Good morning, ladies and gentlemen, and welcome to the Investors and Analysts Conference Call for HSBC Holdings plc's 2012 Interim Results. For your information, this conference is being recorded. At this time, I will hand the call over to your host, Mr. Douglas Flint, Group Chairman.

Good morning from London, and welcome to our 2012 HSBC Interim Results Webcast and Conference Call. With me are Group Chief Executive, Stuart Gulliver; and Group Finance Director, Iain Mackay. In a moment, Stuart will set out the major points for the first half's performance. Iain will talk through the financial detail, and Stuart will then cover the strategic progress made before opening the call to questions. Stuart, over to you.

Thank you, Douglas. You all have seen the report from the United States Senate Permanent Subcommittee on Investigations, which has been extensively covered in the media and which has revealed our past shortcomings in relation to compliance with U.S. regulations, including anti-money-laundering laws and the Office of Foreign Assets Control sanctions. We said in our annual results for 2011 and 2010 that we have been cooperating closely with U.S. authorities, but the subcommittee hearing will have been the first time most of you will have seen the detail. I very much regret HSBC's past failures, and I apologize for them. Our controls should have been stronger and more effective. As you would expect, HSBC has a number of means to discipline people who fall short of our standards, including clawing back bonuses and dismissal, and a number of people have left the company. But I also want to explain what we're doing to make HSBC more resilient and less likely to see a recurrence of these problems. When the new leadership team came in, in 2011, we recognized that immediate action was required. First, we changed our organizational structure. In the past, we were organized along country lines so over 80 separate businesses. Our new structure, with 4 global businesses and 10 global functions plus HSBC technology and services, makes it easier to manage and control the firm. Basic global integration allows for a coordinated and consistent approach to compliance and to risk. We've made HSBC simpler through our Five Filter process. We have announced 36 disposals and closures since the start of 2011, exiting nonstrategic markets and selling businesses and non-core investments. These disposals make the firm more manageable, reduce risk and let us concentrate on our strengths as an internationally connected bank. We have also put a sharper…

Thanks, Stuart. You'll have seen these reported numbers with profit before tax of USD 12.7 billion, which is up compared to the first 6 months of 2011. We've accomplished a great deal during these 6 months with some significant disposals, and the gains in these affect the reported numbers along with movements in fair value and on debt, non-qualifying hedges and notable items. On an underlying basis, profit before tax was USD 10.6 billion, around $400 million -- down around $400 million, that's 3%, on the first half of 2011. Revenue was up 4% on the back of growth in Global Banking and Markets and Commercial Banking, particularly in Asia. We are delivering growth in our key markets, where we focused our investment in line with the strategy. This was offset by higher operating expenses, reflecting significant notable items in the first half and have analyzed these costs later. Meanwhile, on an underlying basis, loan impairment charges were broadly stable compared to the first half of last year. Turning to revenues. 4% underlying growth has been driven by those areas and markets in which we've been investing, in Commercial Banking, for example, where we learned more on Asia. We have achieved a growth in incremental revenues of 16% from the further integration of Commercial Banking and Global Banking and Markets. Global Banking and Markets revenues are also up with growth in rates, foreign exchange, Payments and Cash Management and Balance Sheet Management, again validating our business model. Retail Banking and Wealth Management has increased revenues by 5% in faster-growing regions. In part, this was because of rising interest rates in certain countries, demonstrating the leverage effect of our deposit base. Underlying costs were $1.9 billion higher than the first half of 2011. This reflected $2.6 billion of notable items, and…

Thanks, Iain. Our strategy sets the context for everything we're discussing today, and we updated you all in May on the considerable progress that we've made. In the light of that progress, we reaffirmed our 2013 targets, and this slide shows the path towards our targeted return on equity between 12% and 15%. Now evidently, at 10.5%, we have some way to go, but that 12% to 15% target is supported by a target return on risk-weighted assets of between 2.1% and 2.7% based on a core tier 1 ratio of 10.5%. And then, obviously, the target returns will be impacted by evolving regulatory requirements, and return on risk-weighted asset targets will be reviewed accordingly. But on an underlying basis, this half, we have achieved 1.8%. Excluding the U.S. Consumer Finance, Cards and Global Banking and Markets legacy businesses, we were actually at 2.3%, bearing in mind that that included the negative impact of $2.6 billion of notable items in costs. On a regional basis, you can see that Hong Kong, the Rest of Asia Pacific and the Middle East are well above 2.1%. Latin America is not far below it, and both Europe and North America are clearly well below it. These regions are where the notable items and the legacy portfolios are hitting hardest, which is why we're restructuring the firm aggressively in these areas. And this slide is a quick reminder of the geographic spread before we look at the contribution of different businesses in more detail. Commercial Banking delivered a strong performance. Global Banking and Markets was the most profitable of the businesses for this half, with revenue and profits up. Retail Banking and Wealth Management was affected by customer redress and the run-off of the U.S. portfolio. Now let's take each in turn. At our…

[Operator Instructions] Our first question comes from Alastair Ryan from UBS.

Two things, if I may. First, whether the Mansion House Speech and the White Paper of the end of June have given you enough clarity to start using some of what's now a very strong capital base and that $150 billion of cash on hand that you've built up. And second, within GBM, clearly, very good BSM figure, whether I could invite you to update your guidance on that. And secondly, on the $50 billion of RWAs in the legacy portfolios, how quickly we should anticipate those going away. I know that their value versus hanging around trade off, but clearly, you've quite a P&L to absorb exit cost on what's a fairly material drag on that division.

Sure. Look, on the White Paper, I mean, I think you can see that we've briskly grown our loan book in the U.K. in both SMEs and in terms of U.K. mortgage lending. So we have an 11% share of new mortgages in the first half of this year versus a 6% overall market share, and our lending to SMEs is also moving up briskly year-on-year. So you can see capital deployment taking place within the U.K. But obviously that $150 billion represents a capacity that is clearly not fully used, because we would be running at a much lower number. But it doesn't really reflect a -- what it reflects, to be honest, Alastair, is a risk aversion towards other banks rather than a risk aversion to lending business to businesses generally. That risk aversion to lending to other banks comes about because the interbank market is a clean market, and there are very few unencumbered assets now amongst weaker banks, partly exaggerated by or amplified by LTRO and depositor preference in certain countries. So therefore, we end up with a very large deposit base and an imbalance between our risk appetite and the amount of money we have to deploy. So in terms of White Papers and the market settling down, yes, we have capacity to lend to corporates. But I wouldn't look at that whole $150 billion, because by definition, that's part of our liquidity, and a large chunk of that won't eventually be lent into illiquid assets. But you can see growth in balance sheet and in lending in the U.K. in the first half versus last year in all of the numbers. I mean, the thing we would say on the White Paper is generally speaking, we obviously would support better regulation and the whole reform agenda. Actually, we completely recognize the U.K.'s going to see ring fencing. It will be a drag on the position of the U.K. in Global Markets, but we think the White Paper was constructed for us. It was particularly helpful in terms of the definition of PLAC and the fact that it may not be necessary to apply PLAC to our non-U.K. operations. And we're working on the assumption that this will all go through, and we will need to create a ring-fenced and non ring-fenced bank. As to the United States RWAs of $50 billion, I mean we've done a bit of work. We've had BlackRock in to look at the books. And the disposals of those are, as you say, a mathematical equation as indeed they are for the SIVs and conduits. I think that you need to look at this run-off over a couple of years. I don't think it's going to be shorter than that unless we see a strong recovery in the markets, which I don't foresee at this moment in time. I don't know whether, Iain, you might want to add anything in terms of timetables.

No. I mean, certainly, Alastair, I mean, what remains tied up in risk-weighted assets in the CML portfolio is about $130 billion. And as Stuart mentioned, we've done a lot of work in terms of preparing to try and accelerate the exit of that through dispositions. That work's gone reasonably well. Hopefully, we'll be able to give you a little bit more information as we get into the third and fourth quarters. But the intent is clear, that we recognize that we've got the capital and the income statement to support that. So the focus is finding transactions which make some economic sense to us.

But the process both for the book in the United States and the existing conduits here in the U.K. has started. And teams of people are in place, and the work streams are live.

And on the BSM?

Oh. On the BSM, yes, I think that probably, guidance in the kind of, yes, 3.4% to 3.8% type of range for the full year.

Our next question comes from Chintan Joshi from Nomura.

My first question is on your cost. Clearly, the underlying cost development has been quite good. I'm wondering about half-on-half cost developments on an underlying basis. In the past, you have said that you want to avoid seasonal blips in second half. So should we expect a somewhat even distribution of cost in H2 relative to H1? And I have another question on ROE.

Okay. Well, Chintan, let me take your first question on the cost. I mean, if you take a look at the slide on Page 11, I think that probably best describes to you what we're trying to do here. I mean our focus is very much is driving some productivity in our cost base. We've realized significant sustainable saves. You saw the second half of last year, what we were able to do. We've got a very robust pipeline of sustainable saves, both for the remainder of this year and into next year, that we are going to deliver against. So the focus is on driving that stability within the cost base and the predictability within that cost base. It goes without saying that we've got notable items which are significant. It would be really nice to work through those over the course of the next few quarters and stop talking about them. But the focus here is clear, and what we accomplished in the second half of 2011 will be our focus of attention for the second half of 2012.

So should I take it that you're trying to manage the business at a run rate of something like $9 billion on an underlying basis?

We're trying to manage the business towards positive jaws.

Which we have got on an underlying basis with 8.7% positive jaws at the first half.

And in terms of the overall cost, the focus is on achieving the sustainable saves that we've set out and getting that target around the cost efficiency ratio of 48% to 52%. And therefore, our actions, on a month-by-month, quarter-by-quarter basis, will be dictated by what we need to accomplish that.

Understood. And my question on ROE is you stated that you hope to achieve your targeted ROE next year. Would that be on a stated basis or on an adjusted basis? And if it is the latter, then what adjustments would you make?

Well, I think, again, I'd get the chart that we've got around I think it's page...

Page 17.

17. It sort of guides you to what we've got the propensity to do in existing businesses and recognizing that we've got some fairly significant restructuring to do and are doing in European and U.S. businesses. The number that we've shown you for the first half is on a reported basis. That's how ROE goes, and that's the basis on which we would intend to continue to deliver ROE numbers. But clearly, there are significant items that come through, and we'll provide you with information about those so that you can make the necessary adjustments yourself. But we're going to deliver ROE on a reported basis.

Your next question comes from Raul Sinha from JPMorgan. Raul Sinha - JP Morgan Chase & Co, Research Division: Can I have 2, please? Just the first one on revenues. It's difficult to look at quarter-on-quarter revenues, but it does look like Q2 at the group level overall was a touch weaker probably driven by FX. Now in the past, you've talked about something like a 60-40 split half-on-half on revenues due to seasonality. Should we expect that to continue this year? Or do you think the Q2 performance means that we get less seasonality this year?

I think in terms of giving you a little bit more insight in terms of, of course, the numbers, Raul, if you look in the appendix to the slide pack that we put out, that gives you a little bit more guidance, particularly as it relates to Global Banking and Markets on the management view of net operating income. So hopefully, that will help you. Certainly, there was real strength within the rates business in the first quarter of the year, because you saw a tightening in European spreads. But notwithstanding some widening and more stress in the second quarter, you saw the FX business, the Payments, Cash Management business, Balance Sheet Management continued to perform very strongly in Global Bank and Markets as well as real strength coming through the Commercial Banking business, particularly in Asia and Latin America. So I think Stuart's comments there around the sort of growth we've been able to build in the revenue line in fairly challenging economic conditions, not only in Europe and the U.S. but more widely, is encouraging. So I think we'll probably leave the information at that level just now.

I guess just to add a couple of things. I mean, the 60-40 tended to be Global Banking and Markets anyway, not RBWM and CMB. And then as Iain says, GDP growth in Hong Kong was 0.5%, but our PBT was up double digit. Rest of Asia Pacific, GDP on average is kind of 4% to 5%. Our PBT is up double digit. In trade, we've got a 14% growth in trade-related revenues, which is more than twice the rate of growth of global trade. So although the economic condition in the second half may look weaker, we appear to be picking up market share, because we're growing at a faster rate than GDP in a number of places. Raul Sinha - JP Morgan Chase & Co, Research Division: Good. Just second question just on cost. If we look at the breakdown of staff reductions that you've provided very helpfully over the last 6 months, it does look like the reduction in FTE is a lot higher in emerging markets than in Europe, for example, leaving the U.S. aside for a minute. Is there something in that chart that is not representative of the businesses? Or is that a conscious decision in terms of where the costs are?

What's your question? Is it about headcount? Or is it about costs? Raul Sinha - JP Morgan Chase & Co, Research Division: It's about headcount. On Slide 11, you showed the regional FTEs and the reduction in regional FTEs. So we can see in Asia Pacific, for example, FTE is almost down 5,000. In Europe, they're only down 1,800. It does look like your cost -- your FTE reductions are much more in emerging markets than in Europe.

Don't forget, we've sold a lot of businesses in the emerging markets. All of that big lift of RBWM and general insurance and so on all comes out of the emerging market piece, all comes out of Asia Pacific. And then we've also sold a bunch of businesses in Latin America and so on. Raul Sinha - JP Morgan Chase & Co, Research Division: Okay. So there's nothing to read into that?

There honestly isn't. Everything's done off the Five Filters. It's very objective. It's incredibly well documented as well, because obviously, we need to get the regulators comfortable in every place. So there's nothing you should think about strategically. Actually, the interesting data from a strategic developed world-emerging market point of view is actually where the risk-weighted assets now sit. If you look at developed markets, the high-end risk-weighted assets were $658 billion in the fourth quarter of '11. And now, the low is actually at the end of June this year, which is $586 billion, so $658 billion down to $586 billion. In emerging markets, the low was the first quarter of '11, $490 billion, and it's now at the high, $573 billion in, again, at the end of June this year. So we've taken EM from $490 billion up to $573 billion and the developed markets down from $658 billion to $586 billion. So if you want evidence of the shift to emerging markets, it's probably better shown in risk-weighted assets.

Your next question comes from Chris Manners from Morgan Stanley.

I just had a couple of questions for you. Firstly, it was on Hong Kong. It looked like a strong performance there with net interest income outpacing loan growth, and I was just quite interested to see where your outlook was for the margin there. I understand, obviously, you have loan-to-deposit ratio than the competition and should potentially be able to benefit. And secondly, just on the Asian trade finance piece, I mean the 14% growth you're talking about in the trade finance related revenues, again, pretty impressive. I was just wondering about your outlook for that and particularly, just to understand what the competitors were doing. I understand that the European banks had sort of -- well, they're likely to withdraw after the Q1 boost they'd had from the LTRO that they're going sort of backwards again. Wondering if you could comment on that.

Yes. Chris, it's Iain. I'll take the first question. When we look at margin in Hong Kong, it's actually net interest margins remained remarkably stable over the last number of quarters. Now you'll remember that we had a little bit of expansion on HIBOR, which certainly helped a little bit on both the deposits and the asset side in Hong Kong. But overall, the margins have remained remarkably stable, both on the asset and the liability side, over the course of the last 4 or 5 quarters, actually, within the Hong Kong market.

The trade story is good. I mean trade revenues are up actually about 16% in faster-growing regions and 12% actually in the developed markets. And you remember, there's an Oliver Wyman survey that said that we -- of bank finance trade, we did actually the largest share of any bank, and that, I think, is continuing to play to our strength. So trade finance revenues have actually grown in the emerging markets about 3x the rate of growth of world trade, and it's actually even true coming out of the U.K. here. I mean we financed exports of more than GBP 1.8 billion from the U.K. to the key emerging markets of China and India, and we think that gives us about 1/4 of all the U.K. exports to those markets, which in itself is up about 28% on the first half of '11. So I think that there is evidence in these numbers of kind of what you're reaching to, which is are we able to pick up market share as some of the European banks disappear. And I think that the evidence I will point to is both in these trade numbers but also in the fact that both in the Rest of Asia Pacific and in Hong Kong, we're growing our business at a faster rate than GDP -- a multiply faster rate actually than GDP plus inflation in those markets. So I think there is evidence, actually, of taking market share, which is why I think our outlook is kind of modestly positive, actually, for the second half.

Perfect. That's really helpful. Sorry, Iain, could I just follow up there on the margin point? So would you -- you're sort of indicating you expect it to stay stable as well.

It's been stable thus far. There's nothing that we can see in terms of development in the short term that would suggest otherwise, but I'm not a soothsayer on that one.

The next question comes from Rohith Chandra-Rajan from Barclays.

If I could have a couple as well, please. First one is just on the cost saves. So the run rate savings reported today, $2.7 billion, up from $2 billion at the end of last quarter, just wondering if there was any update. Or if that's in line with your expectations for a $3.1 billion run rate for -- at the end of 2012.

Run that one past me again, sorry.

So the run rate on cost saves at the moment is $2.7 billion, up from $2 billion last quarter.

Yes.

And I think you said at the Strategy Day the expectation for the full year run rate is $3.1 billion. Just wondering if there was any change to that.

Yes. Look, in terms of where we're headed, is absolutely in line with the targets we set at Strategy Day and reaffirmed this year. So we've got $2.5 billion to $3.5 billion. We're above the bottom end of that range. Clearly, we're halfway through a 3-year program so we've got a good deal more to do.

But I think you can see we've got traction and our arms around this cost problem, and the underlying costs are evolving and the cost savings are evolving as we said they would.

Okay. So no change either in the -- obviously, good progress in terms of achieving the top end of the target range. And no change in your expectation on the phasing, given experience to date?

Not really, no.

No.

Okay. And then secondly was just to understand the impact to the -- particularly the Cards business going forward. You highlighted the cost income ratio underlying, 53%. Based on the disclosure here on Page 29, that looks like about 53.9% if we exclude the Cards business. I just wanted to check if that was the case. And also, if you could just add a bit of color in terms of NIM progression excluding the Cards business. So it looks down 30 basis points on the reported numbers half-on-half, but I'd just like to understand what the exclusion of the Cards business does to those trends.

Well, let me take the second one first. So in terms of NIM in the North American business, there is a fairly substantial drop-off from the first quarter to the second quarter of this year. That is very much largely accounted for by the fact that we sold and closed the sale on the Cards business in the 1st of May, so we were missing 2 months' worth of margin from the Cards business. So there is a fairly significant and as signaled, expected impact around the disposition of the Cards business. In terms of what you see on Page 28, 29, I think that's the information that we've provided, and that's correct.

38.

38%.

Page 38.

Oh, Page 38. Sorry.

And just one other point, if I can just jump in. One of the things that you'll see on net interest margin, you've got to also balance it out for why loan LICs are also holding in quite well. We're trying to redirect the firm away from high-risk unsecured lending into more, frankly, secured higher-quality lending. It will, by definition, have a lower net interest margin or spread. But what we then would expect to see is hopefully, we keep more of it actually getting to the bottom line, because our LICs should be less assuming that we've improved the quality of the loan book. So you've got to look at this alongside with the evolution of the LIC trend.

Okay. So it's looking at risk-adjusted margin.

Yes, precisely.

Our next question comes from Cormac Leech from Liberum.

Just a quick question on the Balance Sheet Management. Just following on the earlier question, I think you'd guided that at the full year, you were expecting to see about $3.4 billion to $3.8 billion, and just that implies I think about $1.2 billion to $1.6 billion in the second half. Just wondering what, if any, gains on disposal you may be assuming in those numbers.

I'm not assuming any gains on disposals in those numbers. That's why they're set the way they are. What I'm also slightly in giving you a range is assuming that there is a risk that U.K. interest rates go to the 0 band at some point in the second half of the year, and that's part of the reason why -- explains the lower end of that range.

Okay, and that's very helpful. And then just looking into next year, if U curves stay where they are currently and you don't have any disposal gains, would you be able to give us some guidance where you think Balance Sheet Management revenues might settle?

I think we're getting kind of soothsayeresque again at this point in time. I don't think I want to give guidance that far out. We can do it again at the third quarter.

Your next question comes from Ronit Ghose from Citi.

Just a couple of questions. Your Asian businesses have clearly done very well in the first half of the year, and what really stood out for me was the Rest of Asia Pacific. And the cost income ratio's, I think second quarter, 47%. Are there any material one-offs in that cost number? Or is this now a kind of steady cruising speed for you? And by contrast, in Latin America, Brazil, unless I'm missing anything, seems to have seen quite big deposit outflows. Their headline number in dollars, U.S. dollars, is down 20% in the first half. And just backing out the currency movement, it looks like it's down 10% in local currency. Is there any color you can give us around that? Am I missing any one-offs? Or has there been a material deposit outflow? And I've got a follow-on on PPI.

Okay. On the terms of the cost efficiency ratio for the Rest of Asia Pacific, that is probably the cruising run rate.

There's a little bit of restructuring cost in there, but it's not material. And there is ongoing work there in terms of organizational effectiveness program, but I think it's a reasonable reflection.

On Brazil?

On Brazil, customer accounts.

Actually, what it literally is, is we've issued more securities in Brazil because actually, it's cheaper to fund in the wholesale market than to take customer deposits. So there is a change, you're absolutely correct, but it's actually down to a deliberate AML strategy.

And so we'd assume what there'd be an outflow of corporate deposits? Or...

Yes. I mean the type of deposits we would reprice are likely to be kind of PCM, wholesale type of deposits as opposed to kind of your sticky RBWM ones.

Right. Right, okay. And just the final question I had was on PPI, just bigger provision here than I'd expected. Just looking at the disclosure given at the back of your release, I think Page 248, 249, looks like the claims to date relative to provisions taken since first half last year, it's about a 43% ratio of claims to provisions, which looks a lot lower than the other U.K. banks who reported, i.e. you've got a lot more provisions than claims. I'm just wondering to what extent the second quarter is a kitchen sinking, a lot of kitchen sinking, like you're taking from the next 6 months, 12 months already.

I think on that front, what is fair to say is that we've taken a view probably around the longer emergence of claims. So we've -- I think the coverage that we're looking at is approximately 12 to 13 months' worth of coverage based on the current rate of incoming claims, both your own outgoing mailing as well as those coming through the claimers' management companies. I think that probably compares fairly favorably with those of some of our competitors, where they're looking at probably 3 to 5 months' worth of coverage within the overall provisions that exist. I mean I think what is fair to say is that we've seen a higher level of incoming claims than we had anticipated certainly when we started looking at this issue around this time last year. And that level of incoming claims has remained at a relatively high level when we would have expected it to start tailing off by this point.

And just to clarify the 12 to 13 months, are you using the current run rate in the second quarter? Or is that a sort of modeled assumption for them?

It's a combination of both. It's run rate informing, obviously, what we expect, but we've built some assumptions on our end when we would expect to see that current inflow of claims to tail off.

Our next question comes from Chira Barua from Sanford Bernstein. Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division: Two questions. The first one's on APAC, a couple of things. APAC, you laid out the strategy of $1 billion in India, Singapore, then Malaysia and Indonesia combined. Could you comment on what's the progress there? And when are we going to see those numbers? And second is on APAC impairments. Those impairments have gone up. You've alluded to something in Australia and India, so if you'd give a little more color or if there are risky markets that you see out there. And I have one on money laundering.

Okay. On the bad debt provisions, they're specific to credit. So this -- it is in credit. Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division: And what about the PBT numbers in the market?

All right, one second. I think if you go to Page 73 of the interim report, it will give you some guidance on where we are at the half year. If you look at India, we've got $515 million PBT for the first 6 months. If you look at mainland China, excluding associates, so our own bank in China, that's $440 million -- $454 million at the half year. At Singapore and Malaysia together, well, Singapore is $335 million. Malaysia is $288 million.

And Indonesia is $175 million. Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division: And do you see the progress there in Malaysia and Indonesia continuing on to the second half of the year? Or do you see a slowdown in some of those markets?

No, I think that progress will continue in the second half of the year. As I've indicated before, I think we're taking market share off other foreign banks. So Malaysia, Indonesia and Singapore combined are sitting comfortably halfway to the billion. So is India, and China's just a little bit short. So I think there's progress on all of those endeavors. Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division: And on money laundering, the $700 million number, could you give us some color on how did you arrive at that number? And when do you see the likely timing for the ruling?

The timing is completely at the discretion of the Department of Justice. So we can't give you no further color on that. Remember, it's the Department of Justice together with the OCC and Fed that decide on penalties, not the PCI -- PSI, sorry. And this is our best estimate based on the information we have today. But as we've indicated, the actual number could be materially higher than the provision that we've taken.

Your next question comes from Christopher Wheeler from Mediobanca.

Three questions, the first one on Retail Banking and Wealth Management. You've obviously been very active, as you said you would be at the Investor Day last year, in terms of disposing of businesses and streamlining RBWM. What sort of a -- how far are you through that process now? Is it 60%, 70% or all these and more before you start to just actually, obviously, generate the returns organically from the business? That's the first question. The second one, rather conversely to that one, is on private Wealth Management or Private Banking. There seems to be a number of quite large Wealth Management businesses coming loose at the moment. It's clearly an area which you like, but is it an area where you are looking at acquisitions? Or is it still one where you would prefer to grow organically? And then finally, just a question on, obviously, your sixth filter. You've clearly done a lot of work since, unfortunately, a number of issues have come to light. Could you perhaps just give us a clue as to whether you feel that the worst of those issues is now behind you? I know these things keep popping out from left field, but is there anything else that's really concerning you which may come back as another notable item over the next 18 months?

Everything we're concerned about is in Note 25, which is legal disclosure. So there's nothing that's not in that that we're aware off today. As for acquisitions in Private Banking, I think the answer's no. We need to reform -- and this is what Krishna Patel has gone in to do -- our private bank to ensure that some of the issues that arose there in terms of the type of clients whose tax affairs have also caused us embarrassment after the data theft are again brought into the type of business that we wish to conduct. You may have heard me say earlier, one of the disadvantages of making acquisitions is, of course, you buy everybody else's KYC standards, which may not be up to your own. And if you look around at the various problems, legacy problems we have, they're mostly acquisitions: Bital in Mexico, Household, foreclosures and the big bad debts, tax evasion, Republic National Bank of New York. So I don't think you'll see us buying large books of Private Banking business. What you'll see -- Krishna Patel, who's running the private bank, what he's doing is making our existing bank, private bank, fit for purpose. It is an important business for us. You've seen part of the strategy is to focus on wealth and the faster rate of wealth creation in the emerging markets. So it's absolutely a business that's core and central to us, but I don't think it's logical for us to be adding fresh portfolios to what we currently have. And then in terms of RBWM, how far are we through it, I think that the RBWM disposals, we've got a little bit more to do on Life Insurance. And then I think most of the disposals in RBWM will have been announced. There's probably 3 or 4 more still to come. But in terms of our progress through, I think most of this stuff is announced. There's possibly -- so in terms of your percentage way through, we're maybe 60%, 70% of the way through.

Your next question comes from Arturo de Frias from Santander.

Two questions, please, one on capital versus growth and another one on GBM. From your slide on potential impact from Basel III, Slide 14 I think it is, your rise to fully phased in Basel III was with a 10.3% core tier 1 ratio, which is probably the minimum that you would like to have. And that makes me think if, for the next few years, we have to think about an ROE in the region of 11%, 12%, 13%, along those lines. And you are going to spend close to half that, or you are going to distribute close to half that, you are going to be generating internally in the region of 5%, 6% capital per annum. Is that -- are my numbers correct, first of all? Do you think on those numbers the same way? And do you think that's enough to fund growth for HSBC? Because as HSBC sells their unwanted or non-core areas, obviously, what is left should be growing more. So I wonder whether 6% internal capital generation is going to be enough for HSBC for the next let's say 2 to 3 years. And then a question on GBM. You have also a very useful disclosure on Slide 21 looking at the return on risk-weighted assets of GBM excluding the legacy credit portfolio. You're talking about 2.9%. This is pretax, obviously, 2.9% return on risk-weighted assets. But that is still -- I mean after tax, we are talking about 2% return on risk-weighted assets, which is well above most, if not all, your competitors. Do you think this 2% RORWA is sustainable in the medium term?

Yes. So if I -- this is Iain. So if I take the first question around capital, bear in mind that a target that we set out in Strategy Day was to maintain a core tier 1 of 9.5% to 10.5% throughout the transition to full Basel III implementation, so throughout the transition process. We're sitting at 11.3% at the end of June. We would expect to generate capital through ongoing business operations through the remainder of this year. So we'd expect to see that capital ratio, based on everything that we know now, to be a little bit stronger at the end of the year. But recognize also that in 2013, we get about 100 basis points or so knocked straight off that through the implementation of certain aspects of Basel III. So we would fully expect an appropriate tier 1 ratio to be sitting somewhere in the range of 9.5% to 10.5%, probably at the higher end of that, through the transition process. That will be achieved through a number of the mitigating actions that we've described previously. It's the continued rundown of the CML portfolio. Before the first half of this year, it was the disposition of the Cards business, which we've now delivered against and that delivered some 60 basis points of benefit to our core tier 1 ratio. So we'll continue to deliver against the mitigating actions that we've got out there as well as the ongoing capacity to generate significant profit from ongoing operations. So I think in terms of our capital generative ability, we've got few debts there under current operating conditions. The other thing to bear in mind is that through the disposition of the Cards business and a strongly capitalized North American business, we have significant capital surpluses there. Now we recognize that the likelihood of being able to reallocate that capital to other parts of the business will be limited over the course of the next 18, 24 or so months to ensure, from a regulator's perspective, that we've addressed absolutely the shortcomings that have been identified through a number of regulatory actions over the course of the last couple of years. But as we work through those, we would absolutely expect to be able to reallocate some of that capital away from the U.S. business with the approval of a regulator once we've met those requirements. So I think on a capital front, we're very happy with where we sit at the moment.

And in Global Banking and Markets, yes, I do think the 2% is actually sustainable. When we analyze the revenues that are at risk because they're involved in structured derivative products that get disadvantaged by Basel 2.5, CRD4 or indeed, Volcker Rule or Dodd-Franks, it's only 14% of revenues. So actually, the majority of this Global Banking and Markets business really is dependent upon GDP growth in the emerging markets and the growing connectivity between the developed world and the emerging markets. It's a good strong debt capital markets and foreign exchange business, it's a traded liquid markets business, and I think that therefore, this is something that we've tried to explain. It's got -- it's a very different business and revenue makeup than some of our competitors. So yes, I do think that we can hit the 2% post tax. So I think that that is -- that 2% number post tax is sustainable.

Our last question is from Tom Rayner from BNP Paribas.

Can I have a last 2? Is that okay?

Yes. That's okay, Tom.

Just the first was just really on the revenue again. The -- it sounds just from some of the textual comments that there's still some benefit coming through the numbers from the very vast volume growth you saw in the first half of last year. I think it then slowed down a bit in the second half. And I see that the sort of loan growth constant currency in the first half of this year is running at about 7% annualized. I'm just wondering, given what you said about the mix change, is this enough to sort of be consistent with the sort of underlying revenue growth you saw in the first half, so the 4%. Is that consistent with what you're seeing in terms of volume growth? And I just have a second question on the money laundering, please.

I mean, it is consistent.

It is consistent.

Yes. There's -- I think your analysis is...

It's spot on. There was a big, as you know, push up to catch up in 2010, 2011. Certainly 2011, that is driving in CMB in particular the kind of net interest margin that you're seeing captured. And I think that the loan growth that we've seen so far is consistent with holding that through into the second half. And as I say, there's a definite kind of market share phenomenon going on as well.

Okay. And just finally on -- just back on the $700 million. I don't know if you can, but I mean in terms of your methodology just coming up with that figure, I know it's based on all the information you have. But I mean have you looked at total transactions and tried to compare what other banks may have paid when they've been in a similar condition?

Yes, we have. Yes, we have.

And $700 million is a number that you would hope covers all eventualities. I know you can't be sure about that. But...

It's -- what I'd actually say, Tom, is we've analyzed what other banks have paid for similar situations, and we then exercised our own judgment. But remember, this is completely the decision of the Department of Justice, so that's why we said specifically that the actual number could be materially higher.

And we have gone back and analyzed our transactions in terms of a look back at historical operations as it relate to OFAC sanctions. And again, that's some of what has informed how we built this.

Thanks very much. Okay. Thank you. Thanks very much, operator.

Thank you. Ladies and gentlemen, that concludes the HSBC Holdings plc Interim Report Call. You may now disconnect.