Q3 2022 Barclays PLC Earnings Call
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Welcome to the Barclays first quarter, 2022 results analyst and Investor Conference call.
Now how do you weigh that Tcf and cut to Krishnan group, Chief executive and across the group Finance director.
Good morning, everyone and thank you for joining us today.
I am pleased to report another strong quarter.
Ending the robust operating performance that Barclays has delivered so far this year.
In the third quarter profit before taxes was 2 billion pound.
Generating a return on tangible equity of 12, 5% and earnings per share of nine 4%.
This leaves us in a good position to deliver our full year statutory return on tangible equity target of above 10%.
I would like to highlight in particular, the strength and consistency of our results as we continue to execute on our business.
We see broad based income momentum across all our three operating businesses.
Group income group was 17%.
Third quarter year on year.
Excluding the impact from the over issuance of securities subject to which I'll return in a moment.
There were several important drivers of this performance that I wish to highlight.
First in the corporate and investment Bank, we continued to gain revenue share in our markets business.
Driving the best Q3 income in both markets.
First income.
In recent years.
Notably our fixed performance was particularly strong.
And ahead of our USPS with income up 63% in dollars as we supported our clients very challenging markets.
Okay.
Barclays UK, we positioned ourselves well for rising interest rates with a growing contribution from our structural hedge as we locked in high yields.
The consumer cards and payments business growth in our U S card balances delivered by a recovery in spending in the first quarter of <unk>.
Let me shift with gap, which is starting to show results.
Taken together with balanced growth in the management of our sensitivity to higher interest rates contributed to significant growth in the next interest income for the group.
And finally, whilst we are a UK domiciled bank, we have a truly global footprint, providing attractive exposure to the U S economy with over 40% of our group income generated in the U S dollars.
While our income story paint a compelling picture.
We remain however, cautious about the macroeconomic outlook globally and have been approaching it accordingly over the last year.
In fact, we have been prudent in our balance sheet management for many years in particular since the days following the EU referendum in the UK.
We have reviewed our corporate loan portfolio, particularly in more vulnerable sectors.
Reducing exposure and managing our risk by acquiring significant credit protection.
As with many of our peers, we have taken markdowns and some elements of our syndicate loan book, but here too we have been managing our risk prudently and increasing oxygen.
In our UK credit card portfolio balances remained some 40% below pre pandemic levels.
And while our U S credit card portfolio has grown credit quality remains very strong and customers continue to repay balances at near record levels.
That said, although we feel we are carefully positioned we remain alert to signs of stress.
Our UK debit and credit card spending data give us early insight into how customers are adjusting to prevailing trend.
So far we have not seen emerging signs of stress.
Although our September data showed a slight fall in consumer confidence.
Please go of being prudent with our reduction in non essential spending such as clothing as they adjust their household expenditure for large increases in utility bills.
We are drawing on this insight as well as our data and listening to our customers to understand how best we can support them.
We have put in place a range of options to support individuals and businesses will benefit us.
No.
Changes from providing basic information such as mortgage renewal date or how to build a household budget through to helping these customers with more complex needs.
We have over 8000 colleagues available to engage with our customers in the UK and to discuss their finances.
We know the demand for this customer support is growing and we aim to hire nearly a thousand more people in the coming weeks to boost that capacity.
Let me now address the regrettable matter of the over issuance of securities under our U S shelf registration statements.
We have resolved the matter with the SEC and the total financial impact was broadly in line with what we disclosed at the second quarter.
I've said, it before and I'll say it again this issue was entirely avoidable and we're taking action to prevent this kind of failure from recurring.
The external counsel read review is now complete and has reinforced the findings of our own extensive internal reviews.
We are already using these findings to improve specific controls across the bank and to reinforce move broadly a strong controls culture.
I continue to be clear with all my colleagues that we have no higher priority and ensuring that our operations and our risk and control processes are robust and affected at all times.
Before I conclude.
I want to give you a brief update on one of our strategic priorities.
This is capturing opportunities from the transition to a low carbon economy.
Governments continue to play a critical role in this transition.
And considering the inflation reduction act in the U S and other business factors.
And climate update we expect to bring forward. The fees are paid for financing thermal coal power in the U S. From 2035 to 2030 in line with our approach in the UK and the EU.
And demonstrating Barclays of leadership in the energy transition, we were very honored and pleased to act at the sole M&A advisor to quantity person based in New York.
$6 8 billion sale of their clean energy business to our W. E based in Germany earlier this month.
<unk> was the largest ever sale of renewable assets globally.
So in conclusion Barclays has had a strong third quarter financial performance.
Building on our performance in the first half the year.
Gives us a solid platform as we continue to target a statutory return on tangible equity above 10% for 2022.
Our capital position is robust with a CET one ratio of 13, 8%, which is comfortably in our target range of 13% to 14%.
Our announced total capital return for the last 12 months, comprising both dividend and buyback is a yield of about 10, 5% on the stock at current share price levels.
As I have said consistently returning excess capital to shareholders remains one of our priorities.
And while I'm pleased with the results I am very conscious that we live in unusually uncertain times.
This drives our conservative approach to managing our balance sheet and provision levels.
And our careful stance towards the expected deterioration in the global economy with that thank you very much <unk>.
Thank you Ben and good morning, everyone.
Q3 was another quarter of delivery across our businesses.
Anything to the year to date that would change <unk> of $10, 9%, Despite elevated litigation and conduct costs.
We delivered a royalty at 12, 5% for the quarter PBT was up 6% year on year and EPS was $9 four.
Let's see one ratio ended the quarter at 13, 8%.
And we remain highly liquid and well funded with a liquidity coverage ratio of 151% on a lie.
Loan to deposit may shed a 72%.
I think Ken mentioned, we reached resolution with the SEC on Ava Assurant.
As expected the net profit effect of the average issuance in the quarter was immaterial. However.
Offsetting effects on income and costs and there's a slide giving the details in the appendix.
I'm going to explain the fact in my commentary on the cost income trend.
As in recent quarters. This robust performance is being driven by broad based momentum.
<unk> was up 17% while price forecast.
Up by 18%.
However, operating costs, which exclude LLC were up by 14%, reflecting our focus on positive jaws.
<unk> income and cost numbers are of course affected by the stronger U S dollar.
And Pam and was $391 million up from $120 million last year, and I'll say more about provisioning and our coverage levels shortly but are going to start with income momentum.
All three operating businesses delivered income growth.
In the investment bank, whilst the market environment for primary issuance remains challenging.
Same environment is driving high levels of client activity across by financing.
Trading in the market businesses.
So in the CIB in categories, 5% against a strong comparator. Please market up 22% in U S dollars more than offsetting the reduction in banking.
The standout and market is again pick up 63% in U S dollars.
Clearly the volatility across global markets provides a tailwind to this business as we help clients understand risk.
However comprises baked into aviation.
More stable financing revenues.
Fixed income financing balances are up over 30% year on year on margin pub widened as rates have risen labeling.
The trends give us confidence in a more sustainable basis.
Income volatility.
Volatility subsides.
Equities revenues were down 21% in dollars.
Whilst derivatives were weaker year on year rise in our equity financing income provides a good base for sustainability.
Overall, our Q3 share of wallet and market has increased by over 100 basis points year on year compared to peers, who have reported so far.
Investment banking fees were down 64% in U S dollars broadly in line with the reduction in the industry fee pool.
The deal pipeline is strong.
The corporate and consumer businesses are well positioned for rising rate environment.
Further boosted by transactional Grace and indeed nominal economic activity.
Although corporate income overall was down 17% with strong growth in transactional banking significantly offset the corporate lending income expense.
Sure.
Income and CVP increased 54%, reflecting strong growth across all three constituent businesses.
Including the effects of the stronger U S dollar.
And international.
Income was up 68%.
In contrast to the UK, we grew average balances strongly in the U S by around 30% or 6 billion year on year, both organically with the $3 $3 billion Gaslog.
In payment income grew 15% on the private bank achieved 44% income growth with a continued build in client assets and liabilities up 14% to $138 million.
Barclays UK income by 17%, notably in personal banking.
And on deposits in a rising rate environment more than offset very competitive mortgage margins.
Okay.
Before I talk about interest rate, it's worth noting that our franchise is a global one.
Michael as a 40% of income in U S dollars.
Clearly, that's not an FX translation impact, but more importantly demonstrates our exposure to the U S economy and capital markets.
Moving on to the effects of interest rate.
We have maintained a consistent hedge strategy for a number of years, the aim of which eight to smooth the impact of interest rate changes on net interest income.
Each month, we currently row $4 billion to $5 billion of their hedge mainly into three to five year rate.
The consequence of that is that Barclays has sensitivity not just today, but also to the yield curve.
The left hand chart on this slide illustrates that for a 25 basis point parallel shift in the curve.
In year, one the majority of the sensitivity comes from product decisions around the possibly of increased base rates to customers.
But thereafter with a cumulative effect of the hedge rolling onto higher rate the hedge impact becomes more significant and reaches around two thirds of the.
$500 million increased by three.
But of course this is just illustrative.
Protection of what will happen with multiple rate rises.
On the right hand chart, we have shown the actual impact in recent quarters.
Given the recent Nathan the yield curve, we were locking in on average five year swap rate of three five.
5% for example in Q3 pulling the average yield on the hedge up to 93 basis points.
We have around 50 billion maturing in 2023.
Although we don't know exactly where swap rates, okay. The lightly uplift on the current hedge yield is clear even if the rate cycle is shorter.
Although our current expectations.
And of course is locked in with each passing month.
Looking now at cost.
The Q3 figure was $3 6 billion, but this is net of a reduction in issuance cost up $5 billion.
Excluding that cost would have been $4 1 billion up from last year's equivalent of $3 5 billion.
This increase was partly attributable to be other litigation and conduct charges of $164 million.
Operating costs, which exclude LLC increased 14% again income growth of 17%.
This increase of <unk> 5 billion included FX movements and inflation plus investment spend focused on our three strategic priority.
Alright, 30% of our call are in U S dollars. So the 14% change in the U S dollar rate year on year has a significant translation effect.
The currency effect have been more pronounced quarter on quarter with a 6% strengthening in the U S dollar.
Assuming an average dollar rate of 112 for Q4, we expect total operating expenses for 2022 to be in line with our previous guidance at around $16 7 billion with a tailwind from the neck Alan fee credit.
$3 billion in Q3, being broadly offset by the stronger dollar and other.
Cost inflation.
I'm not going to get absolute cost guidance for 2023 at this stage, but we will continue to manage the tradeoff between cost efficiency and investments.
Of course, a strong dollar sterling cost takeout.
Over 40% of our income in U S dollars. It is positive for the cost income ratio.
We manage our statutory call, which include litigation and conduct charges and are very focused on generating positive Joe on a statutory basis.
Moving on to impairment.
The current macroeconomic outlook informed our approach to provisioning.
But before I look at how this affects impairment I want to summarize briefly the evolution of key portfolios in recent years.
But the UK mortgage book has grown by 13% since December 2019, but the average loan to value has declined and only two 3% of the book has an LTV over 85%.
Our UK card book has reduced by around 40% exit that period, we continue to see high levels of repayments across the credit spectrum and to reiterate remained stable at low levels.
By choice, we have a different dynamic in U S cards, well repayment rate.
Also being high we are growing balances, including through the launch of the partnership.
However, the quality of the book as measured by average FICO scores has improved and our reiterate our scalable as the pre pandemic level.
Wholesale policies have increased recently, but the majority of the growth has been in debt securities collateralized lending to financial institutions, and the lower risk areas of corporate lending.
In addition, we have increased our first loss credit protection over the corporate loan book.
Thereby reducing our exposure to loan losses.
35% of this book is now covered by some form of protection up from 26% pre pandemic.
Across our portfolio, we feel confident that we are well positioned.
As you can see on the next slide titled Impairment allowance was $6 4 billion, an increase in the quarter from $6 billion.
This includes 7 billion post model adjustment a PMA for economic uncertainty.
The forecast macroeconomic variables on that we have to use that Q3 for modest impairments are shown in the appendix.
These show some deterioration compared to Q2 for example modeling baseline UK unemployment of four 4% in 2023 up from $4, one and U S unemployment of 4% up.
From three five.
Applying these maps to the Q3 balance sheet had an effect of around $300 million.
But we created the PMA for economic uncertainty to capture this type of deterioration.
So in the quarter, we have released around $300 million the PMA balance.
Therefore, the model's allowance plus the economic uncertainty TMA is roughly flat quarter on quarter up $5 2 billion and covers the further models increase we would see if we were to use our downside one scenario.
We still don't see significant signs of deterioration in credit metrics.
Although coverage ratios overall are slightly down on pre pandemic, we have increased coverage for stage, one and stage two credit cards.
You can see in the appendix slides.
The chart on the right shows the April line loss rate is.
Ignoring the volatility during the pandemic you can see that it has been around 50 to 60 basis points.
Although the sense that to the portfolio mix, we think it's a reasonable range to be considering for Australia cycle later loss rate.
In Q3 is 36% on the charge of $381 million and we expect that to rise modestly in the coming quarters as we grant.
This is obviously subject to further potential deterioration in the macroeconomic outlook.
Non stop which could be offset by the uncertainty PMA balance of $1 7 billion.
A quick summary, now on our results by business.
In CIB income grew 5% against a strong comparator.
Our focus on the key drivers are there, but once they go into a bit more detail here on the Copa income.
Transaction banking was up 57%, reflecting strong NII growth and we would expect further growth in Q4.
The corporate lending income expense reflected higher.
Volume losses on leveraged finance lending of $190 million net of mark to market gains in related hedges at.
Also higher cost of hedging and credit protection.
Underlying corporate lending income remained stable.
Operating costs, which exclude Alan Tse increased by 17%, reflecting the 14% appreciation in the U S dollar and investment in power systems and technology to support income growth initiatives plus the impact of inflation.
The cost income ratio was 62%, excluding the effect of ever issuance ever.
Overall, the CRD generated a statutory rate for the quarter of 11, 9%.
We're pleased with the sustainability of the business through the pandemic and current geopolitical disruptions.
The franchise is developing well over half of the income is dollar based reflecting the strength of our position in the largest global capital market.
Moving on to CCP.
Income increased 54%, reflecting growth across international comp payments on the project, but as I mentioned earlier.
Total costs were $835 million, which included $110 million of litigation and conduct mainly in respect of our review our legacy loan portfolio.
Excluding that the increase in operating costs with 50% principally investment and the Grace of partner brands in U S cards on the dollar strength, but still delivering positive jaws.
The impairment charge was $249 million compared to $110 million last year.
This reflected growth in U S card balances back to pre pandemic levels with some normalization of economic activity.
Balance is growth, we do expect some stage migration.
Metrics remain below pre pandemic level.
The royalty was nine 5% spot balance the charge.
Turning now to the U K income grew 17% while costs were up 2% delivering strong positive jaws and reducing the cost income ratio by eight percentage points to 56%.
The NIM for the quarter was 301 basis points up 30 basis points from Q2, as we saw benefits from rate rises and we've shown a bridge on our slide analyzing that.
We're continuing to guide for the full year to a range of 280 to 290 basis points and expect to be in the upper part of that range.
The cost base that we flagged previously provided significant offset to cost inflation, we are keeping a tight control over credit risk.
That slide in the appendix on the head office result.
Turning now to capital.
The CET one ratio ended the quarter at 13, 8% an increase from 13, 6% at the half year and comfortably within our target range.
Our capital generation from profits were strong contributing 43 basis points.
We completed the half year buyback returning capital to shareholders and further reducing the share count to $15 9 billion.
$1 billion in the last 12 months.
Combined with the dividend paid and accrued this was a return to shareholders of 22 basis points.
At the time increases in interest rates are a tailwind to profitability, but the effect on reserves from market movements caused a headwind of 12 basis points in the quarter principally through the fab are you effect on bond holdings.
The completion of the rescission offer and termination of related hedges released under the way increasing the ratio by 17 basis points.
FX had little net effect, given our policy of hedging the ratio with an increase in auto delay, but also a positive effect on the currency translation reserve and the numerator.
Our MDA hurdle of 10, 9%, so we have comfortable headroom.
We remain confident in the organic capital generation and our target range remains 13% to 14%.
A quick comment on the news and equity Tina decreased 11% in the quarter to 286 pence per share, reflecting the effect of increased interest rates.
Partially offset by earnings and the benefit of a stronger dollar on reserves.
Finally on leverage a spot leverage ratio was 5% and the average leverage ratio was four 8%.
So to summarize on topics and outlook, we reported statutory earnings of $9 four per share for Q3 and generated a 12.
5% rate against the target of over 10%.
We continue to target a cost income ratio of below 60% and our capital ratio remained strong at 13, 8% we have confidence in the continued revenue momentum across all of our businesses.
We continue to focus on the cost trajectory given inflationary pressures and have maintained our cost guidance for the year of $16 7 billion.
We are well provisioned in readiness for a potential deterioration in the macroeconomic environment, but expect a modest increase in quarterly impairment charges over coming quarters as we grow.
Overall, the business performance is robust I mean.
<unk> focused on delivering our target of double digit rates this year.
A sustainable basis going forward.
We are confident of being able to invest for future growth and delivering attractive capital returns to shareholders.
Thanks, Keith we will now take your questions and as usual I would ask that you limit yourself to two per person. So we get a chance to get around to everyone.
If you wish to ask a question. Please press star followed by one on your telephone keypad. If you change your mind and wished to remove your question. Please press star followed by T. When preparing to ask you. A question. Please ensure that you will find this on muted likely to come from that stuff slipped by one <unk>.
<unk> keypad to ask a question.
Our first question is from Alvaro Serrano from Morgan Stanley .
Your line is open. Please go ahead.
Hi, Thanks for taking my question just one question on costs and another one on asset quality. Please.
On costs.
I heard you, saying that you don't want them to about 2023 and I don't mean.
Thank you to give it.
A hard number but if I take your guidance for this year.
It looks like operating expenses there.
Annualized <unk> north of 16 billion, considering there is inflation.
Inflation and consensus was closer to 15. So this is a significant delta.
Is there any sort of cost actions or anything I should bear in mind in that number beyond obviously the exchange rates.
Shinji Youre able to take what used to fuel this even more flexibility on variable comp.
Other times.
At.
Times of the cycle and the second question is around.
Asset quality.
You said that you expect.
This trend towards through the cycle loss rates, obviously, there has been some changes in the mix increase.
Increasing sort of retail.
In the U S and shrinking U K I don't know if you can update us.
On on what that number looks like now.
And related to that.
And your downside one scenario I think you've got accumulated almost 20% correction in house prices.
Well.
Without <unk>. Thank you.
Okay Thats helpful.
So let me take costs first so we've guided this year too.
16.
Seven 1 billion.
Yeah.
Yeah.
<unk> has an assumption embedded within it.
Fourth quarter dollar rate will be 112.
And as we look forward into next year.
He is kind of how I'm thinking about it we would expect.
Given we've seen elevated levels of Alan C. This year for that to be considerably lower.
However, the FX impact that we've seen intensifying through the year.
Expect annualize into next year.
If rates stayed at 112 that would be about 500 million pounds of.
Cost increase into next year.
But what we have to remember is that that has a greater impact on the income line. So the equivalent of about 500 in income terms would be a $1 billion.
So as you're updating your cost expectations I would encourage you to think about the FX impact in income as well.
As it relates to other factors clearly there is inflation.
<unk> got the investment that we focused on our three strategic priorities you can see that not deployed equally throughout the bank.
In terms of actions, we could clearly modify the investment plan, but to the extent that we feel that it's driving.
Revenue growth.
Obviously, we'd be thoughtful about doing that.
In terms of managing inflation, we do house efficiency programs in place.
You can see that particularly in the UK, where you've got strong income growth dropping to the bottom line with minimal cost right.
And so I would say consider the impact of efficiency programs that I mean, obviously I will say, if we see a drop in CIB revenue, we've got another lever in comp.
Overall.
Just leave you with the message that we're very focused on the right target and Barry.
<unk> focused on.
Delivering positive jaws.
In terms of asset quality.
It's difficult to give you an adjusted.
Version of that historic number Youre right were actively growing balances in U S cards, we're seeing them fall away in UK cards, but at the same time, you can see that the level of risk that we're holding in the balance sheet versus pre pandemic is lower.
Well to some extent, we're going to have to see how that pans out.
So it is lower because ltvs are lower and actually if you look at the staging you can see that the proportion of stage, one and two balances.
It's also considerably higher than it was pre pandemic.
And to your final.
Final point, we haven't seen perhaps see in our R. W. A yet.
Right.
Was a substantial decrease in hps, we would.
We expect.
That impacts the loss given default in our capital models.
Would lead to some <unk> pressure and the equally remember that within that is the probability of default.
As well and therefore, you should consider the strengths of customer balance sheets.
As we sit here today, so we'll update on that as we see it happen but to date no stones.
Thank you very much.
Thank you next question please.
Thank you. Our next question is from Joseph Dickerson from Jefferies. Joseph Your line is open. Please go ahead.
Hi, Thanks, very much you already answered my question on the FX sensitivity there on revenue versus cost.
Just.
On capital return.
Kevin I think you've spoken earlier this year about the conversion of.
Earnings in the buybacks you've done.
You did $500 million in Q2, I guess, what held you back in Q3, given you've got it clearly.
That's a reasonable capital buffer, yes, there is some headwinds coming into Q4 from pension and Kensington and another $500 million 14.
14 15 bps.
Capital is this.
Is this a management.
The decision around bringing prudent or are there other regulatory considerations.
Thanks.
Yes.
It's a position, which we will take in Q4.
Basically that's it.
We sort of did it at the year end and the folks here this year.
And so we will talk about that.
Earnings.
Thanks, Joe.
Next question please.
Our next question is from Jonathan Pierce.
From Numis Jonathan Your line is open. Please go ahead.
Hello.
Couple of questions one on the hedge and we don't need them.
Okay.
Hedge there was another $10 billion I think how did nicely in Q3 were the aspects.
Has any influence on the size of that hedged some.
Clearly in the UK bank deposits up right now for the four quarters, but the hedges still.
Building, just wondering you know fully hedged.
Thinking about excuse me headwind the direction moving forwards.
Yet seeing any early signs that hedged balances, particularly in St Ponant accounts.
Starting to see it as a high rate deposit accounts, either within ball feasible to other institutions.
That's the first question second question.
I have Andy movements.
I, particularly like on that portfolio.
They were fairly small launch in the third quarter versus what we saw in the first half just fine.
Interest rates.
Who has been slightly.
Confused as to what this portfolio is on I guess the question is given the extent of the rate moves were now seeing Tonight.
I ask you to give us a bit more detail on why you have been seeing email hedged.
That pool.
From the relatively limited impact in Q3 that you reduce the sensitivity to rate movements that significantly over the course.
Thanks, a lot.
Thanks, Jonathan.
The hedge the movement quarter on quarter is not sterling movements.
Really relates to.
Because you're right.
Central Bank rates have gone from negative to positive.
<unk> eligibility center it doesn't impact net.
The UK Sterling head to toe.
So youre right.
Right.
UK liabilities.
Broadly stable.
We are seeing some take up of savings products.
<unk> in a positive way and in a way that is completely in line with our expectations.
Got some good savings rates at that and say, we're seeing customers migrate to those as we expected them to and all of that within our rate sorry off hedge assumptions and the way that we at training to the buffer and not hedged.
As it relates to your fair value through OCI question.
I can see why you might have expected a larger impact if you look at the disclosure in the annual.
In the annual report that guess.
For 25 basis.
Sure and I guess your question relates to the fact that the.
Kind of some these by more than that.
What's going on here at.
Firstly the disclosure in the annual report actually includes not only the liquidity buffer, but and shows the impact on the pension fund asset.
Because the pension surplus.
Rents are obviously mutual to capital so you're not seeing that good.
And then in relation to the liquidity buffer itself.
A couple of things firstly the portfolio is diversified not just scale.
Range of.
There's a range of products and that.
Secondly, we have taken down not risks we've reduced.
Risk as the year has progressed and that will be that's giving the smaller results in the third quarter.
Okay. That's really helpful. Thanks, a lot.
Okay. Thank you next question.
Thank you. Our next question is from <unk> Chandra Rajan from Bank of America. Your line is open. Please go ahead.
Thanks, very much good morning, and congratulations on a record performance in the quarter.
Just just on the I guess I mean, you discussed center in your comments.
Volatilities, particularly heartened at the moment and you would expect.
Trading revenues I rule to decline over time.
So in terms of helping us to think about the offsets to that and you mentioned financing I don't know if you can help us with what sort of proportion of FIC revenues that is and how that how that's grown year on year.
Tom You mentioned, a 30% increase in balances.
And why did margins, but just in terms of the revenue contribution and then more generally just how we should think about CIB revenues.
For the medium term versus.
Strong revenues for the last few years.
Trading income declines what are the offsets to that and how should we should should we think about the medium term.
And then the second area is just on.
Asset quality.
U S comps, particularly 30 days picked up in the quarter I don't know if theres anything.
Yeah, Hi.
There in particular, and then back on your downside scenario.
You've already talked about the sort of 20% <unk> impact so far on Stein correctly, you currently current reserves effectively.
Our equivalent to something like a two 5% GDP contraction of six 5% unemployment and 18% to 20%.
I just wanted to confirm that that's the case.
And then also how quickly you think.
Provisions normalize what would be the drivers for that thank you.
Okay I'm sure there's at least two questions here.
Yes.
If not a little bit more but I'll, let you get away with that okay. So we are pleased with fix that soft third quarter over one 5 billion pounds.
This is a key thing that we called out.
Obviously the financing.
Revenue after proportion that will move around a bit depending on what's going through.
Trading so it's actually we think it's actually unless unless helpful stops, but we have seen balances grow by 30% year on year spreads spreads have widened.
More broadly the math I think even in next slide side effects. We are seeing increased share pretty much across markets that we think that as a result of our client focus.
So the investment that we have put in the infrastructure and the talent.
In that business.
So.
You are right when volatility receipt.
Revenues dropped back, but dropbox, we believe to levels pre pandemic, we think thats. The most important thing what are the offsets to that while there's clearly banking is.
Having a quiet period right now that is clearly driven by the same volatility in the market because it's elevated markets revenue depresses banking, so we'd expect that to come back somewhat.
The other piece to remember because.
Because we always all forget is.
Cool.
I am, particularly transaction banking transaction banking is a stable franchise business, but one that is.
Also benefiting from the investments that we put behind it you are seeing balances grow you're saying margins somewhat wide, but also three comment nominal economic activity is staying sort of trade clients FX et cetera that goes through that and see.
Whilst individual pieces might drop back.
We do have I would say increased confidence in the home.
Before I go on to U K causes anything you would add.
Our U S.
I think.
Echo what I said about confidence in the hole.
<unk>.
As rates have risen.
Spreads have widened fixed income financing notice balances, but profitability per unit has increased.
It's long been quoted the DNA of Barclays. Please go to the market leading position in this area. So I think.
It's part of a broad set of things within the markets business that represents a diversified portfolio of activity, but I think look to this and.
And this kind of environment to provide an increasing.
Growing amount of balance to our returns.
Sorry, just before we move on to the call.
If you don't want to I appreciate it when we give a proportion but just can you help us scale the contribution from fixed financing.
We wouldnt, we wouldnt give that out on a call like this right. We'll continue to consider our disclosure around that kind of detail the path to market.
We'll come back to you on that.
Okay.
On U S cards.
And I mean does have ticked up a little.
Balances authoring, we're seeing increased economic activity in the U S. Manifesting itself in our cost of people spending more we're seeing organic growth given that movement from a very very low base, we would expect to see some movement in staging and some movement.
In in delinquencies, so were not concerned by what we've seen it looks broadly in line with the industry what.
What we would've expected it remains quite a long way below pre pandemic.
The fundamentals of the U S economy.
A strong unemployment of three 5% and we're still seeing strong levels of repayment across that book So no concern now.
<unk>.
So let me move onto your final part, which which was around the disclosure on Tyneside. One so yes. What we've done is we've shown you what would happen if we weighted 100% diversified one scenario.
And.
We called out for you there.
Main macroeconomic variables.
Slide one represents a six 5% unemployment in the U K for example, so you're right that the comparison, we're drawing so in other words, if we saw downside.
Pan out exactly as we show it in that model.
Then we would expect to covenant with PMA.
Sometimes the macroeconomic variables.
Thanks.
Flow exactly the way we model them today.
So that's a specific scenario.
And that we're calling that but we feel like we're well covered.
And finally on provisions just remind me of your loft.
Yes.
I would say topics.
Pace of normalization.
So the pace of normalization.
And.
I guess, we would expect to trend towards that 50 to 60, as we grow and economic activity recovers.
I'll just call out for you is given the nature of <unk> nine that pathway won't necessarily be linear we can see some lumpiness.
Moura chief position once we see economic volatility.
Well done.
Okay. Thank you very much.
Thank you next question please.
Hello, operator can we have the next question. Please.
Our next question is from Mark Keenan from Credit Suisse. Your line is open. Please go ahead.
Good morning, everybody. Thank you very much for taking the questions.
I've also got a follow up question on the.
With them.
Alright.
A second question.
Thanks.
So firstly on the downside one scenario. Thank you for that helpful disclosure.
I think we can more macau kind of assumptions various downside cases.
And the GDP.
Two.
Unemployment unemployment at 6%, probably not as bad as you can imagine things but.
Reasonable.
Downside case for now.
So.
If things were to materialize in that direction.
Assume that they would be.
Smooth.
Allocation.
The post model adjustments.
Woods.
Multiples proving.
Provisions kind of somewhat.
We have seen this quarter.
Do you think that could be.
Pressures too.
Keep the uncertainty both from a high level.
Despite.
The macroeconomic deterioration.
And just related to that.
How confident you feel.
The downside one mobile scenario.
I guess the question.
Just rates where they are.
Good.
Perfect.
<unk>.
Yes.
Ability of otherwise performing.
Alright.
Just wanted to get a feel as to how.
Conflict.
You are in that mobile number given mobile.
And.
Then the second question.
Understood.
Just in the round.
Whether thats just going to be spent.
Wonder if you can.
Give us any update on whether you've had any discussions with.
Thanks for taking the strong results here. Thank you.
Okay.
Thanks.
And.
Good question on that pattern will take we will take that quarter by quarter you can see what we've done what we've done this quarter, we've seen a general movement in the meds.
And we broadly offset that.
The answer is whether or not.
Where that impairment starts to manifest itself.
For example in the U K in the U.
U K retail bank, we are holding a sort of general economic uncertainty PMA, whereas in the wholesale side of things we are much much more sector specific.
Would expect it to have some smoothing impact whether or not it's exactly smooth quarter by quarter will depend where that went up and patent manifest itself.
And in relation to that.
Todd one.
I mean, you're right no model is ever perfect and I'm going to hand see Bank amendment, because I know you'll have a D. A.
And we.
These models were built during the period.
Low interest rate.
And so.
There is clearly.
Impact on affordable, let's say from inflation and from interest rates, which is difficult for those models to represent.
That's why we've been conservative in our study.
Age one and stage two provisioning. So when you look at the stage, one and two provisioning across the unsecured book in particular.
<unk> tried to protect ourselves against the second half.
Exactly right.
I think what you should see look at is the combination of our modeled output, but our extra post model adjustment as our view of what we think is appropriate given the current macroeconomic conditions.
Uncertainty at the model.
Behavior around it.
No.
If conditions change and we get less uncertain PV will do what we just did this quarter.
But it's sort of.
We're also looking at signs of consumer behavior.
We will make adjustments to that but I think you've got to expect.
Sure.
All other things being equal that we would look at it the way we did this quarter.
And if I can then go to your second question, which is about Texas and you have two parts one is without peer in the other words George look on the overall taxation matter. It is something for the government and for the.
The chancellor to say.
We read the same newspapers as you do and so we wait for the budget statement to know what fit.
And on Brazil, clearing I think the bank of England has been fairly clear that they don't believe in reserved hearing.
Tool of monetary policy so.
So with that.
That's super clear, thank you very much.
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 questions.
Thanks to the FX color in the slides as well that's much appreciated.
Just invite you to talk about your view on returns into next year since you've had a very longstanding greater than 10% rote target I think you originally gave that.
Back in 2017, as a medium term target.
So we're expecting to deliver this year. Despite obviously the shelf of Richmond's charges taken.
You are not expected to repeat next year with Tina is dropping because of rates you've got a meaningful FX tailwind earlier comments looking into next year.
And not be targeting something more punchy.
On a forward looking view of.
Do you expect to keep revisiting that.
Hey, guys.
And then on the structural hedge.
Yes.
And the structural hedge itself already materially since pre COVID-19 levels.
I appreciate your comments about some migration into savings products signals.
U S.
Hedge notional to shrink in the coming years. Please do you expect the size to be coming down.
Thank you.
Yes.
Okay. So on return.
You're right we've made good progress towards that target for FY 'twenty two.
Delivered greater than 10% in FY 'twenty one.
The target is deliberately are slow.
So it's greater than 10% and you can see that.
After a few quarters now about where we are.
Set off.
Our expectation.
And.
We won't update Chris at this juncture I take your point on <unk>, but given the effect on reserves.
Some of the macroeconomic volatility that we've seen.
The <unk> number is moving around quite a lot is probably means.
<unk> license the core trend again I would think.
So we're not going to update at this point, but I would just note it is a.
The flow or to our expectations.
Thank you.
Yes look I think.
Other people down and Echo what Ana has said it is a floor.
Youre right that we said it in 2017 as a medium term target and I'm glad we've lived up to that medium term target.
And.
We will continue to think about it.
Do you want to go to the show and.
So when we put the structural hedge together cross you'll note that we've done that.
Series of quarters, we've been very thoughtful about.
How we built the hedge and at all stages.
Thanks.
He added flow risk versus the opportunity cost of <unk>.
Putting the hedge on.
We've obviously maintained a buffer.
For conservatism as we put that together.
<unk>.
Buffer contains our expectations of product migration.
<unk>.
If that proves to be wrong, obviously, we're rolling a portion of the hedge.
Multiple months as well so that gives us further flexibility but to date.
The moves that we've seen have been in line with our expectations and we did build that conservatively we believe.
So yes.
Just trying to think through everything you just said.
The size of the buffer that you have in scaling the hedge.
Took into account things like large competitor is offering.
<unk> five <unk>.
And excess savings and 4% one year six months that was sort of part of your.
Scaling up the hedge I guess the move in rates.
In recent months.
Maybe for Matt today.
Looking about UK base rate going to maybe double the Lebanese consensus.
What are you thinking about even three months ago.
So that was part of your scaling of the hedge you were factoring in that magnitude of rates.
Yes.
So as we scale the hedge we identify what we believe are rate sensitive.
Red sensitive provinces.
So in PA, yes, clearly not a specific rate that you've quoted that rates amazing over time.
We have a.
We believe we've got competitive savings.
Savings products ourselves and obviously we are seeing.
Migration.
The normalization of that refinery.
And migration within our expectations today's products.
So.
I mean, that's probably where I'll leave it Chris we do consider amortization when we put all that together.
Together.
Okay. Thanks.
Thank you next question.
Thank you.
Next question is from Martin <unk> from Goldman Sachs. Martin Your line is open. Please go ahead.
Yes, good morning.
Thanks for taking my question.
Just wanted to ask a broader question with regard to the outlook we gave you.
Yes.
Just specifically with regards to mortgage rates mortgage rates in the UK have recently come around 2%.
Yes.
6% most recently as I was just wondering.
How do you see this impacting your business one in terms of affordability.
The underwriting being done at such a level.
With the bulk of your mortgage borrowers kind of essentially a fourth is kind of late 2000.
Cutting spending too much.
Secondly in terms of what we'd probably a mortgage REIT.
Codelco core.
Growth in terms of balance.
On the loan side for mortgage credit.
But also in terms of deposit balances.
Higher mortgage rates essentially be an incentive for customers do you think some of the deposit.
Two more aggressively pay down mortgage debt.
Gentlemen could change in terms of their outlook. Thank.
Thank you.
Martin Thank you Sir.
Let me try to take the first crack at it and I'll ask <unk> to join it good question.
First of all on mortgages.
We've got a very large mature book.
Our average LTV is around 50%.
The way the UK market is with a combination of three year and five year fixed.
About 30% of our mortgage book with refinance over the next year, let's say by the end of 2023.
And so a little bit of that in 2022 and about a quarter of it in phase III.
And so what that does.
Part of your other question is obviously when you do issue mortgages, we do strip them with a fairly big shock in interest rates in terms of affordability. So the combination of that.
So it's a combination of that and the fact that it's about 20% to 30% I think mute that impact on its portfolio.
And I think also what you are what we are seeing.
In the UK is a little bit of monthly overpayments.
It presents.
20% 20 basis points of our total Devon says, it's a very small fraction, but you are seeing it.
Which is good from a credit quality point of view, but it's also prudent financial management as you might expect.
So I think.
Broadly the behaviors as you would expect in an environment like this.
Yes, I think I'd agree with all of that.
The other thing I'd say is that given the hedge cost inflation, we've seen over the last few years.
LTV of the customers coming to refinance now.
And it will be lower than it was when they took their mortgages and that might be part of the incentives that's behind the areas of payments.
Trends that we see right now the opportunity to sort of move yourself back on LTV brackets.
From here.
In terms of sort of lines Greg.
I would say.
Just feels like every mortgage market rather than the highest price markets.
That will necessarily lead to lower net growth I would think so I would expect to see strong mortgage demand.
But a large part of that will be churn in the market.
In terms of the rest of loans right.
You can see from repayment rates that.
We sort of talked about in Cogs.
Our growth in interest, earning lending growth in Cogs.
Probably be a bit sluggish as well, but given where we are in the credit cycle. I think I think we're okay with that so probably a little bit more muted.
Online growth and similar on deposits.
In comparison to what we saw during the Covid period, we've already seen a slow time of it being a bit migrations, but within our expectations.
Customers, putting that money to work whether that be in savings or indeed.
Mortgages.
Thank you.
On the outlook for comp growth in the UK.
Part of the year.
But with a very clean would you expect that to slow down.
Yes.
Core growth in the U K and I would say so let me distinguish two things I think headline.
Right.
Our headline balances make right Paul.
Our strategy, we are trying to pivot the book towards spend rather than lend on new advanced products doing pretty well in terms of take up I wouldn't expect that to translate through to significant increases in interest earning lending customers.
Are being very cautious in the current environment and the repayment rates that we are seeing remains very elevated.
Thank you very much.
Thank you next question please.
Thank you. Our next question is from Edward Firth <unk>.
K B W. Edward Your line is open. Please go ahead.
Yes, good morning, everybody. Thanks, Thanks, very much for the question.
I just had a couple of questions both around credit.
What I am trying to do in my mind is I'm just trying to square your comments.
Beginning about the outlook for the U K and the demand in an uncertain environment.
That's sort of consistent with what consensus is viewed in the UK with your comments that you expect provisions to normalize.
Because it seems to me those touring consistent either that means your normal provisions is not a normal position, it's actually a peak provision and we should be thinking about Barclays through the cycle provision as being much lower.
Then, perhaps we have done in the past or potentially we could see provisions go somewhere above normal because.
The environment is normal I guess, that's a space that would be my my my first question is just really to understand how you are talking about normalized in the economic outlook.
And I guess I guess related to that in terms of your PMA. So Mike just to get this clear if you haven't released the 300 million PMA sort of override your charges. This quarter would have been about 70 basis points is that just.
My understanding is correct on that.
And then finally could you tell us something about what's happening at the frontline in terms of just in the last month I know, it's not really part of the quarter, but I'm thinking we saw the big uptick in mortgage costs really just over the last month and I just wondered if you could give us some insight in terms of what is happening in terms of volumes of new business. In October are you seeing.
An uptick in rejection rates are you finding that people are not meeting your affordability criteria are anymore or just something thats very specifically in the last month really since the results and rather than during the quarter that would be okay. Thanks very much.
Thanks, Thanks, Ed.
So let me deal with the simple one first.
And so your articulation of the impacts of the PMA is exactly correct.
However, I would say is.
That's exactly why.
<unk>.
We established the PMA in the first place because we felt that.
The economic environment was extremely uncertain.
The consensus that we were using for the model did not adequately capture the Mexican peso.
That's what we expect it to happen.
And therefore, that's why we released the PMA.
In relation in relation to your credit question I think I followed it.
So let me have a go.
This is a dichotomy here between what we see now on the ground.
No visible stress.
And.
The.
Macroeconomic forecast.
Didn't see beyond macroeconomic forecast into somebody economic commentary.
So.
There's a number of different fees that we are dealing with here.
Certain extent it points to the conversation we had before which is we would expect to trend towards a through the cycle.
<unk>.
<unk>.
Cost of risk.
But if we are to see macroeconomic shocks in terms of expected environment in one direction or another I would expect that to be lumpy just the nature of <unk> nine and I'll lift.
In the current quarter.
Let me take that.
The other question about what was what's going on in the frontline, especially since the.
At the end of September .
Obviously the end of September came in the middle of the peak of the skill to volatility.
<unk>.
Outside of the capital markets.
Was a bit of a rush for people too.
To adjust their mortgages.
Hearing.
Even higher rate.
What we were doing was we were processing applications and we saw a little bit of an uptick on that.
The.
On the consumer on the credit side.
What I would say initial conditions coming into this has been very strong so high consumer balance sheet.
High amount of.
Support that people have experienced some COVID-19 no unemployment.
And which continues all of these things continue.
And then.
And then obviously higher energy prices, but increased government support too.
To manage those energy prices, so with all of that and with the rising cost of living and then mortgage rates, we are seeing a little bit of decline in consumer confidence and our own private falling off it so how people feel about their about there.
Consumer about their finances, we see.
We see people being more careful in their spending.
<unk>.
Diminishment in certain non essential types of spending, but we are not seeing credit stress.
About 1% of our customers are in financial assistance, which is a fairly low number.
So we're not seeing it obviously, we have to be cautious because we don't know how much deeper some of these things can get.
We are in the middle of the rate rising cycle.
Which just generally tends not to be good for growth.
Growth in the UK has been low anyway. So we've got to be cautious looking ahead, but as a sort of alive indication right now.
People are managing definitions carefully.
Great.
Thanks very much.
Okay. Thank you next question please.
Thank you next question is from guys stepping from BNP power bag thing.
Scott Your line is open. Please go ahead.
Hi, Good morning, everyone. Thanks for taking my questions. The first one was just on the sort of appetite to lend right. Now I guess, you gave a bit of flavor around while you're hoping to see sluggish Gregg given the backdrop, but how does that play into the spreads you'd like to get some new lending obviously the multiples since your mortgage rates, given where short rates move.
And where you would expect things to essentially we see some stability in short rates I mean should we expect slightly larger spreads than what we've seen in recent history, given just the account the harvest of credit losses.
Et cetera. So that's the first question the.
The second one was on ECL coverage and shrieked, there's been very little change in the quarter.
You would use the weighting to the downside scenarios in the RFS levels might've expected the opposite.
I appreciate it sounds like you saw is very superior.
But income returns.
I think most precise things have gotten worse not better in last three months to say mortgage.
This ratios et cetera is it just a case of it's just not bad enough to really move the needle on the sales that you would.
Hold on just a quick follow up on that as well. Thanks for the color on it sounds like noise in places you feel Chris can.
Can you just remind me how you account for negative stage migration into say wholesale stage III for instance, when you come out with those ECL numbers. Thank you.
Okay. Let me, let me try that and I'm sure that come with that.
So in terms of.
I guess less lending demand lending supply how that plays into into margins.
Typically in relation to mortgages.
The mortgage market is competitive it's always competitive we've seen at least in line with the yield curve and we'd expect to do that.
As I've said before.
Sure.
No pricing.
That will be key not least because if this is a re mortgage market that tends to be very competitive customers are re mortgaging early and we'll be looking for the best possible value. So we would expect.
Margins to be quite keen not only on the front, but that will create some churn pressure I would expect so.
As it relates to sort of credit expectations, and how that plays into pricing I mean, I would expect that.
Participants price for us through the cycle.
Our view of risk so.
Creased sort of credit concerns.
Per se I wouldn't expect that.
Pricing significantly.
And in terms of your sort of coverage points.
And I think we believe that our coverage.
Is appropriate.
<unk>, obviously seen it go up.
From Q1, sorry from Q2 to Q3 in terms of our.
<unk>.
Early stage coverage in unsecured in particular.
We feel like we are appropriately covered that.
Thanks Scott.
Yes.
I agree with them.
With an environment that has been choppy.
Dealing with.
With models that tend to be pro cyclical and which have been built on a period and as I mentioned earlier.
Generally falling rates and.
Falling employment unemployment, so we have to recognize the weaknesses in the model you use and that's what we've tried to do and I think we put forward a bit.
Estimates and I think using the combination of the two.
Tried to manage it in a predictable way related to the environment that's outside.
So we feel we feel.
In a reasonably comfortable with the way we are.
<unk> both of these.
Yes, I think I think if you look at the balance sheet on aggregate.
What you can see is that.
We've got $6 4 billion of provisions key.
Two 4 billion of that relates to default, so say $4 billion is against known difficult stock.
And that's in an environment, where you can see from the chart that we showed in the in the presentation.
We strongly feel that.
The quality of the book that we have in terms of the risk on the Orange shaded is lower than it was.
In wholesale we have increased the level of first loss protection.
It's actually a number of things coming together and looking at individual sort of scenarios.
Couches.
The extent of our confirm.
And could you just repeat your third question. Please.
Yes, Sean Thanks for the color Thanks, Paul.
Question on sort of a follow up just around how stage migration is embedded into the ECL displace you gave for downside scenarios just to sort of gauge the relative conservatism most of the sales that come out.
Comments around you could switch.
So absorbing downside one scenario.
Sorry, I still don't understand your question Gautam, we don't need to take out of the room.
We'll come back to you probably needs too.
Can we have the next question please.
Thank you. Our next question is from Adam <unk> from media buying to Adam. Your line is open. Please go ahead.
Good morning. Thank you for the questions I have a couple around capital management.
Right.
I know you've had the roll off of the ETF hedging, but I'll debate in Germany, just quite liked the quarter, you've got loans kind of double digit Q on Q.
With suites.
Much less than that so I was just wondering what's going on behind the scenes there in terms of balance sheet management into quarter end.
You mentioned kind of you.
We're adding credit hedges on the wholesale portfolio, whether that sort of impacts.
And then as a follow on to that clearly you guys are involved in a big leverage finance deal headlines suggest that might end up on your balance sheet, rather than commenting specifically on the deal.
Maybe anecdotally talk about how you've been managing that risk.
We've already done in the clinic quarter. Thank you.
Okay.
<unk> to capital management and CRP, we just we're just very disciplined.
Theres nothing in particular going into that quarter and it doesn't relate to a quarter end.
The rapid increase in the coverage tool.
And I would say.
Through the quarter.
We've been helping facilitate client business in terms of what we've been holding on our own balance sheet is actually.
Been handled extremely conservatively.
So I don't think there's anything untoward.
<unk>.
Out of the way efficiency.
Yes.
As far as the leveraged finance business goes.
<unk> always run a fairly systematic approach to managing the risk and delivers finance book.
Comment on a particular transaction, which I think is generally that that first management has two parts to it one is Dubai.
<unk> protection against extreme movements in markets.
The most recent time that Thats really.
Protected us quite where it was during COVID-19.
The fairly rapid movement within the month of March 2020, and then back in April the <unk>.
<unk> way is occasionally for what might be large exposures trying to see if theres a way again to protect ourselves against extreme moves in that so you should expect us.
To employ both the first one systematically the second one opportunistically.
Try to manage the risk in our leverage finance book.
But.
It's something we look at closely over time.
Okay. Thanks for that.
Just on the loan book was about double digit Q on Q.
Yes.
CIB loan book are you looking at the total assets.
No.
Total loans.
Yes.
And.
And out of the way impact.
Sorry on FX impact.
Yes.
So.
Some FX inflation in terms of sort of.
Corporate lending.
And by the time, you sort of strip out the FX, it's not significant particularly.
The increase in wholesale lending that we've seen has been largely see sort of an investment grade.
Existing clients nothing of concern.
Okay. Thank you.
Okay.
Okay. Thank you.
Next question please.
Thank you. Our next question is from Robert Noble from Deutsche Bank. Your line is open. Please go ahead.
Good morning. Thank you for taking my questions. Two please can you give us some idea of the composition of your mortgage book split by loans into multiple losses than loans.
It's al.
And what proportion of your mortgages and your critical because you place to sort of lower household income.
Cynthia.
How close to the cost of living and pumps to put it that way levels.
And then separately.
Okay.
Still seeing decent growth in noninterest income.
Klein and real household spending will that number come down or will be inflation on the nominal growth still see growth in non interest income for the retail business.
Okay.
Rob Let me take this one by one so we don't give a mine to income.
However.
Like all banks in the U K we have.
And some regulatory limit.
Higher income.
So loan to income topped four and a half.
Tons.
Secondly.
Reduced.
In terms of cards.
Again, we wouldn't disclose that in particular, what I can tell you.
Repayment rate.
Across the risk of death.
Our all elevated.
So even in what we would describe as lower desktop the risks.
Repayments are significantly in excess.
Of the monthly contractual payments.
Significantly in excess of what they were.
Pre COVID-19 and of course balances are also lower so we are identifying.
Clearly customers, who we believe are under more financial pressure using our data.
But we believe that that behavior.
Managing that risk.
And in terms of.
Non interest income.
A good part C.
<unk> car seat.
Also.
To change fees.
It is linked to card usage.
The extent that customers continue to use that card.
And pay them off we might expect those trends to continue.
If we were to see customer spending full sharply then obviously that number would go ahead.
Thanks very much.
Thanks Keith.
Next question please.
Thank you. Our next question is from Farhad Kanwar from Redburn go ahead. Please go ahead. Your line is open.
Hi, Thanks for taking my questions just a couple one.
On the hedging one on your UK NIM guidance, maybe on some of the NIM guidance the stock has gone.
200, <unk> since you gave your NIM.
NIM guidance.
I'm just wondering why you haven't upgraded that guidance given the size of your hedge.
And then the second question is just going back to Christy's question on the hedge.
Do you see something structurally different in the way consumers phase.
On corporate side. The reason my answer is no.
Win rates when time deposits once it is high time deposits of around 50% of all savings pre financial crisis, there now a lot slower than that.
It's probably running more like 100 billion rather than the 260 billion is at the moment.
So is there a reason why the stage.
The level of interest free balances be structurally higher right now than they were pre global financial crisis. Thank you.
Okay.
So on the NIM guidance.
We have guided towards the top end.
The range that we gave you of $2 80 to $2 90.
<unk>.
That reflects two things firstly, the NIM year to date.
It's laid out that hedge pickup.
The reason that we have blackout.
The impact.
And that we've shown you that to the hedge movements and then the product impact.
As we've said for some time.
Expect.
The product on Nymex as rates started to rise.
Become.
Beneficial for NIM.
And we see that coming in <unk> is not just about past III.
Of any rate rises from here, it's actually about the dynamic that your second question, which is customers new thing that savings.
And secondly, the compression on the core.
Competitiveness.
What we see in the mortgage market. So we feel at the moment at product dynamics are getting better.
Heavily than perhaps they have done to date.
Reasons for caution and that's the reason that we split half of structural hedge impacts. So that you can think about this testing.
Separately.
And in terms of your second question as to why things might be structurally different.
I think that.
That's one piece and then there's one probably move back structure piece the.
First is titled deposits are higher we've seen sort of sustained QE. There is a lot of liquidity in the system.
And I would also say that box.
Retail <unk> corporate banks in particular are in a materially different position liquidity wise.
Versus where they were pre <unk>.
<unk>.
And then you had loan to deposit ratios.
Well I agree 100%.
Back to relying on.
Time deposits as a source of funding.
I think here, what you're seeing is timed deposits I think franchise offering.
Okay.
And so we'll see how this pans out I would say there are structural differences to the macro and also the <unk>.
<unk> constructed versus.
2567 and beyond.
Alright.
Okay sorry.
Sorry did you have anything more I was just wanted to follow up one thing does that imply you let your loan to deposit ratio tick up because you wouldn't need time deposits. Each drops is priced lower than your peers because it wouldn't meet those time deposits.
Well I think most U K banks are in a similar position.
That loan to deposit ratios are lower than they were I think it's okay.
And I wouldn't comment on competitive pricing on this call and I think it's more of a structural piece across the industry.
Great. Thank you.
So.
Thank you. Thank you everybody as far as the last question.
Looking forward to seeing.
Some of you next week.
Many of you in the coming weeks.
Thank you.
Thank you everyone for joining today's call you may now disconnect your lines.
Yeah.
Uh huh.
[music].