Half Year 2021 Standard Chartered PLC Earnings Call
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When it comes to standard chartered plc half year 2021for shorts. Today's presentation is being hosted by bad Winters Group, Chief Executive and on behalf for groups Chief Financial Officer. Once your opening remarks have finished it would be and opportunity for questions and answer.
That's a good question over the phone. Please press star 1 on your telephone keypad at any point during the presentation.
And I think Lee. Please use the question books available on your webcast page to submit your questions at this point I'd like to hand over to Pete to begin.
Good morning, good afternoon, everybody. Thanks for thanks for joining our half year results and velocity.
And here in Hong Kong and he is in London.
On a couple of things across and he will go through a lot of the details on the on the have you reported I'll come back for a few other comments.
And we will try to save time for question and answers.
Low for sure, but he was very good.
And as a strong first half for the year.
Profits were up significantly on the back of a much improved non apparel story.
This would take its fundamentally attributable to the high quality of our credit portfolio. The numbers are not satisfied by peak and reversals of provisions, but rather by low underlying losses.
And at the <unk>.
The impact of.
Low interest rates clearly has taken its toll on our and good luck and all that was essentially offset.
Very strong underlying business momentum. So we look at our affluent population and affluent client segment continued to perform very well record results and the first half of the year and the outlook for that business is very strong.
Our business and continue to deliver.
Kicked on the strong results and trade against the backdrop of a stronger global economy and improving credit flows.
And then get back into meaningful profitability, and our mass market business and of course, our sustainability, which we'll be talking about is at the early stages of contributing to the material increase and income that we expect from that product line over time, we're very well positioned for that.
In addition to billing day strategic levers that we've been talking about for some time.
We are continuing to work for capital very hard so.
And <unk>.
Restored our interim dividend and the interim dividend and have announced a new $250 million stock buyback.
The objective here is obviously to operate well.
And within our 30% to 14% CET, 1 ratio and we will continue to operate within that range and adequate debt.
And bond with ongoing cost management.
And will drive the improvement and returns.
<unk>.
And targeting for some time I will say before I hand over to Andy that our covenants.
But those targets are achievable and only increased and increased I would say maturity on the back of the operational improvements that we've seen and the early part of this year and against the backdrop of and improving macroeconomic situation notwithstanding the outdoor and uncertainties. So Andy I hand over to you and then and I'll come back for a few comments later.
Okay. Thank you Bill and.
Good day to everybody.
A few slides on the numbers so slides 5 to pick up the highlights operating income 7.6 billion and for the half year down mid single digit percentage with try and momentum, which was strong but not enough to fully offset the impact of the rates.
That shows, particularly and the first quarter.
Expenses, a little higher but it's exactly as we expected higher because of normalization of variable compensation and because of foreign exchange translation. The big change on credit impairment of 1.6 per diem charge for the first half last year and it becomes a 50 million total.
Credit for the.
And first half of this year with most indicators are moving in a positive direction.
We have reduced slightly the management overlay, which was 350 million and now it's $300 million in a rising.
Members.
Put together it gives us non Florida.
For $2.70.
And then which is up for.
Some percentage and the flow through it back to even some ritzy is alrighty print for the first half of 9.3% and.
In terms of the balance sheet, we have seen very very encouraging and strong credit for loans and advances to customers up 6% EBITDA states up to 6 months.
<unk> ratio at 14, 1% as you would've seen and April 3 commencement of interim dividend and the announcement of another share buyback $250 million, So I'll second what and bolt yet.
Let me think go into the numbers, there and a little bit more detail can move on to slide 6.
This is a walk on the top of the first half of 'twenty, 1 income compared with the first half 2020 income you can see about $460 million reduction. This is on a constant currency excluding PPA basis.
And the effect of interest rates is a very very clear on the right hand side, So transaction banking cash access services and retail deposits and soon.
And to get booked as a balance of $750 million drag between parents.
And that's as being cushioning and reasonable path by the strong performances on the products on the left well on instruments, which will come on and submitted but had a record per rig.
And mortgages strong.
Cash sort of trade and transaction banking for for a strong and lending also strong.
And the Austin chalk and he's doing the walk between the first quarter tends to go into the second quarter 'twenty..1 so about a $250 million reduction that pulse advance is will punishment not quite as strong as in the first quarter still strong, but just not quite as strong and we had some realization guidance in treasury and <unk>.
First quarter.
And did not recur in the second quarter I think most importantly, the impact of interest rate reductions on the right hand side.
It used significantly competitive with what we saw for the full period and the Arris engraving mortgages et cetera continues and speak the ones Thats moving forwards.
So on slide 7.
We have built the net interest income summarized and for you can see on here for all we have a balance for 7% reduction and the net interest income. So it's tough playing first half last year.
And that was really a story in 2 parts. The first quarter. We saw the net interest margin dropped by 20%, which was clearly very difficult to come up through client growth.
In the second quarter.
And while it's more in the 6% to 7% range and in very large part that was made up through the strong price growth.
Now with even the numbers here for the first half we have growth and adjustments favorable adjustments of $73 million. We did not previously record income from impaired assets. We have now aligned with what the industry is doing.
And there will be simple to come on this so we would expect probably a similar amount that comes through in the second half and possibly more in the first quarter, a little bit and the fourth quarter.
So that has given us in first half for $70 million benefit from income, which is worth about 5 basis points.
The name on and adjusted basis for the type that has declined from $1.92 to 117 and <unk>.
Actually 3 reasons for that first of all Hi, Paul has continued to decrease slightly more than we had hoped for earlier.
Secondly, we did realize some treasury gains during the first quarter and those have been for the movements for investing in.
And cash.
Although profitable opportunities to invest we will move from.
From that and thirdly to assist the routine and bear in mind and 9.3% breaking print, we did do a bit more repo activity.
Lots of pulse, both the parent and therefore packs. So it's been a fixed rate, but mathematically slightly detrimental to NIM calculation.
The key point just to reiterate is for the customer growth remains strong and for what we have seen those 2 pretty much net each other out during the period.
It's a can move them on to slide 8 so just to take a quick snapshot on a couple of product areas. This is wealth management. This is the income print going back over 10 quarters, the balls and Cros are showing the average income in each of the first half year is for the last 3 years you can.
Can see quite clearly here that whilst 2020 and 2019 first half on average pretty similar we have seen a big jump in total seaborne and encouraging jumped that so the first close to maturity on particularly strong, but even that should second quarter is the third highest and it's based on the areas that has continued.
To do well as the investment we might here I think has been paying off and.
And we have seen an increasing proportion of transactions getting through digitally after on the management is at record levels and we have been very very enthused by the progress, we're making and this is credit growth across a number of markets, Hong Kong, China Korea and Singapore.
All of them pretty well.
Moving on to slide 9 the equivalent chart on financial markets with the slides for the different profile.
And so 10 quarters again now you can see that the 'twenty to 'twenty..1 first half is fractionally low about 3% low ex DVA.
And that was the case in 2020 box and strategy for the reasons. We're all familiar with most a very exceptional period and actually if you compare and what we've experienced first half this year with the actual experience to your scope and 2019, then you can see a very very significant increase and the performance that.
And the first half we were particularly strong in the credit space and less so on the macro space, but for all of the financial markets performance has been very strong pretty resilient and we again are enthused by what we see a good exit to the quarter.
Moving on to the view by customer segment and by region I'll keep this reasonably high level, we are now.
So it's hard for you we've been out in the 2 customer segments corporate side.
It's roughly 60% of our income and the consumer side, both on electric which is about 40 percentage of our income so and corporate side went slightly backwards on income does 90 is almost exclusively in the cash management business the rates affected part of the business. The rest of the prototypes for lake were pretty level.
We have tight controls on expenses, we saw a huge proposal and credit impairment and consequent and play profit and full tax up 42% and return on tangible equity for the corporate business now just about 11% the.
And the consumer business on the other hand, and she saw a slight increase and income.
Wealth management income and mortgage income more than offsetting the pressure on the deposit side of the consumer business credit impairments also low about 1 fifth of the level of a year ago and that's enabled the near doubling of the profit for that segment and for the road seat now.
14.5% incremental jump from last year.
In terms of the split by region on the right hand side. The biggest region. Obviously now is Asia.
Volume and 2 Asian regions into 1.
I think a steady performance and so despite everything that's been going on particularly on trucks bright effects, which have been significant the income to actually was pretty much flat on a year ago and we have seen a good performance and a number for the markets that I think are particularly called out China.
And second course, they're about 20% increase and income career actually also 20% increase and the second quarter.
Hong Kong and that's been very resilient and.
Bill will talk more about that and the minute and India. Despite COVID-19 has also been very resilient and again, but we'll pick that up and a minute.
Africa, and Middle East Inc.
Income essentially flat slightly stronger in Africa, and slightly less from in the lease.
Overall again and impairment driven we have seen the operating profit for the pre tax profit.
About 5 fold.
<unk> record levels going back out for I think now 5 years and.
And then finally, the Europe and Americas slight reduction on income.
And I'm really about financial markets volatility et cetera.
But fairly stable on the profit before tax.
So moving then on to expenses on slide 11, so probably the most important chart I think it's all the bolts on to say, we printed for $7 billion for the first half of the year ago.
If you normalize for foreign exchange and normalize for outperformance relates to pay you explained that the vast majority of the increase of $5.1 billion print the small delta between those 2 it's very deliberate delta we have invested more and digital ventures.
And an increase that is investments in businesses like bulks, like Nexus, and Indonesia et cetera, and that is clearly and areas that we offered deliberately targeting and we are.
Reiterated our full year guidance remains as previously low $10 billion plus the FX adjustment pulse pulse to place some increment on performance related pay depending upon how the financial reports for the year overall and it's awesome.
So moving then on to slide 12 on the credit front and as I said earlier.
A significant reduction reduction and strict reversal and and most of the indicators here I think are looking and recently settled position. Obviously, we are keeping a close eye on them.
Credit quality, you can see from the various charts below after the peaks and that.
Went through in the early stages of Covid, which I think a very physical and wholesome less chart on.
It is now settling down and it's actually quite interesting on the alerts if you separate out aviation and hotels and tourism.
Very simple and out to the levels that we were at pre Covid. We have built strong cover ratios there and we have got and I think the vulnerable sectors are relatively manageable possible for the overall balance sheet and related subject to relief is also reduced payroll day periods and.
<unk> to date and so whilst we noted that there is still obviously some pressure points out that the direction of travel looks good and we've said for many borrowers.
Barring major events with their own and see it but we would expect the impairments will remain at a low level.
So moving then on to slide 13, the low risk weighted asset and <unk> chalk, so nothing particularly memorable I think hits the <unk> growth very much in line with the growth that we've had in <unk>, which is the site has been strong and we are working very hard on the Max.
Most of your returns on a risk weighted asset still intending the full year, we'll see about the mid single digit price in auto and <unk> overall, and the CET, 1 and that the 14, 4% from last year are operating very slightly to $14, 1, but essentially the investment in part loans et cetera, they offer for guidance.
Told that and profit after tax broadly offsetting each other for $250 million buyback, which will decrement for $14..1 point both in the next quarter and of course do remember we have got software and here, which I'll touch on next year will disappear and that's about 3 and so you take those 2 out what's it all up on volume.
13.8, 15 settlement after the buyback.
And completion looking ahead, we are enthused by what we have seen and the first half of the year and more.
Most of the NIM and slightly weak and the customer credit slightly stronger and therefore, we have continued with our guidance that we would expect the income overall for this year and stimulus loss share on a constant currency basis.
And that will get put back into the volume 7% range from next year onwards, and the expenses are set reiterating the guidance that and because they haven't we would expect it to be low for the remainder of this year and on the capital. We will continue to very actively manage that within the range most of that going forwards and we will.
And she is dynamic.
And so that center opportunities, we will invest it or not we will return on it.
With that I'll hand back to bill.
Great. Thank you and I think so.
Just picking up on page 16, why are we confident that we can hit the <unk> targets, including the <unk>.
Milestones that we set out a long way of increasing return on.
And it ought to be about 7% and 2023 by essentially free and then.
About 20 percentage, sorry, about 10% and the medium term, while we're pulling every lever at our disposal.
We know we've got a backdrop of good strong business momentum.
For coming the impact of lower interest rates.
So for a little bit determined on it.
Loan portfolio appears to be and very good shape. So we're very happy with the credit performance through the cycle.
And it would appear that debt as we return to something closer to our normal through the cycle credit cost that doesn't.
And I think quite a bit longer than that.
And otherwise and of course, what we learn.
We're maintaining our discipline to.
And just see if we can reset that through the cycle and credit costs.
We will operate dynamically within this 13% to 14%.
1 on capital and as I think you said that.
Dividend and buyback will take a stab.
For the kind of change and about 13, 7% searching acreage and that leaves us with plenty of capacity to invest continue to invest organically as we have been and.
Investing is lessons here as we ever have but also to take advantage of inorganic opportunities should they arise.
And as we've always said to the extent that we're looking at and inorganic opportunity we'd want to see that there is a very important strategic fit.
Also debt.
And the returns would be.
And excess of their terms and we could get by our other uses of that capital whether that's organic uses recognizing that we're already pretty fully invested right now organically.
Or obviously, returning capital to shareholders and the form of buybacks.
And.
Bottom line, we feel.
Very comfortable with the performance and the first part of the year and comfortable with allowing us.
Going forward with confidence to underwrite track to hit the financial targets that we have set that up and continue to force.
Now on page 17, and page 18.
Digging a little bit on Hong Kong and China.
In addition to being in many ways the earnings core of the bank and <unk>.
And also some of our most exciting growth opportunities and on page 17, and Hong Kong and in nutshell at what we see is return on tangible equity and the first half for 2021, despite the impact of lower interest rates and hydro LIBOR compression and we're back almost to the record RFP levels of the first half of 19, and this is driven by capital efficiency.
But presumably income growth and then you mentioned the very strong growth results.
As well as the interplay between Hong Kong, China, and the opportunities that we've been able to exploit to provide our clients and cross border services, whether it's and payments or financial markets or capital raise and now increasingly and going both directions at Hong Kong, China next it is critical and important to us and driving substantial growth.
That in addition to these are very aggressive digitization strategies that we've been rolling out and Hong Kong.
Mark will talk about a little debt when we get to 2 the digital initiatives.
Give us and gives us confidence and this earnings engine is.
Able to not just thrive and continue to grow.
Look at China, China has had very very strong.
Compound growth and income and profit over the past several years.
So when we look at first half 'twenty 1 profit at a record level, we look at double digit return on tangible equity and income up 20% year on year and you just.
Coming from from good solid banking business and this is coming from from cross border payments and trade growth.
Cross border, obviously, the financial markets and associated.
Doesn't do and significant growth and our wealth management business and we're just beginning to tap into the opportunities that are created through the policy listening around the greater Bay area, which as you know is a set of policy initiatives that have been and that's why the leadership of China to open up the border effectively between Hong Kong, Macau, and Guangdong Province.
We have a strong position very strong and Hong Kong, and very strong and Shenzhen and Guangzhou.
Including setting up a new operational hub in Guangzhou for.
Technology and operations. This this opportunity for us to exploit the very strong position strong brand.
Super from legacy positions as well as penetrating the new economy.
Has driven a lot of our growth in China, benefiting Hong Kong as well and will continue to drive that growth. So we feel very very optimistic and.
In fact increasingly optimistic about the opportunities and that greater China markets.
If I could turn on to page 19 to hit on these 4 markets that we called out a couple of years ago.
And some of the bigger drags on our aggregate returns and I'm happy to report that we continued to make very strong progress I would say in some cases against the odds.
And the results had been very strong with compound growth and income of 15% over the past 3 years continuing strong into the first half of 2021, despite the horror so when you try to witness firsthand.
Around the revenue.
This is on the back.
Increasing penetration of our corporate customer base. Good this is back and close and an increasing shift of our of our retail business to the affluent population, but also a heavy heavy focus on digitization. So feeling very comfortable about the progress that we're making in India.
Great success story, and then when we think back 345 years ago, and what a drag it wasn't our returns and to see how generating record profit and with good steady income growth excellent cost management and and and.
And improving.
Return on tangible equity, we're very comfortable that we're on the right track and Korea still a very difficult market, making a mistake, but we've made tremendous tremendous strikes and that market and if there's an indication with respect and accomplishment it sets its Michael.
You and your big turnaround obviously.
I believe on impairments sorry last year much improved this year.
Income has been sluggish, but we manage that through reductions and expenses and improvements and the capital position to generate substantial increase in operating profit.
Indonesia and more challenging environment.
Little bit more attractive on the income side.
And managing our costs.
And it continues to be a challenging period and.
And certainly from a macroeconomic perspective, and the pandemic consequences and engineers have been typical but we think the franchise is fundamentally and good shape and that has the ability to improve.
Essentially.
So if we move on to page 20 come on to bid on leave and she said the network business as Andy mentioned very good growth and trade volumes and improvement in trading income on the back of an improving macroeconomic environment, but also as trade flows and reconfigure and supply chains, and we configure and we're seeing more and more of our credit business within <unk>.
On the Asian region, and Asia Middle East Africa.
The us China trade continuing strong despite the geopolitical tensions.
But and increasing share of our business is coming from the regions and the markets that we actually know very well and that combined with very strong financial markets results are driving the higher return on tangible equity and debt <unk> and the network business relative to the rest of the <unk> and we expect that income.
Especially.
Recognizing that the overall impact of the interest rate the production and <unk> have been material, including on the network business.
Turning to retail on page 21, and 2 blocks from our business as Andy mentioned I mentioned record results on the Epsilon client side.
<unk> hundred 62000, new alcohol and colleagues clients and importantly, 2 thirds of those income from our mass market client base and these are the 3 designations.
Of clients from 1 bucket and the needs of clients and increased their assets under management with us to cross our priority threshold and.
And it can be like that of course is driving the wealth management results.
Why is this working well first off we're offering and much higher level of service to our mass market clients.
And basically.
And our digital offerings and better customer service.
And obviously increases the brand affiliation of the sites, we're exposing them to our wealth management capabilities, which are which are excellent net promoter scores just coming out. This week reinforced for very very strong position. We've got in terms of relative positioning with debt prior to client segment.
And many of our markets and top tier and virtually all these are encouraging signs.
Around the average growth growth of our asphalt business, but also around the ability to migrate our <unk> customers to Atlas as we increase our net space further and further.
The best retail business itself.
And so pretty excited and rollouts and digital initiatives and excess which is R.
That means and service offering and Indonesia offer and the full range of banking products through the Dropbox initially e-commerce platforms.
Technically going very well, obviously, we're still investing all the full public launch later on the year with a later on and if important credit products over the early part of next year.
And that combined with what we've done weighted locks and the early stages are actually the advanced stages of planning for a Singapore Digital bank the African digital bank.
And the ongoing digitization of all of our businesses and when combined with a specific focus on accrued and the profitability of our credit card and personal loan business are taking that net business and reintroduced and growth and also giving us a clear process of getting to returns and that can be accretive to the group rather than the drag that they had been in recent years.
We were shipping flip the page 22 on sustainability.
Our objective has been.
And Jeff had said and dual versus to be a thought leader and space.
There are some incredibly challenging.
Situations for our clients and therefore for ourselves in terms of transitioning to net zero.
And our MNC customers are requiring their suppliers to have their own physician plants, even if some of our markets haven't articulated and sovereign objectives and government objectives around transition and net zero debt.
The pressures on our our supply chain clients. Nevertheless, we're helping them to understand their exposures, but also to finance the transition to net zero double dose and sustainable finance income year on year.
Evidenced thought leadership in terms of.
And the tradition pathway to net zero for our bank and for a number of industries that are most important to us and plenty of oil and gas metals and mining shipping aviation, where we thought we put up very very specific thought pieces on the transition to net zero identifying what the financing gap SAR and then seeking all the possible needs to close them.
Page $23.24.
A quick summary of the various digital initiatives that we that we have undertaken.
So far and that they go into a lot of detail on this you can read the slides, but we're also going to do a deep dive in September and whats.
But I would say, though is that these new centers breakdown into basically 3 things.
Together with the digital initiatives inside the main deck.
So first of all things that we just need to do because our customers and Adam you call. It table Stakes.
And to some degree and what we've done with the App and digital banking and some of our other ventures had been tables and so these are things that we need to do to just keep pace for the market, but what we've done it's in many cases and putting the African digitalized distribute them sooner and faster, which gives us actually and the ability to create initially many platforms and then ultimately much more from central Bank.
And congrats essentially.
The second bucket and things to consider.
For platforms that we're building from scratch and when we look at locks or would have been solved and and yes and lots of our digital bank in Hong Kong for all of Us and SME platform and India, where our standard covered is a participant.
And now the material for participants as a platform for Smes to identify.
And connect with their suppliers and their customers their financial services providers that professional services providers.
And on testing that but we've got 60000 customers on that platform we've got a.
Now for 3.5 percentage of the population of Hong Kong signed up to locks with leading customer satisfaction scores and these are opportunities for us with our partners to create platforms.
Could become.
And it's sort of ubiquitous usage tools and.
And some of those markets and then the third our outright new business models that we developed and when we look at things like Adobe and which is our digital asset for sodium or assembly, which which we've recently emerged from currency pair, which is which is a new approach to cross border payments.
Primarily for the digital economy.
These are the business models that debt.
We will disrupt existing business models that could disrupt purchased and chartered business model and of course, a decade and each of these cases, it's create these valuable platforms and.
Our valuable business models.
<unk> rather than have somebody else do it to us and debt.
And also giving us a tremendous opportunity to reconfigure our own businesses and anticipation of the competitive threats that are coming because we're developing some of those competitive threats ourselves.
If I can move to page 25, and talk about something that we initially called out our bold stance will come from central short now.
These are a set of <unk>.
Aspirations and go beyond our conventional budgeting and planning process and these are is our aspirations that are an extension of our strategy, but we think could have a meaningful impact on the communities and which we operate and you can accept that we commit ourselves out of our own day to day routines.
It can get us to a different place in terms of our own impact on our on financials.
In short accelerating to zero as a way to go even faster to get your debt net zero economy.
For identifying the transition and financing tools.
The metrics that we can use bringing together different pools of capital and and partnerships in order to debt.
Pace at which we can progressed and net zero.
And the thing participation is our attempt to take the extensive network that we got through micro lenders for our own business banking and partnerships that we can set up and through our retail and therefore banking propositions and in particular, the emphasis that we've placed over the past several years on promoting female led businesses.
And the launch of new orders or women and tech.
Made tremendous advances in terms of empowering debt relatively underrepresented group of clients and potential clients of ours, where we know there is a substantial multiplier effect in terms of the creation of jobs well from local communities.
And finally, we set and globalization recognizing that globalization itself has been the greatest contributor to the alleviation of poverty.
And it also credit question your hardship on the part of some of the people that were left behind and it was characterized and 8 cases by elements of and quality.
Or or on fairness in terms of trading patterns or the distribution of the gains of globalization. So we've taken a step back and are developing as I said, its part pieces and that action program.
Understand how can we incentive chartered back from a good clean and fair trade balance equitable and a way that allows globalization and benefits to be realized without citing back into and too many of the negatives.
And have generated consequences for us, which we're living with today.
If I can just conclude on page 26.
We're absolutely committed to hitting our return targets and very confident that we can do so.
On a managing director.
And at that age of the business and I mentioned that we got pulling every strategic lever at our disposal managing our capital heart and continuing to manage our expenses extremely well and that.
Hesitating to innovate and to disrupt more on all of these things of that and Q&A, but also and our sessions with investors to come over the coming months.
Thanks for again for for tuning in and listening and look forward to a good robust set of questions and answers.
Can we turn back to the moderator for some questions. Please.
We will now begin the question and answer session. If you wish to ask a question for you or would you. Please press star 1 on your telephone keypad and wait for your name to be announced.
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Your question.
And the first question comes from the line of Omar keen on is from credit Suisse.
Sorry on Mark just disconnected.
First question comes from the line of Nick <unk> from Morgan Stanley. Please go ahead.
Thank you very much and thank you for taking my question and for the presentation and.
And it's just a question about those those income targets for the second half of the year I guess from full year and Q2.
2 points.
Any indication as to what the size of a catch up would be and the second half, which you mentioned and probably more substantially I just wonder if you could talk a little bit about.
Your assumption is on financial markets revenues for the second half clearly.
Second half last year, obviously fell off from a very strong first half. So just wondering if you could talk about seasonality and what sort of I think on the you mentioned that there were indications and very strong net into Q2, so what sort of indications you're looking at that give you confidence on that on second half financial markets revenue.
And maybe I can start off with your second question Nick on tenant.
Free markets and I'll, let Andy answer the tougher question and the bigger question around the aggregate impact and in the second half.
Our financial markets business has been steadily improving.
And suddenly improving both in quality and quantity.
And he showed that quarter by quarter size. It's of course, it's also volatile we recognize that and the first quarter was exceptionally strong second quarter results for a strong although not compared to the second quarter last year, which was which was a record quarter for us.
We can draw on lines through the the underlying trends and the Christmas is something that we are able to do with all the information that we have inside on hard to communicate outside and we see a much broader range of businesses. So we're firing on several cylinders now our spud FX are forward and options FX our credit trading.
Credit origination and distribution commodity business has done well.
We've got a range of.
Strong businesses and financial markets now.
That go beyond what we what we had historically, which was which was very concentrated and spot FX and a bit of forwards.
So that's the first 1 can note that there has been a structural improvement in quality and secondly is the and while we don't have a huge U S capital market tranches, which makes it a little bit hard to compare side by side to the Americans or others, who have who have a meaningful U S presence.
We do have a very substantial local markets emerging markets set of capabilities, which is which are very strong usually number 1 and in almost every case top 3 and our markets and as as investors continue to hunt for yield and Thats, a very good place for us to be both on the currency and the credit market. So.
And while it's very difficult to forecast quarter to quarter, what the financial markets are and it looks like.
Looks like we are encouraged by the strong finish to Q2.
Q3 has started out fine and.
There's always an element of seasonality, which we will factor in and August typically is low and September begins to pick up and and the fourth quarter picks up a little bit further.
Seasonally and by that and this year could be different and then.
That all said I think we were impressed by the quality of the business and we think that there are structural growth opportunities and our product line and we've seen all the evidence of that and the first half for the year.
Yeah, and then kind of in <unk>.
On your first question.
I guess, a number of moving parts clearly here.
We have got.
The margin a little bit lighter than we would have been finished.
And 3 months ago, we have got the customer growth, which I think has been a higher end of the range and our expectations and at this point and time and shows no signs of abating.
And we have got the sort of catch up on the interest recognition, which are the sides we should have.
Probably something similar to accept materials and that is that we took in the first half coming through.
The second half.
So you put all of that together with sign similar to 2020 levels on the coast and FX basis, that's still where our minds are at.
FX for the haul up here, I mean, and predicting full years with $300 million or their balance effects now on the suite that will move around and so it goes through the balance of the year.
But I think last year's number plus about 300.
And that's the right and she is where our minds still on.
Okay.
Thank you very much for about a U.
I guess are you.
Assuming some seasonal slowdown and financial markets within them.
Alright, you not sort of thinking about a level of granularity and will comment on <unk>.
Well, it's a difficult 1 and I mean December obviously is normally quite some months for ups for any bank I guess.
If you look at the second quarter, we were slightly call. It 2 months, we were slightly this year.
And for the month of June.
So trying to draw a trend line up but it's not the easiest for segments, but I.
I think if you project for was roughly the level of income that we saw in that second quarter and projected forward to get you to broadly and absolutely stable.
All through the year.
If you think for April and money on sort of and.
And without the temporary and spirits and I think we have implicitly put some seasonality into it.
No it's not the most easily on businesses accurately project so that expenses.
Okay. That's clear thank you very much.
Okay.
Next question comes from the line of go Mackinnon from Credit Suisse. Please go ahead.
Hello, and thank you very much for for taking the questions.
I just wanted to discuss the outlook for net interest net interest income and.
And the shift from securities to cash.
On the guidance for NIM would be stable for 117 basis points for.
And it remains.
And can I ask would you be able to talk about the capacity.
And to redeploy cash into securities.
And extend that Tricia asset.
<unk>.
And if possible if you could give us some some insights on the size.
That would be great and just the second part of the question Mitch.
Joseph stable NIM guidance reflect.
And expectation.
And the redeployment.
And then the rest of it.
Perhaps because.
Yields have come down to today.
And if not what's at the various triggers.
And for that to happen.
And just finally on the online growth.
The 6% growth and.
First half is obviously very good.
Can you help us think about the outlook for the second half.
And all the money.
Pretty low and so IPO loans that we should consider.
And if thats you could share base.
Based on growth. Thank you.
And then.
Okay. So I'm on.
We had in the first quarter the opportunity to realize some of the treasury investments and and.
And make a profit on those and lock in today's guidance.
And the question then is okay with knock on the cash what are we going to do with it.
We have had good client growth for some of it has been investing there, but we still growth sort of puts 50 and for treasury space.
I think as we plan for its 1 or 2 and 3 things will happen..1 is and we will see some pick up and again all in yields. There is obviously a receipt is a little bit on deals that received a little bit just recently, but if we see those <unk> up again, we will redeploy that into that space.
For if there is more concrete that we can redeploy that or we look for the balance and liabilities is a great thing and.
Takeout and some of the higher cost liabilities.
And that affected net a good position in many respects that actually there are simple choices available to us as we move forward, we don't need to rush on it.
If we do see a pickup for instance, and longer term rates that we can make a move on that on some rent wait till it's is a pretty steep side.
On the loan growth itself.
On a 6% up year to date and typically a 2% comp in the second quarter alone and obviously, we are encouraged by that.
It is a little bit lumpy by market, but on the other hand across 60 markets. We tend to get the sort of rule of average it's applying some people look and said that we were going to cash.
<unk>, India and overall that should the engine business has done remarkably well through it very very difficult COVID-19 parent.
Countries like acquisitions, and easier et cetera to seek taking some of the promise of Covid at this point and time not significant total April numbers, but ones, which we are closely monitoring. So we will keep the focus upon the loan growth as much as we can and as I've said several times, we are very focused upon and they all have implications on the loan growth.
Yes.
We can do to come out and the sort of mid single digit range increase range for the full year April and hence the cobot monitoring ultra returns for making on the <unk> and looking to improve the low return or exit those.
So you put those together and thats sort of where you get to in terms of the underpinning for all.
On the similar income projection for the full year on a constant FX basis.
Okay, that's brilliant and so I can just check the 117, that's underlying that.
And that doesn't assume that there will be a redeployment and the second half sorry, if there is opportunity and there might be some upside to that number.
Yes, I think it would be fed and society, we've not put on that site.
And that it could be applicable from it but we.
And we'll see how the next few months progress.
Okay, great. Thank you.
The next question comes from the line of Jeffrey Chen from Citi. Please go ahead.
Hi, Thank you for it.
And I can ask a question for the first 1 is around the wealth management business. We've seen very strong growth in first half and last couple of quarters. Once on this down a bit more granularity around the world from asking business can you give us a bit.
How much of the revenue is coming from private bank on that.
On mass market customer for example, and thank you for.
Thank you for asthma.
And that that would be.
Appreciate it and Furthermore, maybe by product how much coming from ensuring and mutual fund distribution and other volatile items that come from.
Great.
Second question is.
On the capital return and thank you sounded very positive in the capital income particular to buybacks. You also flagged that there would be potentially more buyback. After this 250.
And maybe a number so just wondering from a timing of the <unk>.
And that surplus capital and also the split of buybacks.
Cash and how you're thinking about that.
1 of your peers mentioned about potential M&A and I think you mentioned and then it looks like and your consideration for how is that going to impact the surplus capital return and thank you.
And if you are on a deal and I think it for 7 and I'll add any color.
Yes, sure and so.
The wealth management performance has actually been driven across most product areas.
Way derive a lot of the wealth management income from our absolute priority clients and a lesser amount from the private bank clients, but nonetheless.
Inconsequential amount from that.
On the asset under management and as a sales have grown I think it was about 10% on memory and that has been clearly acute underpinning all of it.
And I think if you recall, we had a bounce on 8% take up on our wealth management income now.
On the back.
So this is sort of not a new phenomenon.
And for Metro is there.
And I think the focus we have had recent day on digitizing the business on making it more accessible for customers and a big area of focus now is to actually sort of normalize the penetration with growth across different markets.
This is not all about Hong Kong, Hong Kong and Singapore.
China has done well and we see huge potential sitting that Korea was also done very well so it's really been quite multiple and.
And it is heightened and and its drivers I wouldn't call any particular elements out.
On your second question on capital returns and we continue with all previous mindset and saying if they are all profitable opportunities to invest capital whether that be organic or inorganic we will absolutely look for.
If there is still surplus.
After doing that then we will look to return it and we have seen the pulse for the 13th and 14th type range for particular reasons and for the last year and a bit for.
For those reasons, all receiving and therefore, we intend to be operating within that range as we go forward.
Several quarters, we will operate on them and be within that range, we will assess and probably more so at each half year, but we will certainly assess where we think we have got surplus and witness. The fact, we've done 2 buybacks or if not sticking to buybacks I should say for this year.
Absolutely all prepared to do buybacks.
There are no more valuable ways to deploy that money.
Very clear that getting the right is the big target here and with vehicle to get the value. We've got the <unk> and wrote down and we will do more on the base to maximize the time that it takes a pretty good time and types to get to that double digit royalty.
And maybe I'll, just add a little bit of color on the wealth management side.
Adjusted and the question is is the competitive environment lots of <unk>.
People have been talking about making big investments and wealth management or pivoting to Asia or things like that and I. Thank you.
And we don't need to pivot to Asia, because we never pivoted away from Asia.
And we don't need to reinvest massively and wealth management, because we never under invested and so I would say that would be a perfect lots of people.
Although more of a junior variety for the senior Friday.
Theres been small adjustments to pay per publicly.
Publicly pig and the context of individuals for small in the context of the group.
To address the competitive threats, but much more important than that is that we are evidenced that's a very attractive destination for very strong relationship managers, who come to work. So we've got we've been able to attract outstanding talent and creating a new head of our of our affluent client franchise, including the private bank that's coming from.
Our first rates private bank and it has.
Things other than expenses affluent market experience.
And if beyond and individuals we've hired dozens and dozens of people will come to center chartered.
And the full range of products that we offer the consistent excellence that we've evidenced the number 1 net promoter score and many of our key markets and very high customer satisfaction.
Fact of our uncompleted so we manufacture very little of our product, we don't have and asset management business.
And for the most part we're sourcing structured products from from from the Street.
And while we are deprived of the manufacturing margin and those cases.
So I think were more than offset that by having an extremely attractive platform for perforate Rms to come and operate and we're seeing that play out and out of China, It's and earlier stage and the evolution of the wealth market, but we don't think we can be better positioned.
And the ability to too.
And and serve Chinese clients, who are increasingly able to invest their funds and a diversified portfolio of international assets.
And.
Really really happy with the progress that we've made on the wealth side and even happier with the positioning from here and absolutely and competitively.
Thank you.
Next question comes from the line of Robin down from HSBC. Please go ahead.
Good morning.
So for technical question on 1 question on the wealth management and on the technical side.
And I haven't seen you call out the IPO linked lending.
Within the numbers.
Coming and you could.
Quantify how much of that kind of 6% growth from the first half has come from that.
Because I guess thats kind of volatile from for 1 quarter to the next.
And then second for all the question really just from.
Coming back to for wealth management side again.
Just wondering if you could give us any kind of color on.
Expectations and the <unk>.
Second half.
And whether things like closing and the Chinese boardroom.
Although the news flow that's been coming out of China.
That's gonna happen and impact on the business and the next few months.
And whether you see much potential from from the wealth connect when that goes live.
Just any kind of color you can give us some on the outlook for <unk> 2 would be would be appreciated. Thank you.
Okay.
Take the question and I think the the wealth manager and question here.
Or you can take us and I can add.
Okay.
And well.
On the language question, so that has seen some IPO activity within the period.
Nothing's, a actually struggles into periods so.
And the balance is you've got the latest and advances.
And places all distorted by IPO activity and therefore, the almost I think 2.6 per second question is zero.
In terms of wealth management I think that.
We have had a good momentum and there is no reason to believe that good momentum will not be continuing with.
As we go forward. It is obviously to some extent sentiment bikes and we do need to excel in a period when some countries are still impacted by Covid.
There could be some impact from that but generally speaking I think the momentum that has been good and it's obviously very early stages for second half of the year.
Second quarter.
And moderated from previous but still as I said and what if it slides operating guidance pretty robust levels. It is right now across more markets.
It is also encouraging.
On the whole.
Able to keep us on cyclical and momentum going through the balance of the year.
Yes, I would just underscore what Andy said for 1 the wealth business like for Metro markets and in different ways.
And in Madrid so.
The equity market correction in China.
I would say on the short term unhelpful, but I say that very short term and a level, but when you get into the longer short term for the medium term.
It may actually be helpful. I guess, the Chinese flavors are.
And our ever more focused on finding ways to diversify their portfolios and there's enough too concentrated into either 1 asset class or for 1 sector and and with wealth connect I think your question, it's quite appropriate 1.
With that with well connects.
Early stages of and opportunity for investors for savers, and China and diversify their portfolios.
And we can't over.
It would be a mistake to overstate or to overestimate the impact could be because of the way that well connect will rollout and.
And we're extremely well prepared for what for connected when it rolls out in terms of setups and partnerships and the like we expected to be at first adopter and moving.
And quickly.
There is still quite strict limits on the types of investments that local savers can make so typically and lower risk fixed income type products.
And there is obviously still a limit on the quantity.
And the policy that steady for a hedging policy and pension is to is to relax each of those through time. So over a number of years, we would expect to see a very substantial opening up and not just and a greater bay area, but beyond obviously greater for areas.
A bit of a pilot for the country as a whole and.
And the opportunities to extend obviously to the much larger population in China, but also to a broader range of products is a very compelling proposition over the years.
And not going to see.
And this and kicks in over the next few months, we're not going to see and exclusion of activity at day, 1 it will phase in but we do think it will be meaningfully impactful and as Andy and I. Both pointed out we generated very strong growth and the wealth business without the PPA wealth connections and so that's before and well connect platform has kicked in.
And so we're very optimistic that theres, great growth, there and that would just be accelerated by the TVA well connect.
Great. Thank you.
Next question comes from the line of Joseph Joseph Dickerson from Jefferies. Please go ahead.
Hi, good morning, and most of my questions have been answered but Tom.
And when I look at the portfolio.
Outlined on slide 24, and you look at things like the climate.
Impact the marks the zodiac custody, which is quite low.
And quite interesting I guess.
Portfolio and see quite a bit of gearing up to.
Secular trends and how do you expect to monetize this.
Over time because I.
I think we can probably agree that it is not reflected in the current share price multiples. If you look at where some of the certainly the private sector comps arch for these type of businesses elsewhere. So any thoughts on how over I don't know and and your view you expect to monetize and realize value for shareholders would be great because theyre very interesting businesses.
And then I guess coming back to the the capital distribution question, and and asking and a different way, which is how much of the excess capital would you be willing to use on on acquisitions I mean would you would you.
Consumed on the 13% common equity tier 1 on.
And on a potential deal up it could lift your ROE up I mean, how do you how do you think about that thanks.
Okay.
For the questions.
I think the first part of your question and there's really 2 parts..1 is how do we create value and second is how do we monetize it and.
We're going to we are creating value by offering customers something that they that they can't get to somewhere else.
Whether that's in the digital Bank and Africa, Hong Kong, Singapore, obviously, each each for 8 distinct.
Operations and support perspective.
What we're offering is excellent customer service and that's what our customers are telling us and <unk>.
Except that we've got good underlying platforms that we can layer on more profitable products.
The most obvious ones are various forms of credit secured and unsecured and then eventually wealth management products and Thats, where the money will come now and in a higher rate environment will make money on deposits and payments, but not in a zero rate environment.
Net.
So we felt for the first of the digital banks and Hong Kong to and to launch a credit product with credit cards.
And my remarks cards is both debit and credit card.
I might mobile and all that back and decide which which which.
I mean, I want to use for a particular, particularly the purchase and I can I can split it as our so this is these are things that customers want and theyre reacting to and extremely positively we've got a great day turnaround time on a new credit customers and and.
And a high but not very high approval rate.
Oh, yes.
And as we take these platforms that have got quite a bit of traction.
And the ownership and sponsorship we.
We can there and products, obviously that customers want.
And that our profitability by themselves and we expect these things can be profitable and accretively to our return to profitable and they're on right.
For the for the new business models is I think something like salt pulp doesn't need to be owned by center covered I think our ability to set for what to create it was absolutely informed by the challenges that we saw our small business clients clients experiencing in their operations.
Clearly recorded a bit during the during Covid times, because the needs are different for has actually been a fantastic learning experience and customer acquisition experience.
But.
And.
Will that be a profitable venture overtime, absolutely no doubt about that and do we need to own it can.
And can be combined with other other platforms. So that we have a bigger stake alright.
A smaller second a bigger platform and.
Creating market value and capitalized, possibly should we sell it at some point, possibly.
Do we think we can become a big service provider into that platform, given our knowledge of it and generate accretive earnings and part of it.
So we'll be talking a lot about this in September so I don't want to take too much time now.
And we can create value by offering customers something that they value and we've done that and each of the metrics that are listed on this page.
And the commodity has a value to profit from <unk>.
Through sales or partnerships and mergers and all of it is on the table. If we don't cover that already and via the merger of Assembly and currency <unk>, which is on net debt.
And when are these things but.
And quite an attractive valuation for nothing that we built and assembly.
Relative to the private market value of Christopher.
And because we had something that was a value and and.
And we'll continue to look for those opportunities.
I'll just take a first stab at how much can be spent on acquisitions and debt because I think any kind of covered this.
But.
For <unk> once the accounting changes and pass through and we've completed 250 billion buyback and the obviously the interim dividend.
And we're sitting a circumstance and a 30 day because that leaves us meaningful capacity.
To execute either an increase and divestment organically inorganically.
Sure.
For our return to shareholders.
Where we settle out and our 13 and 14% range and said, we're going to manage that and adequate.
And where we settle at any point in time, that's going to be a function of our own confidence and our and the quality of earnings I can tell you that we think the quality of our earnings is very high right now.
A function of our own confidence and the quality of our credit portfolio I can tell you that our credit portfolio quality is very high right now.
Obviously, our outlook and the economic and.
Political environment.
Still some meaningful uncertainties I mean, we'd be naive to think that the fact that we navigated as well as we had so far.
And hit some bumps on the road, especially given the markets where we operate.
So, yes, but we'll look at those 3 things and decide where we want to be and the range and obviously and compare that to the opportunities that we've got through either return on capital or our investment.
We do that.
Do you want to add anything to that and that's kind of the big question on debt.
That's pretty clear.
Can you just talk to you first of all enrolled and the second 1.
Gibson as we all know the very differential multiples that are being applied to the sorts of business suits that we've got on this slide versus the online just saw historic banks.
I'll give you some thoughts to how we can make the visibility of some of the financials a bit clearer music, telling you that 60 billion and about cost increases going into the switch there is probably it doesn't actually do very much for vishay.
We believe real value creation is.
The Investor session will do and September will be and sort of tourists and soon.
And so how can we get more visibility for some.
And build this year, we will certainly look from what we can do to enhance the visibility of the expenditures that may be relatively nascent now, but we do think that genuinely for consolidating and valuation wise for you should not be underestimated.
That'd be helpful. Thanks.
Next question comes from the line of guys <unk> from Exane BNP Paribas. Please go ahead.
Hi, good morning, Thanks for taking.
Taking the questions just 1 on revenue and then 1 on costs on on revenue and really on guidance for 2020.2.
And so youre guiding for the 5.7% growth next year.
From a base, which it sounds like it could be 140 million and they'll say flattish for the occupational and benefit to NOI. So just want to check implicitly you're assuming that you'll be delivering growth sort of above 7% in 2020 changed from that kind of rebased level.
For some months you deliberately not like like wealth and there could be some and <unk> if rates come through.
And I agree with that but that does sound quite demanding so I just want to check that's true in terms of the guidance and and any product lines that you would point to where youll very constant delivering that some level of price perhaps outside of wealth.
And then on cost and just on.
Performance related pay.
And especially how would you view the second half 2020 performance pay you versus normalized levels. Given that was just kind of a normalization, which tries to step up and the first call.
And in terms of of how should we think about that I think you said.
And you referenced the full year cost targets and consideration around pay that would be dependent on your own performance, but I just wanted to ask whether it was primarily driven by your and performance and whether it is market driven and its income.
It's something you currently anticipate whether you would still potentially have some pressure on on the coastline and thank you.
Okay, Let me, let me pick those up.
<unk>.
First point.
On adjustment on the iron for its 9 units.
And is 140 will say for this year.
And just sort of catch up for 2 to 3 years. So there's probably maybe a third in the on the.
Underlying going forward, so does that debt.
Currently would be sort of incremental if you'd like but rather than on the hope that.
Secondly, we say, 5% to 7% is our medium term goal, including 2022 of course.
You referred to your question is you're above 7% I think we did actually if I.
Besides and.
But anyway. We remained just if you could probably 5 to 7 percentage, where we should be and whatnot.
And it kind of jumps back just because there is a particular accounting adjustment EPS.
And so you're going to do what we can do to get on price, it's hard to recap.
7% remains the target for the.
For 2022 and beyond.
On the performance related Pi I think there are 2 or 3 aspects to it..1 is the 2020, we did have a low on P&L charge and so I think many banks because the returns from the business for a lot of et cetera.
Obviously step 1 is we hope that we will return to a normal situation and at a minimum in the current year and all.
And all variable compensation cost so about villages Fractionary per $1 billion. It is possible that we might see a little bit of outperformance against that if we can get returns we have a score which is assessed and.
And it might be against that Billy and the quickly on 10% more this year if the returns warranted at the end of the year.
So that is why we just signed 10 billion plus deexcited switch current levels.
About <unk> 3 billion forecast for the full yet and they and order of magnitude simply and that sort of range, possibly on the components right.
We are mindful of market conditions, which I think is the way your question with Sky and there are 1 or 2 sort of pressure points, particularly in the wealth management space.
And outside of monetary sense.
And they impact the overall number so it's about on the road adult day state we are to those and.
It's a credit credit at all.
For all guidance remains the same billing and possibly FX, plus possibly a small amount on that extra rig and duration payment.
Hi, guys. Thank you for very helpful.
Yeah.
Next question comes from the line of Tom Rayner from Numis. Please go ahead.
Yes, good morning, but then the other question for and then and 1 for Bill Please.
And then can I, just thought given youll sort of available business model your internal systems et cetera, I mean and.
On much visibility do you have on net interest margins looking forward.
And I asked this because at the time of Q1 results. So is there any a couple of months left.
Q2, and I think Nicole the pay much indication of the type of NIM pressure.
Coming soon and we've now seen.
Sort of down, 4% Q2, and Q1 ex the accounting adjustment, which.
Turning to a source of potential drag of about $300 million I think in terms of revenue. So I just wonder if you could maybe talk about that.
Please and then fill.
Stock's trading still less than low 0.5 times tangible book.
I guess my question is is it.
Possible to justify any inorganic.
Acquisition.
Look on it.
Patching or share buyback when your stock is trading at the count later, thank you.
Yeah.
Yeah, Tom on.
I think your first question is Pat.
We have IP.
<unk> got pretty sophisticated information inside the business forward looking but it is always going to be only as good as market conditions and it will only be as good as how events unfold.
<unk> for instance, the fluid fueled high for is nothing about monitoring information systems is about a view as to how low to high for will go and obviously that has dropped a little bit further than we thought.
In February we could not envisage accurately just how much of our treasury asset realizations it would be appropriate to Mike on the end of that quarter because in particular, the interest rates and just what profit.
And within Cogs goods rights and we did that we would realize a little bit more subsequent to then and we've used that would create a bit of a track on the day.
We didn't have the ability to reinvest it now yields have them for a little bit just recently on the launch events. So we havent done that reimbursement, we're going to wait until we get to that.
So I don't think this is 1 off and accuracy of information internally within the systems.
He is 1 and what just small differences on small from SKU that off and on IFC to your point wed like to like to be more accurate on the forecasting of NIM and we will do as much as we possibly can do to make that happen.
Got it.
And more color on that 1 if any.
And then I think it's clear.
Part of it and compression was was hydro related which you could say we misjudged.
And that's.
What happens is and how much we could have done about that had we adjusted differently.
The bulk of the rest is if decisions that we took to emphasize for return on tangible equity improvements over and NIM improvements.
And we look at our Treasury activities, we realized gains and Q1 at the right time.
We generated EBITDA gains.
We did not extend the duration of our assets at the optimal path.
<unk> been wonderful snuck into that window, when my tenure rates for a 170 basis points, but we didn't and.
Yields have fallen and significantly and we'd rather sit on the cash for a while longer.
So that's those are those.
Those are decisions that were taken but the result of debt about in and out has been to improve and also that the repo transactions that Andy mentioned earlier, and then to improve our return on tangible equity, but reduce our net.
I'm pretty sure that that's the right column connect and I'm pretty sure that Raul and more focus on getting that.
10% plus return on tangible equity and we are on protecting a particular NIM number, especially when we've got some good underlying asset growth is protecting our NII and <unk>.
A little bit more color on that.
And obviously you can't quite on the.
On the.
<unk> of our stock price and buybacks versus and inorganic opportunity Youre, 100% right and we will not make inorganic investments that is superior financially.
To buyback our own stock.
Obviously theres a lot of work that would have to be done on any particular acquisition to conclude that.
The combination of outright straight straight up financial value that comes from from income and less expenses and.
Associated capital.
Together with that with whatever strategic value do you attribute to a transaction.
There are judgment calls and theyre on theirs.
<unk> got on the call about the impact for training.
Money to shareholders via buyback.
And we said we said it several times I'll say it again, we're not intending to use our surplus capital.
And do something that is financially inferior to the certain option that we have on the table, which is returning to cash returning cash to shareholders and I think that there is no inorganic opportunities from here.
Okay. Thank you.
Thank you.
Next question comes from the line of Aman <unk> from Barclays. Please go ahead.
Good morning, Bill Good morning, Andy.
I was most of my questions have actually been asked I guess that too.
And we'll follow ups.
Actually it's day, 1 on ACL, if I could.
What do you think the chancellor and net write package this year on thank you.
And talking about it being low for the remainder of the year and I mean loans.
Look into 2022 do you think that does it.
Period of sub normally low charges here as things get relates to.
Yeah, and kind of medium term view on that impairment charge it would be helpful and I.
I will say no and the interest rate sensitivity disclosure it looks like it's kind of stepped up quite meaningfully half on half a chance to kind of interrogate that and the report, but I wonder if you could kind of help us on the standard linking talks about that that higher rate sensitivity.
Okay, Let me, let me pick those up so.
We've had 2 quarters of near zero credit impairments.
And I think a year ago, if you said that for which the how we would and so this year, we've been extremely happy with.
Forecasting over the balance of this year into next year.
Clearly what is going to be more optimistic I mean that goes without saying and hence why we've changed language too low.
And this year barring major on the stage events I think the thing we're trying to reflect to call on is we've got this through the cycles and 35 to 40 basis points, but through the cycle on the average so it cycles, how far interest rates that we're experiencing now on our property and likely to experience for the next half.
And of years on that.
For Mike actually.
We will not reverse quickly package for that city, possibly.
Basis points range, as we monitor sort of a while ago and therefore there'll be a more gradual sort of pick up.
Or is it still on which should clearly be helpful for you.
Impairment charges for next year as well as for this year.
On the rate sensitivity.
Slides with growth and narrative.
For the hard numbers on the duration of the shape of what we put in the actually it's what we put in and of the first quarter.
And compared with what we did last year, we have put some of the behavioral changes.
The trading book and a fixed for getting through the surplus, but its being invested through time and that sort of daily and also benefit per 100 place reported so I think it's more luxury coal and let it.
Total tied much more with what we experienced for became downgrade kind of last year. We all say, we do actually think that the vast majority of that would be coming through as we go back.
And that curve.
Put another way we didn't take the cost base and this business is going to change for a much if rates are higher and therefore as and when we get into periods, where the rates due to the company decided for the call out we will see a very high level of operational gearing coming through within the business.
Can I ask do you think about that sensitivity is underpinned by some quite conservative assumptions around.
Australia, I guess youre on.
Walsh with liquidity on the balance sheet.
And I mean, do you see scope for things like deposit betas to come and lower and that being a bit more upside to things like interest rate sensitivity.
And it's a difficult 1 tonight, because theres. So many moving parts and we are trying to estimate across a lot of different geographies for a little different currencies.
And part of it also depends on what competitors do with our own deposit pricing and things like that so I would say, it's sort of a reasonable sort of middle case view.
On the thing I'm sure it won't be precisely accurate.
It is a directional steer on.
And I would say, it's not skewed massively towards the <unk>.
Cautious.
Mobile.
Okay. Thank you so much.
And the last question comes from the line of Scott <unk> from Goldman Sachs. Please go ahead.
Thank you for taking my question.
I have 2 small bits of follow up on previously asked questions questions on wealth management.
Very good outcome congratulations on that can we just check and 2 how much of the world ballpark credit income is kind of GAAP by digital transactions and how do you see and see that and for going forward.
Rough estimate would be good and if there are any efforts to kind of move towards that direction. We know total.
And the partnership initiatives et cetera, and then the second question is more around marks and Hong Kong.
Is there a thought process around introducing new kinds of products with Mark's experimenting and and then kind of.
Looking at the weighted.
Group.
Clients net Stanczak has let's say pay day loans on.
Mm bye.
Buy now pay later to be experimented in Hong Kong with Max Thank you.
Yes, let me take this for <unk>.
I think we have got a split and indeed and not quite sure and can do a split on digital wealth punishment, because some costs will Trump.
And we'll transact for the digitally some of their time and and posts and some of the rest of the time.
Has definitely happened as the systems that we are operating our present information and are much more customer friendly right you may or may not recall per rate 5 years ago. Now we started operating those systems from a replacement systems and that is certainly nicely and many more people digitally and track and.
And I think this time last year or so when people realize the face to face meetings was no longer possible at that conference as Covid actually shifted probably people more into the digital space.
So the increase and digital transactions definitely continuing and we expect to continue as we go through it but I didn't see the splits of the income.
Is that she can speak hugely helpful.
No that's right.
And the number and just kicking it right now, but we do look at the number of transactions that are digitally initiated.
And for both debt, but for all parts of our business, but for affluent and mass and corporate Theres.
And theres been a significant increase from from.
And from quarter to quarter to quarter to quarter. So it's a consistent.
And I'm not going to guess because I don't remember what the percentage of transactions that are digitally initiated on.
On the affluent side, it's high and and growing and we will prepare that and ensure that for probably the right time to do that would be.
And when we're talking about our innovation agenda and September but.
And on MX.
Absolutely we're looking at net new products. So as I said, we've introduced a credit card products.
Mentioned household loans that I can use my boxcar growth for a credit debit transaction.
And we will also soon launch.
And initial personal lending product and then other personal lending products and I'm not sure that Hong Kong is a natural base for by that pay later, especially off for the months type of platform.
As an opportunity could be there, but other other.
Especially travel related obviously and on the assumption that we are on the travel again.
And for the way I travel to Hong Kong from other and which I can tell you it's not straightforward.
And in a world, where travel and sure that much proposition with underlying multi currency account capabilities and.
Obviously, the strong partnership with trip that comments of artists on our travel agent.
Presents all sorts of opportunities for for travel related with currency and and borrowing.
It's a product.
But in other markets and Nexus will have.
Net pay later as an initial credit products and quite natural off and e-commerce platform for Grubhub.
So for from from day 1.
And we will be offering a product to finance the purchases made on the book on the platform. It will be completely seamless it is today and completely seamless.
Between that will go up and the Nexus platform and credit is a product that will be rolling out and.
In the early part of next year on Mexico.
In Africa and different types of.
Opinion on behalf of credit that kind of patient, but I think relatively short term working capital type financing.
For people and mainly in the credit markets and it's the natural.
Start with credit product for for many of our clients and the digital banks and Africa, and South Asia. So yeah.
Yes always.
We're looking at opportunities for extended product lines and as I mentioned that debt will be the route profitability for these ventures.
On the zero rate environment for not making money on the balance.
Just touching back on your first question sorry, if this is not the wealth management numbers. It just to give you an indication and for the <unk> business in total.
The proportion of customers, who stayed with us on mobile devices up from volume Court decided for 46% for.
Portion of them, who are digitally transacted with us up from 56% to 62% over the last 12 months, that's not quite the question you asked but it's sort of a proxy for it.
Okay.
But the guidance.
Well if there are no further questions I think I heard the debt was the last question.
Thanks for the questions and.
Thank you very much for for Netflix for the questions and for for getting into that suggests and we look forward to following up with the innovation and venture section session.
Remember and continuing the bilateral engagements on the way. Thank you very much.
Thank you.
That concludes the presentation for today. Thank you all for participating you may now disconnect.
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