Q1 2021 Barclays PLC Earnings Call

Yeah.

[music].

Welcome to the Barclays Q1, 2021 results analyst and Investor Conference call I would now how did you guys get to just daily group Chief Executive and you shall Mazar, Yeah Group Finance director.

Good morning, everyone.

Thank you for joining us.

A year on from the start of the COVID-19 crisis.

With vaccination programs advancing globally, we can start to see.

At the beginning of the end of this terrible pandemic.

My hope and expectation is that during the course of this year.

We all can start to return to a more normal way of life.

Last year has been one of the most difficult periods Barclays as face our customers clients communities colleagues and families have all been through extraordinary challenges and.

And we face challenges as a business too.

As I reflect on that I want to once again, thank our thousands of colleagues with extraordinary commitment they have shown to Barclays.

I'm incredibly proud of the way we stood tall during the crisis deliver.

Delivering on the priorities, we set for ourselves at the start of this pandemic.

We've tried to support our customers clients and communities, particularly those that were most vulnerable to the impact of COVID-19.

That support continues where help is needed.

This week, our community aid package, the 100 million pound Foundation formed just last year.

Medical supplies for communities still facing real hardship in India.

We've also supported our employees recognizing the challenges they face both on a personal and professional level.

Their commitment and resilience of our diversified business men, we preserved our financial integrity as an institution and we're able to stay profitable in every quarter of 2020.

We have carried that strong performance into the first quarter of this year.

Our group return on tangible equity was 14, 7% in the first quarter well above our target of 10%.

And D. Each of our major lines of business delivered a return on capital of greater than 10%.

Income for the group was $5 9 billion pounds.

And group profit before tax was $2 4 billion pounds.

We remain focused on cost and continue to apply disciplined.

While still investing in growth achieving a cost income ratio of 61% for the quarter.

And we remained strong and our capital position with a CET one ratio of 14, 6%.

Well above our target of 13% to 14%.

The strength of our business allowed us to reestablish capital distributions.

<unk>, a 700 million pounds share buyback that we completed earlier this month.

We will be providing a further update on capital distributions in due course.

Our performance continues to benefit from our business model as a British Universal Bank.

<unk> between consumer and wholesale banking.

For example, 60% of group income came from banking market and corporate clients this quarter.

Partially offsetting the pandemic related headwinds that affected our consumer businesses.

The corporate and investment bank had another very strong quarter, achieving a return on tangible equity of 17, 9%.

With income basically in line with the strong performance of CIB in the first quarter of last year.

The return on tangible equity for the investment bank in the first quarter was over 20%.

Geographically roughly half of our income comes from outside the UK.

69% of our income this quarter was noninterest income continuing to position us well in the current low rate environment.

This income composition continues to show, our British Universal banking model working well this.

It has helped the group deliver resilient overall performance.

We remain focused on growing the business.

I've spoken before about our strategic advantage is one of the few banks competing at scale in the global capital markets.

The global capital markets are growing as businesses and institutions increasingly turn to them for funding.

We're also accelerating our growth strategy and a number of key markets around the world, including in Australia.

Failure with our investment in Barron Joey capital partners and I was delighted to see Matthew grounds joined the team as co executive Chairman.

We remain focused on sustainable impact of our business and on meeting our ambition to be a net zero bank by 2050.

Only last week, we were pleased to join other banks informing the Glasgow Financial Alliance for net zero ahead of the top 26 climate Summit later this year.

As part of our commitment to aligning all of our financing to the goals of the Paris agreement.

We announced in November that we have started to apply our blue track methodology to the energy and power sectors in our financing portfolio.

This quarter, we announced we're extending blue track two includes two further subsectors cement and metals.

Sure.

We're also actively helping clients with the transition to a low carbon economy for.

For example, we have recently advised national grid on a series of large transactions will significantly enhance their central role in the delivery of the Uk's net zero targets.

As the global economy begins to emerge from the pandemic I'm optimistic about the trajectory for recovery.

We are seeing some positive signs in our spend data drawn from our UK consumer cards in from merchant acquiring.

Together tracks nearly 40% of all consumer transactions in the United Kingdom.

In addition to the improving Q1 trend we saw a 72% uplift in the number of payments processed by businesses in the first two weeks of April compared to last year.

Encouragingly spending in some of the hardest hit sectors, including hospitality and travel is starting to pick up.

As consumer spending increases we expect there will be growth in unsecured lending balances, though it will take time to rebuild interest earning balances.

Mortgage growth has remained robust with applications continuing at elevated levels through Q1 and pricing at attractive margins.

We've grown the mortgage book by $3 6 billion pounds in the first quarter one of the strongest quarters, we've ever had.

Our Q1 impairment charge was lower than the previous quarter.

This reflects lower balances, but more importantly reduced stage III credit losses, which is a reflection of how we are managing risk.

We are maintaining coverage ratios, while we gauge the impact of government support measures being lifted in the second half of this year.

I am pleased that we have negotiated new opportunities that will position Barclays as well as the U S and UK consumer recovery gathers pace.

In the U S. Our consumer Bank has just signed a long term partnership agreement with gap.

The exclusive issuer of their co branded and private label credit card program beginning in May 2022.

After the launch of our point of sale financing partnership with Amazon in Germany, We now have extended that partnership to the United Kingdom as well.

This will grow our presence in e-commerce and two of the largest markets in Europe.

Our partnership with Amazon reflects our growing focus on payments. This is an area I think it's worth spending a few minutes talking about.

Looking at our business activity by activity rather than division Barclays income now comes from 100 resources lending transacting and payments.

Lending encompasses all the lending we do across Barclays UK, our corporate bank and our consumer cards and payments.

Transacting includes markets and banking revenues and income from deposits across the bank.

The third leg of payments, which is a broad complex of activities carried out by multiple businesses across Barclays.

These activities now accounts for 8% of the group's total income or.

For $1 7 billion pounds last year.

Taken as a whole we believe our payments complex can generate an additional 900 million pounds of income over the next three years.

That means we are targeting strong double digit growth across our payments franchise.

First is unified payments by which we mean supporting businesses of all sizes from corporates to Smes to make and take payments.

It includes core payment areas, such as merchant acquiring gateway services and business to business card issuing.

The second is next generation Commerce <unk>.

Including point of sale installment financing with large corporations as well as fee based data and digital services that connect merchants and consumers together.

Third as a wholesale payment fees, we expect to grow annuity income streams with corporates in the UK and in Europe.

And finally interchange and FX fees, which we expect to grow as the economy recovers from the pandemic.

There are a number of reasons. We believe we can realize these growth ambitions over the next three years.

The first is because we are already one of the most connected banks in the UK.

We have a significant portfolio of the largest corporate clients in the UK, we have $1 1 million small business clients in the United Kingdom, and we have millions of British consumers.

The second is because we are the only major bank owned acquirer in the U K.

While our peers have largely sold and partner to provide their payment services, we've strengthened our commitment to our proprietary business investing more than 500 million pounds and our payments capabilities.

Thanks to this investment we have seen improvements in a number of areas, including our data and analytics capabilities as well as the capacity to onboard and serve our merchant customers.

In 2019, we had a paper based onboarding process and the quickest time to onboard a customer was 14 days, we've now reduced that to just two days and while the number of days until the first transactions now five thats down from 23 days in.

In April of last year.

That said, we still have a long way to go we must get more advanced digitally with the SMB market to fully tap the economics of payments in this sector.

Perhaps most important investment Barclays will make in the next five years is to connect our small business banking and our merchant acquiring businesses, particularly as it relates to e-commerce.

Another reason, we think we are well positioned to realize its growth is that we have made the strategic decision to integrate payments within our business banking and corporate banking businesses.

Just as we offer integrated services like FX management through our net FX platform. We are now able to offer a unified payment stack that give customers that consolidated payment provider all in one place.

Another exciting opportunity is on our work to re imagine the next generation of Commerce services through an initiative, we're calling Barclays acute.

We recognize that commerce and the digital economy has the power to be more than simply an online version of traditional shopping transactions.

We are beginning to use technology and data to better connect consumers with merchants, adding value to their transacting experience in a way a bank has never done before.

Let me give you just one example.

And merchant is able to connect with our consumers digitally by offering a discount via their Barclays mobile banking app.

That consumer can then make a purchase on the merchant's website and if they choose to we can instantly approve them to pay for the shopping using installments.

Finally, the digital receipts in the loyalty points are automatically added to their Barclays wallet.

The merchant also benefits using our merchant acquiring and consumer data, we can share useful analytics and insights to guide marketing, bringing the merchant closer to the consumers.

We will have more to share on this in the coming months, but I'm incredibly excited about the opportunities for Barclays in this area.

So in summary, let me say again, how pleased I am with our performance this quarter.

Barclays and remains well positioned with a strong balance sheet and competitive market positions across the group as well as encouraging prospects to grow our business and provide improved returns for shareholders.

As the economic recovery takes hold we now have an opportunity to play our full part in supporting it with that let me hand over to Sean to take you through quarterly numbers in more detail.

Thanks, Jess how Q1 performance continued to demonstrate the benefit of our diversified business mix.

Headwinds from the pandemic and low rate environment again affected all consumer businesses. The CIB produced another strong performance.

Of all income decline of 6% was more than offset by the low impairment charge, which was down over 2 billion year on year, resulting in a profit before tax of $2 4 billion and Anoro <unk>.

<unk> thousand 14, 7%.

This has allowed us to continue to invest in our businesses, while also pursuing cost efficiencies rather than cutting overall cost at a time when we should be investing.

Resulting cost income ratio for the quarter was 61%.

I would stress that these are all statutory numbers with litigation and conduct of just $33 million.

<unk> decreased from 269% to 267 pence, reflecting nine nine tenths of EPS offset by reserve movements, mainly the effects of steepening yield curve and currency moves.

Our capital position remained strong with a CET one ratio of 14, 6% reduction from full year reflects the expected Q1 effects we highlighted in February.

We completed a 700 million buyback announced for the full year results and this is already being reflected in the Q1 capital ratio.

Given the average price tightening the buyback this as being accretive to <unk> per share.

As you know for regulatory capital purposes, we are required to accrue a foreseeable dividend each quarter.

We have used a placeholder of zero point 705 pence equating to three times for a full year dividend you shouldn't take this as a forecast as the board will consider the appropriate capital distributions and makes a dividend and buying back as we progress through the year, taking into account all relevant factors, including share price evolution.

Can you walk on income costs and impairment before moving onto the businesses performance.

I've already mentioned the benefit of diversification, which is visible in the income performance. Although income is down 6% overall consumer businesses, the U K and CCP.

8% and 22% respectively CIB on the other hand was close to flat on last year was very strong Q1.

Outlook with CIB remains well positioned despite the currency headwinds however conditions remain challenging for the consumer businesses. There are signs of recovering spending in recent weeks as Jeff referenced earlier, but unsecured balances declined further as we show on the next slide.

The income outlook for the consumer business is the U K and CCP reflects the tailwind in secured lending in the UK continuing headwinds in unsecured lending in both the UK and the U S.

The UK mortgage business had a record quarter for organic net balance growth with a net increase of $3 6 billion to reach a total of $151 9 billion.

In unsecured we've highlighted in the top chart the balance reductions in UK and U S cards, which are the largest portfolios.

We expect a seasonal reduction in Q1, the extent of the reduction indicates the effect of further lockdown and government support measures.

We are seeing signs of recovery in consumer spending in both the UK and the U S, but given the increase in consumer savings through the pandemic. The building interest, earning balances isn't expected to materialize until the latter part of the year.

Translation of recovery in card balances into income and profits will be affected by the so called J curve as we invest in customer acquisition and card utilization.

This comes through its both contra income and in the cost line and they would also be some additional <unk> nine impairment provisioning as balances build.

On rates I would remind you that the effect of a steepening yield curve on the structural hedge royalties gradual U.

You can see in the chart on the top right. The recent increase in the five year swap rate, but you can also see that the maturing hedges were put on at higher rates been current.

So this remains a headwind, particularly for the UK.

Despite the steeper yield curve, we still expect a three to 400 million headwind across the group on the gross hedging come in 2021 versus 2020.

Looking now at cost.

Costs were up 10% overall at $3 6 billion, resulting in a 61% cost income ratio.

The increase reflects higher variable compensation accruals in light of improvement in returns and continued investments for growth, partially offset by efficiency savings and currency moves.

We expect costs in 2021 to be higher than 2020, including higher variable compensation and ongoing COVID-19 related expenses in 2021, plus further structural cost actions with a review of expected to be concluded in the coming months.

Real estate, particularly office space, given evolving ways of working.

Moving to impairment as usual we've shown the split of the charge for recent quarters into stage, one plus stage to impairment, mostly relating to balances, which on past June which I'll refer towards hookups on the stage three impairments on loans in default.

As you can see most of the elevated impairment in Q1 and Q2 last year was from book ups.

As you will recall, we had an impairment charge of $4 8 billion in total for the full year 2020, but increase in the levels in default in wholesale or retail that might've been expectation haven't materialized.

In fact during the quarter, we actually saw a decrease in default as government support schemes, particularly in consumer.

And we had no material single name wholesale charges.

As a result, we charged just $55 million in Q1 with significant year on year reductions in each of the businesses.

This comprise stage three impairments of $177 million well below previous quarters, largely offset by credit on stage, one and stage two driven by reductions in balances.

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

The most used for Q1 modeled impairment are shown on the left hand side.

These are simply a roll forward of those that we use the full year, but using the 2020 actuals as the updated baseline comparatives.

Consensus forecast have now started to improve and we've shown for comparison the current maps on the right.

If we were to rebound the models using these mezz this might generate roughly 0.5 billion reduction in provisions all the things being equal.

On top of this the remain significant uncertainty as to the level of default will experience to support schemes are wound down for any particular set of Mitch that we input.

Therefore, we also continue to hold significant post model adjustment. These totaled $1 2 billion net at the end of the quarter.

The charge of $55 million offset by write offs in the quarter of just below $500 million another balance sheet movements reduced our total impairment allowance from nine four to $8 8 billion.

However, given the reduction in balances we have at least maintained our levels of coverage as you can see on the next slide.

Unsecured balances have come down significantly from 60 billion to 43 billion since the beginning of last year, including a $3 3 billion reduction in Q1.

Despite the low impairments. Despite the low Q1 impairment charge coverage was roughly flat over the quarter at 12, 2% well above the eight 1% pre pandemic level.

The wholesale coverage ended the quarter at one 4% close to the level at the end of 2020 again, well up on the pre pandemic level.

So on home loans was maintained as the crude by over 8 billion since the start of last year.

We've included this quarter the detailed slide on unsecured coverage across the major portfolios because I wanted to highlight the prudent ratios for example in U K cards coverage actually increased to 17, 5% well above pre pandemic levels I mean U S cards, we maintained coverage a 14, 3%.

Turning to Barclays UK.

The headwind headwinds, we've referred to in the previous quarters continue to affect the U K, we didn't come down 8% year on year.

As I showed on the earlier slide unsecured balances reduced further in Q1 with card balances down to $9 9 billion.

A 34% year on year.

This contrasts with mortgage balances reached a record level of $151 9 billion with a net increase of $3 6 billion in Q1.

Pricing continues to be attractive and mortgages are a positive factor for the interest income, albeit at lower NIM for unsecured lending.

There was a significant year on year increase in business banking lending principally due to principally relating to bounce back loans on sequels.

In total the U K loan balances grew by 10 billion year on year to 206 billion deposit balances also continued to grow resulting in a loan to deposit ratio of 88%.

The expected growth, but could we expect a continued growth of mortgages and slow recovery of unsecured balances in the UK will tell you is that the UK NIM from the Q1 level of 254 basis points because of the mix effect.

Our current full year outlook is now for a NIM in the 240 to 250 basis points range, a little better than indicated our full year results.

Costs were broadly flat year on year, as higher servicing and financial assistance costs and the transfer of the partner Finance business last year were offset by efficiency savings.

Impairment for the quarter was $77 million, reflecting reduced unsecured exposures.

Turning now to Barclays International.

<unk> income was down 5% year on year at $4 4 billion, reflecting a strong performance in CIP offset by lower income in CCP.

<unk> was a net release of $22 million compared to a charge of $1 6 billion last year, resulting in an RFP of 17, 7% are.

I'll go into more detail on the businesses on the next two slides.

CIB income was broadly flat on last year at $3 6 billion. Despite the currency headwind, while impairment was a small release compared to a charge of over $700 million.

<unk> for the quarter was 17, 9% with costs up $200 million, the increase being attributable to the variable compensation accrual, which reflects improved returns.

Although markets income decreased 12% overall in Sterling will just 4% in equities.

Equities reported its best ever quarter up 65% at over 900 million with strong performances across all business lines and continued growth in prime balances.

<unk> decreased 35% as an increase in credit was more than offset by a reduction in macro.

This is essentially a decrease is by reference to a quarter, which was up almost 100% on Q1 2019.

And that filtering FIC also reflected our product mix with lower activity in plant of spreads for flow products and rates and credit areas of strength for us in Q1 last year.

In a relatively low share in securitized products, which faced a challenging market in Q1 last year, but good conditions this quarter.

Banking fees were up 35% year on year at a record level with equity capital markets, increasing nearly fourfold.

Growth also in debt capital markets and advisory and the pipeline is looking strong.

Corporate lending income was 206 million Wilson distorted by the volatile Mark to market moves we had in Q1 last year around the $200 million run rate of referenced in the past, but we continue to see limited demand for corporate lending following the drawdown and then repayment of revolving credit facilities in the course of last year.

Transaction banking income was down year on year, but up on Q4 at $393 million.

The increase in CIB costs was largely attributable to the variable compensation accrual of the cost income ratio increasing from 47% to 53%.

Turning now to consumer cards and payments.

Income in CCP was down, 22%, reflecting reduced payments activity and lower U S comp balances. These were down 22% year on year in dollar terms, including a further 8% reduction in Q1 slightly more than the usual Q on seasonality as we continued to see elevated repayment levels, particularly in late March.

Costs were up 8%, including an increase in litigation and conduct resulting in a 71% cost income ratio.

Impairment was just $21 million well down on last year, reflecting reduced balances.

Hello impairment resulted in Anoro for the quarter of 16, 5%.

Looking forward as just mentioned we are seeing some signs of spending recovery recovery, but the timing of recovery in interest, earning balances remains uncertain with the addition of the cat portfolio in the first half of next year and.

On the development of other new partnerships with prospects for the U S cards business all good but it will take time to generate consistent attractive returns given the J curve on new business.

And the gradual recovery of interest, earning balances with existing customers.

Turning now to head office.

The head office loss before tax was $32 million. After a one off of 123 million positive in the other net income line.

I think a negative income of 75 million was in line with the quarterly run rate that are guiding to full year.

Q1 cost of $18 million or a little above the run a reference before a $50 million to $60 million, but now include litigation and conduct.

The other net income of $123 million is mainly a fair value gain in our investment along with peers in the business growth fund.

Moving on to capital.

The CET one ratio reduced from the year end level of 15, 1% as we trailed at the time of the full year results and ended the quarter at 14, 6% still well above our target range of 13% to 14%.

Of this reduction 46 basis points was from the regulatory changes on the first of January on the share buyback.

Keep the normal Q1 seasonal auto body weight growth and all the headwinds partly offset the capital generation from profits the seasonal increase in CIB to call. It <unk> to 313 billion at the end of the quarter.

You've shown some elements of the future capital progression on the next slide.

As I mentioned, the 700 million buyback is already reflected in the Q1 ratio.

Shown here are a number of future headwinds to the ratio.

<unk> the software benefit which increase the ratio in Q4 to be reversed at some point this year by the PRA potentially at Q2 and that is expected to be a reversal of about 40 basis points.

She had a pension deficit reduction contributions are scheduled for Q2 and Q3.

Each with an effect of a little over 10 basis points before tax you will recall that the updated funding deficit as at September 2020, with 0.9 billion.

These factors will reduce the $14 six ratio in Q2 by around 50 basis points, and we have sufficient headroom above our target range of 13% to 14% to tactically deploy capital to the businesses. If we feel market conditions are right.

Our MDA hurdle is currently 11, 1% and we included the usual slide in the appendix showing how this is calculated we've also shown here some regulatory changes coming next year on counterparty credit risk and mortgages.

The two additional elements that are most difficult to forecast remain the migration of impairment into stage three defaulted balances.

Which will not qualify for transitional relief on potential pro cyclicality, which could inflate OWS.

Didn't materialized during 2020 in the way, we had expected and recent developments suggest less impact than we had expected we might see some effect from credit migration during 2021 or in 2022.

We are confident that the balance of these elements will leave us with net capital generation to support attractive distributions over time to shareholders and be comfortable within our CET one target range.

Both spot and average leverage ratios around 5%, reflecting the usual seasonal reduction in Q1.

Finally, a slide about our liquidity and funding we remain highly liquid and well funded for the liquidity coverage ratio of 161% and our loan to deposit ratio of 69%, reflecting the continued growth in deposits.

So to recap.

We have generated a 14, 7% statutory return for the quarter.

Quite the continuing effects of the COVID-19 pandemic on income in the consumer businesses.

CIB income was very close to last year's record level unemployment was down by over 2 billion.

This allowed us to continue our cost investments in our franchises as we feel this is the right time in the cycle to invest some.

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

While the income outlook for the consumer businesses remains challenging despite early signs of economic recovery.

<unk> is well placed through 2021 and beyond we've seen lower default in Q1, while maintaining coverage levels unexpected materially lower impairment charge in 2021 and 2020.

Well the costs in 2021 are expected to be higher in 2020, including the results of our real estate review overall, we are confident of delivering a meaningful improvement year on year in <unk>.

In April we completed a 700 million buyback announced in February and capital remained strong at 14, 6% we.

We expect some further dilution in this ratio in Q2, but expect to be in a good position to pay attractive capital distributions to shareholders over time.

Thank you and we'll 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.

If you wish to ask a question. Please press star followed by one on your telephone keypad. If you change your mind I would like to remove your question. Please press star followed by team when preparing to ask a question. Please ensure that youll find it on muted locally to confirm that star followed by one to ask a question.

Okay.

Your first telephone question today is from Joseph Dickerson of Jefferies. Your line is now open.

Hi, Good morning, just my two questions are the following firstly.

Just the $900 million of incremental income growth over the next three years that you see as an opportunity from the payments business do you feel that this is.

Reflected in expectations for the Companys revenues.

And then secondly on the on the cost guide for this year the costs were up 10%.

Year on year, and some investors are querying, whether that's the type of growth rate, we can see for.

For the full year.

So are you committing to operating leverage here, given the 61% cost income ratio versus the longer run target can we expect operating leverage for the full year. Thanks.

Yes, Thanks Joseph.

Yes.

On the payments expectation I think.

This is a little bit beyond what the expectations were I should add that that an important component of it is our expectation that payments will recover to the pre pandemic level. So this is off a 2000 and.

20.

But no the investment we've made in terms of our acquiring business the connectivity to our SME and our small corporate platform.

The new products that we're rolling out the point of sale financing.

Transactions like we're doing with Amazon and whatnot. We think that this is we're going forward with a pretty robust double digit growth expectations.

And an important part of our payments franchise. So this is a new expectation that we're putting in front of the suite and.

And have committed to.

In terms of the.

In terms of the cost.

Please note that our cost income ratio for the CIB was 52%, which is very low.

And given that we generated a 20% return on tangible equity or higher for the IV.

Variable compensation is an important factor of the comp the cost structure for the.

For the IV and given that we're sort of <unk> 61 versus our target of 60% cost income ratio for the group overall, we thought it was the right way to invest given how strong the revenues were and if revenues come off weaker that's the advantage of having variable compensation you can roll your cost back.

And so.

I think it would be a mistake if you take revenues down to just project cost staying where they are.

That would not be an accurate reflection of how we run the business.

That makes sense. Thank you.

And we have the next question please operator.

The next question is from Jonathan Pierce of New MS. Your line is now open.

Good morning.

Two questions one of them.

On the hedge fleet unimpaired loans.

$55 million in Q1.

You've talked before about the normal quarterly run rate of $500 million gas.

Phase III increases above if you will.

Current reserves correct.

So 500 million, maybe a quarterly.

But still if you get the price of the immediate released on the <unk> in Q2.

Such that each one of the whole it's pretty close.

Is that the way, we should be thinking about it and it could be looking at full year impairment charge in the order of 1 billion pounds.

That's question one question two on the hedge.

Can you just clarify this your your hedge income that you've quoted.

Historically.

Is in relation to the sudden yet so that's what we should be looking at the Delta.

And can you talk a little bit to what you were doing on the site.

The hedge at the moment.

Thanks, a lot.

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

In terms of impairment I think the gist of your question is what's the sort of.

If you like run rate of impairment away from political cups, and releases and what have you.

And then you sort of quoted pre pandemic levels of about $500 million and where would it be now I think thats just a question Jonathan I think.

One thing I sort of refer you to is a.

A lot of our impairment run rates, obviously, driven by your unsecured books the unsecured book.

In terms of the size of download law down about $17 billion. If you add up the U S and U K and then of course.

There is an argument to be made that they'll see the quality of the books.

Quite different now having gone through a period of stress.

And reset so.

I would be very surprised if our.

Impairment run rate, we're getting back to those levels anytime soon.

It's nice to say.

That means that balances are growing extremely quickly I think thats unlikely, though so impairment run rate.

I'll be surprised if you get anywhere near 500 and sort of the timeframe youre, indicating.

In terms of the hedge.

The site, yes, it's something that we keep it under review.

Reasonable amount of.

Hedge capacity.

Additional deposits that we've received that we are necessarily hedging that we're still considering China in nature.

I think it is.

Certainly a case to be made at some of those may not be as trying to get those first thought.

We are looking at that.

We do we have actually increased duration very slightly and we're also looking at that as well so its size and duration of the hedge.

Both under review.

We actually have made some minor changes to our product hedging I mean.

Slightly beneficial things, but sort of a relatively small in the scheme of things.

But the overall structural hedge of the site, it's something that we're considering as you know we tend to make.

Changes to our hedging approach infrequently and try and keep them permanent in nature, rather than have them under active review and I think neither one of those situations, where there's a case to be made it is potentially a sort of a structural change and I'm trying to whether these are structural but a permanent change.

That might prompt us to.

To maybe increase the duration of increasing the size of the hedge but more to come on that base as of when we do that.

Alright Thats helpful. Thank you and just to check that.

The income is a solid yet.

Thanks, Tom and not three months LIBOR.

Yes, yes, yes, that's right everything suddenly airbase now will take given the demands of Sterling LIBOR by the end of the year with fully Sonya.

Yes, okay.

Thanks, Susan.

Thank you.

Next question please operator.

The next question is from Rohit Chandra Rajan of Bank of America. Your line is now open.

Yes, Thank you Roland.

Thank you.

I just want to come back to costs.

Payment side.

Okay.

On the call. So just wondering.

This is all under review, but could you give us a sense of the range and structural costs that you might be considering.

317, some last year.

And then on the variable comp side.

335 million increase in the call. So I was just curious about the sizing of the one 5 billion that was fully charged off or.

How much of the increase in the quarter is that a reflection of.

Phasing versus last year.

Yes.

Adding accretion and overall variable comp for the full year.

And then just on the payment.

I was wondering how much of the 15% growth rate that you seem to be targeting.

Right.

And just mentioned.

Some of that $900 million mezzanine.

Our market.

Market recovery.

Lots of things about that.

So about 900 billion Mark Sullivan from the remaining 600 being enhanced.

Thanks.

Thank you.

Why don't I.

Kickoff on coastal side of the balloon payments and then Jess will add some comments on that as well.

On cost.

In terms of real estate, so really the first of this is I mean, it probably doesn't come as a surprise to anybody that given one of the lasting effects of the pandemic will be differences in the way.

Ways of working.

And as a consequence of that we may have too much general office space.

We don't have preempt that review is something we're going to be very thoughtful about and whatever changes we may need to be in a very long lasting in nature rather than.

Just adapting to maybe the current conditions, we're trying to have a view of this over a number of years, but I think there's a case to make that we probably have more real estate than we need.

Depending on where we come out that will obviously be.

Our excess real estate, we will need to charge off future lease payments in the course of this year and that will probably be a one time charge that will be a nonrecurring charge, obviously and we will have.

Run rate benefits.

Before beginning immediately and as such because you're saving on the future lease payments as an accounting matter.

A one time charge in an immediate sort of run rate benefit.

Quantified yet of course.

As you would appreciate if I knew it would be booking in the first quarter. We just completed the review but.

Think of it in general office space, we have a lot of general office space.

And a lot of general office space in expensive locations like to like London. So that's really what we're looking at how it in terms of variable comp.

In terms of the shape of the accrual, we don't try and be sort of too clever about it we accrue.

Alongside the performance, we had a really good performance in Q1 and 19% returning the CIB.

And felt that the compensation accrual was reflective of that.

As Jeff mentioned, the second quarter third quarter.

It's just a strong we'd expect variable compensation to be.

So its appropriate that's a good thing and if its strong obviously.

The one one thing that's very important when you.

When you model this would drive variable compensation is more profitability than revenues.

So adult so don't take a sort of a fixed percentage.

<unk> revenues, but when we have an IV.

<unk> profits are greater than 20% of capital Youre going to accrue more variable compensation, if that profitability dropped to 12, you'll feel it in the accrual of compensation. So adult connected to revenue connected to profitability and you'll get closer to what we're thinking and what I think the strength.

The street is putting in.

Yes.

Right.

On payments.

Right yes.

As Jeff mentioned there is.

The real estate component I think youre trying to get to how much is sort of potentially just a market recovery.

Just.

Payments volumes, increasing in activity levels, increasing and how much of the 900 finance that and how much of that is needed.

We haven't broken that down specifically, but I would say and just how you want to add some more comments on this I would say that it.

Don't underestimate if you like the new the new components updates when we talk about for the next generation E Commerce unified payments connectivity from a requiring platform. So the gateways now to small businesses.

The ease of connecting consumers and those small businesses together on our own next generation E Commerce platform.

It's pretty new.

It is both but don't underestimate that the stuff I know you'd like us to give us an exact number which we.

It's very difficult to do these things because they.

They get quite connected over time.

Don't underestimate the niche, but just anything else.

That.

The volume of payments that were transacting through e-commerce is growing north of 30%.

And we think there is always I believe that that sort of.

High <unk> low <unk> growth potential should be here for quite a while for us.

Thanks, Brian.

Good luck.

Come back very briefly just on the variable comp the comments you made around <unk>.

Relative to profitability.

Notwithstanding three last year as well.

Yes.

Last year when reflected high impairments.

Yes, absolutely.

The question is if you recall last year that.

And then all of a sudden he asked is already occurring enough favorable comps on that.

Sponsor at the time was we're indexing it to the CIB that may just be under 10% returns.

We pay for the performance.

This generated an and we do that each quarter. So yes.

Last year was no different it would attract the performance by quarter.

Thank you.

The next question please operator.

The next question is from Alvarez Serrano of Morgan Stanley. Your line is now open.

Good morning, two questions one on on CIB revenues in <unk>.

<unk>.

CIB.

Obviously, it was well flagged that you had a very tough comp with fig.

In equities and banking fees.

We had a very strong quarter.

Managed to keep everything pretty stable as we think about the next few quarters.

Is there anything you can point out around what kind of seasonality you might expect this year.

And given the pipeline on the rest of the businesses.

Obviously, it's going to be increasingly difficult to keep revenues flat, but I just wanted to get an idea of how the pipeline books.

On seasonality and if you still think now consensus minus 7% I think year on year in CIB revenues.

Do you think.

They're sort of balance where you still think like in Q4 that you can do better.

And on provisions.

Sure.

<unk>.

Stay tuned.

Bounce is coming down.

In corporate.

Haven't seen.

The releases of some of your peers is it.

Can I can we make the inference that that's due to the size of it.

Corporate lending book.

I mean, the size of the clients.

And others are more SME focused any reason why you haven't released maybe more and as we look forward on top of the 500 macro sort of potential releases any reason why we shouldn't think the $1 2 billion management overlays at least a big chunk of that could not be released as well.

Thank you Laura if I take the first question other than to share with a second one.

Obviously, we're a little disappointed on the FIC number it was against a very strong.

<unk>.

Last year, if you look at where we are versus 2019 were up 40%.

In the first quarter versus first quarter of 2019 in FIC.

Equities benefited.

I think the future of Rich's comment we have we have a new equity capital markets team that we brought in little over a year ago with Christian to Clark and Taylor right and our participation in the primary side of equity underwriting has taken a real step forward that translates into.

Better revenues in your secondary activity in equities and being up 70% year over year, obviously, we we.

We appreciate it I think there is some seasonality.

Portfolio managers on the buy side tend to use the first quarter to sort of reset.

Their portfolios and reset their hedges.

We benefit.

As an intermediary with that with that reset, but I do think.

Can't predict second quarter third quarter fourth quarter, but fundamentally the capital markets continues to grow.

Corporate credit outstanding now globally is up 40% in the last two years alone and we have a very big footprint in the <unk>.

Markets and secondary markets and so we're going to grow reflecting the fact that the overall capital markets are growing as well. So that's why we like.

Other business.

So I think there is a degree of seasonality.

We're all trying to.

Captured greater market share and I think over the last three years, we've done pretty well.

At Barclays.

Let's see how the next couple of quarters play out.

Provisions Elvira.

In terms of.

Releases, and you sort of called out, particularly stage two in wholesale.

The way I'll just state it is we've tried to be.

Prudent in the way, we think about reserves, we were quick to increase them.

And improve our coverage ratio is quite quite materially and very quickly and we will be prudent in how we release them.

It would be helpful. We started giving out that sensitivity to take us sort of a current snapshot of.

Macroeconomic variables there'd be any just run them through the models in an isolated fashion everything else being equal.

The 500 million pounds, really said, hey, Nigel that will be the second quarter, we will make that judgment there.

In terms of the additional.

Adjustments that were carrying the $1 2 billion.

<unk>.

Post model adjustment.

They're in place specifically to deal with the fact that the models just was designed to take into account the fiscal interventions that were going on but in the United States. The U K I think we will get a good sense of.

Our successful or not successful they've been and what effects they will have.

So that might be something we again continue to assess quarter by quarter by quarter.

We will keep you updated as we go along but net net we feel very frequently provided very decent coverage ratios credit looks very benign.

The leading indicators are probably pointing in the right direction.

We will keep you posted over the course of the year.

Thank you.

Next question please operator.

The next question is from guys Stebbins.

BNP Paribas your line is now open.

Hi, Good morning, Thanks for taking my questions I've got a couple first I was just hoping to come back to costs again, just kind of contextualize the guidance today and what it means as we look.

And in 2021 I appreciate you won't be too specific on the structural actions that would be yes.

That should largely be quantifying that run rate savings thereafter.

Year over year reduction, presumably in 2022.

Interesting.

Jacob investment.

Consumer business, how much do you see that being greater in terms of what you wanted to or whether that should continue into next year. We can now make all of our minds up on CIB performance and especially its accrual, but just kind of taking those factors in the round. It feels like it should be down year over year in 2022.

Very strong in components is that sort of a fair way to think about it.

And then the second question was just on.

That sort of capital structure.

I know you've got some pretty expensive tier two instruments maturing in may and June this year.

You've already been active issuing some teeth to.

Considerably tighter spreads.

So as those roll off.

Late in Q2 should we assume some pretty sizeable run rate savings in the second half it looks like you've been especially the 100 million. So just helpful for any sort of.

So around that and whether that would sit.

International.

Alright, thank you.

Yes, Thanks Scott.

On your question in terms of.

But I think just trying to get to.

2022 cost look like versus 2021, but I think the real estate.

Charge, we wouldn't expect that to be a recurring charge thats why were trying to be very thoughtful about it and make.

Broad decisions that will stand the test of time.

Youre right to point out and it is worth emphasizing whatever charge, we take this year will be run rate.

<unk> run rate savings.

Into following it.

The other sort of.

Variable item initiatives, Australia will see variable compensation.

Will be driven as we mentioned by the returns in the CIB and 18% returns 15% group returns.

And a 52% cost income ratio CIP, though fields in our view very appropriate.

And we see next year will be next year on that.

So look I think.

Im not into sort of giving sort of precise cost guidance, but if you. If you take the assumption that the real estate charges are nonrecurring and there is a run rate benefit obviously, that's a fairly big swing year on year that that will be beneficial.

And that's probably the right way to think about it on the J J curve is also.

A very positive thing in some ways the speak of the J curve that the better for us because it means that.

The economies are opening up sooner and quicker.

And account openings, new customer acquisition and card utilization is is happening sooner and quicker.

I would expect the J curve to really begin this year. That's a good thing because thats going to result in stronger revenues next year.

And I would expect it to continue into next year for example, and we've got the gas portfolio.

Should come online.

Next year, we've got the American Retirees fund, which is coming on this year that will have a J curve associated with GAAP portfolio also takes us into.

Private label store counts as a new product set for us.

So.

Steadily.

Rolling out our point of sale finance.

Product set without partners in the United States.

So these are all these are all good investments that will lead to income.

So the next year and the ESP answer.

The momentum of that J curve is important to us the real estate charges and variable component.

While the variable comp will be what it will be the real estate charges will be very transitory.

Your second question on capital structure, and yes, we will see take note of the research you did on that volume.

Pretty good.

The only thing I'll say there is I think although you're right directionally of course.

The benefit in terms of replacing legacy.

Capital instruments will be depending on obviously.

Interest rates and spreads prevailed at the time.

And you've also got to bear in mind that we've done.

We are sort of regular issue is we want to be predictable.

And straightforward without without debt investors. So we don't try and b to collaborate timing the market and just sort of.

We're trying to be predictable and folks that on.

By when we're issuing in what we're issuing but generally.

Instruments are still sort of issued yester year and will be replaced by by by more efficient sprite.

Of course the benefit.

Okay. Thanks very much.

Thanks for your questions can we have the next question. Please operator.

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

Good morning, Thank you for taking my questions on revenue could I ask.

Equivalent payments revenue.

Was in 2019, so what was the $1 7 billion in 2019. Please.

That $1 7 billion, how much of that is within <unk> I'm just conscious that.

The number is spread across the divisions and how much of that is in sequence piece, specifically addressing the majority.

And then on cost you talked quite suggest about investments, but obviously the slide shows variable compensation thats. The biggest driver of the higher cost number could you just help us square the circle with its Hong Kong is there a step up in investment spending is still to come.

Later this year.

And just a point of clarification.

We pretend for a moment that the real estate review is not taking place this year.

Do you still think the cost the highest in 2020 prior to that restructuring.

I think the phrasing of the remarks suggested that I just wanted to clarify thank you.

Yes, Thanks, Chris Chris on the.

We're.

Income on the payments activity.

I'll, let you sort of have a look at as you might know that fluctuates on slide 35 in our appendix.

We felt that would be helpful to folks trying to model. Whether you also you can see a segment split across CCA MTBE trading to CIB of all of the.

The items that Jeff called out so have a look.

And then by all means.

I think that should give you the answer to what you're looking forward to.

Any follow ups of course will be here to answer that.

In terms of the other the first part of that was.

Specifically what were the 2019 revenues.

We haven't disclosed that.

But back to the earlier question that was that will sort of said how much is.

Asked another way how much recovery and how much is new revenues.

I would just say, it's a qualitative answer than a numerical answer I would say don't underestimate the quantum that a new revenue I mean, there is obviously a snap back you can see for example.

Merchant.

Wiring type.

Volumes.

One of the things like.

That's sort of stress about the newness of some of these revenues although we.

Actually I think are the largest merchant acquirer in the UK by volume is not necessarily the highest margin business that we have we are probably overrepresented for example, with large corporations that indeed, the government in fact HMA will say.

I think as we go into.

The SME space data and into mid market space deeper you get a very different sort of profitability levels in any big income dynamics, So I don't underestimate.

If you have a new revenues that will come online as part of that 900.

Costs.

Okay.

The only thing I'll say on coffees.

Later on in the year I talked about the data, particularly in consumer credit we would expect that typically to happen just in the same way. It was sort of partially switched off and the business is almost frozen last year. It does very little activity.

So do expect that J curve to start materializing over the course of this year and that will result.

Every high correlation when you when you spend money in that customer acquisition and caused utilization to get a very direct correlation to balanced growth. So we're looking forward to that J curve coming online.

Having said that the real estate I don't want to preempt, what the what the real estate.

Review is but that will be.

The reason why we're calling out and giving people a heads up as to the extent.

We completed we have too much real estate that could mean.

A meaningful item that will be a nonrecurring amount.

And variable comp will be for all of us to.

Decided what's giving you the sort of framework, how we think about it.

So hopefully that gives you enough context, so just to get a sense of what the moving parts without perhaps precisely Australia question Chris.

Yes, obviously.

<unk>.

If youre able to disclose the full year 'twenty payments revenues I imagined.

2019, and that would help us out quite a bit in terms of.

Understanding the split.

I just want to get back.

Comments on <unk> CIB trends.

I know you've historically.

I mean, the CIB isn't that generate 70% plus of pre provision profitability at the group level. So I think the.

Historic document that UK performance is not just about the CIB and trading awesome field point is valid that anymore.

Yes.

Yes last question, Chris I will decline to give a trading update on April I would say, though trying to be helpful is.

We said in our outlook, we feel very good about the CIB positioning.

<unk> pipeline in the capital markets activities is really strong announced.

Announced M&A that <unk> say that will result in phase later in the year I think we I think was 16 globally announced M&A, which is a really strong position for us from where we were last year.

Trading activity levels.

The other commentary to try out there, but we feel pretty good with the CIB current positioning and perhaps we should leave it at that.

Okay. Thank you.

Thanks, Mike could we have the next question. Please operator.

The next question is from Mark Keenan of Credit Suisse. Your line is now open.

Good morning, Thank you very much for taking my question I guess.

Good question.

<unk>.

Payments in bulk and B K.

Just thinking about the other two of the 900 million.

It will be.

Recovery.

Just wondered what you're thinking.

And states.

Marginal cost income ratio either.

Okay. So can you.

<unk>.

And those numbers could be just to help us think about what the.

Feed through to.

To the bottom line.

And then just on a related question.

I know you don't want to make a comment on.

Say again.

Thank you Kate talks continue to own real estate.

Perhaps looking at the 68% cost income ratio.

I was just intrigued.

What are your thoughts could be around.

Proportion of that.

Essentially a cost problem.

Two helicopters in your environment.

Well just temporarily lower revenues.

Absolutely Ben.

Markets that.

It might be a little bit below what you would consider im not sure position. Thank you.

Although the.

The payments and then pass it to share for the cost.

The payment space.

We have we have a traditional analog cash based payments.

<unk>, which which as you can imagine with cash payment volumes dropping by 40% and whatnot.

Net income ratio of that business is is very much under pressure.

On the flip side as we build our E Commerce K.

Capability, where it's growing at about as I said sort of north of 30%.

Particularly for mid corporate and small business.

Yes.

The the.

<unk> B is demonstrated by players in that space is extremely high.

It wouldn't be a surprise that we are making the investments to move into the E Commerce space.

To digitally connect.

Onboarding of a small business client with the Onboarding of a merchant acquiring a client.

And.

All will have to do is look at the valuations in the payment space to realize that this is a worthwhile endeavor for the bank.

We have an installed client base.

And franchise, which gives us a.

No.

An advantage to compete in that space, we have a ways to go to get the to get the technology platform stack that we've got at Barclays.

Given that we have traditional businesses that we have to support.

It's going to.

It's going to be a lot of work but.

Essentially what we're putting forth today is I think payments is a very important part of banking and a very important part of.

Finance the market is giving.

E Commerce payments platform is just extraordinary evaluations as I'm sure you know that's not lost on us.

So I think we will be giving more clarity as time goes by.

Everyone.

And on.

The UK Omar.

It is a function of both I think obviously with such a sharp income decline, particularly with unsecured balances.

And we talked about 20 plus percent reduction in interest earning balances.

It's definitely a function of both income and cost income ultra recover overtime, we feel pretty good about the UK economy.

Very constructive on it.

We think the.

The foundations are therefore for a fairly decent snapback cadence in customer activity and hopefully.

Credit balances following thereafter and are investing for that at the same time, it's a business that's becoming.

Less physical that mortgage told and it gives us opportunities to improve.

Our offline in the UK as well and that's a work in progress obviously, when you've got a puzzle the banks are in a similar position when you're running a physical estate as well as the digital the state I guess, a little bit more complicated, but the trend is very clear and fewer branches much more digital transacting.

Less cash.

All of that is beneficial to the cost side, but it really is a function of both by mill.

Okay. Thank you very much. Thanks for your question can we have the next question. Please operator.

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

Hey, good morning, everybody.

Yeah, two questions. The first one I'm sorry to keep coming back on these costs.

I guess Stuart.

Two parts to my question. One is can you give us some sort of scale of what Youre property expenditures today, you said that at least we can get some sort of sense as to what the sort of scaling up those numbers could be.

And I guess related to that kind of can I just bring you back to Chris's question, because I get that there is uncertainty about the restructuring of properties et cetera.

If we leave that at one site in pocket.

We really.

And then really understand why you can't tell us what the cost still be up without that because that's just like business as usual investments back then so I mean as of today consensus that have costs going down.

So we're talking about quite a sizeable shift hearing guidance from what you were talking about at the full year.

I think we do need to now have some idea of what it would be ex that that property. So I guess, that's my first question.

And then my second question is just.

On CCP.

If I look at pre provision profits there now just over $200 million, which is pretty much what it's actually less than what a normalized provision charge was pre the crisis.

I guess volumes are down a lot. So you would expect that to come down as well, but I'm just trying to get a sense as I hear about the J curve et cetera.

All the cost that the current run rate, where they will be and youll now be looking to fill that out with revenue.

Would we actually be looking to see some costs coming out of that business as well thanks very much.

Yes, why don't I have.

Both of them.

On the on the overall.

Group cost shape.

Real estate to one side I mean, you could probably look at.

Our Q1 cost we've given you the sort of the delta year on year.

<unk>.

Driver was that.

That can be also the jumping off point you can take your own view of where.

<unk>.

Variable compensation is we'll let you sort of decided that based on your sort of views on the performance of principally the CIB and of course, there's no real estate restructuring in that.

I would expect of us.

The J curve in the consumer business is to begin.

Over the course of the <unk>.

Zone.

Giant numbers I mean, we don't get carried away I just want to make sure that people do understand though that it's a.

And investment.

Offset against which we of course have of it.

Inefficiency program that's constantly running.

So at least gives you the sort of the building blocks of how to how to think about it.

The final thing I'll say is.

We may be there.

So it works on one level and it doesn't work on another level, we try and give you everything so we don't try and give you sort of underlying and before this and after that.

Talk about reported cost and we own our returns on a statutory basis and Willow now returns on a statutory basis, so even whatever real estate charge and where we could take it whatever quantum it is when we talked to you about how well we think we've performed and what our earnings per share it to whatever it will still be on a statutory basis. So thats why were.

Sort of cautious in trying to sort of say before this and before that but hopefully that gives you the building blocks.

Im sorry.

So any quantum in terms of what Youre I don't know what your total expenditure annually is on real estate or something.

Uh huh.

Yes, we haven't I think called that out in U S sort of low to give it out on a call like this although I would say is the general office space I mean, if you think about it.

So I don't think Theres any number that I can refer you to but we have we have an awful lot of square footage in central London. We have two large buildings for example, just in Canary Wharf.

Canary Wharf today, and there aren't a lot of people in Canary Wharf. So you can get a sense of it.

We have quite a lot of real estate that we need to look at.

But I can't provide any numbers out there.

On CCP.

And the cost there.

I mean, thats, whether you will see the J curve I mean this is it's got a little bit harder to answer because you know when the American retirees. Following comes on whether the gap portfolio comes on both of those will have costs associated with of course, they'll have revenues associated with it.

Yes.

Jetblue and all the airlines that are running there as they come sort of fiber colorant account opening on origination so.

But having said that look we think.

It's one of the business, we feel actually the most excited about because it is genuine growth.

We're going to be adding Brian <unk> balances into that.

Brand new partners into that business brand, new products into that business and store costs as well as <unk>.

Point of sale financing through our partners about using the buckets brand, but using our partners, Brian. So I've just got a unique product offering.

We would expect with tends to be really good in that business credit is incredibly benign so.

I think that will take a while at the beginning of the consumer credit cycle. That's usually a good time to for these business to be coming on so you will expect costs to go up as we add more partners and more products, but you would expect revenues to go up alongside of that obviously.

Slight mismatch there because of the invest.

In periods of wanted to get revenues in period, too, but that will come back into equilibrium reasonably soon.

Great. Thanks, very much thanks.

Thanks, Ed.

Next question please operator.

The next question is from Ralph <unk> of Deutsche Bank. Your line is now open.

Good morning can I just spoke about U K.

The guidance looks he has increased a little bit.

And all of 2021.

Does the hedge next year, if that's still a negative drag and you said that you hope the unsecured balances Scott sure.

Great.

Presumably that's the positive benefit as well for 2022.

On mortgage pricing is still attractive, albeit mortgages along with them.

Good good.

They stay where they are should we expect NIM to start going up.

2022.

Should there be an inflection point at some point thank you.

Yes, I mean that would be I think the the.

Biggest downward pressure on NIM.

It is a combination of unsecured balances decreasing as you've seen in the U K business in Q1.

And the downward pressure on the structural hedge and how the structural hedge we've talked about in India. We may.

Re site that we'll keep you posted on that the curve steepened again, a little bit in recent times. So that's all positive.

So if anything I think the well although at the moment five year stock price is still lower than they were five years ago. They are becoming less lower so it's less of a headwind.

And I would expect to see unsecured balances growing next year. So so we ought to see the low point.

It depends on Yochelson, various something called up everything being equal we stopped it unsecured bank is going to be obviously, the low point this year.

Mortgages is really good we have been.

Really played were record sort of mortgage balances in fact, the other thing that we're really quite pleased about.

Share of redemptions.

<unk> actually has declined so in other words.

They did that people are staying on the Barclays platform longer.

They were previously and churn margin so.

When you do go off an existing product.

<unk>.

It's actually accretive to NIM.

Rather than sort of time has gone by we've been cannibalizing our own NIM. So the mortgage is actually really good strength in margins have held up well, we'll see how that goes obviously the stamp duty relief expiring June in that way.

Normalized things a little bit but at the moment.

It's really really good dynamics in that business.

Let me think.

Thank you.

The next question please operator.

The next question is from Robin down HSBC. Your line is now open.

Good morning.

Clifford.

First apologize for this but.

The subject of a variable comp.

If I look at first half last year like you were kind of run rate in the first half occurring about kind of $363 17 billion in the quarter.

For the 335 that Youre, writing this quarter as.

It's not quite doubling.

Amount of variable comp.

Syed.

The profitability of <unk>.

The CIB business.

We'll go return of 17, 9%.

From kind of 12, and a half with them.

If I look at it.

As essentially pvt, pre COVID-19, it's going from 20% to 48%. So that's a further question.

Is this.

And the first thing on the recruits.

Are you seeing in terms of upward pressure.

On wages coming through here.

Kind of a science to it.

You've kind of level and also if we see provision releases in the second quarter on the back of the macro changes is that going to go into the comp pool as well.

And then the second question just really on a point.

For the clarifications.

So the legacy coming back to <unk> question.

Yes.

Remember correctly, but.

Legacy funding cost of the excess funding cost from the legacy instruments.

The head office.

The 300 million negative income regardless of 2021.

Youre, making an assumption thereabout.

Retiring in replacing legacy instruments.

It relates to.

Am I correct.

Yeah.

So I want to take the first question and future Tech.

Second one.

One win win win win when we look at our hiring and our retention of.

<unk>.

Mds and directors in our CIB platform.

Comfortable where we are.

And what we've seen over the last over the last year. So I think we feel that the compensation.

<unk> levels were competitive last year, obviously, there are other reasons.

People.

Yes.

Our part of our team.

I would point you to look at as I'm sure you have the comp.

Accruals for.

Many of the U S banks and indeed, some of the European banks and.

In the first quarter, and we need to reflect that as well.

Do include the impairment.

Impact on the profitability of the business.

And obviously as you've seen it would be in the first quarter of last year, we took a pretty significant impairment charge, which impacted.

The accrual of variable compensation, we had virtually no impairment charge here and so.

I would have an impact as as well with fundamentally.

More profitable business in the first quarter of this year, even with the increase in the variable.

Accrual.

Sure.

And I think thats.

Corporate measure.

And Robin on your second question around legacy funding.

Yes, there is some in head office Youll notice that we actually.

Retired some legacy funding I think it was Q4, where we took a charge.

To redeem that when we put a tender offer out.

So there is some in in.

In head office and a lot of it is actually at the operating company level run at the holding company level.

Okay. It gives you some sense of the geography.

Okay.

Next question please operator.

The next question is from Farhan Ahmad of Redburn. Your line is now open.

Hi, Thanks for taking my questions there on the payments business actually and thank you for the interesting disclosure.

I was interested in your comments around moving from large corporates to Smes and I. Appreciate your take rate theres larger for Smes and large corporates.

The margin is much bigger on large core businesses, but I would estimate if you look at your kind of payment peers group.

For like stripe and square at the kind of use smbs as an entry point and the move towards large corporate so.

Why are you going in the opposite direction is it that you don't compete with these players and they are on higher valuations and actually the SME players around lower valuation so that would be question one on the.

Margin itself and I appreciate you don't give the number but.

Eric in your margin is probably kind of a third of what your peers are making right now.

I've never really got to the bottom of what is your ultimately your ability to scale on your existing systems and on that basis, what's the incremental margin you make on that payments business because most of the time incremental margins grow because people haven't got scale, but we've got the tech, but you've got the scale and potentially how big of a tech hub.

How should we think about incremental margins and ultimately have profitability is affected by the growth in your payments business.

Last question is on interchange and FX fees is the biggest component of your payments business.

It's also the way the most pressure.

Okay.

All the kind of currency.

Table coins you look at comps for why you look at revenue FX is under extreme pressure.

Have you factored that competitive pressure into your 12% growth on the interchange in FX. Thank you.

To the second to the interchange and FX the answer to that is yes.

Again as you said I think our scale is a tremendous competitive pressure I think we've already made quite a few advances in digitizing, particularly the FX business.

It is hard wired into our into our corporate banking.

Portal.

We feel quite quite competitive and preserving margins and.

In that space.

Sure.

In terms of.

And I don't want to get too specific but.

Matt.

The more you drive the e-commerce the more.

You improve your part your profit margins, whether it's large corporate are small businesses.

I do think there is a sweet spot.

Somewhere in the middle let's say of turnover a company from 1 million to 15.

<unk> 15 million.

But the real thing is to have a digital platform that's easy to use that.

That is easy to.

To adapt and to offer new services on this integrated with the overall platform.

And we have all the components from the acquired business to the consumer back to the <unk>.

Corporate clients or the consumer clients.

To increase significantly the profitability of this business and again just like you pointed out it's not lost to us the profitability of a square or.

Or a strike.

And.

So.

We have a lot of investing to do I think the payoff will be significant.

And that's why we wanted to begin to bring this up to this group and obviously, we will be talking a lot more about it in the course of the year.

And going forward.

Scott. This is sorry add one thing on the incremental margin if I look at your peers that kind of incremental margins are 10.

10% to 15 percentage points higher than the existing margins is that a similar trend for you.

The incremental margins would be it would be better than historical margins for sure because because of the relative percentage of e-commerce versus cash is going to change significantly over the next couple of years.

Perfect. Thank you. Thanks.

Thanks Todd.

Next question please operator.

The next question is from Martin <unk> of Goldman Sachs. Your line is now open.

Hey, good morning. Thank.

Thank you for taking my question I just have two one on called syndrome brought on the investment bank.

Comps in particular U K I was just wondering if anything has changed in terms of your outlook.

For Q results.

I think indications most of the balances could bounce back in the UK toward the year end level of 2020, just given the progress we have seen in the U K.

As of opening the economy.

Explanation is this.

The scope for this to change incentives to be potentially higher and maybe more broadly on UK costs. I was just wondering how we should think about progression.

Going forward, so heading into 'twenty two 'twenty three in terms of equivalent in terms of your ambition.

We obtained some of the markets.

Quickly I'm, just trying to go and how quickly.

Actually you could recover.

There were 30% accretion.

We have seen good take up on Linzess since the beginning of 2020 and secondly on the investment bank.

Just wanted to ask on the scope for market share gains in some states going forward.

Obviously strong progress over the last few years in both of those just wondering given.

How we should think about the progression here going forward given one debt.

The restructuring of some of the PFS.

It's progressing well and probably getting smaller going forward on the other hand, obviously.

Recent new slow how would that affect <unk>.

It is CFO. Thank.

Thank you.

Yeah. Thanks Martin.

Okay just to.

So go out market share in the CIB given the recent dynamics that you referred to on the.

Cost balances.

<unk>.

Look we I think the key thing here is interest earning balances.

You've got a sort of drill into not just the balance but those other interest earning.

I would think that they will.

Stopped growing but it will be my sense is towards the backend of this year.

I will say to be pleasantly surprised it could be sooner.

But we will say we are trying to be sort of core shifts.

Project in.

Whenever we give guidance, but we think towards the back of it beyond that.

I think I think 2022, I feel more optimistic about I think once the once the growth of the cadence of underpinned by a.

A strong performing economy and low unemployment levels.

Decent economic activity I would expect us to to recover nicely and yes to your question. We have that should do it received a low point of NIM maybe.

Maybe for 2021 article Thats a reasonable chance.

And our buckets of article six of the Yieldco statements continues or even improve so.

Hopefully that helps them CRB market share or what I would say.

Right, we've gained important market share over the last couple.

Last couple of years I would I think there are two.

Things happening.

That.

That we're mindful of as we look at our business I remember, we we stated five years ago that we were committed to all of our asset classes and remaining a bulge bracket firm.

Sure.

Tom.

The one is there clearly has been capacity coming out of the market the number of European banks over the last number of years have decided to exit certain asset classes.

And some of them are still in the process of doing that.

The flip side as everyone is witness the profitability contribution of.

The ivs in 2020 in the first quarter of this year and I wouldn't be surprised a lot of those people start to roll back.

The reductions that they were in the midst of taking so given the level of profitability experienced by the sector. I think the competition is going to come back.

Okay.

Thanks Neil.

Thanks for your question Martin I think we have time for one more question. So could we take the.

Last question. Please operator.

Our final question. This morning comes from John <unk> of Lazard asset management. Your line is now open.

Hi, Jeff Hi.

Thank you for taking my question I apologize.

Hence.

The two questions one.

Payments, what's the net income contribution at the moment.

And secondly on cost.

I'll just take the <unk> question really said next year.

Script cost ex CIB.

Go down or up.

Simple direct.

We expect you to give us.

The exact numbers, but just directionally it should go down.

Okay.

Yes.

Yes, so Tom I don't have it.

Chancellor.

Payments of net income.

Maybe look we haven't given sort of a profitability number associated with <unk> on this call, but what I would say.

A measure that we look at very closely.

What we do need to EBITDA.

Probably the measure that's used by some of the peers and they don't see very public about that.

We would expect our EBITDA to be significant over over this period. This is a sort of a breakeven business or anything like that.

It is a meaningful profitable business. So I think at the right time.

It takes sort of a it's funny when you as a bank EBITDA sort of a slightly odd measure given that it doesn't really make sense in the context of the bank, so a little bit cautious about putting it out there, but maybe at the right time, we will we'll talk about that but it is a profitable business already and will become meaningfully more profitable over time.

On a reported cost basis.

Look I think the real estate charge is probably the big swing factor here.

That will be what it will be when we concluded. The review we don't expect that obviously to be charged the following year and there'll be a run rate benefit associated with it so.

Think of that is definitely a big tailwind into 2022 versus 2021 reported costs.

Okay. Thank you very much.

Yes.

Thank you.

And thank you everybody just about let's say 11 o'clock. So we'll wind up the call here. Thanks for your time and hopefully get a chance to speak to all of you.

As we have meetings beyond this one without all places, making thank you.

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