This presentation and subsequent discussion may contain certain forward-looking statements with respect to the financial condition, results of operation, capital position and business of the group. These forward-looking statements represent the group's expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Additional detailed information concerning important factors that could cause actual results to differ materially is available in our earnings release. Past performance cannot be relied on as a guide to future performance. This presentation contains non-GAAP financial information. Reconciliation of the difference between the non-GAAP financial measurements with the most directly comparable measures on the GAAP is provided in the earnings release available at www.hsbc.com. The Analyst and Investor Conference Call for HSBC Holdings plc Earnings Release for 1Q 2019 will begin in two minutes. [Operator Instructions]. Good morning, ladies and gentlemen, and welcome to the Investor and Analyst Conference Call for HSBC Holdings plc Earnings Release for 1Q 2019. For your information, this conference is being recorded today. At this time, I will hand the call over to your host, Mr. Ewen Stevenson, Group Chief Financial Officer.

Thanks, Sharon. It's Ewen here. Good morning, afternoon, whatever time frame you're in, and thanks a lot for taking the time to join the call. I was going to plan to speak for just over 10 minutes, and then there'll be plenty of time for your questions at the end. You'll be able to find a full set of slides on the Investors section of our website. Rather than running through that deck slide by slide, I'm just going to provide some overall comments on Q1, and then the slides are there to provide some additional detail for you. On today's results, on the basis of the headline numbers, obviously a very good quarter. Bottom line profit of $4.9 billion. And even if you ignore certain favorable items included in adjusted earnings, still a good quarter overall. On a reported basis, Q1-on-Q1, revenues up 5%; post-tax profit is up 31%; EPS up 40% [Technical Difficulty] On an adjusted basis, revenues were up 9.2%, and cost growth moderated to 2 -- 3.2% this quarter, meant that we had a very healthy adjusted jaws of a positive 6% in the quarter. On the balance sheet. We grew lending by 7% from Q1 2018, and we grew deposits by 2%. And despite a 1.6% increase in RWAs this quarter, around 1/3 of which came from the day 1 impact of IFRS 16, core Tier 1 improved by 30 basis points to 14.3%. Fully diluted TNAV was $7.02. That's up $0.04 on the quarter. Looking at the adjusted revenue in more detail, firstly, by business line. In Retail Banking and Wealth Management, revenues were up 10% on Q1. This was underpinned by loan growth of 9%, notably in mortgages in the U.K. and Hong Kong. Wealth Management revenues were up against the strong Q1…

[Operator Instructions]. We will now take our first question from Chris Manners, Barclays.

Just two questions, if I may. The first one was about the buyback and the fact you're going to take a decision at the half year. Does that mean that you might not do the buyback, and we should think about this as a sort of phasing the neutral scrip over a course of years and you want to manage the capital ratio more dynamically? Or is it just a sort of formality, rubber stamp approval? And then the second question was on the NII and the net interest margin. I guess that the net interest margins have missed what people were looking for a little bit there. Maybe just assuming on one part of it, in the U.K., you've actually managed to hold your net interest margin flat, but you've slowed your mortgage volume growth. Could we ask just a little bit about how you think about pricing there? Obviously, even if you got 5% risk weight still in that U.K. mortgage book, risk weightings are going to be increasing, but you still got a lot of surplus liquidity. So maybe if you could just talk us through a little bit on your thoughts on that dynamic of margin versus volume in the U.K. business.

Yes. Thanks. Look, on the buyback, it's more the former than latter, i.e., it's definitely not a signal of rubber-stamping buyback and as part of Q2 results announcement. Yes, we -- yes, to give you some things to think about our core Tier 1, we've obviously had a target of having our core Tier 1 ratio above 14%. It was at 14% at year-end. It benefited from some favorable FX and reserve movements to the sort of 14.3% at the end of Q1. Underlying that was about a 40 basis points core Tier 1 underlying capital generation in the quarter. Yes, we're continuing to see very good top line loan growth, which is obviously putting pressure on upwards gross RWA increases. We've got a whole bunch of RWA mitigation actions that we're planning, some of which are things like model improvements. Yes, those model improvements are obviously sitting with regulators, some of which, yes, could be delayed in terms of timing, and there's uncertainty around quantum and execution of some of those actions. And we've also got Brexit uncertainty. So yes, John and I would just like to get to another quarter of data and then take a view what the benefit of sort of sitting towards the end of July on what the full year outlook is for our capital base and take a decision then on buybacks. Yes, if that will ultimately then mean there'd be no buyback in 2019, if that was the decision at that point, then we're still committed to the underlying neutralization of scrip over time. But it was a -- yes, we take it as positive the fact that our core Tier 1 went up 30 basis points in the quarter.

Okay. So if you could save 20 or 30 basis points by not neutralizing the scrip this year, but that puts you in a more comfortable capital position, you might do it. But then if we look forward to '20 and '21, you would eventually neutralize it and get a share count back to where it was will be the plan?

Yes, look, fundamentally, if we see the opportunity to continue to put on good loan growth, I think we're always going to take an opportunity to put on good loan growth if we think that's achieving returns above the cost of capital. And in many parts of the world, we have seen good loan growth that meet that criteria at the moment. On the second question on NIM, I'm sure yours will be the first of a number of questions on the topic of NIM. But on the U.K., we did take some pricing decisions in Q4 to test pricing elasticity. We did -- as a result of that, we did see a slightly slower flow share in mortgages in Q1. It was about 7.1% flow share, still ahead of our stock share on 6.6%. That meant the NIM stayed stable at about 221 basis points. But yes, we remain committed to continuing to grow our U.K. mortgage book ahead of our stock share. Again, just to repeat, we've got a natural share on the liability side of sort of low double digit. And therefore, with the stock share sitting below 7%, yes, we do see ample opportunity to grow that mortgage portfolio over the coming years.

Got you. And on a point about only having a 5% risk weight on the U.K. mortgage book and potential that you have that risk weight going up, and would that change your return profile in some of your decision-making? Or you're already pricing for that?

Yes, it's a bit of both. I mean, look, we're obviously going to price to the -- depending on the product and duration of that product, we're obviously going to price with one eye in mind to Basel III reform coming down the track. And -- but even today, if you were to fully load that into pricing, we still think that we're earning very attractive returns on our U.K. mortgage book and today, finally, attractive returns. Chris, I mean the other dynamic that I think, yes, everyone should obviously be alive to, which has nothing to do with mortgage pricing, is just, yes, at some point, we need to refinance the term funding scheme. Yes, there was about $120 billion of TFS funding out in the market at the end of last year. We didn't take any of that. But we're obviously alive to the impact on deposit pricing that may see, which again may have an influence on where people choose or otherwise price mortgages in the coming periods.

Okay. So we could see a bit more firming in mortgage spreads, you think?

Depending on what's happening on the deposit side out there.

Your next question comes from Tom Rayner from Numis.

A couple, please. Just one on the margin. Just looking at where consensus is currently expecting to go, it's like it's trending to about 1.7% by 2021 versus the sort of 1.59%. I hear what you say about HIBOR having moved back up, so the gap against dollar LIBOR has closed. So I guess they're both hopeful. Is that enough, do you think, to offset, I mean, the competitive pressures you're seeing from the deposit switching in Hong Kong and elsewhere? I mean are you comfortable with that consensus margin trajectory at the moment? I have a second one on cost. Do you want me to do it now?

So look, just on NIM, I don't like forecasting NIM. But yes, we just printed 1.59% in the quarter, and consensus for the full year is sitting at 1.66%. Yes, even if you factor in a more positive -- if you were to adjust, assuming that HIBOR book stays where it is for the full year, I don't think that's get you back to 1.66% for the full year. So yes, we do expect some of that gap, if HIBOR was to stay where it was, to narrow. I don't think that it'd get you back to where current consensus is. But equally, we think and we continue to see, we think, growth in average interest-earning assets that's been consistently higher than where consensus has been. So if you look at in on an aggregate net interest income basis, yes, there's probably some gap to consensus today, but it's not as big as purely been provided by the NIM gap that we saw in Q1.

Yes. I get that '19 consensus looks pretty tough. But I'm just thinking 2021, it's not a lot of margin expansion over that sort of period. I just wondered if you still [indiscernible].

Well, I mean [indiscernible] with the policy rate for me in -- over 2020 and '21, Tom, I would happily provide it. But I mean the interest rates are bubbling around so much, yes, and we would have expected going into the start of this year to have seen, yes, a rate rise in the U.S. and a positive environment going into 2020. That doesn't look to be the case anymore, so...

Okay. And just on costs...

And then on costs?

Yes, you took $1 billion of investment, I think, in Q1.

Yes.

And I think the target for the full year is $5 billion. Can you tell me about the phasing of the remaining $4 billion as we go through the year? Is this going to be fairly sort of evenly spread? Or is that going to be [indiscernible] on revenue?

Yes, I mean so just on fixed costs, yes, there was 3.2% adjusted cost growth in the quarter. I think that was slightly flatted because there was a bank levy charge in Q1 of last year. And there was also a very small impact of hyperinflation and benefiting the numbers in Q1 of this year. If you were to back those 2 things out, our cost growth would have been about 3.8%. Within that, there was about 15% growth in the P&L impact of investments towards $1 billion or just under $1 billion. For the remaining period of the year, therefore, you should expect investment spend and the impact of that investment spend on the cost structure to increase, which will obviously put a bit of upward pressure on cost growth. And I said that, therefore, the adjusting on us is to manage more actively the other part of the cost base, the run-the-bank cost base more proactively over the remainder of the year. But there will be a ramp-up starting in Q2.

Our next question comes from the line of Fahed Kunwar from Redburn.

I just had two quick follow-ups to Tom's questions, to be honest. On the margin, I just want to understand, so you said in 2020 when you expect the rate rise, that looks unlikely now. When we think about -- if there are no rate rises going forward, should we still expect loan growth of 4% and NII growth of 5% as consensus? In the sense that actually people will still expect margin expansion, it feels like it's unlikely we're going to get margin expansion now going ahead without rising rate. And I completely appreciate volume growth could still meet your NII expectations on the margin side of things without rate rises. Is it too much to expect kind of NII to be tracking ahead of loan growth is the first question. And the second question was just on the capital, the kind of movement in the fair value to comprehensive income. I think it was about 10 basis point boost to capital, which explains for your 30-odd bp. Is that a permanent change? Or is there anything -- I mean that would reverse over the course of the year? A bit more color on that would be grand.

Yes. Look, on the latter note, IFRS gains and cash flow hedging, reserve movement, so I don't think you should assume that, that is sort of -- yes, that swings around a bit. And hence, it's sort of linked to the commentary on buybacks too that it's good that we got those benefits in Q1, but we're not -- sort of, yes, that could swing around. On NIM, look, mathematically, what you say has to be right. I'm obviously not going to build your models for you. But -- and I just observed that we're far more sensitive to HIBOR than we are to U.S. dollar rate impacts, so yes, that will be a bigger driver. But yes, the biggest single driver of net interest income growth in the coming years is driven by underlying volume growth.

Our next question comes from Guy Stebbings, Exane BNP Paribas.

Can I just come back to costs, please? And I had a follow-up on RWAs. Thanks for the colors so far. I mean if we take the 3.8%, I think you said, underlying growth...

Yes.

Should we be thinking of the phasing of the investment spend this year and the salary rises to come through that's putting incremental pressure on that sort of figure? Or whether the actions you're sort of outlining should -- maybe we should see as significant offset to that? And are you able to give any color around some of those actions you're hoping to take? So that was first question. And then on RWAs, thanks for the guidance for this year. I mean as we look into next year, would you be able to give any guidance in terms of some of the regulatory drivers or the RWA movements likely to come through over 2020, 2021, et cetera? And does that have any bearing in terms of size, timing of buybacks or can be absorbed through the normal course of business?

Yes. So look, on costs, we have natural inflation on our cost base of around 3%. So if we were to do something and keep the headcount flat, yes, and not change our approach to investment year-on-year, you would expect natural cost growth in the business of around 3%. The fact that we're spending more of our investment at, yes, about 1% or so on top of that in terms of additional cost growth, yes, which gets you, say, to around about the 4% level that you saw in Q1 of this year. So yes, depending on the flex on that investment spend or, yes -- but the main priority I think is broadly to keep headcount relatively flat while we're continuing to put on volume growth. And therefore, the investment we're making in -- investments we're making should then turn drive productivity improvement, which allows us to continue to achieve that objective. So I don't think we're talking about any significant cost program across the bank. What we're talking about is just sensible cost discipline. When I looked at last year and the 5.6% increase in costs that we had, which was very much what we planned to do, we just had about a $1 billion revenue shortfall in November and December because the market impacts meant that we went from what was anticipated to be a positive jaws to negative. I just feel more comfortable trying to plan on the basis that we can manage costs to below that sort of run rate that I just talked about. On RWAs, yes, putting Basel III reform to one side, I'd still think we're trying to manage towards about a 2% RWA growth in 2020. I know we talked about 1% to 2%. I'm sort of comfortable at the higher…

Our next question comes from the line of Magdalena Stoklosa, Morgan Stanley.

Two questions on your balance sheet really but more on the underlying business. On the Slides 12 and 13, when you showed us the details of the -- of global Retail and global Commercial segment, the loan book growth has also grown deposits quite significantly kind of year-over-year. And I'm just wondering if you could kind of give us a sense of how that relative growth, how much of it was literally just underlying business condition versus your deliberate pricing strategy to drive one versus another. And two, how do you think this is likely to move forward, let's just say 2019, 2020?

Yes, look, on the lending side, I don't think it's driven by any particular pricing strategy. Yes, in the ring-fenced bank in the U.K., we clearly, as a result of ring-fencing, as we talked about our full year results, ended up with excess of deposits sitting in the ring-fenced bank and, equally, a liquidity shortfall sitting in the non-ring-fenced bank. So we also didn't have, going back a couple of years, a well-developed distribution channel through intermediary mortgages. We've now set that up, yes. So we used to have, yes, a very a very low market share in intermediary mortgages, which is about 70% of mortgage distribution in the U.K. So we just think, as I just talked about earlier, if we've got a low double-digit natural share of liabilities, we should have asset-side share that's substantially higher than where we sit today. In Asia, Asia is growing, and we're just taking advantage of Asian growth. Yes, in context, if you were to look at our overall Mainland Chinese market share, it's sort of less than 0.2% or something. So our ability to grow in the Greater Bay Area at sustainably high growth rates really comes back to your sort of question on deposit growth, which is, yes, how can we fund that growth because we've got ample opportunity in Hong Kong and the surrounding region to grow loans. Yes, on the deposit growth, yes, some of that was deliberate. We do have some very large liquidity surpluses in some parts of the world, particularly Hong Kong and the U.K. And we've been taking advantage of those liquidity surpluses, deposit surpluses to grow loans rather than the need to grow deposits. That's clearly not a sort of sustainable proposition over the long, long term, so you would expect over time to see deposit growth, I think, to begin to increase, and that gap would narrow. And in Q1, there were just sort of one-offs in the commercial side that's sort of impacted the headline deposit growth in some of other places, particularly Hong Kong.

But Ewen, just a follow-up on this one. If -- when you look at your underlying activity per segment per kind of country, where do you actually see the loan growth delta to the upside? Or where do you expect potential surprises? Where -- I suppose where do you see the relative strength?

Well, if you look at -- if you break down our business by, yes, where are we, yes, at 10-plus percent, say, market share in lending and deposits, U.K., Mexico and Hong Kong. Hong Kong, yes, you should expect our market share to broadly grow in line with the market, I think, between us and -- between us and Hang Seng, we are already around 40% of mortgage origination. So do we expect that to change significantly on the upside? I don't think so. So in the U.K., we do think we are underweight, and we -- on the asset side, and we do have the ability to grow. We do think on the commercial side, for example, in the U.K., with Brexit, that plays to our competitive strength as corporates develop new international relationships. In Mexico, again, we should plus/minus grow in line with the market. Every other place that we do business is different. Every other place that we do business, we have the ability to grow substantially higher than market growth rates if we choose to, and we can fund that growth through deposit growth. So for example, in the U.S., the business plan is premised on us taking share off of -- from a base of very low share. In Mainland China, our premise in ASEAN region, same thing. In some of the other markets we do business, like Canada and Australia, where we're not part of the big incumbent banks there, we've been growing both businesses very nicely. So I think the answer is a very nuanced stance depending on which market we're in. In the established markets away from the U.K. where we are part of the sort of larger banks in those markets, yes, our growth rates should be more in line with market. In those markets, U.K. and the other markets where we effectively have got significant upside to grow loan growth ahead of market growth rates.

Our next question comes from the line of Jason Napier, UBS.

Just one question, and I wonder whether it links to your answer to the previous one, and that's around the emphasis that we've heard in the past around positive jaws. Into those release, you obviously cite that you've had 6% jaws in Q1, but a big chunk of that obviously comes down to sort of market movements and so on.

Yes.

I think John has emphasized that at an organizational level, kind of weaning yourself of restructuring budgets and so on, you've liked the discipline of positive jaws. Just sort of wonder whether you could give us color on how do you deal with things like market moves when you think about these things. Isn't it on the cost side emphasizing the longer-term growth of the organization kind of more important? And then just for clarity's sake, are you still committed to delivering positive jaws for the full year, excluding things like market moves?

Yes. So I think we've always committed to positive jaws, and we haven't tried to sort of adjust and to get to an adjusted -- adjusted the positive jaws within that. So we certainly took the hit last year from -- in Q4 when we -- because of adverse market movements, we recorded a negative jaws rather than a positive jaws. But -- and in terms of we how saw it, look, for us, [indiscernible] there was no perfect -- yes, there are imperfections with whatever we would communicate around on cost targets to the markets. Cost/income jaws are imperfect because while we can control costs, we're obviously not fully in control, as you point out, of some of the revenue line items. So yes, there is market and interest rate sensitivity in our top line that does mean that, yes, while we can have a base planning assumption on what our revenues are going to be for the year, things that sit entirely beyond management control, such as what happened in November and December last year, means that, yes, we need to manage to a gap to ensure that we would get to positive jaws. Equally, setting hard cost targets we don't think is right either because we can flex our cost base according to what the growth opportunity is. And if we see growth opportunity, then we want to invest for that. So managing to an absolute cost number to us doesn't makes sense either. So yes, John's right, jaws is a good discipline internally. It's not a perfect metric because we're not in total control of some of the revenue line items, but it's a decent metric to manage to. And what -- yes, but fundamentally, I'm managing both the jaws and absolute cost growth, yes, personally.

Just a follow-up on that, I mean at your level and at John's level, the jaws thing sort of makes sense. How does that work at a kind of global business level? Or does that develop to them in exactly the same way?

Well, it depends on the business. So yes, it depends where they are in terms of their investment -- own respective investment programs. Yes, so for example, we're investing very heavily this year in our investment program in Commercial. So it may well be within Commercial, you have negative jaws. We're comfortable with that because we know that elsewhere in the business, we're going to have positive jaws to offset that. So at the individual business level, they are not held -- in each individual business, it's not held to positive jaws because we don't think that's the right thing to do. Where we've got an individual business that needs to invest for longer-term value creation, we're not going to hold on to positive jaws.

Your next question comes from the line of Alastair Ryan, Bank of America.

Just on some helpful new disclosures you've given us the last couple of quarters, and you've been around long enough now for us to start picking on you about it. The non-ring-fenced bank in Europe, other -- I know you never really set the bank up for those, but -- so it didn't look like they're doing that well. They've got a lot of costs at Corporate Centres in there. But also the Corporate Centre is partly being sort of revealed by the carving-out of the U.K. ring-fenced bank. Is that why you're looking at costs really and the levers that you're going to pull, whether these are -- was set up almost for a different HSBC. That was more European, less Asian, I guess. And if you're going -- if you've seen the revenue opportunities in Asia, and one assumes you're not, I mean, pulling too hard on the costs there, is that the right way of thinking about where cost flex comes?

Well, so -- I mean, yes, if you look at how our capital is invested around the globe, and yes, some of the numbers are not perfect because, obviously, in places like Europe and the U.S., we absorbed cost of relationship banking where revenues are booked elsewhere on the planet. But even if you adjust for that, yes, the U.S. and Continental Europe are where we have our biggest strategic challenges at the moment in terms of returns. So yes, those are two areas that we're focused on, yes, more focused on how do we turn around those businesses, yes, which is a mix of, yes, some -- it's a mix of revenues, cost and capital, frankly, for both those two businesses. So yes, the current performance of our non-ring-fenced bank is not good enough. We recognize that. We need to improve it. Not as similar to a situation, now that underlying business drivers are different, to what we have in the U.S. as well.

Your next question comes from the line of Manus Costello, Autonomous.

I wanted to come back to HIBOR, please. I wanted to ask why it's so volatile, and to [indiscernible] question, if you could shed any a light on that would be useful. But perhaps more relevant, given the volatility over the last 12, 18 months, is it changing the way that you're approaching it then in Hong Kong at all? Or should we still expect that same kind of sensitivity to flow through because, obviously, that has a somewhat different impact if it's swinging around?

Yes, look, I'm probably not the world's expert on HIBOR at this point, but my learning curve is rapidly improving. But look, basically, there are huge money flows is my understanding in and out of China, which just means that, yes, HIBOR swings around substantially even though it is linked somewhat to U.S. dollar interest rates. The -- yes, another feature, manners of the Hong Kong market is on the asset side and the liability side all have repricing mechanisms, typically around 1 and 3 months. So yes, what you see within any given quarter is, yes, a very rapid translation that you wouldn't see in other markets between a change in the underlying interest rate curve into the underlying P&L. And you can see that -- I think if you look in our full year disclosure. You look at the amount of the basis point sensitivity we showed for 25 and 100 basis points shifts in interest rates. We have a far higher year one impact as a percentage of, yes, a five year rolling impact than we would for other banks that I've seen.

But even if that's going to be much more volatile, it seems you are happy taking that incremental volatility into your NII.

Well, yes, you're talking about having to fundamentally change customer behavior in terms of the product offering. And at the moment, yes, can you do that? Possibly. But it's very unusual to change customer behavior and customer preferences for -- particularly on the asset side for product. So depending on which market we are in the world, we tend to be a taker of the product preferences of customers on those markets. So I don't think...

So do you expect more volatile NII?

Yes. So I don't think you should -- look, on NII -- on noninterest income, clearly, we are growing that substantially. And we do see, yes, one of the features for us, we think, in Hong Kong is the substantial opportunity on the wealth side both in terms of private banking, affluent banking, asset management on the insurance side, which should provide some offset to that. But yes, do I think over the next couple of years we're going to see a fundamental shift in our interest rate sensitivity to Hong Kong? No.

Your next question comes from Joseph Dickerson from Jefferies.

Ewen, so much on the call have been focused on net interest income. But looking at the other half of your revenue base, there's a very interesting ongoing story in terms of liquidity, your Global Liquidity and Cash Management revenues, which were particularly strong. And I thought it was nice to see the chart looking at the funded assets that support those, and those were only up 4%. So I guess that seems like it's been a fairly sustainable business for you. So are these the type of growth rates that we can expect? As I know you don't want anybody to annualize anything from Q1, but these have been consistently strong. What's driving that strength and kind of continue, firstly? And also on the noninterest income, I think you said in February, you were above budget in the early stages of Q1. If your peers are going to read across, you've probably had some ongoing momentum in the markets business in Q2. If you could comment on that, that would be great. And then the 4% increase on FTEs, what's that like 9,000 plus new people year-on-year? I guess where are these FTEs going in terms of your business units and lines? That would be quite helpful.

Yes. So on GLCM, look, it's a mix of 2 things I think that's going on. One is we think we are taking share particularly against Western banks in Asia. And we've seen some -- in some cases, some fairly significant market share gains. It is a business we've been investing in, and it is a business we're very good at. And also, there is some benefit from the higher interest rates coming through there. So yes, that interest rate benefit should begin to moderate over time. And whether we can continue to achieve the strong share gains, we'll see. But yes, we do think that is a business where we are competitively advantaged. On markets, I think I would just note that our business is not the same as some of the peers who've been reporting. Our bias is much more Asia, a bit of Europe rather than the U.S. So I think some of the commentary has been the recovery in U.S. markets. You can see that, for example, in, yes, the U.S. IPO markets. Hong Kong was the biggest IPO market in the world last year and is still relatively slow at this point. So I don't think we've seen the recovery into April that some of our peers have seen or seem to be talking about in recent results announcements.

But I think your local markets are up quite a bit though. They are up -- sorry, but not quite a bit, but they're up, they've performed well, and volumes have been a little better in Q2.

Yes. And look, the other thing I would say about Global Banking and Markets for us is it's a very different business mix. So Q1-on-Q1, revenues were up 3%. Yes, FICC was down about 4%, which we viewed as a pretty good performance relative to peers. Equities headline was down 8%, but there's a one-off in there. And if you strip that out, it was a weaker performance. And then the transaction businesses are doing very, very well, which means, yes, for us, the performance at GB&M, it's -- the nuance around our business is very, very different to others. Look, on headcount, we're -- are we investing in headcount today? We've got, yes, more frontline staff. We're investing in the Hong Kong Wealth and Private Banking businesses. We're putting people into China. I think the other dynamic that you should expect to see with us and probably all the banks is a shift out of contractor resource in the U.K. into full time staff. So yes, we do put -- publish, I think, contractors. And you would expect that number to come down as the year progresses, which is really just, in some cases, a shift from contractor headcount to FTE headcount. And this is very much driven by, I think it's IR35, our new tax position of HMRC in relation to contractors.

Okay. Can't wait to analyze that one.

Your next question comes from Raul Sinha, JPMorgan.

Maybe just a follow-up on the costs and then a broader question on the ROTE target. Firstly, on the cost growth, I mean you talked about, on a clean adjusted basis, if you take out the sort of levy comparator from last year, the cost growth was about 3.8% year-on-year.

Yes.

And then obviously, investment spend is likely to intensify through the year. So I was wondering on a net basis, should we be expecting cost saves to be sort of ramping up from the Q1 level so that you kind of hold the cost growth number around the same level? Or does that 3.8% number effectively represent something that is a start, and you will invest from here?

Well, look, I mean, I think for Q2, you could see that drift up because we -- yes, investment spend will go up. Yes, I would hope by the time we get to Q4, well, we'll have, yes, better discipline around the bank cost base. And therefore, yes, Q2 costs may well go up as a growth rate. But over the full year, I would hope by the time we get into Q4, what you'll begin to see is from run-the-bank costs of helping offset that growth rate.

Okay. And then just linked to that, I was wondering what do you think about the challenge that is represented by the 11% ROTE target that obviously you've come into. I mean you've done 10.6% on your own numbers, but that excludes the levy in Q1.

Yes.

And maybe growth picks up from here, but current is still very benign. And obviously, there's -- you're doing $5 billion of investment, but there are plenty of big banks around the world that are probably doing even more. So I was just wondering how you think about the building blocks through that ROTE target given where we are today.

Yes. So yes, I guess we've been persistently more bullish in our ability to grow top line. I hear what you say on other big banks in the world. Other big banks in the world obviously don't have our advantaged position in parts of the world that are growing. So you can be a big bank and investing a lot in the market that is not growing, and you're not -- but it's still not going to grow a lot, your costs may go down, but your top line is not going to go up. But yes, we think that there is more top line upside than we're currently getting credit for. And yes, all of the discussion on NIM, if NIM, instead of coming down, begins to stabilize and go up a bit because of improved Hong Kong interest rates, then all of that volume growth at that point drops through to the -- drops through to revenues. I think on costs, yes, I think we can control costs a bit better than what we're getting credit for and consensus at the moment. I don't think we have a big difference of view on credit costs. I think on tax charges, we do think that our, yes, effective tax rate is probably going to trend towards a couple of basis points, percentage points below where we're currently getting credit for. And I think when you put all of those drivers together, and it does require, yes, support of sort of underlying macro environment, yes, we're still confident that we can go to the 11% in that context. But we would note that, yes, that leads to several different outcomes relative to where consensus is for 2020. The other thing I would say going into '21, which I think a number of you have picked up, is obviously bank levy moves to a very different place in '21. We think it trends to around $400 million in '21, which relative to today is about $0.5 billion sort of pre- and post-tax benefit to our numbers.

Your next question comes from the line of Jon from Crédit Suisse.

So firstly, could you talk about the very strong net new money in global Private Banking in the first quarter and how sustainable do you think that is? And are you seeing any improvement in risk appetite from Asian private clients? And the second question is one of your European peers today saw a capital surprise from RWA mitigation in global markets, so I just wondered if you saw any opportunities there as part of your overall RWA mitigation or if your different mix means that's less relevant.

Yes. So look, on the second question, I don't know. Sorry, I've been tied up since about 5 this morning. Of course, I don't know what the RWA mitigation action was. But we -- certainly embedded in our number -- in our forecast of RWA guidance is a quite significant RWA mitigation actions across the businesses. So yes, we do have significant RWA mitigate -- because, yes, it's not like we've developed a special sauce where we can grow top line at the rate that we're growing top line and still commit to underlying RWA growth of 2%, so there is a significant amount of RWA mitigation actions built into our plans already. But I'm not sure what specific thing is that you're talking about. On Private Banking, it was a very strong quarter for net new money. In context, Q1 was more than the entire net new money of full year '18. So is that going to be sustainable? Maybe, maybe not, but yes, we've got new management -- a new management team in place at Private Banking, António Simões. Yes, it's a business I think with huge potential. If you look at the current returns that we're getting out of that business, there should be significant potential to improve returns and improve profitability in the coming years. We're obviously -- in Asia, we think we've been significantly under-punching our weight in the region. We've got a big focus. And when we look at our product offering, we think we are uniquely competitively advantaged because no other bank -- a lot of the banks we're competing with cannot bring that mix of "ultra high net worth" Private Banking, Commercial Banking and investment banking together as one complete package with customers. Many of them are either fighting on 1 leg or 2 legs, so we do see significant potential in that business.

Your last question comes from the line of Martin Leitgeb from Goldman Sachs.

Ewen, one follow-up question, just building on some of the earlier comments and questions made. And I mean if I take there that you did a return guidance or the return consensus at this stage and squared it up with your comments made on RWA growth, and I think if I heard correctly, that was around 2% from here. And even if taking the consideration of scrip utilization, and that means either the core Tier 1 ratio is going to edge higher over the coming years or there's a meaningful amount of capital available for further growth from here for the franchise. And I just wanted to ask you a bit in terms of what areas of growth are you most excited about. I think you flagged before both opportunities for growth within the lending business, where you got below 10% market share, you could gain share. But equally, in the non-lending business, and I think you flagged Asset Management, Wealth, Private Banking and so forth. And I was just wondering if you could just give us a bit more in where you would be most excited about growth and whether this would be dominantly organic or whether that could also be those for smaller inorganic stuff.

Yes, look, so just on that very last point, none of our plans are currently premised on any inorganic activity, and we think we can deliver our plan without any of that. Yes, when we -- with your point on capital, yes, as returns improve, yes, we have progressively better and better capital generation in excess of funding the current distribution policy. Yes, some of that capital, I'd just caution, yes, we're less than 3 years away now to Basel III implementation, so yes, we are going to have to build up some capital in anticipation of likely higher RWAs under Basel. Although as I said earlier, we still haven't worked through the -- whether there is an offset; and if so, how much; or whether that would drive you to a different core Tier 1 target over time. In terms of where we're excited about growth, look, Asia, Asia Wealth, the Greater Bay Area, which is Macau, Hong Kong and Pearl River Delta, we think we, yes, should be -- offer exceptional growth opportunities. We see significant opportunities to build and take share in the ASEAN region. U.K., as we talked about, we think we can continue to grow better than market. Yes, we're in other markets like Mexico, where the growth upside is material. And then in some of the other areas where we've got a lot of capital, it's mainly on our returns uplift focus, particularly U.S., in the non-ring-fenced bank that we talked earlier. But yes, overall, given the markets that we're in particularly in Asia and some parts -- other places like the Middle East and Mexico, yes, we have natural growth opportunities that are substantive. So that's enough, Martin. Look, thanks, everyone, for joining the call today. And yes, thanks for your questions and thanks for the relatively few questions on NIM. But Sharon, with that, if we could please end the call, and just before I finish, obviously, Richard O'Connor and his team are happy to take any follow-up questions you've got during the day. But thanks all for joining.

Thank you, ladies and gentlemen. That concludes the call for the HSBC Holdings plc Earnings Release for 1Q 2019. You may now disconnect.