Good morning, ladies and gentlemen, and welcome to the Investor and Analyst Conference Call for HSBC Holdings Plc's Interim Results 2018. For your information, this conference is being recorded today. At this time, I would like to hand the call over to your host today, Mr. John Flint, Group Chief Executive. Please go ahead.
Thank you. Good morning from London. Good afternoon to everybody in Hong Kong and welcome to our 2018 interim results call. I'm here today with Ian McKie, and I will pass over to him shortly. Let me start though by recapping our strategy and covering the main points of our results.
In June, we set out 8 strategic priorities that will enable us to grow our profits on a consistent basis and create value for shareholders. In particular, we aim to deliver a return on tangible equity of more than 11% by the end of 2020. To do this, we intend to deliver growth from areas of strength to turn around low performing businesses, to invest in revenue growth and the future of the business and to simplify the organization and invest in future skills. Central to this is our ability to use the revenue capacity of the group to invest in growth and competitiveness within the constraint of full year positive jaws. For the first half of the year, reported profit before tax was up 5% compared with the same period last year, And adjusted PBT was down by 2% due to increased investments in the business.
For the 2nd quarter, reported profit performance was up 13% and adjusted profits were broadly in line with the last year's Q2. This performance was in line with our expectations. Our global business delivered an increase in adjusted revenue of 7% in the Q2. This was offset by the Corporate Center, which was down against a strong Q2 for 2017. In line with the guidance we issued in May, our 2nd quarter adjusted costs rose by 7% and was stable compared with the Q1.
We grew lending by absorbing 3% compared with the Q1 and 5% from the start of the year. Our common equity Tier 1 ratio remains strong at 14.2%. This includes the impact of foreign currency movements and the full amount of the $2,000,000,000 share buyback that we announced in May. Ian will talk you through the numbers. Thanks, John.
Looking to some key metrics for the first half, the return on average earnings shareholders' equity was 8.7%. The return on average time debt is 9.7 percent with a lower transfer net asset value per ordinary share of $7 driven by foreign exchange movements And we had negative jaws of 5.6% due to increased investments in the business. We remain committed to achieving positive jaws for the full year. Slide 4 provides detailed guidance we take us from the quarter to adjusted. You'll note that there are no costs to achieve this year.
The other main difference in the first half was the complete acceptance and provisions. In July, we reached an agreement in principle with the U. S. Department of Justice To resolve its full year investigation of HSBC's historical origination and securitization of residential but mortgage backed securities. This amount was substantially covered by the provisions made in the Q1 as covered in Page 1 or 2 of the interim report.
You'll find more details in the appendix, but the remainder of the presentation focuses on adjusted numbers. Slide 5 based on adjusted profit for the year for the first half of global business and geography. Profits in our 4 global businesses rose by a total of $851,000,000 At contrast, Corporate Center TBT fell by $1,100,000,000 due to lower revenue. In Asia, excellent performances from Retail Banking, Wealth Management and Commercial Banking contributed to a strong PBT performance. Unit bore much of the impact of the fall in the corporate center and was also affected by drop in revenue in global markets.
The Group in Corporate Center revenue comprised $241,000,000 of valuation differences and long term debt in services swaps, which will grow nearly as our supply chain activity. A $242,000,000 fall in balance sheet management revenue, $169,000,000 movement in losses and disposable legacy assets and $114,000,000 of additional interest expense primarily due to MREL issuance. Slide 6 looks at profit before tax for the 2nd quarter, which was broadly stable compared with the same period last year. PBT was up in all 4 global businesses and up significantly in Asia, North America and Latin America. The drivers of the increase in Asia were building the same as for the half year.
In North America, revenue increases and expected trade loss releases related to our Those are building assets that contributed to a large increase in profits. In Latin America, the increase in PBT was driven by good all around performance from our global business Next book. Corporate Center is again the main driver for Europe, due largely to $632,000,000 following revenue. The drivers of this movement were again based on the half year. So I understand the issues revenue trends by global businesses.
2nd quarter revenue from our 4 global businesses was $865,000,000 or 7% higher than the same period last year. I'll look at each business in more detail with the next two slides. Slide 8 looks at retail banking and Wealth Management revenue, which grew by $326,000,000 or 6% compared with last year's Q2. We also made market share gains, particularly in the UK mortgage market. Higher balances and higher interest rates drove a $472,000,000 increase in deposit revenues, particularly in Hong Kong and the UK.
Income from investment distribution increased by $57,000,000 reflecting higher sales of retail securities and mutual funds, mainly in Hong Kong. Lending revenue doubled $83,000,000 due to asset margin compression from competition in the mortgage market. We continue to grow lending quarter on quarter and year on year. Customer lending rose by 8% and customer accounts increased by 3% compared with the same period Slide 9 shows commercial banking revenue grew by $466,000,000 or 14%. Growth in Commercial Banking is increasingly good base with good performances from credit and lending and global trade and receivables finance, In addition to another excellent quarter from Global Liquidity and Cash Management.
Global Liquidity and Cash Management revenue grew by 22% in the back The increased balances and the impact of wider spreads in mid year. Credit and lending revenue grew by 6% due to balance sheet growth in UK and Hong Kong. Global Trade and Receipts Finance revenue rose by 4% as we do balances in Hong Kong and United Kingdom. Commercial Banking, we were holding by 3% in the 2nd quarter and about 8% compared with last year's Q2, mainly in Asia and the UK. Gold Banking Markets revenue grew by $65,000,000 or 2% compared with last year's Q2.
After credit, funding and valuation adjustments, revenue was broadly stable. We shall continue positive on maintaining key including double digit percentage revenue growth in Global Protein Cash Management, Security Services and Foreign Exchange. While the banking revenue was further stable as the impact of both in lending balances and market share in debt capital markets was offset by lower profit issuances and profit margins. The markets revenue was down by 13% against a strong Q2 of 2017, due mainly to lower client activity and rates and credit. Adjusted RWA is fell by $11,000,000,000 Banking markets in the Q2.
Global Private Banking revenue grew by 2% compared to last year's 2nd quarter, supported by positive net year inflows. The company center was a major factor in our 2nd quarter performance. As noted earlier, a significant portion of the reduction in revenue rose from valuation differences and long term debt associated swaps, And we expect ongoing volatility from quarter to quarter. These differences will be really diverse of health and acuity. We continue to manage time our legacy credit positions.
In the first half, we realized the loss on one specific transaction that was capital accretive. With respect to balance sheet management, full year revenue guidance remains broadly unchanged from $2,300,000,000 to $2,500,000,000 Interest expenses are expected to stay at global at the current level for the rest of the year. We remain focused on improving capital efficiency in the corporate center. Net interest income largely reflected higher deposit margins in the 2nd quarter, rising 4% to $7,600,000,000 As we walk through the quarterly net interest income and net interest margin trends, we identified Adjustments to Q1 net interest margin number, which if made, we can find continued profit reduction. Net interest margin in Asia rose by 15 basis points from the full year to 2.03% due to higher deposit margins.
By contrast, net interest margin fell by 13 basis points to 1.18 percent due to asset margin compression And the higher cost of funding and liquidity in the non ring fenced bank, the higher funding and liquidity balances and the impact of net interest margin We expect to management of the implementation of wind fencing as of 1st July this year. Group net interest margin for the first half was 1.66%, 3 basis points higher than for 2017. Competition for Booncourt U. N. Remained strong, balanced by higher yields and surplus liquidity.
We anticipate further progress on net interest margin and net interest income As we continue to grow the business and as monthly policy normalizes, in the first half alone, we grew by about 5%. With more detailed information on net interest margin in the appendix. Slide 14 looks at expected credit losses and new employment charges. The 2nd quarter benefited from a release in the oil and gas sector in North America, and the credit environment remains stable, And expected credit losses remain unusually low. Bear in mind that expected credit losses are very sensitive to any changes in forward economic forecast Slide 15 shows our operating expenses for the quarter.
These were $554,000,000 or 7% higher than the same period last year and very stable compared with this year's Q1. Unlike in the last few years, there was no CPA program in the strategic plan. So we have to create the capacity to invest more through a combination of cost discipline and revenue growth. To that end, dollars 300,000,000 of cost savings helped absorb the additional cost of inflation, Regulatory programs and compliance in the Q2. We invested an additional $400,000,000 in growth, digital and productivity in Q2.
In Retail Banking and Wealth Management, we're investing in our 5th business in the U. S. And the UK and enacting frontline sales and technology in Management and continue to invest Massachusetts Group's joint venture in Mainland, China. In Commercial Banking, We are hiring the relationship managers to a new business in Hong Kong and then on China and updating our core systems in global growth and cash management, Trade Finance and Business Banking in Hong Kong and the UK. We continue to invest in the business subject to growth in revenue and expect full year costs excluding the bank levy, which we have previously guided.
Turning to capital. The Group's common equity Tier 1 ratio on the 30th June was 14.2%. Our common equity Tier 1 capital which is about $6,800,000,000 in the quarter. Capital generation of $1,900,000,000 was more than offset by foreign currency movements related to the strong U. S.
Dollar And also the recent share buyback, the full impact of which is deducted from capital. Risk weighted assets grew by 1% on an adjusted basis in the first half compared to volume growth of 5%. Slide 17 looks for group return metrics. The return on capital to shareholders' equity was 9.7%, or 11.5%, excluding significant items in the bank holding. Our reported revenue as a percentage of RWAs rose by around 20 basis points to 6.3% compared with last year's forecast.
We continue to benefit from those types of credit losses in the 2nd quarter. Our full name global businesses each achieved returns and times larger above the group's cost of equity. We are investing for the businesses and its included with the current transfer of 11% by 2020. I'll now hand back to Chairman. Ian, thank you.
Our global businesses have now delivered 8 successive quarters of year on year revenue growth and carry momentum into the second half of the year. On this basis, we remain confident of achieving positive jaws for the full year. Our main focus is on delivering a return on tangible equity greater than 11% by 2020. We're a well funded business with strong capital generation and a diversified balance sheet, and we are investing to grow revenue further and strengthen our competitive position. We remain cautiously optimistic about economic conditions for the remainder of 2018.
We shall now take questions. The operator will explain the procedure and introduce the first question. Operator?
Thank you very much, Mr. Flint.
18.
And please ensure that your mute function is switched off. The first question we have today comes from the line of Ronit Ghose from Citi. Please go ahead.
Hi, good morning. It's Robert from Citi. Just a couple of questions. First of all, a quick question on margin. You've given us some Just comments around the Europe decline first half versus last year, 17 basis points down.
I wonder if you could give us some more color on the quarter on quarter NIM trend and specifically any color around how much this is Driven by the NRFB formation, that that seems to be big delta when I look at what happened to NII and NIM in the quarter. That would be really helpful. My second question is about jaws and this is for either of you. In the second quarter, obviously, you got underlying About 6 percentage point negative jaws, costs putting underlying comes to about $16,400,000,000 for the first half. Are you looking at implicitly or explicitly flat Cost half on half, extra levy.
I'm just trying to work out how we get to positive jaws for the year because it's looking quite challenging. Thank you.
Thanks, Ernest. Quarter on quarter from an interest margin perspective, broadly stable. And the features that are driving that remain pretty much consistent with what we've talked about in the past. We continue to see good development across net interest margin in Asia and our comments in the analysis on that point did bear that out. Specifically in the UK information of the non ring fenced bank or actually information of the ring fenced bank and by definition non ring fenced bank.
So if you reflect on HBU, we've maintained a strong funding and liquidity position within that group entity consistently. As we created the ring fenced bank, the strength of the customer deposits sitting within the Refill Bank and the commercial bank principally become part of the ring fenced bank and are no longer available in terms of funding and liquidity sources to the non ring fenced bank. As we approach the industry approach for the fencing, the PRA set out some specific requirements with respect to LCR And net stable funding ratio. And to ensure that we achieved those positions by 1st July with the margin of safety, We strengthened the funding and liquidity position within the non ring fenced bank over the first half of the year and Most notably, in the Q2 of this year and moving up to the 1st July. We had LSTI and SFR ratios, Some of them excessive, but we're all in excessive of requirements from a regulatory perspective.
And as we move through the remainder of this year, we'll optimize that balance sheet and hit the right position. But we wanted to make sure We have a strongly positioned over the transition period into the nonwing fence back. And so for So, clarity, just for memory sake, the non linked banks bank essentially contains gold banking and markets and then other activities which are not permitted to be within the linked Thanks, Frank. And that raising that extra funding and ensuring a strong liquidity position has an adverse impact On net interest margin in the Q2 of the year, the overall net interest margin continues to progress Half year and half year result of 163 for the second half of 'seventeen, 166 for the first half of 'eighteen. And the key drivers of that are the continued normalization of monetary policy, notably in the U.
S. Dollar in related currencies, And that's translating to the deposit surplus and again, most notably within Asia but more broadly. And what we are beginning to see is some stability in asset pricing certainly in the Asian market, although as we comment today, it continues to be Fairly competitive in mortgage pricing both within the Hong Kong and the UK markets. John, I don't know if George, you want to take my question? Sure, Ian.
Thank you. So yes, on the George thing, I guess first thing to say is our results at this stage in the year are in line with our We are aware we thought it would be. The money that we spent was in line with our plan, and we've guided that we expect Cost ex the bank levy to be reasonably stable half on half. So that does mathematically get you to a stronger revenue growth number for the second half of the year. And the way that I think you should think about that is as follows.
We've had good balance sheet growth in the first half of the year, and we've enjoyed Continued progression with net interest margin, albeit modest progression. And as monetary policy continues to normalize, I think that will continue. So We should enjoy momentum on a net interest income line heading into the second half of the year. It's also the case that there were some Aspects of the corporate center performance in the first half that we might reasonably expect not to repeat themselves in the second half. So our business plans do see us get to positive, George, by the end of the year.
And we remain reasonably confident about the revenue outlook that will get us there.
Thanks a lot, John. Ian, can I just Jump back to your answer to the margin question? Can you quantify or help me understand exactly how much structural change or NRFB formation Contributed to it as a headwind to the margin Q on Q or maybe another way to think about it is when you're looking ahead into the second half, Is this like the steady state now for the UK European business? Or do you get anything back? Any kind of color around that would be great.
Well, we will certainly see higher funding and liquidity costs in the non ring fenced bank going Compared to fiscal, what we would expect as we go through the second half of the year is that we will fine tune Our funding and liquidity requirements within the non wind fence bank going forward. In terms of the impact to net interest income in First half of the year as we build that funding liquidity position, it was somewhere in the region of $100,000,000 was the impact in No more turns on that. But we did come into the creation on 1st July with a strong funding liquidity position, Somewhat in excess of the regulatory guidance. We'll normalize that out and get to a steady state. I think when we look at this at the end of the year, we'll hopefully I would certainly anticipate that you have a much clearer view of how that's likely to run from an overall funding liquidity perspective going forward.
Great. Thanks for that.
Thank you. Thanks, Amit.
Thank you very much. The next question today comes from the line of Chris Manners from Barclays. Please go
ahead. Good morning, guys. Just a couple of questions, if I may. The first one was On the impairment charge, looks very low in the quarter, obviously, and you flagged a ride back there. Could you maybe just Help us a little bit with the outlook.
Are there any parts of the loan book that you're worried about at all? And maybe you could sort of give us a sort of think about to get to your 11% plus RoTE, what sort of cost of risk numbers you're And the second question was maybe to come back on to the sort of European NII point. Obviously, we've had the UK rate hike now. How much of a benefit do you think that might be to your net interest income in the UK business? And how are you thinking about passing some of that rate hike back to savers?
Thanks. Yes.
So on that last Point around the impact of 25 basis points on the bank rate at the end of the year. We would expect So you have an uptick of some $40,000,000 posted impact obviously to net interest income. In terms of talking about impairments longer term, Chris, at the investor update in the long term, we talked about 11% raising 11% return in tangible equity target, reflecting what we believe to be normalized credit Cost in the range of 30 to 40 basis points. So to be clear, that target and return on tangible equity is informed By higher expected credit loss and impairment charges than we are presently experiencing. In terms of any specific Portfolio that have caused for concern right now, that's not the case.
We are seeing very stable credit costs at the low level as we call them today. Areas where I think we're previously confident that we're keeping a pretty close look, not because there are emerging issues, but because The operating conditions would suggest that there may be emerging issues. For example, the UK high street and retail more broadly is one of the areas where Credit teams are keeping a very close to auction things. The products in the United Kingdom, further fields in Europe, Asia, Middle East or Americas, certainly the credit outlook at the moment is fairly stable.
Thank you. And could I just follow-up on that $40,000,000 of extra NII that you're expecting? What sort of pass through rate would that mean on And your savings accounts?
So the depositor data, certainly, markets where So we're showing significant competition for deposits is beginning to move up. In the UK, ringfenced bank was having a very, very healthy Funding surplus. And as a consequence of that, our deposit base is well informed The overall strength of the funding position in the United Kingdom. I think that's probably the extent that we would say at this point, Chris. I think, Chris, it's John.
Just one thing to add, of course, now that we've actually ring fenced, the management of the ring fenced bank are the ones who are taking the decisions On pass throughs and savings pricing. So it's a great time to get the question. We are in a slightly different world now. You would debate that with them, Sean? Yes, of course.
We would indeed. Of course. Thanks. Thanks, Chris.
Thank you very much. The next question today comes from the line of Joseph Dickerson from Jefferies. Please go ahead.
Hi, good morning guys.
I guess just going back a bit to
the first question. Could you discuss the, I suppose, your outlook for Cost growth in the second half of the year. I mean, I know you've said that you would you seek to generate positive jaws subject to revenue growth being there. But I guess What type of cost growth would you expect in the second half of the year? Because it seems to me that you'd have to have I know cost picked up in the second half of last year, but
it seems to me you'd have to
have flat cost growth at some point in the second half If consensus revenue expectations are correct. And then just on the revenue point, should we given that the Corporate Center And Q2 2017 was quite a large result. Can we expect over the remainder of the year perhaps that the Revenue growth starts to converge towards that 7% growth you've seen in global businesses. Thanks.
Yes. So Joe, on And at Khosrow, if you made the call within the second half of last year, we started to phase in some investments that we were particularly focused I'm trying to get ahead of in terms of exactly where it is we're investing in for growth of the business now. And that's Some were higher costs in the second half of last year. As John mentioned a little bit earlier, we would expect costs in the second half of this year to be totally consistent Ex the bank levy, I should say. It will be consistent with what we've seen in the first half.
And again, that will be consistent with what we talked about back in May For the Q1 results. So we're very the cost discipline within the firm was enormously important in terms of informing Achieving positive jaws by the end of the year. We do have got good revenue momentum and balance sheet build coming through the first half and turning it Into the second half of the year. In terms of the corporate center, one of the key features All the corporate center in the Q2 of last year was valuation differences coming through The holding company debt and hedging derivatives on that position. And that is actually a reflection of a movement of almost exactly the opposite direction in the Q4 of the Previous year.
So what we do see is some volatility within the overall funding position. But as we hold those bonds Generally, too materially, we would expect that to come back to 0. So it is very much around a valuation difference as opposed to a fundamental Economic driver or cash driver within the business. From a balance sheet management perspective, the guidance remains very much consistent. So when we think about what's in the corporate center, And we've got our balance sheet management, so corporate treasury precision sitting there.
We've got our investments in associates principally Boco and Saudi British Bank. That certainly makes up the lion's share of risk based assets and capitals within the corporate center. And then revenue generated balance sheet management, we've got increased It's a holding company at the Menwell. And again, we've guided to that being the broadly consistent second half over the first half. We continue to write down legacy in a capital accretive fashion, notwithstanding some losses in carbon disposals In the first half of this year, and we're down to a very small number of RWAs.
We're down to about 6,000,000,000 of RWAs around legacy credit now In Corporate Center. So yes, we would expect Corporate Center to be more neutral in the second half of the year, allowing for Some possible volatility in those valuation differences in holding company debt and derivatives.
Okay. Thanks, Ian. That's helpful.
Thank
you.
Thank you very much. And the next question today comes from the line of Raul Sinha from JPMorgan. Please go ahead.
Hi. Thanks for taking my questions. I was wondering if I can have 2, please. Maybe one just to follow-up, Ian, on the liquidity point. If I look at the liquidity coverage ratio At the group level, I think you disclosed that Q1 it was 157,500,000 and Q2 has actually not moved much, it's 158,000,000.
Is that right? And I guess that probably implies you built up liquidity towards the end of the Q1. And Is that the reason why you've seen some pressure on the margin? And should we expect that to go lower in the second half of the year? That's the first one.
So from a liquidity coverage ratio perspective, I think overall ROAD consistency, we have seen We deployed a number of our funding surplus into growing the balance sheet. I think that's probably most of the business noted within the Asian market and within Hong Kong. We've seen very, very strong competition for particularly U. S. Dollar deposits within the Hong Kong market And that's certainly beginning to influence deposit pricing in that marketplace.
But there are only the dynamics around net interest margin generation remain very Systems in Asia with the deposit base beginning to continue to show progress in terms of how it contributes to net interest income and net interest margin. As I mentioned earlier, some stability brings up here from a pricing perspective for assets in that regard. The key feature in terms of LCR and it's virtually negligible at group level. But from an LCR and SFR level, the areas in which we Purposefully made movements in the first half and most notable second quarter was to ensure that we had the non ring fenced bank or other living as HBU In the right position for the non ring fenced bank or rather the ring fenced bank creation in the 1st January, 1st July rather, Which is a is the derivative of the non interest bank.
Is that why the rate sensitivity also seems to have Come down a little bit in the U. S. Dollar block especially?
Yes. So some of the features there again is We are seeing higher competition for U. S. Dollar deposits and that is certainly forming pricing in a number of markets. So we also see, I mentioned a fairly, is absolutely no impact to surface being deployed into assets with our customers.
And the other feature that we're seeing is with the increasing interest rate environment, we're beginning to see a switch, some of us switch away From the back of the non deposits into time deposits and again that obviously influences overall net interest income and net interest margin. So as we would absolutely expect, as this rate cycle continues to develop, this customer behavior is beginning The change in front of the higher rates in forming where they placed the money in terms of positioning within our balance sheet and These factors coming together are informing progression in net interest margin. So we expect to continue to see that progress, as John mentioned. But I hope that provides some clarity around the dynamics of income.
Thanks so much. Could I have one on capital or should I come back?
Absolutely. Go ahead, John.
I mean, on the capital, I can see there's a 20 basis points negative impact from the FX translation move. I'm guessing that's basically Sterling. And I was wondering if you were planning to do something to hedge yourself as we head towards Possible cliff edge around Brexit or can you actually hedge your capital volatility for the Q1 ratio?
Indeed, we can. From a structural FX 1 of very few separate currencies that we do have structurally is the UK is UK Stalin. We do have a number of hedging positions there. We continue to revisit that on a regular basis based on how the balance sheet is positioned. It is partial.
In terms of hedging out the position fully, we just continue to reflect on that, but we've got a partial hedge in place at this point in time.
Okay. Thanks very much.
Thank
you. Thank you very much. The next question today comes from the line of Manus Costello from Autonomous. Please go ahead.
Good morning. I had a couple of questions, please. The first one was on RWAs where, again, they've grown much by much less than the group assets So for the first half and in particular in GBM, your RWA is down 4%, but the assets are up 10%. I think there's some model changes. So my question is, are there any model changes to come over the next few quarters?
And are you concerned at all about how aggressive that risk density in GBM is becoming. My second question is on VOCOM. I just wanted to ask whether or not you thought the VOCOM capital issuance In the second half of this year or expected in the second half of this year will have any impact on your value in use because that gap between Carrying value in BAU is pretty tight again.
On average U. A, within the second quarter, we had €8,000,000,000 of approvals by the PRA and models, which contributed to some reduction In RWA within the Global Banking and Markets, coming out of 2017, we had a total of some $20,000,000,000 opportunity The reductions in our voyage for model improvements pending approval by TRA. We received €8,000,000,000 of that in the first half, specifically the Q2 of this year. And therefore by definition of this on €12,000,000,000 still pending approval. In terms of the opportunity to To improve our WAQ model specifically, we've made a lot of progress in this over the course of the last few years.
From our improvements, also not negligible, it is a much less significant component of overall improvement to capital efficiency within the Global Banking and Markets business. And what you clearly have witnessed over the course of the last couple of years is the business has made significant progress in improving capital efficiency. Well, that's informed by the nature of managing the overall exposure to customers on a customer by customer basis, Improving returns. And again, you see the overall return on capital equity for the Global Banking Markets business That continues to progress. We see that at, I think, about 12.4% In the first half or rather the second quarter of 2018.
So business continues to be very sharply focused on capital efficiency. In terms of how much of that will come from model improvements going forward, it will be of lesser influence overall. I think if you think about the risks to RWA intensity within the Global Banking Markets business, it's almost certainly is informed. 1, the credit development as the cycle continues to work its way through. But as you can see, we continue to evaluate expected credit losses And the outlook remains fairly stable for the time being.
And the other area is when those returns, the fundamental move, the floating book is a component of Basel IV. Again, that would seem to be still sometime into the future and not understanding the fact that we keep a pretty close eye on that. Manus, from a pro comp perspective, the impact of the Fundraise, which is a convertible bond. So the extent to which that would have any effect on the overall capital position The shareholding of HSBC will only be in conversion of that bond into equity. The extent to which that would dilute HSBC will be minimal and to the extent we're dilutive, then our equity accounting will simply account for a lower Percentage of ownership in both commentary present here, we said at 19.03%.
And then if you ask the mathematics of our equity share So it's through obviously market valuation, volume and use, carrying value in the balance sheet. So the aspect of that Per se, I don't know if on conversion, I think is unlikely to be a significant feature of the accounting for Bokon. The valuation in terms of valuation needs over time, we expanded very slightly in the Q2. And as we've talked about in the past, this is something that is Value and revalue on a quarterly basis based on input from the markets, input from our colleagues at Bilcon And it's subject to a pretty good scrubbing from both our internal teams and our workers. Nannas, it's John.
Can I just up just on one thing? I don't recognize the word aggression in the way that we do our capital planning and our capital management. I certainly think for GB and M, we've been very focused on just becoming more efficient. We've been embedding return on tangible equity methodologies across the group. GB and M 2 or 3 years ago was quite challenged from a return perspective, as you well remember.
And I think the business has been very disciplined about Attracting capital from low returning portfolios and low returning segments. And I think efficiency is the right word. I don't recognize aggression. And I think From a regulatory perspective, the regulators are very diligent around everything we do here. So I think efficiency is the right way to think about it.
Okay. Thank you.
Thank you very much.
The next question today comes from the line of Guy Stebbings from Exane. Please go ahead.
I just wanted to circle back on impairments for a couple of questions. With 30 to 40 basis points including the RoTE guidance, interested to get your view And when you expect this to increase, I appreciate that's very difficult, but any color would be helpful. I seem to remember you suggesting earlier in the year you prepare to take a little more risk And grow a little more in unsecured
in some markets. So how
that might fit in? And then secondly, just on your comments on U. K. Impairments, just to be clear, are you seeing anything here that you weren't And given your book is really quite primed, does that worry about the broader market at all? Thanks.
The UK answers, Lisa. No, we're not seeing anything at this point. We I think everything we would expect is given The degree of uncertainty that faces UK economy informed by Brexit It just merits appropriate diligence across the portfolios. But in terms of overall performance, it remains very stable. I think I could be well aware for those sectors which may be most exposed, but at this point in time, there's really Nothing emerging of concern.
In terms of when we'll see higher credit costs, and I didn't say that, but your guess is good as mine. But from a prudence perspective in terms of forward planning and recognizing The goal of achieving and delivering our return of translate to 8.11%. The plan that we built and it was the basis of the update to the market, the joint horizon ramp of June was informed by A higher expected credit loss coming through over the cycle and that is informed by something in the range of 30 to 40 basis points. I'm saying that might emerge. I'm afraid they can help you.
Okay, fair enough. Thanks.
Thank you, Guy. Okay. I think we're now heading towards our last question at the moment.
Thank you very much. The final question today comes from the line of David Lock from Deutsche Bank. Please go ahead.
Good morning. I've got 2, please. First one is on trade wars. I just wondered if you'd seen any change in behavior from your Asia corporate client base heading into the second half of this year and if there has been any pull forward of any activity or loan growth before the Tariff implementation, which perhaps could lead to lower loan growth in the Q3. And then the second question is Whether the BSN guidance of $2,300,000,000 to $2,500,000,000 does that still stand?
I saw that BSN was a bit stronger in the 2nd quarter. Thank you.
Thanks, David. So on trade wars, I think it's better to say that we haven't yet seen any meaningful impact On our customer base, either in terms of activity or in terms of risk profile. Too early, I think, to know whether there will be an impact. As we think about the trade wars, I think from my perspective, I'm more concerned about the trade rhetoric damaging investor Confidence investor sentiment and spending markets lower, I think that could have more of an impact on things like our Wealth business. But from a trade perspective to date, A trade perspective today.
There's been no impact and no customer impact. With respect to balance sheet management, no change in the guidance. Yes, 2Q was a good quarter, but no change in the guidance that we previously offered for the full year.
Thank you. And just coming back on the first question. I mean, there hasn't been any you haven't seen a spike in activity around people perhaps positioning themselves Just out of conservatism going to the second half of the year, there hasn't been any activity like that in the second quarter?
No, not that I'm aware of, no. Thank you. Sorry, we do have one more question, if that's okay. Fuck. Thank you.
Next question comes from the line of Claire Cain from Credit Suisse. Please go ahead.
Good morning. Just a quick follow-up, please, on the cost. Just to clarify, We're still expecting costs ex the levy to be stable half on half. So that would imply about CHF 33,300,000,000 For the full year, including the levy, she's down a bit from the guidance that Q1, that's $3,700,000 Just to clarify that. And then just with that, given, obviously, there's a number of these volatile revenue items, including your adjusted jaws definition, How comfortable are you that you may miss these targets given the number of volatile items that are somewhat out of your control?
Do you think you've got enough in there if you continue at this run rate on those volatile items? Thanks.
Yes. Claire, thank you. So Let me respond to the second part of the question first. It's a good question. Based on the plans we've got now, we I'm confident that we will get to full year jaws.
There are a couple of items in there that are non economic. So for example, the valuation stuff, If we get to November and we have some big valuation swings, am I going to start to pull cost levers that would damage the franchise of the group over The remaining 2 months of the year, no, I wouldn't do that. I will always preserve the health of the organization, over and above some accounting noise. But for the rest of the real costs, the real costs that are economic to shareholders, it is our intention to hit the full year Positive jaws targets. The valuation stuff that you say is impossible to predict.
I don't want given that it's non economic for shareholders, I don't want to be making management decisions based on something that actually is not that significant. Just the first part of your question reflected or related to the numbers. Clear, the mathematics that we set out are in the right ballpark, right? So the guidance around operating The year remained consistent with what we saw back in May. And we feel today, we would expect the second half of the year ex the bank that we'd be broadly in line with the work of the first Okay.
Well, that concludes today's call, everybody. Thank you very much for being up so early to be with us today. Those of you yet to celebrate the summer, have a wonderful summer. Thank you.
Thank you, ladies and gentlemen. That concludes the call for HSBC Holdings Plc interim results 2018. You may now disconnect.