HSBC Holdings, plc.

Welcome, ladies and gentlemen, to the Analyst and Investor webinar on the 2025 interim results for HSBC Holdings PLC. For your information, this webinar is being recorded. I will now hand over to George Elhaderi, Group CEO.

Welcome all to today's call. I'm joined by Pam. Before Pam takes you through the second quota numbers, I will cover three items. Our first half performance, the external environment, and the progress we're making against the targets we set out. Turning to our performance, the momentum we saw in the first quarter continued into the second quarter. Our half-year performance was strong. Excluding notable items, revenue in the first half grew 6% to $35.4 billion. Profit before tax was 5% higher than at $18.9 billion. On the same basis, annualized return on tangible equity was 18.2%, up 1.2% year-on-year. Our four businesses sustained momentum in their earnings. In our Hong Kong home market business, we attracted 100,000 new-to-bank customers every month this year on average. reflecting strong customer growth and solid deposit inflows. In our UK home market business, our loan book grew by $6 billion over the quarter on a constant currency basis. We were particularly encouraged by signs of recovery in lending growth and commercial banking, with loans growing by $3.5 billion on the same basis. We grew fees and other income in both wealth and wholesale transaction banking. For the second quarter, we announced a $0.10 dividend per share alongside a share buyback of up to $3 billion. This brings total shareholder distributions in respect of the half-year to $9.5 billion. Turning to the external environment, we entered this period of uncertainty from a position of strength. In this complex environment, customers are looking for a trusted financial partner. Our differentiated strengths are clear. First, our hallmark financial strength, underpinned by a strong balance sheet and high-quality credit portfolio, has helped us deepen our customer relationships and grow deposits by $83 billion from the same period last year. This is after adding back balances held for sale. Our $1.7 trillion deposit base drives the lion's share of our banking NII. Despite high-bore headwinds, other tailwinds have allowed us to reiterate our full-year banking NII guidance of around $42 billion. In Hong Kong commercial real estate, while some short-term challenges remain, we are confident in the overall credit quality of the book. Second, our long-standing experience of facilitating financial flows globally and our international network, especially across the world's fastest-growing trade and investment routes. We delivered 5% growth in wholesale transaction banking, fee and other income in the second quarter. Our trade, fees and other income grew by 4%. reflecting our leading position across fast-growing intra-regional trade corridors, as well as our continued investments in services trade sector. We have 5,000 trade specialists in more than 50 markets, operating on both sides of trade floors. They bring significant expertise and real-time insight to our customers. Third, we are seeing continued momentum in our wealth business, we are ideally placed to capture the increasing number of affluent and high net worth customers in the fastest growing wealth markets in Asia and the Middle East, where we are investing at scale. Turning next to the progress we are making against our organizational simplification targets. As set out in February, this initiative is meant to make the group simple and more agile. cost efficiency is one of the benefits. We are on track to deliver the circa $1.5 billion of simplification saves by the end of 2026. To remind you, these are primarily through the deduplication of roles and will have no meaningful impact on revenue. The saves will be taken straight to the bottom line, $0.4 billion of which will be in the P&L in 2025, revised upwards from $0.3 billion. And the full $1.5 billion will be fully realized in 2027. Pam will go into more details. Turning to the progress we're making in our exit of non-strategic activities. We are progressing at pace. We have rigorously reviewed our portfolio against our strategic priorities. Since the first quarter results, we have announced the sale of our business in Uruguay UK life insurance subsidiary, German custody business and German fund administration business, our stake in Grupo Galicia, and our French portfolio of home and other loans retained following the disposal of our retail operations in France. While Asia is at the heart of our growth strategy, we want to provide clarity on our footprint in Asia. Earlier this year, we commenced a targeted strategic review of our retail business in four markets in Asia. Three of these reviews, Australia, Indonesia, and Sri Lanka, are ongoing. No decisions have been made yet. The fourth in Bangladesh has completed, and we will start to wind down the retail business there in the second half of this year. To be clear, our CIB business, our corporate institutional banking business, is unaffected by these reviews, and all four markets remain critical to our international network for CIB customers. Costs released from the exits of our non-strategic activities will be invested in our priority growth areas. These are areas where we have clear competitive advantage and can generate accretive returns. Let's turn to them now. We are investing with intent. In our home markets, we said we would expand the number of wealth centers and enhance our wealth capabilities. In Hong Kong, which is said to become the world's leading cross-border wealth hub, we have opened one new state-of-the-art wealth center with two more opening in the coming month. In the UK, we have opened our first wealth center in London, and reduce the threshold for wealth investments. We have also relaunched our premier wealth brand targeting mass affluent customers. In the UK also, our improved coverage model for SME banking is bringing our relationship managers closer to customers. This is reflected in our Trustpilot score, which has improved to a four-star ranking. In CIB, We launched HSBC TradePay for import duties, a targeted financing solution for our US customers, which simplifies the payment of import duties whilst helping them optimize working capital. We have also launched HSBC tokenized deposit services in Hong Kong and Singapore, with the UK and Luxembourg expected to launch in September and the US UAE and other markets in 2026. These next-generation programmable cross-border payments move money in real-time, always-on, way across our network. They are a step towards our ambition of delivering global instant cross-border payments. We have also enhanced our payment tracking solution, which now provides a global view of payment status, improving our client experience. In IWPB, we have opened 13 dedicated wealth centers, including in mainland China, Singapore, and Malaysia. We have also refreshed our premier banking proposition, which will launch in the UAE, India, Malaysia, and the US in the second half of this year. In the UAE, which is home to more than 200 nationalities, we have simplified our onboarding process for certain customers to open a bank account before they relocate into the UAE. Each of these will drive customer acquisition, deepen wealth penetration, grow our share of mandates, and enable us to capture greater share of corridor flows. Finally, we are modernizing the bank through AI, GenAI, and automation. We are improving our technology productivity with coding assistance. Today, more than 20,000 engineers are 15% more efficient in coding because of our new tools. GenAI is being used across five CIB markets to bring process efficiency to our credit analysis write-ups. We're also focused on improving customer service through AI-supported mobile apps and strengthened contact center capabilities. The key message is we have continued ramping up investments in these areas. Further momentum will build as our exits complete, releasing investment capacity to redeploy into our priority growth areas in line with our disciplined cost and capital allocation framework. In summary, we enter this uncertain macroeconomic environment from a position of distinctive strength, underpinned by our hallmark financial strength, our global connectivity and our expertise. We remain well positioned to support our customers as their trusted financial partner. We have strong momentum in our business and are well positioned for growth. We are investing for growth and we are delivering growth. And we are executing our strategy with discipline and at pace. The positive progress we're making gives us confidence in our ability to deliver our targets. We reaffirm our mid-teens return on tangible equity guidance, excluding notable items, for each of 2025, 26, and 27. Let me now hand over to Pat. Thank you.

Thank you, George. Thank you, everyone, for joining. At Fuller, I said we would focus on three things. Discipline in the way we prioritize and maintain strong cost control while ensuring investment rigor for growth. Performance in the way we gear our financial strategy towards achieving our mid-teens returns target. delivery in the way we enhance operating leverage and support our customers. The second quarter numbers show discipline, performance and delivery across the bank. Let's turn to the details. First, the income statement. I'll be excluding notable items of $2.8 billion this quarter from my performance commentary. Of the $2.8 billion, 2.1 are related to Bank of Communications. $1.1 billion of this results from its share issuance, which diluted our interest to 16%. It is booked in other operating income as flagged in the first quarter. The balance, a $1 billion impairment, is booked in associates. A separate $0.7 billion relates to restructuring and other charges, which are in the cost line. Slide 22 sets these figures out. Annualized return on tangible equity, ROTI, was 17.7% in the second quarter. Revenue grew 5% year-on-year to $17.7 billion. This was driven by fee and other income. Profit before tax was $9.2 billion stable year-on-year. we have revised our full year ECL guidance to around 40 basis points from 30 to 40 basis points. The increase in the second quarter ECL partly relates to Hong Kong commercial real estate, which I will discuss further. We remain on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Looking at capital and distributions, our CET1 capital ratio was 14.6%. We have announced a second interim dividend of 10 cents per share, alongside a new share buyback of up to $3 billion. we have now reduced our share count by 13% since the first quarter of 2023. As always, a decision on future share buybacks will be made on a quarterly basis and depends on organic capital generation and the capital needs of the business. The 50% dividend payout is at the top of our capital use hierarchy. Then we look to grow the business, where we see significant opportunities over time. We then absorb other capital demands that emerge. The buyback is the flexible, residual means of capital distribution. Let's now turn to our business segment performance. our four businesses performed strongly, with revenue growing in each. Each one is making mid-teens roti or better. In Hong Kong, we attracted a further 300,000 new-to-bank customers in the second quarter, representing 600,000 for the first half. We also grew deposits by 9% over the last 12 months on a constant currency basis. In our UK business, our loan book grew by 4% year on year on the same basis, with mortgages and commercial lending standing out. Since we relaunched our UK Premier Proposition earlier this year, we have seen our average weekly customer acquisition more than doubled. In IWPB, fee and other income grew 21% year on year. Across our wealth businesses, fee and other income grew in the second quarter by 22%. Across these wealth businesses, we attracted net new invested assets of $22 billion in the quarter, with $11 billion booked in Asia. For the last 12 months, net new invested assets were $75 billion. In wholesale transaction banking, we grew fee and other income by 5% on a constant currency basis year on year given market volatility. Moving to the group revenue story. Revenue grew 5% year on year to $17.7 billion. This was driven by fee and other income, which I'll discuss further in a moment. On banking NII, banking NII remained broadly stable on the first quarter, reflecting lower interest rates, partly offset by the repricing of the structural hedge. Our structural hedge, now $578 billion, has reduced the sensitivity of our revenues to interest rate cuts. Regarding high wall, As a reminder, under the linked exchange rate system, the Hong Kong dollar is maintained within a trading band via the HKME's commitment to buy or sell Hong Kong dollars when the exchange rate hits either the strong side or weak side of the band. During the second quarter, we saw market-driven interventions after the Hong Kong dollar appreciated to the strong side, which added liquidity to the market and led to a notable drop in Hibo rates. Forward market indicators suggest that the one-month Hibo is expected to rise gradually back above 2% during the third quarter. We remain confident in the prospects for our business and in the outlook for Hong Kong. Slide 24 in the appendix sets out more detail around Hong Kong dollar sensitivity. We still expect banking and I.I. of around $42 billion in 2025. Within this, lower highball is a headwind, A weaker dollar is a tailwind. There are many other moving parts. Moving to fee and other income. As I mentioned, wholesale transaction banking grew 5% year on year. This reflects how closely we have been working with our customers to adapt to a changing operating environment. We are pleased this translated into strong revenue. Growth was driven by a strong FX performance, up 7%, capturing elevated client activity due to market volatility and geopolitical events. Global trade solutions increased 4%, driven by guarantees as we supported customers to build out infrastructure and expand production facilities. Security services was up 3%, due to higher asset balances as a result of improved valuations and new customer mandates, particularly in Asia and the Middle East. Global payment solutions increased 1%, including higher volumes in cross-border and real-time payments. In wealth, Fee and other income increased 22% year on year with growth across all products. This represents our sixth consecutive quarter of double-digit fee growth as the strong momentum from the first quarter continued in the second quarter. We also benefited from higher customer activity levels in Asia, particularly in Hong Kong, where the stronger stock market drove greater customer activity. The investments we are making in our wealth business are translating into results. $22 billion of net new invested assets, $11 billion of which were in Asia, $13.5 billion CSM balance, a new record. Wealth invested assets are now $1.4 trillion, up 12% year on year. Our $75 billion of net new invested assets over the last 12 months show that while an element of our second quarter performance was transactional, there are many positive drivers of our business. On credit, our second quarter ECL charge was $1.1 billion. This includes some corporate impairments in the UK and US, Mexico retail, and an ECL charge for Hong Kong commercial real estate. A part of this quarter's Hong Kong ECL reflects commercial real estate model updates and adjustments. The balance reflects what is still a weak commercial real estate market. Office rents are still declining somewhat. Office and retail values are softening. Slide 25 in the appendix provides more detail on the portfolio. Challenges are concentrated in the secured portfolio, particularly with retail and office property collateral issues. Credit migration in the first half was predominantly in this book. We are now guiding to a group ECL charge of around 40 basis points for the full year 2025. This new guidance includes our updated outlook on Hong Kong commercial real estate. On costs. We are taking a disciplined approach to cost management and are on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. We are also on track to deliver $0.4 billion of simplification savings into the P&L in 2025. This is an improvement compared to our previous expectation of $0.3 billion. Overall, in the first half, we have taken actions that deliver $0.7 billion of future cost saves. In 2025, we expect to have taken actions that will result in saves of $1 billion. In 2027, the full $1.5 billion of cost saves will be in the P&L. As George highlighted, we are also making positive progress in our reallocation efforts. We have announced seven exits since the first quarter. As we exit non-strategic activities, we will be accelerating investment into our four businesses. George set out earlier the progress we are already making. On loans and deposits, the loan book was broadly stable with growth in the U.K., Deposits, a structural source of strength for us, were up 5% or $83 billion over the last 12 months, adjusting for the balances we have reclassified to help for sale, notably relating to our custody business in Germany in the second quarter. When combined with the $75 billion of net new invested assets over the same period, these show potential drivers of future income. Turning to capital, our CET1 ratio was 14.6%. Overall, we have delivered a good capital number this quarter, even with the capital consumptions. we have accrued 39 cents of dividends per share in the first half against the 20 cents per share announced year-to-date. We expect the $3 billion buyback we announced today to have an impact of around 0.4 percentage points. In summary, Our second quarter results show discipline, performance and delivery. Discipline in the way we are applying strong cost control. We are on track 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 are also progressing at pace with our exit of non-strategic activities and are redeploying into priority growth areas. Performance in our earnings. Each of our four businesses is growing revenue and each one is making mid-teens roti or better. Delivery. These second quarter results show the way in which we are supporting our customers. Our 5% revenue growth and 17.7% ROTI show we are delivering against the targets we set out to you. Louise, can we go to Q&A, please?