HSBC Holdings plc ($HSBA)

Okay. Good morning, everybody. I'm delighted to be joined on stage now by Georges Elhedery, CEO of HSBC. Georges was appointed as CEO nearly 2 years ago, having previously spent 18 months as Chief Financial Officer. He spent over 20 years at HSBC in a wide range of leadership roles in a variety of markets. And immediately prior to joining HSBC, Georges, in fact, worked at The Goldman Sachs. So George, well, I think it's your first time at the conference, if you like I can say, welcome back. Thank you so much for making the trip here. Super grateful for you being here. This session is due to last 30 minutes, 35 minutes. That includes a bit of time towards the end for some audience Q&A. And then this session is also being webcast. So thank you for everybody joining us remotely on the line.

Georges, perhaps we begin reasonably high level on the macro backdrop. You operate across a very wide range of geographies. How would you characterize the current macro backdrop in aggregate? And when you speak to clients, how are they balancing those near-term uncertainties you can see with the longer-term structural opportunities that clearly exist in many of your markets?

Thank you, Chris. And again, thank you for having me here. There are a couple of features in the macro backdrop that has definitely become very, very prevalent. There are 2 I would call out, and they actually play to our strength. The first one is there are structural growth opportunities in big parts of the world, and that's particularly true in parts of -- big parts of Asia. You have a growing consumer market. You have a growing labor market. You have a growing talent or kind of sophisticating talent. You have good fiscal and economic policies, good pro-business policies, strong FDIs and into these markets for everything from manufacturing to extraction and what have you with technology, et cetera. So structural growth is inherent in these markets and is here for a long time ahead. There is -- the other macro feature, which we've been talking about now for a few years, certainly since COVID is that we're seeing globalization reconfigure more into neural networks where multiple jurisdictions and economies connect through supply chains, investment. And if you want less of the big large corridors between very few -- or very few economies. That also plays to our strength because when you're present in 18 markets in Asia, 10 markets in the Middle East and many other around the world, more than 55 around the world, when you have neural networks of connectivities in all these markets interconnected in different ways, then the presence in all these markets becomes a value add. So these are the 2 big macro trends we're observing. On your question about uncertainty, everyone we're talking to now and including our own views is that uncertainty now has to be baked as a feature, not as a black swan or as episodic. It has to be baked as a feature in the way you plan for your business. And if you bake uncertainty as a feature and you want your business to capture the structural growth opportunities and kind of in a sustainable, durable manner, then the most important investment you have to do is build resilience, building resilience so you can have a sustainable business despite uncertainties that you expect to come. So building resilience is one of the biggest themes we're working on. It's -- resilience can be resilience in infrastructure, resilience in logistics, resilience in power generation, resilience in data storage, et cetera, et cetera, et cetera. Now it so happens it also plays to our strength because we have -- we are a big infrastructure financing house among other, and we can help our clients in their kind of projections how to build resilience for the business.

And a key element of the sort of HSBC narrative over the last 12 to 18 months has clearly been one of efficiency. And you've described HSBC as becoming simpler, leaner, higher return, more agile. What's the single most important change investors should recognize in HSBC today versus perhaps how the business operated 2 to 3 years ago?

So Chris, the single most important change as we portray it and investors can judge for themselves, but as we portray it is that everything now we choose to do or we decide to do, we aim to be the best at doing, which means either we're the best at doing and we double down investing in it or we ought to be the best at doing and we double down investing in it or this is not where we're at our best and not necessarily an area of strategic importance because customers aren't expecting us to deliver and we're disposing of it. I think the clarity of strategy and the clarity of purpose allows us to -- well, allows us basically to choose to be the best at everything we decided to do. Everything kind of falls from that, how we become simple and agile, how we streamline our business, how we focus our strategy, how we kind of build client relationships, et cetera, is basically based on being the best at doing what we choose to do.

I mean you make it sound very straightforward, but you're simplifying, you're reallocating costs, you're investing for growth all at the same time. So what are some of the hardest trade-offs you face when you're balancing all those decisions?

Of course, it's -- these are usually always difficult decisions to make, decisions where we take cost out to the bottom line by simplifying or deduplicating or creating efficiencies, decisions to take cost out by exiting activities that are nonstrategic, nonreturning or where we don't have the right to win or the right to compete and we don't -- you should not waste effort doing so are all difficult decisions. But I think the most difficult decision going forward, most of these decisions have been taking for the last 2 years, but the most difficult decision to go forward is that we have created a much bigger capacity to invest. We created space in our cost base by taking these decisions to give us capacity to invest. So the decisions going forward is kind of how to allocate our investment, but more importantly, how to allocate our investment in a way that is the highest returning possible. So you can decide you want to invest in an area and you can evaluate a quantum of investment and the set of benefits against that investment. And that's all good. But we have also more investment capacity. But if you choose to decide to invest additionally in that area by the law of diminishing returns, the risk is that we get lower bang for our buck, and we won't get the -- so we need to find the efficient frontier where you're investing as much as you can to get the maximum benefit without starting to dilute investment because you end up hiring the wrong people, people with not the right talent for the right jobs or you end up not being able to build the technology at scale and throwing money after something where you can't resource it appropriately or speed up the development. So just putting more money at an opportunity doesn't give you higher benefits for it. So it's finding that efficient frontier where you invest for the biggest value of that investment and then accept that probably the next round of investment is next year, not right away for that opportunity.

And my final sort of question on the topic of efficiency is really around the issue of resilience. You're effectively reprogramming the operating model of HSBC, while at the same time, plumbing in new sort of frontier technologies, you have the ambition to become the world's most trusted bank or to be the world's most trusted bank. How do you balance the fragilities that those changes can bring about and perhaps particularly when it comes to cyber and the sort of incredibly fast-evolving picture when it comes to zero-day vulnerabilities?

So Chris, actually, those changes are building strength. Let me try to unpack this. When we say -- when we have a strategic priority of being simple and agile, and we shared one slide in our year-end results, which illustrate that. Some of the decisions, of course, about exiting activities, exiting businesses, deduplicating, but also a big block of work that's still ongoing, which is reengineering our processes and procedures and the help of GenAI is accelerating that reengineering at scale where we call out demising nonstrategic technology applications, demising legacy products that are not on the shelf, but still out there, demising all sorts of other things like URLs or legacy cost centers or small and legal entities that are not needed anymore, et cetera, et cetera. So this reengineering and this demise as part of becoming simple and agile as a primary mission, also as a kind of secondary positive impact make us safer because it's easier to protect when you have a smaller exposure, you have fewer applications to worry about, et cetera, makes us easier to protect. So anything that's vulnerability identification, patching, network segregation, layering, et cetera, you will have to do on a smaller estate and a strategic estate as opposed to having nonstrategic bloated estate that you have to try to protect. So first, being -- the journey to be simple and agile is a journey to make us also more resilient. That's number one. Second, cyber is a very big investment -- cyber protection is a very big investment program. It has always been and will always be a very big investment program for us. And cyber protection ranges are wide range of issues, in particular, protection against social engineering, where we have a lot of capabilities being built and tested and protection against vulnerabilities. Clearly, most recently with Mythos and 5.5 Cyber, additional capabilities to find patch vulnerabilities have been made available to us included. But that's not the only thing. We've -- again, we've been working very actively at network segregation at multiple layer estate. We've been working at tertiary vault capabilities to recover quickly. We have a continuous Blue Team, Red Team trying to attack us and identify areas of vulnerability. So -- we work with our suppliers, again, in what they are doing to make them foolproof or cyber protected so that we benefit from that. That journey is on. And this is an area of continuous investment and never, never cut corners on investment to protect our estates from cyber risk. And that's -- between these 2 kind of big initiatives, we aim to be among the most safe from a cyber point of view, safest banks on the planet, helping us to be the most trusted bank on the planet.

Now let's move over to Hong Kong. In recent years, there's been a big focus on the cyclical elements within the Hong Kong business, namely Hong Kong [ SAR ]. And obviously, very happy to get an update on the cyclical side of the Hong Kong business right now. But I wanted really to hear your thoughts on the structural element of the Hong Kong story. You talked about Hong Kong being a super connector, both Mainland companies using Hong Kong as a launch pad to go global and also as a cross-border wealth hub. So how do you see the growth dynamics in Hong Kong business at this point, both from a cyclical and a structural perspective?

Okay. So from a cyclical perspective, there was a big burden from the COVID days into the impact on the commercial real estate. Let me give you some data points, recent data points. Residential real estate, up 16% over the last 12 months, plus 16%. Office real estate, we've seen now vacancies in Central and Hong Kong below 10%, level not seen for many, many years. Hong Kong GDP has grown more than 5% in the first quarter. So without making direct assumptions on where we are in the cycle, it is much more encouraging the -- what we're looking forward versus what we've seen. There are some challenges, residual challenges in some of the weaker real estate in the office space or some of the weaker sides of retail, but we're seeing recovery in a number of other areas. So we're actually short-term constructive, medium, long-term positive. I mean, medium, long term, the dynamic of the Hong Kong real estate market, the dynamic of Hong Kong economy, the supply/demand is -- we're optimistic. We're comfortable about. We're confident in, right? Now case in point, in October last year, we announced the intent to take Hang Seng Bank private. And in January, we've disbursed USD 14 billion to buy the 37% minority. Now we own Hang Seng Bank in full. And we're working through the synergies. The synergies alone and the capital efficiencies alone make this acquisition -- well, make this privatization more attractive than using our shares for a share buyback. But if you add the structural -- sorry, if you add the cyclical improvements, among other in the cost of risk and commercial real estate environment and the structural growth opportunities, that's kind of double potential upside over and above accretion to share buyback. Now the structural opportunities of Hong Kong are evident. Let's call 2 that are really, really highlight and important for our business. Hong Kong is a super connector to the Mainland. Hong Kong has always been a connector to the Mainland, whereby international investments into the Mainland would channel or funnel through Hong Kong. That flow continues. It's changed in profile. So now the international flow into the Mainland isn't really about accessing cheap labor and manufacturing capabilities. It's more about accessing high-end technologies and innovation and trying to scale it out internationally. But the flow continues. It's a different form of flow looking after different opportunities. But the real flow that we've observed for the last decade, and we believe will define the next decade is the China outbound where Chinese -- core Mainland Chinese corporate businesses are going out to the world. Initially, they've been producing for the world, Made in China kind of exported to the world. That model is seen for all sorts of reasons, many are familiar with. That sort of model is trying to see its limit. So what's happening is not anymore the Made in China produced for the world, is the Made by China produced in the world. So these corporates now are going out to establish manufacturing hubs, move technology, create employment in the economies where they're building and be able to access the local markets with this dynamic. That possibly is one of the biggest cross-border trends, if not the biggest cross-border trends we will see over the next decade. And Hong Kong is the launch pad. And by the way, we in Hong Kong are the bank of choice to help these customers do that because when they come to Hong Kong, and we are very big in Hong Kong, we can take them to the world. This is not the last stop for us or one stop and then that's the last stop. We really give them the whole access to the world at the highest international standards of finance. So that's one trend. The other trend is Hong Kong as a cross-border wealth hub. For the last 2 years, I've been saying Hong Kong will become the world's largest cross-border wealth hub before the end of the decade. It turns out I was wrong because it happened 2 weeks ago already. Hong Kong today already is the largest cross-border wealth hub overtaken Switzerland. And given the growth trajectory, that gap can only keep kind of expanding. It is a cross-border wealth hub for the world, for Asia and very much also for the Mainland that have chosen Hong Kong as their international platform for wealth management. The level of sophistication of the capabilities, the level of attractivity of the jurisdiction, of the legal framework, of the regulatory framework, et cetera, is such that -- and of course, the level of wealth creation, as I mentioned earlier, in Asia in general is such that this trend is also a decade, if not secular trend. And these structural opportunities for Hong Kong, frankly, we have a very important role to play, but we happen to also have a very leading role to play in, given our sheer size and presence and scale in Hong Kong.

And then perhaps a slightly more nuanced or a different story in the U.K., 1 of your 2 home markets. How would you describe the role of the U.K. within the HSBC group, aside from the retail operation that you operate in the U.K.?

Very good. So the U.K. is our second home market. Of course, the retail operations is a very important operation for us. And when you look at the retail and the kind of SME commercial operation in the U.K., it's a business that generates more than 20% return on tangible equity. It's a business last year that -- year-on-year, that's grown its loan book by 7% so clearly strong business. And we have a very strong market position in the top 3, top 4. But the U.K. for us, if you add our wholesale activities, for those familiar, we have the ring-fenced bank and the non-ring-fenced bank, if you add the whole footprint of HSBC in the U.K. And HSBC in the U.K. is -- generates revenues of $19 billion per annum, has $570 billion in deposits, is by far the largest international bank in the U.K. Well, it's a U.K. bank home market, but the largest international bank in the U.K. is by far the bank of choice for U.K. corporates and businesses looking for international opportunities and the largest bank for international corporates all the way from the U.S. to Asia to the Middle East to the rest of Europe, looking for opportunities in the U.K. It's a very open economy, a testament to all the free trade deals that have been signed all the way from the U.S. to India, to the GCC to the deal with Europe, and the kind of the open economy, the free trade economy. So being by far, the largest international bank in the U.K. and a bank that generates $19 billion revenue in the U.K., which puts us in the top 3 with #1 and #2 being domestic, pure domestic banks in the U.K. means that the U.K. is extremely important for HSBC. But it also means that HSBC is extremely important for the U.K. economy.

Very clear. And then in the CIB, you've talked about this narrative of Asia buys Asia. Can you talk us through what does that mean, especially in the context of, I think, the 50 or so markets that you cover globally within the CIB, Asia buys Asia?

Yes. And then within Asia, you have to lead the greater Asia, so Asia and West Asia or Asia and the Middle East and sort of wider Asia. So our assessment is that the trade flows that have been taking place in Asia are able to add 1.8% to the Asian GDP. But importantly, Asia in 2025 has been subjected to some of the most adverse tariff environments with the largest trading partner, which is the U.S. and trade from Asia into the U.S. have really dropped steeply more than 20%. Yet Asian shipments in 2025 hit a historical record. So that is demonstration that whatever is not going to the U.S. has found ways to circulate within Asia. So Asia has become also a manufacturer for Asia. Asia has become an FDI investor in Asia. And that neural network flow between the various Asian economies have meant that they are able to continue growing strongly and equally have meant that HSBC's presence across all these economies has become an even bigger competitive advantage because we're deeply rooted in many of these markets. I mean we have 161 years of history in Hong Kong and Shanghai, but we have more than 150 years of history in practically every Asian economy, and that includes the Vietnams and Indonesians and Malaysias and India and what have you in the Middle East. So that trend is definitely one that we are able to capture and strategic growth. But remember, CIB is not only about Asia buys Asia. Corporate Institutional Banking is a global business. It's a global network business. More than 85% of our customers are multi-jurisdictional customers. They operate in more than one market. So inherently what a network business is about. And frankly, of the 15% that are domestic only many of them are government sector, et cetera, which we operate with, but they're inherently domestic. But for those 85 cross-jurisdictional customers, more than 65% of the revenue is generated by customers whose head office is in the West, that is Europe, U.K. or the Americas. And more than half the revenue generated by these Western corporates is the revenue we book in Asia. And that's a substantial part of how we drive our corporate institution banking revenue and profitability and returns is being able to take 6 of our top 10 customers by revenue in Mainland China are U.S.-based, U.S. head office. It gives you a perception of how important the global corridors are beyond the -- just the Asia buys Asia. And we have a business that is present in more than 50 markets that is liquid in all the currencies where we -- in all the currencies that we operate in, in all the geographies where we operate with a fantastic deposit franchise. So we remain the bank of choice for these corporates across Asia doing business with us.

You talked a little bit about the fantastic deposit franchise, which is echoed obviously in the other business in wealth. So wealth is 1/4 of group revenues now, around 2/3 of that business is in Asia, our business is grounded in Asia. Can you talk a little bit about how the global HSBC network helps support growth in the business? I guess, in particular, 8 booking centers, you've got the cross-sell from CIB. So how does that network connectivity feed into the wealth side of the business as well?

Yes. So wealth is already a substantial portion of what we do. So 25%, you called it out because 25% of our revenue is wealth revenue. If you look at wealth balances at $1.6 trillion, that puts us in the largest globally. But more importantly, of the $1.6 trillion wealth balances, we have more than $1 trillion wealth balances in Asia, which makes us the largest wealth manager in Asia. So therefore, our position there is that of strength. Number two, we have fantastic structural growth in wealth of Asia, which we -- it's a wave we all can write, but we clearly have a strong -- we're starting from a strong position to write. More importantly also, we have an affluent proposition, which we call Premier in many of the Asian markets, including the Mainland China, including India and a number of other markets, including the UAE, et cetera, which allow us to onboard wealth right from its early days. So we don't have to wait on a decades-long basis for people to become fairly wealthy to be eligible to our proposition because we capture them already at the Premier level, which is when they start building wealth from USD 100,000 and above. And of course, as they go up the journey and if their wealth exceeds the $1 million or $2 million, then they can become eligible to our private bank, but the acquisition there is -- the acquisition cost is nil because we already have acquired them through our Premier. And we are the only international bank offering Premier in many, many of these markets. So it's a real differentiation being an international bank accessing this affluent, and that's a great funnel for acquisition for us going on. Second, corporate institutional banking, we have very, very deep and trusted relationships. But historically, we have not converted these relationships into personal wealth and private bank wealth. Today, the combination of our 2 businesses and the fact that we cross-seminated resources and we have the cultural and the incentives alignment to do that mean that we also have a relatively cheap acquisition corridor to convert from CIB customer base to our wealth proposition. So we really have scale in the way we can acquire that none of our peers in Asia can benefit from. We've built product capabilities. Product capabilities, some of our international peers can build faster because they can scale it globally. But we basically did a catch up to be able to be on par or relatively on par with our product capabilities, at least in the area where we are dominant, which is Asia. So all of that plays to our Asia wealth proposition growth. Now one of the features that the high net worth have been asking for, true for Asia, but true globally, is the diversification of their booking centers. They realize that it's important now to diversify from a risk point of view, their booking centers, but also diversify from a product capabilities point of view, booking centers from a legal, jurisdictional, tax point of view, inheritance and all. And therefore, you're seeing more and more of the higher net worth looking for multiple booking sites for their wealth. So one additional differentiation for us compared to many of the pure Asian players or pure single market players is that we have more than 8 booking centers. We can book wealth in Hong Kong, in Singapore, in the UAE. We can book cross-border wealth in Switzerland, in the Channel Islands in the U.K., in the U.S., in Luxembourg. So our cross-border booking centers are diversified and cater for the need of using multiple [indiscernible]. So this is one additional competitive advantage for us for those who are pure Asian or pure single market that don't have this additional capability. And I think all of those play to our strength in being able to capture a bigger share of this growth in wealth in Asia.

That's very clear. I think we have about 5 minutes left. So at this point, I just -- if anyone in the audience would like to ask a question, I give you the opportunity. Otherwise, I have one more. We have one right at the back. If you could just wait for a microphone because we're being webcast. If somebody can bring you a microphone, that would be helpful. If you can put your hand up again because I think they're trying to find you.

I appreciate your comment on Hong Kong commercial real estate and residential real estate. Do you have any comment on -- for commercial real estate and residential real estate for Mainland China?

So on a kind of macro basis, commercial real estate in China is recovering in certain areas such as Tier 1 cities and quality developments or quality residential areas. And remember, in China was essentially a residential commercial real estate challenge, not rest. But residential is picking up in China and some of the Tier 1 cities. It remains subdued in a number of other cities. We believe some of the most recent measures and recall measures now taken around the Hukou, which is the kind of local residency permits and -- for domestic immigrants, rural or urban immigrants will support further this residential real estate because there will be -- a chunk of it will be used for social housing. So we will support further some of these residential estate in Tier 2 cities. So broadly speaking, we feel it hit the bottom, but some of it has recovered, some of it will take a little bit longer, a multiyear process. That's the macro perspective. On an HSBC perspective, I think where we stand today is we have no residual concern. We've taken some impairments over the last 2 years in this space. And whatever we left with are the ones we are comfortable with. And usually, they're mostly nonresidential. They're mostly occupied. They're mostly actually strong borrowers and current. And the ones that have been a bit more difficult have already been addressed either through write-downs or through restructurings. And when we look at our current book, we feel this is now vastly, vastly, vastly behind us. Thank you.

Okay. One last one for me before we wrap up. We've described HSBC as a global liquidity engine that's built on the deposit franchise, the wealth flows, the connectivity as well the global activity. As you look forward, what do you see as the most enduring advantages of that model? And how does that give you confidence when you think about the medium-term targets that you've laid out?

I think we have to approach it with 2 lenses. The first one is we're a bank built on the relationships on deep-rooted customer franchise on trust. For many, many, many decades and for many of our customers, more than -- well, more than 160 years, they were with us right at the start of our journey. So being true to our heritage, to our values, being true to our customer relationships being -- demonstrating the resilience, the strength -- the financial strength, the hallmark financial strength of our balance sheet as a token of safety for them being able to demonstrate and put all our expertise for their good use, showing consistency, effectively true to our DNA through to our heritage, has served us extremely well, continues to serve us extremely well with these deep-rooted, highly trusted customer relationships. So I think the first element is to say it's true to our heritage and always striving to be the most trusted bank for our customer, for our relationship, for our clients, for our kind of deep, deep, deep rooted franchise. And then the second aspect is that we also want and are moving at the pace of our clients as they face off to the future, the opportunities of the future, the challenges of the future. So we need to be a bank that is agile, that moves at pace, that innovates and that delivers so that while connected to our DNA, we need to be projecting our customers safely into the future at pace. And therefore, our investments in the future of digital finance, tokenization of assets, the future of AI and how AI is going to be utilized and all other innovation-related aspects, I don't know, sustainability-related financing capabilities, et cetera, need to be at the forefront of what we do. So our customers feel we're taking them into the future with all the innovative capabilities of the future and doing so with the level of safety, comfort and trust they have with HSBC. I'm proud to say we've already demonstrated a number of these. For instance, the U.K. government have chosen HSBC and our digital platform for their first ever digital bond as a kind of blockchain issued bond, DIGIT [ gold ]. We've done -- we use that platform for many other issuances, including sovereign issuance such as the Hong Kong SAR, a number of corporates. We are a bank that now launched 24/7 frictionless payment through tokenized deposits across multiple jurisdictions, giving our clients access to this capability on and on and on. So that's us taking our clients into the future at pace but safely with the trust they should expect from a service and engagement in partnership with HSBC.

Very clear. Great note on which to end. Georges, thank you so much for taking the time. Thank you for spending time at the conference.

Thank you Chris. Thank you very much.