Full Year 2021 Barclays PLC Earnings Call
Thanks.
Thanks.
[music].
Welcome to the Barclays full year 2021 results analyst and Investor Conference call I will now hand, you over to CFO and Kathy question, Chief Executive Officer, and <unk> Group Finance director.
Good morning, everybody.
This is my first earnings call as Chief Executive of Barclays.
It's a great I wanted to follow through three century long lineups steward of this company.
While I'm new in this job I have been.
Barclays for a number of years.
As part of the management team that developed the strategy, we set out in 2015.
July is it now that we are seeing the benefits of that strategy and the results, which we are about to discuss.
So moving to slide three.
It has been a strong full year performance for the group.
In 2016, we set out in the back.
Capable of delivering double digit return through the cycle.
Last year in 2021, we've delivered a group return on tangible return on tangible equity of 13, 4%.
This included double digit returns in all three of our major lines of business.
Barclays UK, the consumer cards, and payments business and the corporate and investment bank.
The group also delivered a record profit before tax in 2020 184 billion pounds.
This profit included record level of profitability in the CIB and our corporate and investment bank.
Strong cost discipline.
Our net credit impairment release of around 650 million pounds.
And we acknowledge that the economic outlook remains uncertain, but this is reflected in the robust coverage ratios, which we retain.
We also remain well capitalized with a CET ratio of 15, 1% at year end.
And this performance has enabled us to announce the return of over $2 5 billion pounds.
Of excess capital to shareholders in respect of 2021.
This is the equivalent of a total payout of <unk> 15 per share.
The group has demonstrated significant progress.
15.
We delivered a greater than 10% in 2021.
And the objective now is to sustain this performance.
Delivering double digit return on a consistent basis.
For sure was there more about this shortly on the factors that give us confidence in achieving this.
We continue to focus on managing costs.
Cost income ratio of 66% down from over 80% in 2015.
In part this improvement was driven by lower litigation and conduct charges and.
And a substantial portion of our.
Material financial crisis related legacy method.
Hi, guys.
It's also a result of strong cost control evidenced by based costs remaining flat year on year at 12 billion pounds.
We will continue to emphasize cost discipline.
I think efficiency savings.
We will use to invest for growth and to drive higher returns.
We have also managed our capital resources prudently.
Italy, improving our CET one ratio since the end of 2015.
Our strong organic capital generation, including over 200 basis points from earnings.
Enabled us to increase capital distribution to shareholders in 2021.
Barclays remains in a strong capital position and distributions to shareholders remain key.
A key priority for management and the board.
Did that and we are pleased to be able to announce a further buyback of up to 1 billion pounds with our results today.
This is in addition to the $500 million upon buyback, which we announced with our interim results and.
And supplement this expense total dividend for 2021.
We recognize that the economic environment remains uncertain. However, Barclays is relatively well positioned against this backdrop.
We are materially geared to rising interest rates at both the short and the long end of the yield curve.
This means that we benefit from raises in the base rate as well as the steepening of the yield curve.
Our structural interest rate hedge.
We estimate that each 25 basis point upward paradigm shifts the yogurt would add about 500 million pounds to annual net interest income by year three.
In addition, consumer spending levels in the U K and U S have been improving and this is a good lead indicator.
Interest, earning unsecured balance growth to come.
Our latest expense trends data in the U K.
So the debit and credit cards than for January 2022 was up seven 4% versus January 2020 pre pandemic.
In the U S. January 2022 purchases were broadly flat as January 2020, compared to January 2020, as the economy has continued to recover.
Although inflation as a tailwind to nominal GDP as a headwind to us.
A number of active cost efficiency program.
To maintain the impact of.
Inflation to mitigate the impact of inflation I should say, while continuing to invest for the medium term.
At the same time.
Unemployment in the U K and U S remains at low levels.
Unsecured lending balances are reducing and the macroeconomic outlook appears to be improving.
We expect this to mean that the quarterly run rate for impairment is likely to be below pre pandemic levels.
These are positive signs.
Of course recognize that recovery is not assured.
Our Universal banking model is key to our strategy.
Large consumer bank, managing an excellent credit card franchise.
Well as the leading corporate bank and one of the largest global investment banks.
Each is a successful business in its own right, but together they comprise a resilient and balance growth.
Instance, in 2020 in 2021, we had strong profitability in the corporate and investment bank has been notwithstanding downturn in our consumer businesses.
Now.
As the broader economy continues to recover we expect to see an improved performance in our consumer businesses.
Good evening.
Robust performance of the corporate and investment bank.
In order to grow the group and to sustain returns above our target.
Emphasize three priorities I will outline these in the next few slides.
Our priority should enable us to take advantage of some of the long term changes taking place in financial services.
Digitization is one of the most important of these trends.
Digitization continuous delivery finance it provides our customers and clients with cheaper and better products and services.
A better user experience and the most seamless and efficient way of interaction.
This is typified by the upward trends in the number of customers, who want to engage with us digitally.
In the UK, our mobile banking customers continued to grow year on year.
We now have over 10 million people registered on our App.
With around 11000 more added each week.
At the same time branch visits continue to fall.
Pandemic has accelerated the transition.
Within wholesale banking, we continue to have the.
Group in both the public and private global capital markets.
And combining the total market capitalization of issuing securities around the world.
The value of equities and bonds outstanding has grown by over 50% in the last three years.
But at least public markets have grown so too have the private ones since.
Since 2018, the total assets under management in the private market have grown more than 60%.
From six trillion dollars to $9 eight trillion dollars.
Largest private equity and private credit fund dominate this market and there is among our biggest clients.
Finally, as our third priority, we recognize the scale of opportunity and climate related financing.
It is difficult to be precise about the magnitude of this opportunity much as it would have been difficult to predict the value of the Internet Revolution in the mid 19 nineties.
Estimates of the additional investment required to finance the transition or at least three to five minutes.
Trillion every year.
He has this.
This could be a new industrial revolution.
So let me take each of our strategic priorities.
First is the delivery of the <unk>.
Next generation <unk> consumer financial services.
We see the dominant business challenge for this next decade is continuing to transform Barclays to deliver product digitally.
Across Barclays UK, and our consumer cards and payments businesses, we will continue to invest in our digital capabilities.
As a means of delivering better products and services more efficiently and with higher profitability.
Within Barclays UK, we will continue to enable customers to transact and interact.
Digitally.
Our aim is to increase digitally enabled customer journey.
Products and services that can be completed online from 70% to 80% by the end of this year.
We're also observing a steady increase in the use of more flexible and accessible to transact outside of brands.
For example, the number of smart Atms, we operate in the UK will go from 25 at the end of 2021 to 376 by the end of 2022.
However, as we observe these trends it remains central to our strategy.
Just our footprint without neglecting the needs of society.
We are one of the driving forces behind the current initiatives to share banking infrastructure in order to continue access to cash and access to banking.
We will continue to build out more cost effective infrastructure significantly increasing our utilization of cloud computing.
This would have meaningful benefits for our cost base.
We will utilize consumer data more effectively and by doing so we can better understand customers' needs. There is a more competitive offering and simplify our products and services and.
And we will look to reduce the number of products we offer around the third over the next four years.
Targeting gains in service quality simplicity and efficiency.
We also aim to continue to realize value in our PE.
Women's platform, including the synergies with the banking franchises across our group.
We have a significant opportunity to grow our payments business, we have around 360000.
<unk> relationship with UK Smes.
But over $1 million.
Business banking customers. So we have the ability to grow this cohort.
As Barclays on its own.
And merchant acquiring operation, we have a much more integrated relationship with corporates in the UK and Europe .
This gives us the ability to scale up our e-commerce , offering which is a very fast growing part of the payments conflicts.
Having had a relatively conservative posture during the pandemic. We think now is a good time to unsecured consumer lending in both the UK and the U S.
We intend to drive this growth through corporate partnerships, particularly in the U S, which is the biggest global credit card market.
The Prime example of this is our relationship with gap, which will commence in Q2 of this year.
This partnership will not only enable us to diversify our U S card offerings into retail.
From Airlines.
It will also broaden our product suite with the introduction of <unk> in Stockholm.
We also have a significant portion of sales finance partnership and regulated installment lending.
It includes our partnerships with recognizable brands like Apple in the U K and Amazon in the UK and Germany, both of which we intend to grow.
In the CIB, we want to deliver sustainable growth and returns.
Improving our ability to serve clients across our markets as the capital markets themselves expect.
This growth in the private and public capital market is at the core of our strategy.
We are the sixth ranked global investment bank and the top ranked non U S player.
This provides us with a strong foundation on which to continue to capitalize on the structural trend and to build a more diversified business.
Over the past three years, we have improved our ranking benefiting from the investments, which we have made in our people and technology.
At the same time some of our European peers have been existing capital markets businesses.
We have benefited from the high levels of client and market activity during the pandemic and while we recognize that the capital markets business is cyclical the franchise is well positioned to benefit during periods of heightened volatility.
We see opportunities therefore to sustain and grow our share of industry fee pools.
Has been to protect earnings during weaker periods in the cycle and delivering stronger returns.
To that end, we have taken steps to diversify our income across the corporate and investment bank.
For example, you have heard US talk previously about investing in talent to <unk>.
Our equity capital markets business, and expanding our banking coverage in sectors like technology.
As a result, our global ECM fee share has grown 70 basis points since 2018.
Similarly, our global technology fee share has grown 50 basis points since 2018.
In global markets, you've heard us talk about the growth in our prime business.
In three years, our client balances have grown by some 50%. This is a testament to our focus on strengthening and broadening our client offering and the strategic investments, which we have made in our platforms.
Reflecting the growth we have seen in key areas of our franchise.
Delighted to see Barclays win two awards last week.
First the risk magazine named Prime broker of the year.
<unk> named Us as the equity derivatives.
Sure.
Overall financing income at Barclays has grown by approximately 40% since 2018 and this provide more stable annuity type income smoothing our income mix across the across the global markets businesses.
In the corporate bank, we have been working to improve our returns for several years focusing on deepening our client relationships and broadening our product capabilities.
Here too we have divested as we have invested to diversify our income stream.
We've had success growing the number of clients, we have in Europe , and growing fee based income and transaction banking.
Totaled 7% year on year to around 600 million bonds.
Our third strategic priority is to capture opportunities and help our clients as the world transitions to a low carbon economy.
As this fundamental reorganization of the global economy takes place.
Every business in every sector Barclays is positioned to benefit from playing a constructive role.
This means being the trusted partner for our customers and clients as they transition advair.
Advising and supporting them to adapt their business model and in fact, they are individual lifestyle.
It requires us to support our clients from governments and global corporations to SME.
Thats to make their business more sustainable.
We are already using our balance sheet investment banking and capital markets expertise.
Help deliver this advisory assignments.
For example, we have facilitated a 62 billion pounds of premium finance since 2018 through landmark deals.
This includes serving as joint lead on $7 inaugural Green bond issued by European Sovereign since 2017.
However, there is much more we can do to take advantage of the market opportunity.
We are continuing to expand our sustainable finance offering through our specialist team.
And we are integrating sustainability across our service offerings.
We will continue to innovate to develop banking product that.
Consumers and small business would make choices.
For example in 2018 Barclays was one of the first major U K bank to launch a green mortgage product.
To date, we have completed over 1 billion pounds in Green home mortgages, and we've recently launched a green Baidu net mortgage product.
We also keep investing we will keep investing our own equity capital and the young companies that are inventing the low emission low carbon emission technology of tomorrow.
Our focus on climate as an example, and a clear demonstration of our purpose and values.
These were in trying to over 300 years ago by a quicker founders and they include integrity community and stewardship.
We've made significant progress against our environmental social and governance agenda in 2021 underpinned by the surface.
This agenda will continue to be a major focus for Barclays in 2022, including offering shareholders, let's see on climate at this year's annual General meeting.
Okay.
Finally, let me talk briefly about our philosophy towards capital management.
At 2021 has proven the group is able to generate meaningful organic capital from earnings.
Achieving a greater than 10% return on tangible equity consistently would translate to about 150 basis points of annual capital ratio accretion.
This capital can be used to do three things first.
And attractive amount to shareholders, which I stressed remains a key priority for me for our management team and our board.
Second to industrial group targeting demand led and capital light opportunities to drive higher returns and.
And finally, maintaining a strong capital position.
As the foundation of our 13% to 14% CET one ratio target range.
I will shortly hand over to charter it through our numbers.
But let me close by saying how pleased I am with our performance this year.
Our strategy is delivering.
We have set clear priorities strategically.
And I am excited about the sustainable positive growth for bucket.
I am confident that this positions us to be able to deliver greater than 10% royalty on a consistent basis.
And before I end.
I want to express my gratitude on behalf of all my colleagues at the bank.
The sharp north area for eight plus years of outstanding service to Barclays as our group Finance director.
And his first year in the job in 2013, we had reported a PBT of $2 9 billion pounds and <unk> of one 2% and a CET one ratio of nine 1% after a $6 billion bond rates this year.
Since we are now.
This cleaner leaner profitable Barclays of today.
Much to push our growth vision and execution capabilities.
I have personally known to sharper over a decade in the half and have always valued his counsel and friendship.
I am reconciling myself to us wanting to change.
But I'm delighted he will stay on that bucket.
Chairman of our financial institutions group in the investment bank and be a value to our client and to us.
It is a testament to share our vision and leadership.
<unk> identified and prepared in a crop to be his successor.
I have worked closely with Ana for 50 years.
And I'm delighted that she is our new group Finance director.
She is intimately familiar with the strategy of the bank and all aspects of our financials, having been controller for bank as well as CFO of our retail operations.
And as molded from the distinguished quarter's tradition and global banking.
And she was two at our finances and strategy with prudent diligent discipline and rigor.
So thank you tushar for everything welcome Ana and congratulations.
And over to you to show up for Ya Valedictory address.
Thanks, Pankaj, while it may be the right time for me to be moving on a constant chemotherapy in both <unk> to be shooting and driving Barclays forward for many years to come.
Moving on to the numbers as usual I'll start with a summary of our full year performance and then go into more detail on Q4.
Through the year the strength of the CIB has continued to offset the effects of the pandemic on our consumer businesses.
We are now seeing initial signs of recovery.
Overall income was up 1% year on year, despite an 8% weakening in the average U S dollar exchange rate.
Cost increased by <unk> 6 billion to $14 4 billion and I'll say more on the cost trajectory shortly.
Following an impairment charge of $4 8 billion in 2020, we had a net release of <unk> 7 billion for the year. However, we maintained strong coverage ratios in line with or higher than pre pandemic levels in key portfolios.
This resulted in a PBT of $8 4 billion a significant increase on the 2020 profit of $3 1 billion.
The ETF was 37, five tenths and we generated an RFP a 13, 4%.
<unk> increased by 23 franchise of the year to reach 292.
Our capital generation has put us in a position to pay a full year dividend of <unk> 10 per share, making six tenths in total for the year and launched a further share buyback of up to $1 billion. Following on from the $500 million buyback executed in the second half of 2021.
Total capital return to 15% per share equivalent in relation to 2021.
Of course, we also completed a $700 million buy back in April in relation to 2020.
We ended the year at a 15, 1% CET one ratio of 14, 8% adjusted for the announced buyback well above our target range of 13% to 14%.
He was on income costs and impairment trends before I look at Q4.
You mentioned the benefit of diversification throughout the pandemic.
Delivered resilient income group income performance in 2021 up 1% from 2020 despite years dollar headwind.
Posted a 3% increase can be UK income with growth in mortgages and non recurrence of COVID-19 related customer support actions, partially offset by lower unsecured lending balances.
CCP income was down 3% year on year, reflecting lower average U S card balances increased customer acquisition costs and a weaker U S dollar, but income from payments and the private bank increased year on year.
<unk> income was down just 1% on the very strong 2020. Despite this all the headwind with the strength in the fee businesses and equities offsetting weaker performance.
We summarized here some of the trends that are driving income across our lending businesses, which underpin our confidence and income growth going forward.
We have a continuing tailwind and secured lending volumes in the UK, adding almost 10 billion in mortgage balances year on year.
On unsecured lending we have been consistently cautious throughout 2020 and 21, but we are now seeing the first signs of recovery and are optimistic about the prospects of a return to balance growth.
The rising rate environment is a significant positive for us through the effect of higher longer rights on the role of the structural hedge in addition to the effect on deposit margins of recent base rate rises and potential further increases.
The table on the right of the slide shows another statistic example for a 25 basis point parallel shift upwards in the current yield curve.
And the movement in the yield curve. It means that we now expect the role of the structural hedge to be a tailwind in 2022.
Just to remind you an income benefit from a 25 basis point increase in rates is spread across the group with around two thirds now expected to benefit Barclays UK.
Okay now.
Fixed costs, which exclude structural cost actions and performance costs are flat at $12 billion for 2021 in line with our previous guidance.
Overall costs increased by <unk> 6 billion to $14 4 billion as a result of the increase of <unk> 3 billion in structural cost actions and <unk> 2 billion in performance costs.
Looking first at structural costs. The full year total of <unk> 6 billion included the real estate charge, we took in Q2 and <unk> 3 billion in Q4 largely related to the transformation spend.
<unk>, which we flagged at Q3, and which will start to bring savings from 2023.
We will evaluate further structural cost actions for the current year, but I wouldn't expect that charge is the largest 2021.
We did place some inflation on costs, but we expect only a modest increase in base costs from the level of $12 billion, while continuing to make investments funded from cost efficiencies.
Sure it could give overall cost guidance, but I am broadly comfortable with where the cost consensus currently is in the 14, 3% to $14 $4 billion range.
Moving on to impairment.
A net release of the group was <unk> 7 billion for the year, the charging CCT more than offset by net releases in the U K and CIP.
This compares to the charge of $4 8 billion taken in 2020.
On the right you can see that the 2020 charge comprised roughly half stage three impairments on loans in default and half stage, one and stage two tests.
2021, we had a chart of <unk> 7 billion phase III payment, but early of one 3 billion on stage, one and stage two balances as macroeconomic forecast reflects the VA then when the 2020 provision was taken and there has been a sizable paydowns in unsecured balances.
They are included in the appendix an updated slide on the macroeconomic variables and post model adjustment.
You'll note that we're still holding of $1 5 billion and management adjustments.
But I think the best way to think about our current impairment provisioning if I look at your coverage ratios, which is shown on the next slide.
Despite the release in 2021, we still have strong coverage ratios.
I want to focus on is the coverage of the unsecured book.
Yes, the overall coverage ratio is still $8, 8% above the pre pandemic level coverage on stage two balances most of which had not passed jade its still 30% compared to the end of 2019 level of 18, 7%.
With a mix coverage ratios for credit card, but still higher than the unsecured outreach with 30, and 90 day arrears figures are well down year on year.
With these levels of coverage and we expected modest organic growth in unsecured balances, we expect our quarterly impairment charges remained below historical pre pandemic levels in the coming quarters.
Turning now to Q4 performance.
Income was up 4% year on year to $5 2 billion with protein <unk> and CCP and CIB income stable.
Costs were down 3% year on year delivering positive jaws, we had a small impairment release compared to a chart of 0.5 billion for Q4 2020.
As a result profit before tax was $1 5 billion for key for upfront upfront 0.6 billion the previous year <unk>.
Attributable profit for the quarter was $1 1 billion generating an EPS of $6 six.
<unk> of nine 3%.
I would remind you again that these are all statutory numbers and taking to account that litigation and conduct charge of $46 million.
Tina per share increased by five tenths to 292 tenths in the quarter, reflecting a $6 six tenths of EPS.
Looking now at the business results for Q4 in more detail starting with the U K.
Income increased 4% year on year, while the continuing strong with the continuing strong performance in mortgages.
<unk> growth with a net increase of <unk> 7 billion in Q4, taking total mortgage book growth of almost 10 billion year on year.
The mortgage market is always very competitive although there are some signs of pricing firming up.
As I showed on the earlier slide credit card balances were broadly flat with Q3 at $9 5 billion still down 15% on the end of 2020 and 40% from 2019.
Although omicron related restriction staff and spending in December and January we now expect the spend recovery to generate some growth in unsecured lending balances.
The rest of the year.
NIM for the quarter was 249 basis points flat on Q3, we expect improvement in NIM during the current year on the back of rate rises.
Extensive can fragrant will depend on the timing and number of rate rises and the long end of the curve as well as product mix and pricing.
There are a lot of variables, but is it safe to according to a NIM for 2022 in the range of 260 to 270 basis points.
Is it an assumption that the UK base rate, which is 1% by the end of the year. Although you will note. The futures market is currently pricing in high rates.
Increasing noninterest income compared to Q3, a $50 million reflected higher <unk> sales.
<unk> increased 5%, reflecting a $196 million of structural cost actions designed to deliver efficiency savings over time, a significant increase on Q4 2020.
We expect the main savings from these measures will start coming in from 2023.
Well as an impairment release for the quarter of $59 million compared to the chart a 0.2 billion. The key for 2020, our coverage ratios, particularly in cards with strong as I mentioned earlier.
Customer deposits increased by 4 billion in the quarter.
Was 16, 8%.
Turning now to Barclays International income increased 1% year on year to $3 5 billion, while customer marginally GAAP impairment charge was $23 million, resulting in an RFP of 10, 4%.
I'll go into more detail on the next two slides beginning with the CIP.
And couple of broadly flat demonstrating the benefit of diversification within the CIP for the weaker performance in markets largely offset by growth in investment banking fees.
<unk> costs decreased by 7% delivering positive jaws, and a cost income ratio of 65%.
As I've mentioned in previous quarters, the increase in the variable compensation accrual was skewed towards Q1 in 2021 in line with performance.
There was a 73 million net impairment release compared to a small charge for 2020.
CIB generated an RFP for the quarter of 10, 2%.
Okay, being coming a bit more detail global markets decreased 23% overall in Sterling.
Both ticket expertise lookout, but equity is quite just 8% and prime balances continued to grow.
Overall, given the performance through the year and the investments made in various areas remain positive about the development of our markets franchises.
Investment banking fees reached a record level for the fourth quarter and $956 million up 27% year on year.
We saw strong increases across all three fee lines with equity capital markets one of the areas we invested in the standout performer.
I'd like to make any specific comment on January trading, but I would observe that while volatile markets may affect the timing of primary deal flows they.
They may be favorable for secondary market businesses.
Corporate lending income was down slightly at $176 million with loan demand remaining muted transaction banking on the other hand was up 32% to $453 million.
Turning now.
Turning now to consumer cards and payments.
Income in CCP increased 4% to 0.9 billion, reflecting growth in payments and the private bank, partially offset by lower income from U S. Cogs.
Newest cost for continuing recovery in currencies, adding $1 $1 billion in the quarter to reach $22 2 billion.
That 6% growth year on year, and 5% growth on Q3.
However, the income effect is dampened by the J curve investment in advanced growth, particularly on customer acquisition and in the.
Particularly on customer acquisition, and the growing portfolios like American Airlines and Jetblue.
We finished strengthening high payment rates in line with the market, but we are confident of delivering balanced than revenue growth in 2022, both organically and with the acquisition of the Gaslog forget which comes towards the end of Q2, but the fact of currently expect it to be around $3 $5 billion.
Payments income was up 29% year on year and close to the Q3 level. Despite omicron related restrictions in December .
Private banking income increased 16% year on year as client balances continued to grow.
Investment and higher marketing expense was reflected an increase of 13% in CCP costs.
The impairment charge was $96 million well down year on year and the RFP was 11, 7%.
Turning now to head office, the negative income of $49 million with better than the $75 million underlying run rate I've mentioned before.
Cost of 155 million were higher than our usual run rate, including some further costs related to discontinued software assets. These are included in our base costs, rather than hold out structural cost actions.
Before tax for the quarter was $198 million.
Before I move on to capital a quick summary of our liquidity and funding on the next slide.
We remain highly liquid and well funded for the liquidity coverage ratio of 168% and our loan to deposit ratio of 70%.
Moving on to capital.
Tier one ratio.
Ended the year at 15, 1% well above our target range of 13% to 14%.
During the quarter the ratio declined slightly from 15, 4% with profits broadly offset by the expected <unk> growth, which we flagged at the Q3 results.
However across the year the ratio was flat despite $1 billion of dividends paid and accrued and $1 2 billion for the share buybacks executed during the year, a total of 72 basis points return of capital.
Thanks for the organic capital generation from profits in 2021 is a good illustration of our ability to return capital.
Announced a further buyback of up to $1 billion to follow these results showing the effects of this proposed slide back in the queue on regulatory headwinds on the next slide.
The announced buyback will reduce the given ratio of 15, 1% by about 30 basis points, which previously identified various regulatory changes coming in this quarter, most notably the reversal of the software amortization benefit of 35 basis points. In total is expected to have an effect of 80 basis points similar to what we showed at <unk>.
Yes.
So that will take the ratio to around the top end of our target range.
With these changes behind us I wouldnt expect to be calling out further material regulatory headwinds over the next couple of years.
Looking further out we are mindful of the eventual introduction of Basel III, one we would like more detail on implementation, including timing, but our best estimate currently as a risk.
5% to 10% to <unk> at that point of implementation based on the 2021 level.
And we'll be monitoring closely to what extent the effects will be partially mitigated by changes in pillar <unk> requirement specified by the bank of England.
We will factor Basel changes into our usage of capital as we get closer to implementation I think this is very manageable.
Im not going to forecast the precise fluff pulp with the capital ratio from quarter to quarter, but going forward. We are confident that the balance between profitability and investment in growth will leave us with net capital generation to support attractive distributions to shareholders over time.
Andy comfortably within our target range.
As I've said before the wholesale ticket capital distributions ratably through the year isn't just a matter for an annual discussion as you saw in 2021.
Hi, Alex its range gives us appropriate headroom above our MDA hurdle, which is currently 11, 1%.
The chart shows how the MDA hurdle is expected to result of the counter cyclical buffer increases indicated by the bank of England to reach 11, 6% by year end.
And potentially 12, 1% in Q2 2023.
As we've obviously taken this into account.
Yes.
We have obviously taken this into account in setting our target range.
Finally on leverage our year end leverage ratio was five 3% similar to the end of 2020 and the average UK leverage was four 9%.
Before concluding I just want to say a few words about the flight path for our th.
Which are likely to hit our target of over 10% in 2021, but we are conscious that the 13, 4% benefits from a net impairment release. So it's understandable that the market wants to assess how sustainable a double digit Roe tes.
I'm not going to given our forecast for 2022, but I wanted to talk through some of the factors that give us confidence. This is achievable as we pursue the strategic projects of end cap.
<unk>.
The left hand side, we've adjusted the reported return to eliminate some of the load.
Some of the effects of Logan Tammy.
To do this in a number of ways for this illustration reverses out the macroeconomic released a modeled impairment.
Together with removing the effects of the 2021 deferred tax asset re measurement in the UK. This is basically <unk> to around 10%.
Looking forward over the next couple of years, we have some identifiable tailwind and headwinds on the income front, we expect a significant tailwind from rate rises plus some recovery in unsecured balances and growth in payments income, including transaction banking among headwinds I've called out some further increase in impairment as balances recover but as I mentioned we.
Expect the charge to remain below pre pandemic levels for some time.
On the tax front, there will be a negative from the UK DTA remeasurement in Q1, reflecting the reduction in the bank bank tax surcharge from 'twenty to 'twenty three.
Among the tenants have a slight increase in the UK tax rate for banks from 'twenty to 'twenty three but the physician on potential increases in U S tax rates is now less clear.
Other factors to configure all of our cost trajectory in the direction of CIB income and performance costs.
We can influence the cost trajectory according to the environment and our projects in particular, the extent to which cost efficiencies are invested in growth initiatives.
Level of any further structural cost spend.
The investment Bank performance is hard to forecast the market consensus it saw some reduction in income. This year. However, there are positive structural trends from the size of capital markets and we have made progress in strengthening our franchise in a number of areas such as equity prime and securitized products.
So overall, we feel we are well positioned to achieve double digit returns on a sustainable basis.
To recap.
Reported statutory earnings per share of 37, five pence for 2021 and generated a 13, 4% <unk>.
And we're focused on delivering our target of double digit <unk> on a sustainable basis going forward.
We're seeing some recovery and lead indicators consumer income and believe our diversified income streams position us well to benefit from the economic recovery and rising interest rates.
Reported an impairment release of zero 7 billion maintained strong coverage ratios and we expect a run rate for impairment to be below the pre pandemic levels over the coming quarters.
Delivered cost in line with guidance for 2021, although based cost for 2022 expected to be modestly higher as a result of inflationary pressure cost to remain a critical focus and we will be disciplined on performance cost and on the extent of further structural cost reductions.
We executed two buybacks totaling $1 2 billion entering 2021 have announced a further buyback of up to $1 billion with these results.
In addition to the total dividend of six pence per share.
Capital ratios are strong and remain confident of delivering attractive capital returns to shareholders. While also investing for future growth.
Thank you and we'll now take your questions and as usual after you limit yourself to two per person. So we get a chance to get around to everyone.
We wish to ask a question. Please press star followed by one thank you.
If you change your mind on that.
Your question. Please press star followed by Keith.
To ask a question. Please ensure that youll phone is on mute.
From that star followed by one to ask a question.
Your first telephone question today is from Mark <unk> from Credit Suisse. Mlps go ahead. Your line is now open.
Good morning, Thanks, very much for the presentation and taking my questions and I also want to 16 months.
To to shuffle and wish you the best of luck from acute care.
Two questions. Please.
Firstly on UK NIM.
I guess some of the key sensitivities for the $2 60 to 270 basis points.
Is around deposit beta assumptions in mortgage margins and then you said, you're assuming a base rate of 1%.
The market is expecting something higher than that.
Could you help us.
About.
What assumptions you have on.
Deposit pass through.
For these to these very high.
<unk>.
To the.
<unk> figure that you've given us and I appreciate your comments.
Mortgage pricing.
In the past couple of weeks.
Could you also help us think about.
Churn assumptions, you're making in the.
The $2 60 to 270, so just a bit of color.
<unk>.
One of the key assumptions are behind that.
And then my second question is on.
The return on tangible equity target.
Thank you very much.
So the two Atlanta.
I guess the piece that might be missing as you said.
The normalization of that.
This from here.
Thinking around.
When the cost income target to 60% might.
It might be Matt.
Obviously, it's very revenue dependent but could you help us think a little bit more about the path towards.
Cost income ratio. Thank you.
Yes, Thanks, Omar and I appreciate your comments on.
The <unk> are we seeing some of you next week anyway.
But why don't I take those questions in both had may want to add some comments.
Don.
<unk>.
The U K NIM I think your questions well.
Do we think about deposit beta.
<unk> Chen mortgage churn.
So if the deposit beta for a hopefully you've seen how we've repriced.
Our deposits.
For the first two rate rises that we have seen and I don't see being relatively muted.
Repricing, so a very very significant pass through assumption, we've given out sensitivity for a further two rate alright, a further 50 basis points of increase in base rates.
Our sense is that it's still be relatively.
High levels of.
While low levels of deposit beta in other words, we capture a lot of that rate rise.
I want to throw out specific numbers, but I would say that I think is.
So you get higher rates the chances are that you've probably proportionately start capturing less and less of a subsequent rate rises come through it.
Very helpful.
In a very sort of precise on this because.
We've never we haven't really got an empirical data or if anything like this historically, where we started from such a low base and rates sort of rising relatively quickly and on top of which hopefully the U K banking system has an awful lot of cash on deposit so.
But I think for the local sort of movements in the first or the next sort of two base rate rises up 50 basis points.
We should be able to capture a reasonable amount of <unk>.
But we'll see.
On mortgage churn.
The way the way I think about mortgage churn just let me get that definitions right is it's really on the flows so in other words every.
Product that comes for refinancing Thats on Outback books, So, let's say a two year fixed rate product that comes through refinancing what right till we refinancing that into or do you think at current pricing levels that that probably will go negative.
For now, it's really really hard to.
Be that precise sort of further out because you've seen how how frequently I think the large lenders have been repricing their mortgage Reits I don't see EBIT amusements and the swap curve it's been quiet.
Quite active so although I'd say the near term pressures on negative churn on the flows.
On sort of cannibalizing Trump production if you like.
Beyond that it's a little bit hard to tell.
But by and large.
I think what we're really trying to say is that.
We're reasonably optimistic.
And what a at least what the current.
Assumptions that we have around rate rises and what that will do to add to our income trends of D. C that you now named.
NIM guidance in terms of return on tangible equity.
Normalization of loan of this just to remind folks briefly I'm sure you've sort of got this from our scripted comments, but although we don't give you a loan loss rate.
At the moment are sufficient to say that we would expect impairment charges to be quite a bit below pre pandemic levels really is a function of a very benign credit environment and you can see that in ethylene Quincy data you can see that in.
In the sort of the macroeconomic environment as well as well as the lower unsecured balance.
Right, then we have pre pandemic cost income ratio.
You're right is as much a function of revenues as it is cost.
We've talked about cost being in line with where current consensus is for 2022.
We're quite optimistic on consumer income Ci.
CIB income a little bit harder to be sort of precise in the forecast, but again, we think we're well positioned generally speaking is it.
As that business develops so.
I'd also say that.
For US 10% is outflow to guiding north North start we we reached a 10% return on a statutory basis this year.
Our objective is to try and do that every year.
And I think as we as we sort of do that in subsequent years Youll see the cost income ratio, just naturally glide down towards that 60% Alberta.
So thanks for your questions.
Thank you very much could we cut the next question. Please operator.
Our next question comes from SaaS from K B W. P.
Please proceed with your question.
Yes, thanks, very much good morning, everybody.
Good morning, I just have two.
Good morning.
One was around CIB revenue outlook.
And as you remember there was a lot of speculation in the press.
The January time that you've taken a big one off hit on a particular transaction.
To keep worried about the details of the transaction can you give us some sort of idea of the quantum of that.
In terms of the Q4 numbers and.
Yes.
More importantly, looking forward.
Than that is there anything particular about your business this year, which would mean that going forward you would perform any different than what we're seeing from the market as a whole I mean, all of the U S. Banks are giving us guidance in terms of how the market place in the.
Q1, I guess that that would be my first question did you have a second question at the same time I don't want to give us a place of the met and we will try and do it together.
The second question was about credit quality.
I hear what you say about credit, but if I look at your stage three balances in.
Q3, Q4 versus Q3, they were up quite markedly in the UK.
I end up quite markedly in international which.
Got it.
Right.
Im reading that correctly.
And I guess the question Barry.
It's very easy at the banks on the each time, we hear about another 25 basis points of interest maybe ICT chubb in another $2 million to $300 million of rapid.
But I guess the reasons isn't great right.
Just like the economy.
Wondering what sort of work you've done internally about what level do you start to feel that rates would be.
Sort of headwind, where youll start to see credit issues coming through in your book.
Thanks.
Thanks, Ed.
Why don't I ask maybe to talk a bit about the.
CIP revenue in the item that you referred to and maybe I'll come back to credit quality I think I may want to add some commentary as well sure. Thanks.
Thanks, Ed.
I think our CIB, both in our markets and banking businesses had been making strong and steady progress over the last few years.
We have a sixth rank markets business. We of course is the strength banking business markets business has gone from 8% to six approximately three years and the markets business.
Business banking has also improved.
And this is suddenly increasing market share now in that context, you will see some strong quarters in some quarters, we just might be weaker.
What I would say is on that specific item.
Debt.
The strength of our business is now the greater coordination and large transactions, which we do.
Banking and markets.
<unk> majority of these transactions are.
Very profitable to us and very helpful to the clients in managing their risk in getting the.
Profile that they want the return profiles that they wont occasionally one of these things does not work out quite as planned.
We don't like it when that happens and we learn from it and we move on but I wouldn't read anything particular into this.
And I have.
Great confidence in the continuing trend.
Strong performance in the CIB, both in banking and market and accretion of market share.
Thanks, John .
Second question in terms of at what point do we start getting concerned about credit quality as rates rise.
Right.
You bet.
At the outset before we make any lending decision at least particularly on the consumer side. Obviously, we would do this in much more detail on the corporate side on a name by name, but depending on the consumer side.
This stress for affordability at the very outset.
To give you a sense for mortgages, we would stress customers two 6% mortgage rates, where we feel it's prudent to be extending the mortgage that gives you a sense of.
Sort of how we think about.
Where that should go the other thing I'll say is just in the consumer book obviously it is dominated at the moment by a mortgage business, which is predominantly fixed it's just the nature of the UK market. So there is obviously rate sensitivity to customers from there, but it is the point of refinancing rather than sort of instantaneous transmission.
The final two things I'll say it this way.
We are seeing relatively low levels of indebtedness generally.
So.
We aren't seeing.
Customers at this state's exhibiting real stress.
And any sort of meaningful way.
The one thing I would say that in terms of your own work. When you are looking at what point could this be more of an issue. It will be I think unemployment is probably the best lead indicator.
So as unemployment stops trending up, particularly above perhaps where most people would expect to be sort of breakeven level of.
So the residual of unemployment at that point Youll see.
Credit quality change and Thats, the best lead indicator at the moment, we feel some way away from that unemployment.
At extremely low levels, both in the U S and in the UK. So we are not concerned at the moment, that's probably the one area we watch closely.
And I'll add to that that I think in the economic cycle and the credit cycle, particularly where buildup of balance is more beneficial to us from an income point of view and hurtful to us from a credit point of view.
I don't see.
I see that margin tradeoff, a balance that's being beneficial to us.
Okay I'm sorry.
In terms of the stage three balances is that just something to do with how you add them up at the year end or something or.
We should probably maybe have maybe after this call rather than sort of got it I'm just looking at the quarter on quarter stage three in that slightly down, but you might be referencing of different tables, perhaps we can give you a quick call. After this one that just to make sure we're synced up.
Okay alright. Thanks.
So we have the next question please operator.
Our next question comes from Jason Napier from UBS. Your line is now open. Please proceed with your question.
Hi, Good morning, Thank you for taking my questions.
Congratulations to you too Shaw as well as to Venkat.
And just to Echo what Adam I would say thank you for the hardware. It can help over the years and I'm trying to make sense of all things financial.
Two questions.
Please.
Okay.
Venkat and fatigue.
The 10% ROIC targets.
Is around 160 basis points CET one.
So when we're thinking about the 10.
10% royalty and 150 basis points.
Capital accretion fit together I wonder, whether you might talk a little bit about.
What's the normal NWA growth will consumption.
<unk> demand.
Particularly with it.
You saw any changes to the.
Composition of the group in the coming year, So that'd be the first question and then secondly.
I get what you're saying about the customer acquisition costs and <unk>, that's something we're hearing from the U S. Players quite clearly some of the offers in the market are pretty attractive.
But there's just something you've gone down before.
So I just wondered with the signaling that consensus is not listening at this stage were $3 7 billion for 2022.
13% I would've thought with balances growing 5% last quarter and the GAAP portfolio coming on.
Stream that would've been the number that you could achieve that perhaps you could be more.
Clear about what it is you are saying about <unk> and that those headwinds as we go through this year. Thank you.
Yeah, Thanks, Jason and thanks for your.
Comments at the beginning of the question why don't I just cover them, but we operate in I think that kind of a what I'll make a couple of comments as well.
<unk>.
Yes.
Alright.
Just rounded it to 150 basis points of.
Capital generation, we weren't trying to be super precise in terms of the gist of your questions as to how much of that gets absorbed by.
I guess growing our balance sheet.
Putting capital back into the businesses I think what Youll see is as the consumer businesses recover we would very much like to grow consumer assets, both in unsecured mortgages scene.
In U S cards as well as in the UK.
Those aren't particularly capital consumptive assets, though.
So I don't think Youll see.
Much anyway, if you like.
Inflation as a consequence of growing the consumer side of the balance shaped up and lease.
The investment bank and the innocent bank, but just be more nimble that you've seen auto gas has gone up slightly over the course of this year, it's been a pretty decent environment with them.
That's super active capital markets as well as sales and trading.
So that may ebb and flow a bit, but I don't think youll see sort of material differences in.
EBIT in the CIB side to the upside, but then Kevin do you want to talk a bit more about sort of how he sees business composition over the more medium term just.
Just a quick word on customer.
Acquisition costs in <unk>, and I will hand over to Venkat.
Yes, you're right to point out I mean, I think this is a.
Positive lead indicators, so what's really important for us is the sort of three stages to us first of all the people wanting your card so I know that.
Words are people opening new accounts with you when we look in the U S account openings are going real well and I think.
Pretty much back to pre pandemic levels and sometimes better in some portfolios.
So thats good people want out card, but going out and getting our cost for us on second thing how are they using our card spend data in sort of gross purchase volume, they're very much in line with.
Much of our U S peers, when I look at the sort of industry averages and again that feels really good for us.
Because we are at more of a partnership business and we're competing with a lot of open market, Brian So to say out such as volume.
Very consistent with them is great news and the third thing is at what point do balance is growing people revolve when you're seeing balanced growth now and I'm pretty confident resulting revolving balance is growing as well as we get into next year. So overall I think we're pretty constructive.
In the U S cards business growth and really the the increase in sort of customer acquisition cost, which by the way. It does hit all three line items of our P&L you will see some in contra revenue and so we sort of gave a rewards out when people first start using our hubs you state in the marketing aligning our expense line in OCC in tenant building seven.
As balances of new lines.
So I can state sort of scattered throughout P&L, but that to me is a very positive leading indicator in the oil fields in the right place.
Look.
Indoors.
Ted.
I think overall business mix.
As indicated we would like to see more balanced growth.
The modest capital consumption that goes with it.
From the consumer side, especially in Cod.
On back on cost in particular, we like that.
The onboarding of our comps with gap.
D C diversify the portfolio.
Ben.
Travel heavy portfolio and so it brings in more retail and a different spending mix.
And then on the investment banking side.
We continue to have one quarters, what we've got sustainable organic growth and I think in many ways on the market side of our capital fluids nimble, it's a function of where the trading volumes are.
Which we're pretty constructive on at this quarter the gun.
And we would we would tend to see I think.
Growth continued in equities.
Securitized products.
And of course, the macro with an active amount of volatility.
And.
The big activity over the last couple of years that has grown which has been rewarding to us has been prime where that business has increased tremendously.
Capital, the Goodman, because theyre very well structured balances.
But thats been.
So the bottom line is that that we believe we have the capacity to absorb what we think is the expected growth in our trading businesses and banking businesses will grow.
Thanks for the questions Jason.
Thank you. The next question please operator.
Our next question comes from Jonathan <unk> from UBS. Your line is now open. Please go ahead.
Sure.
Hello, Good morning.
Couple of questions. The first one is.
The numbers question around.
<unk> tier one.
In the first quarter.
In particular are looking for some guidance on Monday, that's going to be an impact of the big move in the swap rates that we've seen thanks Paul.
This year Youll.
Reporting account sizes about the Dominion power pre tax hit on.
If annualized CLA, maybe 20 basis points.
It was up to about 1 billion pretax thanks, so much.
So far this year, but you don't split it between pensions, which doesn't need capital and other things, which do so it gave us a bit of help. Please on any Q1 headwinds coming from from that that would be really helpful.
Question is much broader than it is on the distribution profile.
Dividends versus buybacks is it your intention to just the ordinary dividend up over the next few years, 40% 50%.
The PFS tool.
To be a bit more dynamic than that and if the shares continue to trade spot six five tons.
It pays out in full then you see already hit 12% next day as you clearly didn't share is pretty tricky.
Pretty cheap there will be a big bias towards buybacks versus ordinary dividends in the near term.
Thanks very much.
Yeah, Thanks, Jonathan why don't I take both of them.
On your question about CET, one headwinds from FX.
Of course, there are some headwinds that the best way I mean, there's so many things that go into the CET one ratio with.
Business activity tailwind headwinds et cetera, the best thing I would say is a typical profile for us would be.
Uses of capital net uses of capital in the first quarter. It tends to be a very active quarter for us we will see in our investment bank a lot of deal activity level southern trading opportunities and then we tend to steadily for the net net.
Great capital.
The remaining three quarters.
Rather than sort of getting into the sort of wherewithal of individual components of state of the ratio casino, although although it moves back up in rates, maybe detriments to iff's. It may be better for income it might be better actually for fixed income financing spreads in the IP and has all sorts of things that change.
But generally net uses a small amount of capital in Q1, and then generate capital from that point on which is a typical year for us <unk>.
Distribution profiles.
We sort of guided to a progressive dividend policy.
I think it's fair to say that the assumption is all things being equal.
You would expect that dividend to grow at a reasonably healthy right from from where we are today.
You rightly point out that given the share price, where it is today buybacks look incredibly attractive we absolutely do feel.
As we said number of times.
We leave with a 10% double digit earning banking thats, our objective to try and do that every year.
That fall season, reflecting we believe in our share price of buybacks look incredibly attractive at these levels, but the dividend as it.
It is a progressive dividend.
I'm not sure the board would look to reset the level of dividend until perhaps the shares or a different price point.
So is your question Jonathan.
Yes, Brendan thank you very much.
We have the next question please operator.
Our next question comes from Jason.
Question from Jefferies. Your line is now open. Please go ahead.
Hi, Thank you for taking my question just a couple of longer run type of questions probably more for Venkat at this stage.
When you look at the U S C CMP business.
How meaningful is that.
The business extension into adjacent businesses.
The resulting revenue augmentation from that so driving leveraging gap portfolio on whatever future store card.
Deals you May do I guess, how meaningful do you see that opportunity in the context.
The group.
And then related to that just come up.
The near term.
Costs were up 13% year on year in <unk> I guess, how much of that is.
Head of landscape.
And how much of that is more idiosyncratic.
To Barclays and again linked linked back into those two two points as Venkat do you do you feel that the group.
Some of these to where the risk how do you feel that the group has taken enough risk in some of the areas in unsecured finance.
So why don't I I'll spend cut to.
I have some comments on the longer term, particularly that's sort of the mix of.
Card portfolios in the U S business and.
This profile is well let me just make some introductory comments first Joe I'd say.
Moving into our diversifying it differs declining away from hospitality and travel is a is a very big deal for us.
And the gas portfolio.
Two very important things for us one it takes us into a completely different.
Space in terms of the partnership product if you look really broadly speaking.
The overall industry wallet for partnership programs about half in travel and hospitality and leisure and the other half is in retail and we don't have anything in sort of traditional retail. So GAAP is a big deal for us in terms of customers.
Put that into context in the U S. GAAP will be approximately 11 million customers.
The number of customers, we have in the United Kingdom, and we have a very significant player. So I think 11 million customers in one shop is a very big deal from the other thing. It does actually takes us into a brand new product as well as a brand new segment of the market and that seemed to Stockholm.
Install costs in the U S.
Around about 40% of the market. So that's an area that we don't do anything at the moment as well. So this is a big deal for us and we're very very excited about.
Being able to do this and we hope that the beginning of a change in the credit cycle. So after the <unk>.
Pandemic now we're into a recovery cycle hopefully have a decent consumer cover something that's the right time to be sort of really pushing investment in this.
I think in terms of the risk profile I should probably not make any comments on that.
Eric <unk>, Chief Risk Officer, and now Chief Executive Officer comment on both of them.
Yes.
Yes.
So thanks, Joseph I think.
I Echo what <unk> has said and I think the question you had about adjacencies.
There are clearly some technological adjacencies that's happened with the card portfolio I think the more meaningful adjacencies that we have capitalized on so far are actually the investment banking adjacencies. So our cards business is it corporate oriented business.
We have millions and millions of customers actually we are dealing with a few dozen corporate.
And.
The core relationship is a we had to sell them into much broader investment banking relationship, which has been particularly been lucrative for us.
Onto our clients. So that's a very important adjacency I think more broadly do we take enough risk I would say do we take the right type of risk and I think.
The one type of risk, we do not take.
Particularly as our own branded card and.
And that's important because we don't have abroad.
U S retail presence and we don't know the customers as well when we take the portfolio risk.
In our corporate card program.
We are working with a lot of data familiarity and then Charlotte said diversifying away from travel into both pregnant or white label cards as well as the retail segment is actually we think risk improving for us.
Thanks, Great questions Joe.
Okay.
We have the next question please operator.
Our next question comes from Elvira.
From Morgan Stanley . Your line is now open. Please go ahead.
Hi, Good morning, I have a couple of follow up questions really first of all on your NIM guidance in the UK.
You pointed out.
The business mix is still a headwind.
I was wondering on the volume growth what kind of recovery if it can be a bit more specific maybe on you were assuming on credit cards. You. Obviously said you expect some growth, but it sounds like it's not going to be.
Rebound and how.
How do you think that still compares.
Obviously mortgage balances and then.
Hi.
Another follow up on on CIB.
Obviously, the pipelining ECM M&A Detroit up quite a lot and you alluded to that.
<unk>.
You've called out.
The volatility and I don't see the prime brokerage balances.
I wonder.
Is that going to be enough to offset what looks like a pretty weak start to banking fees I'm just thinking of consensus is.
Legal revenues down just a bit for this year and that might pose a bit optimistic I don't know if you can maybe share some thoughts on that thank you.
Yeah. Thanks Alvaro.
Covenant both in May want to add a couple of comments as well on net interest margin and business mix.
We are constructive on credit card growth, we have been cautious up till now and.
I guess in this case unfortunately for US we were right.
Balances didn't grow.
As quickly as perhaps.
A bit more optimism out there from elsewhere.
But we unfortunately, but probably more and more right on this one but we are quite optimistic into 2022 and the reason for that is.
We think that 2022.
It's free from.
Lockdowns and sort of restraints on the economy.
The big the Big difference that will make for this year is that the kind of spend that we would expect to see will be more geared towards credit card spend activity. So unfortunately last year for example.
At least in the United Kingdom.
Much less holiday travel for example than we would typically expect certainly overseas holiday travel.
That's usually completely credit card sort of category, that's very important for us.
That one is still muted last year, we would like to think that this year.
Kind of more discretionary spend items.
Wood.
Good.
B unabated and therefore, we should see good utilization of our credit card next question is how much of that it appears as a revolving balances so a little bit harder one to gauge, but we are optimistic that we should see.
Some improvement there I wouldn't overstate, but it's a high margin product. So you don't need to see too much for it to be.
Accretive to titanium and indeed net interest income.
The other thing is.
On the mortgage side if anything.
This year might suit our business mix a bit more than last year last year was characterized very much by sort of a first time buyers market those fueling.
The mortgage market for us as you probably are familiar with the re mortgage business is an even bigger part of our business and first time buyers with right.
<unk> you tend to see much more active re mortgage activity people that just basically.
<unk> themselves before the anticipated rate prices and that actually <unk> business as well so.
Constructive on both mortgage growth just as a nature of the market drops suiting us in and on credit cards and nature of the spend activity, we expect to see in the UK.
Being quite attractive to us.
Terms of CIP.
The only thing I will say that it's very very hard to give sort of precise guidance on income. So I'll refrain from that but we feel really good about the diversification in the CIB. So youre right. It has been.
Somewhat slower ECM M&A activity certainly in January .
Some ways not surprising that's actually quite typical because we.
We usually get a flurry of deal activity before the calendar year end and then you go into company reporting season, and blackout periods and stuff like that so you don't typically see.
A lot of deal activity in the earlier part of the year and that May change, obviously youll have to look at asset markets and geopolitical risk and whatever but away from that if for example, there is price volatility and asset price moves and sort of geopolitical needs flow. It typically suite sales and trading business real well and suddenly a rising rate.
We want to suit financing business very well and we're very very pleased with the process.
The progress we've made in the prime business and one business, we don't talk a lot about but its fixed income financing as well, which is a large business for us. So I'll refrain from giving sort of precise income guidance, but we feel pretty good about the diversification that we should do.
In our view well.
Regardless of sort of what's hot and what's less halt in any one particular quarter, but we should be able to sort of see that through.
Sorry to harp on the retail side.
I mean youre optimistic on credit cards.
And what would just be you think the mix is still a drag so I sort of credit cards, but maybe not growing as much as mortgages yet.
Scott.
Correct.
On a nominal basis.
I know you'd notice.
<unk> places mortgages massively outgrown cost causes a very much more of a high margin product. So.
I wouldn't rule anything out it really depends on the pace and.
And strength of the recovery, we still we feel okay with it now, but we will monitor it quarter by quarter.
Thank you.
We have the next question please operator.
Our next question comes from Rohit Chandra Rajan from Bank of America. Your line is now open. Please proceed with your question.
Yes.
Hi, Good morning, I had a couple.
Please.
The first one on the CIB.
Commitment to maintain market position it seems like a very clear statement of intent.
As to charter to too early a consensus expectations are for smaller revenue pool. This year, but also competition looks like its intensifying. So I wondered if you could talk about how you balance near term revenue prospects with the cost and capital resources that might be required to maintain that top six.
Global IP ranking.
The first one and then the second one hopefully relatively quick and just on the structural cost for 2022 and should.
Should we think about that is similar to 2021, excluding the.
Real estate charge that we had in 'twenty, one and to what degree should we think about the structural costs being ongoing.
Yes, Thanks, sorry, why don't I quickly do the second one and I'll ask when cuts took about CIB.
That's a reasonable way thinking about it so just to repeat what you said.
Thanks for the 2021 charges and strip out the Realogy real estate charge that we took in the second one is probably a decent sort of planning assumption.
Respectively from there when we have a lot of choices out there.
Don't expect this to be.
At this stage is sort of a material item to be putting into our projections into 2023 and beyond.
It's something that I think what we've tried to do is keep you posted on plans as we.
As we go through the quarters, one thing I would say is that where we see opportunities to accelerate progress and make a difference.
And we've got the earnings capacity and the capital capacity to do that we think its probably in shareholders' interests. So we are minded to do that but we will keep you guys posted but certainly for 2022 I think our planning assumptions are reasonable run into less together.
Rohit thanks for the question.
I look at the CIB.
We're obviously been gaining market share.
And increasing our rankings. It comes from three things it comes from investments in people and capabilities is comes from investments in technology and it comes from our steady commitment to the business.
Basically helped clients decide that they want to do with you do more with you instead of doing it with you.
All three have been in place.
Increasing level over the last number of years. So I think we have the momentum behind us to continue to do that.
And.
We don't control the overall wallet.
But but but to be meaningful to our clients.
I think it requires as I said those types of investments and I'm fairly confident that the investments we've made and we can continue to make and we will continue to make that we will continue to gain mind share and market share.
Thanks for your questions right.
Thank you.
We have the next question please operator.
Our next question comes from Guy <unk> from BNP Paribas. Your line is now open. Please go ahead.
Hi, good morning, Thanks, everyone to Sharon's comments on best of luck to produce grocery shop.
The first question was on NIM.
NIM trajectory.
The UK given the range of $2 to $2 70. It strikes me simple math that we should be exiting.
Top of that range and if the curve holds is there a reason why we shouldn't be thinking about NIM north of $2 70, as we enter.
23.
And she has quite a bit.
If we have the benefit of rate hikes implies from from the market.
Within that too.
Youre hedged.
Looks like it should be up about $200 million.
From the current run rate and then another even larger step up in 2023.
Is there anything that would lead you to soften expectations lessons I saw the comments.
And the second question on.
On costs.
Thanks for the guidance comments about sort of being happy with consensus cost of 14, 3% to 14 four.
If you just pick a little bit more.
Modest growth in the base cost obviously, most is about 2%.
Thanks, a lot for taking your comments on structural cost actions.
$50 million a year, if either in CIB costs you'd be looking about 14, four so the top end of that range is there anything I'm missing around that if I can.
Just quickly on the another one on costs another.
<unk> cost income ratio below 60%.
Assuming revenues drop meaningfully in CIB is that something you think is cheaper going forward from here.
Yes, so why don't I take them.
Thank you.
Net interest margin in the U K.
Look I think it's reasonable what you said.
Just the fact that if we.
<unk> two is sort of a range of $262 70, it will obviously be expecting to exit 2022.
Any sort of upper end of that and like you say that that's flowed through from structural hedges and.
And full year effects of any rate rises we might get from this point on so that will be.
The increase in NIM into into next year. So I think it's reasonable in the way Youre thinking about it of course there are.
Bridge back to there are so many variables the number of rate rise as the product mix pricing.
No, but thats why we gave a sort of a range rather than trying to get too precise, but I think youre thinking about it the right way.
Yes.
I think it's reasonable again sort of.
The building blocks that used other unquote.
Used 2% or 3% or whatever in your and your precise models ill, let you sort of judge that but I think the building blocks that using a pretty reasonable.
In terms of the CIP.
And cost income ratio, we're pretty pleased with the <unk>.
Operating leverage that the CIB is being able to demonstrate so where we have very buoyant topline environment, a lot of that sort of drops straight through to the bottom line.
We feel we've.
We're very competitive in terms of remuneration.
To the bankers that we have here, we've attracted really high quality folks to our platform and our retention rates have been very good as well.
So we think we've got that balance right and absolutely in a good revenue environment.
Our intention is to demonstrate strong operating leverage in the CIB as we've done in the past.
I won't give again precise guidance on cost income ratios, but operating leverages or something thats important to us in that business.
Okay. Thank you.
Thanks Scott.
Next question please operator.
Our next question comes from Chris Cant from Autonomous Your line is now open. Please go ahead.
Good morning to Shaw.
Two if I could you obviously said all the best.
No.
Controlling thanks for helping us along with the question about <unk>.
Two for me please on the CIP.
Hello.
These costs.
I think.
I think back to 2019 total increase in group performance.
'twenty one on 2019 is.
$219 million.
And if I think about CIB revenues at that time.
$2 3 billion.
There or thereabouts.
How should we be thinking about this into 2022 I. Appreciate you don't want to guide on revenues.
I won't comment on current trading.
Recent quarter.
Okay.
Please do come down in 2022.
Down CIB costs to offset it if I think about where.
Historically.
Yes.
That much relative to the scan the revenue improvement.
What kind of.
Cost income ratio on the decline in rates and revenue should we be thinking about that.
It doesn't seem like there's a huge amount of wiggle room relative to kind of historical levels of performance costs.
If revenues decline in the CIB.
That'd be the first question please.
And instead of asking number on the CIB.
So you gave us.
Guidance for the first half stage.
There was a 900 million revenue opportunity from the recovery and growth in the various payments businesses relative to 2020 levels could you just give us a sense how much of that opportunity is already cafeterias.
<unk> and.
<unk> run rate. So you were flagging in particular in <unk> model.
<unk> year over year and payments.
But if we think about <unk>, how much of that $900 million is already in the run rate how much of it is still to come as upside into 2022 and 2020. Thank you.
Thanks, Chris and thanks for your comments at the beginning of your question, which I appreciate it.
Yes performance cost I guess really a real question the gist of it.
In a downside revenue environment.
How much could we bring performance costs down.
It's a tough one to answer the one thing I'll say is.
On one level, we have to be responsive to the market that we operating in so we'll.
I will say too simplistic to.
Just the mechanics of the value of performance costs. Because there are just so many factors that go into it and you look at the competitive nature of the marketplace was out on the performance idiosyncratic was a part of the overall trends in the industry will do that results in overall pay levels. The mix of the business. Some some businesses have a higher payout ratio than than other businesses.
And vice versa.
It's hard to be precise, but what I would say hopefully you've seen us demonstrate at least.
In an upward market good discipline, but at the same time, making sure that the the franchise is in very good health and length of the right quality of people.
On the platform to benefit from that upside.
We would look to see.
For us I guess in some ways the guiding North star have always felt on this business is that we need to kind of make sure each of our divisions is earning at least 10%.
Return on equity so thats the sort of.
An interesting inflection point for us and we would do what we can to maintain that but we thought it would be.
Got it would be responsible if.
If we need to pay to protect our franchise, we obviously will but obviously you've seen us disciplined and not just paying for but for no reason.
In terms of payments.
The $900 million run rate.
I think they disclosed the shipyard to pick this up and if not I'll get someone to give you a pause after lets just say youre picking up from the rights.
Part of our disclosures, but payments up is up about 17% year on year, and you should be able to back into that and maybe I'll get someone after the call just to put it in the right direction as to how much of that $900 million. Therefore, that's consumed.
You can sort of back into the rest if that's okay Chris.
Okay.
Thanks.
Just getting closer to the top of the Alpha should we take one more question.
One more question please operator.
Thank you. The final question May have time for today comes from Martin <unk> from Goldman Sachs. Please go ahead. Your line is now open.
Good good morning, let me come.
Comments and congratulate length to them.
On the new role of some central to shop for your help over the years just one question. Please.
Just looking at the progression of deposits in the UK system as a whole compared to loans in that market increase and excess liquidity trapped in retailing census in the UK.
I was just wondering if you could highlight your thinking on this excess liquidity do you think this is likely to stay real quickly could you see a scenario where this is going to gradually decrease the question given.
Could be some yogi would lead to a phase.
Where deposit.
A markedly lower compared whether one is to leap or is there any other incentive for banks like Barclays two potentially.
<unk> kind of higher deposits that maybe for current account market share.
Thank you.
Yes, I think that's the way I'd answer that Martina is that we've never really paid up for.
Balances.
So we don't believe we've got.
If you like Hot money, if you look at our savings rates.
You probably wouldn't be chiller, choosing MA Barclays as your sort of deposit account if you're just looking for the best rate available that's never really been a part of our business that much more franchise balances as we call them and they are growing quite nicely. So.
But having said that at some point.
These balances will become rate sensitive view is we haven't seen that yet.
<unk> face rates Pizza, there were 75 basis points, if we didnt see rate sensitivity then so it's probably reasonable to assume for the next two.
5% to 50 basis points, maybe not much rate sensitivity beyond that I think it's just it's just hard to we don't have any empirical historical data to sort of calibrate them off but.
What gives us a little bit of comfort that we've never paid off with the balances in the first place. So it's not about money people are being parking money with us and the expectation that they will need it when they can get a better deal elsewhere.
So I hope that helps.
Thanks for your question Martin.
So why don't we wrap up the call.
Before I close thank you for many of your comments.
As part of your question, let's just like I say, it's been an absolute privilege and a pleasure.
The CFO since 2013.
And although it will be the last call I. Just this type of a hope to get to see many of you at a sulfide breakfast next week and at the buy side meetings that will have.
The next coming days and I'll still be at Barclays for some time, so we might bump into each other.
In a different capacity.
But a big thank you to everyone for all of the old debate.
Challenge Council.
And the old word of encouragement they've had over the years.
Whatever you said, it's been much appreciated.
Got it to all of you I'd also like to say, how thrilled I am to enter has agreed to step into the role.
I have known each other for for several years and worked very closely and hopefully many of you have met or in the recent quarters as she has been.
Fantastic help to me and she will be a fantastic Stewart with Barclays.
Ran venkat at the helm.
Someone who will be owning shares in bulk case for the foreseeable future I can think of to better people to be taking care of.
My shareholding in the right way, but with that why don't I hand over to Anna who is actually with me here today to close out the call.
Thanks Keisha.
The risk of repeating everyone I think a huge thank you to you from all of us.
And it certainly is.
Paul I think.
Thanks, Keith fell behind we're really looking forward to the opportunity.
I'm also looking forward to the opportunity to meet many ftes over the next few weeks at the breakfast and beyond.
Sure. Thanks, Scott.
Thanks, everyone and we'll close the call.
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