Half Year 2024 Barclays PLC Earnings Call
Before I hand over to Anna Cross Group Finance director.
Christian Group Chief Executive: Christian Group Chief Executive, before I hand over to Anna Cross, Group Finance Director.
Anna Cross: Good morning, everyone and thank you for joining book as the second quarter of 2024 results call.
Christian Group Chief Executive: Good morning, everyone, and thank you for joining Barclays' second quarter of 2024 results calls. At our investor update in February, we set out a three-year plan to deliver a better run, most strongly performing and higher-retailing Barclays. We are continuing to execute in a disciplined way against this plan, and this is our second progress report. Our second quarter and first half performance keeps pace with our 2024 and 2025 financial target, which are first, go return with a retarget return on tangible equity of above 12% in 2023. Second, distribute more capital to shareholders with a target of returning at least 10 billion pounds between 2024 and 2025.
Speaker Change: At our Investor update in February we set out a three year plan to deliver better run most strongly performing and higher returning Barclays.
Speaker Change: We are continuing to execute in a disciplined way against this plan and this is our second progress reports.
Speaker Change: Our second quarter and first half performance keeps pace with our 2024 and 2020 financial targets.
Speaker Change: Which are first.
Speaker Change: Return with a target return on tangible equity of above 12% in 2022nd.
Speaker Change: Distribute more capital to shareholders.
Speaker Change: Target of returning at least 10 billion pounds between 2024 and 2026.
Speaker Change: And third rebalanced the bank.
Christian Group Chief Executive: And third, rebalance the bank. With a target to reduce RWAs in the investment bank from 58% of Group RWAs at the end of 23 to around 50% by 2026. Return on tangible equity was 9.9% in the second quarter and 11.1% in the first half of the year, on track for our target of above 10% in 2024. Total income for the second quarter was 6.3 billion pounds. And it was 13.3 billion pounds for the first half. And as you will hear from Anna, we continue to be focused on the quality and stability of our income mass.
Speaker Change: The target to reduce <unk> in the investment bank from 58% of <unk> part of <unk> at the end of 'twenty three to around 50% by 2026.
Speaker Change: Return on tangible equity was nine 9% in the second quarter and 11, 1% in the first half of the year on track for our target of above 10% in 2024.
Speaker Change: Total income for the second quarter was $6 3 billion tonnes and it was $13 3 billion pounds for the first half.
Speaker Change: As you will hear from Ana we continue to be focused on the quality and stability of our income mix.
Ana: Also increasing our net interest income guidance for 2024 from $10 7 billion pounds to approximately 11 million tonnes.
Christian Group Chief Executive: We are also increasing our net interest income guidance for 2024 from 10.7 billion pounds to approximately 11 billion pounds. We continue to control our costs well and are being the benefit of the cost actions which we took in the fourth quarter of last year. Our cost to income ratio was 63% in the second quarter and 62% in the first half. We continue to manage our credit carefully. Impermanced charges have improved in the U.S. Consumer bank in line with our expectations and our overall credit performance is strong, particularly in the UK. We remain well capitalized. Our CEP1 ratio was 13.6% cost to believe within our 13% to 14% target range.
Ana: We continue to control our costs well and are seeing the benefit of the cost actions, which we took in the fourth quarter of last year.
Ana: Our cost to income ratio was 63% in the second quarter and 62% in the first half.
Ana: We continue to manage our credit carefully impairment charges have improved in the U S consumer bank in line with our expectations and our overall credit performance is strong, particularly in the U K.
Ana: We remain well capitalized.
Ana: CET one ratio was 13, 6% comfortably within our 13% to 14 and target range.
This has enabled us to announce the first installment in our plan to return at least 10 billion pounds to shareholders by 2026.
Christian Group Chief Executive: This has enabled us to announce the first installment in our plan to return at least 10 billion pounds to shareholders by 2026. We have a total payout of 1.2 billion pounds for the first half of 2024, including a 2.9 cents dividend per share and a 750 million pound buyback. Across the bank and within each of our five divisions, we are striving for an improved operational and financial performance. You see on this slide for the returns on tangible equity for each of our divisions and for the group alongside our 2026 target. And I will take you through our financial performance in more detail shortly after I have covered a few division of highlights.
Ana: We have a total payout of $1 2 billion pounds for the first half of 2024, including a $2 910 dividend per share and 750 million pound buyback.
Ana: Across the bank and within each of our five divisions, we are striving for improved operational and financial performance.
Ana: You see on this slide slide four the returns on tangible equity for each of our division and for the group alongside our 2020 target.
Ana: And I will take you through our financial performance in more detail shortly after I cover a few divisional highlights.
Ana: Starting with our three U K focused divisions Barclays UK, the UK corporate bank and private banking wealth management.
Christian Group Chief Executive: Starting with our three UK focused divisions, roughly as UK, the UK Corporate Bank and Private Bank involved management. We said in February that we plan to deploy an additional 30 billion pounds of out of Barclays UK's return on tangible equity was 22.3% for the quarter. We are seeing stability in the balance sheet with interest rates now expected to stay higher for longer. The positives are stabilizing faster than we anticipated; the savings broadly slashed quarter on quarter, given the pricing actions which we took earlier in this year. And we saw positive growth lending across products, as we managed the mortgage broke well in a competitive environment.
Ana: We said in February that we plan to deploy an additional 30 billion pounds of <unk> into these higher returning UK businesses by 2026 Barclays UK return on tangible equity was 22, 3% for the quarter.
Ana: I think stability in the balance sheet with interest rates now expected to stay higher for longer.
Ana: Deposits are stabilizing faster than we anticipated with savings broadly flat quarter on quarter, given the pricing actions, which we took earlier in this year.
Ana: And we saw positive growth lending across products as we manage the mortgage book well in a competitive environment.
Ana: The announced acquisition of Tesco retail banking business is progressing well.
Christian Group Chief Executive: The announced acquisition of Tesco's retail banking business is progressing well, and we are on track for completion in November this year. This will represent around 8 billion pounds of RWA's out of the 30 billion which we announced earlier. In the UK corporate bank, Matt Hammer's time presented our ambitions for this business in June, the first of our steep ties following the investor updates. We have an opportunity to grow our share of lending in the UK corporate market through deepening our client relationship and investing more in the client experience in order to make it easier for them to access more of our products and services.
Ana: And we are on track for completion in November this year.
Ana: This will represent around 8 billion pounds of <unk>.
Ana: Out of the $30 billion, which we announced earlier.
Ana: In the U K corporate bank, Matt Hammerstein presented our ambitions for this business in June the first about deep dives following the investor update.
Matt Hammerstein: We have an opportunity to grow our share of lending in the UK corporate market through deepening our client relationships and investing more in the client experience in order to make it easier for them to access more of our products and services.
Matt Hammerstein: We delivered 18% royalty in the UK corporate bank in the second quarter and target continued.
Christian Group Chief Executive: We delivered 18% ROTE in the UK corporate bank in the second quarter, and targets continued IT in terms in this business in 2026. Private banking and work management delivered an ROTE of 30.8% in the second quarter as client assets and liabilities grew by 14% year on year. With simpler pricing and service improvements, we have seen a meaningful increase in new customers signing on to our smart investor digital program over the first half of this year. In the end, you remain committed to delivering improved RWA and operational productivity to drive higher returns for this business, and you can see evidence of progress.
Matt Hammerstein: Returns in the business in 2026.
Matt Hammerstein: Private banking and wealth management delivered an <unk> of 38% in the second quarter as client assets and liabilities grew by 14% year on year.
Matt Hammerstein: With simpler pricing and service improvements, we have seen a meaningful increase in new customers signing on to a smart investor Digital program over the first half of this year.
Speaker Change: In the investment bank RFP for the quarter was nine 6%.
Speaker Change: We remain committed to delivering improved notably in operational productivity to drive higher returns for this business and you can see evidence of progress.
Speaker Change: In market fixed performance was relatively stable with European rates improving year on year.
Christian Group Chief Executive: In market, fixed performance was relatively stable, with European rates improving year on year while we continue to focus on expanding our overall market share. The futureized products continue to perform well. In lesson, banking fee income was up 45% year on year as the industry wallet grew, and we increased our share overall. ECM had a strong quarter driven by a lead role in helping a long-standing corporate working client, National Grid raised 7 billion pounds in the landmark right issue.
While we continue to focus on expanding our overall market share.
Speaker Change: Securitized products continue to perform well.
Speaker Change: Investment banking fee income was up 45% year on year as the industry wallet grew and we increased our share overall.
Speaker Change: ECM had a strong quarter driven by a lead role in helping a longstanding corporate broking clients national grid for a 7 billion pounds in the landmark direct issue.
Speaker Change: The co head of investment banking, <unk> and <unk> represent a deep dive on their business on the first of October.
Christian Group Chief Executive: The co-head of investment banking, Kahawbe Fee and Taylor Rice will present a deep job on their business on the 1st of October. Finally, the US consumer bank delivered an improved ROTE of 9.2% for the quarter as we continue to grow and drive operational improvement, and while impairment charges normalize. We took proactive actions to reduce credit line last year and to build reserves early, and as a result, our impairment performance in the first half has laid out as we expected. Overall, we remain execution focused. One area in particular is cost discipline. We achieved a further 200 million pounds of gross cost savings with quarter.
Speaker Change: Finally, the U S consumer bank delivered an improved <unk> of nine 2% for the quarter as we continue to grow and drive operational improvement and while impairment charges normalized.
Speaker Change: We took proactive actions to reduce credit line last year and to build reserves early and as a result, our impairment performance in the first half has played out as we expected.
Speaker Change: Overall, we remain execution focus.
Speaker Change: One area in particular is cost discipline, we achieved a further 200 million pounds of gross cost savings this quarter.
Speaker Change: Total for the first half of the year to 400 million pound.
Christian Group Chief Executive: It is in the total for the first half of the year to 400 million pounds. And this is on track for our targeted 1 billion pounds for the full year of 2020. We also made progress with the non-strategic business disposal, which we talked about at our investor update. In this quarter, we completed the sale of our performing Italian Movis portfolio and have announced the sale of our German consumer finance business. Finally, as I said, the 1.2 billion pound shareholder distribution is the first installment of our greater than 10 billion pound capital return plan.
Speaker Change: And this is on track for our targeted 1 billion pounds for the full year of 2024.
Speaker Change: We also made progress with the non strategic business disposals, which we talked about at our Investor update.
Speaker Change: In this quarter, we completed the sale of our performing Italian mortgage portfolio and have announced the sale of our German consumer finance business.
Speaker Change: Finally, as I said, the $1 2 billion pound shareholder distribution is the first installment of our greater than 10 billion pound capital return plan.
Speaker Change: I will now hand over to Anna to take you through the second quarter financials in greater detail.
Anna Cross: I will now hand over to Anna to take you through the second quarter of financials in greater detail.
Anna Cross: Thank you Ben and good morning, everyone.
Anna Cross: Thank you, Venkat, and good morning, everyone. On slide 6, we have laid out Barclays financial highlights for Q2 and H1, and you'll see the same throughout the presentation for each business. As before, I won't talk to these slides, but have included them for ease of reference, turning to Slide 7. The headline message is that Q2 remained in line with a plan we laid out in separate. We delivered a statutory roti of 9.9%, despite a circa 50 basis point headwind year and year from the cashflow hedge reserve. Excluding the loss on sale from the business disposal that Venkat mentioned, Q2 roti was higher than last year at 11.8%.
Anna Cross: On slide six we have laid at Barclays financial highlight of Q2, and H, one and you'll see the same throughout.
Anna Cross: Patient for each business.
Anna Cross: As before I will talk to this slide.
Speaker Change: Have included them for ease of reference.
Speaker Change: Turning to slide seven.
Speaker Change: Headline message is the key to remain in line with the plan, we laid items separately.
Speaker Change: We delivered a statutory rate of nine 9%. Despite a circa 50 basis point headwind year on year from the cash flow hedge reserve.
Speaker Change: Excluding the loss on sale from the business disposals that Venkat mentioned Q2 rate was higher than last year 11, 8%.
Speaker Change: First half <unk> ratio was 11, 1%.
Anna Cross: First half, that's a Q2 roti with 11.1%, and we continue to target above 10% in 2024 or around 10.5% on an underlying basis x disposal. Just like Q1, I was looking for four things in these results. Number one, income stability. Number two, cost discipline and progress on efficiency savings. Number three, credit performance. And number four, a robust capital position. Overall, we are where we expect it to be, and I will cover these in more detail on subsequent slides. Starting with income on Slide 8, total income was at 1% year on year at 6.3 billion and was impacted by the 240 million loss from the disposal.
Speaker Change: We continue to target above 10% in 2024 are around 10, 5% on an underlying basis ex disposal.
Speaker Change: Just like Q1 I was looking for for things in these results.
Speaker Change: One income stability number key.
Speaker Change: Cost discipline and progress on efficiency savings number three credit performance and number four our robust capital position.
Speaker Change: Overall, we are where we expected to be and I will cover these in more detail on subsequent slides.
Speaker Change: Starting with income on slide eight.
Speaker Change: Total income was up 1% year on year at $6 3 billion and was impacted by the 240 million loss from the disposal.
Speaker Change: Excluding this income was up 4%.
Anna Cross: Excluding this, income was at 4%. At our investor update in February, we emphasised the quality and stability of our income, and how the more stable revenues that we generate from retail and corporate, as well as financing in the investment bank, provided by us to our income profile. Together, these businesses contributed 73% of group income into Q2. Retail and corporate income included the loss on sale from disposal, and the underlying business income was broadly flat. Financing income was also stable year on year at 0.8 billion, despite the 2023 installation-linked tailwinds that we have called out previously.
Speaker Change: At our Investor update in February we emphasized the quality and stability of our income and how the more stable revenues that we generate from retail and corporate as well as final thing in the investment bank provide ballast to our income profile.
Speaker Change: Together these businesses contributed 73% of great income in <unk>.
Speaker Change: Retail and corporate income included the loss on sale from disposal on the underlying business income was broadly flat.
Speaker Change: Financing income was also stable year on year.
Speaker Change: 8 billion. Despite the 2023 inflation linked tailwind that we have called out previously.
Speaker Change: And we saw year on year Grace in base investment banking fees and intermediation.
Anna Cross: And we saw year-on-year growth in both investment banking fees and intermediation. Caring income net interest income on Slide 9. As in Q1, NII, ex-investment bank and head office was broadly stable in Q2, at 2.7 billion. Structural hedge tailwind continued to offset the pressure on NII from deposit migration. We observed more stable deposits than the second quarter that anticipated, and we expect this to continue into the second half. We have also updated our UK rate expectations for 2024 and now assume one base rate cut to 5% by the end of the year. Together, these trends mean that we have increased our 2024 guidance for group NII, ex-investment bank and head office, to circa 11 billion for the full year, up from 10.7 billion.
Speaker Change: Turning to net interest income on slide nine.
Speaker Change: As in Q1, NII ex investment Bank and head office was broadly stable and quite.
Speaker Change: Circa $2 7 billion.
Speaker Change: Structural hedge tailwind continued to offset the pressure on NII from deposit migration.
Speaker Change: We observed more stable deposits in the second quarter than anticipated and we expect this to continue into the second half.
Speaker Change: We have also updated our UK rate expectations for 2024, and now is tier one base rate cut to 5% by the end of the year.
Speaker Change: Together these trends mean that we have increased our 2024 guidance for NII ex investment Bank and head office.
Speaker Change: Circa 11 billion for the full year.
Speaker Change: $10 7 billion.
Speaker Change: Within that NII guidance for Barclays UK increased from $6 1 billion to <unk> six.
Anna Cross: Within this, NII guidance for Barclays UK increased from 6.1 billion to circa 6.3 billion, excluding the Tesco Bank acquisition. A further UK rate cut to 4.75% towards the end of the year, which is currently assumed in the latest consensus, would not materially change NII this year.
Speaker Change: $6 3 billion, excluding the Tesco Bank acquisition.
Speaker Change: Further UK rate cuts.
For 75% towards the end of the year, which is currently seen in the latest consensus would not materially change NII this year.
Speaker Change: Moving onto the structural hedge on slide 10.
Anna Cross: Moving on to the structural hedge on slide 10. As a reminder, the structural hedge is designed to reduce volatility in NII and manage interest rate risk. As rates have risen, the hedge has dampened the growth in our NII, and in our falling rate environment, we will see the benefit from the protection that it gives us. The expected NII till when from the hedge is significant unpredictable. 11.7 billion of aggregate growth income is now locked in over the three years to the end of 2026, up from 9.3 billion at key 1. We have around 170 billion of hedges maturing between 24 and 26 at an average yield of 1.5%.
Speaker Change: As a reminder, the structural hedge is designed to reduce volatility in NII and manage interest rate risk.
Speaker Change: As rates have risen the hedge has dampened the growth in our NII and then a falling rate environment, we will see the benefit from the protection that it gives us.
The expected NII tailwind from the hedge is significant unpredictable.
Speaker Change: At $11 7 billion of aggregate gross income is now locked in over the three years to the end of 2026.
Speaker Change: Up from $9 3 billion at Q1.
Speaker Change: We have around 170 billion of hedges maturing between 2004 and 2006 as an average yield of one 5%.
Speaker Change: As we said in February reinvesting around three quarters of that around three 5% would compound over the next three years to increase structural hedge income in 2026 as there could be 1 billion versus 2023.
Anna Cross: As we said in February, reinvesting around 3.4 of this at around 3.5% would compound over the next three years to increase the structural hedging income in 2026, as there could do billion versus 2023. In response to the greatest stability in customer and client deposit behaviour, we have slightly increased the average duration. Given the high proportion of balances hedged and the programmatic approach we take, we are relatively insensitive to the short-term impact of potential rate cuts. We have provided a sensitivity table to illustrate this in the appendix from slide 35.
Speaker Change: In response to greater stability and customer and client deposit behavior, we have slightly increased the average duration.
Speaker Change: Given the high proportion of balances hedged on the programmatic approach. The cake, we are relatively insensitive to the short term impact of potential rate cuts.
Speaker Change: We have provided a sensitivity table to illustrate this in the appendix on slide 35.
Speaker Change: Moving on to my second safest area cost discipline.
Anna Cross: Moving on to my second focus area, cost discipline. Total cost in Q2 were at 1% at 4 billion, while operating costs were at 2% year on year. We delivered a further 0.2 billion of growth efficiency savings, bringing the total for H1 to 0.4 billion, and we remain on track to deliver 1 billion for the full year. These efficiencies have helped us to offset inflation and created capacity for investment. Our cost of income ratio was 63% in Q2, 62% for H1, and we still expect it to be around 63% for 2024.
Speaker Change: Type of costs in Q T.
Speaker Change: 1% up $4 billion.
Speaker Change: Operating costs were up 3% year on year.
Speaker Change: We delivered a further $1 2 billion of gross efficiency savings, bringing the total for <unk>, one 4 billion and we remain on track to deliver 1 billion for the full year.
Speaker Change: These efficiencies have helped us to offset inflation and created capacity for investment.
Speaker Change: Our cost to income ratio was 63% in key K, 62% for half one and we still expect to be around 63% by 2024.
Speaker Change: Turning now to my third focus area impairment, which continues to trend positively.
Anna Cross: Turning now to my thorough focus area in payment, which continues to trend positively. The impairment charge of 384 million equated to a low loss rate of 38 basis points for the quarter for low R3 cycle guidance of 50 to 60. The Barclays UK charge was just 8 million, a low loss rate of one basis point, which reflected continued benign credit conditions and an 18 million release of economic uncertainty TMAs. Our UK customers continue to act prudently, with little current signs of stress evidenced by continued low and stable delinquency. Starting from the low base, we expect the Barclays UK loan loss rates to track towards 35 basis points over time as we complete the Tesco Bank acquisition and grow the balance sheet as outlined in our investor updates.
Speaker Change: The impairment charge of $384 million equating to a loan loss rate of 38 basis points for the quarter.
Speaker Change: While Australia cycle guidance of 50 to 60.
Speaker Change: The bulk of that UK charged with just $8 million a loan loss rate of one basis points, which reflected continued benign credit conditions and an $18 million release of economic uncertainty PMA.
Speaker Change: Our UK customers continue to act prudently.
Speaker Change: With litho current times of stress.
Speaker Change: Evidenced by continued low and stable delinquency.
Speaker Change: Starting from this low base, we expect the bulk of U K loan loss rate to track towards 30 35 basis points over time.
Speaker Change: As we complete the task of bank acquisition and growing the balance sheet as outlined in our investor update.
Speaker Change: In the U S consumer bank, the charge increased year on year to $309 million underlying loss rate to 438 basis points.
Anna Cross: In the US consumer bank, the charge increased year on year to 309 million and the loan loss rate to 438 basis points. On slide 13, you can see the mix of reserve bills to write off within the impairment charge for the US Consumer Bank continue to involve as we guided. We expected write off to increase during 2024 and, as such, took proactive action to reduce credit lines and build reserve early. In line with industry trends, there was a fall in delinquencies in Q2 versus Q1, which in part was due to seed nullities and higher customer repayments.
Speaker Change: On Slide 13, you can see the mix of reserve sales to write offs within the impairment charge for the U S. Consumer bank continue to evolve as we guided.
Speaker Change: We expect to drive half to increase during 2024.
Speaker Change: As such proactive action to reduce credit lines and Bill's reserves early.
Speaker Change: In line with industry trends, there was a fall in delinquencies in Q2 versus Q1, which in part with GT seasonality and higher customer repayments.
Speaker Change: From here, we would expect future quarters to follow normal seasonality, but delinquencies rising towards the end of the year.
Anna Cross: From here, we would expect future quarters to follow normal seed nullity, but delinquencies rising towards the end of the year. We still expect the US consumer bank impairment charge to improve in the second half compared to the first, resulting in a lower full year charge in 2024 versus 2023, and we continue to guide to a loan loss rate trending towards the long-term average of 400 basis points.
Speaker Change: We still expect the U S consumer bank impairment charge to increase in the second half compared to the first resulting in a lower full year charge in 2024 versus 2023.
Speaker Change: And we continue to guide to a loan loss rate trending towards the long term average of 400 basis points.
Speaker Change: I will cover my fourth focus area, which is our capital position after I walk you through our business performance.
Anna Cross: I will cover my fourth focus area, which is our capital position, after I have walked you through our business performance. As I mentioned, you can see Barkley's UK financial highlights and targets on slide 14, but I will talk to slide 15. ROTE was a strong 22.3%, and total income was 1.9 billion. Income was down 74 million year on year, driven by deposit and mortgage product dynamics and the transfer of UK wealth in Q2 2023. NII of 1.6 billion was up 48 million on Q1. NIN increased by 13 basis points to 3.22%, reflecting increased NII but also lower asset levels, which we do expect to grow over time.
Speaker Change: As I mentioned, you can see Barclays UK financial highlights and targets on slide 14, but I will talk to slide 15.
Speaker Change: Royalty was a strong 22, 3% and total income was $1 9 billion.
Speaker Change: Income was down 74 million year on year, driven by deposit and mortgage product dynamics.
Speaker Change: The transfer of U K wealth in Q2 2023.
Speaker Change: NII of $1 6 billion was up $48 million in Q1.
Speaker Change: NIM increased by 13 basis points to three 2%.
Speaker Change: Reflecting increased NII, but also lower asset levels, which we do expect to grow at a time.
Speaker Change: As you can see on the chart continued structural hedge momentum more than offset product margin pressures.
Anna Cross: As you can see on the chart, continue structural hedge momentum more than offset product margin pressures. Looking to the second half of the year, we expect the positive behaviour to continue to stabilize and turn impact in mortgages to be neutral to marginally positive. As I mentioned earlier, we are now targeting circa 6.3 billion of NII for Barclays UK in 2024, excluding PEPCO Bank, which is now expected to complete at the beginning of November. At Q3 results, we will provide more details on the expected financial impact. Non NII was 290 million in Q2, and we continue to expect a run rate above 250 million per quarter going forward.
Speaker Change: Looking to the second half of the year, we expect a positive behavior to continue to stabilize and Sharon impacting mortgages to be neutral to marginally positive.
Speaker Change: As I mentioned earlier, we are now targeting circa $6 $3 billion of NII for Barclays UK in 2024, excluding Tesco Bank, which is now expected to complete at the beginning of November.
Speaker Change: Our Q3 results, we will provide more details on the expected financial impact.
Speaker Change: Non NII was $290 million in Q3, and we continue to expect a run rate above $250 million per quarter going forward.
Speaker Change: Total costs were 1 billion down 4% year on year due to efficiency savings and the transfer of U K wealth in Q2 last year.
Anna Cross: Total cost were 1 billion, down 4% year on year due to efficiency savings and the transfer of UK wealth in Q2 last year. The cost to income ratio was 55%. Moving on to the Barclays UK customer balance sheet on slide 16.
Speaker Change: The cost to income ratio was 55%.
Speaker Change: Moving on to the Barclays UK customer balance sheet on slide 16.
Speaker Change: At Q1, we said, we expected underlying deposit trends in lines to stabilize in the second half.
Anna Cross: At Q1, we said we expected underlying deposit trends and loans to stabilize in the second half. The positives have stabilized faster than we anticipated, with balances reducing by only 0.5 billion in the quarter. Whilst net lending remains negative, gross activity has increased across portfolios, reflecting our focus on growth. Gross mortgage lending was just under 20% higher than Q1; however, this was more than offset by a high level of maturity. Application volumes were strong with a more balanced high loan to value share as per our state of ambition. UK card balances were stable at 3,010 billion.
Speaker Change: Positive stabilized faster than we anticipated with balances reducing by <unk> 5 billion in the quarter.
Speaker Change: Whilst net lending remained negative gross activity has increased across portfolios, reflecting our focus on growth.
Speaker Change: Gross mortgage lending was just under 20% higher than Q1. However, this was more than offset by a high level of maturity.
Speaker Change: Application volume was strong with a more balanced high loan to value share.
Speaker Change: Our stated ambition.
Speaker Change: UK card balances were stable at 30 10 billion acquisition volumes were strong and we added half million new barclaycard accounts in half one in line with our UK Graceland.
Anna Cross: Acquisition volumes were strong, and we added half a million new Barclaycard accounts in half one in line with our UK growth loan. As we said previously, this will take time to flow into net balance sheet growth and interest earning lending. Business banking growth lending also increased meaningfully, offset by paid owner of government back loans. This shape is as we expected, with a stabilization in net lending in the second half and then growth from there over the planned period.
Speaker Change: As we said previously this will take time to flow into net balance sheet growth in interest earning lending.
Speaker Change: Business banking gross lending also increased meaningfully offset by Paydowns of government backed loans.
Speaker Change: This shape is as we expected with the stabilization of net lending in the second half and then growth from that over the plan period.
Anna Cross: Moving on to the Corporate Bank on slide 18. You take Corporate Bank delivered Q2 roti of 18%. Income was down 6% year on year at 443 million, as increased deposit income from higher interest rates was more than offset by lower liquidity pool income. Loans were flat quarter on quarter as demand from corporate clients remained muted. There was a seasonal pick up in deposit balances post Q1. As we said at the Corporate Bank deep dive in June, we expect to generate lending growth within this business. You can see the early signs of this, if not yet in balances, in circa 1 billion of RWA growth year-to-date, which reflects an increase in client facility. Total cost increased by 10% year-on-year to 235 million, reflecting investment spend, which we expect to continue in support of our growth initiative. Turning now to private banking and wealth management, Rosie was 30.8%, supported by strong growth in client assets and liabilities, up around 10 billion on Q1 and around 25 billion versus the prior year. The year-on-year increase in income was mostly attributable to the transfer of the UK wealth business, which occurred in May last year. Underlying growth from higher balances and higher interest rates was offset by continued, although slowing, the public migration. Cost increased there are 7 million year-on-year, mostly as a result of the transfer, but also due to ongoing investment in growing the business. We expect cost to be slightly higher in the second half versus the first from our investments to grow our platform, hiring, and efficiency-related measures. Turning now to the investment bank on slide 22, Q2 Rosie was 9.6%. Total income of 3 billion was up 10% year-on-year, driven by growth in investment banking and market. Total cost were up 5%, delivering 5% positive cost to income jaws despite higher structural cost actions linked to headcount actions in the second quarter. This resulted in a cost to income ratio of 63% for Q2, down 3% to point year-on-year. RWA productivity, measured by income over average RWA, was 5.9%, 40 basis points better year-on-year, albeit down seasonally on the Q1 level. As we set out in the investor update, we are focused on improving the key metrics from the 2023 level to drive higher investment bank returns. RWA was 3 billion or 1.4% higher versus Q1 at 203 billion. This is within the bounds of normal client trading activity, driven largely by temporary factors.
Speaker Change: In private banking and wealth management.
Speaker Change: <unk> was 38% supported by strong growth in client assets and liabilities up around $10 billion in Q1.
Speaker Change: And around $25 billion versus the prior year.
Speaker Change: The year on year increase in income was mostly attributable to the transfer of the U K wealth business, which occurred in May last year.
Speaker Change: Underlying growth from higher balances and higher interest rates was offset by continued although slowing deposit migration.
Speaker Change: Costs increased $37 million year on year, mostly as a result of the transfer but also due to ongoing investments in growing the business.
Speaker Change: We expect cost to be slightly higher in the second half versus the first.
Speaker Change: From our investments to grow our platform hiring and efficiency related measures.
Speaker Change: Turning now to the investment bank on slide 22.
Speaker Change: Q2, <unk> was nine 6%.
Anna Cross: As you know, we are committed to keeping investment bank RWA's broadly stable at year end 2023 levels, reducing the proportion to 50% of the group by 2026.
Anna Cross: Now looking at the specific income lines in more detail on slide 23. Using the US dollar figures as usual to help comparisons to our US peers, market's income was up 6% year-on-year. Equities income was up 24% again, reflecting good performance across equity derivatives, prime, and cash. Fick income was down 2% against the prior year quarter that we shared included a circa 100 million benefits from inflation-linked positions. Excluding this, Fick was up 6%, and this is the last quarter in which you will see a material impact. We continue to make progress in our three focus businesses and markets.
Speaker Change: Which is income was up 24% again, reflecting good performance across equity derivatives prime on cash.
Speaker Change: <unk> income was down 2% against the prior year quarter that we said included a circa 100 million benefit from inflation linked position.
Speaker Change: Excluding this effect was up 6% and this is the last quarter in which you will see a material impact.
Speaker Change: We continue to make progress in our three focused businesses and markets.
Speaker Change: Equity derivatives saw strong client activity on the market for securitized products remained favorable in Q2.
Anna Cross: Equities derivatives or strong client activity and the market for securitised products remained favourable in Q2, allowing us to continue to monetise the investment we have made here. European rates improved, but we have more to do as we continue our focus on expanding share in this business. Financing income remained around 800 million, despite the positive inflation effect in the prior year, providing the more stable income stream to markets that we have emphasised. This reflected strong growth in client balances, offsetting spread compression as we continue to scale the business and deliver on our 0.6 billion funding income growth target by 2026.
Speaker Change: <unk> us to continue to monetize the investments we have made here.
Speaker Change: European rates improved, but we have more to do as we continue our focus on expanding share in this business.
Speaker Change: Financing income remained around 800 million despite the positive inflation effect in the prior year, providing the more stable income stream to market that we have emphasized.
Anna Cross: Investment banking fee income was up 45% year-on-year, with gains across all products. Our year-to-date banking fee share was 3.6%. We have increased share across most products in a rising industry wallet, but we still have work to sustainably improve it. DCN income was up 55% again, delivering improved performance across both investment grade and leverage finance. ECN was up 76%, benefiting from the large transactions that Vencap mentioned, and the market is showing encouraging signs of recovery. Advisory income increased 7% year-on-year, and our pipeline of a new deal looks healthy for the rest of the year.
Anna Cross: Finally, in the international corporate bank, our US and European deposit balances increased in the quarter, which we see as a lead indicator of future client product take-up and fee income growth. These were offset by the impact of the changing rates and inflationary environment on the POSIT and liquidity pool return year-on-year, taking income down by 5%.
Anna Cross: Turning now to the US Consumer Bank on slide 25. USDB's generated rate of 9.2% as income growth was offset by higher impairment versus the prior year, as we expected. Income grew 7% as card balances were up by $1.7 billion a year to $31.2 billion. From now on, we will report end net receivables on both a managed and a reported basis. Managed balances worth 32.3 billion and include the receivables sold to Blackstone in K1. As a reminder, in the term we are paid a fee and also continue to incur the cost of managing these balances. Nim reduced by 10.4% from 11.1% at K1, driven largely by increased amortisation of rewards paid to customers, which can be lumpy.
Speaker Change: Income grew 7% as card balances were up by $1 7 billion.
Speaker Change: Year on year to $31 2 billion.
Speaker Change: From that alone, we will report and net receivables under managed under reported basis.
Speaker Change: Managed balances were $32 3 billion unencumbered receivables sold to Blackstone in Q1.
Speaker Change: As a reminder, in the turn we are paid a fee.
Speaker Change: And also continue to incur the cost of managing these balances.
Speaker Change: NIM reduced by 10, 4% from 11, 1% at Q1, driven largely by increased amortization of rewards paid to customers, which can be lumpy.
We continue to target our NIM for this business of greater than 12% by 2026.
Anna Cross: We continue to target a nymph for this business of greater than 12% by 2026. The proportion of core deposits in our funding mix was 67% as we target above 75% by 2026. Efficiency savings as a result of last year's structural cost actions of set inflation resulting in broadly flat costs and the cost of income ratio of 50%. Cost increased versus K1 due to higher partner spends and are expected to trend up modestly in half to as we continue to grow our book. We now expect migration to internal rating space or IRB models to be in K1 2025, reflecting a refined approval and implementation timetable.
Speaker Change: The proportion of core deposits in our funding mix was 67% as we target above 75% by 2026.
Anna Cross: This is a timing impact only, and does not affect our 2026 target.
Anna Cross: Turning now to head off set on slide 26. Head off the income was down 207 million year on year, mainly due to the loss on sale of our performing Italian mortgage book. This sale is expected to reduce group statutory roti for 2024 by circa 45 basis points but have a broadly neutral capital impact. The announced sale of our German consumer business is not expected to complete until later this year or early next, but has a negligible roti impact. For completion, we expect the transaction to reduce head off as RWA by circa 3.4 billion pounds, generating around 10 basis points of CET1 capital.
Anna Cross: Turning now to the balance sheet and starting with my fourth focus area: a robust capital position on slide 27. This CET1 ratio was 13.6% at the end of Q2. Constantly within our target range, and we generated 35 basis points of capital from profits in the quarter. This supports our announced half year distribution of 1.2 billion, comprising a 2.9 pence dividend and a 750 million pound buyback. We expected to begin the buyback soon, having completed the previous 1 billion buyback earlier this week. The half one dividend in absolute terms is consistent with the prior year, but is 7.4 pence higher for share driven by the share count reduction from the buyback.
Speaker Change: Expect it to begin the buyback soon having completed the previous $1 billion buyback earlier this week.
Speaker Change: The half one dividend in absolute terms is consistent with the prior year, but it is seven four points higher per share driven by the share count reduction from the buyback.
Speaker Change: This year's total capital return is still expected to be broadly in line with the 2023 level of $3 billion consistent with our capital distribution plan, we laid out in February.
Anna Cross: This year's total capital return is still expected to be broadly in line with the 2023 level of 3 billion, consistent with the capital distribution plan relayed out in February. Risk weighted assets were 1.8 billion higher on Q1 at around 351 billion, as you can see in more detail on July 28. Our guidance remains for regulatory driven RWA inflation to be at the lower end of 5 to 10 per cent of December 2023 group RWA. This includes both expected bars or 3.1 and US consumer bank IRB impact, as we said in February. Tina for share increased 5 pence in the quarter to 340 pence.
Speaker Change: Risk weighted assets were $1 8 billion higher on Q1 at around 351 billion as you can see in more detail on slide 28.
Speaker Change: Our guidance remains for regulatory driven <unk> inflation to be at the lower end of 5% to 10% of December 2023 group at <unk>.
This includes expected Basel III, one and U S consumer bank IRB impact as we said in February.
Anna Cross: A tributable profit added 8 pence, and the reduced cash flow hedge reserve drag on shareholder's equity added 2 pence. Additionally, share buyback reduced our share count by 2% over the same period, driving Tina up accretion of 3 pence per share. This is partially offset by dividends paid and other reserve movement. Year on year, Tina is up 49 pence for 17 pence.
Anna Cross: Before I conclude, as usual, a brief word on capital and liquidity on July 30. We continue to maintain a well-capitalized and liquid balance sheet with diverse sources of funding and a significant excess of deposits over loans.
Anna Cross: In summary, we remain focused on disciplined execution. This is the second quarter of progress against the targets where you laid out in February, which we are reiterating today, and we remain on track.
Anna Cross: Thank you for listening.
Operator: Moving now to Q&A, as usual, please could you keep through a maximum of two questions so we can get around to everyone in good time. If you wish to ask a question, please press star followed by one on the to the thank you pack now. If you change your mind and wish to move your question, please press star followed by two.
Operator: Our first question today comes from Alvaro Serrino from Morgan Stanley. Please come ahead. Your line is now open. Thanks for taking my questions. Good morning. One on cost, please, and on the round table I think it was in May. You mentioned they would be structural costs in QGRI. I haven't seen any of them called out. And it's been the second quarter now that you've done better than consensus. So just wondering the underlying sort of run rate costs are and should be reducing the cost for the whole year.
Operator: That's the first one. And let's see, UK and investment back in doing very well.
Operator: I had a question on the revenue performance in US cards. CDNI is down. You've reiterated that 12th and margin during your scripted comment. I just wanted to see if you can give us any color around the path to that 12th and name of the next few quarters and how much of it is rate dependent. Thank you. Okay, thank you all for our good morning. I'll take both of those questions.
Anna Cross: So just starting off with one off cost. We did have a few structural cost actions within the IB. Not really that significant. And certainly, over the full year, we don't expect to spend more on SDAs than we have done historically, which we said was a 2 to 300 million run rate. So for the full year, the thing that's really important here is the delivery of our growth efficiency saving. We've done another 0.2 in the quarter, taking to 0.4 in the half year. We've got really good line of sight to that one billion. So that's really what's underpinning the cost results that you're seeing.
Speaker Change: We did have a few structural cost actions within the IV.
Speaker Change: Not really that significant.
Speaker Change: Certainly over the full year, we don't expect to spend more on SCA as than we have done historically, which we said was.
Speaker Change: Two to 300 million run rate. Thanks.
Speaker Change: So for the full year the thing that's really important here is the delivery of our growth.
Speaker Change: Efficiency savings we've done enough.
Speaker Change: Two in the quarter taken to four and a half year and we've got really good line of sight to that $1 billion. So that's really what's underpinning the cost results that you are seeing and I'll just reiterate our cost guidance for the year. It is circa 63%.
Anna Cross: And I'd just reiterate our cost guidance for the year is circa 63 percent. The consensus of total cost is there or thereabouts. So that's how I'd guide you there.
Speaker Change: Consensus of total cost is narrow thereabouts.
Speaker Change: And so that's how I'd guide you there in terms of the U S consumer bank.
Anna Cross: In terms of the US consumer bank, you're right, NII has fallen off a little bit in the quarter. There's a few things going on in there. Firstly, remember we did the Blackstone deal in the first quarter. So you're going to see some switching out of NII and into non-NII. Secondly, I would say seasonally, sometimes a little bit lower in the second quarter than the first, just because of the amount of customer repayments that we have. And thirdly, within that, there is a little bit of lumpiness in terms of customer reward amortization that ultimately is a really good sign because it means we're growing the book.
Speaker Change: NII has fallen off a little bit in the quarter does a few things going on in that firstly remember we did the Blackstone deal in the first quarter, so you're going to see some switching out of NII and into non NII.
Anna Cross: But the way it can sort of transfer itself to contra revenue can be a bit lumpy. So that's all that's happening.
Anna Cross: So we haven't changed our pathway to a 12 percent NIN. That's really around pricing optimization. It's around increasing our proportion of retail within the book and also really focus on our funding cost, and you'll note that our retail deposits are now 67 percent. We're really pushing that towards greater than 75 to deliver that 12 percent NIN. But thank you for the question. Can we go to the next one, please.
Operator: Thank you.
Operator: The next question comes from Joseph Dickerson from Jeffries. Please go ahead, Joseph. Your line is now open. Hi, good morning. Thank you for taking my question.
Operator: I guess Mike too would be. Is there any follow-through in 2025 and 2026 from the subgraded UK NII? As you mentioned, there's an implied 2 billion structural hedge income growth, assuming that you reinvest 75 percent of the maturity. But it seems like your NII upgrade today is based on part on more stable deposits. So would it be unreasonable to assume there's some upside to that 2 billion based on greater than 75 percent of the maturity being reinvested?
Operator: That's number one in the number two. One of the issues that investors have with your 2026 targets is that the high single-digit revenue growth in the CIB is on the flat, risk-weighted asset base, and it looks like in the quarter you needed 3 billion of incremental risk-weighted assets to grow revenues. So I guess how do we square the circle in terms of maintaining the RWA balances relatively flat on 2023? Nice to see the revenue productivity picked up. You're on Europe, but still we've got a few questions on that today. Thanks.
Anna Cross: Okay, thank you. I'll take back those. So on the first point, what we've seen and observed over the last quarter is a real stabilisation in our deposit position, and that really led us to upgrade our NII today for the UK and for the Greek to Circus 6.3 and to 11 billion. The way we think of that is really an underpin to what we are doing. This is a plan of many parts. You know, we set out really detailed targets and plans in February of this year, really to sort of guide you towards what was important to us and allow you to track our progress.
Anna Cross: So, as we continue through the plan, we're pleased to see this progress. But, as I've said, a plan of many parts, and we have more things to deliver around our efficiencies and obviously around our capital allocation.
Anna Cross: So that's the reason, really, why we're not upgrading 2026 at this point in time. Of course, you know, in isolation, the movement in rates, you would expect to have some impact on that 2 billion number, but we're not going to mark to market our 2026 targets on a quarter-of-a-basis. We're just very, very focused internally on discipline, execution against the targets that we've given you already.
Anna Cross: Thank you.
Anna Cross: On the second one in terms of IDRWA, I mean, there's nothing really to call out here and certainly not any change in intention. What we saw, particularly towards the end of the quarter, was some increases in our WAs that we would say are largely temporary and certainly not an indication of a change of direction or intent. Our objective here is twofold: firstly, to hold the RWA's of the IB broadly flat. And again, you can see that, you know, you call out the RWA productivity with police to see that go up year on year, whilst also growing the other side of the balance sheet.
Speaker Change: So I would say largely temporary in nature.
Anna Cross: So I would say largely temporary in nature and nothing really to call out to.
Speaker Change: Nothing really to call out specifically.
Speaker Change: Yes.
Speaker Change: But thank you for the question.
Operator: Thank you for the question.
Speaker Change: We go to the next caller please.
Operator: Can we go to the next call, please.
Speaker Change: The next question comes from Benjamin Toms from RBC. Please go ahead Benjamin Your line is now open.
Operator: The next question comes when Benjamin comes from RBC. Please go ahead, Benjamin; your line is now open. Good morning. Thank you.
Benjamin Toms: Good morning.
Benjamin Toms: Question.
Benjamin Toms: First one is.
Operator: My first one is on the RIT, a track and study head of guidance of the year. I appreciate your guidance. The extent that you are is there you are.
Speaker Change: <unk> is tracking slightly ahead of guidance for.
Benjamin Toms: This year.
Speaker Change: I appreciate it.
Benjamin Toms: Great.
Benjamin Toms: Yes.
Benjamin Toms: The extent of the Rs.
Benjamin Toms: Youll.
Benjamin Toms: <unk>.
Benjamin Toms: Prior to the <unk> JV.
Operator: You've been talking about the people of the people who have been reconciled with your passion about them over the years, or should we think about them in whatever they have done.
Benjamin Toms: David.
Benjamin Toms: Thank you.
Benjamin Toms: Yes.
Benjamin Toms: Okay.
Benjamin Toms: Or should we stick with that.
Benjamin Toms: And whatever.
Benjamin Toms: Yes.
Benjamin Toms: And then secondly.
John: Hey, John Good question.
Operator: And then secondly, I think the general question is from the point of view that I hope you might be able to get away from the head. No need to go ahead.
John: Any thought at this point that migration.
Benjamin Toms: Yes.
Speaker Change: I was hoping you might be asking.
Speaker Change: As for hedge no tax.
Operator: You might have mentioned on this metric, since you should come now. Is it free to open it with double? No. Thank you very much. Thank you very much, Ben.
Anna Cross: In ROTY terms and in terms of delivery of our plan, we are on track; for instance, where we would expect to be at this stage after two quarters. So, you know, we are firmly in line with our plan, and therefore it wouldn't cause us to change either our RIT guidance for this year or the longer term, or indeed our capital distribution plan. And that's why we have reiterated them today.
Anna Cross: In terms of deposit trends, you're right, we seem great stability or that stability come a little faster than we expected. Perhaps that's how to think about it. We do, however, expect the structural hedge notional to continue to fall broadly in line with broader deposits trends. Customers continue to seek yield even though they're doing so at a much sort of slower level of migration than before. But we reassess that structural hedge very carefully with each passing month. We regard it as a key way in which we manage the interest rate risk in our income line. So, we'll continue to monitor it and update as we go.
Anna Cross: But at this point, I wouldn't change the sort of overall pathway.
Operator: Okay, thank you, Ben. Perhaps we can go to the next question, please.
Operator: The next question comes from Guy Steadbing from ZMP Parry Club. Please go ahead, Guy; your line is now open. Hi, morning or next question. Just a few questions around Slight 10 and the Hedge.
Operator: Firstly, could you confirm how much of the notionals are attributed to the locked-in component, the refer to a 4.0 and 25 and 3.2 in 2026? I'm presuming it's sort of an order magnitude of 70-75% in 25 and 55% in 206, but any colour there would be very helpful. And then, in terms of the 1.5% maturing yield, which I think is consistent with prior disclosure, could you remind us of how that breaks down between each year? And this is sort of the final one on this slide. Maybe I'm reading too much into dotted lines and sort of putting a real occurrence there.
Operator: But it looks to me like it's near sort of 2.5% in 2026, the gross yield in that dark blue dotted line. I would have thought, given prior disclosure and comments, we might be near a 3%. So, yeah, can I just check, I'm not reading too much into maybe how that line dots across. Thank you very much. Okay, thanks, guys.
Operator: On your first question, we'll probably need to come back to you in relation to that. On the second question around the 1.5% mature and yield. So, the way I think about this is that, you know, on average, the tenor that we've got here is between 2.5 and 3. But there's actually a range of maturity within there, and that really reflects how we think about the composition of our deposit book and the varying behavioural sort of trends that we see within there. So, we haven't guided or given you any clarity about how that actually breaks down between those tenors.
Operator: But just to say, you know, over the next three years, we expect the mature and yield to be about 1.5%, and it's pretty consistent over that period.
Operator: And then on the final question, which was around the growth yield, again, we don't guide to growth yields. We've given you some maths in February, which is really how we expect that structural hedging come to propane over time. What I would just say is, you can see that it continues to grind higher, and I think the slide shows that well. So, at Q1, we were at 9.3 billion of locked-in income. Now we're at 11.7 billion of locked-in income. And obviously, in the current year, that is 4.5 locked-in already by the half year versus the total we had for last year, 3.6.
Operator: So, that's really how we focus on it, less about the overall yield and more about how much are we locking in, based as a combination of the nationals, but also, obviously, the yield and the hedge itself.
Operator: So, that's how we think about it, but we'll come back to you with a bit more on the first. Okay. Perfect. Thank you. Okay. Thank you.
Operator: Perhaps we can go to the next question, please.
Operator: The next question comes from Amit Gold from MediaBanker. Please go ahead. Your line is now open. Hi, thank you. My two questions, maybe they follow on a little bit in the Joe's, but the last one is I think consensus outside of the IB now already largely reflects the 26th August. So, again, I'm just wondering how much scope there is to be those levels, I mean, especially in the UK, where it rates the better. And, you know, I guess like spending the duration of the hedge I suppose, the positive or a bit more sticky, you're talking about stabilization.
Operator: So, the 25% reduction in hedge ties, it doesn't, I'm not sure if that does seem a bit too conservative. And then the second question is, again, just on the capital allocation. So, I appreciate you commented that some of the other way increasing IB has been a bit temporary in the quarter. But, you know, that is where we've seen most of the increase here today and quarter today. So, just curious when we'll start to see the allocation trends towards that 50% target, which, you know, could be important for seeing the rebranding. Thank you. Okay, thanks.
Anna Cross: In terms of the pathway on NII, not only for the UK but for the other parts of that complex, corporate banking, international corporate banking and indeed our private banking and wealth business, obviously the trends that we're seeing around deposits and indeed rates are helpful, but we do see them as an underpin and hopefully an indication of our confidence in reaching those 26 numbers. And as relates to the hedge, you know, as I said, I'm not going to mark the market that hedge income on a quarterly basis. We gave you some moving parts, and just to remind everybody, we've got 170 billion maturing over those three years, and we've got a maturing yield of about 1.5 percent.
Speaker Change: Do you see them as an underpin.
Speaker Change: An indication of our confidence in reaching those 'twenty 'twenty six numbers.
Speaker Change: As it relates to the hedge.
Speaker Change: I'm not a mark to market hedge income on a quarterly basis. We gave you some moving parts and just to remind everybody.
Speaker Change: We've got 170 billion maturing over the three years, we've got maturing yield of about one 5%.
We expect a high level.
Anna Cross: We expect at high level to roll about 75 percent of that, and at the time of the investor update, when swap rates were around 3.5 percent, we said that would probably yield around 2 billion. Again, there are some movements in the yield curve that might, in isolation, push that number up a bit. But, you know, this is a plan of many, many parts. So, you know, we're very focused on delivering the greater than 12 percent roti in the round.
Speaker Change: Roll about 75% of that.
Speaker Change: And at the time of the Investor update when swap rates were around three 5%, we took that would probably yields around two.
Speaker Change: $2 billion.
Speaker Change: Again, there were some movements in the yield curve.
Speaker Change: <unk> in isolation.
Anna Cross: On your second question around capital allocation, I would reiterate, we think those RWA's are largely temporary and there's obviously also a natural seasonality to the RWA pass within the IB. I think more fundamentally, though, what we're talking about here is the two parts: just she's firstly holding that broader flat, and secondly, growing elsewhere. So, you're going to see this meaningfully change as a percentage really from the fourth quarter onwards. And that in the first part comes from the completion of Tesco, which we now expect to happen on the 1st of November, but also really the organic progress that we're making in terms of balance sheet.
Anna Cross: Now, you can't see that yet coming through in strong balance sheet growth. That is what we expected. You might remember that in February we said that we expected that the UK balance sheet would get smaller before it got bigger, and that indeed is what's happening. But we're seeing good growth momentum; you know, the mortgage market is up. We're taking a great share of that, and we're also taking good share of high-length value mortgages. Our cards balances are up, quarter and quarter, and in corporate lending, whilst we haven't seen the balance sheet move yet, you can see the RWA is going up because we've extended balances to clients.
Anna Cross: So, I think it's really sort of quarter four onwards that you can start to see this meaningfully. But, you know, just to reiterate, on the RWA and the IB, our intention is still for this to be broadly flat and really for the work to be done elsewhere in moving that percentage. But thank you to the question.
Operator: Perhaps we could go to the next one, please.
Operator: The next question comes from Edward Firth from Stiffle.
Operator: Please go ahead, John. I'm now open. Yeah, morning everybody. I had two questions, please. The first one was US consumer cards, credit quality. I think it's good to see the position charge as turned. But if I look at your non-performing loans in your quarter, they were going to think seven or eight percent. So just trying to get a sense, it's where we are and how we should expect that to progress from here. That's OK. I got the first question. And then the second question, I'm just trying to square the B.U.K. performance with some of your targets and with some of the revenue coming through from the H because you're making around a 20% return on equity in the first half.
Operator: And even if I normalize payments, when you take your share of the hedge benefits, it's going to go in there. That's probably closer to 25 or even high 20s returns as of today. And yet in your target, I think you said greater than 15% return on tangible by 526. And I know it's a question of 15%; it comes to an awful lot. But I guess in the mid-high 20s, there's a long way ahead of that. So I'm just trying to think what should be thinking about in terms of the difference between the greater than 15 and the mid-to-high 20s.
Operator: And how do you think about a mid-to-high 20s return in a sort of, we had to listen to the FDA talking about them too with duty yesterday. I mean, should we be expecting some of this two billion hedge to actually go to the positives, or are you ready to be confident that we could hold the bulk of that? Thanks very much.
Anna Cross: Okay, thank you, Ed. I'll start on cards and think up might want to add something on U.S. quality also. And then we'll go into the UK performance. Then really the U.S. CB, in pivot pathways, is panning out as we expected to. So last year when we saw the macroeconomic variables, particularly around unemployment, start to increase, what we expected was, first, the delinquencies would increase. And secondly, real, if you like, non-performance and right-off would follow. And that's exactly what's happening here. And you can see it quite clearly in the charts, which I think is on Slide 13.
Anna Cross: So this time last year we got ahead of this in a couple of ways. The first was by building our reserves proactively. So you can see that reserve build through the second half of last year. And that was an anticipation of the right-offs and that movement of non-performing loans that you know seeing. So from here, what I expect is consistent with what we thought at the beginning of the year, which is actually we'd expect impairments in the second half to be lower. Now the composition of that is going to still look a bit like what it does in Q2.
Speaker Change: It's consistent with what we thought at the beginning of the year, which is actually we'd expect impairments in the second half to be lower now the composition of that is going to still look a bit like what it does in Q2 youre going to have relatively high levels of write offs and even have lower levels of provisioning.
Anna Cross: You're going to have relatively high levels of right-off, and you can have lower levels of provisioning. And then overall for 24, it's going to be lower than 23. But we did take actions last year in credit lines also in anticipation of this. And that certainly helps. And just to remind you, this is a high quality book. Thank you.
Speaker Change: And then overall 424, it's going to be lower than 23, but we did take actions last year in credit lines also in anticipation of first I'm not certainly helps and just to remind you. This is a.
Speaker Change: This is a high quality book.
Speaker Change: Yes.
Speaker Change: Second everything <unk> said and I think the other thing to look at it is.
Anna Cross: Yeah, I second everything I said, and I think the other thing to look at is... You know, in credit cards, as you know, one of the most important factors driving performance is employment or unemployment. The Fed's statement yesterday pointed, even though they didn't change rates, to a balance in their concern shifting a little away from inflation into softness and employment. That is speaking to the thing that we put in an anticipated, and we've risked, as Anna said, tried to risk manage the portfolio in advance of that. And so we hope we're prepared for what could be a softness.
Speaker Change: In credit cards as you know one of the most important factors driving performance as employment unemployment the fed's statement yesterday.
Anna Cross: But the charge of the non-sforming piece is exactly as Anna said. It's following upon the provisions out which was earlier.
Anna Cross: Okay, now on your second point, just around the UK performance, you know, we take confidence from the quality and the stability of the balance sheet, but that balance sheet is going to change from here. We are anticipating asset growth. So, you know, obviously we expect NMI to grow over time, but I'm also expecting that the RWA's here are going to grow over time. And clearly we haven't seen growth in assets in the UK for a couple of years now. So that will moderate it. And it's just a reflection of, really, if you like, the emphasis moving from profit being in my abilities to really try to grow the asset books for when the curve turns.
Anna Cross: So that's really what we're thinking about here. Think of it as an increase in equity rather than a reduction in returns. And that's really what's light to our ROTE thought process. Thank you. Yeah, I completely agree. You know, you have to look at the business of Anna said over a cycle and the composition of the revenues shifts from liabilities to assets over that period and assets revenues increase over the equity. And that will have the effect of motivating the ROTE. And then impairment. And you know, impairment has remained fairly low. And the UK will be able to see what the bank has been doing until the late of the day.
Speaker Change: In return.
Speaker Change: And.
Speaker Change: And that's really what led to our Rte.
Speaker Change: Thought process.
Speaker Change: Thank you.
Speaker Change: Completely agree you have to look at this business a benefit over a cycle and the composition of the revenues.
Speaker Change: Our revenues shifted from liabilities to.
Speaker Change: Assets.
Speaker Change: Over that period.
Speaker Change: Assets.
Speaker Change: Revenues increased sort of your equity and therefore have the effect of moderating their OTT.
Speaker Change: And then impairment.
Speaker Change: Impairment is remains fairly low.
Speaker Change: And the U K, where we will see where the bank of England that later today, but the UK employment picture has remained strong I mean there is.
Anna Cross: But the UK employment picture has remained strong. I mean, there's, you know, there's really only one way that things can go. And so you've got to be careful about where impairment goes in the long run. And that will be the other more raising influence. Yeah. And I think you could have called that out in your mark.
Speaker Change: There is really only one way to think can go until you've got to be careful of our grandparents will in the long run and that would be the other moderating influence.
Anna Cross: So we're still expecting the sort of longer-term trends here to use the specific point on the SBA and consumer duty. There is nothing specific in our ROTE guidance that relates to that at all. You know, we feel we have the right ranges both across savings and indeed elsewhere. And there, in compliance with it. So there's nothing there that would mitigate or moderate that ROTE. Yeah. And look, this is an important protection measure for consumers who fully supported. And I think it's important for the large financial institutions, all financial institutions, to be fully in conformance with the requirements of those practices and their good practices.
Operator: Thank you.
Operator: Can we go to the next question, please?
Operator: The next question comes from Chris Kant from Autonomous. Please go ahead, Chris.
Operator: Janan is now open. Good morning. Thank you for taking my questions. I have one on the UK and one on consumer, please, for your consumer. On the UK, in your remarks, you referenced the stabilization and deposit books coming off the back of pricing actions that you've taken earlier in the year. I mean, you don't give up much disclosure around your deposit costs, but if I look at the interest expense you're disclosing in the UK financials, I think that's down half on half. I lower overall interest expenses in the first half, as is the second half of last year.
Anna Cross: So I just wanted to understand a little bit more what pricing actions you've taken. And if there is any color you could give us around the level of your average deposit rates, which some of your semesters do provide, that would be very welcome. And on consumer, obviously income down, you've spoken to that in terms of the amostivation and various other things. It's a lumpiness, I guess. How should we think about the progression of income for that segment from here? Should we be expecting growth to be coming through in the second half, or is more of the progression you're expecting to that 12% in them back and loaded within the plan?
Speaker Change: If you can provide that would be very welcome.
Speaker Change: Consumer.
Speaker Change: Income down.
Speaker Change: So that in terms of the amortization and various other things.
Speaker Change: Plumping us I guess, how should we think about the progression of income full.
Speaker Change: For that segment from here should we be expecting growth to be coming through in the second half or is more of the progression youre expecting to that 12% and then backend loaded within the plan. Thank you.
Speaker Change: Okay.
Anna Cross: Thank you.
Chris: Thanks, Chris.
Anna Cross: Okay. Thanks, Chris. So we don't disclose our deposit costs. And obviously, within the interest cost and the P&L, there are more things going on than savings within there. However, what I would say is we've made good progress around not only our range of savings; it's much broader than it was, but you can also see, and I think it's probably on slide 16, the continued progression that the customer had towards yield. So fixed-term deposits continue to grow, albeit at a slower pace. We have a lower proportion of fixed-term deposits than the industry more broadly, which is what you would expect, but still a significant change there.
Speaker Change: We disclosed our deposit costs.
Speaker Change: And obviously within the interest cost in the P&L there are more things going on and then savings within.
Speaker Change: However, I would say is.
Speaker Change: And we've made good progress around.
Anna Cross: I would just say, you know, really it's about range, it's about pricing consistently. It feels like we've performed well in the first quarter. Sorry, in the first and second quarter, the savings market overall has grown. We initially lost share last year, but I would say that's very much stabilized this year, as we've seen those benefits come through, and current accounts share had actually been slapped throughout, so it feels like we've managed that well.
Anna Cross: In terms of consumer in the US, there is a bit of seasonality to US cards. Typically, you see slightly higher income and slightly higher impairment in the fourth quarter, so we'd expect those trends to be the same this year. It's a bit the converse of what you see in the current quarter; there's a seasonal down in Q2, and you tend to see that go up again for holiday spend in Q4. So that's the seasonal element of it. More broadly than that, obviously, we do expect to grow. Card growth takes a while, so you're going to see this happen over time.
Anna Cross: There are also some headwinds to min and income that we called out, so specifically around lathees, although that appears to be delayed at this point in time, we'd expect to take some actions in response to that in terms of our optimisation. We're continuing to build our deposits in the US, so I'd expect these to manifest themselves gradually over time, the implementation of that press, but you're going to see some lumpiness from, for example, the implementation of that lathees whenever it comes.
Speaker Change: Okay.
Speaker Change: Some actions in response to that in terms of optimization, we are continuing to build our deposits in the U S. So I would expect these to sort of manifest themselves.
Speaker Change: Gradually over time, the implementation of that credit, but you're going to see some lumpiness from for example, the implementation of that late fees whenever it comes.
Speaker Change: Thank you okay on the <unk>.
Speaker Change: Deposit piece I know you don't disclose you don't give us a specific number.
Operator: Thank you.
Operator: On the UK deposit piece, I know you don't disclose; you don't give us a specific number. I guess the reason for the question is when I look at data we do get for 2023, which we can at least see on an annual basis. Barclays in the UK was paying meaningfully lower rates than large incumbent peer banks in the UK. And I guess off the back of that we saw deposit volumes compress for Barclays to a far rated degree, bound for those peers. So customers moved elsewhere because you want kind of keeping up, I guess, even that the large incumbent banks, we've seen that stabilise in the first half.
Speaker Change: I guess the reason for the question is when I look at data, we do get 2023.
Anna Cross: Is it just that the customers who are going to move have now moved, and actually you've retained the meaningful pricing differential to large peers? Or do you feel like you've substantially caught up with large peers in terms of your rates? So, as I said, we've seen that market share trend really stabilize in the second quarter, and what that's helped me is that two things are going on. Firstly, our range and pricing performance is better, and secondly, there is some moderation there more broadly across the market. So I think it's both, Chris, actually.
Operator: Okay, thank you.
Operator: Okay. Thank you, Chris.
Operator: Perhaps we could go to the next question, please.
Operator: The next question comes from Robin Dan from HSBC. Please go ahead, Robin. Your line is now open. Good morning. Thanks for taking the questions. Just a couple on the businesses being disposed of. With the German business, you've called out the kind of revenue contribution that that's making, but I don't think we've seen the cost and the impairment contribution. Is that business kind of a breakeven business? I see most of the impairments in the head office relate to the German consumer finance business. So is the gap there just kind of costs, you know, around kind of $30, $40 million in a quarter?
Speaker Change: Inc.
Speaker Change: But I don't think we've seen the cost on.
Speaker Change: And the impairment contribution.
Speaker Change: Is that business kind of a breakeven business I see most of the impairments in the head office.
Speaker Change: It relates to the general consumer finance business.
Speaker Change: Is that just kind of costs, if around kind of 30 $40 million a quarter is that how we should be thinking about that.
Speaker Change: Second question I guess, it's probably more for <unk>.
Anna Cross: Is that how we should be thinking about that?
Venkat: And the second question, I guess, is probably more for the Venkat. I think you're quoted on Bloomberg this morning saying that the sale of the mentioned acquiring unit is underway. I was just wondering if you could give us any kind of updates on that despasal. Thank you. Thank you, Robin. So, on German cards, I mean, you're broadly in the right ballpark. It's better to the bank. And therefore, you know, on sale, the meaningful difference that you're going to see in the PNL or BALANCHI is actually the release of their RWA. And that's really what drives that pen basis points of C-T1 accretion that will happen either in Q-40P1.
Speaker Change: <unk>.
Speaker Change: I think you were quoted on Bloomberg This morning.
Speaker Change: Saying that the sales of merchant acquiring unit.
Speaker Change: Is underway I was just wondering if you could give us any kind of updates.
Speaker Change: On that disposal.
Robin: Thank you Robin and.
Speaker Change: China in Cod.
Speaker Change: Broadly in the right ballpark.
Anna Cross: It's our expectation. So, you're in the right ballpark, Venkat.
Venkat: Yeah, so I think Robin, what I said earlier on a media call is that we had three acquisitions or three acquisitions and three disposals. And two, one acquisition stated for this year, the acquisition was Tesco, of course. The disposals were German cards and Italian mortgages, which have one been announced: German cards, Italian mortgages announced and completed. And then the last one was Merchant acquiring. And on merchant acquiring, what I had said is, in a way, of all the things, it is the most complex one, because of the technology involved, because of the kind of financial arrangement we would want, and the client service we want.
Venkat: So, that process is still ongoing. And what I said also on the call is that, you know, we have nothing to say about it now. When we do, we'll tell you, but it is the most complex of that list of four. Okay, great. Thank you.
Speaker Change: Our final question, we have time for today comes from Andrew Coombs from Citigroup. Please go ahead, Andrew Your line is now open.
Venkat: Our final question we have time for today comes from Andrew Schum from Sticky Group. Please go ahead, Andrew. Your line is now open. Good morning. Thank you for taking my questions. A couple of strategic ones, please. Firstly, on US consumer, I've noted the delay in the IRB inflation until Q1. But we're now in an environment whereby it looks like for the US banks, the delay in bars of 3.1 could potentially be much longer. I know when you gave your investor day, you talked about the risk rate density go from 100 to 160 and then through mitigation back to 145, and you thought that would be comparable to the US banks post bars of 3.
Andrew Coombs: Hi, Good morning. Thank you for taking my questions a couple of strategic ones, Please especially on U S consumer.
Speaker Change: The delay in the ILB inflation until Q1, but we're now an environment whereby looks like for the U S banks the delay in Basel III, one could potentially be much longer.
Speaker Change: I know when you gave your Investor day, you talked about.
Speaker Change: The risk weight density go from 100 to 160, and then through mitigation back to 145, and you thought that would be comparable to the U S banks post Basel III.
Anna Cross: But in an environment where bars of 3 doesn't get introduced in the US, or bars of 3.1, sorry in the US, how do you feel about the competitive positioning of that business? You know, if a co-brand deal comes up for renewal, do you think you can still price competitively first the US peers given a higher risk rate density? And then second question, similar theme, strategy, but investment bank given and then you said that the IRB, RWA increases 10 preless quarter, but if somebody comes to you and says, I'd like an extra 100 million of RWA, I think I can generate more than 12% roti on that from your investment bank.
Anna Cross: You've always said your North Star is the roti, so do you say, yep, fine, please go ahead, always in the case of reducing the RWA since 63, down to 50% a group in the investment bank by holding it stable with more of a priority. Thank you. OK, thank you, Andy. I'll start, and then I'll hand over to you. Thank you. So, on consumer, you're right, these regulation models are complex to implement. We've just seen a movement over the quarter ends, really, that takes us from Q4 to Q1. And that has always been an acceleration of the bars of requirements for us.
Anna Cross: And we talked about that in February, so we always expected there to be a gap.
Anna Cross: Obviously, we all have to see what happens to the US rules, and it's very, very difficult for us to comment on that until we see both that and indeed the final UK rules. In the meantime, we've focused on the things that we can control. So we've focused on the commercial actions that we said we would take, which are really around improving the capital efficiency of the business through doing traits like the one that we've already done with Blackstone. We continue to work on the NEM, as I alluded to before, through pricing, through deposits, etc. We've got a big program here of efficiency and digitization.
Anna Cross: All of those things will improve the returns of the business. So we're really sort of focusing on execution of the PCA that we can control, on which we have line of sights to. Yeah, I'll just add to what I'm saying, which is that we will control what we can control, and we try to do that in a very efficient way. We're doing things in capital management, which try to alleviate what could be the impact of these changes. More broadly speaking, of course, we have the view which we've shared publicly that we think the changes in the UK and the US ideally should be similar and should happen at roughly the same time.
Speaker Change: And then if I come to your point on the <unk>.
Anna Cross: That would be our wish.
Anna Cross: And then if I come to your point on the RWA and the increases, so what I would say to you is the strategic ambition will go with this bank is to keep RWA's roughly flat, absorbing some of the capital impacts we've spoken about and then growing RWA's outside of the IB and therefore shrinking the relative proportion of the IB. Now, if somebody comes with an interesting high ROTE trade, we would of course consider it. It would have to be shorter term. It's not something that can affect the broader strategy. So the broader strategy is that relative reduction, and if there are shorter term opportunities that we can take, of course, we would consider them, but at the secondary part of the broader strategy.
Speaker Change: The increases.
Speaker Change: I'd say to you is the strategic ambition goal of this bank.
Speaker Change: Is to keep <unk> roughly flat.
Speaker Change: And some of the capital impacts we've spoken about and then growing our review is outside of the EIB and therefore shrinking the relative proportion of the IV now if somebody comes with an interesting <unk> trade.
Speaker Change: Would of course consider it it would have to be shorter term right. It's not something that can affect the broader strategy. So the broader strategy is that relative reduction.
Speaker Change: And if there are shorter term opportunities that we can take.
Speaker Change: Of course, we would consider them but.
Speaker Change: At the secondary part of the broader strategy, alright, and just to remind you.
Anna Cross: All right. And just to remind you, the areas that we want to grow are RWA's in, so that's 30 billion. They are in the areas of the bank where the returns are meaningful. than the group average. So across the UK, across the corporate bank, and indeed across private banking and wealth, they are at least heightened, if not into the 20s. So that's the trade-off that we are really thinking about here as we consider the capital allocation for the firm.
Speaker Change: The areas that we wont kick railroad delays.
Operator: Okay, so I think that was our final question. Thank you very much for joining us today. Thank you for your continued interest in Barclays. We're pleased to give you the results today. We look forward very much to seeing some of you on the road over the next few weeks, or indeed, if you've got a holiday, we'll see you in September. But thank you very much, and see you soon. Thank you.
Operator: That concludes today's.