Standard Chartered PLC

Good morning or good afternoon to everybody depending upon where you dial-in from. Hopefully you had a chance to have a quick look at the quarterly statement at a headline level.

And I think it shows falling. So income growing 5% year-on-year with every client segment up between 5% and 8%, and on a risk adjusted basis actually the income -- after credit impairment, up 11%, costs well under control and cumulatively on a constant currency basis growing slightly less fast than income.

And the cumulative basis in the third quarter itself actually income of 4% and costs flat. Credit impairment halving again year-over-year, having halved the previous year and remaining stable in the quarter.

And finally, and importantly, profit up 25% and return on equity rising further 150 basis points to over 5% to 6%. The statement focuses primarily on the year-on-year comparison, so I'll spend a bit more time covering some of the more recent quarterly trends.

Then touch briefly on costs and investments, credit quality, capital et cetera and then hand over to Bill to conclude so that we have plenty of time for Q&A. So it's getting back to the context starting with the macro picture and by realistic reiterating I belief that despite the background geopolitical noise, we continue to see potential to grow high-quality income from areas where our time tell us we have most differentiated.

We said at the interim stage that we're cautiously optimistic on global economic growth. And that's very much remains the case.

At the interim stage, we also said that uncertainties resulting from escalating trade frictions and geopolitical risks were emerging, and we have seen indirect effects of that, to some extent in the second half in the form of lower investor sentiment in some of our markets. As an operating level, that's most obviously affected our wealth management business and parts of Financial Markets, where we are seeing some clients transacting less, deleveraging and generally adopting a slightly risk-off attitude.

Sentiment in Wealth Management tends to be cyclical, however. And we remain confident that this will be a core growth driver and area of strength for us in the medium term, particularly given the successful shift we have been making into the more accurate segments in our markets where as our core we have always had a strong value proposition.

And on the Financial Markets side, although client activity has been a little more subdued since the strong start for the year, the return on market volatility usually create profitable growth opportunities for us. And the final macro theme I wanted to touch on is U.S.

dollar liquidity, which in our markets remains for now reasonably elevated, meaning that volume growth in Trade and corporate finance across most of our dollar-denominated lending businesses in the third quarter continued to be more or less offset by margin pressure. As dollar liquidity reduces, however, then the more challenging conditions for some of our local regional competitors may create interesting opportunities for us to deploy our strong capital and liquidity to support our clients and drive profitable growth.

But if we don't see good opportunities at the right return, then we have always be very clear that we weren't jeopardize our hard-won foundations. We are committed to grow shareholder value.

And our 5% to 7% medium-term income growth guidance reflects our belief that we can continue to do that without pursuing low-quality income for income sake. Setting back.

Our recent performance shows just how much more resilience we have become as a group in the last three years, in the face of uncertainty such as these. We grew income year-to-date within the range that we indicated at the start of the year and obey the rate of growth slow down slightly in Q3, it was within a percentage point to year-on-year increase we saw in Q2 with a difference being softer third quarter performance in Financial Markets that I mentioned and particularly challenging conditions in Africa and the Middle East.

The rest of our businesses is performed very steadily in the third quarter. In Africa and Middle East income was down about $90 million in Q3 to $600 million having delivered just under the $700 million each quarter, consistently as the last year and half.

From a product perspective that halved the reduction in the quarter was from Financial Markets, but that in turn was driven mainly by macroeconomic and geopolitical divisions that remained pretty challenging in most markets across the region, and to some extent, our own de-risking actions as a consequence. The region remains a key focus for us, and we are maintaining our ambitious plans to roll out the digital bank platform that we developed in the Cote d'Ivoire over the coming year or so.

Our improved performance over the last year also reflects our focus on generating better returns on our risk weighted assets and balance sheet generally. The net interest margin was five basis points high year-on-year and net interest income grew strongly, which is offset in the headwinds that I just mentioned affecting some of the fee-oriented businesses in wealth and financial markets.

Our liability-oriented Cash Management and deposits businesses, for example, continue to benefit from our efforts over the last couple of years to improve the quality of our deposit mix in the rising interest rate environment. And you can see that in the consistently strong quarterly trends in the product table near the back to the statement.

On the asset side in the balance sheet, strong competition has meant it has not always been possible to reprice in full. This is particularly evidenced in the third quarter and slightly lower income from mortgages, for example.

As we look forward, we expect rising rates should continue to benefit us as monetary policies normalize. All those who indicated before sensitivities likely to reduce as clients increasingly expect banks' to pass-through rate rises.

It’s important to note the rates and sensitivity will vary by market. However, in our large market, Hong Kong for example, despite escalating trade tensions and strong competition for deposits, we maintain double-digit income growth with the good performance across all client segments driven by cash, wealth and retail deposits.

Our balance sheet there remains highly liquid with an advance-to-deposit ratio of around 60%, compared to market average 75%, and a CASA-to-total deposit ratio at 74% compared to market after 54%. The recent prime and savings rate increase has slightly negative impact given we hold more Hong Kong dollar CASA deposits than prime-based mortgage assets.

However, overall we spent benefit from further rises in HIBOR, while the mortgages, which incidentally make up less than 5% of the income in Hong Kong margins were lower, but volume and pricing remains steady. The franchise strength in Hong Kong has shown its worth recently with our cost of funding there increasing to slower rates than the published Hong Kong dollar composite benchmark resulting in the net interest margin in Hong Kong, increasing both year-on-year as well as in the third quarter.

Putting this all together, as I said, we regenerated just over 5% top-line growth year-on-year, whilst at the same time reducing risk-weighted assets and credit impairments and keeping costs in the third quarter, below the second quarter and only a touch higher than they were in the last year. Indeed, they were flat if you adjusted the currency variations.

As a result, group’s return on equity, our primary focus continued to grow nicely in the period, whilst the return on tangible equity in Q3, increased by nearly 2 percentage points compared to last year. Despite these figures focus, we know, we need to continue to drive returns higher and we are developing plans to do exactly that, which Bill will comment to shortly.

Moving now to costs. We take the view that if an investment will fundamentally improve the franchise then we will be disciplined in creating the capacity to go ahead and do it.

I'll just give you a couple of live examples of where we have invested and the benefits we are seeing. First one is in India.

The robotic processing is taking information from plants on-boarding applications to populate our back office systems automatically. This eliminates manual processing, saving around 18,000 hours annually, increases accuracy, enables in-built [indiscernible] and reduces the risk of incorrect routing.

Secondly, on new wealth management portal that we launched in Singapore in the first half is one of the first digital advisor platforms in Asia. Since launched, 44% of fund transactions now take place on the platform.

And it is being rolled out Thailand, first, then to Hong Kong, then to other markets. This offers the seamless digital experience with the increased convenience right times while reducing our sales costs.

Of course, creating capacity for investments in the bank is complex and highly regulated as ours. It's not easy and usually requires tough decisions as well as frequent adjustments through the course of the year to ensure we stay in line with our commitments.

We have tightened discretionary operating expenses in several respects in the second half of the year to ensure we can maintain the peace of investment whilst keeping costs in the second half overall, excluding UK bank levy, similar to those in the first half. Moving now to asset quality, where as you know we have made considerable progress over the last few years.

The credit impairment charge in the third quarter was one-third of the level it was a year ago and has remained low year-to-date with most indicators continuing to go in the right direction. Given the increased uncertainty, as I mentioned earlier, we are, as you could imagine, scanning the horizon to find to sort of growth strengths emerging in our markets.

As of today though, we have not seen any significant evidence of that reflected in fact credit impairment only pick up slightly in third quarter. But clearly given the historically low cost of risk currently, Bill and I are monitoring the situation with Mark Smith, our Chief Risk Officer frequently and carefully.

The final point from me before I hand over to Bill is on capital, where our CET1 ratio rose another 28 basis points in the quarter to 14.5%. This is the highest it has been since the concept CET1 was introduced, meaning we offer substantially above the 12% to 13% target range that we set out back in 2015, and positioned as well given the increased macro uncertainty.

On that positive note, let me hand over to Bill.

Thanks, Andy, and good morning, good afternoon, everybody. Thanks for joining us.

It's been almost exactly 3 years since Andy and I launched our refresh strategy back in November 2015. And I thought it would be useful to spend a very short period of time reflecting on what we've achieved over the 3-year-period, but more importantly talk about how we approach the coming years, both in terms of the evolution of our business and our strategy, but also in the context of, obviously, a changing market environment or potentially changing depending on how things that are in play right now turn out.

Broadly, we're very happy with the progress that we made. When we reflect on what we set out to accomplish in 2015, in terms of securing our foundations, getting lean and focused and investing for growth and innovation, we done pretty much everything we said we were going to do.

And we feel that we've demonstrated that we are able to take some pretty complicated problems, and work them through into a foundation for good to solid growth for many years to come. At the same time, though, we've fully reflect and recognize that we are not covering our cost of capital as yet that we have more to do both ourselves and relative to our own sense of progress, but also relative to the market understanding of the actual potential of this franchise, and what this team can deliver against that franchise.

So we have spent a chunk of time this year, and we’ll continue to between now and the end of the year reflecting on those questions that we asked back in 2015, affirming that the areas that we focused on were the correct ones. And broadly, we’re very comfortable with our focus on growth in Africa.

Obviously, recognizing the comments that Andy just made about the sluggishness in parts of this year, we believe fundamentally, but that’s a differentiating strength for our bank and then we will continue to invest there. About the opening up in China, where we made great strides and as recently as this week recognizes the first foreign bank to receive a local custody license in the People’s Republic, which is the basis for real growth for us in the years to come.

The focus on affluent, which we come back to regularly, which continues to be a core strength for us that affluent client segment and the associated products and wealth management and related products deposits, in particular, have been growing at a very healthy base together with our GCNA businesses has any just called us. We’re getting the mid to high-double-digit growth rates in those areas that will allow us to achieve our financial objectives over the medium to long-term.

These are the things that we set out in 2015. We think that there’s a core to our strategy.

But we recognized that there are things that we'll have to do differently as well. The build the mindset and the actions that we take when we’re in transformation mode are different than the actions and mindsets that we take when we're really in growth mode and return optimization.

So we’ve agreed to continue to just take a step back appropriately I think and quite normally after 3 years of, excuse me, years of an initial plan, and lay out for all of you, when we announced our February full year results. How we intend to tweak our plan adjustments that we expect to make or making or have made in order to hit a 10% plus return over the medium term.

That being as good as proxy as, I think anybody can have for cost of capital. The fully recognized -- a few of the areas that Andy called out in terms of either storm clouds potentially on the horizon.

They hadn’t materially impacted the business that we’ve seen over the past six months. So we know that there are uncertainties around geopolitics and trade.

We call that our relative insensitivity to the specific-U.S.-China trade corridor. But of course, as trade tension drives if they arise.

Further, we can expect some second order consequences that would impact parts of our business. We’ve seen a genuine economic slowdown in many of our African markets and across the Middle East displayed higher commodity prices.

And we all witness the pressure on emerging markets in particular countries that are running a deficit in current account or budget. And that has an affected sentiment across emerging markets to some degree.

And of course, this translated through to currency weakness in a number of our markets and a broader sense of malaise in emerging markets. Now we’ve not lost faith at all in the emerging market asset class or our position in it.

But we recognize that there could be some headwinds, and we’re watching those very carefully. But as Andy pointed out, we think we navigated these -- that a bit of a challenge that we’ve seen so far quite well, and we have every bit of optimism that we'll continue to do so.

I just wanted to comment very quickly on the ongoing investigations in the U.S. and in the UK.

We've seen and obviously you've seen a considerable amount of speculation recently about the outstanding investigation and relating back to activities that we first disclosed or investigations that we first disclosed in 2014, and that Andy and I have called out at pretty much every opportunity since as an open item. We are determined to play a leading role in fighting financial crime.

Since 2012, we've transformed our approach to the financial crime controls and risk management, bringing in new leadership investing significantly more into systems and training, promoting a culture of conducting business with the highest integrity. We've seen a nearly tenfold increase in our annual financial crime compliant spending, and more than sevenfold increase in headcount dedicated to this commitment.

In addition to these internal efforts, we’re also forging public-private partnerships with regulators, financial intelligence units, enforcement agencies and other banks around the world to disrupt illicit financial flows. We recognized that there is more work to do, but U.S.

authority share our view that we made substantial progress that you will understand that we can't say much more on this topic, but we are engaged in constructive discussions with relevant authorities to reach a fair and appropriate resolution as soon as practical, and of course, as soon as we have something that we can't say we will do so. But aside from these few external challenges and the reference ongoing investigations, there is plenty of good stuff going on that we could put into the tailwind category.

As much as we're concerned about the trade tension between the U.S. and China, the other trade disputes seem to be resolvable, and the intraregional trade within our markets, so within Asia, within -- between Asia, South Asia, Middle East, Africa will be picking up.

There is a clear focus from a policy perspective, but also practical economic perspective on picking up those intraregional links which play much more to our strengths then the specific weakness that could develop in U.S.-China trade. We feel very good about the progress we made in our digital agenda, and we feel great about the opportunities we have to take the digital lead that we've opened up in a number of our markets.

And I really drive that through to earnings growth over period of time. Of course, the early stage investments in digital don't produce an impact on the bottom line, but we're convinced that in the immediate term that will.

We think our network is continues to be extremely valuable, it's strong and is differentiated, and in many ways it's unique. If -- we are driving strong growth in our client franchise, in our non-financing income, in our network income.

That is leveraging this network strength, and we look forward to sharing more detail from quarter-to-quarter and half-year-to-half-year on how that's manifesting itself in bottom-line results. And the capital strength as Andy mentioned, is a great opportunity for us.

The -- a number of the markets where we operate either are or will go through some stress. We’re very well positioned in those markets having taken our medicine early on, maintain at a high level discipline, and there could be every possibility of opportunities for us to invest some of our surplus capital into interesting markets should things get a little bit tougher.

So on that note, I think, I'd say broadly we've got a balanced and pragmatic approach. We feel very good about the current environment, very good about our prospects, and fully recognize the challenges that could present themselves to all of us.

We're prepared to those. We’re refreshing our strategy, as I think is appropriate three years after having initially launched.

It will have some more to say about that in February, but in the meantime we will open it up to questions. So Sharon, perhaps you could moderate that process.

It's Ronit from Citi. I had three areas of questions please.

First of all, big picture one, ROE north of 10%? Can you quantify this in terms of timeline?

Is this 3 year, 5 years a stretch target or a realistic target? Secondly, margins, standalone third quarter looks like margins are down 3 basis points.

Andy, can you just give us some more color around how much, if I looked at just Hong Kong standalone versus the rest of the group where the trends are? And what your expectations are for next year?

I'm guessing most people have margins up next year in that thinking. But given what's happened in the third quarter, do we need to revisit that assumption?

And thirdly, by region, your stand-out weakness was Africa and the Middle East. And it looks much worse than what we've seen from some of the regional banks at least in the Middle East.

And I'm just wondering how much of this is linked to business mix changes. Or to some of the -- given the oil prices you alluded to, some of the bigger sort of government-related business streams to have picked up in the Middle East.

So it looks like you're doing worse than some of the peers, local peers and that's correct or not? Appreciate any comments or color on those three questions.

Thank you for taking my questions.

Thanks, Ronit. On the ROE point, we've always had the ambition of exceeding the 10% cost of return on equity having moved through the initial milestone of 8%.

As we approach 8%, it's appropriate to shift our focus to the next set of steps and actions that will take to clearly pass through our cost of capital, and obviously continue to grow from there. So we'll give you some more detail on exactly how we want to do that when we are together at the full-year.

Really this is a repetition of the ambition that we've had and a recognition of the progress that we've made towards that from a negative ROE 3 years ago when we when we sit up to set out our targets in the first place through to today. We're obviously much closer to that intermediate 8% milestone.

I hand over to Andy for the margin point.

Yes. So Ronit, let me take margins and then the Africa Middle East question.

So yes, you're right, the margin is slightly down in the third quarter. And as ever, with certainly markets with quite a sort of complicated story there.

Bottom line is, it does not deter us from the place that over time we should be getting the margins to be moving forward and upward. There are a couple of factors in here.

One is that in the second quarter, we did see a little bit more movement of money from the current account, savings accounts into time deposits. And that slightly pushed up the liability mix in the third quarter.

We actually saw that trend settling down. So what we can't rule out more of it happening, I think, there is sort of the flow through, a slight correction there as we went up the interest rate curve.

So that, I'd hope, will moderate as we move forward. By geography, Hong Kong, actually slightly improved margin.

We saw a margin pressure a bit more in India and in China. The Hong Kong story quite complex one because you've got the effect of the increased interest rates on Mortgages, many of which had then got a cap on them and the prime rate moving in the period.

But conversely we have a significant amount of customer deposits in Hong Kong dollars in Hong Kong. But overall, we were sort of slightly upward margin quarter-on-quarter in Hong Kong and definitely up year-on-year.

So I think that's a great on margins, but I think to move around from quarter-to-quarter. It's slightly higher liability costs because -- with the time deposit mix change, but that we thought settling down in the third quarter.

So I think, we won't repeat it going forward. On Africa & Middle East, listen, I think, we've built quite a number of different political and geopolitical situations going on there.

And the mix of countries in which we operate in is clearly a bit different to those that others operate. We were a little bit softer in the Middle East than we were in Africa.

We were actually quite strong in East-Africa. By product, about half of the drop overall was in the Financial Markets area.

Some of that was reduced activity. And some of it is actually conscious decision that we weren’t going to participate in some of the activity and we were just sort of taking a view of risk management.

So I would look at Africa, Middle East as being something where there’s quite a lot of things going on simultaneously, but over periods of time, things do tend to even out and we have been thoughtful, we’re not going to take risk on where we’re not comfortable with it. And that in part was a conscious decision we make during the period, but as Bill said, clearly it’s an area where we see long-term, still we're considerable potential, and we will continue to focus upon it even if it was a slightly weaker quarter.

Great. Thanks a lot.

And just a circle back and pin down the margin point. So some of the negative in the third quarter on margin is due to a mix shift in the second quarter because obviously you’re calling out the CASA going up 70 bps in the third quarter.

So this is like the negative mix shift in the second quarter hitting in the third. And I was wondering, looking to the fourth quarter, it's clearly quite a trend shift, I don’t want to over exaggerate better just isolated quarter down 3 basis points.

And one of your big local peers in Hong Kong just reported up for Hong Kong and Asia Q-on-Q. I’m just wondering whether -- okay, mix is exactly the same.

But I’m just wondering whether the 3 basis point down is a start of something for the second half, a negative trend for the second half?

No. I don’t think, you should look at it like that.

And as I say, it will take you individual quarter in isolation. It's difficult to extrapolate from it of your lines, but overtime, we should be able to continue to get the margin up.

Interest rates increases are beneficial, albeit further one goes up the curve then the less that is the case. But nonetheless we still see up with potential there.

So I wouldn’t get too worried about this as we look forward. There were some factors in there, which were flow through from the previous quarter.

Equally, we’re doing a lot of work on the mix or deposits and trying to get more current accounts, clearly across the overall franchise. So, we continue to focus on that and it’s something that every time we see increasing.

Three please. Just beginning with loan losses, obviously, very low in the quarter and consensus for next year is about 50% above your current run rate.

So I just wanted to check whether you might give us some color on any role of IFRS 9 assumption changes, perhaps your recovery levels at present. Perhaps you can tell us sort of what the run rate gross charges at the moment because it doesn’t feel like with anything in your early alerts or credit quality data now that suggests that loan losses will be at that sort of level as uncertain as the environment is?

Secondly, just looking at the net interest margin outlook, in the first half, you posted very strong growth in government secured wealth and FI-related lending. And I just wondered whether there was a significant role of mix in the kind of margin numbers that you’re posting and whether that actually leads to lower loan losses down the track whether that's something that might be temporary and just what role you think that might be playing?

And then thirdly, and this is a simple question, I'm afraid, the product income disclosures, I find them endlessly fascinating and useful. But -- and China understand the very significant quarter-to-quarter sensitivities of the credit side, revenues and retail have to write.

I just want to mortgage income down 27% in the quarter, and credit cards and personal loans down 7%. I just wonder how does you calculate this and sort of -- how you interpret that kind of data, because presumably if rates keep going up these numbers are going to keep going down.

Thanks very much.

Okay, Jason, we'll take those in order. It's clearly difficult to know how loan loss provisioning would have been operating if we had not had IFRS9.

On the other hand, we do have IFRS9, it is much more sophisticated, it is more forward-looking than the previous. And yet, we are seeing a very, very low level of credit impairments that is very consistent with what we are seeing in terms of forward indicators.

So the nonperforming loans, the category 12 performing, but sort of fragile and the early loans et cetera evolving heading in a pretty good direction. So I think that you should look at this as not being particularly inflated by recoveries.

And we have not had a particularly unusual level of recovery during the third quarter. Clearly IFRS9 with the forward-looking element has got more sensitivity to changes in macroeconomic outlook will be at this point in time, we are not seeing any significant change coming off the back of that.

Now on the other hand, if you go through the cycle, you would obviously refer. It is below average cycle numbers that we got at the moment, and clearly on can take a view the sort of where we're in cycle where we’re going to be.

I think our main take away however is that the medicine we apply from 2015 onwards to get the qualitative loan book into a much better position has really been paying off. And I think quality of the balance sheet now is a huge amount better where we have provisioning solutions they tend to be in quantum terms much, much lesser than what the case a while ago.

And overall, we’re very pleased with the progress we’re making there. The loan losses, credit impairments are a small proportion of our overall income whereas a while ago they were eating up quite considerable amounts of the top line.

So I think behaving well and we will continue to focus upon it, and we will see where the cycle takes us. On the NIMs, I mean, probably a little bit repetitive of what I said earlier, it is a combination of multiple products, it is a combination of multiple countries.

And there clearly is a weighted effect of all of those when it comes up for the higher level. And as I said earlier, I think, direction of travel on that certainly, both the medium-term, we do see the opportunity to further improve the NIMs within the business, and the fact that they have grown up generally over the last three quarters, but gone down slightly last quarter.

I wouldn’t read too much into that. We really focus upon the increases there and some of that will be product mix change and some of it will be sort of more by country.

And the product table at the end endlessly fascinating, that's a memorable way to describe that table again a lot of moving parts. I mean, I think on the mortgage side that one should remember quite a high proportion of our overall mortgage book is in Hong Kong.

And in Hong Kong, there is quite a high level of capping off rates. And in the period, we saw the caps coming in and taking some effect, but what we conversely saw with the benefit on the deposit side so that actually, when you put two together net-net, it was a good outcome.

And we actually, as I said, saw the Hong Kong margin go up slightly quarter-on-quarter, and recently strongly year-on-year. So as ever with these, I think, what needs to sort of look at them across the piece.

But I wouldn't be too worried about looking at the mortgage line alone. There are considerable offsets in other lines.

And in particular, in our very big market, as we say, it's been a net positive, not a net negative.

Thank you. And just to follow-up on that and in terms of the way that the caps work and so on.

If the consensus view of fed funds is right for next year and we might get 3 or 4 movements over the next 12 months. Does that necessarily feed through into a number that could trend to zero and mortgages a no turn?

And I would at it more this way, particularly Hong Kong, the biggest mortgage market we recently balanced in terms of the deposits and customers and the mortgages we could go out there and therefore actually changes are fairly neutral on an overall basis across the two different product group income streams.

Hi, good morning guys. Thank you for taking my question.

I guess just a couple of questions that go in similar themes that have already been asked. It's just not the park upon it too much with the mortgage and auto lines, could you discuss what was the underlying asset growth associated with mortgages and an auto?

Number one. And number two, you've referenced liquidity a couple of times.

It'd be helpful to understand in the Hong Kong market in particular, what we're seeing amongst your customer base in terms of liquidity preference, in terms of different products and a liability side i.e. deposits versus floating rate notes, et cetera.

Some color there would be very helpful. Many thanks.

Yes, okay. So overall the mortgage asset book was fairly flat period-on-period.

It was something where we were quite happy to sort of take share of market, but not push it too much, but overall mortgage sort of fairly flat. In terms of the liability side of things, as I said earlier, we saw a little bit of movement toward time deposits and away from current accounts in the end of the second quarter.

But that actually flattened out during the third quarter, obviously, it is possible as we go further up interest rates that we could see more of that, but the recent experience actually it was that transparent moderated.

Good morning. A couple of questions please, one general and one a bit more specific.

The general one is you have had some good news on capital -- various bits of good news on capital today, and are running, as you say, well above your targets. You're talking about investing that next year.

Is it possible that you might consider returning some of that excess to shareholders during the quarter the next 3-year plan if you can’t find opportunities for us? And specific -- my specific question was about your other impairment line.

And you were talking about some transport assets taking a hit there. I wonder if you could explain that a bit more and more broadly talk about your transfer asset financing business, and how it fits within the group.

Is that something which you’re comfortable with? Or which you might think about restructuring in the future?

Okay. Thanks, Manus.

And obviously, so evidently, we have got the capital ratio now up to a much higher level than we have had before and the level above where we had targeted. I think encouragingly, a number of things that sort of come into play that has been helpful.

We had a possible upward or downward pressure, obviously, going up pressure on the RWAs on some loss given default issues. Those have actually resulted did not have an adverse [indiscernible] which is good.

We’ve been doing a lot of work in the business on the returns on risk weighted assets and flushing out the models et cetera. And overall, that has got us into a better shape.

And equally we have got one or two things alike exactly what would be impact of the Basel IV, the U.S. situation that Bill referred to.

And our sense at the moment is that running a little bit high probably doesn’t make some sense, but obviously over a period of time as and when those things become clearer. We will put those into the mix just in terms of deciding what is an optimal level to run at.

And if we can put it well at that level, then obviously, we'll get close to how we get from where we are to the optimal level. And I’m sure we'll update more on that in February.

And on the other impairment side, the other impairments -- so that line is very much -- these are not credit impairments, but these are impairments, particularly against aircraft and ship leasing assets. And we have seen some increase than more actually on the shipping side.

That is something that we are giving some thought to. And again, it will be something, I think we will update more on when we come through February.

I would just add to Andy's answer, Manus that we remain pretty optimistic and confident that that the franchise that we’re building will allow us to deploy capital into acceptable returning, so the higher returning activities over the course of the next year. And we’ve clearly been shifting our portfolio from a legacy, which was both low returning, obviously, historically had higher much higher loan impairments, towards the client segments that play to our core trends.

And we’ve been generating some good growth in those areas of core trend. Obviously, it’s been offset to a degree both in the income terms and in capital terms by the reductions in the more legacy portfolio.

Over a period of time period of the balance sheets, and we were much more focused on generating growth from the client segments that are most relevant and attractive to us. And we’re very optimistic that we can deploy the capital that we’re generating into reasonably decent returning, higher growth type opportunities.

But of course, it for whatever reason, environmental or our own execution, we can’t, then we’ll look at how we return capital. But that is definitely not the base case in terms of what we see is the value of this franchise.

It’s regarding Hong Kong. So first of all on prime rate hike that just happened at the end of third quarter and then there could another one let's say in December.

So how much could be the impact on group margins, as Andy mentioned it could be a bit negative given that mortgages go up and Hong Kong dollars savings account pricing also goes up, is it meaningfully impacting the group margins in the fourth quarter and beyond. And then the second one is regarding on growth of the good year till date but then given all the uncertainties and now also slower loan growth in some key areas like Hong Kong, Singapore how do you see loan demand going into next year.

Okay, so take both in order. So the Hong Kong prime rate obviously has just risen for first time in a long time, we will see whether it rises further.

I think the simple answer to your question is that because we’re reasonably well balanced between deposits and mortgages in Hong Kong dollars overall changes do not actually have a significant impact upon margin in Hong Kong and therefore did not have basically it's an impact for margins for the group as a whole. So hopefully that addresses that one.

And loan growth a little bit more moderated over last quarter as year-on-year still been growing and obviously that is something that we are focused upon, we will not go lending where we have don't accept the level of risk that comes with it, equally we do know that to grow to business but we do need to keep balance sheet moving forward. So no forward projections but I think you should say that the momentum there is something that is key and something that we’re very focused upon making sure that we have a regular drum beat of that.

Good morning, two questions, please. The first on cost, so you confirm that Q4 cost ex about level 2.6 billion which is in line with consensus.

I just wonder if you could comment, given some leasing pressure of course, where there is been any change to your investment spending or capitalization policy this quarter. And then my second question is around your commentary that you're on track to deliver the financial commitments you set up earlier this year.

So just to confirm so you will deliver 5% income growth at least for full year '18 which would serve the continuation of the 4% year-over-year growth in Q4 as well. And just whether you could comment given the NIM decline and also the loan book decline quarter on quarter how would you think about absolute NII development in the fourth quarter and going forward, whether that will be such a support factor into next year.

Thank you.

So cost, let just address that one as another good quarter of commentary at the half year. We have over the last three as you know we have taken out a lot of cost in order to significantly increase the investment security investment into the business and that we profoundly believe is important for business going forward, and we continue to believe that investing into those areas is important and consequently that we do need to take the cost out of the business in order to be able to fund that.

That is no change whatsoever in our capitalization policy, we apply exactly the same way of capitalizing this cost as we have ever done before. What we have done is just got a little bit tougher on some of the discretionary cost to make sure that the commitment that we made that we would see the second half costing same as the first half cost is what we deliver and that is what we are working very much to.

So if we can do that, then that implies that we'd have sort of just over 10.2 billion in cost for the year against 9.9 last year. That's a 3% increase that's roughly blessed with inflation, seeing the markets we operate in, and that is consistent with what we also said was that we were trying to contain cost increases global level, at or below the level of inflation notwithstanding making significant level investment.

So we are continuing to invest. We will continue to invest.

We think that's the right thing for the future of the business. On your second point on track with our financial commitments, clearly we are doing everything we can do to land this year within the ranges that we have indicated albeit they were ranges over the medium term, they were not specific to individual quarters or years, we are just above 5% from the U.S.

day basis. And we will do our utmost to try to get a full year to end up at 5 or above level percent.

If we can possibly do that they will clearly be the number of moving parts that sit there. One is as you refer to about asset growth and other will be about NIMs.

I'm not going to forward forecast NIMs on a quarterly basis. And as I said earlier, the intent as we evolve the business is that we would hope that we can be progressively improving the NIM over a period of time that may not be true in every single quarter.

But that is the direction of travel that we would hope for present impairments clearly are at the moment touch wood operating in a helpful way in terms of the bottom line. And if we can end the year with a bottom line print on the operating profit, remember we are printing now each quarter about the same amount of operating profit as in 2016.

We were printing in the full year. So we really have ramped up the bottom line effect here.

The ROE at 6.1% is clearly the highest we have had for quite a period of time but we want to get it higher, but I think the direction of travel is pretty good. And the teams here are very focused on delivering as close as we can within those ranges as possible at the end of the year.

Thank you very much. Could I maybe just have one follow-up just in terms of what to expect at the Q4 for your three year plan?

Are you going to give us similar updates on ROTE walk you gave at the 2015 results showing that you're going to exceed 8% ROTE in 2021? Will it be above 10% in that year that we are going to show?

Thanks.

You want me to a pre trial our February announcement. Listen, I think as Bill said, we have I think, covered a lot of ground the last four years.

And obviously over three year period, a lot of things change externally and as you'd expect with any business, we need to sharpen up, reflect refocus, look at the overall opportunity, make sure operating resources behind them. And those are all sorts of things we'll talk about in February.

And we'll talk about where we think we can get returns to the business. I haven't exactly worked out what charts we're going to use for February but we will progress that over the coming weeks.

But I think you should see it more as being how do we shop for the business further, how we build from the foundations we put in place and how do we get to the heart of the return that we will know the business is capable of even if it's taking us a little bit of time to get there. I think it is better to do that in a safe and steady why and we'll talk further about that in February.

I’ve got a couple of questions, please. The first is on going back to the segmental presentation.

Where one of the good performing biz, whether by client segment or geographic region as the central and other items. And I guess the question is, is this presumably most leads do with rising interest rates, where it’s captured within the group reporting?

And is there anything particularly in the Q3 numbers that is a one-off in nature? Or could we see that as being a basis for extrapolating sort of future expectations?

My second question is entirely different, it sort of goes back to one of the earlier, sort of questions I think from Manas, which is sort of talking about sort of looking your business that your strategy where you’re talking about several areas where you have differentiated advantages. But I think you’re also putting into your statement today.

You’ve learned a lot since 2015, about areas where you do not have differentiating advantages. And I was just wondering without being necessarily specific about a particular business units, whether we could be finding, when you do unfold your update on the strategy in February, whether they could be sort of further just the business that you would be done sizing whether they could be further creations of new legacy portfolios or whether what we see today will remain intact going forward?

Let me take the first and Bill the second. So the simple answer to your question is central and other is a beneficiary of, to some extent healthy interest rate increases and that is the good part the reason why its numbers are higher.

There is nothing particular that pull out in the quarter itself. So sort of the guide going forward, there’s nothing sort of ex- out.

But I would equally aver that does tend to be a little bit lumpy overtime, it’s not the most predictable line because of share volume, balance sheet et cetera there is a little bit is quite significant. So bottom-line beneficiary of interest rates and nothing particular to call out within the period.

And Robert, on your second question around areas of differentiation and flip side areas of lack of differentiation. And this is a body of work that we’ve been doing pretty continuously since 2015 with the data that comes in.

You can imagine the business in many ways was very good business. But underneath a lot of crud, in 2015.

We spend a fair amount of time scraping the crud off and at which point do you check just how sound the whole is and how strong the engine is and how quickly that machine can move. And thankfully, having removed a lot of crud and upgraded the motors and streamlined the whole and things like that.

And we’re doing a lot better than we were in 2015, but we have learned a lot. About the things, the investment that we’ve made have really worked, the areas of focus that have works and some that still lag, and obviously you can see from the results that we have significant components of our business that are still well below their cost of capital, by any measure.

And we have others that are well ahead. And we’ve confirmed I think our key understanding about differentiated strains in a few markets where we have sizable market shares, strong brand.

And obviously some markets intrinsically are more attractive than others. And we have some very attractive markets, and we have some most attractive markets.

But looking at our differentiation, we see key strengths with excellent clients. We see key strengths with corporate clients that are able to access our network or our cross border services and capabilities in some way.

And we see that we have a harder time hitting acceptable levels of return but we don’t have those attributes. In some cases, we’ve got less differentiation but still some in a very attractive market.

And that sounds fine to us. In other cases, we’ve got a bit of differentiation but in very unattractive markets.

We’re going to figure out how we can get our returns above cost of capital in those segments or those markets. And we have no doubt as we dig further and further some operations that are joining us on differentiation and perhaps not very attractive market which we will look to reposition, sell or otherwise focus on a differently differentiated strategy.

But this is all the work that’s been ongoing pretty continuously since 2015 and we thought we'd bring it together in February together with some refresh perspective on how we’re going to get to a return that is a lot more exciting for all of us.

Just couple of questions, one on margins, this might be my lack of understanding but they are down two or three basis points Q on Q and I know you talk a lot about the funding change from current account and time deposits but you said in the third quarter that kind of slowed down. So if that’s not a reason that margins are down Q-on-Q why are they down Q on Q apologize if I haven't quite understood that point they say that the funding stuff has been resolved in third quarter at least moderated.

So is there any other reason as to why margins are down Q on Q as much as they are. And the second question you might differ the strategy if you look consensus have 6% income growth in the next couple years year-over-year you talk about 5% to 7% income growth, revenues are down Q-on-Q, I understand the point that within the kind of market malaise you would take share of a shrinking pie so to speak, but is that kind of growth rate realistic even though your competitive position is improving.

If you're having across the board malaise in the emerging markets is that the right kind of number we should be thinking about or realistically will it be lower with you taking market share. Thanks.

On the [indiscernible] what just sort of a couple of things. So what I was saying was that late in second quarter we saw some of that movement between the capital and the time deposits therefore, it was not particularly impacting the income in the second quarter but we ended the third quarter with that having changed and therefore we did see a third quarter impact on income of it and therefore compared to second and third quarters we have, that is where it came through in income.

I think that another part of the margin reduction in the third quarter was on the asset side not just the liability side, a little bit tougher to pass on some of the increase in interest rate to customers and therefore there was an elements of that that was in it as well, but hopefully the first part of that does more explain the obviously did not explain [indiscernible]. On the income rate I think you’re right, we will provide an update obviously in February and we have got target rates out there, we got no reason to think that we should be aiming for anything different.

We will be thoughtful, that's what we do, we’re always going to take a reflect to this and if we do not think that there is an acceptable level of risk we’re not going to get rushed to so just to get into a particular range, we are much more concerned by improving the quality of the return in this business stake over long-term period. But we will do an update on the things we’re going to do to, deliver our latest numbers in February.

I would just add to that to the comment or response to your question about growing share in some situations where markets are more difficult. We absolutely intend to do that but we don't feel we haven't need to and we don’t feel that we will need to lead with risk or with pricing giving up share but we can rather lead with focus and service that’s worked well for us and our focus areas over the past couple of years, and we will look to step that up.

So, we're not going to be the one that initiates a price war.

Sorry, Bill, can I just follow up with that. Can't you need on prices though because you have a structurally lower or your funding costs are higher, but considering your deposit base, you should have a level funding costs as U.S.

sort of liquidity is kind of tightening a lot that you're so long U.S. dollar liquidity.

Can you not kind of compete on price and take market share in that way because just competitively your funding base in different places to some of your local beers?

Yes, look -- that's I mean I think it's the semantics. Of course we can take share based on pricing where we have an advantage.

We do that today we will continue to. Now we've not had an advantage funding costs that in most of our local markets in the recent past.

There are some times and tightness in some markets in particular in Africa and the Middle East obviously flipside of the challenges that we're experienced on there in third quarter. But my real point is, we don't have a deliberate strategy to produce our margins in order to pick up share right now, because we think we can pick up share by just doing a better job of what we've been doing, which is -- which hasn't back increase our share and most of our clients segments in most of our markets over the past few years.

And I have two questions. One on credit cards and then one back on costs.

And on credit cards, can I just ask about credit migration in the period? It looks like stage 3 exposures fell as a percentage of total exposure, but I think split between stage 1 and 2 for Q3.

So can you just confirm there's no pick up in stage 2 in the pick up? I am presuming given CG 12 exposures fell in the delivery credit impairment charge that there wasn't any adverse credit migration, but that'd be helpful to split there?

And then on cost, if I can come back to your comments that you reduced some discretionary spend in Q3 to help new your commitments of flat costs on H1 extra level. How should we think about that discretionary spend fall?

Is it simply delayed into next year? Or it falls away.

So, no particular movement in terms of face-to-face free migration that I call out in the quarter as you can see from most of the indicators nonperforming CG 12 et cetera, they have these on a gently improving trend. There is nothing particular to call out there, but there is a distortion that is not visible.

On the costs, it's a bit of several things. There will be some things where we are slight people less where you can move into your comfort suits.

They'll be one of two things where we fix people sort of just tighten the belt and whatever, but I overall believe that we can manage this business with the cost increase at or below inflation remains our view.

Just a follow up on earlier question and income growth is slowing. Risk cost, I think you've seen that before, that they are currently below full year cycle average.

And I was just wondering, if that means there's an increased focus on cost for yourself as a lever to improve it and from here, and I was just wondering, how comfortable are you with the current cost base with the current geographic footprint? And do you see scope here for more aggressive cost measures going forward?

Or is your focus here predominantly on growing revenues in February? Thank you and apologies for the voice today.

So, right Martin, thank you for your one part question. That is appreciated and I think running any business, one can have an eye both to the top-line and costs.

I mean, our absolutely believe, there’s a lot of potential in the market in which we operate that we need to make some investments to actually realize that full potential. And if we can take out and of course, to fund that investment, that is the right way to go forward.

I think if we just totally focused on cost reduction that in the long-term is not a great way to grow a franchise. So our focus very much going to be all investing in the areas where we believe there is opportunity for us and taking out enough costs to be able to fund that growth and we’ll talk about both of those in February.

Yes, this is specifically to your question on geographic footprint. We don’t look at the question around where we operate as a primarily cost question.

It’s a return question with a couple of key components. One is the return of the business itself.

And second is the degree to which it contributes to our broader network effect. So of course, if and when we do adjust our geographic footprint and we have in key products over the past few years and we will continue to look at areas where we should be either investing more or investing less in a particular location.

We’re going to do that. And that could have the effect of adjusting expenses that that’s not going to be the primary driver.

You’re not going to see us existing countries in order to hit artificial expense targets, but we will focus on how we get the best return from the geographic footprint that we’ve got.

So, I’m looking at couple of questions, if I may. The first one was maybe just for Manus’s point on capital.

So you printed a 14.5% CET1 ratio given how well you did on our RWAs and maybe it could have even been a little bit higher in the quarter. But that still looks like around 200 basis points ahead of your midpoint of your guidance range.

That would be about $5.3 billion say, we do 1.5 billion today your legacy conduct charges. So gives you $4 billion surplus capital and to midpoint of the range.

So, it looks to me that a buyback could be really quiet again you could take a lot of share count and say $30 billion buyback would be 9% of your share count and you'll still be above your guidance range. So how comfortable are you in that 12% to 13% range?

And do you consider that total capital management or something you might rule with shareholders albeit maybe people think it’s well on the tail-end growth, if you buyback? But how do you look at reward, risk rewards?

And the second one was, is really looking forward to the updates in February. On the returns target, is that return on stated equity, which is I guess will you put out in 2015 is ownership to return on tangible equity target?

Chris, your precision on your math is commendable. It’s so nice to be having discussions about whether we got excess, whereas 3 years ago, it was sort of very much the other type of discussion.

And we will obviously be getting more thoughts as we update in February to what we think to what we’ve been medium term is a sensible range to continue to have capital at as you partly refer to there are a couple of things but for the U.S., which we fine we’ll share a little bit more about what impact will have from those and still quite earlier. This is not all about returning capital.

This is about deploying capital and how can we grow the franchise. So I think understand the question and we will certainly in the February be updating I think all the way of overall capital ranges we believe should be in the long-term.

And so your other question was on.

ROE.

ROE, listen, we said this. We directionally believe we can get up and above 10% over period of time.

Again we will put more about February but what the temporary momentary was other metric over the long-term period of time to the difference in the two is not hugely significant, both of them are higher than where we were today and that is going to be important thing to talk to.

And just to repeat what we said bunch of times, our target isn't to get 10%, our target is to consistently deliver above 10%.

Again just [indiscernible] tangible equity target and that turn -- if we were just looking at what's your book value and plus 10% to that, that might make a delta on where we sort of our central analyst take, take that name to net income number.

We’re witnessing your demonstrated mathematical confidence. I know you can make that adjustment really quickly in your head.

Thanks everybody for joining us this morning and for your ongoing support and challenge, and look forward to speaking to you as a group next in February.