Standard Chartered PLC (LON:STAN)

Earnings Call: Q4 2014

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Mar 4, 2015

Good morning, London, and good afternoon, Hong Kong. 2014 was a challenging year, and our performance was disappointing. It was also a year when we took decisive action to refocus our strategy and to reposition the group for the future. As a board, we continue to believe that there are significant opportunities for the group in the medium to long term across our footprint. That is why we have been careful not to take any knee-jerk reactions, which may damage the long-term prospects of the business. However, at the same time, we need to be mindful that there are significant factors impacting our current performance which cannot be ignored. The imperative to build capital across the industry, the need for ongoing investment in enhancing our systems and processes associated with conduct and compliance, and the need to change the shape of our business to fit the demands of the current economic and regulatory landscape. As a consequence of this, the board has recently endorsed a number of priority areas. The first of these we embarked on last week by providing clarity on our governance, our leadership, and succession plans. Today we are going further by highlighting a number of other priorities. These are taking steps to build on our capital levels, enhancing our return on equity, and continuing to improve our conduct and compliance capabilities. Andy and Peter will go into some detail on each of these priorities shortly. Let me again stress the board's determination to reshape the business, to restore the group's performance, and to fully realize the opportunities in our markets. At the same time, we are determined to continue to raise the bar on conduct and compliance to ensure that the Here for Good brand promise is firmly embedded in the DNA of the bank worldwide. While we are comfortable with our current capital position, the board does want to improve our capital trajectory going forward. Today you will hear a lot about the actions we are taking around risk-weighted assets, reducing costs, and business disposals, all of which are aimed at strengthening both our common equity Tier 1 levels and our trajectory going forward. We believe we have identified strong levers to manage capital accretion over time. Therefore, the board is recommending a final dividend for 2014 of $0.572, resulting in a total annual dividend of $0.86, which is the same level of dividends per share as last year. Let me now comment on how we remunerate our people, most of whom are not located here in the U.K. As this chart shows, for several years, we have significantly increased the amount paid out to shareholders by way of dividend, while at the same time consecutively reducing the amount paid out in bonuses, despite increasing staff numbers over this period. In 2014, we are again proposing to pay out more to our shareholders by way of dividends than we pay out in bonuses. This disciplined approach to managing variable compensation has created significant competitive pressures in some of our key markets. We are, of course, mindful of the external sentiment in some markets on bankers' pay and conscious of our disappointing performance in 2014. But it is essential that we remain able to pay competitively in the markets we operate in and where wage inflation on average is around 5%. Our people are much sought after by our competition, and we are acutely conscious of the importance of retaining and attracting the best talent as we look to execute on our strategy. It also goes without saying that consistent with past practice, we will only reward our people for good performance as well as for their good behaviors. Taking all these factors into account and reflecting our performance in 2014, the bonus pool is down on last year by 9% and is 27% lower than in 2011. In light of the disappointing performance of the group, those executive directors on the PLC board throughout the year came to the conclusion that they should show leadership by not taking a bonus for 2014. To conclude, a brief comment on last week's announcement detailing our comprehensive package of board and leadership changes. I'd like to take this opportunity to thank Peter on behalf of the board for the immense contribution he has made to the success of the group over the past 13 years, both as Group Chief Executive and as Group Finance Director. Since becoming Group Chief Executive in 2006, the group has more than doubled in size and has been consistently profitable. His leadership and insight over a period of huge change and challenge for the entire industry ensures that he leaves the group well-placed to achieve its full potential as one of the world's leading financial institution. I would also like to thank Jaspal for his very considerable contributions to the business over the past 16 years, and to thank other long-serving board members who are stepping down this year and who have done so much to help position this great bank for the future. A very big thank you to each and every one of you. We're extremely fortunate to have Bill Winters, one of the most accomplished and respected bankers in the world today, taking over as chief executive from Peter in June to drive the bank's next chapter of growth. Bill brings substantial financial experience from leading a very successful global business and has an exceptional understanding of the global regulatory and conduct environment. He's also a proven leader with a strong track record in nurturing and developing talent. I'm personally thrilled that Bill is joining our bank at this strategically important time, and I'm sure we all wish him well in his new role. On that note, let me hand over to Andy, who will tell you more about the 2014 results and share with you some of his own observations and thoughts on group performance since he joined Standard Chartered just last year. Thank you, John, and good morning or afternoon to everybody. Before I go into the detail of numbers for 2014, I want to share with you a few perspectives, nine months after joining the bank back in the summer of last year. One thing it has certainly not been in line with Peter's original promise has been dull. During that time, I have traveled extensively to some of our biggest markets, Hong Kong, Singapore, Korea, and India, some of our smaller markets, Kenya and Tanzania, as well as our major network hubs in New York and London. I have met with several hundred of our senior people, as well as addressing town hall meetings in multiple locations. The universal takeaways have been that our people are immensely proud of working for the bank. But depending in part on geography, they are feeling bruised by both the recent trading performance and the external commentary. They are determined to learn from the past year, but then put it behind them and move forwards. In many senses, arriving in the summer of last year was excellent timing, coinciding as it did with the newly established clients and product groups commencing their individual strategies, which were subsequently articulated at our investor meeting in Hong Kong in November. Pulling together a 300-slide presentation on the bank strategy had not been something on my original first 100-day checklist. Since then, I have been heavily involved with Peter, Mike, and the executive team in turning those plans into clear operational and financial targets for each part of the business for the next three years, all of which culminated in the rollout of group-wide scorecards by the third week in January, something that Peter will refer to later. During that time, I also met with many of you and clearly, very clearly, heard your concerns about business momentum, quality of the credit book, costs, U.S. regulation, and capital adequacy, as well as requests for a more realistic tone in our external market communications. To the latter point, we have, I believe, made the quality of information in our IMS much more insightful, terminated the somewhat ambiguous pre-close statements, and at the November investor meeting, provided clearer insights into our business, especially relating to returns and the quality of the loan book. In today's press release, we have refreshed many of the disclosures which hopefully make the risk section in particular, more informative. Unsurprisingly, I have spent a considerable amount of time over the last few months with Richard Goulding and the team in risk, really getting to understand exactly how our overall operational risk processes work, how proactive we are in dealing with cyclical or sectoral changes, and how we go about provisioning. What has been very clear to me is that our loan portfolio is extremely diverse and quite difficult to meaningfully draw conclusions from based upon high-level external assumptions. In the vast majority of instances, our exposures are to a client, not to a specific product, and hence the assessment on recoverability is much more about the robustness of that client's business model to a downturn, not to depressed prices per se. This involves a detailed upfront assessment by our teams on a client-by-client basis, not something easily capable of extrapolation from external data. As well as individual assessments, the group also undertakes a stream of stress-testing exercises to scan for vulnerabilities. Many of the areas currently experiencing heightened stress levels were flagged as concerns several years ago and have been actively managed since. This clearly doesn't mean we will avoid impairments, and indeed this year, the year-end review has resulted in a number of provisions being taken, particularly in the commodities sector, to ensure that as best we can see based upon currently available information, we are appropriately provisioned. I've also gone through these extensively with the new head of our group special asset management team, as well as our external auditors, KPMG. The majority of the issues relate to advances made several years ago and very few relate to recent credit decisions. We've also taken a number of assertive actions around other impairments for the year. We have written off the remaining Korea goodwill, have topped up a number of commodity exposure impairments, have written down a number of strategic and associate investments, as well as booking a goodwill charge on the exit of the institutional cash equities business. One of the things that has given me comfort as I have looked through the loan book is the group's observed recovery rates, which are very supportive of the net exposures after provisioning and after collateral. I was also of the view very early on that we could do more on costs, and hence we pre-announced a $400 million target for 2015, which is now well on track with, in retail alone, around 2,000 jobs having been cut or announced and completed in the last three months of 2014, and a further 2,000 expected during 2015. We are now turning our attention to identifying cost opportunities for 2016 and beyond, and have, as you will have seen, announced a three-year target to take $1.8 billion of costs out of the business, comprising underlying savings of between $400 million and $500 million per annum, and the impact of any divestments. Before I turn to the slides themselves, one final comment. It was clear to me that our financial framework was no longer suitable for the phase we are in. In particular, the continuing regulatory imperative for the sector overall, ourselves included, of building more capital headroom and the need to upgrade the robustness of our conduct and financial crime capabilities. We have therefore decided to target two overarching objectives going forwards. Firstly, to get our CET1 ratio between 11% and 12% in 2015 and thereafter. Secondly, to get our return on equity above 10% in the medium term. Unfortunately, several of the actions that solve for the former put more stress on the latter, and vice versa, hence why we have sequenced the priorities in this way. Indeed, a simple way of showing underlying return on equity of the group would be to separate out the parts that are clearly dragging the overall performance. Korea and the bank levy alone would take our return on equity nearly into double digits. However, life is clearly not that simple, and Peter will discuss in more detail the two primary actions regarding RWA and cost that we will focus on to deliver on these priorities in a moment. On to the slides. The numbers, as you know, are disappointing, with a 2% reduction in income and a 30% reduction in statutory profit before tax, in part driven by higher impairment charges. I will go through several of the numbers on this slide separately, so let me just comment on one or two of the items that are more lumpy in nature and less reflective of the underlying performance of the franchise. We have incurred restructuring costs of $181 million in the year. Approximately a quarter relates to redundancy programs in Korea, with the balance reflecting the realignment of the client segments and product groups under the new organization structure, including a number of business exits. Our bank levy has risen a significant 56% to $366 million. In August, as you know, we reached a settlement with the U.S. authorities of $300 million. More recently, we carried out a detailed review of the outlook for our Korea business. Whilst we are encouraged by the recent PDRS trends, and hence the opportunity to improve upon the business's recent disappointing financial performance, it is nonetheless currently loss-making. Hence, we are writing off the remaining goodwill of $726 million on top of the billion-dollar write down last year. This write off has no cash effect for the group, nor does it affect the capital ratios, as goodwill is already fully deducted for prudential purposes. The main normalizing items are therefore the Korean impairment, the U.S. settlement, and own credit adjustment. On this basis, adjusted profit before tax for the year was $5.2 billion, down 25%. Moving on to the next slide. Normalized earnings per share were, as a consequence, down by 28% to 146 cents, and the normalized return on equity was 7.8%. The balance sheet remains in good shape. Our Basel III transitional CET1 ratio of 10.5% is flat in the second half, despite absorbing 30 basis points of headwinds, including model changes and a further foreseeable dividend, as well as having taken greater provisions on commodities exposures, as I referred to. As I mentioned earlier, 2014 returns are clearly not what we aspire to, and key to those will be improving in executing on the client segment strategies. Peter is going to update you on these in a moment, but before that, let's look at our performance in a little bit more detail, starting with income by segment. As you can see from this slide, notwithstanding decisions to de-risk our portfolio in areas such as retail unsecured and commodity financing, we restricted the reduction in the top line to 2%. The biggest reduction in our year-on-year income performance was in the commercial client segment, where income fell by $322 million. This was driven by current year private equity valuation reductions relative to realized gains in the previous year, weaker demand for renminbi products in financial markets, as well as exiting a significant number of relationships whose risk and return equation no longer met our requirements. Income from corporate and institutional clients was down 2%, or $225 million. Continued weakness in financial markets and management actions taken to optimize returns on the balance sheet offset gains on the exit of a number of private equity investments. The business has shown early progress on the metrics we set out in November last year, with an improvement in the multi-market ratio from 2.6 to 2.8, and the multi-product ratio increasing from 5.9 to 6.3. Risk-weighted assets increased by 10%, primarily due to the impact of Basel III and policy methodology and model changes. Excluding this impact, risk-weighted assets were flat. Income from private banking clients was up 4%, driven by strong performance in Greater China. It is worth noting that we have exited a number of subscale businesses in the period, and excluding the impact of these discontinued operations, income from private banking clients was up 6%, driven by net new money inflows of $6 billion. The business has also increased the number of relationship managers during the year and added 1,300 new clients, including early successes from the internal client referral program. Retail client income of just over $6 billion was up 2% on the year. Strong growth in income from the priority segment up 16% offset a decline in the personal segment, which was down 5%. This is consistent with our strategy to focus on more affluent segments and de-risk our unsecured portfolios, particularly in Korea. We continue to reshape our business in Korea, and during the year have exited 60 branches and almost 300 staff. Excluding Korea, retail client income was up 4%. Turning now and looking at income by product. Transaction banking income of $3.8 billion was down 3% year on year. Trade finance, which accounts for just over half of this income, was down 5%. Margins have remained broadly stable, though average assets were down 4% in the second half, reflecting a slower trade environment and continued assertive management of low-returning risk-weighted assets. Cash management and custody, which accounts for the remaining half of the income, was flat year on year. Margins were driven lower by the significant liquidity that persists across our key markets, but this is offset by good growth in average balances and record clearing levels as we continue to win multi-country transaction banking mandates. Income from financial markets was down $456 million year on year. In foreign exchange, strong volume growth in cash FX up 47% and FX options up 89% has been offset by ongoing spread compression. In rates, low volatility and low interest rates continue to impact both volumes and spreads. Corporate finance income was down 1% year on year, as high levels of liquidity resulted in slightly increased repayment levels. Wealth management income was up 17% and is benefiting in particular from the Prudential bancassurance partnership, as well as an accelerating shift towards servicing high-net-worth individuals in the retail client segment, as I mentioned earlier. Income from retail products was down 4% or $206 million year-on-year, impacted predominantly by our continued de-risking of the unsecured portfolio. Within this, income from cards, personal loans, and unsecured lending was down 8% or $212 million year-on-year, following a 14% reduction in balances to $20.5 billion. Income from mortgages was down $59 million or 6% as property market cooling measures muted volume growth in a number of markets. The other category on the slide includes income from asset and liability management, lending and portfolio management, and principal finance. Asset and liability management income was up 19% to $653 million, and benefited from the more efficient deployment of surplus renminbi customer deposits, the majority of which was recorded in the first half. Second-half income of $233 million is more reflective of the underlying performance. Lending and portfolio management income fell 4%, reflecting lower balances as we exited some lower returning relationships. Finally, principal finance income was up 17% year-on-year. The gains on the exit of a number of private equity investments of positive multiples more than offset lower revaluations. Moving to expenses. As you can see from this slide, underlying costs of $10.2 billion increased by less than 3%. During the year, we have faced further regulatory cost increases of $237 million, without which our overall underlying costs would have been flat. To offset these increases, as well as inflation of nearly $400 million, the group has delivered cost efficiencies in 2014 of some $200 million, of which we are now doubling to over $400 million as our target for 2015. We are now working, as I said earlier, on the pipeline of further sustainable productivity improvements for 2016 and 2017. Taken as a whole, these represent a significant program of initiatives that will deliver sustainable cost savings of some $1.8 billion in total over the next three years. Peter will pick this up later. Turning to impairment. Loan impairment is up $524 million or 32% to $2.1 billion for the full year. Approximately 40% of this arises in the retail client segment, which is 3% lower than the previous year, benefiting primarily from improved PDRS in Korea. The remaining $1.2 billion loan impairment arises in the corporate and institutional and commercial client segments, where, since we spoke to you last, further weakness in commodity markets has impacted a small number of exposures that we have been closely monitoring for some time. Other impairment, excluding goodwill, was $403 million. The main increase in the year included the impairment on the China warehouse fraud mentioned in our half-year results, and impairment of certain strategic and associate investments. Given the further deterioration in commodity markets this year, I want to cover our commodity portfolio in a little more detail. Our total commodity exposure is now $55 billion or 10% of the group's overall total net exposure. The vast majority of our commodities exposures is trade-related, evidenced by the short tenure of the book, with 74% being less than one year. This allows us to act quickly to changes in the external environment. In fact, our commodities exposure is down $6 billion in the second half of the year alone as we actively manage the portfolio. When thinking about vulnerability to a sustained bear market, there are some important factors to consider. Sixty percent of our exposure is to global majors, large state-owned enterprises, or are investment grade, which we expect to prove highly resilient even through a sustained downturn. A further 32% is short-term or trade finance-related and less than one year in tenure. Again, highly resilient. Four percent is to fund structured project or corporate finance with very high levels of collateral. This leaves just 4% of the portfolio potentially more vulnerable to prolonged weakness in commodity prices. What actions have we taken to manage the risks here? We have conducted an in-depth review of our traders portfolio, and as a result, we have exited 150 relationships since early 2013, have reduced exposure since the half year by $2 billion or 6%, and have focused upon commodity traders with sound internal risk management capabilities and good access to other liquidity sources. Two years ago, we identified which clients in our producer's portfolio might be potentially vulnerable to a sharp correction in commodity prices. We have actively managed those names since, reducing exposure, taking additional collateral, and exiting relationships where necessary. Whilst we have seen non-performing loan formation reflecting the extremely low level of some commodity prices, refresh stress tests have identified no new names to add to this list. Turning to oil specifically, which represents around half of our commodity exposure, 98% of our oil producer exposure is either to state-owned enterprises or to low cost of extraction companies who have a break-even price below the current market price. The real situation may be somewhat better than this, in fact, as we have conservatively allowed for no slowdown in these companies' capital expenditure, no refinancing, no depletion of cash balances for a period of one year. We simply do not have exposures to high cost of extraction parts of the industry. The final point of context for our portfolio is that many of our markets actively benefit from lower commodity prices. Even oil-producing markets like Ghana are net importers of oil, and markets like India are receiving a real boost from lower prices. In conclusion, we have conducted a very thorough review of our commodities exposure, and the main areas of potential vulnerability lie in a very small proportion of our portfolio, which we have been very actively managing. What about the overall credit quality of the book? As I have looked across the group over the past nine months, there are a number of observations that I want to make and share with you that give me comfort in the credit quality overall. Firstly, the book is becoming increasingly diverse. No single industry now accounts for more than 16% of corporate loans and advances, and our top 20 exposures have reduced as a proportion of our CET1. The book remains predominantly short-dated, with nearly two-thirds of corporate, institutional, and commercial clients exposures being less than one year. We are holding increased levels of collateral, up 4%, with high levels of collateralization for longer-term and non-investment grade loans. Over 40% of the corporate portfolio is investment grade, and this mix is increasing. Whilst early alerts are not always the most accurate predictor of subsequent impairment, it is nonetheless encouraging that recent early alert trends have been stable. Delinquency rates in our retail book have started to improve following continued de-risking of the unsecured book and an improved PDRS trend in Korea. CG12 accounts are stable compared to the half year. In fact, they're down compared to the half year. Whilst non-performing loans are up slightly 4% in the first half, the increase does relate to a number of accounts we have been actively managing for some time. Finally, market risk is predominantly client-driven and remains very low in absolute terms. In summary, the current elevated level of loan impairment reflects increases arising from India and China, as well as our commodity exposures in these and some other markets, including Indonesia and Africa. We flagged these areas of risk early and have been proactively managing them for some time. Change topic, move on to the balance sheet. The balance sheet is in good shape, very diversified, well-structured, and highly liquid, with deposits up $29 billion or 6% in the second half alone. We already more than meet the minimum Basel III requirements for both the net stable funding ratio and the liquidity coverage ratio. Loans and advances to customers are down $16 billion or 5% in the second half, driven by continued de-risking of the retail unsecured portfolio, reducing exposure to the energy mining and quarrying sectors, more assertive management of low returning relationships, high levels of liquidity resulting in early repayments and currency translation. Actually, on a constant currency basis, loans and advances to customers are flat year on year. As a result, our advance to deposit ratio is now below 70% and our liquid asset ratio is 32.2%. In summary, we finished the year with our balance sheet in good shape. Turning to capital. Our transitional CET1 ratio of 10.5% is flat in the second half. This is after absorbing a combined 30 basis point deduction for model methodology and policy changes, the foreseeable dividend, and the settlement with the U.S. authorities, as well as the impact of the increased U.K. bank levy. This is a clear demonstration of the group's strong underlying equity generation of some 50 basis points in the year above our historic trend of 30 basis points. Furthermore, our endpoint CET1 ratio of 10.7% is 200 basis points above our known minimum requirement, with capacity therefore to absorb future add-ons such as the countercyclical buffer as it is phased in. Furthermore, we have maintained a strong level of total loss absorbing capacity, or TLAC, above 20%, and our leverage ratio at 4.5% is significantly ahead of our 2019 requirement. We currently plan to issue AT1 capital this year as we look to manage total capital efficiently and build our AT1 levels over time to the amount permitted by applicable regulations. Clearly, we are in an environment where we need to manage capital requirements dynamically over time, balancing it with delivering returns to shareholders. Where are our priorities going forwards? Simply put, our financial priorities are to accrete capital to a CET1 ratio of between 11% and 12% in 2015 and thereafter, and to deliver return on equity of over 10% in the medium term. These priorities replace the flex financial framework set out in November 2013. The regulatory environment continues to evolve, typically requiring the industry to hold increasing levels of capital. Against this backdrop, the group will prioritize actions that organically enhance the CET1 ratio whilst acknowledging that will be an impact on the return on equity. Based on our current best view of the regulatory outlook, we are very confident in our ability to reach a CET1 capital ratio of between 11% and 12% in 2015 and thereafter. Building the group's return on equity to an attractive level, sustainably above the cost of equity, is key to delivering long-term value to shareholders and remains our focus. To summarize, the board took action to clarify leadership and succession last week. Today, we are setting out the actions around our commitments on capital returns and also around conduct and compliance. 2015 will be about accelerating management action and executing the plans we set out in November for the four client segments. We are prioritizing organic capital accretion and through a series of planned asset disposals and business exits, as well as continued management of low returning relationships, we expect to release $25 billion-$30 billion in RWA over the next two years. To protect returns, we are targeting $1.8 billion for sustainable cost savings over the next three years. We continue to raise the bar on conduct and compliance. We have a number of material initiatives underway, which Peter will go through in more detail. Combined, these represent a significant program of initiatives that will create a platform from which we can build the returns to an attractive level. Peter will talk you through each of these board commitments in a little bit more detail now. To close, whilst 2014 was a very difficult year, the staff around the bank and the management are absolutely determined to restore the group's performance levels. Thank you. I'll now hand back to Peter. Thank you, Andy, and good morning to those of you in London, and good afternoon to those in Hong Kong. Andy has covered our 2014 numbers, and I'm not going to repeat what he said. It was a tough year. Our performance was disappointing, and we are acutely aware of the impact of this for you, our shareholders. We faced a perfect storm, a negative sentiment towards emerging markets, a sharp drop in commodity prices, persistent low interest rates and surplus liquidity, low volatility, and a welter of regulatory challenges. As a result, we saw intense pressure on margins and volumes, a significant uptick in impairment, and a sharp increase in regulatory related costs. Of course, it wasn't all about external factors. Some of the decisions we took in the past look less good now than they did at the time. Korea, for example, which in 2014 made a loss before tax of $145 million. Not everything we did was as well executed as it should have been. For example, the upgrade of our transaction surveillance systems back in 2007. Shortcomings here ultimately resulted in the civil penalty of $300 million we paid last August. We've taken a range of actions in response to the way our world has changed, some tactical, some more fundamental. I know some of you think we should have acted faster or more dramatically. Perhaps that's right. Perhaps we haven't explained properly what we've done. The fact is, that in 2014, we did more to change the way the bank is run than in any year since when I first arrived. We've overhauled the strategy, making it sharper and more focused. We've reconfigured the organization to get better alignment behind our strategic priorities. We've attacked the cost base. We've redeployed capital. We've disposed of, or are in the process of disposing, 15 underperforming and non-strategic businesses. We've de-risked portfolios and segments, such as unsecured or correspondent banking. We've stepped up the pace of our program to raise the bar on conduct. While some of these changes actually made 2014 performance worse, since we sacrificed income or increased investment, I'm confident that the way we're reshaping the bank will get us back through a trajectory of profitable, sustainable growth, delivering returns above our cost of capital, and thus driving the share price. I should make clear that we are not counting on the world to do us favors. While we do expect a gradual return to a more normal interest rate environment, and this year we've already seen more volatility in currency markets, we're not counting on headwinds turning to tailwinds to boost our performance. We are focused on the levers that we control, the things that we can do to improve returns, increase productivity, and return to growth. Our performance priorities are clear. First, we must dispel concerns about capital, hence the clear target of an 11%-12% CET1 ratio in 2015 and thereafter. Second, we must improve returns. Hence, we are setting a target ROE of over 10% in the medium term so that we are sustainably delivering above our cost of capital. This will take a bit of time to achieve, not least because, as Andy said, the actions we're taking to strengthen the CET1 ratio make this more difficult. What do we have to do to make this happen? I'll answer that by addressing the obvious big areas of shareholder concern: capital, cost, credit quality, and income growth. Expanding a bit on what we've done already, and more importantly, telling you what we are doing now. I'll also talk about conduct, since this too is vitally important to the future success of the bank. As I do this, I want to make clear that each element fits into an overall agenda of action, and that all of these initiatives are already captured in the scorecards of the individual clients and product groups, functions, and geographies across the bank. On capital, we start from a strong position. In terms of our CET1 ratio, at 10.7% on an end state basis, we have a 200 basis point buffer relative to known regulatory requirements. We weathered the Bank of England stress test comfortably. We're strongly placed from a leverage and TLAC perspective. However, we understand market concerns about forward trajectory, given the uncertainties about how regulatory requirements will evolve. Although it is impossible to be definitive, a combination of RWA inflation and escalating expectations do point to a continuing upward drift in regulatory requirements. That's why we've put such a focus on capital accretion, so that we can absorb regulatory changes and fund growth whilst also improving the ratio. We accreted some 50 basis points in 2014, 20 basis points in the first half, 30 in the second half. To achieve this, we cut some $9 billion of low returning RWA, largely from corporate and institutional clients, and saved another $2 billion from disposals. We now plan to pull these levers even harder. Over the next two years, we plan to cut a further $25 billion-$30 billion of RWA from low returning client relationships and underperforming businesses. We are making good progress on this already, and by taking these actions, we are confident that we can achieve our target CET1 ratio of 11%-12% in 2015 and thereafter. Costs. In 2014, we kept a tight grip on costs. Whilst headline expenses went up 5%, over half of this increase was due to the U.K. bank levy and restructuring costs attached to the very cost actions we are taking. Underlying expenses went up less than 3%, driven largely by increased spend on regulatory and conduct priorities. In November, we announced a $400 million target for cost savings in 2015. We are more than on track to achieve this target. This $400 million number relates to our underlying business, i.e. it excludes costs saved from business exits and disposals. Combined with the impact of such actions, we're on track for cost savings to headline costs exceeding $600 million in 2015. The progress we've made in attacking the cost base underpins our confidence in achieving $1.8 billion in cost savings over the period 2015 to 2017. Where will the rest of the savings come from? Some will derive from the full year impact of actions we've already taken. For example, the decision to exit equities, which will give us $100 million savings in 2016. Some will be the result of further peripheral business exits or withdrawals that we are currently pursuing. But most of the future savings will be from achieving sustainable efficiency improvements in our big markets and in our core business activities. We're stepping up the pace of digitization, automating and re-engineering key processes, standardizing technology platforms. For example, the only way we'll get the retail cost-income ratio down to our target of 55% is through accelerated digitization of products, of channels, of internal processes. The only way we can manage the ever-increasing complexity of regulation efficiently is through technology. We're not achieving cost savings by cutting back on investment. We're actually increasing investments in technology in order to achieve sustainable improvements in productivity. Asset quality. Andy has already spoken in some detail about asset quality. I just want to offer a more top-down perspective on where I think we are at. First, it should be no surprise that impairment increased in 2014. GDP growth in key markets has been slower, commodity prices fell sharply, and we faced some specific challenges in particular markets. For example, PDRS in Korea, fraud in China. Of course, we could have fared better. With hindsight, there were clients and situations we should have avoided, but we were never going to be entirely immune to the shift in the credit environment. Second, the actions we have taken to de-risk are having impact. In India, in China, in our commodities book, in our unsecured portfolio, in retail. While there are still many uncertainties in our markets, I am very comfortable with our provisioning and with the shape and quality of the book. In retail, while impairment remains at an elevated level, the indicators suggest some improvement, most notably in Korea. Looking at the early data for this year, PDRS filings are now less than half what they were six months ago. In corporate and institutional and commercial, the signals are more mixed, but most of what we are dealing with now and provisioning for are accounts that have been troubling for some time. The inflow of new problem accounts into early alert CG12 or NPLs has slowed. While it would certainly be premature and tempting fate to call the peak, and there are areas we are monitoring and managing closely, we do not see signs of further deterioration. What about income? How much have we sacrificed to achieve our objectives on capital cost and risk? Where is the growth going to come from? It is absolutely the case that we have deliberately given up income. The annualized income impact of exits and disposals from 2014 and planned for 2015 is some $450 million, although the 2015 impact depends on the timing of certain transactions. We will strip this out of our reporting of underlying performance for 2015. On top of this, de-risking and RWA saves in 2014 and the $25 billion-$30 billion of incremental RWA saves we plan for 2015 and 2016 will create a further drag on income, offset by our ability to redeploy into more attractively returning assets. The actions we are taking have had and will have a muting impact on income momentum, particularly in 2015. So where will the growth come from? The best way to answer this is to look at the individual client segments and talk about the underlying drivers of income and returns, and about what we are trying to achieve, building on what we said in November. Let me start with retail clients. Here, the priority has been to get the cost down, shift the focus to more affluent clients, and accelerate digitization, as well as to de-risk from a conduct and credit perspective. It is all about getting the platform in more robust shape to support sustainable growth. Retail clients' income was up 2% year-on-year, but up 5% half-on-half, driven by wealth management and the shift towards more affluent priority and business clients. These will continue to be the key driver of income growth. Indeed, we aim to increase the percentage of income from priority and business clients to 43% in 2015 from 38% last year. Private banking. Income growth in private banking was 4% headline, 6% excluding disposals. We see private banking as a steady and sustainable source of growth. Although at this stage, it is obviously very small in the overall scheme of the bank. In 2015, we are looking at onboarding some 2,000 new clients and to achieve double-digit AUM growth. Commercial clients. This is also relatively small right now, but represents another huge opportunity. After a year of restructuring and remediation with income down 22%, our priority for 2015 is to get back to a growth trajectory, strengthening the front line, leveraging the network, growing the client base. We are aiming to onboard around 3,000 new-to-bank clients in 2015. Given that corporate and institutional segment represents about 60% of the group's income, this is the crux of the issue. Income fell 2% in 2014, impacted by a combination of de-risking and RWA actions, as well as pressure on margins and the impact of low commodity prices and low volatility. This overall picture disguises some areas of strong growth. For example, institutional investors. The institutional investor sub-segment saw 18% income growth at attractive returns in 2014, and this is a big opportunity. In corporates, right now it's all about improving return rather than income growth per se. Achieving this is all about leveraging the network and deepening relationships to drive non-funded income, hence our focus on the multi-market and multi-product ratios that Andy talked about. In 2015, we are looking to take the multi-product ratio from the 2014 figure of 6.3 to over 6.5, and the multi-market ratio from the 2014 number of 2.8 to over 3. We are also focused on non-financing income, targeting to increase the current proportion from 41% to more than 43%. These metrics are the key to driving good income growth that lifts our return on risk-weighted assets in this segment. Step back from the segments and look at our markets, and the scale of the income opportunity is evident. Despite all the turbulence and shifts in sentiment, the underlying drivers of economic growth, demographics, urbanization, investments in infrastructure, remain immensely strong. Demand for financial services is rising rapidly. Our challenge is to capture these opportunities in a disciplined, return-focused way to drive shareholder value. Before I close, I want to talk briefly about our conduct agenda, since this is right at the top of the management agenda. We have launched a comprehensive program called Raising the Bar on Conduct, which encompasses every aspect of conduct, touches every person in the bank. We recognize that we can't claim to be Here for Good unless we make every effort to ensure that good conduct informs every interaction and is embedded in every decision we make, from strategy, client onboarding, product design, to remuneration. Amongst the more critical elements of this program, I would highlight the Financial Crime Risk Mitigation program, which encompasses over 57 separate projects and initiatives to remediate and reinforce our controls and capabilities in this vital arena. This is a massive multi-year investment program. Playing a stronger role in the fight against financial crime is a strategic imperative for Standard Chartered. To complement stronger controls, we are also de-risking our client portfolios. For example, we have exited a significant number of correspondent banking relationships, mainly in Latin America and Central Europe. We have also exited around 70,000 SME relationships over the last 18 months. We are putting strict limits on the types of new client we are prepared to take on in certain geographies and sectors. To reinforce our governance of these efforts, we have established a board-level financial crime risk committee with a combination of experienced NEDs, non-executive directors, and expert advisors. The actions we have taken and are taking on capital costs, risks, and conduct are all part of a package. We are reshaping the bank to respond to the way our world has changed. We're reshaping the bank to ensure we can fulfill our aspiration to bank the people and companies driving trade, investment, and the creation of wealth across Asia, Africa, and the Middle East. We're reshaping the bank to get back to sustainable, profitable growth, delivering returns above our cost of capital. This will be the last occasion on which I present a set of results to you, and it's obviously one of the more challenging sets of numbers I have had to explain. In my 13 years at the bank, I have seen lots of ups and downs. Standard Chartered today is very different from the bank I first joined as finance director in 2002. That year, we made about $1 billion in profits. In 2006, when I became CEO, we made about $3 billion. Since then, of course, we've navigated the global financial crisis, roughly doubled in size, and confronted all sorts of new challenges. The world of banking has changed far more dramatically than most people realize, and in my view, it's only partway through a fundamental transformation. I will leave Standard Chartered proud of what we have achieved and confident about what the future holds for this extraordinary institution. In Bill Winters, I have a successor just right for the task. I am delighted to be passing the baton on to a banker of such caliber, to a leader of such strength. Bill will inherit a bank with a superb client franchise, a unique network, and an exceptionally strong balance sheet. Perhaps even more importantly, he will inherit a fantastic team of people, professional, collaborative, truly believing, truly committed to being Here for Good. I'd like to end by saying my final thank you to our clients, my final thank you to our shareholders, and my final thank you to all the people of Standard Chartered. This last couple of years has been pretty tough, but we have demonstrated resilience and an ability to adapt and reinvent. I know that Standard Chartered will once again show the world what a great bank this is. Thank you. John, Andy, Mike, and I will now take questions in London. Jaspal, Ben, May, and Julian will take your questions in Hong Kong. Thank you very much. Well done. It is the usual procedure. I will point you out and then we will wait for Mike, and then if you can say your name and your institution. So why do we start on the right-hand side at the front? Thank you. Good morning. It is Rohith Chandra-Rajan from Barclays. Thanks very much for the new targets. I guess, the two areas I would like to focus on are RWAs and costs, which seem to be the key really to your 10% ROE target. Similar questions actually on both. So the risk-weighted asset reduction of 25 billion-30 billion, could you just clarify whether that is a net or a gross number? So really how we should think about the evolution of the balance sheet, so it is about 8% of risk-weighted assets. Related to that, how much is from disposals? So RWAs, net or gross, and how much of that is from disposals? Your second question. Second question was on costs. So the underlying cost reduction, so ex-disposals, 400 million-500 million a year, is a little bit above where inflation was in 2014. You also had regulatory costs on top of that. So just wondering whether you are guiding to something like flat costs over the next few years, or whether there is some underlying cost inflation or reduction. I take the cost one and then do you want to do the RWA one? We can do them in reverse order. On the cost one, as you say, we do face inflation, so you've got $1.8 billion over the three years. On the other hand, inflation, particularly salary inflation, runs at about 5%. To keep the math simple, we have a cost base of roughly $10 billion, so it is quite easy to do the mathematics there. The two other factors you have to think about are the future trajectory of regulatory costs, which it is difficult to predict precisely. They have clearly risen very sharply over the last couple of years. Then the pace of income growth, which in and of itself, also can have a natural impact on costs. That is the way you can think about the dynamics of the $1.8 billion and how it translates into the cost trajectory for the group as a whole. Do you want to pick up on the point on RWA? Yeah. On the RWA, it is taking gross cost out. It is looking at where we are getting lower returns coming through. It is also primarily on an organic basis, running the business in its operation. It will be the delivery of it. Clearly, as we run the business, we will be looking at opportunities to further grow the business, but this is specifically taking out areas where the returns are just not where we need them to be. Okay. Should we go to Jean-Paul, and then we can sit back. We will come over to this side in a minute. Thank you. It is Jean-Paul Crutchley from UBS. I just want to maybe take a step back actually and just try and reflect on the shape of where we think Standard Chartered is once you have gone through this net rebasing reorganization in terms around capital and cost. Because if you are guiding us to think of a sort of a 10% return equity bank, given where the dividend currently is, that looks like you are going to be paying out roughly half of our earnings, at least in the short term, by way of distribution. So, should we really think about this as being a lower growth fundamentally, more mature bank in the markets it is operating in? Or maybe a question for the chairman as well, why was the dividend not given greater scrutiny, perhaps in terms of rebasing to actually facilitate greater growth longer term? Just in terms of a tension around returns, the dividend, and capital generation to fund the growth, that you have got quite a degree of sort of straitjacket around you. Should I start then, John? Yes, of course. If you want to add your comments. Look, we are making it very clear that our focus right now is on the capital position and on returns. In 2015, the priority is capital. However, we are a bank which is positioned in some of the most attractive growth markets in the world. The economics of the bank are better when it is growing. So I do not see, in the medium term, a tension between growth and returns. I actually think they are mutually reinforcing. But we need to make sure that growth is delivering the right returns, and hence the focus on RWA deployment and making sure that low returning RWA, we sort of get it out of the system. In terms of dividends, we are very conscious of the importance of dividends to our shareholders. We are very conscious of the decisions we make about that in the context of our capital accretion objectives. John, did you want to add? Well, I would just echo what Peter said. The board is really focused on capital. You can see that from the presentation today, and clearly shareholder value and dividends is something that we clearly, on a regular basis, talk about with a great deal of importance. But I think today, 2015, the board is comfortable that we have adequate levels of capital. We have talked today about trajectory. That is very important so that we can accrete capital going forward. But we are soon going to have a new Chief Executive, and I think clearly what Bill will do will continue to focus On capital, on issues surrounding dividend and so on. But I think at this stage today, the board is very confident that we can achieve between 11% and 12%. That is why both Peter and Andy, in their presentations, really focused on that as a key priority. Tom, should we go on this side? We will take a few on this side then. Yes, sir. Thank you very much. Tom Rayner from Exane. I wanted to ask a question, Peter, to give you one last chance to get my name right. You have done it. I know. Thank you. I did well, didn't I? Can I just firstly ask on the new 11%-12% capital target range, it does look realistic. I would suggest maybe towards the top end of the range once you've put a normal management buffer on top of all the likely minimum requirements. That target, I'm assuming, and this is really the first question, will take account of any future RWA inflation that might come around as a result of various proposals that are out there. So you'll still be targeting 11-12 regardless of what the RWA base is. Then I have a second question on the revenue side, please. I think the short answer to that is within reason, yes. But we know what we know sort of thing. But yeah, we are planning to get to that ratio, absorbing the things that we know are coming down the pipe in terms of changes, although the magnitude of some of those is quite different, or the timing of them is quite difficult to know. Is that reasonable? Yeah, I think so. We start with a sort of 200 basis point headroom. We know there are things coming down as we deserve quantifying. Some of them is a bit tricky, but our view is 11-12 net of those, that is where we should be. Okay, thank you. Then just back to the 25 billion-30 billion RWA. I know this might not be a net reduction, but I would have thought that a lot of it would be to be consistent with the capital. My question is really why when trying to calculate a revenue impact would I not just take the revenue to risk-weighted asset ratio, call it 5%, and apply it to that number and come up with $1.5 billion-$2 billion per annum. Why would that not be of the- Well, because we're not stupid. We're Fair enough. I mean- You've had a comic range. I mean, I'm sorry to answer it like that. Very vague. We did say we were going to take the low returning RWA, right? It is not going to be the average, and also that we are going to be redeploying some of it. So you should anticipate pretty muted RWA growth. But it will be a combination of growth at attractive returns and us being very aggressive on pruning the RWA that is currently deployed that is generating substantially below the average income per RWA. half the average. substantially below the income on our RWA. Actually, our experience has been thus far, it is quite difficult to predict because actually when you go into these situations, in individual client relationships, sometimes what you do is you actually exit the relationship and the RWA falls out. Sometimes what you do is you end up with a repositioned relationship generating substantially more return on the same. We have been surprised on the upside on that. You should also assume in the future I will not remember your name again after that question. I have got a whole new Chief Executive to- To confuse. Why don't you just hand the mic next door, yeah. Thanks. Thank you. It's Arturo de Frias from Santander. Two questions also on revenue impacts and capital ratios, similar to what Tom asked, but with a slightly different angle. On the revenue side, you say that the $450 million revenue impact is or has been calculated taking into account measures already taken and measures to be taken in 2015. My question would be, are those most of the total measures that you need to take, i.e., if I ask in a different way, out of the $25 billion-$30 billion RWA reduction, how much of that should happen in 2015? Hence, how much of the revenue reduction can be compared with the $25 billion-$30 billion, i.e., when you finish cutting your $30 billion RWAs, the total revenue impact is going to be $450 million or is going to be more than that. What's your second question? The second question is on capital ratios. I just would like you to help me understand why you think 11%-12% is enough, because we have heard in the last few days that every other U.K. bank is targeting 12%, if not 13%, and that trend is also expanding to continental Europe. We are seeing simpler or at least less diversified, less global retail operations targeting also 12% fully loaded core. You are clearly a more global bank. You are clearly present in more volatile markets. Why you think 11%-12% is enough and not 12%-13%? Thank you. Okay. I will give a high-level response to both, and then Andy can work out whether I got it right or not. On the income, the first point is a clarification one. The $450 million refers specifically to income related to exits or disposals that we will, in the future, exclude from underlying numbers because they will be in the category of discontinued businesses. However, the income impact of things like de-risking or RWA is on top of that. The $450 million is just very specifically, it is things like our Hong Kong consumer finance business, the equities business, the UAE SME business. They will be separately identified. So there will be an income impact from RWA stuff as well. But by its nature, it is not so easy to split out in quite the same precise manner. On the 11% to 12%, none of us know quite where capital ratios are going to end up five, 10 years from now. But what we do know is that our known minimum requirements at the moment are 200 basis points lower than our capital ratio. We also know that the trend is for that 8.7% to drift upwards. We want to ensure that we maintain a substantial and sensible buffer above that number as it drifts upwards. We think that 11% to 12% represents a sensible place for us to be. If that turns out some years down the road that it needs to be a different one, then presumably it will not be me, but other people will make a different decision. But this is an attainable target and maintains a buffer relative to known requirements that is, to my knowledge, stronger than any other U.K. bank has. Is that all right? Yeah, I think, boss, that is pretty good, actually. I would look at, you have got this year, sorry, you have got 2014 year, we have got $450 million of income, which broadly will not be there in 2015 because we have disposed of businesses, or we are in the process of it. As on the same slide, there is a $300 million drag last year in the income from the work we did on risk-weighted asset reductions. There will be some more of that this year, which clearly will have an impact upon income. I think, just on the 11% to 12%, bear in mind that things like the G-SIFI requirement do vary between banks, and we are at the lower end of that. That is probably one of the more stable ones in there. Purely looking at this in absolutes, there is a debate about whether it should be absolutes or whether it should be relative headroom. Also, I think there is a piece about being realistic about where we are now. If we get to the stage where we are having a nice discussion about popping out above 12, that is fantastic. But for now, we are below 11. We need to get above 11, and that is where we are going to focus. Wow. Right. Sorry, I was not paying attention. Let us go over here to the right. I have not drunk enough coffee this morning. Chintan Joshi from Nomura. Can I carry on on the RWA topic? It seems to me, firstly, kudos that you seem to have presented a plan that is at least halfway to where new management would take this. So you are giving it in a reasonable shape onwards. But why not more RWA reduction? You are thinking about taking 16% of the cost base out. Even if I do some of the math, it feels like you will need quite a substantial revenue improvement to get to about to your 10% or more ROE target. It seems like it is a little light on RWA reduction, especially when we are talking about regulatory requirements going upwards in the future. So that is the first question. Second is on cost savings. I have always regarded Standard Chartered as tech-savvy. So when in your cost-saving description you said more digitization, a kind of a bit surprising for me. I would have thought Standard Chartered would already be quite on top of digitization, at least. I think on retail side, it feels more like it is a scale problem rather than a technology problem. So if you could elaborate on that. One very quick one, on trade finance or rather transaction banking, perhaps, Andy, if you take a mark-to-market of the kind of commodity price moves, shouldn't your trade finance book be down automatically just on the back of collateral values going down? Thank you. Okay. Why don't we have fun with this one? We've got three different questions. Maybe I'll start on the technology one. Perhaps you could talk, Mike, a bit about the practicalities of RWA reduction and why one has to take quite a balanced approach to that. And you can have the fun with the trade finance- That's all right. On the technology, well, I'm delighted that you think we're quite advanced on technology things. And frankly, that is the case. If you look at the percentage of processes or transactions that are done on a straight-through basis and the degree of standardization of platforms globally, I think we benchmark very favorably against any bank in the world. However, what we would say is that banks are probably less digitized than many other industries, partly because of the complications of regulations and jurisdictional issues, and that there is a massive opportunity for banks to become even more digital. In fact, when you think about it, what a bank is, none of what we do as bankers is inherently physical. So we shouldn't really have all this paper and all this kind of stuff. We should be able to digitize the whole thing. Now, we are not there yet. But if you really, really want to make banks substantially more productive, which I think they will have to become, given the scale of the regulatory costs and capital requirements, then the only answer is through intense use of technology in absolutely everything that we do. So we think we are in a good place relative to peers, but we think that there is a hell of a lot more to go for. Mike, did you want to talk about the RWA issues? Yeah. Look, the RWA, this is not a new thing. We've been at this now a number of years, and last year we got RWA efficiencies around $9 billion. I cannot actually remember the figure from the year before, but this has been a multi-year. You have got to look at it in terms of a multi-year program, and what we are doing is turning the pressure up on that program. As Peter said earlier, the challenge here is that you want to get the balance between, if you are in a relationship, the first thing you want to do is to see if you can squeeze out to get the multi-product, multi-market ratio up, because that gives you the kicker on return. It is not as blunt as saying when anything matures, then you are out, because that misses the opportunity. If you are in the relationship, the first thing you are trying to do is get the return up to get the RWA optimization. That requires a really detailed, focused, intensive process. The pinch point for that does not naturally come up every year. Where you tend to be losing return is on the bilaterals, on the standby facilities, on those types of transactions, which may be one, two to three years. The point of real leverage with the relationship is when the maturity comes up on that standby facility. Both the timing and the tenor of the maturity of it, which gives you the leverage, but also the intensity of focus, because what you really want to do is to get the return up and not exit the client. You want more RWA efficiency rather than actually getting the RWA back. Because if you get the RWA back, you have then got to find another client to invest it in at the return, and you start again. It is always better to start with a client you are already banking, where you have got some sort of depth of relationship and longevity. There is no easy silver bullet to this. It is about a very intensive process, getting the timing right, and this is something we have been at for two to three years. What we are doing is turning the intensity up to say, when you have got returns down at 1% return on risk-weighted assets, that is a thing. As you get up, going up and dealing with the higher returns, then it gets more of a nuanced conversation. I think the thing that is different for us, perhaps, than some other institutions, is some other institutions had a whole chunk of RWA in securities portfolios or particular things, and they could just close those down and lock them up. What we are talking about is client-by-client optimization of the deployment of capital into those relationships. Did you want to pick up on the trade point? Yeah. I think if I get your question correctly, I suppose there are two observations. One is that in the trade finance space, in the commodities area at the moment, if you take something like oil, if we were financing a barrel, it was a $100 price ticket previously. It is now half that, and we are having to either run at twice the rate to make the same money or run at half the rate to get, well, same rate to get half the money. So there is a volume sort of element to that, which is more tricky. Your point about collateralization with it, I think the positive there is that we are on relatively short tenor. So most of this is turning over pretty fast. We are very alert to the pricing of it, and hence, as things rotate off and new things come on, we will take the new views to the collateral level that we need. So I think overall, that sort of self-solves broadly. It is fair to say that there is negative volume pressure just because of the commodity. Absolutely. In trade. pricing material. Right. In trade, the margins have held up, the volumes have been low. Thank you. Okay. Shall we go into the middle of that block? I cannot actually see people very clearly. Thanks very much. It's Manus Costello from Autonomous. Andy, you spent a while in your presentation talking about the difficulty in assessing coverage ratios from the outside, which I fully understand. But if I look at the wholesale banking coverage ratio over the last several years, it's dropped fairly dramatically from kind of the 80s down to just 46% this year. If I look at it relative to international peers, it looks pretty low as well. A lot of those are north of 100 or even north of 100%. My question would be, why has your assumption on recoveries during that period improved so much? Why do you think your assumptions on recovery and wholesale are so much better than your global peers? First of all, direct comparisons with others are always tricky. The mix and the type of transaction they are doing, the mix and type of transaction that we are doing, and the nature of the other party and so on, clearly do vary. Secondly, the level of collateral that we require may or may not be the same as that which others require. My main comfort on this is that evidentially, if you look at what recovery rate we do get on our problem loans, it equates very closely to the value we have got on our books, net of provision and collateral. That is a full sale value of collateral as well. It's not just a sort of gross theoretical number. I think for me, that is fact-based. It's specific to our business. It is evidential, and it's not trying to do comparisons with others where we're second guessing what their own position should be. What about the comparison with yourself historically? Why has that come down historically? Why was 80% appropriate several years ago and now 46% is? Did it used to be as high as that? I don't remember that. Can we take that offline? I don't think it was 80%. We need to look at that. We can come back to that. That was the trend. Should we stay on this side? Why don't you just pass the mic in front or to the side, yeah. Up front and then to the side. Okay. Okay, sir. Sorry for that. Good morning. Martin Leitgeb from Goldman. Just three questions, please. The first one on the RWA reduction. Is there any particular geographic focus to that, or is that more to seen very broadly in terms of your footprint? The second question is with regards to potential valuation adjustments in capital going forward. I think you have guided, historically, that you might see headwinds there. Could you help us size what the potential impact here might be over the next one or two years? Last question, maybe a bit technical on footnote 12 to the financial statements, other assets. I think you haven't disclosed the fair value of other assets as of the end of 2014. I was just wondering if you could give us an indication if this position is relatively close or if there's quite a valuation gap there. Thank you. This one. I think, well, let's keep this one. First one. Very simple. There's no particular geographic focus, but there is a sector focus. That comes from the leverage of the return. We know, for example, bank trade has very little leverage. Bank trade doesn't cover its return on risk-weighted assets and cost of equity, and it's very difficult to get cross-sell into foreign exchange and cash management. Relative to corporate trade, where you can go do corporate trade, you get FX, and you get cash, so you can get the leverage. So there's more about where the opportunity to get the leverage is, and I think it's more sector-based than probably geographical based. On the PVA point, there are loads of different actual and potential changes in regulatory treatment that affect capital, and I don't want us to get too locked into its X basis points because we could fill the rest of the Q&A session dealing with that. The point is, we know that. We know that's coming, and what we're telling you is that we're going to get to 11%-12%, and we're going to do it this year. On the last point- To your last point, we have endeavored to actually make the press release a little bit more concise than last time, which has actually reduced it from about 150 to 100 pages. There is a little less detail in there. You failed, actually. The target was 100. Oh, it is 100 pages. Overnight, it has gone down from 101 to 100. I knew where the pressure was coming from. Well The good news is that when the ARA is published, you will be able to find out the answer to your question. Should we take one more over this side, Ian? Hi, it's Ian Gordon from Investec. I was just slightly surprised that your liability growth was as strong as it was in the second half, led by time deposits, and if I've read it correctly, led by the Americas, and to a lesser extent, Europe. Could you just explain the thinking behind that and perhaps just wrap it in with a comment on your interest rate sensitivity to a rising interest rate environment, if and when we get there? Well, should I take the second part of that first, and then Mike, you might want to talk about the dynamic driving deposit growth, and particularly in the Americas. We are sensitive to interest rates as an institution. Rising interest rates is a good thing for Standard Chartered. Steeper yield curves are a good thing for Standard Chartered. It is impossible to be precise on the impact of them because you have to play out a scenario of particular shape of the curve and particular interest rate scenarios across different currencies. We have talked about in the past of shifts in interest rates being things that could drive our numbers by several hundred million dollars. It is not a small driver of income for the bank, and it's been one of the things that has depressed returns, particularly impacting the economics of the cash management business, and also retail deposits. Did you want to comment on the growth in deposits? One of the truths of banking is it is always good to be liquid and more and more liquid because it gives you optionality. Deposit-raising strategies with clients is a long-time thing, which you do not pull the levers, you do not turn on and off. So just because assets are muted and the return you can get is muted, you do not stop the long-term haul of raising CASA from retail, cash management deposits from corporates. That is a long-term game. As you go into that, corporates, why do people actually put deposits with you? They do not leave it in CASA and overnight savings. They do not want to go into fixed and everything else. So you do get a change in the mix as you continue to go down that. Our deposit-raising strategy is a long-term strategy, and irrespective of the asset side, we will continue on that because it is the right thing to do for sustainable growth of the bank. In particular, U.S. There has been a particular growth in deposits in the U.S., and that is a strange phenomenon, which is as we have rationalized our correspondent banking business, and Andy talked about the number of relationships, many people are doing as well. So what is happening is we are getting more business from fewer relationships. So that is particularly coming through the cash management related to correspondent banking. Okay. More questions. Why do not we come over here, Jason? Oh, sorry. Is there somebody in front, and then we will come further back. If we can keep them quite succinct, we will try and keep our answers quite succinct because I am conscious of time. Okay. Thank you. It is Jason from Deutsche Bank. Two questions. First of all, on the cost of achieving the headline cost savings, can you give us any guidance as to expectations around restructuring over the 3 years? You obviously know this year, I guess, in greater detail. So some sense as to what the capital drag from restructuring charges might be. Then secondly, just around the RWA release and efficiency program. From some of the numbers that you gave in the November slide deck, it appears that some of the higher return product groups, if not relationships, are not delivering what they are supposed to do. Principal finance, corporate finance is supposed to be where you get in with the CEO office and generate the much higher returns. At least that was my understanding of the group. I guess I am trying to get a sense, given the cost inflation that the firm faces, a lack of income is a problem. I wonder how you get to 25 billion as the lower bound, why the number is not bigger, for example, such that you can aim for a higher ROE. It is a tricky one, but I guess the bottom line here is if you really did have a blank piece of paper, would the new strategy not be more aggressive, more fundamentally different from where you are today? I think- Do you want to pick up on the cost? I was going to say, first one, the answer is no. The second one, listen, we have got 180 of restructuring costs in 2014. We are working on the programs that are going to get to the $1.8 billion. We do not have the details of exactly what the one-off costs are in order to get there. On the second one, I guess my point would be what we are trying to do, clearly, is to triangulate the capital return, increase the return on equity, and the funding of dividends. It is a triangulation of those. It is not just the whole focus upon one. We are trying to solve for all three. Ultimately, you've got to look at it at the level of individual client relationships. You can't solve just for the principal finance aspect of a client relationship or the corporate finance aspect of it. The key is, and this is why it does take a bit of time, it is client by client, looking at the overarching relationship. Sorry, should we go on to perhaps behind you? Hi, it's Fahed Kunwar, speaking from Redburn. My first question is on revenues. It's helpful guidance on the revenue hit going forward. But on your ongoing business, it seems like a lot of your peers, including yourself, are pouring into the same kind of mass affluent, less risky business. So the margins, which have come down in 2014 again, do they keep on coming down considering the liquidity into those businesses? The next part of the question, I guess, is jaws has always been quite an important determinant for yourselves. When we think about both, you haven't really mentioned it in the slide pack, so thinking of the ongoing business and the group business, I guess, are you still looking at flat to positive jaws going forward? Have you stopped looking at it through that way? The question then on credit quality as well. On your performing loans, your Grade 12 category, the corporate institutional clients has gone from $1.5 billion to $4.5 billion. Is that part of the review that you did on the commodity exposure that you were talking about as a one-off thing, or is there something ongoing underlying there? The last bit, just a clarification point, how is the E calculated on your ROE? Thanks. I don't think we do anything particularly on ROE. It's a normalized ROE, and it's in the press release. You can derive it from the notes. On the more affluent point. Look, the economics of retail banking are very clear that you make a disproportionate return on the more affluent customers relative to mass market customers. That's not unique to us. That's something that I see across all retail banks. If you can pull the lever, relatively small shifts in the proportion of your income you get from what we call priority customers, can actually make a very material difference to your income. We are making good progress on that. The income in priority clients grew well, and it is driven a lot by non-balance sheet items, particularly wealth management products and bancassurance. You will see from the numbers that our bancassurance and wealth management income grew quite significantly. Do you want to pick up on the other questions? Yeah. Jaws- The jaws one, we could have a long debate about. What we decided is to go for hard numbers. We can target in the business hard numbers, and we can get programs together and deliver on hard numbers, and that's what we're going to do. 1.8 over a 3-year period is going to be 400 or 500 a year. As you saw on the chart here in 2014, that was a 200 number. So actually stepping up to 400, 500 a year is going to be a big step up. We're on track to do that in this year, and we will get there, but I prefer hard numbers. The other one, just on CG12s and non-performing. I suppose if I step back, I suppose two observations. One is that the non-performing loans compared with the first half are up slightly, about USD 300 million, but the CG12s, the worst category of performing, is actually USD 900 million lower than it was at the half year. I think therefore, one needs to take both of those into account. When one looks at the overall position, it's why we're saying we're okay where we're at. But I do think that the two together are probably the answer. I'm conscious of timing. I don't want to keep people longer than they want to be, but there are a lot of questions still in the room. So we'll go for another 10 minutes or so, if that's okay with people. I'll take another question from this side, Duncan. Just whoever's nearest you. Sorry. Thank you. This is Chirag from Bernstein. Two quick questions. Peter, when you put up that slide in terms of profit growth from when you became CEO till here, one of the markets which helped you get there was India. We don't get too many questions out there. That's an economy in recovery. Can you give us a little brief about their franchise there? Is there fundamental things that are broken there and not being able to recover income? The second thing was on principal finance. Again, Andy, to your risk diagnosis. How much capital stayed up in the business? What does this business actually represent? I saw that you had some gains in Q4. How should we think about the business going forward? Some combination of the two of you can tackle the principal finance. On India, good question. India was a powerful driver of profit growth for us in earlier years in my tenure. Then at the time, actually, where India went through a difficult couple of years, it was a difficult couple of years for us, too, and our profits in India fell quite sharply. I think we are now in a process, like India itself, we are in a process of transition, where there are some very encouraging signs. We have a government that is much more dynamic in terms of reform. We have a central bank governor who is, as recent immediate events suggest, is very actively managing the monetary situation within the economy. We see all those as very, very positive signs. However, there is quite a sort of overhang of the paralysis that affected India over the last couple of years. We see this as a sort of transitional phase for both the economy and for our business in India. However, over the medium term, we remain extremely positive. We have a very, very strong franchise there. There's nothing sort of broken about it at all. It's a very strong client franchise, and we are very positive over the medium term over India's prospects. On the principal finance one, it goes back to the previous question as well. On principal finance, the economics of that business are attractive on a standalone basis. But what you don't see, which is the previous question, is the leverage it gives us with the clients. But that's not in principal finance. That comes out in terms of cash management, FX, and the leverage we get is very significant. But that's in the broader relationship and comes back to Peter's point. So our assets at work at the moment are about $2.3 billion in principal finance. And the leverage that gives us with our clients on a client basis is very significant and very significantly higher than the economics of the product, which in of itself are already attractive. The other thing is, you will notice our principal finance assets are down year-on-year because that gives us another opportunity in terms of repackaging that, and Peter talked earlier about the importance of the growth of our institutional investor segment. We get an opportunity there for good assets which we can create. The leverage it gives us is more than just standing alone looking at the individual product economics. Okay. Should we take a Got a mic? Where is the mic? Oh, sorry, you have already Why do not we take this one, and then we will come over to this side. Hi. Thank you, Peter. Can I limit people to one question a person, because as a discipline. You could- I'll keep it to one question. Don't worry. We can limit it by giving one answer. Right. Yeah, that's a good idea. Did you have a methodological change in the way you calculate NPLs in Africa? Because if I look at the, say, for the first half of 2014, they're now on page 51, USD 471 million of gross NPLs. And in your last report for the half year, they were USD 966 million, and there hasn't been a big change in the loan balance. So I was just wondering if there was a methodology change or if something came out of NPLs that was significant because it is a big- Yeah. About a $495 million delta. They've been put on a financial basis. We can explain that to you afterwards, but they're now on an equipment basis. The actual aggregate NPLs hasn't changed. We just moved it. Okay. Yeah. Hi. Thanks. It's Leigh Goodwin from Royal Bank of Canada. I was going to ask you about AT1s in your statement, but as I can only ask one question, I would be interested to know whether you're going to quantify that for us, though. That's a very sly way of doing it, isn't it? Actually, my question was more- What is your question? My question is on dividends. I wasn't quite sure what you're saying your strategy on dividends is. It feels like it's sort of the $0.86 is something you're either putting there as a holding pattern until you've had a new Chief Executive has a look at it, or you're actually saying we're going to grow into that, and from there, be progressive. I wonder whether you could just clarify what the new dividend strategy is, if there is a new one. Well, I think the thing we would say is we are acutely conscious of the importance of dividends to our shareholders, the important role it plays in the value our shareholders get from investing in Standard Chartered. We are also managing our capital ratios very assertively, and we have set out a very clear target. Doing stuff with the dividend is not the first port of call because of the importance of it to our shareholders, and we are using the levers that we can control to get to where we want to get to on the capital ratio. I do not know if you wanted to add on. It is very important. That is why, again, today, we are talking about trajectory on our capital, on our common equity Tier 1 capital, and we are confident of getting between 11% and 12%. As Peter said, we have then levers we can pull, and the board can choose which priorities and which levers to pull at any time. Okay. Chris. Good afternoon, everyone. It is Chris Manners from Morgan Stanley. One question it is then. I was looking at your ROE target of just over 10% in the medium term. I remember at the half-year results, you did explain there was actually really good revenue growth opportunities. I think you put up a slide from McKinsey showing maybe 10% compound annual growth rate in banking revenue pools in the markets that you are in, over the next sort of five years or so. If you only do 10% ROE, presumably you can only grow TNAV by 10%, only grow RWAs by 10%, and then basically manage to grow revenues in line with the revenue pool if you pay out zero. Or how do you make a payout? We're not saying we're limiting ourselves to a 10% ROE. But given that your math is fine, but given that we are below a 10% ROE, to set a number that is significantly higher would seem not sensible at this point. Our first priority is to get ourselves to a 10% ROE, and then we'll worry about the pace of growth and stuff thereafter. Sandy. Thanks. Then, if we could make this the last question, I think, because otherwise, I think we really will overrun. Yes. Right. Okay. The last question is on- It's on, Sandy. It's got to be a good question. Yeah. Ten billion in costs, two-thirds of that in staffing. I was wondering if you could cut it, no pun intended, along staffing lines between the sort of country-based people and the business-based versus back office side. And where I'm getting at is that, I've looked at you guys as long as you've been sitting there, and it's always struck me that a lot of the problems seem to come from the country side versus the business side of Standard Chartered. If you do focus a lot of the headcount reductions and cost reductions on the country-based management structure, might there be an upside in terms of lower regulatory charges as well? The reality is we run a matrix, and we have some businesses that globally are more efficient than others, and we have some geographies that, for any given business, are more or less efficient than others. So there is both a geographic and a business line dimension to the efficiency equation. For example, our Korea business in retail is not nearly as efficient as we would like. We've been taking assertive action on that. The number of branches is down by something like 60 or so. And we've been reducing the headcount. But also, if I look at retail globally, we think it has a cost-income ratio that is just simply too high, and that's on a global basis. So we are looking at efficiency. And frankly, to deliver the $1.8 billion, we have to do this. We are looking at it both ways. It's not a question of saying we're going to take country perspective or business perspective. We're going to take, look, every perspective. And the other thing we're doing is we are looking very hard at the processes which cut across different client segments, and parts of the bank, and saying, "Let's try and standardize and optimize those as far as possible so we minimize having different processes doing roughly the same thing or duplication around the institution." This is- That was more my point, yeah. There is stuff to go for and, as I said earlier, the trick to doing all of this is technology. It is very difficult to There are some opportunities where you can actually stop doing something. But most of the time, the opportunity is to do it in a way that is much more efficient. If you can take people out of the equation, that is the most powerful way of making it more efficient. I think we have run out of time. I do not know, Tom, whether you wanted to make any closing comments. Very briefly. Standard Chartered is a very good bank. It is going through a transition. It is going through change, and I hope what we have been able to do today is give you the confidence that we really have been listening to our shareholders. We really are taking action to refresh the strategy and get the bank in very good shape for the future. Although 2014 was disappointing, we still think the future in the emerging markets, some very exciting markets in the world, offer great opportunities for this bank. Thank you all for coming today. Yeah. Thank you very much.

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