Morning, ladies and gentlemen, and welcome to the Investor and Analyst Conference Call for HSBC Holdings Plc's Annual Results 2016. For you 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 very much. Good morning from London, good afternoon in Hong Kong, and welcome to the 2016 HSBC annual results call. With me today are Stuart Gulliver, Group Chief Executive; and Iain Mackay, the Group Finance Director. And before we start, I'd like to say a word on behalf of the board. HSBC's performance in 2016 was broadly satisfactory against the backdrop of far-reaching geopolitical and economic developments. Operating performance in the second half of the year was much stronger than expected, as businesses and financial markets responded more optimistically than predicted. The board was happy with the traction from management actions to reshape the group and address the challenges of the continuing low interest rate environment, and these actions are bearing fruit through market share gains, greater cost efficiency, and improved performance. Much of the heavy investments in reshaping the group to improve productivity, embrace technological change, and reinforce global standards of business conduct has been made. We entered 2017 with the restructuring of the group essentially completed, and with a strong capital position, and a conservative balance sheet. We delivered on our commitments of maintaining the annual dividend in respect of the year at $0.51 as we indicated at the interim stage. And this was delivered through the declaration today of a fourth interim dividend of $0.21. In addition to this, the board has determined to return to shareholders up to a further $1 billion by way of a share buyback. Let me hand over now to Stuart to talk through the key points before Iain takes a more detailed look at our performance. Stuart?

Thanks, Douglas. So, turning to slide 2, we made good progress in 2016. The implementation of our strategic actions is actually well advanced, and our global universal business model performed well in challenging conditions. The drop in reported profit before tax reflected a number of significant items. The non-cash items included a $3.2 billion write-off of goodwill in Global Private Banking in Europe, and fair value losses on our own debt of $1.8 billion. The cash items included $3.1 billion of investment in our cost reduction program, $680 million related to legal settlements and provisions, and $559 million related to UK customer redress. The reported number also includes a $1.7 billion accounting loss on the sale of our Brazil business. Our adjusted profits were broadly unchanged year-on-year, following solid performances by our global businesses. This enabled us to capture market share in strategic product areas and build a platform for future growth. We delivered positive adjusted jaws in 2016. Global Banking and Markets recovered from a sector-wide slow start to the year to generate higher adjusted revenue than 2015. Commercial Banking performed well, particularly in the UK and Hong Kong, growing revenue in spite of a slowdown in global trade. And Retail Banking and Wealth Management performance was mixed. Overall revenue was down compared to 2015, due largely to the impact of reduced client activity in Hong Kong on our Wealth Management businesses. However, strong mortgage growth and higher current accounts and savings balances helped to increase revenue in Retail Banking. Now, we've written off all the remaining goodwill in the European Private Banking business. This goodwill relates principally to the original purchase of Safra Republic Holdings in 1999. The restructuring of Global Private Banking is now largely complete. And although Global Private Banking is now much smaller than it…

Thanks, Stuart. As you may already know, we have re-segmented our results with the global businesses now representing our primary reporting segment, and have replaced the business line known as other with Corporate centre to better reflect the way we manage our business. Corporate centre comprises Central Treasury, including balance sheet management, our legacy businesses, interests and associates and joint ventures, central stewardship costs that support the business, and the UK bank levy. There are more details on the Corporate centre in the appendix. Our published re-segmentation document also provides detailed analysis and reconciliation of this reporting change. Moving quickly, some key metrics for 2016. The reported return on average ordinary shareholders' equity was 0.8%. The reported return on average tangible equity was 2.6%. On an adjusted basis, we had posted jaws of 1.2%, and we had a tangible net asset value per ordinary share of $6.92. The movement in jaws was due to a 3.7% reduction in adjusted operating expenses, which exceeded the 2.5% fall on adjusted revenue in 2016. Our adjusted measure includes the impact of bank levy. Tangible net asset value fell by $0.45 in the fourth quarter, driven largely by foreign currency exchange differences and movements in available-for-sale investment to other comprehensive income. There's more detail on this movement in the appendix. Slide 4 shows the impact of significant items and currency translation in the fourth quarter on our reported profits and on our return on equity. The largest significant items in Q4 were non-cash items, namely the $2.4 billion write-off of the remaining goodwill in the European Global Private Banking business, and $1.6 billion arising from changes in credit spreads in our own debt designated at fair value. They also included a $1.1 billion investment to achieve our cost savings. Adjusted profit before tax for…

Thanks, Iain. So, slide 21 shows our progress in implementing the actions we outlined at our investor update in June 2015. We're now 18 months in to a two-and-a-half-year program and the large majority of actions remain on track. We're going to beat our original target to reduce both risk-weighted assets and costs, as Iain has already said. Mexico also continues to recover strongly. Adjusted PBT more than tripled in 2016 and revenue grew 18% year-on-year. We grew lending by 14%, increasing our market share of personal loans, payroll loans and mortgages, and raising our advances-to-deposit ratio. We also grew Global Trade and Receivables Finance and Global Liquidity and Cash Management revenues in Mexico by 11% and 19%, respectively. The low interest rate environment, however, continues to keep U.S. business off-track, although adjusted revenues in Global Banking and Markets and Retail Banking and Wealth Management both grew in 2016. The network benefits of the U.S. business have also increased, as we grew revenue from the international subsidiaries of our U.S. clients by 11% compared with 2015. The establishment of the UK ring-fenced bank remains on track. Both the Chair and CEO positions of HSBC UK have now been filled, following the announcements of Clara Furse as Chair and Ian Stuart as Chief Executive. The migration of roles from London to Birmingham is around 35% complete, with the remainder on track to be in place by the time the bank launches in 2018. Our international network continues to drive revenue growth in our transaction banking product lines. Global Liquidity and Cash Management revenue increased by 6% year-on-year, and Global Trade and Receivables Finance captured further market share in strategic markets, including Hong Kong and Singapore. In 2016, we were named Best Bank for Corporates by Euromoney and Best Supply Chain Finance…

Thank you, Mr. Gulliver. We will now take our...

Can we have the first, please?

We will now take our first question from Ronit Ghose from Citigroup. Please go ahead.

Great. Thank you. Stuart, Iain, thanks for the presentation. Can I just pick up on a couple of points related to revenues? The Q4 seemed to be a bit of a disappointment vis-à-vis market expectation, maybe just bad at forecasting. But you're highlighting lots of 2017 challenges while talking up the medium term. And if you can just dig into this, please. On specifically the growth outlook, you seem very well positioned – you're well positioned for growth. And in, Asia, loan growth's running at about 4% right now in Asia for you. Do you expect that run rate to accelerate for 4%? In your statements, you've mentioned some of the leading macro indicators are picking up, trades picking up, yet it's pretty uncertain in terms of outlook. So I'm just wondering if kind of 4% sort of loan growth, 4% loan growth can be stronger in your Asian footprint this year? Linked to that on the revenues, the margins – is most of the margin, so the underlying margin weakness as you've seen in Q4 down to loan spreads coming down, and how much more sort of pressure do you expect on the spread – this is in the UK and the U.S., particularly in the UK? And finally, on the one-off, there's $1 billion swing in treasury that Iain's obviously called out and I'm just curious as to why you're not putting that into the one-offs, because you say that you expect this to kind of net to zero over time. How should we try to think about that treasury revenue number? Thank you.

There was – there's a loss in there. I think from – and I'm sure Stuart can provide some context and as we clearly got improved, very strong loan growth coming through Global Banking and Markets, and we saw encouragement coming through retail bank, as well, in the fourth quarter of last year with some momentum coming into 2017. But I think the growth rates that you referred to, Ronit, around 4% to 5% are probably in line with what we are presently seeing and what we would expect to see through 2017 in that particular area. Moving on to margins, there are couple of factors coming through in the fourth quarter. You will notice and we commented here that again we got accelerated reductions in our U.S. CML runoff portfolio in the fourth quarter and notwithstanding that that historically has been a loss-making portfolio, it is a very strong NIM portfolio. And as we continue to sell and run off those assets, that feeds through to NIM. And the other factor that we saw on the fourth quarter was the impact really of the MREL or TLAC, depending on what you want to call it, coming through in the fourth quarter, having issued last year over $31 billion worth of instruments into the marketplace to meet those regulatory requirements. And another factor that was an influence in the fourth quarter was the impact of the bank weight reduction earlier in the year. That was certainly reflected in the fourth quarter. And I think those are probably two of the main features that come through in that regard. FX, again... (31:42)

...impact coming from the weakness in the Mexican peso, the Chinese renminbi, the Egyptian pound, and of course, the UK pound, which also, if you translate them into U.S. dollars, has a sort of negative impact. But loans and advances actually grew quite strongly in the fourth quarter, which as I say, is why we can see some revenue growth but not above that 4%, 5% handle. The specific thing that caused a lot of the miss against analyst estimates in the revenue line is specifically around debt issued and Iain should just talk about that a little bit as to, as you said, to why it's not in significant items.

Yeah. If you look at the total year impact, so we have a number of long-dated bonds outstanding, part of the overall funding structure for the group, and those are matched by interest rate swaps. So, those are fixed rate instruments hedged, swapped into floating, because the majority of our book is floating rate, and they are matched economically across the duration. What we clearly saw, some of the longer-dated bonds, as what we saw in the fourth quarter, is we saw a little bit of winding in the valuation cards. So, the bond is valued off a LIBOR card, and the swap, by convention, is valued off the overnight index swap rate. And there's a little bit of divergence that came through in that regard, which impacted more in the fourth quarter than it had been over the course of the year. If you looked at the total year, the impact was about $200 million, $270 million for the full year impact. We haven't historically seen a great deal of volatility coming through this, and we don't really do anything particular from a forecasting perspective for the reasons that I described is that if we hold these bonds and the economic hedge go up against them due to maturity, the impact should broadly migrate towards zero. This has really been a relatively insignificant feature within the P&L and within the revenue line over recent quarters. And it was really part of that yield – the curve movement that we saw in the second half year that largely influenced it. When will we reclassify this going forward I think will largely depend on the volatility that we see coming through this. But to be clear, we'll provide insight to it when we do see it coming through every quarter.

Great. Thanks for that. Can I just have a quick supplementary on the RBWM revenues? You called that out as well. You mentioned there's a weakness in Wealth. Is that client activity or is that sort of the traditional life-insurance-type returns, like an investment return weakness in the fourth quarter? Is that client volumes are slowing in the fourth quarter?

No. It's actually the first half. And actually, it was because we have incredibly strong first half for 2015, Hong Kong-Shanghai Stock Connect. And then remember, the first quarter 2016 was a really slow start and quite difficult for everything related to capital markets generally. That created weakness in the first quarter, first half in Wealth Management, particularly in Hong Kong, and the second half never made it back up.

But it looks like – maybe I misread it, but it looks like Q3 was really strong and Q4 was a bit weaker, a couple of $100 million weaker quarter-on-quarter in Hong Kong Wealth or in Asia Wealth?

No. I think what we saw coming through was fairly good numbers from a Retail Banking's perspective rather than the Wealth piece.

So, in Hong Kong there's big growth in deposits, so big growth, and just marginal in deposits in the Retail Banking space.

Yeah. And I think what we also see, seasonally, within the Asian business, within Hong Kong in particular, is a little bit of repositioning around the end of the year. So, from investment distribution perspective, the revenue was down slightly in the fourth quarter versus the third, but nothing of particular note.

Okay. No major concerns. Okay. Thank you. Helpful. Thank you.

Okay. Thanks, Ronit.

Our next question today comes from Alastair Ryan from Bank of America. Please go ahead.

Good afternoon. Thank you. Briefly from me so the net interest margin, just to come back to that, is 1.75% in the first half, 1.73% for the full year. How should we think about sort of the exit run rate? And how quickly the December dollar rate hike starts to outweigh the earlier in 2016 rate cuts in places on the UK? Second, Iain, just on your comments on the CML. Now, you're quite clear you hope to be out of that in 2017. Did I understand correctly that the entities will be gone as well then, because clearly in the past, they've been a big consumer or just stress test capital for you? And thirdly, just on your comment on slide 20, an encouraging start to the year, can I encourage you to quantify encouraging?

Okay. So, Alastair, on NIMs, going back to it, taking the fourth quarter discrete, the NIM in the fourth quarter was 160 basis points. Now, if you take out the annualized effect of Brazil, on a year-to-date basis through the third quarter, you take out the annualized effect of Brazil, that's 10 basis points. You then have about a 5 or 6 basis point move between the third quarter and the fourth quarter. That's contributed to by a little bit of asset compression coming through UK mortgages. So, what we clearly saw last year was a pretty competitive environment for UK mortgages. We competed in that market more broadly with strengthening our presence in the broker channel as we've talked about over the course of the year. So, we saw a little bit of spread compression coming through there. At the end of the year, in the beginning of this year, you probably noticed there was coverage by the fact that some of the better-priced products in that space had been withdrawn just as we responded to some of the pressures in that area. Other factors coming through I've already mentioned, runoff of the CML portfolio and TLAC costs. But the discrete fourth quarter was 160 basis points also. In terms of CCAR and CML, we'll have substantially all of the assets and by that, I mean we expect to be well under $1 billion of remaining unpaid principal balances probably around $300 million to $400 million of unpaid principal balances outstanding by the time we get to the half year. Now, when you reflect on that from a CCAR and a DFAST stress-testing perspective in the U.S., it's the asset portfolio that's caused the stress, it's not per se, it's not the existence of the legal entity. So, what…

(40:22) Alastair, and the rate rise in December probably adds about $300 million to the NII of 2017, and about $500 million to $600 million in subsequent years. We've assumed two rate rises in this year but in the second half of the year, so if we go rate rise in March, that will be obviously an earlier benefit for us. January was a strong month. GBM had a strong January, but obviously, it's the type of business that you can't really extrapolate. But it had a strong January, and so did RBWM as the impact of higher rates came through the deposit base, which is essentially the number I've just mentioned.

Thank you very much.

Thanks, Alastair.

Thanks, Alastair.

Next question today comes from Chira Barua from Bernstein. Please go ahead.

Morning, guys. Three quick ones. One, Iain, you mentioned about the CML portfolio and the wind-down. We've always been interested in the excess capital there. You've announced the $1 billion buyback right now from your Brazilian proceeds. How should we think about now that excess capital – when do you hear from the Fed next and when will you communicate with the Street regards what do you do with capital repatriation from the U.S.? That's number one. Second, the reg and compliance cost just keeps going up and up. I mean, it's a significant item and I know that you've brought in a new cost plan. It'd be great to understand how do you see the $3 billion, $3.5 billion going forward over the next three, four years. What is sticky and what is not? And the third, a quick technical question here, rate sensitivity on rest of Asia has gone up sharply from the first half. Is there a liquidity book that you have moved to China, Singapore or somewhere else? Just want to understand what's driving that uptick in sensitivity. Thank you.

Okay. From a CML perspective or more broadly U.S. capital, we had within our CCAR submission for 2016 a dividend proposal from the U.S. holding company to the parent in early 2017, so actually at the beginning of the second quarter in 2017. That capital plan raised no objection from the Federal Reserve. So, we would expect that dividend to proceed in the early second quarter of this year. When that does proceed, we'll let you know, obviously, what the number is. Broadly speaking, we've described having in excess of $8 billion of surplus capital in the U.S. And that's been informed by the portfolio repositioning over the course of the last few years; the disposition of the credit card business back in 2012, 2013; the runoff of the CML portfolio; the overall reshaping of the business. I think we've also guided that the expectation in terms of being able to move the surplus capital out of the U.S., while still clearly continuing to invest appropriately in the growth of our U.S. business, is something that's likely to take three to five years. And certainly, one of the things that informs that, in fact, the key thing that informs that is us continuing to be successful in our CCAR submissions, our next one will be in the 1st of April this year. And ensuring that we continue to improve our overall capacity to plan, forecast and manage the capital position within our U.S. business. But I think we certainly remain very confident in terms of being able to get the capital position in the U.S. to an appropriate standing with respect to the risks and the business that we run in the U.S., and thereby, repatriating capital to parent company. But we'll keep you posted.

So, on regulatory programs and compliance. So, as you noted, the total expenditure was about $3 billion in 2016, which was about $400 million higher than in 2015. Of this, the spend on Global Standards was about $1.6 billion in 2016 within that $3 billion number. And probably, the expenditure on Global Standards peaks in 2017. We expect the implementation of systems, an IT platform, so obviously, therefore enable us to scale without incremental costs going up with that scaling. However, this is part of our BAU, so I would not expect us to see a material reduction either in that $3 billion number. But as I say, 2017 should be the peak number, but then, I would expect us to see that repeat in future years, steady state.

I think going back just momentarily to your capital question, Chira, how do we deal with that? I mean, the capital that comes back to the parent company in the form of dividends, capital transactions like the Brazilian disposal, any dividends that we would receive from the U.S. legal entity or any other goes into the general capital pool at the parent company. And the deployment of that is focused on investing to grow the business, supporting the dividend for shareholders. And as we've said, from time to time as appropriate, we'll consider buybacks. I wouldn't necessarily link any of the capital actions specifically to buybacks or anything else. It becomes part of the general pool, which Stuart and the management team, along with the board then make decisions around how that is attributed to the various priorities.

So as you look at the Asia-Pacific rate sensitivity, pretty big growth in deposits in China. Remember, China sits in our Asia-Pacific number. Big rate move down in China on that deposit base. So, much more rate sensitive. There's no book being moved.

Thank you.

Thanks.

Thanks so much.

The next question today comes from the line of Raul Sinha from JPMorgan. Please go ahead.

Good morning, gentlemen. If I can have two, please. Just the first one on the rate sensitivity again. I think you've been very clear on the short end of the curve and the sensitivity to that, but you also mentioned the steepening of the U.S. and the Hong Kong yield curves. And so, I was wondering if you can maybe talk a little bit about the sensitivity to the mid or the long end of the curve and how you might be positioned or changing your positioning on that, especially in Q4.

Again, not much really. When you think about where the U.S. dollar rate really benefited in the second half last year, it was at the low end. It was really 10 years and beyond. When you look at the asset composition of our balance sheet, we don't have a particularly large component of the balance sheet – in fact, a relatively small proportion of the balance sheet is longer-dated, with the majority really sitting below five years. So although clearly a steepening of the curve helps us, it helps us, it's going to take longer to work its way through the asset base and really result in terms of uptick. So, what helps us? Our policy rate increases and movements in the shorter end of the curve. So it's a help, but it doesn't have the same impact as things at the shorter end.

The way we think about Balance Sheet Management is it's three years and under.

Okay. That's helpful.

It's a kind of one month, three years is steep. We've got a lot of money riding down that curve. But think about it three years and under, so what the 10 year or 30 year does is not that relevant.

Yeah, sure. Okay.

And I think broadly speaking, if you think about it in this terms, we've talked about this before, a rising rate environment, you're generally going to see that improvement coming through the businesses, Retail Bank, Wealth Management, Commercial Bank, Global Banking and Markets with a possible downside to that within Balance Sheet Management. But by the same token, you'll have seen highly consistent earnings coming through Balance Sheet Management over the course of the last four to five years, where it has consistently fallen within the $2.5 billion to $3 billion, this year being at the $3 billion end of that range.

Okay. Just the second one, we haven't talked about asset quality yet on the call. But obviously, this was a very good quarter. I think you had some write-backs in Q4 as well. But clearly some of your peers have had different experiences more recently, and obviously, you've got quite a low risk profile in the balance sheet. But I was just wondering if you could talk a little bit about what's the real underlying run rate you see in terms of provisions and what your thoughts are in terms of the outlook. Can it get better from this or is it as good as it gets?

Look, I think one of the things certainly as a couple of the Asian banks came out with the results last week, we had a quick call with our colleagues in Hong Kong over the weekend just to get any really up-to-date feedback about what they saw coming through. And the story has been remarkably consistent in terms of asset quality across Retail Bank, Commercial Banking, Global Banking and Markets. The year was clearly impacted by higher provisions in the metals and mining and oil and gas sector, principally in our North American businesses. But by that being said, we saw some credits coming through in the Commercial Banking business in those sectors as the year progressed. But credit quality – whether you look at it from a China perspective, Hong Kong, the wider Asian, the UK, the European – remains very, very stable, and there are no really adverse indicators at this point coming through the book. Questions have been put to us earlier this morning by Reuters, Bloomberg, for example, is have we seen any impact from Brexit. And at this point in the game, no, we absolutely haven't. So, I think, overall, credit quality remains stable. We did get some credits coming through in the fourth quarter, which gives us probably a slightly artificial view. But, again, we're at a fairly benign point in the cycle. I am, as you know, notoriously disinclined to forecast LICs from a basis points as a percentage of outstanding loans. But, again, if you sort of take account of where you saw oil and gas, metals and mining exposures being dealt with by us in the course of late 2015 and 2016, and normalize for that, you get some sense as to where the run rate might be.

Sure. But, Iain, any thoughts on IFRS 9 and how that might change in terms of should we start to think about that from 2018 in terms of your provision?

Well, the industry's certainly thinking about it big time, I think more importantly in terms of the context of how it affects capital and volatility within the capital ratio. Just thinking about this, over the duration of our loan, it shouldn't change. If we maintain consistent underwriting and discipline in terms of how we manage the book, it should not change the lifetime loss experience. However, the timing with which that gets recognized from a stage 1, stage 2, stage 3 perspective in IFRS 9 clearly could, almost certainly will introduce some volatility. And if you were to see significant sector downturns, again, I'll refer back to the stuff we saw on oil and gas at the end of 2015. That would move quite a lot of the book into stage 2, and you'd see some significant upward volatility, upward movement in non-impairment charges. But from a lifetime credit cost perspective, it shouldn't change, unless we allow that short-term volatility to filter through to how we actually underwrite and manage the exposure. And I think that's something we could've focused on. If you step back from the standard itself, I think the area where our regulators are beginning, but only just beginning to think about is how that reads through to a potential short-term volatility in capital ratios and how they deal with that. So, look, the industry is full steam ahead in implementing the standard that goes into the 1st of January next year. You will see volatility. In theory, what you'll see is credit losses recognized much, much earlier in the cycle. Whether that necessarily is a good thing remains to be seen, but lifetime impact should remain reasonably consistent.

Okay. Just quickly, when do you think we might get some guidance in terms of the impact of the upfront impact for the first line?

Second half.

Okay. Thank you.

Next question today comes from Claire Kane from Credit Suisse. Please go ahead. Claire Kane - Credit Suisse Securities (Europe) Ltd.: Hi. Good morning. A couple of follow up questions on the revenue outlook, please. Firstly on the NIM, I think you said 160 basis points for Q4. Did you say that the like-for-like sequential impact was minus 5 bps, so Q3 was 165 basis points? And also, could you explain whether there was any hedging impact in there or was that 5 bps broadly related to just the UK? And then my second point is on the MREL or TLAC guidance. You've said it would go up to $0.9 billion for 2017. Can you confirm that that is our long-term run rate or should we expect there's been additional impact going into 2018 and beyond if you need to be MREL compliant by 2021? And then finally, my third question, just really to wrap it up, clearly some of the headwinds you flagged in terms of FX broadly relate to the first half of 2016. So, if we consider the second half adjusted revenue run rate of around just under $49 billion, consensus is looking for around 6% up just year-on-year versus that run rate. Give me your commentary around volumes. Do you think that's reasonable in the context of the NIM pressures? Thank you.

Hey, Claire. So, to be clear, the 5 bps, you're right. There's a 5 bps impact. It was influenced by the factors I mentioned earlier in the call. The compression of the UK mortgages was one of the contributors. That was about 2 or 3 basis points. TLAC and CML one-off were the other contributors. There is no real notable impact from hedging coming through in the fourth quarter. It was informed by assets on the balance sheet and movement within that. From an MREL perspective, the long-term guidance that we've provided is consistent, $60 billion to $80 billion, based on firming up guidance coming from our regulators as to exactly how much is required, where it is required to be positioned, the characteristics of it. Clearly, that is a first threshold, which is compliant by 2019. And that's really what we've focused on. So, within that timeframe, somewhere between $60 billion to $80 billion of issuance to be accomplished, $31 billion accomplished in 2016. Broadly speaking, assuming there's good reception for this in the marketplace, we'd expect to do much the same in 2017. And to the extent that any further issuance is required, we'd complete that in 2018 to reach the first threshold of compliance in 2019. Clearly, as you point out, the final compliance time line around the full implementation of MREL is 2022. So, I think based on guidance we are today, the $900 million is broadly consistent, subject to whether or not there is more that needs to be done in 2018. And I think we really need greater clarity in guidance around quantification and characterization and treatment of MREL from our regulators. Not only in Europe, but further afield because this – it's not called MREL outside Europe, it's called TLAC. But it is a global phenomenon that needs to be implemented. But I wouldn't change the long-term guidance on that regard at this point. In terms of overall revenue outlook for 2017, I'm not really super keen on filling out the old spreadsheet for you there. So, we've given you some pretty guidance around what we think the FX impact is. There are other short-term pressures that we've highlighted. But we've also talked in kind of growth that we see coming through the business. And what we've seen certainly in the fourth quarter and the first few weeks of 2017 has been encouraging in that regard. Claire Kane - Credit Suisse Securities (Europe) Ltd.: Okay. Thank you. Could I maybe just have one follow-up then? In terms of the NII trajectory versus the Q4 run rate, do you think volumes would more than mitigate the NIM pressure that you've guided to relative to the Q4 base?

We will certainly focus on the management of the assets that we underwrite. Our teams is BSM do a great job on managing the overall liquidity portfolio and interest rate risk in the book for us. So, our focus will be on trying to mitigate NIM pressures and continue to grow volumes to offset that, but also to grow volumes in a way that accrete returns for the business, that's a discipline which Samir and his colleague, Noel and his colleague, John and his colleagues are very focused on is putting business on the books that bring us to improved returns against risk-weighted assets, and returns on equity in the business. And I think when you look at return on risk-weighted assets and the improvements that Global Banking and Markets have realized, Commercial Banking have realized, that is encouraging. And that's a discipline that's going to remain in place. Claire Kane - Credit Suisse Securities (Europe) Ltd.: Great. Thank you.

Thanks, Claire.

Next question today comes from Tom Rayner from Exane. Please go ahead.

Yes. Good morning, chaps. Just a couple of questions, please. First thing, let's just get back to the share buyback announcement because you're fairly clear that this is a first half buyback, and it's very much linked still to the capital release from Brazil. So, my question is once we get to, say, the interim stage this year, the CCAR is behind you, and assuming there's no problems with any of that, is it fair to assume that then it's like a clean page for the rest of the year? We shouldn't take this $1 billion necessarily as a proxy for what you're planning to do for the year as a whole? That's my first question. And I've got another question on the revenue headwinds, if that's okay.

So, Yes. And what you should have seen is that, as we have evidence last year, we're starting to obviously manage our capital in a much more active way than we've been able to do previously because at 13.6%, 13.5% after this buyback, we are in a good position. And what we'll be doing is looking at what our capital position is, first of all, trying to actually not have this as surplus capital, but actually use it within the business by obviously putting on risk-weighted assets at accretive returns. If we can't put them on at accretive returns, and assuming that we're nicely covered on the dividend, it's possible – subject to regulatory approval – we might look at doing further buybacks. But the first priority have got to be to see if we can actually make this work within the business. And that will be the huge focus of all of the teams. The focus of the teams is not essentially to see if we can buy back. The focus of the teams is to see if we can get accretive RWAs deployed within the business. So, yeah, I think the way you characterize it, that you get to the interims, it's blank sheet of paper is the way to think about it. But I don't want you to raise expectations and start modeling perpetual buybacks. We won't be doing that. If we actually do see reasonable growth coming around, if we see higher interest rates, as I said earlier, balance sheet management, the whole series of books makes a lot of money in the kind of north of three-year area, we get steeper curves, we'll actually be using that capital up in the business.

Okay. Okay. Very clear. Thanks. Just on the revenue headwinds, just a little bit more color, you mentioned TLAC. I think, Iain, you've said the sort of the $900 million for now is the guidance. I'm assuming that is – the $900 million, is a net figure. That's not a sort of cost of the new TLAC, which will be offset by some ineligible debt maturing. Is that right that I'm thinking about?

That is the negative carry we've talked about, Tom. Clearly, the focus within the business is to find ways of deploying that higher cost debt in a way that we can mitigate that negative carry to the extent possible. So, again, that's the focus in which balance sheet management is zeroed in. And clearly, we bring the expertise to bear from clearly Stuart's experience, as well as Samir and the teams in terms of how we mitigate that. But that is negative carry that we're projecting.

Sure. And then, just on the FX. You've flagged up the $2 billion headwind if rates stay at the January level. But obviously, as it works through the P&L, it's going to affect the other lines as well. How should that drop down to sort of pre-tax or even net income in terms of headwind? Will it be the same sort of percentage impact all the way down the income statement?

Yeah. So, look, Tom, we would certainly expect to see some kind of corresponding benefit coming through the operating expenses, which mitigates some of that headwind that we see coming through revenues from FX. So, I think if you sort of think through it in broad terms, perhaps about 30% that we see having an adverse impact on the P&L because we get some benefit coming through on impairment charges and operating expenses.

Yeah. Okay. Thanks. And so, just one very final one for me. On the – you specifically mentioned sort of the mortgage pressure in the UK. I'm just trying to get a sense of whether you view this as a market phenomenon or that will push for market share by you guys, you're happy to maybe trade off that volume margin, or do you think it's the market itself is becoming more competitive?

Well, I mean, certainly, this is an area where Francesca and António in the UK could give us much more insight and detail around what's happening on a day-to-day basis. But it clearly was a competitive marketplace in 2016, true in 2015. The team in the UK engaged much more actively with selected brokers to give ourselves line of sight to our larger share of the UK market. And from a volumes and stock perspective, we grew market share in 2016. And – but it is clearly competitive from a pricing perspective. I think we had one of the best priced products in the marketplace in 2016 for a significant period of time. And in the latter – it was either the latter part of the year or very early this year, we took that particular offering off the markets, please. So, it goes back to Stuart's comment. We are absolutely focused on growing our market share in products that we know we can make good returns on. But by the same token, there's a very strong focus on return generation within the business and continue to improve those returns, both in terms of return on risk-weighted assets and the wider capital equation around return on equity. So, discipline around that capital deployment is the heightened and increasing level within the firm.

Okay. Thanks, Iain. Okay. Thanks a lot.

Okay. Thanks, Tom.

Our next question today comes from the line of Martin Leitgeb from Goldman Sachs. Please go ahead.

Yes. Good morning from my side. I just have three questions. And the first one is a follow-up on earlier comments on the rate sensitivity. And I was just wondering if you could give us a steer in terms of currency denomination of your deposit base and to what percentage of your global deposits are denominated in either U.S. dollar or Hong Kong dollar. Obviously we got some still that (01:03:37) coming from the booking location of the deposit, which should imply slightly shy of 50% on those currencies. But I was just wondering if you could give us a steer if that is the right number or if the number could be meaningfully higher in terms of U.S. dollar, Hong Kong dollar deposit exposure. The second question is to follow up on your just previous comment or answer on Tom's question on the UK mortgage space. And I get a bit of sense looking at pricing relative to market that it feels like something held you back a little bit during the year in terms of mortgage growth in the UK. And it seems also that, that growth has accelerated in the second half. And I was just wondering if this has do further with your rollout of intermediary networks and if we should assume that going forward from here, grow in net new mortgage lending in the UK would further accelerate. And the final question, also in the UK, with – on the current account side, it seems from what we read in the press that the current account offering at this point in time is very competitive in the UK. And I was just wondering if you could share a bit of detail on the strategy there because looking at the latest account, it seems like that there's quite a substantial deposit overhang in the UK. And I was just trying to get sense on what the aim here is in terms of broadening the current account offering. Thank you.

So, I think if I pick the last one first, you have seen again the deposit, the AD ratio, that's the deposit ratio sitting just below 68%. We saw significant customer deposit growth across or each of our global businesses within 2016. Most notably, that was within Hong Kong, the wider Asia, and UK. And so, we've got a current account and an overall savings proposition out there in marketplace. Customers either like it because of how it's priced or they like it because of the strength of the HSBC balance sheet and the overall security. I think if you are to split it out from a corporate perspective, it's probably the latter. And from a retail customer perspective, I think it's probably more difficult to point any particular differentiation in that regard. If you think about overall deposit concentration, the greatest – the most significant deposit surplus that we carry is in Hong Kong. It is the most significant by a long stretch. It is then followed by strong deposit and AD ratios within the UK. And then, laterally, if you work down the list, you sort of come to the U.S. It's sort of being third in terms of overall concentration of deposits that are either U.S. dollar directly or U.S. dollar linked. But Hong Kong is the big beast in that equation. I think in terms of mortgage growth in the UK, there clearly was a focus in 2015 and 2016 in terms of expanding our ability to access more of the market from – in terms of being able to see more of the market in terms of accessing mortgage lead. But in terms of overall growth, it's actually been a fairly steady picture in terms of 2016 versus 2017, where we've grown to a reasonably steady pace from the first quarter of 2016 through the second, third, and fourth quarters. If you think about this, at the beginning of the year, we had slightly less than $93 billion outstanding in UK mortgage balances. And at the end of the year, we had about $96 billion. And that's on a constant currency basis. So, overall, we grew the book, but I wouldn't have called it a headlong charge for growth, but there's a very strong balance between underwriting discipline and doing the right thing in terms of appropriate product for the customers in terms of the direction of the UK business.

Thank you. And on the deposit elimination (01:07:38), is this roughly 50% (01:07:40) what is reflective of the U.S. dollar, Hong Kong dollar exposure?

We'll come back to that. So, like I said, the Hong Kong dollar deposits in terms of something linked to the U.S. dollar is the most significant surplus that we've got sitting around the world. I don't have the breakdown of the deposit base globally for the group by currency, but we can come back to you on that one.

Thank you very much.

The next question today comes from Jason Napier from UBS. Please go ahead.

Hi. Good morning. Good afternoon. Two on costs, please, and then one on capital. The sort of enlarged growth (01:08:23) cost program and the breakdown of the sort of waterfall there, I just wanted to ask you again for a little bit more color on the inflation and reg costs up well over $1 billion now versus the original plan, and sort of some sense as to what has changed there. I appreciate the comments on taking it as OpEx. I'm just interested in the sort of – in the way that things have turned out. And likewise, the very substantial increase in transformational savings that you're aiming for, just perhaps by division where that is coming from given the size of the numbers. Secondly, a much easier one. The Corporate Centre costs ex-levy looked reassuringly stable at about $250 million a quarter. And I just wondered if an underlying $1 billion a year run rate for Corp Centre ex-levy was about right. And then, I have a last question on capital.

Will you give me the question on capital?

Certainly. So – and I'm afraid I'm really just asking you to rehearse what I think you already said at Q3 around the change in treatment of BoCom. But if I think about some of the comments today, the buyback announced today takes you to 13.5% of CET1. The $8 billion of capital that you've mentioned you said is potentially excess, and the U.S. is another 100 basis points, and BoCom was worth a little over 100 bps in Q3. I'm just trying to understand again whether the sense from yourselves is that the change in treatment at the PRA level is in the near term or even the medium term distributable, because that would imply sort of a new running deck for capital requirement of 11.5%, which I think many investors might regard as too good to be true.

Sorry. Can you grind out your rationale for your 11.5%? You're suggesting that an appropriate ratio for the group at 11.5% common equity Tier 1?

Well, I'm just trying to check the maths. So, I think in a response to an earlier question, you said that you'd suggested that excess capital in the U.S. was $8 billion, right? So, that's 100 basis points. The benefit in Q3 from the PRA's change to the BoCom treatment was 104 basis points. So, kind of where you are now net of those two things is 11.5%. And I was just wanting to get your sense as to whether – yeah?

No. Wrong way to think about it. We've set out a common equity Tier 1 ratio target of 12% to 13%. And I think for probably the last 12 to 18 months we've been pretty clear that probably at the top end of that range is the appropriate place for us to be, certainly until some of the regulatory uncertainty that still persists is resolved in an appropriate manner. It clearly was a little bit disappointing that we didn't get to our final guidance on Basel III revisions or Basel IV in January. We'll hopefully get something on that later this year. But no, our common equity Tier 1, sitting at 13.5% after this buyback, is 50 basis points above the top end of the range that we would target. So, therefore, it kind of comes back to Stuart's comments. When we have capital resources at the group that are in excess of our common equity Tier 1 ratio, there's a number of factors we'll consider. One, the investment opportunity at improved return levels within the group, the overall coverage for the dividend, and then consider the opportunity for buyback. The other factors that clearly flow into that is where we are with respect to overall stability in the regulatory environment as it relates to capital resources. And more broadly, dealing with uncertainty from a geopolitical perspective and how that could impact the overall revenue and profit generation within the group. So, there are – it is a multifaceted problem that the industry faces and I think we've got a pretty sensible and sound framework around dealing with that. But do not assume that moving significant (01:12:31) 13% is something that we would countenance in the short, medium, or long term.

Thank you. That's very clear.

Okay. From a cost perspective going to the overall compliance, so the overall regulatory and compliance costs go well beyond the Global Standards. The Global Standards is a significant component of that. And as Stuart pointed out, we continue to invest on delivering our commitments against the U.S. deferred prosecution agreement, the agreement with the Financial Conduct Authority in the UK. And that is a level of investment that we would expect and certainly Colin Bell, who leads that overall focus for us, is firmly of the view that investment in that area will peak in 2017. And that's consistent with previous guidance that we've provided in that regard. Other programs that fall into that stress testing, we do multiple stress tests around the world for regulators. We did over 60 stress tests last year informed by regulatory guidance. We have our own internal stress testing program that's been running for many years that really informs questions that Marc Moses, our Chief Risk Officer, Stuart, the board have that we stress-test against. It also covers implementation of the ring-fenced bank in the United Kingdom. It covers the implementation of IFRS 9. It covers CCAR in the United States. So, it's a broad base of programs that are dealt with in the regulatory and compliance space. Implementation of the senior manager regime in the UK is another that falls into this area. The area of expanded investment is primarily within the Global Standards program as it relates to anti-money laundering and sanctions control and overall financial crime risk management. And we would expect that investment to peak in 2017. And as Stuart said, we would expect that to become part of the run rate. I think our view is that we will deliver productivity over time, but we will deliver that…

Thank you. And then, the last one was Corporate Centre ex-levy, about $1 billion a year, that feels like a sort of stable-ish number, does it, as we come to grips with the new divisions?

It's not about the number for 2017, but just as the rest of the business is focused on delivering cost savings and better processes, our Corporate Centre is focused on the same thing. So, it's not about number, but we'll be working on – we'll be focused on trying to work that a little bit southwards as well.

Thank you.

So, we got time for one last question.

We will take our last question today from Stephen Andrews from Deutsche Bank. Please go ahead.

Hi. Thank you, guys. Yes. Just comes back to that last question on slide 7 on the Corporate Centre and that $1 billion for the year, ex-levy. Can you just make a comment on the bank levy? I mean, it came in a little bit lower than expectations. You said there was a write-back. What you would expect that to be this year because I think it was about $300 million better than people's expectations? And then...

Yes. So, the rate dropped. So, you'll recall from the budget in 2015, I think, the rate will drop each year from now to 2021, when the basis of assessment will go from the consolidated balance sheet of the group to the UK balance sheet of the group. And it is in 2021 when we will realize a significant reduction in the bank levy, assuming that budget undertaking and legislation remains in place. What you should expect between now and 2020 is somewhere in the range of $1 billion to $1.1 billion each year for the bank levy.

So, net of the bank levy, we should just really be running that Corporate Centre forward as zero because it looks like a lot of TLAC cost, the roll-off costs now of the U.S. CML, all is in that Corporate Centre with the new breakdown, is that correct? Would you expect (01:17:59) any contribution at all from the Corporate Centre which has been positive in the past?

I'm sorry. When you say positive, what do you mean?

Well, if you – if I go to slide 7, and look at the sort of underlying run rates you're giving on the businesses, you got the Global businesses and the Corporate Centre. And the Corporate Centre, as you rightly pointed out in your comments, there was a minus 6% Q1 (01:18:21) in the last quarter, which was the debt issue.

Yeah.

If I'm right, what you're saying just now with the previous question was that we're looking about $1 billion – that running at $1 billion for the full year ex the levy because obviously, there was a lot more drags on that going forward as you pointed out. So, if you're saying $1 billion for the full year, we take it for $1.1 billion, essentially for the full year, we should be pretty much forecasting that as zero for the full year at each quarter. I know you don't give forecast. But is that how we should think about it?

So, from an ex-levy perspective?

Yeah. No, including levy full year, roughly zero.

Well, but remember what's going through the Corporate Centre here. You've got the associates, you've got BoCom, you've got Saudi British Bank. You've got headquarter operating expenses, you've got the net of our corporate – our global service centers, revenue and expenses coming through that. You've got a proportion of the TLAC cost coming through that, some of which clearly has pushed down to the operating entities as we preposition that. So, there are still fairly those very active flows coming through the Corporate Centre. I mean, ex-levy – I think the best analysis is the ex-levy is, from an operating expense perspective, subject to comments I made, is probably $1 billion.

Ex-levy, okay, so including levies. Okay.

Okay?

Yeah. Thanks.

Okay. Thanks, everyone.

Thank you very much.

(01:19:49) thank you.

Thank you, ladies and gentlemen. That concludes the call for the HSBC Holdings Plc annual results 2016. You may now disconnect.