Good morning, ladies and gentlemen, and welcome to the Investors and Analysts Conference Call for HSBC Holdings plc's Interim Results 2013. For your information, this conference is being recorded. At this time, I will hand the call over to your host, Mr. Douglas Flint, Group Chairman.

Thank you. Good afternoon from here in Hong Kong. Good morning to everyone in London, and welcome to our 2013 HSBC Interim Results Conference Call. With me in Hong Kong is Stuart Gulliver, the Group Chief Executive; and Iain MacKay, Group Finance Director. Before we start, I'd like to say a few words on behalf of the board. We consider that HSBC delivered a solid financial performance in the first half of 2013. These results confirm the value which is being delivered from a continuing reshaping of the group and from enforcing appropriate cost discipline. You'll note the group's capital position strengthened further during the half. The core tier 1 ratio improved to 12.7% compared with 12.3% at the beginning of the year and 11.3% a year ago. Supported by these results and as indicated in the 2012 annual report, the board has declared a second interim dividend of USD 0.10 per ordinary share. This takes the total dividends declared in respect to the first half of 2013 to USD 0.20 per ordinary share, which is some 11% higher than the comparable period in 2012. I'll now hand over to Stuart to talk you through the highlights for the half, and then Iain take a more detailed look at performance. Stuart?

Thanks, Douglas. I'll start by pulling out the key points from these results. Reported profit before tax was $14.1 billion in the first half, up 10% on the same period in 2012. Underlying profit before tax was $13.1 billion, an increase of 47%. And the return on average ordinary shareholders' equity was 12%, up from 10.5% in the first half of last year. So we continue to make progress on delivering our strategy. And we grew revenues in key areas during the first half, led by our Financing and Equity Capital Markets and Credit businesses, residential mortgages in both our home markets of the U.K. and Hong Kong and from increased collaboration between our global businesses where collaboration revenues grew by 5%. We also continue to pursue our strategic aim of improving cost in order to reinvest in the business, achieving an additional $0.8 billion of sustainable cost savings during the first half. This then takes the annualized total to $4.1 billion since the start of 2011, exceeding our target for the end of this year 2013. We also continue to reshape HSBC. In March, we sold a $3.7 billion non-real estate personal loan portfolio, accelerating the runoff of the Consumer and Mortgage Lending portfolio in the United States where we continue to refocus our business. And we've announced the disposal or closure of 11 nonstrategic businesses since the beginning of this year. And that brings the total of transactions announced since 2011 to 54. The rate of such transactions will now slow as the first phase of strategic delivery draws to a close. Now these steps have released $80 billion in risk-weighted assets from completed transactions with a further potential release of around $15 billion to come, and this will support investment in organic growth opportunities that are aligned…

Thanks, Stuart. This slide shows the reported results. Let me highlight a few key points. Reported revenues were down compared to the first half of 2012. This was driven by lower net gains from disposals, mainly as 2012 included a gain from the disposal of the U.S. Cards and Retail Services business of $3.1 billion. Operating expenses were down $2.8 billion, mainly reflecting the non-recurrence of a provision for U.S. anti-money laundering, Bank Secrecy Act and office of foreign currency asset control investigations, lower charges relating to U.K. customer redress programs and lower restructuring costs. Loan impairment charges improved significantly, particularly in the U.S., where we continue to runoff the consumer mortgage and lending portfolio. As you would expect, the contribution from associates fell as a result of the sale of our shareholding in Ping An last year and the reclassification of Industrial Bank as a financial investment. More detail now in the underlying numbers. It's on this basis that we measure performance. Underlying revenue was up $1.2 billion, or 4%, compared with the first half of 2012. Loan impairment charges were down $1.3 billion or 29%, and operating expenses were down $1.6 billion or 8%. This performance, high revenues, lower loan impairment charges and lower costs, meant the underlying profit before tax was $13.1 billion, up $4.2 billion or 47% compared with the same period last year. So let's take a look at what drove those movements. Focusing on revenue, the underlying revenue for the half was $33.3 billion, up $1.2 billion on 2012. As I noted in our call at the first quarter, this includes a net gain recognized in the completion of the sale of our remaining investment in Ping An of USD 600 million, a favorable debit valuation adjustment of $500 million in Global Banking and…

Thanks, Iain. Before take your questions, a quick word on the outlook. There are signs of improvement in the U.K. and in the eurozone. And the U.S. economy continues to grow reasonably well. It does, however, seem to have been forgotten in the last few weeks that faster-growing markets also experience business cycles. Despite slower growth in the short term, the longer-term trends in the global economy are unchanged. First, growth in trading capital flows will continue, both between mature and faster-growing markets, and also along the so-called, South-South trade routes, which connect faster-growing markets to one another. With our network across 80 countries and territories, we're well positioned to take advantage of this growth. Second, led by China, faster-growing markets will play an increasingly important role as the global economy continues to rebalance, and these are the markets in which we have a significance and long-standing presence. So to close, as you can see from these results, we've made further progress on delivering our strategy in the first half of this year. And in May, we set out the next phase of delivery covering the period from 2014 to 2016. As you know, our strategic direction is unchanged and our priorities are clear: to grow both the businesses and the dividend, implement the highest global standards of conduct and compliance and streamline our processes and procedures. So we'll now take your questions, and before we begin, the operator will explain the procedure and tee up the first question. Operator?

[Operator Instructions] We will now take our first question today from Chirantan Barua of Sanford Bernstein.

I have 2 questions. One is, Stuart, obviously, on LatAm. When I read through your numbers, you're saying that you see an improvement in delinquency patterns, whereas actually in different asset classes, both in Mexico and Brazil, impairments have gone up, either from underlying model changes or as coverage. It would be great if you can give us some details, not only on what are the underlying movements in the 2 geographies and trends going forward? The second one is on risk-weighted assets and capital. One is Hong Kong risk-weighted assets are up 19% in the first half. Is it the beginning of a trend, or should we see the stalling at this level? And your core Tier 1 ratio of 10.1%, is this fully loaded with mitigation right now, or you have some mitigation plan on top of it?

Okay, Iain will go into detail on Latin America, and then after he's done, then I'll talk a little bit about the business in Latin America after Iain's done the detail on the loan impairment charges.

So in loan impairment charges in Latin America, really, 3 factors here. We'll talk about Brazil first. You'll recall that in late 2011, we saw some deterioration in credit quality in Brazil, and principally, in Business Banking. And over the course of fourth quarter '11 through '12, we took actions around the tightening of credit standards, improving the operational management and collections capabilities within that business. And as a consequence of which, we do see underlying credit quality improving. However, within the second quarter of this year, we took a look at our loan-loss coverage for restructured loans, taking [ph] a portfolio of about $1 billion of such accounts and strengthened coverage in that, to the tune of some USD 250 million, which took coverage on those restructured loans to about 66%. That's a key driver within that, and that's really the model and methodology changes that we referred to within Brazil. So out of a total book of business in Brazil of $27 billion, we're talking about $1 billion restructured accounts portfolio with loan-loss coverage now at 66%. So that was a purposeful step on our part to bring alignment around plus policy and methodology on those types of accounts. Beyond that, it's exactly as we say in the report: the underlying credit quality we see improving within the Brazilian business. Stepping onto Mexico, specific driver here. There was a change in government policy as it related to, shall we call it, low-cost housing, where the government moved from what was called a horizontal strategy. So more remote out away from city centers, building larger communities of single story, second-story properties to what they called a vertical strategy, which building nearer city centers and high rises. That had, across the construction industry, an impact on cash flows and asset values, and we recorded a provision of slightly less than $90 million for exposures to city firms in the construction business that we had in Mexico. That was the principal driver of step-up in loan impairment charges in Mexico. So taken in around together, overall loan impairment charges in Latin America increased by some $360 million. $250 million, as I mentioned, the strengthening for restructured accounts in Brazil and then about $90 million in Mexico for the construction industry. Stuart?

Thanks. So going to your next question about RWAs in Hong Kong and the jump in RWAs in Hong Kong, that's mostly actually caused by the implementation of the 45% floor loss given default on sovereign exposures. And so that actually accounts for a chunk of it. If you think about it, Hong Kong's got significant deposit base, significant commercial surplus, that tends to get placed into government bonds. And once you start applying a 45% LGD on those government bonds, you can see there's a big jump in RWAs. And in fact, $19 billion of the jump in RWAs at group level is caused by the introduction of a 45% LGD on sovereign bonds, which was a U.K. PRA initiative in the first half. And that actually explains a large chunk as to why the core Tier 1 fell back from 10.3% to 10.1%. And then in terms of, does the 10.1% contain all management actions, all management actions, so far it certainly does, which there's not an insignificant number of, whether it's the distribution of Ping An, whether it's the running down of the U.S. portfolio, so any number of actions included within that. Clearly, there's an ongoing effort. So when one thinks about the run off of the U.S. CML portfolio, which is particularly intensive from an RWA perspective, the rundown of that portfolio, through the disposition of the non-real estate portfolio, and now embarking on the disposition of the defaulted accounts, are ongoing management actions in that particular area. And then if one considers also the work that Samir and his team have been doing in managing down the legacy ABS portfolios within Global Banking and Markets. Again, there's been a significant reduction in RWAs there, and that effort continues, so significant progress. But everything that we've taken in terms of actions up to this point is reflected in that 10.1%, but there's certainly a hope [ph] of continuing efforts available to us, which we're doing. So the jump in LGD, 45% LGD, shows up in Hong Kong and in Global Banking and Markets by business line, yes.

Our next question today comes from the line of Raul Sinha of JPMorgan.

Can I just have maybe one on your interest rates sensitivity disclosure on Page 172, where it looks like the sensitivity to higher interest rates has come down again about $1.2 billion now from $1.4 billion. I just sort of wondered your comments, Stuart, on this. Should we sort of assume that this is because your hedging your near-term position on interest rates, or is it also reflective of the longer-term sensitivity towards interest rates for HSBC?

I mean, in essence, it's going to certainly turn around maturing positions as they run off in balance sheet management and the trading books. You shouldn't read anything more sort of significant into it. The fact of the matter is, if curves steepen, we'll make more money in Balance Sheet Management as long the curve -- because that -- Balance Sheet Management will make money if the curve is steep, so either the long end sells off or the short end rallies. And what I would expect under QE tapering is the long end will sell off somewhat, so that will benefit Balance Sheet Management. If then in due course QE is reversed and then interest rates start to go up, it's a second order impact to the U.S. reversing the policies it put in place, then we will see a significant pickup in the net interest income of the Commercial Banking business and Retail Banking, Wealth Management, as the deposit base suddenly starts to have value to it. And what you're effectively seeing in Page 170 is a sensitivity of a 25 basis point per quarter, i.e. 100 basis points in the year, but doing it quarter, quarter, quarter, not step jump, would lead to about an extra $1.2 billion. That's really the CMB and RBWM numbers, because that assumes that we don't do anything with the book, which of course with BSM, we will be doing an awful lot with the book. So we are not consciously reducing our ability to make money if rates go back up, not at all.

Right. And would it be fair to conclude then that this table probably understates your sensitivity to higher interest rates?

I think that looking at my accounting colleagues frowning at me across the table, no, absolutely not. It's what's in the table.

Okay. Message delivered. The second one, if I can just go back quickly to the Latin America provisions, I obviously -- thanks for the additional disclosure you provided on the previous question. But I just wanted to get a sense of how much the rise in provision, especially on the collective side, was just you taking a more cautious view on the economic outlook in Latin America? And then how can we read across, if it all, into Asia, given HS seems to have little or no restructured loans at all? Does that mean that at some point, over the next few quarters, you might do the same in Asia, or is that not possible at all?

No, there's -- it's not. Raul, to my point, when you look at the increase in Latin America of $366 million, $250 million of that related specifically to increasing coverage through some updating to the model of $250 million. And the underlying credit quality, within the remainder of that Brazilian book, is something that we've been working on for the past 18 months now, and the improvements in credit quality is coming across. You look across every other region that we've got, and we've got a very, very stable credit picture. There's clearly markets in which there's a heightened level of scrutiny and attention. And as we manage some of the risks in it, and you wouldn't need to be a genius to figure out what some of those markets are because they tend to be in the news on a daily basis because of political unrest in some of those markets. But the credit quality of this book has been progressively repositioned, where we've seen those risks emerge, and it remains very stable.

Our next question today comes from Chintan Joshi of Nomura.

Two for me, please. First one on the U.S. run-off portfolio, I see that the loan impairment charges are quite low, meaningfully lower than the trend we've seen in past quarters. What's driving this, and how should we think about what kind of impairments you need to take going into the future?

Thanks, Chintan. Look, I think one thing that you should note in the U.S. is there's an effect within our loan impairment charges reflecting the uptick in the value of the collateral that underlies our portfolio, to the tune of some $500 million. If you try to get a sense of what loan impairment charges would be in a run-rate basis, I would suggest that something between the first quarter and the second quarter number is a better reflection of a run rate for the U.S. I would not read in the second quarter numbers being the run rate going forward. I suspect it's a little bit higher than that.

That's helpful. And second, if I could just follow-up on the asset quality theme. If you could -- I mean -- as you highlighted in your outlook statements, you've seen a slowdown. There is a cycle that's currently on in Asia. What do you make of asset quality implications of that? So far, this picture is quite stable, and we keep hearing about the markets in which there are problems, money in India, for instance. How do you see, from your vantage point, trends? And if you do see a cycle, when can you expect to hit your book?

I think that over the last 2.5 to 3.25 years, we've been quite conservative in the way we've positioned. And actually, generally speaking, we have gone for more secured exposure, less clean lending in Retail Banking, Wealth Management, CMB, self-liquidating stuff in CMB like Trade Finance. And also, we've been pretty cautious in Global Banking and Markets. So I think the risk of our Indian book may be somewhat different than some of our competitors' positions this year. We've been a lot more conservative and taking a lot less risk. So actually, as we stand today, I think the entire Indian GBM book's about USD 6.5 billion, or thereabouts, in its entirety. So as things stand today, we're comfortable that we're conservatively positioned towards those assets. And as I say as again, as things stand today, I wouldn't say there's a particular moment in time where I see bad debt heading towards this based on the information we have today. And indeed, if there was, then we'd have been raising provisions, so there isn't. And Iain, if you want to add.

Yes, I think if I just reflect across the regions here, you look at Europe, Rest of Asia-Pacific, Middle East and North America, we've seen a reduction in loan impairment charges. We saw a very, very slight increase in Hong Kong. And when I say very slight, I mean $14 million. And then the rest of that story is Latin America. So again, it reflects exactly in Stuart's comments around the positioning of the portfolios over the course of the last couple of years.

And just one final quick one. Can you update us on Trade Finance trends in Q2, please, volumes and margins?

Yes, the margins appear to have somewhat stabilized, as we said that they probably would. So we don't see a further deterioration in margin. We don't see a massive pickup either, but they've stabilized.

And volume wise, has the slowdown affected Trade Finance?

Yes, we've picked up quite a lot. We added USD 13 billion in terms of Trade Finance balances in the first half. So we've, I think, recaptured any market share that we might have lost.

Our next question today comes from Rohith Chandra-Rajan of Barclays.

Just wondered if I could come back to the LatAm credit quality, actually, just a couple of points of detail. I think you've been very, very clear on the Brazil trends. Just on Mexico, could you give some details on the size of your homebuilder exposure in total and what the coverage is? And any comments about general credit quality in Mexico, certainly from some of the other banks we've seen, some of a slightly wider deterioration in credit quality in Mexico in the first half. I don't know if that's the case for HSBC.

Yes, the provisions of the order of about USD 90 million, which is about 20% of the total exposure to builders if it all went down, and there was no recovery at all.

Okay. And anything else of note in Mexico, or is the rest of the book relatively stable?

No, that's it. As Iain says, there's the government policy change, low-cost housing was built a long way outside of Mexico City, in particular, in low-rise housing estates, which then struggled to have infrastructure actually brought out to them, transportation, sewage, water, et cetera. There's a change of government policy, where they now want to build high rises closer into the municipal kind of Mexico, sort of DF area, and that's effectively resulted in a bunch of inventory that these house builders have effectively being written off with a credit impact on those companies. And you'll see that, or you should see that in all of the banks in Mexico's numbers.

Our next question today comes from Ronit Ghose of Citi.

I just have 2 follow-up questions. First of all, on LatAm, you've given us a lot of very helpful color on the asset qualities, one-offs, if you like. Even if I adjust for those one-offs, where you headline return on risk-weighted assets, I think, is 1% in the first half in LatAm. If I add back some of those details Iain gave on Brazil and Mexico, I'm getting about 1.7%, 1.8% return on risk weights. And I think kind of middle of the range is you want to be close to 3%. I'm just wondering kind of what other levers you've got in the next year or 2 that you can discuss maybe briefly of how we get from that kind of underlying 1.7%, 1.8% to the 3%? And the second question is one of just more detail. Thanks for your comments, Stuart, on Trade Finance. If I look at your PCM disclosure in GBM, there's a nice pickup half-and-half. In CMB, it's still going down. Is that mainly because of divestments? Is the underlying trend more stable, or is there something different going on in CMB for the PCM revenues?

On the Latin American business, some of the improvement in -- there's a couple of things running through it. We obviously have a loan impairment situation, which we've gone into in considerable detail, number one. Number two, we have slowing GDP in Brazil. Number three, we're also obviously in Mexico and also in Brazil, moving forward with the implementation of Global Standards, and obviously, bringing things up to the higher standards in the world everywhere in the world. And that's resulting in us also increasing the investment spend that's going into those countries in compliance and risk and legal and so on. So there will be a period where the return on risk-weighted assets in those operations will go below the 2.2% to 2.8%, which is kind of what we're generally looking for. The levers to actually get the thing back towards the type of targets that we are looking for are nothing particularly special beyond, obviously, getting past the bad debt or the loan impairment charges that we've put in place; and secondly, continuing to manage down our cost base. So we will go through a period, therefore, of restructuring, which essentially is what's happening. But there's an awful lot of good businesses that continues to be written. We set up a CMB fund in Mexico with USD 1 billion for international trade. We've got the first-ever long-term fixed rate mortgage product out in the market in Mexico, which is kind of a premier-type account, which has also had considerable takeup. And in debt capital markets, we've won Latin America's debt house for the year for the last couple of 3 years. So it's going to take a couple of 3 years to get to the returns to those sort of levels, but I think it's all organic work that will get us there. If part of the question is, do you go and make an acquisition? No, I don't believe we will. I believe what we will do is restructure our existing business in order to get there. In terms of PCM and trends in PCM, there's nothing in CMB that would suggest that there's any problem whatsoever in PCM. So off the top of my head, I can't think what the distortion of the number is, but it may be some disposals that took place during the course of the year, because don't forget, there's a bunch of commercial banking businesses in Latin America, in particular, that we've disposed of that will have been reversed down.

Just going back to Latin America, so I'm clear. You're talking about, so we're talking about 2016, 2017, kind of 2.5% type return on risk-weighted assets as a kind of go-to number?

Yes, look, I mean the return on risk-weighted assets in 2012 was 2.5%. Second half 2012 was 2.5%. First half of 2012 was 2.2%. And the first half of this year was 1%. So this thing on a normalized run rate, without all of the loan impairment charges that have been running through it, was 2.2% in the first half last year, 2.5% in the second half last year. And as you rightly pointed out, has dropped to 1%. So we're simply basically, by removing the adjustments we've made in the first half, are getting quite close to being back to the 2.2% without doing much else.

Yes, about 1.75% adjusting for loan impairment charges.

And as you'd expect, there's a bunch of derisking going through that book, given the need to implement Global Standards in those countries. And obviously, we've also removed some of the fragmentation that exists in Latin America because we've sold a whole bunch of businesses other than Mexico, Brazil and Argentina.

The 2.5% is a steady state where you'd be comfortable with, or you think 2.5% is where you've been and you could do better?

No, 2.5% is where we've been. And I get back to what [ph] we talked about in May 15.

Yes, let's get back to 2.5% before we start worrying about whether it should be higher.

Our next question today comes from Christopher Wheeler of Mediobanca.

Three quick questions, if I may. The first one, Iain, you were talking about collateral values improving in the United States. Against that background, could you, perhaps, just update us on where we are on the sale process or where you are in terms of the portfolios you have available for sale? And what you think the outcome might be, or at least, in terms of timing? The second question is on foreign exchange, a really good performance clearly, given your strengths there. But I just wondered obviously whether you could give any indication as to how much of that performance can be attributed to the really volatile markets, post the 22nd of May, and perhaps, talk a little bit about the outlook? And then the final question I guess is, I've obviously been reading the Chairman's comments on the wires here about the BU [ph] EU bonus cap. And you've been really, really thoughtful in your views, which I think probably everybody on this call and your investors understand totally. But I just wondered whether or not you've run that past the sort of political lobby before you actually went out and were quite so forthright, because while as I said, I think most people fully understand where you're coming from, I'm just interested as to whether or not we're going to have a little bit of a backlash on this from the usual sources.

So we'll have Douglas answer the third question first.

I thought it might go that way.

I don't think so. I mean when you reflect, I mean the U.K. government voted against the proposals. The PRF came out and said that they don't like the proposals because they would like to see the potential for higher deferral that might be implied if base salaries were to increase. And the Parliamentary Commission echoed that and said that they believe that larger deferrals, longer deferrals and clawback -- to get more potential for clawback was the right way to go. So I actually think the establishment, if you want to put all these 3 together, are in a similar place, because the regulatory agenda has all been about increasing deferral and augmenting clawback, and it makes it much more difficult if the consequence of the CRD IV proposals are increased in fixed compensation on a lower deferral. So well, we called it as we see it. And I think it's really important for us to be clear we are going to be going out and consulting. I think it's also very important we're clear to our own staff that we understand the contributions that they make, as do our shareholders. And we must make sure that we are competitive.

So on household and portfolios still for sale, there's a note on Page 263, which is Sales in July, which are too late for the balance sheet close, but under the events after the balance sheet date, we have about $1.8 billion portfolio of -- these are real estate as opposed to non-real estate.

So what we've got in total, you'll -- as Stuart mentioned earlier on, we sold the non-real estate portfolio. That closed on the 1st of April. There was a loss of about $240 million realized in the disposition of that, which was considerably less than we anticipated would be when we launched that process at the end of last year. So that's now closed out. There are -- Pat and the team running the run-off portfolio. Now we're focused on the disposition of charge-off and partially charged-off, first-lien mortgages. And what Stuart reference there was the first tranche or the first bucket of those, which totaled about $1.8 billion. And that will be disposed of in 2 or 3 tranches, which is being done through a competitive bidding process, which got going in the month of July and is going reasonably well. Overall, we've got about $5.4 billion of such loans that Pat and the team are focused on getting out into the market between now and really the middle end of next year in its totality. And that would leave us basically with a runoff portfolio sitting round about $25 billion, $26 billion worth of performing sub-prime mortgages with a pretty healthy yield in it. But there's a good a lot of work to be done from an operational standpoint, but he's got a competitive bidding process that worked for the non-real estate that he's now running against the real estate, and thus far, the results have been good.

So just then going to foreign exchange, the first quarter was $871 million, and the second quarter was $962 million. So no, there wasn't a big jump, and there isn't a one-off proposition around the 20th of June event. It's pretty stable, and therefore, has a predictability to it, so $871 million 1Q '13, $962 million Q2 '13.

Our next question today comes from Manus Costello of Autonomous.

I just had a question, please, on the supplementary disclosure you gave around your capital position. There's a paragraph in there talking about an EBA consultation on technical standards for own funds. And you talk about there being the potential to significantly increase the level of capital deduction applied as a result of that. I wondered if you give us a bit more color exactly what that refers to and what sort of size of deduction we could be looking at, and whether or not it might color your views on capital distribution for next year to add to the risk?

Well, I'll tell you what, Russell Picot is sitting here right next to me and scribbling notes. But I'll Russell answer instead of scribbling notes to me.

So the consultation is all about capital deductions. And the EBA paper spoke to the possibility of having to look through either your lending, or indeed, your pension fund. So if you look at the U.K. pension fund, there was some language around circumstance under which you might actually have to look through the pension fund, look at the pension fund's holding of bank equities or subordinated debt. And we might have to take a capital deduction. And a similar concept has been proposed around your lending to conglomerates. So if you lend money to a conglomerate, and that conglomerate within its group has got a banking subsidiary. So an example, I guess, would be a large company...

GE.

Like Siemens, then you might actually have to take a deduction for the whole of your lending to that corporate. Now I think we obviously feel this is not what they intended. And we've obviously, we've sent an appropriate letter to the EBN and the PRA, and we think this is major issue for the industry more broadly.

So in other words, you think you have to disclose it, but you don't actually think it's going to be implemented as is, and therefore, wouldn't color potential capital distribution for next year, hopefully?

I think that's the way we will be considering it, that's correct.

Our next question today comes from Alistair Scarff of Merrill Lynch.

Just 2 quick questions, if I may. Firstly, looking at your loan momentum across your various businesses. You gave us some interesting color in your disclosure there, but just anecdotally, what are you feeling from your general discussions with your top clients across regions? Is there a general appetite? We're hearing lots of balance sheets with lots of cash, but not willingness to spend. What do you think of them from a leveraging-up perspective? And secondly, from an effective tax-rate perspective, you guys slipped under 20%. Where do you think is the more normalized level of effective tax rate?

Taking the sort of willingness to lend point of view, it's very hard to generalize. I mean, you could see that we did grow revenues, and we did grow lending balances. And we clearly have, with the type of A/D ratio we have in capital, we have tremendous capacity to lend to the right type of opportunities. It's very hard to generalize. We've actually found -- you saw that our finance in ECM numbers were up 20% first half of this year versus first half of last year. So quite clearly, we've got material amounts of business going through, and we probably still are taking market share. Our GBM numbers -- I think looking at where analyst consensus was, have surprised to the upside because actually we continue, I think, to prove the universal banking model works, certainly, for us, and actually, have taken share. But I can't really generalize and say, there's -- Asia's strong and Latin America's weak or whatever. It's very much corporate- or client-specific as opposed to geographic. And tax, Iain will just comment...

I mean, Alistair, as we've always talked, our sort of normalized tax rate sits around 21%, 22%. If you reflect on sort of the U.K. corporate tax rate of 23.5% prevailing at the moment, you look at 19.4%. And the main drivers impacting us being slightly lower is the fact that the disposition of Ping An is at a much lower tax rate, largely focused on a withholding tax in China, and the fact that the gain realized on the dilution of our position in Industrial Bank is a nontaxable event. So those -- that's really what makes it up. But when you look at the distribution of our profits, our effective tax rate is just basically taking the PBT, multiplied by the corporate tax rates in each of those jurisdictions. There's nothing more mysterious than that. But then there does, from time to time, seem to be unusual or notable transactions coming through our numbers, which may be treated slightly different from a tax perspective, for example, our capital gains tax that may apply at a lower rate.

Our next question comes from Sandy Chen of Cenkos.

Just 2 quick questions. One just on, in the appendix on the quarterly basis. And I'm probably being a bit too pernickety on it. But on the rates, there was a pretty big decline Q2 versus Q1. Is that just seasonal, or should we read anything more in terms of guidance on that?

No. LTRO, so in the first half of last year, the European Central Bank banged out LTRO, if you'll recall. And you saw spreads tightening rather rapidly in the back of that. And we had an exceptional quarter, exceptional half in rates trading income in the first half of last year. If you look at the rates and go back and track it over quarters and halves, we're pretty normal based on what we saw in the first half of this year.

Yes, okay. And then the other question, just looking at the structure, in China, in particular, I guess one of the overall concerns about China tightening and the effect on shadow banking and sort of the regional financials, I'm wondering if that -- if it's really a bit over-egged looking at the structure of your lending book. And looking at the year-on-year growth or the half-on-half growth, in particular, in Hong Kong or rest of Asia-Pac in say, the trade in services, that's really quite robust. And should we expect that trend to continue? Because for example, 15% year-on-year growth in the Hong Kong trade in services and 7% growth in Rest of Asia-Pac lending?

I mean the honest answer is that assuming that we remain comfortable with the risks that we're taking, yes, it should continue at the pace that business is there to be done. We've taken back market share in Trade Finance. If you recall, there was a squeeze in margins in the first quarter, and that margin squeeze has somewhat bottomed out. But we've also very deliberately made sure that we didn't continue to find that, particularly the American banks who were coming in, started to displace some of our share of Trade Finance, an incredibly important business for us. So we very deliberately picked that up. That short-term 6 months, sort of self-liquidating stuff, whether we'll continue to see at that type of pace, hard to call. But there is opportunity. And you can see it in the Hong Kong numbers. You would think that Hong Kong would be hard to get 13% year-on-year growth in PBT. But the fact of the matter is, it's a very open economy. And as we continue to improve the way we run the firm, there is a capacity still to drive further profit out of it. So somewhere between a, it's all fine and it's all coming to an end because of shadow banking, as is often the case, like the truth in these things. And I think the second half -- I doubt if we'll have as big a rate of growth in the second half, but I'd be very surprised, for example, if Hong Kong's full year 2013 wasn't above the full year 2012. It would have to go a long way into reverse in the second half for that to happen.

We will take our last question today from Chris Manners of Morgan Stanley.

So I had a couple of more U.K.-centric questions, if I could. The first one was on the Bank of England, FPC, PRA. And they're talking about potentially asking banks to do dual reporting of standardized and modeled risk-weighted assets and just from a workout of how that, coupled with the leverage ratio, impacts your thinking on some of the sort of lower risk weighted, higher-leverage areas that you operate in, such as Hong Kong mortgages. And second one was just on U.K. mortgage market. Obviously, you talk about extending the $11 billion in new lending in U.K. mortgage markets, and just trying to see about your intentions there and what you think about the potential of help-to-buy scheme to support the market as well?

So certainly, when you look at CRA [ph] thinking around leverage, I mean I think one thing that's worth commenting is that, if you looked at us from a Basel III end point basis, we're sitting on a leverage ratio of 4.1%, 4.2%, which is probably why there's been obviously no mention or discussion of this topic with us and the PRA, because I think they look at the overall leverage position under a fairly stressed sort of hybrid PRA, CRD IV calculation as being in pretty good shape. When you then think about how it works across the different portfolios and standardized versus advanced, again, it's a portfolio-by-portfolio story. I mean we probably look at standardized against our U.S. mortgage portfolio and think that standardized is quite a good idea, whereas you might look at it against a particularly low-risk portfolio, like your Hong Kong mortgages, and go, well, this probably doesn't make a great deal of sense. I think one of the things that the regulatory community is just struggling with just now, which is something the banks can absolutely help them with, and I think we, in particular, have taken significant steps in this regard over the course of last year end, is just much greater disclosure and understanding about what's going on in the risk-weighted asset models, in terms of roll-forward analysis, RWA density. And a lot of those disclosures were provided through implementing enhanced disclosure task force recommendations, which came out. And I think if we could get -- certainly, all the U.K. banks have made good progress in that respect, and I suspect they'll make even more progress as we work through 2013. Unfortunately, outside the U.K., there hasn't been much of a drive towards broad-based adoption of those recommendations. Until we get the banking industry being, frankly, just a lot more transparent about what's going inside the risk-weighted asset models, one can perhaps appreciate the regulators' desire to look at it in a different basis. But I think our own view would be, banging out a standardized measure is simply banging out another measure. It doesn't really help the risk management within the banking sector. I would be a very strong advocate for the fact that an internal ratings-based approach, well-constructed models, stress tested, analyzed with the right level of transparency and disclosure gives you a much better understanding of the risk equation within a bank's balance sheet than adopting a broad based, standardized approach, which is not terribly risk sensitive. And the same would go for, frankly, a leverage ratio. It's a great backstop measure for the economy. You might even argue it's a good backstop measure for an individual institution, but it's not, particularly, risk sensitive; in fact, it's not risk sensitive at all.

When it comes to U.K. mortgages, we are not involved in new buy schemes, where we have a very small market share because a we're direct-only lender. We don't do mortgages through brokers, and actually most new builds are actually sold through brokers or intermediaries. However, the broader second part of the help-to-buy scheme, we will actively participate in. So if you look at the 2 parts of it, the kind of new development part, we have a market share that's actually going to be appropriate for our actual market share, if you see what I mean, which will be tiny because we don't do brokers. And in the second piece, I would expect our market share will be commensurate with our overall market share.

I think, Chris, coming back to the capital question on RWA just for a moment. If you reflect on our capital ratios, whether under Basel 2.5 or Basel III, probably -- absolutely the most important thing to note, notwithstanding some of the regulatory movement around sovereign LGD floors that Stuart referenced, we generated 80 basis points of profit during the half from operations of the group, and we paid out nearly $5 billion in dividends, so 40 basis points of that 80 basis points' profit. That's probably the most important thing about the capital-generated ability of this group. And then the ability to reinvest that where the growth opportunities come through. And I think there's a good bit of chatter in the wires this morning about increasing payout ratios. I think the important thing is to look at those banks that actually do pay out very significant dividends.

And actually, the other comment I would make, Chris, is that, to Iain's point is, you need to look at who's actually paying a dividend out. The rest of it's a bit academic. And then actually, payout ratios of around 70%, suggests the business is x growth, because you're giving almost the entire thing back to your shareholders. In fact, probably you are giving the entire thing because the 30% is probably what the regulatory creep in terms of capital is demanding you retain. So in effect, if you're giving all the money back to the shareholders, you're running for the dividend only. You've got no growth. So we've seen some comments this morning saying, we've got a 40% to 60% payout ratio. Lloyd's is at 70%. Lloyd's, therefore, is a buy over HSBC. It kind of depends on what is the quantum of dividend; and secondly, what's the growth opportunity because we've got lots of growth opportunities. So it could well be that our 60% payout ratio is still a much bigger actual dollar dividend amount, and we've got growth. Okay, that brings the call to an end. Thank you, all, very much.

Thank you, ladies and gentlemen. That concludes the HSBC Holdings plc Interim Results 2013 Call. You may now disconnect.