HSBC Holdings, plc.

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 George L. Hedery, Group CEO.

Welcome everyone. Thank you for joining us. As we celebrate the year of the horse Kung Hei Fat Choy, Our 2025 full-year performance was strong. It was a year in which we performed, transformed, and invested for growth. I will discuss our strong strategic progress today. First, the strong momentum in our 2025 performance. Second, the execution of our three 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, 2027 and 2028. 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. 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 the target basis in 2025, in line with our cost targets. Second, we delivered strong growth. Our deposit balances grew 5% with deposit growth in each of our four businesses. Our deposit base is a core strength. It contributes the lion's share of our banking NII. We also grew fee and other income. 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 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 75 cents, 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 four core complementary businesses. Two home market businesses, UK and Hong Kong, and two international network businesses, Corporate 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 strong foundation for future growth. We are focused on three 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 re-engineering to reduce complexity and cost. Structure and strategy are now aligned. Accountability is sharpened and roles deduplicated. In 2025, we reduce 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, six months ahead of plan. We are also making positive progress with the reallocation of circa $1.5 billion from non-strategic 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 in 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 non-strategic applications. And we are re-engineering whilst focusing on resilience and risk management. Next, priority number two, drive customer centricity. Our four businesses are built on customer trust. Our investments to improve customer proposition and experience are yielding results. Net promoter scores have improved or remain 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 UK 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 number three investing to deliver focused sustainable growth our hong kong home market is a dynamic economy a top three global financial center and the 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 an 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 an Asia-Middle East powerhouse. Asia and the Middle East are increasingly central to global trade and capital flows. Global trade is being rewired. 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 axis 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 are also using frictionless tokenized deposits and payments in four markets, including the UK, with more to follow. And we are pioneering the future of finance. Last month, the UK Treasury selected HSBC's distributed ledger technology as its preferred platform for its UK Digital Guild pilot. Next, our people in technology. We see innovation and culture as 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 re-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. A 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, 2027 and 2028. 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, George. 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% 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 health for sale balances. Fulia 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 capital generation and expectation not to initiate any further buybacks for up to three-quarters of following October's announcement of our intention to privatize Hang Seng Bank. As George said, this strong performance allows us to announce ordinary dividends for the year of 75 cents per share, an increase of 14% on the prior year. Turning to our business segment performance. We grew full-year revenue by 5% to $71 billion. Each of our four 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 one consumption. The removal of the capital inefficiency is around a quarter 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 pre-tax 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 dollars enabled by the privatization. Then on the right of the slide, we see good growth in Hong Kong in the years ahead. Having two 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 advance 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 four 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 funding 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. Our 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 timeline of $1 billion by the year rent 2025. On a realized basis, we have taken $0.6 billion of the simplification 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 four businesses. Loans increased by $5 billion. The UK was again the standout with another quarter of growth in mortgages and commercial lending. Our UK business is well positioned to support growth in the UK 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 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 three 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 our normal buyback considerations. Let's next turn to the full year performance. 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 75 cents per share, or $12.9 billion. Let's briefly return to the new targets George 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 $0.3 $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 $1.5 $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. Alistair.