figures. But if you take the group figures of our structural hedge, I think at the Q3, we disclosed the structural hedge in total was $655 billion, 3.2 years maturity, 3.5% yield. And we say the U.K. is the biggest proportion of that. Actually, if you model the U.K. on those similar parameters, it's not far off the group given how much of a majority we have. And so we are seeing that we are able to particularly now invest it at still incrementally high yields.

The maturity of it, we give the group maturity, the U.K. maturity is also pretty smooth going forward over that yield profile. So whilst I'm not able to give you the U.K. numbers, if you model it based on the group numbers proportion down, you don't get too far wrong in terms of trends.

This is Benjamin Caven-Roberts from Goldman Sachs. You gave some helpful color around deposit trends. Could you give a bit of color on asset margins, please? And how those are varying in your outlook across different segments?

And then secondly, just following up on your points around building the best app in the world and having that come through in 2027, could you talk about how you view the role of the app in the relationship with the customer in retail and if you think that changes at all over the coming years?

Thank you. So we'll be a bit circumspect on talking about specific margin by product and maybe Jon can build on some of this. Certainly, there's been a lot of discussion about deposit margins and liquidity. Asset margins, I would say we have real options. And so by and large, you see corporate asset margins being higher than you see in retail. And so that gives us the opportunity to take advantage of those.

And then within retail, the big asset class, of course, is mortgages. Over the last little while, the mortgage margin has been a little bit lower than we would have liked. And you can see that we haven't been significantly taking share there. There were periods of time this year where it was a bit better. And on that basis, we did a bit better during that time period. We'll see how that plays out. But I guess the message I want to share is that, a, we have discipline, we really understand these margins and we're looking to grow when we're happy with the margin. And b, we've got options across the ring-fence and non-ring-fenced bank to really optimize the asset side, and in fact, the deposit side of that margin as well.

If I then turn to the app, the app is what every retail banker just must obsess with. The role it plays -- nobody will know for sure how it plays out, but I think the starting point is it still has to have the best look and feel, still has to have all the capabilities. I talked about wealth. And for a long period of time, I think in this market, people thought of retail on this side and wealth on this side. But from the customer's perspective, they want to see it all together.

And wealth feels like long-term savings for a lot of our customers with similar purchasing journey. So we're really just trying to bring all that together in a really simple, usable format for our customers. And then, we've got the advantage I've been talking about, which is take -- we've got a big Asia wealth business. They're investing in global capabilities for investments. Well, we get to leverage those and put them into our app and serve our customers better as a consequence of that, but we didn't have to make those investments ourselves from the U.K. So I think that's a huge advantage to us.

Now, if I went further into the future, certainly, AI and the ability to authenticate customers on the app, serve them using AI on the app leveraging right back into the call center, I think you have a coming together of the contact center channel and the app channel using common identification of customer. And that should give enormous opportunity to reduce costs, but more importantly, to serve customers better.

I keep asking the question, what can we do -- not to save money with generative AI, but what can we do to do things for customers that we've known they've always wanted because we have generative AI. And one of the classic examples is we can solve the wealth gap over time or the advice gap over time and give customers that are in the retail business services that they've never had before. So I really think the app becomes the centerpiece, and a lot of the other channels start to hang together off the app using the same authentication layer.

If I might just make one add-on point on the margin, so we disclosed at the half year, whilst we don't target or give guidance on the margin, at the half year, we disclosed for the U.K., the margin was broadly stable. It actually gone up a little bit from 2.62% to 2.66%. So when you put into your models, obviously, you'll be factoring in some level of thought of deposit competition and issuance costs, et cetera. But the important balance to that is we have changed the shape of some of our lending. So whilst we're growing lending overall at 7%, within the commercial is growing at 13%, and that's typically at higher margins. So we -- you'd want to model that as an offsetting effect to some of the impacts on deposit.

Thank you. We'll take one more from the room, and then, we've one online in Hong Kong.

Guy Stebbings at BNP Paribas. The first question was regarding onboarding on the business banking side. You talked about previously a 30 days onboarding and that coming down to less than 24 hours. Is that something that's happened quite recently because I could imagine the 30 days was quite an inhibitor in the past. I'm just wondering if that's sort of created a step change as it were more recently.

And the second question, as you move away -- or sorry, as you come from a slightly underweight position, as you framed it in retail, does the balance sheet of your U.K. retail business look different in the future? Does it look a bit more like some peers and that sort of thing as we think about moving away from that underweight position?

So I'll start with the first question in terms of business banking and maybe touch on the second, you will as well. So we just had invested in the U.K. business in business banking for a long time. Part of that was a reflection of our global line of business, and these felt like smaller customers. But when you really look at the dynamics, as we showed, it's a massive profit pool business banking with great liquidity and great return on equity.

And so we started to invest. We put more money into marketing. We put more money into bankers. But the longer-term investment is the platform itself. And we have a platform that is bespoke just to the segment now. It's called DBB. It's a really modern, well-architected platform. And we're building the journeys in that platform. And one of those journeys is the onboarding journey.

So to say that we had 30 days to onboard a client is ridiculous. And guess what, we got exactly what we deserved, which was a loss of market share that was quite significant over the course of the last 5 years. We fixed that recently, and that's one of the things that's driven that 23% increase year-on-year, along with pricing and along with marketing. So I think all 3 contributed. But if you can't onboard a customer, in less than 30 days, you're just not going to take share in this segment.

Do you want to touch on the second question, and I'll come back.

Yes. Yes. I mean, the balance sheet will evolve as we move from an underweight retail position. But maybe 2 things that we'll continue to hold true throughout that is the value we place on deposits. So we will continue to have an industry-leading asset-to-deposit ratio. And the -- we've given you figures of the 72% instant access. We are very keen on protecting that for obvious reasons.

And secondly, we'll continue to remain with a conservative stance to credit risk. So within all that, we will grow unsecured somewhat, but that's from -- we currently have about $19 billion of unsecured, and that grew relative to last year at 5%. So it's not going to -- with those 2 guardrails of value of deposits and conservative credit risk appetite, it's not going to radically transform.

And if I could just then build on that, if you look at our target segment, it's the high deposit segment. So Premier customers, probably expanding that a little bit, but you would still look at us as a Premier target market relative to competitors. That gives us the operating deposits that fund the balance sheet and gives us the stability that we're looking for.

And if you look at all the investments we're making, it's in the everyday banking side of things. So we're actually trying to get the operational deposits of all of our customers, but including our retail customers. We think over time, that gives us a better balance sheet structure than trying to go for all customers and take all asset classes at the same time.

And the final thing I'll say is, again, we're always going to be circumspect on the assets that we put on our balance sheet. And we have got options across the business where we have those 4 really strong businesses that can attract that capital and liquidity.

Next question is Xin Yue Wang, China Securities.

Can you hear me? Yes. This is Xin Yue from China Securities. And my question is just about aspirations. I know that the cost-to-income ratio for the U.K. stands at around 40%, just higher than that of Hong Kong. And as we know, the AI adoption and the cost optimization is there further room for the U.K. cost-to-income ratio to decrease. And is there a target region?

Great. Thank you for the question. So in terms of cost-to-income ratio, comparing it to Hong Kong, yes, we do have a market-leading cost-to-income ratio already. It's really worth making that clear. That's particularly true in our commercial bank where we've got scale and we have really good cost control and the ability to leverage group systems. I said 41%, it's come down a little bit in the quarterly reporting, as you'll see. Now, there might be room for that to come down a little bit. But I would just stress, we have the ability to be much more efficient. That efficiency and operating leverage is really going to give us cost opportunities into the future. But there's still going to be requirements for us to invest in the business.

One of the reasons we haven't done what we wanted to do in retail is we probably haven't invested enough in the platforms and underlying systems. It's hard to imagine the need for that investment to go away entirely over time. So there'll be efficiencies. We're already at a market-leading cost-to-income ratio. Some of that might come down ever so slightly, but I wouldn't say that, that is the core ambition that we have on cost.

Thank you. Now, I saw a question in the room. Yes.

It's Andrew Coombs from Citi. Two interconnected questions. Firstly, thinking about your retail deposit mix because you just talked about that 72% figure. That's actually relatively low versus some of your peers. So I'm just trying to get a feel for -- do you think that's because of your customer mix where you're targeting more of a Premier and more affluent customer base who is more likely to have their money sitting in term? Or do you think that reflects constraints around your ring-fence LDR and LCR?

And the second question, just a follow-up on the ring-fencing point earlier, I think the ring-fencing probably is more of an obstacle to yourselves compared to some of the other banks, and I was very interested in the comment you made about the fungibility and making or electing where the CIB business can sit. Because if we look at your ring-fenced LDR at 88%, and your non-ring-fenced bank LDR at 22%, obviously, if there's an increase in fungibility, that has huge implications for your business and what you can do to extend credit on the retail side. So interested in any thoughts or any more you can -- color you can provide there.

Okay. So let's -- I think Jon might have something on the operating deposits, but I think the answer is that there's a slightly different definition we use than some of our competitors. And if you were to solve for that, I think you get closer, and you'd find that we do have a leadership position in that.

As it relates to our ability to leverage the ring-fenced and non-ring-fenced balance sheets, we don't have perfect flexibility or fungibility across these balance sheets, but we do have material flexibility. And so working together to ensure that we leverage cost of funds advantage and release some of the constraints that each of the balance sheets might face over time is something that we're now working together on. I don't want to put anything specific on that, but it is a material opportunity for us to optimize in ways that perhaps we haven't been optimizing in the past.

Yes. So on the first question, if you look at the 28% that's not classed as instant access, it basically breaks down half and half between pure term deposits and our Bonus Saver product. And our Bonus Saver product, we are very pleased with and its performance. It's -- there is variance in the market, but ours work slightly differently. And what that Bonus Saver does is give you a certain headlight rate as long as you hit certain behavioral triggers. And so the other part of that, as I say, that's not term is this Bonus Saver. Others might classify that instant access depending on their terms, but that's how it breaks down.

We're going to give every company a go first. So we've got one here with Barclays, then there's one online, and we'll come to the rest.

It's Aman Rakkar at Barclays. One on corporate lending, please. So can I just get your -- it's very difficult for a lot of people to reconcile the level of corporate loan growth in the U.K. with the top-down picture. So could you give us your take on what's going on here? It looks like some of the growth rates are accelerating. How enduring is what we're seeing?

And just somewhat related to that, I mean, what's your take on the competition? You're hearing a lot of banks that are growing their loan -- their corporate loan books pretty strongly and strategically have ambitions to grow their share there. So is it a case that competition is pretty benign now while the system is growing, but you would expect it to intensify over time? It would be really helpful whatever color you've got there.

And then the second question is just in terms of the U.K.'s contribution to the group targets, we talk about building into a mid-single-digit revenue cadence kind of long term. Is that the right kind of medium-term ambition for your business? That would be helpful.

So maybe Jon can take the second. I'll start with the first. This is a really interesting and important topic right now, corporate lending. So if you looked at the whole market, you see probably a little bit of a reduction in credit growth on the mortgage side of things. And that's -- I think that's just a reflection of rates going up, and it seems quite rational.

Corporate lending is particularly interesting to me. So I'll tell you the stories that our frontline bankers are seeing is that right now, there are so many investments. So first of all, it's an underleveraged segment. So since the GFC, the corporate lending has been underleveraged relative to where it's been in the past. So we think there's opportunity there. But we're finding that these businesses have huge demand for loan growth right now to invest back into their businesses, and the investments are exactly the kind of investments we'd like to see. So we're seeing a lot of investments into AI. We're seeing a lot of investments into automation. We're seeing a lot of investments into digitization and robotics. We're also seeing investments into acquisition.

So a lot of our customers have said, well, this is the time for scale. And so we're seeing people acquire competitor businesses in order to achieve that scale. So we think this is really positive loan demand in corporate, middle market, and to some degree, even in business banking. And so we're trying to fund it. Of course, that's causing loan growth to be much higher than deposit growth either in corporate or in retail, and many of our competitors have talked to that. But I see this as a significant shift.

And I just want to put a real marker on this. Our economy and the banking system has to find a way to fund that loan growth. Because if we can't fund our corporates to make investments now when the returns are so high from those investments, we're going to fall behind the world. And so this is a point we really want to make. We have to find a way to ensure that the U.K. banking system can fund this positive growth.

When I was looking at this, I began to say it was particularly so when you saw some of the costs go up for labor. So the labor costs have been going up through different budgets. A lot of our competitors are saying, "I'm going to invest to offset that". And so this is exactly the sort of thing that creates productivity growth in an economy, and we are beginning to see productivity growth in the U.K. economy, I think, as a consequence of that. So really important, high quality, and of course, we like the returns of these loans as well.

Jon?

On the returns, I'm probably going to borrow it from Alastair's broken record on this. But we don't see the 17% RoTE and the 5% revenue as ambitions. It's how we're running the business. And so consequently, that feeds down to the U.K. franchise as well. So we're currently at a 21% RoTE and growing revenue 6% to 7%. You would imagine us to seek to maintain this. I mean, quarter-by-quarter, there will be volatility. But as we roll up into the group's targets, we will maintain these kind of things.

Thank you. I think, yes, we'll take Jason, and we'll go to Amit, and then, we'll come to Alastair.

Jason Napier from UBS. I wonder whether we could dwell a little bit on the anecdote that you shared around onboarding and the mechanics of what it is that had to change. No one who stood up at an event like this in prior years would have said that was the state you'd like to have remained at. So what is it that changed? Are there meaningful other improvements that need to take place? And is there a step change that we ought to expect in the performance of the business? Because we've been to similar events like this in the past, and it felt like there was a lot of investment going into the business. So is that anecdote sort of representative of a meaningful change in the approach in this market? Or is it just one area where you've fixed something that was clearly suboptimal?

Thank you. That's an important question. Digital is our thrust in retail banking and business banking, which doesn't mean, of course, we don't augment the digital offering with business bankers, and we've hired more of them. But this is what we're doing. This is how we're trying to run the business. We're starting from we must have the very best digital platform in retail and in business banking, and in fact, in corporate through Nio. We have to have that. We have to have the best usability.

But also these platforms are only as good as the journeys that sit behind the platforms. And so we're reorganizing the business to focus on the core customer journeys in each of these segments, so we make those journeys perfect. And once we've done that, we do it again. And once we do that, we do it again, and we just keep making those journeys digital and as perfect as we can.

The metrics I look at are the percentage of sales and transactions that are digital and then the percentage of those that are straight-through processed. That's much better client experience, and it's also better operating leverage. So this is a genuine shift in terms of how we're thinking about this business. We think that's the future. We think if we don't get there, we're going to lack the operating leverage we need to grow.

And we shouldn't just think of growth as revenue growth. My view is that over time, we're going to have customer growth as there are more split banking relationships across the economy, and you're going to have more transactions per customer. And so we have to get there. That's the core thrust of our investment, particularly weighted towards the big front-end platforms, which is the retail app North Star, and it's DBB, which is that separate front end for business banking customers.

Thank you, David. So we'll go to Amit Goel online.

Apologies for not being able to make it there. So I just had kind of 2 follow-ups. So one was just putting the hedge and margin kind of comments together on NII. So I guess just trying to understand, excluding the hedge, would you see U.K. NII as broadly stable? Or is there still some erosion from deposit competition and any kind of narrowing of commercial lending margins?

And then secondly, just in terms of the kind of the capital allocation within HSBC U.K., the legal entities. So the headroom looks a little bit thinner and RWA growth is pretty strong. So with mid-market growing close to 15%, should we expect HSBC U.K. dividends to group to be growing more slowly than the earnings? And basically, within that, if we do see some easing of the U.K. kind of buffers from the rate reform, would we expect that kind of incremental capital capacity to be coming back to the group or getting reinvested in the U.K. business?

Maybe I'll touch on the second, and then, on the hedge and NII, Jon can take. I just want to say on capital allocation, of course, we look at the risk weights density for every single kind of asset class that we write and grow. We consider that. Of course, you would have known Basel 3.1 will give us -- I think we already disclosed 40 to 50 points on our Tier 1 capital. So that will be to the benefit, and that will give us the ability to grow. But what I want to say is we're a group, and we're going to be allocating the capital of the group in the most efficient way possible. We think there are strong returns in the U.K. There are strong returns out of the U.K., and OpCo will make that decision, and that decision will be something that we can adjust to over time in order to maximize long-term value.

I think that's fair -- I mean, just one add-on. I wouldn't focus too much of the individual capital ratio of the entities as you'd expect in a group. We seek to run those at pretty fine margins knowing that we have group capability should we need more capital.

On the hedge, so maybe 2 things to say. I mean, at the rates inferred from the group hedge for the earlier conversation, the hedge, is a significant impact on the margin. So you would want to factor that in. But out with the hedge, I think it's fair to say that the change in mix of the growing commercial and the deposits somewhat balance themselves out. Both stories will continue to be written over the next year. But as we stand today, we see those balancing out.

Thank you, Jon. Alastair next if he still wants a question.

Alastair Warr from Autonomous here. Just probably want to carry on that point a little bit about the level of corporate growth that we've had in the U.K. here, others and yourselves, and it's been a while now, rates higher as well. We've got a bit of color and recent briefings on where this has been coming from, what you are focusing on. Could you give us a few thoughts on the sectors and areas you're less interested in and maybe talk a little bit about any asset quality risk system or yourselves that you'd rather be sidestepping.

Yes. Thank you. So, of course, broadly, we think the corporate book is really healthy. We also think that it's important to note that when you're a leading corporate bank, you tend to have the leading corporate clients, and they tend to also have exposure internationally. And so we do think we have the very top end of our corporate exposures.

I won't give new disclosures on ECLs or the credit book. But I do feel that things are -- there was a potential risk earlier in the year, what would happen if the Iran conflict continued, how bad would it get? At this point, I feel very comfortable with how we provided for that segment. And again, I think this is high-quality lending because we're seeing our business customers put that money back into their businesses, and we see that they're getting returns from that. And so again, I think this is exactly the kind of lending we want.

If you took a big step back, of course, we all know that there is a government debt-to-GDP ratio that's constraining. The private debt-to-GDP ratio is very low by historical standards and also very low by global standards. And so again, I think what we're seeing here is releveraging. I think it's corporates saying there is a must investment requirement right now, and we're supplying the credit for that. And again, I think it's the right margin. It's the right kind of investments, and we're happy with that.

If you looked at the segments, and this is more stories, there are some segments doing better than others. So B2B businesses tend to be outperforming B2C businesses at the moment. And I think there is a question around consumer confidence that will continue to drive B2C business performance. And there are certain sectors that are more exposed to Iran and to oil and energy prices than others. Agri is a sector that's been a little bit exposed. Homebuilding, particularly in London and the Southeast, has been a little bit exposed as well.

But again, these are sort of smaller parts of our book, and we're managing those relationships, I think, in a reasonable and non-knee-jerk way. The thing I want to just reinforce is that we do have the strongest balance sheet, we think, in the market, and that lets us support our core clients through good times and bad times, and we're committed to doing that. Do you want to add to that?

No. But I'm conscious that we were coming towards the end of this. So I wondered if Alastair, I might just make one comment because people ask me in the fringes about impact of the U.K. tax and the banking surcharge on HSBC. I just wanted to make some comments on the record.

So just for your modeling, in terms of impacts, that is an ongoing impact during an annual impact over the 15 months of around $0.3 billion. You will see because this has now been substantively enacted, a one-off impact in 2026 of about $100 million as we revalue deferred tax liabilities as well. So just to put that comment on the record because a few people had asked.

Thank you. I saw people trying to corner Jon when he came in, which is fair. So we probably have time for 2 more questions. I think everybody has had one, so we can go. I know Sheel had a second. Okay. We'll give JPMorgan a second go.

Sheel Shah, JPMorgan. Obviously, you've got a leading franchise in Hong Kong. You've got a leading franchise in the U.K. Can I ask about the knowledge synergies between them both? So maybe park the financial synergies in terms of the investments between one and the other. What are the key learnings that you've seen in Hong Kong that work very well there that you can bring to the U.K. and also the other way around that may benefit the Hong Kong franchise?

So if I can make an umbrella statement, again, there are only 4 businesses each represented around OpCo. We meet regularly and we have ongoing discussions. So all the major topics going on in Hong Kong, I'm aware of all the major topics in the U.K., they're aware of. So it's actually quite a close OpCo in that regard.

In terms of what Hong Kong do particularly well, they have a lot of innovation around wealth management product, and they do very well around deposit raising. And so that's something that we learn from. And also, in many cases, we can take that capability and input it at low cost. So take North Star. North Star is one platform, and it's programmed by both teams, and we can leverage each other. So we certainly take that.

I would say the U.K., if you look at a market level, I would argue that the U.K. banking applications are some of the best banking applications in the world. The rates of digitization in the U.K. are much higher than the rates of digitization and indeed straight-through processing than just about any market in the world, much higher than the U.S., higher than Hong Kong, higher than almost every other developed economy. And so our ability to lead on the app is something that they can learn from and benefit from.

So those would be 2 examples, but the umbrella statement is it's 1 OpCo, 4 businesses. There's very little of consequences happening in Hong Kong that I don't benefit from knowing about and vice versa.

So we'll take our final question from Barclays.

It's Aman from Barclays. Yes, just interested in your appetite for inorganic in the U.K. at all. Is it reasonable to think the U.K. could be a focus of group-wide capital, yes?

Listen, we'll be obviously circumspect about talking about that. Certainly, operating leverage in the U.K. market generally would likely be conducive to some form of consolidation over time. That's a market statement, not an HSBC statement. But I think we've been very clear on the financial hurdles and the discipline with which we treat those if we were to make any acquisition, large or small in this market.

With that, I've been told I have to stand in the center for the cameras. David, Jon, thank you. Thank you, everybody, for joining us. That concludes the presentation.

Thank you.

Thank you.

Welcome to the analyst and investor presentation on the third quarter results for HSBC Holdings plc. This webinar is being recorded. I will now hand over to Pam Kaur, Group CFO.

Welcome, everyone. Thank you for joining. It has been another positive quarter. We are confident in meeting the targets we set out to you at the full year and are on track to meet all our guidance, which remains unchanged today.

On performance, revenues are up 5%, and profit before tax was strong, up 10%, excluding notable items. I'll talk more about these shortly. And our continued discipline saw us action $0.2 billion of simplification saves, taking us to $1.9 billion of the $2 billion we set out at the half year. We announced an up to $1 billion share buyback.

Let's turn to the income statement. My comments will exclude notable items, which adversely impacted profits by $0.4 billion this quarter. These are set out on Slide 28. The comparisons I will make, unless otherwise stated, will be year-on-year on a constant currency basis. I'm pleased with the performance in the third quarter. Revenue grew 5% to $18.7 billion. This was broad-based across businesses and income lines. We delivered strong profit before tax growth, up 10% to $10 billion. Earnings per share, excluding notable items, is up 17%, in part benefiting from the reduction in minority interest following the privatization of Hang Seng Bank.

Deposits increased $105 billion, including held-for-sale balances. Annualized return on tangible equity was 18.8% year-to-date, 1.1% higher than last year. Our CET1 ratio is 13.9%. Today, we are giving you our estimated Basel 3.1 impact of 40 to 50 basis points, which will apply from 1st January 2027.

Turning now to our business segment performance. All 4 of our businesses grew deposits, each delivered annualized return on tangible equity in excess of 17%, excluding notable items. Revenue grew 5%, showing the breadth of our franchise and consistent execution of our strategy. IWPB revenue fell slightly year-on-year. There are 2 things I will call out here. First, the $0.1 billion impact of our strategic transactions. We set this out on Slide 20. Second, this time last year, I highlighted the positive one-off impacts in insurance in the third quarter of 2025 of around $0.1 billion. As expected, those did not recur. Taken together, both more than offset revenue growth in IWPB. Our other 3 businesses grew consistently in the quarter with CIB the standout. This broad-based performance across our 4 businesses shows that our strategy is very much on track.

Moving to banking NII. Banking NII increased $0.6 billion year-on-year to $11.7 billion. The quarter-on-quarter increase reflects continued balance sheet growth, both in loans and deposits. It also reflects $0.1 billion of one-offs, a $0.1 billion benefit from our structural hedge, and $0.1 billion from day count. We benefited from a couple of rate hikes, although I would say that these were in line with expectations a few months ago. As you would expect, our structural hedge is being reinvested at higher yields.

In terms of emerging trends, in Hong Kong, we saw increased time deposit margin pressure this quarter. Most of our strong growth has been in time deposits. In the U.K., the deposit market has become increasingly competitive. We have the lowest loan-to-deposit ratio of the major banks and the highest portion of instant access deposits. This leaves us well placed to manage changing competitive market dynamics. As you look forward, I would also just remind you of the impact of our strategic transactions. We reiterate our full year banking NII guidance of at least $46 billion.

Next, Wholesale Transaction Banking. The strength of our franchise has been demonstrated over the last 12 months and again in this quarter. We grew fee and other income 11% year-on-year as customers continued to turn to us to help them navigate market complexity. Our balance sheet and franchise strength are particularly valuable in times like these. In the quarter, trade fees grew 5%, driven by continued growth in guarantees in Asia and the U.S. We are gaining market share in Asia. This is a core strength of the firm and lies at the heart of our network business. Payments increased by 4% on higher volumes and increased card fees.

While this slide focuses on fees, I would point you to the data back. Wholesale transaction banking revenues, which give you the full picture of our world-leading trade and payments franchises, are up $0.8 billion and 12% year-on-year. In Securities Services, we grew fee and other income 3%, reflecting new mandates and higher market valuations. Some of this growth was offset by strategic transactions. Foreign exchange had a particularly strong quarter, up 19% as we saw client demand in a period of higher market volatility.

Next, to Wealth. Wealth net new money at $38 billion in Asia this quarter brings our year-to-date flow to more than $95 billion. We set this out on Slide 24. Our Wealth business continues to perform. And as you will see on Slide 23, we saw good inflows of new-to-bank customers in the quarter. Fee and other income itself was flat year-on-year. Investment distribution performed well, up 7% on higher mutual fund and structured product sales. This reflects the strength of our customer franchise in Hong Kong.

On Insurance, as I mentioned, we had a one-off impact in the third quarter of last year. Together, with the strategic transactions, notably U.K. Life and French Life, the $0.2 billion dominated the year-on-year comparison. Private Banking grew 16%. We are really pleased our strategic focus is paying off. This quarter, we saw growth in mandates and higher trading activity. In Asset Management, AUM growth was offset by margin compression. The consistent investments we are making in our wealth products, distribution channels, and customer experience are translating into real results.

Turning next to Credit. Our third quarter ECL charge was $0.8 billion, equivalent to an annualized charge of 31 basis points as a percentage of loans and advances. In Hong Kong commercial real estate, we had a very low net charge in the quarter. Overall, performance remains broadly stable. You will see our usual detailed breakdown on Slide 27. We maintain our full year 2026 credit guidance of around 45 basis points. The fourth quarter runs longer, but there is nothing of concern we are calling out today.

Next, to Costs. We continue to take a disciplined approach to cost management. Cost growth this quarter is 1% year-on-year on a target basis. We are on track to achieve our target of 1% cost growth in 2026 compared to 2025 on a target basis as we continue to deliver the benefits of our organizational simplification savings through the remainder of the year. Updating for FX, the target cost baseline is $33.9 billion. As we said at the half year, if our strong business performance continues, we may consider increasing variable pay, which would increase costs modestly.

Turning next to customer deposits and loans. Our deposit growth continued with $105 billion, including held-for-sale balances over the last 12 months. In the quarter, Hong Kong saw another strong performance with $21 billion of growth. Following the privatization of Hang Seng Bank, we have announced the combined management team and are now building common technology platforms to simplify operations, improve efficiency, and deliver a better experience for our customers. We are benefiting from being full owners of the 2 iconic banks, from the growth of Hong Kong, and from our focus on protecting our leading market position.

In the U.K., as I referenced, we are seeing strong competition for retail deposits. Time deposit rates in the market are often above policy rates. Given our loan-to-deposit ratio, we have a range of choices to match market presence with profitability. A stable book this quarter reflects these choices. In CIB, I said at the half year that about half of the CIB deposit growth in the second quarter was large and short-term, that these balances come and go. Indeed, we have seen some of those balances flowing out this quarter. The $42 billion year-on-year growth is more representative of the profile of CIB.

For IWPB, we were pleased to be the largest international participant in the Reserve Bank of India's Foreign Currency Non-Resident bank deposit scheme, the second largest bank overall. We captured $14.5 billion of FCNR deposits, and you will also see growth in the related loans on the other side of this slide. Against this strong inflow, we saw more runoff of the Australia book, which we expect to continue following our announcement to wind down our retail banking business.

Next, lending. We continue to grow in Hong Kong. The housing market is up 14% year-on-year, which is translating into mortgage growth where we have a competitive range of fixed and floating products. In the U.K., we are particularly pleased with the 13% commercial lending growth year-on-year. You will hear more from our U.K. team in November, including how our leading position with U.K. companies provides us with great opportunities. CIB continued to grow with balance sheet discipline, particularly in Asia. In IWPB, this quarter, you can clearly see the move of our $26 billion Australian retail portfolio to held-for-sale. This was partly offset by the Indian FCNR lending I just mentioned.

Next, to capital. Our CET1 capital ratio was 13.9%, down 20 basis points in the quarter. Our regulatory profits were again strong. We generated 90 basis points of CET1 in the quarter. As usual, we accrue a 50% dividend. You can see the impact of last quarter's buyback and strategic initiatives. We grew RWAs as we put capital to work in the business. I previously flagged negative movements through other comprehensive income from our hedge portfolio.

Today, we are giving you the anticipated day 1 benefit from the adoption of Basel 3.1 in January next year. Based on our latest modeling, this benefit should be 40 to 50 basis points. This remains an estimate, which is subject to changes in portfolio size, composition, and further model refinements, including regulatory permissions prior to adoption. As always, we judge our capital position on a current and forward-looking basis. That positions us to deliver a further up to $1 billion buyback today after continuing to provide the resources to support our growth.

Let's now turn to targets and guidance. First, targets. We are confident in our targets. As George and I previously said, we are always pleased to exceed them in any given year should circumstances be supportive. To remind you of those targets, revenue rising to 5% year-on-year growth by 2028, excluding notable items; return on tangible equity of 17% or better, excluding notable items each year; dividends, 50% of earnings per share, excluding material notable items and related impacts. Finally, all our other guidance set out on this slide remains unchanged.

To conclude, the intent with which we are executing our strategy is reflected in our third quarter performance, which is broad-based. It shows discipline, performance, and delivery. Discipline in the way we are applying strong cost control and investing to deliver focused sustainable growth. We are on track to achieve our target of around 1% cost growth in 2026 compared to 2025 on a target basis. As we said at the half year, should strong performance continue, we may consider additional business performance-related pay, which would increase 2026 costs modestly. And we are reallocating costs from nonstrategic or low-returning businesses towards growth opportunities while upgrading our operating model.

Performance in our earnings, all 4 of our businesses grew deposits, and each also delivered annualized return on tangible equity in excess of 17%, excluding notable items. And delivery, our third quarter results show we are creating a simple, more agile, growing HSBC. That is why we remain confident in delivering against our targets or exceeding them if circumstances allow.

With that, I'm happy to take your questions.

[Operator Instructions] Our first question today comes from Guy Stebbings at BNP Paribas.

The first one was on net interest income and Hong Kong deposits really. I appreciate it's very hard to predict deposit behavior. But if you could give us a sense as to how that's evolved through the quarter and into Q4. It felt like you may be a little bit more upbeat on NII momentum back in August, early September than today. So I'm just wondering if that implies the mix dynamics were a bit more feature later in the quarter or whether it was just evenly spread?

And then sort of conceptually related to that, your rate sensitivity to an upwards move in HIBOR is very limited, assuming a static balance sheet. If you overlay that with negative mix, it suggests you could even be sort of negatively geared to HIBOR going up. I'm just wondering if that's a fair description. It feels a bit different to what we used to, if I can put it that way.

And then the second question was on capital. I wonder if you could break out that 40 to 50 basis points benefit from Basel 3.1 at all. There's also an asterisk saying related reductions to firm-specific capital requirements are not expected to be significant, but it still sort of suggests directionally, they would be helpful as well as a favorable move in RWAs. I'm just trying to work out if that's the correct way to interpret it.

Thank you, Guy. So firstly, in terms of deposit behavior, when interest rates are higher, we have seen also in previous times that there is a shift to more time deposits. And that proportion of a shift of sort of 2 percentage points this quarter came more increasingly towards the end of the quarter as interest rates got higher. Just to give you a context, when the interest rates were high, we saw an increase to time deposits of up to 40% as opposed to 38% we have now. So we can never predict customer behavior precisely, but that just gives you some sort of a context.

Now in terms of HIBOR sensitivity, yes, we have reduced it. But directionally, when HIBOR is higher, it is always positive for us. Interest rate increases are positive for banking NII. What really shifts or changes is the rate to which that incremental increase to banking NII happens. And just to remind everyone, I've always said that 3% to 4% interest rate is at the peak of the sweet spot for banks, even though beyond that, we continue to grow banking NII, albeit at a slower rate.

Now in terms of the RWAs question, the impact of the 40 to 50 basis points from our Basel 3.1 really comes from a range of areas. So the way sovereign risk gets lower RWAs. Also, there's an impact with regard to how our SME exposures are calculated as well as foundational IRB when it comes to large corporates, for example. And I'm glad you pointed out the footnote. The footnote really relates to Pillar 2A requirements, which are firm-specific. For us, this is also beneficial, but the benefit is not as significant as the 40 to 50 basis points RWA impact benefit to CET1, but it is still a benefit.

We will take our next question from Ben Toms at RBC.

The first one is on cost of risk. Guidance for the year is for 45 basis points. The print in Q3 is a lot lower than expectations, and year-to-date, the run rate implies quite a big step-up in Q4. I think you said in your prepared remarks that you're not seeing anything that concerns you. So is the reiteration of guidance just some conservatism?

And then given the higher rate environment, would you expect 2027 to go back to the 30 to 40 basis points through the cycle range? And then second question is, do you think that consensus is now adequately reflecting the revenue headwinds and cost tailwinds from disposals across 2027 and 2028?

Thank you, Ben. So firstly, from a cost of risk perspective, we were very pleased with the performance of our portfolios in Q3. And as of now, I see nothing of concern for the fourth quarter. And of course, when we give a guidance of 45 basis points around that range, it can very much be lower too. But as a matter of conservatism, given the length of the quarter, we keep the books open right until the end of January. So therefore, that's the only reason why we are not changing with regard to the guidance on the ECL charge. So we are not making any comment on impairments for 2027. It will be fair to say, over the past many years, our risk appetite has been around the 30 to 40 basis points cost of credit.

Now with regard to the higher rate environment, the only thing I would bring to mind to remind is, of course, a higher rate environment is beneficial when our balance sheet is growing, both in terms of deposits and lending as well as it is beneficial in terms of the reinvestment of our structural hedge, which we will continue to do. We saw some benefit this quarter. We'll see in Q4 and next year as well. The only thing to kind of bear in mind, and I think as consensus works this through is that, firstly, you can't have the same proportion of time deposits and beta in a high interest rate environment as opposed to lower. Sensitivities are always on an average 50 basis points. I think that's factored in.

I'll just remind you that on disposals, and we have that on our Slide 20 that there is a $2.2 billion cumulative impact on revenue of disposals. That's 50% banking NII, 50% fee-related. In this year, i.e., in 2026, the impact was $700 million, but more skewed towards fee. Next year, it will be a $900 million incremental, which will be more balanced towards banking NII. And as you go further out into 2028, the final $600 million will be more skewed towards banking NII.

Today's next question comes from Joe Dickerson at Jefferies.

I also have a question on the Hong Kong deposit mix given it's such a large contribution. I guess, in a weird way, you're being penalized for having the best funding position in the market. I guess, is there a threshold to the TD mix that beyond which you would feel uncomfortable? Pam, you mentioned you had 40% at one point in the quarter. The industry mix is 56% at last reading. So that's quite a wide gap. I presume you don't want to go there.

And then I guess, conceptually, it seems like this quarter, we've had a shift from the dynamic between deposit growth leading AIEA formation and therefore, NII. If I look out in the out years, I think consensus has 4% deposit growth next year and 6% NII. Is that a relationship that you're comfortable with in terms of those growth rates?

Thank you, Joe. So firstly, I just want to clarify, the time deposit, 40%, which I called out, was the highest that we saw a few years ago. In this quarter, it was 38%. So that was just giving you a context of where we are and where it could be based on what we have seen. And of course, our CASA balances have always been better than the market average, the time deposit being lower, and I expect that to also continue.

I also just want to remind you that from a Hong Kong deposit mix perspective, from an NII perspective, it continues to remain positive and incremental. So in that sense, we are very comfortable with that. And even though marginally, the contribution reduces. So there's nothing from a deposit growth perspective that we are particularly worried about or want to slow down. And if history repeats itself in terms of customer behavior, we will continue to have that better than market time deposit mix.

So in terms of sort of deposits overall, as I said, what we are very comfortable with is that overall, across all markets, we remain NII positive with regard to our deposit growth, and we will continue to participate strongly there in our home markets. Having said that, our loan-to-deposit ratios stay in a very comfortable space. So we are not doing this rush just to meet the additional loan demand. We are just doing this to stay in line with our market share and indeed our role in the market. And as long as it's positive, we are very comfortable.

Our next question today comes from Aman Rakkar at Barclays.

Pam, can I ask just 2 questions? One on net interest income in the U.K. So obviously, you're flagging a bit of a step-up in deposit competition in the U.K., but the strength of your kind of liquidity position from here. So could you just delve a bit deeper into your expectations around term deposit migration from there? I think you're calling out a relatively high proportion of instant access within your mix. Is it right that you're kind of anticipating a material shift in term deposits in the U.K.?

And then I guess, does that in any way influence your appetite to pursue the asset growth in the U.K. Obviously, you're growing your commercial loan book very strongly. Are those 2 concepts linked, i.e., the marginal cost of funding going up and your appetite or propensity to pursue growth in the U.K., is that linked in any way?

The second question was on Wealth, please. So I know that the year-on-year comp is impacted by a bunch of one-offs, but this kind of 10% growth in Wealth year-on-year is a fade versus some of the kind of more outsized growth rates that we've seen in recent quarters. And there's a lot going on in terms of the forward look, be it lower market levels, weaker sentiment. Obviously, some of the kind of policy dynamic in some of your key markets are shifting. So I'd be keen to kind of get a sense of the kind of run rate for Wealth going forward from here?

So thank you, Aman. You're right that there is some shift in competition on deposits in the U.K. market. But I just want to say that for us, the real sort of material impact comes more from the Hong Kong market rather than the U.K. from a banking NII perspective. So don't read something similar to the U.K. as the impact in Hong Kong. That's the first.

Now in terms of our asset growth, we have always said, whether it's mortgages, whether it's commercial lending, we always have some very strict discipline on our risk-return hurdle rates and overall risk appetite. So we will continue to lean in for our asset growth as long as it's within our risk appetite and on hurdle rate. So I don't see any shift there, and there is enough room given where we are in terms of the balance sheet to be able to continue to participate specifically in some of the growth sectors as well as pursuing some of the work that the U.K. government has done on growth with regard to trade agreements that play very well to our global network.

So you're right on Wealth. It's not so much as a year-on-year or quarter-on-quarter comparison. I do want to really bring to bear that Wealth is a long-term strategic growth opportunity for us. We do not give whether it's double-digit, high, low, or high-single targets or guidance for the year. We didn't do this year either. But we do believe that if you look at a number of starting points, firstly, if you see where we have invested like on the Private Bank, 16% growth is a very strong number.

You look at the net new money numbers. Asia, $38 billion; globally, overall $41 billion. All those are the, what I would say, building blocks for continued growth in Wealth.

Yes, quarter-on-quarter, product mix can change. Quarter-on-quarter, the impact on banking NII versus individual fee-generating products can change. But the overall direction of travel, whether you look in terms of net new customers, individual business line, investment distribution, the range of products we have, which we have grown when equities are soft, like mutual funds and structured products, the net new monies that we are gathering, not just in Hong Kong, but as you can see, the strength of our franchise also in India, where we were the largest international bank participating in the FCNRs and only slightly behind to be the second overall bank compared to a very strong local bank. That gives me tremendous confidence, both from the macro growth opportunities, but HSBC's unique role in participating in the growth of Wealth. So I would not be at all concerned about that. In an annual basis or from an outlook perspective, yes, there will always be quarter-on-quarter fluctuations.

We will take our next question from Andrew Coombs at Citi.

Just a couple of follow-ups, please. Firstly, on the 40 to 50 basis points of capital release on Basel 3.1. Have you earmarked that for anything? Does that give you additional capital flexibility? And if so, where do you plan to deploy?

Secondly, on the Slide 20 that you referenced, you provide the savings attributable to business divestments. You also provide the revenue attrition to that and the cost reallocation. I guess the one thing missing from that slide is the revenue benefit from that cost reallocation. So could I just, I guess, ask whether you think the marginal return on reallocating that cost base will generate more or notably more than the $2.2 billion of revenue attrition that you've earmarked?

Thank you, Andrew. So firstly, from a Basel 3.1 capital release, we will get that starting from the 1st of January. So the starting point from the capital in addition to the capital we generate in Q4, where we remain very confident in terms of our targets and guidance will give us a strong position going into 2027. The deployment of that capital that we have both vis-a-vis our target operating range and our needs in terms of distribution will be the same. There's the 50% dividend payout ratio, then there is organic growth opportunities. And last but not least, very committed to share buybacks as the residual preferred way of distributing capital. So nothing really changes in that context.

Now in terms of the revenue benefit, yes, of course, given that we are deploying those costs in businesses where we have scale, businesses where we have the right to play and the right to win. And you can see from our 4 global businesses, given where they stand on the return on tangible equity, I feel very confident that we will make that revenue and more very quickly. So that should be an upside. However, I'll remind you that there will inevitably be a very short time lag quarter-on-quarter in terms of how the revenue that has been reduced in one space gets picked up in another deployment. But because there are known areas where we are accelerating investment, there's not too much of a time lag.

Today's next question comes from Kian Abouhossein at JPMorgan.

The first one is regarding monthly customer acquisitions in Hong Kong. As they have slowed down, I wanted to get an understanding how we should think about -- if there's any underlying changes in how we should think about customer acquisitions? Or is this more seasonal? And in that context, if you could just give us an update on ODI, if it has any impact or had any impact on the quarter from your perspective?

And then the second question is related to transaction volumes, clearly declining in Hong Kong. And I'm just trying to understand how that impacts not so much the corporate bank, but more the Hong Kong franchise. If we should think about declining markets as well as lower transaction volumes having some impact potentially on your flows into markets on the retail side, but also potentially transaction volumes in that context.

Thank you, Kian. So firstly, our monthly customer acquisitions, if you look at an average for the first half of this year or even last year, have stayed pretty steady at about 100,000 per month. So that continues. It is fair to say that in the second quarter, when some of the enforcements in terms of regulatory compliance and guidance came through in May and June, given that some of the other competitors were upgrading their compliance onboarding and other requirements, we saw additional new-to-bank customers coming to us in May and June because we were already at that level of compliance when those further guidance came.

Clearly, once that pause had been lifted by the competitors, we reverted back to what we would consider to be a normalized level. And I would look at the around 100,000 per month normalized level. We haven't seen anything different from there. Now from a mix perspective, it's right to say, in HSBC, we had, if you remember at the beginning of the year, put on some fee in terms of smaller balances. We didn't see much change even based on that. But what we have seen is that there has been more than doubling up of the account opening in Hang Seng from Chinese Mainland customers either directly or from other banks as we have deployed technology and made customer journeys better. So for us, it really means that across our 2 iconic banks and brands, we stay at the same level. The mix may shift a little from month-to-month or quarter-to-quarter. So that's the first.

Now in terms of the Chinese regulation impact, we have not seen any specific change in either product mix or customer behavior as a consequence. Some of the product mix changes that have happened, where maybe an endowment product and insurance because of high interest is less attractive, that's more macro market-driven or indeed, if because of slower and sluggish equity markets, quite rightly as you call out, transaction volumes and brokerage is lower, but then you see more in terms of mutual funds and structured product sales. So overall, that's kind of the picture in terms of the impact of the Chinese Mainland regulation.

And I just want to also remind you, the role of Hong Kong as a major Global International Financial Center and the window to the world from a Chinese Mainland perspective has been reiterated both in the Chinese 5-year plan and in the first Hong Kong 5-year plan. So I see no shift in that direction of travel and these updates have only happened very recently in terms of the new 5-year plans. Transactional volumes, you're right. We've always called out, depending on what the market environment is, we see some shift in the transaction brokerage fees and the transaction volumes.

Our next question comes from Melissa Kuang at Goldman Sachs.

Again, just a follow-up on the deposit side in Hong Kong. Just wanted to understand a little bit, you've seen deposit migration from CASA to TD, but at the same time, TD growth as well. In terms of the competition per se, how intense has that been? And do you think that will kind of pull through until just the end of this year? Or will it go into next year in terms of that?

And then just looking at your net new money, which was very strong and very encouraging this quarter. Is that number sustainable? Or does that have some part coming from India that perhaps is just a onetime uplift that we are seeing, especially in the Asia portion? Maybe a bit of color from that would be helpful.

Thank you, Melissa. So firstly, the CASA to TD migration always happens when interest rates are higher. We saw that around 2 years ago. So that sort of trend is always observable, hence my earlier comment. And the time deposit proportion can move from sort of low 30s to right up to 40%, so there's nothing surprising there. Now in terms of the time deposit margin pressure, that's a nature of the competitive focus in Hong Kong. Some of that has actually come through because there is more lending growth. So when there is more lending growth, especially those banks which have, compared to us, a different loan-to-deposit ratio, they would lean in more, and therefore, there will be more pressure on the deposits.

From our perspective, yes, you have some impact on the deposits, but you also get the opportunity from the lending growth as well in Hong Kong. So I see that to be more a mix of how the loans and deposits grow and the margins thereof, but nothing really unusual to call out beyond this year or next year.

So in terms of the net new monies and FCNR, so we are very pleased that where we have that presence and our Wealth story is not just a Hong Kong story, we can attract new deposits. But I just want to remind you that this quarter, as much as we had FCNR coming up, we had the Australia deposits going down. So that sort of balanced itself off. And going forward, of course, we will continue to have the benefit of this FCNR for the coming 3 to 5 years, and most of our book is at the 5-year end, but that FCNR uplift has now closed. It closed at the end of August. So there will be nothing new.

From my perspective, the net new money that we are very encouraged with, and that trend continues for a number of reasons. We have improved customer journeys. We get net new money from our customers with whom we do multiple products. When customers do less Wealth products, by definition, they sit with us in terms of deposits. So that trend and particularly the investment we have made also on the private bank side is going to continue to be a very good source of net new money for us going forward. Albeit from a lower base, but the growth is really quite remarkable and promising for the future.

Today's next question comes from Rob Noble at Deutsche Numis.

Just a couple on capital, please. So why are you happy running below your capital target this quarter? I presume the Basel 4 update gave you some of that confidence. So should we expect you to pay down to 14 -- the lower end of your capital target pro forma the Basel benefit at year-end?

And then on the fair value moves that negatively impacted capital, it seems to hit you more than European banks or generally the other European banks. So why do you hold so much in the hold-to-collect-and-sell book? And if we went back to, I think it was 2022, it was a sensitivity you said you'd reduce. Are you happy with that, the current structure of that book and the exposure you have to higher rates through that at the moment?

Okay. Thank you, Rob. So firstly, coming back from a capital perspective, I would reiterate, our target operating range is 14% to 14.5%. We feel very comfortable given where our books, our risk profile is and our capital outlook is and Basel is just one part of that. We've mentioned to you also the Pillar 2A. We feel very comfortable that at the lower end of that capital range also, we can confidently do share buybacks and nothing changes there. So I wouldn't use that just as a one cliff edge. We said sort of around the 14% with all these factors, we feel very comfortable.

So from an HTCS perspective, I just want to draw your attention that on Slide 16, we made it clear. In terms of the structural hedge, the HTCS portion is only 1/6. And that HTCS portion and the duration at around the 3, 3.2 years is similar to what we have in hold-to-collect. In addition, we have some HTCS, which is for liquidity management, which goes beyond our structural hedge. And that number is a bigger number, but it's for a much shorter duration, so far less sensitive. And of course, when we see spikes in the bond yields, we can dynamically adjust that number.

Overall, our sensitivity is at a very different level than it was in 2022. It has been a well thought-through number. It's a number which we, when we look at some of our U.S. peers rather than our American peers, it's more akin to somewhere in the middle given what you saw with some of the U.S. peers, what their sensitivity was to the HTCS equivalent. And given the shape and size of our balance sheet, which is much more global in nature, we are very comfortable with that positioning and that will continue. And all I can say is this is a mark-to-market. What goes off in September comes back also in October. So we just obviously bear that in mind.

We will take our next question today from Amit Goel at Mediobanca.

I just got a couple of follow-ups. So one, just again, coming back on the deposit competition. I think at Q2, the group and you mentioned you're happy to kind of step back a little bit because there was a bit of quarter-end intensification of competition then. But this time, it seems like it's having a bit more of an impact and the language has changed a bit. So just curious how, again, you kind of think about that and why that then has changed?

And then secondly, in terms of some of the incremental, I guess, CIB-related costs or costs coming in Q4 for variable comp, how should we think about that from a perspective of what is the process, what is the timing, how much incremental revenue would you need to see, or what should we be thinking about on that piece?

Thank you, Amit. So firstly, when it comes to sort of quarter-end spikes of pressure on margins, we don't participate, whether it's some lumpy wholesale or indeed retail. What we are seeing this quarter is a greater sensitivity from a customer base throughout the quarter to move their money from CASA to time deposits where then there is pressure because of the high interest rates. So there are 2 different things. I wouldn't necessarily align them. So we are not going to go and compete in a negative NII space to garner deposits just at a quarter-end because, frankly, we don't need to given where our loan-to-deposit ratio is. Having said that, we absolutely want to participate in our home markets in terms of the growth of both sides of the balance sheet, deposits and lending.

Now from a CIB perspective, firstly, CIB from a fee perspective, has had a standout quarter, particularly in Wholesale Transaction Banking. So of course, we will see how that performance continues through into fourth quarter and indeed, the performance of all our businesses. And as we say, we work to deliver on our targets and guidance, but we don't stop working there, and we often do exceed our targets and guidance, and we will continue to do so.

And then in January, once we have the full numbers, we may consider, depending on a range of factors of the performance, the markets overall, where we need to add more to the variable pay. And only if we need to add, will we add, but that is a consideration that can only be made in January. What it does in total terms is that it becomes a rounding thing. If you're without that VP uplift, you're running down to a 1% cost increase. And if you add to that VP, because of rounding, you may round up to the next percentage point. So that's kind of how I would look at it and nothing more material than that.

We will take our next question today from Ed Firth at KBW.

Can you hear me now?

Yes, I can.

Perfect. Yes. So slightly just following on from Amit's question, but I guess looking into next year as well. Just to sort of simplify the question, based on consensus revenue, would you expect to pay the variable extra, I guess, is my question. Because if I look at consensus, people are about $300 million ahead of your target. And I'm just not at all sure, are you comfortable with that? Is that the right sort of number based on the revenue that we've got in consensus? So that's my first question.

And then the second one is, if I look at consensus costs for next year, 2027, it's looking like somewhere around 5% growth. And if I adjust for the disposals, it's probably more like 7%. And that feels like a really very punchy number, particularly after a 1% growth this year or an underlying 1%. So I'm just -- am I missing something? Is there something that you're planning next year that I've missed? Or would you agree that an underlying growth rate of 7% for costs feels like quite a big number.

So thank you, Ed. So firstly, we are not giving any guidance on costs for next year. As of now, of course, for the full year, we will have that update. So just to give you a perspective, when you look at any gross numbers and then you look at the simplification of the benefits, we had the same situation when we looked at inflation-related, investment-related costs, and then we took off that as simplification.

So now for next year, yes, the simplification are already on the baseline built in. The question really is what will be the inflation investment costs, and then the rest would be the redeployment of the existing cost base coming from the disposals into businesses where we want to accelerate investments. So nothing new, all on strategy and accelerating. And then over time, you can see some of the synergistic benefits, obviously, from Hang Seng will also come through, firstly, in 2027 as well as in 2028. So that gives you the full picture.

In terms of the revenue, we don't decide variable pay based on consensus or otherwise. We decide variable pay based upon what is in our financial resource planning, to what extent there is outperformance, what kind of outperformance is it? Is it purely rate-related versus if it is fee-related. So it's both the quantum of the outperformance on the individual lines as well as the quality of it. And then in line with the market, we review our overall compensation.

Today's next question comes from Alastair Warr at Autonomous.

If I could just return to Wealth for one of them. The view on your new-to-bank accounts does look quite a bit lower in the quarter than certainly the peak months of Q2. We had this NDRC document from China on Friday. It is mostly about ODI that would take the point, but it does seem to mention individual investors having to register investments with provincial governments. So are you comfortable with that document doesn't really change the story a whole lot from May and June, and it's really mostly about ODI?

And then separately, if I could just go back to U.K. deposits. Could you add a little bit of color on what you're expecting any past yardsticks for migration rather than competition for and terming out for U.K. deposits? And should we just be assuming on the competition front, you let the LDR rise a bit and leave some share on the table in deposits?

Thank you, Alastair. So firstly, from a Wealth perspective, you're right, I would look at May and June as more sort of extraordinary months, because we were capturing a lot of the new-to-bank customers because some of the competitors had paused. While they were upgrading their compliance to the guidelines that had come through, we didn't have to. So therefore, we were still open and continuing. Now what has happened is it's almost normalized back to where it was before that uplift. So I think that sort of net new money as well as the customer behaviors coming through, nothing new.

And I would just reiterate, all the guidance we are seeing coming is actually further guidance to continue to comply with existing Chinese regulatory requirements. So that's really the stance with which we would take. We actually welcome that when there is a level playing field and clarity, because we don't want to lower our compliance standards to attract more new customers. So when the market is more level, it works to our benefit.

So from a U.K. deposit perspective, there is no specific guidance. We are in a very strong deposit position in the U.K. Both in the U.K. -- we have the lowest loan-to-deposit ratio in the U.K. because we not only have the good retail business, but also corporate in CIB. So it's the ring-fenced and the non-ring-fenced bank. And we also have a good SME business, which is primarily a liability-driven business. So that proportion of retail in the U.K. and its impact on the overall is nowhere near as material as the shifts that you have seen from a Hong Kong perspective.

Today's next question comes from [ Xinyu Wang ] at China Securities.

I have a question about Wealth. I noticed that there are $38 billion net new money flow in Asia in Q3. What were the key source of this strong net new money growth? And for the future, in the long term, how do you expect wealth management revenue going forward, which means we just forgot some high base influence year-on-year or quarter-on-quarter?

Thank you, [ Xinyu ], for your question. So the net new money which we saw overall of $41 billion and Asia of $38 billion, it included the $14.5 billion from the India FCNR position, but also there was the Australia deposits, which have been reducing. So those were the 2 sort of moving parts there. But overall, we saw net new money across all other geographies in Asia. And that trend, as I mentioned earlier, other than the impact which we have from disposals, where it comes off like in Australia, we do see a very strong position in terms of growth of net new money across the board.

So I would be very comfortable that given this net new money and wealth comes from our customers with whom we do multiple products, this is not just a product-led proposition. So therefore, even in India, we had a lot of wealth which came from existing customers. But of course, we picked new customers through the process with whom we expect to do more. So it's a much more broad-based space.

We will take our next question today from Kendra Yan at CICC.

My first question is about loan growth. Could you please elaborate on the composition of loan growth, especially what portion of it is linked to the AI industry chain? And looking forward, as there is uncertainty regarding the growth of AI-related financing and also other lending demand amid higher market rate, could you please share your perspective on the sustainability of loan growth going forward?

And the second one is about deposit growth. Given intensifying competition, would management consider moderating the pace of deposit gathering? In other words, will future asset growth be constrained by the rising cost of deposits?

Thank you, Kendra. So our loan growth is very broad-based. And our loan growth, for example, overall, like $7 billion quarter-on-quarter came from Hong Kong, mainly retail lending, and that's mortgages. U.K. business, we said year-on-year, there was a 13% growth in commercial. And then we have had CIB growth across Asia. And particularly, we have got very strong growth coming from our trading businesses in terms of operating lending that comes linked to trade.

Our data center lending is very small. We are not a big player at all in the U.S. in terms of data center lending. And also in Asia, this is not a significant part of our growth story. We get growth from a range of areas, innovation banking, infrastructure lending, also sustainability-related lending, and then broad-based growth. So we do not see that any concerns on data centers is going to be a headwind for us, because we are very comfortable operating within the risk appetite we have, and we are not having to shift that risk appetite down.

In terms of more broadly, we are also very encouraged that we've had this growth despite the fact that we had moved also some bits of our business, like, say, the Australia mortgage book into held-for-sale, $33 billion (sic) [ $26 billion ], and then we still have good loan growth. So that just gives you the breadth of our franchise as well as the multiple growth drivers we have.

From a deposit basis, again, it's very broad-based growth. We have had deposit growth trends, which is across retail and commercial coming from Hong Kong. U.K. has been broadly stable, but we start with a very strong loan-to-deposit ratio. In CIB, it has stayed pretty steady. Yes, we saw some reversal of short-term deposits from Q2. And then IWPB, the FCNR deposit growth just shows how deep our franchise is in markets across Asia.

So we do not see that in any way or shape our deposit growth is facing constraints. Yes, they are NII positive overall. The margin may be different as I've already discussed. So our deposit growth trajectory will not be a restraining factor on our lending. Lending has to be within risk appetite and at the right hurdle rate. That's going to be the determining factor.

We will take our last question today from Katherine Lei at JPMorgan.

My question is still regarding deposit growth. I understand that you have talked a lot about this topic. But then my question is if we look at the Hong Kong time deposits, I think now it's closer to the last peak, which is roughly around 39%. However, if you look at Fed fund rate or the rate movement, it is still far from the last peak, right?

So my question is that did we change our strategy in terms of deposit competition? Because in the last round, we gave up some market shares to maintain the deposit cost. So is there a change in strategy, number one?

Number two, do we think that the deposit migration from CASA to time deposit is front-loaded, i.e., if there is a continued rate hike expectation, but do you think that this migration will slow down just from the deposit behavior perspective?

Thank you, Katherine. So firstly, we are very mindful that now that we have invested in Hong Kong with the privatization of Hang Seng, we want to be fully participating with the growth in Hong Kong. So yes, we are growing our deposit base more than we had a few years ago. But on the other side, we have good lending growth starting for the first time in Hong Kong. So that's the difference in context, aligned with a strong trajectory for GDP growth as well as from a credit risk perspective, normalization on Hong Kong commercial real estate side.

So the percentage that you quoted, around 40%, that's just I gave as a context. Now customer behavior does change. I also think that as equity markets and wealth opportunities become more open, some customers may have moved from the longer end of the time deposits to the shorter end, in which case they are not that sensitive to margins, because in Hong Kong, you even have 7-day deposits. And then it's a different mix.

So I would not take a trend as a continuing trend, but there's just general view that when interest rates are higher, there are more time deposits. But depending on other market factors, they can come down as well. And yes, overall, we very much intend to continue to support growth in Hong Kong on both sides of the balance sheet, because it is and will continue to be margin accretive. You can see that even from the very strong number we have printed in terms of return on tangible equity for Hong Kong in this quarter even after the margin compressions.

Thank you, everyone, for joining. That brings us to the end of today's call. You may now disconnect.

Thank you, everyone. Welcome to the European track at the Barclays Global Financial Services Conference in New York. My name is Aman Rakkar. I'm Head of U.K. and Irish Banks. Delighted to be joined this morning by Pam Kaur, HSBC Group CFO. Pam, thank you very much for your time. We really appreciate you making your way over here.

Thank you, Aman. A real pleasure to be here.

Okay. Cool. So let's kick things off. I've got the privilege of speaking to you for the first time after your news last week. So you announced your plan to retire from HSBC after 13 years, including 2 years in the CFO role. Why now?

Thank you, Aman. So firstly, last week, exactly on the 8th of September, I completed 40 years in the industry. And in 2027, I'll be finishing 14 years in HSBC, including 2 years as CFO. And I'm really pleased that the bank is in a very strong position, both financially and strategically. I'm proud of the progress we've made on simplification, on our exits of noncore businesses, but most importantly, embedding the discipline for cost and investment prioritization, and that has delivered performance as well as value.

For me, it seems now the right time to look at other opportunities in leadership roles where I can use the experience that I've gained in these last 40 years and continue to deliver value. But for now, my immediate priority, as always, remains HSBC, both in terms of having an orderly transition with my successor, so what we have built on to position ourselves well for future growth, which I'm very confident about.

And subsequent to that, I will continue as an adviser to our Group CEO, Georges, on key strategic priorities. So beyond that, I have a very open mind, but I am excited. This is not a retirement for new opportunities and fundamentally to continue to make meaningful contributions in whatever role I take and the key driver for that would be to enhance value proposition wherever I go. But just to be clear, no announcement as of now.

So it doesn't sound like you're going to be on the beach after 8 months.

Not at all. I don't think I'm the kind of person who will be on the beach for a very, very long time.

Okay. All right. Well, thanks for addressing that. So if we kind of turn to HSBC, one of the kind of key consistent themes recently has been the richness of the growth opportunity ahead of you, particularly across Asia and particularly your wealth business. How are you thinking about balancing growth investment against returns? And where are you most focused when allocating capital and cost today?

So firstly, we are very pleased that all 4 of our businesses are growing, and they're delivering returns above the minimum targets we set for ourselves in February. We have higher revenue opportunities, but we also have a few cost levers, which we have been successful in pulling both in terms of upgrading what we're getting from simplification, the opportunities of cost redeployment from the exits that have been happening at pace.

Having said all that, in the near term, our focus is much more on Hong Kong and wealth for the opportunities there as well as to continue to accelerate the multiyear programs that we have in place in a range of areas, whether it's on data, AI, whether it's with regard to the SME business in the U.K. or indeed in wholesale transaction banking, in FX, trade, payments and security services.

Now from a capital perspective, I just want to remind everyone, we are fundamentally a relationship bank. So we are there to support our customers and their demands, but it has to be at the right level of return and also win our well-established risk appetite.

I mean, look, you mentioned Hong Kong. Your business there is exceptional. You're delivering profitability of around 45% RoTE in Q2 and strong growth. It's obviously supported by robust cross-border flow, particularly into your wealth business. But at the same time, there's been a lot of focus on China's tightening of outbound investment policies and questions around sustainability of said flows. How do you see the outlook for the Hong Kong franchise? And how concerned should investors be about any meaningful impact around China's tightening?

So firstly, we are very pleased with the Hong Kong business. But just to give you a context, the 45% return on tangible equity is because we do the allocation based upon RWAs. Now Hong Kong is a very rich deposit business for us. And if we did the same tangible equity allocation based upon leverage exposure, then it will still be a very healthy RoTE well into 30% plus. I just want to give you that context. It's not always 45%, but frankly, a mid-30s number on RoTE is also a very healthy number.

Now from a Hong Kong business going forward, we are very encouraged by the continuing momentum we see both for retail and corporate customers in terms of participating in the ecosystem for Hong Kong and Hong Kong's very strong position as the international financial center. And this has been reaffirmed in the most recent 5-year plan updates from the Chinese Mainland. So nothing changes there.

From our own perspective, we are tracking very closely the new-to-bank customers. And through July and August, the number of new-to-bank customers have continued at the same level as the average for H1. And this, to me, is a very encouraging sort of indication, not just both in terms of the macro direction of travel, but also our strong ability to retain our market share in Hong Kong. And overall, in Asia, we are very much the #1 business from a wealth perspective. And in Q2, as we called out, our net new money at $22 billion was -- that increase was annualized at an 8% rate. And I think that was a very good, again, metric to show how our wealth business continues to be strong, not just in Hong Kong, but also pan-Asia.

Okay. So ongoing confidence in Hong Kong and your wealth business. In terms of revenues, you're tracking well ahead of your medium-term growth aspirations. You did 6% in H1, but you're looking or you're guiding for revenues to build to 5% by 2028. As you accelerate investment, how confident are you that revenue growth can continue to outpace expectations from here?

So just to again reiterate, when we set targets, that's the minimum to which we manage the bank. They're certainly not the cap, and we continue to outperform if there are growth opportunities within our risk appetite and the market environment remains conducive. So far, we have seen broad-based momentum in revenue growth even through Q3.

So for next year, I think there are a couple of factors we should consider. This year, a lot of growth has also come from the interest rate trajectory. So we'll see how that flows into next year. But also the revenues were higher than planned at the end of H1. And if that continues into H2, the kind of jump-off point for the next year is going to be higher. So you'll have to look at what the growth rate is on a higher base, which is obviously more challenging as opposed to from a lower base.

And the second point to remember is we have continued to accelerate our exits from various businesses. That absolutely has an impact on revenue short term because the cost that we release from there, we are not redeploying into new areas. We're just using it to redeploy into existing programs and to accelerate them. But nevertheless, there's a bit of a time lag. So it's not really going to work exactly quarter-on-quarter and so on.

Yes. I mean on the business exits you mentioned, so you've announced 15 exits since the start of 2025. Can you help us think about the impact of this on the group's P&L?

So just as a context, for the businesses we have exited, the impact on cost is $1.1 billion and the equivalent cost on revenue is around $2 billion. This year, the impact on that revenue is about 1/3 of the $2 billion. And by the end of next year, it will be up to 3/4 of the full $2 billion.

This year, the impact is spread a bit between fees and banking NII. In '27 and '28, it's going to be much more from a banking NII perspective, just given some of the announcements we've done on Egypt retail, Australia, et cetera. So I think that's how we need to factor in. And again, we will continue to redeploy those costs. We've already started doing it into investments in our core business areas, but the revenue impact, there will be a bit of a lag impact, and that impacts the growth, obviously.

Just more broadly on costs, there's actually quite a lot going on, particularly after your H1 update. You've upgraded your simplification saves program. You're now looking for $2 billion from $1.5 billion previously and are exiting businesses at pace. You're also accelerating investments to drive growth. So how should we think about the evolution of the cost base from here? And is there scope for additional operating leverage in your business?

I mean, so firstly, we don't track operating leverage as any specific metric or report to you on that. But of course, we look at revenue and cost investment for each of our individual businesses very closely. And I'm very pleased to say that our cost/income ratio at this point of time is at the lowest it has ever been. So with that, we are looking at a number of factors.

For this year, we have our targets on costs. And of course, we will manage to those targets. What we did call out at half year is if revenue continues to outperform at a level above the plan that we had set out at the beginning of the year, then in January, we will consider if there is a need for an uplift on VP. So that will have some impact on that cost base. And of course, that will be the jump-off point for the future year.

I mean when it comes to the following years, I mean, what we need to consider is, yes, there are those tailwinds from upgraded simplification costs. There's also the tailwind, which comes from a redeployment, albeit some timing lags on the exits that we are doing. But most importantly, we do not want to give up on revenue opportunities. And then the baseline, of course, is inflation. So if you look at inflation this year, looking for next year, gross inflation rates was around 3% that as a starting point.

And then if there are areas where we see those growth opportunities, we will consider to add a little bit more on the cost base, and that's the guidance we've been going and giving through. And over time, I do believe the rigor that we have on run the bank and the programs we have in place will give us enough latitude to be able to continue to invest more and stay within that envelope of sort of the 3% to 4% range.

Perfect. I think I'm actually going to turn to the audience. Please, you've got these black remotes on your desk. If you please would participate. We've got 3 quick ARS questions that I think we'll rattle through at pace. Please do respond to how do you think about HSBC share price performance over the next 12 months relative to the SX7P?

I'm really pleased that you are having this confidence in what we have done so far and being conservative. We always tend to outperform, and that's what I'll be focused on full on as I serve in my role as CFO and beyond for the company. So thank you very much for that.

Second question, how do you think about the main earnings growth drivers for the bank from here? NII and fees.

Again, really pleased. Banking NII is literally our crown jewel, but we are absolutely focused on having greater rate of growth in our fee business in terms of the overall contribution to our revenues and bottom line. So we will stay in line and perhaps even outperform.

Question 3, how do you prefer the bank deploys excess capital?

Okay. More organic growth. It seems like people have been listening to the kind of message that you and Georges have been putting out in recent months. I guess, look, turning to capital, capital is a position of strength. Capital generation is strong. You did 100 basis points in Q2. How should we think about your capital allocation hierarchy from here? And in particular, the sustainability of buybacks within that, particularly as growth -- the growth opportunity evolves from here?

So firstly, thank you for listening to our messages. We've been clear in our communication. Our deployment of capital stack, given the starting point, which is very healthy of 100 basis points per quarter, starts with a 50% dividend payout ratio. So there is absolutely sacrosanct first priority.

The next priority is to drive organic growth, exactly as you've called out in terms of business growth. But beyond that, I just want to reiterate, irrespective of where the share price is, share buybacks will remain as the preferred distribution method for excess capital. So that, to me, is really clear.

Now we have seen continuing strong growth in our organic businesses through this quarter. And let's see how the quarter ends. And we are putting our capital at work to get those good returns within our risk appetite because that's really important for the long-term sustainable growth for this organization.

I do want to reiterate that we are now more hedged and therefore, less interest rate sensitive. And one of the tools we use is HTCNS. And given what has happened to bond yield curves recently, this will have an impact of around mid-teens basis points on capital so just to call it out. We are comfortable with that because it's a timing factor. And given where we are on banking NII and how we have hedged this will come back very quickly, but of course these fluctuations do have some impact on the total quantum of share buyback.

Happy to open the floor for questions. Please don't be shy if you have anything to ask.

Okay. Cool. We'll continue with the focus on the businesses. I mean turning to the businesses that you're growing. You've highlighted strength on the trade side in the second quarter. Is there any kind of geographical or sector theme to this growth? Or is it more broad-based?

So I think, firstly, given the specialization we have in trade, our 5,000 trade specialists, our continuing engagement with our customers since last year is really showing how our trade business is not only #1, but our market share is growing across the globe.

But the key driver for growth is Asia. And that is the support we are giving to the major economies in Asia as their year-on-year export levels have grown. So just to quote a few numbers. China year-on-year export is up by 19%. Hong Kong is 39%. Korea is 51% and Taiwan is 45%.

Also, given the macro environment, there is a much greater demand in terms of trade-based lending. And those trade loans are up 30% year-on-year, and they're up to $120 billion. This is both in terms of how customers are adjusting their own supply chains, but also a desire to have more sort of short-term lending as well and more commercially linked.

As a result, the trading revenues that we have recorded have been up 13% year-on-year, and they were $0.8 billion in Q2. So for me, a business which is really a strong suit for HSBC. It's relatively a smaller part of the wholesale transaction banking fees, but this is a very important trend for us to reflect upon and to continue to maintain and invest so that we can not only stay in the #1 position as the world's trade bank, but actually even from that position, increase our market share.

Switching to the U.K., your second home market often receives a lot less attention from investors than some of your Asian businesses. But actually, performance has been remarkably strong, particularly within the commercial and corporate banking lending line. It's a key driver of loan growth at the group level. You've got a new CEO, a divisional CEO in place and an investor update coming soon. I'm interested how you think about the role of the U.K. within HSBC's broader growth agenda.

So U.K. is a very open market. And within that, we are the third largest bank in terms of revenue and deposit balances. Our sweet spot, again, is to be the #1 from a U.K. trade perspective. And that, along with our domestic presence, gives us a very important role both to support the U.K. economy through the ring-fenced bank, but more broadly also through the non-ring-fenced banks. I'm going to look at the U.K. overall as a geography and the role we play in the trade agreements, which the U.K. government has signed where we are important on both sides of those agreements, whether it's with India, whether it's with China and so on. So that is very encouraging.

But if I just look from a U.K. business, i.e., the ring-fenced bank perspective, you're right, the RoTE for that business is at 21%. We are very pleased that the revenues have grown by 5%. Lending U.K. has been absolutely stellar at a 7% growth. Deposits are at 4%. We haven't had to overpay for the deposits. Pricing is very competitive. So given all that, I'm very pleased with what's happened with that business. And our investment in this business, again, is prioritizing those areas of strength for us in terms of the SME business banking and trade and international business for the U.K.

Now David Lindberg is our new CEO. He's looking at all of this as well as looking at from the retail bank, how we do more investment in technology, in customer journeys, and that will continue to drive further growth in the U.K. And he will be coming up with our U.K. CFO in November to again talk to investors more broadly on the U.K. business. So I don't want anybody to in any way, forget the U.K. It's just we've got 4 very strong businesses to talk about. And from time to time, the growth rate and in those opportunities, they may vary across those businesses, and we run a very hard rule in terms of how we prioritize investments. But the good thing is they're all on a positive trajectory. So it does make choices hard sometimes, but it's a good way to progress.

I guess staying on the U.K., the U.K. government is keen to improve the competitiveness of financial services. How important is the kind of regulatory and tax framework in determining HSBC's willingness to invest and grow in the U.K.?

So tax is always something for the government, the authorities to decide and it changes from time to time. We are a big major contributor to the taxes. Last year, we paid $1 billion, if you look at both U.K. corporation tax as well as the 3% surcharge and the banking levy. So we will continue to play our role in that.

From a regulatory perspective, of course, different jurisdictions are on different trajectories with regard to how they're reviewing regulation. From my perspective, some of the dialogue we've had with regard to the FEC's desire to open the U.K. economy for growth, they have been very important fruitful dialogues as well as some of the responses we've got on the changing on the ring-fenced bank rules to give greater flexibility. I think that's been highly appreciated. We have looked at the most recent, obviously, changes from a leverage perspective. And on leverage requirements at an operating entity level, it is beneficial for us. It gives us an ability to be more flexible in how we deploy our balance sheet and how we look at business strategy across those balance sheets.

However, from a group perspective, these leverage requirements are not beneficial. They are marginally detrimental, and we continue the dialogue to work through and support the business in the U.K.

Most importantly, we have identified key sectors in the U.K. economy, whether it's to do with infrastructure, whether it's to do with innovation, pharma, bio life sciences. And in those areas, we have this active dialogue with the government to say how we can lean in more and obviously, how we can support our customers through that process and then the trade agreements is the other piece, which I mentioned. So more to do. Some of the requirements that have come in have been partially beneficial to us and in some cases, not as much for some peer banks.

Hang Seng, you've now taken full ownership of it. How is the integration progressing? And what opportunities does full ownership create that weren't previously available to you? And I guess if I can ask, is there any scope in your mind around exceeding some of the kind of value creation of that?

So the sort of bottom line on the value creation from Hang Seng, the $900 million that sort of $0.9 billion, which we've called out before. But I'm going to just give you a bit of a context. Now Hang Seng Bank last year, pre-tax -- pre-ECL, sorry, was $3.4 billion profit. That is after an ECL charge of $1 billion. In normal times before China commercial real estate and Hong Kong commercial real estate issues, the ECL charge for Hang Seng Bank used to be $100 million to $400 million a year. So I do believe as Hong Kong commercial real estate has stabilized, the opportunity for bottom line growth for Hang Seng will be quite considerable. That will be over and above the $900 million I've mentioned.

Very specifically, in terms of how things have improved, we have already seen that the new-to-bank customer flow in Q2 in Hang Seng has doubled. We are also now co-creating in terms of products as well as use of technology apps and customer journeys so that Hang Seng Bank can equally participate with the growth that's coming from the Chinese Mainland and more broadly in the ecosystem from a wholesale perspective.

Now if I sit back a bit, some of the things we have done, whether in terms of how we are looking at portfolios across both Hang Seng and HSBC, we have created that capacity within Hang Seng where the NPLs are lower. There is more room in the balance sheet to diversify lending beyond commercial real estate. And because we were always looking at compliance and risk requirements at the same level of rigor and robustness for Hang Seng and HSBC, there has been no negative surprise. The market, everybody was asking us. It's just proven, it's just business as usual because we use the same yardstick on both.

So given all that, I'm very positive that beyond the benefits, which are running well on track, both in terms of the cost synergies and the revenue synergies, the real points of reference in terms of where we are seeing actual growth today and the capacity we are creating for additional lending as well as flexibility of capital upstreaming, that is all very positive and actually is ahead of trajectory. We have done some of it, and there'll be more to do in very short order.

Yes. I guess you kind of referenced it. There's been a number of high-profile credit events this year across the industry. Although actually some of that appears to be somewhat idiosyncratic rather than something more systemic. But how would you characterize the underlying credit environment today? And specifically, could you also comment on the fallout of the Middle East? And I guess you referenced commercial real estate.

Thank you, Aman. Really good question because I really do believe not just for HSBC, but for the financial services sector overall and the industry, credit will be something to be really closely monitored, both for the rest of this year and next year.

Now when I look at credit overall from an HSBC perspective, I'm going to unbundle it in sort of 3 areas. So the first area for me is to say our own guidance. Our guidance, there's been an uptick, as you know, but it's been driven by 2 factors: one, idiosyncratic fraud-related loss in the first quarter, but also with regard to the reserve we've built for the Middle East. We have done a lot of work in terms of managing concentration risk, not just from a fraud and that particular private credit asset class, but also across various sectors. So I feel very comfortable in that space.

And in terms of the Middle East, the actual losses we've seen directly related to the Middle East are very low so far, $34 million, as we called out in the middle of the year. There's been no big surprises there. However, the $300 million reserve that we built, given that the conflict continues, we will be more cautious in terms of the timing of the release of that reserve. Obviously, as the conflict persists, there are some broader macro things to consider because with higher inflation, higher interest rates, what we are seeing is that in pockets across the globe, U.K., Hong Kong and the rest, Stage 3 losses, small size because it's typically at the lower end of the mid-market, where we keep our exposure quite tight, they have increased, and that trend will continue.

From a retail perspective, I feel very comfortable because we have derisked Mexico retail and the losses there are much lower and it's more of a premium end book. Similarly for the rest of the world because our exposures are more at the premium affluent end, we feel very comfortable. And on credit cards, we are relatively a smaller player. But I do feel that as inflation, high interest rate comes, that's something at an industry level, we need to be very watchful of.

Now very specifically, coming down to Hong Kong commercial real estate, what we are seeing is not really many what I would call new impairments. There is a bit of a time lag where on existing impairments, there's a slight uptick in terms of valuations, so you can build some of your total reserves and ECLs as a consequence. But overall, what is very encouraging is that residential sector is really in a very good spot. There has been an 18% increase in valuations year-on-year, if I compare August '25 with August '26.

There is also a lot of, what I would say, economic momentum in Hong Kong, not just from Chinese Mainland, but also in terms of Hong Kong as an international financial center and the support from financial services growth, new IPOs and so on. So we see retail activity has also picked up. And there has been 15 months consecutively of growth in retail spending. And that is really important because from a retail sales perspective, the overall quantum of retail sales is also up 9% if I compare year-on-year July '25 with July '26. Now having said that, will there be pockets of retail exposure where, as I said, there could be some additional ECLs or impairments? Yes, but very contained.

The last is really talking about the office space. Now office space in core central areas, the demand has really picked up. We're seeing that both in terms of price valuations, but also rentals. And that's coming up a lot from financial services. And that segment of the office sector is normalizing. However, there remains what I would call areas in the office sector, which are beyond the core central area where due to excess in supply, there is still some pressure. So when we look at our guidance, we factor in this residual Hong Kong commercial real estate risk as part of that guidance. And I think that will continue for most of this year and through next year. But obviously, it's gradually reducing over time as it gets to BAU.

Perfect. Deposit competition, you've got an amazing deposit franchise. It's a key driver of your franchise value, but deposit competition is a theme that's coming up across the sector. What are you seeing across your footprint?

So if I look at really the deposit dynamics, from a U.K. and Hong Kong perspective, we have a very strong position. I mean overall in our $1.8 trillion of deposits, 70%, so $1.3 trillion are instant access demand deposits. And those really represent the operating accounts of our customers, and they are typically very sticky and high quality. So we haven't really had to pay more for our deposits.

Having said that, we are very mindful of the competition. We have surplus customer deposits in every of our 4 businesses across all jurisdictions and geographies. So from my perspective, it's an area to be mindful because there will be heavy competitive pressure, particularly where there are players who don't have the similar advantage as our deposit franchise. So we will manage it very, very carefully. But for now, we feel we have sufficient room in terms of the loan growth trajectory, which is sitting quite well, particularly in our home markets to continue.

I just want to add one point. The growth we are seeing in our home markets is a continuing story, both for U.K. and Hong Kong. The reason it's up picked so much for Hong Kong is that in the past, and I've always called it out, we always had growth in lending at a gross level. But we saw a lot of early repayments, particularly in the unsecured portfolio, which was conglomerate-based developers who had enough cash flow and were derisking. Now that the market is stabilizing, we are not seeing that. So the growth in our lending is coming straight to the bottom line, and it's in line with what I thought and talked about probably about 5 or 6 quarters ago.

Perfect. Happy to try the room again if anyone has got any burning questions for Pam. Okay. Perfect. Well, look, we're exactly 2 minutes.

You can ask another question. Happy.

I will ask you questions. I'd love to ask you about banking NII. Of course, I was remiss that we'd have a 40-minute discussion and not talk about the dominant driver of revenues. But obviously, the curve has repriced. You upgraded your guidance for greater than $46 billion. Just kind of interested in how we should think about that what's going on right now.

So with the interest rate curves, clearly, from a banking NII overall and the growth you're seeing in lending, which is new and the growth on deposits, which is continuing. So that gives you both the volume and the margin impact. So that's all very positive. HIBOR is at 2.91% as of the close of day today in Hong Kong. So that's all very positive.

I do want to remind you of 2 things in banking NII. So firstly, given some of the sales we are doing of our noncore businesses in '27, '28, there will be more impact on banking NII. So there would be a headwind because of that.

Secondly, we are now more hedged against interest rate sensitivity, which is the great thing from a medium to longer term. However, in the short term, as you've seen in the recent quarters and given that we have HTCS exposures as well and the bond yield curves, if they continue to be choppy the way they have been, there is a direct impact overall on our capital. So I think you need to look at all of these things in the round. Overall, yes, more positive than negative given where we are, but there are headwinds as well.

And then last but not least, you have to always see that yes, banking NII is important, but for the health and sustainable growth of our franchise, fee income really matters. And I'm so pleased everybody is recognizing that, that's the area where we want to have that alpha growth as well as accelerated investment. So overall, well positioned for growth, and I'm really pleased, given my own announcement that I'm able to say with great confidence that the trajectory for the organization on what we have built, both revenue and profitability terms is very strong, robust and sustainable.

Thank you so much. We're exactly on time. That's perfect. Thank you very much, everyone, for your attendance, and thank you very much, Pam.

Thank you.

Welcome to the Analyst and Investor Presentation for HSBC Holdings plc's 2026 Interim Results. This webinar is being recorded.

I will now hand over to Georges Elhedery, Group CEO.

Welcome all to today's call. I'm joined by Pam, who will take you through the second quarter performance in detail in a moment. I'll cover three items. One, our second quarter highlights and the first half performance; two, the progress we're making on strategy execution; and three, our targets for 2026, '27 and '28.

Let's turn straight to performance. My comments here will exclude multiple items and the comparisons will be year-on-year on a constant currency basis. Momentum accelerated into the second quarter. We grew revenues by 7% to USD 19 billion. We generated profit before tax of USD 10.3 billion, up 13% year-on-year and we delivered an annualized return on tangible equity for the quarter of 19.5%. We grew our deposit franchise by USD 46 billion and grew our loans by USD 20 billion.

Next, the half year performance highlights. We grew both group revenues and group profits before tax by 6%, with an annualized return on tangible equity of 19.1%. Year-on-year, we grew our deposit franchise by USD 129 billion or 8% including held-for-sale balances. Our deposit base stands at USD 1.8 trillion. We grew loans USD 55 billion or 6% year-on-year on the same basis. We see improved demand in Hong Kong and consistent strong growth in the U.K.

We grew fee and other income in wholesale transaction banking by 4%. As the world's trade bank, this shows the central role we are playing and the growing market share we are taking as our customers adapt to new patterns of trade. In Wealth, we grew fee and other income by 18%, delivering particularly good growth in our market-leading Asia franchise. We are distributing to our shareholders with another $0.10 quarterly interim dividend per share, $0.20 for the first half. And we are restarting share buybacks -- would be -- up to USD 1 billion we announced today, three quarters after pausing them following the announcement of the Hang Seng Bank privatization.

We continue to progress at pace and with discipline with our strategy execution. Each of our four businesses is growing, each generated an annualized return on tangible equity in excess of 17%, and each is building on a strong foundation for future growth. Our four leading and highly connected businesses bring scale benefits to our unique growth proposition. We continue to focus on three clear strategic priorities, and we are moving at pace with each; one, be simple and agile; two, drive customer centricity and three, deliver focused sustainable growth.

First, to strategic priority #1. To unlock HSBC's full potential, we have been reengineering to become simple and agile. To do this, we have focused on five areas. First, organizational structure that's done. We're now focused on embedding greater business collaboration.

Second, leadership. That's also done. We're now focused on embedding a common enterprise leadership culture to drive a bank-wide high-performance culture. Third, organizational simplification saves. We are today revising upwards our total target savings to USD 2 billion. We originally set out to deliver USD 1.5 billion of annualized saves. We have now exceeded this target, reaching USD 1.7 billion of action saves. We have achieved this with associated restructuring costs of USD 1.4 billion lower than originally expected. We're now planning to use the full USD 1.8 billion of restructuring costs as per our initial commitment to increase total organizational simplification saves to USD 2 billion to be actioned before the end of the year. The additional saves will provide capacity to support further business growth.

Fourth, cost reallocation from nonstrategic or low-returning businesses. We have now announced 15 business or market exits since 2025. Most recently, the sale of our Singapore Insurance business, the exit of our Australia Retail business and the sale of our Retail Banking business in Egypt. These disposals provide investment capacity to drive franchise growth in our areas of strategic focus. This is where we have a leadership position and can deliver better returns. Clearly, completion of announced disposals and related actions remain subject to relevant regulatory and other approvals. In 2026, we plan to have reallocated USD 0.3 billion of this USD 1.5 billion. Fifth, streamlining and upgrading our operating model. This is where we are simplifying the bank at scale. It will be a multiyear journey comprised of two sets of initiatives. The first one, demise of nonstrategic infrastructure; and the second one, process reengineering.

In the first half, we demised another 20% of the total nonstrategic application reduction plan we set to deliver between 2025 and '28. We have now demised a total of circa 50% of the apps we plan to demise by 2028. On process reengineering, we continue to work on around 50 processes and procedures to achieve substantial simplification. This is where we are putting our AI to work to simplify, strengthen and accelerate the bank, empower our colleagues and personalize our service to customers. We are investing in the talent, training and technology to deliver it.

Now to strategic priorities, #2 and 3. I will talk to these through the lens of our four connected franchises. For each of these franchises, you will clearly see: one, our leadership position in those areas of strategic focus; two, the growth delivered in the half year; and three, the strong client recognition. Our Hong Kong home market is a dynamic economy, a top 3 global financial center and a thriving trade gateway. It is the super connector between the Chinese Mainland and the world and has just become the world's leading cross-border wealth hub. Our deposit base is almost twice the size of the second largest peer.

The privatization of Hang Seng Bank represents a unique opportunity in a growing market. It enables us to scale capabilities and drive growth across both banks. We can already see the benefits, both financial and operational. For instance, Hang Seng Bank nearly doubled its new customer acquisition quarter-on-quarter to around 60,000 customers after adopting HSBC's digital onboarding capabilities.

In the first half, we grew our Wealth balances in Hong Kong by 10% year-on-year, reaching USD 0.5 trillion. We continue to attract high volumes of new-to-bank customers. 640,000 Personal Banking customers and 24,000 Business Banking customers. And we continue investing to strengthen our market share.

Next, the U.K. Taking our full footprint in the U.K., we are the U.K.'s leading international bank. We delivered strong lending growth of USD 10 billion in Commercial Banking, an increase of 10% and USD 10 billion in Mortgages, an increase of 5%. We continued to grow deposits, and we grew our customer base year-on-year with active Premier customers up 7%. New to bank customers in Business Banking were up 48%. The U.K. is a key contributor to our global loan growth, and we are pleased to be supporting the U.K.'s growth as the U.K.'s leading international bank.

Next, our Wealth franchise. We are Asia's #1 wealth manager with USD 1.1 trillion of Wealth balances. This deeply rooted full-service franchise is performing strongly. Revenue generated globally from wealth relationships account for around 1/4 of our group revenues. In the first half, we generated global net new money of USD 64 billion. In Asia, we generated net new money of USD 57 billion, representing 32% growth year-on-year. We saw continued momentum in Wealth fee and other income growth for the half year, increasing 18% to USD 5.5 billion. Our unique position in Wealth Management across the client continuum from Premier affluent to Private Banking, combined with an acceleration of our investments will help us capture an even bigger share of the structural growth opportunity.

Next, our Corporate & Institutional Banking franchise. We generate 85% of our client revenue from multi-jurisdictional clients. And within this, cross-border client revenue has increased 15% year-on-year. We are a leading globally connected wholesale transaction bank. 65% of cross-border client revenue or client revenue booked outside the client's home market, is from clients headquartered in the U.K., Europe and the Americas. This proportion is stable year-on-year and shows the importance of these regions to our overall network and the resilience of these flows. Chinese Mainland clients contribute 10% of this multi-jurisdictional client revenue, with 75% of those revenues booked cross-border.

As more Chinese businesses go global, we expect the structural secular trend to continue over the medium term, and become a key growth driver for CIB. Clients increased their deposits with us by 16% year-on-year. This growth is broadly geographically spread demonstrating the value of this franchise, which is built on deep client trust in our balance sheet, the power of our network and our capabilities and expertise. We grew Wholesale Transaction banking, fee and other income by 4% with trade up 7%, reflecting resilient client trade flows. CIB is performing well, and its first half annualized royalty was over 18%.

Finally, let's turn to our targets. Our first half performance demonstrates continued progress against our targets. It gives us the confidence to reiterate each of them, including growing our revenues year-on-year rising to 5% by 2028. And delivering 17% or better return on tangible equity for each of the three years. We are creating a simple, agile, growing bank built to generate high returns. A bank capable of achieving more. We are executing our strategy with discipline, precision and pace. We are investing for growth and we are confident we can navigate uncertainty from a position of strength.

We have begun this next phase with a clear strategy, performing businesses, focused investment and an international network that remains difficult to replicate. We are creating the capacity to continue investing for growth, including in talent, technology and AI. HSBC is becoming the bank we set out to build, and we are now putting more of its strength to work. By doing so, we will unlock more of HSBC's full potential.

Let me now hand over to Pam. Thank you.

Thank you, Georges. Thank you, everyone, for joining. As George said, I will focus on the second quarter performance. My comments will exclude notable items which adversely impacted profits by USD 0.2 billion this quarter. These are set out on Slide 30. The comparisons I will make will be year-on-year on a constant currency basis.

Let's turn straight to the highlights. We can see the momentum building across the bank. Revenue grew 7% to USD 19 billion, growth accelerated from the first quarter. This was driven by Banking NII from both deposits and loans, strong growth in Wealth fee and Other income and stronger Wholesale Transaction Banking. Each of our revenue drivers was stronger than in the first quarter. Profits before tax rose 13% to USD 10.3 billion. Annualized return on tangible equity for the quarter was 19.5%, giving us 19.1% for the first half.

Our CET1 grew to 14.1%, up 10 basis points on the first quarter after supporting USD 20 billion of loan growth. We are pleased to reinstate buybacks with up to USD 1 billion announced today. We continue to target a dividend payout ratio for 2026 of 50% of earnings per ordinary share, excluding material notable items and related impacts.

Turning to our business segment performance. All four of our businesses grew revenues, each delivered annualized return on tangible equity of more than our group target of at least 17% and excluding notable items. In fact, they are all above 18% return on tangible equity. This broad-based performance shows our strategy is working.

Let's now turn to Banking NII. Banking NII increased USD 0.8 billion year-on-year to USD 11.6 billion. Quarter-on-quarter growth was USD 0.4 billion, including USD 0.1 billion in prior quarter one-off items. This reflects really good deposit and loan growth. We are upgrading our full year banking NII guidance to at least USD 46 billion. This reflects growing both sides of the balance sheet and the continued favorable interest rate outlook.

Next, Wholesale Transaction Banking. Trade business delivered this quarter with balances up 29% year-on-year. Trade is at the heart of HSBC, and we are seeing the trust our customers place in us to help them navigate and invest. For Wholesale Transaction Banking as a whole, we grew fee and Other income, 7% year-on-year, up from 2% year-on-year in the first quarter. Our income streams accelerated in the second quarter.

Security Services grew 16% as we win new mandates and grow volumes. Trade grew 7%. Payments grew 6%, driven by growth in volumes across most regions. And FX returned to growth, up 5% driven by robust client activity.

Let's now turn to Wealth. We grew Fee and Other income by 21% to USD 2.8 billion. Growth was driven by all four income streams. Investment distribution, up 26% on higher mutual fund and structured product sales. Insurance, up 21% from an already strong base on higher CSM release as shown on Slide 35.

Private Banking, up 22% on increased client trading activities and recurring fees. And Asset Management, up 7% on continued AUM growth. Slide 33 shows net new money in the second quarter was USD 25 billion, of which USD 22 billion came from Asia. And you will see on Slide 31 that there has been no slowdown in our Hong Kong new to bank nonresident customer acquisition in recent months. This slide also shows that while new to bank customers initially bring relatively low balances, these grow significantly as the relationship matures.

Next, to Credit. Our second quarter ECL charge was USD 1.1 billion, equivalent to an annualized charge of 41 basis points as a percentage of loans and advances. We reiterate our full year credit guidance of around 45 basis points. This quarter includes additional Stage 3 charges, of which USD 0.2 billion relates to Hong Kong commercial real estate.

Slide 39, which you have seen before, sets out our exposures. Hong Kong residential prices have firmed. The prime market for office has improved, but we still see some areas of pressure in office and retail. Outside of Hong Kong, we have seen small pockets of mid-market credit pressure in the U.K. and across Asia. There is no clear pattern, but we are watching it closely in the light of elevated energy prices and interest rates.

Let's now turn to costs. Cost growth this quarter is 1% year-on-year. Our disciplined approach to cost management keeps us on track to achieve 1% cost growth in 2026 compared to 2025 on a target basis. You see on the left, the 5% inflation, investment and other is offset by 3% of simplification savings in the first half as a whole. Short, Strong business performance continue. We may consider additional performance-related pay, which would increase 2026 costs modestly.

As George said, we have revised upwards our targeted organizational simplification saves to USD 2 billion. Slide 27 shows our simplification saves progress since the program started and its updated trajectory. What I will add is that should strong business growth continue, we will accelerate initiatives to support future growth, which would increase costs. This reflects the confidence we have in the opportunities ahead of us. The costs will be partially offset by the benefits of the higher organizational simplification saves I just mentioned, which we will action by the end of this year.

As George said, we have now announced business or market exits since 2025. Slide 28 sets out our progress clearly. Next, to customer deposits and loans. Our deposit franchise increased by USD 46 billion in the quarter. This elevated growth to 8% year-on-year. CIB deposits increased USD 42 billion in the quarter. We saw momentum in GPS, new security services mandates and large corporate inflows in Hong Kong.

I will highlight that about half of the CIB deposit growth in the quarter was large and short term. These balances come and go. Our Hong Kong business grew deposits by USD 9 billion and the U.K. by USD 3 billion, reflecting commercial and retail inflows. You see a USD 7 billion outflow. In IWPB, there is a move of balances to held for sale, and we saw private bank deposits flow into investments. At quarter 1, we gave you the split between instant access and fixed-term deposits. Today, on Slide 38, we are giving you an additional disclosure of the split between Retail and Wholesale Deposits. This shows the strength and breadth of our deposit base, in particular, the wholesale instant access deposits that are a source of franchise strength.

Turning to loans. Growth was USD 20 billion in the quarter. In the U.K., we delivered another quarter of good growth. This was in both Commercial Lending and Mortgages. We see good momentum in our domestic portfolio and are pleased to help drive U.K. growth. Hong Kong continued to demonstrate encouraging momentum as the economy grows. CIB was led by that trade momentum I previously discussed. That is in Hong Kong, across Asia and in the U.K. And in IWPB, it primarily reflects Private Bank lending in Singapore and Hong Kong.

Now turning to capital. Our 100 basis points of capital generation from regulatory profits is up, both quarter-on-quarter and year-on-year this quarter, franchise balance sheet growth across the bank consumed 30 basis points of capital. This supports future income. We accrued 50 basis points in dividends and our 14.1% endpoint enables us to announce and up to USD 1 billion buyback. I will emphasize that buyback decisions will be taken quarterly, subject to our normal buyback considerations.

Finally, targets and guidance. We reiterate the targets we set out at the full year, revenue rising to 5% year-on-year growth by 2028, excluding notable items. Return on tangible equity of 17% or better, excluding notable items each year. Dividends 50% of earnings per share, excluding material notable items and related impacts. These targets are how we run the bank. We are always pleased to exceed them in any given year should circumstances be supportive.

Second, guidance. Today, we are updating our Banking NII to at least USD 46 billion, and we are raising our targeted organizational simplification saves to USD 2 billion to be actioned this year. To conclude, the intent with which we are executing our strategy is reflected in the strong growth and momentum in the second quarter. It shows discipline, performance and delivery. Discipline in the way we are applying strong cost control and investing to deliver focused, sustainable growth.

We are on track to achieve our target of around 1% cost growth in 2026 compared to 2025 on a target basis. And we are reallocating costs from nonstrategic or low-returning businesses towards growth opportunities while upgrading our operating model. Performance in our earnings, all four of our businesses grew revenues and each delivered annualized return on tangible equity in excess of group target of at least 17%, excluding notable items and delivery. Our second quarter results show momentum in creating a simple, more agile, growing HSBC.

With that, we are happy to take your questions.

[Operator Instructions] Our first question today comes from Guy Stebbings at BNP Paribas.

So a couple of questions really around growth. It does sound like part of the message today is that there's more opportunities out there to deploy capital into the business. So now it's more of a priority, perhaps over buybacks from here. So two questions sort of falling off that. What sort of metrics are you looking at when making that decision? Presumably there's a demand point here, but also a spread point. So perhaps you could talk about where you're seeing good opportunities on both the volume and spreads right now and attached to that, when it comes to capital generated from upcoming sales, should we again think about the priority being deployment back into the business rather than buy back?

And then on net interest income, I mean, clearly, it's been a good huge print you've got hedge support in the second half. And then again, there seem more upbeat message on volume dynamics. I'm struggling a little bit with the guidance for the second half of the year if we're expecting that to work through. What is it that means that we don't see growth in the second half versus that Q2 run rate?

Okay. Thank you, Guy, for your two questions. I'm going to take your first question on growth and ask Pam to comment on the Banking NII for the second half of the year. So first, with the focus of our business on these areas where we are a market leader where we can drive underlying growth and where we can generate high returns. We are seeing now growth in all those areas of focus across all four businesses.

We're also actually driving those from a position of material strength. I mean we are the leading Asia wealth manager. We are the world's trade bank. We are -- we serve Hong Kong across two iconic brands, and we, of course, have a very important role in the U.K. as a home market as the U.K.'s leading international bank. So therefore, it does become very important that we continue supporting these leadership positions with the underlying structural growth opportunities in order to continue taking market share and serve our clients with the strength.

Now with regards to loans specifically, one thing to reassure you about is that we will only grow at the right returns and within our risk appetite. That is paramount in the way we drive our growth. And that means meeting our targets or exceeding our targets. We're very pleased to see growth in the U.K. Commercial has grown 10% with USD 10 billion -- additional USD 10 billion additional loans. But we're also very pleased to see finally Hong Kong resume loan growth after many quarters of contraction or flat. So this is very encouraging for the future.

And then lastly, Guy, on that. Again, our priority in the way we use our capital generation 100 basis points, first is to deliver the 50 basis points accrual for our dividend. That's to meet our 50% dividend payout ratio on our earnings adjusted for material notable items. The second priority use of our capital is to support business organic growth. This is how we can generate the highest value for our shareholders when we do it, of course, within risk appetite and at the right returns. And then the leftover excess capital preferred mechanism to distribute it is through share buybacks, and we're very pleased this quarter to announce a $1 billion share buyback after pausing it for 3 quarters, rebuilding capital from the Hang Seng Bank privatization.

Pam?

Thanks, Guy. So you're absolutely right. The banking NII environment is benign. And our own update on the guidance of at least $46 billion, reflects a good outlook for our balance sheet, both from a deposit and a loan side, which had an uptick in the second quarter and a supportive rate environment, which will give us a modest benefit for the rest of the year. We also have the benefit coming from the reinvestment of $50 billion of maturing structural hedge assets, which are currently yielding 2.8% in the second half of the year. But as always, in any guidance, we take into account a range of plausible outcomes when setting out the guidance.

So there's a certain buffer in it, and that includes consideration of volatility, particularly in HIBOR. You've seen some of that recently. As well as FX rates. And as you can imagine, if sterling is weaker. That has an impact for us for on a dollar-based Banking NII. So, all in all, really comfortable with the guidance update, and I would just stress on at least $46 billion. And of course, mathematically, you're quite right with the run rate, you could pretty much get a larger number.

Our next question today comes from Kian Abouhossein at JPMorgan.

Okay. We'll move on to our next question and that comes from Alastair Warr at Autonomous.

Two questions on costs, if I may. First, quite simple. If you could just give a little bit more color on where the additional simplification saves are coming from, what's changed there? And then a second question, just looking a bit further out, really. You've talked about the revenue in the medium term, moving up towards 5% growth. We've got a little bit more nuance today on variable costs. There are jaws built into consensus 2, 3 years. I just wondered if you could talk about the potential trend for reported cost growth, just bearing in mind that moving on to 5% on the revenue side in the next couple of years.

Okay. Thank you, Alastair, I'm going to take your first question around the additional saves and just give you some high level on variable costs, which then Pam can talk to with more color. So additions. So we're very pleased to have upgraded our simplification saves from $1.5 billion to $2 billion to be delivered and to be actioned before the end of this year and delivered in full in 2027. And we're doing so with the same initiative committed $1.8 billion of cost to achieve, a one-time cost to achieve. So we're pleased with this upgrade. We have seen strong progress on our cost delivery, part of it refers to areas of cost where we had a little bit more uncertainty at the inception of this program, and we felt more authority now 1.5 years into it. So you can argue this is a kind of 1.5 years ago, some conservatism in our approach, which we are comfortable to deliver.

Some of it has been delivered because we managed through attrition, some of the headcount adjustments that may have been required as opposed to using severance. And then some of it has been additional identified opportunities that we decided to be in the program and accelerate given the -- that we haven't used the $1.8 billion envelope. So this is really how we're driving it.

Remember, this is only one area where we're delivering simplification saves. The other area is by making these business exit decisions, 15 of which have been announced so far, with about $1.1 billion of associated costs, which would be saved from these businesses and reinvested, redeployed in our areas of strategic strength, where we expect to generate better revenues and better returns than the businesses we're exiting.

Look, on variable costs, the comment I would make is this is a decision we will make at the end of the year, but we recognize that the momentum in our business and the performance have been strong in the first half specifically in the second quarter. And therefore, if we do continue to see this momentum in the business carry on in the second half, we would certainly consider to recognize the contribution of our colleagues towards it. In the variable pay, which all in all, will have a modest impact on our overall cost. But our commitment to cost discipline, our commitment to meet our cost target from the bank 1% on a cost basis and our confidence in being able to meet it are not changing.

Pam?

Yes. Thank you, Alastair. So firstly, we are very disciplined on run-the-bank costs. And that is how we are now targeting $2 billion on simplification saves. And we have delivered 1% year-on-year in the second quarter, and we continue to guide on around 1% cost growth for the full year '26.

Now just in terms of variable pay as a context, it was $3.9 billion last year, which is 11% to 12% of our group costs. So any increase which we will consider provided revenue growth momentum continues, and that's a decision, as Georges said, at the end of the year, they'll only have a modest change in total cost for the year.

In terms of 2027, you've seen our revenues are growing. We printed a growth number, 6% Q1, 7% in Q2. And our investments to date, which are very focused, are working. Now this gives us strong confidence to bring forward our planned investments. So we may, therefore, add to investment growth in 2027.

Now just as a background, inflation and investment increased costs by around 5% in the first half of '26, before simplification saves. So we expect in the next year, that we will offset any additional investment with simplification saves. And that will be a partial offset including the offset that will come from the additional $0.3 billion on simplification saves that we announced and today, which is on Slide 26.

In addition, as Georges said, we have good momentum on our divestments. So the $1.8 billion of cost reallocations over the next several years will create incremental investment capacity. It was $300 million in '26, higher than '25. We expect that to be slightly higher in '27. So all in all, this is not about not having discipline in run-the-bank costs, but this is about making a clear distinction while maintaining discipline on run-the-bank costs to be able to invest for future growth, given the revenue strong trajectory of growth we're seeing so far this year.

We will take our next question from Andrew Coombs at Citi.

Just two follow-ups, please. Coming back to the costs, there are obviously a lot of moving parts. You are talking about accelerating the investment spend next year. At the same time, you slightly increased the simplification saves -- and now on Slide 29, you've got a whole host of divestments that are obviously going to drop away on both the revenue line and the cost line. So just a very simple question, I guess, can I ask you to comment on current consensus, which is the 3% cost growth to $35.4 billion next year?

And then the second question related to that is that you talked about accelerating investment spend, but there's no change in your revenue growth targets. So what is the payback on this incremental investment? And what's the time frame?

Andrew, thank you for the question. Let me -- I'd like to give you some broad comments on cost and revenue growth, and I'll let Pam give you more details. So we're pleased to be moving at pace in our simplification. The increase of our simplification saves to $2 billion the speed of decisioning in our business exits, three of which we announced over the last 10 days or so, 15 of which we announced in 2025, are giving us capacity to accelerate investments in our businesses.

Now also remember our businesses are leading businesses in the areas where we choose to compete. Now we are leading in the services we offer our clients were bank of choice for many of those. Therefore, these investments are expected to drive higher revenues and higher returns than any of the businesses we're disposing broadly speaking. What I would like to say, though, about also -- well, additional about revenue growth. I mean Again, we -- the times we've given you of revenue growth year-on-year, rising to 5%. Our foundation or baseline targets we shared in February. We're reiterating now. These are targets for which we run the bank where we're running the bank for the next three years under a range of different scenarios.

Of course, if we see opportunities to accelerate and if we see supporting market conditions as we have seen in the first half of this year, you should expect us to be able to beat the targets, including starting in 2026. But we're not changing the foundational baseline target for how we run the bank across a range of scenarios.

Pam?

Yes. Thank you, Andrew. So firstly, we are not commenting on consensus or giving a cost guidance for 2027. But let me just unbundle a few things. As Georges said, that targets are the baseline to which we manage the bank. We continue to work hard as we have done this year to exceed our targets and we see no change in doing that. If there are good market opportunities, the right hurdle rate and within our risk appetite. So if the outperformance continues or even if we just take the outperformance for the first half on revenues, the starting point for next year will be higher. So therefore, please consider any targets, which we are not changing. They're just half it through the year at the moment will be based on a higher baseline.

And then in terms of the overall spend, I've already said that we look at the overall investment opportunities. And this year, the increase through investment inflation was 5%. We said we would accelerate some investments as we go into next year. So that number would be a bit higher. But we do have, obviously, partly offsetting that, and the operator word is, partly, offsetting that, the additional benefits we are getting both in terms of the increased simplification cost, which is $300 million, which goes into next year as well as an addition of the redeployment of costs coming from our divestments. But again, it's very focused spend in areas where we have competitive strategic advantage when we have revenue growth as well as some very strong cost discipline. So in terms of our overall revenue cost story line, nothing should change from here.

Our next question today comes from Melissa Kuang at Goldman Sachs.

Just a couple of questions, just back on the NII. Just wondering on the HIBOR moves that we have seen, which is slightly towards the end of the second half of the second quarter. And if you look at the sensitivities that you have put in your Hong Kong dollar sensitivity has fallen by about half since the first quarter. Just can you give some color on what hedges have you taken? And what have you done there? And in terms of when we look at the third quarter and NII, we see any benefits from the HIBOR going in there?

And also maybe talk a little bit about the deposit side and any deposit competition and what's going on there that perhaps made you a bit less aggressive in terms of grading your NII guidance? Then the second question is on Wealth. Your net new money appears to remain broadly on track and at the run rate. Can we just maybe give a little bit of understanding in terms of the AUM outside Asia has declined quarter-on-quarter. Maybe some color there. And also, if any of the recent China cross-border rules, is there anything new? Anything we should understand about and also in terms of behavior -- client behavior, is there any changes?

Thank you very much, Melissa. Melissa, I'm going to ask Pam to take two questions, but I'd like first to make some comments on net new money and the deposits. The first one is very strong net new money quarter, both globally and in Asia. Of course, Asia is the leading -- the #1 wealth manager in Asia Asian net new money is very important. They're broad-based. Hong Kong remains a very important center with us -- for us with about $0.5 trillion of Wealth balances and 10% growth of Wealth balances on a year-on-year basis. And in Asia, in total, we manage about $1.1 trillion of Wealth balances.

In -- with regards to the cross-border rules, just to make some comments on this. What's important to note is you should expect us to be operating at the high standards of rules and regulation. You should expect us to have all the robust up-to-date procedures for client onboarding. And we actually welcome some of these clarifications that have come in May and June, specifically, the State Council Decree 837, which is intended to provide a clear guidelines for these outbound investments.

First, I would believe is that these clarifications are not meant to discourage or restrict cross-border. They meant to provide guidelines on how to conform with the rules. And second, when we look at our client onboarding in May, in June and so far in July, we have seen account opening not affected by these additional onboarding declarations and therefore, remain confident in the medium- to long-term outlook for Hong Kong to be the leading cross-border wealth hub for the planet, but also a very important Wealth hub for the mainland.

Pam?

Yes. Thank you, Melissa. So firstly, in terms of Hong Kong hedge in the first half of '26. We have increased our Hong Kong hedge. We have looked at new products. We've had some new fixed rate customer lending, so that has helped. And that is again, reduced our sensitivity, as you can see to any rate moves. And of course, HIBOR has moved down to 2.62%. It's been under pressure last few weeks. We saw that a few months ago as well. And just to reiterate, when we give our guidance we look at this short-term volatility in HIBOR as one of the factors to consider in our plausible scenarios.

So very comfortable with the overall guidance and the direction of travel we have and we've been working for a while in terms of looking at ways to increase our Hong Kong dollar hedge, and that's working very well now. Now I just want to add, in terms of the net new money, I would just say $25 billion is still a strong number for the quarter and is broadly aligned with our recent quarterly run rates, 8% to 9% annualized. So really nothing more to add on that. Thank you, Melissa.

Our next question today comes from Amit Goel at Mediobanca.

Sorry, I just wanted to follow up -- apologies to ask on it again, but just on the cost piece, just to make sure I understand it correctly in terms of the incremental or the acceleration in spend. So is that -- in terms of the accelerated spend, is that more than the kind of $500 million incremental simplification savings or around the same amount? And then, how are you thinking about the payoff from that in terms of will that be kind of benefiting 2028 earnings? Or is this more kind of 2029 to 2030? So really, just trying to understand that a little bit better would be helpful.

Thank you very much, Amit. I'm going to ask Pam to comment on this. Let me just say on the headline, Amit, we are fully committed to cost discipline, we recognize we have fantastic growth opportunities, and we are creating capacity to be able to invest in those growth opportunities. So that is what we're managing as you look forward. But the cost discipline remains steadfast.

Pam?

Okay. Thank you, Amit. So firstly, the payoffs of the investment we do sometimes comes very quickly, actually intra-year. And I'll draw your attention to some of the additional acceleration of investment we did in our Security Services business last year, which pretty much gave us payoffs and new mandates, both last year and into this year. So the payoffs don't have to wait for 1 or 2 years. These are very quick payoffs and because they are in areas where we are -- already have plans, we have already invested and it's just accelerating as opposed to some de novo new areas. So that's the first point.

Now in terms of costs, as I said, that the simplification savings, to be very clear, will partly offset the accelerated costs. So you can expect some shift on that case. However, it will be very much determined based upon where we see the revenue projections and where we see accelerated growth opportunities. And 1 thing we are crystal clear about run the bank cost discipline will not change. And any investment will have to stand in terms of the hurdle rates we have for returns. And that's the competitive process when we look at a range of opportunities, and then we make the choice, whether it's with regard to simplification savings being redeployed or indeed, redeployment of costs coming from divestments.

And sorry, and just to follow up to when we talk about acceleration, does that mean that the following year. So 2028, we would expect to see a drop-down in that investment spend? Or do we just see that continuing beyond '27?

So Amit, we're not giving guidance actually for '27 or '28. But the reason we're saying acceleration is these are investments along our strategic priorities that have been very much earmarked, flagged, we know of them. We know the benefits they can provide. These are not, as Pam said, new initiatives we're coming up with because we have revenue growth. So this is really what we mean is bringing forward some of this investment plan to bring forward the growth opportunity that come with it and allow us to gain market share even faster exactly along those strategic priorities we called out for which we are generating the right returns.

Thank you, Amit.

Our next question today comes from Kunpeng Ma at China Securities.

I have two questions. The first is on the financing demand of the corporate clients. We can see the loan demand is returning. And also, we can also see many of those financing demands are on capital markets. So can we have some outlook on the future trend of the corporate -- of the financing demand of the corporate clients? How can HSBC handle the demand, especially for those on capital markets?

Yes. The second is on Hang Seng Bank. I remember George just mentioned that some cases of the synergies like new customer acquisition. So can we have more color on this kind of synergies? And what kind of synergies can we expect in the future between the 2 banks?

Thank you, Kunpeng. I think, Kunpeng, I can take both questions here. So first, we're pleased to see corporate demand, financing demand continue. Actually, we're seeing it now continue in the U.K., and that's a continuation of the trend we've seen in quarter 1, aligned to the ambition of the U.K. to drive growth, and we -- as the U.K.'s leading international bank, very pleased to be supporting this both domestically, but also by bringing international investors into the U.K. But we're also very pleased to see that Hong Kong loans has picked up after many quarters of slowdown or contraction. So this is a very encouraging development for Hong Kong, and we do certainly hope that this is a trend.

And our outlook remains very positive on this. And then you called it out very eloquently as well. Capital markets have played a very important role, in particular in Hong Kong, where we've seen practically 50% growth in financing through capital markets, including debt capital markets and IPOs. And we're superbly well positioned to play a very important role with customers as a leading debt financing house but also as a materially growing IPO financing house with now 40 live IPOs that we have in Hong Kong. The substantial increase from previous years and 70 IPOs across ex Asia. So certainly a very encouraging trend, which we hope to see continue.

With regards to Hang Seng Bank, so we called out, if you recall, $500 million of reported synergies. These are audited standard -- U.K. audit standards of reported synergies and an additional $400 million of related benefits, which are broadly taking the overall synergies and related items to $900 million, which we are hoping to achieve in full over the next 3 years -- about 3 years. We're more than 80% now live in execution on the various execution work streams of these synergies, therefore, have a high level of confidence in our ability to drive those synergies. We have seen some substantial benefits. I called out earlier, 60,000 new-to-bank customers by gaining the synergies of HSBC is digital onboarding, that's double what Hang Seng Bank was able to onboard in quarter 1, 30,000. This is a clear demonstration of benefits of these synergies.

We've also made multiple senior leadership announcements, in particular, in areas of infrastructure, back-office, technology, manufacturing, where now we have a single leadership in Hong Kong across HSBC and Hang Seng to drive alignment and synergies. But I would say, remember, we are net investor in talent and in technology of Hong Kong. Therefore, we do expect that if there are roles and there will be roles impacted by driving these synergies that the individuals have all the retraining and reskilling opportunities to be able to take on jobs in those areas where we invested. Thank you very much, Kunpeng.

Our next question today comes from Katherine Lei at JPMorgan.

I have three questions. The first question is on ECL charges is on asset quality, right? So if we look at the Hong Kong CRE, it does seem like the asset quality trend has stabilized. Do you expect this trend to change or to further improve in the upcoming quarters? And also that we see, it seems like there is no notable overlay related to the Middle East situation that's been taken this quarter, how should we look at the situations with some escalation of the conflict again in the third quarter? Should we be saying that the key portions of the overlay have been taken. And going forward, it will be driven by like, say, Stage 3 loans? So this is on the asset quality side.

On the second side, I just want to follow up on the cross-border one, on the China's cross-border regulations. Is the regulators like is the regulators consulting industry players, including HSBC, when they are drafting the details of the individual ODI regulations have been communicating and talking to the regulators on like potential directions of where that regulation is trending to and et cetera? Okay. I will just be with these two questions first.

Thank you, Katherine. I'll take your second question, and Pam can comment on the asset quality. So you would expect case to be in constant engagement with regulators, both in Hong Kong and in the Mainland at all levels. and engaging with them specifically with regards these and any other regulation. So this is a matter of just business as usual, I would say. And remember, we always operate at the highest standards of rules and regulations everywhere we operate specifically for client onboarding, cross-border rules where we have lost procedures.

Pam?

Thank you, Katherine. So, from an ECL perspective, yes, Hong Kong, very encouraging signs. The top-up on the ECL line was just over $150 million for the quarter. Hong Kong residential is recovering very well, very stabilized now, house price index was up 18% year-on-year, and volumes are also up 36% in the first half year-on-year. Now in terms of retail, on the retail sales, we've seen 13 consecutive growth months growing at 11% year-on-year this year, and this is because of increased tourist activity and also effect of positive growth in Wealth. And offices in terms of the prime areas, it's in a good space because the overall vacancy rates are gradually declining to around 16%. But in Central, they have continued to fall even more vacancy rates down to 10% and rents are up 6% year-to-date.

Now having said that, where we see some stress continuing is in pockets like in East Kowloon, where vacancy rates remain elevated at 20% and rents have further slipped by 4%. And that's in the office space and also some in the non-core retail space. So all in all, no new impairments and the real impact in the ECL charge this quarter comes from the pop-ups due to valuation declines in the existing impaired portfolio. And I expect that we'll, of course, watch it very closely and notwithstanding any sort of idiosyncratic kind of a situation, we do believe this is stabilizing very well indeed.

Now from a Middle East perspective, I just want to remind you, the $300 million reserve that we built in Q1 still holds we have not released that reserve. That's in line with the policy. We like to see full two clear quarters of stability and -- before we release any of our reserves. So that is continuing. We have looked at small pockets of overlays how we shift and change them at an individual name level or indeed sector and geography level. And the Middle East actual experience we see on the ground has been really quite benign and the ECLs for our Middle East exposures in the Middle East has been very small, much lower than even $100 million number.

Overall, of course, what we are very mindful is that pockets of increase in defaults globally, particularly in mid-market, where our exposures are small. Small exposures can also add up and that's contributed to some of the ECL charge for this quarter. And lastly, we are not -- we have now also taken out the very specific scenario we had created for the Middle East because that's now all factored in the downside scenario in terms of the overall economic factors and forward economic guidance.

We will take our next question today from Ed Firth at KBW.

I've just got two, and they're actually really strategic questions rather than details so probably more for George. But the first one is, if I look at your current strategic direction and comparing you with what looks like it will be the second biggest bank in the U.K. You every sort of week or so, we see a regular announcement of closing parts of the business or selling off parts of your business. And yet in contrast, they are apparently have -- lost the words. An enormous appetite to open in new markets everywhere in the world. So you're selling Australia, they're opening Australia, you're selling Egypt, et cetera. And I'm just trying to understand the sort of logic and how far that goes? Because it just seems to be that much like Egypt is about 120 million people. I mean Surely, HSBC can add value there over time with your expertise, in your banking, and numerous skills. And I'm just wondering sort of how far you want to take this sort of focusing strategy. So -- and try to understand the differences, I guess, between the two. So that's my first question.

And then the second question your shares are now really a very valuable currency. And I wonder, is that something you think about when you look at our transactions and opportunities particularly inorganic opportunities around the world. And if it is, where should we think about where you might be interested and where you feel you could have? I think you talked about Wealth Management in the past, but there are other things that perhaps if you wanted to use those shares rather than to buy them back, but to use them for currency, where might we be thinking about the opportunities [indiscernible]?

Okay. Ed, thank you very much. So first, maybe on the strategic direction, yes, we're very pleased to be a leading bank in the U.K. if you combine our activities across the ring-fenced bank, the non-ring-fenced bank. And -- we're very pleased to be growing in the U.K. domestically, but also on a cross-border basis. And we are the leading international bank in the U.K. That's also a very important role we play for the U.K. If you look at the strategic direction as a whole, what we're doing is we're focusing the business in those areas where we have market leadership, where we can drive fundamental structural growth and where we can drive good returns for our shareholders. So we want to be very meaningful to our clients. We want to have a structural growth opportunity and we want to drive good returns for our shareholders, and we want to be able to compete and grow our leadership and market share in these areas.

We called out four of those. And they're aligned with our four businesses. The U.K., where we're the U.K.'s leading international bank, Hong Kong, where we serve the market through two iconic banks and command twice more deposits than the second pier and are driving growth across a number of areas in an underlying growing economy, given its international role and the role to the mainland as a super connector. And then the Wealth Management business, in particular, with Asia, with booking capabilities also beyond Asia, such as Switzerland and Channel Islands, the U.S., but where we are a leading wealth manager in Asia by wealth balances with $1.1 trillion finally in Corporate and Institutional banking, where we are the world's trade bank.

And we're leading in trade, we're leading in global payments with an Asia leading and security services, et cetera. we're certainly leading in terms of the strength of our deposit franchise. So for us, these are the areas we want to make sure we put all our investment, our capital and our capabilities because we're driving great structural growth, we're winning market share. We're driving the good returns, et cetera.

Therefore, the rest, we have to make compromises. And the rest where we don't think we are having a leadership position or we can drive the same level of growth. Or better in somebody else's hands who can invest in them, and we can use those costs to reallocate in those areas, we can better revenues, more long-term sustainable growth and better return for shareholders. You called out Egypt specifically. We are very supportive of Egypt wholesale business Egypt is a major network market. Many of our -- vast majority of our international clients have operations in Egypt, and it's very important for us to support them in this space. We don't have this commanding market share and leadership role in Retail. And that's the trade-off we have made.

On your second question. Thank you for your description of our shares as a valuable currency. Of course, we are very pleased with the share performance. But as a management team, we're only focusing on the business performance and the share price is a matter for our shareholders to opine on. What is important, both to say is, yes, we will use our share firepower inorganically, but we will use it with a high bar. So first, we have used it with the privatization of Hang Seng, demonstrating that we will use it for good -- for the right opportunities, and we had to pause our share buybacks for three quarters. We are very pleased to have resumed them now.

But second, the high bar remains there. And the high bar, basically our criteria, I set out in February 2025, and we're living by those criteria. Without going into detail of this criteria, any acquisition should be accretive to a share buyback, should be fully aligned to strategy, should be enhancing our scale or capabilities and should be easy to integrate and not distracting us from delivering organic growth. If and when we find these opportunities, we will look at them. Thank you very much, Ed, for the question.

We have time for one last question today, which we'll take from Joe Dickerson at Jefferies.

Gentlemen and ladies. Just on the Corporate growth, both in deposits and loans that you're seeing in Asia Pacific, could you comment on both sides of the balance sheet, the nature of the industries that you're seeing is this broad based? Is it around certain industries? And on the deposit side, is this liquidity, corporate liquidity and are there any particular industries that stand up?

Joe, let me take a stab at your question I'll ask Pam to add any comments she may have. First, on the deposits in the wholesale space and in the corporate space, we are a deposit bank by choice for transactional deposits. We have one of the highest share of CASA deposits for transactional operating purposes. And these are the deposits that we cherish. We do not change deposits with interest rates. These deposits are a testament first to the trust of the clients in our balance sheet. They are also a testament to the breadth of our network where they can use our deposit capabilities, the taking capabilities across a whole range of geographies where they operate. And they're also a testament of our capabilities and expertise for all services around deposits, including cross-border payment and other services we provide on deposits.

So -- and you've seen this grow in CIB by 16% year-on-year. We've seen also this growth in the U.K. and in Hong Kong. In terms of loans, the overarching message, I would say, is we are more broad-based compared to some of the activity you've seen in the U.S., which is quite focused on a few sectors relating to AI. We are not a domestic player in the U.S., and therefore, we're not -- you should expect us not to be highly present in these markets as domestic players. Our U.S. business is really an inbound and outbound business where we support American clients across their businesses internationally and international clients for businesses in the U.S. not so much participating domestically in the U.S.

Pam, any to add?

Yes. Just a couple of things to add. So firstly, on deposits, the trend really has continued quarter-on-quarter. It's very broad-based. It's Hong Kong, it's U.K. It's very strong on the retail side as well as on IWPB. But CIB you do have some short term, as I called out in the script, deposits coming in. So those come and go. But overall, a very solid trend. It comes from also security services, strong performance.

Now in terms of loans, I do want to call out that the trade has been a significant driver for CIB. It's been up $6 billion. And for Hong Kong, it's up $4 billion. And then specifically, we've seen more demand coming in technology and institutional sectors. So that's kind of a strong growth you're seeing. But more importantly, in Hong Kong, we are not seeing so much of those early repayments on some of the Hong Kong commercial real estate because that sort of stabilized the gross growth in Hong Kong lending comes straight to the bottom line as a net growth. There's no sort of repayments taking that off. And the U.K. market growth from loans has continued, and that's pretty much driven by across the board, large corporates, small and medium as well. But also from a sector perspective, we've gone far beyond the typical high street or real estate based lending. So our sectoral expertise has helped in that.

Thank you, George, Pam. That brings us to the end of today's call. Thank you, for joining. You may now disconnect.

Okay. Good morning, everybody. I'm delighted to be joined on stage now by Georges Elhedery, CEO of HSBC. Georges was appointed as CEO nearly 2 years ago, having previously spent 18 months as Chief Financial Officer. He spent over 20 years at HSBC in a wide range of leadership roles in a variety of markets. And immediately prior to joining HSBC, Georges, in fact, worked at The Goldman Sachs. So George, well, I think it's your first time at the conference, if you like I can say, welcome back.

Thank you so much for making the trip here. Super grateful for you being here. This session is due to last 30 minutes, 35 minutes. That includes a bit of time towards the end for some audience Q&A. And then this session is also being webcast. So thank you for everybody joining us remotely on the line.

Georges, perhaps we begin reasonably high level on the macro backdrop. You operate across a very wide range of geographies. How would you characterize the current macro backdrop in aggregate? And when you speak to clients, how are they balancing those near-term uncertainties you can see with the longer-term structural opportunities that clearly exist in many of your markets?

Thank you, Chris. And again, thank you for having me here. There are a couple of features in the macro backdrop that has definitely become very, very prevalent. There are 2 I would call out, and they actually play to our strength. The first one is there are structural growth opportunities in big parts of the world, and that's particularly true in parts of -- big parts of Asia. You have a growing consumer market. You have a growing labor market. You have a growing talent or kind of sophisticating talent. You have good fiscal and economic policies, good pro-business policies, strong FDIs and into these markets for everything from manufacturing to extraction and what have you with technology, et cetera.

So structural growth is inherent in these markets and is here for a long time ahead. There is -- the other macro feature, which we've been talking about now for a few years, certainly since COVID is that we're seeing globalization reconfigure more into neural networks where multiple jurisdictions and economies connect through supply chains, investment. And if you want less of the big large corridors between very few -- or very few economies.

That also plays to our strength because when you're present in 18 markets in Asia, 10 markets in the Middle East and many other around the world, more than 55 around the world, when you have neural networks of connectivities in all these markets interconnected in different ways, then the presence in all these markets becomes a value add. So these are the 2 big macro trends we're observing.

On your question about uncertainty, everyone we're talking to now and including our own views is that uncertainty now has to be baked as a feature, not as a black swan or as episodic. It has to be baked as a feature in the way you plan for your business. And if you bake uncertainty as a feature and you want your business to capture the structural growth opportunities and kind of in a sustainable, durable manner, then the most important investment you have to do is build resilience, building resilience so you can have a sustainable business despite uncertainties that you expect to come.

So building resilience is one of the biggest themes we're working on. It's -- resilience can be resilience in infrastructure, resilience in logistics, resilience in power generation, resilience in data storage, et cetera, et cetera, et cetera. Now it so happens it also plays to our strength because we have -- we are a big infrastructure financing house among other, and we can help our clients in their kind of projections how to build resilience for the business.

And a key element of the sort of HSBC narrative over the last 12 to 18 months has clearly been one of efficiency. And you've described HSBC as becoming simpler, leaner, higher return, more agile. What's the single most important change investors should recognize in HSBC today versus perhaps how the business operated 2 to 3 years ago?

So Chris, the single most important change as we portray it and investors can judge for themselves, but as we portray it is that everything now we choose to do or we decide to do, we aim to be the best at doing, which means either we're the best at doing and we double down investing in it or we ought to be the best at doing and we double down investing in it or this is not where we're at our best and not necessarily an area of strategic importance because customers aren't expecting us to deliver and we're disposing of it.

I think the clarity of strategy and the clarity of purpose allows us to -- well, allows us basically to choose to be the best at everything we decided to do. Everything kind of falls from that, how we become simple and agile, how we streamline our business, how we focus our strategy, how we kind of build client relationships, et cetera, is basically based on being the best at doing what we choose to do.

I mean you make it sound very straightforward, but you're simplifying, you're reallocating costs, you're investing for growth all at the same time. So what are some of the hardest trade-offs you face when you're balancing all those decisions?

Of course, it's -- these are usually always difficult decisions to make, decisions where we take cost out to the bottom line by simplifying or deduplicating or creating efficiencies, decisions to take cost out by exiting activities that are nonstrategic, nonreturning or where we don't have the right to win or the right to compete and we don't -- you should not waste effort doing so are all difficult decisions. But I think the most difficult decision going forward, most of these decisions have been taking for the last 2 years, but the most difficult decision to go forward is that we have created a much bigger capacity to invest. We created space in our cost base by taking these decisions to give us capacity to invest.

So the decisions going forward is kind of how to allocate our investment, but more importantly, how to allocate our investment in a way that is the highest returning possible. So you can decide you want to invest in an area and you can evaluate a quantum of investment and the set of benefits against that investment. And that's all good. But we have also more investment capacity.

But if you choose to decide to invest additionally in that area by the law of diminishing returns, the risk is that we get lower bang for our buck, and we won't get the -- so we need to find the efficient frontier where you're investing as much as you can to get the maximum benefit without starting to dilute investment because you end up hiring the wrong people, people with not the right talent for the right jobs or you end up not being able to build the technology at scale and throwing money after something where you can't resource it appropriately or speed up the development.

So just putting more money at an opportunity doesn't give you higher benefits for it. So it's finding that efficient frontier where you invest for the biggest value of that investment and then accept that probably the next round of investment is next year, not right away for that opportunity.

And my final sort of question on the topic of efficiency is really around the issue of resilience. You're effectively reprogramming the operating model of HSBC, while at the same time, plumbing in new sort of frontier technologies, you have the ambition to become the world's most trusted bank or to be the world's most trusted bank. How do you balance the fragilities that those changes can bring about and perhaps particularly when it comes to cyber and the sort of incredibly fast-evolving picture when it comes to zero-day vulnerabilities?

So Chris, actually, those changes are building strength. Let me try to unpack this. When we say -- when we have a strategic priority of being simple and agile, and we shared one slide in our year-end results, which illustrate that. Some of the decisions, of course, about exiting activities, exiting businesses, deduplicating, but also a big block of work that's still ongoing, which is reengineering our processes and procedures and the help of GenAI is accelerating that reengineering at scale where we call out demising nonstrategic technology applications, demising legacy products that are not on the shelf, but still out there, demising all sorts of other things like URLs or legacy cost centers or small and legal entities that are not needed anymore, et cetera, et cetera.

So this reengineering and this demise as part of becoming simple and agile as a primary mission, also as a kind of secondary positive impact make us safer because it's easier to protect when you have a smaller exposure, you have fewer applications to worry about, et cetera, makes us easier to protect. So anything that's vulnerability identification, patching, network segregation, layering, et cetera, you will have to do on a smaller estate and a strategic estate as opposed to having nonstrategic bloated estate that you have to try to protect.

So first, being -- the journey to be simple and agile is a journey to make us also more resilient. That's number one. Second, cyber is a very big investment -- cyber protection is a very big investment program. It has always been and will always be a very big investment program for us. And cyber protection ranges are wide range of issues, in particular, protection against social engineering, where we have a lot of capabilities being built and tested and protection against vulnerabilities.

Clearly, most recently with Mythos and 5.5 Cyber, additional capabilities to find patch vulnerabilities have been made available to us included. But that's not the only thing. We've -- again, we've been working very actively at network segregation at multiple layer estate. We've been working at tertiary vault capabilities to recover quickly. We have a continuous Blue Team, Red Team trying to attack us and identify areas of vulnerability.

So -- we work with our suppliers, again, in what they are doing to make them foolproof or cyber protected so that we benefit from that. That journey is on. And this is an area of continuous investment and never, never cut corners on investment to protect our estates from cyber risk. And that's -- between these 2 kind of big initiatives, we aim to be among the most safe from a cyber point of view, safest banks on the planet, helping us to be the most trusted bank on the planet.

Now let's move over to Hong Kong. In recent years, there's been a big focus on the cyclical elements within the Hong Kong business, namely Hong Kong [ SAR ]. And obviously, very happy to get an update on the cyclical side of the Hong Kong business right now. But I wanted really to hear your thoughts on the structural element of the Hong Kong story. You talked about Hong Kong being a super connector, both Mainland companies using Hong Kong as a launch pad to go global and also as a cross-border wealth hub. So how do you see the growth dynamics in Hong Kong business at this point, both from a cyclical and a structural perspective?

Okay. So from a cyclical perspective, there was a big burden from the COVID days into the impact on the commercial real estate. Let me give you some data points, recent data points. Residential real estate, up 16% over the last 12 months, plus 16%. Office real estate, we've seen now vacancies in Central and Hong Kong below 10%, level not seen for many, many years. Hong Kong GDP has grown more than 5% in the first quarter.

So without making direct assumptions on where we are in the cycle, it is much more encouraging the -- what we're looking forward versus what we've seen. There are some challenges, residual challenges in some of the weaker real estate in the office space or some of the weaker sides of retail, but we're seeing recovery in a number of other areas. So we're actually short-term constructive, medium, long-term positive. I mean, medium, long term, the dynamic of the Hong Kong real estate market, the dynamic of Hong Kong economy, the supply/demand is -- we're optimistic. We're comfortable about. We're confident in, right?

Now case in point, in October last year, we announced the intent to take Hang Seng Bank private. And in January, we've disbursed USD 14 billion to buy the 37% minority. Now we own Hang Seng Bank in full. And we're working through the synergies. The synergies alone and the capital efficiencies alone make this acquisition -- well, make this privatization more attractive than using our shares for a share buyback. But if you add the structural -- sorry, if you add the cyclical improvements, among other in the cost of risk and commercial real estate environment and the structural growth opportunities, that's kind of double potential upside over and above accretion to share buyback.

Now the structural opportunities of Hong Kong are evident. Let's call 2 that are really, really highlight and important for our business. Hong Kong is a super connector to the Mainland. Hong Kong has always been a connector to the Mainland, whereby international investments into the Mainland would channel or funnel through Hong Kong. That flow continues. It's changed in profile. So now the international flow into the Mainland isn't really about accessing cheap labor and manufacturing capabilities. It's more about accessing high-end technologies and innovation and trying to scale it out internationally. But the flow continues.

It's a different form of flow looking after different opportunities. But the real flow that we've observed for the last decade, and we believe will define the next decade is the China outbound where Chinese -- core Mainland Chinese corporate businesses are going out to the world. Initially, they've been producing for the world, Made in China kind of exported to the world. That model is seen for all sorts of reasons, many are familiar with. That sort of model is trying to see its limit. So what's happening is not anymore the Made in China produced for the world, is the Made by China produced in the world.

So these corporates now are going out to establish manufacturing hubs, move technology, create employment in the economies where they're building and be able to access the local markets with this dynamic. That possibly is one of the biggest cross-border trends, if not the biggest cross-border trends we will see over the next decade. And Hong Kong is the launch pad. And by the way, we in Hong Kong are the bank of choice to help these customers do that because when they come to Hong Kong, and we are very big in Hong Kong, we can take them to the world. This is not the last stop for us or one stop and then that's the last stop. We really give them the whole access to the world at the highest international standards of finance. So that's one trend.

The other trend is Hong Kong as a cross-border wealth hub. For the last 2 years, I've been saying Hong Kong will become the world's largest cross-border wealth hub before the end of the decade. It turns out I was wrong because it happened 2 weeks ago already. Hong Kong today already is the largest cross-border wealth hub overtaken Switzerland. And given the growth trajectory, that gap can only keep kind of expanding. It is a cross-border wealth hub for the world, for Asia and very much also for the Mainland that have chosen Hong Kong as their international platform for wealth management.

The level of sophistication of the capabilities, the level of attractivity of the jurisdiction, of the legal framework, of the regulatory framework, et cetera, is such that -- and of course, the level of wealth creation, as I mentioned earlier, in Asia in general is such that this trend is also a decade, if not secular trend. And these structural opportunities for Hong Kong, frankly, we have a very important role to play, but we happen to also have a very leading role to play in, given our sheer size and presence and scale in Hong Kong.

And then perhaps a slightly more nuanced or a different story in the U.K., 1 of your 2 home markets. How would you describe the role of the U.K. within the HSBC group, aside from the retail operation that you operate in the U.K.?

Very good. So the U.K. is our second home market. Of course, the retail operations is a very important operation for us. And when you look at the retail and the kind of SME commercial operation in the U.K., it's a business that generates more than 20% return on tangible equity. It's a business last year that -- year-on-year, that's grown its loan book by 7% so clearly strong business. And we have a very strong market position in the top 3, top 4. But the U.K. for us, if you add our wholesale activities, for those familiar, we have the ring-fenced bank and the non-ring-fenced bank, if you add the whole footprint of HSBC in the U.K.

And HSBC in the U.K. is -- generates revenues of $19 billion per annum, has $570 billion in deposits, is by far the largest international bank in the U.K. Well, it's a U.K. bank home market, but the largest international bank in the U.K. is by far the bank of choice for U.K. corporates and businesses looking for international opportunities and the largest bank for international corporates all the way from the U.S. to Asia to the Middle East to the rest of Europe, looking for opportunities in the U.K.

It's a very open economy, a testament to all the free trade deals that have been signed all the way from the U.S. to India, to the GCC to the deal with Europe, and the kind of the open economy, the free trade economy. So being by far, the largest international bank in the U.K. and a bank that generates $19 billion revenue in the U.K., which puts us in the top 3 with #1 and #2 being domestic, pure domestic banks in the U.K. means that the U.K. is extremely important for HSBC. But it also means that HSBC is extremely important for the U.K. economy.

Very clear. And then in the CIB, you've talked about this narrative of Asia buys Asia. Can you talk us through what does that mean, especially in the context of, I think, the 50 or so markets that you cover globally within the CIB, Asia buys Asia?

Yes. And then within Asia, you have to lead the greater Asia, so Asia and West Asia or Asia and the Middle East and sort of wider Asia. So our assessment is that the trade flows that have been taking place in Asia are able to add 1.8% to the Asian GDP. But importantly, Asia in 2025 has been subjected to some of the most adverse tariff environments with the largest trading partner, which is the U.S. and trade from Asia into the U.S. have really dropped steeply more than 20%. Yet Asian shipments in 2025 hit a historical record. So that is demonstration that whatever is not going to the U.S. has found ways to circulate within Asia.

So Asia has become also a manufacturer for Asia. Asia has become an FDI investor in Asia. And that neural network flow between the various Asian economies have meant that they are able to continue growing strongly and equally have meant that HSBC's presence across all these economies has become an even bigger competitive advantage because we're deeply rooted in many of these markets. I mean we have 161 years of history in Hong Kong and Shanghai, but we have more than 150 years of history in practically every Asian economy, and that includes the Vietnams and Indonesians and Malaysias and India and what have you in the Middle East. So that trend is definitely one that we are able to capture and strategic growth.

But remember, CIB is not only about Asia buys Asia. Corporate Institutional Banking is a global business. It's a global network business. More than 85% of our customers are multi-jurisdictional customers. They operate in more than one market. So inherently what a network business is about. And frankly, of the 15% that are domestic only many of them are government sector, et cetera, which we operate with, but they're inherently domestic. But for those 85 cross-jurisdictional customers, more than 65% of the revenue is generated by customers whose head office is in the West, that is Europe, U.K. or the Americas.

And more than half the revenue generated by these Western corporates is the revenue we book in Asia. And that's a substantial part of how we drive our corporate institution banking revenue and profitability and returns is being able to take 6 of our top 10 customers by revenue in Mainland China are U.S.-based, U.S. head office. It gives you a perception of how important the global corridors are beyond the -- just the Asia buys Asia. And we have a business that is present in more than 50 markets that is liquid in all the currencies where we -- in all the currencies that we operate in, in all the geographies where we operate with a fantastic deposit franchise. So we remain the bank of choice for these corporates across Asia doing business with us.

You talked a little bit about the fantastic deposit franchise, which is echoed obviously in the other business in wealth. So wealth is 1/4 of group revenues now, around 2/3 of that business is in Asia, our business is grounded in Asia. Can you talk a little bit about how the global HSBC network helps support growth in the business? I guess, in particular, 8 booking centers, you've got the cross-sell from CIB. So how does that network connectivity feed into the wealth side of the business as well?

Yes. So wealth is already a substantial portion of what we do. So 25%, you called it out because 25% of our revenue is wealth revenue. If you look at wealth balances at $1.6 trillion, that puts us in the largest globally. But more importantly, of the $1.6 trillion wealth balances, we have more than $1 trillion wealth balances in Asia, which makes us the largest wealth manager in Asia. So therefore, our position there is that of strength. Number two, we have fantastic structural growth in wealth of Asia, which we -- it's a wave we all can write, but we clearly have a strong -- we're starting from a strong position to write.

More importantly also, we have an affluent proposition, which we call Premier in many of the Asian markets, including the Mainland China, including India and a number of other markets, including the UAE, et cetera, which allow us to onboard wealth right from its early days. So we don't have to wait on a decades-long basis for people to become fairly wealthy to be eligible to our proposition because we capture them already at the Premier level, which is when they start building wealth from USD 100,000 and above. And of course, as they go up the journey and if their wealth exceeds the $1 million or $2 million, then they can become eligible to our private bank, but the acquisition there is -- the acquisition cost is nil because we already have acquired them through our Premier.

And we are the only international bank offering Premier in many, many of these markets. So it's a real differentiation being an international bank accessing this affluent, and that's a great funnel for acquisition for us going on. Second, corporate institutional banking, we have very, very deep and trusted relationships. But historically, we have not converted these relationships into personal wealth and private bank wealth. Today, the combination of our 2 businesses and the fact that we cross-seminated resources and we have the cultural and the incentives alignment to do that mean that we also have a relatively cheap acquisition corridor to convert from CIB customer base to our wealth proposition.

So we really have scale in the way we can acquire that none of our peers in Asia can benefit from. We've built product capabilities. Product capabilities, some of our international peers can build faster because they can scale it globally. But we basically did a catch up to be able to be on par or relatively on par with our product capabilities, at least in the area where we are dominant, which is Asia. So all of that plays to our Asia wealth proposition growth.

Now one of the features that the high net worth have been asking for, true for Asia, but true globally, is the diversification of their booking centers. They realize that it's important now to diversify from a risk point of view, their booking centers, but also diversify from a product capabilities point of view, booking centers from a legal, jurisdictional, tax point of view, inheritance and all. And therefore, you're seeing more and more of the higher net worth looking for multiple booking sites for their wealth.

So one additional differentiation for us compared to many of the pure Asian players or pure single market players is that we have more than 8 booking centers. We can book wealth in Hong Kong, in Singapore, in the UAE. We can book cross-border wealth in Switzerland, in the Channel Islands in the U.K., in the U.S., in Luxembourg. So our cross-border booking centers are diversified and cater for the need of using multiple [indiscernible]. So this is one additional competitive advantage for us for those who are pure Asian or pure single market that don't have this additional capability. And I think all of those play to our strength in being able to capture a bigger share of this growth in wealth in Asia.

That's very clear. I think we have about 5 minutes left. So at this point, I just -- if anyone in the audience would like to ask a question, I give you the opportunity. Otherwise, I have one more. We have one right at the back. If you could just wait for a microphone because we're being webcast. If somebody can bring you a microphone, that would be helpful. If you can put your hand up again because I think they're trying to find you.

I appreciate your comment on Hong Kong commercial real estate and residential real estate. Do you have any comment on -- for commercial real estate and residential real estate for Mainland China?

So on a kind of macro basis, commercial real estate in China is recovering in certain areas such as Tier 1 cities and quality developments or quality residential areas. And remember, in China was essentially a residential commercial real estate challenge, not rest. But residential is picking up in China and some of the Tier 1 cities. It remains subdued in a number of other cities. We believe some of the most recent measures and recall measures now taken around the Hukou, which is the kind of local residency permits and -- for domestic immigrants, rural or urban immigrants will support further this residential real estate because there will be -- a chunk of it will be used for social housing.

So we will support further some of these residential estate in Tier 2 cities. So broadly speaking, we feel it hit the bottom, but some of it has recovered, some of it will take a little bit longer, a multiyear process. That's the macro perspective.

On an HSBC perspective, I think where we stand today is we have no residual concern. We've taken some impairments over the last 2 years in this space. And whatever we left with are the ones we are comfortable with. And usually, they're mostly nonresidential. They're mostly occupied. They're mostly actually strong borrowers and current. And the ones that have been a bit more difficult have already been addressed either through write-downs or through restructurings. And when we look at our current book, we feel this is now vastly, vastly, vastly behind us. Thank you.

Okay. One last one for me before we wrap up. We've described HSBC as a global liquidity engine that's built on the deposit franchise, the wealth flows, the connectivity as well the global activity. As you look forward, what do you see as the most enduring advantages of that model? And how does that give you confidence when you think about the medium-term targets that you've laid out?

I think we have to approach it with 2 lenses. The first one is we're a bank built on the relationships on deep-rooted customer franchise on trust. For many, many, many decades and for many of our customers, more than -- well, more than 160 years, they were with us right at the start of our journey.

So being true to our heritage, to our values, being true to our customer relationships being -- demonstrating the resilience, the strength -- the financial strength, the hallmark financial strength of our balance sheet as a token of safety for them being able to demonstrate and put all our expertise for their good use, showing consistency, effectively true to our DNA through to our heritage, has served us extremely well, continues to serve us extremely well with these deep-rooted, highly trusted customer relationships. So I think the first element is to say it's true to our heritage and always striving to be the most trusted bank for our customer, for our relationship, for our clients, for our kind of deep, deep, deep rooted franchise.

And then the second aspect is that we also want and are moving at the pace of our clients as they face off to the future, the opportunities of the future, the challenges of the future. So we need to be a bank that is agile, that moves at pace, that innovates and that delivers so that while connected to our DNA, we need to be projecting our customers safely into the future at pace. And therefore, our investments in the future of digital finance, tokenization of assets, the future of AI and how AI is going to be utilized and all other innovation-related aspects, I don't know, sustainability-related financing capabilities, et cetera, need to be at the forefront of what we do.

So our customers feel we're taking them into the future with all the innovative capabilities of the future and doing so with the level of safety, comfort and trust they have with HSBC. I'm proud to say we've already demonstrated a number of these. For instance, the U.K. government have chosen HSBC and our digital platform for their first ever digital bond as a kind of blockchain issued bond, DIGIT [ gold ]. We've done -- we use that platform for many other issuances, including sovereign issuance such as the Hong Kong SAR, a number of corporates. We are a bank that now launched 24/7 frictionless payment through tokenized deposits across multiple jurisdictions, giving our clients access to this capability on and on and on. So that's us taking our clients into the future at pace but safely with the trust they should expect from a service and engagement in partnership with HSBC.

Very clear. Great note on which to end. Georges, thank you so much for taking the time. Thank you for spending time at the conference.

Thank you Chris. Thank you very much.

Good morning, everyone. Thank you very much, Peter, for this introduction and for hosting us today, and welcome, everyone, to One QRC, One Queen Road Central to the bank that's known as the Hong Kong Bank. We -- all of you have seen this iconic building. We celebrated 40 years, was it 2 months ago. We had Lloyd Foster, Norman Foster with us for the celebration. It was one of the highlights of his career, probably one of the starters of his career. Actually, what you've also seen in the video, some of you know, 161 years ago in exactly that same spot, we set up the Hong Kong and Shanghai Banking Corporation. In March in Hong Kong, a few weeks later in Shanghai, within 10 years in most of Asia. Within a year, we were already in Osaka and Kobe. We were within a few years in, well, Vietnam, Malaysia, Thailand or [indiscernible] China or Malayia or the [indiscernible], et cetera, et cetera.

But I think what's important when you look at that history is that, number one, we were set up by our customers. We were set up by those merchants, those entrepreneurs, those shipping companies who needed a bank that served their needs. They needed a bank that has their trust and they needed a bank that was focused on delivering what they needed and what their ambitions are. They need a bank that is relationship driven. They also needed a bank that allowed them to grow and grow with them. And this is why we ended up setting shop in so many geographies across Asia and the rest of the world. Of course, London a year after we opened Hong Kong. But in France, we opened in Lyon because that was the capital of France, not in Paris. And in the U.S., 10 years on, we opened in San Francisco because that was the port city. They needed a trade bank. And they also wanted a bank that called Hong Kong home because they collectively called Hong Kong home, however much their business was international and trading related.

And finally, many international banks have heard about this need and felt that they want to sail and come to Hong Kong and set up shop. They need a bank to set up quickly before any of these internationals come and try to build something. The first ship was due in a week coming from India with bankers. So they had 5 days to build the bank. And in 5 days, all the articles of association and the licenses were there. That was a bank that was agile, delivering to our customers fast for our customers. If you look at our ambition today and our 3 priorities. Our ambition is to be the -- one more slide, -- to be the most trusted bank globally, putting customers at the heart of everything we do. Our 3 strategic priorities is to be simple and agile, and that's in order to be responsive to a fast-changing world to be able to adapt and to be able to help our customers adapt and move at their speed.

Second priority, driving customer centricity. We are a relationship-driven bank. This is how we were built. This is our DNA. We're not a product-push bank. We're a bank that delivers to customers' needs, customers' goals and the evolving needs and the future needs and goals. Number three, we deliver focused, sustainable growth, focused on where we're best at serving our customers and sustainable because they are growing year after year after year, and we want to grow with them year after year after year. They need to count on us today. They need to know that we are here for them in 10 years' time, 20 years' time and longer. Never had our ambition and our 3 strategic priorities been so aligned to our DNA, but equally never had our ambition and 3 strategic priorities been so well positioning us for the world of the future, for the uncertainties that we're facing for the innovation that is coming. These are our basic DNA that are helping us position very well for the future.

So we set up 4 businesses. The first thing we did about 20 months ago is, well, set on the course to be simple and agile. I have to say sometimes in our history, we didn't live up to the DNA, and we became somewhat complex, and we're reversing that journey very fast. So we set 5 strategic missions to be simple and agile so that we can be responsive to a developing market and moving at the pace and the speed that our customers need us to move at. First thing we did is we reorganized our structure to align it to our strategy. And I'm pleased to say we have called Hong Kong a home market. We also have U.K. as a home market. These are 2 home market businesses we have a leading position.

We also have 2 network businesses, corporate and institutional banking, supporting our wholesale customers, global aspirations, the World's Trade Bank, but also wealth and Premier Banking, supporting our customers manage their personal finances, trusting us with their hard-earned savings, trusting us as the custodian of their savings and the manager of their savings. Second, after we set up the structure with these 4 businesses, we set up a leadership structure to be able to deal with it by deduplicating certain areas where we were too over matrixed. So now at the group operating committee that is dropped from 18 to 12 members, 60% of the revenue has single line of accountability at my group operating committee and therefore, fully empowered line of accountability. Importantly, 15% of our managing directors, we were able to reduce. That's about 300 MDs without impacting the business. These were roles that were duplicated due to the previous setup. That's done.

Number three, we promised you $1.5 billion of simplification saves to be taken to the bottom line. That's about 8% of the payroll cost. We have already decisioned -- we promised you that by the end of '26, a 2-year journey. By the half year results, we will have delivered it 6 months ahead of time in 18 months. We already, as of today, have actioned $1.4 billion of the $1.5 billion savings that we committed. Last year, in our P&L, we managed to get $600 million of those saves. That equated to about 4,400 full-time employees. By the half year, we will update you about the closing of this program of $1.5 billion full saves annualized. And the impact in terms of how much reduction of employees. I have to say this is non-impacting of revenue. These are simplification that's driving through the organization from the setup in the business setup and the leadership setup. And that will be driven through. And at the half year, the ahead will turn into done on this slide.

Okay. Number four, $1.8 billion of cost reallocation. This is where we decided to review our participation choices and to review those areas that are not strategic, where we don't matter for our customers to do them and then we shed them. And then we focus, we reinvest those costs taken out. We reinvest them in those activities where we matter for our customers, where we drive growth, where we drive returns and where we have competitive advantages. We've already decisioned 12 exits, $0.8 billion worth of those costs, associated revenue about EUR 1 billion. And we have under active execution, including some of the 3 strategic reviews that we called out, $0.5 billion. I'm expecting on that first chunk of EUR 1.5 billion by the end of the year to be vastly delivered, broadly substantially delivered. Now mind that the cost saves will only happen after the exit is complete.

So the decisions, the signing of some of these M&As will take us 12 months before the actual saves come and that we can redeploy it. You have to assume that redeployment will deliver higher revenue and higher returns than the revenue that's taken out because we're reinvesting it in those areas of higher growth potential and higher returns. And there's a $0.3 billion additional coming from the privatization of Hang Seng, which we discussed at length at previous results. These are the reported basis cost takeout. Our ambition is to deliver more than that in terms of cost takeout, more like EUR 0.5 billion. But from an M&A reporting standards, EUR $0.3 billion was the number that is auditable, and we're expecting to deliver those by the end of '28, okay? And that will be substantially moving forward.

The final point, number five is really where you're going to hear me talk about for the next few years because that's going to be a multiyear journey. This is really an upgrading of our operating model. This is HSBC reengineering itself, rewiring itself to be simpler, to be agile and to be able to deliver fast. Two big work streams under this category. The first one is a demise work stream. We're killing nonstrategic or legacy applications called out here, and we're tracking this. But we're also killing legacy products and all the processes and procedures linked to legacy products. We're killing spreadsheets, EUCs that are not needed. We're killing URLs, we're killing cost centers, and we're streamlining by taking down all of those. We'll be talking about that in the coming quarters.

The second work stream under this is we are simplifying policies process procedure, automating and embedding controls in an automated way. We have more than 50 of those process procedures that are in the process of being simplified. Now how we're going to go about that? That's probably one of the challenges we're going to face. Well, if I was here in 2020 talking about this, I will be telling you that we're going to put dozens and dozens of Six Sigma process engineers giving them a process, giving them weeks and weeks to be able to review it and redesign it, reengineer it and then another weeks and weeks and weeks to develop a new one. Fortunately, I'm doing this in 2026, 2025 started, and we have generative AI. And generative AI is going to be a material accelerator of these initiatives. So I'm going to take a minute to talk -- 2 minutes, talk about generative AI. So we set the vision and we set 3 goals. I'm going to read the vision.

Vision is to empower our colleagues to use AI in order to create personalized experience for each customer or client to deliver it safely in real time and at scale, while we keep human judgment, human decision-making and human accountability at the core. So let me unpack. First, empower our colleagues. Our -- we have 200,000 colleagues. we all know generative AI will destroy certain jobs and will create new jobs. But my initial mission is I need 200,000 colleagues with us on this journey. However, many will be left at the end of the journey isn't the problem. The problem is how can we make sure that those 20 200,000 colleagues have been given all the capabilities, the training, the tools to make themselves future-ready, be more productive versions of themselves.

Importantly, how can they be on the journey with us, not fighting us, not disentfranchised, not anxious, overwhelmed and resisting the change. That's our first mission. Everyone will be given training capabilities, productivity tools, specialized tools, coding assistance so that they can become a better, more productive, higher-performing version of themselves. It's on them to use these tools and be future ready. It's on us to make sure that they're all given these opportunities to come along the journey with us.

Number two, simplify -- goal number two, simplify and scale how we operate. This is what I was just mentioning earlier, the more than 50 work streams that we're simplifying. We appointed already a Chief AI Officer. He already delivered end-to-end, the KYC onboarding process for corporate institutional banking with material productivity saves and time save. And now we've given him oversight across the bank, all our value streams, businesses and functions, technology and operations to help us redesign, collectively redesign with the help of AI, with the help of external partners, all these processes, more than 50 of those mission, achieve real time or near real time. It's a moonshot. But imagine we're onboarding in real time, credit card application approval in real time, wholesale revolving credit facility approval in real time, capital allocation in real time. That's the moonshot. So we're bringing time down materially, but the idea is if you're fully automated, your customer life cycle should come to nill.

Third, we want to personalize experience for customers at scale. And this is where it's not anymore about productivity or cost gains. It's going to be about acquisition of more customers and more revenue. So there is a customer -- there's a revenue element, there's a new customer element in this third goal, which is the personalization of experience. We are putting these tools in the hand of all our frontline colleagues today. They will be using them, be it relationship managers, wealth advisers, contact center operators, salespeople, et cetera. But in the future, if these tools have proven their worth and we train them well and then we control them well, we can put them in the hand of our customers. There are a number of initiatives that we called out. You can see the next slide will show 2 initiatives in terms of simplification, the KYC one as well as the financial crime risk monitoring.

Just to give you an idea, KYC, we achieved 55% productivity, 50% reduction in client onboarding time. Of course, the moonshot is 100% reduction, but that's a fantastic journey so far. Financial crime risk monitoring, we are 4x better at detecting financial crime. We're twice faster in the investigation, and we have 70% fewer false positives. You can see the benefits. They're already live. We're using them. They're already delivering the productivity gains that we see. On the right side of the slide, you will see how we're hyper-personalizing customer experiences. I won't go through those details, but that's the contact center example and the wealth AI example where we're personalizing the experience. Okay. Now I'm moving on to the third strategic priority, which is focused sustainable growth. As you can see in our 4 businesses, Hong Kong business, U.K. business, International Wealth and Premier Banking as well as Corporate and Institutional Banking. We have multiple growth drivers. We have a good track record of growth. You can see '24 to '25. You can see our deliveries in '26.

And importantly, you can see that our return on tangible equity for the first quarter in '26 is above 17% for each of those businesses. In '25, it was above mid-teens for each of those businesses. Let me unpack one by one. Let's start with the Hong Kong business. So Hong Kong, we're the Hong Kong bank. But Hong Kong, as you heard from Peter, is a super connector to the Mainland. It's a super connector for the Mainland companies who want to go international, they come to Hong Kong as a launch pad to go international. But it's also set to become the largest cross-border wealth hub before the end of this decade, superseding Switzerland. A lot of it is coming from China or from Asia in general or international. That is the opportunity. So we doubled down on it. We took Hang Seng private. And we thought with the 2 banks and the 2 brands of HSBC and Hang Seng, we should be able to get maximum opportunity from these underlying growth -- structural growth drivers. If you look at our position in Hong Kong, with a deposit base of $619 billion, we're practically twice the second largest peer.

We're coming from a position of material substantial leadership. But we are investing fast and hard because that opportunity is massive. We onboarded 1.2 million new personal banking customers in Hong Kong 2025 alone. We onboarded 800,000 in '24. We could onboard 1 million customers per annum for the next 20 years if you assume, among other that the China -- Mainland Chinese middle class looking for international investment aspirations for their savings, is going to choose Hong Kong as their financial center. We need to be geared up for that. Between Hang Seng Bank and HSBC, we have 10 million customers. About 15%, 20% are nonresident. Still, that leaves us with more customers than there are people, including toddlers in Hong Kong. That's because many of them are customers of both brands. They love the 2 propositions, differentiated, but they like both. We're building and strengthening our market share. We're acquiring new customers at pace, and we're building wealth capabilities here to support the growth of Hong Kong and to support this launch pad to -- from China to the world. Second business to call out, Asia wealth opportunity. Our wealth business is essentially driven by Asia. It's 2/3 of our wealth business.

Wealth in Asia is set to grow 7% CAGR for the next 5 years, one of the fastest-growing wealth opportunities on the planet. Our brands, our heritage, our position in all these Asian markets, as Peter was saying, more than 150 years for most of these markets. our deep connections with these markets, our capability to onboard from the new emerging affluent all the way to the affluent, all the way to the high net worth following their personal journeys, our capability to onboard from our corporate institutional banking, the founders, the entrepreneurs, the C-suite coming over and helping them with their wealth are all channels where we can be a leader for growing this business. Not only do we want their deposits, but we also want to convert them to invest with us. We still have 65% of our premier customers who still don't have wealth products with us. You can imagine how seamless it should be for us building product capabilities and converting these deposit customers to become also investment customers with us.

And we have multiple booking centers. One of the biggest wealth drivers today is how our customers can use a diversified booking center structure for their wealth management globally. We have 8 booking centers globally that we can offer them. That is a unique position. Now Wealth already is 25% of group revenues between fees and NII from deposits. Wealth is already 25% of the $70-plus billion of group revenue. And in Asia, in wealth balance terms, we're already the leader with more than $1 trillion of wealth balances. And we're a leader with some margin to the next one, the Swiss, and we keep investing to grow even faster. Third business, CIB. I want to call out 2 features driving growth in CIB. The first one is Asia buys Asia. We coined this term. Asia buys Asia basically is reflective of how much more trade and investment flows are taking place within Asia. how much this is driving GDP growth in Asia expected to be another 1.8% additional GDP growth due to this intra-Asia flow, Asia, Middle East.

As Peter said, we have presence in 18 markets in Asia, plus 10 markets in the Middle East. That's 28 markets for our 50-odd markets globally. And we're a leader in practically all these markets in trade. We're #1. Market share in Hong Kong, more than 30% in trade. But what's important is shipments in 2025 in Asia hit a record high. So one can argue there is a trade and tariff war going on. Asia buys Asia is growing relentlessly strongly, and we are extremely well connected to this opportunity. Now if you look at our business, wholesale transaction banking, which captures trade payments in Asia. we're more than twice larger in revenue terms than our second best competitor. We're more than 2.5x larger than the average of our next 3 competitors. That's our leadership position. And we're investing. We're investing in deposit growth.

We're investing in the network capabilities. And very importantly, we're investing in innovation. And you'll hear from Manish later on how we're investing in tokenized deposits, real-time payments, stable coins, and you'll hear also how we're investing in our various platforms for blockchain-related activities. So those investments, we will be, therefore, with all the rollout of what we're doing, the leader in driving innovation in payments or in general in wholesale in Asia. The second thing I want to call out about CIB is the global flows because we have a global network, not just an Asia network. I think this is very important. 85% of CIB customers are multi-jurisdictional customers. Half the revenue -- more than half the revenue they book, they book outside their home market. This is us at our best as a network bank. 65% of those customers are customers whose home market is in the Americas, in Europe or in the U.K. Our presence in the Americas and Europe and the U.K. is critical to bank these customers in their home market at their head office so that we can capture their flow. And if you look at their flow, 50% of that flow comes back to Asia. Asia is a big beneficiary, not just from within Asia, but from this Western American, European, U.K. business that is coming to Asia.

If you look at the Americas, that's mostly the U.S. really, it is one of the largest contributors to revenue in Asia, but also everywhere. And that's a very important feature to call out. And of course, there is the Asia -- intra-Asia flow, and you can see the Chinese Mainland Hong Kong flow, which is demonstrating how the Chinese Mainland customers are using Hong Kong as a launch pad for their international aspirations. Okay. The last business I want to call out, you'll only hear about this from me, the U.K. because we're in Asia and we're doing Asia seminar. But in November, David Lindberg, our U.K. CEO, will talk to you in a little bit more detail about that. But there are a few things I want to call out about the U.K. business. The first one is if you combine our ring-fenced bank and nonring-fenced business in the U.K., we're talking a business that generates in the U.K. alone $19 billion of revenue. We're talking in the U.K. alone a business that's driving $570 billion of deposits. And we're talking basically a top 3 bank in the U.K. But when you consider the #1 and #2 banks in the U.K. are domestic-only bank, we are the leading international bank in the U.K. flat. And by being the leading international bank in the U.K., the U.K. is extremely important for us.

And you can see the flows from the Americas and Europe to the U.K. as well as the flows from the U.K. all the way into Asia. But we are extremely important to the U.K. as a bank. We are the bank that is making the U.K. a global hub as well. So with that, we have a full day. I'm not going to go through the agenda. You have it. You will hear from all my colleague or a very large number of my senior leadership team here. I'm extremely proud of every single one of them and what they've achieved as individual leaders as well as teams, and I'll leave you to hear from them. That's your day 1 agenda. That is the day 2 agenda where we take you through some more of our businesses. And then I'm going to close on just a few items, my final remarks. The first one is we are becoming simple and agile as we've always meant to be, building a bank for the future and leading in innovation. Strategic priority #1.

We're a customer-centric bank with a high-quality customer franchise, unrivaled customer franchise. And each of our businesses is built on trust, is growing its revenues, is growing its deposits and is delivering above 17% returns. And we're a bank that is delivering focused, sustainable growth from a position of undisputed leadership being the #1 bank in Hong Kong by miles, the #1 wealth manager in Asia by certain distance and the #1 transaction bank in Asia as well by a certain distance. And we're doubling down our investments to be able to capture the structural growth opportunities and continue taking market share. But importantly, and finishing on that note, we are built on strong foundations. The world is uncertain. The world is evolving fast, but our positioning is extremely supportive of us helping our customers navigate these uncertainties. We have a very strong balance sheet. We have a hallmark financial strength, liquid, highly capitalized prudent risk management

We have a brand trust and a heritage that's unrivaled. We have a power of a global network that is not only broad but more importantly, deeply rooted and culturally deeply aligned to all our customers and decision-makers and policymakers in all those markets where we operate. And we have one of the most attractive cultures with people highly skilled with deep product expertise.

And on that note, I'm going to ask Pam to come and take you through additional information. Thank you very much,.

Good morning, and a very warm welcome. Thank you for joining us today. I've had the pleasure of meeting most of you, so I'm going to spare you the introduction. I think you know me well enough by now, the gray hair tells, so it's a good recognition. We have been looking forward to this seminar for some time. It is really an opportunity for us to step back from the earnings cycle and talk in depth about the bank we are building. George has spoken about where we have come from, where we are today and where we are going next.

I'm going to talk to you about the strong foundations we are building from. First, the discipline and focus we are applying, and that really matters. Second, how we are driving growth because growth is the next stage of our journey, and we are going to absolutely double down on it. Third, the choices that we are making in order to create that growth, which is bang on strategy and gives us that operating leverage as we move forward. Now let's start first, why we are confident in delivering our targets. Now I believe that results speak for themselves. Our financials show a consistent improvement. Revenue has grown 5% and earnings per share 11% on a 2-year CAGR basis, excluding notables. RoTE is 1.2% higher to the best level that we have achieved in the last 2 decades. This is unlocking true shareholder value no matter where you are, and it provides us with a platform to raise our ambition, and it gives us the confidence to continue to build from the strong foundation.

Let's just turn to the targets we set in February. I'm going to offer you some context on the targets you are familiar with. When developing them in line with our conservative nature, we want to give you targets that we intend to achieve under a range of scenarios. So there are a range of plausible scenarios we consider when we set our targets. But behind that, we are ambitious. Now what does that mean? It really means that our goals are pushing us to improve, to think differently, as George called out, and raise our performance further. I'm often asked, you just look at your targets and then do you stop? And I said, do you think I'm going to stop there? The targets are there for us to run the bank to deliver on those targets, but we don't stop there. They are the baseline from which we continue to build.

Now let's look at the foundations underpinning our targets. As George said, banking begins with trust, and that's our hallmark strength. Customers place their money with institutions. They see us safe, stable and who will protect their money. And that is even more important when the world around us, the macro environment is uncertain and volatile. That trust truly matters to us. Deposits for us are more than just funding. They reflect the confidence our customers have in us, and they reflect the strength and growth potential of our franchise. Now we hold a surplus of deposits in each of our major currencies, in each of our 4 businesses and in each of our major operating entities. We are very pleased with that, but we work hard to earn our customers' trust. We do not take it for granted. Now this trust gives us the resilience through cycles and a strong foundation for growth.

Now in the first quarter results, we gave you some additional deposit disclosures because we wanted you to see the quality, diversification and strength of our $1.8 trillion deposit base. We also shared with you how $1.2 trillion of our deposits are instant access, relationship balances. They are global and they fund each of our 4 businesses. Now turning to how our deposits are driving earnings. Most of our banking NII is deposit driven. Our loan-to-deposit ratio is 55%. We have a strong track record of growing deposits as the 4% CAGR on the slide shows. Our deposit relationships then give us a deeper engagement over time with all our customers, and they lead to wealth and investment products, payments and cash management, trade and foreign exchange. Simply put, the value of our relationship with our customers can and does extend well beyond the deposit itself.

That is just the starting point. It gives us high-quality recurring revenues that support high-quality fee and other income revenues. and our global network and deep franchise drives connectivity across our businesses and markets through our global footprint. Now what this does is it strengthens both the resilience as well as the sustainability of growing earnings for the bank. Now let's look at these instant access deposits specifically. A defining strength of our deposit base is that 70% comes from instant access. This is across our retail, wealth, commercial and wholesale transaction banking businesses. These are balances connected to our customers' everyday activities, true relationship balances.

For retail customers, it reflects us having a primary banking relationship with each and every customer. For commercial customers, it reflects operating accounts, transaction banking and cash management flows of our customers. Our relationship-led deposits are driven by the role we play in our customers' financial lives and not just simply pricing. As the slide shows, our instant access deposits fund 124% of our loan book. For peer banks, it is below 100% -- and what does it really mean? Simply, it makes us less reliant on market funding than any peer. It gives us flexibility. So when we see attractive lending opportunities, which are on target, on strategy within our risk appetite, we can and we do move quickly. It also means we generate our strong return on tangible equity with lower balance sheet leverage than many of our peers, and that is a key strength for us.

Our deposits provide the foundation for our growth. And when we think about growth and where it comes from, of course, we think about Asia because it's at the heart of who we are. Let's turn to it now. Asia, as you saw in the video, and Peter mentioned and George, it has been our heartland for more than 160 years. It is driving 60% of global growth and 40% of global GDP. So we are prime positioned to take advantage of those evolving trends. Asia is at the center of new trade, capital and wealth flows. We are a leader in Asia, and it is a leading contributor to the group, its performance as well as growth trajectory. Across the region, our international network and customer franchise gives us real competitive strength. You can see this in our 7% customer deposit and 5% revenue CAGRs in what has been a challenging falling rate environment. That is why our success in Asia is key to delivering our targets, and it is built on the strength of our customer relationships and the trust they have in us in every market.

At this seminar, we'll talk about the opportunity we see and where we are making investments to grow. Let's look first at our most recent growth investment, Hang Seng Bank. We now own 2 iconic banks here in Hong Kong. Like HSBC, Hang Seng Bank is a bank built on the trust of its customers. It has history and heritage, deep customer relationships and is the leading local community bank here in Hong Kong, and that truly matters. We see significant opportunity to build on the strengths of Hang Seng Bank, particularly in wealth, SME and MME banking, where customer relationships run deep and banking needs are rapidly evolving, and we are there to serve our customers. We also see the opportunity to simplify how we operate together to co-build capabilities align technology and infrastructure more effectively, upgrade systems and invest for the future.

I'll not talk more about this slide. You've heard us, our ambition does not stop at just the numbers there. They are the blank boxes there, and that really call out that once impairments normalize as we are seeing through the stabilization of the Hong Kong commercial real estate and growth comes in, we see an even further upward trajectory than the numbers that have been called out at the year-end results. Now Luanne and Maggie will talk in depth about both of our franchises, and I'm sure they're going to be far more eloquent because they live here all the time, irrespective of how I travel and get to know the place. So I'm sure you'll be very keen to hear from them later this morning. Now I'm going to move next to wealth.

As we've said before, we are a customer relationship bank. We are building the bank around these customer relationships and wealth is no different. Our relationships reach across retail, wealth and corporate banking. When we think about wealth, our starting point is our relationships that have spanned decades, even generations, particularly in Asia, which is our Heartland. That is why we have built a full suite of products so that we can serve our customers through all life stages. and that is our key strength. Now this gives us multiple opportunities to support our customers with their wealth and business needs. Now particularly in Asia, where we're seeing rising wealth and entrepreneurship driving long-term structural growth, we are there on the ground to take those opportunities and to continue to build on the strength of our customer relationships.

Now just to help you see the significance of our wealth franchise, we are providing new disclosures today. Wealth generates 1/4 of our group revenue and 2/3 of that 25% comes from here in Asia. What the disclosures also show is that the major contributor to banking NII is wealth deposits. These wealth deposits generate 20% of our group banking NII. And again, 2/3 of that comes from Asia. And it is our intention to continue to seize the wealth opportunity in front of us. We are well positioned with how we have prioritized these markets, how we are investing in wealth and the heritage and the history we come from.

Now let me briefly conclude before we move to the management presentations, which I know you have all been eagerly waiting for. Trust sits at the center of our business. It supports lower funding costs, drives resilient earnings and is the foundation, a very solid foundation indeed for future growth. We have an integrated network business with strength in our capabilities across payments, trade, FX and security services. And that really helps us navigate our customers in what has been a more and more volatile uncertain world. Now this is an important part of our growth story, and we will discuss further with some of my colleagues this afternoon. Our network is truly unique. It has scale, it has breadth and the depth of our customer base. And that gives us a very broad base of opportunities to continue to grow. Now you can see after all that, why we are truly excited about the next phase of our journey, which is going to be a journey of growth.

As a starting point, we are the #1 bank in Hong Kong, and we intend to drive further growth. We are the #1 wealth manager in Asia, and we intend to capture the structural growth opportunity ahead of us. We are the #1 wholesale transaction bank across the region, and we will grow with the trade, capital and investment flows shaping Asia's future. We are investing in innovation to position us to remain at the forefront of new forms of finance, particularly in digital assets and currencies. That is how we are building a modern bank, a bank built for the future.

I'll now invite David and Rosha to take it from here.

Thank you, Pam. Good morning, everybody, and welcome to One QRC. My name is Surendra Rosha, and I'm joined today by my Co-CEO, David Liao. David and I have the privilege of managing HSBC's business in Asia and the Middle East. Together, we are members of the Group Operating Committee. We are Executive Directors on the Board of the Hong Kong and Shanghai Banking Corporation. David also sits on the Board of Hang Seng Bank and Chairs HSBC China, and I'm a Non-Executive Director of the Board of Saudi Awwal Bank.

Thank you, Rosha. Good to see you all. Today, we're going to elaborate on the group strategy that George has laid out and detail the management actions we are taking to capture the new opportunities to drive growth. We are building a growing and high-returning HSBC in Asia. To drive momentum, Rosha and I are focusing on banking the growing wealth in the region, deploying the unique global network to gain cross-border banking share, leveraging the 2 distinctive brands of HSBC and Hang Seng simplifying our organization structure, accelerating decision-making and last but not least, upgrading our processes and system to better serve the customers.

As Peter mentioned just now, China is the growth engine for Asia and beyond. We are sitting at the financial catchment of the world's largest trading economy. China generated $20 trillion in GDP last year, a major global contributor of innovation with half of the world's IP filings coming from China last year. It's home to 1.4 billion consumers with much upside on growth, and it is the world's second largest equity and bond market. China is a net capital exporter, generating 10% of world's outbound direct investment flow with Hong Kong adding another 5%. Our CIB business is well positioned to support Chinese institutions and corporates as they expand internationally.

China is fueling the growth of wealth in the region. We added 1.3 new-to-bank customers in Hong Kong in 2025. And all of this, we are only scratching the surface. There are over 70 million Mainland Chinese with offshore wealth needs. Turning to next page. On the back of the world's second largest economy, Hong Kong's fundamental is very strong. GDP was up nearly 6% in the first quarter. Housing market activities are picking up, and it is the world's leading IPO market. The government is developing an all-encompassing financial market, stepping up in fixed income, currencies and commodities as well as in digital assets.

The foundations are compelling as ever, a $2.5 trillion liquidity pool backed by a robust regulatory regime, an attractive regional headquarter and treasury center with over 10,000 multinationals with regional headquarters here. As wealth and investment flow in from around the world, we see a runway for growth across asset classes and currencies and much more room for development as an offshore renminbi center. The opportunity is substantial, but our Asia franchise is more than just Hong Kong and China. Rosha?

Thanks, David. So you heard this morning about how through its history, HSBC has been anchored in Asia and the contribution Asia makes to the group. But what's very important for us is the future. As the region is growing and the way it is growing is changing, it plays to our strengths. Trade is rebalancing and our global network supports customers as they rewire not just their supply chains, but they look to open up new markets for their products. New technology is delivering real-time payments and finance. Regional capital is moving outward and diversifying. And Asian wealth is becoming more mobile, moving across borders coming into Hong Kong, coming into Singapore and investing globally. In short, for us, Asia is the growth engine.

Hong Kong amplifies that growth and HSBC is the connector. We are the leading international bank in Asia today. This is not a single market story. This is about a deep franchise. We are diversified, connected and resilient, present in 18 markets that represent 90% of the GDP of the region. We bank 79% of the global Fortune 500 here. In Hong Kong, as you've heard, we are the #1 bank, but also in Singapore, our growth is supported by strong wealth and treasury activity. India's PBT is up nearly 50% since we last met. The -- it is the largest contributor to CIB outside our home markets. In the Chinese Mainland, we banked around 80% of the MSCI China Tech 100. And in all our other markets, we have an average of 100 years of history, deep relationships, and we continue to deepen that penetration. Last year, David and I took over responsibility for our Middle East business, enabling us to capture the growing connectivity between these 2 regions.

Next, I'll go into 3 actions that David and I are focused on as we look to deliver sustainable growth in the region. Firstly, Hong Kong. You heard from Hong Kong -- you heard from David, sorry, about the strong fundamentals of our Hong Kong business. The scale of our franchise is impressive. In the geography of Hong Kong, across our 3 businesses of the Hong Kong pillar, IWPB and CIB, we earned $13 billion in profit before tax. nearly 50% market share in credit card balances and mutual fund sales in the city, around 1/3 in trade and 1/4 in deposits. But collectively, the management team here is not complacent. Our leadership must be defended, renewed and expanded. David, Maggie and Luanne will go into more detail on this later this morning. Secondly, you heard about the scale of our wealth franchise in Asia. This has underpinned double-digit growth, wealth CAGR for the last 2 years. But there are 2 things I'd like to call out that differentiates our franchise from others. We bank customers across the continuum, 3.8 million premier accounts across Hong Kong and IWPB in the region, 35,000 private banking relationships, and we can upgrade seamlessly across this continuum as people's wealth grows.

Secondly, our ability to cross-sell and refer across businesses. We refer entrepreneurs from our commercial banking business in Hong Kong, from our CIB business in the region to the Private Bank and capture wealth broadly across all our businesses, including in CIB, where we manufacture wealth products and provide custody for wealth assets. You will hear more from Barry and the IWPB team on this later tomorrow. The third thing we are focused on is our distinctive global network. 60% of the cross-border revenues booked in Asia are contributed by customers from outside the region. Our network is uniquely positioned to capture 4 broad trends. China outbound.

Chinese corporates are seeking new markets. We know that. Mainland corporates, WeBank increased their offshore presence by 40% year-on-year, adding over $1 billion in revenues. Today, we have over 120 Mandalin-speaking relationship managers and salespeople across 28 markets, and that number continues to grow. Secondly, Asian asset managers and institutions are diversifying. There has been -- this has been a particular a particular growth focus for us in our institutional client business. Revenue from Asia-based FIs grew by double digits over the first quarter of this year. Thirdly, the corporate champions of the future are being created and incubated in Asia right now, which is why we launched innovation banking in the Chinese Mainland, in Hong Kong, in India, in Singapore to serve Southeast Asia and in Australia.

And lastly, as we think about new infrastructure being built and energy resilience being built across the region, our balance sheet positions us very well to support our customers. We will hear more about this from our CIB team later this afternoon. As we build HSBC into the bank of the future, this foundation and Asia is core to that journey, but the foundation for this build is technology. You heard about our focus on AI from George, and you will see some of the use cases that are being put to work in delivering hyper-personalized service to our customers later this evening at the ICC Wealth Center.

Secondly, we are partnering and investing in fintechs across the region so that we can accelerate development and co-deliver solutions ranging from platforms to customer service and fraud prevention. And thirdly, in terms of digitization, we talked about blockchain, stablecoin, tokenized deposits, and a lot of these products are today live with us in Hong Kong and across the region.

I will now hand over to David to go into more detail about the Hong Kong business.

Thank you, Rosha. Hong Kong, as you can see, is our home market and a substantial contributor to the group. We have 2 iconic brands here that cover retail and wealth as well as commercial banking. HSBC is the largest bank in Hong Kong, and Hang Seng is the largest local bank. The 2 combined serve almost the entire population and almost 0.5 million business banking customers. Under the simplified organizational structure, Rosha and I are directly responsible for the Hong Kong business.

We are focusing on 3 initiatives: First, deliver the revenue and cost upside of Hang Seng privatization that Pam spoke of. Secondly, investing in wealth, people and capabilities. Finally, capturing the cross-border activities from the Chinese Mainland. I will go into each of them in detail. Growing the 2 iconic brands. At the full year results, George and Pam communicated the $900 million revenue and cost upside we expect from the $13.7 billion Hang Seng privatization. Fundamentally, this is about serving our loyal customer better by leveraging the strength of the entire group. This means leverage the best-in-class wealth capabilities that we have across the group, enhancing our business banking propositions through digitization.

This month, for example, Hang Seng already launched remote account opening for Mainland customers using a capability developed by HSBC Hong Kong. We are also connecting Hang Seng to HSBC's global network and products. In simplification, we're positioning the 2 brands to be able to co-build capabilities with a modernized technology foundations. In wealth, both brands are starting from a position of strength as reflected in strong customer growth at the top of the spectrum. HSBC Hong Kong has been accelerating growth of its customer base, creating a pipeline for future upgrades, while Hang Seng has a very high wealth penetration and is executing a focused strategy to increase market share.

Maggie and Luanne will shortly detail their plans to drive further wealth growth -- wealth revenue growth. Expanding the customer base. We are growing at pace, but there is just much more upside. Hong Kong is reshaping into a new era of upsized cross-border consumption, investment and trade hub. We have seen an intense influx of new nonresident customers, corporates and individuals and rapid growth in Mainland-linked businesses. On the retail side, we opened 2.1 million accounts over the last 3 years, sizable, but a fraction of the addressable market. On the corporate side, we acquired over 60,000 Mainland business customers in 3 years, and the pace is accelerating. We will continue to invest to capture further customer growth through seamless onboarding, digitization and leveraging our connectivity. Now I'll hand over to Rosha to conclude.

Thank you, David. So to conclude, we have scale and momentum in Asia, underpinned by 3 #1: #1 in Hong Kong; 1 in Asia wealth and #1 in Asia CIB anchored by wholesale transaction banking. We are investing in technology, and we are investing in our people to better serve our deepest, most trusted customer relationships. But also importantly, we are building new relationships with new customers in the region. Our global and complementary businesses is our calling card, enabling us to capture the growth opportunities in the region across our home markets of Hong Kong, wealth and CIB.

I will now pass over to Maggie Ng, CEO of Hong Kong. After Maggie's presentation, we will be moving to Hang Seng to hear from Luanne Lim, our CEO for Hang Seng Bank. There is time later for Q&A with all of us. Thank you.

Welcome to the analyst and investor presentation for HSBC Holdings plc First Quarter 2026 Earnings. This webinar is being recorded. I will now hand over to Pam Kaur, Group Chief Financial Officer.

Welcome, everyone. Thank you for joining. We have had another quarter of positive performance, which reflects further progress towards creating a simple, more agile, growing HSBC. Annualized return on tangible equity, excluding notable items, was 18.7%. We are confident in achieving the targets we set out to you at the full year. We are updating 2 pieces of guidance today, banking NII to around $46 billion and our expected ECL charge to around 45 basis points. I'll talk to the drivers of both shortly.

In the quarter, we continued to make disciplined progress in simplifying the group to unlock HSBC's growth potential. We actioned a further $0.2 billion of simplification saves and remain well on course to deliver the $1.5 billion target. We completed the privatization of Hang Seng Bank, the sale of U.K. Life Insurance, Sri Lanka Retail Banking and South Africa. And as you will have seen, we have agreed the sale of our retail banking business in Indonesia. We expect to realize an up to $0.4 billion gain on completion anticipated in the first half of 2027. Our CIB business in Indonesia is unaffected.

On outlook, the economic landscape remains complex and uncertainty will persist. Our thoughts are with all those affected by current events in the Middle East. We are fully engaged in supporting our colleagues, customers and partners across the region. We are well positioned to work with our customers and manage the uncertainties in the global environment from a position of financial strength.

Let's turn first to the income statement, where I will focus on year-on-year comparisons unless I indicate otherwise. Profit before tax, excluding notable items, was $10.1 billion. Notable items this quarter include a loss of $0.3 billion on moving Malta to held for sale, a loss of $0.2 billion on the sale of U.K. Life Insurance and $0.1 billion of restructuring costs related to our simplification program. Revenue, excluding notable items, grew 4% year-on-year to $19.1 billion. This was driven by banking NII and strong growth in wealth fee and other income.

Annualized RoTE was 18.7%, 0.3% higher than last year. It benefited from the removal of Hang Seng Bank minorities. Looking at capital and distributions. Our CET1 capital ratio is 14%, down 90 basis points on the quarter as expected following the privatization of Hang Seng Bank. Reflecting our strong organic capital generation, we are already back to our operating range of 14% to 14.5%. The dividend for the quarter is $0.10. We continue to target a dividend payout ratio for 2026 of 50% of earnings per ordinary share, excluding material notable items and related impacts.

Let's now turn to our business segment performance. Each of our 4 businesses grew revenues and each also delivered annualized RoTE in excess of 17%, excluding notable items. This broad-based performance shows our strategy is working. I would just mention the $0.2 billion gain from a one-off property asset disposal in the Corporate Center, which is not a notable item.

Moving now to banking NII. Banking NII increased $0.3 billion year-on-year to $11.3 billion. It fell by $0.5 billion quarter-on-quarter. $0.3 billion of this quarterly decline is day count. We also noted at the fourth quarter, $0.1 billion in gains that we did not expect to repeat. In addition, this quarter, HIBOR was lower in March, and we also recognized a $0.1 billion adverse one-off. We are now upgrading our full year banking NII guidance to around $46 billion. This reflects an improved interest rate outlook. I would highlight that interest rate curves have been volatile and can, of course, change further in either direction.

Turning now to wholesale transaction banking. Recent economic, market and tariff situations have validated the strength of our franchise, both over the last 12 months and in this quarter. We grew fee and other income 2% year-on-year. Customers continue to turn to us to help them navigate volatility and uncertainty. Our balance sheet and franchise strength are particularly valuable in times like this. In the quarter, Securities Services grew fee and other income 11%, reflecting new mandates and higher transaction volumes.

Trade grew 8%, driven by continued growth in volumes. Payments grew 3%, driven by growth in volumes across most regions. Foreign exchange fell by 1% compared to a strong first quarter last year. We continue to see growth in volumes and strong client engagement. Turning now to wealth. We grew fee and other income by 15% to $2.7 billion. I remind you that the first quarter of last year was a high base. Growth was driven by all 4 income lines, and we added 287,000 new-to-bank customers in Hong Kong.

It is worth remembering there is typically favorable seasonality to the first quarter when compared with the fourth quarter. Having said that, we are pleased that the investments we are making in our wealth products, distribution channels and customer experience are translating into real results. Private Banking grew 8% and Asset Management, 3%. Investment distribution performed very well, up 21%, reflecting particularly strength in our customer franchise in Hong Kong. Insurance growth of 19% from a strong base was also pleasing, again, with Hong Kong, the standout.

Our insurance CSM balance was $15.2 billion, up 19% versus the prior year. First quarter wealth balances were $1.6 trillion, up 12% or $170 billion year-on-year. Net new money in the first quarter was a strong $39 billion, of which $34 billion came from Asia. This is a broad-based and robust franchise. Our investments and focus are paying off. I will note that we saw a slowdown in flows in the early days of the conflict, but activity recovered in April across our wealth franchise in Asia.

Turning now to credit. Our first quarter ECL charge was $1.3 billion, equivalent to an annualized charge of 52 basis points as a percentage of loans and advances. Given the ongoing uncertainty in the outlook, we are updating our full year 2026 credit guidance to around 45 basis points. This quarter includes a $0.3 billion charge related to the Middle East conflict. This is precautionary and related to the impact of the conflict everywhere, not just in the Middle East. We also include $0.4 billion for fraud-related secondary securitization exposure with a financial sponsor in the U.K.

I will emphasize that we regard the Stage 3 charge this quarter as idiosyncratic and not representative of the risks in the wider portfolio. We have completed a full review of the highest risk areas in our portfolio and have not identified any comparable fraud concerns. We have updated our risk appetite and are incorporating lessons in our due diligence processes. This remains an area in which we are comfortable, but it is not a significant growth driver in our plan.

In Hong Kong commercial real estate, we had some small recoveries in the quarter. And overall, it remains broadly stable. You will see our usual detailed breakdown on Slide 21. On Slides 15 and 16, we have also set out our private market exposure. We have made these expansive definitions to give you a full picture of our full-service business in private markets.

Let's now turn to costs. We continue to take a disciplined approach to cost management. We are on track to achieve our target of 1% cost growth in 2026 compared to 2025 on a target basis. Cost growth this quarter is 3% year-on-year. This included 1% driven by higher variable pay accrual based on business performance. If you exclude the variable pay accrual, target basis cost growth was around 2% year-on-year. We manage costs on a full year basis. So looking at a quarter in isolation is not meaningful. We remind you that our simplification actions provide a cumulative year-on-year benefit through 2026. For the avoidance of doubt, our 2025 target cost baseline is $34 billion when updated for FX.

Now let's turn to customer deposits and loans. Our deposit momentum continues with $99 billion of deposit growth, including held-for-sale balances over the last 12 months. CIB deposits increased $10 billion quarter-on-quarter in what is usually a soft quarter. Hong Kong was a particular driver. This corporate inflow offset a slower retail flow in our Hong Kong pillar. You will see deposit seasonality on Slide 20. Excluding the movement of Malta to held for sale, IWPB deposit growth was $4 billion. You will see on Slides 18 and 19 that we have set out additional deposit disclosure. This shows you the deposit base split between fixed term and instant access accounts. The 70% instant access proportion should help you see the strength and breadth of our deposit base across our businesses.

Turning to loans. Growth picked up in the quarter. CIB mainly reflects continued momentum in GTS, higher term lending in Hong Kong and drawdowns on committed lines by high-quality borrowers in the Middle East. We are pleased to be there for our customers when they need us most. Hong Kong returned to volume growth this quarter after a period of decline. We are pleased to see borrowing appetite return as the economy grows and as residential property prices recover. Our $13.7 billion investment in Hang Seng Bank is a signal of our confidence in the opportunity in Hong Kong.

We are investing across both iconic banks, and we see significant growth runway for both ahead. In the U.K., we delivered another quarter of good growth. This was both mortgages and our commercial lending book. We see good momentum in our domestic portfolio. Low levels of household and corporate debt in the U.K. provide a platform for the continued growth of our franchise.

Now turning to capital. Our CET1 capital ratio was 14%, down 90 basis points in the quarter. This follows the 110 basis point impact of the Hang Seng Bank privatization and Malta disposal loss. We also saw a 12 basis points impact from the fair value through other comprehensive income bond portfolio, as government yields rose following events in the Middle East. These were offset by ongoing strong organic capital generation. We are pleased to have remained within our CET1 operating range since the announcement of the Hang Seng Bank privatization. A decision on future share buybacks will be taken quarterly, subject to our normal buyback considerations.

Let's turn to targets and guidance. First, targets. We reiterate the targets we set out to you at the full year. Revenue rising to 5% year-on-year growth by 2028, excluding notable items. Return on tangible equity of 17% or better, excluding notable items each year. Dividends, 50% of earnings per share, excluding material notable items and related impacts. Finally, to guidance. Today, we are updating our banking NII to around $46 billion, given the higher rate outlook and our ECL charge to 45 basis points given macroeconomic and market uncertainty.

In addition, to inform management planning, we have assessed a range of top-down stress scenarios. We have set these out for you on Slide 17. I'm happy to discuss these further in Q&A. All other guidance set out on this slide remains unchanged. To conclude, the intent with which we are executing our strategy is reflected in the growth and momentum in our first quarter. It shows discipline, performance and delivery. Discipline in the way we are applying strong cost control and investing to deliver focused sustainable growth.

We are on track to achieve our target of around 1% cost growth in 2026 compared to 2025 on a target basis. And we are reallocating costs from nonstrategic or low-returning businesses towards growth opportunities, while upgrading our operating model. This includes investing in artificial intelligence to empower our colleagues, simplify how we operate and enhance the customer experience by personalizing service at scale.

Performance in our earnings. Each of our 4 businesses grew revenues and each also delivered annualized RoTE in excess of 17%, excluding notable items and delivery. Our first quarter results show we are creating a simple, more agile, growing HSBC built on the strong foundations of a robust balance sheet and hallmark financial strength. This is why during periods of greater uncertainties, our customers turn to us as a source of financial strength, and we remain confident in delivering against our targets.

With that, I'm happy to take your questions.

[Operator Instructions] Our first question today comes from Guy Stebbings at BNP Paribas.

The first one was on wealth. Clearly, another very good performance, particularly on investment distribution, insurance. Can you talk about what you're seeing in terms of flows in the competitive landscape in Hong Kong right now? I'm sort of mindful it's been a very good story and the benchmark comparisons is getting tougher in terms of growth rates. But equally, there's sort of no evidence of let up in momentum and can see another really good performance for new business CSM, which is well above what you're actually booking through the P&L right now.

And then the second question was on private markets. Thanks for Slide 15 and 16. Interested in any changes you're making in your approach to this segment. You've called out the $400 million hit in Q1, and you've not identified anything comparable in the book. One of your peers has signaled sort of partially stepping away from some exposures in this segment, as they've assessed sort of levels of financial controls. I know you said this wasn't a big growth driver of the plan, but are you changing how you're thinking about this segment in any way?

Thank you, Guy. If I take your questions in turn. On the first question on wealth, we are really pleased with the growing CSM balance and as well as on investment distribution. First quarter is always a very strong quarter for us, but I'm pleased to say that even after some slowdown in the month of March, we again see momentum coming through in April. We have a very vast range of products that we offer to our customers. So we've seen some shift in the products. So people moving from bonds and mutual funds into structured products and equities and all that obviously contributes very well to our fee income in wealth.

We have an iconic brand in Hong Kong. And yes, competition is fierce. But as you can see, we are also growing new customers despite putting the fee in January, and these new customers over time also become customers from a wealth perspective, but more in the near term for the insurance business. So those are all very positive signs for us. From a private credit perspective, our overall exposure on private credit has stayed the same, as I called out at the year-end of $6 billion on the chart. And then this is both drawn and undrawn and the private credit and related exposure stays within 2% of our balance sheet. So that, again, from our perspective, is a comfortable position in terms of the concentration.

Following the, what I would call, experience that we've seen in the fraud perspective, I've always said that in this ecosystem, no one is immune to second order sort of exposures, which is where we have had from financial sponsors. Clearly, as a learning, what we are working on is looking at very specifically some of the additional due diligence processes we may carry even where we are relying on the due diligence of financial sponsors. In terms of concentrations, we are also looking at any specific concentrations on individual counterparties in this space, but remain comfortable overall.

And as I've said, we will not have this and it has never been a significant driver of private credit. So same as before, continue to be even more diligent where we are relying on financial sponsors related secondary exposures and their due diligence.

Our next question today comes from Amit Goel at Mediobanca.

So 2 other questions from me. So one was just on the cost growth. So it seemed like the cost growth was a bit higher this quarter, even ex the VP than the overall target for the year. So just in terms of why you think the costs will be a bit more contained or at least the cost growth will be a bit more contained and the drivers there? And then also the second question is just on the Middle East scenario. So I appreciate the extra slide. Just curious on those stress scenarios. So what would we need to see or what would we have to see -- to be seeing some of that scenario play through and to have further impact on your ECL guidance?

Thank you, Amit. So I'll take the cost question first. So as we have said, our simplification actions will be completed by the middle of the year. And those simplification actions will give us cumulatively more savings in the second half of the year. And if we factor those in and phase out in line with our forecast and financial resource planning, we are very comfortable that we will be within our cost guidance of around 1% growth on a target basis. It is a timing of when you have the gross increase, which we said last year would be 3% and then the timing of when the 2% savings come so that you come to the net 1% cost growth.

Now from a Middle East scenario, firstly, to be clear that our ECL guidance and indeed, when we reaffirm our targets, we look at all plausible downside scenarios, and we are, by nature, quite conservative in how we approach these matters. We have, in the fullness of an integrated top-down stress scenario called out a bookend stress scenario, which requires all 5 things to happen. So just to give you some perspective, in this kind of a scenario, you would expect stock markets to be down 35%. So it's pretty severe.

You would also expect oil price at 145 basis points and market disruption as well as significant GDP slowdown across markets globally. So that is the context of this scenario. But as I said earlier, in terms of the right weightage of probability from an ECL perspective, that has already been factored in the 45 basis points guidance. And this scenario gets driven by not just an ECL number, but also an impact on the revenue line, and it assumes that the wealth business, which has continued to do really well even through the month of April will have a significant impact in this kind of a scenario as well as deposits, which typically in a stress position always become an inflow for large deposits. But because of the extreme market disruption, very high inflation that the deposits will come down because customers will need to get money in order to survive through a very stressful economic scenario.

The next question today comes from Aman Rakkar at Barclays.

I just wanted to ask one quick follow-up on the Middle East scenario. Is there any chance -- I think just back of the envelope, it's a kind of $2 billion to $3 billion hit to PBT in terms of the mid- to high single-digit percentage on '26. Is there any chance you could just kind of round out the disclosure on that in terms of what the breakdown in that scenario is between revenues and impairments? I'm assuming it's literally revenues and ECLs and if you could just quantify that for us, that would be really helpful.

The second question was just on banking NII, please. So first of all, I think you're calling out $100 million negative impact in the quarter. Just kind of adding that back in, I guess, to the underlying run rate, it looks like your Q1 banking NII is annualizing a shade above the $46 billion that you are guiding for your full year. So I'm interested in the sequential drivers of net interest income, please, from here, as you see them presumably rates not that much of a headwind and you've got some balance sheet momentum. So trying to work out what the negative is from here to offset that, please?

Thank you, Aman, for your 2 questions. So taking the first one. Firstly, to say, yes, the impact absolutely is equal between sort of revenues and ECLs broadly in this scenario and your numbers were right. I also want to say this is what I would call an unmitigated impact. In other words, it's prior to management actions. We are very comfortable that even in stress scenarios, we have a range of management actions we would be taking. And therefore, we are very confident in reiterating our RoTE targets for '26, '27 and '28.

Now on banking NII guidance, as always, as you would expect, we tend to be quite conservative. We consider in the guidance all possible downside scenarios as well, at least the plausible ones. So in terms of the mathematical calculation, as you've done ex the one-off and looking at the day count, et cetera, it, of course, takes you above the $46 billion. Our guidance is around $46 billion, not just $46 billion. So that's the first point to call out. And the things that we have considered in terms of a possible plausible headwind would be, of course, there's an uncertainty on the interest rates.

Also, we have seen the experience. There were a few weeks of impact of a lower HIBOR in the month of March, but I'm very pleased to note that the HIBOR has again come to the range that we are most pleased with, which is around 2.5% and obviously, there is the continuing tailwind of our structural hedge reinvestment. We've given you disclosures on that. And the deposit flow overall continues to be very strong, but we are happy to say around $46 billion with our usual conservatism.

Our next question today comes from Andrew Coombs at Citi.

A couple of follow-ups from me, please. Just firstly, coming back on the private credit exposures on Slide 16. I think the exposure on which you booked the charge today falls within the $3 billion securitization financing bucket that you list on that slide. Can you just give us an idea, please, of how much of the exposure that you've taken a charge on today accounts for of that $3 billion total, please?

And then secondly, coming back to wealth, it's difficult to quibble on 15% year-on-year growth, but that revenue growth does look slightly weaker than your peers. So can you just give us an idea of where you think the differences are? Is it business mix, which means you have lower transaction income benefit year-on-year? Anything you can comment on relative performance?

Thank you. So just in terms of the exposure, we have substantially provided for that exposure. And that exposure, when you can see mathematically, is not an insignificant part of the $3 billion that you've called it quite rightly, it really comes from that particular bucket. Coming back to your point on our revenue. So in terms of the revenue, I'll just bring to attention that the CSM balances have been growing, but the way they actually hit the P&L, it is really over a period of time. And therefore, what you capture in the P&L is 1/10 and that then flows through over the following years. So that is how I would look at it in terms of the fee income growth. If you ex that or adjust for that, we are very much in line or indeed ahead of peers in certain pockets.

The next question today comes from Katherine Lei at JPMorgan.

Pam, I would like to ask about the fraud cases. Like can we have more color about the fraud cases such as like what is our total exposure? Because the key concern is that is this $0.4 billion one-off or we were going to see more like step-up in impairment charges because of this particular case? I think this is the number one question.

Number two question is like I look at the risk weighting, right? It seems like a downside scenario, now we aside, 45% versus like before the war, like, say, 4Q '25 is roughly about 15%. Can we get more color of like, say, in this scenario, would that be -- let's put it this way, under what situations do you think we will continue to see continue rise in this 45% of downside scenario?

Thank you, Katherine. So firstly, this fraud is an idiosyncratic fraud. We have gone back and reviewed all our highest risk exposures across our portfolio and specifically looked at the private credit exposures as called out on the slide, and we see no comparable fraud risks in this matter. And of course, we continue to review our risk appetite, tightened due diligence and so on. So therefore, we feel quite comfortable that this is a one-off fraud indeed, and it comes to us through a secondary exposure that we have through a financial sponsor and where there was reliance on the financial sponsor due diligence. So that's the first case.

And second one, in terms of the downside scenarios, the 45% downside scenario is built also from a 30% Middle East-related specific scenario that we created, which was a fifth scenario. So we do not expect that 45% downside scenario to shift much. And I can just give you as a comparison as we went through periods of COVID, Russia, Ukraine, that's sort of a leaning on the downside scenario. It's pretty much at the top end of the downside scenarios. And then once the situation gets more normalized, we bring the scenarios back to what our normalized scenarios that you have called out.

I also want to stress to you that the IFRS 9 downside scenarios factor in, what we think at this point of time, the full extent of the forward-looking guidance, as we would obviously calculate based upon what we're seeing on the ground as well as assumptions as well as the probabilities given to all the scenarios. And this is quite distinct and different from the bookend Middle East conflict stress scenario on Slide 18, which has a much holistic view and a range of things happening, including, as I called out, from very severe stock market disruptions as well as oil price distinction. So I just want to make a clear distinction between what you account for, what you have in your outlook versus what you keep as part of a planning exercise in terms of the range of scenarios that you should always be aware of as a good management practice.

Our next question today comes from Chris Hallam at Goldman Sachs.

Two for me. So the first, again, on wealth. So $5 billion of that $39 billion of net new money was deposits. So it feels as though sort of 90% of the flows were invested, whereas if I think about the stock of your wealth balances, it's closer to 60%. So how should we think about that? Is that a structural trend you're seeing? Are clients becoming more invested? And if so, what does that mean for fee margins and for returns going forward? And maybe just within the $39 billion, without the conflict in Iran, would that number have been higher or lower?

And then second, on capital, like you said, well managed through the guidance range throughout the HSB privatization process. Obviously, this quarter, a couple of one-offs within the quarter, but the underlying business performance appears to be encouraging. So given all of that, can you comment on when you expect to restart share buybacks?

Thank you, Chris. So firstly, in terms of invested assets, we are very pleased with the growth in invested assets. But I just want to remind you, typically, Q1 is strong for investments. So there is some seasonality of money moving from deposits into investment assets into -- in Q1. We've also been very strong in terms of the new mandates we've got from private banking. So overall, wealth is a very robust story to call out, and it's very broad-based, not just dependent on one lever.

In terms of the conflict, there was a bit of risk-off wait and watch in the second half of March. However, as April has come through, we continue to see high volume of transactional activity. And as I said earlier, our customers, they continue to readjust their portfolios and our strength lies in the broad range of products we have on offer. And we have really invested in this business. So going forward, from a fee income perspective, I do believe there is a huge tailwind for us in terms of how we build on this year-on-year.

So coming back to capital now. Firstly, I'm really pleased that even with this very large core investment we have done in Hong Kong, which is a critical market for us where we are hugely confident about the future growth prospects, we have still remained throughout the entire period within our CET1 operating range, and that truly reflects the very strong capital generation capabilities of our business across all 4 businesses. So that is indeed very encouraging.

Now in terms of share buybacks, you're right that even with all the one-offs we've had in the first quarter, we are in a good position, and I expect Q2 to be equally highly capital generative for us. But of course, a share buyback decision is done on a quarterly basis. Starting point is always capital generation, which looks strong. We have to also look at loan growth, then we have to look at our 50% dividend payout ratio, which is an important target for us and the residual is always in terms of share buybacks and distributions, notwithstanding any inorganic opportunities for which we have an extremely high hurdle rate. So we will look at it again starting from Q2.

The next question today comes from Kunpeng Ma at China Securities.

I got 2 questions for you. And the first one is about Hang Seng. I'm glad to hear the momentum in deposit and wealth management in the first quarter and the pickup in the momentum from April. But how -- what proportion of such momentum could be attributed to the synergies out of the Hang Seng deal? And also some color on future synergies, future synergy effects of the Hang Seng deal would be much more helpful for us. Yes.

The second question is on HSBC's global footprint. Yes, this is out of the proposed disposal of the Indonesian retail business. I think the Indonesian market is quite important. It's not the kind of some marginal or less important market. So I want to know the HSBC's views on your global franchise. I mean, which markets are important to you or which markets and which business are less important? Yes.

Thank you, Kunpeng. So firstly, we have made a very good start on the Hang Seng privatization, but the synergies at the moment have been very little, if any, because it's just the start of the process. We have already started investing in Hong Kong, both in the red brand and the green brand in terms of technology, in terms of simplifying customer journeys and training and skilling of our colleagues. So we do expect progressively the growth from the synergies to come through starting from the second half of this year, but mainly through 2027, '28. So that's a very strong tailwind, again, to support our targets as we progress.

And so far, everything is very much on plan and with a lot of engagement with colleagues on the ground, which is, I think, really important, both in terms of maintaining the momentum, the sentiment as well as reinforcing our strong optimism in Hong Kong, as you've already seen in the results as well as in the stabilization of the Hong Kong commercial real estate market.

Now coming to our global footprint from an Indonesia perspective, we think Indonesia is a critical market for us from a CIB perspective. It is an important network market and the economy is significant from an Asian perspective. However, our retail business of the size and the scale it was and the scope it had was not within the strategy of our wealth business. It was a valuable business, remains a valuable business, as you've seen from the financials for the transaction that has been announced. But from our perspective, from a wealth perspective, it did not meet the high hurdle rate criteria we had. We have other markets where we are investing in a far more focused manner.

Our next question today will come from Alastair Warr at Autonomous.

Just a couple of follow-ups on the credit costs and on the insurance that we touched on just a moment ago. If you've got 52 basis points booked in for the first quarter on credit costs, it looks like, therefore, to get to your 45 over the rest of the year, you'd be looking at a little bit above 40 for the remaining quarters of the year? You were at 40 for the full year before. So is that just implicitly building in maybe a little bit more drag from the Middle East? Or is there anything else going on anywhere else for us to be thinking about?

And just a second point, you touched on the CSM there and how it can make a difference to how you're booking your speed of growth of income at the wealth line. HSBC has been really strong on some big ticket quite short payment period and products that some of your big name peers in Hong Kong are not necessarily so keen on. So can I just confirm, you talked about 10 there -- that your release rate in years is about 10 years and that this shorter payment period thing doesn't turn up in a shorter release rate as well.

Thank you, Alastair. So firstly, on the credit costs. You're right, this quarter's credit cost of 52 basis points has 2 significant numbers in it. One is obviously the idiosyncratic one-off fraud-related. If you take that off, we are pretty much in line with where we would be in Q1 of 2025. Our books overall ex these 2 items have performed really well. The second being obviously the Middle East reserve. So if you take the Middle East reserve build of $300 million and the fraud number, then the actual credit cost would be lower than what it was in Q1 2025 at around $600 million. What we are looking -- $600 million, sorry.

As we look at going forward into the next few quarters, we are always a bit conservative, and we do have a little bit of scope built in, both in terms of what happens on Stage 3s of the fraud-related item, obviously, that's a one-off, but the ex-fraud-related Stage 3 buildup increases because of a prolonged conflict in the Middle East. Also Q1 has been very benign on Hong Kong commercial real estate. We are very pleased that we are seeing the beginning of a stabilization, but we are not calling it the end of the cycle. So therefore, we keep that sort of a buffer for the rest of the year.

So in terms of the CSM balances very specifically, there is no change in the accounting policy. Obviously, it's based upon IFRS 17 principles, hence, the drip feed over the 9- to 10-year period that we will see. And the key thing there is as long as with the new customers that we are onboarding, with the growth in the CSM balance, the growth in the CSM balance exceeds the P&L flow from the CSM balance because the trajectory is very positive in the growth of that business in Hong Kong. It is an iconic brand for us. So therefore, the demand for the product from a distribution perspective remains extremely strong.

Thank you, Pam. We will take our last question today from Joseph Dickerson at Jefferies.

I just wanted to ask in terms of the numbers you've given the guidance upgrade on the banking NII, is that taking into account the -- effectively marking the market for the current yield curve in the U.K. I note some footnotes around you were using rates, as I think mid-April. Does that take account of the yield curve in the U.K.? And then presumably, there's some outer year tailwind into that. And given you've got some outer year revenue growth assumptions, I'd be keen to know how that -- how any maturities at higher rates might influence the outer year revenue growth rate.

Thank you, Joe. So from a banking NII perspective, yes, we looked at the yield curves as -- at the middle of April across the currencies. So that's correct. In terms of the revenue growth projections that we gave for the outer years, they were based upon the yield curves as when we set our targets. So if the yield curves continue to be higher or grow, then everything else being equal, that will be a tailwind for revenue in future years. The banking NII guidance, as you know, we always only give for the current year.

Thank you very much. That ends today's Q&A. So I'll now hand back to you, Pam, for any closing remarks.

So thank you all for your questions. As you've seen from our results, we are very pleased with our return on tangible equity of 18.7%. We have never printed a number of this size for nearly 20 years now. And that gives us a very good start in terms of where our targets are and how firmly we stand behind them for the next 3 years. Of course, there are macro uncertainties in the current environment, and we have given disclosures, which are very fulsome, both on private credit as well on extreme downside stress scenarios, bookends. So hopefully, in that context, I have answered all your questions. And obviously, if you have any more detailed questions, please reach out to the IR team. Thank you very much again for your patience and interaction.

Thank you, everyone, for joining today. You may now disconnect.

Good afternoon, everybody. I hope everybody had a good lunch. And I'd like to welcome you to this session with Pam Kaur, who is the Group CFO of HSBC. Thank you very much for joining us, Pam.

Thank you, Nick, for the opportunity.

We're going to start off with the usual polling question. So I shall read that out to you now. So the question is, what is the most important area for HSBC management to deliver on to achieve the better than 17% RoTE target. The first is managing banking net interest income against the backdrop of rate volatility. The second option is delivering operational efficiencies. The third option is delivering growth in their wealth business. And the fourth option is managing capital efficiency. If you could please use the buzzer to answer the question and see what the result. Well, split. So it's operational efficiencies, banking NII, but actually pretty evenly balanced, I think.

So maybe we just start with the obvious question. Obviously, it's a very dynamic situation out there, and it's difficult to predict. But what are your initial thoughts on the impact of the Middle East conflict on HSBC's operations?

Thank you, Nick. This question is top of mind for us, particularly in terms of the safety and security of our colleagues. And beyond that, it is being there to support our customers. We have been in this region for 130 years, and we absolutely believe in the business, the region and its potential continuing going forward. As we sit here today, I would like to call out just the size and shape of what we have on the ground. Our biggest exposures in the region are directly through our HSBC Middle East Bank and they're mainly in Dubai. And just in terms of context, that business contributes $1 billion to our PBT. Next is the Saudi Awwal 31% share, and that contributes $700 million to our PBT. So overall, in the round, the region contributes around 5% to the PBT.

In terms of loans and advances, it's about 2%. More broadly, what we are monitoring on the ground is a range of risks, whether it's to do with cyber, whether it's to do with operational continuity, fraud and so on. As I look back and see how does this impact us from our own business perspective, we are very comfortable with the targets that we have given for this year in terms of 17% RoTE and a continued trajectory of growth accelerating to 5% between '27 and '28 as well as the 50% dividend payout ratio. Of course, depending on the duration of this conflict continuing, and that is the key factor with which we do the risk assessment. So does this continue just for the next few weeks? Till sometime in April? Or does it go well into most of Q2?

And in those context, we really would like to raise a few points of reference because that does have an impact on ECL guidance because of IFRS 9. At this point, we are not shifting that ECL guidance because the assumption is it's more shorter end. So we are looking at a range of downside scenarios, some very specific for this conflict and some just the existing downside scenarios with impacts on inflation, GDP, not just in the Middle East, but more broadly across the globe. And typically, what happens in these circumstances is you change the probability weighting from the base case to downside 1, downside 2 as well as to any specific scenarios that you may have created for this conflict or this stress.

In terms of a parallel I can draw is when Russia-Ukraine happened, Q1 2022, we had similar shifts in weightage of our scenarios, similar pressures on oil price. And there was a reserve build during the quarter, and we would expect the same to be this year. The reserve build at that time, and that's not necessarily to be exactly the same here, was a couple of hundred million dollars. It was $250 million to be precise then.

And then as we go through the cycle in the next 2 quarters, if there is more stability, you absolutely get the releases to those reserves. So that's the one area which is really important. Very much close to that is you also look at what's happening from an RWA perspective because there will be a downward pressure on CRRs. Having said that, at this point, we are not seeing any significant either drawdowns. We're seeing a bit more deposit flows coming in into our accounts, and we have seen no specific individual customer-related credit issues related to the Middle East scenario. But in terms of the RWA downgrades and the headwind you get, in some ways, unfortunately, the tailwind is loan growth because of the sentiment is even slower, and therefore, you won't get RWA growth there. But in terms of our targets, it's still fine because we had not really factored that much loan growth in the first place.

In terms of wealth, what we are looking at is really being there for our customers as they look into opportunities to consider opening new accounts, whether it's in Channel Islands or Singapore or Hong Kong. And our customers are very much there, but they obviously want to have some ability that if they do choose to move, they have accounts, and we are very much ready to help and support them. If I think in terms of the CIB business, there will be some impact in terms of not just lending, the general customer activity. But of course, the volatility is up, there will be some benefits coming from that as well.

So overall, in the round, fairly comfortable on the revenue trajectory. Some headwinds driven by IFRS 9 modeling temporarily from an ECL perspective. And in the same token, we look at what we can do. So from a cost perspective, if things go bad, we have a plans to say, are there any areas which we can reprioritize because of what's happening in the world and indeed need to because there may be areas you want to invest more because your customers are reaching out in those geographies. And there may be some areas where in terms of your multiyear plans, you may indeed choose to shift the timing of when you invest. But we don't want to do anything and don't need to do anything, which in any shape or form takes us away from our strategic priorities, which we will continue to focus on.

And I guess the other sort of news that's grabbing headlines at the moment is private credit. You've mentioned less than 2% of loan book, I think, in your disclosure. Can you give us sort of any more detail or any more comfort around these exposures? Should we expect any impact from MFS or any of the other names that are in the headlines?

Okay. So firstly, private credit is a very inconsistent definition on how different people are describing private credit. If I take a more conservative view on private credit compared to what has been described elsewhere, our overall exposure in private credit is within 2% of our loan book. So that's $20 billion below. Within that, if I look at specifically that specific area where we have secondary exposure, where we have more reliance on due diligence done by third-party organizations, that is a minority of this number, which would mean it's a single-digit billion number.

Now we are very mindful of fraud risk, and we have a large book. I'm not going to comment on any single name. But that fraud risk is something which we are monitoring. We are looking at our portfolios, doing read across, so on and so forth. But we have not changed our overall ECL guidance, and that is the most important factor to consider at this point of time. And we remain very comfortable that given the size of our book and the diversity of our book, as and when these losses crystallize given that contains space, we have the loss absorption capacity, but not commenting on any particular name.

Okay. So let's move probably to a little bit more medium term from the immediate sort of concerns. Obviously, 2025, I think you defined it as performing and transforming in terms of what you achieve. Now you're sort of focusing growth on your strongest areas and reallocating $1.8 billion in costs to strategic growth opportunities, investing in Asia, for example, Hang Seng. Over the next 3 to 5 years, what are the most reliable structural growth advantages you have? And what do you think you need to do to prove it to investors that they are structural growth opportunities?

So firstly, from our perspective, since we reorganized the bank into the 4 businesses, we are really pleased that each of those 4 business is growing. Each of these 4 business has a mid-teens or better RoTE because that's really important, not just in terms of the financial numbers you deliver, but of the confidence and the culture you drive in the organization because no one is subsidizing another business. Everyone is strong enough to stand on their own 2 feet and indeed be able to get the investments that they need, which we are doing through multiyear programs.

So I'm very comfortable that as a starting point and our results from last year as well as the continued performance we have seen until the end of February this year prove that. Whether it's in terms of the resilience and the growth of the banking NII, pretty much driven by a very strong deposit franchise as well as the growth in the fee income from a wealth perspective, not just in Hong Kong, but across other markets, Singapore, Middle East, India, China, Taiwan, so I can name a few as well as the very large corporate institutional bank and it's very strong underpinning in a top 3 position in FX, payments as well as trade.

And just as in good times and in difficult times, we've been there to support our customers, as you're seeing even today in the Middle East, the engagements you get and the long-term relationships you actually solidify because you've been there when times have been good and bad, that's the underpinning of the franchise, and there is a track record behind that to deliver it. If I look then in terms of what's yet to be proven, but again, we have, I think, realistic, albeit a bit ambitious, planned because we believe in this market, which is Hong Kong.

In terms of the Hang Seng Bank, we are well on track and starting the process of implementing on what we have promised to deliver, which is $900 million of benefits with the restructuring cross the $600 million and then going beyond that, as we go deeper into opportunities in Hong Kong as well as in a more stabilized pre-impairment kind of level, which is great always. But even with the ECLs normalizing over time, we think the opportunity is tremendous. But that, of course, is yet to be proven because we still have to get the numbers delivered, and that will follow through from '26, '27 into '28. But we will not stop there. We will continue on that growth trajectory from '28 onwards. Underpinning that, we have some real key drivers, which are product driven as much as we are a relationship brand bank, but in our ability to be able to serve our wealth customers, the wealth products or the retail franchise of Hang Seng Bank as well as wholesale products, transaction banking, capital markets, the wholesale client base as well as their ability to participate in our very strong cross-border business.

On top of all of this, having privatization, and yes, it is a privatization and no other word applies because it is truly leaning into the Hong Kong growth story with 2 strong brands. We have a good ability to have greater operational efficiencies, and that's with regard to manufacturing capabilities in insurance as well as in asset management. We will also have some technology harmonization. Our mantra is we want to do more with the same. So we will be upskilling colleagues and helping them to be able to serve their customer base with a broader product franchise across both the brands. So it's not a severance story. It's much more of doing more with the same number of people we have as well as deploying AI and so on. But the other factor is we'll also have greater ability to have capital efficiency and portfolio efficiency because once you're all privatized in terms of how you upstream, downstream capital and deploy your capital as well as better manage the balance of your portfolios across both brands.

Okay. That's good. And just, I mean, slightly on Hong Kong. I mean, obviously, we had very, very strong deposit growth in '25. We had very soft loan growth generally. It seemed that things were changing a little bit towards the end of the year. I mean, Hong Kong, certainly on the ground feels like it's much healthier. U.K. performance, I think, in Q4 was strong. obviously, there's a few things changing. But is your sense that these -- there are these little pockets of growth?

We always welcome pockets of growth because that's a core role for a bank in any community, in any country that they served, particularly in their home markets. So we have the risk appetite available, and we will be there to support our customers. Now obviously, with the current situation, if there is a downer on the overall sentiment, loan growth gets muted. But even before the current situation, we had very, I would say, conservative estimates on loan growth for this year, hardly any.

I'm hopeful in Hong Kong, which has been pretty normal. If I look at the IPO activity, the economic activity over the last few weeks, nothing has really changed in Hong Kong. And if commercial real estate continues to stabilize, then the very small Hong Kong growth will continue in gross terms. But also in net terms, you won't have any large big sort of deleveraging of commercial real estate that has happened in the last 2 years where large developers who have strong cash flow positions are resilient and have been deleveraging. So that, I think, could be a little bit of a tailwind.

From a U.K. perspective, the growth has been for us more than GDP, but in very specific areas. There's been growth in mortgages to $6 billion. There's been also growth in terms of infrastructure, renewables, innovation, so some of the new sectors. And those areas and pockets -- partly it was because we were catching up on market share and didn't want to be left behind, but partly because we had very specifically invested in those areas, and therefore, the growth has come through. Before the last few weeks, we did see very good momentum in terms of credit appetite, particularly coming from mid-market as well.

Now the backdrop to it is the underlying credit levels in the U.K., both for retail and wholesale customers are pretty low. So I expect that to continue to some degree, even though the overall sentiment is a bit sort of wait and watch. And hopefully, if this current situation stabilizes, particularly over the next few quarters or a month or so, then it's a very different situation because as I mentioned earlier, sentiment as well as our own assessment gets driven by how long a stress actually stays in the system because after then, there has to be a period of normalization, supply chains opening, so on and so forth.

Okay. And then just talking a little bit about costs. I mean, obviously, 17% RoTE, a lot of that depends on costs. I think that was what a lot of people thought in answer to that question. So when you're budgeting, how do you measure the appropriate level of BAU cost savings from simplification? How much of that gets recycled into investment? How much of it drops down into the bottom line and improves returns? And just linked to that, will BAU -- is BAU inflation going to become an issue again at some stage?

Really good question again, Nick. So firstly, what we are managing the bank to is 17% or better RoTE. So we're not stopping at 17%. What is important from a cost perspective is one of the key drivers in cost, obviously, from inflation is also staff-related inflation. So the inflation related cost increase was 3.6% in '24, 3.2% in '25. This year, the assumption prior to the Middle East situation again was 3% and the reason the number comes to 1% net is because we have simplification savings of $700 million going into this year. So very comfortable with that sort of 1% headline, and that's what we are tracking to.

In terms of -- just to note there, quarter-on-quarter may be different because when the savings come in and run the bank continues, just to give you a bit of a view on that. But so far, nothing changes. The real shift where we are doing in terms of our investment is really trying to drive operating leverage whether it's by focusing on scale businesses or indeed focusing on the benefits we can get through AI, whether it's on better productivity around the revenue line or just the cost benefit. And by doing that, the purpose is that within the overall cost envelope because we think we have a very heavy sort of healthy revenue and cost ratios. So our main driver is that we want to be able to shift the run-the-bank cost to more change the bank.

So in other words, when your efficiencies, it is easier to deliver and manage your day-to-day costs, but you always have greater room for investing and change the bank opportunities. And that's really the value of being a big scale large organization because when we do these shifts from run the bank to change the bank for investments, it's not in hundreds of millions, it gets into billions. And I think that's a big benefit for an organization of our size, scale and diversity.

I think overall, yes, inflation is a key driver. The view at the moment is around, I said, the 3% number. But the way it actually lands on the ground is it varies from market to market. It also varies in terms of skill sets, demand and supply. So keeping all those things in the round, the 3% is not just a straight line, but that's kind of the average sort of look at in these markets.

Okay. Great. I'm conscious that we're -- I've asked a few questions. So I'm going to throw it open to the audience and see if anybody has anything that they would like to ask. No. Well, maybe I will go on with one more. Maybe if we can just talk a little bit about capital. So I think at the results meeting, it was made very clear what the capital policy is, obviously, balance sheet growth payout or business growth payout and then buybacks acquisitions with very, very clear sort of targets around what the hurdles are for acquisitions versus buybacks. So I guess my question would be, Hang Seng it's a business you knew, and it's in your core market. But how easy is it to hit those hurdles in terms of acquisitions?

You mean our 4 criteria.

4 criteria, yes.

So firstly, I want to remind you, in every results announcement, I've used 3 words: discipline, performance and delivery. So the underpinning of discipline is that when you have those 4 criteria, you absolutely deliver on those 4 criteria considerations before you make any decision. And you're right, Hang Seng was truly a one-off, and we are very pleased we could do that transaction the right time at the price which was accretive from an EPS perspective. So that is our #1 criteria. But it also gave us meaningful scale, not small scale. It was also in a market which is a home market for us.

And last but not least, I know mergers and acquisitions become a fashion of day very often. But when you have such strong opportunities and ability for organic growth, you don't want M&A activity to become a distraction factor for you. So we will not do things which distract us away from our organic growth because that is an absolute goal that we have that we will drive towards. Obviously, if there is a great opportunity not perhaps similar to Hang Seng because I do believe that's sort of once-in-a-generation kind opportunity for us. We will consider them, but use the very strong disciplined approach and rule that we have applied. We don't want to get off track, lose focus because as I keep saying, especially in a world which will have headwinds, scale matters. It gives you the ability to weather the storm, to have loss absorption capacity and yes straight through to delivering on your organic growth and your strategic objectives. And small-scale acquisitions don't give you that, obviously.

So let's -- so as you've touched on it, let's talk about Hang Seng in a bit more detail. I think you've spoken around some of the sort of the things that you hope to do there. But can we just get into some specifics and talk like where are the biggest revenue opportunities for you out of Hang Seng? Where are the cost savings? What areas will they come in?

So the revenue opportunities, as I briefly mentioned, really comes from the basic fact that you have growth in a market, you have a very strong customer proposition. Hang Seng has a community bank customer proposition. HSBC has both local, domestic and international in the Red brand. But what we do have from a Red brand perspective is some very strong product proposition. So the ability to serve those products to customers who come to us through the Green brand, whether it's the new customers like close to 1 million we got in on the retail in the Red brand and 250,000 in the Green brand, we should be able to have the same cross-sell for wealth products and fee income generation. So that's one thing.

If I look in terms of how you enable it, you do some technology harmonization, you improve your customer journeys, but you also maintain the very strong branch network and service capabilities of the Green brand because that is so important for the Green Bank's role as a community bank. So you can accelerate customer journeys and product offerings in terms of improvements for the Green brand. You also have some abilities to look at from a wholesale bank perspective in terms of the suite of products you offer, whether it's your wholesale transaction banking products or beyond DCM products and so on and your advisory products for your wholesale customers as well as enabling those customers to have the same degree of cross-border connectivity and flows of products and offerings as we do in the red brand.

When I look at from a cost perspective, firstly, it's going to be easier to do that growth based upon investment you do in one place. So that's where the restructuring cost is. It's not, as I said, people related so much, it's the investment you're doing in technology. You do it in one place, you don't duplicate -- that's the technology harmonization. So that gives you some cost synergies. But also in terms of manufacturing capabilities, you don't need to necessarily do it in 2 places. So therefore, that gives you the synergy.

So from my perspective, it is the ability to leverage both operational efficiency, people capabilities as well as learnings from both sides. There are some pockets where Hang Seng Bank has done some really good initiatives, including some AI deployment, which they have done from a finance function perspective, which I am learning from for HSBC Group overall. And that's all to do with understanding better customer profitability, understanding the real drivers and you do a cross-sell in terms of the differential on profitability across different customer relationships and customer segments.

So I guess that brings us quite nicely on to technology then. And I guess there's -- I mean, we can tackle this in 2 different ways. Maybe if we can start off and we can talk about AI, and we can talk about how HSBC is deploying AI. And where do you see the biggest sort of near-term opportunities for you from AI deployment?

It's a really good question. So for us, the first starting point of an AI is to increase the productivity of your colleagues. And for that, we have deployed a productivity suite with more than 80% take-up in terms of people who regularly use it. And that is all about opening the minds of our colleagues to new ways of doing business because that will have an impact not just today, but your ability to embrace change as we see a changing landscape over the next few years.

And as I've said, given our scale, we should be able to deploy not just at pace, but in a significant manner. But beyond that, we consider that both in terms of revenue and cost, AI is beneficial. Most people will talk only of cost synergies. For revenue, it's like -- and we do actually track it to say, if for growth in revenue, you needed x number of additional headcount in a pre-AI world, in a post-AI world as deployment gets deeper, what would that number be? And hopefully, it's going to be significantly smaller. And if that's the case, you straight away get improvement in jaws and operating leverage.

From a cost synergy perspective, again, we want to be quite targeted. We don't want to take an approach to say, let's deploy AI anywhere and everywhere. And hopefully, the vast majority of use cases stick and what doesn't so be it. We want to pick up areas where it's going to be meaningful enough to make a difference. And that is, again, looking at those processes, those volume-driven activities, those activities which at the moment, require very basic binary decision-making, a lot of which that gets through offshore activities as we all have grown.

We're looking at those more. We are also looking at technology and technology coders in terms of deployment of AI in that space. But in terms of processes, very specifically speaking, it's not just contact centers, it's KYC onboarding, it's small ticket credit lending. It's also looking at transaction monitoring. So there's a range of activities where with the deployment of AI, not only can you do it, what I would say, in a more cost-efficient way, but it can also be faster. It helps you to do at-scale client onboarding, for example, in a safe risk-managed way. What is very important to all of this is, and that makes a big deciding factor on who we choose to partner with.

And we have no specific view whether it's buy or build. But in terms of the partnerships we choose, we want to make sure not those people who just give big headline numbers on benchmarks and savings, but those who give us the optionality in terms of deployment for us, which is safe. And by that, I mean safe and well controlled, whether it's from a cyber fraud risk perspective or indeed from a data protection perspective because those are sacrosanct. And I think if anybody takes a misstep, those are the areas no matter what country you are in, what jurisdiction is managing you, you not only get into issues from a regulatory perspective, but you start losing the trust of your customers.

I'm going to check one more time to see if there are any questions out there from the audience.

We've just seen some rate curves around the world move pretty violently in the last couple of weeks. I'm wondering directionally if any of this has any bearing for HSBC.

Can you be a little bit more specific, please, sorry?

I think a lot of the belly of the swap curves around the world are starting to -- you believe hikes or not, but I know you reinvested as well. So great impact.

Okay. Great. No, thank you. And I'm sorry, you didn't pick up banking NII that is kind of right up there in the questions in my comments. So the way we look at that is that clearly, from a rate curve perspective, both the timing of the interest rate cuts and these shifts will be a benefit from a sterling and a U.S. dollar perspective for us. So that is a tailwind. And so far, given the fact in Hong Kong, the IPO activity is still at a heightened level. And although HIBOR is at the lower end of the 2% to 3% range, we still see quite comfortable. And on top of that, if I look at from a deposit perspective, in times like this, customers always want to go for what they consider to be the safest, securest biggest banks. So the deposit inflows have also started and started getting built up. So banking NII is in a good space.

Are there any more questions out there? One right at the back over there.

What are the opportunity or the threats you see from the current war in Iran from your -- for your wealth management business?

So your question is what are the opportunities we see from our wealth?

Yes.

Okay. And so from an opportunity perspective, clearly, we are well present and the best embedded bank in some of the largest middle class growing economies, whether it's China's, India's and also Hong Kong, Singapore, et cetera. So demographically, as well as growth of the middle class goes absolutely in our favor. And that's why you see the large volume of new client activity and client numbers that have been building up, 1 million in the Red brand and 250,000 in the Green, as I mentioned. Now these numbers can vary a little bit, and they're not all wealth customers day 1, but that's the starting point of the growth into the wealth journey over a vintage of a couple of years. So I think that is quite powerful from a wealth opportunity.

The threat on that is, of course, you're always mindful of the customer journeys, in particular, some of the new providers may be offering. So you need to be absolutely top of the game in terms of the technology, online banking as well as applications and product offerings you have. So that's what we are investing in. And we learn actually as we move from one geography to another to be able to leverage and build it across the board. This is what we have been doing already.

The other big advantage for us is then when the world is in a difficult position and clients want to be more mobile in terms of opening accounts, not just in one location, but more broadly across the geography, the internationally mobile clients, we can do that right from U.K., Europe, Middle East, Indian subcontinent, Asia. So that is a big advantage for us and a few colleagues have that. And the last but not least is we have an embedded commercial bank, not just large corporate banking in all these countries where we are present, which basically means the employees and the owners of these banks for their banking needs, they are our natural client base. We don't need to put so many RMs on the road to actually get that business.

And then as they grow and their businesses grow, our wealth client base grows. And we have seen that happen with businesses we have supported over the years and as they have become millionaires and billionaires, our wealth business has grown. And last but not least, we play the full spectrum on the wealth business right from assets under management of $100,000 going to $2 million, $2 million to $10 million and beyond. So we have that broad range. And the competitors we face in different buckets are different. And of course, it's more competitive at the top end, but we have that continuum. And I think that's what gives us the growth trajectory as opposed to a pure-play wealth manager in one country.

Are there any more questions there? So I'm going to come up with one more on the tech side. So can you talk a little bit about sort of digital assets? I mean there's news or there's talk in the press about Hong Kong launching its stable coins in the next week or so, I guess, 23rd, I think, is what the South China Morning Post was talking about. So anything you're doing in terms of the stablecoin space or the direct sort of crypto asset space? And then maybe a bit more broadly talk about what you're doing on tokenized deposits.

So on tokenized deposits, we are very comfortable. We've been spreading tokenized deposits across various of our geographies. So that will continue from a tokenized deposit perspective starting from Asia onwards coming west. But again, for all these initiatives, we want to first stay very much aligned to our strategy. So we are big in the payments business. We believe in digital being very viable in terms of the transmitter of value. So we will use those digital channels as well as those products.

In terms of stable coins, there are a couple of things. If the stablecoins being launched are in a market or a geography, which is strategically important to us, obviously, Hong Kong, but also if the regulatory environment there is mature and strong enough to give us that safeguard, which will be critical as time goes by to be able to mitigate financial crime risk, provide the right degree of transparency of the money flows, then of course, we will participate. So that's the way we look at this. We are not into the sort of crypto space in terms of proprietary risk for our own purposes. Obviously, in terms of product offerings for our customers, depending on the sophistication and the size of the customers, we have a broader upside.

And are you seeing -- I mean, are you seeing -- what are the best use cases for tokenized deposits? Because I know that's where more of your focus is.

I think the best use cases -- and of course, we are following through this very closely is to say where we have that ability for our customers to engage with us real time in terms of managing their expectations 24/7. I think that's a very strong point that tokenized deposits and digital more broadly has. It's in line with customer expectations shifting more in terms of having more real-time products, but also giving the customer the ability to be fungible and ability to engage with us at all times everywhere.

All right. I think we've got time for one last question. So I shall offer it out to the audience one more time. And if not, thank you very much. Any closing remarks you'd like to make?

Yes. I would like to -- we've got a few minutes, if I can make a few closing remarks, if I may. So firstly, I would like to close by saying we follow up and manage on our risks very closely. We learn from the history of what we've been through, through various years, especially recently, whether it's COVID, whether it's Russia, Ukraine. That gives us the confidence as well as with our strong capital, very strong liquidity position to be able to be there to support our customers in line with our ethos of being a relationship bank, and that will not change.

And therefore, our commitment to our strategic choices where we are is something which will stay firm as we go through even the current crisis period. At the backdrop of this, we always work through different choices we can make in terms of timing of investments, in terms of prioritizing them, in terms of costs, and we will manage that through the cycle. We have sufficient leaders given our diverse businesses, our size, scale, our geographic footprint to be able to very comfortably despite the conservatism and how we call issues to have loss absorption capacity if there are individual issues that we need to tackle through the cycle as well as to be able to deliver to the targets that we have set out. And that is the underpinning for what I'm sharing with you.

I also believe for the sustainability of our franchise and our growth journey, it's really important that the people leadership journey we are on, the cultural change that we are driving in the organization of speedier decisions, simpler organization, greater accountability enables us both in normal times, but particularly in the times we faced in the last few weeks to be better positioned to service our customers. And that is really the underpinning of our franchise. We never sit on our laurels and the inherent advantages we have for the trust that we have taken hundreds of years, 160s to be precise to build in terms of our customer loyalty, but we want to continue to be and will be competitive for the customer journeys we offer because the landscape around us in terms of competition as well as the demographics changing of our client base requires us to do so, and we are very well positioned to do so because when we shift from run the bank to change the bank, we can do it meaningfully at scale on strategy where it matters, where it will deliver once you have the right discipline underpinning it all.

Thank you very much. Thank you for your time.

Hello, everyone, and thank you for joining our full year 2025 Fixed Income Investor Call. I'm Fais Yousaf, Group Treasurer, and I'm joined today in Hong Kong by Alastair Ryan, Global Head of Investor Relations; and from London, by Greg Case, Head of Debt Investor Relations.

My remarks today will cover 3 areas. First, I'll provide a summary of group performance and progress against strategic initiatives. Second, I'll discuss the strength of our balance sheet, including capital, funding and liquidity. And finally, I'll highlight a few forward-looking topics relevant to debt investors, including an update of group targets and guidance and, of course, issuance plans.

As I speak, we'll show some selected slides from our 2025 fixed income investor presentation. The full presentation is available on our Investor Relations website. And once I finish, we'll move straight into Q&A.

Starting with the full year. Our results were strong and continue to demonstrate the power of our diversified and capital-generative business. I will refer to our results, excluding notable items and comparisons are on a constant currency basis, details for which are set out in the appendix of the presentation.

Group revenue for 2025 was $71 billion, representing a 5% year-on-year growth. This included $44.1 billion from banking NII. Profit before tax was $36.6 billion. This is 7% up on last year and represents a record high for HSBC. The group generated a return on tangible equity of 17.2%, achieving our mid-teens or better target. Importantly, each of our 4 global businesses returned a mid-teens or better RoTE.

I refer you to the main investor presentation for full business highlights, but a few standouts include: fee and other income from wholesale transaction banking, which grew 4% year-on-year within our CIB business. And also in IWPB, wealth fee and other income rose 22% with growth across all subsegments. Our robust performance allowed us to declare ordinary dividends for the year of $0.75 per share, an increase of 14% on the prior year.

Turning next to progress we're making on strategic execution. As our CEO and CFO set out in detail on the analyst call earlier today, we've made significant progress this year in creating a simple, more agile, customer-centric bank, which is well positioned to deliver sustainable growth. Given that I'm speaking to you from Hong Kong, let me briefly begin with an update on the privatization of Hang Seng Bank.

First of all, we were pleased to complete the transaction ahead of schedule, further strengthening our position in our Hong Kong home market. Hong Kong is not only a dynamic financial center, but also a super connector, a trade and capital gateway between the Mainland and the rest of the world. This transaction brings together global reach and local depth, allowing us to drive growth across both banks for all customers and investors.

We've already identified initial synergies from the transaction, and we see further revenue and cost upside to come. Moreover, we believe growth and asset quality improvement will bring additional value. Beyond the privatization, we've continued to simplify the group and sharpen our focus on core markets and businesses. In 2025, we announced 11 business exits and 4 of these have been completed to date.

These actions reduce organizational complexity, improve capital efficiency and support a more stable earnings profile. In addition, we have taken actions to realize approximately $1.2 billion of annualized simplification savings in 2025, which is ahead of our original time line. Of this, $0.6 billion were realized in P&L this year. The delivery of this plan and our ongoing discipline has allowed us to guide for 1% cost growth in 2026 on a target basis.

Next, moving on to the second area, the strength of our balance sheet, asset quality, funding, capital and liquidity. The power of our franchise and our deep customer relationships drove 5% growth in deposits during the year. This includes held-for-sale balances and this equivalent to $78 billion increase. Growth was broad-based, but notably strong in Hong Kong, where we see ongoing capital and wealth inflows.

Across our 2 home markets, our deposits continue to skew significantly more towards current and savings accounts than we see across the broader market. Our loan book grew by 2% as increases in 3 of our 4 businesses, the U.K., CIB and IWPB were partially offset by ongoing customer repayments and muted demand in Hong Kong.

Our cost of risk for the year was around 39 basis points, aligned with our guidance of around 40. As we look out into 2026, our expectation is for around 40 basis points again. Stage 3 balances were 2.5% of customer loans, up marginally on the 2.4% level last year. The overall grading of our loan book continued to improve with 77% rated strong or good, up 1 percentage point on last year.

Turning to capital. Our CET1 ratio was 14.9%. This is at an elevated level due to our strong organic capital generation and retained capital in the fourth quarter to support the Hang Seng prioritization. This transaction completed on the 26th of January with a $13.7 billion purchase price. The removal of the $3.8 billion minority capital inefficiency takes us to around $10 billion of common equity Tier 1 consumption. This lowered our CET1 ratio by 110 basis points in January this year post the balance sheet date. A slide in the appendix sets out the capital impacts in more detail.

We expect to remain capital generative, and we'll continue to manage our CET1 ratio in the operating range of 14% to 14.5%. The midpoint of this range gives over 300 basis points of headroom above our MDA hurdle requirements. Our MREL ratio was 32.9%, which is 4.5 percentage points above our requirement, equivalent to around $40 billion of available capital.

Now touching a little on regulation. The implementation of Basel 3.1 in the U.K. will take place on the 1st of January 2027. We have well established programs in place to support this change, and the reform is expected to be modestly beneficial. We do not expect this to alter our capital target operating range or our issuance plans, and our focus at this stage is on model alignment, data preparation and ensuring a smooth transition.

Also in the U.K., the Financial Policy Committee published their review of bank capital requirements in December last year. We believe the review of the framework and the intended alignment with other jurisdictions is a positive step. This review is a welcome catalyst to improve the framework to support growth and competitiveness and should proceed with ambition and pace. We are committed to continue our engagement with the Bank of England and U.K. government on this topic.

Moving on to liquidity. The group's large and well-diversified deposit base provides strong levels of liquidity. The total HQLA on hand is now $0.9 trillion, covering around half at total $1.8 trillion customer deposit base. Our group LCR is 137%, but this is a conservative methodology, which excludes $160 billion of HQLA. Our underlying entity LCRs are extremely healthy with the lowest at 148% and the rest generally considerably higher.

Our loan-to-deposit ratio continued to reduce and is now at 55%, representing a $0.8 trillion customer surplus. Our structural hedge is $593 billion, which increased by $64 billion in 2025. The average life remains at 3.1 years. During the year, we expect to redeploy $110 billion of structural hedge assets, currently yielding 2.7%. The structural hedge remains a tailwind for banking NII. And whilst increases in the hedge are behind us -- sorry, large increases in the hedge are behind us, we continue to look for opportunities to add to the hedge as always, dependent on market conditions.

Now on to the third and final part, the forward-looking dimension. That is targets, guidance, issuance plan, but also growth and innovation. Our franchise strength that I outlined earlier, together with the strong execution of our strategic plans has meant that today, we announced improved targets and guidance.

Revenue growth is expected to be rising towards 5% by 2028, excluding notable items. We are targeting a return on tangible equity at 17% or better each year to 2028, also excluding notable items. And for 2026, our guidance for banking NII is at least $45 billion, reflecting expectations of deposit growth and the contribution of the structural hedge.

Alongside these financial targets and guidance, we continue to invest and develop for the future, particularly in our digital asset capabilities and use of artificial intelligence. This will support new revenue opportunities, promote market innovation and drive internal operational efficiency.

In digital assets, our activity remains client-driven and focused on custody, tokenization and market infrastructure. We are delivering innovative solutions across bonds, gold and tokenized deposits for both institutional and retail clients across geographies. We are pleased that our HSBC Orion digital bond platform recently secured the U.K. government's Digital Gilt mandate, while our HSBC Gold tokens in Hong Kong, now with a gold gifting feature demonstrate our commitment to practical innovation.

We remain closely engaged with emerging developments, including the Hong Kong stablecoin and in the U.K., the GB tokenized deposits' live pilot, ensuring we continue to lead responsibly as the digital asset landscape evolves. These activities incur limited balance sheet usage and are all conducted with an established risk appetite framework. In artificial intelligence, our investments are directed at empowering colleagues, delivering end-to-end process reengineering and enhancing our customer experience.

Finally, on to issuance. We are pleased with the engagement and support from our investors across multiple currencies in 2025. For '26, we expect to issue approximately $20 billion of Holdco Senior, $1 billion of Tier 2, and $4 billion of AT1. We will once again have minimal needs for OpCo funding this year given our strong funding position.

Across all asset classes, we will continue to look for opportunities to diversify the currency of our issuance to fit with our footprint and franchise. As with recent years, this will include significant issuance in U.S. dollar, but we will also continue to look for opportunities in sterling, euro, Singapore dollars, Australian dollars and others.

We also continued our focus on legacy securities management in 2025 with the tender of some of our New York law instruments that no longer have value as regulatory capital or MREL. Where appropriate and proportionate to do so and where the economics make sense, we will manage this step further over time.

In summary, with the strong performance in 2025, we're moving at pace to continue to deliver a simpler, more agile and growing HSBC. We are on track to deliver against our simplification savings target. We continue to progress with our exit of nonstrategic activities, and we are confident in our ability to continue execution with discipline and precision.

On that note, let's open this call up for Q&A. Faizan?

[Operator Instructions] While we wait for the questions to line up, we can start with a presubmitted question. Greg?

Thanks, Faizan. Yes. So we've had a pre-submitted question in Fais. So the question is, could you give us an update on your plans around currency of the various different splits of issuance, you've outlined in the issuance plan, please?

Okay. Thanks, Greg. So really, it's very similar to what I've said in the past on these calls. Generally, you'll see much of our issuance issued through the U.S. dollar markets given that's the largest liquidity pool. In '25, we did about 68% of our MREL issuance in dollars. Although as I said in my prepared remarks, we did have some other currencies as well.

What I'd say is that generally, this year, you probably expect -- should probably expect us to do between 2/3 and 3/4 of our senior holdco in U.S. dollars. For AT1, we do have a preference for U.S. dollars given that's our functional currency. And where we do other currencies, it would be, frankly, where we could downstream it to legal entities that have a functional currency in that alternative currency. So yes, look, largely U.S. dollars, but we are open to looking at euro, Aussie, Sing, sterling, yen and maybe a few other currencies as well.

Our first question on Zoom comes from Lee Street of Citi.

I have 3, please. Firstly, you mentioned the FPC review as a positive step. I guess, in a bit more detail, what mean practically do you actually expect to change as a consequence of the review? Secondly, you mentioned tokenized deposits. Just when do you expect to have that as a broad offering for your client base? Is that this year's business, next year's, timing on that would be helpful.

And a technical one on bonds. You obviously continue to include par call windows, refinancing windows within your subordinated instruments. Obviously, other banks are now ceasing to include those. What are your thoughts around that, please? That would be my 3 questions.

Thanks, Lee. Good to hear from you. So I'll probably take your questions in order. So I guess, first of all, on the FPC review, I think perhaps I'll start by providing a little bit of context for people that are perhaps not familiar with this. So at the back end of 2025 -- December 2025, the FPC Financial Policy Committee in the U.K. published their initial findings of the capital review.

We welcomed that -- those findings. And we think this is an important process. And as I said in my prepared remarks, it's one we want to move forward at pace and with ambition because for us, it provides a real and genuine opportunity to make, I guess, thoughtful amendments to the framework. What the FPC have said, and I think you will know this, Lee, but just for everyone else's benefit, is they've said that they would like firms and other interested parties to submit written feedback by the beginning of April. And they've highlighted 4 core areas. From memory, that's, first of all, usability of buffers. The second was leverage ratio and the leverage ratio framework. The third was looking at the interaction within the capital regime of different aspects and different requirements. And the fourth was really indexation of thresholds, proportionality, complexity, et cetera.

So those are the 4 core areas that have been highlighted for feedback. I guess to your question, it's a little bit early to predict what will come out of that review process. But I'd certainly say there are a few things that will be positive for us from our perspective and that we would like to see happen. So the leverage ratio is one of those things. We think there, there are several angles that could be considered. And as I think many of us will know, this is something that the U.S. have looked at in terms of changes to the eSLR framework. So that's one thing.

Second thing, buffers and usability of buffers. Obviously, the FPC announced a change in their benchmark guidance moving that to between 13% and 14%, which in itself is positive. But buffer usability is really the catalyst that helps firms from our perspective, use that and change ratios.

Perhaps the third thing I'd call out on this one is ring-fencing. We think that this is an area that should also be looked at and would provide meaningful opportunity for -- there is meaningful opportunity for adaptation there. The ring-fencing regime was obviously developed a few years ago and the whole framework is in terms of capital and the Basel rules have evolved since that was first established. So that's what probably I'd call out on the FPC review.

I think the second question was on tokenized deposits. And what I would say in that regard is that we have spent a lot of time ourselves developing our capability for tokenized deposits. I would say we're a leader in that space and certainly within the technology aspect of that. And as I mentioned in the prepared remarks, we have spent some time developing our HSBC Orion platform, and we were very pleased for that to be selected for the U.K. -- to have the U.K. Gilt mandate as part of the pilot. We're also actively engaged in the GBTD pilot exercise among U.K. banks.

But I think your point was probably very specifically about kind of expanding our tokenized deposit offering to clients. And what we've done in that regard is, we started in Hong Kong, and we have onboarded clients in Hong Kong on our tokenized deposit offering. And since that initial launch, we have expanded to other jurisdictions, including the U.K., Singapore and Luxembourg. And that's not the extent of our ambition. We want to go beyond that. So it's clearly an area of focus. So that's probably what I would call out in terms of tokenized deposits.

And then if I caught correctly, your final question was on the 6-month par call window. Look, as you've probably seen, we issued a call notice a few weeks ago, which was actually the first AT1 that came up for us with that 6-month par call window within it. And we chose to call that really at the start of the window. We -- the way we think about this, I would say, is that we continue to see benefits in having securities issued with this call window as it gives flexibility when we're in stressed markets to ensure we can call or to maximize the probability of calling it.

But we're not in itself trying to derive value from the call window. And generally, we would look to exercise early on. What we do here is that we do not leave the refinancing of our AT1s right to the last minute. We will look multiyears ahead certainly months ahead, and we will ensure that there's no refinancing risk. So keeping an AT1 through the call window, we're effectively incurring a carry cost. So it's quite often to our disadvantage to do that. But the 6-month call window for us does create the opportunity, as I say, in a stressed market to maximize our opportunity to call.

It's one of the things, we don't think there's a clear market consensus that's formed here. And I know that some parties have chosen to remove that. Others retain it as well. We'll keep track of that evolvement or how that evolves over time. And at the moment, there's no cost for us in the primaries to having that call window in. If a cost were to arise, then we would maybe reconsider as well. Hopefully, that addresses your questions, and I haven't missed anything.

Next question comes from Dan David of Autonomous.

Hopefully you can hear me. Congrats on the [indiscernible] I've got 3 questions. The first one is on the CET1. So thanks for providing some guidance on the pro forma impact of Hang Seng. Just interested in the -- how long it will take to come back into your CET1 range and what actions you're taking. If you could just refresh us on that, that would be great.

Second one is on MREL. The requirement has gone up. quite a bit 60 basis points, which equates to about $5 billion, which is quite large. Could you give us some detail on what's driven the increase in the requirement? And do you expect this to -- the, I guess, half yearly volatility to continue?

And then the third one is a bit broader on, I guess, Hong Kong CRE and the ECL charges. So I think the ECL charges look pretty small in Q4 on Slide 16. But I think on the call earlier, you said there were some macro-related upgrades, which offset the underlying charges. Could you maybe provide some guidance on or break out the pieces that are moving there, the kind of the underlying from the macro-related upgrades? And maybe give us some background on what drives the timing of that macro reflection or change in your view to kind of push through into the models?

Thanks, Dan. That's very clear. What I propose to do is split that up actually. So perhaps I'll take question one on CET1, perhaps I'll ask Greg whether he can make some comments on the MREL requirements. And I'll ask Alastair to take question 3 on Hong Kong CRE. So I guess on CET1, yes, look, we closed the year at 14.9%. So that's our group CET1 ratio. And we -- that was a 40 basis points increase on the quarter. That's above our target operating level, which, just to remind everyone, is 14% to 14.5%.

But we built that capital up in expectation of the Hang Seng privatization going through. And as you will have seen, Dan and as you kind of quoted in your question, that's now gone through -- and that effectively recognizes 110 basis points drop in the CET1. So that takes us just marginally below our target operating level. It's my expectation that we will recover back into the operating range fairly quickly. And I don't -- as we've said a few times, we are -- and continue to be incredibly capital generative.

So I'm not going to give you a time line for that, but I don't think you should expect us to take too long to get back into the range. In terms of share buybacks, what we said at the beginning when we announced the transaction which was around October 9, was that we were suspending share buybacks for up to 3 quarters. Now we're not changing our guidance or messaging on that point. Generally, share buybacks are something we consider each quarter as we go. And they are one of the tools that we have at our disposal in terms of capital deployment.

Clearly, we look at other things as well. We will look at inorganic growth -- sorry, organic growth opportunities and inorganic growth opportunities and then share buybacks probably comes a little bit after that. So no clear guidance that I can give you today on when we will resume share buybacks. But there's nothing that we see at the moment that would change that would require us to change what we said previously. So that's CET1. Perhaps as Alastair is sitting next to me here in Hong Kong, perhaps I'll ask him to do the Hong Kong CRE, and then I'll come over to Greg for MREL.

Yes. thanks, Fais. So Slide 36 in the fixed income deck, you can see that there's actually very modest deterioration in the book in the second half of the year in Hong Kong CRE. The major feature of the percentage move was actually the best borrowers repaying. So the top of the stack, the strongest loans went down because borrowers deleveraging. So that was a theme across the market.

We'd like to be lending more in Hong Kong in general, but the demand isn't there. There was one Stage 3 loan of materiality in the fourth quarter. There have been one in the third quarter. I mean we -- parts of the market here is still stressed in particular parts of the office market and particular pockets of retail, but we haven't seen the broad-based deterioration that people were worried about, I think, for some of the banks.

In terms of the revised economic assumptions, we run that regularly. We update that in our quarterly reports. The key features in Hong Kong in the recent past have been things like better retail sales, stronger tourism arrivals, increased property transactions, better GDP growth, and rising prices in certainly residential property. So a number of positive signs in the market. It just happened that those numbers -- the single name and the revisions were broadly comparable in the quarter.

I guess back in Fais's slides on Slide 33, there's some disclosure on Hang Seng Bank, where I think the market was asking more questions. The first half had a number of significant moves into Stage 3 at Hang Seng. That hadn't happened in the second half of the previous year, and it didn't follow through in the second half of this year. So I'd say we felt the second half on the book was very much as we'd expected. We are calling out in the group's 40 basis points guidance for this year, there remain risks of further moves into Stage 3 or deterioration in other ways, certainly in pockets of the Hong Kong market. But overall, the market conditions have been improving of late, which is the driver of revisions to economic assumptions.

Thanks Alastair. All right, Greg, over to you.

Thanks, Fais. So on the MREL, I think firstly, it's just important to note, of course, that our buffer above our minimum remains very significant at around $40 billion or around 4 percentage points of RWAs. But yes, as you can imagine, given we are, I think, quite unique in the way that our MREL requirements are made up in that you take the component parts of all of our group, so all the various different resolution entities and add that together, there are some complexities in there.

And primarily, the one that I think is driving the increase that you saw in the second half was that some of the entities that make up the whole are leverage constrained rather than RWA constrained. So there has been some growth in leverage assets, and that has driven that increase, albeit still, as I say, leaving us with a decent buffer.

[Operator Instructions]

Thanks, faizan. So I've had a submitted question in from Ivan Zubo from UBS, who asks around an update on our legacy position and specifically on the 5844s alongside just if you give us an overview of where you are on legacy.

Okay. Thanks, Greg. So I guess let me start with the 5844. So these are legacy make-whole calls that we issued -- Tier 1 instruments that we issued out of our European entity. We had another series as well, which was 10-handle series issued out of our holding company that we decided to exercise a make-whole call on, I would say, in 2024 actually now. We, at the time, looked at the 5844s and concluded that it was not optimal economically to call those at the time.

We continue to monitor that, I would say, and look at it on a regular basis. But we have no intention at this point to call them. And so there's no update I can give in terms of timing of that. So look, I'm aware that this is of interest to our investor base, and it is something that we look at regularly. So that's on the 5844s.

More broadly on the legacy stack, we -- I'm pretty pleased with the progress we made in terms of reducing it. That stack was over $14 billion back in 2022. And over the intervening years, we've cut it by approximately half. You will know that we undertook a liability management exercise for some of our New York law instruments in 2025, where we took 4 of the 5 series that were there and offered the tender and premium on the tender for exercising that. This is something we'll continue to look at. We'll continue to look at opportunities to reduce the legacy stack. But really for us, it needs to be proportionate and reasonable in terms of cost, complexity and other things. So that's where we are at the moment.

Our next question comes from Paul Fenner of SocGen.

Can you hear me?

Yes, we can now.

Sorry, I'm not on Zoom. Zoom is a pain for me, by the way, because of all the firewalls. I've got all very quick questions. The first is HSBC is known as seeing risks way before anyone else does. And in that context, I just wanted to know what it is that you guys talk about internally that no one else is yet talking about? I mean I noticed that George was questioned about AI and talked about AI as if it's still the great opportunity. But is that a major risk coming down the pike in 2 years' time that we're not really thinking about? I'd love to know -- get some color around that.

Second, Hang Seng, it strikes me as a perfect in-market merger integration, significant cost cutting. Why -- I know it was discussed this morning, but just love to get a sense of why it is that you are not, one, rebranding, is it because there are very, very different customers and there's sort of brand loyalty? A little bit of color on that.

Third, you mentioned this in relation to Daniel's question. But at the group level on Slide 17, you've got a nice little chart with what's been going on in Stage 3 loans over the last 4 years. Obviously, the trend has not been your friend. You've got $25 billion of Stage 3 loans. You may not think of it this way. But do you have -- I mean, do you see that stabilizing now? I mean how big a number do you think Stage 3 can get? I know that what you're saying around cost of risk, but I'm thinking specifically around that number would be helpful.

And then the very last question, you did talk about the currency of supply. I may have missed what you said about Tier 2. In euros, Tier 2 remains cheaper to issue into even on a cross-currency basis, I think. And given that it's a it's about $1 billion that you are saying and not $1.5 billion, that suggests more of a size of a euro. Am I overthinking it? Is euro made more sense in Tier 2? Those are my 4 questions.

Okay. Thank you, Paul. So noted on Zoom, but thank you for making the effort to call in, first of all. That's really appreciated. So I'm going to -- I'll perhaps start with one, which is the risks question. I'll touch on the Hang Seng, but I'll also bring in Alastair to give you a bit of color on that. Then I'll pick up 3 and 4. So we'll probably go that way, if that's good.

So well, look, thank you for your comments on HSBC seeing risks before anyone else does. Look, I think we spend a lot of time looking at scenarios that can play out. We have a vast network of banks across the world. And so I think it's incumbent on us to be close to the market, be close to risks that can occur and to test them out. We have great teams that look at stress testing, look at scenario analysis, geopolitics and the like.

We're also very tapped into policies, regulatory policies, governments, et cetera. So we don't -- we're not complacent about that at all. It's something we continue and we always monitor, but it's something we have to monitor, I would say.

Now on AI, look, we are positive about AI. There's huge opportunity in that arena, as George rightly said earlier on in the day. But this is going to, we believe, lead to structural shifts as well. And one needs to be aware of that. So it will lead to kind of changes for some of our client base, and we stay and remain very close to those client bases in terms of talking to them about the impacts of AI positive and negative and helping those clients kind of transform and evolve what they do.

But ultimately, this is happening regardless, the kind of momentum is there around AI. And I think we need to be conscious of it, aware of it and kind of embrace it where we can and be aware of the risks as well. I know that's pretty high level, but that's probably how I'd comment on your first question.

On Hang Seng, I mean, just to share kind of my own take on that. Look, we are incredibly pleased to have done this privatization and completed it ahead of time. When we announced it in October, we had a time line that was longer than January 26. So it's great to have completed it. First, it brings 2 iconic brands together and allows us to really fulfill our potential in Hong Kong and exploit the opportunities within the Hong Kong market. That's a market that we're incredibly positive on.

We think these 2 brands together will -- is best placed to do that. We've called out some synergies, which were described earlier on. And those synergies will allow us to take the best of both brands. So for HSBC, that is taking some of the great things that are done in Hang Seng and adopting those. But also for Hang Seng, we really believe that the vast product suite that we have within the red brand within HSBC, the technology that we have as well the customer base, the international customer base are all things that can benefit the green brand, i.e., Hang Seng. So that's the way we see it. Alastair, would you like to comment on the rebranding and the other question?

No. Thanks, Fais. Absolutely. So all I'd add, Paul, is we recognize it's a relatively unusual thing that we're doing. It is our intention to run 2 banks with a full market service. So the synergies will naturally be around the revenue opportunities that Fais was talking about. We have identified significant cost opportunities, but they are not as big as a typical in-market deal because this is not a typical in-market deal. You'll retain your sort code, your bank account with Hang Seng, no change.

I'd also just mention a number of the back offices were already working together because clearly, we had a controlling stake in Hang Seng for the previous 60 years. So it is a different structure to what I think you'll have seen from just about any other setup. That's why there's emphasis on the revenues. And just back to the beginning of what Fais said that this is an opportunity, we think, to increase the economic exposure of the group to a market that is a great banking market and what we think has a lot of growth in the future.

Okay. Thank you, Alastair. So moving on then. So the Stage 3 loans, though they have ticked up a little bit, as you say, Paul, up to 2.5%. Really, what I'd point you to is our cost of risk guidance. And I know you comment on that in the question, but cost of risk guidance is around 40 basis points for this year. We see this as a cycle actually. And the range we often quote is 30 to 40 basis points. And so we're quoting at the moment at the top end of that.

There is still -- there are still pain points, particularly in commercial real estate. Pam talked on the call earlier about Hong Kong commercial real estate and kind of the 3 areas that we look at within that, so residential, office and retail. And there are different points in terms of the evolution. There are still pain points, but there's still -- there's optimism and others, and that might be a source of Stage 3 in the future. But actually, we're quite conservatively placed at the moment. And there's nothing that I would call out in terms of something that we're looking at on the horizon that would move that number materially.

So that's on Stage 3. And then finally, I think your last question was on MREL -- sorry, was on Tier 2. I didn't say anything previously on Tier 2. There are no set plans really in terms of Tier 2 for currency at the moment. We'll look at the options and really, it's in line with my prior comments for senior, we'll see what there is, and we'll look at -- we'll be quite deliberate about that in terms of spread and demand for it in terms of our entities. So nothing I can add to it.

This brings us to the end of our Q&A session as we have no further questions lined up. I will now hand it back to Fais for his closing remarks.

Okay. Thank you, Faizan. So right, thank you. Look, thank you, everyone, for joining today. It's -- just reiterate, it's a pleasure to be sat here in Hong Kong, especially having completed our privatization. I spent some time with Hang Seng colleagues earlier today, and we are working, as you would expect, closely together. I would like to say [Foreign Language] to colleagues across Asia who are celebrating Lunar New Year. And I wish everyone else a great day and talk to you soon. Thank you.

Welcome to the HSBC Holdings plc Investor and Analyst Presentation for the 2025 annual results. We will begin in 2 minutes. [Operator Instructions] Please note that it will not be possible to ask a question if you are joining via the webcast link on the HSBC website.

Ladies and gentlemen, welcome to HSBC Holdings plc's 2025 annual results webinar for investors and analysts. For your information, today's webinar is being recorded.

At this time, I will hand the call over to Georges Elhedery, Group CEO.

Welcome, everyone. Thank you for joining us. As we celebrate the year of the horse, [Foreign Language].

Our 2025 full year performance was strong. It was a year in which we performed, transformed, invested for growth. I will discuss our strong strategic progress today. First, the strong momentum in our 2025 performance. Second, the execution of our 3 strategic priorities where we are progressing at pace and with discipline. And third, the new growth and return targets we are setting out today for 2026, '27 and '28.

So first, the full year earnings. My comments will exclude notable items and the comparisons will be year-on-year on a constant currency basis. In 2025, there were $6.7 billion of notable items. You are already aware of these from prior quarters. They are set out on appendix Slide 36.

So first, we delivered strong earnings. Group revenues grew 5%. Profit before tax rose 7%, reaching a record $36.6 billion. Return on tangible equity was 17.2%. And we delivered 3% cost growth on a target basis in 2025, in line with our cost target.

Second, we delivered strong growth. Our deposit balances grew 5% with deposit growth in each of our 4 businesses. Our deposit base is a core strength. It contributes the lion's share of our banking NII.

We also grew fee and outcome. In Transaction Banking, it grew by 4%. Elevated market activity demonstrating the power of our deep international network, which gives access to 86% of world trade flows, alongside our product and service expertise.

In Wealth, it grew by 24%, reflecting our leadership position in the world's fastest-growing wealth markets and continued investment in our products and proposition. And we are investing for strategic long-term growth. We completed the $13.7 billion privatization of Hang Seng Bank. This brings together to 255 years of history and heritage, combining global reach and local depth. It reflects our confidence and conviction in Hong Kong's future growth.

And third, we delivered strong returns to our shareholders. We announced a full year ordinary dividend per share of $0.75, up 14% on 2024.

Let's turn straight to the progress we are making on strategy execution. In October 2024, I set out a clear agenda to unlock HSBC's full potential. To do so, we now run the bank on 4 core complementary businesses, 2 home market businesses, U.K. and Hong Kong, and 2 international network businesses, Corporate and Institutional Banking and International Wealth and Premier Banking. Each business is growing. Each is generating above mid-teens return on tangible equity and each is building on a strong foundation for future growth. We are focused on 3 clear priorities, and we are moving at pace with each one, be simple and agile; two, drive customer centricity and three, deliver focused sustainable growth.

Now let's look at each priority in turn and our progress. First, simple and agile. The first step in unlocking HSBC's full potential is reengineering to reduce complexity and cost. Structure and strategy are now aligned. Accountability is sharpened and roles deduplicated.

In 2025, we reduced net managing director positions by circa 15%. We are taking $1.5 billion of annualized simplification saves straight to the bottom line with immaterial revenue impact. We expect to have taken action to deliver these saves by the first half of 2026, 6 months ahead of plan.

We are also making positive progress with the reallocation of circa $1.5 billion from nonstrategic or low-returning businesses. The medium-term intent being to reallocate these costs to areas of competitive strength and generate accretive returns. In 2025, we announced 11 business or market exits. Completed and announced exits account for $0.7 billion in annualized cost savings with around $1 billion of associated revenue $0.6 billion remains an active execution, including those under strategic review.

Then following the privatization of Hang Seng Bank, we are increasing reallocation costs to $1.8 billion, reflecting an additional $0.3 billion of reported basis cost synergies across HSBC and Hang Seng Bank. We will direct this $0.3 billion to growth opportunities in Hong Kong.

We are also streamlining and upgrading our operating model by simplifying the bank at scale and retiring nonstrategic applications. And we are reengineering whilst focusing on resilience and risk management.

Next, priority number two, drive customer centricity. Our 4 businesses are built on customer trust. Our investments to improve customer proposition and experience are yielding results. Net Promoter Scores have improved or remained top ranked in our home markets. In Hong Kong, we added 1.1 million new to bank customers. Taking the total number of customers to more than 7 million.

Our U.K. business lending -- our U.K. business banking lending grew 13% year-on-year, excluding COVID loan runoff. In CIB, corporate surveys have positioned us as a market leader in trade, in payments and in foreign exchange. In IWPB, we attracted net new invested assets of $80 billion.

Next, priority #3, investing to deliver focused, sustainable growth. Our Hong Kong home market is a dynamic economy, a top 3 global financial center and a thriving trade gateway. It is the super connector between Mainland China and the world. And it is set to become the world's leading cross-border wealth hub by 2029.

The privatization of Hang Seng Bank enables us to scale capabilities and drive growth across both banks for all customers. We have the ambition, and we have comprehensive plans to deliver $0.9 billion of benefits through reported synergies and unlock of opportunities by 2028. It is an investment for growth. And if we move beyond Hong Kong and look at HSBC's other core strength, we are in Asia, Middle East powerhouse. Asia and the Middle East are increasingly central to global trade and capital flows. Global trade is being rewarded. Asia's growth is increasingly powered by intra-Asia demand. Asia is buying Asia.

The Middle East is scaling as a global capital trade and investment hub. Its integration with Asia is accelerating. The Asia-Middle East corridor is becoming a defining access of global growth.

Wealth creation across Asia and the Middle East is also structurally strong. That is why we are investing to consolidate our powerhouse position and capture these growth opportunities.

We are also investing to connect the world, scaling our capabilities, building new capabilities and supporting customers secure commercial advantage from real-time services. Our customers are making real-time 24/7 payments across 35 markets. They're also using frictionless tokenized deposits and payments in 4 markets, including the U.K. with more to follow.

And we are pioneering the future of finance. Last month, the U.K. Treasury selected HSBC's distributed ledger technology as its preferred platform for its U.K. Digital Gilt pilot.

Next, our people and technology. We see innovation and culture that's core to our competitiveness, and we are investing in both. We are scaling AI adoption first, to empower our colleagues second for end-to-end process engineering and third, to enhance customer experience. Our customer relationships are built on trust. AI strengthens how we act on that trust, personalizing service at scale. The strong culture turns a clear strategy into results, and we are investing to nurture a high-performance culture. All our senior leaders and the broader managing director cohort have attended our new group-wide leadership training.

Finally, let's turn to our new targets for 2026, '27 and '28. 2025 has been a year in which we have performed, transformed and invested for growth. This gives us the confidence to set out new growth targets. We will target revenues growing year-on-year every year, rising to 5% in 2028, excluding notable items. We will target return on tangible equity of 17% or better in each year from 2026 to 2028, excluding notable items and a dividend payout ratio of 50% for each year, excluding material notable items.

To conclude, we are creating a simple, agile, growing bank built to generate high returns. We are executing our strategy with discipline and precision. We are delivering growth, we are investing for growth and we are confident we can navigate uncertainty from a position of strength. That is why we are confident in setting these new targets and in our ability to continue delivering for our shareholders.

Let me now hand over to Pam. Thank you.

Thank you, Georges. Thank you, everyone, for joining. We have had another strong quarter, which reflects the positive progress we are making towards creating a simple, more agile growing HSBC. We are investing for growth. Throughout this presentation, I will exclude notable items and focus on the fourth quarter numbers compared to the same period last year on a constant currency basis.

Let's turn straight to the highlights. In the fourth quarter, revenues grew 6% and to $17.7 billion. This was driven by broad-based growth in banking NII and fee and other income. Profit before tax was $8.6 billion, up 17%. Our customer deposit balances stand at $1.8 trillion, an increase of $78 billion when we include held-for-sale balances.

Full year return on tangible equity was 17.2%, achieving our mid-teens or better target. In 2025, we maintained tight cost discipline, managing target basis cost growth to 3%, in line with our cost growth target.

Turning to capital and distributions. Our CET1 capital ratio was 14.9%, up 40 basis points in the quarter, reflecting our organic capitalization and expectation not to initiate any further buybacks for up to 3 quarters following October's announcement of our intention to privatize Hang Seng Bank. As Georges said, this strong performance allows us to announce ordinary dividends for the year of $0.75 per share, an increase of $0.04 on the prior year.

Turning to our business segment performance. We grew full year revenue by 5% to $71 billion. Each of our 4 businesses grew revenues. Each grew deposits, deepening customer relationships. Each returned a mid-teens or better return on tangible equity, excluding notable items. We are pleased to be making such positive progress firm-wide.

Moving next to our privatization of Hang Seng Bank. On 9th October, we announced our intention to privatize Hang Seng Bank. We are pleased to have completed on 26th January, sooner than our initial expectation of the first half of 2026.

This slide explains the financial rationale. Let's walk through it, starting with a $13.7 billion purchase price. The removal of the $3.8 billion minority capital inefficiency takes you to the $9.9 billion of common equity Tier 1 consumption. The removal of the capital inefficiency is around 1/4 of the purchase price. The $9.9 billion CET1 consumption is equivalent to buying back 4% of group shares at the point of announcement.

Next, we show the $0.8 billion minority interest in the P&L and the $0.5 billion of pretax synergies from the privatization. Together, the minority interest and the synergies contribute more than 4% to our profit, beating the buyback threshold.

On top of this, we see potential, further revenue and cost upside of $0.4 billion enabled by the privatization. Then on the right of the slide, we see good growth in Hong Kong in the years ahead. Having 2 fully owned banks positions us well to capture this growth. As we said in October, we are acquiring a business with structurally high pre-impairment margins. And while we are not calling the credit cycle, we believe it is a cycle.

Let's now turn to banking NII. Our full year banking NII was $44.1 billion. In the fourth quarter, banking NII of $11.7 billion grew $0.7 billion. $0.4 billion of this growth was in Hong Kong, including the recovery of HIBOR during the quarter.

Banking NII in the fourth quarter included a positive benefit of around $100 million for items that we do not expect to repeat. We expect full year 2026 banking NII of at least $45 billion with the impact of expected lower rates more than offset by deposit growth and the tailwind from our structural hedge.

Next, to wholesale transaction banking. This year has really validated the strength of our franchise in a range of economic market and tariff situations. We have deepened customer relationships, and our global network has helped our customers navigate volatility and uncertainty. In the quarter, security services grew fee and other income 6%, reflecting higher market valuations and new mandates.

Payments grew 3%, driven by new mandates and payment volumes. In particular, international payments. Foreign exchange increased by 1%, reflecting strong client flows and higher levels of volatility. This was a good performance given the strong prior year comparison.

Trade was down 5% in the quarter, but it was stable over the full year. I would note the first half was particularly strong, given advanced ordering as we supported clients to navigate a fast-changing landscape. We continue to see growth in volumes, and strong client engagement.

Let's now turn to Wealth, including the new disclosures we are setting out today. We are very pleased with the 20% year-on-year fee and other income growth to $2.1 billion. And we are very encouraged that this was driven by all 4 income areas, which shows the sharpening of our strategy is working. Asset Management grew 14% and Private Banking grew 8%. Investment Distribution also performed well, up 14%, reflecting strength in our customer franchise in Hong Kong. Our Insurance CSM balance was $14.6 billion, up 21% versus the prior year.

We continue to attract net new invested assets with $7 billion in the fourth quarter. Today, we are giving you new disclosures, which you will see through on this slide. These better show the strength of our relationship with our customers, including both their deposits and invested assets. We are focused on capturing the full wealth opportunity, and we will now report Wealth balances and net new money. I appreciate that the Wealth balance figure is similar to the invested assets. But I would highlight two changes to note. You will see these set out on Appendix Slides 31, 32 and 33. We have added $608 billion of Premier and Private Bank deposits to the invested assets. That is offset by taking out $580 billion of asset management, third-party distribution assets. This is a good business, but it does not reflect our wealth customers. Adjusting our disclosure in this way also means our Wealth business is more easily comparable to the broader peer group. These new disclosures will replace the existing ones from the first quarter of 2026.

We saw net new money in the quarter of $26 billion, of which $19 billion was in Asia. And Wealth is not just a Hong Kong story. It runs across our Asia and Middle East franchise with double-digit invested asset growth in Singapore, Mainland China, India and the UAE.

Next to credit. Our ECL charge this quarter was $0.9 billion. There was no material impact from Hong Kong commercial real estate in the quarter.

On Slide 29, you will see we have updated the commercial real estate disclosures. Movements in the fourth quarter were in line with our expectations. of a full year 2026 ECL guidance is around 40 basis points. This is at the higher end of our typical range, reflecting the economic outlook and remaining pressures in parts of retail and office commercial real estate in Hong Kong.

Let's now turn to costs. We delivered 3% target basis cost growth in the full year, hitting our cost goals while making the space to invest in the bank was a key theme of 2025. It will be again in 2026. We have taken actions to realize $1.2 billion of annualized simplification savings with immaterial revenue impact. This is ahead of our original time line of $1 billion by the year-end 2025. On a realized basis, we have taken $0.6 billion of the simplication saves into the full year 2025 P&L. Together with ongoing discipline, this allows us to guide for 1% cost growth on a target basis for 2026 while reinvesting in the business.

Next, to customer deposits and loans. We had another strong quarter with deposit growth of $50 billion. We saw good growth in each of our 4 businesses. Loans increased by $5 billion. The U.K. was again the standout with another quarter of growth in mortgages and commercial lending.

Our U.K. business is well positioned to support growth in the U.K. economy. We are particularly pleased with the momentum in our commercial loan book where we see significant potential, particularly in infrastructure, innovation, social housing and mid-market direct lending.

Now turning to capital. Our CET1 ratio is up strongly to 14.9%, primarily reflecting good organic capital generation. Although after the balance sheet date, I draw your attention to the impact of the Hang Seng Bank privatization which is 110 basis points in addition to the 10 basis points already incurred in the fourth quarter. We have set this out in the appendix Slide 27.

As a reminder, we said when announcing the offer on 9th October that we expected to suspend buybacks for up to the next 3 quarters. That is, of course, dependent on underlying capital generation. With strong profitability and current modest loan growth we remain highly capital generative. A decision on future share buybacks will be taken quarterly, subject to a non-buyback considerations.

Let's next turn to the full year defaults. Excluding notable items, and at constant currency, revenues grew 5% to $71 billion. Profit before tax was $36.6 billion, up 7% year-on-year to a record high. Return on tangible equity was 17.2%, achieving our mid-teens or better target. Our strong performance allows us to announce ordinary dividends for the year of $0.75 per share or $12.9 billion.

Let's briefly return to the new targets Georges set out earlier before I close on guidance. We made clear and positive progress in 2025. That is why we are now raising our ambition to target 17% return on tangible equity or better, excluding notable items in each year from 2026 to 2028. We will also target year-on-year revenue growth in each year over the period, rising to 5% in 2028 compared to 2027, excluding notable items. And as you would expect, we maintain our discipline of a 50% dividend payout ratio, excluding material notable items and related impacts.

Finally, to guidance. This slide gives you our guidance mainly for 2026. We saw revenue momentum continue in January, including in Wealth. On the slide, you see banking NII of at least $45 billion. Our revenue ambitions for our Wealth business are contained within our revenue target. We have, therefore, removed grow fee and other income at a double-digit percentage CAGR from our guidance.

We see an ECL charge of around 40 basis points, broadly stable on 2025. We expect to constrain cost growth to 1% on a target basis. This benefits from our organizational simplification and allows us to continue to invest in the business. There is no change to our CET1 target range of 14% to 14.5%.

In 2026, we will deliver the $1.5 billion of savings from the reorganization. We are well on track with the $1.5 billion of reallocation costs which will be redirected towards priority growth areas. We are now adding the expected $0.3 billion of Hang Seng Bank cost synergies to the original $1.5 billion of reallocation costs, taking this to circa $1.8 billion.

On Hang Seng Bank specifically, we see $0.5 billion of revenue and cost synergies to be achieved by year-end 2028 as well as an additional $0.4 billion of potential further upside enabled by the privatization. To achieve this $0.9 billion, we will incur a restructuring charge of $0.6 billion from the Hang Seng privatization which will be a material notable item.

To close, as I said to you last year, I am fully focused on discipline, performance and delivery. Discipline means prioritizing with precision, maintaining strong cost control and ensuring investment rigor for growth. Performance means gearing our financial strategy towards achieving our new returns target. Delivery means ensuring we remain agile and resilient, enhance operating leverage and are always well positioned to support our customers. This is exactly how we will continue to run the bank.

With that, we are happy to take your questions. Alastair?

Thank you, Georges. We'll take any questions from the room here in Hong Kong first. If I can ask you to introduce you to your company, and there's been the hard part, constrain yourself to two questions each, please. That goes for people on Zoom as well as people in the room. Anyone would like to ask a first question here? Yes, we'll take a question from Nick.

It's Nick Lord from Morgan Stanley. I'll put it in one question in two parts, if that's okay. I'm just interested in your revenue target by 2028 of achieving 5% revenue growth. And I just wonder if you could talk about some of the components of how you would get there. Presumably, Wealth is part of that. And so maybe you could talk about the Wealth trajectory and how sustainable that is. Presumably, at some stage, we're going to see sort of a kick in of sort of the development of markets in Asia, and that market's business can grow more. So I wonder if you could talk a little bit about how you want to grow that markets business in Asia.

Thank you, Nick, for the question. I'm going to share some high-level comments as we are looking at the growth opportunities, and Pam can take you through the various components. The first thing is we have delivered growth in 2025. And we have delivered growth, as we mentioned, across all our businesses and all our key metrics, including deposits, loans, including fee income and Transaction Banking and Wealth and this is reflected in our revenues growing at 5%, 2025.

The second item to call out is if you look at our footprint. We're actually basically aligned to the strong structural growth opportunities. Hong Kong, we've called it out, and we are basically consolidating our leadership position to capture these growth opportunities with the privatization of Hang Seng among other. Asia and Middle East, structural growth opportunities in Wealth, but also Asia and Middle East hitting record volumes and shipments for trade, Asia is buying Asia and we are -- our footprint allows us to capture these growth opportunities.

The U.K., we've seen the strongest loan growth in 2025, and we have indicators to believe that there is a possibility for this trend to carry on. This is the strongest loan growth we've seen in the U.K. for many years, but it's also the strongest store growth we've seen across all our businesses that we have seen in the U.K.

And then the last thing I would put, we are investing for all these growth opportunities. We're putting now investment from within our cost base. We're putting investment from the additional costs we are taking in 2026. And we will be putting even further investments from the reallocation of the $1.8 billion as we free up these costs back into those core areas where we can grow. And this is what's giving us this confidence to give you the growth targets of revenue growing year-on-year every year rising to 5% in 2028. Pam?

Thanks, Georges. So firstly, in 2026, we expect broad-based growth in revenue across all our businesses, but just unbundling a little. In banking NII, as we have said, we expect a low single-digit growth fundamentally driven through deposits. Yes, there are pockets of growth in loans, but so far, we've just seen in the U.K. market.

Overall, we expect that growth in Wealth and Transaction Banking and our fee-generating businesses will continue to be very positive. As we go beyond '26, we do expect balance sheet growth should again in Asia and other markets, not just in the U.K. Of course, we are seeing growth in the U.S. already, but we are not a big player in the U.S. market, domestic growth. And we are continuing to invest in our fee businesses and our investment plans are multiyear plans. So it's not just for growth for 1 year. It's a very strong building block for growth through the period we have called out and beyond. Particularly in markets like Hong Kong, in the U.K. and other key markets for us in Asia and the Middle East.

Thank you, Nick. Thank you. Any further questions in Hong Kong. We'll go straight to Zoom. The first question on the Zoom then, please, is with Joe Dickerson at Jefferies. Actually I've announced yourself, Joe.

Good set of results, guys. Just a quick question on the costs. If you look at the 2026 number that you've given the kind of 1% growth. I know you've got your recycling how do you think about when you peel that back and what's the metabolic rate of growth in costs, particularly coming from investments because you clearly have some global peers who have accelerated their investments around AI. So I was just curious how you think about that. And then secondly, a nitpicky question, but what rate of HIBOR have you assumed in the banking NII guide of greater than $45 billion?

Okay. Thank you very much, Joe, for your questions. On let me make some high-level considerations how we look at costs, and I'll ask Pam to comment then on cost and then on hypo rates. And I shared a bit earlier, but I want to emphasize, first, within our workspace, there's a proportion set aside for investments for change the bank, investments, digital capabilities, additional people, hires, relationship managers, wealth advisory, et cetera, of course, generative AI efficiencies. That's within our cost base.

Second, the fact that we're adding costs adjusted for these savings, half of that additional cost will go towards payroll inflation, but the other half will go towards additional investments.

And then third, the recycling of those $1.8 billion, which is commensurate to about 5%, 6% of our cost base will go back into those areas of investment for growth. So we believe we have ample capacity to invest and deliver the growth that we are setting ourselves, setting targets to deliver against.

Then the next thing I would say about cost is that it's important, Joe, to -- we are committed to cost discipline, we are confident in our ability to deliver cost discipline. And as you've seen for our 2025 results, we have met our cost target. So I think that's an important guide also as you look at our cost guidance for 2026. Pam?

Thank you, Georges. So firstly, I would note that we are ahead on our simplification saves because the plan and the actions we have taken have come through sooner than what we had originally outlined. This gives us incremental saves of $700 million in full year '26. So that has been a consideration in the overall 1% cost growth envelope.

And as Georges said, as we have divestments happening, we are continuously redeploying those -- reallocating those costs to our priority growth areas. What's really important for us is that our investment rigor is focused on our strategic priorities. That's what we've done in 2025. That's what we will do going forward. And these are committed plans, which are multiyear plans. They don't go back and forth every year. So that's all part of the overall cost envelope guidance we have given for this year. And again, we're only giving guidance for this year only, but we expect to maintain a cost rigor on a continuous basis.

In terms of assumptions, we have used the end January forward rate curve for our banking NII guidance for all major currencies. So in terms of HIBOR just to note a couple of points. Our HIBOR volatility that we saw in Q2 and Q3 when HIBOR is at 1% has an impact of about $100 million on banking NII. The moment HIBOR sort of stabilizes as it did in Q4 and indeed this year, although it has fluctuated a little bit around the 2.5% mark, that is captured in our guidance. And we look at a few plausible downside scenarios as well before we give a full guidance.

Thank you. Our next question on the Zoom is from Ben Toms at RBC.

Firstly, on your RoTE guidance of greater than 17%. I'm just looking for some commentary about how sustainable you feel that guidance is beyond the announced planning horizon. So how much do you feel this guidance isn't all weather guidance post all the investments that you've been making into the business?

And then secondly, on the Hang Seng synergies on Slide 13, can you mind just talking a little bit around why you've adopted 2 buckets that you've labeled synergies and upside. Is the upside bucket basically where there's a lower degree of certainty over the synergies? So what type of synergies fall into each bucket would be useful. And presumably, there's no incremental restructuring costs associated with the upside bucket on top of the $0.6 billion.

Thank you very much, Ben. On the Hang Seng guidance, what I will share is we do have the management ambition, and we do have comprehensive sets of plans to achieve the full $0.9 billion upside with the restructuring costs that we've called out. I'll let Pam give you the details.

On the RoTE guidance, we are not guiding beyond our horizon, but you should always assume that we are ambitious. Pam?

Thank you, Georges. And just to say on our RoTE guidance, we continue to see a positive momentum in our businesses. And as we said earlier, we are investing for growth. But of course, the targets are only for 3 years.

So in terms of the Hang Seng synergies, you're quite right, the $500 million is what I would call the reported synergies following accounting rules. The $400 million synergies are depending to some extent of markets and customer behavior. So there is some degree of uncertainty, and they don't strictly fall between what is considered to be accounting reported synergies. So that's the reason why they're too separate.

Both these synergies, the plan to get that $900 million benefit is by the end of '28. And the restructuring cost of $600 million covers the benefits across both buckets. And now beyond that, we actually believe, as it says on the slide that at some stage, the credit cycle will be normalized. So there will be some benefit coming from there. There will be more growth in lending as well as overall Hong Kong growth, which we will continue to be very well positioned for because of the redeployment of the cost allocation that we have, there will be a fair chunk that obviously goes into Hong Kong, which is a core market on our strategy.

Yes, we have a question in the room next, Melissa. Sorry, you're allowed to introduce yourself fully.

I'm Melissa from Goldman Sachs. Just two questions. In terms of the strategy that you have, the rising to 5% revenue growth. Just wanted to see if you can give about CAGR growth instead. So we can understand the pathway there. In terms of that, I suppose, will it be coming largely from the nonbanking NII portion? Or will it be from the banking and NII? So that's my first question.

On the second question, perhaps on the restructuring cost at HSP of $0.6 billion. Can you just give a little flavor about what is it that we are doing in terms of the restructuring that we need such a cost focusing on in terms of delivery and then how we will see the revenue synergies. And in terms of the revenue synergies can it be as quick as next year? Or will it be more heavy into 2028 as per your 3-year guidance rising to 5%?

Thank you very much, Melissa, and Pam can address both questions.

Thank you, Georges. So firstly, we've said that revenue growth is positive each year, but it's also progressive and reaching out to 5% by '27 to '28.

In terms of the underlying building blocks we said to you that in 2026, where we have given the guidance on banking NII, it's a low single digit. So therefore, similar to the prior year, we will see more positive growth momentum on the fee-generating businesses. And beyond 2026, Banking NII, of course, we look and see where the guidance is, where it is, where the rates are and what's the timing of the rate cuts as we go into '26, but we are continuing to invest in our fee-generating businesses so we see that momentum in those businesses, including Wealth, which really underpins this revenue growth and wholesale transaction banking to continue. And I'm hoping that at some stage, we'll see a little bit more of growth on the balance sheet in terms of lending beyond U.K. that we have already seen.

Now in terms of the restructuring costs. There are a couple of elements that drive it. One is there's some organizational alignment. So there will be some roles, which will evolve and teams that will be realigned, but a large chunk of this is really in terms of technology. So the investment in technology so that we can better harmonize our technology and better get results from the technology investment we have across both the Green and the Red brand. And this is really quite critical for us in order to achieve the overall ambition of the $900 million because it's the $900 million ambition just to reiterate, it's not just a cost story. It's a revenue and a cost story, and this is an investment for growth, and that's how we look at it. And we plan to spend restructuring costs of $600 million across the 3 years. And of course, this will be spread through these 3 years, we are not saying any more.

In terms of revenue synergies, we strongly believe that by the privatization of Hang Seng Bank, our ability to be able to provide a broader product proposition into the Green band is highly enhanced. So we'll have better Wealth products for our retail customers. We have capital markets and broader wholesale transaction banking products for the wholesale customers, but more importantly, we will be able to have access for the same international network that we have for the Red brand also within the Green brand. And last but not least, we will have more balance sheet flexibility in terms of how we leverage our treasury capabilities, but also in terms of upstreaming and downstream capital, and this will all be done over the next 3 years.

Thank you. We'll go back to the Zoom. The next question will be from Aman Rakkar at Barclays.

I had two questions, please. So one is around capital. It looks like a decent chance that you'll be within your target CET1 range in Q1 based on historical and perhaps projected capital generation kind of estimates. Obviously, it raises the prospect as to whether you might be able to reintroduce buyback earlier than planned. I don't know if you're able to kind of comment on whether that's a realistic or plausible scenario. But I guess more specifically, just interested in the capital allocation thought process from here? Clearly, your stock is trading at a level now where the return on investment around buyback might be beaten by alternative uses of uses of capital. Obviously, you did it with Hang Seng, but should we be thinking about inorganic growth as well as the compelling organic growth within your footprint?

And then I just wanted to ask around banking NII, please. Clearly, that kind of Q4 jumping off point is flattered by $100 million. I don't know if there's anything else that you direct us to kind of strip out of that number in terms of deposit catch-up or the impact of HIBOR. And I was particularly interested in what your deposit growth assumption is that sits behind the guidance you've given '26, please, because I think that could be a sensitivity around the ultimate outturn of banking NII in '26.

Thank you, Aman. Pam is best placed to answer both, but I want to share a few thoughts about our philosophy on capital. First, we remain capital-generative as you've seen from our targets, but also as we've experienced over the first 1.5 months in the year in 2026. So we're very pleased to see that our capital generation is strong. But our first priority is now restoring the CET1 ratio following the privatization of Hang Seng, which we estimated to take us 3 quarters. But of course, we do that assessment quarter-by-quarter.

But I don't want to point out to the increased dividend we are paying this year, $0.75, $0.45 on the fourth quarter, which is on a full year basis, 14% higher than last year. So we are distributing through dividends. What I wanted to share about the discipline how we use capital, we've shared it in February 2025 Aman, we've set ourselves 4 key criteria. They are a high bar, and we strictly adhere to them in the way we look at inorganic opportunities. In so far, that these 4 criteria are met like in the case of Hang Seng privatization, then we will consider inorganic. But if one of these criteria is defeated, then our preference will be to utilize or return any excess capital back to our shareholders in the form of share buyback. Pam?

Thank you, Georges, and thank you, Aman, for your questions. So firstly, as Georges said, we continue to remain highly capital generative. We've had a good start to the year, as I called out earlier in my remarks. But as you know, we look at our share buyback decisions on a quarterly basis, and that will be a quarterly process. The starting point is clearly our target operating range, which we are working hard so that we can replenish capital that has been deployed in the Hang Seng Bank privatization. That's the first priority, as Georges said, and that CET1 operating range remains 14% to 14.5%. That's the one which underpins all the targets and guidance we have given today.

Just to clarify, in terms of our priorities from there on, of course, the priorities are 50% is the dividend payout ratio, which we have again reaffirmed. We would like to see balance sheet growth, and we want to invest for growth. That's if we can have growth at the right return levels. Our distribution priorities hence have not changed, and share buyback remains for us a useful tool to deploy surplus capital irrespective of where the share price is. So I think that's an important consideration for us going forward.

Next question. On banking NII, you're right, there was a $100 million non-repeat items. So if you take that out for modeling purposes, you come to $11.6 billion. There are no other one-offs. There was a higher HIBOR quarter-on-quarter, and HIBOR also stabilized. And that's why, as you remember, third quarter when we gave a more cautious outlook because we don't know where HIBOR would be. But having seen HIBOR stabilize, it gave us the upbeat on our banking NII results. We also saw low betas on saving accounts in Hong Kong.

And very importantly, we saw strong deposit growth, and we do expect this strong deposit growth to continue to be a key driver in 2026 along with the tailwinds of the structural hedge similar to last year and redeployment at higher rates. The only thing to bear in mind is that for this year, clearly, in Q1, given that there will be 2 days less there will be a headwind of $300 million in Q1. We have assumed, obviously, the rate changes, both that we've seen to date as well as projected for the year. But a lot depends on, as you can imagine, the timing of those rate changes, particularly in the U.S. dollar and sterling.

So we'll take the next question back on Zoom, Amit Goel at Mediobanca.

So two for me. The first one, just coming back on the upgraded RoTE targets. the 17% plus. I just want to check in terms of how you're thinking about that on a kind of year-on-year-on-year basis for '27 and '28. I mean are you thinking that RoTE kind of continues to improve? Or are you thinking more 17% is kind of a very acceptable and a good level and so any additional upside you would look to reinvest? And within that, I kind of note that on the LTIP, you've kind of brought up the lower end of the kind of the boundary performance to, I think, to 16.5% from 14%, but the 18% of the top end hasn't changed. So I appreciate that's done by the compensation committee. But I'm just kind of curious how you're thinking about what appropriate or sustainable level of return is.

And then secondly, again, just coming back, maybe more clarification on the Hang Seng Bank kind of benefit and restructuring charge. So I mean, I guess, I was curious, really, for a bit more detail on the $0.4 billion of additional benefit, I guess, from an accounting standpoint, can't be treated as a synergy what exactly that is? And within the restructuring charge, I think previously you said that there's actually going to be more of a less staff, natural -- there will be more natural attrition and redeployment. So there'd be very limited kind of day kind of costs. So I'm just curious what you're spending that money on?

Perfect. Thank you, Amit, very much for your two questions. Pam can address them, but just to talk about LTIP briefly. This is indeed the remuneration committee consideration. It reflects the performance that we will achieve in '26, '27, '28, which aligns to the guidance we're giving you. So there isn't more we can say at this stage. Apart from that, it is more ambitious and reflects our ambition to the business.

Thank you, Jordan. Thank you for your question. So firstly, yes, we have ambitions and our target is 17% plus each year. We are not giving a trajectory, whether it's the same or progressive but of course, we continue to grow our business and invest in it diligently, but the target is just 17% plus each year.

In terms of our -- the Hang Seng, firstly to call out, these are both benefits we are getting from a cost perspective but also a revenue perspective. So classically, what you would see in terms of cost synergies and all the restructuring is actually severance costs, that is not the case here. Because there is so much focus on revenue as well, a lot of the restructuring will be in terms of investment from a technology perspective. The cost synergies themselves, of course, there will be some realignment and evolution of roles and individual areas. It's not something which is going to lead to severance or staff reductions. There could be some rule changes, clearly. There will be some scale in product manufacturing and there'll be some technology harmonization.

Now when we think in terms of the 2 bits with the $500 million, the $400 million and why it so, clearly, from a cost synergies perspective, it's easier to call out. Revenue synergies, there are greater haircuts, but we do have very detailed comprehensive plans on how we are going to drive these revenue synergies. And those plans underpin the $400 million even though they were a haircut in the $500 million and just in total, to reiterate because there are lots of numbers going around. I appreciate that. Think of it as a $900 million benefit in those 2 buckets with different degrees of accounting rules and different probability of expectations and then an overall restructuring cost of $600 million to achieve that total.

And Amit, we are a net investor in people in Hong Kong. We are also investing in technology in Hong Kong to capture all these growth opportunities we have been talking about. Therefore, we do not expect, anticipate or plan any program of redundancies. We do, though, expect that some roles may need to evolve, and we are basically committing to training, reskilling to make sure that our own colleagues have these growth opportunities, career opportunities to be able to capture these roles in which we will be investing over the duration of our program of 3 years.

That's a meaningful number that we have already included in that $600 million restructuring costs for training and reskilling of our colleagues as their roles change and evolve.

Thank you. Will stay on the Zoom with Kian Abouhossein from JPMorgan. Kian?

First of all, Georges, congratulations. I have to say you really driving the bank to a better process and discipline. We haven't seen in HSBC before, if I may say so. To the questions, tech stack, can you go a little bit more into detail? You gave a number in 2022 that you're spending about 20% on IT as a percentage of expenses. Wondering if we should think about similar ballpark. Within that, can you go a little bit under the hood and discuss where are you on cloud transmission are you done? Where are we on platforms? Are you done? Or what platforms still have to be produced new or integrated data management? So I really want to understand a little bit what you're doing on the tech side.

And then CRE, this is still an area where I'm a little bit uncomfortable. Stage 3, CRE China 18% coverage, 16% on Hong Kong -- 14% sorry, on Hong Kong, stage 3. Can you talk a little bit where you want to drive that to? And clearly, I heard Pam's remarks about provisions and CRE was mentioned.

Perfect. Thank you, Kian, for your two questions and for your feedback. I'm going to take your tech question. Pam will cover the Hong Kong CRE. And I think it's a very important question. Thank you for asking it. We're indeed driving both performance and transformation with discipline, with precision, and we are doing it at pace. And we're very glad to see that the results of both performing, growing and transforming is delivering at pace, as you've seen in our 2024 numbers.

So in terms of tech, you could broadly assume that 20% is the cost that we are spending on technology. But the way we're talking technology now is, number one, we are thinking about all those legacy or nonstrategic applications, which are consumers of run-the-bank costs, consumers of maintenance costs, patching costs, license fees that we are going to very proactively demise at scale. And we're very pleased to be able to say that we've demised more than 1,100 applications this year -- well, in 2025, this is more than 1/3 of the about 3,000 applications that we have deemed nonstrategic and looking to demise. Just to give you a perspective, we run about 10,000 applications, 9,000 actually, of which 3,000 are flagged to demise over the horizon between now and 2028, and we're moving at pace for that. Now that demise will allow us to free up investment capacity to put it in new technology and new capabilities in tech space.

Cloud transformation, I think we are quite mature on cloud. I think we've moved from a cloud-first strategy where we moved many of our applications to cloud to now a more mature and therefore, more sophisticated approach to cloud by looking at optimization of hosting of applications. And therefore, we would look at any new applications or our existing stack, where it is better at. If it is on cloud where the majority is, then it will be on cloud, and then we will look at portability capabilities and resilience capabilities. And if it is on-premise, then or in the private cloud, then we will look at that. So I think we have matured our cloud approach, and we're already in a place where we want to be, but of course, we'll continuously evolve it.

If you ask me where is the biggest investment going into the new technology today, it is definitely going into generative AI. I want to just take a minute to explain how we're thinking about generative AI because that's quite important. We're looking at generative AI in 3 work streams. They're on the Slide 8 of the pack. The first work stream is we're making generative AI available to all our colleagues in time, 85% mostly now enabled to make sure that we are helping our colleagues upgrade themselves and become future-ready.

The first thinking is how can we bring our whole colleague population with us in becoming future-ready, generative AI enabled. They will have generative AI tools that they can use. They will have coding assistance or vibe coding assistance for those among our engineers, 31,000 already enabled, and we are seeing immediate productivity gains. We're seeing 60% speeding up in our unit testing. We're seeing 5x faster patching of code, patching of vulnerabilities and code, thanks to all these capabilities. This is our first mission. All our colleagues to benefit, to be trained, to be upskilled, to become future-ready, better version of themselves, more productive, better outcome for our customers.

The second work stream in generative AI is fundamental reengineering of our processes end-to-end. 50 of those processes are already under review. Some of them have already delivered and finished, such as onboarding and KYC, but all sorts of processes, including fraud detection and prevention, credit applications, capital allocations and what have you data -- visas and what have you to allow generative AI to help us redesign the process in a much simpler way and also allow gen AI to be integrated in the process to process data in a much more efficient way. The result of which is a more productive bank, more efficient bank and a safer bank with stronger controls, and more importantly, a very simple bank that will be able to ultimately deliver to our customers closer to near real time or real time at the highest possible standard that's available for us. And that is an ongoing journey.

The third work stream we're taking in generative AI is how we enhance customer experience at the customer touch points. So this is our relationship managers, wealth advisers, contact center operators. As they engage with customers, generative AI tools already rolled out, as you can see on the slide, will allow them to personalize at scale, to tailor-make, to customize at scale at the highest possible standards for our customers close to real time in a way that can allow us to deliver our capabilities to customers in a much more seamless, faster, better way. Customer experience will be materially enhanced.

Now today, we will have operators using this generative AI at the service of our customers, but you can envisage that in a few years' time, we could possibly put these generative AI tools straight for utilization by our customers. Those are the 3 work streams. What I want to say though is that we're doing this with safety and security at the forefront. We're doing this in a way that we can review, monitor and audit everything we're doing in the space as a critical standard, and we're doing this in a way to keep control, resilience and human accountability always there because we are a regulated industry and our customers' trust is the most important asset, and we will do everything to make sure customers trust is always protected and nurtured.

Thank you for that question. I'll hand over to Pam on Hong Kong.

Thank you, Kian. So just looking overall in our guidance, around 40 basis points guidance for 2026 considers all our portfolios. And of course, Hong Kong commercial real estate as well as the very small residual amount of China commercial real estate, and we look at a range of plausible downside scenarios before we give you this guidance. So just unbundling a bit. The China commercial real estate portfolio has really come down. It's now less than $1.5 billion, and our ECLs this year for this was below $200 million. So in that context, the names that have left that portfolio that's left, we feel much better about it compared to where the other portfolio was when we first started with it.

Now when you think in terms of Hong Kong commercial real estate, firstly, I'm going to give you a bit of an update on the 3 segments within this Hong Kong commercial real estate portfolio and then how we look at the names, particularly the credit impaired names. Now the first one, we've been calling it for a year, and now I'm very pleased to say that the residential component of Hong Kong commercial real estate is near normalized. And I say that because whether I look at in terms of price increases, HPI has been up 5% year-on-year in 2025. But more importantly, we've seen a 10% growth and also sales volume. Rentals have already stabilized both in terms of the rental demand as well as the rental pricing.

Now when we look at retail and the office space, of course, there are pockets of distress in it. But just as a broader context, we saw retail sales also in Hong Kong in May turn into positive. And they are now up year-on-year at 6.6%. But of course, this alone is not going to solve the problems of the retail sector because peoples retail shopping patterns have changed. They don't necessarily need to go to shops on malls, et cetera. Having said that, as there is more consumption in Hong Kong, we are seeing this shift from shopping places being changed into more food and beverage and so on, but there will be pockets of stress in it, and that will be coming from mainly oversupply at this point of time.

Now office is the sector we are watching very carefully, because recently, we have seen both in terms of rental demand and in transactions for the best properties with the best spec in central in the best areas, there are some green shoots. But the downside is, at this point of time, vacancy rates starts are still around 17%. So that's what we will be managing through and following up very, very carefully. Having said that, in Hong Kong, we are not a distressed seller. It's a market we are deeply embedded in. We really understand well. But we are very resilient in terms of how we do our valuations. So we go and look at valuations, including distressed valuations. And we look at with our collateral position, and we stay well collateralized. And we've been following through this very closely over the last couple of years.

The one metric, which I personally follow, though my job has changed now, is what happens to credit impaired names. And the exposure that you need to focus on is credit impaired names, which have an LTV over 70%. Now this number has grown and it now stands at $1.9 billion. But the ECLs against it have also grown, and they have grown to around $900 million. And if you go back quarter-on-quarter, that differential between the ECL number and the exposure sits around $1 billion number. So that's where you think your risk is. And of course, you have to see if some of the substandard names don't fall down and so on.

So overall, I would say, given what we are seeing and particularly to notice that in this quarter, we had a stage 3 against one name, but the macro environment in Hong Kong was positive. And as a consequence, through IFRS 9 calculation, those 2 almost offset each other. So in that broader picture, we feel very comfortable with the 40 basis point guidance.

We will take Rob Noble at Deutsche Numis next.

Just on net -- sorry, noninterest income in 2026, what are the negatives in noninterest income for next year? So if you were to grow the same level, which was, I think, the low teens in 2025, you would blow through 5% revenue growth in '26, let alone in 2028. So why aren't you -- why are we much more positive on revenues than you're kind of sat now?

And then secondly, just on Hang Seng, what's the difference in the local capital requirements in Hong Kong and the U.K.? Does the transaction change anything in terms of minimum group regulatory requirements and how we manage capital through the group?

Okay. Rob, thank you very much. Let me address your first question, and Pam may add to it and address definitely the Hang Seng capital question. So the 90% or more of our noninterest income, and therefore, our fee or other income is driven by transaction banking and Wealth. So looking at the dynamic in these 2 will give you a good perspective of how our non-NII is evolving. Transaction banking, we've reported full year growth of 4% year-on-year. We are seeing continued momentum in this space. We are a leader in practically all the aspects of transaction banking that we prosecute with our clients. We've been voted by 30,000 of businesses as the leader in payments, both in products, services and technology. We've been 9 years consecutively a leader in trade. We've been voted by corporates using foreign exchange as the leader in servicing them with foreign exchange. We continue investing in this space. We continue expecting resilience in this space, in particular in trade. And I can talk more to trade if desired.

As you look at Wealth, Wealth remain unequivocally one of the strongest growth opportunities, in particular, one, given our footprint, where we are focusing on Asia and the Middle East and the underlying growth in Asia and the Middle East of Wealth is very strong and our ability to capture more market share is very strong. We're already a leader in Wealth in Asia, if you look at Wealth balances. And that's an area where we can benefit from this underlying structural growth opportunity.

And second, Wealth because we are also accelerating our investments in this space. You've seen we've launched 26 or 27 wealth centers in 2025, taking the total to 64. We're hiring relationship managers, wealth advisers. We're empowering ourselves with generative AI wealth capabilities. We're building technology. We're creating a comprehensive set of products, and we continue investing in this space. So we do believe they remain -- Wealth remains a very strong growth opportunity, albeit we have dropped the guidance on that. And the idea is to give you an overall revenue guidance, which is better encompassing the overall opportunities and probably more relevant for your forecasting. Pam?

Thank you, Georges. So firstly, the only comment I'll make on Wealth is, as Georges said, we are very comfortable in our broad-based product proposition. But the only thing we need to remember is that this year, with how the markets have performed, therefore, on some of the Wealth that is generated through transactional kind of activity, we just have to see how that progresses in next year. We're not going to make a call out on how volatile or otherwise markets are going to be in 2026. So if there's anything that's what would have been a good consideration because we have to look at plausible downsides clearly in giving our guidance as opposed to just a base case or an optimistic case. So that's all I would say on that.

Now from a Hang Seng capital perspective, we have already got the $3.8 billion benefit, which comes from the disallowed minority capital, which we don't need to have an impact on our CET1 anywhere. So that's a positive straight on. But generally, in a broader picture, across all our subsidiaries, which are 100% owned, we do have more flexibility in terms of how we move our capital, whether it's upstreaming or downstreaming, obviously, subject to what we consider the mark-to-market outlook is, where our portfolio is and subject to sort of regulatory discussions. So all in all, it does give us a better ability to move capital around the group and be more efficient in the deployment of capital.

The next question we will take again from the Zoom is [ Chen Li ] at China Securities.

I have a question about preservation of Hang Seng Bank. Could you provide further information about the growth opportunities? I want to know that in which aspects of the Wealth Management business will have more -- stronger synergies with Hang Seng Bank? And what are other outlooks for the Wealth balances and the Wealth Management margins?

Okay. Chen, thank you very much. I'll hand over to Pam, but remember what we said at the announcement on the 9th of October of our intent to privatize Hang Seng is these are commitments we are holding. Hang Seng Bank will retain its own authorized institution and governance. It will retain its own brand in Hong Kong, of course, as a major community bank and the largest local bank. It will retain an independent customer proposition that will compete in the market for all customers. It will retain its branch network. And that proposition will remain intact with a distinctive cultural strength and customer proposition, customer experience strength that Hang Seng has been known for, for practically a century in Hong Kong. What we are driving through these privatizations is better efficiencies in cross-selling or better efficiencies in aligning back office or manufacturing capabilities that are not related to the customer proposition. Pam?

Thank you, Georges. So firstly, as Georges has said, that the positioning of Hang Seng Bank as an iconic community bank in Hong Kong stays. What we will endeavor to do is that post the privatization, we don't have that arm's length relationship restriction that prevents us to do more in terms of product proposition offerings and cross referral to our customers and also in terms of the investment dollars that we spend, we can't spend them if it's on the same product, on the same customer journeys seamlessly across both the Red brand and the Green brand. So that gives us a very good position that as these 2 stand-alone brands, our ability to lean into the growth in Hong Kong and the macro opportunities, including cross-border will be available to the broadest customer base while maintaining that community element of service for those customers. So that's how we are looking at it. And we will look at, obviously, Wealth products as well as pricing margins so that we can really make them more easily available for our customers.

Chen, we are the market. We are the market leader in Hong Kong, undisputed. We are consolidating and cementing this leadership. Hang Seng Bank privatization will allow us to consolidate that leadership even further in all sorts of a broad range of products and services. And we have a leadership position in capturing these growth opportunities that Pam was talking about in Hong Kong as a super connector between the Mainland and the world, as poised to become the leading cross-border wealth hub on the planet before the end of the decade. And it's really a privilege to be in the position we are in to be able to capture this with the full HSBC and Hang Seng propositions. Thank you, Chen.

So I will take the next question from Ed Firth at KBW.

I just had two questions. One, just talking about the HIBOR benefit in Q4 for your net interest income. I think one of your peers talked about it as a temporary benefit. And I guess I'm not close enough to the franchises and how you price, et cetera, domestically. But I guess, do you know -- is there anything peculiar about you or some of the peers about the way you repriced CASA accounts or something in Q4, which would mean that yours should be sustained, but somebody else's might be temporary. So I guess that's the first question.

And then the second question is, I guess, it's slightly an extension of Rob's question. I'm not quite sure what is so specific about 2028 that means you can get 5% revenue growth there, but I assume you don't feel you can before then. And I know that at the moment, in '26, we've got some headwinds from interest rates, but you've also got a very strong tailwinds around things like Wealth Management, Pam highlighted that. And '27, I guess, should be a reasonably normal year. So I'm just wondering, is there something that I need to think about that you can see that is happening from '28 and beyond that will make your revenue growth better that we're not seeing today?

Okay. Thank you very much, Ed, for your two questions. Pam, do you want to address that?

Yes. So let me just unbundle the situation with regard to HIBOR. So in the fourth quarter, HIBOR stabilized. And we had called out in the prior quarters that in 20 -- and I'll come to Q1 in a second. That in Q2 and Q3, HIBOR was very volatile. And we were looking at the comparison for a HIBOR close to a 1% where it has an impact of about $100 million in terms of banking NII on a monthly basis and then stabilizing to something which is in the 2% mark. We look at HIBOR on a 1-month HIBOR basis. We feel very comfortable as long as HIBOR is around 2.25%, 2.5% and so on. I fully recognize that in -- and I don't know what other peers would say, like what tenor of HIBOR rate is most relevant for them. I'm just telling you from our perspective.

Now in Q1, HIBOR has fallen, but we have to see the context. There's been a range of IPOs that normally happens. When there's that demand for HIBOR fluctuation, but it has fluctuated within a narrow range. So the impact isn't there. Also, last year, in Q4, there was a benefit of lower betas. So when HIBOR went up, the same impact wasn't there on the savings rates. Of course, we'll have to look at betas, how they evolve. And then we have a very strong deposit franchise. And I think that's a differentiator in terms of the CASA level that we have, in terms of our accounts. And therefore, we have a good positioning where that deposit base helps us on the banking NII more than most of our peers.

Obviously, in terms of both banking NII this year and also our ambition, it's the rate headwinds. And as I said earlier, it's the timing of the rate headwinds. If they're delayed, of course, it becomes less of a headwind. If they are earlier, then there is more sensitivity to it. So I would say from a Wealth business, as I also alluded to earlier, yes, the growth is very strong whether its asset management, Wealth products, insurance, it's broad-based growth. But last year, there was a great advantage or a tailwind coming from markets, which gave us a lot of uplift on the transactional-based fee income. We can't assume that for this year. Of course, if markets stay well and that happens, then that's a positive tailwind. So that's how I would look at it.

Yes. And I would look at '28, not specifically as the year '28, but as what would we believe our long-term structural opportunity to grow. It's our guidance for '28, but we've delivered 5% revenue growth in '25. We've delivered 4% in '24. So it's just the footprint we are in and the capabilities for us to capture the growth is there.

And we like to be cautious to we have to consider downside scenarios as well. We don't always take the best case. That's all I would add.

Many thanks. We have probably time for a couple more questions. We'll take Alastair Warr at Autonomous next.

Two questions. Back to Hang Seng Bank, I'm afraid. You touched on potential upside from asset quality improving. I just wondered if that's something you're thinking about in terms of maybe more active steps? Or is this just about being patient with the property cycle?

And then just on the Wealth side for a second question. It looks like there's a bit of a slowdown in the new account opening in the fourth quarter if you've got 1.1 million for the year and you were running at about 300,000 a quarter. Is that just seasonal or anything changing there that we should be aware of?

Thank you, Alastair. Pam, you can.

So just in terms of the asset quality, the comment I made was that if you look at Hang Seng's pre-impairment margins, they've been very strong. If you look at what Hang Seng's ECL charges have been prior to '22 versus in '24, '25 and even the run rate for the first half of the year and then what's consolidated for the full year, that's what I meant by the overall improvement, and that would be both for Hang Seng Bank as it would be for HSBC Red brand, and that's the only way to look at it. In terms of our own policies or processes and how we manage exposures, both for the Red brand and Green brand, they are highly aligned, how the rigor we follow through them, I don't expect any of that to give us either a tailwind or a headwind.

So in terms of the new-to-bank customers, yes, it was 1.1 million, just to clarify for the Red brand. And the fourth quarter also had a good number. We believe that this new-to-bank customers is a huge growth opportunity for us. However, we are trying to be now a little bit more selective on the acquisition because we have now had a 3-year trend on how the acquisition has happened in between the lower end of the customer base and the more premier. We have added a fee for the new-to-bank customers who have a balance less than HKD 10,000. And because of that, we expect that there would be slightly slower acquisition in 2026. But the focus on our affluent customers is going to continue.

The focus of the improvement in our overall income, whether it's through deposits, Wealth products, insurance is very healthy coming from these new-to-bank customers. So we don't see any change. We just don't want people to say that every month is going to be like 100,000 number because it's like almost like a ticker number because that's what the trend was. There will be fluctuations and changes month-to-month and quarter-to-quarter, but nothing material to call out as such.

We'll take Kendra Yan at CICC.

My question is kind of related to micro side. As the newly nominated U.S. Federal Reserve Chair has proposed interest rate cuts and balance sheet reduction. Could you please share your macro assumption behind the future 3 years guidance? And are there any risks that we need to pay attention to?

Yes. Thank you, Kendra. We can do that, Pam?

Yes. So just as I said earlier, Kendra, when we look at our guidance, we look at plausible downside scenarios. That include interest rate cuts, both quantum as well as duration. This time around, as we said, the starting point for the guidance for this year was the January year-end cuts, but we also stress test our portfolios on a regular basis for a range of scenarios. And we consider those and the impact on ECLs also on a weighted average basis when we look at our overall portfolios.

We have looked at the -- some of the macro I would say, recent news, whether it's to do with private credit or otherwise because as I said earlier, we look at second and third order risks that may come from some sort of a macro event or issue, even though our own underwriting practices are very stringent and very rigorous in this respect. What I will say is that despite the evolving scenarios that you are facing on tariffs and trade, our business has been really quite resilient. And that has -- overall, it is up 2% year-on-year in 2025. In a complex market as this landscape evolves, our relationships and engagement with clients gets even stronger. We have taken market share in corridors through -- in Hong Kong, U.K., Asia overall as supply chains are moving and corridors are shifting.

So I would say, overall, if I think in a macro sense, there are headwinds and tailwinds as well as for the world at large, but also for HSBC. We look at specific idiosyncratic factors that could impact us, any risk concentrations we may have in our home markets, and that's all part of our guidance. And that's why I said to you earlier or to the earlier question that when we give our guidance and our targets, we like to be rightfully conservative.

But the most important thing is through this period, we have made an assumption that we will continue to invest for growth. We have the right strategy. We have the right priorities. We have the focus to retain and win market share and we will continue to do that with the basic underlying principle that Georges called out earlier, we are here to serve our customers, and it's the strength of our relationship with our customers that gives us the confidence for our guidance and targets.

Yes. Thank you, Georges. So we'll just take a final question today from Katherine Lei at JPMorgan.

Okay. My question is still on revenue side, right? I think the 5% revenue growth in 2028 and then the above 17% RoTE guidance, I think there's 2 key drivers. One will be on NII and then the other will be on Wealth. But my question is that on NII, what is -- like what gives HSBC the confidence that on the sustainability of the deposit growth? Because one trend we noted is that, say, for example, in China, with RMB appreciation and also China start to taxing its citizen globally, will that actually slow down, say, for example, Chinese nationals coming to Hong Kong to open new accounts and then the money flow movement? So can we be more a bit specific on what are the key drivers and then the key path on the deposit growth? This is number one.

Number two, I think is still on -- number two is on Wealth and on that trend, right? So what do you think that will have an impact on our Wealth as well?

Okay. Thank you very much, Katherine. Let me address them in reverse order. I'll speak a little bit about Wealth, and I'll share some thoughts about deposits and Pam can give you additional granularity to address your question. Wealth remains structurally a very important growth opportunity for HSBC, as we said specifically that we are aligning our Wealth footprint, Asia and Middle East to where the Wealth is growing fastest in the world in Asia and the Middle East. Also our ability to capture wealth all the way from the premier customer base, which is the affluent middle class all the way to the high net worth means we have a better catchment of all these opportunities.

We're also present in a number of onshore markets such as China onshore. We are the leading international wealth manager in China, Mainland China onshore, which is not dependent to flows outside China, for instance. We're investing in India. We, of course, have big wealth hubs in places such as Hong Kong, of course, Singapore, the UAE and a number of other markets. The challenges possibly to anticipate is there is a turnaround or a change in the overall outlook of investment because inevitably, wealth will depend on the underlying performance of the invested markets. And if there is -- today, there is a strong resilience in these markets, which is what we -- our customers are also looking at. But that is, of course, always a risk that we need to be watchful of. We're also investing to gain share. We're investing to diversify the product offering and to diversify the wrapper offering all the way from insurance to asset management to other forms of brokerage, et cetera. So that we are able to meet the varying wealth customers' needs in how they look at their investment requirements.

Finally, we're also investing in generational wealth, specifically supporting transfer to the youth or the next generation or transfer between wealth centers in a way our footprint allows us to do that is competitively very strong compared to a number of our peers who are offering wealth from very, very few number of hubs, okay? That's the wealth.

Now with regards to deposits, Pam will give you a better answer in the details you're asking for, but let me tell you one thing about deposit. It is the foundational product on which our customers' trust is expressed with HSBC, and this is how we look at it. Customers trust us with their deposits. That's the starting point of any possible service and proposition in transaction banking, payment, financing and otherwise. So we cherish this asset class. We have always cherished it, through thick and through thin, in good rates and bad rates, and we will always focus on what it takes to make sure our customers trust us, the financial strength, the level of service so that we earn their trust with their deposits.

When you look at our deposit base, it has grown in every business. It has grown, and we are highly surplus liquidity in every currency, every major currency, in every major geography. So there is a deep rooted across our 4 businesses and across all the geographies where we operate. a deep-rooted trust, which we nurture to support customers giving us their deposits and using us as their deposit bank by preference or by excellence that can support, if you want, our outlook on our deposit growth. Pam?

Thank you, Georges. And Katherine, a really good question to close on. We have seen deposit growth, as you've seen in our new disclosures on Wealth across the spectrum of our customer base, premier, private bank, retail in every market, in every jurisdiction, even when there isn't a home market, and that really underpins the growth that we are seeing in our banking NII. We have taken very conservative trajectory on loan growth. I'm hopeful at some stage, loan growth will also pick up, which will then also support the banking NII if from an interest rate perspective, the timing of the interest rate becomes a headwind in one of those plausible downside scenarios. We have a structural hedge, which is continuing to be a tailwind given all the work we did a few years ago. We will also continue to build on the structural hedge, even though the largest increases we have done are -- have been behind us now.

So if I look at all of these things in the round, and I look at the momentum of the business that we have seen in the first sort of 7 weeks of this year, that gives us confidence for our banking NII guidance for 2026. If you underpin that just based on the fourth quarter, obviously, it will give you a number of [ $46 billion ]. But we are not calling that out because we are very cognizant of the headwinds on interest rates. And you're right, the interest rates in the U.S. is down 50 basis points, U.K., 25 basis points just year-to-date with further 2 to 3 rate cuts to happen.

So with that, I think in the round, we feel very confident that the banking NII, which is, again, the trust of our customers and what we are doing everything to preserve that trust and to build on those relationships, because I'll just end with one thing. We are fundamentally a relationship bank. We have a full-service suite of products we offer to our customers. So for our guidance, for our targets, we look at that full range. We are not a product proposition-based bank, in which case, some of the comments you made will obviously be a bigger headwind.

Perfect. Thank you, Pam, and thank you, Katherine, for your last question. Thank you, everyone, for joining us. We are pleased to report strong revenues, strong profit, strong returns and strong distribution to our shareholders. We are confident we can navigate the challenges ahead of us from a position of strength, and this has allowed us to put ambitious targets about our revenue growing every year for '26, '27, '28 rising to 5% in '28 as well as our return on tangible equity delivering 17% or better every year over that period with a 50% dividend payout ratio, all excluding notable item. Thank you very much for joining us this morning or this afternoon, and I hope you have a good day.

Thank you.

Thank you, ladies and gentlemen, for joining today's webinar. You may now disconnect.

Good afternoon, everyone, and thank you for joining us. My name is Jason Napier. I run financials research for UBS here in Europe. I'm thrilled to have Pam Kaur with us today from HSBC, the CFO.

You've been in the seat now for nearly a year. I assume there are days when it feels like it's longer than a year. But you've been with HSBC since 2013, predominantly in risk functions. Would you mind just giving us a little bit of a sort of a potted history of your roles at the firm, and then we'll move on to talk a little bit about what you found when you were made CFO.

Thank you, Jason. So I've been with the firm since April 2013, and I've always been on the top table as part of the Management Board, and then we have the Group Executive Committee, and now it's an Operating Committee. And that says in itself how the momentum in the organization has changed. It's become much more operational, execution driven. And as a starting point, when I joined in this role, I had been working with George on what was the clear direction of travel for us. And the clear direction of travel has been initially how do we simplify the organization. We reduced the number of our operating committee members from 18 to 12, and that says a lot in terms of the number of decision-makers you have and as a consequence, the agility in the decision-making. So that's a change from the past.

Also in terms of a business, we have the conviction to clearly call out the 4 key areas that we want to invest and grow in. The 2 home markets, and we are very blessed to have 2 home markets, plus 2 very important businesses, one driven by our international network, our presence in 50-plus countries, as well as the Wealth business, which is very natural for us given our heritage and our positioning in the highest growth markets of Asia and the Middle East.

With all that, in the organization, I feel now the focus is truly on growth. And it's not because my roles have changed; in the past I was a defender and I'm not so much playing defense, but it's just where we are in our own journey. When I joined, we had to go through the DPA, the derisking of the organization. Obviously, in my time as the Risk Officer, there were multiple macro challenges that we navigated very ably. And now we feel, with the conviction we have in the focus of the areas we have and the scale we have, we have momentum behind us, and that's delivering us the results as well as the ability to invest in the areas that truly matter to us where we can drive operating leverage.

So an exciting time for HSBC, but having been there for a long time, not many surprises. So in terms of sort of -- it's just starting on the job day 1 and being able to hit the ground running, that has been little easier, though I must say, even this year, the macro environment always gives you challenges, and through that, opportunities as well.

Yes. Perhaps you could talk a little bit more about the agility and the pace of change. There are some folks I know inside the bank that are saying they've never seen anything quite like this from this bank before, but specifically from the outside, new divisions, or 18 to 12, does that really accelerate the metabolic rate of the bank? How are you making it more agile and faster to do things?

So let me talk a little bit about what we have done in terms of streamlining the footprint. We have so far announced 11 transactions this year. And we are also in progress of completing 3 very specific strategic reviews, Australia, Indonesia, Egypt for our retail footprints. That to me shows that it's not just you make a decision, but how quickly you follow through on that.

We are also delivering on the savings that we said we would deliver actually ahead of target in terms of $1.5 billion simplification savings, which we want to bring to the bottom line at the end of next year, we've already taken actions for $1 billion of those, so by the time they come into the P&L, going through into next year. But the cost that we have taken to the bottom line this year would be $400 million compared to where we thought we would be at $300 million. So we're ahead of target. So that gives me a huge degree of confidence.

Also, when we are redeploying our cost base from some of our subscale businesses into high-growth areas, we don't wait for everything to finish. We have the agility to say when you have $20 million, $30 million, $40 million, whatever available, it comes straight to the top of the house. And we have a list of growth priorities over and above which we have already committed to in our investment for the year, which are literally queued up and prioritized. And once that money is available, we immediately lean in to support those areas of growth. And one area this year was security services, where given some new customer mandates we were getting as well as increased volume we wanted to invest.

So that gives me another touch point. And I'm a great believer to say, if I can't actually inspect and see the touch points, I don't really believe. I'm a lady of numbers. That's how I work. So that, to me, was very important to see that through. But underpinning all of this is the cultural change in the organization. And that cultural change is being driven through how we lead program. The things we want to lean in more in our culture in terms of accountability, speed of execution, simplicity of decision-making and frankly, trying to move away from the acronym, which we don't really like of HSBC, how simple becomes complicated. That's what I heard when I joined. So I really have to make sure that by the time I retire many years from now, that's in nobody's even distant memory. So that's kind of one touch point.

Now obviously, when you're going through change, there is going to be a degree of concern, a degree of people feeling a little uncertain. But I think that's healthy, because that keeps us on our toes, that makes us constantly able to respond to the challenges we face as opposed to just think what we always did, if we continue doing, we will progress. Having said all that, there are things about our culture, which are very strong. For example, collaboration, which really helps us to drive cross-sell and revenue flows through our various business lines.

So we have such a precious commercial banking business in many markets because we actually go and bank not just top local corporates, but we go further down the chain for mid-market and smaller corporates. And they give us the natural flow and connectivity to their entrepreneurs and employees as they get through their wealth journeys, and that helps our Wealth business. So those things we want to absolutely preserve, but we just want to keep that momentum going, and this is just the start.

So as you mentioned, there have been additions to the list of businesses that are up for review and the disposals are not all complete. I wonder -- just the spreadsheet jockey and me is interested in whether you have negative operating leverage, the revenues go away, the costs don't quite -- or they're reinvested elsewhere. How big a deal is that for the next year or 2 in your mind?

Thank you, Jason. That's a really important question. From my perspective, I look at each of these individual announcements we've done and also we're kind of 2/3 of the way in terms of thinking of things that we know we are going to derisk and particularly in market participation choices rather than for geographic footprint shifts. Most of them individually are a couple of hundred million maximum from a revenue perspective. So overall, even if I add it all up, it's not going to be a material drag on HSBC's revenue.

From a cost perspective, it's the agility with which you deploy the cost transfer from what's available to where you want to go next. And for that, the preparedness and prioritization upfront is really important rather than having a scramble to say, I suddenly have money, now where do I invest. So we've got that pretty well ironed out. So from an operating leverage perspective, given the positivity and the tailwind we get from these investments, as you've seen in our results, particularly through the Wealth business, but also transaction banking, as well as investment in Hong Kong this year, the benefit we get there leaves very little, what I would call, drag factor, if any at all, in terms of these divestments, because these are areas we are divesting either because we don't have scale, or we don't have a competitive strength and advantage, or frankly, they may be, from a revenue production, of a certain scale, but they have low returns.

Right. You referenced investing in Hong Kong. And disposals aside, the biggest announcement over the last few months was the offer to purchase the Hang Seng minorities. I appreciate there are legal structures around the things you can say, but what can you say? This is a $13 billion investment in one of your home markets.

So what I'd say firstly is, it's on strategy. It's in a market that we understand well. It's in a market where we have a lot of confidence, both in terms of it being the largest cross-border hub for Wealth going forward, but also from the capital markets opportunity perspective. It is also an entity we know. So when you're acquiring something that you know well, there is less risk for a negative surprise.

From our perspective, what it really gives us is an on-strategy opportunity to scale up and grow in some very specific areas like leveraging the revenue-generating capabilities on the fee income side in terms of wealth products for the retail customer base in Hang Seng as well as capital markets and bringing to bear our international network and transaction banking more to the wholesale side, because given the fact it's a listed company, from a competition rules perspective, at this point of time, that cannot be done. So that gives a real important revenue-generating leverage from the transaction perspective.

In terms of the other criteria, I mean we do stand by the criteria we called out in terms of our acquisition hurdle rate. So we are very comfortable on strategy, scale, growth, not a distraction to organic opportunities, because the organic opportunities trajectory should continue. And given it's a known quantity, we don't think this would be a distraction. But last, but most importantly, even though we haven't called out synergies as of now, given the qualitative feedback I've given you, we feel very comfortable that it is accretive from an EPS perspective compared to share buyback.

The -- and I'm not sure whether you'll be able to add to that in any detail, but the gap between the RoTE of Hong Kong as it stands as a group and the RoTE of this business, is it -- because it's really a pretty efficient business from a cost-to-income perspective. Should shareholders be of the expectation that there can be a bridging of that gap somehow? Is that a realistic expectation? Or is it just a different mix of business?

Some areas are easy to call out. So for example, in terms of the capital, which relates to the $3 billion plus for the minority shareholders, that comes to holdings straight away. So that is a benefit upfront. So that makes it a more efficient business.

In terms of the mix of business you can do, in terms of the balance sheet-driven business as well as fee income, that gets to be healthier. That gives the performance of the business some degree of stability even when it's going through a cycle from a credit crunch perspective. So those are the areas I would look at would be supportive of closing the gap.

That's helpful. And so if I turn to Q3 results, very strong in net interest income, up. Despite the fact that the cuts aren't over, you managed to produce sequential growth in NII. The hedge is rolling. That looks like to us might be $1 billion of tailwind next year, loan growth. Should we get better loan growth, could do much the same? Is it outlandish to think that next year, NII might be roughly flat or even up on this year?

So I'm not going to give a guidance for 2026, but nice try. I'm going to try and give you some qualitative considerations. So firstly, if I look at just the fourth quarter compared to third quarter, I don't see any big surprises. It's continuing well. Deposit momentum continues. I expect the deposit momentum to continue into next year. We have strong customer franchise, customer relationship-driven franchise with a great trust from our customer base in all currencies, in every jurisdiction, in all markets. So we feel very happy about that.

If I look more broadly into some other tailwinds, you're quite right. The structural hedge tailwind of circa $1 billion continues into next year. Of course, there's a headwind in terms of what the market is calling out 3 rate cuts from the Fed and 2 from a sterling perspective. But then there are other compensating factors that HIBOR being stable, and we had HIBOR as a headwind in the second and third quarter. So that continues well where it is. And last but not least important is the deposit migration trend, when interest rates are falling, works as less of a headwind and more of a tailwind in terms of the proportion of time deposits to CASA. So all in the round, feel comfortable for next year, but not giving any guidance.

No, that's fair. That's reasonable. I had to have a go. The other highlight of Q3, of course, was phenomenal numbers out of Wealth and Insurance. Everybody, I think, has got their favorite stat of just how big the opportunity might be there. The Mainland Chinese deposit base at $43 trillion versus the U.S. at $17 trillion is mine. Could you talk about the sustainability of the growth you're seeing? And perhaps with your CFO hat on, how far into the future that projects, things like the unwind of the Insurance CSM and so on, does that derisk the outlook for that business a little?

So a couple of things from a macro perspective. We are in a unique position, given our Asian heritage, to be in prime position, not just in Hong Kong, but in many other markets, which are part of the Asia growth wealth story. And if Asia wealth is growing at 8% to 10% per annum, of course, we feel confident and comfortable that we should be able to maintain our mid-teens growth levels over a midterm perspective, or longer. So that's kind of the starting point for us.

Of course, every quarter, there are going to be some ups and downs. So if I just unbundle a few of the drivers, I'll come to insurance straightaway, which has had a spectacular quarter and few quarters. Now it's perhaps the most annuity-driven business, because as you write the business with IFRS 17 for the next 9 to 10 years, you know that income is going to flow through. And our Insurance CSM balances at $14.6 billion, up $2.4 billion year-on-year, shows you that that's going to continue.

We have strong growth in our customer numbers, overall customer numbers, but also our premier customer numbers, and that's not just in Hong Kong. We see that growth in Singapore. We see that also in the UAE, Mainland China and India, albeit from a smaller baseline. If I like -- more broadly, there are some unique factors for this year. The equity markets have been very strong. That sort of helps. But having said that, there's a normal activity level, which is quite high in terms of transaction activity as customers rebalance their portfolios. So I think that should continue.

So overall, in line -- look at even in terms of net new invested assets, they've gone up $76 billion in the last 1 year. They're sitting at $1.5 trillion. We are one of the major wealth providers in Asia on top of a deposit base globally, which has grown another $86 billion over the last 1 year, and that's sitting at $1.7 trillion. So it's a very diverse flow of income coming through the various -- both from a wealth perspective and a deposit base. And I think the deposit base is important, because once the customers trust you with their money from a deposit base, the next step always is Wealth, Insurance products, and we see that migration through. So strong underpinnings of customer trust, a real unique position in a high-growth region, and then with the strong product proposition and flow of products, including annuity income flow from CSM makes us quite comfortable in terms of the future of the IWP business.

Looks like a great part of the story for the bank. Just a follow-up from me. Insurance is often the gateway product for the folks who are taking Wealth to Hong Kong. You've exited manufacturing in a number of parts of the world. Is it important to be a manufacturer, do you think, in Asia from an Insurance standpoint?

I think from an Insurance standpoint in your major market, from a Hong Kong perspective, absolutely yes. But our biggest driver from Wealth is our distribution capabilities.

Right. Okay. We, in our team, for the last 10 years have produced an annual conglomerate piece of research where we check whether the conglomerates grow faster, have higher returns, are less volatile than the footprint that they tend to inhabit. And for an awful long time, the answer to all of that was no. They grow slower, they're more volatile, and their returns are lower. That's no longer the case, and it's demonstrably not the case for HSBC anymore. Could you talk about the growth potential? Because if you're going to run the complexity of a bank that's in 50 countries, you need a payoff either around risk or growth, or maybe both. Could you tell me a little bit about how you see the medium-term growth for the business?

So firstly, we are very much a customer relationship-led franchise. So that is important for us. We have strong risk parameters within which we operate, and we want to do more things with our customers. So that gives us an ability and a focus, particularly in our key jurisdictions to grow more. That's the starting point. We have a wonderful deposit franchise, and that is one of our biggest money earners when it comes to banking NII. That is also a starting point when you want to then do Wealth products on the retail side.

If I look at from a wholesale perspective, there are a few areas where we really are #1 or close to #1, and we want to double down on that, whether it's in payments, whether it's in FX, or indeed trade. And I just want to share with you. Given this year all the issues we've had from a trade perspective and tariffs and some of the recent surveys we did about 7,000 customers, about 80% of them are looking at how they can diversify their supply chains. And 90% say that their banks are becoming even more important for them because they're looking at different trade corridors.

Now we have 5,000 specialists, not just in U.S. denominated sort of dominated corridors, but across the board. So that gives us a real cutting edge to lean in. Now all said and done, we have also done divestments. But certain aspects of our business have continued to grow. And I'll just give you a few pointers. So our deposits since 2019, and we've been derisking all this time, have still continued to grow at 4% per annum. So that means that provided the focus stays on the areas we really want to grow deep into, and we manage what I call the crown jewels of the franchise, there is that growth momentum.

The difficulty that happens when you're in conglomerates is, if you're not disciplined and you want 1,000 flowers to bloom in 100 countries or whatever, then your investment decisions get marginalized, because they get shared within a very large family. But if you're very clear about this is what you're investing for growth, this is what you are investing as an enabler for that growth, and that's the rest, and that's the shift in how we are managing the bank now.

Are there any questions from the audience? We've got about 3 or 4 minutes left.

Just wanted to clarify, the Wealth guidance was a double-digit wealth guidance. So I just want to clarify that. See, it's my IOR keeping me in touch.

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So how complicated becomes simple? Yes, exactly. I don't want to give up on our Hong Kong, Shanghai banking heritage, but that's a fair comment. So really, what I would like is that the bank has looked at its footprint pretty much similar to where it's today. I don't think that's going to change so much. There will be some streamlining from a market participation context. But there will also be a much better balance while maintaining a very strong banking NII in terms of fee income generation. So we started with sort of 2:1. An ideal would be to keep your banking NII in a very strong, healthy place where it's today, but grow the fee income to be much closer to be in balance with banking NII.

And then more importantly to that, from a workforce perspective, it's a workforce which, from a skill perspective, is much more enabled to lean into the future in terms of the new trends, whether it's coming from AI and deployment of technology. And underpinning all of that, that we still retain our customer franchise and culture.

And perimeter wise?

so perimeter-wise, I think having sort of 50 countries as a presence in terms of the international network, that's pretty much there and thereabout. The question really would be which are the countries where beyond the wholesale international network, you also have the retail presence to sort of lean in. And those should be the countries where there is either existing scale and wealth opportunities, or indeed where there is a potential trajectory to be able to build that. So that's where you're seeing we're making some of the market participation choices to come out of those countries where we are subscale and we don't have that competitive advantage.

Certainly, if you're moving towards a footprint that emphasizes scale, higher return businesses over time, all the metrics do get better. One of the questions that comes up in all the meetings with all the banks upstairs is, is AI a game changer for the efficiency of the bank? It's very early doors. What are your initial impressions on that question?

So I'll just share with you, we have deployed AI in some of the areas already. And one area was our dynamic risk assessment, and that is all in sort of financial crime and risk monitoring space. And it's been very effective. We're leading edge there. We are in partnership with Google. Other banks are following suit on the tools that we have developed. It's been accepted by regulators. And the amount of scalability you get from a tool like this, and given all the challenges we've had, Russia, Ukraine new sanctions, et cetera, that has been remarkably helpful.

So our view is, from a productivity perspective and a driver of operating leverage and efficiency, it is very important. Having said that, there is still going to be a very important rule for a human in the role, because I believe AI should be a tool for a human to use rather than the human being the tool for AI to use.

On that upbeat note, thank you very much, Pam. We really appreciate you being here. Thank you.

Thank you.

Welcome, ladies and gentlemen, to the analyst and investor webinar on the 3Q results for HSBC Holdings plc. For your information, this call is being recorded.

I will now hand over to Pam Kaur, Group CFO.

Welcome, everyone. Thank you for joining. We are making positive progress towards creating a simple, more agile growing HSBC. The intent and discipline with which we are executing our strategy is reflected in the momentum this quarter and our target upgrades. Most notably, our annualized RoTE of 17.6% year-to-date excluding notable items.

Throughout this presentation, I'll focus on year-over-year comparisons. This will exclude notable items and be on a constant currency basis. The equivalent comparisons on a reported basis can be found on Slides 16 and 22.

Let's turn straight to the highlights. We reported a strong quarter. Total revenues grew $500 million to $17.9 billion. Wealth had another good quarter, with 29% growth in fee and other income. Our customer deposit balances stand at $1.7 trillion. If we include held-for-sale balances, these grew by $86 billion. We are also investing for growth.

On 9th October, we announced our intention to privatize Hang Seng Bank. We see this as a compelling opportunity. Let me set out clearly our reasoning. First, it meets all four of our criteria for acquisitions. Second, we see good growth in Hong Kong in the years ahead. It's a business, in a whole market we know very well. Third, we see an opportunity to create greater alignment for better operational leverage and efficiencies. Fourth, we are acquiring a business with structurally high pre-impairment margins. And while we are not calling the credit cycle, we believe it is a cycle. Fifth, we are removing a $3 billion capital inefficiency.

This is a transaction which we initiated as a growth investment. It is also a statement of our confidence in the outlook for Hong Kong. We are in an offer period, so we are unable to give more details on synergies at this stage. What I will say is that consolidating the noncontrolling interest from the profit and loss increases our profit attributable to ordinary shareholders.

We have also said that we see the potential for additional revenue through expanded capital market products to Hang Seng commercial clients and Wealth products to its affluent clients. And we can simplify and streamline decision-making processes, improve operational risk management and better align operations, which we expect will result in efficiencies.

We are confident the integration will not distract us from organic growth and it's more value generative than a share buyback.

Turning now to upgrades. We are delivering against the targets we set out to you. We are now upgrading two items: our 2025 banking NII to $43 billion or better, our 2025 RoTE, excluding notable items to be mid-teens or better. We remain disciplined with our shareholders' capital, investing it where we see growth, exiting businesses with the intention to redeploy the costs where we don't.

We are progressing at pace with the exit of nonstrategic activities. This quarter, we have announced the exits of HSBC Malta and Retail Banking in Sri Lanka. This brings our total announced exits to 11 so far this year.

Last week, we announced that we are conducting a strategic review of our Egyptian retail banking business. The review will not include our wholesale banking activities in Egypt, which remains an important market and one we believe has strong potential for growth. Finally, we are on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis.

Let's now turn to the firm-wide financial results. First, the income statement. Annualized RoTE was 16.4% in the third quarter or 17.6% year-to-date, both excluding notable items. Revenue grew 3% year-on-year to $17.9 billion in the quarter. This was driven by a return to growth in banking NII and strong fee and other income. Profit before tax was $9.1 billion.

Looking at our capital and distributions. Our CET1 capital ratio is 14.5%, and we continue to target a dividend payout ratio for 2025 of 50% of earnings per ordinary share, excluding material notable items and related impacts.

Let's now turn to our business segment performance. We grew total revenue by 3%, and each of our four businesses returned greater than mid-teens annualized RoTE.

Moving now to banking NII. $11 billion this quarter is a return to growth driven by deposit volumes. We are raising our full year guidance to $43 billion or better. I know you will have questions on the outlook. So I'll note here the multiple drivers of banking NII. HIBOR, which has recovered; deposit growth, which continues; interest rates, where the Fed is still cutting. We have grown our structural hedge to $585 billion and its rolling on to higher yields. I'll also just mention that the chart on the left is on a constant currency basis, while our full year guidance is as reported. There is a reconciliation in the footnote.

Turning now to wholesale transaction banking. We are pleased with our strong ongoing customer engagement. This year has really validated the strength of our franchise in a range of economic and tariff situations. Both payments and trade grew again in the third quarter. In trade, I would note the first half was particularly strong as we supported customers to navigate a fast-changing trade landscape.

In security services, fee and other income grew 15%. This was due to higher asset balances given improved valuations and new customer mandates in Asia and the Middle East. In FX, performance reflects lower currency volatility and a strong prior year comparison. Looking through this, performance of $1.3 billion was strong.

Turning now to Wealth. We delivered 29% fee and other income growth to $2.7 billion. This shows our strategy is working. Net new invested assets were $29 billion, with more than half coming from Asia at $15 billion. This takes total invested assets to $1.5 trillion. Wealth was driven by all four income lines. Our insurance CSM balance is up by $2.5 billion year-to-date. This is driven by strong new business. I would note that we review our insurance assumptions in the third quarter, favorable experience and strong market performance slightly flatter at these figures.

Private Banking grew 8%; and Asset Management, 6%, respectively. Investment distribution also performed very well, up 39%, reflecting strength in our customer franchise in Hong Kong. And Wealth is not just a Hong Kong story. It runs across our Asian franchise with double-digit fee and other income growth in Singapore, Mainland China and other markets.

We are providing you with a little extra color this quarter on our Hong Kong flows on the next slide. We are pleased to have added 318,000 new-to-bank customers this quarter. This brings us to more than 900,000 year-to-date. What this slide shows, over a slightly longer period is that nonresident customers have been a significant driver of customer activity and balances. These new-to-bank customers have contributed up to 1/3 of flows across deposits, investments and insurance. We see new nonresident customers as a significant and long dated opportunity for the bank.

Now let's turn to credit. ECL of $1 billion is flat year-over-year and down modestly on the second quarter. We retain our full ECL guidance of around 40 basis points. Our ECL charge this quarter includes $0.2 billion Hong Kong commercial real estate. On Slide 19, you will see we have updated the Hong Kong commercial real estate slide we showed you at the half year. Other charges include $150 million from a Middle East-based customer, $0.3 billion in the U.K., $0.2 billion in Mexico and a $0.1 billion release due to improved economic assumptions.

Now let's turn to costs. We remain on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Year-to-date, we have taken actions to realize $1 billion of annualized simplification savings with no meaningful impact on revenues. We continue to expect $0.4 billion simplification savings to be realized in the full year 2025 P&L.

It's worth noting that there is some slight seasonality to costs in the fourth quarter, which also includes the U.K. bank levy. This quarter, we have $1.4 billion of legal provisions on historical matters, which don't impact our ongoing business. They consist of $1.1 billion, as you will have seen in yesterday's announcement relating to made-of litigation, which is a material notable item and, therefore, does not impact any dividend, and $0.3 billion related to historical trading activities in Europe, which is a notable item.

I would also just draw your attention to Appendix Slides 16 and 17, where we detail recent and potential future notable items. This leads us to our exit of nonstrategic activities, which we will discuss on the next slide.

We are progressing at pace. With our exit of nonstrategic activities, this slide sets out that progress. The red boxes show the exits announced in each quarter, the gray, those in prior quarters. Given the phasing of the sale processes, only Grupo Galicia is currently complete with others to follow.

In the third quarter, we have announced Malta and Retail Banking in Sri Lanka. Last week, we announced that we are conducting a strategic review of our Egyptian retail banking business. As I said earlier, the review will not include our wholesale banking activities in Egypt, which remains an important market. As a reminder, costs released from the exits of a nonstrategic activities will be invested in our priority growth areas at accretive returns.

Now let's turn to customer deposits and loans. Including held-for-sale balances, we've had another strong quarter with $86 billion of growth in deposits in the last 12 months. By business, there is some volatility this quarter. Silver bond subscriptions in Hong Kong moved deposits from Hong Kong business to CIB for a few days over quarter end, benefiting CIB balances. CIB also benefited with -- from some large client deposits, which may be short dated. Overall, we see good momentum in our customer deposit franchise.

In the U.K., lending was the standout. We saw continued growth in mortgages and our commercial lending book. Infrastructure being a key area of focus. In our U.K. business, the book has grown 5% year-over-year, which includes a drag from the repayment of COVID loans. We see low levels of household and corporate debt in the U.K., which we expect to provide a platform for the continued growth of our franchise. In Hong Kong, we saw customer repayments and corporate deleveraging notably in the commercial real estate space. Credit demand remains muted.

Now turning to capital. Our CET1 is 14.5%, reflecting strong organic capital generation during the quarter. We said with the announcement of the Hang Seng offer that we do not expect buybacks for the next 3 quarters. That is, of course, dependent on underlying capital generation with strong profitability and currently modest loan growth via highly capital generative.

Finally, let's turn to targets and guidance. In summary, the intent with which we are executing our strategy is reflected in the growth and momentum in our performance this quarter. It again shows discipline, performance and delivery. Discipline in the way we are applying strong cost control. We are on target to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Our simplification saves are ahead of our previous expectation. We have announced 11 exits so far this year. We will continue to progress at pace and invest costs released from exits into priority growth areas.

Performance in our earnings. Each of our four businesses is making mid-teens RoTE or better, excluding notable items. Delivery, our third quarter results show that we are creating a simple, more agile growing HSBC. Revenues grew and excluding notable items, our year-to-date 17.6% RoTE demonstrates that we are delivering against the targets we set out to you. That is why we expect 2025 RoTE, excluding notable items to be mid-teens or better.

With that, I'm happy to take your questions.

[Operator Instructions] Our first question today comes from Aman Rakkar at Barclays.

I wanted to ask about banking NII rather predictably, please. So just at face value, your guide does imply a decent step off in interest income in Q4. But I don't think that you really mean that. I just wanted to kind of check in around what your expectations are for net interest income in kind of Q4.

I guess I'm particularly mindful of the tailwind from average HIBOR in the quarter alongside things like the structural hedge and hopefully, balance sheet momentum. My best guess is that Q4 NII is actually up Q-on-Q. But any color you can give us there in terms of what you mean and what the drivers are, would be very helpful.

And then the second question is around deposits. And I'm interested in your take on the sustainability of the kind of current 5% underlying deposit growth that you're benefiting from at a system level. Obviously, Hong Kong year-to-date has been a key driver of that. And how sustainable do you think this level of pace is? And what confidence does it give you around things like net interest income growth next year?

Thank you, Aman. So firstly, on banking NII. I want to say that we are not walking back the Q4 as a starter. As the maths would show, we are saying that the banking NII would be no less than $10.6 billion.

So absolutely, that's why it is $43 billion or better. And you are quite right from a balance sheet momentum, we see that continuing from the third quarter onwards, albeit there can be a few seasonality fluctuations. HIBOR is a tailwind, structural hedge is a tailwind, but we should be mindful that the U.S. dollar rate curve will be a headwind. So that's where we are on banking NII.

In terms of deposits, and as you know, we are not giving a guidance on banking NII for 2026. But our deposit franchise is very strong across all markets, all currencies, all business areas. So it's not just dependent on Hong Kong dollars. But of course, we are very pleased with our preeminent position and strength in Hong Kong, which is a key driving force for the deposit growth. So very positive on deposit growth from here on as we've had before.

Our next question today comes from Guy Stebbings at BNP Paribas.

The first one was back on bank NII then one on insurance. So obviously, quite a big move in the banking in our guidance. Outside of HIBOR, is it really the deposit strength that's the delta in terms of the guidance here? I mean you also referenced yield curve steepening. So I'm just wondering if you would encouraged to think about anything above and beyond the structural hedge roll when you think about yield curve steepening when it comes to NII?

And then on insurance, really strong quarter, but there's quite a lot going on there, I think, so 46% growth. But you mentioned model changes, experience variance. And then if you can help quantify that, I think there might have been $150 million or so type model changes. I mean if that's the case, we're still talking about a sort of 20% clean run rate. So if you'd encourage you sort of think along those sorts of lines in the CSF now at $50 billion, it looks like a very sort of useful underpin from here?

And if I can sort of briefly flip on that. There was $1.1 billion of CSM build year-to-date from economic factors. I'm just interested how much of that is sort of purely lumpy items? Some of your peers show the normalized unwind or expected return of in-force, which can be sort of quite material and a consistent tailwind to the CSM built above and beyond the new business systems. So I'm just wondering whether we should treat that $1.1 billion boosters very much one-off or an element of that is repeatable, if you like?

Okay. Great. Thank you, Guy. So firstly, in coming -- so with your question on banking NII. So it's -- our deposits strength, as I've called out, but our structural hedge is also important tailwind for us on banking NII and the stabilization of HIBOR, which impacted banking NII almost equivalently on the negative side in Q2 and Q3, is not expected for Q4 and has not shown that at all in Q4 so far.

The insurance growth, you're again right, it's -- the one-offs are circa $150 million, as you've called out in terms of the change in assumptions, which is a normalized annual process that we go through. So we are very pleased with a very strong CSM and balance build, which gives the underpin in terms of the growth in this business. In terms of any one-offs or lumpy items, nothing material to note, but I'll ask our IR team to follow-up with you.

You can see some of the walk on the CSM balances on Slide 21.

Our next question today comes from Katherine Lei at JPMorgan.

I also have a follow-up on NII and then I would like to ask about Hong Kong CRE. On the NII line, I noticed that in Hong Kong, the composite deposit rate actually comes significantly in 3Q. I think this is because that this move -- migration from time deposit to demand deposits and also that banks generally lower the time deposit rates.

So into 3Q -- into the 4Q because of the rebound in -- because of the rebound in HIBOR, do we expect some of the reversal of that decline in composite deposit cost? Will that lead to some sort of risk to the banking NII? This is number one question.

And then have we seen any like further migrations or what's the trends of deposits in CASA deposits? And then the next question will be in Hong Kong CRE. We noticed that the Stage III loan ratio increased from 16% to 20%, but however, if we look at the impairment charges on Hong Kong CRE, this quarter is actually lower than that of last quarter. So I would like to have some color from management say, for example, what is the latest trend in terms of the asset quality? And what is our thought behind that while the Stage III loan ratio continued to increase, but then we slow down the pace in making provision against Hong Kong CRE risk.

Thank you, Katherine. So in terms of HIBOR, it continues to be a tailwind from a deposit perspective, we see the trends from sort of prior quarters, continuing to Q4, so nothing much to call out there.

Specifically, yes, there has been some small rise in time deposits, but that is all factored in terms of our banking NII guidance. And I'm speaking both from what we saw at the end of the September as well as the ongoing trend. The banking NII, as I've said earlier, in addition to HIBOR, the structural hedge also continues to be a tailwind for us. And that is the reason why we have obviously upgraded our banking NII guidance.

And you know we are very conservative in HSBC. It takes a lot for us to upgrade the guidance and also to add the word or better. So take from that what you will. In terms of Hong Kong commercial real estate, I would like to take a little bit of time to share with you our reflections in the Hong Kong commercial real estate.

So firstly, in terms of residential properties, the trend has stabilized and is getting stronger. The resi property index has grown 2% year-to-date. September transaction volumes were up 79% year-on-year and the valuations as well as rentals have held well. We have also seen some supportive developments in the retail sector. Hong Kong retail sales have grown since May and are up 4% year-on-year in August. It is also underpinned by increase in year-to-date tourist arrivals of 12% year-on-year.

Now if I look at the office sector, of course, the office sector continues to be challenging and under pressure, and we expect that to continue through most of next year as well. However, there has been a slight uptick for take-up for grade A office space. So this is in the best locations with the best specs and that is an improvement, which we see quarter-on-quarter.

As you know, our portfolio is well collateralized. This quarter, of course, there was some slippage, which is expected as part of our review in as things move through from some good to satisfactory, substandard to impaired, but there were names which you are aware of, no big surprises. And hence, the ECL pickup was relatively modest.

Our next question today comes from Ben Toms at RBC.

In relation to the $1.1 billion provision in relation to Madoff litigation. [indiscernible] the ongoing cases with a cumulative total contingent liability of, I think, greater than $5 billion. Can you just provide that the case that was decided last week does not set any legal precedent for the other 4 cases? Especially the 3 cases that are in the Luxembourg courts where there's a more material exposure?

And can you confirm that the litigation charge does not change your aspiration to resume the buyback at half 1 '26? And then secondly, on Slide 10, which is a really nice slide, you made 11 disposals year-to-date. It can be quite difficult sometimes to track the transactions coming out of the P&L. Is it possible to give us some idea of the annualized cumulative PBT lost as a result of these sales? Although the transactions may be RoTE positive together, it just be good to get a sense of the PBT headwind going into next year?

Okay. Thank you, Ben. So firstly, on the Madoff litigation provision charge, you can expect that we did a thorough exercise with advice from internal, external counsel as well as colleagues in the accounting function to determine what would be our best judgment on this case. In terms of the other cases, of course, we look at read across and those gets factored in. But each case has very distinct factual considerations. So there's nothing more to add on that other than what we've already called out as disclosures in the midyear. So please don't read more into that. As you know, on this case, we won on the cash side of the element of the case, but it was the securities element that we are providing against.

In terms of our share buyback and announcements at the time of Hang Seng privatization offer. As you can imagine, this case has been pending for a while. We had looked at all kinds of downside scenarios. So when we came with our view of suspension of share buyback for the Hang Seng offer for up to 3 quarters, we still stand behind that number, that was all included.

As you know well, we will go through a rigorous process every quarter. We continue to be highly capital generative as you've seen with also the upgrades on our guidance. And once we look at that, we see where the organic growth opportunities are. Obviously, in organic, that's where the Hang Seng privatization offer comes in and then the residual after obviously, looking at the 50% dividend payout, which is a key element of our capital distribution, then we look at share buybacks. So I don't expect any headwinds in that, the up to 3 quarters still holds.

In terms of the 11 disposals, I note to your point, these are all relatively, as you can see, small disposals. What is very important is each time disposal happens and it's completed like we had the Grupo Galicia, but also as we did with the closure of the investment bank, we immediately reinvest, and the kind of areas we've invested and we've actually seen the benefits come through is we have invested in the U.K. And as you see, we have seen some loan growth in the U.K. We have invested in Wealth, both in the U.K. and Asia and the Middle East. And of course, the numbers speak for themselves.

But also we take very specific opportunities where we see either growth in volumes or new customer mandates as we saw in security, services so that we can be in a prime position to take those opportunities. So that's an ongoing piece of work. We don't stop at the end of each quarter or regularly to see what we need to reinvest as soon as we have the money available, we reinvest.

We will take our next question today from Joe Dickerson at Jefferies.

I just -- it's just more of a conceptual question really in terms of the return profile of the bank. I guess why isn't this -- why isn't HSBC post-Hang Seng integration more of a high-teens bank than a mid-teens bank?

I mean, clearly, the exit rate for this year on banking NII is going to be much higher, I think, than what most analysts would have thought, particularly given that the HIBOR move, you only had about 6 weeks of that embedded in Q3. So you get a full quarter of that in Q4.

And effectively, you feed that through to next year. And yes, you can have lower rates, but ultimately, you probably have a structurally higher banking NII given the deposit mix. And then if you look at your invested assets, in Wealth, you clearly have a strong business there that continues to grow and the marginal ROE is much higher and throwing Hang Seng, you're 70, 80 bps just from the minority deduction. I guess why don't we get to a number that's in the high-teens here as opposed to mid-teens?

Thank you, Joe. It's a really good question. As you can imagine, we in the bank obviously reflect on this very closely as well. And you'd see that we have upgraded obviously, our guidance for this year. But let me just remind you, when we came up with our target of mid-teens RoTE for the medium term, '25, '26, '27. That's a target. There's nothing that says that you will stop working once you achieve the target.

You continue to work to both achieve to target as well as to improve on the target. In terms of the target itself, we are not making any change. We will, of course, reflect on it as we go through our year-end results and go into next year and give greater details on our forward-looking guidance. But just remember, a target is something that you have to achieve or better. Target is not where you stop.

Our next question today comes from Kendra Yan at CICC.

My question -- my first question is regarding to the Wealth management revenue. We've observed a very strong -- very rapid growth rate in the third quarter. Could you elaborate on the key drivers behind this performance and its sustainability? And my second question concerns is about the credit risk. In recent weeks, we've seen some risk involving the U.S. market, like the small and medium-sized banks in the U.S., they have some risk.

And also the JPMorgan, they cautious the market about the credit risk during its earnings call. Although HSBC's primary client base is not in this segment, but still I'd like to ask whether HSBC has any exposure or concern in loans to nonbank financial institutions or say, those private credit corporate sector?

Thank you, Kendra. Two really good questions. So firstly, in terms of Wealth, we are very comfortable with our medium-term guidance of a double-digit growth in fees, though obviously, quarter-on-quarter, it can vary.

So what has been really strong this year has been investment distribution notably in Hong Kong and strong equity volumes. As I said earlier, our insurance business has continued to grow, and that momentum is helped both in terms of existing client base, but also the new clients we are onboarding in Hong Kong, in particular.

Obviously, strong equity markets have been favorable, and that becomes a lever for Wealth in terms of both the sentiment and the activity we see. But overall, not changing our guidance, but very optimistic for Wealth in future, as seen from Q3 results. And of course, be mindful there are some seasonal fluctuations, Q4 can be a little less in Q1 more, but we'll see how it progresses. So far, all on a very good trajectory.

From a credit risk perspective, and as you can appreciate, I've been a Chief Risk Officer for 5 years. So indulge me, I'll share my thoughts on that with you. Private credit as a sector, of course, is going to have stronger players and weaker players. What is very key is how you do the due diligence and what are the kind of underwriting standards you apply in this new area.

You are quite right. This is primarily U.S.-driven, 80% a U.S.-driven business, and our footprint in U.S. is relatively small. All I can tell you is that our direct exposure in the private credit space is single billion dollars. We apply the same strong credit underwriting principles there. So I'm very comfortable in that space.

What I do want to call out is, you're right, it is always the second and the third order risk that you should be very mindful of, which are not your direct exposures, but exposures you may have through weaker counterparties. We have always taken a very conservative view in terms of our exposures to smaller banks, regional banks in the U.S. and elsewhere. We've been doing that right through the COVID period, through Russia, Ukraine, through inflation, high interest rates, so on as well as exposure to smaller hedge funds.

Having said that, we closely monitor this space because you can never get too comfortable in the space, and good risk management really means looking forward to see what else can impact the overall ecosystem, which then can cause indirectly concerns to all participants.

Our next question today comes from Kian Abouhossein at JPMorgan.

Just to come back on the NDFI exposure because you mentioned private credit just now a single digit. NDFI would be similar. Clearly, you get your U.S. legal entity exposures, whether the branches, which is below $10 billion. So should we see that as overall group exposure roughly for total NDFI, can you confirm that?

And then secondly, on tariff scenarios, you gave an impact scenario or sensitivity scenario of low single digit on group revenues before Clearly, things have changed, but also that was on a very specific part of your business. So I'm just trying to understand how you're thinking about impact scenario going forward in the current situation and expectation of a trade deal? And secondly, also what the impact has been so far?

So let me come through the NBF exposures. As you can appreciate, NBF is a very broad industry. My comment on our disciplined and conservative approach to weaker NBFIs holds. So from an exposure perspective, both in terms of quantum that I've called out and beyond, I am very comfortable in terms of our approach to date as well as going forward.

For the tariff exposure and the impact, as you've seen, the trade segment has continued to perform well. We have the advantage that as much as there is an impact on U.S. dollar-related corridors. There are other corridors, which are growing, which we have a strong presence in, whether it's India, U.K., Middle East, Asia, Intra Asia. So that's been quite good for us. So overall, guidance that we've given on the direct impact of tariffs has not changed.

And of course, we look at that as part of our downside risk scenarios even for the ECLs. From an overall view on the macro environment with all the trade deals being done, I'll just give one reflection that our probabilities that we give to our upside, downside in base case scenarios have now normalized, and that's resulted in some modest releases of ECLs because we think the situation is improving compared to where they were more weighted towards the downside scenarios in the previous quarters.

[Operator Instructions] We will take our next question today from Amit Goel at Mediobanca.

So two questions for me. The first, just on the U.K. business. It looked like there's a bit more investment and there was also a little bit of a tick up in the impairment rate versus prior quarters. So just wanted to check what kind of investments you're making there for what kind of opportunity? And then on the impairment, what's driving that?

And then the second one is just a follow-up on the Madoff litigation. I'm just kind of curious what is really the range of outcomes? I know obviously, it says that it could be materially different to the provision. There are a lot of kind of numbers in the release. So just curious how you see that range? And I was also kind of curious why a provision wasn't taken in December '24 when you had the original ruling that went against?

Okay. Thank you, Amit. So first on the U.K. business, we have continued to invest for Wealth, both in terms of hiring of RMs to grow our premier customer numbers and to sell more Wealth product for the customers who we already have very strong deposit base with. We are also investing as we've opened a new Wealth center in the U.K. in this space. And then business banking has been important for us for investing in, in terms of customer service, customer journeys, and that's primarily a liability-driven business.

Having said that, we are very pleased that our corporate lending book in the U.K. has shown sustainable growth in the sectors that we have lent into, so more into the new economy sectors, into infrastructure, into social housing, into innovation and so on. So that has been really positive for us.

From an impairment perspective, just to give you a context, a $300 million charge in a quarter for the U.K. is not abnormal. In prior quarters where we had to release the charge can fluctuate between $200 million to $300 million. In terms of the specifics, there were a few single name defaults, but they are all of very small amounts, so nothing notable. And no specific concentration in any sector. So I feel quite comfortable in that space.

From a made-of perspective, just to be clear, we had an appeal as of December, and the outcome of the appeal was only known to us on Friday, the 24th of October, and therefore, we gave our RNS and announcement on the provision yesterday. So the provision we have given is our best judgment of likely outcomes. It's not a midpoint. It's not a broad range as people may think, but it's just our best judgment based upon advice from both internal and external legal counsel.

Our next question comes from Kunpeng Ma at China Securities.

It's [ Chen Li ] from China Securities. And I also have the questions about the Wealth management because of the further interest rate cut. So will the nonresident new customers in Hong Kong will slow down or keep stable? And also, how would the migration of retail deposits into wealth management products impact our wealth management revenue?

Thank you. So on Wealth management, the growth of wealth management that we've seen comes both from new customers, but primarily from our existing customer base in Hong Kong. We do not believe that at a normalized HIBOR rate, which we've had seen for quite a long period of time despite the fluctuations we've had earlier this year that, that should have an impact on both the appetite of our customers for Wealth management products, their desire to diversify and our matched product offering, which is in a prime position to meet their needs.

So I don't think there is anything more to call. Obviously, a positive stock market is good optimism factor and encourages customers to invest even more. But the baseline growth that we are seeing quarter-on-quarter is very much expected to continue.

Our next question today comes from Alastair Warr at Autonomous.

I just wanted to quickly return to the Hong Kong CRE question. You saw as you touched on yourself some downward migration. You said before, you've been focused particularly on the higher LTV problem loans.

And those have gone up quite a bit again, third quarter versus the half year. So could you just give us a little bit more about what's going on in collateral there in the background, why the ECL would be able to come down by quite a bit in terms of, say, individual clients posting more collateral, what the values have been doing in the quarter?

So thank you for the question, Alastair. So in terms of the Hong Kong CRE, you're right, if you look at the LTV, 70% plus the number, which has grown. But in the same note, we've taken more provisions. So net of the provisions quarter-on-quarter, that number has pretty much stayed steady around the $900 million.

Now in terms of valuations, of course, we look at valuations across the board. And particularly for these, we look at them on a quarterly basis as well as if there are any transactions or events that cause us to pause and look at the valuations, again, we are looking at that. The real distinction between perhaps what you saw in the middle of the year and now is that there is no individual surprise name or situation.

And overall, in Hong Kong CRE, retail has got better, residential, as we know, has stabilized. And on the office space, which is challenging, we are not so far seeing improvements, which are coming from the momentum even slight as it may be in terms of A-type properties going into the rest of the office space. So hence, I think that challenge will continue.

Our last question today will be from Andrew Coombs at Citi.

A couple of questions, please. Firstly, just to follow up on divestments. You've now announced Sri Lanka, you've talked about Egypt retail being up for review. I see there's no mention of Australia or Indonesia in the slides this time, whereas there was in Q2. Can you just provide us with an update there? Particularly Australia because that is a potentially more sizable divestment.

And then the second question, just on the new disclosure on Slide 7 where you provided the resident versus nonresident split of the additional customer in Hong Kong. Perhaps you could just give us an idea of what the split is of the stock as well as the flow. How that changes with Hang Seng Bank if you were to combine the two, not just look at the Red brand and how the revenue margins compare between resident versus nonresident?

Thank you, Andrew. So firstly, your questions on the divestments that we had called out in terms of strategic reviews. There is no further news. They are continuing through that strategic review process. So that's why we haven't called out anything specific here.

It's work in progress, no turning back as such. So the slide that we have said on the resident and nonresident, the reason for that slide is really twofold. Firstly, to explain to you that why this growth and the reasoning of how it's grown up since the borders opened up in '23 and see that trajectory, and that shows how the trajectory is continuing. However, it does show that fundamentally, the customers who are coming in to begin with are coming with small balances, and it's a deposit-led growth story.

There is also an uptake on insurance, which is a preferred product. So we called that out. The other Wealth products, it takes time to convert. Overall, if you look at the premier customer base between the start and the end, it stays pretty much stable, 15% to 16%. So that's how I would look at it. And new customers coming in, in terms of a trajectory has continued pretty consistently at least through this year at 100,000 plus every quarter. It's a little higher than what it was in '24, which was a little hard to begin with from where it was in '23. So you can see that as a continuum.

In terms of Hang Seng, they don't do a third quarter filing. So I don't want to say anything about that. There's no news to share. They are a listed company in their own right. But obviously, as we have talked about the opportunities for revenue growth and operating leverage as part of our offer that does call out that from a revenue perspective, particularly on Wealth products, we will have greater opportunities to leverage the Wealth products in the Red brand, for the Green brand customers, both existing and new, which continue.

Thank you, Pam, and thank you all for your questions today and for joining our webinar on the 3Q results for HSBC Holdings plc. You may now disconnect your lines.