This presentation and subsequent discussion may contain certain forward-looking statements with respect to the financial condition results of operations, capital division, and business of the Group. These forward-looking statements represent the Group's expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results performance or events to differ materially from those expressed or implied in such statements. Additional detailed information concerning important factors that could cause actual results to differ materially is available in our earnings release. Past performance cannot be relied as a guide to future performance. This presentation contains non-GAAP financial information. Reconciliation of the difference between the non-GAAP financial measurements with the most directly comparable measures on the GAAP is provided in the earnings release available at www.hsbc.com. The analysts and investor conference call for HSBC Holdings PLC earnings released for the first quarter 2021 will begin in two minutes. Following the presentation, there will be the opportunity to address questions to HSBC's executive directors. [Operator Instructions] Good morning ladies and gentlemen and welcome to the investor and analyst conference call for HSBC Holdings PLC's earnings release for the first quarter 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, Sharon. Good morning in London and good afternoon in Hong Kong. I have got Ewen with me today and I want to start by sharing on screen our purpose, ambition, and our four strategic pillars, to focus on our strengths, to digitize at scale, to energize the growth and to lead the transition to net zero. I will return to these in a moment, but first, I'll run through some highlights before Ewen takes you through our financial performance. We've had a good start to the year. I've seen excellent energy within the business, strong collaboration and a determination to get things done for our customers. I am very grateful to all of my colleagues for the way they've managed growing demand since the turn of the year and for the single minded way they helped our customers to capture both present and future opportunities, now in many parts of the world where the pandemic remains a very real part of people's lives. Our thoughts are with the people of India in particular, and we're working hard to support our colleagues and customers in India through this very tough time. In terms of our financial performance, our good business performance supported by a net release of expected credit losses delivered reported pre-tax profits of $5.8 billion, which were up 79% on last year's first quarter. We strengthened our lending pipelines across our Personal & Commercial banking businesses, which bodes well for our future revenue. Our costs [ph] programs remain on track with $443 million in quarterly cost program savings and $9 billion of gross RWA savings in the quarter. And we retained a strong capital ratio of 15.9% with further growth in both deposits and lending. Calling out a few highlights on Slide 3. The combination of our digital campaigns and growing customer confidence saw strong credit card sales growth in Hong Kong. We saw good mortgage growth which was up 60% in the UK and 37% in Hong Kong. Our wealth strategy got off to a strong start with 23% growth in overall wealth balances. We attracted $13 billion of net new money into private banking in the quarter and $11 billion of net new money into asset management. We saw good loan volume growth in commercial banking and month-by-month increases in lending approvals with nearly double the approvals in March of any one month in 2020. Global banking and markets had a good quarter supported by strong customer activity in capital markets. We led more than $567 billion of capital markets financing across global debt and equity markets and syndicated loans, including around $40 billion of social and COVID-19 response bonus, which is around 29% of the total market. This was a global performance with good profitability in all regions and growth of $3.2 billion in profits booked outside of Asia compared with last year's first quarter. Moving to Slide 4. I said in February that our growth and transformation plans were already in motion, and you can see the evidence of that here. And focusing on our strengths, we've already grown wealth balances in Asia by 18% year-on-year. We've grown our Asia wealth FTEs by more than 600 including around 100 new client-facing wealth balance in Mainland China. And we've grown trade finance lending in Asia by around $3 billion mainly in China and Hong Kong. And we digitized at scale. We started to integrate our market leading PayMe app in Hong Kong into merchant checkouts, and officially launched HSBC Kinetic for SMEs in the UK with around 6000 customers already signed up. Under energize for growth, we're applying all that we've learned through lockdown, combined with our digital investment to improve the way we work. We are moving to a hybrid model wherever possible, giving our people the flexibility to work in a way that suits both, them and their customers. We will need less office space as a result and we have a plan to reduce our global office footprint by more than 3.6 million square feet or around 20% by the end of 2021. We are also relocating three of our global business CEOs to Asia on a permanent basis, taking them closer to our customers and to the core of our business. On the transition to net zero, we have published details of the climate resolution that we will put to shareholders at our AGM in May. We are one of the 500 members of the Global Net Zero Banking Alliance that launched last week. We maintained our leadership position in sustainable finance following a record quarter for global ESG bond issuance and we are piloting a new tool in the UK to help SMEs better understand their ESG performance and to prepare to take action. It is early days, but we're carrying good momentum into the second quarter. Ewen will now take you through our results.

Thanks Noel and good morning or good afternoon all. We had a good quarter against the backdrop of ultra low rates. We reported post tax profit of $4.6 billion that is up by 82% on last year's first quarter and an annualized return on tangible equity of 10.2%. Adjusted revenues were down 3% on last year's first quarter, largely due to the impact of ultra low interest rates, but there were notably good performances in some segments including Asia wealth and Wealth & Personal Banking. Asia tried financing commercial banking and capital markets in advisory debt trading and equities in Global Banking and Markets. Relative to the first quarter of 2020, adjusted revenues also benefited from the reversal of negative insurance market impacts and tribal [ph] banking and market's evaluation adjustments. Expected credit losses had a $455 million net release. This reflects both an improved economic outlook for our central scenarios and in the UK and the U.S., lower probabilities attached to downside scenarios. Operating expenses were up 3%. This was due to a shift in variable payer growth to reflect quarterly profitability. We remain on-track to deliver our target of broadly stable costs for the year ex the bank levy, subject to final decisions on the variable pay pool later in the year. Lending and deposit balances were both at 1% with confidence in our loan growth in the remainder of the year. Our core tier-one ratio remained stable at 19.9% and tangible net asset value per share of $7.78 was up $0.03 from the fourth quarter which retained profits more than offsetting negative reserve movements. Turning to Slide 6 and looking at the first quarter adjusted revenues across the three global businesses. In Wealth & Personal Banking revenues were down 1% on a year ago. Wealth Management revenues grew by just under $1 billion [ph] each of the turnaround in insurance market impacts one of the big loss last year and a good performance in equity and mutual fund sales in Hong Kong. Personal banking revenues were 14% lower due mainly to the impact of low interest rates on global liquidity and cash management, but with a good bounce back in trade balances in the quarter and growing confidence in the lending pipeline for the coming quarters. In Global banking and markets, revenues were up 10% with strong performances in global debt markets and equities up 52% and 55% respectively and capital markets and advisory up more than 100%. Just to remind you, we've now significant exposure to specs where some peer banks benefited from exceptionally high activity levels in the first quarter. On Slide 7, net interest income was $6.5 billion, down 14% against the first quarter of 2020 on a reported basis. On the right the net interest margin was 121 basis points, down one basis point on the fourth quarter, primarily reflecting the fall and highball during the first quarter. On volumes, we saw continued good volume growth in mortgages in both Hong Kong and the UK, and strong commercial applications that we expect to translate into volumes in the coming quarters. Looking forward to the remainder of the year, despite some continuing rolling impact of last year shift in interest rates, we expect volume growth to support net interest income at levels broadly in line with the first quarter. On the next slide, net interest income was $6.8 billion, up 15% against last year's first quarter, but mostly [ph] in the last year was negatively impacted by volatile items due to COVID-19. Overall, net interest income stabilized in the quarter compared with falls over the previous three quarters. Wealth & Personal Banking and Global Banking & Markets benefited from higher volumes, better equity and mutual fund sales, and stronger capital market activity. FX revenues were down year-on-year, but this was still a good performance against an exceptional first quarter of 2020. Commercial Banking was down slightly reflecting lower trade and payment volumes due to the continuing impact of COVID-19 and activity levels. Looking forward, we expect customer activity in fee income to continue to recover as economic activity recovers. Although this obviously remains subject to the impact of new COVID-19 variance and the continuing success we've seen to-date in the rollout of the global vaccination program. On the next slide, we had a net release of $435 [ph] million of expected credit losses in the quarter. This compares to the $3.1 million charge in the first quarter of 2020. The net release was across all global businesses and reflects non-improvement in the economic outlook notably in the UK including a reduction in downside probabilities. Last year's first quarter included a large charge related to one single named corporate exposure in Singapore, but his year's first quarter was still very benign for stage 3 three charges, particularly on the wholesale side. We retained ECL on certainty overlays of $1.5 billion, broadly the same as the fourth quarter recognizing the risks that still exist from the pandemic. But based on the current economic outlook, we now expect the ECL charge for the full year to be below medium-term through the cycle planning range of 30 to 40 basis points. Turning to Slide 10, first quarter adjusted operating costs were $220 million higher than the same period last year. This was driven by higher performance related pay accrual of $474 million, primarily due to a shift in accruing a higher percentage of variable pay this quarter relative to the first quarter of 2020. We made a further $443 million of cost program savings in the quarter with an associated cost to achieve of $319 million. To-date our cost programs have achieved annualized saves of some $2.2 billion against our target of $5 billion to $5.5 billion with cumulative cost surety spend of $2.2 billion. We're not softening our vigorous approach on costs. We continue to expect our 2021 costs to be broadly in line with 2020, excluding the benefit from a reduced bank levy. This is subject to final decisions on our variable pay pool later in the year, which will be primarily driven by the pre-tax profitability of the Group. Turning to capital on Slide 11. The impact of profit generation in the quarter was offset by fair value movements and other deductions, including around 10 basis points for foreseeable dividends. As a result, our core Tier I ratio was unchanged at 15.9%. In line with our shift to a payout ratio approach going forward, the deduction for all foreseeable dividends was based on one quarter of the 2020 $0.15 dividend. We expect to make the same capital deduction in the next two quarters based on the same trailing dividend assumption. But to be clear, we're not settling [ph] with this 2021 dividend intensions. Excluding FX movements, risk weighted assets fell by $6 million in the first quarter, due to changes to our portfolio mix and methodology and model updates. To remind you, we do expect some quarter one headwinds going forward from regulatory changes. These haven't changed from the full year. So in summary, against the backdrop of ultra low interest rates, this was a strong quarter for us, our best and reported profits since the onset of COVID-19, and an annualized return on tangible equity of 10.2%. While the results were flattened by net release of ECLs we saw strong performances across various parts of the bank with continued strength in Asia, despite the impact of a very low highball and a material recovery in profitability outside of Asia. As we look out, there remains heightened levels of uncertainty, particularly driven by the continuing emergence of COVID-19 variants, so expect us to retain a conservative position on capital funding and liquidity for the time being. However, based on the first quarter performance and the strengthened economic outlook, Noel and I are more optimistic about this year, albeit cautiously than we were at our full year results in mid February. With that, Sharon if we could please open up for questions.

Thank you, Mr. Stevenson. [Operator Instructions] Your first question today comes from the line of Ed Firth with KBW. Please go ahead. Your line is open.

Hi Ed.

Yes hi. Good morning everybody.

Good morning.

I guess one, well two questions, actually, if that's okay. I didn’t expect to get one first, it was a bit of surprise, caught me out. The first question was on capital. I was so surprised that the capital ration wasn't stronger given the earnings bps and risk weighted assets falling, and I just wanted if you can give you give us some more color around this minus 400 basis [ph] minus 40 basis points hitting the chart, exactly what's driving that and how we might expect that to progress going forward? I guess that was the first question. And then the second question was, restructuring charges seems to be running somewhat lower than you were perhaps informally guiding to anyway before, should we expect those to pick up during the rest of the year and can you give us any color on how that might end up?

Yes, look on restructuring charges we're not changing our full year guidance. We gave the full year results throughout Q1 was unusually low, so yes you should expect those to pick up as the year progresses. On capital yes, a few things, there were deductions for fair value reserve movements on cash flow and negative FX movements. There was a high deduction for [indiscernible] as its profits increased, and again note that we took about a 10 basis point deduction for the foreseeable dividend, which is new for us that represents a change in policy because we've shifted to a payout ratio policy.

Okay. So, based on what we can see, the bulk of those sounds to me like they're peculiar to this quarter, there's not a sort of underlying…

Yes, but related to this quarter.

Okay, thanks.

Thank you. Your next question comes from line of Fahed Kunwar from Redburn. Please go ahead. Your line is open.

Good morning.

Good morning.

Hi just a couple of questions. The first one is on margins and you gave color on this during the call, but I'm interested in all your major regions, just to understand how much of that is kind of lower rates feeding through previously lower rates and slightly lower highball and is there anything on competitive pressure that's drifting those margins down or is it all about the background yield curve and rates? The second question is just on the write back actually, so it does look like a lot of the write backs are in the UK particularly UK commercial. A, is that right, where they're mainly use commercial, and B, what did you see that was driving that, was it outlook on the vaccine rollout, was it data points that you're seeing on the UK corporates or UK customers [ph] that was the case? Thank you.

Yes, on NIM that was I think almost exclusively driven by the shift in yield curves. I mean what we're actually seeing, yes we've broadly repriced all of our liabilities now. And on the assets side actually we're seeing some opportunity for margin expansion. So for example in the UK, we increased margins to try and slow down some of the inflow that we were seeing. And we have for several quarters seen some opportunity to reprice in Asia on the commercial side. So we do think that we are now close to troughing on NIM. I mean obviously highball slipped a little bit further in Q1. But as you know that translates very rapidly into the books given the short date and nature of assets and liabilities in Hong Kong. And for net interest income, loan growth in Q1 was sort of mid 2 percent and we're signaling that we expect mid single digit growth over the full year. So that does imply much higher growth rates and lending volumes in the remaining three quarters, which we've got confidence in given the pipeline's that we can see which should help support net interest income over the remainder of the year, even if there is still some residual NIM pressure coming from the roll off of books, as a result of last year's interest rate shift. On write backs, you're right, there was a larger write back in commercial, particularly in UK commercial. I think in part that reflected the very large reserve, build up that we had last year. Look, overall there were sort of various things going on, which made this an unusual quarter for us. Firstly, we had very low stage 3 losses, around about $300 million or so in the quarter, which was unusually low, we think. And secondly on stage 1 and stage 2 few things really, an improvement in economic forecasts for central scenarios and most places that we do business, coupled with as you know, we went into the full year with very large probabilities, particularly in the UK against downside scenarios, which we have reduced on the back of a very successful vaccination program here, and we would expect, we're also seeing that in the U.S., and we would expect to see that in other markets as the vaccine programs ramp up elsewhere.

That's great, thank you.

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

Good morning. Can you hear me okay?

Yes.

Great. My question is, thanks for the questions. My question is that with the low interest banking rationalization and throughout the U.S., I was just wondering what the exercise might be to use the least risk weighted assets, and potentially excess capital to add portfolios in your other markets where it might make sense, noting here that a large global bank has put up consumer balances [indiscernible] markets. So I was wondering, where you are with the end markets might overlap in those geographies where HSBC might think it makes sense to be bigger rather than smaller? Thank you.

Omar, thank you. As you know, our primary focus in the WPD [ph] businesses is to grow our wealth part of that business, and therefore we are looking at opportunities for both organic and bolt-on inorganic opportunities for is primarily focused on wealth businesses either acquiring products or distribution capability in wealth management, insurance, and private banking. That's the primary focus, rather than just the geographic expansion of retail banking capability. So we're more focused on that opportunity. I think we will be Asia based largely.

Great, so essentially, the way that we should read that, it is good to be the balance sheet bolt-on M&A that will consume any excess capital. It's really just focused on organic strategy?

Well we would use capital to do an M&A deal, but it would be, what we are buying is less retail banking assets, more wealth management capabilities. So we will use freed up capital if we see bolt-on acquisition opportunities. But as I say it's more around wealth management capabilities than it is retail banking capabilities. We will look at opportunities as they emerge.

Yes, and I will use make sure you listen to the word bolt-on. We're not sort of planning anything substantive. So yes, well it will eat into some of the excess capital, yes, but it will be relatively modest if we choose to do anything.

If I may just maybe a quick follow up on that. So having said that, and just bearing in mind your comments from last quarter, from the not to expect buybacks this year, could you perhaps paint the path for us towards returning excess capital which HSBC is clearly building?

Ewen?

Yes, so I mean, I think we've been clear on our distribution policy. Certainly our dividend policy we said we're going to shift to a 40% to 55% payout ratio from next year. That's going to be all cash. This year without a transition towards that we were close to an 80% ratio last year. We do expect, it is subject to seeing how the second quarter goes to be in a position to buy an interim dividend in the middle of the year and then reevaluate whether or not we'll shift to quarterly dividends from at the end of this year. On buybacks, look we continue to have no current intention to do buybacks this year. You know that we've used buybacks in the past. So there's certainly something that we do and do actively consider as a tool of capital management, and we are committed to active capital management. Yes, we do think at the moment that yes, when we look at consensus versus where we are, we do see IWA [ph] growth probably being a tad higher than is in most people's models. We see loan growth being fuller than I think all of you are currently modeling. Yes that's on the back I think of very strong growth that we continue to see in mortgages across the UK and Hong Kong. Yes a commercial pipeline that is building nicely and just in context in one of the slides you'll see that commercial [ph] pipeline is running close to 50% higher than it was in Q4 in Q1 and we do think other segments like consumer credit will bounce back as we recover out of COVID. Yes, there are about $20 billion of regulatory headwinds that we see this year. Offsetting that is the sort of $30 [ph] billion or so of RWA [ph] rundown that we expect. We're making good progress on that. We did about $9 billion in the first quarter. And the last thing is, we're still cautious on credit rating migration. Yes, particularly as some of the government support packages roll off from here in the UK for example as [indiscernible] rolls off and what impact that has on credit later in the year. So, we are probably slightly more cautious on capital and excess capital and would be in your numbers at the moment.

That's wonderful. Thank you very much.

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

Yes, good morning, both.

Good morning.

Just two questions, three questions today, first on credit quality. You obviously released $0.7 billion from stage 1 to reserves in Q1. I think you had $6.8 billion still left on the balance sheet. and your guidance, and if I take the bottom of your range I heard you saying it should be below was sort of fully charged somewhere around $3 billion or lower. I just wondered that guidance in itself what does that imply in terms of further stage 1 to release since for the rest of 2021? And then I know you've already touched on this, I was going to ask you to then just expand on your thoughts about when the government programs actually do end, what's your thoughts on sort of releases over the two to three-year period? That was the first question and I have a second one on cost base.

Well look on ECLs, I'm going to say that in my opening remarks that we've retained uncertainty overlays of about $1.5 billion that we think we're retaining currently about 70% of the reserve build-up in stage 1 and stage 2. If we were to stick to the central economic scenario, I would think you would see some of that get released this year, maybe some of them get released in the first half of next year. I think we're going to continue to be pretty cautious about how we do release. We're not expecting a repeat of Q1 in terms of further retail performance, during the remainder of the year, and there still is a pretty broad array of outcomes, I think depending on how we progress out of COVID-19. And obviously there are a few risks on the horizon, particularly around new variants and whether any of those become vaccine resistant, where we land below 30 basis points, we'll see. You should assume within that that we are confident that we will end up below 30 basis points.

[indiscernible]

I mean, you know as well, it's important that we adopt a cautiously optimistic approach to reserves, and the way the economy will develop, we're optimistic. We're seeing good signs, but it's still relatively early days for the vaccination program and that's why we wanted to retain around 70% of the provisions that we created last year. We've had a very good stage 3 quarter in Q1, with only $300 million as of stage 3 charges. That's below the normal trend line that one would expect. So I think it's right to be cautiously optimistic and continue to position the balance sheet cautiously.

Yes I mean, I think I was probably relating to while you're being too cautious now, but I completely get the point about the uncertainty over government [indiscernible].

I don’t think -- we can adjust as the year develops, we will adjust on a quarterly basis our view of what the future holds.

Okay, okay, let me -- thanks and just on costs. Your comments on broadly stable for the full year, barring further performance related issues, I mean if I look at the last year and I just took Q1 it was very neat 25% of the full year total X, the leverage. And if I analyze Q1 this year, I'm looking at sort of 3% growth. I'm just trying to get a feel for where your confidence is coming from, is this just incremental cost savings or how you'll be building in the next expectation at least performance related is going to push -- pushes away from that really stable, I mean if it is performance related it is not a bad thing either and it is just certainly, but I'm just trying to get a feel for how confident you are really may be that broadly stable target. Thanks.

Yes, so look, in the first quarter the -- there was about $300 million to $400 million adjustment due to the -- us taking a higher accrual for variable pay compared to Q1 last year. So, I think if you back that number out, what you'll see is that, yes, we were broadly bypassed in the quarter and you would expect the variable pay accrual rather than being equal to be a few hundred million dollars lower for the remaining quarters of the year, which I think gives you confidence in that statement. Always signaling on the variable pay accrual, I think what we saw in as part of the full year results as you will all know, there was a very different approach across the sector in terms of performance pay. We took our pull-down by close to 20% for the full year, but we saw some peers, particularly U.S. peers, and particularly some European peers, they were concentrated on the wealth and investment banking space, high in very different places. So, we are just cognizance of the fact that for competitive reasons we may need to top up our current pool assumptions as the year progresses. But that would only be done in the context of improved profitability. But absent that change and again in context we paid about $2.8 billion in variable pay last year that you can do your own math and size what that risk is. But absent that, we're very confident that we're on track to deliver broadly flat costs this year and I would stress there is no change at all in the internal management focus on the cost program.

Okay. Thanks a lot.

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

Good morning, good afternoon everyone.

Hi, thanks.

Thanks for taking the questions. I have two questions on [indiscernible] just briefly come back on costs. I just want to check on the outlays [ph] your commentary, we see [indiscernible] being higher than consensus. Is that a reference beyond 2021, just as we look at Q1, quite encouraging quarter, you can take the FX and growth save, so given where we started Q2 for the growth stage to come within strike with the consensus just behind 2021, but perhaps you are more cautious in terms of credit migration and then the volume growth, just want to check if its '21 will be some story there? And then second question on costs, so to come back to your commentary on performance, I think initially you said it would be driven by PBT, so I was interested, is that more weighted to pre-provision profit or to impairments were materially low but below medium term cost of risk. That could be a factor or is it more so of competitive questions that you just talked to, that would drive that? Thank you.

Yes and then variable pay is set on largely on bottom line profitability, but we do take some, and for example last year, I think profits fell by around a third and we took the variable pay pool down by 20%. If we saw the reverse go, reverse go this year and it was largely driven by ETL [ph] performance. I don't think we would take all of that outperformance into a change in variable pay.

Correct. And you got to remember what we are managing to is leaving PP [ph] to one side, we are on track and confident of our ability to deliver the transformation cost savings that we talked about in February and the February before that. So, the underlying cost position in the bank is well positioned and on track to meet those expectations. We got a strong profit performance in Q1 and therefore we've topped up the VP for the Q1performance. We will have to see what happens in Q2, Q3 and Q4, but the most important message for you is we're on track for our underlying transformation cost savings.

Yes and now on the question on that you raised, yes just in terms of 22, again I think, yes we would be confident of achieving mid single digit loan growth. We've probably got another $20 or so billion to go on our RWA reduction program next year, but then you will have Basel III reform coming through which will probably lead to a 4% to 5% uplift in RWAs next year. So, I don't know how that compares with consensus, but broadly that's what's in our head at the moment.

Okay, thank you.

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

Hi Manus.

Hi Noel. Good morning. My turn to come back on the point on costs please. I just wanted to understand more, how it will evolve going forward, because from what you're saying it sounds as if to the extent that revenues are being led by areas like wealth markets that will drive potentially higher variable compensation and therefore higher expenses than you've been guiding for. But am I right to say if revenue growth hands off to more balance sheet led type NII in commercial banking, we wouldn't see that.

Yes look Manus, it is always going to be a mix of our internal metrics of what we think we can afford based on the profitability degree, but we can never be uncognizant of what's going on in the market. So if we are seeing competitive pressure in areas like major wealth, and investment banking more broadly, we have to be in a position to respond to those competitive pressures, but I think your statement is right, to the extent that what we see is a rebalancing of profitability being driven out of the commercial bank and the retail bank, that won't necessarily drive the same competitive pressure on performance pay.

And Manus still serious thing I'd say is, when we talked about our future growth plans in February, we assumed a growth in revenue coming, in tracking back to 10% ROCE plus. We had a rebound in ECLs. We had further performance on cost take out [ph] and we had a reboot of revenue from a rebooted economy and incremental activity that we're investing in. So we had assumed revenue growth going forward in 2021 and 2022 and beyond and therefore we had assumed a growth in profit, and therefore we had assumed the growth in variable pay to match that path. And that was all inherent in the cost statements we made back in February. So, we have put into our future forecast a growth in VP to match the growth in the P&L that we expect to see. And what I think you saw in Q1 is a particularly strong performance in Q1 was over and above that underlying curve, that gets us to that 10% ROCE. Now, if the performance continues in future quarters, then maybe that assumes growth in VP will be higher in the future than was in that original assumption, but so too would be the PBT and so would be the revenue. So I don't assume there isn't a growth in VP inherent in the plans that underpinned the journey to a 10% ROCE. Does that make sense?

It does, yes. Thank you. Thank you very much.

Thank you. Your next question comes from the line of [indiscernible] from Citigroup. Please go ahead. Your line is open.

Thank you for the question. I have a question related to the top line really trying to understand the beat of noninterest income. If you take wealth it is particularly strong on the slide 4 you mentioned that the net new money for private banking you see a very strong growth in this quarter as well, just trying to separate some of the internal changes, as well as growth that you have done from a sustainable basis from these more volatile market trends, would you be able to give us some more detailed guidance in terms of how much wealth related revenue growth you are expecting for this year and probably for the coming years based on your internal planning? Thank you.

Yes it was hard to hear you, but I think what you were looking for was more of an indication of where the growth in wealth is coming from. And let me also be clear, we started that journey of investing in our wealth businesses last year and that was investing in a build out of our product capability to make sure we had good product capability on the shelf in Asia and an investment in distribution. So we launched the Pinnacle initiative in China as an example. But we were also investing in private banking, in our insurance business. We were investing in both physical manpower to drive that growth and wealth managers, but we're also investing in digital infrastructure. So our insurance business in Hong Kong particularly launched a lot of new initiatives last year, new products, digital base, supported by extra sales people, and that's what's been driving the growth of our wealth revenues in Asia. It's not just market sentiment or market valuations that are driving that growth. It's actual underlying growth that is coming through. Now we still have more to do. We recruited an extra 600 wealth managers in Asia in the first quarter alone, 100 of those in China, as part of an expansion of our pinnacle opportunities. The conversion where are we getting the business? How are we sourcing that wealth opportunity? Well I'm pleased to say we're sourcing a lot of it from our existing client base. Around about 60% of the net new money that goes into our private bank comes from commercial banking clients, and global banking clients. The owners of those businesses are putting their personal wealth with us. The same is true of asset management. Around 75% of the net new money for asset management is coming from internal HSBC clients. So it's true organic growth at an underlying level, not just growth in assets as a consequence of market revaluation of those assets. There is an element to that in Q1 as markets revalued, but there's a lot of it coming from underlying growth.

Thank you. Would it be possible to give us some guidance in terms of the wealth revenue growth outlook into percentage [indiscernible]?

We talked about our revenue growth outlook in February. We're assuming, for Asian wealth we're assuming close to double-digit growth in assets, as we said in February, and mid single digit growth in other regions outside of Asia. And that would result in probably Asia wealth revenues to grow at around about 10% CAGR over the next few years.

Thank you.

And if I remember correctly, I think if you look at market sentiment and markets that you're probably looking at the underlying market in Asia probably growing, 6%, 7%, 8%. So we're trying to outperform the market by the organic investment program that we are putting in place.

Okay, thank you.

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

Hi Raul.

Good morning. Thanks so much for taking my questions. The first one is just on loan book, loan demand. I was trying to understand a couple of points. Firstly, how sustainable do you think this current activity spike in UK mortgage market is? Obviously, you along with all the UK banks have benefited from very strong mortgage pipelines and pricing. So just wondering, tying that into your overall comments on loan demand as to what you are assuming happens to that for the rest of the year? And then just related to that, I suspect there's an element of pent up demand in other areas of loans in the UK as well as probably across your footprint as well. So, to balance that out if you could talk a little bit about where you see pent up demand in loan growth?

Yes. Let me deal with the consumer book first, the retail banking business first. I think in the UK, it is true that there is strong activity at the moment. There will undoubtedly be an element of that which is driven by [indiscernible] holidays that were put in place that are likely to come to an end shortly. But I also believe there is some structural changes taking place in the UK. In the housing market in the UK I think will remain active for quite a period of time as the housing stock is continued to be built out. So, I think there's an underlying growth curve there and there is a potential temporary growth curve as a consequence of the stamp duty holiday. I think we'll see a pickup in activity in all consumer lending, unsecured lending and credit card activity in the second half of the year, not just in the UK but across the world. If you just take our own balance sheet, we grew last year our deposit balances by around about $170 billion last year. Now an element of that $170 billion will turn into cash spend by consumers and businesses in the second half of this year, we already started, but will continue to pick up. So I think you're going to see traditional unsecured lending in credit card activity be an increase in the second half of this year. Hong Kong remains strong demand on mortgage growth and we're pleased on that. More broadly into the wholesale business, what I saw at the end of last year, particularly in Q4, was a lot of activity from corporate borrowers seeking facility renewals or facility extensions to get their balance sheet ready for the upturn in the economy, as they started to see vaccines come on stream, but I didn't see that translate into loan draw-downs in Q4 of last year. I have started to see that take place in Q1 of this year. So, for example, the trade balance sheet in Asia grew by $3 billion in the first quarter of this year. You know that's an indication of underlying economic growth. If the vaccine programs continue as they currently are, you could assume that trend will continue and could well pick up, and then more generally, there was starting to see a drawdown in those facilities that were negotiated at the end of last year taking place in Q1. So overall, our commercial banking balance sheet grew by $2 billion in Q1 of this year and our personal banking loan book grew as well. I think it's early stage of growth and I could expect the trend to pick up as over the next three quarters.

Thanks very much, that's really helpful. I was wondering if I can have one more on capital, just a very quick clarification. I was wondering if you have any further thoughts on the stress testing timeline this year, and if there's any scope for regulatory restrictions in the UK to come off earlier for yourselves?

Well, I mean, I think you know that there's a sort of current mini stress test being done by the Bank of England and the PRA and that was in the absence of them having done annual cyclical scenario at the back end of last year. As we sit here today, I guess we're not expecting any surprises out of that given, we've been extensively stress testing our books through the pandemic and in recent months, obviously outlook has improved. So we're not expecting the Bank of England at this point to be -- we're expecting us to be the driver of our distribution policy, I guess is a better way of describing it.

Got it. Thank you.

Thank you. We will now take our last question and the question comes from the line of Martin Leitgeb from Goldman Sachs. Please go ahead. Your line is open.

Hi Martin.

Hi Martin.

Hi gentlemen. Thank you for taking my question. I just had a follow up on the earlier comment on margin outlook from here and I was just wondering if you could maybe shed a little bit of light on how we should think of minimum progression here for the main business line, so [indiscernible] bucks Hong Kong, Shanghai Banking Corporation, and in particular the UK [indiscernible] Bank. I was just wondering if it's fair to assume that the bad corporate cut impact has been offset through in Hong Kong and from here we should see stability, and if anything at some point some [indiscernible] and if anything, there is some of the remaining margin pressures coming through from structural hedge rollover in particular in the UK. And I was just wondering, should we assume margins to remain broadly flat in terms of long [indiscernible] level what we have seen, or it is your guidance. I think you said earlier that going to NI's is broadly representative of the full year. If I understood right does that imply that combined with long growth you would expect some sort of margin compression heading into 2021 And then just a follow up on capital, I was just wondering if you could update us on how much progress you have made in addressing capital inefficiencies within the Group. Whether you could let us know how big the principal investment book is at this stage and what portion of transfers into Asia has occurred so far? Thank you.

Yes, on the NIM question, I mean, you know Martin that not all of our interest rate sensitivity is in the first year. I mean there was a degree, we've talked about previously about $1 billion of interest rate pressure coming from lower REITs into 2021, and then obviously highball did drop meaningfully in the first quarter, has remained broadly stable in the second quarter at the levels of the first quarter so far. And we do think, yes we are getting towards the trough of NIM pressure, but it would be a big call to say that Q1 was the trough. I still think there will be an element of pressure into the second quarter and then obviously volume growth, then provides us confidence that the impact on net interest income is negligible. The other thing I would say about the growth that will be back end loaded as we go progressively through the year and as confidence builds during the year, and therefore, you won't get as much of that benefit into 2021, but you will get all of that benefit into 2022. So I talked about earlier, assuming that the Q1 net interest income was a good guide to the annualized net interest income for the full year. But you should take away from that therefore that we are confident about decent net interest income growth into 2022. On Hong Kong most of the impact of [indiscernible] has translated into our books within three months, so equally the reverse is true. If we were to get back to a better short term high brokers [ph], we would see that very rapidly translate into improved net interest income in Hong Kong and so I didn't quite catch the second question.

Yes, I was just wondering on capital inefficiencies. So previously you spoke about [indiscernible]?

Yes, I think we were talking about the multi-year program of work, yes we've got, for example, probably $5 billion plus of excess capital in the U.S., that will come out we expect over several seek out [ph] cycles. As far as capital optimization opportunities that we're working on in Asia, which will take a few years to affect. So I would say it's a sort of multi-year program of work. We know what their program of work is and we're just aggressively working on it and some of it is driven by sort of ongoing discussions with regulators. And I think the confidence in regulators to see capital release coming out of places will obviously improve as we see a stronger path out of COVID.

Very key effect. Thank you very much.

Thank you. I will now hand the call back over to Noel for any closing remarks.

Thanks, Sharon. So to summarize, we've had a good start to the year, with good business growth and an improved lending pipeline moving into the rest of 2021. We're making good progress on our growth and transformation plans and remain on track to deliver what we promised in February. We remain absolutely committed to our cost transformation plans. We are feeling more optimistic about the rest of the year than we did in February, but we remain cautious around the uncertainties that remain. If you have any further questions, please do pick them up with Richard and the team. Thank you once again for joining us today.

Thank you, ladies and gentlemen. That concludes the call for the HSBC Holdings PLC's earnings release for the first quarter 2021. You may now disconnect.