Full Year 2020 Barclays PLC Earnings Call

Welcome to the Barclays full year, 2020 analyst and Investor Conference call.

I will now hand, you able suggests daily group, Chief Executive and TCR, Missouri, Our group Finance director.

Good morning.

We all know that 2020 was not a normal year.

The pandemic has caused fear and dislocation and societies around the world.

And this has caused huge economic harm and uncertainty with hardship and stress for millions of people.

And it has brought tragedy to so many families, including among friends and colleagues.

In common with others.

Tested our resilience as a business.

And our values as a corporate citizen.

While we have faced significant challenges I want to say first of all.

Proud I am of the way in which our colleagues of Barclays.

Responded to an extraordinarily difficult year.

Their efforts have been the driving force that has enabled us to step up and play our full part in the battle to contain the damage that this terrible disease is cost.

All around us.

That commitment from our colleagues in the core resilience of our business method.

Anthony we have stayed profitable in every quarter of 2020.

And that strength and turn along.

Loud us to support our customers and clients and the communities around the world, where we live and work.

During 2020, we provided almost 700000 payment holidays to our customers.

We waived around 100 million pounds, an overdraft interest and banking fees.

And we have committed a further 100 million pounds charity supporting the most vulnerable through our community aid package.

We've helped our clients raise over one five trillion pounds in the global capital markets and extended some 27 billion pounds to companies to the UK government lending schemes.

And we've been able to deliver all of that support.

Holding our topline steady overall group income was $21 8 billion pounds up 1% on 2019.

But it is a composition of that income which shows most clearly how our diversified model has worked to absorb the shocks of 2020.

And still delivered resilience overall performance.

Our consumer operations felt the impact of the pandemic most acutely.

With Barclays UK income down 14%.

While our consumer cards and payments business was down 22%.

But at the same time and our wholesale business.

In investment banking income was up 22% for the year stabilizing group income at a time of extreme stress.

Before provisions, we generated a profit of almost 8 billion pounds for the full year.

These were heavily tempered of course and the approach we've taken in terms of impairment charges driven by the pandemic.

Full year impairment charges were $4 8 billion pounds to take the group's total impairment reserve to $9 4 billion pounds, reflecting our cautious view of the impact of Covid.

However, we were encouraged that the fourth quarter charge was down 19% relative to the previous quarter at just under 500 million patents.

And we expect 2021 full year impairment charges to be materially below the 2020 level.

Overall group profit before tax therefore, $3 1 billion pounds, including generating a profit before tax of 646 million pounds in the fourth quarter.

The drivers of that performance, we're in the investment bank.

Where markets and banking both delivered their best ever income performance is up 45% and 8%.

Perfect.

Yes.

It is important to note the standout markets performance reflects not only the significant growth in the global capital markets, but also material market share gains by Barclays.

We have consistently grown share in markets over the past few years moving from market share of three 6% in 2017 to four 9% in 2020.

And growth has been across macro and credit and equities.

Markets and banking income together has grown 45% over the same period relative to the industry wallet, which is growing roughly 20%.

Together these data points illustrate the tangible momentum we have built and our investment bank.

The business delivering improving returns year over year and producing a return on tangible equity of over 13% in 2020, despite a high impairment charge.

Corporate income was down 13%, including the impact of lower interest rates. The CIB as a whole delivered income of $12 5 billion pounds up 22% year on year.

And profit before tax of 4 billion pounds up 35%.

Our consumer cards and payments business in Barclays International did however, make a loss of 388 million pounds for the full year.

This was driven by impairment charges a fall in income caused by lower credit card balances Mark.

Margin compression and reduced payments activity as a result of the pandemic.

CCP did however returned to profit in the last two quarters.

Barclays UK profit before tax decreased 47% during the year to 546 million pounds.

With performance of the year impacted by a significant reduction in income and the COVID-19 related impairment charges, we took.

We did however see growth in mortgages in 2020, and the business has done a little better since the apparent nadir of the second quarter.

You saw our profit in Barclays UK in the fourth quarter 282 million pounds.

Thus, we forget Barclays UK is a business, which in the decade prior to 2020 regularly produce high returns as did consumer cards and payments.

These remain good businesses with strong fundamentals and I expect to see performance improve and both of them as the economy returns to normal.

That said beyond the immediate impacts of the pandemic U K retail banking does face some strategic long term challenge.

Near zero interest rates lower charges for overdrafts, and other services and the provision of many core banking services for free.

In response, we continue to invest in.

Our technology platform.

Operating digitize finance to enhance our relationships and experience for our customers.

And we continue to focus on running the business.

Efficiently so that we can generate appropriate profitability, while continuing to deliver support to our customers clients and communities.

Overall group operating expenses, excluding litigation and conduct rose, 1% to $13 7 billion pounds.

Including roughly 370 million pounds of charges for structural cost actions.

This translates to a group cost income ratio of 63% flat versus 2019.

We remain attentive to cost and continue to target a group cost income ratio of below 60% over time.

2020 group Rte with three 2% and earnings per share were $8 eight packs.

We expect to deliver a meaningful improvement in group <unk> in 2021.

We remain committed to a target of above 10% over time.

At the same time as navigating the effects of the pandemic on our business and working hard to support customers clients and our communities. We have continued to strengthen and Barclays for the long term.

In this respect in 2020, we made particular progress on our approach to climate change.

Setting an ambition to be a net zero bank by 2050 as well as a commitment to align all of our financing to the goals of the Paris agreement.

In late November we set out a plan and the methodology for how we intend to achieve this.

Our own operations are already net zero and our commitment extends to the financing we provide to clients covering capital markets activity as well as lending.

We will ultimately expand this approach to cover our entire financing portfolio, but we have started with energy and power, which between them account for up to three quarters of emissions globally.

We've also set clear goals to help accelerate the transition to a green economy.

Including 100 billion pounds green financing by 2030.

And directly investing 175 million pounds and sustainability focused start ups over the next five years.

Barclays capital position strengthened significantly through 2020.

With our CET, one capital ratio, increasing by 130 basis points in the year, including 50 basis points in the fourth quarter to stand at 15, 1% at year end.

We anticipate some capital headwinds in 2021 from pro cyclical effects on <unk>, the reversal of a regulatory forbearance applied in 2020 and increased pension contribution.

Nevertheless, we remain significantly above our CET, one ratio target of between 13 and 14%.

And well above our minimum regulatory requirement with prudent provisioning for impairment.

Given the strength of our business. We have therefore decided the time is right to resume capital distributions.

We have today announced a total payout equivalent to $5 per share for 2020.

Comprising a full year dividend payment of <unk> per share and we will execute a share buyback of up to 700 million pounds.

We expect to comment further on our capital distributions when appropriate.

So in summary, Barclays remains well capitalized well provision for impairment highly liquid with a strong balance sheet and competitive market positions across the group.

I expect that our strong and diversified business model will deliver a meaningful improvement in returns in 2021.

At the same time, we will remain committed to playing our part in supporting customers and clients our colleagues and our communities as we emerge from the COVID-19 crisis.

I'll now hand, it over to sort of take you through the results in more detail.

Thanks, Jess I'll comment first on the full year results and summarize the fourth quarter performance.

Given the pandemic has been to support the economy, serving our customers and looking after the interests of colleagues and all the stakeholders.

Being a very challenging year, but the pandemic has shown very clearly the benefits of our diversified business model.

Despite the effects of the pandemic reported a statutory <unk> of three 2% three four excluding litigation and conduct.

Did you guys say conduct was just 0.2 billion, we had a large PPI charge in Q3 last year, So I'll still reference numbers, excluding litigation and conduct.

The impairment charge of $4 8 billion up almost 3 billion year on year reduced PBT from six two to $3 2 billion revenue you can see from this bridge the increase in CIB income was 22% more than offset the 19% decline in consumer and other businesses.

With income up 1% overall, we delivered neutral jaws and a cost income ratio of 63%.

In excess of the group's target of below 60% over time.

Tina increased from $60 262 to 269 points over the year.

Capital position is also strong with a CET one ratio strengthening further in Q4 to reach 15, 1% up 130 basis points over the year.

Under the temporary guardrails, which the regulator announced in December a statutory profitability allows us to distribute five pence in aggregate by way of dividend and buyback.

We plan to launch a share buyback of up to $700 million by the end of Q1, which is attractive for Omar for us from a financial point of view at current share prices and is equivalent to four <unk> per share.

In addition, we are paying a dividend of one pence and reaffirming our intention going forward is to pay dividends supplemented as appropriate by share buybacks.

Island form of distribution was determined by the current circumstances and you Shouldnt read anything particular into the level of overall payout ratio or the mixed chosen on this occasion, we will update the market further and distributions at the appropriate time.

He was on income costs and impairment for the year before moving onto Q4 performance.

This slide shows the split in the 1% income growth with a 22% increase and CIB more than offsetting declines of 14% and 22% in the UK and CCP respectively.

Share gains in market and the momentum across the businesses position us well for the future.

However conditions remain challenging for the consumer businesses with reduced unsecured balances and a low rate environment as we show on the next slide.

We probably like you did in the charts on the right the continuing headwinds from balance reductions in U K and U S cards.

Still some signs of recovery in consumer spending in both the UK and U S. In Q3 further lockdowns it spending over the Christmas period, and this is continuing in Q1.

As a result credit card balances were down in Q4 in the UK and flat in U S in quality and seen the usual seasonal increase.

We've also put in the slides the reminder of the specific headwinds that the consumer businesses are experiencing although customer support actions affecting the UK fall away in 2021 effect of low unsecured balances and interest rates is continuing.

Looking now at costs.

Full year costs were up 1% overall at $13 7 billion due to an increase in structural cost actions to around $370 million, but underlying costs were flat year on year.

The bank Levy increase but is expected to be lower in 2021 with decreases in both the rate and scope of the levy.

The Covid pandemic has resulted in additional costs for the group for example building out pertains to help customers in financial difficulties and these will remain elevated in 2021.

However, the group will continue to drive cost efficiencies, while investing in the franchises where appropriate.

You are already familiar with the increase of $2 9 billion and the impairment charge. This is being driven by deterioration in the economic outlook as a result of the pandemic and has led to significant increases in the charges in each businesses as you can see.

However, this pickup in provisions in Q1, and Q2 has not yet been followed by material increases in defaults.

You can see much lower charges for Q3 and Q4 in the second chart.

We've shown the charge for each quarter speaking to stage, one stage two impairment, mostly relating to balances with Sean Paul SKU, which I'll refer to as the book hubs and the phase III impairment loans in default.

As you can see most of the elevated impairment in Q1, and Q2 was from backups, while most of the Q3 and Q4 charges were on stage three balances.

We've shown on the next slide the macroeconomic variables or Mips, we've used in the expected loss calculation.

We've updated the <unk> slightly in Q4, however, I would emphasize that with the reduction in unsecured balances and given the ongoing level of government support the model with on their own would have generated a significant provision write back in Q4.

However, there is significant uncertainty as to the level of default, we will see as spokes cleans the wind down.

Therefore applied significant post model adjustments totaling $1 4 billion as you can see on the table.

The increase in our total impairment allowance by $2 8 billion to $9 four which broadly maintains our increased level of coverage as you can see on the next slide.

Based on forecast unemployment levels, we would anticipate an increased flow into delinquency in 'twenty to 'twenty, one, but given our level of provisioning, we would expect a materially lower charge for 2021.

Unsecured balances have come down significantly from $60 billion to $47 billion through the year and coverage has increased from eight 1% to 12, 3% with even higher coverage and the credit card books.

The wholesale coverage has almost doubled over the year to one 5% on a large proportion of this is in selected sectors, which we consider to be more vulnerable to the downturn.

In the appendix the usual detailed slides on unsecured coverage selected wholesale sectors on payment holidays.

Turning now to Q4 performance.

Q4 income decreased 7% year on year, continuing strong performance in CIB in both markets and banking was offset by income headwinds in the UK and CCP.

Increased to $3 8 billion, including key for structural cost actions of $261 million on an increased bank levy charge of 299 million.

Impairment decreased 31 million to $2 million to $492 million year on year of which $444 million, what's the stage III defaulted loans.

Despite the headwinds Q4 was still profitable with a PBT 0.7 billion and minority of two 2%.

Turning to Barclays UK.

The headwinds we referred to in the previous quarters continue to affect the U K with income down 17% year on year.

On the unsecured balances reduced further in Q4 with gross card balances down from $16 five to $11 9 billion a decline of 28% over the year.

Mortgage balances on the other hand, we're up $5 1 billion year on year with a net increase of $1 9 billion in Q4 and pricing continues to be attractive.

There was significant increase in B U K business banking lending over the year as bounce back loans and <unk> reached roughly $11 billion in aggregate.

Balances grew by almost 12 billion in total to 205 billion.

Deposit balances also continue to grow resulted in a loan to deposit ratio of 89%.

Q4 income included higher debt sales, which contributed to the increase in income compared to Q3.

Q4, NIM was up on Q3 at 256 basis points, but we expect a clear reduction in 2021, a secured lending continues to grow.

This is expected to take full year NIM to around 240 basis points absent any changes in base rate.

So the income outlook remains tough with low demand for unsecured lending and the headwind from the structural hedge despite an expectation of continued mortgage growth.

Cost increased 11% year on year, that's COVID-19 related costs increased structural cost actions more than offset efficiency savings.

The cost increase includes around $30 million of quarterly cost in our partner Finance business just transferred from Barclays International earlier in the year.

Impairments for the quarter was $117 million down slightly year on year, and well below recent quarters <unk> rates continue to be stable.

Turning now to Barclays International.

Income was stable year on year at $3 5 billion, reflecting the strong performance in CIB offset by lower income in CCP and <unk> was broadly flat at five 9%.

I will go into more detail on the businesses in the next two slides.

The corporate and investment bank delivered an <unk> of six 2% in Q4 traditionally the weakest quarter of the year up from three 9% last year with strong performance across markets and banking.

Income was up 14% year on year at $2 6 billion on a flat cost base delivering strong positive jaws.

Markets income increased 19% in studying the best Q4 level since 2014 on the investment Bank took its current form.

22% in dollars.

The full year markets income of $7 6 billion.

Our highest since 2014.

<unk> increased 12% with particularly strong performance in credit.

Equities income was up 33% with strong growth in derivatives and cash equities.

Banking fees were up 30% year on year with good performance across debt and equity capital markets and advisory following some weakness in advisory earlier in the year.

Corporate lending this quarter Wilson distorted by the volatile Mark to market moves we had in other quarters reported income of $186 million reflected limited demand for corporate lending with further pay down our revolving credit facilities.

Transaction banking income remained depressed at $344 million with further increases in deposits more than offset by margin compression.

CIB costs were flat, reflecting tight cost control, reducing the cost income ratio from 80% to 69%.

Impairment increased slightly year on year, but was well down on the previous three quarters at $52 million.

All through the year and the investment banking franchise in good shape and optimistic about the future.

Turning now to consumer cards and payments.

And coming CCP was down 25%, principally driven by U S card balances, which are down 22% in dollar terms.

Addition to affecting balances slower spend volumes were also a headwind for interchange in U S cards and for payments income.

And the payments businesses, although volumes were down E commerce accounted for over 50% of the volumes.

<unk> balances in the U S ended the flat on September <unk>, while they've seen an increase from Thanksgiving and Christmas spend.

So the income growth we were hoping for in 2021 is going to be tough to achieve in the absence of significant improvement in economic conditions.

So down 4% resulted in a 64% cost to income ratio impairment was $239 million, while down on the levels for Q1, and Q2, reflecting lower balances with there is slightly up in the quarter, but still well below the level that provisioning assumes.

Turning now to head office.

The head office loss before tax was $416 million, reflecting one offs in both income and cost lines.

The negative income includes the Q4 expense of 85 million relating to the repurchase of half the outstanding tier two contingent capital notes.

This will be roughly half the $100 million annual legacy funding costs in head office, we had guided for in 2021 and 2022.

The other main income elements residual negative treasury items and negative income from hedge accounting will continue in 2021 and are expected to be at similar levels to the past.

I will suggest around 300 million negative incoming total and the absence of a resumption of the apps the dividend.

<unk> cost of $222 million were above the usual run rate of $50 million to $60 million.

Around $150 million of cost actions and the inclusion of a further $22 million of the community program, we announced at the start of the pandemic.

Moving onto capital.

We finished the year with a very strong capital position. The CET one ratio was 15, 1% up materially from $13 eight at the end of 2019, and an increase of 50 basis points in Q4.

This reflected capital generation from profits across the regulatory support and the cancellation of the full year 19 dividend at the start of the pandemic.

The strengthening of the ratio was achieved despite the increase of $11 billion in RW eyes.

You can see the elements broken down in the bridge on the top half of this slide.

<unk> nine transitional relief didn't move significantly this quarter as the bulk of the impairment charges have been qualified for relief.

For the main contributors to the increase were profit and 30 basis points from the new regulatory benefit of software assets.

Spectrum, the software benefit to be reversed at some point this year by the PRA and I'll say more about the flight path for capital on the next slide.

We're happy with the headline capital ratio of 15, 1%, but I wanted to remind you of some factors, which will reduce the ratio in 2021, particularly in Q1 and while we are comfortable to run at a level materially below 15, 1%.

We've shown that the start of this bridge a couple of easily quantifiable factors, which will affect the ratio in the early part of the year.

The proposed buyback of 700 million is not reflected in the ratio and would reduce the year end ratio by 23 basis points.

In addition, the temporary PVA release 14 last year was reversed on the first of January and the IRS mind transitional relief reduces.

Could think of a rebased ratio at the start of 2021 or 14, 7%.

It's still well above our target range of 13% to 14%.

I would remind you that our MDA hurdle is currently 11, 2% and we've included the usual slide in the appendix showing how that is calculated.

Our target range is designed to allow for fluctuations in the MDA for example, if a UK counter cyclical buffers and reintroduced.

Going forward, we remain confident of generating capital from profits will go I'm not going to forecast the precise level of capital generation.

We've shown here a number of additional headwinds to the ratios that we are aware of on top of the expected reversal of the software benefit.

The two that are most difficult to forecast the migration of impairment into stage, three defaulted balances, which will not qualify for transitional relief and potential pro cyclicality, which could inflate RW eyes.

Didn't materialize during 2020 in the way we had expected.

Likely to be some effect from credit migration during 2021.

Nevertheless, we are confident that the balance of these elements will leave us with sufficient capital generation to continue distributions to shareholders and be comfortable enough CET one target range.

But spot and average leverage ratios were at or above 5%.

Finally, a slide about our liquidity and funding.

We remain highly liquid and well funded with a liquidity coverage ratio of 162% on a loan to deposit ratio of 71%.

This positions us well to withstand the stresses caused by the pandemic and to support our customers.

So to recap we were profitable in each quarter of 2020 generating a three 2% <unk> for the year. Despite the effects of the Covid pandemic, which led to significant reductions in income in the consumer businesses had an increase of close to 3 billion and the impairment charge.

As summarized on this slide the various comments on the outlook we've made.

While the income outlook for the consumer business is challenging given the economic environment. The CIB is well placed for 2021 and beyond.

We continue to see the benefits of our diversified business model coming through allowing us to take a measured approach to costs and continue to invest in the future of the group despite the difficult economic environment.

Taking very significant impairment charges in 2020, but with $9 4 billion in balance sheet provisions, we expect to materially lower charge in 2021.

With distributing the equivalent of five pence per share by way of dividend and share buyback.

Although we expect a reduction in our CET one ratio in 2021.

Starting point of 15, 1% should put us in a good position to pay attractive capital distributions to shareholders going forward.

Thank you I will now take your questions and as usual I would ask that you limit yourself to two per person. So we get a chance to get around to everyone.

Yes.

If you wish to ask a question. Please press star followed by one on your telephone keypad.

Your line unless Jeremy's your question. Please press star followed by K.

I wanted to ask your question. Please ensure that you will find is unneeded lately second.

Second Sam that Stoffel, if I wanted to ask a question.

The first question today comes from Joseph Dickerson of Jefferies. Please go ahead Jason.

Hi, Good morning, guys. Thanks for taking my question.

I guess, just a couple of things so.

On the on the capital distribution.

PRA was pretty clear in their December document that you could move away from these I think they used the word temporary guardrails.

And returned to more normal levels of <unk>.

Board decision, making in respect of the half year.

And when I look at where the pro forma.

One is.

In addition to the fact, you generated 81 basis points of capital in 2020 with $4 8 billion.

Impairment charge would suggest.

A fairly conservative basis, you've got somewhere between $1 5 billion plus of excess capital I mean is that something that you could seek to use for buybacks in respect of the half year I guess, how should we think about the timing of further.

Buybacks.

Even given that your shares are meaningfully below book, that's quite accretive and then secondly, I guess just on the card outlook both in the U S and the U K you gave a great deal of precision around the outlook for the UK NIM, but a lot of that.

As linked to card spend and lend.

And I guess, what's the outlook there because you said you would need to see I think to start you said in your comments significant improvement.

Economic conditions, but we're starting to see that if you look at the U S retail sales data.

Coming in for January at 5% versus 1% in the stem checks being dropped into People's Bank accounts in <unk>.

In January it seems like there is.

Set up is quite prime for a recovery in spend but you sound a bit more cautious so I'm just wondering what the what the Delta is there. Thanks.

Yes, Thanks John.

Good to hear from you why don't I take both of those question intended to.

Capital distribution I mean, hopefully you've seen this morning that it is.

Important to the board here that we are in a position to return.

As much capital as we can into shareholders' hands.

Lee and hopefully the.

The actions we've taken this morning around this morning, good demonstration of that I think I would also agree with you that we feel very comfortable with both our starting capital position, albeit we called out some natural headwinds, but you can even say that.

Pro forma for some of the numbers that we can quantify with fit and a very strong capital position.

And we all capital generative generative.

We expect to be more profitable.

This year than we were last year.

That will know downhill intensive.

Announcements for further buybacks or dividends or anything I think thats, probably something too.

To talk about at the right time.

Today, I think we're in a position to make any announcements on that of course.

Those wells are in place the PRA will do that reverse stress testing and they'll come up with.

Rob that conclusions thereof.

And I would agree with you that I am getting capital backing to shareholders and is a priority for us and the actions that we've taken to date demonstrates our focus on that.

And we have a very strong capital position to be starting from.

Okay.

Cough balances UK and U S.

Yes, I think look I think youre right in the sense that.

Spending I think spending recovers that will be helpful. In the us in the sense that we start benefiting from the interchange fees.

That are available there and also actually even in the in the CCP segment. We do include how much of the acquiring business as well and of course that will respond very quickly to increases in spend level.

I, just think that the growth in cost balances themselves might lag that a little bit obviously folks are being saving and acting very rationally and it remains to be seen just.

So do their propensity to take unsecured credit.

While there is still a reasonable outlook for cash in.

On deposits and bank balance sheets.

So look I think.

I think it's a very difficult judgment, we've tried to be sort of cautious you'd expect us to be cautious but.

Yes.

As the world moves on and.

Vaccines have the desired effect quicker than perhaps was anticipated and spend levels recover.

That will be a benefit of course, yes.

Thanks.

To be precise enough judgment, just just given where we are at the moment.

That's fair would you agree that the recovery in spend.

And connecting that to land is probably driven more by improvement in Robert mobility and reopening as nonessential.

Spend picks up where theres, probably a greater propensity to revolve a balance is that kind of yes.

Post that we would look for.

Yes, definitely Joe I mean, usually on essential spend that tends to be driven more by debit card transactions and nonessential spend tends to be more way credit card. The duplex I think that's a good lead indicators you see non essential spend pick up.

There is more propensity for that to improve card balances.

Lead indicator.

Sorry, just one more thing just to just to make sure that we both agree that the PRA has said that you can return to more normal level more normal board level.

Capital decision, making in respect of the half year, unless it was normal caveat around the economy, not falling apart et cetera.

Yes look.

And we will talk about more of that when that when the time's right I think.

Now, let's get through this season Thats get through reverse stress tests and various other things, but look at getting capital back to shareholders.

Is it clear objective for the board here and hopefully all right good morning, or good demonstration of that where we distribute Kate I think the maximum that was allowed under the existing guardrails.

Great. Thanks.

Okay. Thanks, Chuck next question. Please operator.

The next question comes from Jonathan Pierce of naming your line is now open.

Millennial please.

Please for me as well please.

Hi, there.

Firstly, the NIM in the U K bank could you give us.

Of the trajectory.

The NIM as the year goes on.

We're just getting lower and lower through the year that we'd probably be a bit below.

4% would that be correct and maybe as part of that can you give us an idea.

What youre thinking on mortgage margins as the year goes on Nic's youre, leading the charge back down in terms of headline rate.

Second question is on.

Just a technical one I guess on capital headwind in the first quarter, you got quite a bit on the hedge portfolio looking at the report and accounts.

25 basis point shift up in yield.

By full client under many inbound which capital as well.

Based on what are the main but given the big move up in the last few weeks is there another headwind coming in Q1, maybe 15 20 basis points from the well.

All 30 of revaluation.

Thanks, a lot yes.

Yeah, Thanks, Jonathan why don't I take both of them as well.

NIM trajectory.

It's actually quite a difficult one for us to forecast.

Because you've got a few moving parts on that.

You've got the yield curve itself now that until the fleet being steepening in recent times I, probably wasn't putting too when we're sort of running our own projections and who knows if that continues to steepen or flattens out again, we don't know Youll see Steepening is is helpful to us.

Probably more helpful. In the <unk>, but we will have some benefit in current year.

Mortgage margin is of course, another one that's going to be driven by sort of dynamics of supply and demand in the mortgage market.

It held up reasonably well in some of the headline rates that you see.

And I know people do scan and pickup just going to be careful that you correlate that to where most of our production has been and is likely to be so.

Are you expecting in the forecast we gave some moderation.

Front book mortgage margin.

But it's actually probably held up kind of okay actually a bit better than perhaps we might have.

Now again, we.

But the real thing here will be what happens on the other side of the the stamp duty.

<unk>.

Holiday if you like the chancel.

Announced what are your plans all around that the March budgets. So I think we'll have a better picture of that as well.

Volumes also I guess is another one that's not that straightforward to full cost of getting an uncertain year mortgage mortgage volumes would be and actually again pretty robust. So I think thats probably.

Helpful.

Good question, Jonathan on the recovery in unsecured bonds of course, it's a very high.

Margin product.

If there is an increasing nonessential spend then you'd probably see a recovery in unsecured balances and that may be helpful. In the margin we've tried to be cautious.

In all of these in.

Things move pretty fast.

Yieldco steepen, a lot probably since when we were doing this.

Quite frankly, the pace of vaccine rolled out is going to be surprised us a little bit as well so.

Yes.

That optimism continues but we shall see.

I sat here today is the message then.

All else equal based on what you see right now.

You did better than the eight 4%.

It's possible of course it is possible.

The breakfast and sitting here in the first six week in February is forecast in the next sort of 40.

Six weeks or something of NIM, but yes at the moment looked at the dynamics are probably marginally helpful. I'd agree with that.

In terms of it sounds like just the other point Jonathan on mortgages the trajectory.

I wouldn't expect us to be below well below 240 basis points at the end of the year will be sort of.

Sort of.

Gradually grinding down on our current projections, but not sort of going well below 2014.

Your second question.

Yes. Your second question is there another headwind due to.

<unk> fair value as ICI.

Really it's not significant if it was we just called it out.

The other thing of course is when you have.

Significant moves in currencies in yield curves.

Typically that's a three.

Reasonable trading environment for all of the other side of the businesses.

So youll see a very important part of.

So that opportunity set here, so no I wouldn't call that a headwind.

Okay. Thank you.

Thanks, Jonathan we have the next question please.

Operator.

The next question comes from Jon Peace of Credit Suisse. Your line is now open.

Yes, Thank you Mike.

My first question is.

Could you help us maybe size the material improvements in impairments you're expecting the 2021.

A few European banks have suggested that the impairment level might come back close to a through the cycle right.

If I annualize your second half 2020.

That's probably similar a little bit of bump your through the cycle rates I mean could you do you think you could sustain that age to 2020 run rates an impairment to this next year as you think about things and.

And then if I could just ask a little bit about.

The investment bank and how have you started the year in 2021, I think you mentioned you were well positioned.

One of your peers talked about revenues being up year over year.

Has it been the same to you. Thank you.

Thanks, John Jon Peace, and Jonathan <unk>, who obviously are going to be tough to assist with Nathan Hi, John.

Sure.

The impairments were beyond yes, I mean, youre right to point out we've also been running.

Relatively low.

Run rate both in the third quarter in the fourth quarter.

Maybe the big wildcard here is.

When or do.

Do we get to see the defaults that our models full costing and we're not seeing it yet.

You could make the case.

There's going to be plenty of governments to pull it out there in which case.

We don't get to see those levels of unemployment or Daddy that degree of consumer stress and we may end up being open provided.

But we're trying to do that.

Straight as we can so we've actually even called out.

In our slide deck this morning.

How do we just let the model run by themselves.

We would have had a lower impairment balance as a result of that by about $1 4 billion and we've taken a what's called a post model adjustment.

Two.

To supplement with our models and that's really because.

The models.

Call them cope with this sort of very unusual sort of economic.

Picture that we're in at the moment, which sort of big fluctuations quarter on quarter and economic data, but looking at the moment, it's fair to say that the impairment.

Picture.

Underlying credit picture looks incredibly benign you can see that in our core products. For example, the fourth quarter tends to be the highest quarter for corporate default and you can see we only have $52 million in the fourth quarter of and Thats extraordinary when you think about all the headlines that you are reading.

Reiterate havent really bumps on our unsecured credit so look it looks it looks pretty benign but.

But we I think we need to wait and see.

When when the other side you see lots of economies reopening Jess you might want to add anything on that.

On your second question Jonathan.

About the IV in the first quarter, we don't comment.

During a quarter, but I would say.

Hi, a couple of things one.

Last year was a very robust market for the for the capital markets.

We underwrote.

About one five trillion pounds worth of depth for sovereigns and corporates.

That's in the public inventory now and.

The corporate bond market itself grew by 40% over the last two years.

And then.

<unk> drove a lot of the secondary market activity underscoring the market's performance last year also we grew our markets business last year about 45%, whereas the overall industry grew about 20%. So we continue to capture market share Im sure you saw the commentary this morning from from from from Credit Suisse.

Deutsche Bank.

So I'll sort of leave it there.

Thanks for your questions.

The next question please operator.

The next question comes from Alvaro Serrano of Morgan Stanley. Please proceed with your question.

Good morning, Thanks for taking my questions.

One follow up question on the.

The NIM guidance in U K. Please.

The $2 40, so does that 16 basis points reduction versus the Q4 level.

Can you, maybe I know, it's difficult but quantifying.

Quantifying in terms of your.

Assumptions in the way you think about the guidance how much of that reduction is is is structural hedge versus consumer sort of lending mix.

So can we can maybe sort of draw our own conclusions around the recent steepening in these and second.

One on the cost outlook.

Yes.

In the past you've given more specific cost guidance I realize you've taken some restructuring charges.

And <unk> also called out the Covid expenses will remain elevated I think is the word you used maybe you can give more detail is easier to get detail by division I don't know if you can comment on <unk> outlook.

Thank you.

Yeah. Thanks Alvaro.

Kind of a way for them.

In terms of NIM in the U K I mean, the first thing I would say is.

Just to sort of contextualize this of course.

One of the comments that you probably picked up from ow.

Really two this morning, and a slide where is net interest income for Barclays.

Somewhere around 35 36, 37% for the <unk>.

Both the U K net interest margin is.

Is only a portion of that so it's a relatively small part of our top line.

Bulk of it is you're seeing and sort of fee.

Other types of activities, but nonetheless.

Important area.

In terms of the mix of that structural hedge contribution.

I guess two comments I would make on that is.

As I mentioned, a little bit earlier.

We havent captured in sort of latest yield curve moves in appropriate vessels coming to your question. So the steeper curve how much of that.

Mike influence and the only thing I was curious.

Slide in our appendices Charles kept the IR teams to point, you asked Kevin already comforting already when we've given.

Yes.

Sensitivity slide to net interest income for upward shift in the yield curve and downward shift in the yield curve now.

Be careful with these because we've assumed parallel shifts.

Very complicated thoughtfully and slight steepening in shadowing and various other ships, but at least it gives you a sense of the sensitivity.

Tends to affect more of the outer years, but there will be a.

As a steepening as we seen anything stays well continues to steepen. It will have some some benefit into the into this year as well.

I'll, probably leave it at that level or the other thing that maybe helpful. Actually it's from a margin disclosures, you'll be able to see the notional of hedges that we run in the.

The contribution that the gross fixed Blake has so you'll get a sense of the all in yield in.

And you can make your own assumptions as to what that might refinance.

And model that accordingly.

Final comment I'd say is.

<unk>.

We do expect balances to grow this year interest, earning balances to grow and I think our last year as well so.

NIM of course is one part of the equation for the an interesting comment on I know you guys know all of it but just just for the theater, stating the obvious.

You need to take a view on balances as well and that we do expect to have decent growth in the mortgage business.

We'd like to see growth in the unsecured business.

We haven't seen that yet to the earlier question from from Joe I think that would really be predicated on when nonessential spend returns and how quickly that translates into.

Revolving credit demand.

Sure.

Structural cost.

Cost actions is a way of life for us.

Don't call it restructuring, we don't put it below the line, it's something we do every single year. We've given you some capacity and the cost we will do some more again in 2021 and we will include it in our overall cost line not trying to be clever about reporting things above and below so you can see the full effects of that.

I think the good news is that given the diversification of the.

The topline, particularly some of the strength we've seen in the CIB and we're optimistic about that as we go into.

Into 2021 that will give us the capacity to first of all continue to invest in some of our consumer franchises, we really like those businesses, we'd like to diversify for example, our U S card portfolio, we're very excited about the UK.

Mass affluent wealth proposition, we'd like transaction banking regulatory issues there.

And the diversification of top line does allow us.

In addition to the efficiencies that we've naturally create and capacity we are creating a cost line every year to continue to invest I haven't given guidance by division.

And I don't think we will do that at this stage it is again.

It's an uncertain world and I think it's difficult to give precise guidance because look we don't really know when economies are coming out of lockdown and what the economy on the other side locked down, but probably feeling more optimistic than we were when we were probably writing a lot of this.

But I'd say its a sort of a fast moving picture, so probably more to come at the right time.

Thank you for the question. Thanks Elvira.

Question. Please operator.

The next question comes from Benjamin Toms RBC. Please go ahead Benjamin.

Good morning, Thank you for taking my questions.

First is on the CIP assets performed well this year and the market share is materially increase do you see yourselves continuing take the same market share gains in the IP or was that a lot of work to wind schadt from here.

And then secondly, just on real estate optimization, which you've spoken about before there is no much detail about that in the slides is that because it at 2022 thing is now the right time to get fast and hard on branch reductions can you just give some more color around real estate optimization. Please thank you.

Yes.

Then.

<unk>.

On the market share side, obviously, we have.

Good momentum.

And the IV.

Through every quarter of last year.

<unk>.

Yes.

And across equities and macro and credit.

So yes.

We hope to continue to gain to gain market share.

And also we.

We do expect the size of the market to continue to grow and that supports that supports the financial performance of.

Of that of that business in terms of in terms of branch closings.

No.

The consumer in the U K is definitely moving to.

Interactions with with Barclays through our digital channels.

Our sales.

Through the Internet.

In our payments business were up over 30%.

Last year and the usage of <unk>.

Our mobile banking App for instance, also was growing at a very robust pace, so as that transition happens and our consumers engage with us digitally and we advanced our digital offering.

Perhaps you could use less.

And we're going to be.

Very prudent in how we deal with deal with branches, we still have over 700.

In the UK, but.

Sure.

Thank you gradually see that number go down.

As we have over the last couple of years.

So yes, I mean, there will be further branch closings.

Thanks for the question.

Let me answer the next question please operator.

The next question comes from <unk> Chandra Rajan from Bank of America. Please go ahead.

Alright. Thank you good morning, My first one sorry.

Another follow up on the UK NIM.

The slides that you mentioned before on the starts with great sensitivity.

Suggests something like that potential $100 million lift right.

So we've seen.

Just wanted to check that that's roughly the right ballpark.

Right.

In the $2 40 guidance.

Okay.

What are you assuming in terms of comps.

<unk> balance sheet.

Alright.

Yes.

And then second one was on E&P.

I guess there are obviously two pumps that business.

In reference to an earlier question I think you suggested.

The payment part of the business should track spending trends.

We've seen that the mix of the cards business, probably means that lagged the broader.

Trends in the U S and U S comp balances given the sort of more.

Our exposure to travel and leisure.

Yes, Thanks for your questions right why don't I take them in.

In terms of the.

The structural hedge potential upside from the recent steepening in the curve.

I don't want to sort of quote too much around whether it should be $100 million and the reason I say that is.

The slide you're referring to is sort of a parallel shift rather than steepening.

And five year rates in 10 year rates.

It's directionally positive, but I'm reluctant to give you a precise number on that but.

It is a positive obviously you go to that Rohit.

The 240 basis points NIM guidance.

We actually assumed UK card balances would be would be flat to maybe even down slightly.

Now that's obviously.

When we're making all of these projections the world moves so quickly that that may be too cautious.

Maybe economies recover.

<unk> in north central spend picks up quicker so.

We'll have to see.

As you know I think the sort of a twofold thing that he first of all you've got to have.

The spending sort of in the right categories. The demand if you like and then the credit appetite as well. So we'll see how that goes but we would rather cautious in our forecast expecting compounds would be flat to maybe even slightly down a little bit.

In the <unk> segment.

<unk>.

In terms of the U S.

Cause balances.

Yes, I mean, it will it will follow spend so again.

In some ways the good news about.

The U S market is people value these rewards.

And they're not just spending because they need unsecured credit.

They tend to value. These assets is very slightly different dynamic in of course.

The cost that we have a very much non essential spending on travel or entertainment hospitality leisure et cetera.

So if spending in those categories were to come back and it has to be.

Made that it will start coming back over the course of this year then.

You will see some benefits flowing through.

In the second half of the year round in the first half the year that there is a timing sort of thing so that people stop looking at travel and holidays and all that by the time. It ends up on your card balances.

Some sort of lag, but probably be a bit more quick to see that recovery in the U S. Just the nature of the business in the U S and our partnerships in the U S relative to the U K.

You didn't name it.

Do you see the payments business in the UK.

We've made a significant investment in the technology, which runs to the merchant acquiring business.

Starting to see that have an impact.

Particularly as I said through Internet sales and whatnot, we're also connecting.

All of our applications that run our small business banking grew with our merchant acquiring group and that will also have an impact on the growth of our merchant acquiring business, particularly in the in the small business space, which which.

Which is where the profitability really lies.

Thank you can I just clarify on the UK cards balances when you say flat to down year on year, you're talking about year end traditional I presume you're talking about the year end position.

So yes, so by the time you get to point to point 75 to December 30 September we thought we'd be flat maybe marginally down.

And hopefully we've got enough.

Thank you very much. Thanks, Alright, we have the next question. Please operator.

Sure. The next question comes from Ed Firth of <unk>. Your line is now open.

Good morning, everybody.

Just a quick question.

Capital headwinds.

Two areas that I was just wondering that why is pricing mechanics, yet I think in the past.

Can you just talk about $5 billion or something at the half year is that sort of price seems about orders of magnitude number was that.

But that first one.

And then secondly, you highlighted.

Regulate principal balance that would be coming back. This year can you could you just remind me roughly what was.

Talk to you about it.

For that as well.

Thanks.

Yes.

So on the second part of your question.

Regulatory forbearance is a good example is PVA, which was granted in the.

Thinking about it in the first quarter of last year and reversals on the first of January. So that's one example.

I think software capitalization I'll, probably put it in a similar example, wet.

<unk> been quite quite straightforward.

Saying, all along that I never considered it to be good capital. So they will still go down with us it looks like they will do that during 2021.

So those are probably the.

Two clear examples.

Come to mind I think all in all though.

So to come back to the broader point that.

I just wanted to help you with your modeling there are headwinds out there.

We are still well above.

Our stated sort of guidance in terms of target ratio and we expect to be generating capital net capital over the course of the year.

Just in the round, we're still pretty comfortable with everything.

And this is the purchase accounting numbers that if I remember that correctly and I'm, not saying that I want to put that in my model or anything, but just to get yes.

Yes, we called out the.

The number we called out was $10 billion of pro cyclicality that we have seen in 2020.

Can't get the article so theyre, just pointing to the right direction that the table the <unk> table will probably need to get into the system.

Disentangle that and you can get to that number.

It will be for this coming year, that's a tough one to forecast, it's actually surprised us on the downside.

Okay.

I've guided to this still depressed cyclicality kind of coming in Q2, Q3, and Q4, I guess im going to stop guiding at some point because it hasn't happened yet but.

If you believe sort of conventional thinking that at some point the stress in the economy results in default you ought to see some pro cyclicality, but.

It Hasnt happened yet.

And what's happening in the near term put it that way.

Sure. Okay. Thanks, Okay. Thanks, Ed.

The next question please operator.

The next question on the line comes from Jason Napier of UBS. Please go ahead.

Hi, Good morning, Thank you for taking my questions.

First one I guess for two shot just coming back on the.

Our commentary around costs.

<unk> deal sort of medium term, 60% cost income objectives, and I guess, where consensus is now is that cost is going to be broadly flat with CEA with revenues down 5%.

I would've thought that coming into 2021, probably a high head count than planned and those strategic.

Strategic costs for last year in Covid costs in the base.

Other than flat would've been.

Consistent with what Jay as I said in the past about delivering a sort of a stable cost income ratio in CIB over time.

I just wanted to.

Uh huh.

You might give a bit more concrete guidance on the direction of travel costs in aggregate. It doesn't seem sensible unless there was an awful lot of investment that didnt happened last year as a consequence of COVID-19.

Not to have that afflicts and costs for Anthony.

Going to be down as consensus expects. So that's the first one and then secondly.

As you've already highlighted the risk of delays that you've had to apply throughout the second half of last year.

And everyone continues to be positively surprised on the metrics.

Hum movements into stage three I just wanted to the coverage levels, you've caught up huge and driving scale.

How confident are we given how long this has been going on perhaps the stage, let's say right.

We can be sure that stage two is because it also be.

Perhaps we can think about.

What provision releases might be sensible into the second half.

Do you have a good handle on which of your customers off recruiting system.

Hey.

And so on because clearly the payment holidays at almost all gone now and yet things continue to proceed really very strongly from a credit perspective, I guess, if you could just talk to confidence around staging splits and coverage that'd be helpful.

Yes.

Vessel.

Jason So on.

Staging splits.

On many of our customers they do have.

Current account relationships with us of course for those customers, we have a lot of insight as to this to the specific situation.

I have a high conviction on sort of staging.

Of course, yes.

Yes, so it's an open market product that we have in our unsecured books. So you don't have to be a current account customer to have a credit card with us.

Youre not hopefully we have.

Visibility is specific set of circumstances.

I would say, though.

I think at the end of the day.

We don't have any historical data to calibrate as to either so we are being.

You know what.

Appropriately cautious and you can see that in the words, we use the risk overlay.

Yes.

If it turns into a relatively smooth adjustment and I think the real.

Here is of course, the involvement of governments on the fiscal response and what will happen here.

I think Tycho I think announced their report this week or are you talking about staging out furloughs and things like that to kind of make a smoother transition as possible.

It could be the case that unemployment levels really don't go anywhere near where all our met.

Currently being modeled then there's a case to say we may be as it provided.

In good times, but we've.

We've tried to be transparent.

And as.

As open as we can I mean, the other thing I think that's in there as well.

It's again, a very hard thing for the model to pick up as the cost savings side.

Consume SRA.

You might have higher unemployment levels, but you've got a lot of cash sitting in deposit accounts.

That may lessen the stress and balances have fallen as well. So look I think I think this is all surprised us as to sort of and I look at the sort of Q3 Q4 and even into Q1, how benign credit is looking.

I think it's surprising all of us but.

We'll be on the upside of the lockdown it feels like soon enough and we'll know for sure.

On costs.

Yes, I think I think Ross Jason is we.

The cost income ratio is an objective for us and it's something that we manage are sort of not.

Trying to rush to get to any one particular year, we try and manage the company for.

For the medium term and so it is important that we continue to invest.

Cost income ratio is as much a function of income in today's call.

And we have some areas of growth on the top line that we are very excited about you've seen that in the CIB.

Think in terms of market share.

Pick up there.

Actually more to come of doing really well in some of our electronic trading capabilities is doing really well in securitized products is a relatively small product set for us but growing extremely quickly.

In equities as well you're seeing in the probably the last six months of the year.

Probably outperformance in our equities trading line, which is which has been quite interesting for us.

Capital markets is another really interesting area for us in building out that franchise, that's doing really well at the moment.

And in the consumer businesses, we'd like to diversify.

Our cost portfolio.

The American retirees portfolios coming online this year, just talked about some of the investments, we're making to our payments business.

I think it's important for us to continue to invest and focus on the top line.

As well.

And with the way, we're able to do that is because we can generate capacity through our ongoing efficiencies. During the course of a year like last year in a year like this year.

To sort of fund that without.

Fences sort of climbing.

In a way that doesn't make sense, but that's how we think about it and ultimately.

To get to a.

We've got the right sort of shape of the company. We've got to think about the topline is not just the cost line. When we look at cost income ratio.

What are you going to say on that Jeff.

Let me just add another.

Line of growth.

Sure.

We will strive to articulate more explicitly relates to our point of sale financing.

We have a terrific partnership with Amazon in Germany, Thats, our second largest market.

They are 40 million consumers that regularly use Amazon online.

We have a great partnership with Apple.

The U K, we fund all of the.

I phones and tablet sales.

On an installment basis.

And those are just two examples we are rolling out our point of sale financing as we've as.

As we.

Build out the payments space.

Thanks for your questions. Thank you very much thank.

Thank you.

We have next question please operator.

Your next question is from guys settings of Exane BNP Paribas. Please go ahead.

Hi, good morning, Thanks for taking the questions first I just wanted to come back to costs and then I had a question sort of longer term consumer bonds outlook.

So cost is quite distinct.

On the CIB.

Costs were broadly flat this year, despite the very strong revenue performance.

Paul you've talked about your cost base being less valuable.

So it will be then some U S peers, but even sorry, what might you expect to the high cost.

If consensus is right for 2021.

CRB revenues are modestly lower than 2000.

2021, and 2020 I appreciate that might not be your view.

But if that was the case should we expect a reasonable dropping costs, especially given some of the FX movements as well and.

I appreciate it's hard to guide on cost income this year, given the uncertainties on topline.

The previous questions on sort of efficiency gains.

Structural cost charges, a slight slow down this year and last year.

Perhaps the that'd be should be lower.

Yeah, let me cost base should be near 35, or perhaps slower in 2021 consensus somewhat higher.

And then the second question was just on consumer balances longer term I mean, we see.

Youll UK consumer benefits declined over 30% since the start of 2020, there is still declining.

Not the similar situations in the U S.

As we look further ahead of us to get your views on how many years does it take to recover those provinces, which are central assumption be that we just we just model.

Mid single digit.

The recovery takes hold per year, which would take 10 years to get back that balances given the very unique nature of this crisis.

It could rebound much sooner than that thanks.

Yes.

I'll start with both of them.

Costs in the <unk>.

CIB.

Look there is of course that reflects there in terms of the that the bonus pool.

We've made that given the sort of framework that we're operating in the sort of the bonus cap framework hearing I guess.

Scope for us in the UK as flexible as we can we made some changes I think when it first arrived to give us that so there is some flex there in Luna will be judicious about the pace of investments and all that but let's go back to your earlier comment Guy, we probably do have a different view of the income outlook.

Then then you may not you specifically, but in general may have.

And.

I think the investments that we've been putting into the CIB being.

Rewarding us quite well and so we will continue to balance that.

Perfect.

In terms of consumer balances.

I cant imagine its going to take that long to recover I think we're living in.

Sort of a weird sort of contraction thats being very dramatic I don't think youll see.

I was sort of steady sort of multi decade buildup as we've seen in the past I think don't think Thats just mentioned unsecured balances cards are important.

Point of sale financing, our customer behavior is changing particularly younger customers much more.

Into the sort of installment financing at the point of purchase it's great business for US just mentioned the Apple partnership in the U K.

We've got a tie up with Amazon in Germany, and there's various other things that we'll talk about at the right time so.

I think it will be a more rapid recovery then that will be it you've got to see an economy, that's sort of back to a sort of a more quote normal level whatever that is these days and I don't think youll see a relatively quick recovery.

When they when they.

Reverse the lockdown in all the shops and restaurants and stores across the United Kingdom Open up I think the spring back in spending is going to be to the upside.

So I would echo what <unk> said that this is not going to be us.

Low single digit grind it out over a decade I think the response to the pandemic being over given how aggressive the fiscal and monetary policy has been is going to be.

Going to be strong and we will feel it in our numbers again I go back as well for.

For the last decade, both our consumer businesses in the UK and in the U S. We're generating consistently mid.

Mid teen to high teens returns on capital.

That is more a reflection of the fundamental strength of those two businesses and what's happening in a once in a century pandemic.

And going back to the cost income ratio of what we get any sort of recovery towards those businesses look like in 2018 in 2019, and and we hit our financial targets.

Thanks, Great question Scott.

Thank you next question please operator.

The next question comes from Robin down of HSBC. Please proceed with your question.

Hi, Yeah, just wanted to come back.

On the impairment side.

Confused.

Confused if you like as to what you've done because you've increased the curve.

You've moved from macro assumptions.

Positively since Q3.

<unk> also.

Change the way things are the scenarios.

Towards the upside stars and away from the downside scenarios.

And yet at the same time.

Applied 1 billion pounds.

The mountain overlays it skills.

Somewhat inconsistently.

Not going to get the answer to this but.

Are there any particular trigger point you are looking at.

Because I can't help but feel that as we can.

We've run out of come out of Lockdown.

Running through this year.

We should be looking for that releases to come through.

Some point in the second half so if there's one question guys. If there's any kind of particular triggers.

Yeah.

In terms of that because.

Don't really see why you put extra penny in the slide.

And then second question on structural cost.

Apologies.

This was all stay on their own but.

Any kind of view as to what things look.

Good luck in 2021.

The payback might be from them. Thank.

Thank you.

So robyn.

The first question on impairment.

So on a more technical point the weightings on the scenario.

It's a function of GDP actually so the way the way. These models work is they will take.

Economic outlooks and baseline economic outlook and then project.

Scenario, he decided to up to down and indeed, the model driven waiting. So it's just a function of the model our model is based on.

Historical data on how economies on the sort of.

Confidence level of different projections.

Baseline to actual worked out.

Purely just.

The mathematics, if you like behind the scenes.

The PMA is what that indicates is that.

It's a view of trying to.

We have at the moment is.

The way the model is so rich and we're calibrated of previous sort of business cycles previous business cycles, you've never had such a rapid expansion and contraction in economic data and so what you tend to have is the model just exactly right those moves.

Unemployment stopped growing massively overshoots and when unemployment.

Stop stop falling it just takes a recession is over any releases everything immediately and I think we'll probably say at the moment that it's.

It's just hard to know for certain.

How the economy will.

Adapt to a sort of post post lockdown World I think we're close to that point. The early signs are that credit looks incredibly benign and governments.

Looking to do their best to smooth the transition.

That to be the case.

Then, we probably wont see the levels of unemployment that sort of the models are working off and we might be able to provide it but well knowing.

In good time, we've tried to try to be somewhat transparent about these that have the model currently working in what we're having to do too.

Try and counteract the exaggerated maybe some models may have.

On cost, we havent called out.

Specific sort of structural cost reductions for 2020, when we do this every year, if there's anything sort of meaningful.

Importantly, I will call it out as we go along.

But nothing nothing to say specifically at the moment.

Going back to the impairment.

When the crisis began we wanted.

With the financial resiliency that the bank was showing in the level of capital that the bank was accumulating we wanted to be prudent and.

And the impairment line and obviously you got our impairment reserves to $9 4 billion pounds, which which given the size of our balance sheet is a very strong position to have.

And then I think all of US are positively surprised by the degree of the governments, both here and in the U S and in Europe, Indeed response to try it.

<unk> maintained the economic damage being caused by the pandemic and that is encouraging and if we are coming to <unk>.

Mass vaccine rollout that we've seen in the UK.

That's going to make the credit picture much brighter for us.

If I could just come back I appreciate fully that you wanted to be prudent.

If we were willing to charter box, because we will be doing the same thing.

Reality is.

The economics.

Outlook is as you forecast, we forecast and consensus forecast.

It just feels like you have to fulfill the way another billion pounds.

You didn't need.

Well Robin we.

Trying to do what we think is the right level of provisioning for.

With.

Okay.

We think we have it right, but you can certainly make the case that credit will turn out better than forecast and I'll leave that to others judgment.

I think we've got it right that look weak.

We're all looking at Crystal ball that we'd never had experienced before you saw the.

Almost all of the U S banks.

Released in the fourth quarter.

That's not because they got it wrong in the first quarter of last year.

The reflecting what they're seeing on the ground.

Yes.

Thanks, Robin could we have.

The next question please operator.

The next question is from Chris Cant of Autonomous your line is now open.

Good morning, Thank you.

And my questions.

Got it.

A couple on cost and then one on FX.

60% cost income ratio target has been a medium term.

Talking for a while now.

The timeframe to hitting that.

And in terms of the mix of the business, how do you see the shape of the group.

Profits going forwards when youre thinking about that 60% cost income ratio.

If I look at controllable costs and income same parking litigation conduct in the leg.

In 2019 to consumer divisions generated operating pre provision profit in the CIP was three three.

And for 2020 those numbers.

It is now $3 4 billion for the consumer facing businesses.

8 billion from the CIB commentary doesn't sound great in terms of the consumer outlook.

And so what are you assuming there in terms of longer term structure of the group because.

The CIB cost income ratio in 2020.

We have been very low and the industry, 65% for the full year I think it was.

Is that is that actually sustainable.

The bit that in the CIB in any previous year.

Necessary to assume that you can maintain that cost income ratio to be able to get the group low 16.

Since the business is now skewed towards the CIB.

And then in terms of FX, you've talked in the past about 40% of revenues being that was backing.

Backing.

<unk> I think you get that remark.

That number in 2020, please given the skew towards the CIP and related to that how much of your cost base.

I'm just trying to think about the FX headwinds you're facing.

2021, which looks like it's going to be about two 8% year over year dollar headwind. Thank you.

Thanks, Chris.

I would take them.

60% cost income objective is something we've had as you say some time.

I think we were getting towards that.

Zone in 2019 in fact, one.

Million miles away in 2020, but I don't see 2020 was a year that none of us forecasted to be what it was.

We feel we have the.

The diversification in the company and we've also seen a fairly sharp decline in the consumer facing businesses and a big tick up in wholesale.

No doubt, we would expect to see an improvement in the consumer facing businesses.

As economies recover and we'd like to continue to think that we can consolidate and continue to improve even.

The contribution that our wholesale business has had.

Would that mix in mind, we still believe we have a path to a 60% costing.

Cost income target, it's very hard to be precise on.

You can only work if you have got this percentage and consumer this percentage in wholesale you have to manage it on a sort of a variety of outcomes and we believe we can do that we can't give you a year on it obviously.

This is a.

Yeah.

It's a very uncertain world we live in so I think it's very difficult to forecast with any degree of precision at the moment, but we still feel that.

<unk> objective for the company in a reasonable timeframe.

We won't give you the precise timeframe at this point in time.

Turning to foreign exchange.

Yes, youre right that.

We called out approaching something like 40% of our income was in.

Two years back or so.

<unk>.

Expect to shift closer to the investment bank has done real well.

And our cards business in the U S of course has come off as balances have come down so theres sort of.

Such as N minus is that.

It's fair to say.

A strong.

Sound is.

He is a headwind for us because we are profitable in dollars.

And that is just who we are.

<unk>.

So.

We don't give us sort of the cost breakout.

Because we obviously are focused in India, we are focusing on.

Some parts of the world So it's not quite as straightforward as that.

Yes.

It is a headwind.

Yes, the other Philadelphia.

I guess, if you've got a model effects across all lines, Chris impairment as well I guess, we want to be a tailwind.

Youll see the consumer cards and payments a lot of that to U S car driven and even on the.

Investment banking sort of credit portfolio component of our credit books at that's very dollar denominated as well, so but net net headwind.

But we're going to keep the diversified model Chris.

Again.

The pandemic will get behind us and the consumer business will start to grow again and wed like to keep that balance between.

Between the investment bank.

<unk> businesses.

In a normal.

In a normal economy, I think the 60% cost income ratio is.

It is very achievable given that we delivered 63% and a very abnormal economy.

If I could just follow up on the on.

On the FX. Please.

I mean could you help us out with it that it does feel like quite a big effect for you year over year.

Willing to comment on the outlook to CIB.

Revenues, you don't want to comment on.

Costs would be really helpful. If you could give us some.

Some breakdowns in terms of allowing us to get a sense of the currency effects.

More than 40% of revenues in $2017 I suspect the cadence.

The percentage of cost.

Volume sensitive revenue.

K domiciled bank.

Fang with group center space, which is going to be presumably more in sterling.

Milo bright lines, there or is it sort of 45% revenue 6% comp.

Okay.

Chris.

I'm not going to comment on your numbers.

<unk>.

Yeah, we haven't disclosed that I don't know if disclosing stuff lot out on the fly on a call like this.

But suffice to say that we are.

Profitability.

A stronger pound.

Say headwind.

But I'm not going to give you any more color than that.

Maybe in the future will maybe break breakout.

The geographic split or something like that.

So with that thanks.

If we have the next question please operator.

Yes.

The next question comes from Rob Naval of Deutsche Bank. Please go ahead Bob.

Hi, good morning, Thanks for taking my questions.

So just one quick one you highlighted it would cost to acquire.

Including CCP.

Noninterest income in the UK this year and how is the lockdown experience in January February tons is spending more interesting than compared to last year.

Yes, I mean real breakthrough Ron sorry.

But we'd like to think so I mean again, it's a little bit of a call on.

Economic activity, but we'd like to think so.

Focusing on some of our fee generating opportunities is important to us.

Giving you some of the ideas that is set in the world of payments in the world.

Some of the wealth activities that we have so yeah, I think I think.

It's a priority for us, yes, and depending on if we put the right economic circumstances. There is a possibility we could do that yes.

Thank you.

Thanks, Ron.

Yes.

I think we only got one question left on the queue. So we'll just take the last question. Please operator.

The final question, we have time for today comes from Martin <unk> of Goldman Sachs. Please go ahead.

Good morning.

Firstly could I could ask on your market your ambitions in Barclays UK.

Related to cards and mortgages.

On Cogs Barclays UK card balances go down more than that we'll see some more than that.

In 2020.

And equally since 2016 that has been the de emphasizing of cost growth in the UK.

Barclays UK, how should we think going forward should we think you are kind of market share in credit cards to stay roughly steady or should it increase or decrease from here, given given appetite opportunity and related.

Related to that.

A question for mortgages. It seems like you are.

Your flow share slightly ahead of the <unk>.

Akshay the U K.

I note that the.

Comparatively high excess deposit base now within within Barclays UK.

Stu maybe starts to grow and share gains in mortgages going forward.

And second question, if I may more broader just on that on the regulatory framework in the UK post Brexit.

How should we think.

Chemical medium term basis, the regulatory frameworks to levels, we have seen subsequent tangible.

And then being slight slightly.

So compared to some of the other regulators is that to the Reits not grab a little quickly.

Liquidity.

And elements.

Where the regulatory framework makes it easier.

Barclays perspective, so I don't know ring fencing was there anything quite a way around if anything.

Which for which would change in terms of regulatory framework going forward. Thank you.

Yes, Thanks Marty.

I think in terms of market share of.

Consumer businesses costs and mortgages.

Comp.

We still decided quite quite openly that.

Actually this is going back a long way, but from the time as the Brexit referendum that we were taking a very cautious approach in UK credit so.

We're probably a little bit early but glad we were cautious sort of leading up to a pandemic, which of course, none of our forecast it probably just turning to a better.

Net P&L outlook for us because late vintage lending is where you typically take much to the pain I think from this point on now we're on a different part of the cycle I think you'd expect us to.

Anything, possibly even lean into risk.

As you sort of go into an upswing.

So I certainly wouldn't expect our market share to diminish if anything I think we'd be focused on increasing again.

Mortgages is likewise, we are running at.

Natural stock of mortgages.

We're running well above that at the moment and I think thats something we would be minded to continue to do.

As long as the returns are there.

<unk> focused on the risk reward balance at the moment I think it's.

It's a very attractive business from from our vantage point so.

We'd like to increase market share probably both.

Probably slightly different reasons mortgages with what we already doing that and I think for.

The unsecured credit I think we're appointing a cycle, where we'd want to be leaning into that and again.

Just mentioned in the past, it's not just Cogs unsecured credit can take different forms.

Different forms of lending so we'd look at that in the round as well.

I'd also add that.

If you look at the challenger banks.

And the digital banks.

They clearly have headwinds and challenges.

And.

And I think that.

I will always makes our market share.

More defendable.

And I think youll see that.

That happening over the next couple of years.

Thanks for your question Martin.

And I think thats, what we have at the moment.

On regulation.

Oh, sorry, Okay real.

Real brief one regulation I'm not sure there's much insight I can give you on that market.

The PRA will very involved in I think influencing the European rule book, So I think.

A lot of what they would want to see probably maybe until the rule book and the bits that they probably didn't agree with for example software cap.

Capitalization that being pretty straight.

Straightforward about so I'm sure things will evolve over time.

I think there is a very sophisticated very.

Extremely.

Responsible and balanced regulator and I expect there'll be continuing in that vein, but I don't have any sort of greater insights to any.

Big changes that they will do or not to I'm not sure I've got anything to comment on that.

Okay with that thank you all everybody I'm sure, we will get a chance to speak to some of you.

Over the video as I guess in the days to come with that we will see later.

Sure.

Ladies and gentlemen, this does conclude today's call. Thank you for joining you may now disconnect your lines.

Okay.

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