Good morning, ladies and gentlemen. Welcome to the Investor and Analysts Conference Call for HSBC Holdings Plc's Earnings Release for 3Q 2021. For your information, this conference is being recorded. At this time I will hand the call over to your host, Mr. Noel Quinn, Group Chief Executive.

Thank you. Good morning or afternoon, wherever you are. Ewen is going to take the bulk of the call today, and he will do that in the future Q1 and Q3 announcements. For today though, let me start by saying that I'm really pleased with our Third Quarter performance. We got a strong quarter of profit generation across all regions supported by another quarter of net ECL releases. But most pleasing, is the underlying revenue growth we're now seeing across the business. We feel that we turning the corner on revenue after absorbing interest rate impacts over the last few quarters. We've got strong fee growth in all businesses. In Global Banking and Markets, revenue is starting to stabilize, and that's against the backdrop of a large managed reduction in risk-weighted assets and lending balances as we indicated back in February 2020. In terms of customer behavior, we're seeing a strong deposit performance without any material drawdown on the liquidity that we built up over the last 2 years. The lending market was softer than we anticipated in the quarter, particularly in corporate loans. But the pipelines that we built up position us well for when companies start investing in both the recovery and the low carbon transition. Our capital, as our revenue starts to normalize -- sorry. On capital, as our revenue starts to normalize, we've also looked to normalize our capital position. Capital returns to shareholders will be a big components of this and I'm pleased to announce a share buyback of $2 billion, which we expect to start shortly. On our strategy, we're executing with exactly the kind of pace I promised in February. We've made some important announcements in the quarter, including the acquisition of AXA Singapore. This complements our existing Singapore business very well, and…

Thanks, Noel. And good morning or afternoon all. We had another good quarter, reported pre-tax profits of $5.4 billion. Up 76% on last year's third quarter with an annualized return on tangible equity of 9.1% for the year to date. Adjusted revenues were down 1% on last year's third quarter, but up 1% excluding certain volatile items, with the welcome return into more consistent top-line growth across most of our business lines. Expected credit losses were $659 million net release. Our third quarter in a row of net releases with net releases for the year to date of some $1.4 billion. We still retain 31% of Stage 1 and 2 ECL reserves build out we've made in 2020. Operating expenses were broadly stable increases in investment and technology spend were offset by the impact of our cost-saving initiatives. But due to some inflationary pressures, ongoing investment into growth, and additional costs due to the impact and timing of recently announced M&A activity. We now expect our adjusted cost for 2021 and 2022 to remain broadly stable at around $32 billion, excluding the UK bank levy. Lending balances were down by $6 billion or 1%. This was due to the repayment of $14 billion of short-term IPO lending in Hong Kong, stripping out the impact of the IPO loans, lending grew by $8 billion or 3% annualized during the quarter with further good growth in mortgage lending and trade finance. Our core Tier 1 ratio was up 30 basis points at 15.9%, primarily due to our reduction in risk-weighted assets. We now intend to reach our target for core Tier 1 of 14% to 14.5% by the end of 2022. This will reflect a combination of some regulatory driven RWA impacts, balance sheet growth, and capital return. Today's $2 billion buyback…

Thank you, Mr. Stevenson. [Operator Instructions]. Your first question today comes from the line of Andrew Coombs from Citi. Please go ahead, your line is open.

Hi, Andy.

Good morning. Thanks for taking my question. I start with one on buybacks and then one on costs. So when you come around quantify the $2 billion plus buyback, can you just get to the metrics that you're using to size that? How you're thinking about this buyback wherec you say, buybacks going forward? Basically the KPI and your decision-making process on the magnitude of those so that will be the first question. The second question is on the cost outlook where you've slightly changed your guidance [Indiscernible] the definition you're using. I think that, in your old guidance, the debt 1.5 and then adjusting to the levy and it looks like you've taken up the cost [Indiscernible] about 800 million. So can you just give a breakdown of what the moving parts are in the increase, how much of it is due to the timing around the M&A and divestment? That is, how much is inflationary pressured and how much is higher compensation related to performance related pay? Thank you.

Yeah, so on buybacks. Andy, as you would expect, it's part [Indiscernible] our capital position is obviously in a much better place than we had anticipated at the start of the year when we had said no buybacks for this year. We've had a combination of much higher profitability than we expected because of much lower ECLs net releases and slower cost to achieve being expensed through the P&L, and risk-weighted assets have also been lower than we anticipated, probably because of lower growth, but also because of lower credit rating migration. I think within today's announcement is a commitment to get back to 14% to 14.5% by the end of 2022. We are committed to using excess capital if we can't find attractive organic and inorganic growth opportunities. We previously talked on inorganic about wanting to spend up to $2 billion in M&A, we've announced a deal in Singapore -- AXA Singapore for just over $500 million. That will give you some color of the extent of M&A activity that you might see over the next year or so. I do think that we are likely to see if we achieve what we think we'll achieve next year, since the buyback activity in '22. On costs, I think your numbers are broadly right if you add about $300 million for M&A, in terms of roughly $0.5 billion and upwards [Indiscernible] cost. Yeah, the bulk of that is compensation-related. And you're right, part of it is variable pay, but I would put it all in the bucket of compensation costs being higher. Broadly, our total wage bill is about $19 billion out of the $32 billion dollars of total costs, so if you've got $0.5 billion of incremental inflation on there, it's about 2 -- it's about 0.5 billion -- 2.5% is about $0.5 billion of extra compensation costs. Yes, whether you put it into fixed pay or variable pay, I think we are seeing sustained wage price pressure globally at the moment. But in terms of the incremental amount that we put into the variable pay pool this year. It's significantly more than offset by the increase in profitability that we've seen.

I think, if I could just add a color on that, to the extent that we've talked about variable say, it's probably because we've had a good trading performance this year. Clearly, we've given some indications of our view trading performance next year being positive and it would right to have an appropriate level of variable pay at that point in time. In the event that trading performance next year does not to materialize, then we have some flexibility on the variable pay, but it's right to also signal that there are some fixed pay inflation pressures in the market generally within financial services, at this point in time. The extra top-up on cost is a combination of fixed pay and variable pay, as a consequence of the external environment and the trading performance [Indiscernible] .

And I think the last thing Noel also, that's important is, we've made a very conscious decision not to cut back on investment despite that inflationary pressure in order to meet a self-imposed cost target.

That's great. Thank you both and also thank you [Indiscernible] put out the slides and IFRS-17 as well. Thank you.

Thank you. Your next question comes from the line of Tom Rayner from Numis. Please go ahead, your line is open.

Hi Tom.

Yes, good. Thank you. Hi there, Noel. Hi Ewen. Two please, just a quick follow-up on costs and then one on revenue. You mentioned Ewen about 300 of the increased guidance is M&A related. Can you give us some sort of estimate of how much that M&A activity might add to the revenue over the next two to three years? Just to get a sense. Then just on revenue, you clearly more positive on the revenue outlook. You flagged the number of areas. You didn't really comment, I don't think on the outlook for the net interest margin. I looked at your consensus and you only have an increase from Q3 right out to the end of 2020, so you have about 7 basis points. If I just take your own rate sensitivity and multiply it by what's in -- being discounted by the market, there'd obviously be a multiple of 7 basis points. I wonder if you could comment on the outlook for NIM specifically, please. Thank you.

Thanks. So on cost, look, in the near term I think AXA Singapore will add about 300 to revenues and 300 to costs. Obviously, we would expect that pressure to move over time. But if you've flagged in $300 million into '22 on the revenue side, on NIM you know, change [Indiscernible] If you looked at current consensus, it does look low relative to the consensus policy rate rises that we now see in the markets. Just as a reminder, our biggest single sensitivity is the UK, where a 25-basis point rise would add about $0.5 billion of income in the first year, and secondly, Hong Kong, and it does look like in the UK, we will see two, three rate rises between now and the end of '22 coming potentially, as early as the next month or so. Hong Kong may be a bit slower. But one of clear offsets to the guidance we're giving on cost today is the fact that we do you think we're going to see, earlier and stronger rate rises than we previously anticipated. We lost about $7 billion over the last year, two years or so as a result of the shift down on interest rates. So it's had a very, very material impact on us, and we do think with the policy right outlook at the moment and consensus that we should start to call back a meaningful amount of that in the next 2-3 years.

Super. Okay. Thank you very much.

Thank you. Your next question comes from the line of Raul Sinha from JPMorgan. Please go ahead, your line is open.

Thank you. Good morning [Indiscernible] a couple of questions from my side, maybe firstly, staying on the revenue line. I just wanted to understand the pandemic impacts that's been washing through your various businesses and sort of holding back the revenue line. So I was wondering if you could comment on the wealth business in Hong Kong with in light of all the travel restrictions, how you think the performance in this quarter has been held back, and how that might shift over the next year or so? And also in trade, obviously you flagged a very strong improvement in trade balances. But there's a lot of uncertainty around clearly, what's happening to global trade. So any thoughts on the outlook? That would be helpful. Then just a broader second question on China real estate. Thank you for the disclosure. I think we all get sort of your first order impacts and exposures are relatively limited. But I was wondering what you think about the second order impacts on your business in the Mainland? Just given defaults have spread beyond single-name into quite a few developers now, so how do you see that impacting the rest of your book and the rest of your business?

Yeah. So maybe I'll start off and then Noel, you can add some comments then on trade and commercial real estate after I finish. On Hong Kong and the border being shut, I mean, you can see some direct impacts on things like insurance franchise. We're not as exposed. obviously to others like Pru and AIA to the mainland Chinese insurance market. But it is a meaningful kicker to the performance of our insurance franchise in Hong Kong. Having said that, I think the value of new business in Q3 was in line with Q3 pre-pandemic. You can see certain sectors in Hong Kong continuing to suffer. The biggest border is the Hong Kong-Mainland China border rather than the international water for Hong Kong given the pre-pandemic, about 50 million Mainland Chinese, we're visiting Hong Kong in any given year. So we would expect as that border progressively reopens, and it's being much slower than we would've anticipated six and nine months ago, that we will just see an incremental benefit coming through to the Hong Kong business. On trade, despite supply-chain disruptions, I think we're pretty pleased with the recovery that we're seeing in that business. People are holding higher working capital balances at the moment, consistent with the uncertainty that exists in supply chain, but we do view that as a temporary feature of the global economy at the moment than that we will get back to more normality and more sustained growth in '22. On the China real estate market, we've just been through, as you would expect, a pretty intensive review of Chinese real estate exposure, including the provisioning we've got against that were -- just to repeat what we say today, we've got no direct exposure to [Indiscernible] borrowers. We're pretty comfortable with the exposure overall in aggregate commercial real estate. Our commercial real estate in China is less than $20 billion, in the context of a $1 trillion line portfolio. I think the other thing you should regain, Raul, is the fact that we're doing the buyback today and the size that we're doing is we're reasonably confident about where we're sitting in terms of our outlook. But now Noel would you want to add anything on it?

Just ironically on trade, there's a feature that the more uncertain global economics are, is normally the time when trade finance is in demand because of uncertainty over the supply chain, uncertainty of credit environment. So we've seen strong growth in trade balances. Part of that is a function of economic rebound. Part of that I think is a function of working capital cycles are longer today than they were pre-COVID and pre-pandemic because of the tensions in the supply chain and the bottlenecks. Part of that is, people tend to use documentary credit more in uncertain times than open account and therefore they turn more to the financial services sector to finance trade in a structured manner, rather than financing trade in an unstructured, open account methodology. So I think there's a number of reasons and then the fourth ingredient is, frankly, we are taking market share in trades in Asia, in particular, particularly Hong Kong, Singapore. So those four dynamics, I think, are leading to very strong double-digit growth in trade. I think if you look at our trade balances from the end of last year to the end of September, we're up around about 18%, 20%, if you do a year-on-year comparison, September to September, I think we may be mid 20% growth in trade, particularly in Asia. So it's those four factors, I think, are playing into the trade performance. On China, the only other comment I'd make is there is second order risk in whatever those market adjustment of that size taking place in a particular industry sector and particularly one as important as commercial real estate. I think we're pretty comfortable with our position and we're staying very close to any potential second order risks. I reinforce what Ewen said, we feel comfortable with our position in our bank in China. It's performing well inside a good nine months. We're well-positioned on commercial real estate from a primary [Indiscernible] view, and we think we are well positioned on any second order risks, but before we shift I said there was no second order risks that potentially exists for all of us.

Thank you, Noel. Can I just follow up on the trade margin? I don't know if you've seen that shift in the trade margin within the business and if you expect that to shift going forward, given what we're seeing in terms of the global trade picture. Thanks.

I'm not aware of any material shift in the margin. It's more of a volume game at the moment, but Ewen, is that your understanding?

Yes. Look, If anything, I think it's just ticked up by a few basis points, but nothing material.

Thanks so much.

Thank you. Your next question comes from the line of Manus Costello from Autonomous. Please go ahead, your line is open.

Hi, Manus.

Hi. I just wanted to follow up actually on those questions about the, hopefully, post-pandemic reopening. You gave us some data in the second quarter about credit card balances growing, but I haven't seen it so far this quarter, I wonder if you could talk to us about what you're seeing in unsecured? And you mentioned within the NIM that there's a negative make shifts which hurt the NIM. At what point will that make shift change? So as unsecured consumers start to grow, presumably you'd start to see a positive benefit. Any color you can provide around that would be appreciated. Thank you.

Firstly on NIM, two things were going on, I think, to sort of push it down by basis points in the quarter -- firstly, was [Indiscernible] drifted down by a couple of basis points over the quarter. We do hope we're now in control of that. There is a mix shift with both a higher propensity of mortgage, lower spend, mortgage lending, and the fact that we're continuing to increase our liquidity reserves at the moment. The unsecured was probably up about a billion underlying in the quarter for both across Hong Kong and the UK and about half and half across the two markets. What we are seeing is credit card spending come back up closer to pre-pandemic levels. But what we're not seeing yet, are the balances go up in line with that. I think that will -- should happen over time. But at the moment, whether it's commercial customers or personal customers, and we're seeing the same thing in UK mortgages, for example, people are paying down debt when they can and I think that's just a sign of confidence at the moment that we would expect to continue to improve as we continue to move away from the depths of COVID.

Okay. Thank you very much.

Thank you. Your next question comes from the line of Yafei Tian from Citigroup. Please go ahead, your line is open.

Thank you. I have a question around revenue. You gave us the color that quite a lot of the optimism is coming from the higher expected interest rate in some of your markets. Besides that interest rate shift, are there any organic growth that HSBC is gaining market share that you think that where via sell side is missing that could drive more consensus revenue upgrades from non-interest income? Thank you.

I mean, to be clear, we're not reliant on interest rate rises to underpin the business plan that we've got. We're seeing, with NIM stabilizing, we're probably going to see about 3% loan growth this year. We would expect mid-single-digit loan growth next year. So you would expect a healthy increase in net interest income next year with or without rate rises. We're seeing very good growth and see income as we come out of COVID. I think it's up 10% year-on-year. So the core business at the moment is seeing very good, attractive growth, interest rate rises will just come on top of that. In terms of where we're growing, I know we said it earlier, we're taking share in trade. We're up a couple of percentage points of share over the last year, both in Hong Kong and Singapore. We're continuing to grow. UK mortgage share about stock share, I think we were sort of about a percent ahead of stock share in the quarter. We're growing the private bank, I think, ahead of peers, particularly Credit Suisse in Asia at the moment. So most of our businesses, I think, are flat to gaining share.

Thank you. Your next question comes from the line of Guy Stebbings from Exane BNP. Please go ahead, your line is open.

Hi, good morning. Thanks for taking questions. This last one was back on costs and one on RWA. On costs -- and you briefly led before the previous questions, the link with the interest rate outlook. How much is the new guidance intertwined with market inflation and interest rate expectations? Let's put it another way, policy rates don't move higher in line with market expectations, should we expect you to come in lower than that guidance? And then the second question on RWAs, consensus maybe 70 billion high by the end of next year than where we sit today. I appreciate that some regulatory headwinds on the horizon that you flagged in, you've now delivered a majority of the gross RWAs, as you've guided to, by the end of next year. But the market RWA expectations, I guess $9 billion or $7 billion next year look a little too conservative given the starting point on what you're seeing currently in terms of lack of credit migration? Thank you.

Yes. On costs -- yes, they are connected but not a direct line between the inflationary pressures that we're seeing coming through the cost structure, and the fact that we expect to see earlier policy rate rises. To give everyone an assurance, we are actively managing our cost in line with what we previously thought. We're still committed to taking out $5 billion of costs over the period to the end of 2022, and we've done just over half of that so far. But on a $19 billion wage bill lift, if you see each percentage point is another $190 million of cost relative to where we were at the start of the year we're definitely seeing more inflation. The offset for that should be, policy rate rises coming earlier and stronger. And if they do, that will comfortably offset the inflationary pressure we're seeing on costs. We're not going soft on cost just because we think that there is a potential of rate rises. That's not how we're operating the business. On RWAs, I mean, I think we've given you pretty much all of the inputs to model. I guess, we're more confident on the RWA growth outlook for -- lending growth outlook for next year. I think it's currently in consensus. We've got it to mid-single-digit loan growth. Yeah, the other thing that -- we've given you the impacts on regulatory capital. You can plug in your own numbers in terms of giving you our distribution policy on dividends. So the only thing you don't have is what the profitability is going to be next year, what buybacks we're going to do and even on inorganic, we've tried to give you a sphere or as to what will total quantum of financial inorganic that we might do as well.

Okay. Thank you. Your next question comes from the line of Omar Keenan from Credit Suisse. Please go ahead, your line is open.

Good morning. Thank you very much for taking the questions. I've got a few questions on rate sensitivity please. I was hoping you could give some color around deposit betas in your rate sensitivity disclosure, especially for the UK and Hong Kong. Given one of your peers reassessed that UK rate sensitivity based on a more realistic assumption of what deposit betas are likely to be. Any color that you can give on the proportion of deposits that are contractually linked to market rates in both those markets would be very helpful. The second part of my question on rate sensitivity, is the other currencies figure of 1.5 billion. Could you perhaps just elaborate a little bit more about what the key sensitivities in terms of different currencies are there? Because it's all -- it's about as big as the Hong Kong sensitivity. Thank you.

Yes. Look, on rate sensitivity, I think you should assume for the first first or two interest rate rises, there'll be a relatively low deposit feature on that and that we will try to capture higher than average, capture out of those rate rises. I think over the longer term, we, typically, work on the basis of about a 40% to 50% deposit beta. But in the very, very short-term with the first-rate rise, I think it will be much lower than that. In terms of other currencies, Indian rupee, renminbi, various emerging market currencies, of which [Indiscernible] is important. I'm sure if you follow up with the IR team, they can give you a fuller breakdown of that.

That's wonderful. Thanks. And could I just check the published sensitivity, is that based on 50%?

Yeah, though it differs by products, by market; but roughly, yes.

Okay. Thank you very much.

Thank you. Your next question comes from the line of Aman Rakkar from Barclays. Please go ahead, your line is open.

Good morning. Most of my questions have been asked, actually, but a couple of points of clarification. So thanks very much for the IFRS-17 disclosure on the insurance business. In terms of the two-thirds PBT impact that you kind of expect in 2023, I mean -- I guess not insurance profit that we would be making that adjustment to. Are we talking -- is it around $1.5 billion hit that we should be looking for reported PBT in '23? Any clarification, that would be really helpful. Then just a second on the cost to achieve. I know you're sticking with the guidance, the $7 billion, but it does imply that you're going to do a lot next year. Could you help us understand exactly why you've not been able to spend it so far and what you are going to be doing next year with that?

On PBT impacts, well, $1.5 billion it obviously depends what your forecast is. But if that's 2/3 of the insurance profits in that year then, yes, it's probably not wildly out of line with what we think. But just -- again, just to repeat for IFRS-17, there's no impact on dividend flows from the insurance companies to the group. There's no impact on [Indiscernible] the timing of earnings recognition has changed, so fundamental economics, we don't think has changed. The other thing that intangible equity just may not -- because I know a few people have been playing around with numbers today. We think there'll be about $3 billion plus or minus impact to tangible equity as the shift. [Indiscernible] be then will be negative, but minimal. And it's still tied in with our commitment to get back across the capital returns. CTA, I think -- we'll think -- we'll probably spend about another billion dollars or so in Q4 with leases about $3 billion or so to spend in '22. We did have a slower delivery this year. A big part of that was a lot of our chains programs are being run in India and they obviously had a pretty severe impact as a result of the pandemic, which meant that our hiring plans, particularly technology resources that we intended to bring on board, had been slower. So there's been about a 3-plus months delay to some major programs of work, and it's one of the reasons why, as a result of that we expect costs to tick up in Q4 because we've got this ramp up in investment coming in to Q4.

Great. Thank you.

Thank you. Your next question comes from the line of Rob Noble from Deutsche Bank. Please go ahead, your line is open.

Good morning all. Excuse me. Could you talk us through how interest rates are actually hedged in various markets? I know there's been the UK, Hong Kong, and US. Then so will they actually see what sort of rates and do you actually need [Indiscernible] rates to go up in all of those countries or you benefit from higher rates in the market, and some of the others? Then secondly, just on the UK, where do you see your front book mortgage margins at the moment? I mean, comparisons where they were, where they are in the back book, and what do you think recent swaps -- the increase in swaps, so they pushing rates up in the market in the UK now?

So on the hedging program, Hong Kong is very short dated. Everything reprices typically in 1-3 months. The UK, there is a 5-year rolling hedge that we have in place consistent with most UK I think which an average duration then of about 2.5 years. The US is slightly longer than the 5 years, albeit, I think that will change once we divest ourselves out of the retail banking business and it's not as material, obviously, as Hong Kong and UK. If you look at the structure of our assets and liabilities, they do tend to be much shorter dated than the average peer. Which is a combination of the impact of the short-term nature of Hong Kong. But also in the commercial space, our trade business is relatively short dated as well. So the second question [Indiscernible] the second question --

Sorry, it was on front book mortgage margins versus back book and where do you think swap spreads will close in presumably?

Front book margins are probably slightly below back book margins currently for the first time in quite a while. Yes, we have seen some margin pressure coming through the UK [Indiscernible] franchise, we do still think at current rates that we're writing business comfortably above the cost of capital, but there has been some margin contraction.

Great. Thanks very much.

Thank you. Your next question comes from the line of Ed Firth from KBW. Please go ahead, your line is open.

Hi, Ed.

Good morning, everybody. I'm sorry to go on about this interest rate sensitivity, but I guess it is quite crucial in terms of the outlook. But the thing I don't really understand is when I look at the currencies -- if I look at your Year 1 sensitivity, your Sterling sensitivity is materially higher than your Hong Kong sensitivity, and yet your Sterling is a bit of hedged. The Hong Kong isn't, and yet the total balances on Hong Kong up of well, orders of magnitude [Indiscernible] similar, but I guess you are benefiting slightly higher in Hong Kong then they are in Sterling. So I don't -- is it possible to help us a little bit, on why you have this huge sensitivity in Sterling and perhaps not so much in places like Hong Kong which you short-dated?

Yeah. Sorry. Look, I mean, firstly, in Hong Kong, remember the pioneer around 50% of our deposit balances are Hong Kong dollars. There is an impact of, particularly, US dollar book in Hong Kong, I think in that interest rate sensitivity, which with the US dollar about 40% -- yeah, 80% of the 50% that's not Hong Kong dollars. I need to get your detailed answer out of IR team. If you give them a call, but I assume our interest rate sensitivity analysis is correct.

I suspect it's about the assumptions. It's just -- the thing we're struggling with that in all areas, just trying to make sure that people can put in any assumptions they like, or whether it's actually going to happen, I guess is the key question.

Yes, that's fair. But I mean, we do take time to show that interest rate sensitivity and that is supposed to be helpful guidance.

Okay. That's great. Thanks so much. I'll speak [Indiscernible]

Thank you. Your next question comes from the line of Martin Leitgeb from Goldman Sachs. Please go ahead, your line is open.

Yes. Good morning. Just a very quick follow-up on structural hedging. One of your peers has announced its intention to deploy structural hedging a little bit more; just changing, I guess, some of the assumption on the stickiness of certain deposits. Is there scope just based on your comments that Hong Kong is very short-dated, 40% of Hong Kong deposits on US dollar, would there be scope to reassess some of those deposits and take a view maybe similar to the UK that deposits are kind of behavioral majority of five years? Could this be a source for additional income going forward? And secondly, on capital -- first of all, thank you for the 14 to 14.5 guidance now, for FY '22, just in terms of thinking about the core Tier 1 trajectory and at the end of scope for capital return for HSBC going forward over the medium-term, should we use this 14, 14.5 for the range going forward or is the scope for capital to achieving lower? I'm just trying to get if they're still capital inefficiencies within the group impacting this 14 to 14.5 range? Thank you.

Yeah. In terms of Hong Kong and the -- I mean part of the problem, Martin, as you know, it's a very short-dated book both on the asset and liability side. So the choice that we have always made is not to run currency risk to extend duration, that there's probably a low hundreds of millions opportunity in the next few years through improved management of our liquidity book. We've recently hired a few months ago, the group Treasurer out of UBS to come run our treasury business. So I think over the next two or three years, we probably got a few $100 million of upside in terms of how we're managing our global liquidity pool. On capital, I would use the 14-14.5 until the next few years. I think our aspiration is to run towards or end of that range, if we can. as you think further out, because obviously the impact of output flows and what that does and depending on where they're applied and the impact on capital positions of subsidiaries, etc. we're going to have to pay attention. To get below 14%, I think we've got a big program of where to step up our capabilities and stress testing, I think our peak to trough fall in stress is still too high. But that will be a multiyear program of work to improve stress testing and then go off to the higher risk insurance areas of the bank where we're not getting remunerated appropriately. For purposes of the foreseeable future, I assume that 14% to 14.5% is where we're managing too and if we can, we'll manage to the low end of that range.

Perfect, thank you. Thank you very much.

Thank you. We will now take our final question from the line of Joseph Dickerson from Jefferies. Please go ahead, your line is open.

Hi. Good morning. Thanks for taking my question. Just on the cost versus benefit from rising rates. Can, I guess, you've made the point that you haven't lightened up on investment spend. Can we just -- should we therefore assume that the 90% or so of the rate sensitivity of whatever we might assume falls through to the bottom line. I guess, what sort of quantum should we think about falls through to the bottom line?

Well, I think the bulk of it, frankly. It depends what inflationary pressure you put on a $19 billion wage bill on a $32 billion total cost base. But if relative to the previous guidance of flat costs, if you've got 1% to 2% inflation on that, that's $300 to $600 million of incremental costs, which I think more than gets offset by the interest rate rises. What we saw over the last year is the bulk of that we lost. We weren't able to offset with incremental cost savings so I think we will keep cost control tight even if we see the benefit of rate rises coming through.

Thanks very much, very helpful.

Ewan, just to tie with you, the amount of revenue that dropped off the P&L last year as a consequence of rate reductions was?

Seven billion dollars.

How much?

Seven billion dollars.

That gives you a sensitivity of the -- the upside sensitivity of rates for the downside that we experienced relative to a one or two percentage points movement in cost. It's a highly leveraged ratio on revenue to cost.

Brilliant, thank you.

Thank you. That was our final question. I will now hand back for closing remarks.

[Indiscernible] Noel?

Listen. Thank you so much for your time today. A couple of closing comments from me. First of all, I'm pleased as I said at the beginning with performance of the business and I'm pleased to see good signs of growth -- organic growth in fee income, balanced growth, Wealth Management. So that's good. I think more to come on that front. We remain absolutely committed to driving out cost efficiencies, as we indicated earlier this year, We acknowledge that there are some inflationary pressures through VP from good business performance and from underlying inflation. But we believe that there is offset in revenue growth to compensate for that, and we remain committed to our return on capital target. So good progress, more still to do. We will continue to transform the business and we'll continue to grow the business. Thank you for your time.

Thanks, everyone.

Thank you, ladies and gentlemen. That concludes the call for the HSBC Holdings Plc's Earnings Release for 3Q 2021. You may now disconnect.