HSBC Holdings, plc.

Welcome, ladies and gentlemen, to the analyst and investor webinar on the 2024 interim results for HSBC Holdings PLC. For your information, this webinar is being recorded. We are now ready to start the webinar, so I will hand over to Noel Quinn, Group Chief Executive.

Good morning to everyone in London and good afternoon to those joining from Hong Kong. Today is my last results announcement before George takes over in September. I'm delighted to be handing the stewardship of the bank over to him. George is an exceptional leader who understands what makes HSBC special. I'd like to thank my colleagues around the world for everything they've done over the last five years. And I wish George every success for the future. I have always been immensely proud of the heritage of this bank and the strategic role it plays in the world. But when I took this job on five years ago, we didn't have the financial performance to match our standing. My aim was to change that. I believe we've done so and created a strong platform for future growth. This was evidenced by the record profit performance last year and by the strong first half performance this year. Revenue of $37.3 billion was up 1%. Profit before tax of $21.6 billion was stable on the same period last year. This performance enabled continued strong capital generation. Our return on tangible equity was 17%, excluding notable items. We've announced $4.8 billion of further capital distributions today. This takes the total capital we have distributed by way of dividends and buybacks in respect of the last 18 months to $34.4 billion. Finally, we've updated our guidance to reflect our increased confidence about the future. We're providing new guidance of a mid-teens return on tangible equity in 2025, in addition to the 2024 guidance we already had. We're upgrading our 2024 banking NII guidance from an at least $41 billion to around $43 billion. We're revising our 2024 ECL guidance to be back within our normal medium term planning range of 30 to 40 basis points. And we're reconfirming our 2024 cost guidance of around 5% growth on a target basis. That's despite growth of 7% in the first half, which as George will explain, is mainly due to timing differences compared to last year. The benefits of our strategy execution over the last five years are evident in our performance. Before getting into detail on the further progress made over the last six months, please allow me to share some reflections on our five-year journey. When we set out, there were two key strategies to delivering higher returns. The first thing we had to do was to reshape our portfolio. Building on the work of my predecessors who initiated important structural changes, we've continued to exit businesses and client portfolios that were non-strategic, subscale and unprofitable. first via organic portfolio reductions, which delivered RWA savings of around $128 billion, and then via inorganic means through disposals. The second and very important strategy, which we commenced at the same time, was to build alternative sources of revenue growth. Within this, we've invested to grow fee income, particularly in areas where we have significant strengths, such as wholesale transaction banking and wealth. We've also continued to invest in our differentiated international propositions, and we've significantly lowered our sensitivity to interest rates. From approximately $7 billion of bank in NII for a 100 basis points down shock in interest rates at 30th of June 2022, to around $3.4 billion at the end of 2023, and now down to around $2.7 billion today. All of this had to be underpinned by a culture of cost discipline, which we have instilled across the group. These savings enabled us to invest in the areas I've spoken about. And this transformation has helped to improve our financial performance. As you know, we delivered a record profit in 2023 and a mid-teens return on tangible equity in 2023 and in the first half of 2024. It has been over 15 years since the group was generating returns at current levels. And we now expect to sustain it this year and in 2025. The other tangible measure of success is capital distributions to our shareholders. I'm really pleased that we delivered around $54 billion by way of dividends and buybacks to our shareholders over the last five years. including the distributions announced today. And I'm especially pleased to have paid the special dividend of 21 cents per share earlier this year, following the sale of HSBC Canada. I see this payment not just as a financial return, but as a return for the loyalty that our shareholders have shown us over the recent years. Let me now summarize the further progress evidence in the first half. First, wealth has been a key component of revenue diversification strategy. It delivered two very good quarters, growing revenue by 12% in total. In transaction banking, fee and other income in global payment solutions grew by 4% and in global trade solutions by 1% in a very difficult environment for trade. Revenue for HSBC Innovation Banking was up 4% quarter on quarter as our new global proposition continues to gain traction. Second, our scale markets in Hong Kong and the UK enabled us to grow profits each year as we captured new opportunities in both the corporate and retail businesses. As you can see, we also have positive growth in other markets including India which was up 4% in the first half and Singapore which was up 2%. Third, we continue to grow multi-jurisdictional client revenue in both wholesale and retail. Fourth, we saw good growth in both customer lending and deposits in the second quarter despite what is still a relatively sluggish environment. Finally, we've continued to grow the size and duration of the structural hedge to reduce our sensitivity to interest rate movements. George has new disclosures on the expected benefits in his section. All of this progress underlines why we expect to deliver a mid-teens return on tangible equity this year and in 2025 as well. Let me get into some more detail. The steps we've taken to change our retail business model and our continued investment in people and digitization have made wealth a key driver of revenue growth. Wealth revenue was up 12% in the first half to $4.3 billion. And that growth is broad-based. As you can see in the boxes on the right side of the slide, wealth fee and other income was up 14%. Private banking revenue was up 16%. We attracted $32 billion of net new invested assets. And new business insurance, CSM, was up 77%. Moving to the next topic, transaction banking revenue was stable in the first half. There was good growth in payments, which was up 3%. This included growth in fee and other income of 4%. This is a result of the investment we've made to grow and digitize that business, which helped to improve our ranking from a top four bank in 2022 to number two today. Foreign exchange was down 8% compared to a strong performance last year when there was very high volatility. And while trade was slightly down in the half, the pace of decline slowed to the point that it was broadly flat in the second quarter. But we still grew our trade volumes, despite global trade volumes remaining subdued. And we also increased our market share in trade in Hong Kong to more than 26%. On the next topic, our businesses in Hong Kong and the UK both continue to perform well in the first half. Profit before tax in Hong Kong was at 1% on a constant currency basis. While the Hong Kong corporate loan market remains subdued, it was resilient in the second quarter. It's too early to call it a trend, but deposits and investment activity increased, which underlines that the rate differential works in both directions. We attracted 345,000 new-to-bank customers in the half as we continue to capitalise on significant inflows into Hong Kong from customers seeking opportunities for investment. Profit before tax in the UK business grew by 11%, excluding the gain on SVB UK last year. Customer lending was also up 2%. But our UK business is differentiated by its connectivity with the rest of the group. In the first half, we grew the number of UK international customers by 8% to 2.7 million customers. We have a strong international franchise. We evidenced this through our multi-jurisdictional revenue disclosures in February. And in the first half, we grew wholesale multi-jurisdictional client revenue by 4% to $9.7 billion. And as I said earlier, this isn't just a wholesale story. We're doing more with our international retail and wealth customers as well. We now have 7 million international wealth and personal banking customers, with revenue from these customers up 6% to $5.4 billion. So these are the levers that have put us on track to deliver a mid-teens return on tangible equity this year, and why we expect to deliver a mid-teens return on tangible equity in 2025. With that, I'll hand over to George. Thank you.

Thank you, Noel, and hello, everyone. Before I get to the Q2 numbers, I'd like to comment briefly on the recent announcement. I'm deeply honoured by the trust placed in me to lead this great institution into the future. Many of you may have questions about the future strategy and direction of the Group. Although I don't take over as Group Chief Executive until the 2nd of September from now on, I'm ready to share a few high-level thoughts. Under Noel's leadership, we have delivered financial performance and built a strong platform for growth. The strategy of the group is working, and I am committed to building on this. The shape of the group is broadly where we want it to be, with the bulk of our capital and other resources deployed in our four scale activities – that's Hong Kong, the UK, our international wholesale bank underpinned by our leading transaction banking capabilities and our wealth proposition, particularly in Asia. This puts us in a very strong position. In each of these activities, we have scale and sustainable competitive advantages and our strengths are aligned to the needs of our customers. They account for the vast majority of the economic profit we generate today and present some of our most exciting opportunities to grow over the next five to 10 years. And together, they are capable of delivering above cost of capital returns sustainably through the cycle. We've made good progress and we are now in a position to accelerate the pace of execution of this strategy with focus and intensity. to continue to grow revenue on a sustainable trajectory, to improve operating leverage while maintaining strong cost discipline and prudent risk management, and to continue to improve client service and experience. You'll also have seen that we have announced this morning that John Bingham has been appointed Interim Group CFO from the 2nd of September. John's currently our financial controller and has outstanding technical accounting and regulatory knowledge and expertise. The process to identify the next permanent group CFO is underway and I will update you further in due course. Now though turning to Q2. In summary, profit before tax of $8.9 billion was up $0.4 billion on the second quarter of 2023 on the constant currency basis. In terms of the drivers, the banking NII run rate was stable on the first quarter. There was another strong wealth performance while wholesale transaction banking was stable on last year's second quarter. Despite cost growth of 7% in the first half on the target basis, we remain on track to meet our 2024 guidance of around 5% cost growth. and there was growth in both loans and deposits in the quarter. On the next slide, so HSBC Canada contributed around $0.5 billion of revenue and around $0.2 billion of profit before tax in the quarter before the sale completed in March. To make like-for-like comparisons easier, these contributions and some other impacts have been excluded from some of the commentary. So excluding notable items and the impact of strategic transactions, profit before tax was up 7% to $9.1 billion. Revenue of $16.5 billion was up $0.3 billion on the second quarter of last year. Excluding notable items and the impact of strategic transactions, revenue was up $0.8 billion, or 5% on the second quarter of last year. Banking NII of $10.9 billion was down $0.4 billion on the first quarter on the reported FX basis, primarily because of a $0.3 billion reduction from the Canada sale. Excluding this, the Banking NII run rate was stable. We're now in a position to upgrade our 2024 banking NII guidance to around $43 billion. This assumes a $1 billion contribution from Argentina, which was its reported NII in 2023. Although we note that it remains volatile and difficult to predict. We're also providing new details to help you understand the expected benefits from the structural hedge. Around $55 billion of assets are due to mature in the second half of 2024 with an average yield of 2.8%. And around $105 billion of assets will mature in 2025 with an average yield of 2.8% as well. Turning to fee and other income, wholesale transaction banking was stable on the second quarter of last year, or up 2%, excluding the impact of strategic transactions. Within this, global payment solutions had another good quarter, up 2%, as did security services, which was up 3%. Foreign exchange delivered broadly stable revenue compared to a strong quarter last year. And wealth had another very good quarter, underlying that our investment is continuing to drive improved results. Wealth fee and other income was up by 13% compared to last year's second quarter. Private banking was a standout performer, mainly driven by increased customer activity in brokerage and trading in Asia. But growth in wealth remained broad-based. Customer growth and improved wealth penetration, primarily in Asia, helped drive growth in investment distribution. Invested assets were up 2% to $1.3 trillion, including $6 billion of net new invested assets in the quarter. And our insurance new business CSM was $0.6 billion, up $0.2 billion on the second quarter of last year. on credits. Expected credit losses were $0.3 billion in the quarter, equivalent to 15 basis points of average loans. This included $0.4 billion of recoveries and other items mentioned on the slide. Excluding these, ECLs were broadly in line with our normal medium term planning range of 30 to 40 basis points. Stage three balances were 2.4% of customer loans up $1.4 billion compared to the first quarter. This was driven by Hong Kong commercial real estate book, but there was a limited impact on ECL charge because of the high level of collateralization. We are revising our 2024 ECL guidance to our normal medium term planning range of 30 to 40 basis points of average loans. Next, costs grew by 7% in the first half on a target basis, but we remain on track to meet our guidance of 2024 cost growth of around 5%. Two percentage points of cost growth in the first half came from higher performance-related pay accrual and levies. As we explained at the first quarter, we have phased the accrual of our performance-related pay more evenly this year than last year. We do not expect the total amount of performance related pay for 2024 to be materially different to 2023. So the accrual in the second half is expected to be lower year on year. In addition, the second half of last year included $0.3 billion of levies that we do not expect to repeat this year. We are therefore reconfirming our guidance of around 5% cost growth for 2024 on a target basis, and we remain committed to cost discipline. On lending and deposits, there was positive loan growth in the quarter in both the UK and Asia, whilst Hong Kong was broadly stable. Overall, there were promising signs in the first half. Deposits were up 2% with the majority of this in Hong Kong. There was also growth in the UK, Europe, and the US, and the rest of Asia. But it also included the benefits of seasonality in commercial banking and a large one-off in global banking and markets. So I would encourage you not to annualize the 2% figure. Next, our CT1 ratio was 15% down 20 basis points on the first quarter as strong organic capital generation was offset by distributions in the form of dividends and share buybacks. We have announced a new share buyback of up to $3 billion, which we expect to complete within three months and to have an impact of around 0.4 percentage points on our CT1 ratio in the third quarter. Finally, to recap, our strong first half performance and our confidence about the bank's position enable us to provide new guidance for Medtine's return tangible equity excluding notable items for 2025 in addition to our existing Medtine's guidance for 2024, upgrade our 2024 banking NII guidance from at least $41 billion to around $43 billion, revise our 2024 ECL guidance to within our normal medium-term planning range of 30 to 40 basis points, and reconfirm our guidance for 24 cost growth of around 5% on the target basis and amid single-digit loan growth over the medium term. With that, Louise, can we please go to Q&A? Thank you.