Earnings Call Transcript - HSBC Q4 2025

Operator, Operator

Welcome to the HSBC Holdings plc Investor and Analyst Presentation for the 2025 annual results. We will begin in 2 minutes. Please note that it will not be possible to ask a question if you are joining via the webcast link on the HSBC website. Ladies and gentlemen, welcome to HSBC Holdings plc's 2025 annual results webinar for investors and analysts. For your information, today's webinar is being recorded. At this time, I will hand the call over to Georges Elhedery, Group CEO.

Georges Elhedery, Group CEO

Welcome, everyone. Thank you for joining us. As we celebrate the year of the horse, our 2025 full year performance was strong. It was a year in which we performed, transformed, and invested for growth. I will discuss our strong strategic progress today. First, the strong momentum in our 2025 performance. Second, the execution of our three strategic priorities where we are progressing at pace and with discipline. And third, the new growth and return targets we are setting out today for 2026, '27, and '28. So first, the full year earnings. My comments will exclude notable items, and the comparisons will be year-on-year on a constant currency basis. In 2025, there were $6.7 billion of notable items. You are already aware of these from prior quarters. They are set out on appendix Slide 36. So first, we delivered strong earnings. Group revenues grew by 5%. Profit before tax rose 7%, reaching a record $36.6 billion. Return on tangible equity was 17.2%. And we delivered 3% cost growth on a target basis in 2025, in line with our cost target. Second, we delivered strong growth. Our deposit balances grew 5% with deposit growth in each of our four businesses. Our deposit base is a core strength. It contributes the lion's share of our banking NII. We also grew fee and outcome. In Transaction Banking, it grew by 4%. Elevated market activity demonstrating the power of our deep international network, which gives access to 86% of world trade flows, alongside our product and service expertise. In Wealth, it grew by 24%, reflecting our leadership position in the world's fastest-growing wealth markets and continued investment in our products and proposition. And we are investing for strategic long-term growth. We completed the $13.7 billion privatization of Hang Seng Bank. This brings together to 255 years of history and heritage, combining global reach and local depth. It reflects our confidence and conviction in Hong Kong's future growth. And third, we delivered strong returns to our shareholders. We announced a full year ordinary dividend per share of $0.75, up 14% on 2024. Let's turn straight to the progress we are making on strategy execution. In October 2024, I set out a clear agenda to unlock HSBC's full potential. To do so, we now run the bank on four core complementary businesses, two home market businesses: U.K. and Hong Kong; and two international network businesses: Corporate and Institutional Banking and International Wealth and Premier Banking. Each business is growing. Each is generating above mid-teens return on tangible equity, and each is building on a strong foundation for future growth. We are focused on three clear priorities, and we are moving at pace with each one: be simple and agile; drive customer centricity; and deliver focused sustainable growth. Now let's look at each priority in turn and our progress. First, simple and agile. The first step in unlocking HSBC's full potential is reengineering to reduce complexity and cost. Structure and strategy are now aligned. Accountability is sharpened, and roles deduplicated. In 2025, we reduced net managing director positions by circa 15%. We are taking $1.5 billion of annualized simplification saves straight to the bottom line with immaterial revenue impact. We expect to have taken action to deliver these saves by the first half of 2026, six months ahead of plan. We are also making positive progress with the reallocation of circa $1.5 billion from nonstrategic or low-returning businesses. The medium-term intent is to reallocate these costs to areas of competitive strength and generate accretive returns. In 2025, we announced 11 business or market exits. Completed and announced exits account for $0.7 billion in annualized cost savings with around $1 billion of associated revenue. $0.6 billion remains an active execution, including those under strategic review. Then following the privatization of Hang Seng Bank, we are increasing reallocation costs to $1.8 billion, reflecting an additional $0.3 billion of reported basis cost synergies across HSBC and Hang Seng Bank. We will direct this $0.3 billion to growth opportunities in Hong Kong. We are also streamlining and upgrading our operating model by simplifying the bank at scale and retiring nonstrategic applications. And we are reengineering while focusing on resilience and risk management. Next, priority number two, drive customer centricity. Our four businesses are built on customer trust. Our investments to improve customer proposition and experience are yielding results. Net Promoter Scores have improved or remained top-ranked in our home markets. In Hong Kong, we added 1.1 million new to bank customers, taking the total number of customers to more than 7 million. Our U.K. business banking lending grew 13% year-on-year, excluding COVID loan runoff. In CIB, corporate surveys have positioned us as a market leader in trade, payments, and foreign exchange. In IWPB, we attracted net new invested assets of $80 billion. Next, priority number three, investing to deliver focused, sustainable growth. Our Hong Kong home market is a dynamic economy, a top three global financial center, and a thriving trade gateway. It is the super connector between Mainland China and the world. And it is set to become the world's leading cross-border wealth hub by 2029. The privatization of Hang Seng Bank enables us to scale capabilities and drive growth across both banks for all customers. We have the ambition, and we have comprehensive plans to deliver $0.9 billion of benefits through reported synergies and unlock of opportunities by 2028. It is an investment for growth. And if we move beyond Hong Kong and look at HSBC's other core strength, we are in Asia, the Middle East powerhouse. Asia and the Middle East are increasingly central to global trade and capital flows. Global trade is being rewarded. Asia's growth is increasingly powered by intra-Asia demand. Asia is buying Asia. The Middle East is scaling as a global capital trade and investment hub. Its integration with Asia is accelerating. The Asia-Middle East corridor is becoming a defining axis of global growth. Wealth creation across Asia and the Middle East is also structurally strong. That is why we are investing to consolidate our powerhouse position and capture these growth opportunities. We are also investing to connect the world, scaling our capabilities, building new capabilities, and supporting customers to secure commercial advantage from real-time services. Our customers are making real-time 24/7 payments across 35 markets. They're also using frictionless tokenized deposits and payments in four markets, including the U.K. with more to follow. And we are pioneering the future of finance. Last month, the U.K. Treasury selected HSBC's distributed ledger technology as its preferred platform for its U.K. Digital Gilt pilot. Next, our people and technology. We see innovation and culture as core to our competitiveness, and we are investing in both. We are scaling AI adoption first to empower our colleagues, second for end-to-end process engineering, and third to enhance customer experience. Our customer relationships are built on trust. AI strengthens how we act on that trust, personalizing service at scale. The strong culture turns a clear strategy into results, and we are investing to nurture a high-performance culture. All our senior leaders and the broader managing director cohort have attended our new group-wide leadership training. Finally, let's turn to our new targets for 2026, '27 and '28. 2025 has been a year in which we have performed, transformed, and invested for growth. This gives us the confidence to set out new growth targets. We will target revenues growing year-on-year every year, rising to 5% in 2028, excluding notable items. We will target return on tangible equity of 17% or better in each year from 2026 to 2028, excluding notable items and a dividend payout ratio of 50% for each year, excluding material notable items. To conclude, we are creating a simple, agile, growing bank built to generate high returns. We are executing our strategy with discipline and precision. We are delivering growth, we are investing for growth, and we are confident we can navigate uncertainty from a position of strength. That is why we are confident in setting these new targets and in our ability to continue delivering for our shareholders. Let me now hand over to Pam. Thank you.

Manveen Kaur, CFO

Thank you, Georges. Thank you, everyone, for joining. We have had another strong quarter, which reflects the positive progress we are making towards creating a simple, more agile, growing HSBC. We are investing for growth. Throughout this presentation, I will exclude notable items and focus on the fourth quarter numbers compared to the same period last year on a constant currency basis. Let's turn straight to the highlights. In the fourth quarter, revenues grew 6% to $17.7 billion. This was driven by broad-based growth in banking NII and fee and other income. Profit before tax was $8.6 billion, up 17%. Our customer deposit balances stand at $1.8 trillion, an increase of $78 billion when we include held-for-sale balances. Full-year return on tangible equity was 17.2%, achieving our mid-teens or better target. In 2025, we maintained tight cost discipline, managing target basis cost growth to 3%, in line with our cost growth target. Turning to capital and distributions. Our CET1 capital ratio was 14.9%, up 40 basis points in the quarter, reflecting our organic capitalization and expectation not to initiate any further buybacks for up to three quarters following October's announcement of our intention to privatize Hang Seng Bank. As Georges said, this strong performance allows us to announce ordinary dividends for the year of $0.75 per share, an increase of $0.04 on the prior year. Turning to our business segment performance. We grew full-year revenue by 5% to $71 billion. Each of our four businesses grew revenues. Each grew deposits, deepening customer relationships. Each returned a mid-teens or better return on tangible equity, excluding notable items. We are pleased to be making such positive progress firm-wide. Moving next to our privatization of Hang Seng Bank. On 9th October, we announced our intention to privatize Hang Seng Bank. We are pleased to have completed on 26th January, sooner than our initial expectation of the first half of 2026. This slide explains the financial rationale. Let's walk through it, starting with a $13.7 billion purchase price. The removal of the $3.8 billion minority capital inefficiency takes you to the $9.9 billion of common equity Tier 1 consumption. The removal of the capital inefficiency is around one-fourth of the purchase price. The $9.9 billion CET1 consumption is equivalent to buying back 4% of group shares at the point of announcement. Next, we show the $0.8 billion minority interest in the P&L and the $0.5 billion of pretax synergies from the privatization. Together, the minority interest and the synergies contribute more than 4% to our profit, beating the buyback threshold. On top of this, we see potential further revenue and cost upside of $0.4 billion enabled by the privatization. Then on the right of the slide, we see good growth in Hong Kong in the years ahead. Having two fully owned banks positions us well to capture this growth. As we said in October, we are acquiring a business with structurally high pre-impairment margins. And while we are not calling the credit cycle, we believe it is a cycle. Let's now turn to banking NII. Our full-year banking NII was $44.1 billion. In the fourth quarter, banking NII of $11.7 billion grew $0.7 billion. $0.4 billion of this growth was in Hong Kong, including the recovery of HIBOR during the quarter. Banking NII in the fourth quarter included a positive benefit of around $100 million for items that we do not expect to repeat. We expect full-year 2026 banking NII of at least $45 billion with the impact of expected lower rates more than offset by deposit growth and the tailwind from our structural hedge. Next, to wholesale transaction banking. This year has really validated the strength of our franchise in a range of economic market and tariff situations. We have deepened customer relationships, and our global network has helped our customers navigate volatility and uncertainty. In the quarter, security services grew fee and other income 6%, reflecting higher market valuations and new mandates. Payments grew 3%, driven by new mandates and payment volumes. In particular, international payments. Foreign exchange increased by 1%, reflecting strong client flows and higher levels of volatility. This was a good performance given the strong prior year comparison. Trade was down 5% in the quarter, but it was stable over the full year. I would note that the first half was particularly strong, given advanced ordering as we supported clients to navigate a fast-changing landscape. We continue to see growth in volumes, and strong client engagement. Let's now turn to Wealth, including the new disclosures we are setting out today. We are very pleased with the 20% year-on-year fee and other income growth to $2.1 billion. And we are very encouraged that this was driven by all four income areas, which shows the sharpening of our strategy is working. Asset Management grew 14%, and Private Banking grew 8%. Investment Distribution also performed well, up 14%, reflecting strength in our customer franchise in Hong Kong. Our Insurance CSM balance was $14.6 billion, up 21% versus the prior year. We continue to attract net new invested assets with $7 billion in the fourth quarter. Today, we are giving you new disclosures, which you will see through on this slide. These better show the strength of our relationship with our customers, including both their deposits and invested assets. We are focused on capturing the full wealth opportunity, and we will now report Wealth balances and net new money. I appreciate that the Wealth balance figure is similar to the invested assets. But I would highlight two changes to note. You will see these set out on Appendix Slides 31, 32 and 33. We have added $608 billion of Premier and Private Bank deposits to the invested assets. That is offset by taking out $580 billion of asset management, third-party distribution assets. This is a good business, but it does not reflect our wealth customers. Adjusting our disclosure in this way also means our Wealth business is more easily comparable to the broader peer group. These new disclosures will replace the existing ones from the first quarter of 2026. We saw net new money in the quarter of $26 billion, of which $19 billion was in Asia. And Wealth is not just a Hong Kong story. It runs across our Asia and Middle East franchise with double-digit invested asset growth in Singapore, Mainland China, India, and the UAE. Next to credit. Our ECL charge this quarter was $0.9 billion. There was no material impact from Hong Kong commercial real estate in the quarter. On Slide 29, you will see we have updated the commercial real estate disclosures. Movements in the fourth quarter were in line with our expectations. The full year 2026 ECL guidance is around 40 basis points. This is at the higher end of our typical range, reflecting the economic outlook and remaining pressures in parts of retail and office commercial real estate in Hong Kong. Let's now turn to costs. We delivered 3% target basis cost growth in the full year, hitting our cost goals while making the space to invest in the bank was a key theme of 2025. It will be again in 2026. We have taken actions to realize $1.2 billion of annualized simplification savings with immaterial revenue impact. This is ahead of our original timeline of $1 billion by the year-end 2025. On a realized basis, we have taken $0.6 billion of the simplification saves into the full year 2025 P&L. Together with ongoing discipline, this allows us to guide for 1% cost growth on a target basis for 2026 while reinvesting in the business. Next, to customer deposits and loans. We had another strong quarter with deposit growth of $50 billion. We saw good growth in each of our four businesses. Loans increased by $5 billion. The U.K. was again the standout with another quarter of growth in mortgages and commercial lending. Our U.K. business is well positioned to support growth in the U.K. economy. We are particularly pleased with the momentum in our commercial loan book, where we see significant potential, particularly in infrastructure, innovation, social housing, and mid-market direct lending. Now turning to capital. Our CET1 ratio is up strongly to 14.9%, primarily reflecting good organic capital generation. Although after the balance sheet date, I draw your attention to the impact of the Hang Seng Bank privatization, which is 110 basis points in addition to the 10 basis points already incurred in the fourth quarter. We have set this out in the appendix Slide 27. As a reminder, we said when announcing the offer on 9th October that we expected to suspend buybacks for up to the next three quarters. That is, of course, dependent on underlying capital generation. With strong profitability and current modest loan growth, we remain highly capital generative. A decision on future share buybacks will be taken quarterly, subject to non-buyback considerations. Let's next turn to the full year defaults. Excluding notable items, and at constant currency, revenues grew 5% to $71 billion. Profit before tax was $36.6 billion, up 7% year-on-year to a record high. Return on tangible equity was 17.2%, achieving our mid-teens or better target. Our strong performance allows us to announce ordinary dividends for the year of $0.75 per share or $12.9 billion. Let's briefly return to the new targets Georges set out earlier before I close on guidance. We made clear and positive progress in 2025. That is why we are now raising our ambition to target 17% return on tangible equity or better, excluding notable items in each year from 2026 to 2028. We will also target year-on-year revenue growth in each year over the period, rising to 5% in 2028 compared to 2027, excluding notable items. And as you would expect, we maintain our discipline of a 50% dividend payout ratio, excluding material notable items and related impacts. Finally, to guidance. This slide gives you our guidance mainly for 2026. We saw revenue momentum continue in January, including in Wealth. On the slide, you see banking NII of at least $45 billion. Our revenue ambitions for our Wealth business are contained within our revenue target. We have, therefore, removed grow fee and other income at a double-digit percentage CAGR from our guidance. We see an ECL charge of around 40 basis points, broadly stable on 2025. We expect to constrain cost growth to 1% on a target basis. This benefits from our organizational simplification and allows us to continue to invest in the business. There is no change to our CET1 target range of 14% to 14.5%. In 2026, we will deliver the $1.5 billion of savings from the reorganization. We are well on track with the $1.5 billion of reallocation costs which will be redirected towards priority growth areas. We are now adding the expected $0.3 billion of Hang Seng Bank cost synergies to the original $1.5 billion of reallocation costs, taking this to circa $1.8 billion. On Hang Seng Bank specifically, we see $0.5 billion of revenue and cost synergies to be achieved by year-end 2028, as well as an additional $0.4 billion of potential further upside enabled by the privatization. To achieve this $0.9 billion, we will incur a restructuring charge of $0.6 billion from the Hang Seng privatization, which will be a material notable item. To close, as I said to you last year, I am fully focused on discipline, performance, and delivery. Discipline means prioritizing with precision, maintaining strong cost control, and ensuring investment rigor for growth. Performance means gearing our financial strategy towards achieving our new returns target. Delivery means ensuring we remain agile and resilient, enhance operating leverage, and are always well-positioned to support our customers. This is exactly how we will continue to run the bank. With that, we are happy to take your questions.

Operator, Operator

Thank you, Georges. We'll take any questions from the room here in Hong Kong first. If I can ask you to introduce yourself and your company, and please constrain yourself to two questions each. That goes for people on Zoom as well as people in the room. Anyone would like to ask a first question here? Yes, we'll take a question from Nick.

Nicholas Lord, Analyst

It's Nick Lord from Morgan Stanley. I'll put it in one question in two parts, if that's okay. I'm just interested in your revenue target by 2028 of achieving 5% revenue growth. And I just wonder if you could talk about some of the components of how you would get there. Presumably, Wealth is part of that. And so maybe you could talk about the Wealth trajectory and how sustainable that is. Presumably, at some stage, we're going to see sort of a kick-in of the development of markets in Asia, and that market's business can grow more. So I wonder if you could talk a little bit about how you want to grow that markets business in Asia.

Georges Elhedery, Group CEO

Thank you for the question. I will share some high-level remarks on our growth opportunities, and Pam will detail the various components. Firstly, we achieved growth in 2025 across all our businesses and key metrics, including deposits, loans, fee income, Transaction Banking, and Wealth, with revenues increasing by 5%. Secondly, our footprint aligns well with strong structural growth opportunities. In Hong Kong, we are consolidating our leadership position to seize these opportunities, particularly with the privatization of Hang Seng. In Asia and the Middle East, we see structural growth in Wealth and record volumes and shipments for trade, indicating that Asia is buying Asia, and our footprint enables us to capture these growth opportunities. In the U.K., we observed significant loan growth in 2025, the strongest we've seen in years, and we have reasons to believe this trend may continue, reflecting robust growth across all our U.K. businesses. Lastly, we are actively investing in these growth opportunities by reallocating costs within our budget and from the additional expenses anticipated in 2026. We will further invest the $1.8 billion we are freeing up back into our core growth areas. This approach gives us the confidence to target year-on-year revenue growth rising to 5% by 2028.

Manveen Kaur, CFO

Thanks, Georges. So firstly, in 2026, we expect broad-based growth in revenue across all our businesses, but just unbundling a little. In banking NII, as we have said, we expect a low single-digit growth fundamentally driven through deposits. Yes, there are pockets of growth in loans, but so far, we've just seen in the U.K. market. Overall, we expect that growth in Wealth and Transaction Banking and our fee-generating businesses will continue to be very positive. As we go beyond '26, we do expect balance sheet growth should again in Asia and other markets, not just in the U.K. Of course, we are seeing growth in the U.S. already, but we are not a big player in the U.S. market for domestic growth. And we are continuing to invest in our fee businesses and our investment plans are multiyear plans. So it's not just for growth for one year. It's a very strong building block for growth through the period we have called out and beyond, particularly in markets like Hong Kong, in the U.K., and in other key markets for us in Asia and the Middle East.

Operator, Operator

Thank you, Nick. Thank you. Any further questions in Hong Kong? We'll go straight to Zoom. The first question on Zoom then, please, is with Joe Dickerson at Jefferies. Actually, I've announced yourself, Joe.

Joseph Dickerson, Analyst

Good set of results, guys. Just a quick question on the costs. If you look at the 2026 number that you've given, the kind of 1% growth. I know you've got your recycling. How do you think about when you peel that back and what's the metabolic rate of growth in costs, particularly coming from investments? Because you clearly have some global peers who have accelerated their investments around AI. So I was just curious how you think about that. And then secondly, a nitpicky question, but what rate of HIBOR have you assumed in the banking NII guide of greater than $45 billion?

Georges Elhedery, Group CEO

Thank you, Joe, for your questions. Let me share some high-level insights on our approach to costs, and then I'll have Pam discuss costs and HIBOR rates. As I mentioned earlier, we have set aside a portion of our workspace for investments aimed at transforming the bank, which includes digital capabilities, hiring additional personnel, relationship managers, wealth advisory, and generative AI efficiencies as part of our cost structure. Additionally, while we're increasing costs considering these savings, about half of this additional expense will address payroll inflation, while the other half will fund further investments. Furthermore, we plan to recycle $1.8 billion, representing approximately 5% to 6% of our total cost base, back into these growth investment areas. Therefore, we believe we are well-positioned to invest and achieve the growth targets we have set. Regarding costs, it's crucial to note that we are committed to maintaining cost discipline, and we are confident in our ability to achieve it. As evidenced by our 2025 results, we met our cost targets, which should also inform your expectations for our cost guidance for 2026.

Manveen Kaur, CFO

Thank you, Georges. First, I want to highlight that we are ahead of our simplification savings because the plan and actions we have implemented have come through quicker than we initially expected. This results in an additional savings of $700 million for the full year 2026. This has been a factor in the overall 1% cost growth target. As Georges mentioned, with ongoing divestments, we continually reallocate those costs to our priority growth areas. It is crucial for us that our investment focus aligns with our strategic priorities. This approach was applied in 2025 and will continue going forward. These are committed, multiyear plans that remain consistent each year. This is all part of the cost guidance we provided for this year. Again, we are only offering guidance for this year, but we plan to maintain cost discipline over time. Regarding assumptions, we have utilized the end-January forward rate curve for our banking NII guidance across all major currencies. To note a few points regarding HIBOR, the volatility we observed in Q2 and Q3 when HIBOR was at 1% impacted our banking NII by about $100 million. Now that HIBOR has stabilized, as it did in Q4 and this year, despite minor fluctuations around the 2.5% mark, that is considered in our guidance. We also review several likely downside scenarios before providing full guidance.

Operator, Operator

Thank you. Our next question on the Zoom is from Ben Toms at RBC.

Benjamin Toms, Analyst

Firstly, on your RoTE guidance of greater than 17%. I'm just looking for some commentary about how sustainable you feel that guidance is beyond the announced planning horizon. So how much do you feel this guidance isn't all weather guidance post all the investments that you've been making into the business? And then secondly, on the Hang Seng synergies on Slide 13, can you mind just talking a little bit around why you've adopted two buckets that you've labeled synergies and upside? Is the upside bucket basically where there's a lower degree of certainty over the synergies? So what type of synergies fall into each bucket would be useful. And presumably, there's no incremental restructuring costs associated with the upside bucket on top of the $0.6 billion.

Georges Elhedery, Group CEO

Thank you very much, Ben. On the Hang Seng guidance, what I will share is we do have the management ambition, and we do have comprehensive sets of plans to achieve the full $0.9 billion upside with the restructuring costs that we've called out. I'll let Pam give you the details. On the RoTE guidance, we are not guiding beyond our horizon, but you should always assume that we are ambitious.

Manveen Kaur, CFO

Thank you, Georges. And just to say on our RoTE guidance, we continue to see a positive momentum in our businesses. And as we said earlier, we are investing for growth. But of course, the targets are only for three years. So in terms of the Hang Seng synergies, you're quite right, the $500 million is what I would call the reported synergies following accounting rules. The $400 million synergies are depending to some extent on markets and customer behavior. So there is some degree of uncertainty, and they don't strictly fall between what is considered to be accounting reported synergies. So that's the reason why they're two separate. Both these synergies, the plan to get that $900 million benefit is by the end of '28. And the restructuring cost of $600 million covers the benefits across both buckets. And now beyond that, we actually believe, as it says on the slide, that at some stage, the credit cycle will be normalized. So there will be some benefit coming from there. There will be more growth in lending as well as overall Hong Kong growth, which we will continue to be very well positioned for because of the redeployment of the cost allocation that we have; there will be a fair chunk that obviously goes into Hong Kong, which is a core market on our strategy.

Operator, Operator

Yes, we have a question in the room next, Melissa. Sorry, you're allowed to introduce yourself fully.

Melissa Kuang, Analyst

I'm Melissa from Goldman Sachs. Just two questions. In terms of the strategy that you have, the rising to 5% revenue growth. Just wanted to see if you can give about CAGR growth instead. So we can understand the pathway there. In terms of that, I suppose, will it be coming largely from the non-banking NII portion? Or will it be from the banking NII? So that's my first question. On the second question, perhaps on the restructuring cost at HSP of $0.6 billion. Can you just give a little flavor about what is it that we are doing in terms of the restructuring that we need such a cost focusing on in terms of delivery and then how we will see the revenue synergies. And in terms of the revenue synergies, can it be as quick as next year? Or will it be more heavy into 2028 as per your 3-year guidance rising to 5%?

Georges Elhedery, Group CEO

Thank you very much, Melissa, and Pam can address both questions.

Manveen Kaur, CFO

Thank you, Georges. So firstly, we've said that revenue growth is positive each year, but it's also progressive and reaching out to 5% by '27 to '28. In terms of the underlying building blocks, we said to you that in 2026, where we have given the guidance on banking NII, it's a low single digit. So therefore, similar to the prior year, we will see more positive growth momentum on the fee-generating businesses. And beyond 2026, Banking NII, of course, we look and see where the guidance is, where it is, where the rates are and what the timing of the rate cuts as we go into '26. But we are continuing to invest in our fee-generating businesses so we see that momentum in those businesses, including Wealth, which really underpins this revenue growth and wholesale transaction banking to continue. I'm hoping that at some stage, we'll see a little bit more growth on the balance sheet in terms of lending beyond U.K. that we have already seen. Now in terms of the restructuring costs, there are a couple of elements that drive it. One is there's some organizational alignment. So there will be some roles which will evolve and teams that will be realigned, but a large chunk of this is really in terms of technology. So the investment in technology so that we can better harmonize our technology and better get results from the technology investment we have across both the Green and the Red brand. And this is really quite critical for us in order to achieve the overall ambition of the $900 million because it's the $900 million ambition just to reiterate: it's not just a cost story; it's a revenue and a cost story, and this is an investment for growth, and that's how we look at it. We plan to spend restructuring costs of $600 million across the three years. And of course, this will be spread through these three years; we are not saying any more. In terms of revenue synergies, we strongly believe that by the privatization of Hang Seng Bank, our ability to be able to provide a broader product proposition into the Green brand is highly enhanced. So we'll have better Wealth products for our retail customers. We have capital markets and broader wholesale transaction banking products for the wholesale customers. But more importantly, we will be able to have access for the same international network that we have for the Red brand also within the Green brand. And last but not least, we will have more balance sheet flexibility in terms of how we leverage our treasury capabilities, but also in terms of upstreaming and downstream capital, and this will all be done over the next three years.

Operator, Operator

Thank you, Georges. And Pam, we'll go back to the Zoom. The next question will be from Aman Rakkar at Barclays.

Aman Rakkar, Analyst

I had two questions, please. So one is around capital. It looks like a decent chance that you'll be within your target CET1 range in Q1 based on historical and perhaps projected capital generation kind of estimates. Obviously, it raises the prospect as to whether you might be able to reintroduce buyback earlier than planned. I don't know if you're able to kind of comment on whether that's a realistic or plausible scenario. But I guess more specifically, just interested in the capital allocation thought process from here? Clearly, your stock is trading at a level now where the return on investment around buyback might be beaten by alternative uses of uses of capital. Obviously, you did it with Hang Seng, but should we be thinking about inorganic growth as well as the compelling organic growth within your footprint? And then I just wanted to ask around banking NII, please. Clearly, that kind of Q4 jumping off point is flattered by $100 million. I don't know if there's anything else that you direct us to kind of strip out of that number in terms of deposit catch-up or the impact of HIBOR. And I was particularly interested in what your deposit growth assumption is that sits behind the guidance you've given '26, please, because I think that could be a sensitivity around the ultimate outturn of banking NII in '26.

Georges Elhedery, Group CEO

Thank you, Aman. Pam is best placed to answer both, but I want to share a few thoughts about our philosophy on capital. First, we remain capital generative as you've seen from our targets, but also as we've experienced over the first 1.5 months in the year 2026. So we're very pleased to see that our capital generation is strong. But our first priority is now restoring the CET1 ratio following the privatization of Hang Seng, which we estimated would take us three quarters. But of course, we do that assessment quarter-by-quarter. But I want to point out the increased dividend we are paying this year: $0.75, $0.45 on the fourth quarter, which is on a full-year basis, 14% higher than last year. So we are distributing through dividends. What I wanted to share about the discipline and how we use capital: we've shared it in February 2025, Aman. We've set ourselves four key criteria. They are a high bar, and we strictly adhere to them in the way we look at inorganic opportunities. Insofar as these four criteria are met, like in the case of Hang Seng privatization, then we will consider inorganic. But if one of these criteria is defeated, then our preference will be to utilize or return any excess capital back to our shareholders in the form of share buyback.

Manveen Kaur, CFO

Thank you, Georges, and thank you, Aman, for your questions. So firstly, as Georges said, we continue to remain highly capital generative. We've had a good start to the year, as I called out earlier in my remarks. But as you know, we look at our share buyback decisions on a quarterly basis, and that will be a quarterly process. The starting point is clearly our target operating range, which we are working hard so that we can replenish capital that has been deployed in the Hang Seng Bank privatization. That's the first priority, as Georges said, and that CET1 operating range remains 14% to 14.5%. That's the one which underpins all the targets and guidance we have given today. Just to clarify, in terms of our priorities from there on, of course, the priorities are 50% is the dividend payout ratio, which we have again reaffirmed. We would like to see balance sheet growth, and we want to invest for growth. That's if we can have growth at the right return levels. Our distribution priorities haven't changed, and share buyback remains for us a useful tool to deploy surplus capital irrespective of where the share price is. So I think that's an important consideration for us going forward. Next question. On banking NII, you're right: there was a $100 million non-repeat item. So if you take that out for modeling purposes, you come to $11.6 billion. There are no other one-offs. There was a higher HIBOR quarter-on-quarter, and HIBOR also stabilized. And that's why, as you remember, third quarter when we gave a more cautious outlook because we don't know where HIBOR would be. But having seen HIBOR stabilize, it gave us the upbeat on our banking NII results. We also saw low betas on saving accounts in Hong Kong. Very importantly, we saw strong deposit growth, and we do expect this strong deposit growth to continue to be a key driver in 2026 along with the tailwinds of the structural hedge similar to last year and redeployment at higher rates. The only thing to bear in mind is that for this year, clearly, in Q1, given that there will be two days less, there will be a headwind of $300 million in Q1. We have assumed, obviously, the rate changes, both that we've seen to date as well as projected for the year. But a lot depends on, as you can imagine, the timing of those rate changes, particularly in the U.S. dollar and sterling.

Operator, Operator

So we'll take the next question back on Zoom, Amit Goel at Mediobanca.

Amit Goel, Analyst

I have two questions. First, regarding the upgraded RoTE targets, specifically the 17% threshold, I'm interested in your outlook for 2027 and 2028. Do you anticipate that RoTE will continue to improve, or do you view 17% as an acceptable level, suggesting that any additional gains would likely be reinvested? Additionally, I noticed that in the LTIP, the lower end of the performance boundary was raised to 16.5% from 14%, while the upper end remains at 18%. I'm curious about your thoughts on what constitutes an appropriate or sustainable return. Secondly, could you provide more clarification on the benefits from Hang Seng Bank and the associated restructuring charge? I'm particularly interested in the $0.4 billion additional benefit. From an accounting perspective, it seems this cannot be classified as a synergy, so what exactly does it represent? Also, regarding the restructuring charge, you previously mentioned that there would be natural attrition and redeployment of staff, suggesting limited direct costs. I would like to understand what the restructuring funds are specifically being allocated towards.

Georges Elhedery, Group CEO

Perfect. Thank you, Amit, very much for your two questions. Pam can address them, but just to talk about LTIP briefly. This is indeed the remuneration committee consideration. It reflects the performance that we will achieve in '26, '27, '28, which aligns with the guidance we're giving you. So there isn't more we can say at this stage. Apart from that, it is more ambitious and reflects our ambition to the business.

Manveen Kaur, CFO

Thank you, Georges. So firstly, yes, we have ambitions, and our target is 17% plus each year. We are not giving a trajectory, whether it's the same or progressive, but of course, we continue to grow our business and invest in it diligently, but the target is just 17% plus each year. In terms of our Hang Seng, firstly, to call out, these are both benefits we are getting from a cost perspective but also a revenue perspective. So classically, what you would see in terms of cost synergies and all the restructuring is actually severance costs; that is not the case here. Because there is so much focus on revenue as well, a lot of the restructuring will be in terms of investment from a technology perspective. The cost synergies themselves, of course, there will be some realignment and evolution of roles and individual areas. It's not something which is going to lead to severance or staff reductions. There could be some role changes, clearly. There will be some scale in product manufacturing, and there'll be some technology harmonization. Now when we think in terms of the two bits with the $500 million, the $400 million and why it so, clearly, from a cost synergies perspective, it's easier to call out. Revenue synergies, there are greater haircuts, but we do have very detailed comprehensive plans on how we are going to drive these revenue synergies. And those plans underpin the $400 million even though they were a haircut in the $500 million and just in total, to reiterate; because there are lots of numbers going around. I appreciate that. Think of it as a $900 million benefit in those two buckets with different degrees of accounting rules and different probability of expectations, and then an overall restructuring cost of $600 million to achieve that total.

Georges Elhedery, Group CEO

And Amit, we are a net investor in people in Hong Kong. We are also investing in technology in Hong Kong to capture all these growth opportunities we have been talking about. Therefore, we do not expect, anticipate or plan any program of redundancies. We do, though, expect that some roles may need to evolve, and we are basically committing to training, reskilling to make sure that our own colleagues have these growth opportunities, career opportunities to be able to capture these roles in which we will be investing over the duration of our program of three years.

Manveen Kaur, CFO

That's a meaningful number that we have already included in that $600 million restructuring costs for training and reskilling of our colleagues as their roles change and evolve.

Operator, Operator

Thank you, Georges. So we'll just take a final question today from Katherine Lei at JPMorgan.

Katherine Lei, Analyst

My question is about revenue. I'm looking at the 5% revenue growth expected in 2028 and the guidance for over 17% RoTE. I see two main factors contributing to this: Net Interest Income (NII) and Wealth. Specifically regarding NII, what gives HSBC the confidence in the sustainability of deposit growth? One trend we've observed is that, for instance, with the appreciation of the RMB and China beginning to tax its citizens globally, could this slow down the flow of Chinese nationals opening new accounts in Hong Kong? Can you provide more detail on the key drivers and the path for deposit growth? Secondly, on the Wealth side, how do you perceive that trend will impact our Wealth segment?

Georges Elhedery, Group CEO

Thank you, Katherine. I'll address your questions in reverse order. Wealth continues to be a significant growth opportunity for HSBC. We are aligning our Wealth services in Asia and the Middle East to capitalize on the regions with the fastest growth in wealth. Our strategy allows us to serve a broad range of clients, from affluent middle-class individuals to high-net-worth clients, broadening our opportunities. We have a strong presence in onshore markets, particularly in Mainland China, where we are the leading international wealth manager, not reliant on inflows from outside the country. We're also making investments in India and have established major wealth hubs in Hong Kong, Singapore, the UAE, and others. We must remain vigilant, as a shift in the investment landscape could impact wealth performance, but currently, the markets show resilience, which our customers recognize. We are also focused on gaining market share, expanding our product range, and diversifying our offerings to meet the varied investment needs of our wealth clients. Furthermore, we are investing in generational wealth transfer, supporting the transition to younger generations in a way that sets us apart from competitors who have limited hubs. Regarding deposits, Pam will provide more specific details, but it's important to emphasize that deposits are foundational to our customers' trust in HSBC. This trust underpins all our services in transaction banking and finance. We value this asset class highly and have consistently focused on maintaining our customers' confidence in us. Our deposit base has grown in every business area, and we have ample liquidity in all major currencies and regions. This deep-rooted trust is what encourages customers to choose us as their preferred deposit bank, reinforcing our positive outlook on deposit growth.

Manveen Kaur, CFO

Thank you, Georges. Katherine, that's a really good question to close on. We have observed deposit growth across the entire range of our customer base, including premier, private bank, and retail sectors in all markets and jurisdictions, even in areas without a home market. This growth is a key factor supporting the increase we are seeing in our banking net interest income (NII). We have adopted a conservative approach to loan growth, and I am hopeful that it will eventually increase, which would also enhance our banking NII, particularly if rising interest rates present a challenge in some potential downside scenarios. We maintain a structural hedge that continues to provide advantages due to the efforts we made a few years ago. We will keep enhancing this structural hedge, even though the most significant increases are now behind us. Considering all these factors and the positive momentum we've experienced in the first several weeks of this year, we are confident in our banking NII guidance for 2026. If we base it on the fourth quarter alone, that would yield $46 billion. However, we are cautious about highlighting that figure due to the potential headwinds from interest rates. You are correct that interest rates in the U.S. have decreased by 50 basis points and in the U.K. by 25 basis points year-to-date, with two to three more rate cuts anticipated. Overall, we are very optimistic about our banking NII, as it relies on the trust our customers place in us, and we are dedicated to maintaining and strengthening those relationships. Ultimately, we are a relationship bank with a comprehensive suite of products for our customers. Therefore, when setting our guidance and targets, we consider this full range and not just a product-based approach, as that would present additional challenges.

Georges Elhedery, Group CEO

Perfect. Thank you, Pam, and thank you, Katherine, for your last question. Thank you, everyone, for joining us. We are pleased to report strong revenues, strong profit, strong returns, and strong distribution to our shareholders. We are confident we can navigate the challenges ahead of us from a position of strength, and this has allowed us to put ambitious targets about our revenue growing every year for '26, '27, '28, rising to 5% in '28, as well as our return on tangible equity delivering 17% or better every year over that period with a 50% dividend payout ratio, all excluding notable items. Thank you very much for joining us this morning or this afternoon, and I hope you have a good day.

Manveen Kaur, CFO

Thank you.

Operator, Operator

Thank you, ladies and gentlemen, for joining today's webinar. You may now disconnect.