Okay, all right. Apologies for that disturbance and sorry for that. I think let's proceed anyway and fingers crossed this resolves itself. It's been a year since George took over as CEO, almost a year since you were appointed. Can you reflect on what's been done and what there is to do from here?
Thanks, Raman. We've made a strong start in terms of our priorities. Fundamentally, to refocus the business and to invest for growth. The four key businesses that we have elevated in our franchise—Hong Kong, UK, Wealth, and CIB—are all progressing well. They've had good, above mid-teens return on tangible equity delivered, and there has been revenue growth. Just as a context, if I think about what our predecessors had to face, they were in a world where we had regulatory headwinds, including the BPA. They were also trying to look at our legacy portfolio and to reduce it. The interest rates were near zero, and there was a structural cost base which was from our legacy local bank footprint that was an overhang. As we got into it from this time, right from the start, we wanted to simplify the organization.
We wanted to make sure that we take out the duplicate costs, as well as in refocusing the business, reduce the footprint in terms of exits of our non-strategic, sub-scale, low-return businesses. With that in mind, we have progressed and are now in a really good position that the investments we are making in the four priority areas can really be meaningful to drive growth. As part of that, we're also looking at how we drive the overall culture of the organization under this new structure, and that is going to be a very important underpinning as we continue to deliver.
Interested in the kind of timeline of the kind of new strategic plan that's been put in place. How quickly do you envisage the kind of benefits, realizing the benefits of the strategic plan?
We've got two $1.5 billion numbers. It's always interesting when you've got two exactly the same size numbers to deal with. The first $1.5 billion, which is the cost saves from simplification, which will be delivered by the end of next year, we are already ahead of target. We called out at mid-year that by the end of this year, we will not take $300 million as we first announced, but indeed $400 million down to the bottom line. We do that under Project Cedar, so that's progressing really well. We are seeing some of the exit restructuring costs already come into Q2, but the benefits accelerate as you go into 2026. In terms of the other $1.5 billion, we have strong momentum in terms of the deals we've announced. We've announced seven at half year, but we also have.
Okay.
We are the first to declare our investment of more than $120 million broken body in our garage in Sioux Falls, California. In the meantime, we are the first to face, we are the first to face the cause of the alarm has been eternity.
Okay. I think that that is a positive resolution. I think that's...
Well.
I think we're safe.
Solution first.
Yeah, exactly. Okay. All right. I obviously apologize for the interruption.
I was talking about the second $1.5 billion, both in terms of the strong pipeline as well as the deals that we have already announced. We have looked at countries, market participation, and individual business areas. Some of these are very quick to do, and the benefits are quick to realize, like we had with the investment bank and exit of M&A and ECM in the UK, Europe, and the U.S. Others, the country deals, take longer and their benefits will come further down. We feel that the weight of those benefits coming through will progressively increase through 2026 and into 2027.
Taking a step back, I'm interested in your assessment of growth. There's a lot going on across your footprint, divergent growth trends, complex geopolitics. Obviously, we're navigating a volatile trade policy backdrop as well. What's your kind of broad-based characterization of your operating environment?
That is just as a starting point. You know, we are managing the bank to a mid-teens ROTE . We printed an 18% ROTE at half year. All four businesses are growing at mid-teens ROTE or better, and all four are growing. Just unbundling, if you look in terms of tariffs and trade, we are the number one trade bank. In this second quarter, year- on- year, our trade fees have grown 4%. Trade balances are up. We are in a unique position to engage with our customers who are all facing a fundamentally different world. Having said that, trade is a small contributor only to our overall revenues. The real driver for revenues in our wholesale transaction banking is payments and FX, and that is benefiting from strong customer flows.
Some of it obviously is related to the market volatility, like for FX, but overall, we see that growth and that momentum. If you look at Hong Kong, we've had a second quarter with all its challenges. We've had HIBOR at a very low level. We've had ECLs that are heightened. Despite that, we have a 35% return on tangible equity. Fundamentally in Hong Kong, yes, asset growth has been muted, but deposits have grown 9%. If I look at the Wealth business, the Wealth business has a double-digit growth trajectory. Wealth fees have grown more than 20%. We are well engaged in terms of the insurance business, both in terms of Hong Kong as well as the balances growing globally.
All in all, as a consequence of our focused growth objectives, as well as the structural benefit of some of the geographies that we are in, we are in a very strong capital generation capacity and feel very comfortable as a consequence in terms of our distributions and our targets to manage the bank to mid-teens ROTE or better.
Banking NII, you reiterated your full year 2025 guidance at circa $42 billion with H1 results. I mean, you alluded to the step-off in HIBOR at the time of results. It was down some 300 basis points Q1Q. Thankfully, it's kind of rebounded somewhat since, pretty significantly. Interested in the confidence that sits behind that guidance at this level.
At half year, we were pretty comfortable because, of course, there were the headwinds from HIBOR. We also called out that if it continued to be at the 1%, we would have that $100- million- per- month headwind for the rest of the year. We had the benefit, obviously, of a weaker dollar. Now, with HIBOR having normalized above 3%, of course, we are even more comfortable. From a banking NII perspective, it's all in a good space. We have our structural hedge, which has been doubled over the last three years, sitting at $578 billion. We have free investments of the hedge coming, sort of $25 billion per quarter, and that gives us an additional tailwind from reinvestment of a 1% higher yield. Overall, from a banking NII, I'm very comfortable, underpinned by a very strong deposit growth of 5%, $83 billion year- on- year from a group perspective.
Yeah, I wanted to build on that, actually. I mean, money flows into your business. They're remarkable, right? I think there's, I think, $83 billion or 5% deposit growth over the last 12 months. You've also got additionally $75 billion of net new invested assets that are coming through into the Wealth business. Obviously, Asia, in particular Hong Kong, is the key focal point here. Presumably, this gives you a level of confidence in the earnings outlook, a pretty significant confidence in the earnings outlook. Is that right?
We are very comfortable with our earnings outlook. From a deposits perspective, that is our crown jewel. We have high quality, sticky deposits. We never have to overpay for our deposits. We maintain our share and grow. It's not just in Hong Kong and UK. It's in every major currency, as well as in every country that we operate, where we have a deposit surplus. In terms of the other income flows, yes, from a net new invested assets, we have clearly invested from a wealth proposition. A key driver of that is transactional activity in Hong Kong. There is also new customer inflows. We're seeing 100,000 new customer inflows coming every month. They're not a ealth customers, but they give a very good starting point to build them into wealth customers as time progresses. In addition to that, there is the good momentum on wholesale transaction banking.
Overall, it is a good outlook for a revenue generation in all four pockets of the business that we are in. Revenue generation, which is coming from quality, annuity-like earnings, rather than just event earnings.
One area that you've been running below target is loan growth. You've got an aspiration to grow the balance sheet at a mid-single-digit growth rate. You've been impacted by deleveraging in places like Hong Kong. I'm interested in when you, w hen's it realistic to think you might actually realize that level of target loan growth?
You're absolutely right. Loan growth is low because customers are not making those capital expenditure decisions. We have a strong capital base. We have the risk appetite. We have lines available to our customers. Utilizations are low. Having said that, there are pockets of the business where we are seeing some early growth. In our UK commercial banking, there has been growth in very specific sectors that we have targeted. They tend to be the new energy sectors. It tends to be biotech, pharma, IT sectors, as opposed to, you know, real estate and other areas. We are leveraging both our understanding of the sectors through, obviously, our innovation bank, SVB, as well, and in a targeted way, making sure that we can be there to respond to our customers as and when they need us. From a Hong Kong perspective, two things have happened.
There has been a little bit of growth outside real estate, but we've also seen some of our very large developers, which are part of our unsecured portfolio, have been deleveraging. As a consequence, overall, Hong Kong is muted. Across the world, that growth is muted. I think two factors will be really important to see asset growth again pick up. One will be if the world is in a more stable environment, both from an interest rate trajectory, but also in terms of macroeconomic uncertainties. As that comes through, hopefully through next year, we can get more close to our asset growth targets. Having said all of that, the banking NII's main driver is the deposit franchise.
Yeah, exactly. Okay. We might take this as an opportunity to ask some of the ARS questions. Please use the remote start answer. What would cause you to become more positive on HSBC shares? One, better NII, better fees, better cost control, asset quality, capital return, trade policy certainty, or easing in geopolitical tensions? I mean, that last one feels a distant prospect really, doesn't it?
That's a question that always comes.
Yeah, I know. Okay.
Oh, that's it. Okay.
Easing in geopolitical tensions, greater capital returns, better NII. It's a pretty broad distribution of responses there, to be honest with you. Let's move to the second ARS, please.
I've called out the banking NII. Geopolitics will be what it is. The third one was?
Capital returns.
Capital returns, yeah. Okay.
Second ARS. What are you most concerned about at HSBC? Weaker earnings, weaker capital, distributions, reg risk, political risk, M&A risk? Political risk. Political risk and then weaker earnings. Yeah, political risks.
On political risk, you know, we have lived in a world where you have these geopolitical tensions at different times of different degrees. We have strong franchises which each in their own right are performing well and giving high quality earnings. We engage with our customers as and when they need us, rather than get caught in the politics. Even in a time like tariffs, our engagement with our customers has been very important in supporting both the economies of the countries we operate in and our customers.
Let's do the third ARS, please. How do you expect HSBC's royalty to develop over the next couple of years? For example, 2027 relative to this year's. Significantly higher, modestly higher, in line, modestly lower, significantly lower. Modestly higher. You're already operating well above your mid-teens target in H1. Let's hope people are right.
I hope they're right and they continue to stay optimistic.
Turning back to the business then, wealth management, you alluded to earlier on, key driver of the business. Saw revenue growth of 22% in Q2, driven primarily by Asia and in particular Hong Kong, which is, as we alluded to, is benefiting from very strong inflows at the moment. You're also targeting market share gains, increased investment. I'm interested in how sustainable this level of revenue growth is. Can you talk to the differing contributions from the market backdrop and the share gains that you're looking to execute on?
I think we need to sort of dial back a bit to see where do we have really a preeminent position as a competitive strength. Whether it's in Asia or the Middle East, we are one of the largest international banks. We are well respected. We have an iconic brand, whether it's Hong Kong, whether it's India, whether it's the UAE, Singapore, mainland China. In all those areas, of course, there's strong competition. We are very much focused in terms of the hiring of RMs in strengthening our product proposition, continuing to deliver good customer service, as well as we've opened 16 n ealth centers.
In addition to that, we have a strong home market in the UK, where we are just trying to convert the customers who are already with us in terms of their deposits to be able to do more with our customers in terms of their wealth needs. Therefore, we have targets which are in the UK as well to make us the top five wealth provider, to increase our premier customer base, double it up from a million to two million, have $100 billion in net new invested assets. We have a focused but very targeted approach in all these markets. What is happening in some of the high growth markets is there is a growth in the middle class. Our sweet spot is really working with customers whose asset under management is sort of $100,000- $2 million.
What we need to do there is increase the RM coverage, make sure that the product proposition is on target, the customer journeys are simple, and we have the right technology enablement for that. That has helped us both in terms of getting net new customers like in a situation like in Hong Kong, and I'll talk a little bit about it, but also do more with our existing customers. If I look at Hong Kong, yes, we've benefited from strong transactional activity in Hong Kong, and the Southbound Connect, which caused a headwind from a HIBOR perspective, is actually a tailwind in terms of the wealth proposition.
If you look at the flow of new customers, having 100,000 new customers every month in Hong Kong, who are not wealth customers because they come with a small savings to begin with, but who could over time, and we monitor it very closely, become wealth customers. That gives us the confidence that we will continue to generate double-digit growth in the wealth proposition.
You alluded to relationship managers. Are you accelerating?
Absolutely. We are accelerating hiring relationship managers in Hong Kong, the UK, Singapore, and the UAE. In the other markets, we are ensuring that we continue to drive the business which we bought from Citi, which was in mainland China, which is the Citi Gold space, in terms of driving our wealth proposition.
Perfect. I wanted to turn to one of your other major businesses, CIB. Many moving parts here when I think about it. You've got underlying growth, targeted investments, but you've also got an overhang from tariffs, which at face value feels like a kind of complex impact on the business, maybe a headwind for trade, but volatility boosting global FX. I think I struggle sometimes to get a clean read on what to think about for this business going forward. I'm interested in how do you think about the outlook for CIB from here? If I can ask as part of that, have you seen any meaningful impact on customer behavior from tariffs so far?
Let me start with tariffs, though they are probably the smallest contributor overall in CIB's transaction banking. From a tariffs perspective, customers are engaged with us to understand how they can evolve their business models. They are not making decisions as such in terms of capital expenditure and to change their business models. There have been some opportunities where the customers have said, like for the U.S. importers, that they need more operating capital to pay up the upfront tariff duties. In that, we've obviously created the trade pay product, and that's going well. That customer level engagement is very active. So far, we do not see stress on that customer base, either individually or at a sector level.
How we look at that is in terms of the customer behavior, the balances they hold with us are pretty stable, and the drawdowns they're having on the approved lines have not increased like they had increased during the COVID period. Overall, they're managing through that well. If I look beyond the tariffs business, as I said earlier, the wholesale transaction banking, payments, and FX, we have invested in this business, as well as trade. We have had multi-year programs to invest in these businesses, and they are actually reaping the benefits. Now when we have increased volumes in payments, in FX, it's gone pretty smoothly. In addition, in security services, as our customers want to add more banks for some of the products that they want to put for custody, they absolutely are leaning onto us, and we're winning new mandates.
With those new mandates, we see this growth for the security services business as well, particularly in Asia. If I go beyond, the real driver for the CIB is also going to be that we do more balance sheet velocity and significant risk transfer. This is an area where we have been slower in the past. We've always had a strong balance sheet and a capital position, so we haven't done as much as some of our peer banks. With that, we are hopeful that as growth opportunities on the asset side there doesn't actually increase our RWAs, and that will indeed then have a benefit in the tailwind for our overall royalty.
Just a percentage of follow-up on the tariffs point. You laid out a kind of low single-digit % hit to revenues from a plausible downside tariff scenario in April, but obviously a lot shifted on the policy front since then. Is that still the right way to think about a potential downside?
We continue doing lots of downside scenarios. We refresh them at every quarter. Overall, absolutely, the low single-digit impact and the direct impact of tariffs is unchanged. In addition, what we go and look at is that from a second order, whether you're a trade bank or not, what will be the impact from an interest rate and a GDP perspective. In those sort of downside scenarios, it obviously is going to be a little higher. That's how we work it through.
Okay, fair enough. I wanted to ask about asset quality then, just shifting it. You increased your full year 2025 ECL guidance with 2Q results to circa 40 bps. Previously, you were targeting 30 pbs- 40 bps, driven primarily by Hong Kong commercial real estate, where you know conditions have been challenged for much of this year. Interested in your assessment of the risks from here, and in particular whether you see scope for further material provisions from here or not.
Firstly, when we look at our provisions in our overall guidance for circa- 40 basis points, we obviously look at the outlook for the rest of the year, and that's how the guidance is built. We build that in, and Hong Kong is a clear component of that. If I look at overall on real estate, the residential real estate in Hong Kong has now come into a much better position compared to where it was 18 months ago, both in terms of prices being firm, rentals holding, and volume of activity in terms of the residential real estate. We see no issues from a residential real estate perspective. This is as a continuation of some of the measures that the government had taken 18 months ago, and we are now seeing the benefits of those measures play out.
Now, from a commercial real estate, there are some structural issues. There is an oversupply in terms of office space. The government is taking measures now to reduce that, but it will take time for that to really work its way through the system. I would say the next sort of 12 to 15 months, so through most of 2026. There is a distinction between that office supply, where it is, the quality of the office space. Therefore, some of the larger developers who have sort of prime properties and diversified cash flows have lesser pressure compared to, say, the smaller or the mid-sized developers. That's where the real pressure is. The other element is with regard to retail and shopping malls. Some of those consumer behavior patterns have changed as a consequence of this pressure on retail and shopping mall properties.
Just in the last few months, we've seen a little bit of uptake, but I'm not going to make a big conclusion based on a few earlier green shoots in the last few months. It goes two ways. If you have people in Hong Kong who can then go and do their shopping cheaper by going to Shenzhen, they go across the border. As you have all this flow of customers who are coming through to open accounts and participate in overall the opportunities in products, et cetera, available in Hong Kong, they also shop in Hong Kong. They go to restaurants, they go to bars, and so that kind of creates a little bit of economic activity.
Having said all that, from our perspective, the $32 billion that we have in terms of our overall exposure, let's call it medium, 44% of it is unsecured with the large developers, 95% investment grade. That's a pretty comfortable space. The stress really comes through the secured portfolio, and within that secured portfolio, the impaired portfolio increased by $600 million to $5.1 billion. There are ECL announcements of $500 million against it, and the subset of that, which we're most focused on, is of the $5.1 billion, the $1.4 billion where LTVs are greater than 70%. That's the sort of overall picture and how we look at it, and that's all factored in as part of the ECL guidance.
Okay. Thank you very much for that. Maybe let's return to the ARS questions, please. How do you see potential risks to HSBC's capital and dividends from here? One, upside on better earnings. Two, upside on lower capital requirements. Three, downside risk on weaker earnings. Four, downside risk on higher capital requirements. Five, downside risk on acquisitions. That's a pretty positive response there. Generally speaking, two-thirds of people see upside risk to your kind of capital returns outlook. The downside risk on weaker earnings. Okay, fine. Can we move to number five, please? How would you view significant acquisitions for the group?
Oh, okay. That is.
That is right. Something, I guess half of it is negative. I mean, look, generally, it seems like generally speaking, people would prefer the capital back, right? You've got 24% of people that are marginally positive, but everyone else would either view it negatively or for return, prefer the... I mean, can I ask you about the appetite for M&A or the kind of, yeah, appetite for HSBC to acquire?
Yeah, I mean, I think it's fair to say that in the past, historically, and I'm going back many years, perhaps the discipline and the focus on strategy on acquisitions was not as much as it should have been. For us, acquisitions is a very high hurdle rate to cross. That really means, firstly, it has to be absolutely on strategy. It also has to be in areas where we have got scale, we have competitive strength, and we can drive operating leverage and superior earnings. More importantly, if you're doing well enough on organic growth, whether it comes into our royalty targets, whether it's in terms of driving performance, we don't want to do acquisitions that we don't either quite understand or will be a distraction. That to me is really important. They have to be at the right value and price.
Let's do the final ARS question, please. Where would you like to see HSBC most like to see HSBC invest for growth? Wealth management, wholesale transaction banking, loan growth across the footprint for inorganic. Wealth management and a return to loan growth, but yeah, primarily wealth management.
Yeah, and wealth management is something we are very much focused on across all our geographies. It's really important to say when people go for wealth, you know, management inquiring customers, we have a natural home advantage because we have those customers already with their deposits with us. They trust us. They believe in us. Also, we have a very strong footprint in terms of commercial banking in many geographies. Most banks will have a commercial banking footprint in their home markets. We go in many geographies, which are high growth geographies, not just doing multinationals and large corporates, but we go in terms of mid-market as well. As those businesses grow and those entrepreneurs' wealth grows, we have worked with them. We have engaged with them. We have supported them. They are loyal to us.
That's where we get a lot of our private bank and wealth customer base, both from the deposit base, from the $100,000 AUMs to $2 million, and at the top end, as they grow, that continues. That is our very critical, you know, competitive strength compared to other sort of pure play private banks. These are in high growth areas. What we're doing differently, to be fair to what we've done before, we know our focus areas and we want to invest there meaningfully. We don't want to dissipate our investment in a lot of different areas and then not make a real difference where it matters. That's the big difference. I would say in wholesale transaction banking, it is really important for us to maintain our position as a top one, two, or three player.
That's what we are doing in terms of multi-year programs so that investment for growth is not something we sort of have to relitigate every year, but they're longer programs and we are working through. Underpinning all of this, we have taken costs out to drive operating leverage, but we will continue to drive streamlining benefits and higher productivity by looking at areas where we can drive productivity through AI. Every time we want to grow, we won't say we want to increase headcount so much in an offshore low-cost center, but actually we don't need to grow it one for one because we have some AI benefits and we have some good cases on that too-
If anyone's got any questions, please feel free to ask. I'll give you guys a minute to think. I wanted to ask around, I guess, you know, around capital. You're highly generative at the moment, particularly during a period of subdued loan growth. Together with the strong capital position, which has been boosted by disposals, you've been executing quite strongly on distributions, including a rolling series of buybacks at a roughly $1- billion- per- month run rate. Looking forward, how should we think about the sustainability of this level of capital return, particularly if and when loan growth recovers?
Okay. Firstly, we don't give a target for share buybacks. We do share buybacks and we've done at $3 billion per quarter, but that's because that's it from an execution of share buybacks. That's the sort of maximum we can do and we have done. If I look at the capital overall, we operate within a 14%- 14.5% CET1, so it's not one number, it's a range. We are capital generative. We expect to be capital generative given our royalty targets. We have a very clear dividend payout of 50%. That dividend payout we feel is right and we will continue with. For the residual, obviously the first point is balance sheet growth. We would love to have balance sheet growth. We are ready, available with very liquid, strong balance sheets across the board.
We've said that's going to be probably not just subdued and muted, but at best, kind of mid-single digit. Next comes in terms of acquisition. With a high hurdle rate, we will be looking at opportunities, but only if they fall bang on our strategy. The share buyback is a residual. It's a really very simple math and exercise which we do on a quarterly basis. We don't have any sort of view that if the price book to value is X, then what should the share buyback be. We are looking at share buyback as a preferred method, but only when we look through all this. Actually, we would like to grow both organically and if there's an opportunity for on-strategy acquisition with the right disciplines.
One final chance to ask questions. Anyone in the room if you'd like to?
Yeah. Just very quickly, what did you ask on around RM hiring? Where are you hiring? What are you hiring from? Notch Capital, Cutting of Council, Strangedal t elling? How easy is it to do that? I'd rather say it's too easy.
That's a really good question. First, we have to look at what segment of the Wealth we are referring to. When you look at the lower end of the Wealth business, we are very much hiring from the market, but these are also RMs who we are then training internally in terms of the product proposition because it's not so much as they are gathering customers new. We have those customers already. They are doing that cross-sell and providing the Wealth propositions to those customers. That's very much driven by our own training programs that we have. We have that critical mass of existing RMs who are upgrading or the new that we are hiring. Clearly, in terms of the private bank business, we are looking at both hiring from the market where they have those strong customer engagement, but also to build on our existing.
Overall, we tend to do more in terms of our existing customer base, whether it comes through the Wealth route or indeed the corporate route because we have this sort of multi-business proposition in all our large markets. We don't rely on RMs to bring in customers. We have our customers. We rely on RMs to be able to meet the Wealth needs of those customers in a safe, stable, secure manner. It's very different from what you say. Classically, people say, "Can I get somebody's RMs and then bring their business in?" In terms of customers, we have those customers. These customers already across through our business areas have their deposits with us. They trust us. They don't need to be introduced to us.
I'm going to ask one very, very final question. This will be to close the session out. Just around deregulation, it's a big theme of the conference so far. I guess there's a sense of optimism around deregulation and the impact on financial services in the U.S. I guess in the UK, you know, the UK's also on a drive to deregulate. You yourself as a firm, you've been very kind of vocal proponents of easing capital requirements, easing requirements, including areas like ring-fencing. I was just interested if there's any particular areas that you're optimistic around.
I'll start with a positive. I've been in banking for 35 years, and this year was the first time where the UK regulators have actually put growth as part of their objectives, both the FCA and the PRA. I've seen that with other markets, particularly Hong Kong and Singapore, where they're very growth-oriented. That's a good start. Having said that, as a backdrop, when ring-fencing was done, we created a very large ring-fence bank. For the non-ring-fence bank, we actually reduced our balance sheet size to meet the regulations as they were then. From our perspective, regulation has to be proportionate. Some of the engagement that has been happening on Basel III and its implementation, both timeline as well as the qualitative implementation, gives me optimism for the future. Clearly, what's happening in the U.S. at the moment, the gap between the U.S.
pro-growth agenda and UK and then Europe, I look at it really in that order, has to catch up. We'll have to just see how that progresses. From an investment perspective, as a global bank for ourselves, the UK continues and remains attractive, but also for our customers who have choices on where they want to invest, the UK doesn't lose a competitive edge. The next 12 to 18 months will be critical to really have those right moves. Businesses want predictable, sustainable environments to operate in. They don't want chop and change and windfalls and taxes or whatever, because you know what's the windfall today versus tomorrow? They can't really predict. Predictability is a very important cornerstone that the UK needs to follow through on.
That's one of the reasons why Hong Kong does well, because it's a very predictable, growth-oriented market environment with a very viable economy and a very large mainland China flow coming through it.
Okay, perfect. With that, we'll bring the session to a close. Thanks, everyone. Thank you very much, Sam.
Thank you. Thank you.