Q2 2024 HSBC Holdings PLC Earnings Call

July 31, 2024

Operator: Ladies and gentlemen, to the Analyst and Investor webinar on the 2024 interim results for HSBC Holdings PLC. For your information, this webinar is being recorded. We are now ready to start the webinar, so I will hand over to Noel Quinn, Group Chief Executive. Good morning to everyone in London and good afternoon to those joining us from Hong Kong.

Operator: Welcome, ladies and gentlemen, to the Analyst and Investor Webinar on the 2024 interim results for HSBC Holdings plc. For your information, this webinar is being recorded. We are now ready to start the webinar, so I will hand over to Noel Quinn, Group Chief Executive.

Welcome, ladies and gentlemen, the analysts and Investor Webinar on the 'twenty 'twenty four interim results for HSBC Holdings plc.

Our information this webinar is being recorded.

We're now ready to start the webinar, so I will hand over to Noel Quinn group Chief Executive.

Noel Quinn: Good morning to everyone in London and good afternoon to those joining from Hong Kong. Today is my last results announcement before Georges takes over in September. I'm delighted to be handing the stewardship of the bank over to him. Georges is an exceptional leader who understands what makes HSBC special. I'd like to thank my colleagues around the world for everything they've done over the last five years, and I wish Georges every success for the future. I have always been immensely proud of the heritage of this bank and the strategic role it plays in the world. When I took this job on five years ago, we didn't have the financial performance to match our standing. My aim was to change that. I believe we've done so and created a strong platform for future growth.

Noel Quinn: Good morning to everyone in London, and good afternoon, so those joining from Hong Kong.

Noel Quinn: Today is my last results announcement before Georges takes over in September. I'm delighted to be handing the stewardship of the bank over to him. George is an exceptional leader who understands what makes HSBC special. I'd like to thank my colleagues around the world for everything they've done over the last five years, and I wish George every success for the future. I have always been immensely proud of the heritage of this bank and the strategic role it plays in the world.

Noel Quinn: Today is my last results announcement before George takes over in September.

Noel Quinn: I'm delighted to be handling the stewardship of the bank over to him.

Speaker Change: Georgia is an exceptional leader, who understands what makes HSBC special.

Speaker Change: I'd like to thank my colleagues around the world for everything they've done over the last five years.

Speaker Change: And I wish George every success for the future.

George: I have always been immensely proud of the heritage of this bank on the strategic role it plays in the World.

Noel Quinn: But when I took this job five years ago, we didn't have the financial performance to match our standards. My aim was to change... I believe we've done so and created a strong platform for future growth. This was evidenced by the record profit performance last year and by the strong first half performance this year. Revenue of $37.3 billion was up 1%, and profit before tax of $21.6 billion was stable compared with the same period last year.

George: But when I took this job on five years ago, we didn't have the financial performance to match our spending.

George: My aim was to change that.

George: I believe we've done so and created a strong platform for future growth.

Noel Quinn: This was evidenced by the record profit performance last year and by the strong H1 performance this year. Revenue of $37.3 billion was up 1%. Profit before tax of $21.6 billion was stable on the same period last year. This performance enabled continued strong capital generation. Our return on tangible equity was 17% excluding notable items. We've announced $4.8 billion of further capital distributions today. This takes the total capital we have distributed by way of dividends and buybacks in respect of the last 18 months to $34.4 billion. Finally, we've updated our guidance to reflect our increased confidence about the future. We're providing new guidance of a mid-teens return on tangible equity in 2025. In addition to the 2024 guidance we already had.

George: This was evidenced by the record profit performance last year.

George: And by the strong first half performance this year.

Revenue of $37 $3 billion was up 1%.

George: Profit before tax of $21 $6 billion was stable on the same period last year.

Noel Quinn: This performance enabled continued strong capital generation. Our return on tangible equity was 17%, excluding notable items. We announced $4.8 billion of further capital distributions today. This takes the total amount of capital we have distributed by way of dividends and buyback. In respect of the last 18 months... to $34.4 billion. Finally, we've updated our guidance to reflect our increased confidence about the future. We're providing new guidance of a mid-teens return on tangible equity in 2025, in addition to the 24 guidance we already have.

George: This performance enabled continued strong capital generation.

George: Our return on tangible equity was 17% excluding notable items.

George: We've announced $4 $8 billion of further capital distributions today.

This takes the total capital we have distributed by way of dividends and buybacks.

George: In respect of the last 18 months to $34 $4 billion.

George: Finally, we've updated our guidance to reflect our increased confidence about the future.

George: We are providing new guidance of a mid teens return on tangible equity in 2025.

George: In addition to the 'twenty 'twenty four guidance, we already had.

Noel Quinn: We're upgrading our 2024 banking NII guidance from at least $41 billion to around 43 billion dollars. We're revising our 2024 ECL guidance to be back within our normal medium-term planning range of 30 to 40 basis points, and we're reconfirming our 2024 cost guidance of around 5% growth on a target basis.

Noel Quinn: We're upgrading our 2024 banking NII guidance from at least $41 billion to around $43 billion. We're revising our 2024 ECL guidance to be back within our normal medium-term planning range of 30 to 40 basis points. We're reconfirming our 2024 cost guidance of around 5% growth on a target basis. That's despite growth of 7% in the H1, which, as Georges will explain, is mainly due to timing differences compared to last year. The benefits of our strategy execution over the last 5 years are evident in our performance. Before getting into detail on the further progress made over the last 6 months, please allow me to share some reflections on our 5-year journey. When we set out, there were 2 key strategies to delivering higher returns. The first thing we had to do was to reshape our portfolio.

We're upgrading our 2024 banking NII guidance.

George: From an at least $41 billion.

Speaker Change: So around $43 billion.

Speaker Change: We're revising our 2024 ECL guidance to be back within our normal medium term planning range of 30 to 40 basis points.

And we're reconfirming, our 2020 forecast guidance of around 5% growth on a target basis.

Noel Quinn: That's despite growth of 7% in the first half, which, as George will explain, is mainly due to timing differences compared to last year. The benefits of our strategy execution over the last five years are evident in our performance. Before getting into detail on the further progress made over the last six months, Please allow me to share some reflections on our five-year journey. When we set out, there were two key strategies for delivering higher returns.

Speaker Change: Thus despite growth of 7% in the first half.

Speaker Change: Which as George will explain is mainly due to timing differences compared to last year.

George: The benefits of our strategy execution over the last five years are evidenced in our performance.

George: Before getting into detail on the further progress made over the last six months.

George: Please allow me to share some reflections on our five year journey.

George: When we said that there were two key strategies to delivering higher returns.

Noel Quinn: The first thing we had to do was to reshape our portfolio. Building on the work of my predecessors, who initiated important structural changes, we've continued to exit businesses and client portfolios that were non-strategic, subscale, and unprofitable.

George: The first thing we had to do was to reshape our portfolio.

Noel Quinn: Building on the work of my predecessors who initiated important structural changes, we've continued to exit businesses and client portfolios that were non-strategic, subscale, and unprofitable. First, via organic portfolio reductions, which delivered RWA savings of around $128 billion. Via inorganic means through disposals. The second and very important strategy, which we commenced at the same time, was to build alternative sources of revenue growth. Within this, we've invested to grow fee income, particularly in areas where we have significant strengths, such as wholesale transaction banking and wealth. We've also continued to invest in our differentiated international propositions, and we've significantly lowered our sensitivity to interest rates.

Speaker Change: Building on the work of my predecessors, who initiated important structural changes.

Speaker Change: We've continued to exit businesses and client portfolios that were nonstrategic subscale and unprofitable.

Noel Quinn: First, via Organic Portfolio Reduction, which delivered RWA savings of around $128 billion, and then, via inorganic means, through disposal. The second and very important strategy which we commenced at the same time was to build alternative sources of revenue growth. Within this, we've invested to grow fee income, particularly in areas where we have significant strength, such as Wholesale Transaction Banking and Wealth. We've also continued to invest in our differentiated international proposition, and we've significantly lowered our sensitivity to interest rates, from approximately $7 billion of banking NII for a 100 basis points down shock in interest rates at 30 June 2022 to around $3.4 billion at the end of 2023 and now down to around $2.7 billion today. All of this had to be underpinned by a culture of custom, which we have instilled across the group.

Speaker Change: First via organic portfolio reductions.

Speaker Change: Which delivered our Wi savings of around $128 billion.

Speaker Change: And then via inorganic means through disposals.

Speaker Change: The second and very important strategy, which we commenced at the same time.

Speaker Change: Was to build alternative sources of revenue growth.

Speaker Change: Within this we've invested to grow fee income, particularly in areas, where we have significant strengths such as wholesale transaction banking and wealth.

Speaker Change: We've also continued to invest in our differentiated international propositions.

Speaker Change: And we've significantly lowered our sensitivity to interest rates.

Noel Quinn: From approximately $7 billion of banking NII for a 100 basis points down shock in interest rates at 30 June 2022 to around $3.4 billion at the end of 2023 and now down to around $2.7 billion today. All of this had to be underpinned by a culture of cost discipline, which we have instilled across the group. These savings enabled us to invest in the areas I've spoken about. This transformation has helped to improve our financial performance. As you know, we delivered a record profit in 2023 and a mid-teens return on tangible equity in 2023 and in H1 2024. It has been over 15 years since the group was generating returns at current levels. We now expect to sustain it this year and in 2025.

Speaker Change: From approximately $7 billion of banking NII for a 100 basis points down shock in interest rates.

Speaker Change: 30th the June 2022.

So Orion $3 $4 billion at the end of 2023.

Speaker Change: And now down to around $2 $7 billion today.

Speaker Change: All of this has to be underpinned by our culture of cost discipline.

Speaker Change: Which we have instilled across the group.

Noel Quinn: These savings enabled us to invest in the areas I've spoken about, and this transformation has helped to improve our financial performance. As you know, we delivered a record profit in 2023 and a mid-teens return on tangible equity in 2023 and in the first half of 2024. It has been over 15 years since the group was generating returns at current levels, and we now expect to sustain it this year and in 2025. The other tangible measure of success is capital distributions to our shareholders.

Speaker Change: These savings enabled us to invest in the areas I've spoken about.

Speaker Change: And this transformation has helped to improve our financial performance.

Speaker Change: As you know we delivered a record profit in 2023.

And a mid teens return on tangible equity in 2023 and in the first half of 2024.

Speaker Change: It has been over 15 years since the group was generating returns at current levels.

Speaker Change: And we now expect to sustain it this year.

Speaker Change: And in 2025.

Noel Quinn: The other tangible measure of success is capital distributions to our shareholders. I'm really pleased that we delivered around $54 billion by way of dividends and buybacks to our shareholders over the last 5 years, including the distributions announced today. I'm especially pleased to have paid the special dividend of $0.21 per share earlier this year following the sale of HSBC Canada. I see this payment not just as a financial return, but as a return for the loyalty that our shareholders have shown us over the recent years. Let me now summarize the further progress evidenced in the H1. First, wealth has been a key component of revenue diversification strategy. It delivered two very good quarters, growing revenue by 12% in total.

Speaker Change: The other tangible measure of success is capital distributions to our shareholders.

Noel Quinn: I'm really pleased that we've delivered around $54 billion by way of dividends and buyback to our shareholders over the last five years, including the distributions announced today, and I'm especially pleased to have paid the special dividend of 21 cents per share earlier this year following the sale of HSBC Canada. I see this payment not just as a financial return but as a return for the loyalty that our shareholders have shown us over the recent years. Let me now summarise the further progress evidence from the first half. First, wealth has been a key component of revenue diversification strategies.

Speaker Change: I'm really pleased that we delivered around $54 billion by way of dividends and buybacks to our shareholders over the last five years.

Speaker Change: Including the distributions announced today.

Speaker Change: And I'm, especially pleased to have paid a special dividend or 21 cents per share earlier. This year following the sale of HSBC, Canada.

Speaker Change: I see this payment not just as a financial return.

Speaker Change: But as a return for the loyalty that our shareholders have shown us over the recent years.

Speaker Change: Let me now summarize the further progress evidence in the first half.

Speaker Change: First wealth has been a key component of revenue diversification strategy.

Noel Quinn: It delivered two very good quarters, growing revenue by 12% in total. In transaction banking, fee and other income in global payment solutions grew by 4%, and in global trade solutions by 1%, in a very difficult environment for trade. The revenue for HSBC Innovation Banking was up 4% quarter-on-quarter as our new global proposition continues to gain traction.

Speaker Change: It delivered two very good quarters growing revenue by 12% in total.

Noel Quinn: In transaction banking, fee and other income in Global Payments Solutions grew by 4%, and in Global Trade Solutions by 1% in a very difficult environment for trade. Revenue for HSBC Innovation Banking was up 4% quarter-on-quarter as our new global proposition continues to gain traction. Second, our scale markets in Hong Kong and the UK enable us to grow profits each year as we captured new opportunities in both the corporate and retail businesses. As you can see, we also have positive growth in other markets, including India, which was up 4% in the H1, and Singapore, which was up 2%. Third, we continue to grow multi-jurisdictional client revenue in both wholesale and retail. Fourth, we saw good growth in both customer lending and deposits in the Q2, despite what is still a relatively sluggish environment.

Speaker Change: In transaction banking fee and other income and global payment solutions grew by 4% and in global trade solutions by 1%.

Speaker Change: In a very difficult environment for trade.

Speaker Change: On a revenue for HSBC innovation banking was up 4% quarter on quarter as our new global proposition continues to gain traction.

Noel Quinn: Second, our scale markets in Hong Kong and the UK enable us to grow profits each year as we capture new opportunities in both the corporate and retail business. As you can see, we also have positive growth in other markets, including India, which was up 4% in the first half, and Singapore, which was up 2%. Third, we continue to grow multi-jurisdictional client revenue in both wholesale and retail. Fourth, we saw good growth in both customer lending and deposits in the second quarter, despite what is still a relatively sluggish environment. Finally, we've continued to grow the size and duration of our structural hedge to reduce our sensitivity to interest rate movements.

Speaker Change: Second our scale.

Speaker Change: Markets in Hong Kong, and the U K enabled us to grow profits each year.

Speaker Change: As we captured new opportunities in both the corporate and retail businesses.

Speaker Change: As you can see we also have positive growth in other markets, including India, which was up 4% in the first half and Singapore, which was up 2%.

Speaker Change: Third we continue to grow multi jurisdictional client revenue in both wholesale and retail.

Speaker Change: Fourth we saw good growth in both customer lending and deposits in the second quarter.

Speaker Change: Despite what is still a relatively sluggish environment.

Noel Quinn: Finally, we've continued to grow the size and duration of the structural hedge to reduce our sensitivity to interest rate movements. Georges has new disclosures on the expected benefits in his section. All of this progress underlines why we expect to deliver a mid-teens return on tangible equity this year and in 2025 as well. Let me get into some more detail. The steps we've taken to change our retail business model and our continued investment in people and digitization have made Wealth a key driver of revenue growth. Wealth revenue was up 12% in H1 to $4.3 billion. That growth is broad-based. As you can see in the boxes on the right side of the slide, wealth fee and other income was up 14%. Private banking revenue was up 16%.

Speaker Change: Finally, we've continued to grow the size and duration of the structural hedge to reduce our sensitivity to interest rate movements.

Noel Quinn: George has new disclosures on the expected benefits in his sector. All of this progress underlines why we expect to deliver a mid-teens return on tangible equity this year and in 2025. Let me get into some more detail.

Speaker Change: George has new disclosures on the expected benefits in his section.

Speaker Change: All of this progress underlines why we expect to deliver a mid teens return on tangible equity this year and in 2025 as well.

George: Let me get into some more detail.

Noel Quinn: The steps we've taken to change our retail business model and our continued investment in people and digitization have made wealth the key driver of revenue growth. Wealth revenue was up 12% in the first half to $4.3 billion. And that growth is broad-based. As you can see, the box is on the right side of the slide.

George: The steps we've taken to change our retail business model and our continued investment in people and Digitization have made wealth the key driver of revenue growth wealth.

George: Wealth revenue was up 12% in the first half to $4 $3 billion.

George: And that growth is broad based.

George: As you can see in the boxes on the right side of the slide.

Noel Quinn: Wealth Fee and Other Income is up 14%, while Private Banking Revenue was up 16. We attracted $32 billion of net new invested assets, and New Business Insurance CSM was up 77%. Moving to the next topic, Transaction Banking revenue was stable in the first half. There was good growth in payments, which was up 3%. This included growth in fees and other income of 4%. This is a result of the investment we've made to grow and digitise that business, which helped to improve our ranking from a top four bank in 2022 to number two today. However, foreign exchange was down 8% compared to a strong performance last year when there was very high volatility. And while trade was slightly down in the first half...

George: Wealth fee and other income was up 14%.

George: Private banking revenue was up 16%.

Noel Quinn: We attracted $32 billion of net new invested assets. New business insurance CSM was up 77%. Moving to the next topic, transaction banking revenue was stable in H1. There was good growth in payments, which was up 3%. This included growth in fee and other income of 4%. This is a result of the investment we've made to grow and digitize that business, which helped to improve our ranking from a top four bank in 2022 to number two today. Foreign exchange was down 8% compared to a strong performance last year when there was very high volatility. While trade was slightly down in H1, the pace of decline slowed to the point that it was broadly flat in Q2.

George: We attracted $32 billion of net new invested assets.

George: Our new business insurance CSM was up 77%.

George: Moving to the next topic transaction banking revenue was stable in the first half there was good growth in payments, which was up 3%.

George: This included growth in free and other income of 4%.

George: This is a result of the investment we've made to grow and digitize that business.

Which helped to improve our ranking from a top four bank in 2022.

George: So number two today.

George: Foreign exchange was down 8% compared to a strong performance last year.

George: When there was very high volatility.

George: And while trade was slightly down in the half the.

Noel Quinn: The pace of decline slowed to the point that it was broadly flat in the second quarter, but we still grew our trade volume, despite global trade volumes remaining subdued. And we also increased our market share in trade in Hong Kong to more than 26%. On the next topic, our businesses in Hong Kong and the UK both continued to perform well in the first half. Profit before tax in Hong Kong was up 1% on a constant currency basis.

George: The pace of decline slowed to the point that it was broadly flat in the second quarter.

Noel Quinn: We still grew our trade volumes despite global trade volumes remaining subdued, and we also increased our market share in trade in Hong Kong to more than 26%. On the next topic, our businesses in Hong Kong and the UK both continued to perform well in H1. Profit before tax in Hong Kong was up 1% on a constant currency basis. While the Hong Kong corporate loan market remains subdued, it was resilient in Q2. It's too early to call it a trend, but deposits and investment activity increased, which underlines that the rate differential works in both directions. We attracted 345,000 new-to-bank customers in H1 as we continue to capitalize on significant inflows into Hong Kong from customers seeking opportunities for investment.

George: But we still grew our trade volumes, despite global trade volumes remaining subdued.

George: And we also increased our market share in trade in Hong Kong to more than 26%.

George: On the next topic, our businesses in Hong Kong and the U K, both continue to perform well in the first half.

George: Profit before tax in Hong Kong was up 1% on a constant currency basis.

Noel Quinn: While the Hong Kong corporate loan market remained subdued, it was resilient in the second quarter. It's too early to call it a trend, but deposits and investment activity increased, which underlines that the rate differential works in both directions. We attracted 345,000 new-to-bank customers in the half as we continue to capitalise on significant inflows into Hong Kong from customers seeking opportunities for investment. Profit before tax in the UK business grew by 11%, excluding the gain on SVB UK last year.

George: While our Hong Kong corporate loan market remains subdued it wash resilience in the second quarter.

George: It's too early to call it a trend, but deposits and investment activity increased.

George: Which underlines that the right differential works in both directions.

George: We attracted 345000, new to bank customers in the half as we continue to capitalize on significant inflows into Hong Kong from customers seeking opportunities for investment.

Noel Quinn: Profit before tax in the UK business grew by 11%, excluding the gain on SVB UK last year. Customer lending was also up 2%. Our UK business is differentiated by its connectivity with the rest of the group. In the H1, we grew the number of UK international customers by 8% to 2.7 million customers. We have a strong international franchise. We evidenced this through our multi-jurisdictional revenue disclosures in February. In the H1, we grew wholesale multi-jurisdictional client revenue by 4% to $9.7 billion. As I said earlier, this isn't just a wholesale story. We're doing more with our international retail and wealth customers as well. We now have 7 million international wealth and personal banking customers, with revenue from these customers up 6% to $5.4 billion.

George: Profit before tax in the U K business grew by 11% excluding the gain on S V B U K last year.

George: Customer lending was also up 2%.

Noel Quinn: Customer lending was also up 2%. But our UK business is differentiated by its connectivity with the rest of the group. In the first half, we grew the number of UK international customers by 8% to 2.7 million customers. We have a strong international friendship.

George: But our U K business is differentiated by its connectivity with the rest of the group.

George: In the first half we grew the number of U K international customers by 8% to $2 7 million customers.

George: We have a strong international franchise.

Noel Quinn: We evidenced this through our multi-jurisdictional revenue disclosures in February. And in the first half, we grew wholesale multi-jurisdictional client revenue by 4% to $9.7 billion. But as I said earlier, this isn't just a wholesale story.

George: We evidenced this through a multi jurisdictional revenue disclosures in February.

George: And in the first half we grew wholesale multi jurisdictional client revenue by 4% to $9 $7 billion.

George: And as I said earlier this isn't just a wholesale story.

Noel Quinn: We're doing more with our international retail and wealth customers as well. We now have 7 million international wealth and personal bank accounts, with revenue from these customers of 6% to $5.4 billion. So these are the levers that have put us on track to deliver a mid-teens return on tangible equity this year and why we expect to deliver a mid-season return on tangible equity in 2025. With that, I'll hand over to George.

We're doing more with our international retail and wealth customers as well.

George: We now have 7 million international wealth and personal banking customers with revenue from these customers up 6% to $5 $4 billion.

Noel Quinn: These are the levers that have put us on track to deliver a mid-teens return on tangible equity this year, and why we expect to deliver a mid-teens return on tangible equity in 2025. With that, I'll hand over to Georges. Thank you.

George: So these are the levers that have put us on track to deliver a mid teens return on tangible equity this year.

George: And why we expect to deliver a mid teens return on tangible equity in 2025.

George: With that I'll hand over to George.

George: Thank you.

Yeah.

Georges Elhedery: Thank you, Noel, and hello everyone. Before I get to the Q2 numbers, I'd like to comment briefly on the recent announcements. I'm deeply honored by the trust placed in me to lead this great institution into the future. Many of you may have questions about the future strategy and direction of the group. Although I don't take over as Group Chief Executive until the 2nd of September from Noel, I'm ready to share a few high-level...

Georges Elhedery: Thank you, Noel, and hello, everyone. Before I get to the Q2 numbers, I'd like to comment briefly on the recent announcement. I'm deeply honored by the trust placed in me to lead this great institution into the future. Many of you may have questions about the future strategy and direction of the group. Although I don't take over as group chief executive until 2 September 2024 from Noel, I'm ready to share a few high-level thoughts. Under Noel's leadership, we have delivered financial performance and built a strong platform for growth. The strategy of the group is working, and I'm committed to building on this. The shape of the group is broadly where we want it to be, with the bulk of our capital and other resources deployed in our four scale activities.

George: Thank you Don and Hello, everyone.

George: Before I get to the Q2 numbers I'd like to comment briefly on the recent announcement.

I'm deeply honored by the trust placed in me to lead this great institution into the future.

Speaker Change: Many of you may have questions about the future strategy and direction of the group, although I don't take over as group Chief Executive until the second look September from known I'm ready to share a few high level thoughts.

Georges Elhedery: Under Noel's leadership, we have delivered financial performance and built a strong platform. The strategy of the group is working, and I am committed to building on it. The shape of the Group is broadly where we want it to be, with the bulk of our capital and other resources deployed in our four-scale activities.

Under <unk> leadership, we have delivered financial performance and built a strong platform for growth.

Speaker Change: The strategy of the group is working and I'm committed to building on this.

Speaker Change: The shape of the group is broadly where we wanted to be with the bulk of our capital and other resources deployed in our four scale activities, that's Hong Kong the U K, our international wholesale bank underpinned by our leading transaction banking capabilities.

Georges Elhedery: That's Hong Kong, the UK, our international wholesale bank underpinned by our leading transaction banking capabilities, and our wealth proposition, particularly in Asia. This puts us in a very strong position. In each of these activities, we have scale and sustainable competitive advantages, and our strengths are aligned to the needs of our customers. They account for the vast majority of the economic profit we generate today and present some of our most exciting opportunities to grow over the next five to 10 years. Together, they are capable of delivering above cost of capital returns sustainably through the cycle.

Georges Elhedery: Hong Kong, UK, and our International Wholesale Bank, underpinned by our leading transaction banking capabilities and our wealth proposition, particularly. This puts us in a very strong position. In each of these activities, we have scaled unsustainable competitive advantages, and our strengths are aligned to the needs of our customers. They account for the vast majority of the economic profit we generate today and present some of our most exciting opportunities to grow over the next five years.

Speaker Change: In our wealth proposition, particularly in Asia.

Speaker Change: This puts us in a very strong position.

Speaker Change: In each of these activities, we have scale and sustainable competitive advantages.

Speaker Change: And all these trends are aligned to the needs of our customers.

Speaker Change: They account for the vast majority of the economic profit we generate today.

Speaker Change: And present some of our most exciting opportunities to grow over the next five to 10 years.

Georges Elhedery: And together, they are capable of delivering above-cost of capital returns sustainably through the system. We've made good progress. And we are now in a position to accelerate the pace of execution of this strategy with focus and intensity, to continue to grow revenue on a sustainable trajectory, to improve operating leverage while maintaining strong cost discipline and prudent risk management, and to continue to improve client service and... You will also have seen that we have announced this morning that John Bingham has been appointed Interim Group CFO for the second term.

Speaker Change: And together they are capable of delivering above cost of capital return.

Speaker Change: Favorably through the cycle.

Georges Elhedery: We've made good progress, and we are now in a position to accelerate the pace of execution of this strategy with focus and intensity to continue to grow revenue on a sustainable trajectory, to improve operating leverage while maintaining strong cost discipline and prudent risk management, and to continue to improve client service and experience. You'll also have seen that we have announced this morning that Jon Bingham has been appointed interim group CFO from 2 September 2024. Jon's currently our financial controller and has outstanding technical accounting and regulatory knowledge and expertise. The process to identify the next permanent group CFO is underway, and I will update you further in due course. Now, though, turning to Q2. In summary, profit before tax of $8.9 billion was up $0.4 billion on Q2 2023 on a constant currency basis.

Speaker Change: We've made good progress and we are now in a position to accelerate the pace of execution of this strategy with focus and intensity.

Speaker Change: To continue to grow revenue on a sustainable trajectory.

Speaker Change: To improve operating leverage while maintaining strong cost discipline and prudent risk management.

Speaker Change: And to continue to improve client service and experience.

John Bingham: You will also have seen that we have announced this morning that John Bingham has been appointed interim group here for from the second of September.

John Bingham: Jones currently our financial controller, and has outstanding technical accounting and regulatory knowledge and expertise.

John Bingham: A process to identify the next permanent group CFO is underway and I will update you further in June of course.

Georges Elhedery: John is currently our financial controller and has outstanding technical accounting and regulatory knowledge and experience. The process to identify the next permanent group CFO is underway, and I will update you further in due course, now turning to Q2 in the summer. Profit before tax of $8.9 billion was up $0.4 billion on the second quarter of 2023 on a constant-currency basis. In terms of the drivers...

John Bingham: Now turning to Q2 in summer.

John Bingham: Profit before tax of $8 $9 billion was up North point $4 billion on the second quarter of 2023 on a constant currency basis.

Georges Elhedery: In terms of the drivers, the banking NII run rate was stable on Q1. There was another strong wealth performance while wholesale transaction banking was stable on last year's Q2. Despite cost growth of 7% in H1 on a target basis, we remain on track to meet our 2024 guidance of around 5% cost growth. There was growth in both loans and deposits in the quarter. On the next slide, so HSBC Canada contributed around $0.5 billion of revenue and around $0.2 billion of profit before tax in the quarter before the sale completed in March. To make like-for-like comparisons easier, these contributions and some other impacts have been excluded from some of the commentary.

John Bingham: In terms of the drivers there.

Georges Elhedery: The Banking NII run rate was stable in the first quarter. There was another song went performance, while Wholesale Transaction Banking was stable in last year's second quarter. Despite cost growth of 7% in the first half on a target basis, we remain on track to meet our 2024 guidance, and there was growth in both loans and deposits. On the next slide.

John Bingham: The banking NII run rate was stable in the first quarter.

There was another strong well performance.

John Bingham: When wholesale transaction banking was stable in last year's second quarter.

John Bingham: Despite cost growth of 7% in the first half on the target basis, we remain on track to meet our 2024 guidance of around 5% cost growth.

John Bingham: And there was growth in both loans and deposits in the quarter.

John Bingham: On the next slide.

Georges Elhedery: HSBC Canada contributed around $0.5 billion of revenue and around $0.2 billion of profit before tax in the quarter, before the sale completed. To make like-for-like comparisons easy, these contributions and some other impacts have been excluded from some of the comments. So, excluding notable items and the impact of strategic transactions, profit before tax was up 7%. Revenue of $16.5 billion was up $0.3 billion on the second quarter.

Speaker Change: So HSBC, Canada contributed around North point $5 billion of revenue and around North point $2 billion of profit before tax in the quarter before.

Speaker Change: Before the sale completed in March.

Speaker Change: To make like for like comparisons easier these contributions and some other impact had been excluded from some of the commentary.

Georges Elhedery: Excluding notable items and the impact of strategic transactions, profit before tax was up 7% to $9.1 billion. Revenue of $16.5 billion was up $0.3 billion on Q2 last year. Excluding notable items and the impact of strategic transactions, revenue was up $0.8 billion or 5% on Q2 last year. Banking NII of $10.9 billion was down $0.4 billion on Q1 on a reported FX basis, primarily because of a $0.3 billion reduction from the Canada sale. Excluding this, the banking NII run rate was stable. We're now in a position to upgrade our 2024 banking NII guidance to around $43 billion.

Speaker Change: So excluding notable items and the impact of strategics interactions profit before tax was up 7% to $9 $1 billion.

Speaker Change: Revenue of $16 $5 billion was up North point $3 billion on the second quarter of last year.

Speaker Change: Excluding notable items and the impact of strategic transactions.

Georges Elhedery: Revenue was up 0.8 billion dollars, or 5%, in the second quarter. Banking and I.I. of $10.9 billion was down $0.4 billion on the first quarter on a reported FX basis, primarily because of a $0.3 billion reduction from the Canadian government. Excluding this, the banking NII run rate was stable.

Speaker Change: Revenue was up $9.8 billion or 5% on the second quarter of last year.

Speaker Change: Banking NII of $10 $9 billion was down North point $4 billion on the first quarter on a reported FX basis, primarily because of an north point $3 billion reduction from the Canada sake.

Speaker Change: Excluding this the banking NII run rate was stable.

Georges Elhedery: We're now in a position to upgrade our 2024 banking NII guidance to around $43 billion. This assumes a $1 billion contribution from Argentina, which is, it's reported, NII in 2020, although we note that it remains volatile and difficult. We're also providing new details to help you understand the expected benefits from the structural analysis; around $55 billion of assets are due to mature in the second half of 2024, with an average yield of 2.8%, and around $105 billion of assets will mature in 2025 with an average yield of 2.8%, tending to feed another income. Wholesale transaction banking was stable in the second quarter of last year or up 2% excluding the impact of strategic transactions.

Speaker Change: We're now in a position to upgrade our 2024 banking NII guidance to around $43 billion.

Georges Elhedery: This assumes a $1 billion contribution from Argentina, which was its reported NII in 2023. Although we note that it remains volatile and difficult to predict. We're also providing new details to help you understand the expected benefits from the structural hedge. Around $55 billion of assets are due to mature in H2 2024, with an average yield of 2.8%. Around $105 billion of assets will mature in 2025, with an average yield of 2.8% as well. Turning to fee and other income. Wholesale transaction banking was stable on Q2 last year, or up 2% excluding the impact of strategic transactions. Within this, Global Payments Solutions had another good quarter, up 2%, as did Securities Services, which was up 3%.

Speaker Change: This assumes a 1 billion dollar contribution from Argentina, which was its reported NII in 2023, although we note that it remains volatile and difficult to predict.

Speaker Change: We're also providing new details to help you understand the expected benefits from the structural hedge.

Speaker Change: Around $55 billion of assets are due to mature in the second half of 2024 with an average yield of two 8%.

Speaker Change: And then on $105 billion of assets will mature in 2025 with an average yield of two 8% as well.

Speaker Change: Turning to fee and other income.

Speaker Change: Wholesale transaction banking were stable in the second quarter of last year or up 2%, excluding the impact of strategic transactions within this.

Georges Elhedery: Global Payment Solutions had another good quarter, up 2%, as did Security Services, which was up 2%, for an exchange, delivered broadly stable revenue compared to a strong quarter-long. And Wealth had another very good quarter, underlying that our investment is continuing to drive improved risk. Wealth Fee and Other Income was up by 13% compared to last year's second quarter.

Speaker Change: Global payments solutions had another good quarter up 2% as the security services, which was up 3%.

Georges Elhedery: Foreign Exchange delivered broadly stable revenue compared to a strong quarter last year. Wealth had another very good quarter, underlying that our investment is continuing to drive improved results. Wealth fee and other income was up by 13% compared to last year's Q2. Private Banking was a standout performer, mainly driven by increased customer activity in brokerage and trading in Asia. Growth in Wealth remained broad-based. Customer growth and improved Wealth penetration, primarily in Asia, helped drive growth in investment distribution. Invested assets were up 2% to $1.3 trillion, including $6 billion of net new invested assets in the quarter. Our insurance new business CSM was $0.6 billion, up $0.2 billion on the Q2 of last year.

Speaker Change: Foreign exchange delivered broadly stable revenue compared to a strong quarter last year.

Speaker Change: And wealth had another very good quarter underlying that our investment is continuing to drive improved results.

Speaker Change: Wealth fee and other income was up by 13% compared to last year's second quarter.

Georges Elhedery: Private banking was a standout performer, mainly driven by increased customer activity in brokerage and trading in Asia. However, growth and wealth remain protracted. Customer growth and improved wealth penetration, primarily in Asia, helped drive growth in investment distribution. Invested assets were up 2% to $1.3 trillion, including $6 billion of net new invested assets. And our insurance new business CSM was $0.6 billion, up $0.2 billion on the second quarter. Expected credit losses were $0.3 billion in the quarter, equivalent to 15 basis points of average yield.

Private banking was a standout performer, mainly driven by increased customer activity in brokerage and trading in Asia.

Speaker Change: But growth in wealth remained broad based.

Speaker Change: Customer growth and improved wealth penetration, primarily in Asia helped drive growth in investment distribution.

Speaker Change: Invested assets were up 2% to one three trillion dollars Inc.

Speaker Change: Including $6 billion of net new invested assets in the quarter.

Speaker Change: And our insurance new business CSM was north point $6 billion.

Speaker Change: Up North point $2 billion on the second quarter of last year.

Speaker Change: On credits.

Georges Elhedery: On credits, expected credit losses were $0.3 billion in the quarter, equivalent to 15 basis points of average loans. This included $0.4 billion of recoveries and other items mentioned on the slide. Excluding these, ECLs were broadly in line with our normal medium-term planning range of 30 to 40 basis points. Stage three balances were 2.4% of customer loans, up $1.4 billion compared to Q1. This was driven by Hong Kong commercial real estate book, but there was a limited impact on ECL charge because of the high level of collateralization. We are revising our 2024 ECL guidance to our normal medium-term planning range of 30 to 40 basis points of average loans.

Georges Elhedery: This included $0.4 billion of recoveries and other items mentioned on the slide. Excluding these, ECLs were broadly in line with our normal medium-term planning range. Stage 3 balances were 2.4% of customer loans, up 1.4 billion dollars compared to the first. This was driven by the Hong Kong commercial real estate book, but there was a limited impact on ECL charges because of the high level of collateral. We are revising our 2024 ECL guidance to our normal medium-term planning range of 30 to 40 basis points.

Speaker Change: Expected credit losses were north of $3 billion in the quarter equivalent to 15 basis points of average loans.

This included North point $4 billion of recoveries and other items mentioned on this slide.

Speaker Change: Excluding these sales were broadly in line with our normal medium term planning range of 30 to 40 basis points.

Speaker Change: Stage three balances were two 4% of customer loans up $1.4 billion compared to the first quarter.

Speaker Change: This was driven by Hong Kong commercial real estate book, but there was a limited impact on ECL charge because of the high level of Collateralization.

Speaker Change: We are revising our 2024 ECL guidance to our Norman medium term planning range of 30 to 40 basis points of average loans.

Georges Elhedery: Next, costs grew by 7% in the first half, on target, but we remain on track to meet our guidance of 2024 cost growth of around $5 billion. Two percentage points of cost growth in the first half came from higher performance-related pay accruals and led to... As we explained in the first quarter... We have faced the accrual of our performance-related pay more evenly this year than last year. We do not expect the total amount of performance-related pay for 2024 to be materially different, so the accrual in the second half is expected to be lower in the first half. In addition, the second half of last year included $0.3 billion in levies.

Georges Elhedery: Next, costs grew by 7% in H1 on a target basis, but we remain on track to meet our guidance of 2024 cost growth of around 5%. Two percentage points of cost growth in H1 came from higher performance-related pay accrual and levies. As we explained at Q1, we have phased the accrual of our performance-related pay more evenly this year than last year. We do not expect the total amount of performance-related pay for 2024 to be materially different to 2023, so the accrual in H2 is expected to be lower year-on-year. In addition, H2 of last year included $0.3 billion of levies that we do not expect to repeat this year.

Next costs grew by 7% in the first half on a target basis.

But we remain on track to meet our guidance of 2020 for cost growth of around 5%.

Speaker Change: Two percentage points of cost growth in the first half came from higher performance related pay accrual and lessees.

Speaker Change: As we explained at the first quarter.

Speaker Change: We have faced the accrual of a performance related pay more evenly this year than last year.

Speaker Change: We do not expect the total amount of performance related pay for 'twenty 'twenty four to be materially different to 2023. So the accrual in the second half is expected to be lower year on year.

Speaker Change: In addition, the second half of last year included North point $3 billion of levees that we do not expect to repeat this year.

Georges Elhedery: We are therefore reconfirming our guidance of around 5% cost growth for 2024 on a target basis, and we remain on Lending and Deposit. There was positive lawn growth in the quarter in both the UK and Asia, whilst Hong Kong was broadly stable. Overall, there were promising signs in the... Deposits were up 2% with the majority of the... There was also growth in the UK, Europe, the US, and the rest of the world, but it also included the benefits of seasonality in commercial banking and a large one-off in global banking and markets, so I would encourage you not to annualize.

Georges Elhedery: We are therefore reconfirming our guidance of around 5% cost growth for 2024 on a target basis, and we remain committed to cost discipline. On lending and deposits, there was positive loan growth in the quarter in both the UK and Asia, while Hong Kong was broadly stable. Overall, there were promising signs in the H1. Deposits were up 2% with the majority of this in Hong Kong. There was also growth in the UK, Europe, and the US, and the rest of Asia. It also included the benefits of seasonality in commercial banking and a large one-off in global banking markets. I would encourage you not to annualize the 2% figure. Next, our CET1 ratio was 15%, down 20 basis points on Q1, as strong organic capital generation was offset by distributions in the form of dividends and share buybacks.

Speaker Change: We are therefore, reconfirming our guidance of around 5% cost growth for 2024 on a target basis.

Speaker Change: And we remain committed to cost discipline.

Speaker Change: On lending and deposits there was positive loan growth in the quarter in both the U K and Asia Whites, Hong Kong was broadly stable overall, there are promising signs in the first half.

Speaker Change: Deposits were up 2% with the majority of this in Hong Kong.

Speaker Change: There was also growth in the U K Europe, and the U S and the rest of Asia.

Speaker Change: But it also included the benefits of seasonality and commercial banking and a large one off in global banking and markets. So I would encourage you not to annualize the 2% figure.

Georges Elhedery: Next, our CT1 ratio was 15%, down 20 basis points on the first quarter as strong organic capital generation was offset by distributions in the form of dividends. We have announced a new share buyback of up to $3 billion, which we expect to complete within three months and to have an impact of around 0.4% on our C21. Finally, to recap... Our strong first-half performance and our confidence about the banks... Provide new guidance for Metteen's Return on Tangible Equity, excluding notable items, for 2025 in addition to our existing Metteen's Guidance, upgrade our 2024 banking NII guidance from at least $41 billion to around $43 billion, to within our normal medium-term planning range of 30 years, and re-confirm our guidance for 24 cost growth of With that, Louise, can we please...

Speaker Change: Next our CET, one ratio was 15% down 20 basis points in the first quarter.

Speaker Change: Strong organic capital generation was offset by distributions in the form of dividends and share buybacks.

Georges Elhedery: We have announced a new share buyback of up to $3 billion, which we expect to complete within three months and to have an impact of around 0.4 percentage points on our CET1 ratio in Q3. Finally, to recap, our strong H1 performance and our confidence about the bank's position enable us to provide new guidance of a mid-teens return on tangible equity, excluding notable items for 2025, in addition to our existing mid-teens guidance for 2024. Upgrade our 2024 banking NII guidance from at least $41 billion to around $43 billion. Revise our 2024 ECL guidance to within our normal medium-term planning range of 30 to 40 basis points. Reconfirm our guidance for 2024 cost growth of around 5% on a target basis and a mid-single digit loan growth over the medium term.

Speaker Change: We have announced a new share buyback of up to $3 billion, which we expect to complete within three months and to have an impact of around north 0.4 percentage points on our CET one ratio in the third quarter.

Speaker Change: Finally to recap.

Speaker Change: Our strong first half performance and our confidence about the bank's position enable us to provide.

Speaker Change: Providing you guidance of a mid teens return on tangible equity excluding notable items for 2025. In addition to our existing mid teens guidance for 2024.

Speaker Change: Upgrade our 'twenty 'twenty four banking NII guidance from at least $41 billion to around $43 billion.

Speaker Change: Voice over 'twenty 'twenty four ECL guidance, two within our normal medium term planning range of 30 to 40 basis points.

Speaker Change: And reconfirm, our guidance for 2000 and for cost growth of around 5% on the target basis.

Speaker Change: And the mid single digit loan growth over the medium term.

Georges Elhedery: With that, Louise, can we please go to Q&A? Thank you.

Speaker Change: With that Louise can we please go to Q&A.

Operator: Thank you, Georges. If you would like to ask a question today, please use the raise your hand function in Zoom. Please also ensure that your camera is turned on.

Operator: Thank you, Georges. If you would like to ask a question today, please use the Raise Hand function in Zoom. Please also ensure your camera is turned on. If you are invited to ask a question, please accept the prompt to unmute your line. If you find your question has been answered, you may remove yourself from the queue by lowering your hand in Zoom. Our first question today comes from Andrew Coombs at Citigroup. Please accept the prompt to unmute your line.

Louise: Thank you George if you would like to ask a question today I think he.

Louise: He is the right hand function and theme. Please also ensure your camera retired.

Operator: If you are invited to ask a question, please accept the prompt to unmute your line. If you find your question has been answered, you may remove yourself from the queue by lowering your hand in Zoom. Our first question today comes from Andrew Coombs at Citigroup; please accept the prompt to mute your line. Good morning, thank you both for the comments. A couple of questions from my side, one looking at the big picture and one looking at the numbers.

Speaker Change: If you would like to ask a question. Please accept my mute your line.

Speaker Change: If you find your question had been ounces you may believe yourself from the queue when Barry Neil Hansen theme.

Speaker Change: Our first question today comes from Andrew Coombs Citigroup. Please accept the problem to mute your line.

Operator: First the big picture question, Noel, you highlighted all the things you could be proud of during your tenure, but perhaps, with the benefit of hindsight, I would be interested in any thoughts you have on anything you might have done differently. And then, linked to that as well, Georges, I think you were on the tape this morning talking about accelerating the distant execution. So any tangible examples you can provide on that would be helpful as well.

Noel Quinn: Hi, Andrew.

Speaker Change: Andrew.

Andrew Coombs: Good morning. Thank you both for the comments. A couple of questions from my side. One big picture, one into the numbers. First, the big picture question. Noel, you highlighted all the things you can be proud of during your tenure, but perhaps with the benefit of hindsight, be interested in any thoughts you had on anything you might have done differently. Linked to that as well, Georges, I think you're on the tape this morning, talking about accelerating the existing execution. Any tangible examples you can provide on that would be helpful, as well. In terms of the numbers question, thank you for the additional disclosure around the structural hedge. I think you talked about $55 billion maturing in H2 at a 2.8% yield.

Morning.

Andrew Coombs: A couple of questions.

Speaker Change: <unk> had one big picture one numbers.

Speaker Change: Big picture question.

Speaker Change: No you highlighted.

As you can be outdoor Jeremy and good day.

Speaker Change: Benefit of hindsight be interested any thoughts you have on anything you might have done differently.

Speaker Change: And then hey, guys.

Speaker Change: George.

Speaker Change: This morning talking about celebrating.

Speaker Change: Execution.

George: Manageable examples.

Speaker Change: Baidu map you helpful either.

Speaker Change: Wow.

Noel Quinn: And then in terms of the numbers question, thank you for the additional disclosure around the structural hedge. I think you talked about 55 billion maturing in the second half at a 2.8% yield. Is it fair to assume the new position that you're putting on is probably about a percent higher than that where the forward curve is? So prior to any offset from adding to the existing structural hedge notional, it's about half a billion of NII up there. Is that fair? Andrew, thanks for your questions. I'll take the first one.

Speaker Change: And then in terms of the numbers question and thank you for the additional disclosure around the structural hedge I think you talked about 55 billion maturing in the second half.

Speaker Change: Yield is.

Andrew Coombs: Is it fair to assume that the new positions that you're putting on are probably about 1% higher than that given where the forward curve is? Prior to any offset from adding to the existing structural hedge notional, it's about $ half a billion of NII uplift. Is that fair?

Speaker Change: Is it fair to assume the New addition that you're putting on probably.

Probably about 1%.

Speaker Change: Im not given where the forward curve is.

Speaker Change: Brian.

Speaker Change: Any of that.

Brian: Adding to the existing structural hedge notional.

Speaker Change: About $1 billion of NII.

Brian: Pat.

Noel Quinn: Listen, I've got no regrets, Andrew. I think, you know, performing this role is an absolute privilege and, look, you never finish with an institution like this, and that's why George is right to comment on that. You always want to do more, there's always things you want to improve, there's always an investment you can do to grow more revenue, improve customer experience, improve systems, and processes. There's never a notion of finishing; there should always be a notion of continuous improvement and continuous ambition. And I think that's probably the bridge from me to George because I have no regrets about the last five years.

Noel Quinn: Andrew, thanks for your questions. I'll take the first one. Listen, I've got no regrets, Andrew. I think, you know, performing this role is an absolute privilege, and, like, you never finish with an institution like this, and that's why Georges is right to comment that, like, you always want to do more. There's always things you want to improve. There's always investment you can do to grow more revenue, to improve customer experience, improve systems and processes. So there's never a notion of finishing. There should always be a notion of continuous improvement and continuous ambition. I think that's probably the bridge from me to Georges because I have no regrets about the last five years. I think we've done a lot of good things, and I thank my colleagues for everything they've done.

Andrew Thanks for your questions.

Brian: I'll take the first one listener I I've got no regrets Andrew I think you know.

Speaker Change: Performing this role is an absolute privilege and.

Speaker Change: You never finish.

Speaker Change: With an institution like this and that's why George has right to common.

Speaker Change: You always want to do more yours, there's always things you want to improve as always.

Speaker Change: Investment you can do to grow more revenue to.

Speaker Change: Improved customer experience improve systems and processes. So.

Speaker Change: Theres never a notion of finishing theres always should always be a notion of continuous improvement and continuous ambition.

George: I think that's probably the bridge for me to George because I have no regrets about the last five years I think we've done a lot of good things and I. Thank my colleagues for everything they've done.

Noel Quinn: I think we've done a lot of good things, and I thank my colleagues for everything they've done. But, equally, you should never be complacent and think the job is finished. Running an organization as large as ours, with so much opportunity before us to further improve, is never finished, and that's the bridge over to Georges now to take it on to the next level and continue to execute the strategy. So Georges, it's up to you on both of the next two questions. Thanks, Noel.

Noel Quinn: Equally, you should never be complacent and think the job is finished. The job of running an organization as large as ours and with so much opportunity before us to further improve is never finished. That's the bridge over to Georges now to take it on to the next level and to continue to execute the strategy. Georges, hand to you on both of the next two questions, please.

George: But equally you should never be complacent and think the job is finished the job of running an organization as large as ours and with.

George: With so much opportunity before us to further improve it.

George: He is never finished and that's the bridge over to George and I have to take it onto the next level and to continue to execute the strategy. So George and Hunter you on both over the next two questions. Please thank snow, yes, Andrew just echoing oil and building on that.

Georges Elhedery: Yes, Andrew, just echoing Noel and building on that, we've called out some of the key areas of our strategy. I've called out Hong Kong, the UK, the International Wholesale Bank, which is underpinned by leading transaction banking capabilities, as well as wealth, all of which have demonstrated very strong momentum, certainly over the last few years, but definitely over the first half of this year. We're confident about the momentum, we're confident in our ability to continue investing in them, and we're confident, too, that we have ample capital to support additional growth.

Georges Elhedery: Thanks, Noel. Yes, Andrew, you know, just echoing Noel and building on that. We've called out some of the key areas of our strategy. I've called out Hong Kong, the UK, the International Wholesale Bank, which is underpinned by a leading transaction banking capabilities, as well as wealth. All of which have demonstrated very strong momentum, certainly over the last few years, but definitely over the H1 of this year. We're confident about the momentum. We're confident in our ability to continue investing in them, and we're confident also we have ample capital to support, you know, additional growth. It's just about getting pace, continued pace in the execution of this strategy that has proved its results. On your question about the structural hedge, Andrew.

Speaker Change: We've called out some of the key areas of our strategy of called out Hong Kong. The U K the international wholesale bank, which is underpinned by a leading transaction banking.

Speaker Change: Our capabilities as well as when.

Speaker Change: All of which have demonstrated very strong momentum.

Speaker Change: Over the last few years, but definitely over the first half of this year, we're confident about the momentum we're confident in our ability to continue investing in them and were confident also we have ample capital to support.

Georges Elhedery: So it's just about maintaining the continued pace in the execution of this strategy that has proved itself. On your question about the structural hedge, Andrew, so 55 billion are expected to mature over the course of the second half at an average yield of 2.8 percent. If I try to reverse engineer UMass and if you assume the reinvestment happens at around 3.8% with a 1% uplift... Then you get 500 billion, but remember, this is a maturity that is happening over the course of the half. Therefore, I think you have to average the number, and therefore you have to assume half the number as a in-year 2024 benefit from that.

Speaker Change: Additional growth. So it's just about getting pace continued pace in the execution of this strategy that has proved its results.

Speaker Change: On your question about the structural hedge.

Andrew So.

Georges Elhedery: $55 billion are expected to mature over the course of H2 at an average yield of 2.8%. If I try to reverse engineer your math, and if you assume the reinvestment happens at around 3.8% with a 1% uplift, then you get $500 million. Remember, this is maturities that are happening over the course of H2. Therefore, I think you have to average the number, and therefore, you have to assume half the number as an in-year 2024 benefit from that structural hedging investment. Say, the half of your $0.5 billion you quoted. Also bear in mind that we're increasing the structural hedge subject to market conditions. We've done about $25 billion in H1.

Andrew Coombs: 55 billion are expected to mature over the course of the second half at an average yield of two 8%.

Andrew Coombs: If I try to reverse engineer your math, if you assume the reinvestment happens it.

Andrew Coombs: Around three 8% with a 1% uplift.

Speaker Change: And then you get to 500 billion, but remember this is a.

Speaker Change: This is our maturities that are happening over the course of the half. Therefore, I think you have to average in the number and therefore you have to assume half the number as of in year 2024 of benefit from that structural hedge reinvestment. So say the harmful your point 5 billion you quoted.

Georges Elhedery: Structural Hedgery Investments, so say the half of your 0.5 billion U.S. Also, bear in mind that we are increasing the structural hedge subject to market conditions. We've done about 25 billion in the first half. It's a good estimate of the run rate for the second half. And that is a mild headwind because we're increasing the hedge from higher short-term rates to lower longer-term rates due to the inversion of the curve, so you have to take all of that into account. Thank you, Georges. Our next question today comes from Amit Gol at Mediobanker. Please accept the prompt to unmute your line. Ahmed Hai, Hey, thank you for taking my questions. So I have three.

Speaker Change: Also bear in mind that we are increasing the structural hedge subject to market conditions.

Speaker Change: We've done about 25 billion in the first half it's a good estimate of the run rate for the second half.

Georges Elhedery: It's a good estimate of the run rate for the H2. That is a mild headwind because, you know, we're increasing the hedge from higher short-term rates into lower longer term rates due to the inversion of the curve. You have to take all of this into consideration when factoring in the impact for 2024 banking NII.

Speaker Change: And that.

Speaker Change: That is a mild headwind because we didn't you know we are increasing the hedge from higher short term rates into lower longer term rates due to the inversion of the curve. So you have to take all of this into consideration when factoring in the impact with anything for banking NII.

Operator: Thank you, Georges. Our next question today comes from Amit Goel at Mediobanca. Please accept the prompt to unmute your line.

Speaker Change: Thank you Sir our next question today comes from Mediobanca.

Tommy Illinois: Mediobanca, please accept the prompt Tommy Illinois.

Noel Quinn: Amit, hi.

Amit: Amit Hi.

Georges Elhedery: Firstly, I was a bit surprised to get the 2025 profitability target, which does seem to be a little bit above consensus. I think consensus is about 14%. So, you know, there's a bit of variation on mid-teens, but if that's kind of 15, 16, 17, I'm just curious where you see a bit more upside.

Amit Goel: Hey, thank you for taking my questions. I have three. Firstly, I was a bit surprised to get the 2025 profitability target, which does seem to be a little bit above consensus. I think consensus is about 14%, you know, I guess a bit of variation on mid-teens, but if that's kind of 15, 16, 17. Just curious where you see a bit more upside. Is that mainly on the revs or can you see a bit more cost control? And then linked to that, Georges, I think in your comments as well, you talked about growing revenues on a sustainable basis. Just curious again how you're thinking about that potentially with some NII headwinds.

Okay. Thank you taking my questions.

Amit: And so I have three.

Amit: Sorry.

Speaker Change: Firstly I was a bit surprised to get the 2025 profitability target, which again.

Speaker Change: It does seem to be a little bit about consensus I think consensus is about 14% say I guess bit of variation of mid teens kind of 15, 16, 17, and just curious where you see them.

Georges Elhedery: Is that mainly on revenue, or can you see a bit more cost control? And then, linked to that, Georges, I think in your comments as well, you talked about growing revenues on a sustainable basis. So just curious again, how you're thinking about that potentially with some NII headwinds.

Speaker Change: A bit more upside is that mainly on the red so or can you see a bit more cost control.

And then linked to that.

Speaker Change: Georges I think in your comments you talked about growing revenues on a sustainable basis say, just curious again, how you're thinking about that potentially with sun.

Georges Elhedery: And then lastly, Noel, I think you used the term sluggish or subdued a few times when talking about the environment. Just curious when you think that will potentially turn, and we can see a more constructive environment in some of those markets. Thank you.

NII headwinds.

Amit Goel: Lastly, Noel, I think you used the term sluggish or subdued a few times when talking about the environment. Just curious when you think that will potentially turn and we can see a more constructive environment to some of those markets. Thank you.

Speaker Change: And then last day.

Speaker Change: No I think he used the term sluggish.

<unk> a few times when talking about the environment.

Speaker Change: And just curious when you think that will potentially churn and we can see a more constructive environment to some of those markets. Thank you sounds good.

Noel Quinn: Sounds good. Amit, I'll ask Georges to answer the first one I think is probably best, on the mid-teens and the definition of mid-teens, and then also maybe sustainable revenue, and then I'll cover the third.

Speaker Change: George to answer the first one I think is probably best done.

Noel Quinn: I'll ask Georges to answer the first one, which I think is probably the best one, on the mid-teens and the definition of the mid-teens, and then also maybe sustainable revenue, and then I'll cover the rest. Very good. Thank you, Amit.

Speaker Change: On the mid teens and the definition of mid teens and then also may be sustainable revenue and then I'll cover the third very.

Georges Elhedery: Very good. Thank you, Amit. Consensus, if you adjust consensus for 2025 for the impact of the loss from the sale of Argentina, which by the way as we communicated, now we expect by the end of the year, therefore, it's more reasonable to assume that loss, the recycling of the foreign exchange loss of $5 billion, which has no impact on capital or on distribution. It's fair to assume that impact will happen in 2024. If you adjust the consensus in 2025, you get to around 14% indeed. Our definition of mid-teens is broadly around 14% to 16%. Without commenting on the consensus, our mid-teens definition is broadly that 14% to 16% range.

Georges Elhedery: So, if you adjust the consensus for 2025 for the impact of the loss from the sale of Argentina, which, by the way, as we communicated, now we expect by the end of the year, therefore, it's more reasonable. It's fair to assume that impact will happen in 2024, but if you adjust the consensus in 2025, you get to around 14% indeed. Our definition of matins is broadly around 14%.

Speaker Change: Very good.

Amit: Thank you Amit.

Speaker Change: So consensus if you adjust consensus for 2025 for the impact of.

Speaker Change: The loss from the sale of Argentina, which by the way as we communicated now we expect by the end of the year. Therefore, it's more reasonable to assume that that loss. The recycling of the foreign exchange loss of $5 billion, which has no impact on capital or in distribution. It's fair to assume that impact will happen in 'twenty four but if you adjust the can.

Speaker Change: Sensors in 25, you get to around 14% indeed.

Speaker Change: Our definition of mid teens is broadly around 14% to 16%.

Georges Elhedery: So without commenting on the consensus, our meeting's definition is broadly that of growing revenue on a sustainable basis. Let me point you to three major indicators which are going to be important in the way we look at the future. The first one related to banking and I... [inaudible] for a 100 basis point drop. [inaudible] We have reduced the dependency of our earnings and of our banking NII on this impact. The second component, again relating to banking and AI, is that while for a few quarters we've seen subdued loan growth, in particular in the UK and Hungary. Wholesale Market.

Speaker Change: So without commenting on the consensus or mid teens definition.

Speaker Change: Broadly that 14, 60% range on.

Georges Elhedery: On the growing revenue on a sustainable basis, let me point you to three major indicators which are going to be important in the way we look at the future. The first one related to banking NII. Banking NII, number one, has been stabilized in, you know, partly with the reduction of banking NII sensitivity. If you recall, two years ago we called out $7 billion to be the impact on banking NII on our revenue for a 100 basis point drop in interest rates. That number at the year-end was $3.4 billion, and that number, as we reported it now, is $2.7 billion.

Speaker Change: On the.

Speaker Change: Growing revenue on a sustainable basis, let.

Speaker Change: Let me point you to three major indicators, which are going to be important in the way we look at the future. The first one related to banking NII.

Speaker Change: Banking NII.

Speaker Change: Number one.

Speaker Change: Has been stabilized.

Speaker Change: Partly with the reduction of banking NII sensitivity. If you recall two years ago, we called out $7 billion to be the impact on bank NII on a revenue for 100 basis point drop in interest rates that number at the year end was $3 $4 billion and that number as we.

Speaker Change: It is now is $2 $7 billion. So therefore, we have through activities of structural hedging, but also through other methodology improvements and balance sheet composition, we have reduced the dependency of our earnings and also banking NII to the impact of lower rates.

Georges Elhedery: Therefore, we have through activities of structural hedging, but also through other methodology improvements and balance sheet composition, we have reduced the dependency of our earnings and of our banking NII to the impact of lower rates. The second component, again relating to banking NII, is that while for a few quarters we've seen subdued loan growth, in particular in the UK and Hong Kong, wholesale markets, we have now seen stabilization. It's early to call it a trend, but we are encouraged by the stabilization we've observed. Importantly, we will be more encouraged to, when, you know, when we see rates coming off, in the support they can have for loan growth, in particular in these two areas that historically have been a little bit more, sluggish. Other parts of our activity remained resilient.

Speaker Change: Second component again relating to banking NII is that while for a few quarters, we've seen subdued loan growth in particular in the U K and Hong Kong wholesale market. We have now seen stabilization. It's early to call. It a trend, but we are encouraged by the stabilization we've observed.

Georges Elhedery: We have now seen stabilization. It's early to call it a trend, but we are encouraged by the stabilization we've observed. And importantly, we will be more encouraged when we see rates coming off in the support they can have for loan growth, in particular in these two areas that historically have been a little bit more sluggish. Other parts of our activity remain resilient; loan growth in South and Southeast Asia remained very strong, and loan growth in the mortgage businesses in the UK and Hong Kong remained very. So there is a volume component to banking and AI, which we support. And as you can see from our capital, we have plenty.

Speaker Change: And importantly, we will be more encouraged to where you know when we see rates coming off.

Speaker Change: In the support they can have for loan growth in particular in these two areas that historically had been a little bit more.

Speaker Change: Sluggish other parts of our activity remained resilient loan growth in.

Georges Elhedery: Loan growth in South and Southeast Asia remained very strong. Loan growth in the mortgage businesses in the UK and Hong Kong remained very strong. There is a volume component to banking NII, which we're supportive, and as you can see from our capital, we have ample capacity to support loan growth. The third component I will call out is the non-banking NII part of our earnings, fees and other income, in particular, wholesale transaction banking and wealth. You've seen the momentum in these businesses. You've seen the continued investment we've put in these businesses. We believe these momentums are sustainable. There's an underlying sustainable trend supporting wealth, in particular in Asia. There's an additional support through our own investments, both technology and people relationship management related, to support growth in this area.

Speaker Change: In South and Southeast Asia remained very strong loan growth in the mortgage businesses in the U K and Hong Kong remain very strong. So there is a volume component to banking NII, which were supportive and as you can see from our capital we have ample capacity to support loan growth.

Georges Elhedery: And the third component I will call out is the non-banking NIR part of our earnings, fees, and other income, in particular wholesale transaction banking and wealth. You've seen the momentum in these businesses. You've seen the continued investment we've put into these businesses. We believe these momentums are sustainable. There's an underlying sustainable trend supporting wealth, in particular, in Asia. And there's additional support through our own investment in both technology and people relationship management related to support growth in this area, and we believe the momentum. So those are the big, broadly, three components that we believe will sustain our earnings as we go.

Speaker Change: And the third component that would call out is the nonbanking NII part for earnings fees and other income in particular.

Speaker Change: Wholesale transaction banking and wealth.

Speaker Change: You've seen the momentum in these businesses you've seen the continued investments we've put in these businesses. We believe this momentum are sustainable there is an underlying.

Sustained theres, an underlying sustainable trend supporting wealth in particular in Asia, and Dave's and additional support through our own investments both technology and deeper relationship management related to support growth in this area and we believe the momentum is sustainable. So those are the big broadly three components that.

Georges Elhedery: We believe the momentum is sustainable. Those are the big, broadly three components that we believe will sustain our earnings as we look into the future.

Speaker Change: We believe we'll sustain our earnings as we look into the future.

Georges Elhedery: I'm not surprised that the corporate loan market is a bit subdued at the moment. I think it's right for that to be the case because, in a higher interest rate environment, not many corporates out there want to borrow at today's interest rates. And actually, they've still got a lot of cash sitting on their balance sheets they don't need to borrow, which is good. A good position to be in.

Noel Quinn: Amit, just to come a little bit more elaboration on the sluggish subdued. Listen, I'm not surprised that the corporate loan market is a bit subdued at the moment. I think it's right for that to be the case, because in the higher interest rate environment, there's, you know, not many corporates out there want to borrow at today's interest rates. Actually they still got a lot of cash sitting on their balance sheet. They don't need to borrow, which is a good position to be in. As you see interest rates come down, I would expect there to be a pickup in activity. I suppose what Georges just said is we're starting to see the very early signs of that starting to emerge. It's very early. It's too early to call it a trend.

Speaker Change: Allow me just to come a little bit more elaboration on the sluggish subdued there isn't not surprise of the corporate loan market is a bit subdued at the moment I think it's right for that to be the case because.

Speaker Change: And the higher interest rate environment as you know how many quarters out there want to borrow at today's interest rates and actually they still got a lot of cash sitting on their balance sheet I don't need a borrower which is good.

A good position to be in.

Noel Quinn: But as you see interest rates come down, I would expect there to be a pick-up in activity, and I suppose what Georges just said is... We're starting to see the very early signs of that. It's starting to emerge, it's very early; it's too early to call it a trend. But, you know, I was pleased in Hong Kong that the rate of decline in the lending book, the corporate lending book in Hong Kong in Q1 was reduced dramatically.

Speaker Change: But as you see interest rates come down I would expect there to be a pickup in activity and I suppose what Georgia cities.

Speaker Change: We're starting to see the very early signs of that.

Speaker Change: Starting to emerge it's very early too early to call it a trend.

Noel Quinn: You know, I was pleased in Hong Kong that the rate of decline in the lending book, corporate lending book in Hong Kong in Q1 reduced dramatically. You know, we've been declining through 2023, and it actually plateaued in Q2, and that's in Hong Kong. In the rest of Asia, we saw a growth in Q1 and Q2, and in the rest of the world we saw growth in Q1 and Q2. You know, Q1 was the first time we saw net growth in corporate lending. Q2, we saw net growth as well. I think it's encouraging early signs. As interest rates come off, I see that happening. The other thing is, you've also got to remember there's another side to the Hong Kong market.

Speaker Change: You know I was pleased in Hong Kong that the rate of decline in the lending book corporate lending book in Hong Kong in Q1 reduced dramatically. So.

Noel Quinn: You know, we've been declining through 2023, and it actually plateaued in Q2, and that's in Hong Kong, and then in the rest of Asia, we saw growth in Q1 and Q2, and in the rest of the world, we saw growth in Q1 and Q2. Q1 was the first time we saw net growth in corporate lending.

He had been declining through 2023.

Speaker Change: And it actually plateaued in Q2, and there was a less in Hong Kong and then in the rest of Asia. We saw a growth in Q1 and Q2 and in the rest of the world. We saw growth in Q1 and Q2 so.

Speaker Change: Q1 was the first time, we saw net growth in corporate lending.

Noel Quinn: In Q2, we saw their growth as well. Encouraging early signs as interest rates come off, I see that happening. Then the other thing is, you've also got to remember there's another side to the Hong Kong market.

Speaker Change: Q2, we saw a net growth as well so.

Speaker Change: I think its.

Speaker Change: Encouraging early signs as interest rates come off I see that happening and they're using is you've also got to remember there's another side to the Hong Kong market.

Noel Quinn: The deposit market and the investment market are very strong, as you saw in our wealth... Now the net new invested assets going into the business, I think in the first half of this year, was about $34 billion, if I remember correctly, and I think as rates come off, cash moves into invested assets, uh... and I think we're seeing a beneficiary of that, particularly in Hong Kong, where rate differentials are playing strongly into the investment market whereas Okay, next question. Thanks very much, Noel. Our next question today comes from Joseph Dickerson at Jeffreys. Please accept the prompt to unmute your line.

Noel Quinn: The deposit market and the investment market is very strong, as you saw in our wealth businesses. You know, the net new invested assets going in to the business, I think in H1 of this year was about $34 billion, if I remember correctly. I think as rates come off, cash moves into invested assets. I think we're a beneficiary of that, particularly in Hong Kong, where rate differentials are playing strongly into the investment market, whereas they're subduing the demand for loans in the Hong Kong market. The rate differential is working in the opposite direction on investments.

Speaker Change: The deposit market and the investment market is very strong as you saw in our wealth businesses now the net new invested assets going in.

Speaker Change: So the business. So I think in the first half of this year was about $34 billion, if I remember correctly.

And I think as rates come off cash moves into invested assets.

Speaker Change: And I think we're seeing we're a beneficiary of that particularly in Hong Kong, where right differentials applying strongly into the investment market, whereas theyre subduing the rate differentials are so julian the demand for loans in the Hong Kong market, but the rate differential is working in the opposite direction on investments.

Georges Elhedery: Okay.

Noel Quinn: Okay, next question.

Speaker Change: Okay. Thank you very much.

Georges Elhedery: Thank you.

Operator: Thanks very much, Noel.

Noel Quinn: Thanks, Sarah.

Operator: Our next question today comes from Joseph Dickerson at Jefferies.

Joseph Dickerson: Our next question today comes from Joseph Dickerson Jefferies.

Noel Quinn: Joe.

Operator: Please accept the prompt to unmute your line.

Speaker Change: To meet your line Joseph Thank you.

Noel Quinn: Joseph, thank you.

Georges Elhedery: Joseph, thank you. I thank you for taking my question. Just a couple of quick things. So on the ROTE guidance, if you look at the first half of the year, you've kind of done an underlying number of 17%. And that was with some, you know, you've had a few credit headwinds. But generally, generally benign.

Joseph Dickerson: Hi, thank you for taking my question. Just a couple of quick things. On the ROTE guidance, if you look in the H1 of the year, you've kind of done an underlying number 17%, and that was with some, you know, you've had a few credit headwinds, but generally benign. I mean, I guess if you think about things like cash moving into invested assets, which should be higher ROE, you know, your Wealth and Personal Banking ROE is around 31% at the moment. You know, you're doing about a 22% UK ROE. I guess what would hold you back from maintaining that level in 2025 and 2026, notwithstanding some rate cuts?

Joseph Dickerson: Alright, Thank you for taking my question.

Just a couple of quick things.

Speaker Change: On the <unk>.

Speaker Change: On the R. O T E guidance, if you look in the first half of the year, you've kind of done at underlying number 17.

Speaker Change: Person and that was with some you know you've had a few credit headwinds.

Speaker Change: But generally generally benign.

Speaker Change: Yes.

Georges Elhedery: I mean, I guess, If you think about things like cash moving into invested assets, which should have higher ROE, you know, your wealth and personal banking ROEs are around 31%. At the moment, you're doing about a 22% UK ROE. I guess, what would hold you back from maintaining that level in 2025 and 2026, notwithstanding some, some rate cuts? It seems like there's a lot more flex in the model, in your business model, and I know you need to be conservative, but is it race that would hold you back, or lack of activity, and I guess that's the follow-on question.

Speaker Change: If you think about things like cash moving into.

Speaker Change: Invested assets, which should be higher Roe.

Speaker Change: Your wealth and personal banking ROE is around 31%.

Speaker Change: At the moment Youre doing about a 22% U K.

Speaker Change: Ro.

Speaker Change: I guess why.

Speaker Change: What what would hold you back from maintaining that level in 'twenty, five and 26 notwithstanding some.

Speaker Change: Some rate cuts.

Joseph Dickerson: It seems like there's a lot more flex in the model in your business model. I mean, I know you need to be conservative, but I guess what is it, is it rates that would hold you back? Lack of activity? I guess the-

Speaker Change: It seems like Theres, a lot more flex in the model.

Speaker Change: Your business model and I know you need to be conservative.

Speaker Change: Is it rates that would hold you back lack of activity and I guess.

Noel Quinn: I just, I-

Joseph Dickerson: Just to follow on question. Yeah.

Noel Quinn: I just, I-

Joseph Dickerson: Just to follow on question. Yeah.

Speaker Change: Just a follow up I think.

Georges Elhedery: I think it's a fair observation, but I think, and we're not being conservative for the sake of being conservative, I think it is too early to call a return to volume growth in the corporate loan market in substantial proportion. I think we all expect rates to come off and cash to move from cash to invested assets. I think we're just, it's still a bit early in the cycle; there's a lot of uncertainty still out there.

Noel Quinn: I think it's a fair observation, but I think, and we're not being conservative for the sake of being conservative. I think it is too early to call a return to volume growth in the corporate loan market in substantial proportions. You know, I think we all expect the rates to come off, and cash to move from cash to invested assets. I think it's still a bit early in the cycle. There's a lot of uncertainty still out there. And I think given our guidance of mid-teens, which is somewhere between 14% and 16%, is fair at this point in time.

Speaker Change: It's a fair observation, but I think we're not.

Speaker Change: We are not being conservative for the sake of being Conservative I think it is too early.

Speaker Change: So call a return to volume growth in the corporate loan market in substantial proportions.

Speaker Change: You know I think we all expect the rates to come off.

Speaker Change: Cash to move from cash to invested assets.

Speaker Change: I think we just it's still a bit early in the cycle, there's a lot of uncertainty still either.

Georges Elhedery: And I think our guidance of mid-teens, which is somewhere between the 14 and 16 percent range, is fair at this point in time. I think the most important thing we've tried to do over the past few years is... uh... deliver each quarter and let each quarter be the base for the future. So I think it's better to set reasonable and sensible guidance and then we continue to evidence progress against that as quarter by quarter goes. So I don't think we're in the mold as an institution to be overly bullish one way or the other, particularly when there's still quite Yeah, no, and nothing.

Speaker Change: And I think given our guidance of mid teens, which is somewhere between 14 and 16% range.

Speaker Change: Is it fair at this point in time I think the most important thing we've tried to do over the past few years.

Noel Quinn: I think the most important thing we've tried to do over the past few years is deliver each quarter and let each quarter be the base for the future. I think it's better to set reasonable and sensible guidance, and then we continue to evidence progress against that as quarter by quarter goes. I don't think we're in the mold as an institution of being overly bullish one way or the other, particularly when there's still quite a bit of uncertainty out there. Georges, is there anything you want to add?

Speaker Change: Is.

Deliver each quarter, let each quarter be the base for the for the future. So I think it is better to.

Speaker Change: Set reasonable and sensible guidance and then we continue to evidenced progress against that as quarter by quarter go. So I don't think we're in the mold as an institution of vein.

Speaker Change: I mean overly bullish one way or the other particularly when there's still quite a bit of uncertainty over the Georgia is there anything you want to add.

Georges Elhedery: Yeah. No, nothing. No, you covered it. Just one parameter also just to add is just remember to remove the impact of Argentina with the expected sale taking place at the end of this year in your 2025 assessments, yeah.

Speaker Change: No nothing no you covered it in just one parameter also just to add is just to remember to remove the impact of Argentina with the expected sale taking place at the end of <unk>.

Speaker Change: At the end of this year in your 2025 assessments.

Speaker Change: Yeah.

Georges Elhedery: No, you covered it. And just one parameter also just to add is just remember to remove the impact of Argentina with the expected sale taking place at the end of, at the end of, 2020. Thank you. Our next question today comes from Raul Sinha at JP Morgan. Please accept the prompt to unmute your line. Hi, good morning.

Operator: Thank you. Our next question today comes from Raul Sinha at JP Morgan. Please accept the prompt to unmute your line.

Speaker Change: Thank you. Our next question today comes from Raul Sinha Jpmorgan. Please accept the pumps to meet your line.

Raul Sinha: Hi. Good morning.

Raul Sinha: Alright, good morning, good morning.

Noel Quinn: Raul, good morning.

Georges Elhedery: Oh, good morning. Thank you for taking my questions. I was just trying to dig into some of your commentary on the hedge. I was wondering if I've got two questions.

Raul Sinha: Thank you for taking my questions. I was just trying to dig into some of your commentary around the hedge. I was wondering. I've got two questions. The first one is just trying to understand how the notional size of the hedge is changing in the UK versus the rest of the world. My understanding was that the structural hedging in the UK was quite a mature book, so I wouldn't have expected that to increase in size going forward. I would think that most of the low-yielding refinancings are coming from the UK. Whereas when we think about the rest of the world, it looks like your structural hedging was more recent. There's probably scope to increase that, but maybe the refinancing yield is a bit higher. Is that kind of right understanding? First question.

Raul Sinha: Thank you for taking my questions.

Raul Sinha: I was just trying to dig into some of your commentary around the hedge.

Speaker Change: Wondering about where two questions. The first one is.

Georges Elhedery: The first one is, just trying to understand how the notional size of the hedge is changing in the UK versus the rest of the world. My understanding was that structural hedging in the UK was quite a mature book, so I wouldn't.

Speaker Change: Just trying to understand.

Speaker Change: Oh, the notional size of the hedge.

Speaker Change: Is that changing in the U K versus the rest of the world.

Speaker Change: My understanding was that.

Speaker Change: The structural hedge AG in the U K, it's quite a mature book, so I wouldn't read.

Georges Elhedery: I have expected that to increase in size going forward, and I would think that most of the low-yielding refinancings are coming from the UK, whereas when we think about the rest of the world, it looks like your structural hedging was more recent, so there's probably scope to increase that, but maybe the refinancing yield is a bit higher. Is that the right understanding, first question? The second question is just coming to the Hong Kong CRE book and, you know, some of the disclosures you pulled out there. I think $36 billion of total exposure, 40% of that is unsecured. I was just wondering if you could give us a little bit more additional color around the unsecured part of Hong Kong CRE. I think you say it's very good quality. But how do you know? Sure, Noel.

Speaker Change: How do you expect that to increase in size.

Speaker Change: Third.

Speaker Change: And I would think that most of the low yielding or you financing.

The U K.

Speaker Change: When are you thinking about the rest of the world.

Speaker Change: It looks like your structure hedging was more recent so.

Speaker Change: There's probably scope to increase that but maybe the refinancing is that right understanding.

Speaker Change: <unk>.

Raul Sinha: The second question is just coming to the Hong Kong CRE book, and you know, some of the disclosure you pulled out there. I think $36 billion of total exposure, 40% of that is unsecured. I was just wondering if you could give us a little bit more additional color around the unsecured part of Hong Kong CRE. I think you said it's very good quality, but how you look to manage the risks given the unsecured nature of this CRE book. Thank you.

Speaker Change: The second question.

Speaker Change: I mean to go focus on CRE.

Speaker Change: Okay.

Speaker Change: And some of it is going to give you put out there.

Speaker Change: I think 36 billion of total exposure.

Speaker Change: 40% are factors unsecured.

Speaker Change: I was just wondering if you could give us a little bit more additional color around.

Speaker Change: The unsecured part of homegrown CRE I think you said, it's quite very good quality.

Speaker Change: Will you look to manage the risks.

Speaker Change #100: Even given the unsecured nature of this arms here, but thank you. Thank you.

Noel Quinn: Thank you. Georges, you wanna pick up both of those?

Speaker Change #100: George you want to pick up both of those sharron or pseudo laundry hedge size.

Georges Elhedery: Sure, Noel. So Raul, on the head size, we haven't given the specific currency split or balance sheet split, but yes, you should assume the sterling component is one of the largest component in terms of the hedge size and the UK, therefore, the sterling component is one of the most mature, by way of size of hedge. There is obviously still or previous hedges maturing, you know, previous hedges struck at lower yields maturing, and we're able to benefit from the reinvestment of maturing hedges at higher yield. That was still a component in the UK bank's NIM, which has been broadly stable, and we expect to remain broadly stable, and the structural hedge reinvestment is playing a role in that. With regards to the rest of the world, it's a story of two tales indeed.

Georges Elhedery: So Raul, on hedge size, we haven't given the specific currency split to a balance sheet split. But yes, you should assume the sterling component is one of the largest components in terms of the hedge size. And the UK, therefore, the sterling component is one of the most mature by way of size of hedge.

Speaker Change #101: We havent given the specific currencies play to a balance sheet split, but yes, you should assume the Sterling component is one of the largest component in terms of the herd size in the U K. Therefore, the Sterling component is one of the most mature by way of a size of hedge.

Speaker Change #102: But there is obviously still.

Speaker Change #102: Or previous hedges maturing in the previous hedges strike at lower yields maturing and we're able to benefit from the reinvestment of maturing hedges at higher yield that was still a component in the U K banks, NIM, which which has been broadly stable and we expect to remain broadly stable in the structural hedge any investment.

Georges Elhedery: But there are obviously still previous hedges maturing, you know, previous hedges struck at lower yields maturing, and we're able to benefit from the reinvestment of maturing hedges at higher yields. That was still a component of the UK banks' NIM, which has been broadly stable, and we expect to remain broadly stable, and the structure of hedge reinvestment is playing a role in that. With regard to the rest of the world, it's a story of two tails indeed.

Speaker Change #102: Is playing a role in that.

Speaker Change #102: With regards to the rest of the world. It's a story of two days indeed, there isn't the reinvestment of all structural hedges.

Georges Elhedery: There is the reinvestment of old structural hedges at higher yields, and that is a tailwind for our banking NII. There are also additional hedges we're doing where we can, and these additional hedges are suffering from, you know, this is a partial set-off or a partial offset as a headwind because they're suffering from the fact that curves are inverted, but it's still the right thing to do for the management of our banking NII sensitivity.

Georges Elhedery: There's the reinvestment of old structural hedges at higher yields, and that is a tailwind in our banking NII. There is also additional hedges we're doing where we can, and these additional hedges are suffering from, you know, partial set off or partial offset in, as a headwind because they're suffering from the fact that curves are inverted, but it's still the right thing to do for the management of our banking NII sensitivity. Obviously, always keep in mind that the Hong Kong dollar exposure we have remains largely under hedged, and that's due to the fact that the structure of the market does not give us enough instruments to be able to invest in the long term to support hedging.

Speaker Change #102: At higher yields and that is a tailwind in our banking NII.

Speaker Change #102: There is also additional hedges were doing where we can and these additional hedges are suffering from a partial.

Speaker Change #102: Partial setoff or a partial offset to them as a headwind because they're suffering from the fact that craig's of them voted but it's still the right thing to do for the management of our NII sensitivity.

Georges Elhedery: And then, obviously, always keep in mind that the Hong Kong dollar exposure we have remains largely under hedged, and that's due to the fact that the structure of the market does not give us enough insight to be able to invest in the long term to support hedging. So the Hong Kong dollar would remain structurally under hedged in that sense. With regard to the Hong Kong CRE question. So 40% of the book, of the $36 billion you mentioned, is unsecured.

Speaker Change #102: And then obviously always keep in mind that the Hong Kong dollar.

Speaker Change #102: Exposure, we have remains.

Speaker Change #102: Largely under hedged and that's due to the fact that the structure of the market does not give us enough instruments to be able to invest in and the long term to to support hedging. So the Hong Kong dollar would remain structurally under hedged in that sense with regards to the Hong Kong show.

Georges Elhedery: The Hong Kong dollar would remain structurally under-hedged in that sense. With regard to the Hong Kong CRE question, 40% of the book, of the $36 billion you mentioned, is unsecured. It is typically exposure to large conglomerates with a diversified revenue stream, including revenue streams from activities not related to real estate. 90% of that book today is rated strong and good, and literally 0% is in the impaired category. We're very comfortable with the exposure we have in that book, and we continue obviously supporting our customers through the cycle in this space.

Speaker Change #103: Had a question.

Speaker Change #104: So 40% of the book is of the $36 billion. You mentioned is unsecured it is typically exposure to large conglomerates.

Georges Elhedery: It is typically exposure to large conglomerates with a diversified revenue stream, including revenue streams from activities not related to real estate. 90% of that book today is rated strong and good, and literally 0% is in the impaired category.

Speaker Change #105: With a diversified revenue stream, including revenue streams from activities not related to the state now.

Speaker Change #106: 90% of that book today is rated strong and good and literally zero percent is in the impaired category, we're very comfortable with the exposure we have in that book and we continue obviously supporting our customers.

Georges Elhedery: We're very comfortable with the exposure we have in that book, and we will obviously continue supporting our customers through the cycle. Thank you, Georges. We will take our next question today from Jeremy Hu at CICC. Please accept the prompt to unmute your line. Jeremy, hi. Hi, can you hear me?

Speaker Change #106: Through the cycle in this space.

Operator: Thank you, Georges. We will take our next question today from Jeremy Hugh at CICC. Please accept the prompt to unmute your line.

Thank you Jos we will take our next question Jeremy.

Speaker Change #106: Stifel.

Speaker Change #107: Your line.

Noel Quinn: Jeremy, hi.

Jeremy: Jeremy Hi.

Jeremy Hugh: Hi. Can you hear me?

Jeremy Hu: Hi. Can you hear me?

Jeremy: Hi, Amy Yep.

Noel Quinn: Yeah.

Georges Elhedery: Okay. Good morning, Noel. Good morning, Georges. My first question is on non-interest income. If my math is correct, my calculation shows that our adjusted non-interest income is $5.8 billion this quarter compared to $5.3 billion a year ago. And we had $200 million growth in wealth. Transaction banking is relatively stable.

Jeremy Hugh: Good morning, Noel. Good morning, Georges. My first question is on the non-interest income, if my math is correct. My calculation shows that our adjusted non-interest income is $5.8 billion this quarter compared to $5.3 billion a year ago. We had $200 million growth on wealth. Transaction banking is relatively stable, so GBM contributed a lot this quarter. I understand that this business has seasonality and is volatile, but do you expect that momentum to continue going forward? Or do you think H2 last year is relatively a weak comparison? The second question is a broader one, because I realize now you speak less about focusing on Asia these days than you used to, and emphasizing more on the global network.

Jeremy: Okay.

Jeremy Hu: Good morning, Noel. Good morning, Georges. My first question is on the non-interest income, if my math is correct. My calculation shows that our adjusted non-interest income is $5.8 billion this quarter compared to $5.3 billion a year ago. We had $200 million growth on wealth. Transaction banking is relatively stable, so GBM contributed a lot this quarter. I understand that this business has seasonality and is volatile, but do you expect that momentum to continue going forward? Or do you think H2 last year is relatively a weak comparison? The second question is a broader one, because I realize now you speak less about focusing on Asia these days than you used to, and emphasizing more on the global network.

Jeremy: Good morning, Noel and good morning, George.

Speaker Change #109: First question is on the non interest income if my math is correct. My calculation shows that our adjusted non interest income is $5 8 billion this quarter compared to 5.3 a year ago.

Speaker Change #110: We had 200 million gross on wells.

Georges Elhedery: So it seems GBM contributed a lot this quarter. I understand that this business has seasonality and is volatile. But do you expect that momentum to continue going forward? Or do you think the second half of last year is a relatively weak comparison?

Speaker Change #111: Transaction banking is relatively stable. So seems GBM contributed a large this quarter. So I understand that this business is.

Speaker Change #112: It has seasonality and it's volatile, but do you expect that momentum to continue going forward or do you think in the second half.

Speaker Change #113: Last year is relatively weak comparison.

Georges Elhedery: The second question is a broader one, because I realize you speak less about focusing on Asia these days than you used to and emphasize more on the global network. Yeah, sometimes, in some ways, they do intersect, but I'm wondering, do you still focus on exploring some opportunities in Asia and the wealth business in the future? And do you have a capital distribution hierarchy or preference among dividend buyback and growth? Thank you.

Speaker Change #114: Yes. The second question is a broader one.

Speaker Change #115: Because I realize now you speak less about focusing Asia. These days than you're used to and emphasizing more on the global network, yes, sometimes in some ways. They do intercept but I'm wondering do you still.

Jeremy Hugh: Yeah, sometimes in some ways they do intersect, but I'm wondering, do you still focus on exploring some both on opportunities in Asia and wealth business in the future? And do you have a capital distribution hierarchy or preference among dividend, buyback, and growth? Yeah. Thank you.

Jeremy Hu: Yeah, sometimes in some ways they do intersect, but I'm wondering, do you still focus on exploring some both on opportunities in Asia and wealth business in the future? And do you have a capital distribution hierarchy or preference among dividend, buyback, and growth? Yeah. Thank you.

Speaker Change #116: Focus on exploring.

Speaker Change #117: Boats on opportunities in Asia, and wealth business in the future and do you have capital distributions hierarchy or preference dividend buyback and gross.

Speaker Change #118: Are you.

Noel Quinn: Okay. Georges, you wanna take the first one. I'll give a few comments on the second one, and you take the third one on capital distribution.

Georges Elhedery: Okay, Georges, you want to take the first one? I'll give you a few comments on the second one, and you take the third one on capital distribution. Very good. Thanks, Noel.

George: Okay. George you want to take the first one I'll give a few comments on the second one and you take the third one on capital distributions very good. Thanks, so much Jerry.

Georges Elhedery: Very good.

Georges Elhedery: Jeremy, so without giving specific comments on the quarter-by-quarter, you know, specifics on the development of our fees and other income components, the growth that you've observed year-on-year in Q2 was mainly driven by two areas. The first one is wealth, which is obviously a very strategic area where we continue to invest and exhibit growth. The other one was from markets, in particular from some of the equity business and markets.

Noel Quinn: Okay.

Georges Elhedery: Thanks, Noel. Jeremy, so without giving specific comments on the quarter by quarter, you know, specifics in the development of our fees and other income component, the growth that you've observed year and year in Q2 were mainly driven from two areas. The first one is wealth, which is obviously a very strategic area where we continue to invest and exhibited growth. The other one was from markets, in particular from some of the equity business in markets. This is coming on the basis of two components. One is subdued Q2 last year, so there was a base effect which benefited the outlook for the Q2 this year.

Speaker Change #118: Jeremy so without giving specific comments on the quarter by quarter.

Speaker Change #118: Specifics in the development of our fees and other income.

Speaker Change #119: Ponant the growth that you've observed during in Q2 were mainly driven from two areas. The first one is wealth, which is obviously a very strategic area, where we continue to invest and exhibited growth. The other one was.

Speaker Change #119: From market in particular from some of the equity business in market.

Georges Elhedery: This is coming on the basis of two components. One is a subdued Q2 last year, so there was a base effect which benefited the outlook for Q2 this year. And then the second one is the fact that we've seen more activity and, you know, more vigorousness in, if you want, the Asian stock market, in particular the Hong Kong stock market, and we're encouraged by this. And, you know, if the trend continues, this will bode well for additional activity in the future. Let me jump to the third question, and I'll hand over to Noel to conclude on the second one.

Speaker Change #120: This is coming for on the basis of two components. One is subdued Q2 last year. So there was a base effect, which benefited the outlook for Q.

Speaker Change #120: Q2, this year and then the second one is the fact that we've seen.

Georges Elhedery: The second one is the fact that we've seen more activity and, you know, more vigorousness in, if you want, the Asian stock market, in particular the Hong Kong stock market. We're encouraged by this and, you know, if the trend continues, this will bode well for additional activity in this space. Let me jump to the third question, and I'll hand over to Noel to conclude on the second one. Capital distribution hierarchy. First, we've committed to 50% dividend payout ratio for this year, which means half our earnings will be earmarked for foreseeable dividend. Part of it will be distributed through our interim dividends. The rest will be netted out at the end of the year.

Speaker Change #120: More activity and more vigorous and this and if you wanted the Asian stock markets in particular, the Hong Kong stock market and we're encouraged.

Speaker Change #120: By this and you know if the trend continues this will bode well for additional activity in this space.

Speaker Change #120: Let me jump to the third question and I'll hand over to Noel to conclude on the second one captain distribution hierarchy.

Georges Elhedery: Capital and distribution hierarchy. First, we've committed to a 50% dividend payout ratio for this year, which means half our earnings will be earmarked for dividends. Part of it will be distributed as interim dividends, and the rest will be netted out at the end of the year. After that, we obviously will use capital to support the organic growth of our business. Loan growth, as we said earlier, has started to pick up in certain areas.

We've committed to 50% dividend payout ratio for this for this year, which means half our earnings will be earmarked for foreseeable dividend part of it would be distributed to our interim dividend.

Noel Quinn: The rest will be netted out at the end of the year.

Georges Elhedery: After that, we obviously will use capital to support the growth in, you know, organic growth of our business. Loan growth, as we said earlier, started to pick up in certain areas. We are encouraged. We have ample capital to support the loan growth, the appetite we have. We look at the bolt-on acquisitions or areas that are dead-on strategy but supportive of acceleration of the strategy. That will be part of utilization of excess capital. Any excess beyond that, we will distribute back to shareholders through a rolling series of share buybacks.

Noel Quinn: After that we obviously, we'll use capital to support the growth and organic growth of our business.

Noel Quinn: Loan growth as we said earlier started to pick up in certain areas. We're encouraged we have ample capital to support the loan growth the appetite we have.

Georges Elhedery: We are encouraged, or we have ample capital to support the loan growth and the appetite we have. We will look at bolt-on acquisitions or areas that are dead-on strategy but supportive of acceleration of the strategy. That will be part of the utilization of excess capital. And any excess beyond that, we will distribute back to shareholders through a rolling series of share-buy bonds.

Noel Quinn: We will look at bolt on acquisitions or areas that are dead on strategy, but supportive of acceleration of the strategy that will be part of our utilization of excess capital and any excess beyond that we will distribute back to shareholders, who are rolling series of share buybacks. If you look at our CET one ratio today it.

Georges Elhedery: If you look at our CET1 ratio today at 15% and you look at our capital accretion, that we remain capital generative in the business, you know, based on the guidance we've given for this year and next year, we're confident we will have capacity to deliver on all three. And I will say the buybacks will continue to look at it on a quarter-by-quarter basis with the ambition to have a rolling series of share buybacks. Thanks, Jeremy.

Georges Elhedery: If you look at our CET1 ratio today at 15%, and you look at our capital accretion, that we remain capital generative in the business, you know, based on the guidance we've given for this year and next year, we're confident we will have capacity to deliver on the three. I will say the buybacks will continue looking at it on a quarter by quarter basis with the ambition to have a rolling series of share buybacks.

Noel Quinn: 15% and you look at our capital.

Noel Quinn: Accretion that we remain capital generative in the business.

Noel Quinn: Based on the guidance, we've given for this year and next year. We're confident we will have capacity to deliver on the three.

Noel Quinn: And I will say the buybacks will continue looking at it on a quarter by quarter basis with the ambition to have a rolling series of.

Noel Quinn: Share buybacks.

Noel Quinn: I'll only second the question. Is it an Asian strategy? Is it an international strategy? I think they're interchangeable.

Noel Quinn: Thanks, Jeremy. On your second question. Yeah. Is it an Asia strategy? Is it an international strategy? I think they're interchangeable. I don't think they're mutually exclusive because if you look at what we do at the core of what we've done for 158 years or more is we've connected entrepreneurs and businesses who want to trade with the world. That's what we've done from day one of HSBC being founded. We're essentially about helping businesses and individuals trade internationally, invest internationally. Now, why are they one and the same? Well, a huge amount of the entrepreneurs that we have as clients are based in Asia, they're based in the Middle East, they're based in the East, and they trade with the West, and the West trades with the East. Asia and the Middle East are high growth markets.

Speaker Change #122: Thanks, Jeremy and on your second question here.

Speaker Change #121: Is it in Asia strategy user or an international strategy I think they're interchangeable I don't think they're mutually exclusive because if you look at what we do at the core of what we've done 458 years or more.

Noel Quinn: I don't think they're mutually exclusive because, at the core of what we do for 158 years or more, we've connected entrepreneurs and businesses who want to trade with the world. That's what we've done from day one of HSBC being founded. So, we're essentially about helping businesses and individuals trade internationally and invest internationally. Why are they one and the same?

Speaker Change #121: Is we've connected entrepreneurs and businesses, who want to trade with the world. That's what we've done from day one.

Speaker Change #123: Of HSBC being timed it.

Speaker Change #123: So, we're essentially about helping businesses and individuals.

Speaker Change #123: Trade internationally invest internationally.

Speaker Change #124: No why are they want on the same.

Noel Quinn: Well, a huge amount of the entrepreneurs that we have as clients are based in Asia, they're based in the Middle East, they're based in the East, and I trade with the West, and the West trades with the EU, and Asia and the Middle East, the high growth markets. So, I don't think it's an either-or. I think for us, it's very simple, that is... we are internationally driven, and Asia is a hugely connected international part of the world and will remain so going forward. The nature of trade will change, as it has done for 158 years. So I think we use the words Asia and internationalism probably interchangeably, and sometimes it gets people confused.

Speaker Change #124: While a huge amount of the entrepreneurs that we have as clients are based in Asia based in the Middle East are based in the east.

Speaker Change #124: And I trade with the west.

Speaker Change #124: On the west trades with east.

Speaker Change #124: And Asia, and the Middle East the high growth markets.

Noel Quinn: I don't think it's an either/or. I think for us, it's very simple. That is, we're internationally driven, and Asia is a hugely connected international part of the world and will remain so going forward. The nature of trade will change as it has done for 158 years. I think we use the words Asia and internationalism probably interchangeably, and sometimes it gets people confused. We're investing where there is growth and where we have differentiation. There is growth, there is international connectivity, there is differentiation in Asia, there is in the Middle East, and we have the same here in the UK. Fundamentally, at the core, we're an international bank.

So I don't think it's an either or I think for us it's very simple that is.

Speaker Change #124: We're internationally driven.

Speaker Change #124: And Asia is a usually connected international part of the World and will remain so going forward.

Speaker Change #124: The nature of trade will change as it has done for 158 years.

Speaker Change #124:

Speaker Change #124: So I I think we use the words Asia and internationalism, probably interchangeably and sometimes you get people confused.

Noel Quinn: We're investing where there is growth and where we have differentiation. There is growth, there is international connectivity, there is differentiation in Asia, there is in the Middle East, and we have the same here in the UK. Fundamentally, at the core, we're an international bank. Thank you, Noel.

Speaker Change #124: We're investing where there is growth and where we have differentiation. There is growth. There is international connectivity. There is differentiation in Asia. There is in the middle East and we have the same here in the U K are fundamentally at the core we're an international bank.

Operator: Thank you, Noel.

Speaker Change #124: Thank you now.

Noel Quinn: Thank you.

Operator: As a reminder, if you wish to ask a question, please use the Raise Hand function in Zoom. Our next question today comes from Aman Rakkar at Barclays. Please accept the prompt to unmute your line.

Speaker Change #125: Thank you reminder, if you wish to ask a question. Please use the right functioning team.

Operator: As a reminder, if you wish to ask a question, please use the raise hand function in Zoom. Our next question today comes from Aman Rakkar at Barclays. Please accept the prompt to unmute your line.

Speaker Change #126: Our next question today comes from Armour Rock Hall at Barclays. Please accept the problem to meet young girl.

Operator: Hammond High, Good morning gents, Noel. I just wanted to start off and congratulate you on your excellent tenure at HSBC and just wanted to wish you the very best going forward with whatever it is you decide to do. Yeah, Georges, on a similar theme, just to extend my congratulations on your appointment as CEO. Two questions, please, both on net interest income. So.

Noel Quinn: Aman, hi.

Speaker Change #126: Hi.

Aman Rakkar: Good morning, gents. Noel, I just wanted to start off and congratulate you on your excellent tenure at HSBC.

James: Good morning, James.

Speaker Change #128: No I just wanted to start off I congratulate you on your excellent tenure HSBC.

Noel Quinn: Thank you.

Aman Rakkar: I just wanted to wish you the very best going forward with whatever it is you decide to do. Yeah, Georges, on a similar theme, just to extend my congratulations around your appointment as CEO. I had two questions, please, both on net interest income. Point of clarification, I guess your banking NII guide this year is circa $43 billion. That face value does imply, you know, a material step-off in net interest income in H2. I just wanted to check. I mean, you're guiding for Argentina being $1 billion this year, and I think it was the best part of $900 million in H1. So is it literally just Argentina dropping out of net interest income in H2 is driving that?

Speaker Change #129: Thank you and just wanted to wish you the very best going forward.

Speaker Change #130: You just saw it today.

George: Yes George.

Speaker Change #131: On a similar theme just extend my congratulations on your appointment.

Speaker Change #132: I had them.

Georges Elhedery: A point of clarification, I guess your banking NII guide for this year is circa £43 billion. That face value does imply a material step-down in net interest income in H2. I just wanted to check, you're guiding for Argentina being a billion this year, and I think it was the best part of 900 million in H1, so is it literally just Argentina dropping out of net interest income in H2 driving that?

Two questions. Please.

Speaker Change #132: Trust income.

Speaker Change #132: Okay.

Speaker Change #133: A point of clarification, I guess, you're banking NII guide this year of circa 43 billion.

Speaker Change #134: Does it imply.

Speaker Change #135: Material step often.

Speaker Change #136: Net interest income in <unk>.

Speaker Change #137: I just wanted to check I mean.

So Argentina being $1 billion this year and I think it was the best part of $900 million in H. One so is it literally just argentina dropping out.

Speaker Change #138: Net interest income in <unk> is driving that.

Aman Rakkar: What would really, really help is the kind of momentum of NII in H2 and the extent to which that carries over into 2025. I'm not necessarily looking for an updated guide here, but if I just take again your banking NII disclosure at face value, it's implying a kind of $42 billion annualized run rate in H2 ex Argentina. What do you think the puts and takes are on that, you know, if we were to kind of look a bit further afield beyond this year? The second question was if I could just get you to update your thoughts around deposit pass-throughs. Obviously noting you've hedged more of your balance sheet now.

Speaker Change #138: And what really really helped us.

Georges Elhedery: And what would really, really help is the kind of momentum of NII and H2 and the extent to which that carries over into [inaudible]. What do you think the puts and takes are on that, you know, if we were to kind of look a bit further afield beyond this year? And then the second question was if I could just get you to update your thoughts around deposit pass-throughs. You're obviously noting you've hedged more of your balance sheet now.

Speaker Change #138: The kind of.

Speaker Change #138: Tim of NII in H two.

Speaker Change #139: Extent to which that carriage is too.

Speaker Change #139:

Speaker Change #139: 25, I'm not necessarily looking for.

Speaker Change #139: An updated guide here, but if.

Speaker Change #139: If I just take again your banking NII disclosure thanks, Bonnie it's.

Speaker Change #140: It's implying a count of 42 billion.

Speaker Change #141: Annualized run rate in IHT ex Argentina.

Speaker Change #141: What do you think the puts and takes are on that.

Speaker Change #142: We would take on us.

Speaker Change #142: Beyond this year.

Speaker Change #143: And then the second question was if I could just get your thought that your thoughts around deposit Oscar.

Georges Elhedery: And, you know, what if the pass-throughs were to be, say, 10% lower than what you're modeling in? You have, you've updated your banking and III sensitivity. That would be really helpful. Thank you very much. Do you want to take those?

Speaker Change #144: You're obviously, noting <unk>.

Speaker Change #145: <unk> hedged mortgage balance sheet now.

Aman Rakkar: You know what, if actually pass-throughs were to be, say, 10% lower than what you're modeling in your updated banking NII sensitivity, that would be really helpful. Thank you very much.

Speaker Change #146: What is <unk>.

Paul: Actually Paul <unk>.

Speaker Change #148: What you're modeling.

Speaker Change #148: Sure.

Your updated banking NII sensitivity.

Speaker Change #149: That'd be really helpful. Thank you very much.

Noel Quinn: George, do you wanna take that?

Sure Yeah. Thanks Noah.

Georges Elhedery: Yeah. Thanks, Noel. Aman, thank you. On your first question, look, around $43 billion of banking NII for this year is a reasonable expectation. You know, we're more confident about it because we're already 7 months into the year. Somewhat the forward rate outlook has become a bit less volatile than we've experienced over the last few months. Argentina, we have worked with a planning assumption of $1 billion. Within our around $43 billion, we've factored in around $1 billion contribution from Argentina. It is a very difficult to predict number. It is a very volatile number, and therefore the best estimate you can use around 42 and add whatever other expectations you may have for Argentina.

Georges Elhedery: Yeah. Aman, thank you. So on your first question, look, around $43 billion in banking and IR for this year is a reasonable expectation, and we're more confident about it because we're already seven months into the year. And somewhat, the forward rate outlook has become a bit less volatile than we've experienced over the last year. Argentina, we have worked with a planning assumption of $1 billion, so within our around $43 billion, we've factored in around a $1 billion contribution from Argentina. It is a very difficult to predict number. It is also a very volatile number. And therefore, the best estimate, you can use around 42 and add whatever other expectations you may have for Argentina.

Speaker Change #150: Thank you.

So on your first question look 40 around $43 billion of banking NII for this year is a reasonable expectation.

Speaker Change #150: And you know we're more confident about it because we already seven months into the year and somewhat the forward late rate outlook has become a bit less volatile than we've experienced in.

Speaker Change #150: Over the last few months.

Speaker Change #150: Argentina, we have worked with a planning assumption of $1 billion, so within or around $43 billion, we affected in.

Speaker Change #150: Around 1 billion dollar contribution from Argentina.

Speaker Change #151: It is a very difficult to predict number it is a very volatile number and therefore the best of estimate you can use around 42 and add whatever other expectations you may have for Argentina, but we're sticking with this 1 billion estimate the uncertainty just for reference 1 billion was the bank.

Noel Quinn: We're sticking with this $1 billion estimate, you know, and the uncertainty

Georges Elhedery: Just for reference, $1 billion was the banking NII contribution of Argentina in 2023, and this is how we're building the assumption for our planning for this year. Now, if you look forward to H2, headwinds and tailwinds facing the banking NII. The first one to call out is the rates outlook. We're using the mid-July curves, which comprise broadly between 1 and 2 rate cuts across all the major currencies in H2. This is the working assumption. The second one is on the structural hedge. As we called out earlier, you should expect a benefit from the $55 billion maturing assets in H2 at 2.8% yields, which would be reinvested, you know, at higher yields at the prevailing yields in H2, which will be higher.

Speaker Change #151: The contribution of Argentina in 2023, and this is how we're building the assumptions for our full planning for this year now if you look forward for H, two headwinds and paid wins facing the banking NII.

Georges Elhedery: With this one billion estimate, you know, the uncertainty, just for reference, one billion was the banking and AI contribution of Argentina in 2023. And this is how we're building the assumption for our planning. Now if you look forward to H2, the headwinds and tailwinds facing the banking NII. The first one to call out is the rates outlook. We're using the mid-July curves, which comprise broadly between one and two rate cuts across all the major currencies in the second half. This is The Working Assumption. The second one is on the structural hedge.

Speaker Change #151: The first one to call out is the rate outlook, we're using the mid July curves, which comprise broadly between one and two rate cuts across all the major currencies in the second half.

Speaker Change #151: This is the working assumption.

Speaker Change #151: The second one is on the structural hedge so as we called out earlier, you should expect to benefit from the $55 billion maturing assets in two age at two 8% yields which would be reinvested.

Georges Elhedery: So, as we called out earlier, you should expect a benefit from the $55 billion maturing assets in 2H at 2.8% yields, which would be reinvested at higher yields, rather than at the prevailing yields in H2, which would be higher, using a five-year rate as a good benchmark for what rates will be reinvested at. But this is partly offset by the additional structural hedging we are likely to do on an in

Speaker Change #151: At higher yields than the prevailing yields in H, two which would be higher you would take a five year rate is a good benchmark for what the rates will be reinvested that.

Georges Elhedery: You know, take a five-year rate as a good benchmark for what rates will be reinvested at. This is partly offset by the additional structural hedging we are likely to do on an inverted curve. Again, here, your best guide is what we've done in H1, $25 billion of additional structural hedging is a reasonable runway to expect for H2, but will depend on market conditions in H2. The other components that are playing as headwinds and tailwinds are the balance sheet growth. Balance sheet growth where, you know, we continue to see strong growth in South and Southeast Asia. We continue to see resilience in the mortgage books in the UK and Hong Kong.

Speaker Change #151: But this is partly offset by the additional structural hedging we are likely to do on an inverted curve.

Georges Elhedery: Again, here, your best guide is what we did in H1. $25 billion of additional structural hedging is a reasonable run rate to expect for H2, but it will depend on market conditions in H1. The other components that are playing as headwinds and tailwinds are...

Speaker Change #151: Again here your best guide as what we've done in H $125 billion of additional structural hedging is a reasonable run rate to expect for age to buy will be will depend on market conditions in each group.

Speaker Change #151: The other components that are playing as headwinds in tail winds are.

Georges Elhedery: The balance sheet growth, balance sheet growth, we continue to see strong growth in South and Southeast Asia. We continue to see resilience in the mortgage books in the UK and Hong Kong, but we are now encouraged to see stability in the Hong Kong wholesale book, which has been on a decline for a few quarters.

Speaker Change #151: The balance sheet growth.

Speaker Change #151: Balance sheet growth with it you know we continue to see strong growth in south and Southeast Asia, We continue to see resilience in the mortgage books in the U K and Hong Kong.

Georges Elhedery: We are now encouraged to see stability in the Hong Kong wholesale book, which has been on a decline for a few quarters. It's early to call it a trend, but it is now, you know, it is definitely green shoots when we look forward, and it will be supported with rate reductions as in the balance sheet growth in this space. The last one to call out is deposit migration. That's particularly true in Hong Kong. Again, Q1, Q2, we've seen migration at 0% and 1%, respectively, which is a 1% overall on H1. Just to put it in perspective, this is after full year 2023, where we've seen 12%. Again, the trend here is much more encouraging.

Speaker Change #151: But we are now encouraged to see stability in the Hong Kong wholesale book, which has been on a decline for a few quarters. It's early to call. It a trend, but it is not.

Georges Elhedery: It's early to call it a trend, but it is now, you know, it is definitely green shoots when we look forward, and it will be supported with rate reductions, as in the berry and cheese growth in this space. And then the last one to call out is deposit migration. That's particularly true in Hong Kong.

Speaker Change #151: It is definitely green shoots when we look forward and it will be supported with rate reductions.

Speaker Change #151: And the balance sheet growth in this space.

Speaker Change #151: And then the last one to call out as deposit migration, that's particularly true in Hong Kong.

Georges Elhedery: Again, Q1, Q2, we've seen migration at 0% and 1% respectively, which is a 1% overall on the half. Just to put it in perspective, this is after fully 23, where we've seen 12%. So again, the trend here is much more encouraging. We're very unlikely to see anywhere near the rate of last year, but it remains a difficult one. Now as you look forward into the full year 2025. We're not guiding you on banking NII, but a few points for you to bear in mind. The first one is, please remove Argentina's contribution, again working assumption $1 billion.

Speaker Change #151: Again, Q1, Q2, we've seen migration that zero percent than 1%.

Speaker Change #151: Can say irrespectively, which is a 1% overall on the half just to put it in perspective. This is after full year 'twenty, three where we've seen 12%. So again the trend here is much more encouraging we're very unlikely to see anywhere near the trend of last year, but it remains a difficult one to predict.

Georges Elhedery: We're very unlikely to see anywhere near the trend of last year, but it remains a difficult one to predict. Now, as you look forward into the full year 2025, we're not guiding on banking NII, but a few points for you to bear in mind. The first one is please remove Argentina's contribution. Again, working assumption, $1 billion. This is following the planned sale of Argentina to take place before the end of the year. Second, remove the one quarter contribution from Canada, $0.3 billion in your NII. Then, we've shared that there will be $105 billion of existing structural hedge assets, which will mature in 2025 with an average yield of 2.8%. Those will provide some tailwind as we reinvest them at higher yield.

Speaker Change #151: Now as you look forward into the full year 2025, we're not guiding on banking NII, but a few points for you to bear in mind. The first one is please remove argentinas contribution again working assumption 1 billion. This is following the planned sale of Argentina to take place before the end of the year secondary.

Georges Elhedery: This is following the planned sale of Argentina to take place before the end of the year. Second, remove the one-quarter contribution from Canada, $0.3 billion, from your NII. Then we've shared that there will be $105 billion of existing structural hedge assets that will mature in 2025 with an average yield of 2.8%, so those will provide some tailwind as we reinvest them at higher yields. So beyond that, you can apply your own interest rate assumptions on the banking NII sensitivity we provided.

Speaker Change #151: Remove the one quarter contribution from Canada, North Port 3 billion and your NII.

Speaker Change #152: Then we've shared that there will be $105 billion of existing structural hedge assets, which will mature in 2025 with an average yield of two 8%. So those will provide some tailwind as we reinvest them at higher yield.

Georges Elhedery: Beyond that, you can apply your own interest rate assumptions on the banking NII sensitivity we provided. $2.7 billion is the sensitivity we provided across all currencies for 100 basis points drop. You can apply your balance sheet growth assumption. Again, we believe lower rates will be more supportive of growth in balance sheet when you look into 2025. Basically, all of that is factored into our guidance for return on tangible equity for 2025 at mid-teens.

Speaker Change #152: So beyond that.

Speaker Change #153: You can apply your own interest rate assumptions on the banking NII sensitivity we provided.

Georges Elhedery: $2.7 billion is the sensitivity we provided across all currencies for a 100 basis point drop. And you can apply your balance sheet growth assumption, and again, we believe lower rates will be more supportive of growth on the balance sheet when you. So basically, all of that is factored into our guidance for return on tangible equity. Just around pass-throughs, I think earlier this year you talked about 10%. Lower Beats is adding something like $600 million.

Speaker Change #154: $2 7 billion dollar is the sensitivity provided across.

Speaker Change #154: Across all currencies were a 100 basis point drop and you can apply your balance sheet growth assumption and again, we believe lower rates will be more supportive of our growth and balance sheet. When you look into 2025, but basically all of that is factored into our guidance for return on tangible equity for 2025.

Speaker Change #154: At mid teens.

Speaker Change #154: Okay.

Aman Rakkar: Just thank you very much. That color is excellent. Just around pass-throughs, I think,

Speaker Change #156: Just so thank you very much for all that color is excellent.

Speaker Change #155: Just around pass throughs.

Georges Elhedery: On deposit. Sure.

Aman Rakkar: Earlier this year, you talked about 10% lower beats as adding something like $600 million.

Speaker Change #157: Earlier this year, you talked about 10%.

Speaker Change #157: Lower beaches, adding something like $600 million.

Georges Elhedery: Okay, so the banking NII sensitivity to a 10% change in pass-through rate is around $600 million, and this is based on an assumption of around $600 billion in IPCAS. So we can work out the math if you want.

Georges Elhedery: Okay. The banking NII sensitivity to 10% change in pass-through rates is around $600 million and remains around $600 million. This is based off an assumption of around $600 billion of IBEAs. We can work out the math if you want offline. That number is broadly stable. We're still working on an assumption of a 50% pass-through in our banking NII sensitivity. Second, if you look at the cumulative pass-throughs, we're broadly around 50%, from the start of the rate hikes in late 2022 all the way to now, broadly around 50%. The earlier part was much lower than 50%. The latter part was much higher than 50%.

Speaker Change #158: Okay. So the banking NII sensitivity to 10% change in pass through rate is around $600 million remains around.

Speaker Change #159: $600 million and this is based off an assumption of around $600 billion of it costs. So we can work out the math if you want offline.

Georges Elhedery: That number is broadly stable. We're still working on an assumption of a 50% pass-through in our banking NIS. Second, if you look at the cumulative pass-throughs, we're broadly around 50%.

Speaker Change #159: That number is broadly stable, we're still working on an assumption of a 50% pass through in our banking NII sensitivity.

Speaker Change #159: Second if you look at the cumulative boss, who was were broadly around 50%.

Speaker Change #160: From the start of the rate hikes coming in late 2022, all the way to now broke around 50%. The earlier part was much lower than 50%. The latter part was much higher than 50%.

Georges Elhedery: The earlier part was much lower than 50%, and the latter part was much higher. It is difficult to predict how pass-throughs will work out in the rate cut scenario, and this is why I think 50% remains a good estimate of what it could look like, noting that we don't have recent history of... I would point you to one thing to be mindful of, which is that in the UK and a number of other geographies, we will have to provide customers with notice of..., so there will be a delay. Pass-throughs on the way down, and that's a 60 to 90 day cycle on average.

Georges Elhedery: It is difficult to predict how pass-throughs will work out on the rate cut scenario, and this is why I think 50% remains a good estimate of what it could look like, noting that we don't have recent history of that. I would point you to one thing to be mindful of, which is in the UK and a number of other geographies, we will have to provide customer notice of at least 60 days before we pass through rate cuts. There will be a delay in pass-throughs on the way down, and that's a 60 to 90 day on average, for instance, in the UK. Thank you.

Speaker Change #160: It is difficult to predict how pulse crews will work out on the rate cuts and argue and this is why I think 50% remains a good estimate of what it could look like noting that we don't have this in the history of that.

Speaker Change #161: I'll point, you to one thing to be mindful of is in the U K and a number of other geographies. We will have to provide customer notice of at least 60 days before we pass through rate cuts. So there will be a delay in pass throughs on the way down and that's a 60 to 90 day on average for instance in the U K.

Speaker Change #161: Thank you. Thank you so much thank you Joyce.

Ed Firth: Thank you so much.

Georges Elhedery: Thank you. Thank you so much. Thank you, Georges. Our next question today will come from Ed Furse at KBW. Please accept the prompt to unmute your line. Hi, thanks very much. And yeah, good morning, everybody.

Operator: Thank you, George. Our next question today will come from Ed Firth at KBW. Please accept the prompt to unmute your line.

Speaker Change #161: Next question today will come from.

Speaker Change #164: Don't you think.

Speaker Change #162: Prompt to meet your already.

Noel Quinn: Hi.

Noel Quinn: Thanks very much. Yeah, good morning, everybody. Just to echo Aman Rakkar's comments. Thank you particularly to you, Noel, because it's been a pretty turbulent period where you've been CEO, and I think there are a number of times when if somebody said you'd be making mid-teens returns, I think I would have thought that was delusional. Thank you very much for that.

Pam: Thanks Pam.

Speaker Change #165: Good morning, everybody, Yeah, and just echo <unk> comments.

Operator: Yeah, and just echo Aman's comments. And thank you, particularly to you, Noel, because it's been a pretty turbulent period where you've been CEO. And I think there are a number of times when if somebody had said you'd be making mid-teen returns, I think I would have thought that was delusional. So thank you very much for that. Thank you. It benefits us all. My two questions were: the first one was, could you tell me? You probably just closed it somewhere and I've missed it.

Speaker Change #166: And thanks in particular genome because there's been a pretty turbulent period way you've been CEO and I think there are a number of times when is somebody said you'd be making mid teens.

Speaker Change #173: So I think I would guess there so that was delusional.

Georges Elhedery: Thank you. Thank you.

cadence: Thank you very much for that cadence. Thank you benefits us all.

Ed Firth: Benefits us all. My two questions were, the first one was, could you tell me, you probably disclosed it somewhere and I've missed it, but performance-related pay. I see you assuming that's gonna be flat this year. Is it possible to tell us, you know, what the total quantum of that is? Because I guess there must be some potential that may have to go up, particularly given the revenue performance. That would be my first question. The second one was, to me if I look at these results, like I guess the standout to me is with the performance in Q2 of the wealth and private banking business.

Speaker Change #168: My two questions. The first one was could you tell me you probably disclosed somewhere and I missed it but.

Georges Elhedery: Performance-related pay. I see you assuming that it's going to be flat this year. Is it possible to tell us what the total quantum of that is?

Speaker Change #169: Performance related pay I see you're assuming it's going to be flat this year.

Speaker Change #170: As opposed to tell us what the total quantum of that is because I guess there must be some potential.

Georges Elhedery: Because I guess there must be some potential that that may have to go up, particularly given the revenue performance. So that would be my first question. And then the second one was, to me, if I look at these results, I guess the standout for me was the performance in Q2 of the wealth and private banking business. If I look at the past, it's generally been quite seasonal in Q2, but it seems that actually it's held up pretty flat. So should we expect that? Is that like a sort of new base level of the runway? Is that something we should continue into the second half now? And then sort of grow on from there?

Speaker Change #171: They have to go up, particularly given the revenue performance.

Noel Quinn: Or was there something about Q2 which held it up better than we might've expected? Thanks for that. Well, firstly, thank you for your comments. And on your second point about wealth, I'll give you a very personal comment.

Speaker Change #172: So that would be my first question.

Speaker Change #172: And then the second one was to me if I look at these results I guess the stand out to me is was the performance in Q2 at the wealth and private banking business.

Ed Firth: If I look at the past, it's generally been quite seasonal in Q2, but it seems that actually it's held up pretty flat. Should we expect that? Is that like a sort of new base level of runway? Is that something we should continue into H2 now, and then sort of grow on from there? Or was there something about Q2 which held it up better than we might have expected?

Speaker Change #174: If I look at the path has generally been quite seasonal in Q2, but it seems actually it has held up pretty flat. So should we expect that is that like I said, a new base level of run rate is that something we should continue into the second half now.

Speaker Change #175: And then sort of go on from there or was there something about Q2, which which held up better than we might've expected.

Noel Quinn: Well, firstly, thank you for your comments. On your second point on wealth, I'll give a very personal comment. You normally expect Q1 to be the seasonal high and then it a bit lower in Q2 and a bit lower. Actually Q2 did exceed expectations in terms of seasonality. It was a strong quarter. At the moment, we tend to be a bit on the conservative side and say, you know, "Don't base a trend on a quarter or two." But I think your assessment that actually Q2 was a strong performance is exactly where we are. It was stronger than probably one would have expected through normal seasonality. I think it is, you know.

Speaker Change #176: Well firstly, thank you for your comments and.

Speaker Change #177: And on your second point on wealth.

Noel Quinn: You'd normally expect Q1 to be the seasonal high, and then a bit lower in Q2 and a bit lower... So, actually, Q2 did exceed expectations in terms of seasonality. It was a strong quarter. At the moment, I cannot... We tend to be a bit on the conservative side and say, you know, don't base a trend on a quarter or two. So, but I think your assessment that actually Q2 was a strong performance is exactly where we are. It was probably stronger than one would have expected through normal seasonality. I think it is.

Speaker Change #178: I'll give a very personal comment you'd normally expect Q1 to be the seasonal high and then it a bit lower in Q2 and a bit low.

Speaker Change #178: So actually Q2 did exceed expectations in terms of seasonality. It was it was a strong quarter.

Speaker Change #179: At the moment I cannot yet.

Speaker Change #179: We tend to be a bit on the conservative side and say.

Speaker Change #180: Don't buy used to try and not a quarter or two or two so but I think your assessment. There are actually Q2 was a strong performance is exactly where we are it was stronger than probably one would've expected through normal seasonality.

Speaker Change #181: I think it is.

Noel Quinn: You know, if I talk to the team, they were confident of a good performance because they'd seen good lead indicators. We've taken in in excess of $250 billion of net new invested assets just over the last two and a bit years, two and a half years. And I think we've all got to probably, we haven't seen this period where, how will cash move from cash to invested assets? as interest rates come up, um, and therefore, I think it is difficult to predict a trend. I think we've just got to see it go quarter by quarter.

Speaker Change #182: You know if if I if I talk to the team they were confident.

Noel Quinn: If I talk to the team, they were confident of a good performance. They're seeing good lead indicators. I mean, we've taken in excess of $250 billion of net new invested assets just over the last two and a bit years, two and a half years. I think we've all gotta probably. We haven't seen this period where how will cash move from cash to invested assets as interest rates come off. Therefore, I think it is difficult to predict a trend. I think we just got to see it go quarter by quarter. The lead indicators are good. We've invested in the business over the last few years to put us in this position.

Speaker Change #182: Have a good performance they've seen good lead indicators I mean, we.

We've taken in in excess of $250 billion of net new invested assets are just over the last two and a bit years, two and a half years.

Speaker Change #182: And I think we've all got a probably we havent seen this period, where how will cash moved from cash to invested assets as interest rates come off.

Speaker Change #182: And therefore, I think it is difficult to predict to trend I think we just got to see it go quarter by quarter, but the lead indicators are good.

Noel Quinn: But the lead indicators are good. We've invested in the business over the last few years to put us in this position. It was all about getting ready for lower interest rates. I'm in a position to take advantage of it.

Speaker Change #182: We've invested in the business over the last few years to put us in this position. It was all about getting ready for lower interest rates and being in a position to take advantage of it you know we we.

Noel Quinn: It was all about getting ready for lower interest rates and being in a position to take advantage of it. You know, we invested heavily in the product lineup for our clients to make sure that if they were gonna move into invested assets, they could do so with us rather than another bank. We invested in distribution. We had good distribution in Hong Kong, but we didn't have as good a distribution in other markets. We built our distribution in Mainland China, in Singapore, in India, and in the rest of the world. I think it's put us in a good position to take advantage of it, but it's too early to call it a trend. Your observation's a fair observation for Q2. It was good. You know, it's nice to be able to report that.

Noel Quinn: We invested heavily in the product line-up for our clients to make sure that if they were going to move into invested assets, they could do so with us rather than another bank. We also invested in distribution. We had good distribution in Hong Kong, but we didn't have as good a distribution in other markets. So we built out distribution in mainland China, in Singapore, in India, and in the rest of the world. So I think it's put us in a good position to take advantage of it, but it's too early to call it a trend. But your observation's a fair observation for Q2. It was good,

Speaker Change #182: We invested heavily in the product lineup for all our clients to make sure that if they were going to move into invested assets. They could do so with us rather than another bank.

Speaker Change #182: We invested in distribution, we had good distribution in Hong Kong, but we didn't have as good a distribution in other markets. So we built out distribution in mainland China and Singapore.

Speaker Change #182: In India and in the rest of the World. So I think it's put us in a good position to take advantage of it but it's too early to call. It a trend.

Speaker Change #182: But your observation is a fair observation for Q2 it was good.

Georges Elhedery: I'm, you know... It's nice to be able to report that on performance-related pay and costs. I'll let George cover that, but we're absolutely committed to the 5%, so... So, we paid $3.8 billion through full year 2023 on performance-related pay. This is disclosed in our annual reports and accounts. But if you look at how we accrued for that number through the year in 2023, we actually under-accrued in the first quarter of 2023, and then we topped it up in the fourth quarter to get to that total number.

Speaker Change #183: Hmm mm.

Speaker Change #182: No.

It's nice to be able to report out on our performance related pay in cost.

Noel Quinn: On performance-related pay and costs, I mean, I'll let Georges cover that, but we're absolutely committed to the 5%, so.

Speaker Change #182: I'll, let George cover that but we're absolutely committed to the 5% so.

Georges Elhedery: We paid $3.8 billion through full year 2023 on performance-related pay. This is disclosed in our annual reports and accounts. If you look at how we accrued for that number through the year in 2023, we actually underaccrued in Q1 2023, and then we topped it up at Q4 to get to that total number. When you look at full year 2024, we are accruing towards a broadly similar number for the full year than for the full year 2023. You know, any decision on the performance-related pay will take place in January with the remuneration committee after the full year's performance has been delivered. We are accruing broadly to the same number.

George: So we accrue we we paid $3 $8 billion to our full year 2023 on performance. We could pay this is disclosed in our annual reports and accounts.

George: But if you look at how we accrued for that number through the year in 2023, we actually under accrued in the first quarter 2023 and then we topped it up at the fourth quarter to get to that total number.

Georges Elhedery: When you look at full year 2024, we are accruing towards a broadly similar number for the full year than for the full year 2020, and you know any decision on the performance rate pay will take place in January with the remuneration committee after the full year's performance has been delivered but we are accruing broadly to the same number the difference is that we're accruing more evenly so this is why you'll see a higher accrual on a year-on-year basis in the first half and you will be seeing a lower accrual in the second half you know you know on that trajectory.

George: When you look at full year 2024, we are accruing two words, a broadly similar number for the full year then for the full year 'twenty three.

George:

George: And.

Speaker Change #184: Any decision on the performance related pay will take place in January with the remuneration Committee. After the full year's performance has been delivered.

We are accruing broadly to the same number the difference is that we're accruing more evenly. So this is why you'll see a higher accrual on a year on year basis in the first half and you will be seeing a lower accrual in the second half.

Georges Elhedery: The difference is that we're accruing more evenly, so this is why you'll see a higher accrual on a year-on-year basis in the H1, and you will be seeing a lower accrual in the H2, you know, on that trajectory. All of this is factored in our, you know, cost guidance of limiting cost growth to around 5%. We're absolutely committed to our 5% or circa 5% cost growth guidance. We're confident we can deliver it and we are on track to deliver it.

Speaker Change #184: Oh, you are on that trajectory.

Georges Elhedery: All of this is factored in our cost guidance of limiting cost growth to around 5%. We're absolutely committed to our 5% or, roughly, 5%. Cost Growth Guidance. We're confident we can deliver it, and we are on track to deliver it. Thank you, Georges. Our next question today comes from Katherine Lei at J.P. Morgan. Please accept the prompt to unmute your line. Hi, good morning.

Speaker Change #185: It is all of this is factored in our unit.

Speaker Change #186: Your cost guidance with limited cost growth around 5%.

Speaker Change #186: We're absolutely committed to our 5% or circa 5% cost growth guidance. We're confident we can deliver it and we are on track to deliver it.

Operator: Thank you, Georges. Our next question today comes from Katherine Lei at JP Morgan. Please accept the prompt to unmute your line.

Joyce: Thank you Joyce.

Speaker Change #189: Our next question today comes from Catherine.

Speaker Change #188: J P Morgan.

Speaker Change #188: Illinois.

Operator: Thanks for answering my questions. I have one question, actually two, both related to capital. On the capital side, we saw there was $6.4 billion of addition to RWA. May I know what that is related to?

Noel Quinn: Catherine.

Catherine: Yeah, Hi, good morning.

Katherine Lei: Hi, good morning. Thanks for answering my questions. I have one question, actually two, both related to capital. On the capital side, we saw there is $6.4 billion addition to RWA. May I know like what is that related to? I think in the notes, if that's something related to modeling. I would like to know like what kind of assumption changes leads to this $6.4 billion, and is that one-off or should we see this ongoing, how say, additions to the RWA? This is number one. Number two, we noticed some deterioration on asset quality on Hong Kong CRE book. Actually, according to the disclosures, the deterioration seems quite significant as well.

Speaker Change #191: Uh huh.

Speaker Change #191: Hi, good morning, Thanks, Paul.

Speaker Change #191: And Jane My questions I have one question actually two are mostly related to capital on the <unk> side. We saw there is.

Speaker Change #191: Hopefully in addition to our W. H I know like what is that.

Georges Elhedery: I think in the notes, is that something related to modeling? So I would like to know what kind of assumption changes led to this $6.4 billion, and is that one-off, or should we see this as ongoing, I would say, additions to the RWA? So this is number one.

Speaker Change #191: Related to I think it is.

Speaker Change #192: Is that something related to modeling so I would like to know like what.

Speaker Change #193: What kind of assumption changes.

Speaker Change #194: Oh boy billions and is that one or should we see this.

Speaker Change #194: I won't go away.

Additions to the automobile eight so this is number one.

Georges Elhedery: Number two, we noticed some deterioration in asset quality on the Hong Kong CRE book. Actually, according to the disclosures, the deterioration is quite significant as well. Can you explain to us what the impact on capital is? Because we understand that there is a limited impact on ECL charges but mainly reflected on capital. So what is the drag on capital?

Speaker Change #195: Sure we love.

Speaker Change #195: <unk>.

Speaker Change #195: Okay.

Speaker Change #195: Thank you to the disclosure said deterioration in flash.

Speaker Change #195: Significant as well.

Katherine Lei: Can you explain to us what is the impact on capital? Because we understand that there is limited impact on ECL charges, but mainly reflected on capital. What is the drag on capital? Then also, like, going forward, what is your view on CRE, in particular for the loans which are already in stage three categories? Are you expecting that there will be recovery of loans through disposal of the collaterals, or you're expecting the borrowers will eventually make up for the loan? Thank you.

Speaker Change #195: Can you explain to us what is the impact on capital because we understand that there is a limited impact on <unk>.

Speaker Change #196: <unk>, let me reflect on capital. So what is the drag on capital and then also going forward.

Georges Elhedery: And then also, like going forward, what is your view on Hong Kong CRE, in particular for the loans which are already in Stage 3 categories? Are you expecting that there will be recovery of loans through disposal of the collateral, or are you expecting the borrowers will eventually make up for the loans? Thank you. Okay, thanks Katherine. Georges, do you want to pick up on those points?

Speaker Change #197: What is your view on them.

Speaker Change #198: Our niche in particular for their loans, which are already in phase III.

Speaker Change #197: Category.

Speaker Change #200: I think that there will be recovery.

Speaker Change #199: The collateral so are you expecting.

Speaker Change #199: Laura would you eventually makeup all alone thank you.

Noel Quinn: Okay. Thanks, Catherine. Georges, you wanna pick up,

George: Thanks, Catherine George do you want to pick up share those plants.

Georges Elhedery: Sure

Noel Quinn: those points?

Georges Elhedery: Sure, Noel, thanks. Catherine, on the capital, we've indicated the $6.4 billion increase in RWAs due to modeling adjustment. To be specific, we've adjusted the probability of default models for banks globally. The reason we adjusted this probability of default model for banks is because we wanted to factor in some of the observations and learnings from the March 2023 crisis in the way governments have supported a bank resolution. You know, that's specifically true for the US and Switzerland. We've taken those learnings, we've baked them in our modeling, and this resulted in this additional RWA. Insofar as bank models probability of default, et cetera, are concerned, we consider this to be done.

Georges Elhedery: Katherine, so on capital, we've indicated a $6.4 billion increase in RWAs due to the modeling adjustment. To be specific, we've adjusted the probability of default models for banks globally, and the reason we adjusted this probability of default model for banks is because we wanted to factor in some of the observations and learnings from the March 2023 crisis in the way governments have supported a bank resolution. You know, that's specifically true for the U.S. and Switzerland.

Speaker Change #199: Thanks.

Catherine George: Catherine so on the capital so we've indicated the $6 $4 billion.

Speaker Change #202: Increase in OIBDA obligate you to modeling adjustment to be specific we've adjusted the probability of default models for banks globally.

Speaker Change #202: And the reason we adjusted this probability for default model for banks is because we wanted to factor in.

Speaker Change #203: Some of the observations and learnings from the March 2023 classes in the way government.

Speaker Change #202: Supported.

Speaker Change #202: Bank distribution.

Speaker Change #202: You know that specifically to for the U S and Switzerland, we've taken those learnings we baked them in our modeling and this resulted in this.

Georges Elhedery: We've taken those learnings, we've baked them into our modeling, and this resulted in this additional RWA. Insofar as bank models, probability of default, etc., are concerned, we consider this to be done. If you ask me, while we continuously look at our models in a general fashion, look, the next big model update is going to be Basel 3.1, as in when Basel 3.1 becomes live in the various geographies or jurisdictions where we operate.

Speaker Change #202: Additionally, <unk> in so far the bank models probability of default et cetera are concerned we consider this to be done. If you asked me what we continuously look at our models and then from the general session. The next Big model update is going to be Basel 3.1, as and when Basel III.

Georges Elhedery: If you ask me, will we continuously look at our models in a general fashion? Look, the next big model update is going to be Basel 3.1, as and when Basel 3.1 becomes live in the various geographies or jurisdictions where we operate. We have not indicated the impact which we do not expect to be material, but we're waiting to see some of the final rules that are still missing in a number of jurisdictions before we can call out the exact impact to the market, but we don't expect it to be material. In terms of Hong Kong CRE, we've spoken earlier about the 40% that is unsecured, with which we remain very comfortable.

Speaker Change #204: When one becomes life in the various geographies or jurisdictions, where we operate.

Georges Elhedery: We have not indicated the impact, which we do not expect to be material, but we're waiting to see some of the final rules that are still missing in a number of jurisdictions before we can call out the exact impact on the market, but we don't expect it to be material. In terms of Hong Kong CRE, we've spoken earlier about the 40% that is unsecured, with which we remain very comfortable, so your question probably relates to the other 60%, which is the secured portfolio of our $36 billion exposure. So of this, about $3.2 billion is credit impaired.

Speaker Change #205: We have not indicated the impact, which we do not expect to be material, but we're waiting to see some of the final rules that are still missing in a number of jurisdictions before we can call out the exact impact to the market, but we don't expect it to be material in.

Speaker Change #205: In terms of Hong Kong theory, we've spoken earlier about the.

Speaker Change #205: 40% that is unsecured with which we remain very comfortable and.

Georges Elhedery: Your question probably relate to the other 60%, which is the secured portfolio of our $36 billion exposure. Of this, about $3.2 billion are credit impaired. What's happening basically is a few of our customers basically are facing some short-term cash flow pressure, challenges, and this is partly due to high rates. The balance sheet remains strong and our level of collateralization remains strong. Typically, for this impaired $3.2 billion portfolio, the level of collateralization on average is 55% loan to value. This is why there is minimal, if any, ECL impact from the designation to stage three. In terms of the capital impact, some of...

Speaker Change #205: So your question probably relates to the other 60%, which is the securities portfolio of our $36 billion exposure. So of this about $3 $2 billion or credit impaired.

Speaker Change #205:

Georges Elhedery: What's happening basically is a number of, a few of our customers basically are facing some short-term cash flow pressure challenges, and this is partly due to high rates. But the balance sheet remains strong, and our level of collateralization remains strong, typically for this impaired $3.2 billion portfolio. The level of collateralization on average is 55% loan-to-value, so this is why there is a material, if any, ECL impact from the designation to stage 3.

Speaker Change #205: What's happening basically is.

Speaker Change #205: A number of a few of our customers basically are facing some short term cash flow pressure that changes and this is partly due to higher rates.

Speaker Change #205: But the balance sheet remains strong and our level of Collateralization remained strong typically for this and paid $3 $2 billion portfolio.

Speaker Change #205: The level of collection realization on average is 55% loan to value.

Speaker Change #205: So that this is why.

Speaker Change #206: There is a immaterial if in your ECL impact from de designation.

Two.

Speaker Change #206: To stage III.

Georges Elhedery: In terms of the capital impact, depending on which models we're using and what form of lending it is, some of the impact may manifest in RWAs, and we've seen a little bit of that in the last quarter. Some of it will manifest in EEL, or Excess Expected Loss, which will go straight into our CT1. We publish these numbers, but by and large, these are immaterial numbers, and again, it's all supported by the fact that we have a very strong level of collateralization against the exposure.

Speaker Change #206: In terms of the.

Speaker Change #206: Capital impact some of depending on which models, we're using and what form of lend.

Georges Elhedery: depending on which models we're using and what form of lending it is, some of the impact may manifest in RWAs, and we've seen a little bit of that in last quarter. Some of it will manifest in EEL, Excess Expected Loss, which will go straight into our CET1. We publish these numbers, but by and large, these are immaterial numbers, and again, it's all supported by the fact that we have a very strong level of collateralization against the exposure. As we look forward, first these customers, the specifically credit impaired customers, are current, remain current. We expect some of the pressure they're facing to ease as rates reduce and as economic activity in Hong Kong picks up. You know, in terms of medium to long-term outlook for the sector, we are actually positive.

Speaker Change #206: Lending it is some of the impact may manifest and <unk> and we've seen a little bit of that in last quarter.

Speaker Change #206: Some of it will manifest in E L excess expected loss, which will go straight into <unk>. We published these numbers, but by and large these are immaterial numbers and again, it's all supported by the fact that we have a very strong level of collateralization against the exposure.

Georges Elhedery: As we look forward, first, these customers, specifically credit-impaired customers, are current, and remain current. We expect some of the pressure they're facing to ease as rates reduce and as economic activity in Hong Kong picks up. In terms of the medium to long-term outlook for the sector, we are actually positive. We are confident, first, of the Hong Kong economy in general, to rebound, but in particular for the sector, we expect that the sector's pressure will ease in the medium to long term, and we remain confident and positive. Thank you. We have time for one last question today, and that comes from Gurpreet Singh Sahi from Goldman Sachs. Please accept the prompt to unmute your line.

Speaker Change #206: And as we look forward first these customers specifically credit impaired customers are current remain current.

Speaker Change #206: We expect some of the pressure they are facing to ease as rates reduce and as economic activity in Hong Kong picks up.

Speaker Change #206: The in terms of medium to long term outlook for the sector. We are actually positive. We're confident first in the Hong Kong economy in general to rebound, but in particular for the sector. We expected the sector's pressure will ease.

Georges Elhedery: We are confident, first in the Hong Kong economy in general to rebound, but in particular for the sector. We expect that the sector's pressure will ease, you know, in the medium to long term and remain confident and positive about the sector.

Speaker Change #206: You know in the medium to long term and we remain confident and positive about this sector.

Katherine Lei: Thank you, Georges. We have time for one last question today, and that comes from Gurpreet Singh Sahi from Goldman Sachs. Please accept the prompt to unmute your line.

Speaker Change #206: Thank you Sir we have time for one last question and that comes from Godfrey.

Speaker Change #207: <unk> from Goldman Sachs. Please accept the problem for me your line.

Noel Quinn: Thank you.

Speaker Change #206: Okay.

Gurpreet Singh Sahi: Thank you. Can you guys hear me?

Thank you.

Operator: Thank you. Thank you. Can you guys hear me?

Godfrey: Can you guys hear me Yeah Yep, we got.

Noel Quinn: Yeah. Yep, we're good.

Georges Elhedery: Yeah, yeah, we're good. Okay, good morning. Noel, first of all, George Conrax and Noel, congratulations on your new path, wherever you choose to be. Thank you for the helpful disclosures on the hedge, etc. I have a question regarding two questions, which are pretty much linked regarding falling rates, and how does management see it? First of all, the wealth income. It's an odd cycle with wealth income and AUM growth rates being elevated as interest rates are high. So when they do fall, do we have any precedent as to whether there will be an impact on wealth income from falling rates, or we don't get that much benefit from income?

Gurpreet Singh Sahi: Okay. Good morning. Noel, first of all, Georges, congrats, and Noel, congratulations for a new path, wherever you choose to be.

Godfrey: Okay. Good morning.

Godfrey: No inflation.

Hi, it's gone racks, and Noel congratulations but are new.

Godfrey: But wherever you choose to be like.

Georges Elhedery: Thank you.

Gurpreet Singh Sahi: Thank you for the helpful disclosures on the hedge, et cetera. I have a question regarding two questions which are pretty much linked regarding falling rates and how does the management see it. First of all, the wealth income, it's an odd cycle with wealth income and AUM growth rates being elevated as interest rates are high. When they do fall, do we have any precedent as to whether there will be an impact on the wealth income from falling rates, or we don't get that much benefit from income? We see right now that a lot of mainland Chinese money is also coming out and parking in Hong Kong. That's the first part of the question. The second is lending growth.

Speaker Change #209: Thank you for the helpful disclosures on the hedge et cetera, I have a question regarding two questions, which are pretty much linked regarding falling rates and how does your body has meant the question Paul.

Speaker Change #210: The wealth income, it's an odd cycle with world.

Speaker Change #211: Income and <unk> growth rates being elevated as interest rates are high but when they do fall do we have any precedent as to whether there will be an impact on the world and come from falling rates I'll, we don't get that much benefit from income.

Georges Elhedery: We see right now that a lot of mainland Chinese money is also coming out and parking in Hong Kong. So that's the first part of the question. The second is lending growth; we have targets of a single digit. But when we think about modeling banking and AI, we have to look at average interest-earning assets. So I'm wondering, we have lots of liquidity on the balance sheet, if rates do fall, and then some of these depositors don't feel incentivized, do we get overall deposit growth not so strong, which in turn leads to average interest earning assets not growing, and hence, we should not be modeling average interest earning asset growth at mid single digits. So help us think about that. Thank you so much. Okay, I think George will pick up both of those.

Speaker Change #212: We see right now that a lot of mainland Chinese mining is also coming out and backing in Hong Kong.

Speaker Change #213: So that's the first part of my question.

Speaker Change #214: There's lending growth, we have targets of mid single digit, but when we think about modeling banking NII.

Gurpreet Singh Sahi: We have targets for mid-single digit, but when we think about modeling banking NII, we have to look at average interest earning assets. I'm wondering, we have lots of liquidity on the balance sheet. If rates do fall and then some of these depositors don't feel incentivized, do we get overall deposit growth not so strong, which in turn leads to average interest earning assets not growing, and hence we should not be modeling in average interest earning assets growth at mid-single digits? Help us think about that. Thank you so much.

We have to look at the average interest earning assets. So I'm wondering we have lots of liquidity on the balance sheet if rates do fall and then some of these depositors don't feel incentivize do we get overall deposit growth not so strong.

Speaker Change #214: Which in turn lead to average interest, earning assets not growing and we should not be modeling in average interest earning assets grow that mid single digit so help us single deck. Thank you so much.

Noel Quinn: Okay. I think Georges will pick up both of those.

Speaker Change #214: Okay, I think George will pick up both of those very good. Thanks. So first one thing from the way we reported essentially is fees and other income. So the this slide I have there for wells that particularly with the T sport, which is fees earned on assets under management.

Georges Elhedery: Very good. Thanks a lot. Gurpreet, so first, wealth income, the way we report it, essentially is fees and other income. The slide I have there for wealth, that's particularly the fees part, which is fees earned on assets under management, or on the, you know, for insurance in particular relate to new business CSM. The impact, if you want on rates, is more about the transition of customers from deposits into AUMs. This has been happening. We're seeing some of our deposits move into net new invested assets and, you know, transferring, if you want to, AUMs in our wealth proposition.

Georges Elhedery: Gurpreet, so first, wealth income, the way we report it, essentially is fees and other income. So the slide I have there for wealth, that's particularly the fees part, which is fees earned on asset under-management or for insurance, in particular related to new business CSM. So the impact, if you want, on rates is more about the transition of customers from deposits into AUMs. So this has been happening.

Speaker Change #214: Or on the phone insurance in particular related to new business CSN.

So the impact if you want on the rates is more about the transition of customers from deposits.

Georges Elhedery: We're seeing some of our deposits move into net new invested assets and, you know, transfer, if you want, to AUMs in our wealth proposition. It is likely on a trend basis that when rates come down and deposits, the, you know, the earnings you can make on deposits reduce, that customers may shift some of it into AUMs through our, you know, will now be visible through the net new invested assets proposition, and then we will be able to service them in the fee space. So, yes, there is a component where we do expect more wealth activity to take place as we see deposits being less remunerative, but this is more on a broad trend basis, not a direct link.

Speaker Change #214: Into <unk>.

Speaker Change #214: So this has been happening we're seeing some of our deposits move into net new invested assets in <unk>.

Speaker Change #214: Transferring if you want to.

Speaker Change #214: And our wealth proposition it is likely on a trend basis that when rates come down in deposit.

Georges Elhedery: It is likely on a trend basis that when rates come down and the earnings you can make on deposits reduce, that customer may shift some of it into AUMs through our, you know, through. You know, will be visible in the net new invested assets proposition, and then we will be able to service them in the fee space. Yes, there is a component where we do expect more wealth activity to take place as we see deposits being less remunerative, but this is more on a broad trend basis, not a direct linkage. We are also benefiting from the structural growth of wealth, in particular in Asia, where we believe the underlying market is growing at very high single-digit, if not double-digit %, over the next five years.

Speaker Change #214: At the end of the earnings you can make on deposits reduce that customer may shift some of it into <unk> through our through you know will be visible node new invested assets.

Speaker Change #214: And then we will be able to service them in the fee space. So yes. There is a component where we do expect more wealth activity to take place as we see deposits being less remunerative, but this is more on the broad trend basis, not the direct linkage.

Georges Elhedery: And we are also benefiting from the structural growth of wealth, in particular in Asia, where we believe the underlying market is growing at very high single-digit, if not double-digit, rates over the next five years. And on top of that underlying growth, which we're benefiting from, we are taking market share because of our additional investment. So, this is definitely a platform that can benefit from a number of different solutions. On your second point, it's a very good point because we talk about balance sheet growth and loan growth, but we have a strong dependence on our banking NII on deposit growth, which constitutes the underlying for our average interest earning assets. So we've seen this quarter deposits growing by 2%. I caution you not to annualize the 2% because some of it is seasonal, and some of it is one-off.

And we are also benefiting from the structural growth of wealth in particular in Asia, where we believe the underlying market is growing at very high single digit if not double digit percent over the next five years.

Georges Elhedery: On top of that underlying growth, which we're benefiting from, we are taking market share because of our additional investment in this space. This is definitely a platform that can benefit from a number of, you know, trends that will support the momentum. On your second point, it's a very good point because we talk about balance sheet growth and loan growth, but we also have a strong dependence on our banking NII to deposit growth, which constitutes the underlying for our average interest earning assets. We've seen this quarter deposit growing 2%. I caution you not to annualize the 2% because some of it is seasonal, some of it is one-off. We have a fantastic deposit franchise.

Speaker Change #214: And on top of that underlying growth, which youre benefiting from we are taking market share because of our additional investment in this space.

Speaker Change #214: So this is a this is definitely.

Platform that can benefit from number of them.

Speaker Change #214: Either number of.

Speaker Change #214: Trends that will support the momentum.

Speaker Change #215: On your second point.

Speaker Change #216: It's a very good point, because we talk about balance sheet growth and loan growth, but we have also strong dependence for our banking NII to deposit growth, which constitute the underlying food or.

Speaker Change #216: Listen to certain assets.

Speaker Change #217: So we've seen this quarter deposit growing 2% I caution you not to annualize the 2% because some of it is seasonal some of it is one off.

Georges Elhedery: But we have a fantastic deposit franchise, I mean, you know us everywhere we operate. We have a very strong balance sheet that's very appealing, and we have a very strong proposition in deposits and transaction banking for both wholesale and retail, which means that we will continuously look to capture deposits. We continue to win global payment solutions mandates in the wholesale space.

Speaker Change #217: But we have a fantastic deposit franchise I mean, you know it's everywhere we operate.

Georges Elhedery: I mean, you know us everywhere we operate. We have a very strong balance sheet that's very appealing, and we have a very strong proposition in deposits and transaction banking for both wholesale and retail, which mean that we will continuously look to capture deposits. We continue winning Global Payments Solutions mandates in the wholesale space. We continue being attractive for retail customers, and Noel shared 345,000 new customers joining our Hong Kong business alone. This is, you know, here in the UK in 2023, we added 1 million new customers. We do continue seeing a good momentum, underlying momentum, to grow our deposits with this very attractive deposit franchise of ours.

We have a very strong balance sheet, that's very appealing and we have a very strong proposition in deposits and transaction banking for both wholesale and retail, which mean that we will continuously look to capture it.

Deposits, we continue winning.

Speaker Change #217: Global payment solutions mandates in the wholesale space, we continue being attractive for our retail customers and we just shared no shares 345000, new customers joining our Hong Kong business alone. This is you know here in the U K in 2023, we added 1 million new customers. So therefore, we do can.

Georges Elhedery: We continue being attractive for retail customers, and we just shared, Noel shared, 345,000 new customers joining our Hong Kong business alone. This is, you know, in the UK in 2023 we added 1 million new customers, so therefore we do continue seeing good momentum, underlying momentum, to grow our deposits with this very attractive deposit franchise of ours. And I think I'd reinforce that in another comment.

Speaker Change #217: And you're seeing a good momentum underlying momentum.

Speaker Change #217: To grow our deposits with this with this a very attractive deposit franchise of ours.

Noel Quinn: Listen. I think I'd reinforce that. Another comment. The trick for us in the past, you know, we were very good as a retail bank. We were very good as a corporate bank. When customers, whether they were retail customers or corporate customers, wanting to invest in alternative asset classes other than cash, they tended to go to other banks because our product range and our distribution wasn't strong enough. We deliberately set out to invest in our products and distribution capability for wealth so that that cash, if it did move, it moved within the bank, not outside the bank. One of the byproduct benefits is if you've got a good wealth proposition, you also attract the cash. You keep the cash in the bank as well. They go hand in hand. I think.

Okay.

Speaker Change #218: I think I'd reinforce that.

Speaker Change #218: And another comment.

Noel Quinn: The trick for us in the past, you know, we were very good as a retail bank; we were very good as a corporate bank. But when customers, whether they were retail customers or corporate customers, wanted to invest in alternative asset classes other than cash... They tended to go to other banks because our product range and our distribution wasn't strong enough. We deliberately set out to invest in our products and distribution capability for wealth.

Speaker Change #218: The trick for us in the past we were very good as a retail bank we were very good as a corporate bank.

Speaker Change #218: But when customers, whether they were retail customers corporate customers wanting to invest in alternative asset classes other than cash.

Speaker Change #218: They tended to go to where the banks, because our product range and our distribution wasn't strong enough.

Speaker Change #218: We deliberately set out to invest in our products and distribution capability for wealth.

Noel Quinn: So that cash, if it did move, it moved within the bank, not outside. One of the by-product benefits is that if you've got a good wealth proposition, you also attract cash. You keep the cash in the bank as well. They go hand-in-hand.

Speaker Change #218: So that cash if you did move they moved within the bank a lot outside the bank.

Speaker Change #218: And one of the byproduct benefits as if you've got a good wealth proposition you'll also attract the cash you keep the cash in the bank as well. They go hand in hand, so I think no.

Noel Quinn: So I think we're in a very different position today in offering wealth propositions to clients, and what we've done is deliberately try to diversify the revenue stream so it's less dependent on purely corporate banking and retail banking. And there is a continuum from retail and corporate banking into banking on individuals and entrepreneurs in their personal capacity and doing their wealth management in their personal capacity. And that's, I think, the exciting trend for the future. Uh... I don't think that's where we are. Why do we believe that we're well-positioned to deliver Mid-Scenes Roti next year?

Noel Quinn: Look, I think we're in a very different position today in offering wealth propositions to clients. What we've done is deliberately tried to diversify the revenue stream, so it's less dependent on purely corporate banking and retail banking. There is a continuum from retail and corporate banking into banking the individuals and the entrepreneurs in their personal capacity and doing their wealth management in their personal capacity. That's, I think, the exciting trend for the future. I think that's where, why we believe that we're well positioned to deliver mid-teens ROTCE next year, because we have that diversity and that continuum of offering. I just wanna say that's not a by chance strategy. That was a very deliberate strategy to keep both the cash in the bank and the invested assets in the bank.

Speaker Change #218: I think we're in a very different position today than offering wealth propositions to clients.

Speaker Change #218: And what we've done is deliberately tried to diversify the revenue stream. So it's less dependent on purely corporate banking and retail banking.

Speaker Change #218: And there is a continuum from retail and corporate banking interbank and the individuals and the entrepreneurs and their personal capacity and doing their wealth management in a personal capacity.

Speaker Change #218: And that's I think the exciting trend for the future I don't think that's that's where why we believe that we're well positioned to deliver mid teens rotary next year, because we have that diversity and that continuum of offer a continuum of offering.

Noel Quinn: Because we have that diversity and that continuum of offer, a continuum of offer. So... I just want to say that's not a... That's not a by-chance strategy; that was a very deliberate strategy to keep both the cash in the bank and the invested assets in the bank.

Speaker Change #218: So.

Speaker Change #219: I just want to say that's not a.

Speaker Change #220: I'll start off by chance strategy that was a very deliberate strategy to keep both the cash in the bank.

Speaker Change #220: And the invested assets in the bank.

Speaker Change #220: Yeah.

Operator: Thank you. That concludes today's Q&A, so I will now hand it back to Noel for closing remarks. Well, thank you, Louise, and thank you, everyone, for joining us today. Before we close, I'd like to thank you for your questions and for all the discussions we've had over the last five years. I've always enjoyed representing my colleagues when we announce our results, and I'm really pleased that the strong first half numbers announced today demonstrate our improved financial performance.

Operator: Thank you. That ends today's Q&A, so I will now come back to Noel for closing remarks.

Speaker Change #220: Thank you.

Speaker Change #220: Today's Q&A, so I don't know about how much snow for closing remarks.

Noel Quinn: Well, thank you, Louise, and thank you everyone for joining us today. Before we close, I'd like to thank you for your questions and for all the discussions we've had over the last 5 years. I've always enjoyed representing my colleagues when we announce our results. I'm really pleased that the strong H1 numbers announced today demonstrate the improved financial performance that our strategy execution has driven. It's been over 15 years since the group has generated returns at the current levels, and our new guidance underlines that we expect to be able to sustain it through this year and in 2025. I wish Georges, the team, and all of you the very best, and enjoy the rest of the day. Thank you.

Speaker Change #220: Well, thank you Louise and thank you everyone for joining us today.

Speaker Change #221: Before we close I'd like to thank you for your questions and for all the discussions we've had over the last five years.

Speaker Change #222: I've always enjoyed representing my colleagues when we announce our results and I'm really pleased that the strong first half numbers announced today demonstrate the improved financial performance that our strategy execution is driven.

Operator: That our strategy execution is driven. It's been over 15 years since the group has generated returns at the current level, and our new guidance underlines that we expect to be able to sustain it through this year and in 2025.

Speaker Change #224: He spent over 15 years since the group has generated returns at the current levels and our new guidance on the lines that we expect to be able to sustain it through this year and in 2025.

Noel Quinn: I wish George, the team, and all of you the very best. And enjoy the rest of the day. Thank you. Thank you, ladies and gentlemen, for joining today's webinar. You may now disconnect your line. Goodbye.

Speaker Change #222: I wish George the team and all of you the very best and enjoy the rest of the day. Thank you.

Operator: Thank you, ladies and gentlemen, for joining today's webinar. You may now disconnect your line. Goodbye.

Speaker Change #223: Thank you, ladies and gentlemen for joining today's webinar you may now disconnect your lines.

Speaker Change #222: Yeah.

Speaker Change #222: Goodbye.

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