Half Year 2020 HSBC Holdings PLC Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Investor and Analyst Conference calls the he just did see holdings plc <unk> interim chief.
She finds inside of GE for your information. This conference is being recorded at this time I will go live at your host Mr., No Quinn group Chief Executive.
Thank you Sir.
Good morning in London, and good afternoon in Hong Kong I'm. Thank you for joining us.
I've got you and with me today.
And he will present the numbers in detail before we then go to Cuba night.
Let me start by saying that he spent another difficult quota for our customers colleagues and communities.
But I have been pleased with I hate USBC has responded.
[noise], they still I, usually unpredictable environment.
We're conscious of that on both a humor and I financial level.
And we are doing all we can to supports our customers in colleagues through this very difficult period.
Against that backdrop, we are satisfied with our first half performance.
Our Asia business held up well.
Not all fixed income business is delivered strong revenue growth.
This compensated for challenges in parts of the world that have been hard hit by the impact of Cobiz 19.
The business is the performed less well all those we are already changing.
We will be acceleration on transformation in the second half of the year.
I'm, making other necessary changes in light of the new circumstances since February.
That's still a lot of uncertainty around.
Not at least from the ebb and flow with Covidien I'd say.
The steps needed to contain it.
Our improved capital position, an excellent funding and liquidity or the hallmarks of our strength and resilience.
Helping goes to be that for our customers. While also building the future the FA.
Our focus remains on helping our customers.
Through this immediate period.
While making the changes necessary to serve them better over the long term.
The current geopolitical environments, it's clearly complex.
Tensions between China, and the U.S. inevitably create challenging situations for an organization we saw footprints.
Puts our businesses in Asia have shown good resilience.
I will face any political challenges that arise with a focus on the long term needs of our customers and the best interests of our investors.
Turning to our second quarter performance.
Our raise your businesses continue to show good resilience contributing $3.6 billion of reported pre tax profit.
Global markets grew adjusted revenue by 55%.
Our profitability was most challenged in the businesses at the sense are about transformation.
Europe, the U.S. and the not a ring fenced bank.
Which were severely impacted by high expected credit losses.
Overall pretax profits of $1.1 billion onetime 82% on.
On adjusted profits with time, 57% on last year's second quarter.
He sells of 3.8 billion were up on the first quarter, reflecting updates it forward economic guidance in the UK in particular.
We've updated our twentytwenty range, but he sells which you and we'll talk about later.
The interest rate cuts made earlier in the year began to impact our revenue from March onwards.
We responded by pulling the cost leave us available to us reducing operating expenses by 7% compared with last year's second quarter.
We continue to attract significant deposits in the quarter.
I'm pleased to say, they're all capital ratio increased to 15%, providing a strong and resilience platform from which to serve our customers and manage the economic environment.
Turning to slide three.
The resilience of our Asia franchise continues to underpin our financial performance.
This was due to the quality and strength of our business and client list.
And so the speed and decisiveness of the coverage response.
Which allied many economies, so restart sooner than others.
The activity underpinning our Asia performance remains robust.
We've increased our trade finance market share.
Clients FX volumes are lower but relatively resilience.
On retail card transaction volumes recovered in June following Dick during the pandemic.
Adjusted revenues in individual markets have been broadly stable despite the economic slowdown.
In Asia lending is up 1% and deposits up 7% in the last 12 months.
First off expected credit losses of $1.8 billion in Asia included a large single name provision in Singapore in the first quarter.
Look into the second half.
Parts of Asia, and Hong Kong in particular have tightened cobiz restrictions in recent days.
They say something that we're all getting used to as Casey's rise and fall.
We are hopeful that the quick response of the authorities will contain any new way for APRA outbreak and minimize the impact.
Okay.
Looking at slide full.
We remain focused on helping our customers colleagues and communities through the pandemic with high operational resilience in the face of unprecedented volumes and customer interaction.
Around 94% of our branches are currently okay.
In all our customer contact centers have been fully operational through arrives.
We have now granted around $30 billion of debt relief for our personal lending customers.
Through more than 700000 payment holidays on loans credit cards and mortgages.
More than 172000 wholesale customers have received more than $52 billion of lending supple.
$33 billion of that through governments games, and $19 billion true HSBC backed lending.
We arranged more than 1.1 trillion dollars of loan debt and equity financing for wholesale customers in the first half.
Including more than $48 billion of social and Cove It falls.
We also retained our number one ranking for sustainable finance balls in a rapidly expanding market.
We've invested heavily in technology driving digital transformation, so connect more customers remotely.
An increase digital engagement during lunch.
Downloads of our HSBC net Motorola business.
We're up 157% on last year's first half.
The value of mobile payments in the second quarter was up more than 200% on the same period last year.
And digital wealth sales rose significantly year on year.
Up 44% in Singapore, 38% in Hong Kong, and 29% in mainland China.
The strength of our coverage response contributed to a sharp increase in customer satisfaction.
With double digit increases in several retail markets.
Of course satisfaction scores in trade and global liquidity and cash management.
I am global banking, a markets being voted nimble won stand that FX dealer.
For global corporates in the recent Greenwich buy side study.
Throughout all this we maintained exceptional balance sheet strength.
And strong funding and liquidity.
With a C one ratio of 15%.
And $133 billion, our first half deposit growth.
Turning to our transformation program.
Well, we slowed progress in some areas in response to the pandemic, we laid good ground work for the rest of the year.
And we'll be accelerating our plans in the second half.
We lifted the polls on redundancies in June and we'll be moving forward with those plans.
Hopefully, but purposefully.
We've already seen Orion 300 billion million dollars of cost savings in the first half.
With a further $500 million estimated in the second half from our transformation activities.
This is slightly below the $1 billion of transformation savings, we promise for this year.
Because of the pause on redundancies.
But we expect to make up the difference in Twentytwenty wall.
In the meantime.
We taken additional action on discretionary startup costs, and we expect to make many of those savings permanence.
On the rest of our transformation.
We've completed the combination of our BWM and global private banking and we're making strong progress in the back office integration of commercial banking and global banking.
As you've seen the areas of weakness in the second quarter, where the areas that were already committed to changing.
We confident that the actions we've identified in February other Reits actions to take.
But we're obviously looking at what more we need to do given the changed economic and monitoring environments.
We've created the structures to reduce our WH in global banking a markets.
Made a gross R.W. a reduction of $21 billion in GB nm in the first half of the year.
In the U.S. lower interest rates pose a challenge to our us retail strategy.
And that's something we're looking at.
But the U.S. business has already closed 80 branches and we're on track to reduce U.S. global markets arguably ways by around 45% by the year end.
In Europe, we simplified our management structure and have a new team in place so pushed through the transformation.
We remain committed to the Europe R.W. way reduction targets, we announced in February and we'll execute those plans in earnest as the economy starts to recover.
I want to finish by talking about one of the most exciting growth businesses and that's wealth.
In 2018, we set out a plan to capture the growing global wealth opportunity centered on Asia.
And we've been investing to grow that business ever since.
In the last 12 months, we've grown our jade and premier customer numbers by 6%.
And our wealth balances by 3%.
With around half of this growth coming in Asia.
In our asset management business, we've grown assets under management by 5%.
On private bank client assets by 4% over the same period.
In June we launched pinnacle.
Which is a new platform to significantly step up our wealth business in mainland China.
This allows customers to access a full suite of wealth services, including insurance.
In one place, which is unique for any Chinese wealth platform.
We are investing to bring our wealth capabilities to new customers in China, and we intend to grow the number of wealth planners in phases over the next four years.
The greater by area wealth management connect program, which was announced in June.
Only in Holland enhances the wealth opportunity.
And we're excited at the chance this gives us to serve more people in the region.
With that I'll pass over to you and to go through the numbers.
Thanks now all on good morning are up the nano.
Given the impact of Guy that 19, our second quarter was tough we hadn't 18% fall and reported profit before tax and the 57% drop and adjusted profit before tax.
There were a couple of bright spots fixed income and global markets with a standout together with a resilient performance by Hong Kong and other parts of our Asian franchise.
Overall, our results were heavily impacted by lower revenues from subdued customer activity in many parts of our business and that building effect of ultra low interest rates.
The second quarter in a row are very high Hcl and day $1.2 billion software intangible write off largely as a result at the week retailer and outlook for our known ring fence Bank.
Adjusted revenue was down 4%. This included a 507 million benefit and volatile items.
Which in part Ruggedized, whereas some of the negative impacts we saw from mark to market movements in the first quarter.
Sales were up on the face quarter, or 3.8 billion, EUR 148 basis points or grice lines.
With the largest impacts in the UK and commercial banking.
We've continued to take action on cost to adjust for the weekend revenue environment, our adjusted operating costs fell by 7% against the second quarter of last year.
Despite the weak macro environment, our balance sheet metrics continue to improve our core tier one ratio was up 40 basis points to 15% on the quarter.
And customer deposits grew by $85 billion.
Our first out return on tangible equity was 3.8%.
That's down from 11.2% for the same period last year.
And our tangible net asset asset value per share of $7 84 was down 10 cents on the face quarter genius placements are nine credit adjustments.
Turning to slide nine looking across the three global businesses and wealth and personal banking revenues were down 12%.
With retail banking revenues fall and by $809 million.
Gee largely to the impact of falling interest rates on liability spreads.
At a headline level wealth management revenues were broadly stable.
But excluding positive market impacts and insurance manufacturing down 17% due to lower sales volumes.
Commercial banking revenues were 14% lower.
Due mainly to the impact of lower margins on global liquidity and cash management.
And lower volumes and trade finance.
And global banking and markets revenues were up 24% global markets grew by $755 million.
Which we achieved while keeping traded value at risk broadly stable.
Thats included an excellent performance and our fixed income franchises.
Up 79%.
Principal investments revenue grew by $195 million, primarily due to the material reversal of the mark to market losses, we served on the first quarter.
And corporate Santo revenues were $90 million law with 157 million of adverse movements and valuation differences on our long term debt and associated swaps.
Just to remind you all that the second half easily sees lower revenues from noninterest income from noninterest income and global banking and markets and wealth.
And given the buoyant tribal markets revenues in the first half, we expect that seasonality to be more pronounced this year.
On slide 10, net interest income was $6.9 billion down 9% against the first quarter. The net interest margin was 133 basis points.
Down 21 basis points on the for first quarter of which 20 basis points came from the fall in interest rates.
Why we're beginning to see some modest asset repricing, we still expect recent interest rate caps, they have a negative impact of more than $3 billion, but twentytwenty.
With a further significant negative impact expected than 2021.
Turning to slide 11, adjusted operating costs were 7% lower than the second quarter in 2019, and down 5% and the fair SAP relative to the first half of 2019.
As a result, if they operational impact of Guy that 19 were spending less on certain discretionary cost line items.
We expect this delayed some permanent benefits in our cost structure relative to previous planning assumptions.
We are being disciplined on variable pay accrual in line with lower expected profits this year.
And Weve restarted the cost reduction program that we announced in February.
At the end of Jane headcount, including contractors was down 8300, and the last 12 months.
And down 3800 since the start of the year.
As we signaled that our first quarter results. We're now planning for full year 2020 costs to be below 2019 run right.
As you do your model and that operating costs for the second half. Please don't use the first half run rate as a guide.
Second quarter costs were low key to kind of at 19.
And we expect both a step up in investment in technology spending and the high UK Bank Levy due to strong growth in our deposit base.
On the next slide we saw a further substantially see our charge and the second quarter.
3.8 billion EUR 148 basis points of growth lines.
The point 3 billion of which was stage Brian on stage two charges.
This reflected extra forward economic outlook charges across all global businesses and regions.
Typically in respect of the UK and commercial banking.
UK expected credit losses were $1.1 billion higher than in the face quarter.
Reflecting the worsening economic outlook of which 900 million of age related to our UK ring fenced bank.
Stage three Hcl charges were broadly stable at around $1.5 billion in both the first and second quarters.
[noise], although as a first quarter did include a significant charge on a single nine corporate exposure in Singapore.
Recognizing that as generation and the economic outlook in the second quarter, we've updated our range for full year group expected credit losses to $8 billion to $13 billion.
Given the fair staff, Hcl, chad's or $6.9 billion.
Adding the current run rate of stage three losses for the second half gives a full year Hcl judge of around $10 billion.
The range either side of as broadly reflects our disclosed economic sensitivities.
The lower end reflects a pop closer to rock consensus central economic scenario.
Reflecting a strong economic rebound in 2021.
With some on unwinding of the economic adjustments taken to date.
The higher end of the range reflects upon flights as to our downside economic scenario.
With a much more muted economic rebound and Twentytwenty one.
Leading to further negative VCSEL adjustments for forward economic guidance and the second half.
I would caution that there is it remains a wide range or potential outcomes, including the risk that the upper end of the range might need to increase further.
And in that respect I would encourage you to read expected credit loss sensitivities in the interim report.
On slide 13, not core tier one ratio at the end of the second quarter was 15% that's up 40 basis points in the quarter.
Okay, Ron capital increased by $3.2 billion.
This reflected lower regulatory deductions for expected losses.
FX movements.
Fair value gains through other comprehensive income.
And the reduced for it and prudent valuation adjustment.
Our next slide risk weighted assets rise by $11.2 billion in the first half.
Or $33.2 billion, excluding FX movements.
This was mainly due to what $23.3 billion asset side movement, mostly were relating to face quarter lending growth.
And also at 16.8 billion dollar increase from changes in asset quality due to credit rating migration.
100 billion dollar Grace risk weighted asset reduction program is underway with $12 billion, if additional savings on global banking and markets and the second quarter.
We continue to expect credit.
Migration to Causata I inflation in the second half.
Partially offset by progress against our Grice RW or a reduction program.
So in summary, a difficult quarter overall, I see bright spots I hear resilience and our strong quarter for fixed income.
Overall, many parts of the business were hit by very high Seattle's and significant revenue pressures.
As we look out to the second half there remains considerable uncertainty.
The continuing impact of private 19, the ongoing Brexit negotiations.
And you asked John attention than any impact this has on a Hong Kong franchise.
As such it related to discuss distribution policy or medium term return targets.
And we don't expect to do so until our full year Twentytwenty results in February.
However were pleased that we face into this uncertainty whether strengthened core tier one ratio of 15%.
An extra $85 billion and customer deposits.
Can you vigor in managing our cost base.
And the benefit of a diversified portfolio of franchises globally.
No and I remain very committed to the plan we announced in February.
Namely material reduction in our WH, particularly focused on the us.
The non or and fans bank and global banking markets.
With a reallocation of capital towards our strongly performing Asian franchise.
A significant reduction on the operating cost base of the bank and the material reduction and the operating complexity of for the bank.
With that share on if we could please open up for questions.
Thank you Mr. Stevenson she'd like to ask your question today. Please press star one I know telephone keypad interest is time Youre limited to asking two questions. Lee. Please ensure that the meat solution on your telephone is switched off if you find your question has been on did you even need yourself from the key by pressing star team once again.
Good question. Please press star one season, so without the need function on your telephone is switched off.
Your first question. This morning comes from the line of Martin Leitgeb Goldman Sachs. Please go ahead. Your line is a pen.
Hi, good morning, and thank you very much for for the presentation and the remarks and.
My first question I was just wondering in terms of over there is not for revenue outlook, you're pointing out and just.
Just wondering what could potential offsets to the speed.
Hello.
No difference now how you think about that prospect. So some of this more than we did franchise as you have enough instruments. So obviously the.
At the beginning of the U.S. strategy data or could there be out offsets in terms of volume growth for even more pronounced login groups like in Ukraine, UK mortgage as little or maybe in changes in the way you charts for full outcomes would at its current becomes a corporate deposits in order to apply to mitigate some of those revenue headwinds.
The second question system computer.
In terms so.
Quote the one trajectory from here I was just wondering.
So most of the credit migration, you're guiding for us at the mid to high single digit other we inflation Dcs most of the integration liquidity Seattle could this also a go well into Twentytwenty, one and just trying to look at their numbers in the guidance here because it would.
Like giving you a impairment guidance that you are likely to remain well within that within the mid to upper range of your 41 target range. Thank you.
Okay. Martin. Thank you let me, let me do with some of the revenue offsets first and then as humans comment on that and the capital position.
With respect to all of US business, they actually had a very strong Q2.
In the us business say their revenue in Q2 of this year was the highest quarterly revenue since Q4 2017.
I'm also pleased with away them a Michael on the team have started to execute on the transformation plan.
I've already closed around 80 branches retail branches on the East Coast of America.
Which is around about a 50% reduction.
Being successful in retaining around about 85 cents to the deposit base, even though they've gone through that reduction program.
We're also what on track on the cost reduction plans as well.
Where they've already completed 50% to the plan Twentytwenty stuff exits.
On our on track to meet or exceed the goal we set them back in February of this year. So progress on the transformation, we clearly need to.
Understand the full economic impact to the lower interest rate environment.
But we committed to transforming our business and improving the returns.
On a broader basis on revenue, we're clearly look in a water other options we have to mitigate some of the revenue shortfall from lower interest rates.
And we see well.
And growth in our wealth businesses and an opportunity for that.
Wallace you into common more on that.
In detail, but.
Well, we're exploring all options to look at revenue mitigation.
And do you want to pickup on the on the capital coming.
Martin say on net interest income.
I think yeah, we are beginning to see some assets side repricing, particularly in Asia.
Relatively modest at this point, but we do you think there is an opportunity.
Secondly, we are seeing particularly in Hong Kong.
A changing mix back towards current accounts and away from Tim deposits, which again I think.
It's not unexpected given the rate environment.
Well help alleviate some of the pressure on liability margins.
Our noninterest income yeah, what we're saying at the moment is very subdued customer activity.
Which we attribute predominantly to the impacts of coated.
I would think coming into 21 equal and should expect to see some recovery in that customer activity.
Yes, where in some of the government related lending activity for example in the UK we've been taking.
More of a natural market share and we've taken Nevada, 15% share in the bounce back lines.
A 20% share in some of the other lendings games, which is well above our.
Natural market share and commercial.
Okay. Thank contained in the UK mortgage opportunity potentially will be relatively cautious there given the outlook for the UK economy, I think and until we get a better sense.
Direction of travel on Brexit.
On and the other area of where obviously, we can help offset revenue losses by doing a better job at costs and I think you saw this quarter.
Some progress on that.
It was an unusual quarter because of.
Hi, David and the fact that no one was flying.
A lot of our head offices were largely shutdown.
But we do think coming out of guy that there will be an opportunity to make permanent some of those shifts and business operations that were beginning to say.
On RW ways.
Yes, similar to easy hours, they should peak this year.
And therefore yield should begin to get a reversal and.
Ratings migration into 21, and then to 22 I would think.
Although it will lag I think the train zoning sales, but we definitely say a predominant theme in the second half of this year.
As paying additional ratings migration pressure.
Which is why we're still sticking with that R.W. Reich guidance of.
Mid to high single digit growth and RW rise this year.
Yeah, and tens of what that means for capital I think yes second half of this year, obviously, we don't expect on the profitability side.
We don't expect global markets to repeat they finished outperformance of just over 4 billion. They made.
2.6 billion in the second half of last year.
Yes.
The and also we've got the UK Bank Levy and we do think given the strength of deposit growth that we've seen that bank Levy my trained up rather than down first this year.
So we do you think that the balance of that and some additional add that Blu ray inflation will mean that core tier one should come down between here and the ended the year.
Yes, previously we've guided.
Pre caver that the full year results, we got to.
14 to 15, a range of 14% to 15% for our capital and wanting to be at the higher end of that range. During 2000, each renting one I think today, if we were just sort of repeat that.
We would be comfortable I think in a sort of 14% to 14.5% range rather than up towards 15.
Perfect leverage here. Thank you. Thank you very much.
Thank you Sir your next question comes from the liner.
Yeah.
Please go ahead.
Yes, hi, gentlemen, good money.
That's constantly.
Little color on the net interest income guidance.
Sort of greater than 3 billion.
Looking at the disclosure on page 87, the sensitivity analysis is being quite a big increase in rate sensitivity seen sort of near one end.
Good to impact and oversee rates at sort of move down pretty much across the board.
Has there been any change within that greater than 3 billion I mean from say, maybe just a bit greater to.
Significantly greater and.
Just looking into sort of Twentytwenty, one how constant can you be now that that will be to 12, yeah. So for net interest income I mean.
That's a little bit on I noticed in the past 2022 that would you be called the some recovery in volume and we.
Repricing should.
To offset the other negative impacts from the lights. Thanks.
[noise] yeah, so there's no.
There's no change I think in terms of.
Net interest income guidance for this yet you do you have to adjust for the shift in dollars.
FX movements.
The bought a mining caution caution around that is obviously high bore has come down a bit further.
In July relative to the end of Q2.
Yes that interest rate sensitivity is the interest rate sensitivity from here with lower interest right. So it has gone up because oh, yeah. The flooring effect on some of the liability product.
But that's of interest rate ship down from here.
I think.
Yeah, you roll and some books, obviously see accumulating effect as you can see and those interest rate sensitivity tables. So we do think there'll be another meaningful net interest income.
It.
In 2021 as we currently serve.
As you look past 22.
Checked a few days ago consensus views on policy rights with a they were broadly going to stay.
At current levels.
2021, 22 and begin to rise in 23.
Hi, Tom we got on to 22.
The unless you were a complete there that you would be saying sustained economic recovery.
Which means back to growing gliding books again.
Asset side repricing coming three more powerfully and therefore, yes, that's out of recovery in net interest income.
Yes, okay. Thank you I'm just.
A quick and second question. So just could you give us any.
Size of.
The scale of the and capsule benefits you flagged coming through in the second half of the from the software and any changes.
Material they may.
Yes, I mean that what the yet I mean, there's a whole bunch of things going on in the second half what were expecting sort of coal.
Asset growth to be relatively muted.
You've got some benefit from the I'd have to re run for a rundown program, which is continuing.
For me some modest benefit for net benefit from regulatory changes, although we have got some offset going the other way like ciaran.
In Europe.
And.
Yeah, the dominant theme I think away ratings migration.
But all of that has captured into the guidance of sort of mid two.
[noise] mid to high single digit WSE growth.
Yes software is.
Pertain to the software intangible is probably yes, no more than 20 basis points benefit to 41.
Hey.
Thanks, a lot.
Thank you. Your next question comes the line its access KBW. Please go ahead.
Yeah, good morning, everybody.
Two quick questions actually what one would just.
You can highlight significant absolutely clear what will what you're saying.
If I look at the implied second half from your from the current run rate. It looks like your second half that you like to get about 25 billion.
When you say from the press you into 2021 is that the pressure from the second half run rate or was that effect to be factoring in that that pressure you're seeing.
We expect see further price from here or are we at that right now and it's just to sort of annualizing effect, because we get into next year that you'll be looking to highlight I guess that's question number one.
And then the second question did you see could you talk a little bit more about all the to the U.S., China pressures that at the moment in particular, how you expect due to be able to implement the sanctions have you had chance that have yet we'll consider.
Feedback you're getting from Chinese authorities at sacrum, you seem to be in in a very invidious position no fault of you already know quite high.
But I guess would be very helpful. Just to get some sense, how you're thinking about that and how that might play out over the rest of the year. Thanks. So much.
[noise] you into ought to take first one on then I'll tell you I mean one.
Yes, you can get their various ways, but if you annualize the.
The second half as you set out I think is sort of broadly in the.
Ballpark or for you need to be.
Okay, that's great. Thanks.
On the U.S., China pressures as you will see from the first half results. We've had a very strong performance in our Asia business. So we.
We've had a particularly strong performance in China in the second quarter I think our profit in China in the second quarter was oak around about 29%.
We've seen strong deposit growth.
In our Asia business.
You on the deposit growth in Asia in the second half of the year was lower in Q2 $27 billion $1 billion. So we're not seeing any.
Material impact of any of any thought on all business performance in the second quarter rule.
This the first half.
From the U.S. John pressures.
And in respect to looking forward, we're still committed rig principally to supporting our customers in all of the geographies that they operated.
We believe there is still a strong role for an international bank.
In meeting the needs of our clients as they want to trade internationally or expand internationally and we're very focused on that and it's not reidel process for me to speculate on what might or might not happen with regard to sanctions.
[music].
So I come back to we've seen a very very strong performance in the first off this year from our business in Asia.
Yeah.
Okay. Thanks, so much.
Thank you Sir your next question comes in line to tie Stebbins Exane. Please go ahead. Your line is a pen.
Got it thanks.
And so let's don't go on a wells.
Hi, good quarter included insurance manufacturing, but we just last week it was down around about some 10% in the second quarter. Just wondering how should we be thinking that line going forward presume this call little disruption in that business, but I was hoping you may do as an improved investors I think so.
I'll give you our.
First response on that is clearly new business activity will be done.
From normal levels of new business activity. So you would've seen a rebound in the financial performance because the manufacturing part of the business had a clawback on some of the mark to market adjustments that were experienced in Q wall.
New business activity off selling wealth products would have been impacted in April and may, but we saw started to see a pickup in not activity in June.
So I think the.
That's what you would affect expected to have seen given the impact of coated.
Yeah, we've done we've seen some shifts supported by the regulators to be added shift some of that face to face business the ability to sell wealth product, but through digital channels.
But.
Yes, twentytwenty should be a trough year for wealth.
If you believe in an economic recovery into 21 so.
And then other things to watch for things like the reopening of the mainland China border with Hong Kong, which will obviously help as well.
Thank you and then.
This is just on post in the context of the headwinds, which we've already talked through obviously very good quarter down 7%.
So just the run rate could become a lot more than the targeted 3% plus you've called out that invest it seems a bit lower in Q2 Q2 19 was 60 elevated so just trying to gauge how much should we be tempering our enthusiasm relative to this incident, we saw in the second quarter. Thank you.
Yeah.
A few Tom in second quarter.
Yeah effectively.
Most of our workforce roughly 200000 out of the turn on 35000 employees were working from home.
No on was traveling office cost Central office costs were very low.
So I would just be cautious at using that as a guidance. In addition, marketing spend was materially down too because we took a very conscious decision to market last in the second quarter.
I would think it.
That offsetting that yeah, I said were planning to step up investment spend the best in the second half, we think bank Levy.
It's probably going to go up rather than down this year, so, yes, probably 3% to 4% down for the full year feels better than what you saw in the second quarter.
Okay very helpful. Thanks.
Thank you. Your next question comes the line of Monness Castello Autonomous. Please go ahead.
Hi, I don't think about hi.
A question about.
The retail business fuel big improvement in NPS, it's very impressive I wonder to what extent is the flipside of weaker returns for shareholders customers, obviously feel like they're getting a good deal and you mentioned this no but I wonder if you could give a bit more detailed how might you think about redressing that balance between customers and shareholders.
In the retail business going forward, such that you can boost shareholder returns and maybe spend some of the NPS improvement.
[laughter].
Yes. Thank you.
I'm really pleased with the NPS performance in both retail on the bank as a whole I think we look at that very much as opposed to.
I attribute it to two things are not is.
The quality of the supports our colleagues provided to customers in the in the first in the second half a quarter of this year.
Really responded amazingly well.
Lots of I reach to our clients to make sure they understood.
Whereas I stood on responded to their concerns.
Plus we've put in place some new digital support programs to make sure the.
We had regular dialog with them and they were able to transact. Despite the fact that we couldn't serves and face to face on I'd also point to the fact that we provided our customers, particularly in retail we circa 30 billion a payment policy support.
And all commercial or wholesale customers with a run about $2 billion of credit support in response to coded.
So I think those were the right things to do.
And I believe supporting clients at a time a stress is a good thing for any bank to.
In terms of translating that into higher returns for the future. We're clearly look into extend the use of digital and lower the cost to serve.
We're looking to increase further our penetration of the wealth market, particularly in Asia.
To diversify our revenue stream away from fuel and I am all NIM and into and if I sources of revenue.
And we believes our opportunity to grow wealth in China is strong on all wells in the rest of Asia is strong im not can lead to higher returns. We're also looking to improve the returns in our retail business by taking down our cost base.
Yeah, Matt Us I wasn't.
Thank the too.
Inconsistent and the slightest improved MPS, where we had the highest MPS scores that typically correlate with digital distribution.
And digital distribution as you know.
Yeah.
Is lower cost assists in physical distribution say.
Actually I've got that improvement in NPS is as excellent.
And reflect a lot of a work that Charlie not in the same the main putting into improving the quality of the digital offering we've gone out and you saw in the slide that no put out Bailey.
One of one of the outcomes of cave. It has been a very rapid acceleration in some cases by several years in terms of digital engagement from our customer base.
Yeah, that's by good for MPS, but I always say should be good over the medium term and how we can adjust and accelerate our cost structure.
So it'll be more a question of.
As you say the cost structure, rather than thinking about changing fee structures or anything to help improve the topline it'll be about.
I think it's a combination I think is adjusting to the new revenue realities of today's world plus continued focus on cost.
Continued focus on providing good quality service, it's a combination of those three things together I mean, the thing that we're gonna have to think about on a.
Revenue man answers just in an environment of ultra low interest rates, where you're not earning a return on your liability product.
Yes, do we need to think about adjusting some of the cost structure, two or more feedback cost structure, but what sort of early into that thinking.
That's what I was driving okay. Other put the remote thank you.
Thank you Sir your next question comes from Sod Kumar, let Dan. Please go ahead.
Good morning, Thanks for taking my questions.
A couple of questions that starts one.
Just back when I think I heard you say the source of 20 run rate if you annualize that those broadly correct.
I was I understand why that's the case highball looks like just on what we've done a 100 basis points on this.
First half versus what is where it is right now so how does.
How does to age 20, Eni holdups, so weldments states.
Hi, Bill could be down to the extent.
I'm a second question.
Was just on the U.S. China situation.
I appreciate smart people questioned the also but could you give us a sense of how you think post foods, you might be impacted and where your biggest concerns all that's when you think about the comments.
So.
Always coming up between China, and the U.S. well what it looking at your numbers I. Appreciate you said to pull that got good strong, but looking forward, where do you see the potential with.
To your cost see.
Got it stops in key countries. Thanks.
[noise] you enjoying a new theater.
We had always assumed that high ball was going to normalize towards.
Dollar interest rates and the second half.
That might be the disconnect and.
Youre modeling.
Yes, I don't have the benefit of your model, but I think what we said is broadly trees.
In terms of the previous answer to the other question.
Okay, great. Thanks, a lot simpler you sorry, you don't have absolutely no let's call up I think your sensitivities are about 30% increase in terms of the year to impact on Eni versus the year, one impact it's not a decent kind of way to think about the cumulative hit two year to and or is there anything can mitigate that.
Got a sizable increase.
Yeah.
But I think as you think about that interest rate sensitive a its interest rate sensitivity from here.
Hey that we've already had the first half impact on rights site.
It's not a clean read across I think so.
Careful about how you interpret that interest rate sensitivity because it's from here rather than where it was at the start of the year.
Thank you.
On your second point I think there.
I'm not going to get into speculation on what actions may or may not be taken between restrictive covenants are slow my role to do that the other day on the bank a lot of.
Any color Mystore politician, but clearly there are potential impacts on general economic confidence from any form of trade tensions and that will have an impact on all financial institutions.
Clearly there is the potential for change in supply chains.
And now over 155 years, we see many changes to supply chain activity over that time, and we'll continue to respond to anything that comes our way going forward.
We absolutely believe strongly in the strengths of the peg. So we do not see that as a.
A viable risk we believe the peg is strong and is well supported and see no risk to that.
Clearly there are the potential for sanctions against individuals or entities, but again I'm not going to speculate whether they will all while hospital if they do what impact it may have vessel my place to do so.
I think so we only saw returned back to if you look at the first six months performance is being mainly impacted by Covidien has not been significantly will materially impacted by.
Political tensions with geopolitics most of the impacts in the first six months is cobot related.
Okay. Thank you, but just.
Thank you. Your next question comes the line of Rob Naval Deutsche Bank. Please go ahead.
[noise] morning ordering.
Just a clarification on.
You have any more excess expected loss within wise any excess expected loss deducted in capsule anymore is that will go on and just to rebuild that as we go forward into 2020 to 23 whenever it is.
Thanks [noise].
Yeah, we've got some disclosure I think at the back of the slide back on that so just trying to find it but it isn't our slide pack and if not I can get I add a follow up again.
Alright, thank you.
Okay. Thanks next question.
Thank you all final question is from Joe Dickerson from Jefferies. Please go ahead.
Hi, just a quick one so you take this extra charge provision charge in the UK and noted the downside risks to be it to me and I think you've made some similar comments at Q1 about the relative weakness in the UK can you Didnt help me square the circle, if I look at your mortgage.
I would say they are up 6% year on year in the ring fence bank, which is like to like the industry.
Growth can you just square the circle between the two views and whether or not you feel like you're being appropriately paid for this where it's got the vendor caution around the UK. Thanks.
Yes, I think.
Yeah were concerned about credit in the UK I think is more on the commercial side in the retail side of the mortgage book If you look at the.
Average LTV of new lending.
Look at where their book is overall in terms of they average LTV.
You look at a returns that were still generating out of that business I think we're getting adequately and more than adequately compensated for a downside risks and mortgages concerning the debt.
Credit card spending has declined markedly.
Over the last few months as a result recovered and.
I think folks have been using things like mortgage relief to pay down consumer debt.
Sorry.
Consumer balances a fall and as a result of that and day for last for us to each else. It's really on the commercial side that I think we've got more sensitivity and you can say data and.
You can see data and the overall level of commercial provisions commercially Seattles, which are the 2 billion in the quarter relative to retail.
That's what I think the Jvs are inconsistent the toll our sweet spot on mortgage lending is typically prime mortgage lending, where we where we think we are running relatively low risk and getting adequately compensated.
They are going outside you can.
Look at the stress characteristics of our portfolios in the bank of England HCS results. What you see there is.
Relatively strong outperformance in retail Alan.
Still outperforming in wholesale versus unique ideas.
That's very helpful. Thank you.
Thank you.
Final question comes in the line of I'm honored by car Barclays. Please go ahead.
Morning.
Good morning going in.
Just just actually my this is a couple other than it's been addressed it to two follow up questions.
So I see no no comment on the dividend can I ask if.
And.
If you came in at the top individually shale go items that I mean, there is a chance that you make.
Very very little profits. This year, I mean, you could potentially even difference being lossmaking.
Interested if if if you if your best guess at the moment was as to whether that May preclude you from resuming a dividend.
Thanks I. Appreciate if you were in details, making or do you think this don't have to wins out and then secondly, just on restructuring I mean is it the right read from the tone of everything today is you clearly face it much weaker revenue than usual in February and it sounds like you are doing the work on.
Some additional restructuring you will see not provided a new targets in terms of save cost saves are all w. age but.
Is it right to assume that the what is happening in the background, we perhaps just not ready to announce something.
What would you think I'm just getting a little ahead of myself. Thank you.
[noise], let me deal with the second one first I mean, we're clearly committed to delivering on the cost reduction program that we identified in February.
We also need to reflect the fact will respond to the factor. The revenue is softer not as any was in February I mean, looking what additional measures we need to take so you're right to say that we're looking.
One other additional actions we can take on revenue all costs for capital.
To improve the returns.
But we'll with will.
Don't know details talk through on that at this point in time.
And we have to see how koby develops over the next.
Quarter over two quarters to determine how how enduring this revenue position on cost positions going to be.
But we committed to delivering that which we said in February and looking at additional elections as required.
You win on the first point.
Yeah. So maybe just a couple of other things on I mean kind of it clearly does open up I think.
Some opportunity and time will tell how permit on some other says, but we talked earlier about the fact that we've seen a substantial acceleration and digital engagement from our customers.
I think that will allow us to think more.
More carefully over the medium term about some of our assumptions around the mix between physical and.
Digital distribution.
And also how we work announcing seek to go back to where because of workforce.
That means for our commercial real estate portfolio, what that means for the previous assumptions on traveling et cetera.
Again, I think I did the medium Chan Qiagen has opened up a unique opportunity for us to rethink how how we engage them where because of workforce.
But it's no say that's too early to sort of model that out for you at the moment I suspect for the time, we get to full year results will be out to be.
More folks and then what we can say around that.
On dividend.
I think it's always say, yes, I used to ends at the Hcl range I think signal different things the high end of the range.
Mange that you're facing and say probably other line items being severely impacted because you've got a more meaningful economic recession going on.
And a much more muted recovery into Twentytwenty, one you're also going to see much greater levels of our Wi inflation.
So it's not just the impact on profitability itself or the impact on our WH, which means you're quoting one's going to be under a lot more pressure.
At that.
And at the other end of the range.
Yeah, you're facing a much more benign stronger recovery into 21 out of there I'm migration will be a lot less and you've got a lot more confidence I thinking about the outlook for 21 on 22 at that point.
So it's sort of speculative my then yeah, we don't know they.
We think we're going to learn a lot by next six months on that.
Both and change the impact of second and say it weighs on various economies around the world.
And the likelihood of an effective vaccine in 21.
We'll now where we are in relation to Brexit.
We'll have had.
And now about six months on geopolitics, and I think and have a much better grounded view on.
Walks of any impact that's happening on our business, particularly Hong Kong.
And that's why we sort of push that discussion on dividends to full year results, but that we clearly understand the importance offered to the equity story, we clearly want to return to.
Making distributions again as soon as we can.
We don't want to come out with definitive statements until we've got more clarity on the economic outlook where fashion.
Alright, Thank you very much base.
Thank you.
Thank you I will now have bought for closing remarks.
So thank you so much for joining us today and it was good talking to you.
Thank you, ladies and gentlemen that concludes the cools the hates Sbcs Holdings plc interim results 2020, you may now disconnect.
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No.
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