HSBC Holdings, plc.

Welcome to the analyst and investor presentation for HSBC Holding 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, 2027 and 2028. Let's turn straight to performance. My comments here will exclude notable 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 19 billion US dollars. We generated profit before tax of 10.3 billion US dollars, 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 46 billion US dollars and grew our loans by 20 billion US dollars. 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 US$129 billion, or 8%, including health for sale balances. Our deposit base stands at US$1.8 trillion. We grew loans $55 billion or 6% year-on-year on the same basis. We see improved demand in Hong Kong and consistent strong growth in the UK. 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 10 cent quarterly interim dividend per share, 20 cents for the first half. and we are restarting share buybacks with the up to 1 billion US dollar 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 number one. To unlock HSBC's full potential, we have been re-engineering 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 $2 billion. We originally set out to deliver $1.5 billion of annualized saves. We have now exceeded this target, reaching $1.7 billion of actioned saves. We have achieved this with associated restructuring costs of US$1.4 billion, lower than originally expected. We are now planning to use the full US$1.8 billion of restructuring costs as per our initial commitment to increase total organizational simplification saves to US$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 non-strategic 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 remains subject to relevant regulatory and other approvals. In 2026, we plan to have reallocated US$0.3 billion of this US$1.5 billion. Fifth, streamlining and upgrading our operating model. This is where we are simplifying the bank at scale. It will be a multi-year journey comprised of two sets of initiatives. The first one, demise of non-strategic infrastructure, and the second one, process re-engineering. In the first half, we demised another 20% of the total non-strategic application reduction plan we set to deliver between 2025 and 2028. We have now demised a total of circa 50% of the apps we plan to demise by 2028. On process re-engineering, 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 number two and three. 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 three global financial centre 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 US$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. We continue investing to strengthen our market share. Next, the UK. Taking our full footprint in the UK, we are the UK's leading international bank. We delivered strong lending growth of US$10 billion in commercial banking, an increase of 10%, and US$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 UK is a key contributor to our global loan growth and we are pleased to be supporting the UK's growth as the UK's leading international bank. Next, our wealth franchise. We are Asia's number one wealth manager with 1.1 trillion US dollars of wealth balances. This deeply rooted, full-service franchise is performing strongly Revenue generated globally from wealth relationships account for around a quarter of our group revenues. In the first half, we generated global net new money of 64 billion US dollars. In Asia, we generated net new money of 57 billion US dollars, representing 32% growth year on year. We saw continued momentum in wealth, fee and other income growth for the half year, increasing 18% to $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 and 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 UK, 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 increase 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 trades up 7% reflecting resilient client trade flows. CIB is performing well and its first half annualised ROTI 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, George. 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 0.2 billion US dollars this quarter. These are set out on slide 30. The comparisons I will make will be ear on ear 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 19 billion US dollars. 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 10.3 billion US dollars. 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 US$20 billion of loan growth. We are pleased to reinstate buybacks with up to US$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% 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 US$0.8 billion year on year to US$11.6 billion. Quarter-on-quarter growth was US$0.4 billion, including US$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 US$46 billion. This reflects growing both sides of the balance sheet and the continued favorable interest rate outlook. Next, wholesale transaction banking. On 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. Crade 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 2.8 billion US dollars. 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 25 billion US dollars, of which 22 billion US dollars came from Asia. And you will see on slide 31 that there has been no slowdown in our Hong Kong new-to-bank non-resident 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 US$1.1 billion, equivalent to an annualized charge of 41 basis points as a percentage of loans and advances. We reiterate our full year 26 credit guidance of around 45 basis points. This quarter includes additional Stage 3 charges, of which US$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 UK 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. Should 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 US$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 2027 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 15 business or market exits since 2025. Slide 28 sets out our progress clearly. Next, to customer deposits and loans. Our deposit franchise increased by US$46 billion in the quarter. This elevated growth to 8% year on year. CIB deposits increased US$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 9 billion US dollars and the UK by 3 billion US dollars, reflecting commercial and retail inflows. You see a $7 billion US dollar outflow. In IWPB, there is a move of balances to help for sale and we saw private bank deposits flow into investments. At quarter one, 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 20 billion US dollars in the quarter. In the UK, 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 UK 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 UK. 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 an up to US$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 US$46 billion and we are raising our targeted organizational simplification saves to US$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 non-strategic 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.