Full Year 2020 HSBC Holdings PLC Earnings Call

Okay.

[music].

Good morning to everybody.

And good afternoon to everybody and alcohol.

We have two objectives today.

The first is to take you through our Q4 and full year results for 2020.

On the second is to update you on progress against the change agenda, we shared with you last February.

And the additional actions we are taken to deliver returns above the cost of capital.

I'll start with a few reflections on the year just gone.

Ewen will then take you through our full year and fourth quarter results.

And myself, Peter Wong no no not for us John Hinshaw, well share details of our future plan.

You were more than returns to cover the financial implications of that plan.

Let me start with 2020.

First and most importantly, our people provided amazing support to our customers.

On the communities we serve throughout the world.

We provided more than $52 billion of wholesale lending support through government schemes of Moratoria.

More than $26 billion of additional relief for Penn.

From customers.

For more than 1.9 trillion dollars of loan debt.

Equity support for our wholesale customers.

However, the numbers don't do justice to the efforts and energies that went into delivering them.

My colleagues acted with great purpose on a global scale.

It broke down silos.

And they delivered repeatedly.

The topics for the circumstances.

So if a customer centric in the truest sense of the zone.

And our customer schools in the U K Hong Kong, the U S. The middle East and Mexico that besides.

Okay.

Second.

The economic impacts of COVID-19, they saw profitability.

Well, we still delivered $12 $1 billion average.

Adjusted pretax profits.

$8 billion of reported profit before tax.

We also finished the year with a strong capital base of 15, 9%.

And increased our liquidity by around $170 billion.

This proves two things.

This is an incredibly strong and resilient business.

Particularly in Asia, which delivered $13 billion of adjusted profit before tax.

But also opportunity exists even in a difficult year.

We increased mortgage lending in the U K and Hong Kong.

We grew our share of trade in Asia, Despite the falling volumes.

Grew our wealth balances in our target markets.

And we made $1 billion of P. B C in our India business.

Which will be hugely important in the years to come.

Third.

It was an incredibly important to us.

Is to resume dividend payments.

And we have declared a dividend of <unk> 15 cents per share.

We are also resetting our dividend policy in the future to strike a balance between providing good income.

And supporting future growth.

In future, we're aiming to deliver sustainable cash dividends.

While transitioning towards a payout ratio.

40% to 55%.

From 'twenty to 'twenty two.

We're no longer going to offer a scrip dividend.

And we will consider share buybacks beyond linear so we had no imaging opportunity for capital redeployment exists.

This is a measured policy.

That gives us the flexibility to invest and grow the business in future.

Clearly 2020 fundamentally challenged many businesses.

So we also embarked on a major exercise to refresh our core purpose as an organization.

We consulted widely on this over a number of months.

Speaking for thousands of colleagues on cash.

Customers looking deeply into our history, but also especially in the world of the future.

And we kept coming back for the same things.

H S. P. C has always focused on helping customers pursue the opportunities around them.

Whether it's individuals families businesses.

Our renewed purpose okay.

Turning off for world of opportunity both captures the same and sets a challenge.

Opportunity never standstill.

It changes and evolves with the world around us.

It is our job to keep adapting with it.

That's fine and capture opportunities with the same spirit of entrepreneurial loosen.

On innovation, but I feel represents HSBC.

Very best.

We also saw in 2020, the power of an organization that can respond positively and that pace. So radical change on a global scale.

Hence you will see a new behavior within our value statements.

We get it done.

It's deliberately expressed in uncomplicated language.

We can talk about what we want to achieve for ever.

But execution is everything.

Last February I promised we deliver all problems with pace and conviction.

Which is exactly what we've done.

We've taken more than 1 billion of costs out of the business.

Unexpected to exceed a full point 5 billion cost saving target ahead of schedule.

And despite the pools and a redundancy program following the COVID-19 outbreak.

We've reduced our FTE and contractor head count by around 11000.

And achieving those headcounts and cost savings.

We created a combined wholesale banking back office function, serving both commercial banking and global banking.

We merged well I'm personal banking.

We reduced our senior management population by 17%.

We appointed new people to just under 50% of the top 200 senior positions.

We reduced our U S branch footprint by more than 30%.

On costs, our U S adjusted cost base by 8%.

We reduced ftes in all European non ring fenced bank by 6%.

I mean achieve $52 billion of gross R. W. I savings in 2020.

Taken us more than halfway towards our three year groceries weighted asset reduction target in just a single year.

However, given the impact of low interest rates on Covid.

We no longer expect to reach our targeted level of returns by 2022.

That said, we recognize the fundamental shifts in our environment in 2020 and react to them quickly.

The plans we are announcing today will build on this work.

And enable us to target a return on tangible equity at or above 10% over the medium term.

And that's with the assumption the base interest rates remain at today's ultra low levels.

Even we will now take you through our results.

Okay.

Thanks, Noel and good morning or afternoon all.

A few quick words on the full year 2020 results.

The combined impact of Covid, 19, and ultra low interest rates significantly impacted our reported profit before tax.

Yeah, I'm thinking 4% from the prior year to $8.8 billion.

On the positive side, our Asian business held up well with $13 billion of adjusted pre tax profits.

This included the second year running off a billion dollars of pre tax profits from our Indian franchise.

Further market share gains and I tried franchise in the region.

We did a good job of controlling operating costs down 1.1 billion or 3% well ahead of what we'd promised.

We had a change of a year ago.

We achieved exceptional growth.

Deposit franchise up $173 billion in the year or some 12%.

And we strengthened our cole capital base.

With a core tier one ratio up 120 basis points to 15, 9%.

As we move into 'twenty and 'twenty one.

Yes, the interest rate environment that is negatively impacting our returns at book.

And that's why we're shifting our revenue mix towards noninterest income.

Accelerating our capital allocation people in investment towards Asia.

And investing in our multi year technology plan to significantly improve productivity.

Turning to slide eight.

The fourth quarter. It was a solid set of results with reported pre tax profits of $1 $4 billion.

Adjusted revenues were down 14% on last year's fourth quarter.

Mainly driven by the progressive impact of ultra low interest rates.

Expected credit losses for a 44 basis points or $1 $2 billion in the quarter.

This compares to 26 basis points. So just under 700 million in the fourth quarter of last year.

Total ECL for the full year were $8.8 billion at the lower end of our targeted eight to 13 billion full year range.

While operating costs were up Q4 of them came for by 1% ex for Bank Levy. This was mainly driven by a decision to increase the variable pay pole accrual in the quarter.

Which was down 17% year on year.

And tangible net asset value per share increased by 20 cents in the quarter to $7 75.

As you model 2021.

Please note that the weakening of the U S dollar towards the end of 2020.

We will materially impact both costs and revenues.

If you adjusted 2020 results to average January exchange rates.

It would have added $1 $6 billion to our revenues.

$1 $1 billion Chihuahua operating costs.

Turning to slide nine.

Looking at fourth quarter adjusted revenues across the three global businesses.

And wealth and personal banking.

<unk> were down 18% on a year ago.

With retail banking revenues falling by just under $1 billion.

This was due largely to the impact of falling interest rates on deposit margins.

Wealth management revenues were down $91 million due to a combination of lower insurance sales.

And the impact of lower interest rates on private banking deposits.

Commercial banking revenues were 15% lower.

<unk>, mainly to the impact of lower margins on global liquidity and cash management.

And global banking and market revenues were down 7%.

Despite another good quarter for global markets.

So revenues up 13%, even if even as we can't value at risk broadly stable.

On slide 10, net interest income was $6 $6 billion, that's up 3% against the third quarter. The net interest margin was 122 basis points.

Two basis points on the third quarter, reflecting improved for liability margins, particularly in the U S and Europe.

As we look forward.

While we expect a soft start for non interest income.

For net interest income due to the lower short term high the rights and fewer days this quarter, we expect NIM stabilization and lending volume growth to progressively support net interest income over the remainder of for the year.

On the next slide to coal trains to discuss firstly on fee income, we saw greater stability in the fourth quarter, notably in commercial banking and global banking and markets.

A small reduction in fees in wealth and personal banking, reflecting lower insurance sales and unsecured lending volumes.

And secondly on other noninterest income it was down $800 million. This reflected a combination of lower interest and on securities held in the trading book.

A reduction in the value of new business written in the insurance.

And lower credit and funding valuation adjustments and global banking and markets.

For 2021, we expect customer activity and fee income to recover.

As economic activity recovers and.

And we've seen a good start to the year in Hong Kong.

But with the impact of new COVID-19 variants best for cavalry might be slower than we for us for so a few months ago in areas such as consumer credit.

We also expect level market to have trading activity and lower than we experienced last year.

Yeah.

On the next slide <unk> were $1 2 billion or 44 basis points of price lines in the quarter.

Relative to the third quarter. This mainly reflects higher stage three charges and the fact that the third quarter benefited from additional releases.

The stage, one and two P&L charge for 2020 was around $4 5 billion income.

Including around $300 million income.

In the fourth quarter.

We now have stage, one and stage two provision balances of $7 9 billion.

That's up three $9 billion in 2020.

While we remain cautious on the outlook for credit in 2021.

We expect for 2021, ECL charge to be lower than 2020.

And we have no update at this point to the guidance, we gave you with third quarter.

Effectively a range or for approximately 40 to 60 basis points this year.

By 2020, we expect Hcl show of Metairie reduced from the 81 basis point charge in 2020.

Towards or even below the lower end the 5000 to 40 basis point normalized range.

Turning to slide 13.

Fourth quarter, adjusted operating operating costs ex the bank Levy.

With $719 million higher than the third quarter.

This was driven by targeted technology investment and marketing spend.

Together with a decision to increase the variable pay for.

For the year as a whole operating costs were down $1.1 billion or 3%.

This included a number of offsetting items the variable pay pool was down by more than $500 million.

COVID-19 impacted cost items like travel and entertainment and marketing.

Down by around $600 million.

And our combined cost programs either 2019 net in 2020 delivered an in year savings of $1 $4 billion.

Offsetting this were various items, including technology increased technology investment up $377 million or seven per se until in 2019.

For 2021, we expect the bank levy to fall to around $300 million, that's some $500 million lower than 2020.

For operating costs ex the bank Levy was taken to keep them broadly flat after adjusting for the impact of dollar weakness.

With significant cost savings from our ongoing restructuring program offset by a combination of certain costs, increasing from COVID-19 losses together with planned higher investment in gross spend.

On slide 14 in the first year, a three year program, we achieved 52 billion of price risk weighted assets saves.

We're more than halfway towards our $100 billion guidance reduction target of low returning risk weighted assets.

Included the $10 billion reduction in the fourth quarter.

We expect to make around a further $13 billion of price side that'd be right size in 2021.

On slide 15.

For tier one ratio at the end of the fourth quarter was 15, 9%.

That's up 30 basis points in the quarter.

This was driven by a combination of <unk> reductions on a constant currency basis profit generation FX translation differences and 21 basis points of software intangible benefit.

On the latter we expect software intangibles to be reversed out of Cold day, one over the next 12 to 18 months.

Excluding FX movements.

Risk weighted assets fell by $20 billion in the fourth quarter, primarily as a result of reduced lending balances.

The planned 2020 interim dividend of 15 cents resulted in a reduction of 14 basis points to why core tier one ratio at the end of 2020.

And with that factor now.

Thank you.

So last February we announced a series of actions to make hatred P C fit for the future.

And we remain committed to delivering them.

So there were three fundamental shifts in 2020, we must reflect in our plans for the future.

Most of the interest rate environment changed dramatically.

We lost around $5 $3 billion of net interest income.

For more than two percentage points of royalty.

And we don't expect rates to rebound anytime soon.

We reacted to this in two ways.

We're accelerating our shift towards non interest income.

Including fee income.

And considering all costs further and faster to compensate for loss of revenue.

Second the shift to digital was accelerated by the impact of Lockdown.

As the pandemic took hold our customers digital engagement increased dramatically.

We were already investing heavily in digital and technology.

For re responded by rapidly accelerating the digitization of our business.

COVID-19 has made everyone aware of how fragile the global economy is to an external events.

And as a consequence.

<unk> issues I've taken on a renewed importance.

Thankfully we were already working on the next phase of our successful journey with respect to sustainability.

And we announced an ambitious new climate plan in October of last year.

The low carbon transition is the most transformative trend of all time.

And it presents an unmissable commercial opportunity for a bank of our size geography and profile.

So these three trends.

On the decisive action, we took to meet them from the basis.

For much of what you're going to hear over the next 30 minutes.

We have a plan that we think can deliver at least 10% return on tangible equity over the medium term.

It will transfer material amounts of capital from low return markets to higher return markets.

Net capital will be deployed into businesses in Asia, where we already have a strong track record of growth and profitability.

We will also invest in technology to transform all costs.

It's a plant capable of delivering returns above the cost of capital.

On supporting both sustainable dividends and future growth.

It is built on the four pillars you see here on slide 19.

And I'll take you through each one into them.

Slide 20 looks at the first pillar of off line.

Driving growth by focusing on our strengths.

We go for stopped trying to be everything to everyone.

We want to do the things that capitalize on the advantages we have.

To do them brilliantly.

In wealth and personal banking, we will continue to invest in our scale markets in the U K and Hong Kong.

For the new story here, because I wish you well.

Luna will talk about this in more detail.

Well, we're going to invest more than $3 $5 billion in wealth in Asia in the next five years.

To achieve three things.

We want to serve high net worth and ultra high net worth clients in Hong Kong mainland China, Singapore.

And southeast Asia.

Globally.

We want to build out our insurance and asset management capabilities across Asia.

With organic and inorganic options for me on the table.

And we want them to do more with clients who already vanquishes.

Bringing wealth opportunities to our customers in commercial banking and global banking and markets.

In commercial banking, we will continue to be unashamedly and uniquely global.

We want to lead the world in cross border trade.

And in serving mid market corporates globally.

There are many things that are changing with respect to our strategy and our execution.

But this one will remain unchanged.

We'll invest around $2 billion to drive customer acquisition.

From a digital leader in our scale markets.

To support the three critical product platforms.

Global liquidity and cash management.

Global trade and receivables finance.

Foreign exchange.

Global banking and markets will retain the capacity to serve clients globally.

But we will invest in the markets that sets us apart.

Whilst also moving the heart of the business to Asia.

Including leadership.

We will use our global network to connect global banking marquee clients, so opportunities in Asia The U K.

On the Middle East.

Where we can add the greatest value.

We will spend around $800 million in GBM in Asia.

To build better digital marquee platforms to support our wealth strategy.

To build better market access and execution capabilities for our wholesale clients.

To expand our investment banking coverage across Asia.

Peter will talk about this in a few minutes.

Slide 21 shows were all U S and your business European businesses fit for them.

Michael Roberts and the U S team did a great job in 2020 repositioning the business.

Closing branches driving down costs and reducing capital.

For the next stage, we will focus for the vast majority of our resources into our international corporate and institutional franchise in the U S.

We will continue to connect our U S wholesale clients into our international network.

Driving revenue growth in other regions.

We'll also defend our strength in U S dollar clearing.

Right and foreign exchange.

And continue to reposition U S markets unsecured see services to provide access.

In a way that uses less capital.

In U S retail.

Our focus will be on building an international wealth platform.

Now connects WPB clients across our global network.

U S wealth opportunities.

And we continue to explore organic and inorganic options for our U S retail banking franchise.

For Europe. The story is similar Luna in the same line solid foundations in 2020, removing all that somebody ways and reducing ftes by 6%.

Our strategy remains focused on connecting inbound and outbound international wholesale customers into our network.

And our wealth business focused on our global book in sensors in mainland Europe.

We will keep investing in our transaction banking franchises to better connect issuers and investors into Europe.

In Europe to Asia.

I continue to reduce orexis subscale retail banking and SME portfolios.

We are continuing with the strategic review of our retail banking operations in France.

And are in negotiations in relation to a potential sale.

Although no decision has yet been taken.

If any sale is implemented.

The underlying performance of the French retail business.

A loss on sale is expected.

Slide 22, it looks at the second pillar of our plan.

And this is incredibly important.

So you're all digital agenda is presenting opportunities for Boe.

With revenue growth and cost efficiency.

In the last year, we spent around $5 $5 billion on digital and technology.

The impact of this is coming through all day.

Digital engagements and ratings.

In our revenue and our cost base.

Our ability to operate a global business in the middle of Covid.

We wouldn't have achieved what we have already done we thought not historical investments.

John will go into more detail about the future investment program.

Well I want to take a minute or two to talk about how we'll pay for it.

We think we need to grow the investment by between 7% and 10% on a compounded annual basis between 2019 from 2022.

Thank you for that we need to reduce the cost of running an H S. P C.

4% to 5% over the same period.

We intend to say for $1 billion more on calls somebody said last February on a constant currency basis.

We will make our cost programs work harder to deliver between five and $5 $5 billion of savings.

And we will spend around $7 billion to achieve those savings.

At least half of that falling in 2021.

We also intend to keep our headline costs broadly stable from 'twenty to 'twenty two onwards, enabling us to reinvest for the savings into the business.

Slide 23 is about energizing hydro SPC for growth.

So the culture the composition on the future skills, we need.

This is about creating a dynamic inclusive and entrepreneurial organization.

We've already infused the tougher for them with new people and new skills.

More than three quarters of my senior leadership team.

Meaning post for around a year or less.

And of the line below.

Just under half of the top 200, so called for their current roles in 2020.

We've also reduced senior management numbers by 17%.

Removing layers and increasing accountability.

I'm passionate about creating an inclusive organization that unlocks opportunity for roll them for.

Fosters the diversity of thought and experience for every business needs.

So both the diversity of our top team is improving but we want to go further both in terms of agenda.

Mississippi.

We also made good progress in improving employee advocacy.

But there are gaps amongst some employee groups that we must bridge.

We also need to build skills and capabilities in areas that are different to what we've needed historically.

Particularly in digital analytics and sustainability.

We can bring some of those in from my side.

As we have done over the last 12 months.

But we also need to train from me, saying.

Which we're doing through the newly expanded HSBC University.

For which I was the executive sponsor.

Before I became group CEO.

Slide 24 looks at one of our biggest opportunities and one of our biggest drivers of change.

The transition to net zero.

We're already a global leader in sustainability, and we want to stay there as the market expands exponentially.

In 2020, we were the biggest underwriter of green, social and sustainability and sustainability linked phones for the second year running.

Doubling the volume we under wrote in 2019.

We've already set out some uniquely ambitious plans for a bank of our scale and footprint.

To reduce emissions in our operations and supply chain, So net zero by 2030.

And to align our portfolio are financed emissions to net zero by 2050 for sooner.

In May we intend to find a resolution to our AGM requesting investor approval for a clear.

Science based routes to our net zero aligns portfolio.

They will commit the bank and then financing of coal fired power.

They will align all financed emissions to net zero.

And it will commit us.

The evidence in it through very specific milestones and reported.

Let me be clear that we intend and plan to work with all our clients in every sector to map and finance that low carbon transition.

We are aligning every part of our business behind that day.

Both to achieve net zero ambition and to capture the commercial opportunity.

So taking all of this in aggregate.

Once those tomorrow's HSBC look like.

We're effectively undertaken three pivots.

In Asia wealth onto free income.

We'll also continue to grow our global capability in wholesale banking.

And further leverage our unique capability to service mid market corporates globally.

These are our highest return highest growth opportunities.

We expect to move around eight percentage points of group's Hydroelectricity to Asia over the medium to long term.

With Lincoln this so compensation for the first time.

It will explicitly be Pos of mine on you in school College.

We also expect to move around 10 percentage points of tangible equity to wealth and personal banking over the same period.

With a broadly equivalent reduction in global banking and markets.

The focus of the investment and wealth combined with our investment in technology aims to deliver compound annual revenue growth in the mid single digits from 2022.

That should accelerate the growth for fee income and insurance income from 29% to around 35 per cent of group revenue over the medium to long term.

This is an ambitious plan, but a deliverable plan.

Are we going to move with pace and determination.

And belief in our ability to get it done.

I'll now hand over to page, let's talk about our Asia opportunity Luna to talk about our pivot to wealth.

Jones to talk about the technology, the underpins everything we want to achieve.

Thank you no.

I wanted to start by saying I'm very excited about Asia growth and.

In HSBC is uniquely positioned to capitalize on the opportunities.

Economically Asia is outperforming the rest of the world.

It contributed 71% of global growth in 2019 and is expected to account for almost half of global GDP.

By 2025.

The key story in Asia, its rapid wealth creation.

By 2032 thirds of the world's Middle class will be in Asia up for.

From just over 50% today.

Driving strong growth in consumer spending.

And this will promote trade.

WC forecast that trade flows in Asia will grow 25% faster than the rest of the world over the next five years.

Well HSBC the opportunities lie not just in helping sustainable growth.

Supporting trade and managing it well within the region, but also using our unique global footprint to connect the rest of the world for Asia and vice versa.

We are already a leader in Asia.

We operate in 19 markets across the region covering 98% of Asia GDP.

For the majority of our markets our history goes back 140 to 150 years.

Therefore, we know the customers the cultures, we know the regulators and we know the business flows.

And when it comes to the global connectivity.

Our international competitors lack of footprint and deep connection to Asia.

And our Asian competitors <unk>.

National Network.

Within Asia, Hong Kong mainland, China, Southeast Asia, and India will drive our growth.

These markets will benefit from an expected doubling of assets under management in Asia is 30 trillion dollars over the next five years.

We extend our businesses, we will continue to strengthen our position in Hong Kong.

Our market, leading digital products in particular.

And leverage our strength to capitalize on the opportunities in the greater Bay area.

With a population of $73 million and GDP of one seven trillion U S dollars.

We will hire more than 3000 wealth managers in China.

We expect the middle class population for double from the current 300 million for $600 million by 2028.

In Singapore, and our wealth and personal banking business.

We will increase resources to build on the momentum created by last year double digit AUM growth across premier and Jade.

And established regional wealth management hub for us.

South Asia.

Our global banking and market and consumer debt.

And commercial banking businesses will capitalize on the more than 4200 multinational corporation that have regional headquarters in Singapore.

We already think some 750 obese and we.

It will build on this progress by scaling up our coverage teams and product capabilities, including cash liquidity risk management.

Our market share in this space.

In India, we will build on our long standing national and international relationships.

Celebrate the growth momentum we have already established.

Banking revenue grew by over 20% per annum in the last two years.

And we also aim to leverage our unrivaled network for when a large a larger share of the $18 million Nonresident Indians wealth management business across the world.

So how are we going to do this.

We will in your debt an additional 6 billion in the region over the next five years.

With half of it in South and Southeast Asia.

The investment is mainly in new talent for wealth management and wholesale banking businesses.

Improving our technology.

Externally, we will enhance our digital capabilities across all market to.

To deliver a tailored end to end customer experience, enabling our 14 million clients, who use our network to move for invest capital globally and seamlessly.

Internally, we will invest in areas, including data analytics powered by artificial intelligence and machine learning.

Anticipate the needs of our customers more effectively.

And capture a greater share of wallet across retail commercial and global banking.

And we will continue to maximize the revenue generating potential of our <unk>.

Global footprint and product range.

Already 55% of our global revenue is driven by cross border businesses.

In the last 12 months, we have won awards for best Global Trade Finance Bank.

Best Digital bank and best regional.

Private bank among many others.

We will continue to invest to capitalize on the huge and growing opportunities in Asia wealth market.

And work and work towards becoming Asia, leading international wholesale bank.

Overall, these actions will increase market share and push our revenue streams, which will generate double digit PBT growth in Asia over the medium to long term allowed.

Allowing the region to continue to deliver significant contributions for HSBC group dividend.

This is really an exciting time to be in Asia, and really an exciting time to be a niche SBC.

And with that I'll hand over to immuno. Thank you.

Thank you Peter.

Last year, we created wealth and personal banking and we brought together our mass affluent assets management insurance and private banking businesses in.

To one integrated business.

Allowing for a significant acceleration of our wealth strategy.

Last year.

Business generated close to $8 billion in highly accretive wealth revenues.

With more than 50% being fee revenue.

Our wealth expansion is well underway.

We've made the necessary structural changes the plans are well defined we have bold, but achievable ambitions and we are in full execution mode for.

Particularly in Asia.

But also in our global wealth hubs.

And that's what I would like to talk about today.

We believe that wealth management is one of the most compelling opportunities for growth in financial services today.

The affluent and high net worth population expansion.

Low rates for longer.

And the capital light profile of this business makes it very attractive.

And while the opportunities for global Asia.

<unk> no doubt.

The fastest growing region for <unk>.

Assets.

In this context.

SBC is perfectly placed to capture this opportunity.

We have a compelling starting point with 4 million customers and one six trillion dollars overwhelmed the balances.

<unk> is a leading international wealth manager.

The lion's share is in Asia.

<unk> for more than 65% of our wealth revenues.

We have the second largest wealth manager in Asia, leveraging the strength of our brand.

She has built on a long 50 find here a heritage of serving customers and the full capabilities of Universal Bank.

Last year, we grew our global relative balances.

By more than $60 billion.

Double digit growth.

Second.

The wealth opportunity becomes truly global.

Our international network gives us the ability to deliver transactional banking.

And wealth management services in the most relevant markets to our international oriented affluent and high net for customers.

We have a strong presence in the world's top eight cross border wealth hubs.

And Sir.

We have unique access to our prospect customers through our leading <unk> and GBM businesses and their extensive client base in 2020.

More than 60% of net new money from asset management and private banking came from our wholesale relationships.

So over the next three to five years.

You've asked for more than $3 $5 billion to leverage disadvantages and accelerate development of our wealth business, particularly in Asia.

Our investments will be focused on two areas.

Firstly, developing new products technology and platforms to.

To deliver a leading client experience.

We will built digitally enabled financial planning platforms across the client continuum.

And scale up our insurance health and wellness platforms.

We will integrate our wealth management capabilities with a mobile first approach and create a single core banking platform for.

For private banking across Asia and EMEA.

We will differentiate our asset management business.

Our focus on high value higher margin products.

And we will deliver high conviction product in areas like alternatives ESG and equities.

We'll deliver bespoke wealth products for all of Jay and private banking customers in partnership with global banking and markets.

And we will grow and deepen ultra high network clients.

Through a dedicated client coverage model, focusing on Asia, and the middle East and non products, which make best use of the group's capabilities.

In parallel.

Two thirds of all the investments we will aim to significantly expand our distribution capabilities.

This effort will focus on hiring more than 5000 customer facing roles planners.

Equipped with remote video capabilities for it.

It would be for our flagship clinical expansion in mainland China and high net worth coverage in Singapore.

On significantly growing our private banking, which on mainland China to.

To 10 cities.

And more than doubling our customer base in mainland China and Singapore.

And finally in expanding our asset management footprint in emerging Asia, particularly India and Malaysia.

These investments will enable us to grow our AUM is in Asia price.

After than the markets you're in.

Grow revenues by more than 10% CAGR.

Significantly in crews and increasing the contribution of wealth for our total <unk> revenues.

We have strong credentials to the lever on distribution.

Our leadership position in Hong Kong is well known having.

Having delivered strong growth over the last five years and cost because I think our number one world market share.

Our UK integrated digital capabilities are now very credible.

With recent Rollouts of flex interest, well plus and benefits plus.

Today more than 60% of our customers equity trading in Hong Kong is now done in mobile.

We will be leveraging these capabilities to differentiate our wealth proposition in the rest of Asia.

In mainland China.

We had the largest foreign bank.

And despite the chance of the pandemic, we have launched pinnacle in four cities.

And obtain the first ever foreign Fintech license in mainland China.

Our hiring plans are well underway.

In six months since we have approximately 200 wealth planners.

And we will scale up to 3000 by 2025.

And by the way also exceeding our financial targets.

Our rollout of our leading advice led private banking.

In mainland China.

Also benefit from our private banking, Hong Kong, which was recently voted number one.

For the sixth consecutive year.

And now have management will aim to take a majority stake in <unk>.

Following changes in regulation, and we will execute to become a top 10 international assets management in mainland China.

Finally.

Our global footprint is unique.

Particularly important in the wealth space as our clients' needs increasingly are global.

Matilda expansion in many wealth corridors.

We will invest in our booking centers in Singapore, Switzerland, The U K channel Islands, and the U S F.

Health hubs.

In India, we will target to be the number one foreign bank for in their lives.

And having already leading market share among the overseas Chinese diaspora.

<unk> expense.

Expense cross border.

We're well positioned to grow with it.

I have great confidence in the prospects of our wealth business.

The combination of our unique competitive position.

Our integrated business structure.

And our investment in people and platform will deliver solid growth with our global emission position.

<unk> is well placed and organize to accelerates our wealth growth and deliver at pace.

And I look forward to updating you on.

On our progress.

I will now hand over to John.

Thanks, Noel I don't want to expand upon what you've heard today and describe how technology will be a differentiator for the group or.

Our focus is to shift away from costs across the bank debt aren't adding value to customers and to make investments that drive revenue growth and a better customer experience.

But first let me explain digital business services.

We knew it as host in the past, which stood for HSBC operations services and technology.

It's my view that this was a fragmented approach to our task at hand, which is digitizing our business end to end.

Thus we are digital.

We're focused on improving our business results and where our services based.

Organization digital business services.

The first slide slide explains our approach and you probably wont be surprised that we spent more on technology.

Actually given increased customer demand due to COVID-19.

But more importantly, the amount we're spending is that we're developing technology in a fundamentally different way.

Our approach to building technology platforms has shifted from building bespoke local solutions to leveraging our scale, we will build once and deploy globally.

We're also laser focused on reducing the bank's cost by digitizing end to end processes and eliminating manual work.

To do this we're dissolving the boundaries between the front middle and back offices. So work is processed with a limited or ideally no manual touch points.

And 2020 for example.

We processed seven 6 billion payments as a bank.

And they were worth 563 trillion dollars.

We increased our no touch rate on those transactions to 96%.

But we can do even better.

Our aim is to get above 99% no touch rate in the next several years.

And to get those last few percentage points, we're going to need to digitize the most complex payment processes.

Reducing the number of people involved in manual work means that can be redeployed into revenue generating roles and savings can be reinvested back into technology, creating a virtuous circle of digitization that unlocks customer growth.

We're also doubling down on our partnerships with big Tech firms like Google and Apple Amazon, Microsoft and Alibaba as well as many small fintech firms across the globe for.

For example, we believe HSBC is one of Google clouds largest and most engaged financial services clients.

And we're working with them on intelligence led financial crime detection, which will ultimately help protect our revenues.

The next slide contains three examples of how we're using our scale to improve the customer experience and drive revenue growth.

We've invested over $1 billion of last few years, our mobile X platform, which is now a bank in your pocket and as standardized as our core digital platform across all key markets.

But one of the most interesting things about this new platform is the way, it's driving personalized interactions with.

We marketed it extensively in Hong Kong last year and saw record credit card spending as customers like the improved experience.

We've also received App store ratings in many markets that are for seven or higher which is up significantly from prior ratings.

We now have 3 million, Hong Kong digital customers, which represent 40% of the population.

And over 95 per cent of all retail transactions in Hong Kong are done digitally.

Our global money account platform is a great example of how we're taking something developed in one country. In this case for the U S and deploying it elsewhere.

The internationally mobile population requires access to funds in different countries and currencies I'm personally a great example of that having just recently moved from the U S to the UK.

And our product does just that it enables instant global transfers with our multi currency card using real time FX rates.

Built on a common platform, it's now being rolled out worldwide.

Alive in the U S. In August with planned launches this year in the U K for ex Pats in the Middle East and Singapore and shortly the rest of the world will follow.

And then finally kinetic which is a cloud based mobile app for our corporate customers that we rolled out in the U K.

And we're using the insights gained so far to see how we can apply the capabilities in Asia and other parts of the world.

Finally, let's get into more details on the opportunities to drive operational efficiencies.

Clearly COVID-19 has transformed the way we've all worked over the past year.

And we now have an opportunity to create a lower sustained cost base in both corporate real estate and reduced business travel.

We've analyzed our worldwide real estate footprint and anticipate a reduction in the order of 40% over the next several years, while also ensuring our remaining real estate as a lower environmental footprint on the journey to having our operations at net zero by 2030.

There are also opportunities to further reduce our workforce performing non customer facing functions.

Overall, our workforce numbers are down 11000 year on year. Despite the fact that we pause redundancies last year, while we assess the impact of the pandemic on our customers and our people.

But over the next few years through Digitization, we expect the finance function to be reduced by about a third.

And we will change the nature of the work the finance teams perform.

We will do this by migrating our analytics and reporting capability to an agile cloud platform.

Our technology head count will be optimized to focus on agile development and we will reskill, our colleagues with the technology skills needed for the future.

There's also an opportunity to materially shrink the number of manual processes, which will result in less need for the vast operations function in a bank today, which currently spans 74000 resources.

Many of these resources will be re skilled for higher value customer engaged opportunities, including data and analytic skills that are in high demand.

Our commitment throughout HSBC is to attract and retain the best and brightest and most diverse colleagues for our journey ahead.

Few if any other organizations in the world can offer the same breadth of opportunities that HSBC to us to apply a cutting edge technology to solve real life problems and improve people's lives for.

Doubling down on creating a diverse and inclusive workforce I have an entirely new senior management team.

Have promoted from within and have recruited externally that has three quarter female executives.

We will continue to do more to improve gender balance and diversity across the broader team.

Thanks for listening, let me hand back over to you now.

Thanks, John.

On slide 40.

Refresh plan seeks to build returns to at or above our cost of capital.

And to do so in an environment where rates broadly stay at.

Today's levels, providing leverage to the upside of higher rights for two and in the coming years.

In order to do that that's broadly three buckets, so for retaining upside.

Firstly things that we just expect to happen irrespective of management intervention.

And so that's bucket I would put too many things.

The normalization of ECL charges that I talked about earlier.

And the lowering of the bank Levy from this year onwards.

Together, they should add around 300 basis points of right tea over the next few years.

Secondly, the actions when he talked about across revenues cost and capital.

Together, we think these plans can drive an incremental 400 basis for instead of return on tangible equity.

For the coming years.

On revenues, a few things that contribute to this.

Firstly the achievement of a day.

It's a mix of higher retaining lending relationships.

This is a core part of what we announced in February last year.

Shifting of capital from certain lower recurring western clients to the east.

We made very good progress on the shift out of the west in 2020.

With material growth from a risk weighted asset reductions in our U S and non ring fence bank franchises.

But COVID-19 did slightly the reallocation of capital to the east relative to what we expect it to day last year.

However, as Pedro has just set out we continue to be massive polls on the high grade from a return potential across our Asian franchises.

Can we have an ambition to have Asia represent around 50% of our tangible equity that's up from 14% today with.

With much of the remaining 50% of our capital led to Asia.

And secondly on revenues as our planned growth in non interest income.

You've had some pizza or a new Noah raised aspirations in this respect.

We see significant growth opportunities in both Asia wealth and Asia wholesale and we're committing further material capital people technology and investment resources to one depend on us.

On operating costs, you've heard today and increased ambition from us.

We've raised our 2022 cost reduction target by for the $1 billion, but more importantly, we've got growing confidence in our multi year cost opportunity beyond us.

And an aspiration to keep costs broadly flat, while continuing to achieve healthy revenue growth and yours.

John just talked about thus using technology to transform the hull of our organization.

Our front office distribution costs through increased digital delivery.

And higher relationship manager productivity.

Lower commercial real estate cost as we return to work in a very different way.

And using technology to transform the operations and functional support model.

Delivering much better customer and control outcomes at a dramatically lower cost.

On capital, we've got a whole bunch of initiatives underway stepping back for capital allocation to our U S and non ring fence bank franchises, including trapped capital currently sitting in the U S.

Improving the optimization of capital across various subsidiaries elsewhere.

And investing in our stress testing capabilities to drive down the aggregate level of stress across Macquarie.

That's why we're now guiding to a 14 day 14, and a half per se in core tier one ratio.

Rather than the previous 14% to 15%.

And the last building block for our return on tangible equity is an improved rating environment to be clear, we're not baking that into our base plans.

We want to have a business that can generate cost of equity returns.

Assuming this rate environment for.

I would note that a 100 basis point parallel shift upwards in Reits would improve our returns by around 300 basis points within two years.

So on slide 41, and technical and to conclude before handing back to now.

We're resetting our operations operating cost target for 2022 1 billion lower than previously guided.

And post 2022 and to keep costs broadly stable, while achieving material revenue growth.

Great for risk weighted assets target by the end of 'twenty two remains unchanged at least a $100 billion.

But with over 50 billion achieved in 2020 and a further 30 billion targeted in 2021 weeks.

We have high confidence in delivery.

Our core tier one ratio of 14% or more with confidence in being able to manage to a 14% to 14 and a half per cent range over the medium term.

Our new dividend policy.

Cash going forward with nice script alternative.

A dividend of 15 cents for 2020.

And then transitioning in 2021 towards a payout ratio of 40% to 55% from two.

2022 onwards.

This allows for a powerful combination of sustainable growth and sustainable dividends.

Where we have excess capital in any given year, we will look to buybacks to augment dividends.

Please died model buy backs into your 2021 numbers.

And our return on tangible equity of at least 10 percentile for the medium term.

A return that can be delivered in the current rate environment with material leveraged upside if rates improve.

End of <unk> and that can be delivered with a set of actions that set family of self help measures within this management team's control.

And with that thanks and over to now to conclude.

Thank you and so to wrap up.

We will significantly increase the group's capital and resource allocation to faster growing higher return markets.

We will capitalize on the opportunity offered by all net working all franchise to drive growth from fee generating products and wealth platform.

Platform businesses in wholesale banking.

We will leverage technology to transform our cost position.

Operating significantly higher operating leverage and freeing up resources for investments.

And we expect all this to deliver returns above the cost of capital, while driving revenue growth principally from Asia.

Through our new dividend policy, we aim to deliver both sustainable dividends and sustainable growth.

And as a final comment.

In 2020, we executed against our promises.

And in 2021, we will do the same.

We will get it done.

We thought we'd be happy to take your questions.

Thanks, Paul and good morning, Good afternoon, everybody. We'd go through a combination of questions mandate audio question from telephone lines, but it was from written questions from the video webcast, we'll start off with for a fire from the audio line and sort of over to share on the operator. Please.

If you'd like to ask a question today. Please press star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off.

Find your question has been answered you may even leave yourself from the queue by pressing star and to please limit yourselves to two questions only.

Once again to ask a question. Please press star one please ensure that the mute function on your telephone is switched off.

Your first question today comes from the line of Martin Light GAAP from Goldman Sachs. Please go ahead. Your line is open.

Yes, good morning, and thank you very much for that for the presentation.

The first question is just on capital I mean, I'm just trying to understand.

The moving parts in terms of capital progression from here because on one end.

Very strong cup of good thing this quarter up from $15 nine.

And yeah the guidance in terms of capital headwinds So Boston is free.

And so for Glenn Tangibles for that.

It still implies just around I mean, if we look just to emphasize both from free.

Free from around 10% to 15 billion excess capital spot for US as you were 14.

To $14 five target range.

Just trying to square that up with we feel mid single digits.

Net growth ambitions.

Your investment spend which is over a five year period I understand.

And the.

For dividend payout guidance not capturing in 2021.

So it's significant.

Headroom here in terms of capital whether that could mean.

Eagle faster growth, whether that's organically or Inorganically always day anything I'm missing in terms of the potential headwinds.

And the second question I was just wondering.

On rate sensitivity and thank you for the disclosure on slide 69 for the parallel shift in yield curve.

Could you help us quantify the impact of free.

Purely arising from the steepening of the yield curve.

Obviously over the last couple of weeks months in U S. Dollar would also in Sterling.

Are you still fairly limited impact arising from this.

Steepening of the yield curve given the limited purchase in particular income from or is there any more meaningful impact for me. Thank you.

Okay.

Well I'll start off from the first question Martin on.

Yeah.

Yes, it might be to deal with it three risk weighted assets I mean, if he we obviously finished the year at just over 850 billion of risk weighted assets.

Yes, we are.

Telegraphing that expectation of volume growth and sort of mid single digits for the next few years I think for this year, it's probably going to be back end weighted.

As.

Various economies recover from Covid.

Yeah, Yeah, we have around $10 billion of regulatory pressures this year.

And yeah.

In total about 40 to 50 billion. If you got at 322 23, including the impact of Basel.

We've got a non Wi rundown program, that's still about $50 billion to go that largely offsets that 30 billion. This year unfold for another 20 next year.

And then on top of that.

Which has.

Had surprises, but yeah, we've had.

For our credit rating migration during 2020, there's about $30 billion of credit migration.

We're anticipating that to be less in 'twenty 'twenty, one it could be materially less depending on how the economies recover.

And then a decent amount of that reverse out in 'twenty two onwards.

So when you put all that together, we are anticipating risk weighted assets.

Distributions we.

We do expect to be about 40% to 55% payout ratio in 2021.

And then migrating within that payout ratio thereafter, as I say it no buybacks this year, but.

It's certainly something that we used in the past as you know.

We do see them as a legitimate means of capital management.

And if we have excess capital in 'twenty, two and beyond it's certainly something we'll consider.

And on.

Right sensitivity.

Yes, the shaping of the yield curve in the U S. Dollar provides some support but not material support with far more sensitive to the near end of the curve.

Perfect.

Thank you.

Thank you. Your next question comes from the line of agency from Credit Suisse. Please go ahead. Your line is open.

Hi, there. Thank you very much for taking my questions I have two questions one follow up on capital and one on net interest income.

On capital just to just to understand you very helpfully outlined the risk weighted assets, but is there in your capital target any.

Part of debt.

For the capital that were earmarked for potential opportunities could you maybe outline how much youre thinking and hope for what period of time and then on net interest income.

You've had a NIM contribution of five basis points from from the liability side can you give us any insight how much of that.

It's sort of recurring and how much more you could do from from either changing liability mix or repricing going for it and then on loan volumes.

It is showing a decline quarter on quarter basis from.

From the development, despite a weaker U S. Dollar you expect mid single digit going forward.

Sort of where do you expect this to come from thank you very much.

Yeah, So on capital what we're not.

Yeah, allocating all precisely I like adding any amount to.

Inorganic.

Within that dividend policy of 40% to 55% payout ratio, we are giving ourselves some flexibility to do bolt on acquisitions.

And I used the word bolt on quite carefully so don't expect us going out and doing.

Material M&A anytime soon but if we see things that we can bolt on debt et cetera, right strategy and that some of the areas we talked about today.

We will certainly consider it.

Yes, net interest income them generally.

Net.

Yes, I think Q4, there was the repayment of.

And.

Our IPO in Hong Kong, which I think had a material impact on.

Lending volumes together with our traditional cramming down.

Corporate borrowings towards year end, so I wouldn't read too much into Q4 of last year.

<unk>.

On net interest income for this year, Yeah, we do expect on the positive side, some asset price as I say it a biased to the second half.

I think news flow out of the U K, yes that I was very positive.

Vaccination programs now started in Hong Kong.

You don't have your own forecast for China, but we see significant growth opportunity I think in Asia coming out of Covid.

And continue to see a significant opportunity here in the U K mortgages for example, where we've been consistently running at about a 10% market share during the year last year.

Buys for the liability side and the asset side, we see some repricing opportunity.

Dollar weakness should add about 800 million zone so to.

Non interest income this year and offsetting that obviously when you look at our where all forward interest tables were going to have some headwinds from.

The lower interest rates from last year.

And we've currently got a very weak high ball so.

And you know that we're very very sensitive to one and three month LIBOR. So.

Hey, Joe.

Loan volumes.

What we saw towards the end of last year.

Particularly in Asia was a lot of customers wholesale customers.

Positioning themselves with facilities available to from future growth, but not yet drawing down on those facilities.

So I think for ready with that balance sheet to take advantage of an upturn.

They're waiting to see that up to income as we start to see the world come out of the Covid crisis, hopefully on the back of the vaccination program.

There was certainly a lot of.

Activity towards the end of last year on getting ready for that up to them.

Yes.

That's very helpful. Thank you very much.

Another question from the audience. Please.

Thank you. Your next question comes from Tom Rayner from Numis. Please go ahead. Your line is open.

Yes, good morning, everybody and.

A couple please.

First one on the impairment guidance for 2022.

Either the bottom end or below the 30 to 40 basis point range.

If youre factoring in anything significant in terms of releases from the stage one and two.

With so whether that sort of 2022 number is gonna be representative of the sort of through the cycle right.

And I've got a second question. Please just on sort of distributions you mentioned, obviously share buybacks are a possibility, but in the medium term I noticed that the medium term you define as three to four years. So just wondering whether your debt to be ruling out buybacks basis. This year and next scale all weather.

You know, that's a reading too much into the terminology.

And I'm assuming that.

Over and above the maximum dividend payout it'll be the 14th to 14 in the same target range on equity tier one that sort of calibrate Shaw maximum distribution potential. Thank you.

Yeah.

Thanks, Tom for picking me up on the use of the two medium so people careful going forward.

Any real GAAP buybacks in 2021.

Ah I wasn't intending to all set for the block on us participating in buybacks in 2022.

Impairment guidance.

We've talked in the past about.

Our normalized range of 30 to 40 basis points.

Through the cycle, we were obviously.

More than double the top end of that in 2020.

Included in net was a very significant buildup of stage, one and stage two.

If you back that out we were running in probably the low forties.

In 2020.

Yeah.

As we think about 'twenty two there may well be some reserve releases in that guidance, but I do think if.

Yes.

Load is recovering out of Covid, we should be at the operating at or below 30 basis points for 'twenty two onwards for a few years until the cycle turns again.

Okay. Thank you.

And just.

On the other question. Thanks for the clarification on the on the 2022, the total distributions I know, you're leaving room for some bolt on acquisitions as you said in your 55% maximum payout.

I'm just thinking if the violence any acquisition opportunities and so would you pay that debt to distribute everything else that catchy within the core themes for the full day in and Oh I'm talking about hinge on day one.

The important thing is the first call on any excess capital would be to try and use it to drive growth for profitable growth in our strategically important markets in a focused way.

And then if we call if we don't see opportunity for growth and we do reserve.

For the option.

Of buybacks, but I think it's just too early to make that call at this point in time so.

I think we.

We'll clearly look to use the capital in profitable growth and focused areas.

On resorts for buybacks, if we don't have a realistic opportunity for profitable deployment.

Yeah.

But Tom and what I was talking about in one of the previous questions is yes.

Yeah that there will not be that will still be some decent amount of.

W. I inflation in both 'twenty, two and 'twenty three.

Coming from regulatory change I.

I think the important change we've made with this dividend policy is to provide an opportunity.

So both generate strong return.

Strong growth for the bank on that.

That's what we tried to position with the dividend policy going forward.

Okay. Thank you very much.

One more question. Please and then we'll take a couple of written questions.

Thank you. Your next question comes from the line of non <unk> from Barclays. Please go ahead. Your line is open.

Good morning gents. Thanks.

Thanks for the questions. So just a couple please.

Can I just confirm.

Quickly on the cost.

So you've given in 2022 does it.

Include anything for French retail and.

The North American retail business that is currently under review or should we be looking to kind of.

Just those targets incrementally for anything that may or may not get announced.

For your call included within our cost targets any actions on those two areas would be incremental.

Okay perfect. Thank you that'd be a loss of revenue as well so you need to take both of those into cash.

Okay cool.

Can I just ask then on costs.

Cost management more broadly then I mean, how are we thinking about the cost managing the cost base I mean are you looking to.

Jews.

As well as given the kind of absolute cost target if the revenue from it doesn't come through what are you looking to manage it when a journalist basis, we'd be looking at cost income ratios. I mean, how are you thinking about cost for that because if the revenue doesn't come through.

From an Soc and then all else you want to go into more detail book.

When we talk to an absolute cost number in the region, so and on a constant currency basis.

No 30 billion.

When we talked a year ago, we talked about 31 billion in 2022, when I talking 30 on a constant currency basis in the medium term.

So that is also having taken into account a willingness to invest so that 30 billion.

His post.

Investment line.

Clearly, we're investing in the business because we see growth opportunities are and we believe it's right for the bank to investing those growth opportunities.

Clearly that's a dynamic we have to keep under watch as to how much growth is starting to return into the economy.

How much growth, we should be investing in.

But that target absolute number we've given you is on the assumption of growth and openly on the assumption of investing in growth and income.

Total a roundabout 6 billion over the next.

Five years in Asia.

But you and you want to add anymore.

And then.

Actually I think we've done a pretty good job on cost side for the last couple of years you remember in 2018, we grew our cost base by about five 5% in net year last year, we shrank by 3%.

Yes, that's a eight and a half percentage point delta or in the cost run rate.

As Al said, I mean, I think it really yeah, we're not targeting either jewels or what we're targeting is to get rich. It ends up materially yet I know what the day that we need to control costs, well John talked about earlier.

Growing confidence in generally about.

Very material productivity uplift that we can get from the investment in technology.

And that gets you on a very virtuous cycle the more productivity you drive the mall.

For the ability you have to invest.

So I think over the last couple of years, what you've also I say he knows we think flexible if we seen great.

Alright come down revenue projections come down we've adjusted we've adjusted our cost trajectory.

Yeah, We think we have got decent Nevada growth ahead of us and we think the cost plans that we set out a realistic for that for that revenue trajectory, but if things change we'll change our cost plan.

The other important thing when you look at the slides you'll notice the although the number in absolute terms remains the same from 'twenty to 'twenty two onwards.

Hum.

30 billion on a constant currency basis 31 on an FX adjusted basis, the nature of that cost changes, so you're seeing a high proportion of that cost base going into investment in technology, plus the red part of that Berkshire.

Seeing the beer you run cost the operating cost become a smaller percentage of that total cost base.

And that for me is where we then start to get the payback in terms of return on capital because with deploying more of our investment into taking our.

<unk> <unk>.

Investing in good costs that can drive revenue.

And drive enhanced customer experience.

For the balancing act that were trying to achieve.

Okay. Thank you for them.

Couple of questions for running cash from Citigroup.

First one is on the wealth business the wealth business in Hong Kong stuff from you always have.

Being very strong.

Why do you think your wealth business in Asia, Excluding Hong Kong has been less strong than what are what should we do it quickly with all six I think it's a great question for him to be honest I don't think we've invested enough in it I saw it of Hong Kong and outside of China or in the past and that's why.

Over the next three to five years. We go we're embarking upon a material investment program 50 per cent of which will be deployed outside of Hong Kong and China. So that's an important aspect of why we think we can succeed.

The thing I'll say on success is.

We're investing on the platform there is already very very successful in Hong Kong. So we're taking the learnings from there and taken them elsewhere.

Taking the clients, we fostered in Asia, and our commercial banking and global banking business.

Okay.

We're taking those clients into our wealth business. So we're investing on an already successful platform just to give you some statistics from 2020.

60% for the private banking net new money.

So I came in for the probably be bank last year came for all non wholesale banking relationships commercial banking and global banking from.

From 75% for the net new money from our asset management business last year came from those same vary those same sources commercial banking and global banking.

Non across Asia include inside from Southeast Asia, We have a very successful commercial and global banking business.

Which we're also investing.

And we see that as a source of growth for our wealth business as we put resources on the ground and as we enhance our product capability.

Wealth and asset management and insurance.

So that's why I think we can drive growth at a faster rate than we have done historically.

And the second question is more of a tactical question.

Again from Ronit from Citi, given your strong capital position, while you're paying quarterly dividends. This year. Please.

Moving do you want to pick up for that.

Yeah.

A couple of reasons I've been firstly on our side just a caution I mean I would note that we're coming out of a 100 day, a recessionary event, but not out of it yet so.

We're pretty pleased with how we manage our capital resources last year, but we do see value in having strong capital ratios at the moment as we recover out of Covid.

I think secondly, I'll say just from a regulatory perspective.

You you would all know that the annual cyclical scenario didn't get run by the bank of England at the back end of last year, we're sort of in the middle of running that stress test at the moment.

<unk>.

And yes, I think the news coming out of the U K I know it was pretty positive around COVID-19. So we're not expecting any surprises out of that but.

I think we'll take yeah, we'll pay one interim dividend this year in the middle of the year. If we can and then well revisit the approach to quarterly versus semiannual dividends next year.

Okay, operator, it back to the old airlines for two or three questions. Please.

Thank you. Your next question from the phone line comes from Edward Firth from K B W. Please go ahead. Your line is open.

Hey, good morning, everybody, thanks very much.

So I had a quick question really on the targets and in particular I come up with.

You use for you you said that if we were to redo our forecast for the current exchange rate, we should add about 1 billion of costs for.

For 2021.

Does the same go through revenue and I'm thinking obviously about consensus, but obviously the revenue you mentioned was about $1 6 billion higher.

Would it be if you had it at the current exchange rate. So should we be thinking about that when we're looking at our forecast for 'twenty, one as well.

Yeah, well when we looked at consensus.

It was obviously hard for us to know whether or not.

A weakening dollar being picked up we thought it probably hadn't been most people's forecasts that we published a few weeks ago.

But as I said, if he would use average January exchange rates for last year.

<unk> would have been one $6 billion higher than cost would have been $1 $1 billion.

So yeah as you work your numbers I think he definitely.

They think about the impact of the weak dollar.

It also impacts you know why we're sticking with I E.

$1 billion cost target for 'twenty two.

Which we think is a billion dollars hotter than what it was previously.

And amongst that one $6 billion of revenue uplift, it's roughly half and half across non interest income and net interest income.

Great. Okay. Thanks very much.

Question from New order it on please.

Thank you. Your next question comes from Manus Costello from <unk>. Please go ahead. Your line is open.

Hi, everyone I wanted to ask a couple of questions on the commercial banking fees.

If I look at.

This year, we delivered 1% Roe T.

And if I normalize for provisions, maybe you get that up to seven or 8%, but it's the biggest consumer volume anyways in the group divisional Lee and it'll be the biggest consumer of tangible equity so.

What's constraining the commercial bank in terms of its <unk> and how you're planning to focus on that specifically and then also specifically on the commercial bank are you still planning to recycle the RW ways out of you.

GBM and for U S commercial.

And if so why would it not be better to think about a restructuring of about U S commercial business and maybe adding that to your capital return plan.

Thank you.

Especially the commercial banking rotary in 2020 was impacted by two things firstly they are for the rest of the line provisions, which you've drawn attention to when you would need to normalize for that.

Hum.

Secondly, the impact of lower interest rates on what is a very liquid balance sheets and commercial banking.

So it is the inside of a material impact on the revenue in commercial banking in 2020 that were looking to reposition that aspect of the revenue decline by a greater focus on fee income.

Greater focus on repricing some of the FCB book.

And driving greater collaboration with some of the G. P and M fee income product range, which we had a very successful a track record of doing particularly in 2020 cross selling more capital market opportunities to see them be clients more tri generation fee income products to see them be clients.

More M&A activity as well, we were particularly successful in the <unk>.

In the U K day in Asia, but it's still early days on that transition into a low interest rate environment.

Rebooting the other sources of revenue and fee income for commercial banking.

With respect for the commercial bank in the U S actually pre Covid that was generating good returns both within the U S and when you add in the cross border referrals to other parts of the world.

Haven't returned from our commercial banking clients in the U S was strong so I don't think strategically.

That is an underperforming business the way we have an underperforming business in retail banking in the U S and it's one that we think from continued to generate good returns going forward.

The economy economies normalize after COVID-19.

Yes, just one other thing Ted Yeah, as you model it too I think customer activity was pretty metered and a number of areas. So you'll see in some of the fee income lines.

They were pretty depressed last year and again, we would expect values to recover as activity recovers.

Got it okay. Thank you very much guys.

One more from the order line then we go to a couple written for you from Hong Kong.

Thank you your net.

Next question comes from well from JP Morgan. Please go ahead. Your line is open.

Good morning, everyone. Thanks, so much for taking my questions.

Perhaps if I can stop.

On the tangible equity allocation slide again, I'm, just trying to understand this two percentage point shift per year.

Talking about to get to book, 50% Asia over time long term.

What are the constraints to growing faster than that do you think that's the sort of addressable market and obviously your franchise. The majors, obviously very strong for us that the fastest you can go within the addressable market of major or.

Are there other constraints.

We currently do you think golf, right, now, which might be bringing oh, well, maybe some conservatism in there and also does that assume the U S.

So in total, but if you sort of target.

Mix of the businesses and I've got a second one on maintenance that's okay.

Let me just clarify a couple of comments on the reallocation of tangible equity what we talked about was a reallocation will run about 800 basis points essentially from west to east.

We also said there was a reallocation of tangible equity by business line as well and that's about it.

Uh huh.

1000 basis points from 10 percentage point shift out of global banking and markets utilizing that equity in.

Two other business lines, such as wealth and commercial banking.

From those two things obviously overlap to a degree.

It's coming from the west principally out of global banking and markets in the U S from Continental Europe, which are low retail markets for us.

So the return opportunity in Asia.

So we're in the process of as we said running down.

Parts of our book in.

In the U S and Europe.

And reinvesting the LOE saved autobody ways into Asia.

That's got to be doing in a you know.

For an orderly manner it called the and we've made good progress from a 50% gross I'll do for you I savings in the first year of life alone. So I think you should view it as we put in pulling the order value wise out of a lower lower return business global banking and markets and lower return geographies Europe and the U S and.

Your line into Asia, and wealth and commercial banking and global banking in Asia.

Alright, thank you.

The second one I guess was more on NIM and I Wonder if you and one where I would start with this one I was just wondering if you think about NIM has non stabilized it was only down two basis points in the last quarter.

Well I mean, as you know grow the H back NIM is very short dated in both for the asset and liability side.

Yeah by sides effectively repriced spot on a one month three month basis.

And it's highly dependent on the path of near term viable which continues to be very volatile. So.

I would be hesitant to you.

Say that we've reached the bottom I mean, certainly so far this year high both me very very weak.

Yeah, I think we're more optimistic that there is some upside during the year.

I'm not going to predict the path of high ball and say that we're.

Yeah Theres no further weakness in NIM as a result of nights Brad.

Got it but if I look at slide 45 for your core to your high baud assumptions laid out you've got 43 basis points from my board from 12 basis points, and then rising up.

But at night as always had been 13 basis points, so far in Q1 for sale.

Alright.

And I was just wondering whether other factors apart from <unk> might be more at play here, but it sounds like hybrids to the main driver.

Idaho is still yeah, we've repriced most of our liabilities at this point, there's probably some modest but the biggest driver of that NIM will be the trajectory of high level. This year.

Thanks, so much.

I've got a couple of written questions, which we'll readout routes for city tie directly for Ya reallocation is organic.

Couple of questions.

One of them Whitson for Manulife in Hong Kong, how do we measure the success of your digital investments in terms of revenue.

Revenues cost for risk management, what are they sort of a rich if we should measure for successful go to total investments. Please.

I think it's a great question and I think we need to do more on disclosure on the return we're getting on those digital investments I mean, we measure that internally we have every project tracked.

Understanding the digital penetration rates for the automation was taking place, but I think we should share more of that information with you as we go for with Germany is there anything you'd like to add.

I mean, one we have a technology strategy that spans the bank that has a line with every single business objective both on the revenue side and the cost side and the risk management side I think your question when some asked about all three.

And there was a very extensive process in an ongoing process to tick and tie all of those so when you hear Peter talk about growth in Asia. There is technology that underpins that when you hear you know talk about the wealth program. That's all connected to the technology objectives. When you hear our cost targa.

Is there a specific technology objectives to take those costs out and we are investing a lot in operational resilience as well from a risk management perspective. So it doesn't all says we've got all that internally happy to share that as appropriate in more detail.

Yeah, no if I sort of look at what we're doing in finance for as an example, yeah. It really depends on the project and the metrics.

We're putting all of our reporting on.

Onto the cloud and creating a single data set as part of that over the next few years.

Yeah, we've we've done liquidity reporting over the last year or so we're just starting on the risk weighted assets and one of the markets at the moment.

Yeah, we're processing 18 times more data eight times foster share of 150 times improvement.

We've taken out a whole bunch of manual intervention, so the control environment materially improved.

And we think when we finish that project, we'll be able to take costs down and financed by food.

But the main benefits are going to be much much better.

I much better reporting and a much better control environment together with the significant uplift in productivity software.

We're tracking all of the above on that project. Let me give you a couple of facts just quickly but these are the sort of things, we should probably share more regularly with you.

90% of all personal banking transactions are globally, our own digital platform.

We had 1.28 billion logins to a postal banking mobile apps in 2020.

We had over $10 5 million Chuck conversations with all total banking customers last year on line.

We had.

820000 downloads for the HSBC net corporate Treasury mobile a lot.

Which we recently developed and upgraded.

In 2020.

That represented a run about 150% improvement year on year on its utilization rates.

They're the sorts of things that we're tracking on how digital investment is transforming the way, we do business, but we will come back to you and share more information about future updates.

Yeah, I think that you have anything to add to that the other side of it is always say, yeah, a very meaningful shifts that obviously got accelerated last year end.

A reduction in traditional banking side cash cash transactions across the gains in branches.

Down 25% last year.

Taxane for volumes in what we describe as can be a traditional contact St. Joe conversations for down 11%. So one thing Covid has done I think is dramatically shift.

Away from.

Some of the old economy stuff towards digital.

Second question from the written questions before we got for Tien from Citigroup Hong Kong.

Could you just sorry, it's a bit better for us.

The opportunity for you in the pinnacle and wealth investments, particularly in the credit to play area. How are we talking about hundreds of millions of dollars billions of dollars can you give it for the quantification net lease.

No no did you want to pick up some of your thoughts and so it's still early days on clinical but do you want to share some of the early results from what you see sure.

So in mainland China as we know we.

We launched the pinnacle wealth venture.

We started because we the first for in Fintech license in mainland China by the way.

In the first six months as we hired 200 of the relative planners.

They are very well equipped and trained.

They are performing above expectations at this moment, both in terms of value of new business and in tickets ticket size.

We expect to scale up by 3000 by 2025, uncover 10 cities and.

And by the way. These here, we expect to scale up that number of about another 600, we believe we can do it and.

And what I would like to call your attention to this he is not just uninsured in shred. It introduces a wealth strategy, okay and that's the way we are actually growing probably just Asia in mainland China.

Non mass markets non branch space strategy.

It's a digital enabled strategy with personal wealth centers.

Is there anything that you can share because of zone, what do you see as the opportunity for wealth in China for HSBC, particularly in credit Bay area.

Okay.

In February.

In February the there is an Mou signed between PD Oc day.

The BRC.

Uh huh.

Between them and also with Hong Kong and Macau.

Right.

The Mou is about is about neutral investment between the greater Bay area and Hong Kong.

And that will have substantial potential for us.

Pinnacle project that we're doing right now it's actually also getting ready for that because when when the investment when the mutual investment.

Is.

Uh huh.

It's pushed between the two is pushed between greater Bay area in Hong Kong, We're the leading bank in Hong Kong with the quality products. They are also the leading foreign bank in China.

So the pinnacle will work very well with the with the with this strategy because there won't be selling.

Wealth planning.

In the greater Bay area.

Okay. We've got time for one or two more from the order lines I'm, sorry, Rob factory operating please.

Thank you. Your next question from the phone lines comes from Guy Stebbins from Exxon BNP Paribas. Please go ahead. Your line is open.

Hi, Good morning afternoon, and thanks for taking the questions and the first one was just on an all in building on some of your previous comments.

First of all being on interest, earning assets if we take the key for position adjust for FX then reflect some language. So as you suggested for late this year would it be fair to assume.

Just any assets should be up quite meaningfully versus the key for position at least in dollar terms, perhaps a mid single digit.

And then on the NIM, obviously grew in Q4, but you pointed to some headwinds from from hybrid et cetera.

I mean, if one was to assume mid single digit reduction in NIM from here given that interest, earning asset finance guys seem to point to three 4% uplift to consensus Eni in 'twenty 'twenty, one just trying to get a sense as to whether that sounds.

Reasonable what I'm being a bit too optimistic given where LIBOR is so backend nature of the loan growth for this year and then just a quick follow up on all of you. Thank you very much for the disclosure on the $40 billion to $50 billion regulatory headwinds I'm, just wondering whether you might be able to break that down to total between asphalt TB other Basel III components and other regulatory changes.

And.

Is there anything sort of beyond 2023, we should be factoring in obviously with the output for but I just want check anything sort of residual deal not what you would expect to be much less in magnitude. Thank you.

Yeah, so on Apple.

Apple for us.

Yes that will have an impact on us on the current modeling in about <unk> 27 to 28.

Bob.

It's a longtime Hawaii and yeah, we would expect to have them work on how would we mitigate some of that impact.

So I think I've given you all the inputs out to 'twenty three I'm not going to comment on the individual breakdown of all of that into a sub component parts, but.

Net interest income.

Yeah relative to consensus I guess, just two things neither one of us.

I think consensus was modeled.

Whereas we disclosed included the impact of dollar weakness, which we think would have added about $800 million.

So that in a way that wasn't your numbers and.

I think we are more optimistic as you would expect us debate, but probably more optimistic than consensus which had quite low volume growth last year.

But some of the other headwinds I think would act as a partial counterweight for some of that.

Okay. Thank you.

We hope we have time for one more question for me for their launch phase of nimble will wrap up.

Thank you you'll final question from the old. Your line is comes from Farhad come a lot from Redburn. Please go ahead. Your line is open.

Hi, Thanks for taking my questions and thanks for all the detail there just two quick ones.

Tangentially on net.

The first one is your rate sensitivity on a 12 months basis has gone up it looks like it's pretty much all in the U K.

Understand what's really driven that.

And why you don't think your U S rate sensitive.

Well it would have gone up as well.

Hong Kong as well of course and my second question was just I know in your answer if you go from the commercial business is talking about.

Asset repricing, that's being one of the pillars of.

Revenue growth normally wouldn't be seen excess liquidity we've.

We've seen the opposite in the sense that actually competition.

Brings margins down because I was just to understand like what do you see on the ground.

Underlying asset margin competition, given I guess very high liquidity across the board from all your peers, both global and local thank you.

Well just we are seeing some early signs of absolute repricing taking place.

Clearly in Asia.

I Wanna logo promise on the quantum of that but we are seeing some early signs of that in the second half for the last year. So we do believe that he's a viable option for them.

Mitigating some of the overall <unk>.

She was on NIM from lower interest rates.

On you and.

In the U K again in the mortgage market actually we've seen.

Better spreads and actually our share of new business has gone up and.

So yeah.

Yeah, I mean, we're not.

It's not on the Com, we are actually seeing improved asset side margins in a number of parts of the business at the moment.

Yeah on the interest rate sensitivity in the U K I think it was mainly driven by higher.

Short term assets and liabilities.

So, it's particularly on the liability side, which has gone up materially.

If you look at the.

The liquidity in the U K, it's very very strong run for months.

Thank you for.

Flow up how how do you reconcile I guess looking ahead to the high liquid you're talking about.

And obviously in Asia.

Stable assets.

What's different this time for us to kind of think okay repricing can hold instead of debt.

With that much liquidity around.

Hi.

I went through the G F C. A life after the GSE and we saw Rossi repricing, taking place there as well.

And I think Peter your track record in Asia with dealing with low interest rates environment Post J F. C. Do you just want to share some of your thoughts about how you handle that in the past.

Yes.

We remember back in after the Lehman crisis, the interest rate scenario was extremely low.

We were able to between 2000 and Tanja until 2019 total income went up on a compounded basis by 6%. If we look at 2016 for 2019, it would be it would be 90 per cent.

We are accustomed to dealing with low interest rate environment, and we're able to reprice our assets Oh.

It said portfolio and also change that makes up our deposit portfolio.

That's perfect. Thank you.

Yeah.

Okay. Thank you you know to somewhat thank you well. Thank you very much for your questions and for taking the time to be with us.

Just want to remind you of some of the key messages, we shared with you earlier in the in the morning.

First we have executed all promises in 2020.

Second we will do the same again in 2021.

We are pleased that we've been able to reactivate dividends.

And we've tried to position the new dividend policy.

To be able to support both good yields on good growth.

And for that growth, we're willing to invest in the businesses, we're confident in our opportunity our ability to drive growth even in a low interest rate environment, and we're willing to invest to make it happen.

Net investment program is material and it's different from what we've done in the past.

We look forward to discussing our plans with you on our progress over the coming weeks or months.

Each of them and the team are available to you. If you have any further questions, but in the meantime stay safe and have a good day or good evening wherever you well. Thank you very much.

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