HSBC Holdings, plc.

Good morning or good afternoon, wherever you are in the world. Good morning. I'm really delighted that we're in Hong Kong today for our interim results announcement for the first time since the COVID-19 virus struck the world. I'm here today with Noel and Ewan. They will take you through the presentation shortly and Noel will then lead the Q&A. As well as today's results, we're also giving plenty of time to meeting with our customers and investors face to face. And I'm very much looking forward to meeting with our Hong Kong shareholders tomorrow. We have always greatly valued their feedback and engagement, and we look forward to seeing them in person. There have been reports in recent months about ideas for alternative structures for HSBC. The Board has been fully engaged in examining these ideas in depth and we will continue that thorough examination. Noel will discuss this in more detail during the presentation. The Board firmly believes that, as these results clearly demonstrate, HSBC's strategy is working and expect that it will deliver very good returns over the coming years. For 157 years we have followed trade and investment flows to support our customers as they fulfill their financial ambitions. We have used our deep experience and strong global relationships to help our customers to navigate the world. Today we remain steadfastly focused on our core purpose of opening up a world of opportunity. Our model is increasingly relevant to individuals and to companies of all sizes and whose financial ambitions span multiple countries and regions. Our transformation has enabled us to emerge from the pandemic a stronger bank and well positioned to capitalize on the current interest rate cycle. And very few banks can rival our ability to connect capital, ideas and people through a global network that facilitates the international collaboration required to succeed in today's world. The focus for the board and the management team is on delivering our strategy, precisely because it is the best way for us to support our customers and to improve returns. With that, let me hand over to Noel.

Thank you, Mark, and good afternoon to everyone in Hong Kong. It's great to be here to present our half-year results. And good morning to everyone in London. Before I turn to progress against our strategy, a brief reminder of the context. As Mark said, our purpose as an organization is opening up a world of opportunity. These words are a product of extensive consultation with our customers, our colleagues, about who we are and what we do. And I strongly believe that our strength as a global institution comes from our ability to connect the major trading blocks of the world. I will come back to the value of our connectivity and strategy later on. The next slide sets out the key points that we're going to cover in our presentation today. First, we've had another strong performance in the second quarter. I'm pleased that reported revenue grew by 2% on last year's second quarter and was up 12% on an adjusted basis. Adjusted profits before tax were up 13% on the same period last year. and continued strong cost control led to positive adjusted jaws of 12%. Second, we've made good progress with our transformation program. If you look back a few years ago, we had loss-making businesses in the US and Europe, and capital was being used inefficiently. We have structurally repositioned our portfolio of businesses and our operating model for higher returns. The two most material adjustments in our portfolio have been the exit and wind down of non-strategic assets and clients in the US and Europe, and the strong impetus behind organic and inorganic growth in Asia, especially in wealth and personal banking. This repositioning effect is starting to pay off in terms of growth and returns, as these results show. Third, it's the benefit of transformation and the tailwinds from higher interest rates that allow me to announce some ambitious new targets and underpinning guidance, even against the challenging economic backdrop. After delivering an annualized return on tangible equity of 9.9% in the first half, we are confident of delivering at least 12% from 2023 onwards. This would represent our best financial performance for a decade. Finally, as a result, we are providing more specific guidance of a 50% dividend payout ratio for 2023 and 2024. We understand and appreciate the importance of dividends to all our shareholders. So we will aim to restore the dividend to pre-COVID levels as soon as possible. We also intend to revert to quarterly dividends in 2023. Let me now walk you through the progress we've made in the first half of this year in transforming the bank. In Asia Wealth, our investments over the past few years are gaining traction. We've made a series of bolt-on acquisitions to accelerate our progress. In the first half, we completed the acquisition of AXA Singapore and we remain on track to complete the acquisition of L&T Investment Management in India. And in mainland China, we continue to build momentum on the back of 17 new licenses and regulatory approvals gained since the start of 2020, seven of which were in the first six months of this year. We've got strong revenue momentum across all of our businesses, with 4% of the adjusted revenue growth in the first half, after turning the corner on revenue back in 2021. Normalising interest rates give us confidence in the returns trajectory for the coming years, as we will explain later. We have also got good cost control, with adjusted costs stable in the first half, despite inflation and higher spending on technology. We had an annualised return on tangible equity in the first half of 9.9%. We have now made cumulative RWA saves of $114 billion, and remain on track to exceed $120 billion as we continue to exit assets and clients that do not add value to our international proposition. Our CET1 ratio was 13.6% and we aim to manage back to within our target range of 14 to 14.5% during the first half of 2023. Our capital allocation to growth opportunities in Asia and wealth and personal banking also showed good progress. We have a strong focus across our network today. When you combine exiting unprofitable businesses and underproductive RWAs with tighter costs and an impetus for growth, you get much better geographic performance. with every region profitable in the first half. One of the standout performers was the HSBC UK, which contributed $2.5 billion of adjusted profits, up 15% on the first half of last year. Many of you heard about the fantastic job that Ian Stewart and the UK team are doing at the recent Investor Day. If not, please do look at the materials on the website. Looking forward, our transformation also means we can expect the current rate cycle to bring higher returns than previous rate cycles because we have more liquidity, less risk, and much higher operating leverage. The level of surplus deposits we hold means we're very well positioned to benefit as higher rates kick in. We also now have less risk in our two key books, the retail unsecured loan book and the SME lending book. We have around $91 billion of business banking deposits in Hong Kong and around $55 billion of business banking deposits in the UK at very low AD ratios. And we have outperformed our peers on cost management in recent years. The next few slides cover our four strategic pillars, starting with the focus on our strengths. Our market-leading commercial banking franchise had a very strong first half. Revenue was up 14% on last year. Within that, it was particularly promising that there was fee income growth of more than 12%. Trade revenue in commercial banking increased by nearly $200 million, or 20%, driven by a 25% increase in average trade balances. As clients trusted us to help them navigate supply chain shifts. GLCM was up 42%. with a strong benefit from interest rates normalizing. And by geography, every region performed strongly. Revenues were up 19% in the UK, up 5% in Hong Kong, up 18% in the rest of Asia, and up 12% in the rest of the world. In wealth and personal banking, the impact of the transformation I described is particularly evident. Net new invested assets in wealth grew by 9% in the first half. In Asia, we achieved significantly more positive dollar growth than was reported recently by our European wealth management peers. And it was great to see the value of new business in our Asia insurance franchise grow by 41%, all despite adverse market conditions. Revenue in wealth and personal banking was stable, but excluding market impacts and a gain on pricing, updates on policyholders' funds, it was up by 7%. Personal banking had a very strong half. Lending balances were up 4%, driven by a strong UK mortgages performance. And looking at revenue by geography, excluding market impacts and the insurance gain, the UK was up 22%, Mexico was up 16%, while Hong Kong remained resilient, down only 1%, despite the impact of COVID restrictions. All of this underlines the way we've structurally repositioned the business. We should now get the benefit of normalizing rates on top of that. Global banking and markets also performed very well in the first half, reflecting our differentiated and diversified business model. Strong revenue performances in transaction banking and our markets business were driven by rate rises and continued good levels of client activity. Collaboration between global banking and markets and commercial banking is a priority. So I was particularly pleased to see these collaboration revenues increase by 14%. Back in February, I talked about the proportion of global banking and markets client business bucked in the east, but originated in Europe and the Americas. In the first half, this revenue grew by around 8% on the same period last year, underlying the strength of our connected franchise. We will continue to invest in coverage and build share in connecting capital and trade flows between the world's major economic blocks. Digitising HSBC continues to improve the client experience and make our processes more efficient. We've continued to raise our spending on technology with more than half spent on change the bank initiatives to drive growth and efficiencies. This is in spite of the commitment to keep our overall costs stable in 2022. We've more than doubled the proportion of our agile workforce over the past year. which we expect to translate into a much faster release frequency for new features and propositions. Our cloud adoption across public and private cloud continue to increase beyond 30%, with an ambition to go much further. And across trade, HSBC Net, and retail mobile, penetration levels and volumes increased materially, with ambitions to grow them even further. The next slide covers our last two strategic pillars. First, we're continuing to build a dynamic and inclusive culture. We remain on track to achieve our revised target of 35% of senior leadership roles filled by women by 2025. The total number of hours spent by colleagues learning about sustainability, digital and data increased sevenfold. reflecting the increased priority placed on future skills. And to give you an example of how we're opening up a world of opportunity for our people, we're rolling out a talent marketplace which uses AI to match colleagues with short-term projects and learning based on their skills and ambitions. Then on transition to net zero, the amounts of sustainable financing and investment that we provided and facilitated were stable on the first half of last year, despite the overall market for green, social and sustainability-linked bonds being down in the first half. The overall amount of sustainable finance and investment provided and facilitated since the start of 2020 now stands at more than $170 billion, well on our way towards our target of up to a trillion dollars by 2030. The next slide shows why we're confident of keeping adjusting costs stable in 2022. And our ambition is to keep cost growth to around 2% in 2023, despite strong inflation headwinds. It comes down to three things. First, good cost discipline across the whole group. Second, our efficiency levers. We're reducing the global real estate footprint, reducing our global retail infrastructure, using more automation, and reducing our operations headcount. We're still only partway through these journeys with an ambition to achieve even greater savings. Finally, we will continue to see the impact of our current transformation programs into next year. The flow through benefits into 2023 are also a big component and will be an important help to offset inflation. This brings me to expectations for the rest of 2022 and 2023. I've explained how we've structurally repositioned the business to achieve higher returns once rates normalize. Despite the uncertainty in the macroeconomic environment, we're expecting at least $37 billion of net interest income in 2023. which is a significant uplift on the 31 billion plus dollars we expected in 2022. We're aiming to keep cost growth at around 2% in 2023, which we fully expect to be able to do for the reasons I've explained. Given all of this, we are materially upgrading our returns guidance. We are confident of achieving a return on tangible equity of at least 12% from 2023 onwards. As a result, we are also providing more specific guidance of a 50% dividend payout ratio for 2023 and 2024. We aim to restore the dividend to pre-COVID levels as soon as possible, and we will also revert to quarterly dividends from 2023 onwards. I'll speak to a few more slides at the end, but let me now hand over to Euan to take you through the numbers in detail.

Thanks, Noel, and good morning or afternoon all. As Noel and Mark have said, it's really great to be in Hong Kong for these results. We had another strong quarter, reported pre-tax profits of $5 billion, while down 1% on last year's second quarter. This marks a strong core operating performance. Compared to the second quarter of last year, adjusted revenues were up 12%, including net interest income up 20%. With operating expenses flat, we had 12% positive jaws. Adjusted pre-tax profits were up 13% and profits attributable to ordinary shareholders were up 62%. Credit conditions remained benign in the quarter. ECLs were a $448 million net charge compared with a net release last year. We benefited from a $1.8 billion deferred tax asset credit in the quarter, reflecting a recognition of brought forward tax losses in the UK, given the improved profitability outlook. We now expect a 2022 effective tax rate of around 10%, reverting to a more normalised effective tax rate of around 20% in 2023. To remind you, for 2022 dividend modelling purposes, please exclude the DTA gain and the French loss on disposal being non-cash significant items, but include the $3.4 billion of costs to achieve we expect to spend this year and other significant items. Our quarter one ratio was 13.6%. Our tangible net asset value per share was $7.48, down 32 cents on the first quarter, mainly due to FX impacts, but also to the fourth quarter 2021 dividend payment. And we've announced an interim dividend of 9 cents per share, up 2 cents on the first half of 2021. On the next slide, there was a strong adjusted revenue performance across all our global businesses. Wealth and personal banking revenues were up 5% overall and up 19% if you exclude $700 million of adverse market impacts in insurance. Underlying this, personal banking had a strong quarter, revenues up 20%, reflecting both rate rises and balance sheet growth. Commercial banking was up 19% with growth across all core products due to improved margins and balance sheet growth and revenues driven by collaboration with global banking and markets. Global banking and markets revenues were up 15%, mainly due to global markets and security services and global liquidity and cash management. Net fee income was down 4%. The decline in fees from wealth and investment banking was partly offset by the $100 million increase in global liquidity and cash management and trade fees underlying the benefit of our diversified business model. On slide 17, net interest income was $7.5 billion, up 20% against last year's second quarter on an adjusted basis. On rates, the net interest margin was 135 basis points, up 9 basis points on the fourth quarter, and up 16 basis points compared with the fourth quarter last year, as higher asset yields more than offset increased liability costs. And on volumes, we had underlying loan growth in the quarter of 5% annualised, but we saw a decline in average interest earning assets due to FX. Based upon current FX and the consensus rates outlook, we now expect net interest income of at least $31 billion for 2022 and at least $37 billion in 2023 as we return to a more normalised rates environment. On the next slide, we provide some buildup to our net interest income forecasts. On the rates assumptions, as I said, our forecasts today are based on current FX rates and the current consensus rates outlook. As you know, we've low pass-through rates at the moment, but we expect these to increase going into 2023. On volumes, we're forecasting mid-single-digit loan growth in 2023. Turning to slide 19, we reported a net charge of $448 million of ECLs in the quarter or 17 basis points. This included a further $140 million relating to our mainland China commercial real estate portfolio. Outside of this one specific portfolio, the overall quality of our book remains good. Stage 3 loans as a percentage of total loans remain stable at around 1.8%. At this stage, we're not seeing signs of portfolio stress across IK early warning indicators and defaults in July remained low, but we continue to monitor the situation closely. While the first half ECL charge was only 21 basis points, we continue to expect ECLs to normalise towards 30 basis points of average loans for the full year. with the core driver of this the risk of further deterioration in forward economic guidance rather than any sharp upturn in Stage 3 losses. Turning to the next slide, second quarter operating expenses were stable versus the same period last year as cost savings and reduction in accrued variable pay offset the continued increased investment in technology and growth. We made a further $500 million of cost program savings during the second quarter, with an associated cost to achieve of $600 million. As Noel said, we remain on track for stable adjusted operating expenses this year. Assuming FX remains at June levels for the remainder of 2022, that would be around $30.5 billion of operating expenses. We're also on track to achieve the top end of our three year five to five and a half billion cost savings target, and now expect to see a further $1 billion of cost savings from this program flow through to 2023, which will be a material mitigant against the higher inflation we're seeing. As part of this cost program, we've now spent $4.6 billion of our $7 billion cost to achieve budget that ends in the fourth quarter. we still expect to spend the remaining $2.4 billion during the second half of this year. For 2023, despite the inflationary trends, we're still aiming for cost growth of around 2%. The environment is highly volatile, but we do not intend to allow the yield curve to weaken our commitment to cost discipline. Turning to capital on slide 21, our quarter year one ratio was 13.6%, down 50 basis points on the first quarter. This included underlying risk-weighted asset movements from lending growth and data and methodology enhancements. Post-tax fair value losses through other comprehensive income as interest rate rose and increased threshold deductions as quarter year one capital fell. We expect our quarter one ratio to fall further during the third quarter. This includes the announced sale of our French retail banking operations, which based on current FX rates is expected to have an impact of around 30 basis points. We expect Core Tier 1 to recover materially in the fourth quarter back towards 14%, given additional capital management actions we're now taking, and then be back within our 14% to 14.5% target range during the first half of 2023. So in summary, this was a strong quarter. We're firmly on track to achieve significantly improved operating performance, returns, and distributions from 2023 onwards. With interest rates rapidly normalizing and a post-COVID recovery in most markets, we're seeing strong revenue growth, up 12% on a year ago. With continued cost discipline, we've achieved a 12% operating jaws this quarter. While not complacent, the experience of our credit portfolio remains benign. Based upon the normalization of interest rates, with at least $37 billion of net interest income in 2023, and the continued core operating performance improvement we're driving, we're raising our expectations for 2023 and beyond. A return on tangible equity of at least 12%, and on the back of this, we expect to see a material uplift in distributions from 2023 onwards. With that, back to Noel for a few closing comments.