Half Year 2021 Barclays PLC Fixed Income Analysts and Investors Earnings Call
[music].
Welcome to the Barclays half year 2021 was all fixed income comfort school I Wonder how did you I venture to shop Musayev Group Finance director.
Good afternoon, everyone and welcome to the fixed income investor call for our half year 2021 results I'm joined today by Kathryn Mcleland, Our group Treasurer and.
And thank all of our group head of balance sheet management.
So I start with slide 3 and make a few brief comments before handing over to Katherine.
I'll start with a summary of our hedge fund performance before providing further details on the impairment.
We again saw the benefit of our diversified business model is the strength of the CIB performance continued.
To offset the effects of the pandemic on our consumer businesses.
Overall income decreased 3% will be on a constant currency basis income was up.
And cost increased by 0.6 billion to $7.2 billion, including structural cost actions of <unk> 3 billion.
After a small impairment charge in Q1, we.
Large released in Q2, given a natural lease for the half of $742 million. This.
This resulted in a PBT for the half a $5 billion a significant increase on the $1.3 billion for hedge fund last year.
<unk> and <unk> of 16, 4% for the half.
The CET 1 ratio.
We had a loss at 15, 1% well above our target range of 13% to 14%.
Let me provide further color on impairment.
There was a net impairment release in each of the businesses in Q2 and the largest release was in B U K followed by CIP as you can see from the chart on the left.
On the right we show the split.
The charge for recent quarters and you can see in Q2 that we've seen a net release of stage, 1 and 2 impairment amounting to just over 1 billion. While the stage 3 impairments was $221 million, resulting in a net release of <unk> 8 billion.
Stage, 1 and 2 release was driven by the improved macroeconomic.
Nick variables used in our scenario refresh summarized on the next slide and lower unsecured balances, but our coverage ratios remain above pre pandemic levels.
The methods used for Q2 modeled impairment are shown on the upper table and you can see the significant improvements in the 2021 and 2022 forecast.
However, there still remains significant uncertainty as the levels of default with experience of support schemes around down.
Wanted to make sure that as we apply improved commenced we don't lose sight of this risk. Therefore, we've made refinements to our post model adjustment to focus more on the cohorts of borrowers. We believe are most at risk from the tapering of support.
The result is that we are maintaining a significant economic uncertainty PMA, which has increased slightly to $2.1 billion.
In the appendix there is a summary of the coverage ratios across our lending portfolio and you'll see that they are significantly higher versus pre pandemic across wholesale and unsecured consumer lending.
Let me pull thorough.
And hand over to Catherine to run through the balance sheet highlights.
Thank you Keisha as you can see on this slide we finished June with a robust balance sheets across all our key metrics.
Tier 1 ratio was 15, 1%.
<unk> finished ahead of our end state requirement at 43, 7% Nevada.
And LCL remains at a very strong position of 162%.
Start with some comments on capital on slide 8.
Our reported CET, 1 ratio increased over the quarter by 50 basis points to 15, 1%, which is flat compared to the end of last year, Despite all share buyback and other headwinds.
The group delivered strong profitability in both quarters, this year, which contributed to our capital base.
Specifically in the second quarter, the lowest stage 2 impairment balances led to a reduction in the August 9 transitional relief of 30 basis points, resulting in a convergence between the transitional in fully loaded ratios to the pre pandemic level.
Brown 40 basis points.
<unk> were down around 7 billion pounds for the quarter, adding 34 basis points to the CET 1 ratio.
The next slide provides what we hope at some useful color on how we see the capital trajectory from here.
You'll see on this chart, our Rebased <unk> CET 1 ratio.
<unk> of 18, 8%, which takes into account the share buyback and the scheduled pension deficit reduction contribution in Q3.
Looking ahead, our prudent capital planning takes into account, both the headwinds and tailwind we foresee.
Impulsion me overarching all of these trends is our confidence that our diversified business.
Therefore, we will continue to generate capital more than offsetting upcoming headwinds.
And given the capacity creates about profitability, we expect to continue to return capital to shareholders. At the time. This was like the soundness of our capital management and of course as a decision taken hand in hand, with our regulator in the normal course of business.
Models now that the temporary guardrails have been lifted.
Turning briefly to the anticipated headwinds for the rest of the year, we continue to highlight the potential phase III in payment migration.
The amount of transitional offer some relief.
Also I anticipate at W is unlikely to increase from the June 30 level.
We've listed.
The known capital headwinds, we see come in next year.
Firstly, the software benefit will be a fast start to 2022 as you would've seen in the Pra's policy statement 17 published early this month.
<unk> 9 transitional relief Scott It will continue to amortize through to the end of 2024.
There's a slide in the appendix that provides further details on that.
So as a CTO, which we flagged in the call the guidance remains of low single digit billions of out of the way.
Finally, the pension deficit reduction plan is a 300 million payments nextgen well below the 700 million contribution in 2021.
You may.
The latter 2 items that we previously highlighted this headwind and now not expected to materialize.
First just approach it because impacting auto be ways that we had previously anticipated.
Just you've continued macroeconomic deterioration would lead to high risk weight density, while we still remain cautious in our internal capital plans continue to be a lot.
May of night risks, we acknowledged and now improved and more stable economic outlook in our main market.
I'd now like according out material price cyclicality in our base case.
The second item is the mortgage changes from the PRA the aggregate impact in days past due changes and move to a hybrid through the cycle at a point in time model and of course.
Not to the level of risk weight floor is now expected to be negligible and so the previous guidance of an increase of low single digit billions of <unk> nextgen no longer applies.
Taking all of these factors into account, we continue to target a CET 1 ratio of between 13 and 14% over our planning cycle and I'll spend a moment on this.
Next slide.
As you can see on slide 10.
So to the MDA hurdle of 11, 2% at 390 basis points or 12 billion pounds.
Holding an appropriate headroom above our MDA hurdle continues to be a critical part of our capital management framework.
Over the remainder of the year, we expect.
Some decline in the ratio is dependent on stage 3 balances feed through to the ratio. In addition to some other there'll be rate increases, but we would expect to NDA comfortably above our target range of 13th 14th St.
We continue to be mindful of the uncertain environment in the 'twenty to 'twenty 2 headwinds that I, just talked about such as the 40 basis points.
On the software where vessel.
We are of course also allows the business growth.
And although the timing remains uncertain, we are ensuring that the balance sheet is well positioned to capture new flows as the recovery takes hold.
Our capital position, therefore reflects a prudent approach that we always take as we navigate the headwinds and opportunities.
<unk> you had.
Turning now to leverage.
The leverage ratios of 5 and 4.8% on a spot and average basis, respectively reflect our continued found leverage profile and you can see on the slide we offer well above minimum requirements on our leverage profile has been running at a consistent level over the last 4 years.
We note the consultation paper published by the FTC and PRA last month, which broadly maintained the cart you can leverage framework, both in terms of calibration and requirements. Therefore, our approach to managing our leverage ratios remain unchanged.
Timing to Enbrel on slide 12, where you to create and build of MLP eligible.
We said over many years, we are now ahead of our 2022 requirement.
As you know for my vehicles, we had assumed that the <unk> calculation basis would be the most finding and our base case from an emerald timing perspective.
This does remain the case given the recent leverage C P, which proposes to keep the UK leverage framework.
With a cash assumption and which we expect will also apply to the ml framework.
Although we will of course weights with final confirmation of the conclusion of the FTC and PRA leverage reviews, which remains out for consultation we do not anticipate a change to our base case.
Emerald issuance plans for the remainder of the year is consistent with what we guided to.
Eligible eating of the ads.
Namely our full year target of around 8 billion pounds.
How does it change we have issued $5.3 billion.
Since we have been active already this year in tier 2 transactions, we expect our remaining funding over the year to be senior in 81.
As you know we have been active with green issuance in the past.
At the beginning of the first U K bank to issue a green bond a few years ago and I'm pleased that we've released our updated and expanded green issuance framework to enable a broad set of liabilities for future issuance.
Turning to the next slide which illustrates the structure of our total capital position, we continue to target a conservative 81 headroom.
We've noted before that this may temporarily ran at an elevated level given the 81 also supports leverage when we see attractive high return opportunities in the markets business, where it has a maturity in excess of the cost of 81.
Through the cycle, our principles that underpin our target remains the same the headroom.
Room set up to manage any autoplay, and FX fluctuations, Andrew possible redemption and refinancing activity in.
In the near to medium term. This means managing through you ought to be a headwind as I mentioned, a moment ago and planning for possible call date. So by 81 instruments in 2022, and 2023 and any call.
It would of course be subject to regulatory approval.
We also manage these risks and I take your capital and so I also aim to hold an amount in excess of the 3% requirement.
With regards to legacy capital Securities, We often get asked about the bank of England does CFO letter from last November and the op.
<unk> the original <unk> transitional rules in December.
That's why I provided some detail here.
Ultimately our thinking remains unchanged, it's not an area of concern for us given the modest and short tail of $1.7 billion, which could exist beyond 2022.
In terms of our thinking on individual legacy capital Securities.
Come on own funds eligibility will be a factor in our decision, making as qualifying securities typically remaining scope for regulatory stabilization powers.
Overall, our analysis will be on a case by case basis subject to relevant regulatory considerations, we would assess each security on its own merit.
We are engaged.
Bank of England, and the PRA on this topic.
And so given these securities are lifted we're mindful of the sensitivities of this topic since you do not wish to discuss individual securities.
There are 2 main areas of the bank of England is looking at infection risk and impediments to result ability.
Infection risk relate to legacy capital.
Aged with Hercules, which impact 1 ponds and or Emerald eligibility football case. This issue can be sold by the subordination of some in time issued 81 relative to other securities outstanding subject to regulatory approval and so we do not view this as a concern.
On the other area photos, namely impediment to resolve ability.
Secure no extra automation legacy capital Securities Outstanding from a group resolution entity Barclays plc.
Furthermore, the vast majority of our legacy capital Securities that do exist continue to qualify as own bonds in some capacity to 2025 well beyond.
From the end of this year. They will also not be included.
<unk> when meeting our MRO comments over there as you can see Barclays Bank plc for the group.
For these reasons, we're comfortable with our position.
We will continue to engage with the bank of England up here on this topic, including as part of our resolve ability assessment framework submission, which is due in October.
So turning now to liquidity, which you can see on slide 14.
The liquidity pool of 291 billion pounds in our LCR pillar 1 ratio of 162% represents itself that's above 100% regulatory requirement of 108 billion pounds, you'll see that the LCR position has been stable throughout this year, maintaining a prudent balance between holding a healthy access and deploying the liquidity to our business to enable them to.
Can you provide any market opportunities.
Let me now turn briefly to our funding profile and loan to deposit ratio in the next slide.
We still continue to see an elevated level of deposits across the market driven by government and Central Bank policy.
Money supply great unimpressive unprecedented levels.
I made this year it had grown by 17.
Capital and versus the end of 2019.
As you can see even before the pandemic, we were running at a conservative LDR of 82% is at the end of 2019 and today. It stands at 70% with deposits across the group up by 20% since the end of 2019.
We have conservative assumptions.
And our funding plan being mindful of potential pressures on the deposit book.
So is your husband to show on this morning's call. We do so much of the deposit growth will be on our balance sheet for some time.
Turning now briefly to our main subsidiaries, which you can see on slide 16.
We continue to manage the regulatory requirements of all of our subsidiaries prudently and you.
You can see here the reported metrics with both Barclays Bank plc, and Barclays Bank UK plc.
In the second quarter the U S. C. Proximate, most recent CCAR exercise without capital metrics either in the top or second quartile amongst all participating banks, providing further evidence of our ability to manage capital appropriately across.
Cross sell subsidiaries.
Turning now to our holding company and subsidiary credit rating because you can see on slide 17.
Improving our credit ratings profile continues to be a strategic priority for the group it was particularly pleasing to see our outlook with standards and poor's undergo a double revision in the space of 4 months from negative to stable in February.
Larry and stable to positive in June.
These were actions in recognition of strength specific to our credit profile and most importantly for them with a stable strategy that's been underpinning our financial performance.
There are also sector wide revisions to the outlook for European banks Fitch recently revised all Barclays outlook from negative to stable.
Moody's also stabilized B B U k's outlook.
All outlooks for all our entities and out you know on stable a positive outlook on our credit rating position is in a better place than immediately prior to the pandemic.
So to wrap up we.
We continue to manage through an uncertain time with a strong balance sheet are prudently manage.
See if you 1 ratio and robust liquidity metrics.
Diversified business model continues to deliver meaningful copy to generation and as we look ahead, we're in a strong position to support the economy.
All of our customers I look after the interests of colleagues and other stakeholders and with that I'll hand back to Tricia.
Thank you Catherine we'd now like to open up the call to your questions and I Hope you found this call helpful. Operator. Please go ahead.
If you wish to ask a question. Please press star followed by 1 on your telephone keypad. If you change your mind and wished to remove your question. Please press star followed by cheap when preparing to ask your question. Please ensure.
If you put it on mute locally to confirm that stuff Phillip I wanted to ask a question.
Your first telephone question today is from Lee Street of Citigroup. Your line is now open. Please go ahead.
Hello, Thanks for taking my questions 2 questions. Please first 1.
Broad.
So you've got a lot of excess capital you got quite big on the balance sheet provisions still even off the reversal today. So my question is what keeps you awake at night, what can go wrong from here, because obviously everything looks like it's relatively well since it's 1 of those plays.
On the horizon.
And my second question.
You touched on the legacy Securities and I'm, saying that you could leatham outstanding beyond.
The year end.
As it relates to LIBOR.
Regulator in the Fca's expectation there.
Fishing, you've offered pizza consent and if they choose not to accept it then.
They're okay that you've done everything within your control to.
Try and address that and therefore.
Having issued leaving the outstanding and if you can talk around that would be much appreciated. Thank you.
Yeah, Thanks, great tissue.
Hi.
Okay.
Question, Katherine and Dan May want to add and then I'll ask Catherine to Covid.
A question on LIBOR.
What keeps us awake at night.
I agree with you that.
We feel our capital position is reasonably prudent and we think our provisioning levels.
I'll also read them to be prudent.
I think that's the real unknown with all of this is.
You've got government schemes.
Support schemes that are being unwound.
I do know it's the first time, we're going to experience what the real sort of large consequences of that are both both actually here in the U K and to some extent in the United States as well as unemployment benefit an extension for.
Of them come sort of come to an end as well.
What are some of the support schemes around Smes and corporates.
Hence the level of provision that we carry and we have a management overlay.
To ensure that we are prudently provided against that but I guess, that's a little bit of a voyage of the.
Unknown.
We don't exactly know how that will work out it could be a much more orderly adjustment then than people anticipated could could be a bit more rock here I guess does that coupled with.
Albeit economies are opening up.
Case loads at least in the U K.
We're dropping.
There's still a little bit of unknown as to whether this is the end in the final wave or whether as you get into the winter months things may change again so.
Just be a little bit cautious and prudent.
But no more than that I think.
Until we're through all of that and we sort of back to if you like a proper post pandemic.
That make environment.
We run everything a little bit prudently.
Catherine you want to add to that or.
I think there are any of them.
I guess subject.
Everyone has read about it.
The prospect of inflation at some point and obviously the uncertainty.
Seem to be sharp talked about in terms of government support schemes. It's obviously a degree of discussion around Central Bank policy response, tapering QE hiking rates I, just I think being mindful of what might be a lower probability rents just thinking around the balance sheet and thinking about.
Prospects are indication, albeit technique is not our base case, but that's what we had.
A fair degree of commentary, but I think that seeing any other thing I had mentioned.
Just a couple of flagship I guess its interim.
Yes.
Jumping a little while.
How many bright part if you think we could possibly see before.
Okay.
But in terms of credit quality, obviously, historically quite steep impact credit quality.
The first couple of appropriately it doesn't have that much impact on how she supports you from a margin perspective.
I need to catch the muscles will be the bottom point that would start to worry you.
Yes, it's a tricky 1.
I guess.
You know, we would probably need something like 3 hikes before we get back to.
Base rates in the U K pre pandemic so.
And even that you'd be save 75 basis points or so.
My sense is it will it will take some time and I guess.
Yeah.
And the rate hikes, if it's purely.
Sort of an inflationary and a sort of stagnating economy, that's obviously a bit more credit problematic if it's on the back of.
An economy, that's sort of growing above trend and it's just sort of good monetary policy in the backdrop of that.
Not so much of a problem.
The environment I'm not sure.
It's Catherine says you know I guess, it's a remote.
Possibility.
You get a sort of an unraveling of inflation that could be difficult, but we'd probably put that in the low probability camp.
It's probably less so are the ones that keep us awake at night is just.
We've got in the back of our minds to it.
To make sure we don't get.
Courthouse line, if it does happen, but I think it would be a number of rate hikes before we really.
Really feel weak we'd want to reconsider.
Credit stones.
Okay.
And then.
Answering your question.
On LIBOR obviously.
Our perspective, what we've been doing it.
We see a huge amount of work happening in China are very mindful of what's happening with the official sector is externally and obviously Q2 for us starting to much more clearly.
<unk>.
Trac you LIBOR products, obviously very mindful of.
What's allowed and.
And we saw the development from the fed with the legislative change regarding.
Securities.
But in terms of the UK regulator in terms of an existing.
<unk>.
<unk> Securities that we have after the consent solicitation that we.
Did at the end of last year, which Youll remember, we're essentially still waiting for.
Some guidance in the final outcome around the definition of top legacy and what that means to synthetic level and of course as you know there are ultimately fall back provisions as well.
So we're essentially in a wait and see mode.
Waiting for further guidance around that top of legacy.
Okay fair enough.
You're right.
Yes.
Thanks, very much less because we have the next question. Please operator.
The next question is from Paul Fenner of Society Generale. Your line is now open.
Go ahead.
Hello team just checking that you can hear me all right.
Loud and clear.
Lovely.
My I call. It. It's it's really an asset quality question, but I guess it is subdivided into into a couple of those are separate question. So.
If.
Look at yes, Youll stage migration I mean, it looks as if the portfolio is really behaving extremely well and probably counterintuitively. So nominal stage threes have dropped quite a significant amount in the in the last 6 months.
And the ratio is now 2.2.
The sudden having come down fairly consistently over the last couple of quarters. Some of my question is on stage 3.
How have we seen the peak in in.
As a proportion of of your book and.
If we haven't.
Could you when do you think about pks and how far away.
Oh, I know you know I'm not looking for a specific ratio, but just sort of timelines just to get a sense I get asked that question all the time and I can never really answer.
And then also on.
Whereas here on asset quality on stage 2.
1.
1 of the.
I'd also like to know what normal looks like so right now you've got something like 11% of your portfolio I think that's right at 11 or 12% of your portfolio is in stage, 3 which is kind of down as well what is normal looked like as you look into 'twenty 2020 'twenty, 1 'twenty 'twenty 2 I thought I forget what it might look like.
Pre crisis, so I'd I'd love to get a sense and the other thing I found quite interesting is that the drop in stage..2 is was was just as big in retail as it was in corporate and I thought it was corporate there was the most sensitive to your macro.
Outlook, so a little bit of color around that would be very helpful. And then the very last question is.
Is on supply Katherine I think you said that.
You know the remaining sort of whatever it is 3 billion 2 and a half of it and it's going to be between 81 and senior Holdco I just wanted to check that I heard you right because I wasn't expecting you to do in an H, 1 and it hasn't happened yet.
Thanks, Paul.
So on your questions on asset quality and kind of the Katherine to supply the customer might want to add some comments on that asset quality as well.
The first part of your question I think was the sort of the peak came in.
Yeah, all of it or the development of stage 3 balances.
When speaking to happen and where what do you have.
Why don't I go to settle down.
The only thing we don't know our view is having.
Having said that that the management overlay that we're carrying.
It's really there to guard against them.
An increase in default as we go through.
And Wade removal of government support schemes.
Now you know with these are all estimates and we've done our own modeling but of course, it's there's most of the historical precedent that we can calibrate our models or anything too. So there is definitely.
High degree of judgment here.
But our view is that there.
To be a pickup in defaults.
And credit stress.
Within the level of provision that we're carrying and that's what that overlay specifically designed for if we don't see that if it's a very orderly adjustment and the government support schemes have looked.
Perfectly in the sense that they reached everybody to that.
Dave.
Therefore, the company sort of reopening again and can sustain itself then we will see the management overlay.
But it needs to be digested against defaults, and we'll just sort of PV would expect through P&L and ultimately back into capital.
So I guess I guess, Paul the we would expect the peaking.
Instead.
Their jobs III to be in front of us, but not that far in front of US I think both sides of the Atlantic now are beginning to sort of taper their scheme. So over the next handful of quarters.
In terms of the run rate on stage III from that point on.
If you look at the loan loss rate on the.
And Stacy had thoughts about business say credit cards.
Roughly about 3% loan loss rate.
On either sides of the Atlantic.
We say the books ought to be a probably a bit higher quality compared to pre pandemic, obviously that was quite a long cycle.
And 1 of the things about having a cycle issue.
More Richard flush out the weaker credits 1 way or the other on top of that you've also got.
Generally speaking consumers.
Sure.
Those remaining consumers will be in decent financial positions you see our deposits tick.
Picked up again quite materially even.
In the second quarter and now consumer.
So like in the U S and in the in the U K, so that the deleveraging of consumers the amount of cash on balance sheets.
It will be very supportive.
And also.
As we're originating.
Sort of early in a credit cycle, so new originations will be relatively lower risk.
I think probably all things being equal you should have a probably a lower loan loss rate on the riskier talks about volcker months away if you like in a.
Proper post pandemic world.
Our stage 2.
<unk>.
Couple of questions there about the sensitivity to macro across corporate and consumer and also.
So sort of what's the what's the normal level of stage 2.
1 thing I would say on that is it's quite hard to answer that question precisely in the Washington, The way you indicated yourself.
Well, what I would probably say that if I look at coverage levels.
Pre pandemic, if you look at our cards business.
8.1% loan loss provisions too to balance sheet.
And we are currently over 10%.
So we're still quite prudently covered relative to pre pandemic levels I think when it's all said and done and we've gone through the government support schemes and things are sort of normalized out.
And we accept the premise.
<unk> the books all to be on a like for like basis of better quality.
You, probably expect the coverage levels to be at least back to pre pandemic levels or if not a touch lower now that lead at the.
Second the utilizing those provisions against defaults as we're expecting them or those provisions will be released.
Premise flew into P&L, so doesn't quite answer your question about stage 2 it is a combination of stage 1 and 2 principally.
But but hopefully gives you a sense of it probably ought to be a bit lower than pre pandemic, all other things being equal and in terms of the macro sensitivity and thats really tricky because.
It didn't.
I mean these this these models a devilishly complicated.
But.
They're also they're also sort of.
The reason why also complicated, but multiple scenarios and you've got various different parameters that impact consumers and wholesale credit seem quite.
Life's work.
Workforce engagement for example impact wholesale in a way that's slightly different to general population unemployment, which which does impact our models for consumer side. It's hard for me to give you a straight answer on that but.
Yes, Unfortunately, that's a tough 1 it depends on.
The scenario weightings.
The the span of scenarios and exactly how far out the peaks and troughs.
Unfortunately, there's not an easy answer to give.
So hopefully it gives you a little bit of context anyway.
I'm, Catherine and again, where you want to add to that and then nothing wrong.
Okay, Tiffany carrying them, then I would just get pushed out.
I was just going to answer your question on funding.
Say I mean.
Haven't changed at all since the full year and you're right the to understand the $5 billion 5 and a half from the first half.
We have done to a benchmark tier 2 transaction, let's say in.
In the second half of D. A.
8 billion the remainder of that will be a nice lagging performance senior and 81.
And that's very consistent with exactly the same as what we indicated earlier in the year and as you know we will say talked in the past about being.
In a programmatic issuer.
81 Securities.
So yes. It does remain part of the funding plan for the second half of the year.
Thanks for your question Nicole Thanks, Paul.
We have the next question please operator.
The next question is from Robert Smalley of UBS. Your line is now open. Please go ahead.
Hi.
Thanks, and thanks for taking my questions. A lot has been asked and answered. So a couple of follow ups I appreciate the intricacy model changes, particularly given the truly arity.
Economic environment, but maybe you could talk a little bit about differences in credit.
What card.
UK versus U S. So far things numerically performed roughly the same way you see any divergence there and anything that you would look at.
Different for <unk>.
Behavior, 1 versus the other in your modeling.
That's.
That's my first question and second.
You had mentioned that.
Possibility of going below pre pandemic level on reserves.
But I guess from your comments that it'll take a few quarters.
At least to get there.
Could you.
You are pretty close.
On card already.
So would that come from Smes and other corporate lending.
Or would you see that and given the headwinds that you outlined for capital.
Is there an impetus to do that sooner than later.
Even though you would.
Also mentioned if you wanted to be prudent holding a reserve and then finally on on funding.
Maybe early days, but do you have.
Negative issuer in 2021.
Do you have any visibility to 2022 and do you think you would also be a negative issuer then thanks.
Yeah. Thanks, Thanks, Rob.
Why don't I tackle the questions on provisioning.
And hand over to Katherine on funding.
U S and U K Cup.
Yes, they are.
Behaved remarkably similar.
Would expect to divergent divergence across.
I think I think.
We would expect to see.
Billed in U S card balances just revolving credit balance as sooner in the U S than we would in the U K I think there's a couple of reasons for that 1 is.
Just at the U S economy sort of opened up earlier than the UK. So you sort of further ahead.
In its recovery.
We're into a sort of a period of time summer vacation, but to school Thanksgiving Christmas, where you get more discretionary spend behavior and that tends to.
Stimulate.
Revolving credit balance growth.
Hey get embedded.
Good bye for specific to our business.
We will be adding the American Airlines American Airlines American retirees.
Card partnership in the third quarter, and we've got some well known retailers a 1 well known re title that lapping into next year alongside organic growth.
So I think you'll see balance and therefore provision build much sooner in U S call. It the UK card UK called out our fences.
Even though.
Slightly Atlantic spending at least on our data is back to pre pandemic levels.
The level of sort of discretionary spend.
That's good.
That's taking place on cards still take some time before that sort of translates into into balance growth.
So yes, I think you will see a divergent and that's simply just the weather.
They each are in their own respective cycles with respect to the recovery.
The final thing I'll tell.
U S cards in U S cards with with Sunny, adding more I mean, the nature of the business as you're adding more customers.
With spending money on putting new accounts stimulating card spend.
Scores in the U S.
Sure.
Again, it's relatively high quality stuff part of it is just the nature of because it was sort of bias towards early.
<unk> and think about that in our portfolio, but it's.
It's sort of.
I'll give you the lower end of margin, but lower end of risk with respect to sort of yields card business.
In terms of provisioning levels, and sort of getting back to pre pandemic or better.
What is that going to come from I mean I think.
And you can you say was sort of not quite far away from cards, but.
Bulk of our provisions are.
From the cards business a disproportionate amount.
Coverage levels pre and post on an average basis I think I'll call. It we're still over 10% cover than pre pandemic.
Actually just about 8%.
For like a 20% reduction in coverage.
Old number given that most of our balances.
<unk> Oregon's card balances.
There is some in corporate and SME SME not so much actually relatively small most of the.
Lending in SMA tends.
If we were to code.
Corporate credit yes, there are there are some vulnerable sectors.
But.
In terms of the pace at which.
These things sort of if you like normalize the way I think it's a number of quarters, it's very difficult to put a time on it but I think.
Our approach has been to build.
To be subs quickly.
We released them quite slowly until we're absolutely certain that.
And the necessity for holding those provisions is behind us. So we will be pretty cautious scene in releasing them and.
I will say, even after today's release our coverage levels are materially above where they were pre pre pandemic.
And by the way the.
<unk> indicated that we sort of having in front of us are or is there is no real signs of stress and now in our books as we see it so we will be continuing to be quite cautious.
Kathryn do you want to pick up from that.
So in terms of the issuance massive redemption.
He said DTA.
And net $1 billion.
We see was supported by on the redemption side meaningfully not coming from our okay.
It is too early for us to guide on issuance for next year, but I'll hand over to Dan you can talk a little bit more about the.
The funding profile that we have.
Yes next year, we've got about 10 billion of maturities and calls.
And <unk> clients.
<unk> premised upon again.
A little bit higher than the $9 billion that we have next year. So if you take out sort of average run rate of issuance.
The historic Keys, which is 10.
<unk> 10 billion.
<unk> be some chance that we will continue to be.
A net negative as Sheila.
Scott.
But I'm thinking more on the full year on the issuance plan.
Okay.
That's all very helpful.
Hi, Dan and thanks.
Thanks, very much Rob.
Could we have the next question please operator.
The next question is from Daniel David of Autonomous Your line is now open. Please go ahead.
Thanks, Congratulations on the results thanks for taking my questions.
Just a couple.
And then just for legacy.
2 comments.
Litigation, you mentioned infection risk.
Quick question just in the recent.
Monitoring report EPA raised concerns like Multilane to structure and they were referring to that cascading to ones, which I think is the way that you can.
2.
The ones I mentioned concerns about new principal hustle and be royalty.
Thanks, Mike.
Is that something you're thinking about it is that concern that we should be thinking about with your legacy stock.
The second 1 is just on the ESG.
Recent Emerald consultation paper I noted there was a comment that funds may wish to structure.
<unk> instruments to include Es.
ESG linked features.
It was quite interesting.
Interesting to hear you will take on what does that mean, we see a different type of ESG issuance, maybe linked to something else.
I guess 2 targets. Thanks.
Yes, Thanks, Daniel why.
Why don't you take the first part of that question and then maybe something on ESG.
ESG.
Yes to some extent.
Multilayer tier 2 arguably already today with the competition.
Relative to so its not something <unk> Q3 concerned about I think for US the key point on the infection risk is the fact that we will want to add.
By 81 securities to be the most junior full instrument.
Instrument outstanding.
We think thats going to be the key point for the bank of England. So as Kathryn alluded to in the speech that sort of a relatively easy thing for us to achieve just by maintaining the subordination language of that downstream.
Qualified.
<unk>.
So overall with us.
Got it thanks, that's a huge risk in terms of.
England.
And then in terms of the question around Green AMRAAM, yes.
We did see that.
In the CP and.
Certainly.
You had this morning and softening rod that as we've updated our green bond framework and what we've done is align it to our sustainable finance framework, which covered overall the group plans to hit quite ambitious.
Targets that we have net thereof, and really focusing.
And very much on the asset side. So now we have a liability funding program linked to.
The asset side and have the flexibility now to issue.
Forms of liabilities, we can do CPE structured notes and covered bonds. So I do think that there will be probably.
Some innovation in this area as obviously, we have core 26 coming out and UK guidance look at their own ambitions on the green agenda, and perhaps get some interesting developments in the green space and obviously, we've also seen our securities amongst the international peers linked to other.
ESG criteria and targets the banks have so there could be some interesting developments in this space.
Just.
Caution I suppose a little bit but.
Many banks are very well funded.
We've talked about the liquid balance sheets with the deposit so.
Well I don't think we're very well advanced on Enbrel plan. So.
It will be obviously within the overall funding needs of the U K banking sector.
Thanks, Mike.
Thanks for your question.
Are there any other questions operator.
We currently.
Uh huh.
We have just had a question registered.
Okay.
Our question is from Michal <unk> of Goldman Sachs. Your line is now open. Please go ahead.
Hi, there thanks for holding the call.
I'll just add that's all I'm sorry, you had another question.
Legacy Securities book.
Can I just go back to the comment.
The impediment to resolve the ability and how you are actually seeing that just I guess I just didnt catch that in the context of the legacy securities being.
Issued out of the operating company. Please.
Please.
Yes.
There are 2 aspects to consider.
First 1 is infection risk.
Hum.
If we go to <unk>.
Terminates regulatory capital LLC.
Okay.
And the point that I was making.
Some of that internal 81, the most junior form of capital at the operating company, which can be achieved through simple internal restructure we don't think that is an impediment in any way.
Yes.
The second group is obviously the outstanding legacy Securities that we have.
As Katherine said in the main speech, we've got a very short tail.
Both securities and we have none of those legacy Securities issued.
POC, so we feel generally in.
A good place.
So answer the question.
Sort of because I mean that was I suppose of what I was trying to get out of it is that are you trying are you implying that having a small stock of securities at the Opco level is not actually an impediment to resolve ability.
Or I, just don't know how I mean, I understand those are the points about infection risk and the restructuring in total agreement.
And just more on the second point, how the fact that their optical is actually being addressed because I don't get that part.
When we look at.
From my perspective.
These securities are particularly problematic when they lose regulatory capital eligibility, we've got a very small.
Agreements were outstanding and they retained capital eligibility significantly through the transition profile. So we actually think that.
The problem here is extremely modest.
Obviously, we've we've completed our submission to the bank of England.
Ultimately, we will hear more and Youll hear more from.
Them when they publish their results ability assessment, but.
From our perspective, we really do think this is a relatively small issue.
Got it I agree it's a small issue that for sure alright. Thank you for that.
Thanks Jacob.
Operator are there any other questions.
The next question is from James Hyde of PT.
Your line is now open. Please go ahead.
Hum to Shanghai.
Hum.
Question.
Absolutely.
Oh.
Hey, Jamie a little bit.
Do you mind okay.
That's part of their houses.
Yes.
Oh, sorry, yes, I have a quick 1 question on the whole revenue outlook that you can cost guidance, you've given provisions guidance, but some on revenues and a little bit guidance on this morning's call was about NIM.
I'm in the U K and.
Also the call it volumes booked.
Just called the feeling looking at both the slides and.
Whats happened in capital markets.
Is that it looks like you're saying.
For you guys the Ho Hum.
Capital markets piece. This is as good as good.
As it gets.
And when you've gotten our Ot of 16th groups and you promised 10 percentage.
We will deliver on that to me. It's all reads that from here the only way for CIB is down.
My misinterpreting that.
You've had.
Obviously.
These 4 or 5 years of idiosyncratic market share gains.
Should we read that that's kind of all over for you.
That's the first question and the second 1 is the old chestnut of Basel III final stage Basel for any sort of feel for guidance.
Thanks.
Yes, Thanks James.
Why don't I cover the outlook for income and I'll hand over to Catherine for mobile.
Although 3 exon puzzle for.
In terms of the CIP.
I'm not sure we've seen the best of it yet I think there is some.
Central there I think in capital markets and advisory So I'm talking here debt capital markets equity capital markets M&A et cetera.
Deal pipeline.
He is actually higher than it was in Q1.
Market is still pretty constructive.
Yeah.
There's a lot of money and so they're looking.
Some do to find assets. So I think there is definitely scope for.
That to be a very good environment and we'll see how will we do with that we've made great progress.
And we have been.
Very strong debt house over a number of years.
And M&A practice.
2 have had terrific quarters.
And for where we are at least so I think that probably.
Still a very constructive environment I think.
On the sales and trading side.
Equities again.
We've done pretty well, we had record prime balances at the end of the second quarter.
So it shows that there was a very sort of stable and repeatable revenue depending on obviously, what financing spreads and what have you are you get the halo effect of more execution business as you try to more clients.
The equity story for US is quite good on the fixed income side.
Definitely softened from the from the JV.
Of last year.
I do think that you know we had a question earlier that theyre going to be any inflation shock and things like that those kind of things.
And all of our southern cattle catalog sales and trading to spurts of activity that sort of way above sort of.
Normal expected level so.
Albeit I think it's a fair comment to say.
How can the industry continued to post record quarter after record quarter. I think this is absolutely a fair point.
That's unlikely to happen.
I also don't necessarily see that there could be very strong quarters in the future or indeed, even new records.
Posted.
You might get sort of intermittent spill.
Heightened volatility that can be quite broad so we're pretty constructive on.
On CIB topline just stay the IPO was making the point that if you look at the world.
Just financial assets.
The absolute explosive growth in.
Financial assets over the last number of years.
<unk> been an intermediary and whether it's the secondary or primary markets.
On a secular basis is a good place to be now there'll be sort of ups and downs within the micro cycles, but we believe that there's a very strong secular case to be made in that business.
That's our focus on it.
Let me hand over to customary non Basel, yes.
Look I think you've seen that we've given quite detailed guidance around some of that.
And medium term capital headwinds.
Around obviously the software intangible.
<unk> 9.
Contributions.
And suddenly we do always know that it's helpful to provide guidance to the market around some of these rag impacts that are coming down the pipe, but just at the moment it probably would not be helpful.
So a little bit too early as you know.
No.
PRA Sydney.
Pension needs to consider their own timetable for implementation.
Our approach to some of the different components of the rules.
And obviously the implementation is also potentially 2028 once you think about some of the phasing of some of these changes.
Certainly when there's a little bit more clarity.
But <unk> always do try and provide you.
With guidance around these impacts, but it's probably still a little bit too early.
Thanks, So much fair enough. Thank you.
Thanks for the question James.
Operator are there any other final questions.
<unk>.
We have no further questions.
Okay, well. Thank you for joining US multifamily is helpful that I'm sure.
Many of the team here, Catherine and team will get a chance to speak to.
The road as well.
With that I'll close the call. Thanks, everybody.
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