Good morning, ladies and gentlemen, and welcome to the investor and analyst conference call for HSBC Holdings plc's Q1 2023 results. For your information, this conference is being recorded. At this time, I will hand the call over to Mr. Richard O'Connor, Group Head of Investor Relations. Richard O'Connor: Good morning, good afternoon, everyone. Before I hand over to Noel, I want to give a quick reminder of the changes that have taken effect this quarter. Numbers in the presentation today are on IFRS 17 basis, and thank you to all those who attended the in March. Our focus is now on reported numbers but we will call out and specify notable items. Our global businesses are still the primary basis of our reporting, but we have moved to legal entity rather than geographic regions as our secondary reporting line. Consensus hasn't yet fully caught up with all these changes, but now we've made them, we believe they will give you more clarity, transparency and ultimately benefit your modeling going forward. Noel over to you.

Thanks, Richard, and good morning in London, good afternoon in Hong Kong, and thank you for joining our first quarter results call. Georges is going to lead the presentation, but I'd like to make some opening comments. We've announced a strong set of Q1 results. We delivered a strong profit performance, which was spread across all our major geographies. All 3 global businesses performed well and cost discipline remained tight. In the first quarter, excluding the gain on SVB U.K. and the part reversal of the impairments on the potential sale of our French retail bank, we delivered an annualized return on tangible equity of 19.3%, so our strategy is working. I'm also confident about the future for 2 main reasons: First, we have built a good platform for growth. We have a strong balance sheet, broad-based geographic profit generation, a good combination of net interest income and non-net interest income and a tight grip on costs. This growth potential was evidenced in the inflow of new invested assets of $22 billion in the quarter with a cumulative $93 billion over the last 12 months, which shows that our wealth strategy is continuing to gain traction. And you have my commitment that we will continue to drive strong performance for the rest of the year, while maintaining cost discipline and investing in growth. The second reason I'm confident is the diversity and connectivity of our geographical footprint, where we have access to markets that are exhibiting good growth and return potential. I've seen firsthand the strong economic recoveries underway in Hong Kong and Mainland China. I've also visited the Middle East recently, where I saw strong economy that is well placed to continue to grow. And the U.K. economy is also showing good resilience, and our HSBC U.K. business is performing well. Investing in growth is critical, and we saw an opportunity to do that by acquiring SVB U.K. For 158 years, HSBC has banked the entrepreneurs who have created today's industrial base. With the SVB U.K. acquisition, we have access to more of the entrepreneurs in the technology and life sciences sectors who will create the businesses of tomorrow. We believe they are a natural fit for HSBC and that we're well and uniquely placed to take them global. You will have seen the recent hires that we've taken on in the U.S. in that regard and we continue -- and we're going to continue to invest to grow this part of the business on a global basis. We announced that the sale of our French retail bank has become less certain due to significant interest rate rises in France and the related fair value treatment impacting the capital position of the purchaser. We still believe it's right to sell the business, but we also have to keep our shareholders' interest in mind when negotiating revised terms. We are working with the buyer to try and find a solution for the uncertainty on deal terms and timing has led us to reverse the impairment. Finally, we made 2 important announcements today. The first was the resumption of quarterly dividends with an interim dividend of $0.10 per share, which is the same level as the last time we paid a first quarterly dividend before COVID. The second was that good, continued capital generation enabled us to announce the share buyback of up to $2 billion. Our AGM on Friday will be an important milestone. As you know, resolutions have been tabled by shareholders on the strategy and structure of the bank as well as to fix the dividends. The Board has recommended that shareholders vote against Resolution 17 and 18. I believe our first quarter results reinforce our recommendations and demonstrate that our current strategy is the fastest and safest way to improve returns. I'll now hand over to Georges to take you through the numbers.

Thank you, Noel, and a warm welcome to all of you. Thank you for being with us on this call today. Let me begin with the first quarter highlights. Profit before tax was $12.9 billion, up $9 billion in the first quarter of 2022 on a constant currency basis. This was driven by an $8.6 billion increase in revenue, which includes $2.1 billion from the reversal of the impairment relating to the potential sale of our retail banking operations and plants and a $1.5 billion provisional gain on the acquisition of SVB U.K. Credit performance was benign with expected credit losses of $0.4 billion. Costs were up 2% in the first quarter against our 2023 target of limiting cost growth to circa 3% on a constant currency basis, and excluding notable items and hyperinflation. Our annualized return on tangible equity was 27.4%, or 19.3%, excluding the gain on SVB U.K. and the part reversal of the impairment on the potential sale of our French retail bank. And as Noel said, we're providing strong capital returns in the form of the first quarter dividend since 2019 of $0.10 per share and a share buyback of up to $2 billion, which we expect to start after the AGM and complete in around 3 months. Going into more detail. Net interest income of $9 billion was up $2.9 billion or 47% on the first quarter of 2022 and was stable on the fourth quarter on an IFRS 17 basis. Non net interest income of $11.2 billion was up $5.7 billion, which includes $3.6 of notable items in the first quarter and was driven by strong performances in Markets & Security Services and in [indiscernible]. Lending balances increased by $32 billion in the quarter on a constant currency basis. This was made up of $25 billion from the reclassification of balances associated with our retail banking operations in France and $7.3 billion from SVB U.K. Deposits also increased in the quarter due to the same factors. If we excluded these items, lending and deposits were both stable. The tax charge of $1.9 billion included a credit of $0.4 billion. And the CET1 ratio was 14.7%, which was an increase of 50 basis points on the fourth quarter and included a 30 basis point gain relating to the part reversal of the France impairment and the SVB U.K. acquisition. As Noel said, all of our global businesses performed well. This slide gives you the evidence for that. Wealth and Personal Banking had a strong quarter with revenues up 82%. Within this, Wealth was up 13%, driven by the economic resurgence in Asia and increasing traction from the investment we've made in digitization and in people. Personal Banking also had another good quarter, up 64%, benefiting from our strong deposit franchise. Across both Commercial Banking and Global Banking and Markets, the Global Payment Services had revenues of $4 billion, which was an increase of 176% on the first quarter of 2022. Global Banking and Markets also performed well overall. Markets & Securities Services revenue, in particular, were up 12%, with a strong performance in foreign exchange. Reported net interest income was $9 billion, which included $1.4 billion of interest expense due to the funding costs booked in Corporate Center to fund the trading . This was offset by $1.4 billion of non-net interest income reported in Corporate Center. On a reported basis, the net interest margin was up by 50 basis points on the first quarter of last year and up by 1 basis point on the fourth quarter. For the avoidance of doubt, our net interest income guidance is unchanged from our 2022 full year results. On an IFRS 17 basis, we expect to achieve net interest income of at least $34 billion in 2023. This is equivalent to at least $36 billion of net interest income on an IFRS 4 basis, which was what we told you in February. Our current view is that the things we told you about net interest income at our 2022 full year results remain unchanged. Non-net interest income of $11.2 billion was up substantially by $5.7 billion, which was a combination of, one, $3.6 billion of notable items in the first quarter; two, Global Banking and Markets trading income increase of $0.4 billion; three, a $1.3 billion increase in corporate center income for funding Global Banking and Markets trading activity; and four, other income, which grew by $0.2 billion and included higher wealth revenues. Fees were broadly stable compared to the first quarter of 2022 with a good payment fee performance, partially offset by lower wealth fees. However, net new invested assets in the quarter were $22 billion and $93 billion for the last 12 months, which bodes well for future growth. I called out the global business revenue highlights earlier, and there is a detailed non-net interest income breakdown on Slide 17. Our credit performance in the quarter was benign with a $0.4 billion charge for expected credit losses, which was $0.2 billion lower than the first quarter last year. This reflected a favorable shift in the probability weightings of economic downside scenarios as well as low Stage 3 losses. China CRE was also benign with the small charge relating to technical adjustments to 2 customers. We saw no China CRE default in the quarter for the first time since the fourth quarter of 2021, though there were also limited repayments. We are encouraged by the first quarter, but there are still downside risks. So our 2023 guidance remains unchanged at the of around basis points of average gross customer lending, including held-for-sale balances. We will review this at our interim results. On a constant currency basis and excluding notable items, costs were up by 2% in the first quarter once we also exclude the impact of retranslating prior year costs in hyperinflationary economies at constant currency. As you can see, most of the spend was on technology. We remain committed to limiting cost growth to approximately 3% in 2023 on that basis. As I shared at the year-end, one of my top priorities is cost discipline. Equally, I also shared that a number of my top priorities is to support our businesses to deliver growth and returns. The acquisition of SVB U.K. was an opportunity to do that. This is expected to result in incremental cost growth of circa 1% to group operating expenses, the majority of which is the acquired cost base of SVB U.K., together with some additional investment in the U.K. and other geographies. This will be in addition to our 2023 target of limiting cost growth to circa 3%. Finally, at year end, we also flagged $300 million of expected severance costs this year. A large portion of the severance costs are now expected to be incurred in the second quarter with the cost benefits starting to come through in the second half of this year. Moving on, we usually include information on customer deposits in the appendix, but we have moved it up to the presentation this time because we appreciate the current interest. Overall, customer deposits are stable year-on-year and quarter-on-quarter. Of the $1.6 trillion of deposits we hold, half are invested in high-quality liquid assets which gives you a sense of our strong liquidity position. This is a historic feature of the way that HSBC manages its balance sheet, and it has not changed. Around 40% of our high-quality liquid assets are held in cash or cash equivalents. And there are only around $1.4 billion of unrealized losses in our held-to-collect portfolio, which is down from around $1.9 billion at the end of 2022. Three main points on capital. One, our CET1 ratio was 14.7%, up 50 basis points on the previous quarter, 25 basis points of which was from the reclassification of our French retail business from [indiscernible]. Pending the outcome of negotiations for our French retail bank, there would be a commensurate reduction to CET1 in the event that the deal closes. Number two, as you know, our business in Canada remains classified as hold for sale and we now expect the transaction to complete in the first quarter of 2024 as we work with the purchaser to ensure a smooth transition. We continue to expect to pay the potential special dividend of $0.21 per share in the first half of 2024. And as previously indicated, we expect almost all excess capital from the Canada transaction accruing into CET1 to be returned to shareholders, primarily through a rolling series of share buybacks in '24 and '25 that would be incremental to any existing buyback program at that time. Number three, share buybacks remain an active part of our capital management plans. We will update you on our assumptions for share buybacks in 2023 and beyond at our interim results. So in summary, this was a strong quarter. There was a strong profit performance. Net interest income was stable. Strict cost discipline was maintained, which I told you would remain a key focus area for myself and the management team. Our credit performance was benign amid a more positive economic outlook. We are starting to see the impact of strong economic rebound in Hong Kong and Mainland China, and our wealth strategy is gaining traction. And I am pleased there were strong capital returns a quarterly dividend of $0.10 per share and a share buyback of up to $2 billion, which we expect to start after the AGM and complete in around 3 months. As Noel said, we are clearly on track to meet our returns target for 2023 onwards. And this upward trajectory would give us substantial distribution capacity including, of course, the potential proceeds from the Canada transaction. With that, operator, can we please open it up for questions. Thank you.

[Operator Instructions]. Our first question today comes from Joseph Dickerson with Jefferies.

Congrats on a good set of numbers in what wasn't the easiest environment in Q1. Just a quick question on the buyback. You've been very precise in discussing that you would expect to complete the buyback over 3 months. Is this something now we can expect to be a regular quarterly event given the strong capital generation not to mention Canada completing early next year? Or is it going to be slightly more erratic?

Thank you for your question. I'll ask Georges to answer that. Thank you.

Thank you, Joe. Yes, indeed, so first, we are hoping to achieve $2 billion in the next 3 months. In the past, we've managed to achieve between $1 billion and $1.5 billion in the quarter. Obviously, we have 5 months to complete this program. We are hoping to complete it in 3 months. Going forward, we're certainly considering a rolling series of buybacks in '23, '24, '25. Those will be supported by organic capital generation as well as the Canada sale proceeds in '24. And Joe, it remains our intention to return excess capital, including the Canada proceeds if the conditions justify. Richard O'Connor: Next question please.

Our next question today comes from Raul Sinha with JPMorgan.

Maybe just to follow up on that capital return question firstly and then I put another one on asset equality. When we look at your headline capital ratio, obviously, it is very strong and quite a significant pickup over the last couple of quarters in particular. I guess there are a few adjusting items in there, should we kind of exclude the French disposal, let's say, reversal from the headline ratio? And I guess if you exclude the share buyback, we kind of get back in your range towards the lower end. So I guess the question is how much RWA growth you anticipate the business to require over the next sort of 12 months and linking to the -- to your loan growth outlook, I was just wondering if you could give us some color on RWA growth expectations there. And that hopefully gives us a good idea of how much buybacks we can expect. The second one, again, related to how much capital you might be able to generate in the remaining part of the year. your guidance on asset quality still implies quite a significant tick up in provisions given your very strong performance in Q1. So I guess the question really is, are you guiding us to something specific in terms of the 40 basis point provision charge? Or is that just an element of conservatism built in to your guidance there?

Georges, do you want to take both of those? I can always add something to the asset quality later, but you take both first.

Sure, Noel. Thank you, Raul. So on your first question, Raul, I think it is prudent to adjust for the French part reversal of the impairment. And so far that capital is concerned. As indicated, if we do reach a transaction, there is a likelihood of a commensurate kind of capital reduction taking place. Now just to remind you, our capital target operating range is 14% to 14.5%, and we expect this to be reviewed slightly lower in the medium to long term. And as we do our capital return projections or our share buyback projections, we look at our medium-term capital outlook and compare it to that range. And this is -- obviously cautiously compared to that range. And this is what's giving us now the flexibility to announce the share buyback and to consider additional buybacks going forward. As regards RWA growth in line with loan growth, it has been subdued in the first quarter. It may remain subdued for another quarter. We may see some pickup, particularly with the Hong Kong and China bounce back. But again, for this year, we have not given guidance on loan growth, recognizing some of the economic conditions. We do remain committed for medium term or mid-single-digit growth in loans for the medium term, which is what you can factor in for RWA growth commensurately and equally for our share buyback. If I move on to your next question with regards to asset quality. I would lean towards your latter comment, Joe sorry, Raul, that we are baking in some conservatism or we think at this stage, the full year guidance, which we have retained unchanged from February is now leaning towards conservative. Just want to highlight some tailwinds, the -- certainly, the situation in the U.K., the possibility that we make recession is a tailwind. Equally, the recovery in Hong Kong and Mainland China following the opening up of the borders and resumption of activities and trade is a tailwind. But at the same time -- and obviously, the China real estate has shown some positive signs, both from the economic standpoint as well as from the policy measures, but at the same time, we wanted to remain cautious. There are a number of refinancing taking place in Q3 and the China real estate -- commercial real estate portfolio, which we would like to stay cautious on and we continue to watch some of the U.K. SME space, in particular, those heavily reliant on discretionary consumer spend before we revisit the guidance. We intend to revisit this guidance at the H1.

Just one additional comment from me, please, if I can. You'll notice on the capital schedule, I can't remember what slide it was, but there's a capital walk on CET1. And in there, you'll see that we've accrued dividends at 50% of the profit generation in Q1. And if you do the math on that, the accrual on dividend is higher than the $0.10 that you've got in the Q1 declared interim dividend. So we're accruing capital distribution at a higher rate -- dividend distribution on a higher rate than the payment of the $0.10. So that's just factored into our CET1 ratio as well. Richard O'Connor: Next question please.

And the next question today comes from Manus Costello with Autonomous.

A couple, please. On that slide, you were talking about all about the RWA walk. I noticed that the risk-weighted assets from Silicon Valley just short of $10 million, which seems quite high relative to the loans that you've taken on. I wondered if you could share with us what the nature of those assets is and give us some indication about asset quality within the Silicon Valley Bank acquisition from what you've seen so far? And then secondly, with the thought to the structure of the group, you've obviously showed some willingness to make some acquisitions recently and indeed do some disposals where possible. I just wondered if there will be any interest in further moves. In particular, I'm wondering if there would be anything around some of your businesses, such as insurance manufacturing, which you might think about being going forward?

Thank you. Thanks, Manus. Just on the asset quality of the -- everything that we've seen since we bought the business, I don't know, lost track of time must be about 6, 7 weeks ago now. It's been a busy quarter. Everything we've seen reinforces the view that we had on that weekend when we did due diligence. The book was a good quality book. We've seen no nasty surprises. We did do a bit of mark-to-market on acquisition [indiscernible] but that was -- we were -- that was evident to us when we did due diligence that weekend. Georges can give you a little bit more detail on that. But fundamentally, the asset quality of the SVB book is as we expected it. The team have done a good job in building that business over the past 14 years. They've got good client relations, good quality book and good business development potential. And on the back of that, we decided to invest in putting more people on the ground in some of the key markets around the world that have strong technology and life science centers to take that business model not just to the U.K., but take it globally. So we're investing in that as well. So [indiscernible] surprises on that and then in terms of other acquisitions that we may consider or M&A activity, I mean, I think the insurance business is a key component of the wealth proposition that we have. We have a very profitable insurance business in Hong Kong. It's a combination of manufacturing and distribution. The team has done a good job in building out the product lineup in Hong Kong over the past few years to put us back into a market-leading position in Hong Kong, and we get access to the full value chain. One of the challenges we've often faced in the past is getting full recognition of that value as a bank shareholder in an asset -- in an insurance manufacturing business. But you can rest assured the economics of that business are very strong and we've got a market-leading position. So we obviously, like all businesses, keep the strategy under review. And if we think there's a better position to take, we'll take it. But at the moment, we're pleased with the way the insurance business is performing. Georges, was there anything else you wanted to add.

Maybe just getting some of the math. So we acquired a loan book that is just shy of GBP 6 billion. That's about $8 billion. We've acquired $10 billion of RWA. So if you consider those loans and some of the additional RWAs on treasury books, operation risk, et cetera. You kind of land on these numbers, and Manus, we also acquired $1.5 billion of capital after the fair value adjustment. So you're talking about effectively a 15% CET1 ratio business that we acquired. So we think it is where it should be.

And our next question comes from Omar Keenan with Credit Suisse.

I just had a quick question on rate sensitivity. And if I look at your rate sensitivity, at the end of '22, it looks like you've been quite purposefully bringing down your rate sensitivity on the year 1 view. And I was hoping you could perhaps give us a little bit of color of the direction that sensitivity over 1 year has changed in the first couple of months of the year. Can we assume that some of the structural hedges have been further increased and when we see the sensitivity of the , it might have reduced further. Any kind of color with that respect would be really helpful.

Georges, do you want to answer that?

Sure. Thank you, Omar. So we -- at the end of 2022, the rate sensitivity on the downside 100 basis point scenario was reduced from around $6 billion at the half year to around $4 billion. The -- that $2 billion reduction for the NII sensitivity reduction for 100 basis points is for about 1/3 of it justified by the structural hedges that we started putting in place or that we continue putting in place as of last year and 2/3 of it is due to the fact that we are at just higher level of rates and therefore, we have less convexity -- negative complexity on the downside. If you look into Q1, we have not published a revised rate sensitivity but we continued the trajectory of our structural hedges. Now just as a reminder, structural hedges will reduce somewhat our rate sensitivity. And our target is to take that $4 billion in the medium term to circa $3 billion. Well -- and we are on that journey. We certainly have not arrived there. We'll be giving you an update at H1. Omar, I think I've addressed your points. Richard O'Connor: Next question please.

The next question is from Perlie Mong with KBW.

I've got two questions. The first one is, obviously, the [indiscernible] was very strong and a lot of it comes from noninterest income. And it appears that a lot of this is from commercial banking and maybe some from global banking and markets. How much of that do you think is sustainable? Presumably, you wouldn't encourage us to analyze the whole lot. So how much of that do you think is sustainable? And secondly is, I guess, on the AGM on Friday, so I guess a lot of the attention on Friday will be around the debate you are having with and they obviously recently published an announcement that made some , especially around your cost income ratio and ROTE. Well, you've obviously pointed very strong numbers today. But in some ways, we have guided to a lot of it already, especially around cost. And I'm sure you've also been communicating with them anyway. So why do you think those critics were still made?

Okay. I'll deal with the second one later. I'll ask Georges to deal with the non-NII first, if that's okay.

Sure. So we expecting many of you will adjust your full year numbers to reflect our Q1 outperformance and that's a fair assessment Perlie. But I would caution you not to annualize Q1, so if I just unpack it, the non-NII relating to the funding of our trading activities, $1.4 billion is fairly reasonable to assume this number will annualize. The went business, obviously, with the outlook improving in wealth fairly reasonable to assume we will see regain traction and bounce back, in particular, in Hong Kong, whereas some of the other activities such as the foreign exchange trading outperformance. I would caution you not to annualize this number and just to bake it in as a Q1 outcome and then Q2, Q3, we'll see how they .

So just on the -- and on the wealth performance, you said most of the non-NII was CMB and GB&M. I think it's also fair to say that in WPB, the wealth business performed well in Q1. Average revenue was up 13% in Q1 relative to Q1 last year. So I think what Georges is saying is, I think we've seen a recovery taking place in that wealth revenue. We're not expecting that to just be a Q1 phenomenon. That is something that will continue in Q2 and Q3 and Q4, but it's still early days to predict whether the 13% is an annual number or it's higher than that or lower than that. So -- but we don't expect it to disappear in Q2, Q3 or Q4. So there should be a level of annualization on that as well in the WPB-non-NII line. With respect to the AGM comment, look, I think we've said for a while that we believe the safest and fastest way to achieve higher returns, better performance, better dividends and capital generation was the existing strategy. I think the Q1 results provides a lot of evidence that, that is the fact that, that is the best way. We guided the market over the last 12 months to a 12%-plus ROTE. I did emphasize at the year-end that we should focus on the plus, not the 12. And I think you see even excluding the notable items, we've done a ROTE of 19.3%. I would just draw attention to the fact that in that ROTE of $19.3 million, there is a tax credit, and Georges can probably cover that as well. That tax credit is not something that will repeat every quarter. But even if you adjust for that, it's still a very healthy return on tangible equity. So I think it's in the -- what we're focused on is driving performance on behalf of all our shareholders, and we believe doing what we've done is the best way to get improved returns, improve performance rather than some more radical corporate restructuring action. So we believe Q1 is strong evidence of that. But Georges, you just want to clarify the tax situation.

So then we've basically shown $1.9 billion as a tax charge, which is an effective tax rate of 14%, but I just want to caution you that 3.3% relate to the provisional gain on SVB, which is a nontaxable item. and another 3.3% related to the release of provisions for uncertain tax provisions, which is also a one-off item; so therefore, if you adjusted for those 2, we still expect a 20% ETR guidance for the rest of the year.

The next question comes from Andrew Coombs with Citi.

One strategic question and then 1 question. On the strategic question, if the proposed French retail sale no longer goes ahead, what would be the plan? Would you put it back on the block again? Or would there be a plan to reabsorb it into the broader HSBC Group [indiscernible] you can sell on planned for France, given that sale process and where it's got to. Secondly, on cost, you've acted a very good cost print this quarter, you're down 2% year-on-year on a constant currency basis, and yet you're still guiding to 3% cost growth or 4% with SVB U.K. So is this a timing issue? Is it a case of the wage inflation come through from Q2? Anything you can elaborate there?

Two good questions, and Georges will cover the second one. I'll cover the first one. I think, listen, we still believe that a sale of the French retail business is the right strategic outcome that business probably has a stronger future in another hands. However, we have been in discussions for a few weeks now with the current buyer to try and overcome the challenge they have on their acquisition accounting impact on their capital base. We'll continue that dialogue. We're hoping we can reach a mutually agreeable settlement with them on that, but we can't be guaranteed of that outcome. We have to consider what is financially the right decision for all shareholders, and it's hopeful that we can reach an agreement, but it's not guaranteed. In the event we can't, then I still think we'll continue to run the business, but I still think over time, we wouldn't see that as a long-term strategic hold, but we'll have to wait and see what happens thereafter. We're very much focused on trying to reach an agreement with the current buyer to bring that transaction to a close. So that's the update I have for you. On costs, I'll hand over to Georges.

Sure. Thank you, Noel, and thank you, Andrew, for the question. So our reported costs on a constant currency basis is down 2% Q1 last year to Q1 this year. If you adjust for notables, and remember, last year Q1, we had $450 million of additional cost due to the CTA program. So if you extract that notable item from last year's base, our reported cost adjusted for notable will show us up 2% Q1 to Q1. This is the basis on which we're measuring ourselves for this year. And it's on that basis where we would -- we are targeting to achieve a 3% annualized number, where we -- our quarter 1 basically is coming in at 2%. Now why from 2 to 3, I just want to highlight a few things. The first one is we still haven't incurred by and large, the severance costs, which we announced at the year-end and now we expect to incur the majority of it in Q2 this year. And the second element, just to highlight is that some of the pay increases have only been factored partially in Q1, starting March and we'll start kind of being fully factored in from Q2 onwards. And this is why our 3% target for the full year is where it is. And as you said, Andrew, and just for avoidance of any doubt here, the acquired cost of SVB and some of the additional investments we need to do there will add another 1% to that 3% target.

So just a couple of additional comments for me. We -- on the -- that reconciliation between the headline reporting number and the cost target, what we're trying to do is be very straightforward and not try and bake in what as a CTA last year to this year. So we're adjusting down the prior year reported number for the notable CTA last year. So that the cost target of 3% is on an apples-and-apples basis with the cost base of this year. So we're not looking to take an easy option on that. We think it's the right thing to do, but as we say, we're 2% against the 3% target in Q1. And then on SVB, I just want to clarify as well, the SVB business we bought, we acquired a cost base with that, and we acquired a revenue stream and that revenue stream was in excess of the cost base. So we've acquired a positive P&L that was contributing, if I remember correctly, around about $80 million to $90 million of , so although we've acquired 300 -- sorry, we acquired the majority of the $300 million is the acquired cost base of SVB. It is a profitable cost base.

Andy, just to finish off, we provided the reconciliation on Slide 30 to show you the walk from reported cost to our cost target, and we will be showing this slide every quarter.

Next question comes from Guy Stebbings with BNP Paribas Exane.

One on interest margin and one back on SVB. So on NIM, I guess the U.K. bank did quite a lot of heavy lift in this quarter, allowing for 1 basis point of sequential growth. As we look ahead, perhaps that tailwind , at least in quantum. So is that going to make it tricky from here to deliver NIM sustainability? Or is the drop in HBAP and the headwind from deposit mix, in particular, likely to fade in your view to allow for some sort of stable NIM backdrop? And then the second question on SVB. In addition to the acquired cost base, you flagged incremental investment spend and plans to build the business outside the U.K. So could you talk about sort of associated revenue ambitions and what sort of time frame you expect to see notable uplift there. I mean sort of how big a shift in that $80 million to $90 million PBT reference, could we see of SVBs and HSBC with that incremental investment?

Okay. I'll take the second in a moment. I'll ask Georges to go on the NIM, please, and U.K. ring-fenced bank.

Sure. Thanks, No. Thanks, Guy. So indeed, you did call out the headwinds -- the possibility of headwinds in the U.K. Obviously, there may be still 1 or 2 rate hikes for which we will be passing most of that to customers through [indiscernible] rate. And we do see continued headwinds in Hong Kong with around 1% per month migration into term deposit with the mix now at 25% term deposits across both our entities in Hong Kong. This being said, we also have tailwinds. The first one is we still have a strong momentum from Q1, which we're carrying over. The second tailwind is HIBOR normalization. I mean, just for reference, in Hong Kong, HIBOR and exchange fund bill rates in Q1 were 65 and 35 basis points lower on average than where they were in Q4, and that was a major headwind for us in Q1. We are seeing now over the last few weeks, we have been seeing normalization in those rates. If we continue to see normalization and just for a reminder, we have about 200 basis points of their equivalent rates in dollars. If we continue to see normalization, this will provide us material tailwinds in the Hong Kong base. And the other tailwind is our resilient deposit and loan base, we continue having stable deposits and loans despite the -- some of the competitive pressures, and we continue to aim for mid-single-digit growth in both in the medium term, which should give us some supportive tailwinds.

So just to reinforce what we said at the full year results in February, we said to -- we noted the guidance that was in existence when we reported in February, and we said we were more uncomfortable -- sorry, with the consensus that we noted the consensus that was in existence in February. And we said we were not uncomfortable with where consensus was. We still have that view. The only adjustment you need to make to NII is for the IFRS 17 adjustment. Everything else remains as we said in February, the guidance that existed at that point in time, we were not uncomfortable with it. The same is true today, just adjust for IFRS 17, which is around about a $2 billion adjustment from IFRS 4 to IFRS 17. That's the only change that needs to be made based on what we've given you as an update today. And then on SVB, we acquired -- sorry, we recruited 40 people -- over 40 people in the U.S. to build out our SVB capability in the U.S. It will -- we did not bring a book with them, purchaser book. So they will be in build-out mode, so there will be a payback period on that investment. We think it's a relatively short payback period based on the quality of people we've hired. We're looking at other geographies around the world. We think it's a sensible and modest investment to do that organically. And we're pretty confident on the payback. We'll be relatively sure. We'll provide more details once we complete that buildout. Hopefully, by the half year, we'll be able to give you more information. So there will be a profit drag to a degree, probably in the first year or 18 months, but then I think it will be back into profit territory even on those organic build-out strategies. But we'll give more of an update at the half year. I think strategically, it's absolutely the right thing to do for the medium term. This is a sector of the economy that is critical for all geographies and has huge growth potential on revenue.

The next question comes from Rob Noble with Deutsche Bank.

Most of the questions have been answered. If you could just talk about the LCR, it's relatively low in a European context, mostly your deposit base is a different kind of structure. You have been running with that level in the medium term with the uncertainty in the market? And how do you expect the regulation or approach or liquidity to change given what's happened in the U.S.

Georges, do you want to handle that?

Sure. Thank you, Rob. So we don't target LCR. We are continuing to target medium-term single to mid-digit loan growth in our portfolio. And we obviously continue to cherish deposits and attract and continue wanting to attract deposits. The LCR would be an outcome I think that we look at our liquidity management, it's the high-quality liquid assets ratio that we look at is the cash and cash equivalent within it that we look at. And in terms of loans, again, if the short term is somewhat subdued in particular in Hong Kong, in the medium term, some of the bounce back and some of the trade bounce back that we're seeing as well may support that loan growth ambition in the medium term.

And I think on the regulation impact, I think we have to wait and see what the various regulators around the world do regulation, but I think the way I look at it, the primary responsibility for running a prudent balance sheet is on the management and the board of financial institution. That's a responsibility we've taken seriously throughout our history. Our high-quality liquid asset has been a feature of our heritage, our high-quality cash and cash equivalents has been a feature of our heritage for many decades. So we put the primary responsibility on liquidity management on ourselves, and then we'll see what the regulatory environment does as a consequence of some of the recent changes.

Next question is from Aman Rakkar with Barclays.

I just need to come back to revenues. Both your net interest income and your noninterest income are performing really well in Q1 and they are annualizing at levels that would suggest pretty material upside to market expectations for both of those lines. Your net interest income is annualizing north of $36 billion on the Q1 number. Your guide is obviously greater than $34 billion. I appreciate there's lots of moving parts here, but I guess, to be more specific, in terms of your commentary around consensus at full year and now, there's a kind of $1.7 billion gap between where the Street is and what you're guiding for, the Street is $35.7 billion. It doesn't actually sound like you see much downside to that consensus number at $35.7 billion unless there's something here around term deposit mix or -- it feels like there's a lot of conservatism in the NII guidance or there's something I'm missing. So can you help us with that? And then secondly, on the noninterest income, I totally appreciate your markets business might have overrun in Q1, but you are also pointing towards a wealth management business that's trending higher and underlying momentum in our your fee businesses, you talked about strategic initiatives at full year sit behind that. So to what extent is that revenue number and overearn? Or is this the kind of of level that we can expect you to crank out in the year because this is well ahead of where the Street is? Any color you can give us there would be really helpful.

Two good questions. And let me just clarify what I said about what we said in February. I think you're right on your math. I think if you go back to what we said in February, there was -- we talked about $36 billion plus. And when people were talking about our NII, there was sort of annualizing it to about $38 billion and the consensus was around $37 billion to $37.5 billion. And I think we said we were comfortable with that. So I think if you go back to then, we sort of said, yes, we're sort of comfortable that consensus had a calculation on the plus bid of the $36 billion. They'll put it sort of north of $37 billion. That was around about consensus back then. And all I'm saying to you now is the only thing you need to adjust for is IFRS 17, which takes about $2 billion off of that. So we're talking about $34 billion plus and that, therefore, would put you north of $35 billion. So I think what we're saying is there should -- we're sort of saying the Street has probably got NII around about the right place back in February of last year. And we're saying there's no need to change what the Street is. You only got to do the mechanical adjustment for IFRS 17. Hopefully, that helps. And then, Georges, I think do you want to just come back on the non-NII, because I think -- you're right, there's elements of our non-NII performance in Q1. So Georges is saying annualized. There are just some elements that are saying it may be unwise to annualize them fully for some of the trading income. Georges, do you just want to reclarify what you said.

Sure, Noel. So Aman if I kind of unpack the non-NII, some of the outperformance that we've seen with regards to funding of the trading book, where we've seen $1.4 billion this quarter against $0.1 billion quarter 1 last year because rates were at 0, but against $1.3 billion quarter 4, so somewhat flat to just slightly up from quarter 4. That number is -- it is fair to annualize it given current rate forecast consensus. Equally, as Noel mentioned earlier, the discussion on wealth, the growth in in wealth, the resumption of activity in Hong Kong, in particular, bodes well for the future. And I think it is fair to assume that we will see continued performance in wealth. On the other hand, some of the outperformance in some of the market activities such as foreign exchange trading, which had a record quarter, it may not be repeated. And obviously, we will have to look at it quarter-by-quarter in terms of what the business opportunities are there. And while you can bake in and factor in the results, the Q1 outperformance, I would caution you not to annualize that outperformance, but in general, if I take a step back, it is a good set of results and we are confident about the future. And in light of the strong Q1 performance, we will have to review and we will review the guidance in H1.

That comes from Martin Leitgeb with Goldman Sachs.

First of all, congratulations with this good set of results. I just have one broader question on growth and one follow-up on deposits, please. Just looking at a much improved profitability levels of the group, with an being around $2 billion to $3 billion of the quarter, this great capacity to scale up growth. And I was just wondering if we look into the medium term or starting '24. Do you see the goal for the group to lean more into growth so that mid-single-digit loan growth could potentially be higher? Or should we just think that any increasing profitability could be essentially a return to shareholders just in terms of the trade-off between opportunity for growing more versus shareholder return. And secondly, with regards to the deposit trends. I was just wondering if you could comment on the strength of [indiscernible] deposit franchise during the quarter. Have you seen, in particular, inflows in certain parts of your footprint helping delivering that stable deposit [indiscernible] in the quarter. And it was also wondering with regards to deposit migration into time, whether you have seen any change in trend. If this we towards the end of that cycle in terms of deposit migration? Or could this still go on for a number of quarters?

Okay. Just a couple of comments. One comment from me on growth. Listen, I think, clearly, we want to pursue growth, but I think we have the capacity in our dividend payout ratio of 50% to pursue growth and with the option of doing buybacks as well. Now at the moment, I think we've seen a relatively subdued lending market in corporate banking. I think the demand for term loans around the world is not particularly high at the moment and probably isn't going to be particularly high in the very near term. As Georges said earlier, I mean, once we get to 2024, one would expect there to be an increase in demand starting to emerge. But for the near term, for the next few months in '23, given the economic uncertainty, we're seeing subdued loan demand. So I think the message I'd give you, in a 50% payout ratio world, we believe the second 50% after we pay the dividend, there is potential to fund both growth and buybacks. And that's our plans going forward. Georges, do you want to just cover the deposit trend, the inflows, the outflows and deposit migration.

Sure, Martin. So yes, if I start with some of the outflows that we're seeing and then I go into the tailwind. So some of the outflows we're seeing particularly in the U.K., so obviously, U.K. retail, Q1 is a tax payment period. So there is seasonality here. We are still seeing high cost of living resilient inflation in the U.K., which is obviously draining some of the U.K. consumers savings, to a lesser extent, competitive pressure as well in the U.K. Likewise, for corporates in the U.K., Q4 was at year-end where people showed up their liquidity, whereas Q1, most of the companies pay dividend. And then you can see some of the draining liquidity, we're also seeing deleveraging of loans using some of the deposits to deleverage on the loan side, especially for those with a strong rate differential between what they're paying on their loans. This being said, we continue to see growth and strength in the deposit proposition. So if I take Hong Kong and all of Asia, actually, we've seen definite deposit growth in the retail and the personnel banking space. We have seen 5% growth of our deposit base in Commercial Banking in the U.S. So we were one of the beneficiary banks of the deposit migration from medium-sized banks into large banks. And we obviously continue to cherish our propositions and deposits to continue attracting deposits at the right price.

We will take our last question today from Tom Rayner with Numis.

Two, please. First one, just on the loan growth. I mean, you flagged the corporate demand and maybe that is the answer. I was just going to ask, could you quite upbeat on the economic recovery you're seeing now in Hong Kong and China and the U.K., I think you said it was quite resilient. So is there any other reason why you're so sort of cautious in the short term on loan growth? Or is it purely a lack of demand from corporate? And a second question on costs, please.

Okay. What's your question on costs? Do you want.

Yes. I mean really, it's sort of looking at 3% target for this year and thinking forward to next year because I guess you're still enjoying some of the flow-through this year from cost savings from the previous cost program, which has now ended. So I just wondered if you or Georges, would comment on your sort of approach towards costs in 2024, whether you'll be thinking in terms of an absolute growth may be similar to this year or whether a jaws approach might be more appropriate. I don't know if there's anything -- any color you could add for the next year.

Just on loan growth, listen, I think your point is a fair one. I think if there is a place where I think loan growth could pick up more in the near term, I think it would be Asia. I think Middle East is another option. So I think I am being a bit cautious on the near-term loan growth. I think probably it will start to emerge more in the working capital side of the balance sheet, trade finance, before people start investing in fixed capital. But I think there is a level of nervousness out there in the corporate world about taking long-term investment decisions in fixed capital, that is aside from sustainability. I think there's a lot of infrastructure spend taking place, and I could see some loan growth coming in and around that sustainable infrastructure investment. So maybe I am being a bit cautious on loan growth at the moment. I think I'd rather be that way in the near term. But I don't think -- I do believe there's going to be medium-term loan growth. But I think it is fair to say that Asia has the potential to pick up faster than elsewhere in the world. So yes, I think it may be fair that I'm being a bit cautious.

If I kind of just adding to Noel's comments, Tom, if you look at Hong Kong, in the retail space, both cards and mortgages have been growing in the first quarter. Even in the U.K., we are seeing green shoots in the mortgage sector. I mean, our market share in the mortgage sector in the U.K. for the first 2 months of the year is that 15%, that's for new business. That's against the book market share of about 7.5% and the Q4 new business market share of 9%. So we're certainly there in the retail space where we're seeing growth. On the wholesale side, I just want to add 1 comment to description, which is also bear in mind the rate differential between China and Hong Kong. So all those Chinese companies who used to use Hong Kong as a base for raising funding internationally will be less doing so as long as the rate differential between dollar rates and China rate are that wide. It is cheaper for these corporates to raise funding in Mainland China as opposed to Hong Kong, and that will remain the case up until the time we see a reversal in that rate trend. If I move to your second question, Tom, we have not shared targets for 2024 as yet, but the few guiding principles I can share with you, the first guiding principle, paramount guiding principal is that you should expect our focus on cost discipline to continue. The second guiding principle is that we will continue doing transformation and restructuring as part of our BAU cost base and expect some of those sales to flow through also into 2024 and beyond. And case in point is the spend on severance, which we're planning now to do in Q2 this year for which the benefit will flow through mostly in 2024. And thirdly, at this stage, we're still looking to guide towards a dollar cost number as opposed to and the way we will be looking at 2024 as we come to be able to give you additional guidance later in the year.

So thank you all for your questions. Really appreciate you taking the time to close our first quarter results, I just want to say that the first quarter results provide further evidence that our strategy is working. We had a strong first quarter profit performance. Cost discipline remains tight, and we're clearly on track to deliver our target. We've resumed quarterly dividends and announced a share buyback of up to $2 billion, but I'm also confident about the rest of 2023. We built a strong platform for future growth and our geographical footprint puts us in areas of high growth. I look forward to speaking with you soon. Have a good morning or afternoon. Thank you.

Thank you, ladies and gentlemen. That concludes the call for HSBC Holdings plc Q1 2023 results. You may now disconnect.