Good morning, ladies and gentlemen, and welcome to the Investor and Analysts Conference Call for HSBC Holdings Plc's Interim Results 2016. For your information this conference is being recorded. At this time I'll hand the call over to your host Mr. Douglas Flint, Group Chairman.

Thank you very much. Good afternoon in Hong Kong. Good morning in London. And welcome to the 2016 HSBC interim results call. I am Douglas Flint, Group Chairman. I'm speaking from London. Stuart Gulliver, the Group Chief Executive, and Iain Mackay, Group Finance Director, are in Hong Kong. Before we start I'd like to say a word on behalf of the board. The first half of 2016 was characterized by spikes of uncertainty, which greatly impacted business and market confidence. This was reflected in lower volumes of customer activity and higher levels of market volatility. We came through this period securely, as our diversified business model and geographic profile again demonstrated resilience in difficult market conditions. It is evident that we are entering a period of heightened uncertainty, where economics risks being overshadowed by political and geopolitical events. But we're entering this environment strongly capitalized and highly liquid. Amidst all this turbulence, our strategic direction remains clear. Nothing that has happened casts doubt on the priorities we laid out just over a year ago, although in some areas events have impacted the time scales in which we can meet them. We remain well positioned for all of the major global long-term trends. And the achievements of the last 12 months have only served to strengthen that position. Earnings per share were $0.32. Our first two dividends in respect of the year of $0.20 in aggregate were in line both with our plans and the prior year. In lights of the uncertain environment, but recognizing the resilience of the group's operating performance, the board is planning on sustaining the annual dividend at this current level for the foreseeable future. Let me now hand over to Stuart to talk about the context around our results, before Iain takes a more detailed look…

Thank you, Mr. Gulliver. . We will now take our first question today from Alastair Ryan from Bank of America. Your line is now open.

Thank you. Good morning, good afternoon. I'll be greedy with two big questions if I may. First, loan growth in the first half. As you alluded, this year was disappointing. It was a down a bit. Net of continued runoff in GBM, do you think that loans will actually grow over the next 6 months to 9 months? Or the environment doesn't allow for that? It's the first question. And then secondly, on the capital returns. Obviously the U.S. is a very big number down the road. So you've characterized the share buyback today as a discrete thing relative to Brazil. But clearly, the U.S., the capital trapped there has been a very big drag on group cash flows for the last several years. Could I try and draw you on the sort of the quantity of dividend you might get out of that? You mentioned the disposals. But I'd imagine you wouldn't have asked for the ability to pay all of that out up front, that you'd have started small and be scaling that later. But it could be quite material free cash flow for the group over time. Thank you. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: So then on the loan growth, one of the ways to look at it is the AD ratio is one of the lowest it's been. So we've got an AD ratio kind of sitting at more or less 68% or thereabouts. And we obviously have got within the sort of advances several moving parts. We're also continuing to run down, as you say, the lower returning stuff in GBM. We're considering to dispose of pieces in the CML portfolio. And opportunities to get accretive loans on the book have been hard to come by. My preference in…

Thank you, very helpful. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Thanks, Alastair. Next please?

Our next question today comes from the line of Rohith Chandra-Rajan from Barclays. Your line is now open.

Morning. Thanks. So I've got a couple as well please. And the first one just returning – not returning, to capital return. I guess from a slightly different angle. I mean you just talked about the – kind of the shares no longer being needed to support businesses that you no longer own. But thinking about it from a group capital perspective I guess, post the Brazil fail and the share buyback, CET1 looks like it would be around 12.5%, which is the middle of your sort of – sorry, sorry. Iain James Mackay - Executive Director & Group Finance Director: 12.6%

12.6%. So the middle of the target range. I'm just wondering how we should – is that the capital level above which we should think that share buybacks will be considered in the future? So surplus capital above that level? Or is that being too specific about the CET1 ratio? And so that was the first question. And the second one just in terms of the ROE outlook and the sort of 10% not achievable in the current environment. Just wondering what your – what you think is achievable in the current operating environment? And to what degree there might be additional cost reductions? You already talked about being at the top end of the $4.5 billion to $5 billion range. Just wondering to what degree near or medium-term there might be scope to exceed that? Thanks. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: So Iain and I will both interject a point in answering your question. So there isn't room to increase the cost program beyond the $5 billion between now and the end of 2017, which is 18 months. And we'll deliver the top end of that $4.5 billion to $5 billion. But obviously you would expect if there is not a pick up in revenue, we would need to look at further cost actions. And we need to look at capital actions in order to get to that 10%. So there's a part dependency here. It's either revenue or it's capital or it's costs. And we're fully aware of how the math works. But we'll get the $4.5 billion to $5 billion now. If we were to accelerate more now, it will damage our compliance, global standards, our customer service, and actually ultimately therefore our revenue. So the $4.5 billion to $5 billion…

Okay. Thank you. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Thank you.

Our next question today comes from the line of Raul Sinha from JPMorgan. Your line is now open.

Morning, afternoon, gents. Can I maybe have two as well? Just the first one following up on divis [dividends]. Am I reading too much into it? But if I look at the $2.5 billion buyback that you've talked about, that's broadly similar to the scrip element of your overall dividend. And so this is one of the things that you wanted to do in the past. Should we think about potentially the dividend, as you're effectively adjusting it to make it a full cash dividend, rather than have a substantial scrip element that leads to rise in the share count? So the first question is, are you looking to kind of manage the share count impact of the scrip through the buyback? Is that an intention at all? The second one I have is on interest rate gearing. On page 80 you've given us the disclosure on the way it's moving parts across different blocks. The exposure to the sterling block has come down over the last 18 months. And so I was just sort of wanted to get your thoughts on what is driving that negative impact, being lower now at $442 million, compared to what it was before in the last two periods. And maybe if you could touch upon what sort of mitigating actions you could take against a UK rate cut, that would be useful. Thank you. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Okay. On the buyback, it is not – it is very directly linked to Brazil. It is not, and you shouldn't read too much into this, about it's specifically trying to manage down the impact of the scrip. Clearly one of the factors that we are focused on is the share count. Obviously in terms of the long…

Okay. And in terms of mitigating actions, what actions could you take to perhaps reprice some of the business in the UK? Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: I mean we think that the impact of a 25 basis point cut will be about US$100 million to the net – US$100 million, yeah. Iain James Mackay - Executive Director & Group Finance Director: Yeah. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: To the net to the interest margin per annum. Iain James Mackay - Executive Director & Group Finance Director: Well, no; that's for the remainder of this year, Stuart, so per half year basically. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Yeah. Iain James Mackay - Executive Director & Group Finance Director: Yeah. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: So about US$200 million over each year, which is obviously the impact of further inability to price deposits. It's a competitive landscape. It really depends on effectively what margins are across the industry. There aren't any magic sort of buttons on this. I guess if this is code for, would we charge people to put deposits with us, we already have with our business clients written to them in terms of foreign currency earlier in the year to indicate where a non-sterling, where interest rates were to go negative, we would pass on the cost of that to business accounts and to corporates. In foreign currency we're already doing that with banks and non-bank financial institutions. I guess that protocol would read across the UK if sterling rates became negative. Again for foreign currency, we have not done it with personal clients. And we have not, at the moment, even contemplated that for the UK Given that Governor [Mark] Carney has indicated on a number of occasions that he is not in favor of negative interest rates – and obviously it remains to be seen what action he takes tomorrow. We have not reached the stage, which I think RBS have, of writing out to people on this. But as I say, the expectation would be if you got negative interest rates, yes, we would apply it to companies. And we would apply it immediately to banks, non-bank, financial institution. So if that's kind of what you're asking within that, yes, we would do that. But there isn't – I don't think there is going to be a repricing from a credit spread point of view.

Okay. Thanks so much. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Thank you.

Our next question today comes from line of Michael Helsby from Bank of America. Your line is now open.

Thank you. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Michael.

Just – hi. Just on the dividend. So obviously you dropped the prospective dividend guidance. I just wonder now if you could talk about – maybe join it all up. Because you're left in an unusual situation, where obviously your dividend, your ordinary dividend is barely covered at the group level. Yet, your quarterly one is at, as you say, is going to be at the top end of your range. And you've got these discrete buckets of capital, the U.S. being one, maybe things in China in the future. So how should we think about that? I'm just conscious that clearly there's an expectation in the market that you're going to cut your ordinary dividend at some point in the future. So I was just wondering how we should think about that and how you think about the cash flows going forward. So that'd be question one. And then just on the ROE, I appreciate and thank you for the commentary that you don't see it as being achievable next year. Can I draw you on whether you think a 10% return on tangible equity would be achievable next year? Thank you. Iain James Mackay - Executive Director & Group Finance Director: On divis [dividends], Michael, I would take our guidance literally. Our focus is on sustaining the dividends at the current level. Your point on coverage is taken and well understood. We clearly would be paying out in 2016 and 2017 at a higher rate than we have historically. That is influenced by a couple factors. One, we've obviously got the impact of the Brazilian accounting in the second half of the year that will come through. We have the impact of about $1 billion so far year-to-date of our cost to achieve, which includes restructuring and other…

Thank you. That's very helpful. Thank you. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Thanks, Michael.

Our next question today comes from the line of Chira Barua from Bernstein. Your line is now open.

Morning, guys. Most of my questions are answered. Just a quick one, Iain, on risk. The early delinquencies, especially one plus, there's been an increase in June. It would be great if you could just give us some color on where those delinquencies are coming from? I think it's in Page 7 of the presentation, about $8 billion to $9.1 billion of the one pluses. Iain James Mackay - Executive Director & Group Finance Director: Yeah, yeah. Absolutely, yeah. Got you. No, this is in the U.S. and principally in the corporate and commercial sector. And that really is just demonstrating some 30-day volatility that we see coming through short term customer behavior. But that is influenced by a pretty small number of individual customers in the corporate sector in the U.S.

Got it. Thanks. Thank you. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Okay.

Our next question today comes from the line of David Lock from Deutsche Bank. Your line is now open.

Morning, everyone. Three questions from me please. Firstly, on risk weight. The risk weighting in the Retail Banking division looks like it fell about 2% quarter on quarter. I appreciate some of that's going to be driven by the U.S. CML run-off. But it looks like there was quite a big drop in Europe as well. So I was just wondering if you could comment on what exactly is driving that? And whether you see any kind of risk around the low mortgage risk point you have for the UK, which I think was about 5% at this quarter. Second question is just on BSM. I think on the last call you gave an expectation of about $2.5 billion for this year. Clearly you're ahead of that in the first half. So I just wondered if that was still the expectation for this year? And then finally on cost of funds. I'm a little bit surprised to see that cost of funds is actually slightly up half on half, from about 97 to 101. I'm wondering if maybe if that was a bit lower, but if you could call out what was the driver of that? Because obviously in the interest rate environment, I just thought it would be falling, not rising. Thank you very much. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Thanks. So some of the cost of funds is TLAC. Iain James Mackay - Executive Director & Group Finance Director: Yeah, the TLAC, 81, so as you'll have noticed we did a significant amount that should support Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Yeah. About 18.5 of TLAC and about 3 of non-capital in the first half. Iain James Mackay - Executive Director & Group Finance Director: Non-core capital. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Yeah. BSM, $2.4 billion to $2.8 billion. Iain James Mackay - Executive Director & Group Finance Director: And risk weighted asset density in the – in Retail Bank, Wealth Management, you hit on the point, which is continued significant reduction in the run-off CML portfolio in the U.S. Within the first half we completed dispositions of about $4.7 billion, $4.8 billion. And then in July we completed about another $1 billion of dispositions from the same portfolio, but that's obviously not reflected in those numbers. There's nothing else of particular note within retail wealth – Retail Bank, Wealth Management from RWA density perspective.

Okay. And so what was the driver for European borrow (45:16)? Was it just simply quality of book? Or what do you think it was in the books (45:21)? Iain James Mackay - Executive Director & Group Finance Director: There is nothing significant within that. Certainly from an RWA density perspective, the book came down slightly in size, but that doesn't impact RWA density. Nothing notable.

Okay. Thank you very much. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Thank you.

Our next question today comes from the line of Jason Napier from UBS. Your line is now open.

Good afternoon and good morning. Two please. The first one, I appreciate the sort of commentary in Douglas's statement around the necessity of trying to align public policy and regulatory policy. But I think while we'd all – probably all agree with that, there's obviously the implication in there your own QIS work signifies potentially very material changes there. It's obviously a good sign that the PRA is allowing the buyback. And your ratios are building in a very promising fashion. But I just wonder whether – given that there probably is material information inherent in this, whether you might give us a sense as to the distribution of QIS outcomes that you arrived at. What the bigger issues are? And perhaps more specifically if you could talk about what the discussion paper on UK mortgages and yesterday's release on PPI might mean for capital. Believe it or not that's one question. And then the second just point of detail. I wonder whether you wouldn't mind giving us the legacy credit RWA number for GBM? Just so we can see what's happening to the RWA deployment in that division in the second quarter. I think at the first quarter there was $25 billion of RWAs left. I just wonder how that's evolved in the second [quarter]. Thank you. Iain James Mackay - Executive Director & Group Finance Director: Okay. So in terms of revisions to Basel III, you'll have seen the same sort of commentaries that we have seen in terms of the governors and heads of supervision making quite strong statements around not having a significant impact on the overall capital requirements for the sector. We're obviously still quite a few months and a great deal of work away from having any final calibrated outcomes with respect to either…

Thank you. And sorry. Just to – you had one of the lower RWA densities in UK mortgages. Do you have any comments on that discussion paper in particular? <: I think that's probably got something to do with the quality of the UK mortgage book. I mean if you go to – just we can get into this a little bit, because no doubt, you'll want to ask a few questions about Brexit at some point and what that means for credit quality. But if you look at buy-to-let exposures in the UK for example, there's only 3% of our portfolio is buy-to-let exposure. When you look at geographical distribution, London is about 28% of that. And 86% of our London exposure has an LTV of less than 60%. If you look at the Southeast of England, 13%, now that represents about 13% of our UK mortgages. And 80% of that has an exposure of less than 60%. 2% of HSBC exposures of LTVs of greater than 85%. So I could keep reeling off these statistics. But what we've got is a conservatively underwritten, well distributed book of business within the United Kingdom, where credit quality certainly through the global financial crisis and today remains very consistent and very stable. And when you think about how our advanced models are built. It's all about PDs, LGDs, and EADs. And I think some of the data I've just provided you with would inform why we've got a relatively low RWA density in our UK retail mortgage.

Thanks very much. Iain James Mackay - Executive Director & Group Finance Director: Okay. Thank you. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Thank you.

Our next question today comes from the line of Chris Manners from Morgan Stanley. Your line is now open. Chris R. Manners - Morgan Stanley & Co. International Plc: Good morning, guys. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Morning. Chris R. Manners - Morgan Stanley & Co. International Plc: Two questions if I may. The first one was about BoCom. And I can see that the headroom of the PIU above the carrying value has sort decreased to about $800 million. Just maybe if you'd give us a few thoughts on that? And how close we are to essentially derecognized those earnings in the income statement? And how we should think about that? And the second question was actually just on UK and asset quality. And also a little bit in terms of on your customer sentiment, what do you think about demand for credit in the UK? And I suppose also, I know this question was asked in brief, but is there any chance of firming asset margins in the UK? One of your peers was saying that banks should be more thoughtful about pricing for risk. And that could give you a little bit of a bump to the margin in the rate environment? Thanks. Iain James Mackay - Executive Director & Group Finance Director: Yeah. On BoCom, Chris, main drivers of that reduction is payment of the annual dividend by BoCom. So the way the accounting goes is that the dividend flows through that discounted cash flow model and the book value impact. And the other main driver there is foreign exchange. What does this really mean? It means we're several hundred million dollars closer to impairment than we were when we reported these numbers out to you at the first quarter.…

Our next question today comes from line of Tom Rayner from Exane. Your line is now open.

Yes. Good morning, afternoon, everybody. Can I just ask you about your statement on regulatory policy aligning with public policy? At the bottom of sort of Page 3, some of the statements – and, Iain, you have sort of referred to these already – are quite strong. Increased capital requirements would have a major impact on the availability of credit and go against the public policy focus on boosting growth. And also as you said, you welcome statements from the G20 and others that there will be no broad based increase in capital requirement. So on the back of those comments, I've got a couple of questions. Firstly, when you talk about 12.5% as the right sort of equity Tier 1 ratio, when to consider buybacks, et cetera. Are you now assuming there will be no impact on you from Basel IV, IFRS 9, and other things that are outstanding? And my second question is to what extent are these comments part of a sort of broader industry wide lobbying exercise I guess, trying to sort of encourage Basel maybe to sort of look at the reality of the situation and maybe water down some of the proposals? Is that me dreaming again? Or is there some substance to that idea? Thank you. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: So you should join on this.

Yeah. It's Douglas. I wouldn't call it part of lobbying exercise. I mean a consultation process means two sides talk to each other. And I think that the proposals, which were really all around risk sensitivity and then into operational risk and a number of other areas, the aggregate impact if you took the top end of the ranges came to quite significant increases in capital. Now it's been said for some time by the regulatory community, it was not the intention to have a broad-based capital increase. There was an expectation that outliers, those that had a very particularly low risk weighted asset density might find themselves more hit than others. But for the broad part of the industry, it's been fairly consistent. What I was trying to do in the statement is sort of say that this consultation is under way. Clearly is a significant matter to be addressed, resolved in the second half of the year. And I think we are basing our future projections on the very clear statements that have been made by the central bank governors. And the G20 finance ministers as well as the Financial Stability Board and many elements of the regulatory community saying, look, this is not designed to have a broad based increase in capital. So what I was trying to do is say, it's important we're working on that basis. And clearly it's important that that is delivered, because in a period of economic uncertainty for any constraint on the ability of the industry to generate credit would lean against public policy objectives in terms of trying to stimulate better growth. So it's not part of a lobby effort. It's really just a pointing out to an important event in the second half of the year and to draw attention to the comfort that's being given by the G20 community.

Okay. Thank you. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: I think it's also, Tom, in terms of what are we assuming about our capital ratio. I turn it slightly around the other way. So post the sale of Brazil, we're 12.8%. After this buyback we're 12.6%. And obviously to do the buyback, the PRA had to approve the buyback. So our main regulator obviously had to think about some of the things that you've just outlined in coming to the decision to give us that approval.

Yeah, I do understand. I understand that. But I guess that your main regulator at the PRA will have to eventually take whatever the final Basel decisions are. I mean it would be quite a step I think for a national regulator in the UK to actually sort of unilaterally say this is – well. We can all have our own view on it. But this is – saying definitely we're not going to... Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: No, no, no, no. I'm not saying that. No, Tom. Tom, I'm not saying that the PRA is rejecting Basel IV. What I'm saying is the PRA has looked at our five-year capital plan, and has decided that they are comfortable with us, having sold Brazil, retiring half the shares that supported Brazil, knowing all that they know, you know, and we know about the likely regulatory change. Iain James Mackay - Executive Director & Group Finance Director: And I think what goes beyond this, Tom... Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: That's all I'm saying.

Okay. Iain James Mackay - Executive Director & Group Finance Director: ...is there's a point in time versus the propensity to generate capital and meet regulatory capital requirements over time. What we're not saying is that there is no impact from any refinements to the Basel regime at this point, because nobody knows. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: We don't know what they are. Iain James Mackay - Executive Director & Group Finance Director: And so I think to Douglas's point, you've got to place some faith and reliance on the various statements coming from central bank governors and heads of supervision. But by the same token, as I'm sure many of you have, if you have conversations with some of those same heads of supervision, they have a very, very significant piece of work to do over the next six months to try and come to an agreement as to what the Basel framework will look like going forward. And it is a substantial piece of work. So, no, we're not saying there is no impact here. But we are simply taking all the factors that are put in front of us from various sources, as clearly are our principal regulators, and that's informing decision making.

Okay. All right. Thank you very much for that.

Our next question today comes from the line of Stephen Andrews from Deutsche Bank. Your line is now open.

Yeah. Hi. I just wanted to come back to the question of capital trapped in North America. And just can you get a bit more guidance in terms of exactly how much capital you do have in North America? Because obviously from the operating company accounts, we can see Canada, finance corporation, and the bank. When you talk about the proceeds from the card sale and the branch sale being held in North America, is that being held at the North American holdings company level? So we should... Iain James Mackay - Executive Director & Group Finance Director: It is, yeah.

To get a rough idea. Okay. So and in terms of how much capital is held... Iain James Mackay - Executive Director & Group Finance Director: Okay. Our consolidated common equity tier 1 ratios in North America are north of 24%.

Okay. So when we're looking how much capital there is in North American holdings, we should expect take the oppose (1:03:47) Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: It's quite a lot. Yeah. You should look at the U.S. holding company. Iain James Mackay - Executive Director & Group Finance Director: Can't see it. It's not published.

Okay. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Which you can't see. But there's really...

Okay. But that kind of helps answer the question. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: As Iain says it, the capital ratio is in the mid-20s%, which is quite high. Iain James Mackay - Executive Director & Group Finance Director: Yeah. No, that's...

Okay, that's helpful. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: So we expect – we hope and expect that the dividend payment that we get back to holdings will be a material sum. But we obviously aren't in a position to provide a number for that at this moment in time.

Okay. And then just a follow-up question on the U.S. I mean if we look at the remaining businesses sort of – on the sort of NAFTA platform as you call it, it looks like you probably still got the best part $30 billion, $35 billion of capital tied up there. And although you've made a little bit of progress in Mexico, I mean that's only sort of $3 billion of that capital. And the rest of the business is really struggling to generate any return at all. How far away are you from saying, okay, we need another plan, another way to free up that sort of – or generate a better return on that $30 billion, because at a group level at the moment, even ex the stuff held at holdings, it's still a massive drag on group returns. Iain James Mackay - Executive Director & Group Finance Director: So if we take each component of NAFTA, you mentioned Mexico. And we've talked in this call about the progress that we're making in Mexico. We are not there. We know we've got a lot more to do in Mexico, but there's good traction and progress being made by Nuno [Matos] and the team. Canada is a business that continues to generate – even in a higher loan impairment charge environment coming from oil and gas sector, continues to generate an attractive return. And on a normalized basis that's a very attractive business for us. The challenge, and Stuart referenced this earlier in the call, is continuing to move performance within the U.S. business. Broadly speaking, outside the oil and gas sector, metals and mining, we've got fairly stable credit quality within the U.S. business. We're making progress from a revenue and cost perspective as well. We obviously continue…

Okay; thanks a lot. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Thank you.

Our next question today comes from the line of Manus Costello from Autonomous. Your line is now open.

Good morning. Thank you. Just a couple of questions from me. First, just a point of clarification about the trapped capital in the U.S. Can I just be clear that when you dividend this back up from the sale of the cards business, for example, which I think was about 60 bps benefit, there isn't any benefit to the group's consolidated ratios from that movement of capital. So is what you're trying to say, if you are organically generating capital by the end of next year, for example, which means that you are above this 12.5% level, you will now be technically able to return capital. So I can't see why the dividend and the other (1:09:28) capital from the U.S. business would directly impact the consolidated group and your ability to pay. And my second question just briefly is on BoCom. Has there been any further discussion about changing the capital treatment of BoCom? I think in the past you've thought maybe about treating it as a material holding. Has there been any reopening of that debate? Thank you. Iain James Mackay - Executive Director & Group Finance Director: Manus, you're absolutely right. It would have no impact on the group's capital ratios. But what it does do is put the cash resources that back up those capital ratios at the holding company, which means it is now within – it is then within our power to do either re-attribution to other investment opportunities or return it to shareholders. But it has no impact on the group's common equity or other capital ratios, by simply moving it from the U.S. to the parent company. On BoCom...

So what you're really saying is, if you are able to organically generate capital between now and 2017, whenever you're allowed this, you would physically be able to pay it? Whereas historically that might not have been the case? Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Yeah. I mean the dividend is paid out at the holding company. The holding company is a listed company. So the cash has got to be in the holding company, either to fund the dividend or to fund the buyback. Iain James Mackay - Executive Director & Group Finance Director: Yeah. It all comes from cash from the subsidiaries in the form of dividends. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: So think about it in cash terms, as opposed to purely in capital terms. Yeah.

Okay. Iain James Mackay - Executive Director & Group Finance Director: So capital generation by whether it's HBAP or North America or Mexico or any of them, it all comes back in the form of dividends to the parent company. So it is absolutely vital that we have capital surpluses sitting at the parent company to enable the most efficient capital allocation.

Got it. Thank you. Iain James Mackay - Executive Director & Group Finance Director: Okay. On BoCom the conversation and discussion with our principle regulator continues. It's a good conversation, but it is ongoing.

Okay, thank you. Iain James Mackay - Executive Director & Group Finance Director: Okay.

Our next question today comes from the line of Fahed Kunwar from Redburn. Your line is now open. Fahed Kunwar - Redburn (Europe) Ltd.: Hi. I just got a quick question on slide eight. So if I look at your discrete quarter cost growth versus the quarter cost growth taking out the regulatory program and compliance. It's been around 2% to 3% drag from regulatory compliance over the last kind of 4 quarters or 5 quarters, while this year – or this quarter, sorry, the drag is substantially less. I mean can we – and obviously you've done very well getting positive jaws as well. Can we read that across as the drag from compliance going forward now won't be as high as it was for the last kind of year, year and a half? Or is this a kind of one-off thing, where compliance spend has reduced in this quarter. But it could go up again in the next few quarters? And my second question was just point of clarification on margin, quarter on quarter and year on year after the quarter, what has the net interest margin actually done? Thank you. Iain James Mackay - Executive Director & Group Finance Director: So going to the investment in regulatory programs and compliance. I think we set out in 2015 in June quite clearly what we needed to do in terms investment in this space. That investment is going ahead. Clearly there has been a huge amount done over the last 3 years, 3.5 years, 4 years. There is quite a lot that still needs to be done. So the rate of growth in that investment is slowing. But there is still a broad range of investments to be completed between now and the end of 2017, which is the…

Our next question today comes from the line of Martin Leitgeb from Goldman Sachs. Your line is now open.

Yes. Good morning. Good morning also from my side. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Good morning, Martin.

My first question would be on Brexit and the impact on Brexit on in particular your UK business so far. And you hint that there was a flight to quality in terms of deposit. And I was just wondering if you could comment on the inflows of deposit you have seen in the – particularly in the UK since the outcome of the referendums in the past 6 weeks? Whether you saw any change in customer behavior there? And the second question in relation to Brexit is, how do you think about UK mortgage growth going forward? You called UK mortgages out I think in the last call as one of the key growth areas for HSBC going forward. And I think you also made some considerable investment in that operations. Do you still target to grow in absolute terms that business? And then lastly, just on your very strong loan to deposit ratio, which has been trending down obviously at least since – we track that in our model since 2004 at least, if not much longer. At what point does the loan to deposit ratio become an issue? We have seen some of the U.S. peers proactively addressing some part of their deposit book. I guess it's probably driven by a leverage constraint. Is it fair to assume that for HSBC that loan to deposit ratio wouldn't be an issue, simply because you're constrained by a core Tier 1 basis? Or does that differ across jurisdiction? And then lastly, in terms of investment of excess deposits and deployment of those excess deposits. Could you shed a bit of light what strategy you have, given obviously the very low interest rate environment at present? Thank you. Iain James Mackay - Executive Director & Group Finance Director: Okay. Quite a…

Thank you very much. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: And on the Balance Sheet Management. Balance Sheet Management will continue to manage the balance sheet as it always has done, which is basically it's taking interest rate risk. So within Balance Sheet Management we do not really take credit risk. It tends to own government bonds and it's often super national type of issuers. I don't want to create a credit portfolio within BSM. One of the reasons for that is I'd rather take credit risk out of Global Banking or out of Commercial Banking, because then you get the relationship benefit. If you simply buy someone's bonds in the secondary market, there is no relationship benefit to that whatsoever. I don't want to turn into investors in the same corporate credit to whom we're bankers. I want to be a banker to them, lend to them directly, and then harvest the ancillary revenue. And you don't get that if you're simplifying buying the fixed-income instruments.

(1:22:57) Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: No. We should be underwriting in the primary market that – we should be underwriting in the primary market that fixed income, not buying it blind in the secondary market.

Is there anything you do different there in terms of that structure of that Balance Sheet Management book at this stage? Or is that relatively mundane (1:23:17)? Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: No, look, it tends to be 3 years and under. And I don't see any reason to particularly change that. Again, we're in an environment where if we can make kind of $2.4 billion to $2.8 billion, that's a reasonable requirement. It's very hard to call what the impact, say, in the UK 2 years out of the pound having fallen dramatically, when it seems that the government will do some package of adjustments tomorrow. We could have inflation at 3%, 4% in the UK and actually 2 years, 3 years out and find that interest rates are sharply higher. So I don't really want to basically change a series of protocols that we developed over many, many years. And in markets in Asia Pacific, where we've seen extreme moves happen much more often. Actually we've seen pretty extreme moves happen in the West actually. So no, I don't think there's a magic bullet for this. We just have to kind of tough it out. The problem with magic bullets is the unintended consequences of what you didn't think through. So I don't want to build up a massive credit portfolio managed by couple of traders. I'd rather basically get the relationship managers out to build up the credit portfolio.

Thank you very much. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Thank you. So we got time for one last.

Yes. We will take our last question today from Ronit Ghose from Citigroup. Your line is now open.

Great. Thank you. Just wanted to clarify a couple of points you've already mentioned. So firstly on capital and buybacks. Can you confirm if the buyback, the shares will be canceled? And if so when? Secondly, you've talked a lot about the upstreaming of capital potentially from the U.S. And I was looking at your [The] Hongkong [and] Shanghai Banking Corporation legal entity, which generates most of your profits. And you've been paying up below 50% of earnings up to a HoldCo. And I was just wondering is there a reason why? Given this large amount of capital that sits in your Hong Kong legal entity, your APAC legal entity, is there any reason why you're not upstreaming more out of Asia? And linked to that, your NPLs are beginning to take up, albeit from a very low level in Asia. Just wondered if there's any kind of color you want to add? Or any – is there any sign of whether it's in state-owned Chinese companies or oil and gas exposure there. Have you had any sign of things looking a little bit more challenging, which may want you to hold back your payout ratio, upstreaming up from [The] Hongkong [and] Shanghai Banking Corporation? Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: So the shares will be held as treasury stock. Iain James Mackay - Executive Director & Group Finance Director: That's correct. Yeah.

They will be canceled? Iain James Mackay - Executive Director & Group Finance Director: No.

Why is that? Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: They'll be held as treasury stock. Iain James Mackay - Executive Director & Group Finance Director: And there is no accounting capital or any other benefit to canceling them. There is no detriment to holding them as treasury stock. And in treasury stock it gives us some flexibility as to their future use and re-registration. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: [The] Hongkong [and] Shanghai Banking Corporation's capital position? Iain James Mackay - Executive Director & Group Finance Director: Well one of the reasons – and this won't be a shock to anybody – is that just as the rest the world is implementing Basel III, so Hong Kong is implementing Basel III. And also one of the other aspects is of all the markets in the world where we have reinvestment opportunity... Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: This is the one. Iain James Mackay - Executive Director & Group Finance Director: The Asian markets is it. And so we have had historically a very consistent a payout ratio between 50% and 60% from HBAP up to the parent company. And at the moment, that would seem to be – continue to be the appropriate thing to do. But HBAP to be clear is really no different to any other subsidiary in the group, in terms of the challenge we place for the management team there around the efficient management of the capital. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Also remember what we've just said is that we sell Brazil, so we don't need the shares that support Brazil. And we sold the credit card business in the U.S. and the upstate New York branches some time ago. And we don't need the shares that support that. We actually haven't sold anything in Asia that we don't need the shares to support it. Iain James Mackay - Executive Director & Group Finance Director: Yeah. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: So the payout ratios of The Hongkong [and] Shanghai Banking Corporation reflect a BAU [business as usual] approach to dividends, as opposed to it's holding stuff that's the proceeds of things we sold in the past.

Sure. Sure. I get that. But it's your current capital levels in HBAP are in the mid-teens. And I'm just wondering if there's more scoped upstream there? Or you think that the current earnings will come under pressure in HBAP from rising NPLs and rising loan losses? Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: No, no. The – what Iain is saying is the HKMA – look at banks in Hong Kong. They have capital ratios in the mid-teens. Iain James Mackay - Executive Director & Group Finance Director: Yeah. Yeah. Yeah. No, this is...

Sure. Iain James Mackay - Executive Director & Group Finance Director: The capital management – the regulatory capital management in Hong Kong is very much informed by dialogue with HKMA around implementation of Basel III and capital requirements within Hong Kong. There's a decent buffer that sits in Hong Kong of 2.5% for HSBC. Now we obviously meet that requirement. But it's all about the quality of the conversation and capital requirements informed by the HKMA.

Got it. So there's nothing in the NPL side that's keeping you awake at night as relative in Asia. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: No, no, absolutely not. Absolutely not. I mean...

Okay. Thank you, guys. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: It's not – it's Brazil, Canada, U.S. oil and gas, it's not China.

Okay. Thanks. Clear. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Yeah. Thank you. Stuart Thomson Gulliver - Group Chief Executive Officer & Executive Director: Okay, that brings the call to the end. Thanks very much, everyone.

Thank you, ladies and gentlemen. That concludes the call for the HSBC Holdings Plc's interim results 2016. You may now disconnect.