Good morning, ladies and gentlemen, and welcome to the Investor and Analyst Conference Call for HSBC Holdings plc Interim Results 2019. For your information, this conference is being recorded. At this time, I will hand the call over to your host, Mr. Mark Tucker, Group Chairman.

Thank you and good morning to everybody in London and good afternoon – I’ll start again. Good morning, everybody, in London, and good afternoon in Hong Kong, and welcome to the 2019 HSBC Interim Results Call. With me today is Ewen Stevenson, our Group Chief Financial Officer. You would have all seen by now our announcement regarding John Flint, who is by mutual agreement with the Board, stepping down as Group Chief Executive. I will say a few words about that, and then hand over to Ewen. And Ewen will talk about our good interim results, which are credit to John, the management team and the 238,000 HSBC people. The bank is very grateful to John for his personal commitment, dedication and the significant contribution he has made over his long career at HSBC. HSBC is clearly, as you’ve seen by today’s results, in a strong position to deliver on its strategy. However, in the increasingly complex and challenging global environment in which the bank operates, the Board believes that a change is needed to make the most of the significant opportunities ahead of us. For this reason, we’ve initiated a process to find the new Group Chief Executive, and we’ll be considering both internal and external candidates. Noel Quinn has agreed to serve as Interim Group Chief Executive until a successor is appointed. Noel has been the Chief Executive of Global Commercial Banking since 2015. He is a proven leader with a strong track-record of achieving business success, excellent client relationships and deep global experience. I’m sure we’ll come back to this later and happy to answer any questions, but I think more importantly, to go to Ewen now and the interim results. Ewen?

Thanks, Mark. Morning or afternoon, all. I’m now going to quickly step through the slide pack, which you can find on our Investor Relations website. Turning to Slide 1 on the key messages, we continue to make good progress in the first half. Reported profits before tax were $12.4 billion. That’s up 16% on the first half of last year. And adjusted profits before tax were up 7%. We’re pleased with the progress we’re making on improved cost control, which has helped drive a much stronger jaws performance. Our return on tangible equity in the first half was 11.2%. Results were flattered by $828 million dilution gain from the merger of Saudi British Bank and Alawwal bank, but this largely offset a large nonrecurring PPI charge and some severance costs. Our core Tier 1 ratio remained stable at the first quarter at 14.3%. We’re announcing today a $1 billion buyback, and that’s part of our ongoing commitment to neutralize scrip dividends over time. On outlook, we continue to progress towards our 2020 return on equity target. But the interest rate outlook has softened relative to the first quarter, and geopolitical risks have heightened across many of our major markets. In response to this, we’re actively managing costs and investment growth in order to respond to a more challenged revenue outlook. Looking at Slide 2 and progress against our 8 strategic priorities, we’re making good progress against most of these. To call out a few, Asia continues to grow well for us with revenue growth in the first half of 9%. We’re continuing to build leadership in Sustainable Finance, an area where we see considerable growth opportunity over the coming years. And our UK ring-fenced bank is growing both volumes and revenues, and we continue to take market share in both…

Thank you, Mr. Stevenson. [Operator Instructions] We will now take our first question today from Martin Leitgeb, Goldman Sachs. Please go ahead. Your line is open.

Hi, Martin.

Yes, good morning. Good morning. The first question, if I may, is just trying to understand what the announcement from today might mean in terms of the broader strategy of the Group. And I’m not sure whether this is the right timing or to what extent this can be answered at this stage. But just looking at the Group, by profitability coming from Hong Kong and UK Retail, and obviously, given the incremental disclosure on ring-fenced and non-ring-fenced, remains to be what we can see, a meaningful drag in terms of profitability from the non-ring-fenced bank. So I was just wondering if you could comment where we might be heading in terms of strategic direction and what measures you might undertake, particularly on the non-ring-fenced bank in terms to improve profitability. And the second question is more with regard to capital management. Just looking at your disclosure for the ring-fenced bank, it seems to be that there is a payout ratio of close to 100% in terms to holdings. How should we think about that capital contribution going forward? So the UK ring-fenced bank being profitable, up-streaming bulk of profit, is this essentially going to be the source to help the group neutralize scrip going forward? Thank you.

Yes, I think Mark will start on the first question, Martin, and then I’ll add and – or carry on after that.

Yeah, let me set context. And I think Ewen can give you more detail, Martin. I think the way we think about this is we’ve agreed that the high-level strategic priorities did shape our business, and again, there is total alignment between any organization, an agreement on the strategic direction. These high-level strategic priorities remain very firmly in place. Having said that, I think where the – where we’re looking to do more is on realizing and how we go about realizing those priorities. And I let Ewen give you a sense of how we’re thinking about that.

Yeah, so, Martin, in terms of the non-ring-fenced bank, I would sort of bucket it along with the U.S. as well. Yeah, geographically, clearly our most challenged return businesses. We have about 30% of our capital invested across the non-ring-fenced bank. In the U.S., the two businesses combined are achieving extremely low returns at the moment. In terms of commonality across the two, we’ve got loss-making or breakeven retail businesses in the U.S. and France. We’ve got multiyear plans to turn them around, which we’re continuing to invest in. Wholesale banking, obviously, faced quite challenged market conditions both in the U.S. and particularly in Europe in the first half. And I think the commercial bank across both markets is actually performing okay. Both markets have a cost problem. Cost/income ratio is in the mid-80s, so our focus on cost is a priority. In the U.S., we also have an issue with excess capital sitting in U.S. business. I think the CCAR results from about a month or so ago is another important step in that, getting about $1.8 billion out of our U.S. business in the coming months. And I would say with some of the customer selection too, we’re looking hard at that, because we still got a lot of the corporate customers who were not earning a sufficient return. And we are trying to recycle capital away from those relationships, either re-price them or recycle them into better-returning customers. But overall, I think we would ask that people be patient. Look, these turnarounds across these two markets is going to take time. But we recognize that the type of returns that we’re achieving at the moment are not acceptable and need to be driven higher. On the ring-fenced bank, I wouldn’t read and/or try and overly be too complex about dividend flows across the group. We think we’ve got adequate dividend serviceability and it would have no impact on our ability to continue to commit to neutralizing scrip dividend over time. I think the overall challenge at the group level is a more complex issue. We’ve committed to keeping our core Tier 1 above 14%, which we think remains appropriate. You’ll see in our Pillar 3 document some additional disclosures today around MREL and where it sits across the group and double leverage. That’s another thing that we’re managing too. And we’re also cognizant of the fact that we’ve got some potential capital challenges on the horizon, Basel III reform being one, and the other is we’re waiting to see where we end up on G-SIB buffers at the end of the year. If we were to bump up a buffer, which is not clear at the moment, that would come into effect on January 1, 2021. But, in terms of the ring-fenced bank cash flow really no impact in terms of our dividend serviceability of the group.

Perfect. Thank you very much.

Our next question today comes from the line of Joseph Dickerson from Jefferies. Your line is open.

Hi, Joseph.

Hi, good morning. I guess, just a couple of quick questions. Mark, you know the region very well. And alluding to some of the outlook comments on geopolitical risk, would you consider the role of Chief Executive of HSBC, because it seems like somebody with your experience in the region would be welcomed at this point? Secondly, on the U.S., just given the lack of progress on returns, I appreciate your point, Ewen, you can take out – look to take out costs or putting further cost efficiencies. But is there a broader strategic issue with the scale of the business and the mix of business in the U.S? And would some sort of either M&A or divestiture be more appropriate in the medium term? Thanks.

Joseph, thanks for the question. The answer is under no circumstances, I think the – I spent 32 years as a CEO, and that is…

That was enough.

…I think, a decent-enough innings to justify. I have made a very conscious decision to be a Non-executive Chairman, and that’s what I intend to be. And I think we have people with much ready capability and much youth on their side that can do a materially better job. So I hope that’s fairly clear.

Very clear.

Yeah, now, on the U.S., Joseph, I don’t think it’s a scale issue that there are plenty of businesses in the U.S. with a similar scale to us earning much better returns. It’s a combination of needing to be – needing to drive higher revenues, reduce cost and being more efficient on capital. But I don’t think it’s a scale issue. We don’t think we need M&A to solve our returns problem in the U.S. and nor do we think the market will be particularly supportive of M&A. Equally, we think it’s critical, but we do have a meaningful presence in the U.S. It’s critical to our global business. And therefore, I don’t think you should expect us to be reducing our presence in the U.S.

Thanks, Ewen.

Our next question today comes from Chris Manners from Barclays. Please go ahead, your line is open.

Hi, Chris.

Hey, good morning. So two questions, if I may. The first one is to just to follow up on the G-SIB comments that you were making. I saw that in Page 99 on your derivatives disclosure showed your derivative notional is up about $5 trillion half-on-half. And, I guess, that was one of the bits for the bucket could push your G-SIBs to north of the magic 430. If you do trip into the next G-SIB bucket, either this time or in the future, should we be adding 50 basis points to that greater-than-14% capital target? Or should we assume that that’s sort of encapsulated within that? And then, the second question was just a net interest margin question. Obviously, good trend on the quarter, you’re up 3 basis points. A lot of that is coming from the move in HIBOR and as you flagged that UK was a bit weaker. How should we think about that dynamic? Obviously, HIBOR has come down about 100 bps from the peak, but it’s still running around the level that it was the average of Q2. Maybe you could walk us through the net interest margin drivers and whether we should be expecting slippage over the next sort of several quarters from the 162, and that’s the revenue headwind – one of the revenue headwinds you’re talking about or whether we would actually be able to sort of see it stick around the same level? Thank you.

Yeah, so on G-SIB, look, we’re comfortable with our 14% target for the time being. I don’t think if we went up a bucket that we – from what we can see today that that’s going to change our view on what the appropriate core Tier1 ratio is for us. Remember, it’s adding 50 basis points to our regulatory number and not our target. So I think, look, for the time being we’re very comfortable that the 14% target is appropriate. The G-SIB indicators are a bit of a blunt instrument. As you know, it’s a set of basic indicators. And, yeah, we have much more sophisticated modeling on how we manage our capital base. There was a technical reason in relation to the increase in derivatives, but we’ve got some systems improvements going through, so you should expect that number to come down. On NIM, this is my favorite debate with you all every quarter and how much I love not forecasting NIM. But given – look, given the recent rate cut in the U.S. and given the likely direction of further, at least, another rate cut this year. I think you all should expect NIM to come down. And HIBOR, for the time being at least has been relatively uncorrelated with U.S. dollar interest rates. But, yeah, at some point, if it connects, would be expected to come down as well. So overall, I think I would be unsurprised if NIM was lower at the end of the year.

Understood. Thanks.

Our next question today comes from the line of Tom Rayner from Numis. Please go ahead. Your line is open.

Hi, Tom.

Hi, good morning. Good morning. Firstly, you love it so much, Ewen, I thought, I’ll ask you another question on NIM, if that’s okay?

Thank you.

I see as the one of the sort of negative offsets to the positive HIBOR was deposit mix shifting towards interest bearing. I think after Q1, you said that this had largely stopped in Hong Kong. So I’m just wondering, are we now seeing deposit mix issues elsewhere such as in the UK? And I have a second question just more on the strategy, which may be for Mark as well. I don’t know how you want to deal with that.

Do you want to ask that question now?

Yeah. It’s just when I look at what sort of changed today it doesn’t feel like that dramatic and that the revenue guidance is worse. You’re probably going to be doing a couple of percent per annum less revenue growth, and therefore, you got to find a bit more cost to take out, yet, we’re changing the Chief Executive. And I’m just wondering, if there’s something else that’s sort of broad or strategic, and I know you’ve mentioned a few things, but a more sort of strategic view, which maybe John did not agree with. And therefore, this is – we are going to see some change in direction, whether it’s Wealth Management growth or – I just wondered, if there’s something more to it that you can add. Mark, maybe you can add some more color to it. Thanks.

Yeah. So on NIM, look, it may be unsurprising if as HIBOR goes up, that you would see some shift there on demand in current accounts into savings product. So I think, the nature of how that migrates through the remainder of the year will depend very much on the direction of interest rates. I think in the UK, there are a few things going on. There was a deposit campaign at some point. We had also, as I said earlier, we’re continuing to issue MREL, and the UK ring-fenced bank had very non-diversified funding, because it was only set up recently, so we started a few wholesale funding programs as well. Just a word on cost and then I’ll hand over to Mark on the strategic point. I mean, you alluded to the fact of lower cost growth. I mean, I think previously, we’ve guided to sort of low- to mid-single digit cost growth. I think if you were to read that today, I would change low to very low and mid to low, so very low to low cost growth from here is what we’re targeting.

Tom, yeah, let me give you sense, and I think starting with the clear point that there has been no disagreement with – on strategy. I think, everybody in the company is clearly aligned on these high-level strategic priorities. I think the element of where we have work to do is how we go about realizing those priorities. And I think across a number of elements of where which Ewen has covered somewhat already amongst growth, how we make the most of our opportunities, be it regionally or locally, looking at the trade side, particularly how we extract value where we’re strong. On resource allocation, again, how we best allocate people and capital, which again Ewen has clearly spelled out. And again, execution, again, simplifying and speeding up execution. Those are the elements where I think going into an environment which we feel will become increasingly complex and challenging, we feel Noel will bring the right perspective and experience to this. And we will give him full accountability and responsibility for taking the group forward.

Okay. Thank you very much.

Our next question comes from the line of Edward Firth from KBW. Please go ahead. Your line is open.

Good morning.

Yeah. Good morning, everybody. I guess this is a question for Mark and it’s partly an area that’s been covered. But you talked a lot in the past about how the U.S. business, and I guess, the European business as well, is we should look at it as a loan because actually there’s a lot of interlinking businesses elsewhere, particularly in Asia, which actually make it a far more acceptable return than we might think. I suppose my first question is, do you still believe that? Do you agree with that as a sort of broad concept? And I guess as a second point then, if that is the case, what can you point to which can make us assume that these businesses can get any better? Because it must be now 10 years inside of those businesses have made anywhere near that cost of equity return, but there must have been four or five management teams in each of them. And it’s not obvious to me in this environment what we can see that – or what you can point to us which makes you believe that these will get to a cost of equity return?

Thanks. I mean, that’s sort of thing. This is a joint question, Ed, in terms of how Ewen and I can answer. I mean, I think, in terms of belief in the network, belief in the exporting of opportunities across that network, the U.S. is a massive exporter of business across the network, and I think is the most significant element of the group in terms of exporting value. And I think the power of the group and the network and the inter-linkages, the understanding of trade corridors is absolutely fundamental, and I think is – gives us an advantage that no other bank on the planet has. And then therefore, it’s something that we do view as a material strength and we can get better at it in terms of how we think about some of the different elements of region, how we think about the trade and how we think of extracting value where we’re strong. But fundamentally, I think the point you make in terms of Europe and the U.S. in terms of destruction of value are two areas of immense focus for us. I think, Ewen has taken you through the U.S. and I think can take you through Europe. I think, there are many elements that we can do better in terms of both resource allocation and execution, which I think we’re on the path to do, and I think we need to speed some of this stuff up. Ewen, do you want to just talk about Europe a little bit as opposed to the U.S.?

Yeah. I mean, so Europe, well, the non-ring-fenced bank is a combination of UK European wholesale and retail Commercial Banking in France and Commercial Banking elsewhere, largely France and Germany in Continental Europe. I mean, the first thing I’d say about Europe is we’re not alone. I mean you all know that returns for our European banking are weak, not helped by the interest rate outlook. We do think that there is significant upside from where we’re currently sitting in returns. Yeah, there is a significant cost issue in the non-ring-fenced bank that we are looking hard at. It’s got a cost income ratio in the mid-80s. We think we can reduce that materially. There is a customer selection issue that I think we have in Europe where many of the customer relationships are running well below cost of capital returns. And we need to be harder with those relationships and either re-price them or exit those relationships. And I think, we need to stay very, very focused on where we have a right to win and right to be great, which is customers in Europe, who want to do business elsewhere in the world, particularly in the Middle East and Asia and vice versa. When we look at the travails of a number of our European peers, we’re confident that we can drive a business to higher returns where we have some unique competitive advantages. But as I said, it’s not going to be quick, but I think we recognize that current returns are unacceptable and we need to improve them.

Great. Okay. I mean is there any way at some point you can give us greater clarity on sort of some numbers around what, let’s say, the U.S. franchise creates in the group as a whole or customers in the U.S. creates in the group as a whole. Because it’s very difficult externally to really have any…

Yeah. No. I’m sure we can – yeah, I’ll talk to Richard O’Connor and the IR team. I’m sure there’s stuff that we can do to help explain that better.

Great. Thank you so much.

We will now take our next question from the line of Guy Stebbings from Exane BNP Paribas. Please go ahead. Your line is open.

Good morning. First question, if I can just come back to the CEO and the changes there, because I’m struggling a little bit to really understand what has specifically changed. And if it’s just execution and resource allocation, why John couldn’t have delivered against that? And why the interim change and role for Noel sort of changes what he can contribute from his current position if you like? I mean, can we read anything into the fact that Global Banking and Markets was probably the weaker performing division in the period and most other areas were perhaps better than expected? Is that a focus? Or is it more around much of our focus on costs? And then just a second question was on buyback. The $1 billion won’t neutralize the scrip on an annualized basis, and I think you mentioned uncertainties around Brexit as a factor. If we were to see a more positive outlook regarding Brexit, should we take your comments to mean your view on capital such that you should be able to do further buybacks at that stage and underlying capital generation is still sufficient to neutralize the scrip. Thanks.

Okay, thanks. Thanks, Guy. I mean let me take the first part and clearly hand the second to Noel. I think we go back to what we’ve said, I think, we’re in a strong position to deliver on strategy, but the environment is changing, in our view, materially, becoming more complex, becoming more challenging. And we feel that a change – again, both we and John feel a change is needed to really take most of the opportunity – take and make the most of the opportunities ahead of us. And this is a decision about the future of how we see the future and realizing of those high-level strategic priorities, we feel needs a different approach. And I think the element that Noel can bring to that, we view are significant and different enough to warrant where we – the action we’ve taken.

Yeah. On the buyback, look, we openly ignored the $1 billion buyback where we’re insufficient this year to neutralize the scrip for this year. I guess, what we said is, we remain committed to the medium-term target to neutralize it. I don’t think you should expect that we wake up at end of third quarter results with a more favorable Brexit outcome, that we’ll be back doing more buybacks this year. I think we’ll take another view in the beginning of 2020 as part of full year results.

Okay. Thank you.

We’ll now take our next question from Manus Costello from Autonomous. Your line is open.

Hi, Manus.

Good morning. I had a couple of questions, please. Given the – firstly, given the focus on growth which you talked about, do you think your payout ratio of over 70% is still appropriate? We’ve seen a number of paying sort of payout ratio and that area look to cut it. I wonder, if that’s part of the strategic briefing that you might have with the new CEO as the focus is going to be on growth and RWA efficiencies start to fade. My second question is around the complex environment that you’re talking about. There’s been some press reports that HSBC could be placed on the list of unreliable entities by the Chinese government. I wondered, if you think there’s any risk of that for HSBC and if that plays into your thinking about the complex environment which you’re concerned about.

Yeah. I think, Ewen is probably best to talk about the payout ratio and growth.

Yeah. So look, on the payout ratio, $0.51 per share is a high payout ratio. I mean it was over 100, and we’re migrating down from that from a few years ago. We – that’s why we’ve been very deliberate in our language of saying we expect to keep the dividend stable, and as returns improve, we expect that payout ratio to fall materially and to fall to a level where we think we can both fund the dividend, neutralize the scrip and continue to grow on the way that we want to grow. I think the balancing item at the moment is the fact that we still see significant opportunity to both improve models and optimize RWAs with some customer relationships. We do expect in the second half of this year to keep RWAs neutral, while still growing credit assets. And we still think we’ve got potential over 2020 and 2021 to see further material RWA mitigation actions. At that point, we’ll have returns higher, and that will allow us to both fund the $0.51 dividend and grow on the way that we want to grow.

Let me take the second part. I think, as you know, we’ve been in China for over 153 years, and we have a clear and long-term commitment to China. And if you look at what we’re doing in terms of China’s growth priorities, we’re actively participating in the opening of China’s financial markets. We’re actively participating in the Belt and Road initiative. We’re actively participating in the development of the Greater Bay area. We’re actively participating in the internationalization of the renminbi, and we’re actively participating in the growth of green finance. And we look forward to continuing to support China’s growth and economic prosperity. Our business operations in China continue as normal, Manus. And we are confident about our China business, and we don’t comment on speculation.

Okay. Thank you.

We’ll take our next question from Alastair Ryan from Bank of America. Your line is open.

Hi, Alastair.

Good morning. Thank you. A question for the Chairman, really. What’s the risk of a – while you’re trying to move things forward in the longer term, there’s an extended period of something of a hiatus between a new CEO coming in now, getting seat at the table and then possibly so many different – over a few months in there, which takes some time to get there for you onto the table. How does one avoid that risk? Thank you.

Thank you. I think in our view that’s not a risk. Noel has been given full authority to take things forward in a way that allows him the flexibility to make the decisions that he and executive team view as the best for the business, so on that basis, there should be no risk that there’s going to be any hiatus period. I think, we’re going to get stayed in, and Noel understands that this – we need to move with pace, ambition and decisiveness.

Thank you.

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

Hi, Raul.

Hi. Thanks for taking my questions. I hope you don’t mind if I ask three. The first one, I was wondering if you could comment a little bit on Hong Kong in terms of the outlook for the second half. And also, your July performance, if there’s anything there? It doesn’t seem like there’s anything in the numbers itself that would prompt it, but it would be useful to get a comment along those lines. The second one is on the RoTE and the decision to continue to target above 11% in 2020. Obviously, as you know, consensus is around 10% in the first half of the year. If you take the gains out, you’re obviously well below the 11% on my numbers, and then obviously you’re flagging a difficult second half. So I was just wondering, again what I might be missing on the 11%. The third one, maybe more for Ewen, actually, on the Basel III reform, I mean, you are now quite different from your peers in the sense that we don’t actually get any indication about the potential RWA inflation for HSBC. And I was wondering if you might be able to put a range, at least, in terms of how much we can expect. Thank you.

Yeah. So look, on Hong Kong, as you’ve observed, you don’t really see it at all on the first half numbers. Numbers were good. Second quarter was good. Revenues were up significantly. Profits were up significantly. Yeah, until we expect some impact in the second half, yeah, inevitably, it will be. If the current situation continues for a prolonged period of time, it will impact confidence. It probably will have some impact on the retail sector, yeah, a big driver of profitability though in the second half will be where does HIBOR go. And at the moment, it’s remaining sort of comfortably higher than where it was in first quarter which flowed through in the good second quarter results. So it’s difficult to sort of put all that together, and say what does that mean for Hong Kong profitability in the second half. But yeah, for the time being, we’re continuing to see decent growth and decent profit growth. On our RoTE, a few things. I think, it’s slightly unfair just to back out the Saudi dilution gain in the first half. If you do that, you should probably add back the PPI charge and add back the severance costs, which broadly get you back to the same point. However, that wasn’t the bank levy, as you know, the hits in Q4. Yeah, as we look at consensus, you’re right. Consensus is currently sitting below 10%. I think, as you think about the mix, that there’s a slightly different – yeah, we’re more bullish, I think, on revenue growth than The Street currently, particularly in non-interest income and volumes. On costs, I think, as you can see today, we’re settling a much more rigorous approach on cost management. I’m pretty pleased with the progress we’ve made in the first half.…

We’ll take our next question from the line of Fahed Kunwar from Redburn. Please go ahead. Your line is open.

Hi, morning. Thanks for taking my questions. So the question on the audit way reforms and the payout ratio, I think you’ve given a number before, it was around I think it was like $12 billion or $13 billion of model optimization that was sitting with the PRA ready for approval. Is it these optimizations that are coming through in the second half of the year to give you confidence that your risk rates will be flat and whilst growing the credit book? And there is a second question on that, perhaps more high level. How many more optimizations are through? It feels like as margins are coming kind of down or at least under pressure, growing your balance sheet is going to be a key way of kind of hitting that revenue target, which you say you’re more bullish on than consensus. But, obviously, you’ll stuck on quite a high payout ratio as well. I think the previous CEO was kind of very much wedded to the dividend. If it came to a point of thinking about a high payout ratio, dividend versus loan growth, how do you think about which one you would prioritize if margins stay as difficult as they are at the moment? Thanks.

Yeah, look, on the last point, I don’t think we feel we need to have that discussion for the moment, so we’re not having it. On, yeah, RWA growth, I think modeling improvement is part of the answer. There’s also a significant part which is to do with recycling RWAs out of customer relationships, where we’re not achieving acceptable returns. We’re continuing to run off a considerably smaller legacy credit portfolio. So it’s not just all RWA model improvements. And those model improvements are not just with the PRA. They sit across the number of regulators globally. But overall, it’s something that I, we track religiously. Yeah, we run a meeting every month where we go through all of the RWA mitigation actions and have a pretty confident view about our ability to deliver within accepting that some of that is obviously beyond our control such as timing of regulatory approval.

Sorry, on the first question, can I just add – one second one? Can I just ask – I know you won’t give the answer to this. On the payout ratio, obviously, you want to grow into a lower payout ratio, I understand that. How long would you accept the payout ratio as high as it is right now before you would ask that question and have that discussion?

Well, I think as you can see this year, we’ve continued to maintain the payout ratio that we’re maintaining and we’ve grown our core Tier 1 ratio by 30 basis points. So we think for the time being, we can continue to commit to the $0.51 dividend. And it’s not a topic that we spend any time debating internally.

Thank you very much.

We’ll now take our final question from the line of Magdalena Stoklosa from Morgan Stanley. Please go ahead.

Thank you very much.

Hello, Magdalena.

Hello, hi. Just three quick questions from me, the first one is about the details of your efficiency program. We have kind of seen the announcement $650 million to $700 million. Could you give us a sense where it’s coming from? And how much of it would you consider kind of business as usual and how much of it would you consider more ambitious restructuring? And, to a degree, whether you see that program potentially being bigger as the revenue pressures come through? So that’s question number. Question number two, your investment spends that you have shown us kind of this – still has a lot of digitalization kind of business investment, but it also has a lot of regulatory investments there too. If you were to guess your kind of next investment cycle, would you see that amount of regulatory kind of spend too? Or do you think you’re kind of at the kind of end of that kind of tremendous regulatory inflation you’ve seen over the last couple of years and continuously investing in? And my last one is really a little bit kind of coming back to Hong Kong. Of course, we have seen the results given where the HIBOR was. But when you actually look at your kind of underlying client activity over the last quarter and now, kind of what do you see transactionaly from the perspective of the pipelines? Can you kind of already see the declines of confidence, the less of the activity, given what the GDP has done, and of course, what is happening politically? Thanks very much.

Okay. Well, just, look, on the last one, if you look at underlying growth trends, I mean, loan growth was 7% in the first half. So that doesn’t feel like its customer activity has been particularly impacted at this point. If you look at our new peer-to-peer PayMe, we think we’re now getting over 50% of peer-to-peer wallet share. We just launched the B2C version of that. We’ve got over 3,000 merchants signed up. So it doesn’t feel like in Hong Kong that the underlying volume growth has been unduly affected. Look, in context, in terms of the operational impacts on the business there’s been a few localized branch closures for very short periods of time. So, fundamentally, I think Hong Kong remains robust. On investment spend, firstly, just to note, investment spend in the first six months was up 17% on the first six of last year. Regulatory spend, look, I would love to sit here and say, we’re now peak regulatory spend. I mean, I do generally think that’s probably the case. But I’ve been proven wrong on that in the past. But if we look at the sort of big reform programs, we have ahead of us at the moment, I guess things like FRTB, Basel III reform, a new IFRS 17 accounting policy coming, we’ve got LIBOR transition. So those, they’re all and I think still ongoing work on recovery in resolution planning. That doesn’t seem to be any new getting added to the pipe. But certainly, for the next two to three years, I think we’re going to continue to be in peak regulatory spend until we’re through the bulk of some of those programs. And on the efficiency program, I think the bulk of it I would describe as non-BAU. That’s why we’re taking $650 million to 700 million of severance costs. Yeah, remember, across most parts of our business, we have 5% to 10% natural attrition rate, so we can manage headcount down normally through just being much more selective on rehiring. This program is about 4% of our overall wage cost for less than 2% of the headcount. So you can read into that, that it is at the more senior levels of the organization and, therefore, more strategic in terms of its focus. And I wouldn’t pick out any particular area of the bank. It’s been a pretty broad program impacting most parts of the bank. Most of the people who are subject to this program have been notified, but not all, and hence, our sort of reluctance to go into sort of specific details on specific areas at this point.

But, Ewen, is it fair to say that there is a disproportionate level which is impacting the business headcount or more of the central functions headcount?

Yeah, I mean, I think it’s been across the piece. In my own area, we’ve done some. Most areas of the bank have been involved in cutting headcount. But, I mean, the overall, I think we recognized, yeah, several months ago that the revenue outlook that we had anticipated in June last year when we set up the strategy was going to be different, and therefore, we needed to get to the 11% in a very different way. We needed to assume that revenue growth was going to be lower, and therefore, we needed to materially shift down the cost growth. So, yeah, we grew cost in 2018 at 5.6%. And we’re now signaling the fact that we expect for the next 18 months, we expect cost growth to be in the very- to low-single-digits. So we do think we have taken pretty decisive action to shift that cost run rate.

Perfect. Thank you very much.

Let me just say a few words to end the call. Clearly, thank you, everybody, for being on the call. I think this is a great organization. As you’ve heard today, we have a strong business, we have committed people and we have incredible opportunities. The Board believes a change is needed to make the most of those opportunities ahead, and it’s the role of the Board to make those decisions. And I think we have acted in a way clearly and decisively, from a position of strength with agreement, with good results behind us, with a clear strategy, with very good bench strength. But this is a decision, as I said earlier on about the future. And we believe that with Noel coming in, he’s been with pace, ambition, decisiveness which are absolutely essential to capitalize on the opportunities ahead. So thank you again for all your time this morning. Thank you for your questions. And I’m sure there will be later follow-ups.

Thanks a lot. And thanks, Michaela.

Thank you, ladies and gentlemen. That concludes the call for the HSBC Holdings plc Interim Results 2019. You may now disconnect.