Douglas Flint - Group Chairman Stuart Gulliver - Group Chief Executive Iain MacKay - Group Finance Director

Rohith Chandra-Rajan - Barclays Tom Rayner - Exane Alastair Ryan - Bank of America Merrill Lynch John-Paul Crutchley - UBS Manus Costello - Autonomous Chintan Joshi - Nomura Stephen Andrews - UBS Martin Leitgeb - Goldman Sachs Sandy Chen - Cenkos Chris Manners - Morgan Stanley Arturo De Frias - Santander

Welcome to Investor and Analyst Conference Call, the HSBC Holdings Plc's 2014 Annual Result. At this time I will hand the call over to your host, Mr. Douglas Flint, Group Chairman.

Good morning from here in London and good afternoon to everyone in Hong Kong and welcome to the 2014 HSBC Annual Results Conference Call. With me in London is Stuart Gulliver, the Group Chief Executive and Iain MacKay, the Group Finance Director. Before we start I would like to start a word in behalf of the Board, HSBC's performance in 2014 reflected another year on consolidated in the reshaping and strengthening of the group against the background of geopolitical and economic challenges particularly in the fourth quarter most of which were unforeseen at the outset of the year. Unsurprisingly in this environment revenue growth opportunities were strongest in our Asian business, cost continued to increase globally in large part implement regulatory change and to enhance risk controls. It is clear now that the societal regulatory and public policy expectations of our industry are changing as long term cost structure. Taking this financial performance together with the further progress made in reshaping the group responding to regulatory change in implementing global standards, the Board considered executive management that have made progress during 2014 towards strengthening HSBCs long term competitive position. The group's capital strengthen and capital generating capabilities enabled the board to approve a fourth interim ordinary dividend in respect of 2014 of $0.20 per share taking the total ordinary dividends in respect of the year to $0.50 per share representing $9.6 billion for $100 million higher than 2013. HSBC remains one of the highest dividend payers in the FTSE 100 and indeed the banking sector globally. I will now hand you over to Stuart to talk through the key points before Iain takes a more detailed look at performance.

2014 was a challenging year in which we continued to work hard to improve business performance while managing the impact of a higher operating cost base. Profits disappointed, while they were tough fourth quarter masked some of the progress made over the preceding three quarters. Despite of this there were number of encouraging signs particularly in commercial banking, payments in cash management and renminbi products and services. Adjusted profit before tax which excludes the year-on-year effects of foreign currency translation and significant items with $22.8 billion which is broadly unchanged on 2013. Reported profit before tax in 2014 was $18.7 billion, $3.9 billion lower than 2013. Asia continued to provide a strong contribution to group profits. Middle-East and North Africa delivered a record reported profit before tax. Together Asia and the Middle-East generated more than 70% of adjusted group profit before tax. Commercial banking also delivered a record reported profit which is evidence of a successful execution of our strategy. This was driven by strong revenue growth notably in our two home markets of Hong Kong and the UK. We also grew loans and advances to customers in commercial banking by 10%. Global banking markets performed relatively well for the first three quarters of the year but like much of the industry suffered a poor fourth quarter. Revenue was lower in 2014 particularly in markets but all other client facing businesses delivered year-on-year growth. In capital financing we increased our market share over the course of the year notably in equity capital markets, debt capital markets, lending and advisory products. We were ranked number one for debt capital markets in the UK and Hong Kong, the number one for equity capital markets in Hong Kong. We were also named Global Bond House of the Year, Global Derivatives for the Year and Asian Bond House of the Year and Asian Bond House of the Year in the International Financing Review Awards 2014. Revenue was lower in retail banking and wealth management primarily due to the continuing run-off of the CML portfolio in the U.S. However in our global asset management business we continued our strategy of strengthening collaboration across our global businesses which helps to attract net new money of $29 billion. Global private banking continues to undergo a comprehensive overhaul which was accelerated from 2011. As part of this overhaul we’re implementing tough financial crime, regulatory compliance and tax transparency measures. In order to achieve our desired business model and inform by our six filters process we have also sold a number of businesses and customer portfolios including assets in Japan, Panama and Luxemburg. The number of customer accounts in our swiss private bank is now nearly 70% lower than its peak. We continue to remodel the private bank in 2014 which includes a sale of the customer portfolio in Switzerland to LGT Bank. One consequence of this remodeling was a reduction in revenue, we have also grown the parts of the business that fit our new model attracting $14 billion of net new money in 2014 mostly through clients of global banking markets and commercial banking. In case there is no doubt, we have absolutely no appetite to do business with clients who are evading their taxes or who fail to meet our financial crime compliance standards. At group level loan impairment charges were lower reflecting the current economic environment and the changes made through our portfolio since 2011. Operating expenses were higher due to increased regulatory and compliance cost, inflationary pressures and investment in strategic initiatives to support growth primarily in commercial banking in Asia and Europe. Our balance sheet remained strong and we increased overall loans and advances by 7%. In addition to the growth in loans and advances in commercial banking already mentioned we notably increased lending in global banking and markets in Asia by 14%. The common equity Tier 1 ratio on a transitional basis was 10.9% and on the CRD IV end point basis was 11.1% at 31 December, 2014. And now I will hand over to Iain to go through the numbers in more detail.

As Stuart mentioned reported profit before tax for 2014 was $18.7 billion compared to $22.6 billion in the prior year. This reflected lower gains from disposals and reclassifications and the impact of other significant items including fines, settlements, UK customer address and associate provisions totaling $3.7 billion. We’re now using adjusted rather than underlying measure to explain our pretax profit performance, this measure excludes the year-on-year on effects of foreign currency translation differences and significant items. We have modified our approach to align it with the way we review our performance internally and following feedback from investors. Adjusted profit before tax was for 2014 was $22.8 billion totally unchanged in 2013. Looking at some key metrics, the reported return on average ordinary shareholders equity was 7.3%. We’re also disclosing our return in intangible equity for the first time which was 8.5% the main difference to average ordinary shareholders equity is exclusion of goodwill and intangibles including present value in force of long term insurance business. We will discuss both ROE and ROTE in the future. Our cost efficiency ratio is 67.3% and advances deposit ratio is 72%. Since we’re using adjusted measure for the first time we have set out the adjusting items on this slide, further details included in the appendix. There is an increase negative effect from significant items in 2014 including finds, settlements, customer address and associated provisions. Our 2013 figure includes 1.3 billion in relation to UK customer address programs including PPI, a charge of $1.2 billion in relation to ongoing investigations and foreign exchange of which $809 million was recorded in the fourth quarter. A provision arising from the ongoing review of compliance with Consumer Credit Act in the UK of $632 million and $550 million in relation to settlement agreement with the Federal Housing Finance Authority in the U.S. Year-on-year there is a reduced contribution from gains and disposals and reclassifications offsetting the beneficial effect of gains on fair value of our own debt in 2013. Overall, the impact of these items as to leave the adjusted pretax profit broadly unchanged. You will find more details of adjusted performance by region and by global business in the data pack in our investor relations website. This next slide summarizes our quarterly profit performance over the last two years, what stands out here is that the group performance of the first three quarters was in marked contrast of the disappointing performance in the fourth quarter. This was marked by an increase from 4Q '13 and operating expenses and a reduced revenue contribution from global banking and markets particularly in our markets business. These items more than offset revenue growth in commercial banking, notably in our home markets of the UK and Hong Kong. The revenue reduction of global banking in markets was in part due to the introduction of the funding fair value adjustment and certain derivative contracts of $263 million and the fact that the fourth quarter of 2013 benefited from around $200 million of the valuation gains and equities. Revenue also failed by $264 million in credit. Overall adjusted revenue was broadly flat excluding the introduction of the funding fair value adjustment. Overall credit quality remains stable or feel there was a number of individual impairments in Asia and Latin America in the quarter. These were not bound by any single unifying theme from an industry sector standpoint. We continue to invest in regulatory programs in the fourth quarter as we did throughout 2014. In addition we're higher bank levy following a rate increase by the UK government. Other operating expenses increased by $435 million reflecting effects inflation, higher marketing spend support growth as well as higher business support cost. This next slide shows an analysis of profit before tax, as you can see we grew adjusted profits in three out of five regions compared with 2013. Higher profits in Asia were driven by Mainland China reflecting growth in global banking and markets, higher average lending in commercial banking and wider deposit spreads in retail bank and wealth management. At least in North America delivered a record reported profit before tax driven by higher revenue in Egypt and the United Arab Emirates. Profit increased in North America driven by lower loan impairment charges and operating expenses. This was partly offset by reduced revenue due to continued run-off in loan sales from the CML portfolios. Profits in Europe were down due to higher regulatory and compliance and staff cost in addition to the bank levy which was $204 million higher than in 2013. This was partly offset by improved loan impairment charges, revenue remained broadly flat. Profit in Latin America was impacted by increased operating expenses mainly due to inflationary pressures in Brazil and Argentina. As we go through the following pages of the presentation we will talk through the global businesses in more detail. This slide shows an analysis of revenue, commercial banking performed well an increase of $833 million. This was driven by credit and lending and payments in cash management, notably in our home markets of Hong Kong and the UK. Principal retail banking and wealth management revenue was broadly unchanged reflecting effect of derisking initiatives, a back drop of continued low interest rates and muted growth in certain key markets. Higher income from current accounts saving and deposits was broadly offset by lower revenues from personal lending and wealth management products. Global banking and markets revenue excluding legacy credit was $278 million lower. This reflected a reduction in revenue and markets notably in our FX business and the introduction of the funding fair value adjustment and uncollateralized derivative contracts. However these reductions were partly offset by capital financing but we increased both revenue and market share across our advisory, equity capital markets and lending products. Revenue was also marginally higher in payments and cash management, security services. Global private banking attracted $14 billion of net new money in the parts of the business that fit our new model mostly through clients of global banking and markets and commercial banking. However global private banking revenue fell by 11% as we continued to derisk the business. Other revenue included the $647 million favorable fair value movement from management of our own long term debt. This next slide shows the growth in our customer lending and customer accounts over the past two years. This is a period in which we have been running off our CML portfolio and making disposals of non-strategic assets. We will notice that we have split our lending and customer accounts into red-inked and other balances. Red-inked balances relate to corporate overdraft and deposit positons where our clients benefit from net interest arrangements across the positions. We report these balances on a gross basis in our accounts. During the fourth quarter these red-inked balances decreased as many clients settled both their overdraft and deposit positions. We have shown the red-inked balances separate to make clear that there has been consistent quarterly underlying balance sheet growth. On a constant currency basis and excluding the effect of red-inked balances, lending increased by $56 billion or 7% during 2014 notably in Asia and Europe. In Asia lending growth include commercial banking up 9% principal retail banking and wealth management up 6% and global banking and markets up 14%. In Europe there was a lending growth in commercial banking. In the current quarter, excluding the effects of red-inked balances loan growth is driven primarily by global banking and market notably in Europe, Asia and North America and in commercial banking most notably in the UK. On operating expenses again on an adjusted basis we saw an increase of $2.2 billion or 6%. We have also split out the adjust cost by major category. As it was noticed we now refer to cost associated with regulatory change and enhanced risk, regulatory program and compliance. To be clear this includes the cost associated with new regulatory programs such as stress testing including CCAR, FATCA and Dodd-Frank as well as cost associated with global standards and our compliance function. These costs increased by $774 million in 2014 to $2.4 billion as we continued to build the net infrastructure to meet the higher compliance standards to prepare for multiple stress testing and number of jurisdiction and to pave the way for structural reform. Looking at the key drivers by global business, principal retail banking and wealth management was up by $1 billion, this reflected in inflationary pressures particularly in Latin America. Higher cost is mostly with regulatory programs and compliance, the UK financial services compensation scheme levy of $111 million and higher marketing costs across the regions. Commercial banking was up by $535 million principally in Europe, Latin America and Asia. This was due to inflation, investment in staff to support revenue growth notably in Asia. Spending and regulatory program and compliance also increased. Global banking markets increased by $569 million or 6%, primarily due to higher spending and regulatory programs compliance and increased staff costs. An increase of $443 million in other caused by increase in the bank levy of $204 million and higher spending and reg programs and compliance. Against this the continued run-off of the U.S. portfolio reduced cost by $320 million and global private banking costs were down by $99 million. In 2014 we delivered $1.3 billion of savings from streamlining or simplifying our businesses, processes and procedures in-line with our strategy. This and obviously more was reinvested as I previously described. In 2015 our teams will deliver more than $1 billion of savings but our focus is shifting from January to sustainable savings which are then reinvested in the business to generating overall net savings. Our goal is to deliver our cost line run-rate by the end of 2017 which is consistent with 2014. This means we will offset inflation of approximately $1 billion per year and fund investments in key growth initiatives and regulatory compliance through improved efficiency. Adjusted loan impairment charges were down from $5.6 billion to $3.9 billion. The ratio of loan impairment charge is to average gross loans and advances to customers fell to 39 basis points from 60 in the prior year period. This was mainly due to lower loan impairment charges in Europe, North America and Latin America. Increase in the fourth quarter was caused by specific impairments in Asia and Latin America. Fourth quarter impairments in Asia increased due to higher individual impairment charges in global banking in markets in Hong Kong and commercial banking in Hong Kong and Mainland China. Latin America was affected by higher specific provisions in commercial banking in Brazil. It's worth noting again that there was no single unifying element drove these impairments. Looking at 2014 as a whole Europe $820 million better driven primarily by commercial banking and global banking and markets of the UK. North America was $862 million better mainly in the CML run-off portfolios, Latin America was $292 million better primarily in Mexico to the extent Brazil. In Mexico the improvement in loan improvement charge primarily reflected lower individual assess charges in commercial banking in particularly relating to certain home builders. In Brazil the improvement was driven by the non-recurrence of additional provisioning arising from changes made to the impairment model through structured loans in 2013. In addition to reduced collectively assessed impairments in commercial banking. This was partly offset by an increase in global banking and markets due to an individually assessed impairment provision. Asia loan impairment charges increased largely as a consequence of a specific impairments already described. This next slide shows the pro forma after tax distribution of profits in 2014. We retained 32% and increased our distribution to shareholders 53%. Dividends for ordinary share in respect of the year-over $0.50 increase of 2% compared with 2013. 15% was allocated to variable compensation which was broadly in-line with communication provided on distribution to an earlier date. As you can see we have increased the fourth interim dividend to $0.20 per ordinary share in-light of our progressive dividend policy. We currently plan to deliver the first three interim dividends of $0.10 per ordinary share in 2015. Turning to capital, the Group's Transitional Common Equity Tier 1 ratio of 10.9% against 10.8% at the end of 2013. Our end point Common Equity Tier 1 ratio is 11.1% on 31 December, compared with 10.1% at the end of 2013. This reflects continued capital generation of $5.1 billion in addition to $7.5 billion that we paid in total dividends during the year. Risk weighted assets increased due to a combination of business growth and commercial banking and regulatory changes including the introduction by the PRA of loss-given default floors across a number of portfolios in a year. This was partially offset by a broad range of capital management initiatives and improvements in our capital management processes. Based on the known and quantifiable requirements to-date the current end point Common Equity Tier 1 ratio required ratio is 10.6%. However uncertainty remains around the amount of capital that the banks will be required to hold resulting from the inherently dynamic nature of some elements of capital framework such as the counter cyclical capital buffer, sectorial capital requirements and the PRA's assessment of Pillar 2. There is also an ongoing review of risk weighted assets across all risk types and related application of capital flows. Given our capital position and the proven capital generative power of the group we believe we’re well placed in the future of capital requirements. With that I will hand back to Stuart.

So this slides looks at the progression of ordinary shareholders equity, return on equity and return on tangible equity. Our level of capital is increased by over 60% as the start of the financial crisis specifically since 2011 it has been required to progressively build our capital levels in response to increasing capital demands. When we set our targets for the group in 2011 we did so based on the capital ratio of 10% while this is factored foreseeable capital requirements it did not anticipate and could not have anticipated the full extent of capital commitments and additional cost afterwards in the years to come. These factors include an increasing cost from regulatory demands in changes and this is included cost associated with the new regulatory programs such as stress testing, FATCA and Dodd-Frank as well as cost associated with global standards and our compliance function. In the last few years we have made significant investment including headcount, technology and processes in upgrading our compliance capability but we’re still not at the top of our investment cycle. They also include the additional capital that we're required to hold by the PRA and other regulators and increase in the UK levy, a continuing low interest rate environment and the impact of significant items notably the high level of fines, settlements, UK customer redress and associated provisions. In 2014 these totaled 3.7 billion and since 2011 these have totaled $11.3 billion. To put it simply, the regulatory in operating environment in which we set our 12% to 15% return on equity target in 2011 no longer exists. That explains why the bottom chart shows the group's return on equity and the equivalent return on tangible equity have reduced at the group's capital level has increased. As a consequence we’re setting new targets to better reflect the present and the ongoing operating environment. We’re setting a revised return on equity target of greater than 10%. This target has been modeled using a common equity Tier 1 capital ratio on an end point basis in the range of 12 to 13%. Our cost target will be to grow our revenue as fast our cost on an adjusted basis and we’re restating our commitment to delivering a progressive dividend. To be clear the progression of dividend should be consistent with the growth of the overall profitability of the group and it's predicated on our ability to meet regulatory capital requirements in a timely manner. All of these targets will apply over the medium term. These targets offer a realistic reflection of the capabilities of HSBC in the prevailing operating environment. To summarize it's important to recognize the impact of a poor fourth quarter on what we view as otherwise reasonable results. Many of the challenging aspects of the fourth quarter results were common to the industry as a whole and our early 2015 performance has been satisfactory. These results show a business powered by a continued strength in Hong Kong with significant additional contributions from the rest of Asia and the Middle-East and North Africa. The continuing success of commercial banking and the resilience of our differentiated global banking and markets business illustrate the effectiveness of our strategy to bridge global trade in capital flows. The business remains in a good position structurally to capitalize on broader market trends and the macroeconomic backdrop remains favorable notwithstanding the continuing low interest rate environment. Our network covers some 85% of global trade and capital flows and provides access to some of the fastest growing geographies in the worlds. We’re therefore extremely well-positioned to grow our business particularly in product areas that rely on international connectivity such as payments in cash management, the internationalization of the RMB and trade. We also continue to invest in geographies where the group has a unique competitive advantage such as in Greater China particularly the Pearl River Delta and some of the biggest and fastest growing global city clusters. Despite this there are still a number of historical issues left to resolve and we will make further progress on these in 2015. We will also continue the work we started in 2011 to simplifying the group to make it easier to manage and control. We maintain the sharp focus on generating net savings to offset increased costs arising from inflation and the cost of implementing global standards. We continue to focus on the execution of our strategy and onto delivering value to shareholders and I'm happy to take questions. The operator will explain the procedure and introduce the first question. Operator?

[Operator Instructions]. Your first question today from the line of Rohith Chandra-Rajan from Barclays. Your line is open. Rohith Chandra-Rajan: I was just wondering, just on the revised ROE target, if you could give us a bit more clarity, just in terms of moving from the current position to the greater than 10% in the medium term. The number you reported today, 7.3%, I think on an adjusted basis is maybe something slightly above 9%. Then if you adjust for the 12% to 13% CET1, that might knock 40 to 100 basis points off that. So we're looking at somewhere between 8% and 8.7% ROE, moving to above 10%, so that's 15% to 25% increase in the ROE. I just want to check that's roughly the right math and how and what the plan is to get there. And then secondly, just to clarify what Iain said on the cost target. If I understood correctly, Iain, your 2017 cost target is to hold it flat at $37.9 billion which is the 2014 number including all the one-offs in the year. Thanks.

To be clear on that last point, it's on an adjusted basis, so I can't tell you what the one-offs are going to be in 2015 or 2016 or 2017. We're focused on the cost base that we've got line of sight to and can control, so the ongoing operating expense base. That is on an adjusted basis that we're talking about. It would be really nice, by the way, if in 2017 we didn't have customer redress, fines, penalties and various other items, but I can't make that promise to you at this point. When you look at the return on equity -- Rohith Chandra-Rajan: Sure. Sorry, Iain, that's $32.1 billion adjusted cost is what the target is for 2017?

No, the adjusted cost base is the $38 billion that you referred to. Your math, broadly speaking, Rohith, on the return on equity is pretty much on the mark, I would say. When you look at the underlying profit generating capability of our four global businesses and one of the measures internally is the return on risk-weighted assets, the generating capability in the round comes through to allow us to generate that 10% return on equity. However, we have a number of businesses in the network today which are not operating at the level of profitability that they previously have done, or that they are capable of doing, in our view and for some perfectly good reasons around repositioning and derisking those businesses. Those businesses are and I think it's fairly obvious from the Annual Report and accounts, are the United States, the Brazilian business, the Mexican business and, of some lesser significance in terms of scale, our Turkish business. Those four businesses are under intense scrutiny and get a great deal of management attention in terms of driving the profitability of those businesses and the performance. However, you'll also recall over the last couple of years, we've done very significant repositioning and derisking of each of those businesses and recognize that there's a rebuilding that has got to be undertaken. So that continues. We continue within each of our business to look at capital allocation within that business, the efficiency of the return against those and again, the ongoing work to ensure that the businesses perform efficiently. From a cost perspective and there's a good deal of detail within this deck of slides around the costs, it's simply a fact that for 2015, 2016 and 2017 we see, in front of us, headwinds as it relates to the implementation of regulation that has shown is only now becoming real from an implementation aspect. Perhaps one of the most significant of those is structural change in the UK, for example. However, it's not the only thing. Stress test as a tool traded around the world is generally becoming significantly more intense than has ever been the case in the past. Therefore, investment within our systems and capabilities to deliver robust stress tests, in an efficient and effective manner is clearly an area of focus for us at this point in time. So the focus from a cost perspective is to ensure that we generate the savings that allow us to indeed to invest in the growth in compliance with the regulatory capability of the Firm. And by the time we reach the end of 2017, looking at a run-rate for 2018 which takes us back to that level that we talked about in 2014. But there is, it's fair to say a long list of items which the management team work on internally, some of which, but not exclusively are focused on generating an improvement in the performance of the four businesses I mentioned. Rohith Chandra-Rajan: As well as all of that work that you've just flagged, to get to a 10% ROE, do you need a different rate environment from the one we're currently in?

Well we've assumed the same expectation of interest rate rises in the UK and U.S. that the futures market implies and no change in rates in the Eurozone. So no, we don't need a substantial change in the interest rate environment. It would be rather helpful, but this is based on where the futures market has U.S. and UK rate rises.

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

I had two questions, but can I before just go back to the cost thing, please, because it sounds like you've set a very aggressive cost number? It seems to me out there, to keep it flat in underlying terms, given the underlying wage inflation, you're offsetting investment with some cost saving. It just sounds like a surprisingly strong number you've put out there for, I guess, 2018 rather than 2017. I didn't notice much in the actual release today, talking about that; is this something new, like a kind of a new cost program over and above what you've been talking to us about for the last year or two? Or is this just part of the same sort of procedure, but maybe some of the compliances stuff is just dropping away now? Can you just maybe help me understand how we're going to be looking at $38 billion in 2018, given that's where the costs were in 2014 and we do have underlying inflation in wages and property and all the rest of it? And then I had a couple of questions more on the capital side, if that's okay?

Tom, over the last four years we've generated the better part of $6 billion in sustainable saves. And although that's not been entirely linear, that's the better part of $1.5 billion a year that we've generated from either stopping doing things, namely selling, closing businesses, restructuring the way the Firm's managed, improving processes, implementing new technology. A very, very, very broad range of projects; runs to hundreds, dare one say thousands of projects, to deliver those $6 billion of sustainable saves which have been reinvested in the business around implementing global standards, broader compliance capabilities, investment in new product and distribution whether it's FX, PCM, Pearl River Delta investment from a distribution perspective, digital capability from a retail bank wealth management and other businesses perspective. So what we're talking about is a continuation of generating those cost savings that we've been able to generate over the past four years. I think what we would all have hoped for that, by the time we reached 2015, we had a greater deal of clarity about what the regulatory and performance expectations of then Group are going forward. Simple fact of the matter is, there is more regulation coming, although we know the general shape of much of it, there's still a great deal that's being consulted and developed, whether it's a fundamental view of the trading book, whether it's a re-visitation of the standard measurement for risk-weighted assets. There is obviously the ongoing phase-in of CRD IV to be completed over the next few year, although we have a greater clarity about what that means. The structural reshaping of the UK business, frankly, is only just getting underway. We submitted our plans back in November, we think those are good plans. But the actual work of restructuring the UK business separating out a ring fence, setting up a servco to support both ring fence and non-ring fenced banking activities is only now getting underway and there are significant costs implied with each of those. So the reason we take 2017-2018 as the target point is that we clearly see, for the next two to three years, a very significant effort to generate savings to be able to fund the investment that we need to undertake to accomplish some of the outcomes that we're talking about there. It's aggressive, but it's aggressive informed by what we've been able to accomplish over the last four years, to a significant degree.

Okay. And in terms of additional restructuring charges in order to help you get there, is that something we should be thinking about or--?

I think it's a reasonable expectation, Tom. We don't know what those are right now because exactly the nature of what we're going to be required to do is not entirely clear. But it's why we're not committing today, in 2015, to the cost base of 2014. We know we have to invest to accomplish some of these outcomes, but we will also continue to invest in our ability to run the firm more efficiently. It is therefore, possible that there will be restructuring charges and you can be rest assured, as and when they arise, or when we've got clear line of sight to what they will be, we'll communicate them.

Yes, as Iain is saying, don't assume this is linear. We're clearly going to have to spend some money to actually restructure and get those costs down there. So don't assume 2015 is the same as 2018.

Just on the capital, on TLAC do you think there's much hope of getting some of the proposals watered down? I know that the consultation has been ongoing; I've seen your submission to it. But I just wondered if you had much confidence that actually there will be some watering down. And just a final one and it links into TLAC. Is there a case, if there is no watering down of all of these global regulations which penalize bigger banks, more global banks like yourselves, is there a case for actually then addressing your own structure? Because the cost of the regulation is just becoming so high relative to banks which are maybe smaller or less global in scale. So those two things are wrapped together really.

On TLAC, Tom, it's still early days. You've seen our response that was sent in February 2, so you've got the information that. What will ensue over 2015 is a quantitative impact study. Our engagement in that I'm sure will be as thoughtful as the engagement of many of our peers in the G-SIB category. The proposals that are out there have fairly wide-ranging implications, some of them which may, in actual fact, create perverse incentives for the industry, as it relates to a diversified and stable source of funding which is something that HSBC is known for as a strength for many, many years. We certainly would like to ensure that we maintain that diversified and stable funding approach. As to the likelihood of being able to come up with any changes to the proposals that were put out at the end of last year, I still think it's a little bit too early in the process.

Also I think as well, Tom, that the breakup of the Bank argument, we would need to look at where this QIS takes things, because actually we believe it would destroy shareholder value, that we're not really trading at a conglomerate discount, because we estimate that 40% to 50% of our revenues are linked to our international network, i.e., 40% to 50% of the revenues in both commercial banking, global banking and markets come from the ability to finance capital flows and trade flows across that network. And so the breakup argument doesn't work as well for us as it does for some other institutions.

And back to some of the specifics that were in the original question around TLAC, it covered risk-weighted assets that are invested in our associates. It seems very odd to us that we could be required to pre-provision loss absorbing capacity [inaudible] or Saudi Arabia British Bank, for example. So when you start addressing some of those technical aspects within the proposal, you start [inaudible] back the overall loss absorbing capacity requirement that the Group may have. So look early days, you've seen what our consultation feedback was. It's clearly something about which we feel actually the structure of the Group lends itself to the very stability that the regulation hoped to achieve. And we'll certainly continue to work as closely as we can with the FSB and other regulators to achieve the desired outcomes.

But absolutely no complacency here on the need to improve some of the performance of some of the businesses and we'll do whatever is required as and when everything settles down.

Your next question comes from Alastair Ryan from Bank of America. Your line is open.

Two, if I may? First on the net interest margin, you've shaved off sort of 1 basis point or 2 in the second half. Just whether the more difficult rate curve picture globally put some more pressure on that - stability was I think the word you were using three or six months ago, whether that still applies as levers you can pull to offset pressures on balance sheet management and such like? And then secondly, on costs again, I'm sure you've been anticipating a lot of obsession, but underlying cost went up $2 billion last year, looks like it went up about $1.5 billion the year before, although on a slightly different underlying versus adjusted basis. But there's been ongoing growth which would be consistent with you putting volume back through the business; it's the 7% growth you talked about, Iain. So I'm just struggling to get to how you can deliver flat nominal numbers while growing the Bank at that pace. So what I'm trying to get to, I guess is, is it difficult for you to keep 7% up? Is there effectively a slowdown in the pace of business expansion which is included in your flat nominal cost guidance? Thank you.

So on NIMs first, Alastair, you're right, NIMs in the round came off a couple of basis points and overall for the year for the Group they were off a little bit more than 10 basis points. Some of the factors that build into that you're well versed on; there's some influence from the continued run off of the U.S. CML portfolios. We certainly saw the cost of funding in Latin America step up and as we've reshaped that Latin American business moving from unsecured personal and unsecured lending into more secured, we've seen some pressure on our margins in the Latin American business. When you look at the businesses in Europe and Asia, in the round the margins have been fairly stable. Certainly as it relates to trade, as it relates to broader credit and lending businesses, we've been able to either hold it steady, or in actual fact expand in one or two of the markets, but in the round, we don't see anything that has particularly adverse downward pressure on net interest margins, but in truth nor do we see a particularly upward facilitation either. One of the things that does sit within net interest income which does have an influence on net interest margin, were the redress related to the Consumer Credit Act in the United Kingdom. That's a net interest income item and $632 million came off our net interest income line in the course of the year. And that, clearly, has an effect on the overall net interest margin, an effect to the tune of about 4 basis points. So out of an overall decline of about 10 or 11 basis points for the Group, that little bit more than 4 basis points came out of the Consumer Credit Act and another 5 basis points came out of the repos and reverse repos that do not sit in the trading book; obviously very low margin. But in the round, we see margins as broadly stable, excluding what I've described in Latin America and the continued run off of CML in the U.S. In terms of volumes, there is absolutely within our expectation a continuation to grow the businesses; clearly, the rates at which those businesses can grow is very different by economy. And when you look at the adjusted growth that we generated in the top line in Asia this year for example, it was slightly over 8%. Don't take that as a proxy for what we would grow in each and every year. But when we think about managing the cost base, what we've set ourselves is by the time we exit 2017, we're able to realize a cost base which is largely in line with that which we put in 2014 from an adjusted perspective. And as we said earlier, there is investment required whether it's in restructuring the Bank, whether it's in - and by that I mean restructuring to meet regulatory requirements in the UK, as well as continued investment in global standards and compliance capability across the Group. One of the key drivers of that increased cost base over the last two to three years has been the investment in regulatory programs and compliance. We now have in excess of $2.4 billion in our cost base which is tied up within those regulatory programs and compliance, more than $750 million of that was built within 2014. So although it's fair to say when you look at what's included in that category, structural change, continuing to build our capability around stress testing, full deployment of Dodd-Frank Act, meeting requirements of common reporting standards to name a few we expect those costs to continue to increase certainly through 2015, 2016 and possibly 2017. But it is exactly those costs which focus our attention around generating savings through reengineering business, customer-facing process, as well as the back office to become more efficient, as we have done over the last four years.

Your next question comes from John-Paul Crutchley from UBS. Your line is open. John-Paul Crutchley: I wanted to come back to the question on capital and the structural question that Tom alluded to. Obviously not going as far as debating that sort of splitting up of the Bank, or anything which obviously would be very destructive for shareholder value, but I guess clearly, when you're talking to going to a higher range for capital of 12% to 13% and I guess if we think about potentially being at the top end of that range against where your risk assets are at the moment, that implies something like £160 billion of common equity Tier 1 versus the 136 million, so about 24 billion more. And I guess what I ask myself is, why is that the right answer as opposed to needing more capital to support this business rather than actually turning it around the other way and thinking, well, I have a certain amount of capital which can support a certain amount of risk assets. The business clearly isn't generating a higher enough return, as you were talking about earlier with Rohith. So the answer is actually to rebase the business with the capital we've got to try and improve returns. And I guess within that, I end up thinking about the GBM business which when I look at it, it looks like a 25 to 30 basis point ROA type business which can obviously be levered around 20ish times which seems to me imply a business that is structurally capable of delivering much more than a mid-single-digit ROE business and, clearly, consumes a large amount of Group capital. So when we look around the world, clearly we see a whole raft of wholesale businesses resting with existential questions about returns and how they configure themselves of a new world, etc. and I don't seem to get that sense here. So I guess why is the answer not actually at GBM you've got a lower amount of risk assets because the world in which we live in they're a lot more expensive than any - or your business model isn't delivering the return relative to the others parts of the Group rather than just saying okay well, the number's now somewhere between 12% and 13%, therefore we need more equity capital to support the business we've basically got at the moment and we'll try and square the returns there some other way. Maybe you can just help me understand why you don't feel the pressure for existential change or business model change within GBM that is, clearly, a pressure in most other banks of your size and shape?

JP, actually the honest answer is we'll be doing both. We sold 77 businesses in four-and-a-bit years this team has been in place, so you can rest assured that we're looking at things from both ends of the spectrum. Actually the following businesses, what you've just analyzed can be applied to all of these. So the U.S.A, Brazil, Mexico, Turkey, parts of global banking and markets and actually CMB in the rest of Asia Pacific. So we'll effectively be tackling it from both ends. Yes, we can build the amount of capital up and that won't be set by us; the 12% to 13% will be set by a regulator, by the PRA. It won't actually be set by ourselves and in any event, in parallel to that, we will be looking at the returns of all of those businesses because they're the ones that are dragging our ROE down.

I think other factors to consider within that JP, we're still sitting on a legacy book of six in service in GB&M which we continue to run off. We ran off about $19 billion of those assets in 2014. But it goes exactly to Stuart's point; we're going through the portfolio - we talked a great deal back in 2011 about doing this five and six process review. That review process has never really stopped, so when we look at businesses that are returning at levels below that which will generate returns against a regulatory capital requirement, the business is getting the scrutiny and attention that it needs. And if that leads us, ultimately, to the point that you can't run the business more efficiently, it's entirely reasonable to assume that this management team will exit some of those businesses.

Your next question comes from Manus Costello from Autonomous. Your line is open.

I just wanted to follow up actually on a couple of questions. Following up on JP's point there about the GBM capital allocation, the way you answered the question there suggested you would go kind of bottom up business by business, but I wondered if you'd ever think about the overall shape of the Group and GBM consumes 42% of risk assets at the moment. Would you ever take a decision to say actually that's too much, we want it smaller? Or would you always look bottom up and deliver it by different business units in terms of the return on risk-weighted asset that they're delivering?

I think we would probably do it bottom up. Don't forget also global banking markets has got in its balance sheet management, so it's got a chunk of the surplus capital - the surplus deposits of the Group sitting within it. It would be done bottom up, because also at design level at the top of the Firm, I kind of want this to be one-third, one-third, one-third coming from global banking and markets, commercial banking, retail banking and wealth management. We believe in the universal banking model. We believe we should be diversified by customer group and by geography. So what I wouldn't want to do is to do it in the other direction and either skew to too large a dominance of any one of those three businesses. That's what gives us some stability through the cycle. At various points just in the four-and-a-bit years we've all been doing this, either RBWM has been the key business or commercial banking's been the key business or global banking and markets has. And also, there's a substantial amount of collaboration revenues that we get by having these three businesses. Private banking which is obviously the small piece, now sourced in last year $14 billion of new AUM from existing commercial banking and global banking and markets clients, so the C-Suite of global banking clients and the entrepreneurs that tend to sit at the heart of commercial banking clients. There is also a huge number of transactions, some of which are now in the public domain, where you can see global banking and markets teams working with commercial banking clients either to do high yield bonds or to do M&A transactions. All of that would go away if you do a top down; I don't want to be in global banking and markets type of approach. So it's got to be done at the very detailed level, otherwise I think you threaten the universal banking model and you lose the collaboration revenues.

And 1/3rd you were talking about profits excluding balance sheet management revenue profits, broadly?

It's all in.

All in. Okay. My second question was on costs, just to come back to this nominal cost target which I agree with Tom, I didn't see it in the release anywhere and it seems quite a material change, certainly versus the trajectory that consensus is on. I wanted you to place that in the context - it sounds like the costs will basically go up before they come down from the comments you were making previously, Iain, but you've got your positive jaws target. So I wondered if you could tell us whether that positive jaws target is about through the period, or whether you'd hope to achieve that each year between now and 2018?

The positive jaws target has been fairly consistent, actually since 2011, unfortunately, we've not been able to accomplish them every year, clearly. The focus for our businesses is to grow the revenue base ahead of the rate at which they grow their costs and the challenge going back to each of the global businesses and each of the global functions to fundamentally look at the cost base and reflect on that cost base, in the context of a revenue generating capability. So if a business sits and looks at its revenue generation and says right, hang on a second chaps, we're not going to generate at the level at which we planned, then get on top of your costs and don't assume that you can expend the kind of money that was included in your plan either. And that's a discipline which we're going to continue to enforce and, presumably, drive our global businesses and functions a little bit potty around being able to make that discernment between a cost plan and the revenue generation capability on an actual basis throughout each year. But taking away that there is a need to invest to accomplish that cost exit rate is absolutely an appropriate conclusion to draw. This is not a straight line equation.

Sorry, just to be clear, on an adjusted basis do you think jaws will be positive in 2015?

That's certainly what we're planning for.

Your next question comes from the line of Chintan Joshi from Nomura. Your line is open.

Can I ask one on capital and then just follow up again on the salary discussion we've been having? On capital, sterilization of scrip was one of the targets we had; I wonder how you think about it now. It seems like it will be at least a few years before we can talk about that, especially if you're talking about growing the business and then shrinking the business to the current capital base.

I think you're right. I don't think we will be sterilizing the scrip in the medium term.

The other point, the follow-up, was on the cost income ratio; is the high 50%s cost income ratio you were talking in Q3 still relevant or is it just positive jaws now?

Just positive jaws.

Okay. And finally, you haven't formally kind of accepted the 12%, 13% CET range, so I suspect you already have a pretty comprehensive, going back to the drawing board kind of exercise that you are doing in the background. Do you think we'll get more clarity on which direction you are going, i.e., how much you're going to cut, where you will be growing at some point in the near term, three, six months down the line? Just to get a better sense of business plan; there are a lot of unknowns if I listen to all the conversations we've had in the last half an hour that we need a bit of filling in on.

Certainly in terms of where the capital requirements are going, the clarity continues to emerge little by little. I think again, if you get round to it at some point in the next six months, Chintan, looking at the Pillar 3 document and the capital section in the Annual Report and accounts, we write a great deal about where capital regulation is moving, what the possible quantification of that is, over what period of time it is to be phased in, how the PRA is reflecting on a PRA buffer, for example, through its consultation on Pillar 2. All of those things I think will continue to provide some clarity over 2013. There is consultation out there at the moment on fundamental review of the trading book, revised approach to standardized measures, none of which probably bite in 2015, possibly not even in 2016, but beyond that point. And again, we'll be very much engaged in the debate and the consultation and QISs that will support that. To the extent clarity then emerges, or looks as if it's going to emerge, then that will inform the actions that we, as a management team, take around the shape of the business to generate the returns that we're talking about, given those capital requirements. Again, that may inform us that you simply can't improve the efficiency of the business based on new capital and regulatory requirements, in which case we would contemplate exiting them or it may simply be an aspect of changing the way in which we conduct that business such that we can generate the commensurate returns. But that clarity will emerge as clarity emerges around the capital and regulatory structure. It's improved in 2015 on the implementation of CRD IV, but there's still a lot of stuff out there. And we mention a - well, actually a pretty exhaustive disclosure on it in the Annual Report and accounts on Pillar 3. You know what they are, just as well as I do. But we will respond to, either in line with what becomes clear, or when we've got a reasonable expectation of what may become clear, we'll try and anticipate it.

But you can rest assured that there are no sacred cows. So as the capital environment develops, we'll take a very objective, hard look at all of our businesses as we have done.

Indeed. I just feel that capital environment if we assume that some of these things will be hawkish, we're already in a 12%/13% range. And I take your point, RWAs we don't know where we're on the number of consultations, but direction of travel seems to be higher. So some of the hard decisions already can be taken, I guess you're already taking it. Some visibility around that would be helpful down the line, is all I'm trying to say. I'll leave it at that.

No, we understand what you're saying, but there is obviously a balance on both sides as we move to restructure stuff.

Thank you. Our next question comes from the line of Stephen Andrews from UBS. Your line is open.

Just coming back again to returns and capital, if I look at the Hong Kong and Shanghai Banking Corp in Asia which is about 40% of your Group's capital, that's still cracking on, making a 16%/17% return on equity in a zero interest rate world. You're setting a 10% ROE target for the Group, so by definition, obviously, two-thirds of your capital's making probably--

A very small return, yes.

A small return. I just wanted to get, or clarify, what I'm hearing today. Am I right in thinking that you're much more willing and open to selling, say, Mexico and Brazil than you were before? Because obviously that's one way of freeing-up capital and helping to rebase your Tier 1 relatively quickly or am I reading too much into that?

I wouldn't want to talk about particular countries in terms of disposals, for very obvious reasons. But what I would say to you is that and Iain's mentioned this already, we're involved at the moment in fortnightly calls, we being Iain, myself and the global business heads, on Brazil, Mexico, United States and Turkey which are clearly the four which present the biggest problems in this regard. So we absolutely need to turn them round or we would need to think of more extreme solutions to the problem. As I mentioned earlier, there are bits of global banking and markets that needs to sharpen its pencil, but overall I think it's an important business and doing well and there are bits of commercial banking that needs to sharpen its pencil as well. So at this stage what I would acknowledge is, yes, there are parts of the Group that aren't offering a return that's anywhere near their cost of equity and we're working on restructuring those and there are no options in terms of that restructuring that we would not consider.

Okay, and just one final follow-up on that. What sort of timeline are you thinking of, in terms of how long these businesses have to prove their worth? Are we thinking 12 months, or are we still talking two or three years?

No, I think we're talking 12 to 24 months.

Your next question comes from Martin Leitgeb from Goldman Sachs. Your line is open.

Just a follow-up question with regards to the debate on capital [inaudible] earlier and you mentioned the review of trading book with regards to risk weighting. I was wondering if you could just update us if there is any particular areas where you see pressure, upward pressure, on risk weights, either this year or next year, whether that's in the UK mortgage space or anywhere else.

In terms of 2015 specifically, no. Obviously, in 2014 we had the implementation of CRD IV which provided some regulatory upward pressure in certain areas, particular within global banking and markets, particularly as it related to securitization vehicles. When you think about other areas that may be influenced in 2015, CVA is one area that's under review. When you go beyond that, I think you start thinking about 2016 and probably more pointedly 2017 impact, as the result of consultation around fundamental view of the trading book and revisiting the standardized approach comes in. The other area that may kick in is, if any of our local regulators decide to implement particular risk-weighted asset floors on particular types of business within their markets. You've seen that, obviously over the course of the last 18 months or so, with Hong Kong putting in a risk-weighted asset minimum requirement to mortgages, the PRA has required us to implement loss-given default floors across a number of corporate banking portfolios around the world as well. So that's more of a localized, if you like, local market idiosyncrasies that may come from local regulators. But in the round, I think CVA's one possible area for 2015. But we're talking more about the longer term, in terms of 2016-2017, as we look at some of those fundamental views being undertaken by the Basel Committee.

And then I just have one more question which is a bit broader in context. Just looking at the context of today's regulatory environment, how are you thinking about the cost of complexity versus the benefit of scale for your business?

It's hard to express this in a mathematical way, but obviously part of our scale informs our ability to finance capital flows which derives or defines our profitability in foreign exchange, debt capital markets, payments and cash management, securities custodian. And our scale and the ability to sit across trade corridors, defines our ability to make profits in trade. All of the things I've just outlined turn up in both commercial banking and global banking and markets. So I think that what I would honestly say is that probably you can be large and do relatively simple things. What you probably can't be is large and do complex things and so we continue to work on simplifying the Firm. We've sold 77 businesses; we may sell some more. But there is not, if you like, a mathematical calculation that we're up to. I think that the cost of complexity, it clearly sits within the G-SIB, clearly sits within that additional buffer, because part of it's your connectiveness, etcetera and yes, we're constantly thinking this through, but as I say, - I guess what I'm saying is the ultimate simple comparison is to say, have a look at Santander's business model which is a very big retail bank in four or five countries and compare it to ours. I think that's a complete miscomparison. We make our money in commercial banking, global banking and markets and yes, we make a chunk in retail banking. But if you look at the first two, that's 60%/70% of the Group's profit, comes from sitting across trade corridors, comes from banking city clusters, comes from capital flows. So therefore by definition, we're going to have - if you're looking at geography, it's essential to power that network. Iain?

Yes, I think we also need to put the current performance as well in the context of dealing with some of our legacy and historical issues. You take this P&L and you look at it on an adjusted basis and you take out the fines, the penalties, the stuff that frankly we've been dealing with for a number of years now and virtually every single one of them goes back to pre-2010 and before. And I'm not sure we would necessarily be having exactly the same conversation if we were looking purely at an adjusted basis, as opposed to the weight that these issues place in any given quarter's earnings and there is clearly very, very significant pressure on the quarterly earnings. So the work that we started in 2011 around reshaping the Group, whether in response to the scale, the complexity, the profitability, the attractiveness of the markets in which we operate, that work continues and it will continue. Clearly, what we've got to do is continue to provide as much clarity as we possibly can to the marketplace about what the costs of addressing historical issues may be for this Group. And to the extent we at all can, we disclose that both in this presentation and also in note 40 to the financial statements in that regard. And we'll continue to keep that information coming to the market as and when we've got greater clarity around the impact of those issues. But the work that we do in terms of reshaping the Group is much more focused at the fundamentals as well as dealing with some of the legacy issues that we clearly have to deal with on a day-to-day basis.

And again to reiterate that point, if complexity equals fines and so on from legacy issues, clearly the Firm is structured differently today than it was in those periods of time. And we have substantially changed the way the Firm is run since the beginning of 2011 to avoid those types of issues resurfacing in the future.

Thank you. Our next question comes from Sandy Chen from Cenkos. Your line is open.

Just two questions, one, you mentioned the servco being set up, could you just elaborate a bit more in terms of how that might be capitalized and how this might affect the capital ratio calculations both in terms of sort of an individual country basis and especially vis-a-vis UK ring fencing? And the other question is getting back to capital again; you've given the guidance of a CET1 ratio target of 12% to 13%. Now is that based on the - I would imagine that that's based on the risk weights as are currently calculated. If the BCBS consultant papers come back with higher risk weights or risk weight floors and all that kind of stuff, would you shift that CET1 target downwards, or will you hold on to that 12% to 13% corridor?

Let me start on the 12% to 13%; the 12% to 13% is not a target. This is where, I think, we got ourselves into a bit of a pickle in 2011 when we said that we would have it as a target because, of course, it's set by regulators. It's not set by us anyway. So the 12% to 13% is what we assume regulators might set for us and, if they change that, then obviously we would have to revisit things and revisit things not necessarily in terms of changing the ROE target, but perhaps restructuring more businesses or disposing of more businesses. So absolutely, that's what we would expect. We would respond, is the best way to think about it, Sandy.

When you think about the influence of RWAs in this, it influence obviously the amount of capital we need to carry and therefore, the returns on that. If those businesses generating those risk-weighted assets cannot realize the kinds of returns we would target, then you go back to the points that we earlier made. We'll revisit this from the bottom up and restructure or dispose of those businesses that can't do it. So the RWA aspect of this is clearly an important input, but only to the extent that it informs one part of the equation around returns. From the servco perspective, the focus certainly from an HSBC perspective, certainly as we consider ourselves a multiple point of entry resolution entity, is not just a UK construct but a global construct and a construct which, in many regards, exists to a significant degree within the Group today. But in specifically the context of the UK ring fence banking legislation, the intention would be to put, if you like, the support processes, the operations, the core operations, that support a ring fenced bank and a non-ring fenced bank in a bankruptcy remote servco and that servco would be required to be prefunded and have a level of capitalization. But the level of capitalization, certainly as far as we can reasonably expect now, would be consistent with the overall level of capital that the Group would be required to hold. So we don't think necessarily it changes fundamentally the structure of capital, merely the location of that capital from a legal entity standpoint. So the goal for a servco is to have a globally consistent operating structure that supports our banking entities with consistent processes in a bankruptcy remote vehicle which would support those entities around the world and that that would be prefunded and capitalized at a level consistent with the overall operations of the Group.

Our next question comes from Chris Manners from Morgan Stanley. Your line is open.

Just two questions, if I may? The first one was just maybe a little bit more on your 12% to 13% common equity Tier 1 ratio, just maybe how much of a management buffer would be in that? What are you expecting for a through-the-cycle countercyclical buffer? I saw the Pillar 2A crept up, just trying to understand the breakdown of that target. And the second one was just on cost of risk. Obviously, 50 basis points in the quarter; you're still seeing write-backs in the U.S. I think that most people are looking for normalized cost of risk for you in 2017 for something like 40 basis points. Is that about the right number to pencil in to get to your targets, or just how you think about that normalized cost of risk number? Thank you.

To reiterate, 12% to 13% common equity Tier 1 is not a target. This is what we anticipate, this is not what regulators have told us our capital requirement is. In actual fact, we've disclosed in the Annual Report and accounts what regulator - in fact, in the chart today we've set out what the capital requirement is on an endpoint basis. It's 10.6%. We're presently sitting at 11.1% on an endpoint basis. What we do have an expectation is, is that that capital requirement we anticipate will grow over the coming years. To what extent it will grow, where it will grow and by what drivers it might grow, I simply cannot tell you and therefore I can't really tell you what management buffers may be quantified at. Other than the fact that we will always maintain some management buffer over and above the minimum capital requirements that if we were to dip below those requirements, it would have an automatic impact on our ability to control our own destiny with respect to distributions. So as and when, Chris, there becomes greater clarity for the industry as a whole, we'll provide that clarity to you, but I can't do that today because it's not there. As for cost of risk overall, I can't plug your spreadsheet for you. Look, we went from 60 basis points in 2013 to 39 basis points in 2014. I think of a very, very diligent oversight of credit risk that we see by legal entity, by business, around the Group. If I were to tell you how we modeled it out, I would be telling you components of my financial plan and I'm not going to do that. What I can tell you is that we've got very stable credit quality in all of the environments in which we're operating. Although we saw a little bit of a tick-up in China and Hong Kong in the fourth quarter, it was for very specific individually assessed credits, some of which you will have seen in the news. So it is not indicative of an underlying deterioration in credit quality.

We will take our last question today from Arturo De Frias from Santander. Your line is open.

Just two quick ones, one again, on the 12% to 13% core equity Tier 1. When you talk about your ROE target, you say in the medium term but, I guess, when you think about this 12%, 13% capital ratio it's going to be earlier probably. You need to get there earlier than, let's say, medium term, because if I think about TLAC. I think about PRA, if I think about Pillar 2, etcetera, are you probably thinking about 2017 as the year in which you will have to have this 12% to 13% core equity Tier 1 ratio? And the second one would be on your collaboration revenues. You have mentioned several times in past years collaboration revenues as a key reason for your business model. Could you quantify what is the current level of your collaboration revenues between GBM and the other two big units? Thank you.

So to be clear, TLAC is not a common equity Tier 1 measure.

Sure. Yes, I know that, but it’s part of the story.

It's part of the story but it's not part of the common equity Tier 1 story. So in terms of when we need to get there, today our endpoint 2019 common equity Tier 1 requirement, as communicated to us by the PRA, is 10.6%, right? Our expectation is that there is a framework in CRD IV which would allow the implementation of for example, countercyclical buffers, central capital requirements, PRA buffers which are out for consultation at the moment which may and our anticipation is that over the medium term there would be an increase in the possible capital requirements of us. But in terms of having to get to 12% or 13% in the context of 2015, it's simply not part of the equation. What is important to note and has been the case in 2013, 2014 and years before, the Group has a very strong capital generative capability. Net of dividends paid to shareholders, we generated more than $5 billion worth of capital which has been retained within the Group to support business operations and meet reg requirements and that's in a year which certainly three quarters of performance was reasonably encouraging but a very, very difficult fourth quarter. So we will build capital to the level that meets regulatory requirements and provides some management buffer over those requirements to the extent we believe it's necessary in terms of retaining, within our own hands, our destiny as it relates to the distribution of the profits of the Group. But there is not enough information about TLAC to say what the total loss absorbing capacity of the Group might be and there's certainly not enough clarity right now to say whether or not in actual fact 12% to 13% will ever be required, although I suspect the vast majority of people on this telephone call believe it will be.

Yes. No, that was exactly why I was asking because if we think 2017 from your current endpoint 11.1% and assuming flat RWAs which might not be the case. You would need to generate internally around $24 billion of equity to get to 13%.

Yes, mathematics are okay. Yes, not something that particularly concerns me when I look at the capital generating capability of the Group. As far as your collaboration question goes, Arturo, there was over $4 billion of collaboration revenues and that was principally between commercial banking and global banking and markets but not exclusively. That also includes lesser amounts with the private bank and with retail bank wealth management.

Thank you, ladies and gentlemen. That concludes the call for the HSBC Holdings Plc Annual Results for 2014. You may now disconnect.