HSBC Holdings plc (HSBC) Q2 2026 Earnings Report, Transcript and Summary

Welcome to the Analyst and Investor Presentation for HSBC Holdings plc's 2026 Interim Results. This webinar is being recorded. I will now hand over to Georges Elhedery, Group CEO.

Welcome all to today's call. I'm joined by Pam, who will take you through the second quarter performance in detail in a moment. I'll cover three items. One, our second quarter highlights and the first half performance; two, the progress we're making on strategy execution; and three, our targets for 2026, '27 and '28. Let's turn straight to performance. My comments here will exclude multiple items and the comparisons will be year-on-year on a constant currency basis. Momentum accelerated into the second quarter. We grew revenues by 7% to USD 19 billion. We generated profit before tax of USD 10.3 billion, up 13% year-on-year and we delivered an annualized return on tangible equity for the quarter of 19.5%. We grew our deposit franchise by USD 46 billion and grew our loans by USD 20 billion. Next, the half year performance highlights. We grew both group revenues and group profits before tax by 6%, with an annualized return on tangible equity of 19.1%. Year-on-year, we grew our deposit franchise by USD 129 billion or 8% including held-for-sale balances. Our deposit base stands at USD 1.8 trillion. We grew loans USD 55 billion or 6% year-on-year on the same basis. We see improved demand in Hong Kong and consistent strong growth in the U.K. We grew fee and other income in wholesale transaction banking by 4%. As the world's trade bank, this shows the central role we are playing and the growing market share we are taking as our customers adapt to new patterns of trade. In Wealth, we grew fee and other income by 18%, delivering particularly good growth in our market-leading Asia franchise. We are distributing to our shareholders with another $0.10 quarterly interim dividend per share, $0.20 for the first half. And we are restarting share buybacks -- would be -- up to USD 1 billion we announced today, three quarters after pausing them following the announcement of the Hang Seng Bank privatization. We continue to progress at pace and with discipline with our strategy execution. Each of our four businesses is growing, each generated an annualized return on tangible equity in excess of 17%, and each is building on a strong foundation for future growth. Our four leading and highly connected businesses bring scale benefits to our unique growth proposition. We continue to focus on three clear strategic priorities, and we are moving at pace with each; one, be simple and agile; two, drive customer centricity and three, deliver focused sustainable growth. First, to strategic priority #1. To unlock HSBC's full potential, we have been reengineering to become simple and agile. To do this, we have focused on five areas. First, organizational structure that's done. We're now focused on embedding greater business collaboration. Second, leadership. That's also done. We're now focused on embedding a common enterprise leadership culture to drive a bank-wide high-performance culture. Third, organizational simplification saves. We are today revising upwards our total target savings to USD 2 billion. We originally set out to deliver USD 1.5 billion of annualized saves. We have now exceeded this target, reaching USD 1.7 billion of action saves. We have achieved this with associated restructuring costs of USD 1.4 billion lower than originally expected. We're now planning to use the full USD 1.8 billion of restructuring costs as per our initial commitment to increase total organizational simplification saves to USD 2 billion to be actioned before the end of the year. The additional saves will provide capacity to support further business growth. Fourth, cost reallocation from nonstrategic or low-returning businesses. We have now announced 15 business or market exits since 2025. Most recently, the sale of our Singapore Insurance business, the exit of our Australia Retail business and the sale of our Retail Banking business in Egypt. These disposals provide investment capacity to drive franchise growth in our areas of strategic focus. This is where we have a leadership position and can deliver better returns. Clearly, completion of announced disposals and related actions remain subject to relevant regulatory and other approvals. In 2026, we plan to have reallocated USD 0.3 billion of this USD 1.5 billion. Fifth, streamlining and upgrading our operating model. This is where we are simplifying the bank at scale. It will be a multiyear journey comprised of two sets of initiatives. The first one, demise of nonstrategic infrastructure; and the second one, process reengineering. In the first half, we demised another 20% of the total nonstrategic application reduction plan we set to deliver between 2025 and '28. We have now demised a total of circa 50% of the apps we plan to demise by 2028. On process reengineering, we continue to work on around 50 processes and procedures to achieve substantial simplification. This is where we are putting our AI to work to simplify, strengthen and accelerate the bank, empower our colleagues and personalize our service to customers. We are investing in the talent, training and technology to deliver it. Now to strategic priorities, #2 and 3. I will talk to these through the lens of our four connected franchises. For each of these franchises, you will clearly see: one, our leadership position in those areas of strategic focus; two, the growth delivered in the half year; and three, the strong client recognition. Our Hong Kong home market is a dynamic economy, a top 3 global financial center and a thriving trade gateway. It is the super connector between the Chinese Mainland and the world and has just become the world's leading cross-border wealth hub. Our deposit base is almost twice the size of the second largest peer. The privatization of Hang Seng Bank represents a unique opportunity in a growing market. It enables us to scale capabilities and drive growth across both banks. We can already see the benefits, both financial and operational. For instance, Hang Seng Bank nearly doubled its new customer acquisition quarter-on-quarter to around 60,000 customers after adopting HSBC's digital onboarding capabilities. In the first half, we grew our Wealth balances in Hong Kong by 10% year-on-year, reaching USD 0.5 trillion. We continue to attract high volumes of new-to-bank customers. 640,000 Personal Banking customers and 24,000 Business Banking customers. And we continue investing to strengthen our market share. Next, the U.K. Taking our full footprint in the U.K., we are the U.K.'s leading international bank. We delivered strong lending growth of USD 10 billion in Commercial Banking, an increase of 10% and USD 10 billion in Mortgages, an increase of 5%. We continued to grow deposits, and we grew our customer base year-on-year with active Premier customers up 7%. New to bank customers in Business Banking were up 48%. The U.K. is a key contributor to our global loan growth, and we are pleased to be supporting the U.K.'s growth as the U.K.'s leading international bank. Next, our Wealth franchise. We are Asia's #1 wealth manager with USD 1.1 trillion of Wealth balances. This deeply rooted full-service franchise is performing strongly. Revenue generated globally from wealth relationships account for around 1/4 of our group revenues. In the first half, we generated global net new money of USD 64 billion. In Asia, we generated net new money of USD 57 billion, representing 32% growth year-on-year. We saw continued momentum in Wealth fee and other income growth for the half year, increasing 18% to USD 5.5 billion. Our unique position in Wealth Management across the client continuum from Premier affluent to Private Banking, combined with an acceleration of our investments will help us capture an even bigger share of the structural growth opportunity. Next, our Corporate & Institutional Banking franchise. We generate 85% of our client revenue from multi-jurisdictional clients. And within this, cross-border client revenue has increased 15% year-on-year. We are a leading globally connected wholesale transaction bank. 65% of cross-border client revenue or client revenue booked outside the client's home market, is from clients headquartered in the U.K., Europe and the Americas. This proportion is stable year-on-year and shows the importance of these regions to our overall network and the resilience of these flows. Chinese Mainland clients contribute 10% of this multi-jurisdictional client revenue, with 75% of those revenues booked cross-border. As more Chinese businesses go global, we expect the structural secular trend to continue over the medium term, and become a key growth driver for CIB. Clients increased their deposits with us by 16% year-on-year. This growth is broadly geographically spread demonstrating the value of this franchise, which is built on deep client trust in our balance sheet, the power of our network and our capabilities and expertise. We grew Wholesale Transaction banking, fee and other income by 4% with trade up 7%, reflecting resilient client trade flows. CIB is performing well, and its first half annualized royalty was over 18%. Finally, let's turn to our targets. Our first half performance demonstrates continued progress against our targets. It gives us the confidence to reiterate each of them, including growing our revenues year-on-year rising to 5% by 2028. And delivering 17% or better return on tangible equity for each of the three years. We are creating a simple, agile, growing bank built to generate high returns. A bank capable of achieving more. We are executing our strategy with discipline, precision and pace. We are investing for growth and we are confident we can navigate uncertainty from a position of strength. We have begun this next phase with a clear strategy, performing businesses, focused investment and an international network that remains difficult to replicate. We are creating the capacity to continue investing for growth, including in talent, technology and AI. HSBC is becoming the bank we set out to build, and we are now putting more of its strength to work. By doing so, we will unlock more of HSBC's full potential. Let me now hand over to Pam. Thank you.

Thank you, Georges. Thank you, everyone, for joining. As George said, I will focus on the second quarter performance. My comments will exclude notable items which adversely impacted profits by USD 0.2 billion this quarter. These are set out on Slide 30. The comparisons I will make will be year-on-year on a constant currency basis. Let's turn straight to the highlights. We can see the momentum building across the bank. Revenue grew 7% to USD 19 billion, growth accelerated from the first quarter. This was driven by Banking NII from both deposits and loans, strong growth in Wealth fee and Other income and stronger Wholesale Transaction Banking. Each of our revenue drivers was stronger than in the first quarter. Profits before tax rose 13% to USD 10.3 billion. Annualized return on tangible equity for the quarter was 19.5%, giving us 19.1% for the first half. Our CET1 grew to 14.1%, up 10 basis points on the first quarter after supporting USD 20 billion of loan growth. We are pleased to reinstate buybacks with up to USD 1 billion announced today. We continue to target a dividend payout ratio for 2026 of 50% of earnings per ordinary share, excluding material notable items and related impacts. Turning to our business segment performance. All four of our businesses grew revenues, each delivered annualized return on tangible equity of more than our group target of at least 17% and excluding notable items. In fact, they are all above 18% return on tangible equity. This broad-based performance shows our strategy is working. Let's now turn to Banking NII. Banking NII increased USD 0.8 billion year-on-year to USD 11.6 billion. Quarter-on-quarter growth was USD 0.4 billion, including USD 0.1 billion in prior quarter one-off items. This reflects really good deposit and loan growth. We are upgrading our full year banking NII guidance to at least USD 46 billion. This reflects growing both sides of the balance sheet and the continued favorable interest rate outlook. Next, Wholesale Transaction Banking. Trade business delivered this quarter with balances up 29% year-on-year. Trade is at the heart of HSBC, and we are seeing the trust our customers place in us to help them navigate and invest. For Wholesale Transaction Banking as a whole, we grew fee and Other income, 7% year-on-year, up from 2% year-on-year in the first quarter. Our income streams accelerated in the second quarter. Security Services grew 16% as we win new mandates and grow volumes. Trade grew 7%. Payments grew 6%, driven by growth in volumes across most regions. And FX returned to growth, up 5% driven by robust client activity. Let's now turn to Wealth. We grew Fee and Other income by 21% to USD 2.8 billion. Growth was driven by all four income streams. Investment distribution, up 26% on higher mutual fund and structured product sales. Insurance, up 21% from an already strong base on higher CSM release as shown on Slide 35. Private Banking, up 22% on increased client trading activities and recurring fees. And Asset Management, up 7% on continued AUM growth. Slide 33 shows net new money in the second quarter was USD 25 billion, of which USD 22 billion came from Asia. And you will see on Slide 31 that there has been no slowdown in our Hong Kong new to bank nonresident customer acquisition in recent months. This slide also shows that while new to bank customers initially bring relatively low balances, these grow significantly as the relationship matures. Next, to Credit. Our second quarter ECL charge was USD 1.1 billion, equivalent to an annualized charge of 41 basis points as a percentage of loans and advances. We reiterate our full year credit guidance of around 45 basis points. This quarter includes additional Stage 3 charges, of which USD 0.2 billion relates to Hong Kong commercial real estate. Slide 39, which you have seen before, sets out our exposures. Hong Kong residential prices have firmed. The prime market for office has improved, but we still see some areas of pressure in office and retail. Outside of Hong Kong, we have seen small pockets of mid-market credit pressure in the U.K. and across Asia. There is no clear pattern, but we are watching it closely in the light of elevated energy prices and interest rates. Let's now turn to costs. Cost growth this quarter is 1% year-on-year. Our disciplined approach to cost management keeps us on track to achieve 1% cost growth in 2026 compared to 2025 on a target basis. You see on the left, the 5% inflation, investment and other is offset by 3% of simplification savings in the first half as a whole. Short, Strong business performance continue. We may consider additional performance-related pay, which would increase 2026 costs modestly. As George said, we have revised upwards our targeted organizational simplification saves to USD 2 billion. Slide 27 shows our simplification saves progress since the program started and its updated trajectory. What I will add is that should strong business growth continue, we will accelerate initiatives to support future growth, which would increase costs. This reflects the confidence we have in the opportunities ahead of us. The costs will be partially offset by the benefits of the higher organizational simplification saves I just mentioned, which we will action by the end of this year. As George said, we have now announced business or market exits since 2025. Slide 28 sets out our progress clearly. Next, to customer deposits and loans. Our deposit franchise increased by USD 46 billion in the quarter. This elevated growth to 8% year-on-year. CIB deposits increased USD 42 billion in the quarter. We saw momentum in GPS, new security services mandates and large corporate inflows in Hong Kong. I will highlight that about half of the CIB deposit growth in the quarter was large and short term. These balances come and go. Our Hong Kong business grew deposits by USD 9 billion and the U.K. by USD 3 billion, reflecting commercial and retail inflows. You see a USD 7 billion outflow. In IWPB, there is a move of balances to held for sale, and we saw private bank deposits flow into investments. At quarter 1, we gave you the split between instant access and fixed-term deposits. Today, on Slide 38, we are giving you an additional disclosure of the split between Retail and Wholesale Deposits. This shows the strength and breadth of our deposit base, in particular, the wholesale instant access deposits that are a source of franchise strength. Turning to loans. Growth was USD 20 billion in the quarter. In the U.K., we delivered another quarter of good growth. This was in both Commercial Lending and Mortgages. We see good momentum in our domestic portfolio and are pleased to help drive U.K. growth. Hong Kong continued to demonstrate encouraging momentum as the economy grows. CIB was led by that trade momentum I previously discussed. That is in Hong Kong, across Asia and in the U.K. And in IWPB, it primarily reflects Private Bank lending in Singapore and Hong Kong. Now turning to capital. Our 100 basis points of capital generation from regulatory profits is up, both quarter-on-quarter and year-on-year this quarter, franchise balance sheet growth across the bank consumed 30 basis points of capital. This supports future income. We accrued 50 basis points in dividends and our 14.1% endpoint enables us to announce and up to USD 1 billion buyback. I will emphasize that buyback decisions will be taken quarterly, subject to our normal buyback considerations. Finally, targets and guidance. We reiterate the targets we set out at the full year, revenue rising to 5% year-on-year growth by 2028, excluding notable items. Return on tangible equity of 17% or better, excluding notable items each year. Dividends 50% of earnings per share, excluding material notable items and related impacts. These targets are how we run the bank. We are always pleased to exceed them in any given year should circumstances be supportive. Second, guidance. Today, we are updating our Banking NII to at least USD 46 billion, and we are raising our targeted organizational simplification saves to USD 2 billion to be actioned this year. To conclude, the intent with which we are executing our strategy is reflected in the strong growth and momentum in the second quarter. It shows discipline, performance and delivery. Discipline in the way we are applying strong cost control and investing to deliver focused, sustainable growth. We are on track to achieve our target of around 1% cost growth in 2026 compared to 2025 on a target basis. And we are reallocating costs from nonstrategic or low-returning businesses towards growth opportunities while upgrading our operating model. Performance in our earnings, all four of our businesses grew revenues and each delivered annualized return on tangible equity in excess of group target of at least 17%, excluding notable items and delivery. Our second quarter results show momentum in creating a simple, more agile, growing HSBC. With that, we are happy to take your questions.

[Operator Instructions] Our first question today comes from Guy Stebbings at BNP Paribas.

So a couple of questions really around growth. It does sound like part of the message today is that there's more opportunities out there to deploy capital into the business. So now it's more of a priority, perhaps over buybacks from here. So two questions sort of falling off that. What sort of metrics are you looking at when making that decision? Presumably there's a demand point here, but also a spread point. So perhaps you could talk about where you're seeing good opportunities on both the volume and spreads right now and attached to that, when it comes to capital generated from upcoming sales, should we again think about the priority being deployment back into the business rather than buy back? And then on net interest income, I mean, clearly, it's been a good huge print you've got hedge support in the second half. And then again, there seem more upbeat message on volume dynamics. I'm struggling a little bit with the guidance for the second half of the year if we're expecting that to work through. What is it that means that we don't see growth in the second half versus that Q2 run rate?

Okay. Thank you, Guy, for your two questions. I'm going to take your first question on growth and ask Pam to comment on the Banking NII for the second half of the year. So first, with the focus of our business on these areas where we are a market leader where we can drive underlying growth and where we can generate high returns. We are seeing now growth in all those areas of focus across all four businesses. We're also actually driving those from a position of material strength. I mean we are the leading Asia wealth manager. We are the world's trade bank. We are -- we serve Hong Kong across two iconic brands, and we, of course, have a very important role in the U.K. as a home market as the U.K.'s leading international bank. So therefore, it does become very important that we continue supporting these leadership positions with the underlying structural growth opportunities in order to continue taking market share and serve our clients with the strength. Now with regards to loans specifically, one thing to reassure you about is that we will only grow at the right returns and within our risk appetite. That is paramount in the way we drive our growth. And that means meeting our targets or exceeding our targets. We're very pleased to see growth in the U.K. Commercial has grown 10% with USD 10 billion -- additional USD 10 billion additional loans. But we're also very pleased to see finally Hong Kong resume loan growth after many quarters of contraction or flat. So this is very encouraging for the future. And then lastly, Guy, on that. Again, our priority in the way we use our capital generation 100 basis points, first is to deliver the 50 basis points accrual for our dividend. That's to meet our 50% dividend payout ratio on our earnings adjusted for material notable items. The second priority use of our capital is to support business organic growth. This is how we can generate the highest value for our shareholders when we do it, of course, within risk appetite and at the right returns. And then the leftover excess capital preferred mechanism to distribute it is through share buybacks, and we're very pleased this quarter to announce a $1 billion share buyback after pausing it for 3 quarters, rebuilding capital from the Hang Seng Bank privatization. Pam?

Thanks, Guy. So you're absolutely right. The banking NII environment is benign. And our own update on the guidance of at least $46 billion, reflects a good outlook for our balance sheet, both from a deposit and a loan side, which had an uptick in the second quarter and a supportive rate environment, which will give us a modest benefit for the rest of the year. We also have the benefit coming from the reinvestment of $50 billion of maturing structural hedge assets, which are currently yielding 2.8% in the second half of the year. But as always, in any guidance, we take into account a range of plausible outcomes when setting out the guidance. So there's a certain buffer in it, and that includes consideration of volatility, particularly in HIBOR. You've seen some of that recently. As well as FX rates. And as you can imagine, if sterling is weaker. That has an impact for us for on a dollar-based Banking NII. So, all in all, really comfortable with the guidance update, and I would just stress on at least $46 billion. And of course, mathematically, you're quite right with the run rate, you could pretty much get a larger number.

Our next question today comes from Kian Abouhossein at JPMorgan. Okay. We'll move on to our next question and that comes from Alastair Warr at Autonomous.

Two questions on costs, if I may. First, quite simple. If you could just give a little bit more color on where the additional simplification saves are coming from, what's changed there? And then a second question, just looking a bit further out, really. You've talked about the revenue in the medium term, moving up towards 5% growth. We've got a little bit more nuance today on variable costs. There are jaws built into consensus 2, 3 years. I just wondered if you could talk about the potential trend for reported cost growth, just bearing in mind that moving on to 5% on the revenue side in the next couple of years.

Okay. Thank you, Alastair, I'm going to take your first question around the additional saves and just give you some high level on variable costs, which then Pam can talk to with more color. So additions. So we're very pleased to have upgraded our simplification saves from $1.5 billion to $2 billion to be delivered and to be actioned before the end of this year and delivered in full in 2027. And we're doing so with the same initiative committed $1.8 billion of cost to achieve, a one-time cost to achieve. So we're pleased with this upgrade. We have seen strong progress on our cost delivery, part of it refers to areas of cost where we had a little bit more uncertainty at the inception of this program, and we felt more authority now 1.5 years into it. So you can argue this is a kind of 1.5 years ago, some conservatism in our approach, which we are comfortable to deliver. Some of it has been delivered because we managed through attrition, some of the headcount adjustments that may have been required as opposed to using severance. And then some of it has been additional identified opportunities that we decided to be in the program and accelerate given the -- that we haven't used the $1.8 billion envelope. So this is really how we're driving it. Remember, this is only one area where we're delivering simplification saves. The other area is by making these business exit decisions, 15 of which have been announced so far, with about $1.1 billion of associated costs, which would be saved from these businesses and reinvested, redeployed in our areas of strategic strength, where we expect to generate better revenues and better returns than the businesses we're exiting. Look, on variable costs, the comment I would make is this is a decision we will make at the end of the year, but we recognize that the momentum in our business and the performance have been strong in the first half specifically in the second quarter. And therefore, if we do continue to see this momentum in the business carry on in the second half, we would certainly consider to recognize the contribution of our colleagues towards it. In the variable pay, which all in all, will have a modest impact on our overall cost. But our commitment to cost discipline, our commitment to meet our cost target from the bank 1% on a cost basis and our confidence in being able to meet it are not changing. Pam?

Yes. Thank you, Alastair. So firstly, we are very disciplined on run-the-bank costs. And that is how we are now targeting $2 billion on simplification saves. And we have delivered 1% year-on-year in the second quarter, and we continue to guide on around 1% cost growth for the full year '26. Now just in terms of variable pay as a context, it was $3.9 billion last year, which is 11% to 12% of our group costs. So any increase which we will consider provided revenue growth momentum continues, and that's a decision, as Georges said, at the end of the year, they'll only have a modest change in total cost for the year. In terms of 2027, you've seen our revenues are growing. We printed a growth number, 6% Q1, 7% in Q2. And our investments to date, which are very focused, are working. Now this gives us strong confidence to bring forward our planned investments. So we may, therefore, add to investment growth in 2027. Now just as a background, inflation and investment increased costs by around 5% in the first half of '26, before simplification saves. So we expect in the next year, that we will offset any additional investment with simplification saves. And that will be a partial offset including the offset that will come from the additional $0.3 billion on simplification saves that we announced and today, which is on Slide 26. In addition, as Georges said, we have good momentum on our divestments. So the $1.8 billion of cost reallocations over the next several years will create incremental investment capacity. It was $300 million in '26, higher than '25. We expect that to be slightly higher in '27. So all in all, this is not about not having discipline in run-the-bank costs, but this is about making a clear distinction while maintaining discipline on run-the-bank costs to be able to invest for future growth, given the revenue strong trajectory of growth we're seeing so far this year.

We will take our next question from Andrew Coombs at Citi.

Just two follow-ups, please. Coming back to the costs, there are obviously a lot of moving parts. You are talking about accelerating the investment spend next year. At the same time, you slightly increased the simplification saves -- and now on Slide 29, you've got a whole host of divestments that are obviously going to drop away on both the revenue line and the cost line. So just a very simple question, I guess, can I ask you to comment on current consensus, which is the 3% cost growth to $35.4 billion next year? And then the second question related to that is that you talked about accelerating investment spend, but there's no change in your revenue growth targets. So what is the payback on this incremental investment? And what's the time frame?

Andrew, thank you for the question. Let me -- I'd like to give you some broad comments on cost and revenue growth, and I'll let Pam give you more details. So we're pleased to be moving at pace in our simplification. The increase of our simplification saves to $2 billion the speed of decisioning in our business exits, three of which we announced over the last 10 days or so, 15 of which we announced in 2025, are giving us capacity to accelerate investments in our businesses. Now also remember our businesses are leading businesses in the areas where we choose to compete. Now we are leading in the services we offer our clients were bank of choice for many of those. Therefore, these investments are expected to drive higher revenues and higher returns than any of the businesses we're disposing broadly speaking. What I would like to say, though, about also -- well, additional about revenue growth. I mean Again, we -- the times we've given you of revenue growth year-on-year, rising to 5%. Our foundation or baseline targets we shared in February. We're reiterating now. These are targets for which we run the bank where we're running the bank for the next three years under a range of different scenarios. Of course, if we see opportunities to accelerate and if we see supporting market conditions as we have seen in the first half of this year, you should expect us to be able to beat the targets, including starting in 2026. But we're not changing the foundational baseline target for how we run the bank across a range of scenarios. Pam?

Yes. Thank you, Andrew. So firstly, we are not commenting on consensus or giving a cost guidance for 2027. But let me just unbundle a few things. As Georges said, that targets are the baseline to which we manage the bank. We continue to work hard as we have done this year to exceed our targets and we see no change in doing that. If there are good market opportunities, the right hurdle rate and within our risk appetite. So if the outperformance continues or even if we just take the outperformance for the first half on revenues, the starting point for next year will be higher. So therefore, please consider any targets, which we are not changing. They're just half it through the year at the moment will be based on a higher baseline. And then in terms of the overall spend, I've already said that we look at the overall investment opportunities. And this year, the increase through investment inflation was 5%. We said we would accelerate some investments as we go into next year. So that number would be a bit higher. But we do have, obviously, partly offsetting that, and the operator word is, partly, offsetting that, the additional benefits we are getting both in terms of the increased simplification cost, which is $300 million, which goes into next year as well as an addition of the redeployment of costs coming from our divestments. But again, it's very focused spend in areas where we have competitive strategic advantage when we have revenue growth as well as some very strong cost discipline. So in terms of our overall revenue cost story line, nothing should change from here.

Our next question today comes from Melissa Kuang at Goldman Sachs.

Just a couple of questions, just back on the NII. Just wondering on the HIBOR moves that we have seen, which is slightly towards the end of the second half of the second quarter. And if you look at the sensitivities that you have put in your Hong Kong dollar sensitivity has fallen by about half since the first quarter. Just can you give some color on what hedges have you taken? And what have you done there? And in terms of when we look at the third quarter and NII, we see any benefits from the HIBOR going in there? And also maybe talk a little bit about the deposit side and any deposit competition and what's going on there that perhaps made you a bit less aggressive in terms of grading your NII guidance? Then the second question is on Wealth. Your net new money appears to remain broadly on track and at the run rate. Can we just maybe give a little bit of understanding in terms of the AUM outside Asia has declined quarter-on-quarter. Maybe some color there. And also, if any of the recent China cross-border rules, is there anything new? Anything we should understand about and also in terms of behavior -- client behavior, is there any changes?

Thank you very much, Melissa. Melissa, I'm going to ask Pam to take two questions, but I'd like first to make some comments on net new money and the deposits. The first one is very strong net new money quarter, both globally and in Asia. Of course, Asia is the leading -- the #1 wealth manager in Asia Asian net new money is very important. They're broad-based. Hong Kong remains a very important center with us -- for us with about $0.5 trillion of Wealth balances and 10% growth of Wealth balances on a year-on-year basis. And in Asia, in total, we manage about $1.1 trillion of Wealth balances. In -- with regards to the cross-border rules, just to make some comments on this. What's important to note is you should expect us to be operating at the high standards of rules and regulation. You should expect us to have all the robust up-to-date procedures for client onboarding. And we actually welcome some of these clarifications that have come in May and June, specifically, the State Council Decree 837, which is intended to provide a clear guidelines for these outbound investments. First, I would believe is that these clarifications are not meant to discourage or restrict cross-border. They meant to provide guidelines on how to conform with the rules. And second, when we look at our client onboarding in May, in June and so far in July, we have seen account opening not affected by these additional onboarding declarations and therefore, remain confident in the medium- to long-term outlook for Hong Kong to be the leading cross-border wealth hub for the planet, but also a very important Wealth hub for the mainland. Pam?

Yes. Thank you, Melissa. So firstly, in terms of Hong Kong hedge in the first half of '26. We have increased our Hong Kong hedge. We have looked at new products. We've had some new fixed rate customer lending, so that has helped. And that is again, reduced our sensitivity, as you can see to any rate moves. And of course, HIBOR has moved down to 2.62%. It's been under pressure last few weeks. We saw that a few months ago as well. And just to reiterate, when we give our guidance we look at this short-term volatility in HIBOR as one of the factors to consider in our plausible scenarios. So very comfortable with the overall guidance and the direction of travel we have and we've been working for a while in terms of looking at ways to increase our Hong Kong dollar hedge, and that's working very well now. Now I just want to add, in terms of the net new money, I would just say $25 billion is still a strong number for the quarter and is broadly aligned with our recent quarterly run rates, 8% to 9% annualized. So really nothing more to add on that. Thank you, Melissa.

Our next question today comes from Amit Goel at Mediobanca.

Sorry, I just wanted to follow up -- apologies to ask on it again, but just on the cost piece, just to make sure I understand it correctly in terms of the incremental or the acceleration in spend. So is that -- in terms of the accelerated spend, is that more than the kind of $500 million incremental simplification savings or around the same amount? And then, how are you thinking about the payoff from that in terms of will that be kind of benefiting 2028 earnings? Or is this more kind of 2029 to 2030? So really, just trying to understand that a little bit better would be helpful.

Thank you very much, Amit. I'm going to ask Pam to comment on this. Let me just say on the headline, Amit, we are fully committed to cost discipline, we recognize we have fantastic growth opportunities, and we are creating capacity to be able to invest in those growth opportunities. So that is what we're managing as you look forward. But the cost discipline remains steadfast. Pam?

Okay. Thank you, Amit. So firstly, the payoffs of the investment we do sometimes comes very quickly, actually intra-year. And I'll draw your attention to some of the additional acceleration of investment we did in our Security Services business last year, which pretty much gave us payoffs and new mandates, both last year and into this year. So the payoffs don't have to wait for 1 or 2 years. These are very quick payoffs and because they are in areas where we are -- already have plans, we have already invested and it's just accelerating as opposed to some de novo new areas. So that's the first point. Now in terms of costs, as I said, that the simplification savings, to be very clear, will partly offset the accelerated costs. So you can expect some shift on that case. However, it will be very much determined based upon where we see the revenue projections and where we see accelerated growth opportunities. And 1 thing we are crystal clear about run the bank cost discipline will not change. And any investment will have to stand in terms of the hurdle rates we have for returns. And that's the competitive process when we look at a range of opportunities, and then we make the choice, whether it's with regard to simplification savings being redeployed or indeed, redeployment of costs coming from divestments.

And sorry, and just to follow up to when we talk about acceleration, does that mean that the following year. So 2028, we would expect to see a drop-down in that investment spend? Or do we just see that continuing beyond '27?

So Amit, we're not giving guidance actually for '27 or '28. But the reason we're saying acceleration is these are investments along our strategic priorities that have been very much earmarked, flagged, we know of them. We know the benefits they can provide. These are not, as Pam said, new initiatives we're coming up with because we have revenue growth. So this is really what we mean is bringing forward some of this investment plan to bring forward the growth opportunity that come with it and allow us to gain market share even faster exactly along those strategic priorities we called out for which we are generating the right returns. Thank you, Amit.

Our next question today comes from Kunpeng Ma at China Securities.

I have two questions. The first is on the financing demand of the corporate clients. We can see the loan demand is returning. And also, we can also see many of those financing demands are on capital markets. So can we have some outlook on the future trend of the corporate -- of the financing demand of the corporate clients? How can HSBC handle the demand, especially for those on capital markets? Yes. The second is on Hang Seng Bank. I remember George just mentioned that some cases of the synergies like new customer acquisition. So can we have more color on this kind of synergies? And what kind of synergies can we expect in the future between the 2 banks?

Thank you, Kunpeng. I think, Kunpeng, I can take both questions here. So first, we're pleased to see corporate demand, financing demand continue. Actually, we're seeing it now continue in the U.K., and that's a continuation of the trend we've seen in quarter 1, aligned to the ambition of the U.K. to drive growth, and we -- as the U.K.'s leading international bank, very pleased to be supporting this both domestically, but also by bringing international investors into the U.K. But we're also very pleased to see that Hong Kong loans has picked up after many quarters of slowdown or contraction. So this is a very encouraging development for Hong Kong, and we do certainly hope that this is a trend. And our outlook remains very positive on this. And then you called it out very eloquently as well. Capital markets have played a very important role, in particular in Hong Kong, where we've seen practically 50% growth in financing through capital markets, including debt capital markets and IPOs. And we're superbly well positioned to play a very important role with customers as a leading debt financing house but also as a materially growing IPO financing house with now 40 live IPOs that we have in Hong Kong. The substantial increase from previous years and 70 IPOs across ex Asia. So certainly a very encouraging trend, which we hope to see continue. With regards to Hang Seng Bank, so we called out, if you recall, $500 million of reported synergies. These are audited standard -- U.K. audit standards of reported synergies and an additional $400 million of related benefits, which are broadly taking the overall synergies and related items to $900 million, which we are hoping to achieve in full over the next 3 years -- about 3 years. We're more than 80% now live in execution on the various execution work streams of these synergies, therefore, have a high level of confidence in our ability to drive those synergies. We have seen some substantial benefits. I called out earlier, 60,000 new-to-bank customers by gaining the synergies of HSBC is digital onboarding, that's double what Hang Seng Bank was able to onboard in quarter 1, 30,000. This is a clear demonstration of benefits of these synergies. We've also made multiple senior leadership announcements, in particular, in areas of infrastructure, back-office, technology, manufacturing, where now we have a single leadership in Hong Kong across HSBC and Hang Seng to drive alignment and synergies. But I would say, remember, we are net investor in talent and in technology of Hong Kong. Therefore, we do expect that if there are roles and there will be roles impacted by driving these synergies that the individuals have all the retraining and reskilling opportunities to be able to take on jobs in those areas where we invested. Thank you very much, Kunpeng.

Our next question today comes from Katherine Lei at JPMorgan.

I have three questions. The first question is on ECL charges is on asset quality, right? So if we look at the Hong Kong CRE, it does seem like the asset quality trend has stabilized. Do you expect this trend to change or to further improve in the upcoming quarters? And also that we see, it seems like there is no notable overlay related to the Middle East situation that's been taken this quarter, how should we look at the situations with some escalation of the conflict again in the third quarter? Should we be saying that the key portions of the overlay have been taken. And going forward, it will be driven by like, say, Stage 3 loans? So this is on the asset quality side. On the second side, I just want to follow up on the cross-border one, on the China's cross-border regulations. Is the regulators like is the regulators consulting industry players, including HSBC, when they are drafting the details of the individual ODI regulations have been communicating and talking to the regulators on like potential directions of where that regulation is trending to and et cetera? Okay. I will just be with these two questions first.

Thank you, Katherine. I'll take your second question, and Pam can comment on the asset quality. So you would expect case to be in constant engagement with regulators, both in Hong Kong and in the Mainland at all levels. and engaging with them specifically with regards these and any other regulation. So this is a matter of just business as usual, I would say. And remember, we always operate at the highest standards of rules and regulations everywhere we operate specifically for client onboarding, cross-border rules where we have lost procedures. Pam?

Thank you, Katherine. So, from an ECL perspective, yes, Hong Kong, very encouraging signs. The top-up on the ECL line was just over $150 million for the quarter. Hong Kong residential is recovering very well, very stabilized now, house price index was up 18% year-on-year, and volumes are also up 36% in the first half year-on-year. Now in terms of retail, on the retail sales, we've seen 13 consecutive growth months growing at 11% year-on-year this year, and this is because of increased tourist activity and also effect of positive growth in Wealth. And offices in terms of the prime areas, it's in a good space because the overall vacancy rates are gradually declining to around 16%. But in Central, they have continued to fall even more vacancy rates down to 10% and rents are up 6% year-to-date. Now having said that, where we see some stress continuing is in pockets like in East Kowloon, where vacancy rates remain elevated at 20% and rents have further slipped by 4%. And that's in the office space and also some in the non-core retail space. So all in all, no new impairments and the real impact in the ECL charge this quarter comes from the pop-ups due to valuation declines in the existing impaired portfolio. And I expect that we'll, of course, watch it very closely and notwithstanding any sort of idiosyncratic kind of a situation, we do believe this is stabilizing very well indeed. Now from a Middle East perspective, I just want to remind you, the $300 million reserve that we built in Q1 still holds we have not released that reserve. That's in line with the policy. We like to see full two clear quarters of stability and -- before we release any of our reserves. So that is continuing. We have looked at small pockets of overlays how we shift and change them at an individual name level or indeed sector and geography level. And the Middle East actual experience we see on the ground has been really quite benign and the ECLs for our Middle East exposures in the Middle East has been very small, much lower than even $100 million number. Overall, of course, what we are very mindful is that pockets of increase in defaults globally, particularly in mid-market, where our exposures are small. Small exposures can also add up and that's contributed to some of the ECL charge for this quarter. And lastly, we are not -- we have now also taken out the very specific scenario we had created for the Middle East because that's now all factored in the downside scenario in terms of the overall economic factors and forward economic guidance.

We will take our next question today from Ed Firth at KBW.

I've just got two, and they're actually really strategic questions rather than details so probably more for George. But the first one is, if I look at your current strategic direction and comparing you with what looks like it will be the second biggest bank in the U.K. You every sort of week or so, we see a regular announcement of closing parts of the business or selling off parts of your business. And yet in contrast, they are apparently have -- lost the words. An enormous appetite to open in new markets everywhere in the world. So you're selling Australia, they're opening Australia, you're selling Egypt, et cetera. And I'm just trying to understand the sort of logic and how far that goes? Because it just seems to be that much like Egypt is about 120 million people. I mean Surely, HSBC can add value there over time with your expertise, in your banking, and numerous skills. And I'm just wondering sort of how far you want to take this sort of focusing strategy. So -- and try to understand the differences, I guess, between the two. So that's my first question. And then the second question your shares are now really a very valuable currency. And I wonder, is that something you think about when you look at our transactions and opportunities particularly inorganic opportunities around the world. And if it is, where should we think about where you might be interested and where you feel you could have? I think you talked about Wealth Management in the past, but there are other things that perhaps if you wanted to use those shares rather than to buy them back, but to use them for currency, where might we be thinking about the opportunities [indiscernible]?

Okay. Ed, thank you very much. So first, maybe on the strategic direction, yes, we're very pleased to be a leading bank in the U.K. if you combine our activities across the ring-fenced bank, the non-ring-fenced bank. And -- we're very pleased to be growing in the U.K. domestically, but also on a cross-border basis. And we are the leading international bank in the U.K. That's also a very important role we play for the U.K. If you look at the strategic direction as a whole, what we're doing is we're focusing the business in those areas where we have market leadership, where we can drive fundamental structural growth and where we can drive good returns for our shareholders. So we want to be very meaningful to our clients. We want to have a structural growth opportunity and we want to drive good returns for our shareholders, and we want to be able to compete and grow our leadership and market share in these areas. We called out four of those. And they're aligned with our four businesses. The U.K., where we're the U.K.'s leading international bank, Hong Kong, where we serve the market through two iconic banks and command twice more deposits than the second pier and are driving growth across a number of areas in an underlying growing economy, given its international role and the role to the mainland as a super connector. And then the Wealth Management business, in particular, with Asia, with booking capabilities also beyond Asia, such as Switzerland and Channel Islands, the U.S., but where we are a leading wealth manager in Asia by wealth balances with $1.1 trillion finally in Corporate and Institutional banking, where we are the world's trade bank. And we're leading in trade, we're leading in global payments with an Asia leading and security services, et cetera. we're certainly leading in terms of the strength of our deposit franchise. So for us, these are the areas we want to make sure we put all our investment, our capital and our capabilities because we're driving great structural growth, we're winning market share. We're driving the good returns, et cetera. Therefore, the rest, we have to make compromises. And the rest where we don't think we are having a leadership position or we can drive the same level of growth. Or better in somebody else's hands who can invest in them, and we can use those costs to reallocate in those areas, we can better revenues, more long-term sustainable growth and better return for shareholders. You called out Egypt specifically. We are very supportive of Egypt wholesale business Egypt is a major network market. Many of our -- vast majority of our international clients have operations in Egypt, and it's very important for us to support them in this space. We don't have this commanding market share and leadership role in Retail. And that's the trade-off we have made. On your second question. Thank you for your description of our shares as a valuable currency. Of course, we are very pleased with the share performance. But as a management team, we're only focusing on the business performance and the share price is a matter for our shareholders to opine on. What is important, both to say is, yes, we will use our share firepower inorganically, but we will use it with a high bar. So first, we have used it with the privatization of Hang Seng, demonstrating that we will use it for good -- for the right opportunities, and we had to pause our share buybacks for three quarters. We are very pleased to have resumed them now. But second, the high bar remains there. And the high bar, basically our criteria, I set out in February 2025, and we're living by those criteria. Without going into detail of this criteria, any acquisition should be accretive to a share buyback, should be fully aligned to strategy, should be enhancing our scale or capabilities and should be easy to integrate and not distracting us from delivering organic growth. If and when we find these opportunities, we will look at them. Thank you very much, Ed, for the question.

We have time for one last question today, which we'll take from Joe Dickerson at Jefferies.

Gentlemen and ladies. Just on the Corporate growth, both in deposits and loans that you're seeing in Asia Pacific, could you comment on both sides of the balance sheet, the nature of the industries that you're seeing is this broad based? Is it around certain industries? And on the deposit side, is this liquidity, corporate liquidity and are there any particular industries that stand up?

Joe, let me take a stab at your question I'll ask Pam to add any comments she may have. First, on the deposits in the wholesale space and in the corporate space, we are a deposit bank by choice for transactional deposits. We have one of the highest share of CASA deposits for transactional operating purposes. And these are the deposits that we cherish. We do not change deposits with interest rates. These deposits are a testament first to the trust of the clients in our balance sheet. They are also a testament to the breadth of our network where they can use our deposit capabilities, the taking capabilities across a whole range of geographies where they operate. And they're also a testament of our capabilities and expertise for all services around deposits, including cross-border payment and other services we provide on deposits. So -- and you've seen this grow in CIB by 16% year-on-year. We've seen also this growth in the U.K. and in Hong Kong. In terms of loans, the overarching message, I would say, is we are more broad-based compared to some of the activity you've seen in the U.S., which is quite focused on a few sectors relating to AI. We are not a domestic player in the U.S., and therefore, we're not -- you should expect us not to be highly present in these markets as domestic players. Our U.S. business is really an inbound and outbound business where we support American clients across their businesses internationally and international clients for businesses in the U.S. not so much participating domestically in the U.S. Pam, any to add?

Yes. Just a couple of things to add. So firstly, on deposits, the trend really has continued quarter-on-quarter. It's very broad-based. It's Hong Kong, it's U.K. It's very strong on the retail side as well as on IWPB. But CIB you do have some short term, as I called out in the script, deposits coming in. So those come and go. But overall, a very solid trend. It comes from also security services, strong performance. Now in terms of loans, I do want to call out that the trade has been a significant driver for CIB. It's been up $6 billion. And for Hong Kong, it's up $4 billion. And then specifically, we've seen more demand coming in technology and institutional sectors. So that's kind of a strong growth you're seeing. But more importantly, in Hong Kong, we are not seeing so much of those early repayments on some of the Hong Kong commercial real estate because that sort of stabilized the gross growth in Hong Kong lending comes straight to the bottom line as a net growth. There's no sort of repayments taking that off. And the U.K. market growth from loans has continued, and that's pretty much driven by across the board, large corporates, small and medium as well. But also from a sector perspective, we've gone far beyond the typical high street or real estate based lending. So our sectoral expertise has helped in that.

Thank you, George, Pam. That brings us to the end of today's call. Thank you, for joining. You may now disconnect.