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Executives

Stuart T. Gulliver - Chairman of Group Management Board, Group Chief Executive Officer and Executive Director

Iain James MacKay - Group Finance Director, Member of Group Management Board and Director

Analysts

Gary Greenwood - Shore Capital Group Ltd., Research Division

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Alastair Ryan - UBS Investment Bank, Research Division

Cormac Leech - Liberum Capital Limited, Research Division

Rohith Chandra-Rajan - Barclays Capital, Research Division

Robert McMillan - S&P Equity Research

Raul Sinha - JP Morgan Chase & Co, Research Division

Chris Manners - Morgan Stanley, Research Division

Alistair Scarff - BofA Merrill Lynch, Research Division

Thomas Rayner - Exane BNP Paribas, Research Division

Ronit Ghose - Citigroup Inc, Research Division

Christopher Wheeler - Mediobanca Securities, Research Division

Michael Helsby - BofA Merrill Lynch, Research Division

HSBC Holdings (HBC) Q3 2012 Interim Management Statement Call November 5, 2012 6:00 AM ET

Operator

Good morning, ladies and gentlemen, and welcome to the Investors and Analysts Conference Call for HSBC Holdings plc Interim Management Statement for 3Q 2012. For your information, this conference is being recorded. At this time, I will hand the call over to your host, Mr. Stuart Gulliver, Group Chief Executive.

Stuart T. Gulliver

Thanks very much. Good morning. Iain McKay is with me today, and first of all, I'll give you a quick overview, and then we'll take your questions.

Our strategy and our business model have enabled us to have a strong quarter. Although reported PBT for the quarter was down $3.7 billion compared with the third quarter of 2011, the underlying profit was up $2.8 billion to $5 billion, and it is obviously on an underlying basis that we measure our performance.

For the year-to-date, our underlying profit was up $2.6 billion to $14.9 billion. For both the quarter and the year-to-date, our increased profits were driven by revenue growth in Global Banking and Markets and in Commercial Banking and a significant reduction in loan impairment charges, notably in North America. The third quarter results include an additional provision of $800 million in relation to the ongoing U.S. anti-money laundering Bank Secrecy Act and Office of Foreign Assets Control investigations. Now we're actively engaged in discussions with the U.S. authorities to try to reach a resolution, but there is not yet an agreement.

U.S. authorities have substantial discretion in deciding exactly how to resolve this matter and, indeed, final amounts of financial penalties could be higher, possibly significantly higher, than the amount accrued. Further background on the investigations is set out in today's IMS and the July Interim Report. And as this is an ongoing legal process, this is all we can say on this issue at this time. We will not be able to take questions.

We also made additional U.K. customer redress provisions of $353 million, mainly in respect to Payment Protection Insurance. Underlying operating expenses for the third quarter of '12 were 16% higher than the third quarter of '11, primarily reflecting the impact of notable items, increased investment in regulatory and compliance infrastructure and higher litigation costs. Excluding these factors, operating costs were marginally higher than the third quarter of '11, reflecting additional expenses associated with the execution of our strategy. On an underlying basis, our cost efficiency ratio improved from 65.8% to 63.7% due to revenue growth and strict cost control within our operations.

We have continued to make significant progress in delivering our strategy to simplify and restructure and grow HSBC. We've announced 8 transactions since the 30th of June 2012, bringing the total to 24 this year and 41 since the start of 2011. We disposed of 57 branches in Upstate New York in the quarter, completing our stated intention to dispose of 195 branches in New York this year. And we've also reclassified $3.7 billion of customer loans and advances net of impairment allowances from our U.S. Consumer Finance portfolios to assets held for sale. In addition, we continue to see benefits from our organization effectiveness program, achieving $0.5 billion of sustainable cost saves in 3Q '12, taking the total annualized savings achieved to $3.1 billion since the start of 2011. We expect to exceed the top end of our sustainable savings targets of $3.5 billion by the end of 2013. And we also continue to grow the business in key areas. Improved collaboration between Global Banking and Markets and Commercial Banking resulted in an increase in associated revenues of 8% for the 9 months. And underlying revenues rose in the majority of our priority growth markets compared to the third quarter of '11, notably in the United States, in France, Argentina and Brazil.

Overall, we've had a strong quarter driven by continued revenue growth, lower loan impairments and showing significant strategic progress. Now throughout our history, HSBC has been where the growth is. And with this strategy, we're ensuring that we maintain that distinctive position.

Now, Iain will talk through the financial performance in greater detail. Iain?

Iain James MacKay

Thanks, Stuart. You have seen the statements. I'll just cover a few key points in detail. Reported profit before tax for the third quarter was $3.5 billion, down $3.7 billion from the third quarter of 2011, with $5.8 billion relating to adverse movements on the fair value of our own debt.

Reported profit before tax for the year-to-date was $16.2 billion, down $2.4 billion on the same period in 2011, of which $7.9 billion related to adverse movements in the fair value of our own debt. This was partially offset by $4.5 billion of gains on business disposals. However, as Stuart said, we measured our performance against past results and on underlying basis, which exclude certain factors, including fair value movements on our own debt, which distort the period-on-period comparisons. Our IMS contains a reconciliation of reported results to underlying where relevant.

Underlying profit before tax was up $2.8 billion on the third quarter to $5 billion and for the year-to-date, was up $2.6 billion to $14.9 billion. This performance was driven by increased revenues and reduction loan impairment charges.

To achieve our cost efficiency targets, we need both sustained revenue growth and strong cost controls. The organizational effectiveness program has delivered sustainable savings at $500 million from the third quarter, allowing us to invest for growth with only a marginal increase in our operational cost base. The estimated return on equity, excluding the effect of fair value on owned debt from the return was around 11%. Underlying revenue was $2.7 billion higher for the quarter and $4.2 billion higher for the year-to-date compared with the same periods last year. Favorable movements in non-qualifying hedges accounted for $1.4 billion and $1.2 billion of these increases, respectively.

Let's take a closer look at revenue growth, which was led in both periods by Global Banking and Markets. This was mainly from rates and credits as credit spreads in both government and corporate bond portfolios tightened, liquidity increased and investor sentiment improved. This compares with a difficult trading environment in 2011, notably in the third quarter. Commercial Banking revenue also increased, driven by net interest income, which reflected lending growth as well as higher average deposit balances.

In Retail Banking and Wealth Management, revenues grew due to increased net interest income in Latin America and Hong Kong and higher insurance revenues, mainly in Hong Kong. These factors were partially offset by the effect of the ongoing run-off of the U.S. Consumer Finance portfolio.

Turning to loan impairment charges. We saw significant improvement in the quarter and year-to-date on the comparative periods last year. The improvement in both periods rose primarily in North America due to the continued decline in lending balances on our Consumer Finance portfolio and improved delinquency rates as well as the sale of the Cards and Retail Services business in May of this year.

In addition, loan impairment charges for the third quarter of 2011 reflected higher costs to obtain and realize collateral as a result of delays in foreclosure activity. Europe also saw improvement in loan impairment charges and other credit risk provisions, reflecting lower credit risk provisions and available-for-sale asset-backed securities in both periods. There were also loan impairment charges in Retail Bank Wealth Management in the U.K., where delinquency rates improved in the 9 months. These factors were partly offset by higher loan impairment charges in Latin America, mainly in Brazil, following strong balance sheet growth in buoyant economic conditions in previous periods, which subsequently slowed.

Compared with the previous quarter, loan impairment charges were down, mainly due to lower lending balances in the Consumer Finance portfolio North America and in Europe from lower available-for-sale ABS impairment provisions, and as significantly, individually assessed impairments were not repeated. In addition, we saw marginal improvement in loan impairment charges in Latin America against the previous quarter as measures to improve credit quality began to take effect.

Turning now to cost. Underlying operating expenses for both third quarter and the year-to-date were higher than the comparable periods last year. However, in both cases, this includes the impact of several notable items. In the third quarter, these included a provision of $800 million in relation to the ongoing U.S. anti-money laundering Bank Secrecy Act and Office of Foreign Assets Control investigations, U.K. customer redress provisions of $353 million compared with $19 million in the third quarter last year and restructuring cost of $97 million compared with $195 million in the same quarter last year.

For the year-to-date, notable items included a provision of $1.5 billion in relation to ongoing U.S. anti-money laundering Bank Secrecy Act and OFAC Control investigations, U.K. customer redress provisions of $1.7 billion compared to $630 million in the prior year, restructuring costs of $660 million compared with $672 million in the prior year and the non-recurrence of both the U.K. pension credit of $587 million and accelerated amortization of deferred compensation awards of $180 million.

Furthermore, we also increased investment in regulatory and compliance infrastructure in the U.S. and incurred additional litigation costs, notably in North America and in the Rest of Asia-Pacific. Excluding these factors, the third quarter 2012 operating expenses were marginally higher than in the third quarter of last year, reflecting additional costs associated with the execution of our strategy, including transitional service agreement costs, which are offset in revenue. On the same basis, year-to-date costs were broadly in line with the same period in 2011.

Looking at the last 18 months, operating costs have been in the range of $8.6 billion to $9.2 billion in each quarter. This run rate reflects strict cost control and the realization of sustainable cost savings through the implementation of our organizational effectiveness program. These savings substantially offset ongoing investments in strategically growing the business and enhancing processes and technology capabilities as well as inflationary pressures in certain of our Latin American and Asian markets.

Taking a look at the balance sheet. Reported loans and advances to customers increased by $26.1 billion in the quarter. This includes favorable foreign exchange movements of $16 billion, which were partly offset by $2.7 billion reduction in reverse repo balances. Residential mortgage balances continued to grow strongly in the U.K., Hong Kong and in the Rest of Asia-Pacific. Higher demand for credits and targeted lending activity focused on capturing international trade and capital flows led to a rise in customer advances in Commercial Banking Hong Kong and in the Rest of Asia-Pacific. Lending Commercial Banking and Global Banking and Markets customers in North America also increased, reflecting our strategic investment in target segments. Customer account balances increased by $33.6 billion, including favorable foreign exchange differences of $18.8 billion.

Turning to capital position. Risk-weighted assets reduced by $5 billion on the quarter due to a $10 billion decrease in market risk, mainly in Global Banking and Markets, which is offset by $5 billion increase in credit risk. Credit risk risk-weighted assets increased by $8 billion due to the weakening of the US dollar with an underlying decrease of $3 billion as a result of number of offsetting movements across the balance sheet. We generated $3 billion of capital during the quarter, combined with favorable foreign exchange movements of $2 billion. We've seen a total increase of $5 billion in core tier 1 capital. The core tier 1 capital ratio, therefore, strengthened to 11.7% from 11.3% at the 30th of June of this year.

With that, let me hand it back to Stuart.

Stuart T. Gulliver

Thanks, Iain. So now, we'll take your questions. And first of all, the operator will explain the procedure and introduce first question.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question today is from Gary Greenwood at Shore Capital.

Gary Greenwood - Shore Capital Group Ltd., Research Division

I've got 2 questions, if I could. The first just on impairment provisions in HSBC Finance Corporation. And I'm just looking on Slide 6, and I know that the impairment allowances dropped from $5.6 billion to $4.6 billion in the quarter, and I didn't quite understand why that happened. So that was the first question. And then the second question was on the cost-saving target where you hooped your guidance to above $3.5 million. And I think you'd previously said that you didn't want to push beyond that because you didn't want to damage the franchise. So I'm just, one, trying to understand what's changed in terms of your view there?

Stuart T. Gulliver

Okay, well, Iain can take first one, and I'll answer the second.

Iain James MacKay

Yes, I think that are 2 main factors around the impairment allowance change in HSBC Finance. One is, overall, the lower level of delinquencies that we're experiencing within that run-off portfolio. And that's probably the most important factor to note. The second factor to note here is that, as you probably noted, we reclassified $3.7 billion worth of that portfolio into held for sale as we market the non-real estate portion of that portfolio to secondary market buyers. And that is part of the -- a broader program to accelerate the rundown of that portfolio. So those are the main drivers within the impairment allowance.

Gary Greenwood - Shore Capital Group Ltd., Research Division

Just before we go on to the cost question, then, just to pick you up on the delinquencies. Because the 2-plus delinquencies have gone up from $8.3 billion to $8.4 billion in the quarter.

Iain James MacKay

They have, but when you reflect on the trend in the overall delinquencies and you think about the proportion that is reservable, so until we've got the delinquencies that are increasing, a significant proportion of that relates to loans that have been in that delinquency bucket for a significant period of time and carry sufficient reserves against them. And then overall, the trend within delinquencies has remained very, very stable.

Stuart T. Gulliver

On the cost, I mean, as I say, I'm guiding that we'll hit the top end or slightly beyond the top end of the 3.5. I think that we found, actually, that there's significant duplication of processes across a number of, frankly, subscale businesses. And as we get our arms around Retail Banking, Wealth Management and our arms around CMB and simplify to a smaller number of operating models, we found some fairly rich opportunities to get cost out of the firm. What we're not saying is that, that 3.5 becomes another number at this point in time. We'll reset that at the May 2013 Investor Day. But we are finding our ability to get cost out of HSBC, realizable costs towards the upper end of that guidance.

Operator

The next question comes from Chira Barua from Sanford Bernstein.

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

I have 2 quick questions. The first one is on the U.K. resi book, and I've seen that you've grown it more than 5% in a quarter. That's really punchy, because most of your competitors have come in and saying there's no demand in the U.K. I wanted to regret -- to get you a feel for what kind of front book are you writing there and whether there's significant demand. Second, how sustainable is it? So that's the first question. And then a second one is on Basel III.

Stuart T. Gulliver

Okay. So in terms of our SME book, yes, we've got 4% growth in a market that shrunk 4%. So we clearly have taken market share. Where it principally is, is we focused on International businesses, so we focus usually on SMEs in the U.K. that are conducting international trade or, indeed, are involved in invoice receivable financing with overseas operations. Because, obviously, we're in 80 countries, 79 outside the U.K. But almost by definition, that part of the U.K. market that's actually trading with other parts of the world where GDP growth is not negative, i.e., if they're trading beyond Europe but with Middle East, with Asia-Pacific, with Latin America, those businesses are going to be more active and probably more successful than purely domestic-domestic. So there is a logic to this. We're basically -- we set out this fund, GBP 4 billion to trade finance for SMEs. All of that demand was drawn down. We've now upped the fund to GBP 5 billion. So the segment that we're concentrating on does have growth, that's why we have growth. And I think that provided that we see reasonable GDP next year in the emerging markets, 3%, 4%, which is a broad sort of average we do, there's no reason why that can't be sustainable. So what we've done is very much focused on where we have an advantage, which is trade finance international trade receivables, that type of stuff.

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

And, Stuart, what about mortgages? There also you've grown it 5%.

Stuart T. Gulliver

Yes, I know. We've focused in there on growing our market share, and the market share in mortgages has actually gone up a fair old chunk, actually. If you go back to 2007, we had a drawdown market share of 2.6%. We're now at 11.6%. But again, we've tended to focus on -- if you like buyers with fairly low LTVs, the average LTV of the new business is 60% year-to-date, and the average book LTV is 52%. But again, we've got disadvantage in the U.K., because we've got an AD ratio, as you know, where we are deposit funded. And most of our competitors are wholesale funded. So we're deposit funded. We've got an AD ratio that's under 100 in the U.K. We, therefore, have an opportunity to take market share. And actually the U.K. business, the returns on U.K. mortgages are very, very attractive. So we absolutely have used our funding position in the U.K. to take SMEs with an international focus and mortgages, but mortgages essentially where people are putting down 40% or so. Having said that, we've done a chunk of first-time buyer mortgages where we improved, actually, 33%, increased GBP 4 billion to first-time buyers this year versus last year. So this is very deliberate, and it's taking advantage effectively of the superior funding position we have here.

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

One question on Basel III for Iain, probably. You had guided to 110 basis points in mitigation take-off in the fully loaded Basel III number, so what was progress around that? And the other thing is the $10 billion in market risk-weighted assets that you've taken off, so are you revising your Basel III guidance?

Iain James MacKay

No, actually, we're not. I think broadly, our experience as we go through the mitigation impacts of Basel III and our ability to realize those, if anything, we're growing them slightly. But I would say the guidance around the implementation, the impact of the implementation of Basel III on HSBC remains largely consistent with the guidance that we put out in May of last year and reaffirmed earlier this year. So really, our experience is telling us that we can mitigate that effect, and it remains largely, it's not identical, but it remains largely in line.

Operator

The next question comes from Chintan Joshi from Nomura.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

If I can just follow up before I ask a couple of questions. You're not willing to give an absolute number on the cost until May 2013. Could you at least give us some indication of the size of that -- broadly, as in we're talking slightly higher or could be materially better by May 2013?

Stuart T. Gulliver

You mean the 2.5 to 3.5, where we're going to reset it at?

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Yes.

Stuart T. Gulliver

I think you should have seen that it will be slightly higher, not materially higher.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Okay. My question is around lending growth. If I look, generally, adjusting for FX is about 5% annualized this quarter. Could you just give us some commentary around where do you see growth within various operations? And then just focusing on China, some of the Asian banks are highlighting an improvement in activity levels in China. Are you already seeing this in your operations?

Stuart T. Gulliver

Yes, sure. So lending growth and growth in balance sheet, if you look around, we've got strong growth in the U.K. and Hong Kong and also in Singapore and Malaysia in residential mortgages. In Global Banking and Markets, Commercial Banking tends to be Hong Kong, Rest of Asia-Pacific, China and, actually, in Europe as well. So they're fairly broad-based, to be quite honest. The only place that there isn't substantial growth is in Brazil, which is partly, actually, due to the that we deliberately changed the risk appetite in Brazil about 20 months ago. There was a blip of increased lending in 2009, 2010, which resulted in elevated LICs, and we've essentially decided to change our risk appetite there, which resulted in kind of slower loan growth. And obviously, if you're looking in dollar terms, the Brazilian real also weakened a chunk. But it's pretty broad based. In China, our China business continues to grow quite satisfactorily, actually.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Okay. So you are seeing an uptick, then, to a...

Stuart T. Gulliver

Yes, and also what absolutely is happening as well is in Global Banking and Markets, this is also true of Commercial Banking, we can see an advantage from -- or a market share opportunity to take from the fact that some of the Continental European banks have had to pull out. So in Asia-Pacific, particularly the French; in the Middle East, the Germans; and to some extent Latin America, the Spanish are not as aggressive as they were before. And a lot of this is US dollar-financed. So if you have a US dollar deposit base, which we do, and obviously, the American banks do and Standard Chartered does, we effectively can take that market share, and that's also happening. And that market share piece will take a couple or 3 years to work through. In other words, it's not a kind of single binary event. If you just think about the way large corporates work, they put up payments and cash management mandates every couple or 3 or 4 years for tender. So there's a whole process of re-tendering for transactions and so on that would take place. And I think that, that market share gain probably started mid-'11, so it's probably got a couple of more years to run effectively just in terms of the practical aspects of the cycle of when large corporates or large insurance companies renew their sub-custodian mandates, et cetera.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Okay. And finally, I saw some Bloomberg lines on LIBOR. You made some comments earlier. Could you provide an update there, potentially when we can see the matter go past us?

Stuart T. Gulliver

Actually, the only comments we made to Bloomberg was that we actually have nothing to report at this moment. I haven't had the chance of seeing how was that reported as a headline. But we continue -- we're a panel bank for LIBOR, and we're a panel bank for Euribor. So clearly, we've been asked by a bunch of government authorities around the world to submit data to them, which we've done. But that's as far as its got at this moment in time. And therefore, there is nothing fresh to report in this set of numbers. Then on the legal case side, yes, we're part of a number of private class-action lawsuits in the U.S., but they haven't progressed either at this moment in time. So to be very, very honest with you, there is nothing really to report at this moment in time. What I also did say at Bloomberg is as of today, we have also not dismissed anyone as a result of any LIBOR or Euribor investigation.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Okay. Say the number of people have left on LIBOR on Bloomberg -- but never mind.

Stuart T. Gulliver

It's been corrected apparently, because actually I said, no one had.

Operator

You next question is from Alastair Ryan from UBS.

Alastair Ryan - UBS Investment Bank, Research Division

On the margins, so it looks like this sort of quarter-over-quarter growth in lending, stripping out currencies, what have you, so assuming that's a sort of -- you've still got a drag from households, the volumes are now going up. Just trying to work out whether the margins, more or less, stopped going down, because in the 20 basis point year-over-year decline in the quarter, there's obviously -- the cards have come out of that and has...

Stuart T. Gulliver

Yes, exactly.

Alastair Ryan - UBS Investment Bank, Research Division

So just whether there's more to come from the very flat-dollar yield curve or whether you're pricing it out the difference, and the loan growth is now offsetting that. So just the best sense of whether we've kind of reached a level or there's still more to come in the margin compression.

Stuart T. Gulliver

I mean, as you rightly point out, the big drop in the margin is deliberate. We sold the card business, and we're running down the household portfolio. So what was a very high net interest spread business also resulted in very high loan impairment charges. So the contraction in the net interest spread has also shown up in the contraction in the loan impairment charge, because we're derisking and hoping for higher-quality revenue, which is less volatile because there's less taken back through loan impairment line, and therefore, in theory, the profit before tax actually should be higher. Some of that process is still running through. There's also a contraction from Balance Sheet Management in the sense that, obviously, we've got incredibly flat yield curves. And although we've managed to, generally speaking, outperform the guidance we've given in BSM, the steady-state operating number for BSM you should assume is the one I've always been saying, which is about $2.5 billion. Now we've punched above that, because there's been points at which the yield curve in the 0- to 3-year period has been steepened by activities that Central Bank has taken, that more or less is dropping away now. But in terms of how much further contraction has got before loan volume growth offsets it, there is some evidence of that taking place in Asia-Pacific, and I'll let Iain give you a bit of detail.

Iain James MacKay

Yes, Alastair, I mean if you sort of dig into the NIM, certainly, North America, you see the full impact of the disposals that Stuart referred to. But if you then go back up over the last 3 or 4 quarters, really across the U.K. business, across Hong Kong, Asia-Pacific as a whole, even the Middle East, Latin America, you're seeing very stable net interest margin to even a little bit of expansion. And that expansion is really just based off opportunities, whether from a competitive perspective or from a cost of funds perspective, to price assets a little bit more aggressively. And clearly, from a funding position, we benefit on the spread side with a very heavy deposit funding base with relatively low cost of funds there. So though there's a little bit of compression at different points, overall, it's bouncing out across the piece quite nicely.

Operator

The next question comes from Cormac Leech at Liberum.

Cormac Leech - Liberum Capital Limited, Research Division

Just a couple of short questions, actually. So the first one was on the loan loss provisions. Coming in at $1.7 billion for the quarter, that was quite a bit lower than what I was going for in consensus. I guess the question there would be is this potentially likely to be sustainable going forward?

Stuart T. Gulliver

I think the main thing to focus in on there, Cormac, is the focus on running down the U.S. book of business. I'd mentioned a little bit earlier that we'd reclassified $3.7 billion worth of our CML run-off portfolio, specifically, the non-real estate business into held for sale. And that's part of a broader program to try and accelerate the rundown of that portfolio, which simply continues to be a significant influence in the overall loan impairment charge line for the business as a whole. Looking across the rest of our key portfolios in the group, we have stability overall from a credit perspective. I think something else to bear in mind is that we certainly had much lower impairments across the ABS portfolio this year than we'd experienced last year. And we dig into numbers. Actually, the available-for-sale reserve, which had been substantially negative in preceding periods, had actually gone slightly into credit this time for the first time in a number of years. So I don't think we necessarily get a ton of movement across the ABS, but when you look at the underlying lending portfolios, there's a strong focus on moving towards secured, derisking the overall portfolio, and also, that does have some adverse effect on spread, as Stuart had mentioned. We fully expect to see that come through in terms of stable loan impairment charges. And it's a very deliberate policy that we've got.

Cormac Leech - Liberum Capital Limited, Research Division

Right, it's very helpful. And then the other quick question I had was on the total loans in the quarter seem to have gone up by about $10 billion when you strip out FX, which is really just about 1%, I guess, in the quarter. Is that the kind of run rate we should be thinking about in terms of overall constant FX loan growth going forward? Or should it potentially accelerate slightly as your capital position strengthens? And then the other quick question I had was, where do you see your fully loaded Basel III? As of right now, I think it was 9.2% at the end of June.

Stuart T. Gulliver

I don't think that we particularly have a target to grow -- the way to think about the way we run the firm is we don't set out saying, "Please go and lend $10 billion in the quarter." It is clearly going to be demand-driven and driven on our own credit policy. So in a way, the logic as to how it grows comes the other way around. What we will, therefore, always make sure is that we continue to grow deposits. You'll see again that our deposits grew quite satisfactorily in the quarter, and the AD ratio is effectively more or less static as deposit growth was able to fund new lending growth. So the way it logically works is, what we're absolutely obsessed with is taking deposits in. That, then, then gives us -- is actually the raw material to fund lending. Lending's, then, demand-driven. So it's not -- what we're not doing is saying to the RMs, "Go lend $10 billion per quarter, per quarter." It's highly of an output [ph].

Cormac Leech - Liberum Capital Limited, Research Division

Yes, understood. And on the Basel III fully loaded, can you comment where that is right now?

Iain James MacKay

Yes, I mentioned earlier, I mean, the guidance remains highly consistent. I think it depends a little bit on some of the regulatory impetus around the speed to implement. But I think if we were to expect full implementation in 2013, we would certainly expect to see a core tier 1 in excess of 10% with full implementation in '13. And as we move through to 2019 with more opportunity to fully realize the effect of mitigation, most notably further rundown of legacy portfolios in Global Banking and Markets in the U.S., then even more so. So a little bit depends on when you expect to see full implementation, but another scenario, we see a fully loaded ratio north of 10%.

Stuart T. Gulliver

And the important thing is, Cormac, that's coming from basically retained earnings. So we added $3 billion in this quarter alone to our capital base. And don't forget so far this year, we've paid $4.9 billion in dividends. So we're very capital-generative. So as Iain says, even if it comes in -- we've got to be Basel III 2019 basis at the end of '13, we're at the 10%, and we'll get there through retained earnings through capital generation ourselves.

Operator

Your next question comes from Rohith Chandra-Rajan from Barclays.

Rohith Chandra-Rajan - Barclays Capital, Research Division

A couple for me, please. One on -- one 2-parter on strategy and then also just going back to the U.S. impairments. Just in terms of Stuart's comments on one of the early questions, just to check my understanding on the costs, so you haven't really stepped back from the scale of reinvestment that you had previously indicated, but it's just that the run rate of cost savings or the ability to save cost is better than your expected. Is that the right conclusion, Stuart, from your earlier comments?

Stuart T. Gulliver

Yes, the way to think about is, is we've run the firm now for several quarters with a range of between $8.6 billion and $9.2 billion a quarter of running the bank costs. We've effectively within that, realizing sustainable saves of $3 billion, which effectively, we're reinvesting in executing the strategy, dealing with wage price inflation in the emerging markets, dealing with the fact that the cost of legal compliance risk, et cetera, has gone up. And what I'm saying is that we're finding it -- we are finding cost to save, which we can then reinvest in changing the shape of HSBC. So we've got this program, the disposals that's running through. We've got this program of headcount cuts that's running through, and effectively, we're self financing the change of the shape of the business is probably the best way of thinking about it.

Robert McMillan - S&P Equity Research

Okay. And then just on the cross-sell, CMB to GBM revenues, which -- where the target was doubled, I guess, from $1 billion to $2 billion at the Strategy Day. Just wondering what the run rate is there? You talk about in the statement an 8%, I think, uplift year-on-year. Just wondering what the run rate is?

Stuart T. Gulliver

Iain?

Iain James MacKay

I'm sorry, say the question again?

Stuart T. Gulliver

The run -- where we're at on the GBM, CMB versus the $2 billion.

Iain James MacKay

Versus the 2 -- well, I mean, if you recall, through the half year, we increased the target that we'd set back in May of 2011 from $1 billion to $2 billion. In terms of the overall numbers, we're well ahead of $1 billion.

Stuart T. Gulliver

We had to find sheet 3,012 there, quickly.

Iain James MacKay

We're above $1 billion, so we're making our way towards it.

Rohith Chandra-Rajan - Barclays Capital, Research Division

Okay, and just one final one. Just on the U.S. reclassification, which had already been done, I guess, in the U.S. GAAP accounts. The U.S. GAAP accounts had also reclassified about the same amounts of mortgages. Just wondering if we should read anything into that from a lack of reclassification of mortgages in the IFRS. Is that just timing issue versus anything else to talk about there?

Iain James MacKay

No, it's a timing issue. The treatment it's really just a question of the stage of progress with respect to some of the transactions that we had talked about at the half year about trying to do disposals of some of the defaulted loan portfolios within the mortgage book. That's very much in process, but we've led with the non-real estate transactions, and we'll follow on with the defaulted loan portfolios in the early part of next year.

Operator

Your next question comes from Raul Sinha at JPMorgan.

Raul Sinha - JP Morgan Chase & Co, Research Division

I have 2 questions, please. Firstly, I was wondering if you can comment on the outlook for Rest of Asia-Pac, and particularly the impairments? I mean, does it worry you that the slowdown in China and economies there will lead to rising impairments across the board, yet all I see in Q3 for you guys is a release in Singapore. Could you comment on what the forward-looking trends indicate over there?

Iain James MacKay

Forward-looking trend. You guys always like to learn a little bit more about what's going to happen in the future as opposed to what's happened in the past. I've got a strong preference for the same. Again, I think, overall, we see reasonable stability. And again, the purpose that Stuart had described around derisking portfolios with a movement more towards secured lending holds equally true in the Rest of Asia-Pacific as it does in the rest of the world. I think what we've experienced and we've experienced every quarter is you get a little bit of lumpiness coming through some of the larger individual corporate exposures, whether it's in Global Banking and Markets or Commercial Banking. We saw less of that this quarter than we had in the previous 2 quarters. The broader portfolios as it relates to mortgage lending and overall Retail Banking and Wealth Management lending has remained remarkably, remarkably stable. And although we do see some slowing within a number of the economies in Asia, they're still growing at fairly healthy rates. There's still expansion within those economies. There's a very eagle eye being cast across the portfolios. But stability, I think, is at least the outlook for the moment based on what we know today.

Raul Sinha - JP Morgan Chase & Co, Research Division

And just to follow up, particularly on China-related sectors or sectors that might be dependent upon export demand, is there any sign of a weakness in impairment so far?

Stuart T. Gulliver

There isn't. There isn't really any signs of individual loan impairment charges or weakness in particular clients. And that would also be true in India. I mean, when you get to Global Banking, as you know, it kind of depends on which clients you've lent to, because there's not a broad collective loan impairment charge. And with the client base that we have so far, there are no red flags that have gone up with our client base.

Raul Sinha - JP Morgan Chase & Co, Research Division

The second area, sort of, I just wanted to get your thoughts on, Stuart, was dividend growth, especially given the recent changes in the FSA's capital guidance. I was wondering if you could comment anything at all on that? And I wonder if you might have been positively impacted by the shift towards absolute capital generation, which is actually quite strong for you?

Stuart T. Gulliver

Well, I think the thing about dividend growth is we remain and committed to this policy of having a progressive dividend. And we'll also remain committed to the ratio in broadest sense that we outlined last year that we'd be looking for 50 of every 100 units post-tax. We'd be looking to retain 50 to build up the capital buffer of the firm, pay 35 out in dividends to our shareholders and then the bit that's left over, being around about 15, goes in compensation. That would tend to be still the way we would want to approach it. I would expect that this year again, like last year, we'll have a detailed discussion with the FSA on distributions, and we'll need to get them comfortable that our capital generation, which obviously was $3 billion in the quarter, is strong and enables to gets us to that distribution point. But I don't think at the moment from what we see, that there's anything that's happened that changes our core thinking of it's a progressive dividend, the payout ratio will be 40 to 60. We'll tend to do this 50, 35, 15 type of split, and it kind of -- that remains the case.

Operator

Your next question comes from Chris Manners at Morgan Stanley.

Chris Manners - Morgan Stanley, Research Division

Just 2 questions, if I may. The first one was on the revenue trajectory in the Rest of Asia-Pacific area, because I guess you had some negative impact from the rupee and some disposals in there. But the revenue did seem to be down reasonably considering that you had loan growth there. So I was just trying to work out if there's anything else we should be looking for and how you see that trending over the next few quarters. And the second one was on liquid-asset buffers. Just trying to ask, have you had the chance to actually reduce the amount of liquidity you need to hold in the U.K. after the changes in the rules, and if so, does that free up any more space in new lending or help the margin at all?

Stuart T. Gulliver

The liquid-asset buffer, for us, doesn't really make a great deal of a difference. I mean, we've always been a firm that operates with considerable amounts of liquidity. And if you like, we didn't have to increase our liquid assets when the regulations tightened, and nor will we choose to run down our liquidity at this point in time. I think the liquid-asset buffers impacted some of the other U.K. banks that were running with very little liquidity required them to hold substantial amounts and have now backed them off to a different position. The actual delta for us, both on the way up and the way down, is marginal. We're always going to operate with quite a big buffer.

Iain James MacKay

And if we talked to Asia growth trends, I mean, I'll just give you a little bit of a quarter-over-quarter view in terms of movements. Net interest income, on an underlying basis, is up almost 13%. Our net fee income was pretty much flat. Trading up income was up almost 7%. I think what you're actually seeing in the last quarter is in the other income category, Chris, where we had an update, which is part of normal quarterly review process within the present value of in-force in our insurance portfolio, which reflects market movements and various other assumption changes, which, overall, contributed to a slight decline in overall revenues. But that sat very much within other income category, whereas we saw reasonably solid growth in net interest income and trading income.

Chris Manners - Morgan Stanley, Research Division

Fantastic. So we should actually expect that to rebound because there's a one-off item in there?

Iain James MacKay

Moves with the assumptions, Chris.

Operator

Your next question comes from Alistair Scarff at Bank of America.

Alistair Scarff - BofA Merrill Lynch, Research Division

Just 2 quick questions. Firstly, on the recent property announcements in Hong Kong. Given your strong run rate on a year-to-date, do you anticipate a material or meaningful slowdown in your pace of growth or your appetite for growth within that product statement in tertiary [ph]?

Stuart T. Gulliver

I don't, actually. I think that what we're probably seeing is a slowdown in secondary market transactions in the property market. But I don't think this is really going to substantially change the economic activity in Hong Kong. What I think the government's done is good for the following reasons. You've got this almost bifurcation taking place in Hong Kong, where the economy's slowed to a 1%, 1.5% GDP, and the property market's raged on ahead as money's come into Hong Kong through QE. And if you've got an ever-rising property market against a very weak economy and interest rates are where they are, you can see a situation where if interest rates went up at some point, which clearly would depend on U.S. raising rates, you can have a very bad property bubble bursting. So actually, in a way, I think this is actually good for risk management and good actually, too, for bank -- for all banks' financial positions, because it hopes to take the heat out of a market. You don't normally expect to have an economy at 1% to 2% GDP growth with a property market growing 25% in the first 9 months of the year. You can see how that kind of adds up to a little bit of a financial risk. So I don't think it's negative overall. I think it's actually positive because I think it puts away the likelihood of a kind of substantial sharp fall in property prices in later years. And I think also the whole social equality issue in Hong Kong is quite important for society there and, therefore, reasonable GDP growth. And I also think as well that China, once the 18th Party Congress is over, will have some form of fiscal stimulus come through, which also, in our view, will probably lift Hong Kong GDP next year back to sort of 5%. So overall, I don't see this as a negative for our business in Hong Kong. I think these are quite welcome measures. Having myself kind of dealt with Hong Kong for 32 years and lived there for 22, 23 years, it's -- these are sensible measures in a market otherwise that can do massive boom-and-bust moves.

Alistair Scarff - BofA Merrill Lynch, Research Division

Great. And my second question is more looking at the nature of your lending in CMB and GBM over the recent, let's just say, 18 months to 2 years. Is yours -- have you materially increased your number of clients within that space, or would you characterize your lending as a deeper-wallet story?

Stuart T. Gulliver

Deeper-wallet story. We've actually deliberately not tried to take on new credits. The view is very much here that if you start to take new credits, you don't know whether you're picking up an exciting new relationship or someone who's weak is refinancing themselves away from a bank that's effectively pulled their lines. So with 1 or 2 exceptions, the majority, 85%, 90% of this is deeper wallet with existing clients who have been multi-banks, where one of our house banks has become weaker, and therefore, we've been able to pick up greater market share with someone we already know.

Alistair Scarff - BofA Merrill Lynch, Research Division

Great, and the follow-on for that. By default with the deeper of your wallet share, those particular credits, will the nature of some of these corporate and commercial delinquencies and defaults going forward, are they going to be incrementally more lumpy because of the, I guess, let's just say, a slightly higher bid per credit? Would that be a fair call?

Stuart T. Gulliver

The correct way I would probably want to answer is that we need to be very mindful in terms of our credit policy that our exposures will and, therefore, our risk, our idiosyncratic risk, by definition increases with the extent to which our exposure to individual credits increases. But what I would hope to sort of stress is the policy we have on lending is incredibly conservative still. So you're right from a theoretical point of view, but it's my job to make sure you're not right from a practical point of view.

Operator

Your question comes from Tom Rayner, Exane BNP.

Thomas Rayner - Exane BNP Paribas, Research Division

A couple of questions, please. The first one, I think, at the half-year stage, you gave us some figures on your return on risk-weighteds, both underlying at 1.8 and then stripping out all of the legacy positions, which was a more attractive-looking 2.3. Are you able to update those numbers at all for the third quarter? And I have a second question on your sort of tables on Page 5 of the release.

Stuart T. Gulliver

I could give a simple yes to that answer, couldn't I?

Thomas Rayner - Exane BNP Paribas, Research Division

Yes, you could. And then you say, "Here you are, Tom, the number is X."

Stuart T. Gulliver

But that's not the question you asked, Tom.

Iain James MacKay

We're looking for precision here okay? One second.

Thomas Rayner - Exane BNP Paribas, Research Division

Well, I'm trying to get a feel for how significant the legacy issues sort of are, whether they're still the same sort of drag that you were seeing in the first half, I guess.

Iain James MacKay

Well, no, on that point, it remains largely consistent. I mean, again, which informs, not insignificantly, the amount of focus that we're placing on trying to accelerate the rundown of the U.S. portfolio. So the drag remains consistent. When you look at underlying, excluding run-off and legacies, so that's excluding some of the old SICs and SIVs under Global Banking and Markets and the U.S. CML portfolio, overall, from a group perspective, you actually -- let me see, you actually improve the return on risk-weighted assets by about 20 basis points. The drag effect from legacy credits and Global Banking and Markets at September 30 has deteriorated slightly. So by that, I mean there's less drag coming from Global Banking and Markets, but that's reflected largely by the fact that we've seen significant recovery in some of the prices within that portfolio. And then from a CML perspective, again, there's some improvement, but the improvement, again, is largely orientated around the fact that we've got declining portfolio and reduced loan impairment charges coming through.

Thomas Rayner - Exane BNP Paribas, Research Division

Great. My second question just on your sort of underlying constant currency tables on Page 5. And I was particularly looking at the revenue, one, where you show sort of 9-month or 9-month underlying revenue growth of 9%. Just trying to get a feel for what the sort of annualized quarterly path would look like in the last sort of 2 or 3 quarters. And also, again, if taking out the run-off, the impact of the run-off bit rather than just the bits you've sold, whether that would make any difference to your answer.

Iain James MacKay

Well, I think intuitively it would, because clearly, we're seeing a rundown in those balances at a fairly consistent clip with a view to accelerating it. And as we run that down, clearly, the revenue that's thrown off by that portfolio goes with it. So by excluding CML, which we don't, in the underlying, you would probably see that step up a little bit. In terms of the quarter-over-quarter-over-quarter trend, I have to apologize, I do not have that in front of me.

Thomas Rayner - Exane BNP Paribas, Research Division

Okay. I mean, but your sense is that there's no -- is there an improving trend or stable trend that you saw on that revenue developments?

Stuart T. Gulliver

I'd say stable.

Iain James MacKay

I think it's pretty stable. I mean, when you look across the individual markets from an underlying perspective -- and again, underlying excludes only foreign exchange, only the impact of acquisitions and dispositions and constant currency, right? So from that standpoint, you look across third quarter, second quarter, it's about 11%. But it's pretty stable.

Operator

Your next question comes from Ronit Ghose from Citi.

Ronit Ghose - Citigroup Inc, Research Division

Just 2 sets of questions, please. One is on asset quality, maybe more for Iain, and one on strategy for Stuart. On asset quality, first of all, the number at the first half was $40.7 billion for your stock of impaired loans. Can you give us a number for the third quarter, please, for the 9-month number?

Iain James MacKay

Stock of impaired loans ...

Ronit Ghose - Citigroup Inc, Research Division

Which was $40.7 billion at the first half.

Iain James MacKay

You know what, we'll get back. I don't think I've got that sitting right in front of me. We're going to take a quick look through it, and then...

Ronit Ghose - Citigroup Inc, Research Division

Okay. I've got a couple of just a smaller asset-quality-related numbers as questions as well, numbers questions. In the household, in the finance corporation release, you mentioned that there's going to be a top-up in the fourth quarter for your credit loan loss reserve, credit loss reserve of about, up to 10%. I was wondering if that will come through in the IFRS numbers as well in the group. There was a reference to up to around a $400 million top-up in the U.S.

Iain James MacKay

No, that's a U.S. GAAP adjustment, okay? And it's driven by a regulatory change within the U.S.

Ronit Ghose - Citigroup Inc, Research Division

And that won't flow through into the IFRS numbers?

Iain James MacKay

Does not flow through to IFRS.

Ronit Ghose - Citigroup Inc, Research Division

Okay, that's perfectly clear. And the last question on credit losses is, you've mentioned the ABS -- there was some -- it looked like some net recovery from the third quarter in GBM in Europe. Have you disclosed what the number is? I mean, it looks like it could be like a 3-figure type number.

Iain James MacKay

One second. It's $20 million to $30 million.

Ronit Ghose - Citigroup Inc, Research Division

$20 million to $30 million?

Iain James MacKay

Yes.

Ronit Ghose - Citigroup Inc, Research Division

Okay, okay. That's great. And just a big-picture question. Maybe both for Stuart and Iain. Stuart, you mentioned that, obviously, the market share story from the Western banks, particularly the European banks deleveraging, withdrawing is a multi-year story. I wonder if you're seeing any change in trend or competitive dynamic from the local Asian banks? And does it vary by market? I mean, are you seeing them becoming more aggressive? And if so, in any particular geographies or products?

Stuart T. Gulliver

I think there's definitely a more competitive issue with regional banks in Asia. But it varies in terms of what product suite. So in areas like trade finance, which is really where the Europeans, particularly the French, were dominant, you need U.S. dollar funding, because 80% of world trade's in dollars. And none of those regional Asian banks have large dollar deposit bases. So where they will compete is in local currency, in Sing dollars, in ringgit, in Thai baht, clearly, the Chinese in renminbi and in Hong Kong dollars. But actually, in the U.S. dollar piece, it tends to be more the American international banks, ourselves and Standard Chartered that can pick up market share, because they most traded actually in dollars, so you've got to have dollar funding. So I wouldn't in any way underestimate the importance of the regional banks. But they'll come through much more in local currency, so they are likely more to come in domestic SME than in international trade. And they're likely to come in the large multinationals, again, providing local currency funding lines for working capital in country. So they are competitors, but they're competitors not in the trade space so much as in working capital.

Ronit Ghose - Citigroup Inc, Research Division

And do you see them, Iain, particularly, in sort of the credits and sort of on balance sheet, so where it, particularly, I think in lending-type products? Or is it more in the local currency, they're also competing in flow-based products as well?

Stuart T. Gulliver

Both, both actually, but primarily more in balance sheet and on balance sheet lending. So you can dig into some analysis around some of the recent big M&A deals that have taken place in Southeast Asia. And you'll see some of the local banks coming in for very large tickets, which they'll keep on balance sheet to fund various acquisitions.

Iain James MacKay

So Ronit, going back to your question, I'll give you a percentage number of impaired loans to gross loans in advances to customers for the group. In percentage terms, at the end of the second quarter, that was 4.1%. For the group, at the end of the third quarter, that's 3.9%.

Ronit Ghose - Citigroup Inc, Research Division

Right. It's gone from 4.1% to 3.9%. Okay, brilliant.

Iain James MacKay

Now, a feature in that, again, is that we've reclassified the NRE [ph] book in North America into assets held for sale, which means it comes out of the gross loans and advances to customers' category. So that is part of the impact -- that is part of the impact.

Operator

Your next question comes from Christopher Wheeler with Mediobanca.

Christopher Wheeler - Mediobanca Securities, Research Division

Just really a question on capital planning. We've, obviously, talked a lot about ring fencing, but now you've got LinkedIn [ph] flown into the pot, which I think may be preferable to you. We've also got Martin Taylor questioning the deal you sensibly struck, I think, in terms of the plaque you have to keep worldwide. And now we have the leader of the opposition saying that Vickers hasn't gone far enough, and he will certainly -- well, his party will break up the banks if they take power in 2015. Against all that noise, and given you have a really strong capital position, but what are you doing in terms of how you're looking at your U.K. business in the light of all of that?

Stuart T. Gulliver

The honest non-flippant answer is there isn't enough specificity at the moment around any of that for us to be doing anything other than having quite a large team of people conduct a series of analysis as to how we would fit the bank within, frankly, the ICB and Vickers' work, because we're assuming that, that's the first one that we would need to work towards is the U.K. regime. And we're assuming that will come to pass, we're assuming that we will need to create a ring fence and non-ring fence bank. But I wouldn't -- I'm not able to say to you today, x amount of capital will go into the ring-fence bank, it's return on risk-weighted assets will be y and its ROE will be z, because we don't have the specificity. What you just outlined is the challenge we face, and, yes, there's a ton of work that Iain's team and Marc Moses, our Chief Risk Officer's, team, are doing all the time. But until everything settles down into clear precision, at that point in time, we'll have some idea of what it does to the overall shape of the group. But as you point out, we are capital-generative, $3 billion within the quarter, $11.7 billion total capital tier 1. So we're in a position to respond, quite honestly, whichever version of this comes up.

Christopher Wheeler - Mediobanca Securities, Research Division

Okay, I know it's a difficult one.

Christopher Wheeler - Mediobanca Securities, Research Division

No, it is. Look, you can't give a precise answer to this, because there isn't precision around the whole thing.

Operator

We will take our last question today from Michael Helsby at Merrill Lynch.

Michael Helsby - BofA Merrill Lynch, Research Division

I've got 2 questions, if that's all right? Firstly, on costs. I think, Iain, you pulled out that the Q-on-Q costs were just slightly higher at $9.1 billion x notable items. If I go back to the first quarter 2011, and that kind of implies about a 4% growth rate when you adjust for savings. The way you talk about it, Stuart, in terms of your paying for your investments and inflation, is that 4% representative of how we should think about the future?

Stuart T. Gulliver

Yes, I think it is. I think it precisely is.

Michael Helsby - BofA Merrill Lynch, Research Division

Okay, good. And second question is on bad debt. Just a bit of clarification in the U.S. Iain, I think in the second quarter, the reclassification in the U.S. GAAP led to about a $1.6 billion charge in the U.S. GAAP accounts. Is there any impact in the P&L from the re-class in IFRS, or is that to be decided...

Iain James MacKay

That will come through on the execution of the transaction, Michael.

Michael Helsby - BofA Merrill Lynch, Research Division

Okay. And the fall in the quarter-on-quarter bad debt charge in the U.S. IFRS accounts, is that more to do with the re-class, or is that more to do with the delinquencies, or is it a bit...

Iain James MacKay

So part of the re-class, part of the fall is obviously that, on a reported basis, we disposed of the Cards business, which -- for which we did pick up loan impairment charges in the second quarter, whereas we did not in the third. And the last element is the re-class.

Michael Helsby - BofA Merrill Lynch, Research Division

Okay. Could you quantify how much the re-class charge -- sorry, the impairment charge would have been for the re-classed assets in Q2?

Iain James MacKay

I don't have that at my fingertips. I can give you the impact of the disposition of the Cards business. That was about 380. And then although delinquency was fairly -- delinquency was, as somebody pointed out, was reasonably flat. And as for the re-class, I don't have the exact number in front of me.

Michael Helsby - BofA Merrill Lynch, Research Division

Okay. Maybe that's something that you could pass on a bit later. And then just finally on bad debt. I was interested, Iain, in your comments about the outlook for bad debt going forward, because if I add up Europe, Hong Kong, Rest of Asia and Middle East, then your Q3 bad debt charge is only about 25 basis points. That's clearly a lot lower than what I think you would see as your long run average. So are you saying that your -- the quality of your book is, from where we are today, is just different from where it's been historically? Has there been a step change, or am I...

Stuart T. Gulliver

I think we're saying that, absolutely, over the last 20 months, we have changed our credit policy and our credit risk appetite. Whether I would be as bold as to ascribe it as a step change we'll only know after the event looking backwards. But we absolutely have consciously moved away from unsecured Consumer Finance, unsecured SME type of lending. And we're also very, very tight in terms of the big Global Banking clients that we bank. As I said earlier, we've gained market share with multibank existing clients, not taking on new ones being refinanced out of weaker competitors. So it's always very hard to give precision given that we've got rather large number of clients, that this is very deliberate, and therefore, we would hope to see that there is a different type of book now than we've had in the past, particularly in the period after we bought household and rolled out Consumer Finance practices into Mexico and into India, which is now history.

Okay, that brings our call to an end. So just to recap, it has been a strong quarter, driven by continued revenue growth and lower loan impairments with costs marginally higher, excluding notable items. We continue to execute our strategy, reinforcing HSBC's distinctive position and ensuring that we remain aligned with key global trends. We remain confident in our outlook for growth in the emerging world, and our performance in October was satisfactory. Thank you very much.

Operator

Thank you, ladies and gentlemen. That concludes the HSBC Holdings plc Interim Management Statement Call. You may now disconnect.

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