Earnings Call: Q4 2016

Feb 24, 2017

Continue to stand by and you will be on silent hold until the call begins. I think we were all inspired by Vishal's story. I know inside the bank it means a lot, and I think it is a lot of the reason that people work here is that we are working very hard to make this a better place. We made great progress in 2016. Really feel very good about the progress that we have made. We said we were going to lay the foundations over the course of 2016, stabilize the business, strengthen the management organization, put all the governance exactly where we want it to be. We also said that we knew we had a long path to improving returns, and we made progress on that path. We know we have got much more to go. What we will do today, just a couple of comments from me upfront. Turn over to Andy, who will go through the group results in some detail. I will come back and talk about some of the business-specific results and a few of the thematic issues, including the risk and control agenda, things of that nature, give a little bit of perspective on outlook, and then we will save plenty of time for Q&A. In much the way that Vishal has inspired us to both live a full life but also to make the best of what you have got, we feel like we have made a big step in the right direction at Standard Chartered Bank over the last year. We do believe that we have what it takes to succeed and hit the targets that we set out at the outset, despite the fact that there will be bumps in the road, and we will spend a little bit of time going through what we think those are and what we are doing about it, what we have done about it. Continue to believe that our strategy is the right one, that we have progressed along that road that we set out in a way that gives us confidence that we can complete the task, and think that we demonstrated both financially and strategically that we made the right kind of progress in our first year. With that, I will hand it over to Andy and come back up in a few minutes. Good. Thank you, Bill, and good morning to everybody. Let us just start with the headlines, and then we can go into a little bit more detail later on. I know you have not had a lot of time to look at these with other things going on today. But $13.8 billion of income for the year in total, 11% down, albeit stable within the year, which I will come on to on the next slide, which is really important. Operating expenses are down 4%, so below the $10 billion barrier for the first time for a while, at $9.6 billion. Loan impairment at $2.4 billion, down 40%. That is a little bit flattered because the assets that are now in the liquidation portfolio in 2015, the impairment charges were taken above the line. But nonetheless, the underlying profit of $1.1 billion plays $0.8 billion in 2015. I think a couple of things just observe on that profit number. We have taken two hits in arriving at it. First of all, some of you will have seen the Permata results of last week, where we have got the 45% stake. They have seen an uptick in loan impairments of some substance, and we have booked our share of those. So within this is a $150 million share of loss of the Permata business. We have got a small amount extra sitting in the restructuring, but that is below the line. So this number is depressed a little bit by the $150 on Permata. Secondly, and more significantly in a numeric sense, Principal Finance business, which we have been looking at quite closely over the last year with an eye to what we should do going forwards. As we announced a while ago, we are going to progressively exit that business. But nonetheless, in 2016, we have taken the hits above the line, and that is about $650 million of net loss on the Principal Finance business in 2016. Now because it is a product line, when you do get to look at numbers in detail, unfortunately, the numbers are split around the place. So of that 650, I think 200 is negative income, 200 is in loan impairment, 100 in other impairment, and 100 in expenses. Because it is a product line, it is spread around. But broadly, that is the 650. From the 1st of January, we will take any further financial results below the line in the restructuring. If you put those two together, about 800 million of hits we have taken before getting to the $1.1 billion number there. Restructuring, we have taken charges of just below $0.9 billion, which takes the cumulative to $2.7 billion, so still within the around $3 billion range that we indicated back in November 2015. Statutory profit at $0.4 billion. That plays to a prior year negative $1.5 billion, so clearly moving in the right direction. The CET1 ratio strongly up on the year, 13.6% at the end of the year, was 12.6 for the start of the year. And actually, we have added 50 basis points in the fourth quarter, primarily as I come on to later, because of the progress we have made with actually realizing a significant part now of the liquidation portfolio. The normalized ROE, 0.3%. I guess the good news is it does not have a bracket around it as it did last year. The bad news is it is still quite a small number. It's a little bit depressed by, obviously, Principal Finance result, but also the tax effect. Put simply, quite a lot of our taxable profits in the year have faced tax. Quite a lot of the losses, like Principal Finance bank levy, we don't get an offsetting tax credit. So the effective tax rate is quite high. Now, over a period of time, as profitability picks up, then that effect should lessen, but that has also been part of the reason why the ROE is somewhat depressed. Then finally, the board, after giving it quite careful consideration, decided not to propose a dividend for 2016. A sense that whilst we are turning things around, it's still fairly early days, and it will be good to see a bit more progress on that front, and also to have a little bit more clarity on some of the remaining regulatory issues out there that could yet impact the capital requirement. So for now, no dividend, but obviously something that's going to be looked at very carefully and very closely as we go forwards. Let's just go through one or two of the line items there in a little bit more detail. First of all, the income. So you've got 8 quarters here. The ones in blue are the 2015 year, the ones in green are 2016. Overall, an 11% reduction, so about $1.6 billion less income. Roughly half of that is down to 3 things. Foreign exchange, the assets that are now in liquidation portfolio that actually, prior to going in there, we were booking some income, but from the point they went in there, we didn't book any income. Finally, the selective divestments that we made. So that's about half of it. The other half is a mixture of market pressures and to some extent, as I'll come onto later, where we have been managing the very low returning assets. There is obviously some income loss as a consequence of managing more for profitability. So that broadly is year-on-year. Clearly, the more positive sign, I guess, is that in the 2016 year, we have been within a 3.3-3.5 range or thereabout throughout the year. So I guess being flat is better than down, but going up will be better than flat. So that is the task in hand as we move forwards. Just moving on to the expenses side. As I mentioned before, we are now $9.6 billion on expenses. Previously, we were $10 billion. I think important to note that although that's a 4% reduction overall, within those numbers, we have got $1.1 billion of regulatory and compliance costs, which have gone up about 12% in the year. If you sort of X that out, the rest of the costs have actually gone down about 6%. So quite a significant reduction in the cost as we said at the start of the year we would do. In fact, in some senses, even though the fourth quarter is a little bit higher, but overall for the year as a whole, we took out, as you can see from the top chart, $1.2 billion of gross cost, which was compared with a sort of expectation of about $1 billion. So we slightly outperformed on that front. Offsetting that, obviously, there are some salary inflationary costs within the business. As I will come onto on the next chart, we have deliberately upped the level of investment in the business, again, as we said we would do previously. So when you put that all together, $9.6 billion as the expenses for the year. The bottom left chart just puts that in the context of what we actually said back in November 2015. We said $2.9 billion was the target to take out over the period to 2018, and I think it is fair to say we are well on track for that. So $0.6 billion in 2015, which itself was significantly up from the previous year, $1.2 billion in 2016, and that means another $1.1 billion to go, which we are working on actively at the moment. So our confidence that we will have 2018 costs that are below 2015 levels absolutely remains intact. Now, this is, I think, quite an important chart and one which we maybe haven't talked about quite so much in the past. This is the investment spend we are making to sort of improve the fabric of the business. So $1.4 billion plays $0.9 billion the previous year. So about a 50% increase. In large part why we went deeper on the cost, the ongoing cost was to do exactly this and invest more in the business. What I think, though, is equally relevant, if you look at the color coding here, the bottom block is the regulatory cost. There are a number of regulatory programs which we are working our way through. Those we have to do. They take time, they take money, but nonetheless, we have to do them. That is $0.6 billion of the $1.4 billion. In the middle block, we have got systems. We have sort of split those between replacement and enhancement. So 300 enhancement, 100 replacement. Then the top block is more the things which we are actually doing to either drive future income or take out cost from the business going forward. Roughly, roughly, a half of that number is sort of in the regulatory or purely replacement camp, and half is actually driving income or cost in the future. If you look at the sort of grayed out, greened out, I suppose, area it is, what actually that masks is the fact that proportionately, what we are now spending to improve the business going forwards and to get the momentum of the business higher is pretty much a four-fold increase. I think when Bill and I looked at this back in November 2015, it was very clear to us that we needed to spend more to actually take the business forward. Spend on a new wealth management platform, which we talked about, spend on digitizing the retail business, which we talked about, a lot of spend in the corporate space to basically make the interaction with clients much more seamless and much more electronic. All of those things getting a huge amount more focus than we have had necessarily in the past. Let us move then on to a slightly different topic, credit quality. Bar charts here are the non-performing loans. You can see from the chart here that those got almost up to the $13 billion level, but we have made significant progress in the fourth quarter with divesting some of those and finally exiting them. We are now sitting at 9.7 of non-performing loans. Of our ongoing portfolio, non-performing loans are about 2.3% of our overall loan book. I think that's a pretty reasonable level. What is also noteworthy is the level of balance sheet provisioning we have got. You can see there in the green line above, we are now 67% provisioned against non-performing loans. That plays a year ago against 53%. If you take collateral into account, the 67% is actually more like 76%. I think the balance sheet is very cautiously marked against the loan book, certainly as well as we can see it at this point in time. Now, another dimension that we've been working on quite a lot has been one to reduce the concentration risk that we had on a smallish number of very big clients. You can see on the bottom chart here, that over the last five or so half years, we have taken the proportion that the exposure to our top 20 clients relative to our total Tier 1 capital, down from 83% to 55%. That is making a more resilient business. If we get knocks in some places, there are more offsets elsewhere. I think a huge amount of progress in that space as well. Now, we talked back in November 2015 on Strategy Day about a number of things that we needed to do in the business, and just wanted to give a readout so that you can see that what we said we'd do, we have been getting on with doing. Top one here, number one is the liquidation portfolio. We identified about $20 billion of exposures that would not meet today's lending criteria. We have, as at the end of December, now exited 80% of those. That is slightly ahead of where we had expected to be at this stage. We have still got 20% to go, but nonetheless, a huge amount of progress in that space. Secondly, on low returning clients, the bottom left block, we identified about $50 billion. This is separate. They were okay clients, but just not as profitable as we would like. We have worked through about 60% of those now, so about $28 billion we've worked through, $22 billion left. Of the $28 billion that we have worked through, broadly, we have got a quarter where we have increased profitability. We've got about half where the profitability percentage may not have changed, but we've reduced the exposure. We have got about a quarter where we have exited the client relationship. Those have had an effect upon the income during the period. There is a little bit more of that to go as we go forward. Nonetheless, that process now very well advanced. Top right, we talked about addressing underperforming businesses. We have made 12 relatively small, but nonetheless non-strategic divestments during the period of time, one or two retail businesses. We are clearly taking action on the Principal Finance business, so that over a period of time. Not a rush, but we will work our way out of the Principal Finance book over a period. As Bill will talk to in a bit, Permata, which clearly has been a bit more problematic recently, actually, a number of changes there to make sure that the business performance picks up over the future, and then we can start to re-look at strategic options. I should also add, which isn't actually on here, that the Korean business is also one that we had in the camp of underperforming, and we have got that now back into profit for the 2016 year. Not a huge profit, but it is back in profit. So the direction of travel there is clearly a positive one. Finally on the bottom right, a number of partnership arrangements that we have signed up over the course of the year, different parts of the business to extend reach and give ourselves a greater base for income growth in the future. Now, this is the first of two charts, which does a high level walk of the previous year's underlying profit of the $800 million through to the $1.1 billion. It is, I think, meaningful to a degree, albeit the significant change in the loan impairment charges between the years is a pretty dominant theme. But if I take this chart, the significant item on here is the commercial banking business. So 2015, it had a loss of about $630 million. That has been tempered back now to $100 million. So we're not yet back in the black, but nonetheless, a very significant improvement in the performance there. Central and Others got an impact from the Permata share of losses. So if I pull two things out there it would probably be those two. If you then look at the same walk from a geographic lens, then the very big improvement is in the ASEAN region, and that's particularly in India, where again, in 2015, we took pretty large impairment charges, and those obviously have come back off during the 2016 year. Europe and America suffered a little bit because it was the recipient of some of the income from some of the assets that went into the liquidation portfolio. So we had income there in 2015, but not in 2016. Central and Other is the year-on-year effect of the Principal Finance business, which lost money in 2015 as well, just not as much. So that is broadly the shape there. But I guess the dominant theme is the loan impairment charges going down between the two periods. So on to our restructuring. As I said earlier, total costs in the year were $0.9 billion, and that takes the total now up to $2.7 billion. We have said right from the start that we think somewhere around $3 billion is where we will end up. That still remains our view. You can see in the pie chart or the polo ring or whatever it is in the bottom left, the split of that between the various types of expenditure. So $1.5 billion of that is on impairment, $0.9 billion redundancy, $0.3 billion other. Not too dissimilar to the profile we gave when we first did this. We sort of said about half of it we thought would be impairment, and we are curiously close to that at this point in time. I think as we go forwards, we still got the 20% of the original restructuring liquidation portfolio to work our way through. Now those are mark to market as best we see them at the moment, but until you actually exit, you do not know. Principal Finance, I guess is the other one as we work through it. Again, mark to market as best we see it, but until one actually exits. Hopefully, in the around $3 billion bucket relative to the spend cumulatively, we should be able to cover both of those. Then we move forwards fully in business as usual mode. Balance sheet-wise, just a quick couple of comments on this. So we have still got customer loans and advances around the $250 billion-$260 billion level. A little bit lighter at the end of the year. Probably half of that is FX. Some of that is the de-risking in the book. Other is just general flow within the business, so no significant change there. Customer deposits, actually year on year, has gone up a fair amount, so about $19 billion. We have deliberately reduced some of the funding through debt instruments because the cost of funding through here is preferential, and therefore, that is a conscious decision actually to improve the overall financial cost for the bank. Capital, I mentioned earlier on, 12.6% a year ago and 13.6% now. So top chart is on capital, and I guess there are sort of two dominant parts to this. One is the restructuring, which has clearly taken quite a lot of RWAs off, and the other is very careful management of the credit RWA, and particularly some of the accounts that were low returning, having gone, has contributed to that. The bottom chart essentially is just making that point from an RWA perspective, that we have gone down about 11% on RWAs, about half of that, so $33 billion in total. About half of that is the higher weighted exposures that we had, particularly in the liquidation portfolio. So careful management of RWAs. With that, I think what we said we are going to do in November 2015, we have been doing. I think it is encouraging that we have now got the income stable. It is encouraging that we have got the costs firmly down. It is good that the balance sheet is strong, the capital position is strong, liquidity is strong, and I think it is particularly good that we have now got the funding to invest to take the business forwards. But we all know the financial returns are not yet where they need to be, and that is going to be the focus as we move forwards. With that, back to Bill. Great. Thanks, Andy. I missed the opportunity at the outset to welcome José Viñals, who is sitting with us in the front row, our new Chairman. Started towards the end of last year. Hit the ground running. Has made a big impact already, internally and externally. Very grateful to have him here, and thank you for joining us this morning. Again, year of progress, but we think we have laid the fundamental foundations for the resumption of real growth in the bank. Obviously, over the course of 2016, we had from quarter to quarter, very modest income improvements. Basically, it was a year of stabilization after a year of quite substantial drops in 2015. Under the surface of that relatively flat top line, obviously are ups and downs. I am going to go through business by business and take you through both some of the challenges that we experienced in 2016, some of the things, many of which were of our own initiative in terms of risk adjustments, risk reductions, portfolio adjustments, divestitures, et cetera, some of which were external headwinds that presented some of these challenges, i.e. the downdraft. Which was, of course, slightly more than offset by other good things that are happening that are increasing and improving our income line. Along the way, clearly as Andy pointed out, making good progress on underlying risk positions. Very strong underlying advances in terms of our conduct and control agenda. Footnote, clearly more to go. Give a little bit of comment on the external environment. So focus on CIB for just a moment. Clearly, some difficult conditions in some of our markets in 2016. Andy mentioned the Principal Finance losses, which materially drag down that business line. 2016 was an organizational rebuilding year to a substantial degree. Simon started earlier in the year. Two of his key team members running banking and financial markets just joined in January of this year. So the team now is finally fully in place. Clearly, the team wasn't stagnant last year. It changed the coverage model quite substantially, refocused the client segments. Particularly focused on those things where Standard Chartered has a competitive advantage, in terms of giving our multinational corporation clients, whether they are in Europe or the Americas or within our footprint, access to the full range of our markets, in particular, the more difficult markets to access. Standard Chartered clearly has relatively differentiated itself in 2016, as we have redoubled our focus on some of our most difficult markets in Africa, Asia, South Asia, the Middle East, as other international banks have withdrawn. That has led to improvement in our underlying franchise position, despite the challenging conditions in many of those markets. Retail banking is, as we've discussed over the past year and a half or so, on a three to four-year fundamental technological rebuild investment program, which is on track and going well. The objective is to have an end-to-end digital environment to take what in many cases is a best-in-class digital front end. So we again received awards from various commentators as the best digital bank in Asia or the best digital bank globally from one or best digital bank in many individual countries. That reflects a very good digital front end that we have in many of our markets. We're connecting that through to an end-to-end digital process, which is a multi-year undertaking. Very much on track. Made the right progress in 2016. Workbench, which is our online account opening platform, iPad-based, is now rolled out in 10 of our core markets. We'll complete that rollout in the next 18 months. Already making a big difference in terms of the ease of clients opening accounts, allowing us to really drive forward that refocus on our priority client segment. So moving into the affluent and mass affluent client segments, in the core cities, in the markets in which we operate. Which also provides us with the efficiency of being able to relatively reduce our footprint in some of these secondary cities, which have been expensive in terms of bricks and mortar, and which we can access increasingly via online channel. So good progress in 2016, but of course, part of the progress is the upfront investment spend, part of that program, which did drive up the cost-income ratio and contributed to the decrease in profits. Of course, margins have been under pressure in a number of the markets in which we operate. But the shift in our liability-gathering focus towards more attractive CASA and away from some of the more expensive time deposits and other wholesale funding, got some real traction in 2016, will drive through in 2017 and 2018. Commercial banking continues to be a turnaround with tremendous progress year on year, but obviously from a very poor level last year, where we had extraordinary loan impairments. Continue to have elevated loan impairments, but dramatically reduced, as Andy went through, leading to a much lessened loss and clearly on the way to breakeven. But apart from the fundamental recasting of our credit and underwriting capabilities in the commercial banking sector, we've refocused the client segments. And we're really looking at clients that are providing or to whom we can provide one of two things, or both ideally. The first is those clients that have cross-border needs that leverage Standard Chartered's extraordinary international competence. Second is clients who form some part of our corporate banking clients' commercial ecosystem. So extended supply chain, extended distribution chain. That results and will result, continue to result, in a substantial turnover in the number of clients that we have. We are adding many new clients to the commercial banking segment that satisfy those criteria. As we identify other clients that aren't able to, or for whom we can't address some fundamental need, those are coming out. So there's been client turnover. There's been a refocusing on the risk quality of that portfolio. We've substantially reduced the losses, but it's just the beginning of what will be still a multi-year journey to an acceptable level of profitability. Private banking is an investment business for us. The investments in this business in 2016 came largely in staffing. We have a new executive management structure. We have substantially bolstered teams through external hires in the Greater China region, Hong Kong-based, and in India, both onshore and offshore, our non-resident Indian clients. The bulk of those new producing colleagues joined towards the end of last year or the early part of this year. So we haven't yet seen the impact in terms of net new money and assets under management. But the early signs are very encouraging. First, that we were able to attract what we think are best-in-class talent from competitor organizations. Second, that they've been very warmly received, both inside the bank, but also by their clients as they come to Standard Chartered. They came to Standard Chartered because they think this is a differentiated platform that can offer something different than the other private banks in the region, in what is clearly a very competitive market. We completed the process of reaffirming our clients in terms of their due diligence and know your client. We had some outflows as a result of that process, so the net new money drag was the result of our own de-risking actions. But that process is largely complete at this point. Just pick out a couple of highlights in each of the regions. Andy mentioned the ongoing turnaround in Korea. We're very happy with the progress that the Korean team has made. They've got momentum. It's on the back of obviously hard work, cost controls and management, and some painful cost actions, of course, as we indicated earlier, as well as some of the early signs of encouraging returns on the partnerships that we set up with people like Samsung in the card business and Shinsegae, to have a Standard Chartered branch in every E-mart and Shinsegae department store. More broadly, China, I think we all know the story. The good news is that stability has been maintained over the past year. The challenge is that it has been maintained with some restrictions on capital flows, some reshoring or unshoring of liabilities. In particular, from our perspective, out of Hong Kong back into mainland China, where we don't have the same funding advantage as we do in Hong Kong. That's put pressure on that business. But the medium to long-term objective that we've got, as seen by some of the progress we made in 2016, is still very encouraging. We do believe that China is on an inexorable path to open up. Things like the One Belt, One Road initiative, where Standard Chartered is absolutely in a leading position. We've done 40 deals last year in One Belt, One Road related initiatives. That has contributed over $100 million of income to the bank. We've got a pipeline that's multiples of that continuing to grow, and we don't see anybody else in the market that's anywhere close to Standard Chartered. Why? Well, we have the underlying capabilities in infrastructure and project financing that many banks have lost along the way. We have the relationships in China. We have the relationships in the destination countries, whether that's in South Asia or East Africa or West Africa or the Middle East. We have the capabilities to pull together complicated financial structures that involve export credit agencies or EXIM banks, multilateral lending organizations, or the AIIB or New Development Bank. These are all at the heart of our set of capabilities, and it's paying off. Our bet is that it will continue to pay off, and not just as China exports its capacity and capabilities to the rest of our markets, but Korea, Japan, Europe in its own ways, the U.S. in its own ways, export capacity as well. We're plugged in to each of those opportunities. ASEAN and South Asia is obviously a big region. Andy mentioned the improvement in India and in our Indonesian corporate business. Permata is obviously a highlight in terms of a disappointing result in 2016. As we said a year ago, we and Astra had, we stated our intention to migrate towards a single entity in Indonesia over a period of time. Of course, we engaged with Astra in those discussions quite openly, very strong partnership on the ground. As we were discussing how that could work, did our respective deeper dives into Permata, coinciding with the challenges that we've all seen in the Indonesian banking market, to which Permata was not immune, and really dug in hard, realized that the bank needed some remedial action. We have taken that action in terms of jointly sponsoring a rights offering for Permata, which is underway, replacing the CEO and the Chief Risk Officer, changing the governance structures as it relates to the board, so that we could stabilize the performance of the bank, get it back into the condition where there's no questions about how Permata will be able to exploit the opportunities that we all see in Indonesia, and then recommence the discussions on the strategic front at a future point once the bank is stabilized. We and Astra are going through this process hand in hand. We made good progress in the early stage, but only after a very disappointing result in terms of the performance of that bank. In Africa and the Middle East, we have clearly seen an improvement in our competitive positioning in Africa. Part of that is the ongoing withdrawal of other international banks from those markets. In many ways, in terms of relatively complete international banks, we're the only one that's left across the continent, and we're pushing that advantage quite hard. So maintaining our investment without compromising our lending standards. We had an improvement in the loan impairment picture, for us in Africa, despite some obvious areas of turmoil, and we'll continue to press that advantage, very similarly in the Middle East. In Europe and the Americas, the headline figures always tell a bit of an unfortunate story, suggesting that that's a break-even or loss-making business. As you understand, the bulk of the revenues that come from our Europe and American clients are booked in other parts of our geography. It is the U.S. MNCs that are doing business in South Asia or China or Africa, and the revenues get booked there. When we look at the origination revenue in Europe and the Americas, it remains strong, and we think that we have, in fact, we know that we have a tremendous opportunity to increase our client base in those markets to reflect the fact that what we have to offer, in particular in the most difficult markets that we serve, is differentiated. What I found very encouraging is the number of clients that have said, "You solve our problems in hard places like Iraq or Ghana or Pakistan," which, of course, is important, but it is not going to turn the dial enormously in terms of the drop to our bottom line. We will continue to do that because these are important markets for us locally as well. But we need to see a bigger share of your overall wallet in your rates business, in your FX business, in your debt capital markets business. We are asking for that business, and we are getting it. To lead the first European bond into the Chinese Panda market, the first European issuer into the Panda market, is a real honor for us. We did that last year. These are the kinds of things that we are getting, frankly, because we are asking for it. We did not always ask for that kind of business. We were maybe more inclined in the past to ask for assets that were going to stay on our balance sheet. I am encouraged by the opportunity there. Simon has clearly recognized that. Tracy Clarke has clearly recognized that for Europe and the Americas in terms of refocusing on that client segment. Focusing on risk for a moment. I will just dwell on the bottom right line of this page, which is the strong first line of defense. The fundamental cultural change that we have initiated, obviously with the arrival of Mark Smith as Chief Risk Officer, Andy, myself, has been to, and Simon, to refocus on the obligations of the frontline relationship managers in each of our business, commercial banking, retail, and corporate banking. That sounds obvious, but clearly part of our assessment of some of the problems that we had on the lending side was that we lost the first line of defense, both ab initio, but also as credits got into trouble. We have reinstalled that culture, including a reinstallation of the underlying training required to make sure that that frontline is properly qualified. The risk profile of the bank has improved, as Andy took you through in some detail, and we are also fundamentally improving the risk culture. Conduct and financial crime is an ongoing area of focus for us. Again, we think we have made really good progress. Obviously, we have gone through the remediation programs, and we will continue to for some time. I will speak to that in a moment. But we have done a lot of things that are focused much more on putting Standard Chartered as a really effective partner for law enforcement at the very frontline of the fight against financial crime. We do this because it is the right thing to do. We do it because it makes all of us feel better about the extraordinary efforts that we are going through to build this set of capabilities, and we do it because, of course, law enforcement and regulators expect us to take these initiatives. If you have 2 minutes, at some point, click on the website that we have included in this slide, and you can see a little microsite that we have set up that focuses on our financial crime compliance program. We do think we are making fundamental progress in terms of the remediation program. We are also making good progress in terms of effectively recertifying our clients to take the steps they need to take to become relevant and behave appropriately in the international financial community. So we set up a correspondent banking academy. We have put about 300 clients through this course, 600 clients, actually, through this correspondent banking academy in 38 different sessions around the world. As far as we know, we are the only bank that is taking that proactive approach, where we are trying to help our clients stay engaged with the financial system at a time when others of our competitors are going through rigorous checks and then exiting clients. We hear that over and over again. You are the guys that are helping us get there while others are cutting and running. I think that will put us in a very good position to continue to extract value from this business through time. We continue to be very involved with our regulators and with investigators, cooperating with the investigations to focus on resolving all the previously disclosed investigations that I and others have mentioned in our earlier discussions. When I have something to share with you in terms of a development around the ongoing investigations, we will surely share that with you. We do not have anything to share at this point. The program that we see for here, of course, the investigations will run their course, but we have an ongoing remediation program as well. It has got a while to run. We and the DFS, together with our monitor, have agreed that it makes sense to extend our monitorship for another couple of years until we complete that remediation. I think that was always the expectation, but until you get there, you do not know. At this point, I think it is pretty clear that that will be the right thing to do. We are very comfortable that with the ongoing cooperation with the monitor, which has gone very well from our perspective, that we will resolve these issues fully in the coming period. Certainly, that is what we are committed to. So just a little bit on outlook. We see it as very balanced. There are clearly some headwinds that are receding or some tailwinds that are emerging. It is great to see the U.S. at the early stages of reflation. Other developed economies are showing some economic improvement. Begin to see a normalization of the rate cycle, at least in the U.S. and perhaps some other markets. Commodity prices obviously have returned to a more comfortable level, probably both for consumers and producers. China has extended its period of stability for another year, and looks like it is broadly under control in terms of the transition it is going through. At the same time, the number of uncertainties and the severity of those uncertainties has increased. So, obviously the threat of protectionism is real. We are hearing that all the time. Exactly how that plays out and how that translates through to our business remains to be seen. But it is something we watch very closely, and it is unlikely to be anything but negative. There is not a positive outcome there. Excuse me. The divergent monetary policies means currency volatility and typically weaker emerging markets currencies in this phase of the cycle. So we are watching that closely. The political and regulatory uncertainties, politics, we are all experts no doubt. On the regulatory side, the biggest challenge for us is to understand what the impact of Basel III or Basel IV, as it is sometimes called, could be for Standard Chartered Bank or other banks for that matter. Clearly, that process is somewhat stalled in negotiations between various regulators, and how that will play out in terms of impact on us remains to be seen. But again, there are scenarios that are quite impactful. There are other scenarios that are not very impactful. We have not seen a scenario yet that would be very beneficial in terms of outcome. Then, of course, we have got the ongoing set of emerging markets, idiosyncratic issues that we face from time to time. Indian demonetization was the most recent example that took us all a bit by surprise. Not clear whether that will be a good outcome in terms of an experiment or not, but it certainly disrupted the business flows for a period of time while that was working through the system. So on balance, we see a number of things that we can control. We are making very good progress on those things that we can control. We see an overall and an overarching imperative to focus on driving our top-line growth. We feel good about the ability to do that, given the investments that we have made in our business that should begin to pay off over the course of 2017 and into 2018 as a result of the removal of some of the negatives that we have experienced, specific losses that Andy and I have both mentioned, but also some of the ongoing portfolio adjustments and de-risking that we have undertaken. These things all bode well for the resumption of growth in our bank. The macro environment is balanced, as we say, but we have taken steps to mitigate against the things that we can control or that we can observe and feel that we are well-positioned to weather the inevitable bumps in the road, and very well-positioned to leverage the good things that might happen or the improvements that might happen. We ask ourselves the question regularly, do we have the right strategy and are we on track? Has anything changed in the market that causes us to think that what we laid out in November 2015 requires a rethink? The short answer is no, that we think we have the right strategy. I'd say, certainly personally, I think I'm speaking for Andy and José Viñals and the rest of the board, we believe that we have the capabilities that are required to execute that strategy. I'm more confident than I was when I stood up here a year ago that we have what it takes to get this right. That is somewhat offset by a more uncertain environment than we had a year ago, even though there are signs that some things are improving. On balance, feel very good about where we are, and as far as we're concerned, it's full speed ahead. With that, I'll invite Andy back up and we'll take some questions or comments. We've got some mics floating around. Thank you. You previously said, Robin Oberle, RBC, an 8% ROE target in 2018. At Q3, you said it's unlikely to reach that. Do you want to, given that the rate environment's got better, reiterate the 8% ROE target in 2018? On asset quality, do you think impairments will fall next year? I noticed the CG 12 accounts are still going up, but you say inflows are lower. What's the state of NPL inflows as well? I'm not sure if you commented on that in the report. Thanks. Yeah. What we said at the half year was that the economic environment, as we had observed it at that point, which was six months, seven months after we had rolled out our strategy, was quite a bit worse than what we had forecast in what was already a relatively conservative assessment back in November of 2015. As a result, it was going to take us longer to reach the targets that we reached. There are encouraging signs of an improving economic outlook, but we certainly haven't made up the gap that opened up between November of 2015 and the middle of last year. So we're not going to revise the guidance, which was left somewhat open at the mid-year in terms of the timing of getting to an 8% or a 10% return on equity. We'll certainly reaffirm our commitment to getting to those levels. I can reassure you that every decision that we're taking, every investment decision, every invest or divest decision, is taken with those financial targets in mind. Just to pick up on the NPLs loan impairment. It is always quite difficult to forward forecast on them. I guess overall for the year, we saw some increase in the CG 12s in the first three quarters. Actually improved a bit in the fourth quarter. That is one quarter, so it is not yet a trend. So that is slightly helpful. The inflow of NPLs actually also had a similar pattern, was slightly better in the fourth quarter. So I think a number of the things we have done to improve the sort of toughness of the credit decisions will just take a period of time to come through. But I would say the indicators are slightly to the positive rather than the opposite at the moment. Elias? Thanks. It is Elias Kostellos from Autonomous. Can I ask a couple of questions about costs, please? Andy, you showed the slide of quarterly revenue progression, but if we were to look at a slide of quarterly cost progression, we would see the costs were ticking up Yeah through 2016. I wonder, going into 2017, is that going to continue to go up before it comes down again in 2018? Yeah. Especially given the lack of, or the lower level of gross cost savings you have got coming through. Secondly, on a divisional basis, if I look at your cost income ratios in commercial banking, you are still north of 70%. In private banking, you are north of 90%. You mentioned, Bill, about private banking hiring people, but when are we going to start to see these divisions really turn around? Because even at a zero provision level, they are still not delivering very good returns. Yeah. So fourth quarter was higher on costs, you are quite right. Part of that was, as we had pre-trailed, that the investment spend, of which about 60% gets expensed, was actually picking up, particularly in the second half of the year. I think that element is in the run right now. There were one or two more one-off items in the fourth quarter, which I do not think one should think of as recurring. As we go into the current year, I think that you should regard as being a little bit higher than the average for where we are at. Hence, as we go forwards and take a bit more cost out, I think the cost in total for 2017 should be fairly similar to where we came out in 2016. Cost bases in some of the businesses are still too high, and we know that. In part, we need the income to come up because obviously mathematically that does help. We recognize, particularly in retail, that 70% cost income ratio, we need to get that down into the mid-50s. Actually enabling that to happen, quite a lot of that does need more investment in technology. We have got too much manual activity and actually automating more of it is going to be the key to that. We are well aware of it. We are working on it. It will take a little bit of time, but we do absolutely need to get those cost metrics better. Yep. We just had a back one. Okay. The other one said. Thanks. Good morning. It is Chris Manners from Morgan Stanley. Two questions, if I may. The first one is, I did not see a slide up there on capital. Just thought I would see if your 12%-13% target still holds. I know Barclays increased their management buffer, again, given the light of a tougher stress testing environment. Just thought maybe you might be able to comment around there. I guess given the capital that you do have, which is above that target, how do we think about capital management? I know we do not have a dividend this year, but if we get a profit, do we think about reinstating it? Second question was just on interest rate sensitivity. One of the clear benefits is if we do get the rising rate environment, that should help you as you have a deposit-rich franchise. Can you just remind us of the sensitivity? I think some of your peers actually showed increased interest rate sensitivity compared to where we were before. Thank you. Well, just quickly on capital, we haven't revised our range 12%-13%. CET1 still feels like the appropriate range. What we don't have a good handle on is what the outcome of the Basel IV process will be. I think we have ideas on the impact of IFRS and things of that nature on capital ratios. But there's certainly some questions there as well. Most of which should be clarified over the course of, we would hope, the early part of 2017, although of course it's possible that it's not. I think that, combined with a growing sense of how the Bank of England approaches stress testing. So we've now been through three scenarios, two of which were highly relevant for us, one of which was less relevant for us. Beginning to get the sort of messaging out of the Bank of England that will give us a bit more confidence to know the degree to which they think that may become a binding constraint. Now we know that rhetorically, they're very clear that the stress test is not intended to be a binding constraint. But the rhetoric and reality aren't always the same thing. I think as we progress through this year and we get a better idea of what their scenario looks like for 2017, a lot of the uncertainty around what's going to be required will be off the table, and then we can reassess whether the appropriate place to be is really in that 12%-13% range, or whether the 12%-13% is recalculated somehow. But we do feel like we're very well capitalized right now, which also feels like the appropriate place to be in this economic environment with these uncertainties and at our stage of turnaround. On the interest rate sensitivity, we have said before, sort of ballpark with a couple of caveats, which I will come on to, but every 50-75 basis points is probably $300 million-$400 million of income, something in that sort of range. Now, a particular caveat of two things. One, it depends upon whether those are global interest rate rises or primarily U.S. So those numbers are more assuming that it is everywhere, which may or may not be the case. The second is obviously it depends on competitors and what they do and how much they pass on. So they are indicative, I would say, rather than absolutely precise, but in that sort of ballpark. Great. Can I ask you about the U.S. proportion of that $300 million-$400 million? It is not far off half and half, actually. Thank you. Here's Helen Robania. Hi, it's David Lock from Deutsche. I've got two. One on corporate finance revenues. Pretty strong quarter. You referenced in the presentation there, the One Belt, One Road. I just wondered if you could talk about the pipeline around that, and should we really be seeing this as a base to improve from in the next couple of years? Secondly, on costs. I appreciate the color on 2017 costs. I just wondered if you could talk about the underlying inflation that you're seeing in your business. Because, of course, as we look further out, trying to forecast costs once regulation spend starts to hopefully reach a level where it's not going to keep going up, and your cost savings will be effectively rolled through. Just trying to think about the underlying inflation within your businesses at the moment. Thank you. Corporate finance is an inherently lumpy line item for us, and it's volatile from quarter to quarter. So it was positive signs in Q4. The pipeline is okay. I would say that the successful execution rate on the pipeline is, looking over the past year, it's been a bit on the low side. So the conversion of pipeline to revenues, it's either we're having a lower success rate, or it's taking longer, or both. But it all makes it a little bit less predictable than it has been at other times. But our capabilities are good. I think the opportunities in the market, viewed in the medium to long term, are very good. Our competitive positioning and where we see the opportunities, I mentioned the One Belt, One Road stuff, but for every dollar that is coming out of a Chinese-backed project, there is probably $0.50 coming out of Korea or Japan as well, focused on some of the same opportunities, and we are very well plugged in there as well. We see plenty of opportunity to grow that business through time and think that we will grow it as investment confidence increases or as government largesse improves. On overall cost increases, obviously, it is a sort of average across a number of markets, but probably around the 3% level, something of that sort of order. That is putting regulatory and compliance on one side, quite correctly for your question, as that seems to have a life of its own. Let us pass the mic down the row. Good morning. Martin Leitgeb from Goldman Sachs. I have two questions, please, and the first is a broader question. Obviously, following the U.S. election, there is a renewed focus on globalization, the opportunity for trade finance, and how the potential introduction of trade tariffs would affect certain business models. Obviously, you called out Standard Chartered's business model as heavily focused and geared toward that trade happening. I think you also previously called that Standard Chartered would be in the line of fire if there were to be restrictions. I was just wondering if you could shed a bit of light how we should think of the risk for you as a bank in case global trade would get difficult. If it is mainly in terms of revenues, your trade balances, your trade income shrinking, or you see greater implications for some of the economies and with that, the tracking side going forward. The second question is a follow-up on Chris' question on your interest rate sensitivity. We had all the domestic banks reporting and giving us detail on the structural hedges in place. I was just wondering if you could shed a bit of light how you approach the topic structural hedging within your interest rate management strategy, and if you could disclose to what degree your rate sensitive balances are structurally hedged. Because obviously that could affect the pace at which rate hikes feed through in terms of profits. Thank you. You can imagine we do a lot of, you can call it war gaming, on the way that the trade dialogue could play out. There is a number of moving pieces. There is obviously the simple matter of tariff barriers or non-tariff barriers, quotas or whatever, that would have an impact in terms of reduction of global trade, which would influence us to some degree. Then there is a second line of investigation, which is around the pace of encouragement or discouragement of global investment. To the extent that the different countries around the world are trying to re-domesticize jobs, are they similarly disincenting international investment or outsourcing, as opposed to creating these jobs through tariff barriers? Now, there's obviously a state of the world where everything gets locked down and global trade reduces fundamentally and cross-border investment is reduced substantially almost certainly driven out of the U.S. and/or European economies which would be partially offset by a regionalization of, maybe a super regionalization of Asia. No surprise that when the U.S. terminated its commitment to TPP, the first thing that the Chinese did, and it was quite welcomed, was the establishment of a regional trade organization. Obviously, it would take some time for that to come into play, but the intent is clear. There's a part of the world that may want to throw up the borders, and there's another part of the world that's going to try to take advantage of that. And that happens to be the part of the world in which we operate. While the timing of reductions, which I don't think are highly likely, and I think clearly there will be some actions on the back of the rhetoric that we've heard our expectation, base case, is that it's not going to be highly impactful for us. And if it is, it would be phased in over some period of time. If things get very messy and we get into the real trade war zone, there will be offsets in terms of goods and services going to parts of the world where they're not going today. And we'll be there to service that. And on structural hedging, clearly it's something we are pretty on with being a dollar reporter, but having most of our businesses not actually locally in dollars. We have got a pretty sophisticated way of going through looking at ECL exposures relative to cost of hedging, which we are doing market by market on a regular basis. I think it's fair to say in some markets, the cost of hedging is really quite high if the market isn't that big. So it is a minority of markets that we will structurally hedge on an enduring basis. But that is monitored on a regular basis, and it does ebb and flow over time. May I follow up? It's also for tangible equity, if you invest the tangible equity- Yeah that will be on essentially a rolling basis and not on a longer-term basis then? Yeah. Thank you. Yes, thank you. Good morning. Tom Rayner from Exane. Could I just start on revenue and cost question, please? You've described the quarterly trends as pretty stable through the year. But Andy, you flagged up some fairly big items which spread across different parts of the P&L, which I am not sure have been fully adjusted out in that revenue. Does that hold true, the very stable quarterly progression, taking accounts of the Principal Finance moves and those other things? Then I have a follow-up on the cost side as well, please. Yeah. Obviously, in the aggregate chart I showed, we have got a relatively small amount of movement between the quarters. If you do it by product line, there are some things that move up and move down. I think the only one I would particularly draw out is the Principal Finance. So we said about $200 million over the course of the year. There was a higher proportion of the $200 million in the first half of the year than there was in the second half of the year. But otherwise, I would say on the average, it has been pretty stable. Okay, thank you. Then just on the cost, if I understand your sort of 2018 guidance correctly, you are sort of pointing to a sort of annual cost of around $10 billion. I just wonder if you could add some color to what sort of underlying cost inflation that you are therefore going to be absorbing through the savings, and what sort of assumptions you are making about the regulatory and compliance element. Is that going to be coming down materially across the next couple of years to help you get to that target? Yeah. The 2018 commitment was an exclusive bank levy commitment. So actually, we are more talking numbers that start with a 9 than a 10, so that should help. We have, to my previous question, got a sort of 3% or thereabout underlying assumption of inflation that is in there. Regulatory costs we are assuming are not going to be coming down anytime soon. We hope that that is better, but realistically, every year we seem to have slightly more things that we do spend money on there. So there is an assumption that we will have regulatory costs continuing at roughly current levels. Thank you. Bill, can I just ask you one question, sir? You mentioned the monitorship being extended by 2 years. That sounds like a big deal to me. What is the real reason behind that? Is this something that I am overreacting to? It just sounds like a bit of a surprise, that 2-year extension. Yeah. Well, we are not surprised. As I indicated when we spoke, in fact, each time that we spoke, but certainly when we rolled out the strategy a year and a bit ago, we had several years left to go before we will have fully remediated and demonstrated that we fully remediated all the issues that led to our sanctions in 2012 and 2014. And, obviously 2014 is 3 years ago, and we have got a while to go. I think that the important thing, which I have also tried to communicate each time we have spoken, is that we are making very good progress. And of course, only the monitor can speak for the monitor, and only the DFS can speak for the DFS. And we wouldn't presume to offer their views publicly. But from our perspective, we recognize that we have hit the targets that we have set for ourselves. It is a multi-year program. There is more to go. The idea that we are going to be monitored during the completion of the program is not a surprise. Okay, thank you. You just hand the mic behind you. Good morning. It is Andrew Coombs from Citi. One follow-up on the dividends, and then just one on core loan. In terms of dividends, you talk about being well-capitalized. You said you have not compared dividends for 2016, given you want some clarity on regulatory issues. Could you just specify exactly what clarity you are looking for, just the Basel IV comment and what you are thinking about in terms of timeframe there? Second question, if we look at the core loans, just stripping out the liquidation portfolio, they look like they have still fallen Q on Q 266 to 258. You do not provide the quarterly disclosure by segment. It looks like a lot of that is due to private bank, but perhaps you can elaborate on what has driven the decline in the core loan book. Yeah. On the regulatory end, certainly, Basel IV I mentioned clearly is an open issue. The impact of IFRS 9 is an issue. We will never have complete clarity on the likely impact of stress tests, because by their definition, they are not perfectly predictable. But I think as each year goes by, as I think you will have seen from U.S. banks that have been operating under CCAR for quite a while longer, with CCAR it became clear early on it was going to be the binding constraint, is the binding constraint. While U.S. banks obviously complain that it is not very predictable, nine years in, it becomes a bit predictable. The Bank of England and/or the EBA, for that matter, are much newer in the process, and they said it is not likely to be a binding constraint. You almost have two levels of uncertainty. One more data point will be helpful. It will not be definitive in terms of providing all the answers. We will not have the basis for micro planning of our capital outlook, but it will be a little bit more clarity than we have today. I guess my question on that would then be, one, the Bank of England says they do not plan to tighten the They have said that. They have said that. They've said several things. Okay. But secondly, if you were to get one more data point, does that mean you're going to wait for another annual test, which means no first half, give a no to the second half? Yeah. Well, the scenarios come out in the first part of the year. So, the results don't come out till the end of the year. But you will get an understanding based on the scenario that they drive. Yeah, of course, they said no more severe. They've also said no material increase in capital. What's material mean? Okay. What's increase mean? What's no mean? Your second question, how do you follow that? I think about half the reduction is purely FX translation back into dollars. The rest of it is just movements generally in the business. There's nothing significant there, however defined. Hi, it's Michael Helsby from Bank of America. Just going back to the revenue point really, because that clearly is the story for the next year or two or three or four. Okay. I don't want to compare Standard Chartered to a duck. But it does feel like beneath that sort of stability of revenue that we've seen, there's so much going on below the surface that it's hard for us from the outside to really appreciate. I was in Asia last week, and some of the feedback from the clients on the ground was that they sense that Standard Chartered is being just a bit more active from an origination point of view, and that maybe some risk is being put down there. Is that a fair observation, that actually from an origination point of view, that you've turned the corner and that you're driving things forward from here? Thank you. I'm so glad you asked that question because I think it's exactly right. I've traveled a bit in the first part of this year. I've seen some clients in several parts of our network, and I'll pass on two anecdotes. But they're very representative of the broader feedback. Keeping in mind that in many cases, this will be the second time that I've seen these clients because I met them early on in my time at Standard Chartered and now a year or a year and a half later. A large U.S. MNC, very high-powered CFO, not an easy guy, said, "I asked my treasurer," who was sitting in the room, "What do you think about Standard Chartered? How are they doing?" And I asked the treasury team broadly, "We have a process to canvas before these relationship-type meetings. Nobody had anything bad to say." He said, "I can't remember the last time that happened. In fact, there were quite a few good things. But what really stuck out," said the CFO, "was the fact that you solve our problems in countries where we can't go to anybody else. There's you or a local bank, and these happen to be very important markets for us in Iraq, et cetera." I said, "That's great." As I mentioned in my earlier comments, that's fantastic. "Can you find a way to pay us in addition to what we get paid in Iraq? Because that's great, but we're not going to make a living off that. He said, "Yeah, absolutely." He said, "You're a top 5 FX bank, top 5 rates bank, top 5 DCM bank," recognizing that they have hundreds of banks that they can deal with in all of those other areas. They say, "You're fine in those areas. It's hard to differentiate yourself in spot FX, online trading, but you're fine. Maybe you're even good. Maybe sometimes I say you're excellent, but you like the research. But yeah, we're fine." I hear that regularly in each of the markets that we visit. I was in India. The meetings that I had in India a year ago were largely around how are you going to deal with your NPLs? Am I on your exit list or your maintain list or your grow list? Are you committed to India? Who's running the place? Because the chain of command that I knew in my last 10 years at India, dear client, I don't know anybody anymore. Those were all fair questions at the time. We were going through a really tough transition, having had some horrific losses in India. This year, it was, "I want to talk to you about pricing. I want to talk to you about service. I want to talk to you about how you can solve this particular problem that you haven't gotten to yet." I said, "But what about all the questions from last year?" "What questions last year? You're obviously committed. You've got a great new CEO." Actually, I don't mean me. Sorry. I only realized how silly that sounded after I said it. Indian. A new Indian CEO, Zarin Daruwala. Stand up and take a bow. Yes. The observation was, obviously you're committed to India. You're highly relevant for us. By the way, the whisper in the sidelines, "Good job getting rid of some of the dross that you exited because they were dragging you down" and referring to their colleague clients, not to my colleagues. Yeah. It's a fundamentally different tone of discussion that is completely engaged with clients. Are we there? No. Paul Skelton joined as the head of banking coverage in January of this year, and he will add materially to the work that Simon did over the course of last year to reposition that client franchise. Tracy stepped into her role in Europe and the Americas in a full-time way just six months ago, having obviously had a whole slate of responsibilities before then. We have a new CEO in the Americas that started at the very end of last year. We have a new CEO in Singapore from inside the bank, but who started towards the middle of last year. We're just building a momentum. But the mood on the ground vis-à-vis clients has already fundamentally changed. You don't see it in the income line entirely yet, but we have had to do some good things to offset all the negatives that continued to happen through 2016. I don't want to suggest that we were standing still, and now we're at the starting blocks, and we're ready to go. That's not the case at all. We've been building momentum over the course of 2016. It does feel like now we're ready to start running. We have a question from UBS, Steven Andrews. He wants to understand if you can quantify the income drag on your $50 billion low-returning client risk-weighted assets in the past 12 months. Part two of the question is, how much more income drag should he assume for the remaining $20 billion? Yeah. Difficult to precisely quantify. I'd say probably north of a couple of hundred million dollars of drag on the 2016 year. I'd hope that it will be a little bit less than that because we are more than halfway through it as we go forwards. Something of that order. If I could comment on that, because when we think about the things that are disappointing in 2016, the things that if you wanted to, you could give us a really hard time. You'd say, "Why didn't you clean up the Principal Finance book in 2015?" Right off the bat. I think Andy and I have both given some explanations for that, but you could say that. Why did it take you until into 2016 to really deal with the underlying challenge in Permata? Which I think we also addressed. But there is, on this $50 billion of low-returning client assets. I stood up here a year ago and said, we've assumed from a modeling perspective, in terms of what we put in our ROE walk forward back in November of 2015, that we were going to lose all those clients. That's the worst-case assumption, that they all just leave, and we lose the income associated with those clients. What I said, though, was that I was hopeful that we would retain most of them. That we could upgrade most of them. Here we are one year into it. We're a little bit over half the clients having been dealt with one way or another. Only a quarter have been upgraded. Half of the half that we've dealt with are still in the low return zone. There might be some improvement, but not enough to get them out of the danger zone. But with lower exposures. Those are the clients. Then another, obviously, quarter have exited. The mark to market on that is half of those clients that we've dealt with, we've said they're worth keeping on the books. We think that we can get an improved return over a period of time, but it's going to take longer than the one-year period that we've gone through so far. Obviously, it was a two-year program, so we're hopeful that in the second year that some of that half, where we're still sitting with a low return, but with lower cost to carry, lower drag, that we're going to upgrade those in the second half of the year. But we've been very clear with those clients through our account planning and mark-to-market process, that these are client relationships that are challenged for us, and that we need to work together to find a way to get some improved returns, or else eventually we'll have to exit. I'd love to be able to say that we've talked to 1,000 clients, and 980 of them are upgraded, and we're getting good returns on those, but we're not there yet, but we have made good progress. Hi, it's Fahed Kunwar from Redburn. I just have a couple of questions. The first one was on, I think it obviously was 82%, but the 55% of Tier 1 exposure to your 20 corporate clients. Just from your previous experience, what do you think that number should be? It still seems quite a high number to me. The second question was on more of a strategic question. You talked about a funding cost disadvantage in, I think, Greater China and North Asia. You talked about the Chinese response to the Americans coming out with TPP was to open up their regional aspirations, which I then assume also means opening up their currency. Doesn't that funding cost disadvantage, can it continue or accelerate going forward? Because I assume your funding cost disadvantage is much bigger in RMB than it is in U.S. dollars. Doesn't that then start to drag against the potential benefit of rising rates in the U.S.? Thanks. The funding cost disadvantage I was referring to wasn't GCNA, it was China. As Chinese corporations have moved their debts from offshore debts to onshore debts, from dollars to RMB, they refinance with Chinese banks. As we know, Chinese banks are extraordinarily flush with liquidity, and we don't try to compete on the domestic Chinese bank loan market for large corporate clients, so for our clients. When will that change? When will the balance of onshore versus offshore lending change? It will change when the currency view of Chinese corporations changes, and they no longer are effectively betting on a depreciating RMB. Which we'll all form our own views on when the RMB will have found its natural resting place. I can tell you, we look at the fundamentals, and we say that the RMB is fairly valued now. If anything, it could probably appreciate a bit. But we know that the technical flows are very much the other way, whether it's private capital flows or even the public sector capital flows are all looking to diversify assets or concentrate liabilities into an expectation of a depreciating RMB. So technically it's real. Savers will diversify their portfolios away from their home currency as they do everywhere else in the world. That could be quite a long process. But offsetting a fundamental story, which is positive for RMB. So we had a big shift in 2016 in terms of migration of our asset base from offshore, which for us is Hong Kong, to onshore, and that's stabilized. It's not accelerating, but it's not reversing either. But our business isn't to go head-to-head with Japanese banks in Japan or with Chinese banks in China. It's to serve the cross-border flows. There's no sign that we see that, again, medium to long term, those cross-border flows and cross-border investments and associated liabilities won't be a mainstay coming out of China. We're well-positioned to harvest as that flow picks up. What was the first question? Just on the top 20 corporate concentration. Oh, yeah. I don't have a specific target. We knew that 83% was too much. The top 20 clients as a proportion of Tier 1 capital is fundamentally a credit measure. There's another measure, which is how concentrated is your income stream. Of course, there's correlation between size of credit exposure and income, but I think we're much more focused now on broadening out our client base as a percentage of our total clients. So Simon and Tracy and the C&IB team launched a next 100 clients. We felt we were too concentrated in our top 100 C&IB clients, many of whom were financial institutions and others, the large international corporations. So Simon launched a particular initiative for the next 100 C&IB clients to get them to be. Obviously, they won't be as big as the top 100 by definition, but to close that gap a lot. Also to develop another 90 clients, new clients, in the Europe and Americas region, where we feel we're relatively under-penetrated, given the competitive advantages that we've got, and frankly, the success that we've had with our relatively narrow client base today. So our focus now is much more on broadening out our income base than on dealing with the credit concentration that's represented by that particular statistic. Maybe it's the last time we'll show it because we feel like from a credit perspective, we're quite well balanced now. Thank you. If there are no other questions, I think we will call it a day. Thank you again for coming in on a Friday on a busy day. Thank you very much.