Half Year 2022 Barclays PLC Earnings Call
Welcome to the Barclays half year, 2022 results analyst and Investor Conference call. We will begin shortly if you'd like to ask a question. Please press star followed by one on your telephone keypad at the start the question and answer session.
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[music].
Welcome to Barclays half year, 2022 results analyst and Investor Conference call.
I'll now hand, you over to see US fund catch Krishnan group, Chief Executive and across group Finance director.
Good morning, everyone I am pleased to be able to report strong financial results for the first half of 2022 for bucket.
Profit before tax was $3 7 billion pounds, leading to an attributable profit of $2, 5% bonds.
This came after absorbing a net impact of around 518 million pounds.
Yes.
Thanks to the over issuance of Securities U S shelf registration statements.
The group income was $13 2 billion pounds, excluding the income benefits from hedging arrangements related to the magnitude of the impact just the over issuance.
Group income was $12 4 billion bonds.
Up 10% year on year.
<unk> group return on tangible equity was 10, 5%.
We continue to focus on cost, particularly given inflation pressures. We're also focused on the readiness of our balance sheet to withstand macroeconomic challenges.
We remain mindful that we need to continue to support customers and clients through what is it.
They have all the uncertainty.
Period.
We remain well capitalized for the CET one ratio of 13, 6%.
This comfortably within our target range of 13% to 14%.
It is for me one of my key priorities.
Ill get to return excess capital to shareholders.
I'm pleased to announce a half year dividend of $2 two five cents per share.
As an intention to initiate a further share buyback of up to $500 million.
In addition to the 1 billion share buyback, which we announced at the full year and which we have nearly completed.
Before I go into more details on earnings let me provide a brief update with respect to the overage was the securities under our U S. Joseph statements.
We are making good progress to resolve this matter we have agreed the terms of the rescission offer for our customers, which we announced on the 21st of July and which will be effective on the first of August we continue to engage positively and constructively with the U S Securities and Exchange Commission.
As we have done since we just reported this item to them.
In addition to the next to an internal review.
Commission Counsel net extended review of operations matches.
Thanks, Tony will review will report to the board shortly and we will consider all the time this carefully and take appropriate actions in response.
And I will cover the financial impact in more depth.
The total first half impact net of tax.
Operations matter to be around 518 million pounds.
This includes an estimated monetary penalty.
We have made considerable progress improving our controller since 2016. So the fact that this overage was matchup occurred firstly is particularly disappointing.
The necessity of a strong control culture has never been clear and we will track closely to improve it.
Returning now to our performance I would like to mentioned one or two highlights from the second quarter.
Profitability was strong with the second quarter profit before tax of $1 5 billion pounds.
Return on tangible equity was eight 7%.
This includes double digit returns in our consumer businesses Barclays UK consumer cards and payments.
The corporate and investment bank, but impacted by the elevated litigation and conduct charges this quarter.
I am, particularly pleased as we saw continued income growth across all three of our operating businesses.
Income in Barclays UK was up 6%.
Consumer cards and payments this was up 29%.
Corporate and investment bank was up 10%.
The impact to book ratios.
The CIB income also included a particularly strong performance.
Fixed income currency and commodity business.
This was up 52% year on year.
In U S dollars.
Across Barclays. The first half income was up 17% year on year excluding.
Excluding the income from hedging arrangements related to the over issuance it was up 10% year on year.
The drivers of this growth theory, illustrating how our diversification strategy is working for the group. It's operate at all levels geographically in terms of customer side and the revenue streams within each of our individual businesses.
For instance.
UK has seen an increase in transaction based revenue as well as the tailwind from rising interest rates.
In consumer cards and payments, we have benefited from balanced growth in our U S portfolio as well as a pickup in payment transactions activities.
And in the corporate and investment Bank Global markets income group across the half year.
A slow period for banking.
This is the result and market with the investments, which we have made in our clients' offerings.
And in the digitalization of our trading platforms, allowing us to support our clients. During this period of heightened volatility.
We've also benefited from growing client wallet share in global markets.
Rate environment is tough to call.
Bank.
As a result of all of these cases been able to demonstrate.
Revenue progress.
Even in an uncertain economic and market environment.
Our focus remains on supporting our customers and clients through this period.
Corona uncertainty.
The market remains volatile interest rates equity prices and credit spread.
There is anticipation of a change in the real economy, which we have not yet seen.
And we remain alert to signs of weakness.
Although we start from historically low levels of unemployment and credit strength.
I am confident that bucket is diversification and balance sheets written this puts the group in a good position.
We are alert to the pressure that the rising cost of living is having on our customers and our colleagues.
We have adopted a range of measures to help them and we will look to do more.
Each month.
Millions of customer calm and proactively contact anyone who might be showing signs of financial difficulty upfront.
Our frontline staff.
Trading to support vulnerable customers, including those who are struggling financially.
Customers can also use the Barclays that financial assistance services, including access to an affordability assessments and for more manageable repayment options.
We are mindful of the impact on our colleagues as well as rising cost of labor.
We recently increased space with 35000 of our UK based.
And customer facing brands continue to support growth providing.
<unk> hundred pound annual increased pension of those headwinds.
We've taken steps to manage our balance sheet conservatively.
Our lending criteria remain careful and we have recently reviewed and updated our affordability model in light of current circumstances.
We are supporting our clients to manage their risks.
Monitoring customer behavior, as we keep an eye on inflationary pressures in the market.
And as I have outlined.
Client already we also continue to see the benefits of diversification.
Finally, we are maintaining robust credit card coverage ratios at balances right. Overall. This group has balance sheet provision of 6 billion pounds, which include post model adjustment of $1 3 billion pounds.
Thank you Eric outlined three strategic priorities for the back.
His work to deliver next generation consumer finance sustainably to grow our CIB and to capture opportunities as the world transitions.
Across the first six months of this year, we have continued to invest in these priorities. These.
These include two major investments in our consumer franchise, which will deliver higher yielding balances and access to new customers.
The first was our acquisition of the gap U S credit card portfolio.
This was completed at the end of the second quarter and added $10 million of Com doubling our U S footprint.
It will help us diversify our U S card business into retail from a historic leasing towards travel and it represents a significant expansion of our online platform.
Second acquisition with debt.
Our specialist mortgage lender in the U K cause Kensington mortgages.
This acquisition is subject to regulatory approval.
This will give us access to specialist residential mortgage market in the UK.
As the Barclays mobile at any of those it is rewarding to see that more than 10 million customers that are using the app.
Last year, we added over 100 features and customer experience enhancements and he is to help our customers to manage their money in an accessible and easy way.
This year will be no different and we have already introduced a number of new features to the App for instance.
Asynchronous chat function means that we are seeing customers resolve around 40% of big quarry through self service options.
We also continue to invest in the corporate and investment bank to maintain our ranking effect for both.
Global markets and banking.
In global markets, our client wallet share continues to increase in 2018 and 2021, we grew the share by about 105 basis points, making us a top five data for the period and the only non U S bank in that group.
We expect to continue to see good momentum.
<unk> product revenues.
The first half of this year.
Finally, we.
We are expanding our sustainable finance product offering.
During the half year, we acted as lead manager on Austria inaugural 4 billion Euro Green bond as.
As well as the world's first screen progress inflation linked bond transaction for the French Republic.
This continues to cement our position as a leading primary data and market maker.
And European government bonds.
We've also completed a further 700 million pounds with a great home mortgages in the UK, meaning that we have now completed a total of $1 7 billion bonds since 2018.
We've made good progress to advance our ESG agenda in 2022 more detail of which is available in our dedicated presentation online.
I am, particularly pleased that the publication of our client strategy targets and progress. After a close date on climate received support from shareholders at the annual General meeting, which we held in May of this year.
So in conclusion.
That had a strong first half the year.
We maintain the double digit royalty the feature of our performance throughout 2021, and we continue to target a factory already greater than 10% for 2022.
We have seen broad based income growth across all our main operating businesses.
Underlying the value of the investments, which we are making to grow bucket and to deliver attractive returns.
And we will continue to return excess capital to shareholders.
I am pleased to have been able to announce.
The dividend of 225.
Sure.
And then the intention.
A further buyback.
Half a billion partners across our franchise.
And this will continue to be a priority for me as group Chief Executive.
While im pleased with the performance we have shown them.
Conscious that we live in unusually uncertain times.
Our conservative approach to managing our balance sheet, a robust provision and our watch list tons on continued weakness in the economy.
So with that thank you very much and let me hand over now to al.
Yes.
Thank you Ben and good morning, everyone.
So half one broad based income Greg, partially offset the increase in costs, which reflected an elevated level of litigation and conduct charges.
And part of it remains low reflecting the quality of our book and level of provisioning.
As a result, we were able to report an EPS of <unk>.
14.
Generating a statutory rate for the first half of 10, 1%.
Today I want to thank you Tom.
<unk>.
Continued revenue momentum thank.
Thank you for the call Kevin.
A question on the readiness for any macroeconomic deterioration.
Before I do that I.
I will give you a short update on our progress on the Ava issuance of securities under our shelf registration statement.
We flagged previously that the cost of the installation of in relation to the issuance would be sensitive to equity market movements.
But also that we have hedging arrangements in place to mitigate the impact substantially.
Whilst the net impact post tax on it.
Q2 income statement in the $176 million.
<unk> impact on the income and cost lines are significant.
Markets have fallen sharply in Q2.
The hedging income is $778 million.
<unk> expertise in CRB.
The increase in the estimated cost of recession is $984 million within litigation and conduct costs.
We have announced that the rescission offer will complete in Q3.
Whilst there may be some movement in the final gross effect.
Don't expect material changes to the net impact.
We have also progressed our discussions with the SEC in relation to a potential monetary penalty and we've taken a charge of $165 million in Q.
The patients have been good.
Giving a total net impact on Q2 of $341 million from the Ava issuance.
In <unk> case, we achieved a statutory rate of eight 7%.
Income was up 24% or 10%, excluding the hedging arrangements.
Operating costs, which excludes LLC.
Yes, 3%.
So I think operating jaws were significantly positive.
Total costs reflected.
Further issuance provision.
The charge of $165 million relating to settlement in principle in respect of industrywide devices investigation.
The CET one ratio ended the quarter at 13, 6%.
Depressed by 19 basis points temporary effect of holding the hedge <unk>.
This remains above the mid point of our target range and we are announcing a further share buyback of up to $500 million at the half year dividend of <unk> <unk> five pence per share.
Tina increased three tenths in the quarter to 297 pence per share.
Six four tenths of EPS outweighed, the net movement and other reserves.
I'm now going to focus on the three themes of <unk>.
Revenue momentum cost management, and our readiness for any macroeconomic deterioration.
For our summarize the Q2 results of the individual businesses.
Key to continue the broad based income momentum of Q1 and this slide highlights some key drivers.
First loans and advances have grind year on year by 14% overall and matched by deposit growth of 14%.
Second <unk>.
Increased economic activity, driven transactional fees across consumer and corporate businesses.
Third whilst the market for primary issuance remains challenging.
Same environment has driven high levels of client activity across by financing I'm trading in the market businesses.
Finally, we have a tailwind from rising interest rates.
Product margins across our franchises.
The gross income from the structural hedge.
We flagged the luxury in Q1 and are benefiting from the recent increase in the structural hedge.
Mr Hall into higher lower rates.
But Q2 gross hedge income of $501 million, an increase of $123 million on Q1.
Q2 income growth was 10% excluding the aviation hedging.
In the CIB diversification helped to generate 10% growth and income excluding the benefit of the hedging arrangements.
The stunned outperformance with market.
Net income increased 31% in Sterling.
FIC revenues were up 71%.
Reflecting increased client flow and credit.
Right.
Thanks office spreads remain attractive and we have managed risk well.
As in Q1, we have helped our clients reposition themselves.
Total rate environment.
Equities revenues were down year on year, excluding the AD ratio hedging. However, we don't judge success on single quarter, and we are happy with the continued development of our franchise in trading and financing.
Increases in institutional client wallet share.
Yes.
Investment banking fees were down 37% year on year, reflecting primary market condition.
Advisory was up 8% on the deal pipeline remains strong.
Corporate income was up 24% with strong growth in transaction banking more than offsetting the corporate lending income expense.
Good luck to reflect in marks we took on specific leverage finance deals.
The cost of macro hedges as we prudently.
Recently manage our leveraged finance pipelines.
Income in CCP increased 29%.
Selecting growth across all three constituent parts.
And international card income was up 34%.
U S. Net balances grew by $6 $1 billion year on year, including $3 3 billion.
From the GAAP book, our significant organic growth continuing the momentum in the business.
And payments transaction Saratoga was up 10% year on year, driving income growth of 35%, which was up 10% on Q.
Barclays UK income by 6% predominantly in personal banking, we're continued deposit growth and a strong tailwind from rate rises are offsetting very competitive mortgage margins.
Barclaycard balances were broadly flat year on year, and marginally up quarter on quarter.
We manage the income from risk tradeoffs carefully given the economic outlook.
Looking now at cost.
We manage of Dr Shree costs.
<unk> litigation and conduct charges.
And part of the overall issuance risks that's skewing our underlying cost control.
In this inflationary environment, we are particularly focused on operating leverage.
And it's helpful to start by looking at the cost income ratio, excluding the effect of the AD ratio as charges like shape positive underlying Jos.
Income growth, excluding hedging arrangements improved the ratio by four 4%.
Given our dollar profitability.
Also in preservation offset the reduction in structural cost actions.
This gives us the headroom to invest in the business.
Absorb inflation and other LLC charges.
Together these factors reduced the ratio to 62% two percentage points better year on year.
The net effect of the AD ratio the ratio back to 69%, but we do view the level of LLC in half one.
Sectional and are encouraged by the trend in the underlying cost income ratio.
We continue to face inflationary pressure, but seek to manage the cost investments with efficiency savings and remember that inflation does have a positive effect on nominal income.
Overall, we continue to target a cost income ratio of the life, 60% over the medium term.
We will look at the cost trajectory in more detail on the next couple of slides.
The chart on the left shows the rise and half on costs was mainly attributable to the increase in RBC charges.
Escalating which costs were up just 2%.
We reduced structural cost actions significantly whilst increasing investment spend within based costs.
We're up 8% excluding Allen.
We've shown on the right hand side some of the factors behind this increase of <unk> 5 billion of which $3 billion was the result of inflation.
Thanks Nathan.
However, I would also highlight the deliberate increase in investment spend which is partly funded by a further increase in efficiency savings.
As you would expect they are closely aligned with the three strategic priorities.
As highlights highlighted including gap.
Areas of the CIP, while we see sustainable growth opportunities.
Of course, it also reflects the business' growth, we're enjoying already on this technology cyber security and fraud detection.
Looking next at our updated cost flight path.
On the left you can see our cost progression by quarter split spot business.
Q2 cost excluding currency were up 3% year on year focused on investment for growth in cc pace on CRB.
The strength of the dollar combined with the increased LLC charges are the main factors behind our updated cost guidance.
Our Q1 guidance statutory costs was around 15 billion for the year. This assumes a dollar rate of 131 to one.
We were all anticipating this level of fee in Q2.
Although we are pleased to have made progress in resolving these matters.
I would highlight the strong dollar is a net profit tailwind and that will be additional decision cost are substantially offset in income.
Assuming an average dollar rate of 123 for the second half. We now expect total operating expenses of around $16 7 billion for 2022.
I'm not going to give absolute cost guidance for 2023.
We will continue to manage the trade off between cost efficient space and investment.
We expect to be materially lower next year.
Of course, the full year effect of inflationary pressure will be a headwind in 2023, but I would also remind you that we are investing in future income growth for example, with a gap partnership.
The Copay Kensington acquisition.
Moving on to the patents.
The net charge for the quarter was $200 million compared to a released last year.
A lots of factors feed into this net charge. So I want to focus first on our risk experience the quality of our portfolio.
Delinquency rates and the businesses remained stable.
Level with 30 days in.
In U K cards at 1% and in use.
Costs at one 4%.
We continue to track customer and client behavior very carefully.
Given the heightened concerns over an affordability crisis in order to identify early warning signs.
We have not yet been worrying indicators.
Payment rates continue to be high as customers have reacted rationally to the economic environment.
As a result caused balances in both the UK and U S are done.
On pre pandemic levels on a local currency basis.
Although the laughter heart starts to grow again this quarter.
We believe that the quality of this book is higher than before the pandemic.
As a.
<unk>.
The macroeconomic uncertainty we are comfortable with our coverage levels with UK cards. For example, at 10, 9% and U S cards at eight 4%.
Our title of tenant allowance was $6 billion at the end of the quarter.
Which $1 3 billion represents post model adjustment for PMA as shown on the next slide.
The macroeconomic variables on next we have used a qt from muddled impairment based.
Based on consensus forecast. However, we are conscious of concerns that.
Could be further downside credit risk.
Therefore, we are retaining significant PMA totaling $1 3 billion.
As an illustration.
I'd also point.
When we model impairment using the met for the downside one scenario the implied increase in modeled impairment.
$5 billion, which is significantly less than the PMA for economic uncertainty we are still holding.
Taken together with our coverage ratios. This supports our expectation that we will continue to have quarterly impairment charges.
Pre pandemic level.
Coming quarters.
The 6% growth in the U K income was accompanied by broadly flat costs.
Delivering strong positive jaws.
But the U K rate was 18, 4% and we're feeling positive about the momentum in the business.
Before I go onto Barclays International a few words on margin expectations for the U K.
The NIM for the quarter was 271 basis points.
Nine basis points on Q1, as we saw benefits from rate rises.
The expectation for further rise it has increased since Q1.
Spite the pressure on mortgage margins and the expectation of higher pass rate on later rate rises.
Upgrading our guidance for the full year to a range of 280 to 290 basis points.
And we're now achieving a base rate of two 5% by year end.
Costs and income for Barclays International included the elevated LSD charge for the quarter.
The income from the hedging arrangements related to payout ratio.
Despite the negative net effect from the strong performance across the businesses delivered a rate of eight 4%.
I'll go into more detail on the next two slides beginning with the CRB.
Income excluding the hedging arrangements was up 10% and was up 35% on a statutory basis.
Excluding <unk> operating costs increased by 15%.
Driven by investment in talent systems, and technology to support income growth initiatives.
The impact of inflation.
Overall, the CIB generated a royalty for the quarter of seven 1%.
The effects of the <unk> ratio and this would have been 11, 4%.
Turning now to consumer cards and payments.
Income in CCP increased 29%, reflecting growth across international cards payments and the private bank.
Costs increased by 11% delivering strong positive jaws.
The impairment charge was $144 million compared to a small release last year. This reflected an increase in U S card balances, including the acquisition of the gas portfolio in late teens.
The rate was 17, 8%.
Turning now to head office.
The income expense of $113 million included a $42 million loss on sales from the partial disposal of our stake in upsell on the loss before tax for the quarter was $180 million.
Before unable to capital a quick summary of our liquidity and something.
We remain highly liquid and well funded with a liquidity coverage ratio of 156.
And our loan to deposit ratio of 70%.
Finishing with capital.
The CET one ratio ended the quarter at 13, 6% comfortably within our target range of 13% to 14%.
Our capital generation from underlying profits was strong contributing 42 basis points.
This excludes the effect of the ratio, which we called out separately from the bridge.
The net reduction from 13, 8% in the quarter was the result of a number of factors.
At the time increases in interest rates are a tailwind for profitability, but in the quarter. The effect on reserves caused a headwind of 17 basis points principally through the fair value effects on bond holdings the owner.
<unk> had an overall impact of 17 basis points in the quarter from a net loss of $341 million, including the estimated SEC monetary penalty.
The temporary increase in <unk>.
<unk> with the hedging arrangements.
Other factors, increasing our debates with key billions for the cap portfolio and investment in business growth, particularly in CIB.
The more than $9 billion at W. W. <unk> increase from FX movements. This huddle nickel effect on the ratio due to the positive effect on the currency translation reserve.
We've shown on the right hand side the effects of a further share buyback, which will come off capital in Q3, and the removal of the <unk> on the overall issuance hedging arrangements with.
Together would be a small net positive.
Looking at our capital requirements.
Our MDA hurdle at 10, 9%, so we have comfortable headroom at current levels.
The bank of England expects the introduction of the counter cyclical buffer at year end to be followed by a further increase in July next year.
This would take our NDA to 11, 9%, assuming no offset from a reduction in pellet to adding requirements.
Going forward, we remain confident in the organic capital generation of degree.
Our capital ratio target range remains 13% to 14%.
Finally on leverage our spot leverage ratio was five 1% and the average UK leverage with four 7%.
So to summarize.
We reported earnings per share of six 4% for Q2 and generated an eight 7% despite elevated litigation and conduct charges in the quarter.
We've made considerable progress against resolving the <unk> securities in the U S.
And we have confidence in the continued revenue momentum across all of our businesses.
We are well provisioned and readiness for potential deterioration in the macroeconomic environment.
Run rate for the cabinet to be polite pre pandemic levels in the coming quarters.
We are particularly focused on the cost trajectory given inflationary pressures.
Given the FX movements on the key to our fee charges, we have updated our cost guidance for the year to around 16, $16 7 billion.
Overall, the business performance is robust.
<unk> focused on delivering our target of double digit rate this year and on a sustainable basis going forward.
Our capital ratios remained strong.
We're confident of being able to invest for future growth.
And delivering attractive capital returns to shareholders.
As a result, we have announced a half year dividend of two to five pence and the further share buyback of up to 500 million, which we expect to begin shortly following completion of the current buyback.
Dollars.
Thank you.
We will now take your questions and as usual I would ask that you limit yourself to two per person.
We get a chance to get around to everyone.
If you wish to ask a question. Please press star followed by one on your telephone keypad. If you change your mind in which to remove your question. Please press star followed by T. When preparing to ask your question. Please ensure that youll famous on mute lately to confirm that star followed by one to ask a question.
Okay.
Thank you our first question is from.
Okay.
Robin down from HSBC Robin Your line is open. Please go ahead.
Good morning.
Ralph the questions on margins and cost so I'll kind of leave up to 12 months.
My two questions the first one.
On the dividend.
Thanks, Tim.
On the cost base of around <unk> $300 million.
I was wondering whether or not you.
Would be prepared to give us the revenue.
Equivalent number.
Clothing.
Can you give us some sort of indication as to what the.
If we use the Congress.
Some thoughts on the cost to income ratio that's international.
Good players.
Kevin you call appropriately for the revenue benefit that would match up against that test that could cost Cleveland.
And then second question just.
It's probably taking a bit of a step back.
The question still.
Were going for Chrysler and Thompson.
Our target for this year.
Despite the additional <unk>.
<unk> hits coming through in Q2.
When I look at consensus I think is.
Around eight 3%.
For this year, that's really substantial gap.
Between where you are where consensus is.
So can you just clarify that.
Excluding anything from a.
A couple of hours to tabulate Shannon exactly what do you look at consensus.
Are there particular lines you look at how do you think.
Got that completely wrong.
You've given us the cost base, but it's more around costs.
Whereabouts are you looking is it to taxes at the revenue lines.
The impairment volumes with a combination of the three.
Thank you.
Thank you Robin so I'll take both of those and then I'll hand to Bangkok.
You're not the first person to ask us for the FX impact.
I'm not going to throw out a number on next call.
<unk>.
It's something that we're very conscious of in the context of the movement in the dollar. So it's something that we'll certainly we'll certainly consider for future quarters. So.
Hey.
I understand that you would want to.
Just on that point.
On your second one.
You're right we continue to guide for Greg.
Greater than 10%.
For this year on gathering.
The key difference that we see is ramping a rand revenue momentum.
So we've seen 10% in the first half and it's very very broad based Robyn.
We're looking at a recovery in our consumer businesses.
In the UK and in the U S. We're all seeing also seeing a recovery in our business that are actually geared to the nominal economy like transaction banking and payment.
And whilst we may see some moderation in volatility.
We're pleased with the market share gains that we've made across markets and it's got volatility where to dissipate then we would expect primary issuance to come back.
So it feels like the key difference.
Between ourselves.
On the outside World is really a rent.
Revenue of course, we all think.
That impairment will remain lower than pre pandemic and again, that's another piece of guidance that we've given.
And so from our perspective, we remain confident in and not flight path.
Thanks, Scott I would like to emphasize what Jeff said.
We talk about having built a diversified business and continuing to do so and sometimes what that means is if something does relatively less something else offsets. It in this quarter unusually what youre seeing across all of our lines of business.
In terms of revenue strength and momentum, which we think for the shorter term will carryforward. So youre seeing this top line growth and markets.
And Youre seeing a top even adjusting for the securities operation.
Seeing top line growth in cards and payments with NSS.
Retail bank, if there's any place where theres been diversification, meaning something offsetting something else is within within the corporate and investment bank with a banking numbers have clearly fallen off but it's been more than offset by what's going on in market. So I think.
I think you should get a sense of confidence.
In the way the business has been performing in the first half of this year.
Alright, thank you.
Thank you next question please.
Thank you. Our next question is from Joseph Dickerson from Societe Generale. Joseph Your line is open. Please go ahead.
Hi, last time I checked on from Jefferies, not Societe Generale, but fair.
Fair enough.
Hey, good morning, guys.
Yes.
Okay.
Alright, well I'm happy to asking friendship you want but anyway, how do you think about.
How are you thinking about the cost trajectory.
For 2023, because you've had quite a lot of noise in the 2022 base whether it was the.
Ellen fee charges that wont recur.
Possibly higher investment spend around GAAP.
And so forth.
Because it's interesting your comments on the broad based revenue.
Momentum.
It seems like Youll have a sustainably higher base going into 2023, and when I look at the 2023 numbers the consensus pre tax.
Looks a little light because it doesn't really embed any revenue growth. So I'm just wondering your thoughts around you've talked about some of the momentum on the topline, but just how should we think about what drops out of the.
Out of the.
How does the cost base next year. Thanks.
Okay.
Thanks Jan.
So you can see what we've done in the first half.
Net income growth of 2% operating income growth of 10% operating cost growth of 2%.
So hopefully that helps you understand the our real focus here is operating leverage.
And whilst we've guided to cost up in the next year, you'll see that the moving parts are actually FX, which had net P&L positive.
Alan say, which is largely offset in the income line.
If I take that into next year.
I'm not going to guide.
At this point in time, specifically on cost.
Because there are too many moving parts and too many decision. However, let me help you understand how we think about it.
Inflation effects are obviously building.
Those inflation effect. However, also impact our income line, whether that be through the transactional businesses in payments and corporate or even in the consumer businesses.
But.
Currently a headwind.
On efficiency. However, you will see also in the half we've shown you what we've driven efficiency and I would remind you that in our 2021 result, we actually took two charges around real estate and around the UK transformation that.
We said, we believed would start to benefit from the back end of 'twenty two 'twenty three.
FX will be what it will be.
It's a net benefit to the P&L headwind in the cost line in isolation.
The income momentum.
<unk> is really important because it gives us the opportunity to invest selectively whether that be in the three strategic priorities.
Venkat.
Necessary or alternatively in structural cost actions, which we've done at the salt it cleared in the past when we did we tend to have an eye on return.
But if I just.
Go through business by business.
In the UK, we've given your NIM guidance for the current year.
Should.
Indicate to you the momentum that we think that business has on the exit.
You can see from the half year that we are controlling costs and we set off our transformation program last year.
Cause much of the income benefit that's coming through in the UK is coming from the structural hedge now, which obviously doesn't have a marginal cost associated with it.
In CCP Youre right, what we're seeing is a cost to build.
Any associated income.
Not just gap because obviously we've had costs the gap the balances came in at the very end of the quarter. So we've not seen that benefit yet, but it's also true of the organic growth in the business.
As we restarted post COVID-19.
Obviously, the J curve effect.
And also within the CCP, although it's much smaller.
About payment, which is geared to the nominal economy and the marginal cost again of expanding that business.
Mr.
Okay.
The hard one is the CIB.
The four markets, we've seen a sheriff.
Well the increase.
Also buoyed up by volatility that may be offset with with banking is that volatility.
Volatility drops off but.
To get the momentum that we've got in our corporate business.
Lay on transaction banking, which is good again to nominal economic.
Activity in the business and is an accrual franchise business.
We will invest selectively in the CIB.
And as we do so you would expect us to do so in a way that helps us underpinned the diversification.
To that.
So.
Hopefully that's helpful. In terms of building blocks, Joe we're very focused on operating leverage as you would expect with the income momentum that we have but also on returns and just to remind you of that 10% and we'll use all the levers that we have in order to manage that 10% return for the <unk>.
Business. Thanks.
<unk> would you say.
Just just one.
One piece of detail within all of that.
Of course, I completely agree with the thesis and strongly endorsed the thesis MF laid out within markets. There is a part of that which comes from trading which will be which is amplified by higher volatility and volatility goes down with NSS.
The banking market picks up but also within within the markets business. There is the substantial growth we've had over many years.
Financing businesses, both in equities and fixed income and I think as rates are rising and spreads are widening.
There is more scope looking forward for revenue gains from fixed income financing, where we have a leading market share.
Sure.
And that part of it recovered so even if volatility dampens at higher levels of rig there are parts of the markets business that will continue to do what I hope.
Fantastic. Thank you guys that's very comprehensive.
Okay. Thank you next question please.
Thank you. Our next question is from Mark <unk> from Credit Suisse. Your line is open. Please go ahead.
Good morning, everybody. Thank you for taking my questions I've got two questions. Please.
One on capital.
Consumer cards and payments.
So if I start off with capital when I look at the core tier one ratio.
So if I take off the 40 bps for Kensington the pensions.
And at 20 bps for the rollout of the hedge then it looks like the ratio is around.
13 to today.
I see.
Steve.
But the program was announced thankfully expresses your competence and the capital position.
But I was hoping you could.
Give us your thoughts.
Around the sensitivity of the ratio two rating.
Rating migration.
If we have today.
A weaker economic environment.
Nextgen, perhaps with lower house prices so.
Chris.
Alright to migration and then if you could give us.
Sensitivity.
Our ratio to that that would be really helpful.
My second question is on consumer cards and payments.
The result.
Strong through the quarter.
I understand the drivers behind the NII.
But if other income.
Ben.
Annualize that.
That seems like.
That's an interesting point relative to where consensus is.
Could you give us any steer about.
With all of that figure is recovering.
Take it forward.
Okay.
<unk>.
I'll take that.
So you're right.
So there's lots of quarters of the year, we are expecting.
Pension headwind just to remind you that the doctor is timing, it's always been in our capital flight path. It's a timing event essentially pulling it forward into the current year.
On Kensington, we expect that to be around <unk>.
12.
<unk> points.
Buyback roughly 15 and going in the opposite direction of course, we've got the roll off of the hedges.
With the rescission offer are not about <unk>.
<unk> basis points and more than offset.
Buyback that we've announced.
For the half year.
I mean, our position as we look at the <unk> ratio of 13, six we're very confident in our capital generation of the businesses.
Back to what I've said before about income momentum.
The impacts that we've had in the quarter from the rescission offer itself.
We would not expect to repeat.
Some of the volatility in the ratio has been.
Sorry, some of it.
Jordan and the ratio is also being driven by.
Volatility and ought to be raised and also business growth that we're seeing in the income base.
So.
We're very comfortable with the ratio at 13, six and that's why we've announced a buyback just to remind you.
Generating greater than 10% rotate is equivalent to <unk>.
150 basis points of capital generation.
We are confident in continuing to do that.
And we will deploy that across.
Maintaining an appropriate ration investing in the business and returning capital to shareholders as we've done in Q2.
Just picking up on your <unk>.
Cc and paid.
Comment.
What we're seeing in VC and PE is not only balance bill.
We're also seeing increased purchase activity in the U S.
That doesn't always.
Turning to slide three to balance felt because customers are being cautious in the current environment and the re paying a fairly high rate, but it does mean that we are generating interchange income which is what you are seeing.
Coming through that so to the extent that we see a continuation of that.
Owen.
Purchase activity, which in part is driven by nominal economic activity. So inflation is a bit of a tailwind.
And we would expect that to continue.
Thank you are there any comments that you can make around.
The sensitivity to rates and migration.
If we have a weaker economic environment. Thanks, Tim.
Yes.
We're very mindful of it.
I wouldn't give you a sensitivity here.
And at this point in time, we are.
We're actually seeing quite the opposite we're seeing an improvement in book quality.
Qualitative if you look at the rate tables, we are actually seeing things dressed back the other way clearly if we see a downturn in the economy.
And then we will see some <unk> inflation, but that's not reflected either in the macroeconomic variables.
But we're using is consensus nor indeed, what we actually experience.
In the real effect coming through so delinquencies alive.
What's left.
Very low so.
Yes, you're right it could be a factor, but it's not something that we are seeing at this point in time.
Okay, great. Thank you and the full six $4 million, we can annualize that number.
That's nothing.
Okay.
In terms of that the other income.
Exactly.
The only thing I would call out is FX, so just be mindful of that.
So obviously the underlying driver is purchase activity, which is.
Driven by by.
The increased number of customers that we have you should annualize that but.
The FX will be what it will be.
Understood. Thank you that's very helpful. Okay. Thanks Keith.
Next question please.
Thank you. Our next question is from Robert Noble from Deutsche Bank. Your line is open. Please go ahead.
Morning, Thanks for taking my questions.
Okay.
Can you give us a breakdown of the impairment charge you took in the.
Good quarter.
One impact.
Sorry.
The impact since the ultimate accounting changes and any changes in the PMA.
The underlying cause.
Cause that schemes and also help Nick was the mark against the message finance.
I see.
And then secondly.
You are correct.
I guess this quarter so what's the plan for issuance over the next 18 months.
Right should we expect a coupon cost.
81 portfolio to rise as well.
Thank you.
Okay.
Thanks, Rob I'll take that.
Thank you guys. It looks like you sneaked in three actually.
No.
So in terms of impairment.
We're not going to talk about impairment.
58, with any particular partner in the U S.
However, what I would say is that.
Yes.
The PMA are completely unchanged from the prior quarter. We've maintained our one 3 billion. So what youre seeing flowing today is the underlying charge, which is elevated in part by that.
<unk> portfolio.
We've disclosed to you the scale of the portfolio. So I'm sure you would be able to.
Some estimates around that.
And in relation to the marks.
And we haven't disclosed the marks not some things that we have done though will days. However, here's how I would think about it and the marks are included in the corporate lending line.
Last quarter, we talked to you about the fact that the impact of the hedges.
Again the syndicate.
Portfolio.
We increased.
Based hedges and the cost of those hedges have also increased so you saw a step down.
Into Q1.
That's continued to happen in the second quarter, so given the risk in the environment those hedge costs remain high and we are hedging a higher proportion of the portfolio.
And then the other thing that's going on and that is the marks so hopefully that will help you compare the two quarter number but just remember there's two things going on and that is the marks plus the increase in the hedge.
And then the last point I would say around the 81.
We are in a programmatic issuer, we'd expect to issue around $9 billion in the year and we look across our full stack.
We look at 81.
I will continue to do that in half two and the two that we did in the quarter did have a higher headline rate.
And then Bob.
The underlying swap cost for the <unk>.
Underlying swap cost.
Some things that we have.
Well you should be focused on is actually the margin at Sonya on various transactions and that is not higher than the same layout that we're actually counting as a whole. So I wouldn't think about it as as markedly different from what we were already holding.
Great. Thank you very much.
Okay and key.
Next question please.
Thank you next.
The next question is from Jonathan Pierce from Numis, Jonathan Your line is open. Please go ahead.
Hello, just one please just to check my math on something structural hedge revenue in the second quarter I think it's slide 30, Colorado something.
Short term.
Even more than I was expecting is up about 120 million I think in Q1.
Historically, you've told us that 60% of burn.
Pulls into Barclays UK.
So that would be about 70 million pounds, it sounds right, but the Baltic went.
<unk>.
That was never about mill, obviously, you've got more headwinds, but you've obviously got the base rate increases on the homepage deposits.
Because the UK as well.
Is that still right at 60% in both the structural hedges falling into Barclays UK or something happened.
It happened in the second quarter were more versus going into <unk>.
Thank you.
So the structural hedge income.
It could go up significantly and that's not just the ongoing.
Rolling of the hedge but also the fact that we've extended the hedge Jonathan So we put on an additional 18 billion.
In the quarter, and obviously that cycle.
And at current rates. So it has quite an impact on eyecatching impact.
And we are talking there about the gross income on the hedge.
Within Barclays UK, Yes, we do see 60% of the benefit.
Flowing into that so.
<unk> quite sure.
How youre mattresses, working but perhaps we can we can help you with that offline.
Yeah, I mean, it was just simply 60% of the 120 <unk> would be about $70 million in Barclays UK.
Barclays UK and it didn't go up by 17 million with 50.
The new hedges used to fund new swap cost guidance.
I'm guessing that the full.
Two and a half percentage point of view of rates going up.
Yes.
But still it's very surprised at the NOI like Barclays UK.
He went up like.
I was just wondering if there was other.
Okay.
Well I mean, I guess I guess, the other thing to think about.
Yeah.
Jonathan.
The impact to the mortgage margin so.
It's not just the savings rates on the structural hedge that are going on you've got mortgage margins, which continue to be extremely competitive.
And we're also seeing.
I guess impactful.
Smaller products maybe luck.
Business banking cards et cetera et cetera.
Rotten oscillation, but.
Okay.
They are what sort of impact.
Okay.
Alright.
Okay. Thank you.
Next question please.
Thank you.
Next question is from Martin <unk> from Goldman Sachs. Martin Your line is open. Please go ahead.
Yes, good morning.
Firstly.
On the outlook for credit card balances in the UK in the U S. Obviously.
Some progression.
Quarter on quarter and I'm, just wondering how you think about the kind of opposing outlooks in terms of one.
Coming out of the pandemic restrictions, which would be supportive.
Causeway Linzess.
Secondly, obviously.
Heading into.
The company.
An economic slowdown.
How do you see.
The prospects for credit card growth four from the SMB, you'll see as we head into 2020.
And secondly, I was wondering on mortgages.
Okay.
<unk>.
Pricing remains competitive have you noticed any discernible change.
In terms of.
Peer group behaviour.
It's pricing.
Thank you.
Okay.
Thanks, Martin So in terms of UK cards, we guided at Q1 that we would expect that to be the low point of UK card balances.
Broadly what we've seen.
And there are few behavioral factors are now going to consider.
Firstly purchase activity Tyson quantum and tight is.
So we are seeing the return of the kind of purchases that we were looking for for example, like travel.
Customer repayment rates remained very elevated.
Very rational in the current environment and probably speaks to the offsetting impact from economic uncertainty that youre talking about.
We've also seen some.
Growth in promotional balances.
So.
We are participating in the <unk> balance jumped by market, but we're doing so with a real eye.
One sustainable return.
So you won't see us at the top of that as tables are very conscious of.
<unk> as we anticipate that.
And what you will notice in our card income.
Time is.
What we've mentioned before about launching.
Additional products.
More focused on spend viruses lend.
I think what you've seen.
Following to stabilize the nature of that age balances is changing quite considerably.
Looking forward I think we'd probably expect repayment rates to remain elevated given the uncertainty.
Yeah.
I think that.
No.
Sure.
The.
Increased.
So the customer spending is probably going to be more muted than perhaps we might have expected six or nine months ago. So I think what you're going to see it probably a little bit muted grace almost caused balances in the UK.
And as it relates to mortgage pricing.
And we've seen mortgage pricing continue to take up as a headline masa in response to rising swaps.
There is always a lag but it has.
Broadly tracks those swap rates with <unk> block.
It really matters.
Is the difference between front book back book.
Margins.
Front book margins, So I would say broadly across the industry our Buffalo.
Portfolio margins, so I would say that from what rates are delivering an attractive return for us.
Still.
Very pleased with the market, but just the arithmetic hall effect on the overall portfolio will be at net negative between here.
The year end, we would expect and that's all included in our full year NIM guidance.
Which you'll note that we've upgraded today to be between two and 290 <unk>.
Also the mortgage drag.
Ill be slightly offset impacts of that in the liability margin on the cost the structural hedge.
Thank you very much.
Okay. Thank you next question please.
Thank you. Our next question is from Chris Cant from Autonomous Chris. Your line is open. Please go ahead.
Good morning, Thanks for taking my question.
Could you give us an update.
Payments opportunity that you talked about launching 21 please.
You said you saw a $900 million.
While consumer to that on a three year view.
It comes with a very strong.
Year to date growth Siemens tightened.
How much of that 900 million is now.
Run rate.
Has the assessment of that.
100 million, thanks to tool up or down.
And then if I could ask one on FX.
So there will be a question on this.
Several questions.
<unk> analyst meeting on six what is the reason you feel unable to give some.
Color on FX splits across the P&L to help us understand that.
Okay.
Is there some competitive confirmed that prevents you from trying to help the market understand it so.
Perhaps that we're going to be able to pick apart the performance of the group more clearly.
The currency split.
Genuinely confused as to why you want to provide.
Some color on your disclosure here given the FX is something that the market is obviously trying to factor into the numbers and you've given us the answer for the cost line and presumably you'd want us to be able to factor FX into the revenue line.
We're not really getting much information to help us model that out.
So what is the reason we feel unable to give that kind of color. Please. Thank you.
Okay. Thank you. Thank you Chris I'll take those questions.
So in terms of the payments opportunities, we're pleased with the progress we're broadly on track.
With that with that target.
Chris we really.
We very frequently talk about the acquiring business. That's the one we tend to focus on but we're also really happy with the progress of the two other parts to that business.
To get in that is the corporate issuing business, which is also geared to those economic.
<unk> activity.
<unk> et cetera, so that's growing nicely.
I'd also call out the sort of third strong winds, which is more around the value added services that we provide through payment sites.
And you know for example, the E Commerce Gateway that we launched in Q4.
And obviously benefits from broader trends in terms of payments moving online so.
The unified payments element is obviously performing well and then obviously the other part of it is what we see going to the successful transactional banking, which is also performing well as corporate.
I continue to see.
If you're a lot reemerge from kind of it we're seeing strong nominal price.
Which is underpinning FX payments trade finance et cetera, et cetera is all flowing through in that line.
And on FX.
I completely understand.
<unk> take has or you've seen today, we've made a step towards what you would like to say in that we are not just talking about.
FX at all costs, but actually the impact on the cost income ratio.
So we will come back to.
Have no doubt that you are able to analyze the individual parts of our business and of course, we want to help you do that so just bear with us.
Hi.
The cir guidance that we've given on <unk>.
<unk> is also helpful to you.
Okay. Thanks.
Next question please.
Thank you. Our next question is from Edward Firth from K B W.
Your line is open. Please go ahead.
Good morning, everybody.
I just have two questions. The first one on the B U K margin guidance.
If I look at the bottom end of your range.
Just I'm just checking.
Check your math, but it looks like we're talking about sort of mid <unk> margin for the second half, which seems to imply that your margin is picking up in the second half of the rate of growth is picking up in the second half.
That's a surprise because a lot of the other banks, giving messages about how they expect things like deposit because to be higher as interest rates go higher the market for savings to be more competitive and therefore, we should expect to see the rate of acceleration is slow.
I guess my first question is why what is it about your book that means that the margin should be accelerating in the second half not slowing if I've got my math right. So that that would be question number one.
And then I've got a second question.
Venkat.
Really it's about the Barclays UK cost income ratio because.
It's over 60, which is probably a good 10% higher than any of your peers really any sort of retail and commercial bank that I can find in the U K and it's really difficult externally to see why that is because you have this sort of central charging structure, we should've just dumped selected cost of them.
So I guess my question for Venkat.
Now you've had a bit of time to look at it.
Happy with the cost income ratio of Barclays UK and what's your assessment as to why it is so much higher than peers.
And what do you think might be possible in terms of actually getting them more in line with everybody else. Thanks very much.
Okay. So why don't I take.
That's first one.
So we guided up to $2 72 to.
Sorry, we've guided up from $2 72 to two <unk>. So you're right we are expecting some momentum from here.
There are three factors in that.
And.
Obviously add a comment on the mechanics within anyone else's book back and tell you how we see it.
In mortgages as I said it is competitive.
The front book rates are lower than the back book right. Because we think we're getting a good absolute returns. So you should expect us to continue growing that that is a net headwind.
Headwinds, but on the other side, we've obviously got <unk>.
March.
Margin widening on liabilities.
Ed.
<unk> to net a positive to the margin we would expect Pos III to increase from here, we called that out before.
Simply because.
Yeah.
The pathway for 1% to 2% is quite different from the pathway from zero to one so that's not absolutely included within our guidance.
Thank you.
The other on the third very important factor for US is obviously the structural hedge the mid term so we've extended the hedge.
And what we are seeing happening in that hedges every single months, you've got 160 <unk> rolling off.
Broadly five years ago right. So.
<unk> 2016, 2017 tight right.
Now re fixing on the current tariff is.
<unk> momentum to the NIM as we see it.
So it's bringing those three things together that gave us the confidence to guide up to between $2 80 to two.
$2 million.
And is it possible to do.
And I know, there's a set of size.
But everybody is talking about deposit beta. So I mean is it can you give us some sort of sense as to what you might what sort.
The shift might be that youre, assuming for the second half I was just trying to see whether you.
Making similar assumptions to other people, making marketing different ones I guess, that's where I'm coming from I mean people talk about 50%.
From below 50% pass through into the second half.
Get some sense as to where you might be in that spectrum.
Yes.
We wouldn't give that guidance and the reason I say that is a very nuanced.
So it varies by business, so as we're making those decisions, we're making them across retail and different products within retail were making them across the private bank business banking corporate banking, so it's very difficult to drill it back to a single number but given the nature of our business.
And we'll have an eye to our in liquidity in the competitive environment and actually.
We wouldn't talk about those things, we wouldn't think that that was appropriate as a competitive market.
To call out our Camaro.
Commercial intentions on a call like this.
So that's why I think we wouldn't do that but the thing you should focus on is the overall upgrade to NIM guidance. That's the most important thing because we're taking all of our thinking and we're wrapping into that number.
Great. Thank you Okay alright.
On the question on the <unk> cost income ratio. So the answer is yes, I am comfortable and a few reasons for it.
First of all obviously.
The cost income ratio is two <unk> costs and income.
On the cost side, we are going through a multiyear transformation of our business greater amount of digitization more product simplification, so that investment will pay off in the future.
That investment is elevating the cost income ratio in the short term.
Income side, obviously, there is a question of product mix.
I think the point.
Point out broadly make on that is.
That we have bid for even since pre Covid and post Brexit a little bit more of a careful side in terms of the path of unsecured credit and lending, which will have an income effect on us.
But given the broader credit risk.
Return tradeoff.
Extremely extremely comfortable.
You would notice that the UK <unk> in the first half is comp of 17%.
Which is sort of the nature of what it normally and habits. The region isn't habits during normal times, so thats recovered back to quite nicely to where it used to be.
Okay. When you say, a multiyear investment program, but what should we be thinking about that so.
Is your expectation that that will end at some point and we will see the cost income ratio improvement.
Yes, I mean, I think I think it goes into 2023.
And next year and it should improve I mean, the other books of income, which is improving for us, but improves where everybody else is of course, the effect of interest rates and so on.
Yes.
Okay. Thanks, Okay. Thank you next question please.
Thank you. Our next question is from guys stepping from BNP Paribas Exane.
Your line is open. Please go ahead.
Hi, good morning.
Two questions. So firstly was on costs.
Of course, I appreciate there's lots of moving parts and headwinds from FX and inflation of revenue benefit. So I think it's really important something very helpful.
You get some sense of the absolute cost.
The next you're expecting some of the vessels may change.
If we start from the $16 7 billion guidance, then annualized pretty for the current FX I guess it'd be more like 68, maybe 69.
If one adjusts for the elevated litigation in Q2 on.
Q1 second one point are you end up with a clean run rate around $15 billion heading into 2020.
If I look at slide 20, and the other sort of ups and downs.
<unk>.
At the bottom line side, you've got the efficiency savings and the benefit, but then business Greg selected investment spend inflation all in the other direction I presume those headwinds are greater than the benefit from efficiency gains.
Are we talking about under those scenarios under current FX et cetera.
Cost next year, probably north of $15 billion, presumably not speed up some extra vessels.
Missing something or underestimating the efficiency gains.
The second question was just on B.
<unk> volumes, which went backwards.
Quarter.
Looking forward the mortgage market.
Slowing a little bit consumer spending outlook is quite uncertain business banking activity was weak in Q2 of that night.
That was particularly impacted by it bounce back let them drag which.
Less painful in future quarters.
How should we think about.
Future quarters on types of what you guys can be UK Q2, it's been outlier.
Down actually something we should be statistics. Thank you.
Okay.
Yes.
Thanks Guy.
As I said before I'm not going to.
I'm not going to guide to.
Specific.
Pro forma for Nexgen nor income.
<unk>.
There's a huge amount of.
Got it.
<unk> comes here in terms of inflation.
Obviously inflation effect will build but I would remind you that inflation is allstate positive to our income line.
We did.
That efficiency in trading from 'twenty, one 'twenty, two which you would expect we would continue.
Continuing on with that.
Relative to the numbers that we've already shiny.
However, because of the income momentum that we have you should expect that we will lean into great, but we will be very selective as we do that.
So as I say, given given the uncertainty in the environment Im not going to guide now, but if you just consider those factors.
Contemplate the best guidance I could give you but just.
Forget about the impact of either investments or inflation on the income line as well as the cost lines.
In terms of.
The UK volumes.
Youre focused on the mortgage volumes.
As we grow our mortgage book, we are balancing three things with balancing returns.
We're balancing how we feel about our franchise and we're also balancing operational capacity.
So youll.
You'll see us participate pretty much consistently in the market, but we will flex in and out as we're trying to manage stage III setting.
Pleased without rice.
Would say I would expect next Greg across the industry to be lower simply because this is a market dominated by re mortgage that has purchased <unk>.
So we've definitely seen a switch that and that's a business that we like very much where we tend to take a higher than normal bulk success without.
So you might see Opex start flooding say.
We have.
<unk> seen.
Spot loans.
Decline electrical that's what we would expect obviously positive for margin as well.
And then the final thing I would say forget about ash luck.
Which can.
Create some.
Somewhat noisy impact in the UK.
Asset line simply because of the way we presented.
But no concerns in terms of the momentum either in mortgages cause I've talked about we expect to be a bit more cautious that obviously, we still continue to see liability balances correct.
Alright, guys. Thanks, that's really helpful can I just check on the.
Thanks.
In terms of the drop quarter on quarter from here would you expect.
And well as customers reach high we'd expect those quality.
<unk>.
Why is it safe reduce balances, but they are fairly tight margin.
Okay. Thank you.
Okay. Thank you next question please.
Thank you. Our next question is from Rohit Chandra Rajan from Bank of America. Please go ahead. Your line is open.
Alright, Thank you very much good morning.
Just on Capex already and how you think about and manage it you've got a number of growth initiatives like U S cards payments came say in.
Maintaining the investment bank rank, so how do you prioritize those investments.
First is capital distributions and then we will see now in the middle of Vaca <unk> target range are you comfortable operating and doing share buybacks anywhere within that range or is there a particular level that youre more focused on thank you.
Okay. Thank you.
And.
As we think about managing our capital we are balancing off maintaining and also then not target range with growth in the business.
Returning capital to shareholders.
Good news is that.
Each one of our businesses.
Is delivering above cost of capital in terms of its returns so they are generating organic capital.
Business by business, and therefore, we're not having to sort of.
Artificially made capital arrived for organic growth if you like.
As it relates to those specific opportunities, what's really guiding if that is the three strategic priorities that we have so the two that we've announced so far speaks to the first of those strategic priorities, which is next generation consumer.
Which is why we are.
We've invested in gap already and our intention to invest in Kensington. So.
I guess, we're looking to follow the strategy you will equally see.
Organic investment within the CIP, which is around.
Depending the sustainable growth and not CIB. It does state called out was the headline because it's organic and inorganic.
We are balancing we are balancing that investment.
And in terms of your specific about operating in the range.
<unk> 13, six we feel good about the organic capital generation of the business, which is what's given us the <unk>.
Confidence in <unk>.
Order too and then stock buyback today, you'll note that while we've announced buyback it is largely offset by the roll back of those ought to be raised from the rescission hedge which was.
Actually nudged up the capital ratio of the fault, so im not going to guide specifically within that range, but the evidence from Q2.
Should tell you that we are happy balancing shareholder returns with proactive investment in the business be that organic or inorganic.
Thanks, Pat anything you do look I think continuing to emphasize it very final point.
Mid <unk>.
We've got good top line growth across the businesses as we said.
Producing a 10% royalty.
It gives us 150 basis points of capital accretion.
I think that that is sufficient to invest in the business too.
And two.
Deal with any regulatory drift, which we might have in terms of the catheter route.
Obviously to return capital to shareholders, we've demonstrated that even in this first half.
That's the aim of the way the business is operating so really I would really emphasize back.
Getting the top line growth, which you've seen across the businesses, you've seen strong performance relative to others and many segments, including in the fixed income markets.
And then using that to sort of reward akshay constituents, if you'd like.
So on that thank you very much everybody. Yes. Thank you everybody, we'll see many of you next week at the breakfast until then take half right.
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