Q3 2024 Barclays Bank PLC Earnings Call
Good morning, everyone and thank you for joining us for Barclays with third quarter 2024 results calls.
As a reminder, at our Investor update in February we set out a three year plan to deliver a better and more strongly performing and higher returning market.
I am encouraged by our progress three quarters, and we are continuing to execute in a disciplined way against this plan and are on track to achieve our 2024 as well as our 2026 rigs.
Return on tangible equity was 12, 3% in the third quarter and 11, 5% DHT.
We achieved this even as we grew tangible book value by 35 cents per share year on year to $3 51 at the end of the quarter. This resulted from strong organic capital generation and the meaningful impact of buybacks and reducing our share count.
Speaker Change: Total income for Q3 was $6 5 billion pounds, and it's $19 8 billion pound year to date with a continued focus on the quality and stability of our income mix.
Speaker Change: Given the ongoing healthy support from our structural hedge we remain confident on the strength of the income profile of our business in a falling rate environment.
Speaker Change: These factors.
Speaker Change: Two are upgrading Barclays UK as well as group NII targets today.
Speaker Change: We continue to control costs, well and are seeing the benefits of the cost actions, which we took in the fourth quarter of 2023.
Our cost to income ratio was 61% both in the third quarter and year to date.
Speaker Change: Impairment charges have improved in the U S consumer bank in line with our expectations and our overall credit performance was strong.
Similarly in the UK with a group loan loss rate of 42 basis points year to date and 37 basis points in the quarter.
Speaker Change: Importantly, we also remain well capitalized ending the quarter with a 13, 8% CET one ratio comfortably within our target range of 13% to 14.
Speaker Change: Across the bank and within each of our five divisions, we are focused on delivering an improved operational and financial performance.
Speaker Change: And I will take you through our financial performance Division by Division shortly but let me cover a few highlights.
Speaker Change: <unk> UK delivered a return on tangible equity of 23, 4% for the quarter and over 20% year to date.
Speaker Change: We have seen a continued stabilization in deposit balances and growth lending trends are encouraging.
Speaker Change: We are on track to complete the acquisition of Tesco Bank on the first of November this year.
Speaker Change: This strategic relationship with the Uk's largest retailer com part of our commitment to invest in our home market, where Barclays is a crucial role to play and mobilizing the finance and investment which is required to deliver growth.
Speaker Change: Our partnership with Tesco will help create new distribution channels for our unsecured lending and deposit businesses.
Speaker Change: And our expertise and partnership card developed over decades in the U S will further enhance the well established Tesco Clubcard plus is key.
Speaker Change: In the investment bank, we are committed to delivering improved out of the way and operational productivity to drive higher returns.
Speaker Change: <unk> for Q3 was eight 8%.
Year on year, the investment Bank has delivered positive cost to income jaws and improved market share in investment banking.
Speaker Change: And the U S consumer bank delivered an improved <unk> performance at 10, 9%.
Speaker Change: As we continue to grow the business and drive operational improvements.
Speaker Change: While impairment charges reduced against the background of subdued inflation and a strong labor market.
Speaker Change: Overall as an organization we remain execution focus.
Speaker Change: We achieved a further 300 million pounds of gross cost savings this quarter, taking the total for the first nine months to 700 million pounds on track for our targeted 1 billion tons for the full year 2024.
Speaker Change: Simplifying the bank has been an important part of our strategy.
Speaker Change: We continue to make progress with the non strategic business disposal that we spoke about at our Investor update.
Speaker Change: Earlier this week, we announced the sale of our nonperforming Italian mortgage portfolio.
Speaker Change: Finally, we are about two thirds of the way through executing the 750 million pound share buyback, which we announced in the first half of the year, which together with the first half dividend.
Speaker Change: Is the first step towards achieving our target of greater than 10 billion pounds of capital return by 2020.
Speaker Change: I will now hand over to Anna to take you through our third quarter financials.
Thank you Ben and good morning, everyone.
Anna: On slide six we have laid out it start with financial highlights for the third quarter as well as year to date.
Anna: Profit before tax with key point $2 billion.
Anna: 18% from $1 9 billion in Q3 23.
Anna: Before going into the detail I would just note that the quarterly performance was impacted by a weaker U S dollar, which is a headwind to income and profit.
Anna: Positively impact cost impairment on <unk>.
I'll call these ancillary aircraft.
Anna: Turning to slide seven.
Anna: Q3 performance is in line with the plan we laid out in February.
Anna: We delivered a statutory rate of 12, 3%.
Anna: On last years, 11%.
Anna: On a year to date <unk> is 11, 5% leads us on track for a statutory likely targets for 2024.
Anna: Greater than 10%.
Anna: We continue to target a 2024 rate excluding inorganic activity as circa 10, 5%.
Anna: We now expect that the impact of all inorganic activity in 2024, including test the bank will be broadly neutral. So I don't anticipate a material difference between the two measures.
As in the first half of the year I was looking for for things and outperformance.
Anna: Income stability.
Anna: Of discipline and progress on efficiency savings.
Anna: Credit performance and a robust capital position.
Anna: On all four we are where we expected to be and I'll cover these in more detail on the subsequent slides.
Anna: Starting with income on slide eight.
Anna: Total income was up 5% year on year at $6 5 billion.
Anna: Excluding FX income was up 7% year on year.
Anna: Since our Investor update in February we have been emphasizing continued stability in our income stream.
Anna: Revenues from retail and corporate as well as financing in the investment bank provided policy to our income profile and together contributed 74% of income in Q3.
Anna: Turning to net interest income on slide nine.
Anna: Grief NII, excluding investment bank and head office was stable year on year at <unk> 8 billion.
Anna: We now expect our full year, Greece, NII to be greater than $11 billion.
Anna: Within this we have increased NII guidance for Barclays UK.
Anna: $6 5 billion, having previously guided to <unk> six three.
Anna: This number excludes the impact of the Tesco Bank acquisition.
Anna: <unk> right now is seeing a UK bank rate of four 5% by the end of the year.
Anna: RF tasteful are 325 basis point cut.
Anna: In 2024 compared to the five we had assumed in February.
Anna: Deposits continue to stabilize and increase structural hedge income continued to provide a strong tailwind as you can see on slide 10.
Anna: As a reminder, the structural hedge is designed to reduce volatility in NII and manage interest rate risk.
Anna: As rates have risen the hedge has dampened the growth in our NII.
Anna: Falling rate environment, we will see the benefit from the protection that it gets there.
Anna: The expected NII tailwind from the heck, it's significant unpredictable.
Anna: $12 4 billion of aggregate gross income is now locked in over the three years to the end of 2026 up from $11 7 billion at Qt.
Anna: We have around 170 billion of hedges maturing between 'twenty, four and 'twenty six.
Anna: The average yield of one 5%.
Anna: As we said in February we investing around three quarters of that.
Anna: Around three 5%, which compound over the next three years to increase structural hedge income in 2026 by circa 2 billion versus 2023.
Anna: 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.
Anna: Please note that we have added additional disclosure on slide 38 in the appendix on the split of the structural hedge income allocation across our five divisions.
Anna: Moving onto cost.
Anna: On slide 11.
Anna: Total cost in Q3 was flat year on year at $4 billion.
Anna: Excluding FX costs were up 2% in the same period.
Anna: We delivered a further <unk> 3 billion of gross efficiency savings, bringing the total for the nine months $2 7 billion.
Anna: These efficiencies have helped us to more than offset inflation and created capacity for investments.
Anna: We remain on track to deliver $1 billion for the year and continue to expect a further $1 billion of efficiency savings across 2025 and 2026.
Anna: Our cost to income ratio was 61% in Q3 and for the nine months year to date, we remain on track for our full year target of around 63%.
Anna: Turning now to impairments, where credit conditions continue to trend positively and in line with our expectations.
Anna: The key three impairment charge of 374 million equating to a loan loss rate of 37 basis points.
Anna: The U S consumer bank charge reduced $276 million, a loan loss rate of 411 basis points, which benefited from methodology enhancement in the quarter.
Anna: Our UK customers continue to act prudently with few current signs of stress.
Anna: Evidenced by continued low and stable delinquency the Barclays UK charge with just $60 million a loan loss rate of three basis points and this included a post model adjustment really of around $50 million.
Anna: I would remind you that under <unk> nine accounting, we expect to incur a day one impairment charge for the Tesco unsecured lending balances on completion in Q4.
Anna: As we said in February the Tesco Bank acquisition.
Anna: Along side, our broader U K balance sheet growth plans are factored into our guidance for the Barclays UK loan loss rate to track towards 35 basis points over the life of our three year plan.
All in all we reiterate our through the cycle guidance of 50 to 60 basis points for the Greek.
Anna: And expect FY 'twenty four.
Anna: At the bottom of this range inclusive of the estimated day, one impact of <unk> Bank.
Anna: Excluding the impact of Tesco Bank, we would expect to be below this range as we are seeing limited signs of stress.
Anna: Our U K customer base.
Anna: And our guidance for the year consumer bank impairment charge to increase overall in the second half remains unchanged.
Anna: Looking now in more detail at the U S consumer bank charge on slide 13.
Anna: The mix of reserve build to write off within the impairment charge for the U S. Consumer bank continues to trend as we guided.
Anna: We expected write offs to increase during 2024, which you can see the case from the light blue bars on this page.
Anna: 30, and 90 day delinquency are broadly stable and we expect them to follow seasonal trends.
Anna: There is no change to our impairment guidance.
Anna: Mentioned, we still expect the U S consumer bank impairment charge to increase overall in the second half, resulting in a lower full year charge in 2024 versus 2023.
Anna: And we continue to guide to a loan loss rate trending towards the long term average of 400 basis points.
Anna: Our coverage ratios remained strong.
Anna: Our <unk> nine coverage ratio, which is 70 basis points quarter on quarter to 10, 3%, primarily driven by a debt sale, whilst our CSO coverage ratio increased 20 basis points to eight 1%.
Anna: The foregoing into individual business performance, let me say a few words on the lending trends that we're seeing.
Anna: Gross lending activities encouraging across our portfolio, reflecting our focus on growth in the UK.
Anna: In mortgages, we are seeing a pickup in gross lending with increased flows in higher loan to value lending and customer confidence is also returning with strong purchase activity for the first time buyers and having Nathan.
Anna: In a similar vein UK card acquisition volumes remained strong.
Anna: <unk> added around 800, <unk> knee barclaycard customers this year consistent with our strategy to regain market share in unsecured lending.
Anna: In the UK corporate bank, we have extended client lending facilities by deploying around $1 2 billion additional artery raised this year, which we expect to drive lending balanced growth as customers draw down and we have seen some evidence of this in Q3.
Anna: Turning now to Barclays UK.
Anna: You can see Barclays UK financial highlights and targets on slide 15, but I will talk to slide 16.
Anna: <unk> was 23, 4% in the quarter and total income was $1 9 billion up $73 million year on year or 4%.
Anna: NII of $1 7 billion was up $69 million on Q T. As NIM increased by 12 basis points.
Anna: 334%.
Anna: As you can see on the bottom chart. We saw continued structural hedge momentum on small tailwind from product margin and lending volume.
Anna: We have updated our 2020 for the UK NII guidance too.
Anna: <unk> six 5 billion from surface, six 3 billion, excluding Tesco bank, reflecting balance sheet trends, turning more positive earlier than expected.
Anna: Non NII was $280 million in Q3, and we continue to expect a run rate above $250 million per quarter going forward. Although we expect the securitization that we announced earlier in the week to have a modest negative impact on non in NII in Q4.
Anna: Total costs were circa 1 billion down 4% year on year and versus TK, demonstrating continued progress on delivering efficiency savings from the ongoing the UK transformation.
Anna: Cost to income ratio increased to 52% this quarter.
Anna: Moving on to the Barclays UK customer balance sheet on slide 17.
Anna: The stabilization in deposit trends that we called out at Q2 has continued in Q3.
Anna: Posit balances reduced by <unk> 5 billion in the quarter, a similar quantum to QC.
Anna: Net lending was broadly flat in the quarter at 199 billion.
Anna: Within this we saw growth in mortgages cards and unsecured personal lending.
Anna: Offset by continued pay down of runoff portfolios, notably government backed lending and business banking.
Speaker Change: As Ben mentioned, we have made good progress on the acquisition of Tesco Bank.
Speaker Change: Following the core process last week, we will complete the acquisition of first of November with estimated financials to be confirmed our full year 2004 results.
Speaker Change: The current estimated day, one financial impact is of circa <unk> 3 billion net positive profit before tax.
Speaker Change: Driven by an income gain resulting from consideration paid in <unk>, which is partially offset by a day one impairment charge.
Speaker Change: The impairment charge assumed all balances are acquired a stage one loans, reflecting 12 month expected losses with subsequent impairment builds required in future years.
Speaker Change: The profit before tax benefit statutory rate in 2024 by about 50 basis points.
Speaker Change: Overall, when including the circa 7 billion out of <unk>, we expect to see around a 20 basis point negative impact to the Greek CET, one ratio, which is lower than the circa 30 basis points previously guided.
Speaker Change: Moving on to the UK corporate bank.
Speaker Change: UK corporate bank delivered Q3 <unk> of 18, 8%.
Speaker Change: Income grew 1% year on year to $445 million.
Speaker Change: Non NII was flat year on year, but down in the quarter, mainly due to lower income from transactional products.
Speaker Change: This line can be variable due to the inclusion of non product items, such as liquidity pool income. However, we do expect known the NII to increase over time.
Speaker Change: We invest in our digital and lending proposition.
Speaker Change: Total costs were flat year on year at $222 million with future investment spend expected as we continue to support our growth initiatives.
Speaker Change: Lending balances decreased $5 9 billion in the quarter of underlying growth was more than offset by a circa 2 billion reduction future refinements to the perimeter with the international corporate Bank.
Speaker Change: Same adjustment also impacted deposit balances.
Speaker Change: Turning now to private banking and wealth management on slide 22.
Speaker Change: Q3, <unk> was 29% supported by strong growth in client assets and liabilities up around $3 billion in Qt and around $23 billion versus the prior year.
Speaker Change: Income reduced 3% year on year, driven by lower NII from the non repeat of a timing related one off in Q3, 'twenty, three which offset growth from increased client assets and liabilities.
Speaker Change: <unk> Qt NII was up 1% driven by increased client balances overall.
Speaker Change: Costs were up 3% year on year as we continued to invest in this business, including and growing platform hiring and efficiency related measures turned.
Speaker Change: Now to the investment bank.
Speaker Change: Q3, <unk> was eight 8% up 8% year on year.
Speaker Change: Total income of $2 9 billion was up 6% year on year on total costs up 4% delivering positive cost to income Jos <unk>.
Speaker Change: Excluding FX.
Speaker Change: <unk> income was up 9% year on year and cost up 7% year on year.
Speaker Change: <unk> productivity measured by income over average <unk> rate was five 7% in the quarter 30 basis points better year on year with year to date <unk> productivity at 6%.
Speaker Change: Period end <unk> were $9 1 billion lower versus Q2 at $194 billion with FX accounting for around $6 billion of the news.
Speaker Change: Q2, we had an uptick in our Dubuque, which as Ted was temporary in nature. The reduction we've seen this quarter, excluding FX is a reversal of that.
Speaker Change: Now looking at the specific income line in more detail on slide 25.
Speaker Change: Using the U S dollar figures as usual to help comparison to our U S peers markets income was up 7% year on year.
Speaker Change: <unk> income was up 7% driven by a strong performance in credit and securitized products and fixed income financing.
Speaker Change: Equities income was up 7% aided by strong performance in cash equities and equity derivatives as we help clients three market volatility in August.
Speaker Change: Financing income was up 6% year on year, reflecting increased client flows and balances with this business delivering more than $750 million in four of the last seven quarters.
Speaker Change: Investment banking fee income in dollars was up 67% year on year with gains across all products in particular, a strong quarter and advisory which was up 146%.
Speaker Change: DCM was up 55% delivering increased performance across both investment grade and leveraged finance.
Speaker Change: ECM was up 9% against the wallet that was down 6%.
Speaker Change: Our year to date banking fee share was three 5%.
Speaker Change: We have increased share across most products in a rising industry wallet, but we still have work to do to sustainably increase this.
Speaker Change: Finally in the international corporate Bank transaction banking was up 5%.
Speaker Change: We continue to grow U S deposit balances, which we see as a lead indicator of future client product take up and fee income growth.
Speaker Change: This was more than offset by an $85 million impact from fair value losses on leveraged finance lending, which are reported in corporate lending, resulting in total ICP income being down 21% year on year.
Speaker Change: Turning now to the U S consumer bank.
Speaker Change: U S consumer bank generated a rate of 10, 9% up from 4% in Q3 last year.
Speaker Change: Mainly due to the lower impairment charge following a higher provision build in the second half of 2023.
Speaker Change: Income fell 2% year on year, driven by a weaker U S dollar.
Speaker Change: Excluding FX income was up 2% driven by an increase in card balances, which were up one 4 billion year on year on a reported basis to $31 6 billion.
<unk> was stable on Q T at 10, 4%, but down from 10, 9% in the prior year, reflecting higher rewards earned by customers through increased spend.
Speaker Change: In Q4, these impacts are expected to be less of a headwind and we continue to target and then for this business of greater than 12% by 2026.
In terms of the funding mix of the business the proportion of core deposits with broadly stable versus Q2 at 66% as we target above 75% by 2026.
Speaker Change: Costs were down 3% on the prior year.
Speaker Change: As efficiency savings on the FX tailwind offset inflation and growth driving our cost to income ratio of 50%.
Speaker Change: Excluding FX costs were up 1%.
Speaker Change: We still expect cost to trend up modestly in Q4 as marketing spend during the holiday season will support continued growth in the business.
Speaker Change: Turning now to slide 28, and the summary of the financial impacts from inorganic activity.
Speaker Change: In 2024.
Speaker Change: As a reminder, at our QC results, we announced the disposal of our performing Italian mortgage portfolio and the German cards business.
Speaker Change: Earlier this week, we announced the disposal of our nonperforming Italian mortgage portfolio, which is expected to complete in Q4 dollars 24.
Speaker Change: These disposals, along with the Tesco Bank acquisition of a broadly neutral impact on statutory 'twenty 'twenty four group rates.
Speaker Change: <unk>, causing a circa 10 basis point drag to the CET one ratio.
Speaker Change: These transactions are a key component of reshaping the bank to be more focused in areas, we have competitive strengths, enabling us to deliver higher future returns.
Speaker Change: Turning now to the balance sheet and starting with our capital position.
Speaker Change: The CET one ratio was 13, 8% at the end of Q3 up 24 basis points versus Q2 and.
Speaker Change: And comfortably within our target range.
Speaker Change: This includes the impact of the ongoing 750 million half year buyback that came off capital post the Q2 quarter end.
Speaker Change: 46 basis points of capital generated from profits in the quarter and the 4 billion reduction in <unk> excluding FX.
Speaker Change: We continue to expect this year's total capital return to be broadly in line with the 2023 level of $3 billion.
Speaker Change: System with a capital distribution plans, we laid out in February.
Speaker Change: Let me turn briefly to our regulatory capital and the upcoming changes under Basel III, one as well as the U S cards model migration.
Speaker Change: The combined expected out of the UA impact of 19% to 26 billion is in line with previous guidance of the lower end of 5% to 10% of group <unk>.
Speaker Change: End of 2023, however, the timing has changed for both items.
Speaker Change: You will have seen that the PRA Basel III one implementation date moved to one January 2026, and the impact is expected to be between eight and $15 billion post mitigation.
Speaker Change: The IRB migration of our U S card portfolio has also made from our prior expectation of key one 2025.
Speaker Change: And we will now take place after Basel III, one implementation for which we are building a Basel compliant model.
Speaker Change: The total impact to <unk> from the IRB migration still stands at circa 16 billion of which around $5 billion will be reflected at the time Basel three one is implemented and is now included in our Basel III one.
Speaker Change: <unk> estimates.
Speaker Change: The remaining 11 billion relating to the IRB model will come after Basel III, one implementation at a date to be determined and is subject to muddle bills and portfolio changes overtime specific to this there is likely to be a modest increase in <unk>.
Speaker Change: Hey, applicable at some point in 2025 and until the model is implemented reflecting the difference between models and the current standardized risk weighting acknowledging we already hold pillar III capital against the majority of this risk.
Speaker Change: As previously noted the total impact of Basel III. One will also depend on further guidance from the PRA on the approach to <unk>, while we expect some offsets for risks now to be capitalized under pillar one.
Speaker Change: Risk weighted assets decreased by $11 billion from Q2 to 344 billion as you can see in more detail on slide 31.
Speaker Change: FX drove around $7 billion of the reduction with lower investment volume on head office at <unk> also contributing.
Speaker Change: As usual a brief word on capital and liquidity on slide 32, we maintain a well capitalized and liquid balance sheet with diverse sources of funding on a significant excess of deposits over loans.
Turning now to <unk>.
Speaker Change: <unk> per share increased 11% in the quarter and 35 points year on year to 351 Penn.
Speaker Change: All of the elements, we control attributable profit added <unk> 11 per share in the quarter on the share buybacks, which reduced our share count by 2%.
Speaker Change: Two pence per share.
Speaker Change: We have seen further unwind of the negative movements in the cash flow hedge reserves.
Speaker Change: In 2022 to 2023, which cause a drag on shareholders' equity and this added nine points in the quarter.
Speaker Change: These positive moves, but partially offset by dividends paid and other reserve movements.
Speaker Change: In summary, we remain focused on disciplined execution. This is the third quarter of progress against the targets that we laid out in February which we are either reiterating today are upgrading.
Speaker Change: Thank you for listening moving now to Q&A as usual. Please could you keep to a maximum of two questions. So we can get around to everyone in good time.
Wish to ask a question. Please press star one on your kind of thinking about it.
Speaker Change: If you change your mind of which term major question Christopher.
Speaker Change: Our first question comes from Jason Napier from UBS. Please go ahead.
Jason Napier: Good morning, good morning Ana.
Jason Napier: Two questions on Slide 16, please which is the Barclays UK.
Jason Napier: Margin and NII walk.
Jason Napier: Just first on I appreciate it.
Richardson of guidance around hedge tailwind next.
Jason Napier: Next year, but I, just noticed that the quarter on quarter tailwind there as it's down about a third.
Jason Napier: And it looks to us like maturing swaps and then coming from should have been.
Jason Napier: Fairly stable down about 30 basis points each.
Jason Napier: So I just wonder how you think about the sort of quarter to quarter volatility around this component of NII and avoid a situation where we we worry on Julien.
Jason Napier: Nearer term dynamics of that.
Jason Napier: And then secondly on the same chart.
Jason Napier: Quite surprising to see the product margin as a net positive.
Jason Napier: Positive kind of ill just confirm please that that includes the leads and lags on deposit repricing.
Jason Napier: Sure.
Jason Napier: That's helpful.
Jason Napier: The investment community the crash Barclays has been able to cut deposit rates.
Jason Napier: Thats great cuts for guests.
I just wonder whether you could talk about what youre seeing on deposit pass throughs.
Jason Napier: As rates started to climb and just confirm that I am looking at the rock block when I look to track that going forward. Thank you.
Speaker Change: Thanks, Jason and good morning.
Speaker Change: <unk> uptake.
Speaker Change: So just looking at slide 16, I can see why you're asking the question the structural hedge impact is lower than the previous quarter last quarter, the product dynamic with negative cost effects are pegged that happens.
Speaker Change: I think last quarter, we did have a slightly higher top Bryan as you point out we also hedge a little bit.
Speaker Change: But the fact that now obviously in the run rate. So it's no longer closing not sort of quarter on quarter impact going forward from here, we're going to continue to see momentum from the structural hedge you can see that from the other disclosures that we've given you for example on page 10 and so.
Speaker Change: I would expect it to be a net tailwind overall for this business and really supporting.
Speaker Change: No.
Speaker Change: The NII growth that we're seeing.
Speaker Change: Nothing more really than that on the product margin.
Speaker Change: That does include all product margin, including.
Speaker Change: On liabilities.
Speaker Change: I think important to point out that some of the drag that we've seen historically are no longer that you're no longer seeing that really significant deposit drag from migration coming sorry, actually our mortgage position is broadly neutral from a share perspective, NASA, you're no longer seeing that what you asked.
Speaker Change: Thing is some positive momentum from mortgage and card card margins.
Speaker Change: As a retrofit offset by deposit pricing as you point out.
Speaker Change: Actually I would expect given the kind of regulatory lag that we have in deposit pricing for that to be more meaningful that lag impact to be more meaningful in the fourth quarter.
Speaker Change: So the law of small numbers here because it is only a quarter on quarter movement and even effects.
Speaker Change: Thanks.
To call out.
Speaker Change: Thanks very much.
Speaker Change: Perhaps we can go to the next question. Please.
Speaker Change: The next question comes from Benjamin Toms from RBC. Please go ahead.
Speaker Change: Good morning, Thank you for taking my.
Benjamin Toms: Questions. The first one is for the new disclosure on the structural hedge income around how should we allocate.
Benjamin Toms: Christmas commodity.
Benjamin Toms: Is this week implied they expect the structural hedge notion would be flattish from here.
Benjamin Toms: For you guys to separate and movements in the notional since year end I think you're actually expecting a 13% reduction in national from here.
Benjamin Toms: Do you really expect to see such big reductions going forward. Given you mentioned just previously the stabilization in deposits how can we choose our assumption is now some more sales.
Benjamin Toms: And then secondly, just chance monarch on 2025, what are your peers guided to a gradual increase in NIM in 2025 in the U K should we expect a similar trend of Barclays.
Speaker Change: Okay. Good morning Bank. Thank you okay. Thanks, guys.
Yes.
Benjamin Toms: We thought that.
Speaker Change: That disclosure on page 38, so you haven't seen that I mean, we often talk about the structural hedge and the support.
Speaker Change: To be U K I guess.
Speaker Change: In absolute and percentage terms, that's where it's a nice meaningful but it does provide support elsewhere in the group, particularly through the equity structural hedge so youll see that perhaps surprising to many of us providing some support to the IV.
Speaker Change: I think as we allocate our equity portion by ought to be right.
Speaker Change: That's helpful, but the structural hedge notional.
Speaker Change: I'm not going to give you specific guidance, but what I would say is we would expect it to sort of trend broadly in line with where the deposit Sakai, while we expect in February that with less guidance more suggest a framework to help you model that as time goes on so we talked about $170 billion of mature.
Speaker Change: During enrolling about three quarters of that.
Speaker Change: But that was designed really to give you the math.
Speaker Change: You could that you could.
Speaker Change: That update rather than a forecast itself so clearly.
Speaker Change: And as as we look at the moment there are some positives in lab.
Speaker Change: We will.
Speaker Change: Continue to update you as we go through but I wouldn't call out anything more than we should expect it to move in line with deposits.
Speaker Change: On your second question I'm, not going to talk about men.
Speaker Change: <unk> is going to be.
Speaker Change: Quite.
Speaker Change: It's going to move around quite a lot over the next few quarters as you can imagine we're about to on board.
Speaker Change: And we're off.
Secured lending up can envision then materialize well I would really focus you on is actually the net interest income. So we've upgraded our net interest income for the grid.
Speaker Change: And for the U K and the current year. So now we're expecting circa six 5 billion for the U K and if I take it back to what we said in February we saw.
Speaker Change: Said, we expected.
Speaker Change: Mid single digit range.
Speaker Change: NII in the UK, we still expect that and what's driving that clearly we've got asset growth coming through.
Speaker Change: And what was the drag coming from deposits, we now see a stabilization in height planned deposit start to grow across the market, we would see the same.
Speaker Change: And whilst we've got.
Speaker Change: Some uncertainty coming through from rate changes.
Speaker Change: And I would offset that with the kind of momentum that we've got from the structural hedge. So we are expecting NII to be higher in 'twenty five and in 2006 and then it has been in 2004 and not of this way, we would be putting Tesco on top of staff.
Speaker Change: Thank you.
Speaker Change: Okay.
Thanks Ben.
Speaker Change: Next question please.
Speaker Change: The next question comes from Chris Cant from Autonomous. Please go ahead.
Speaker Change: Thanks.
Speaker Change: <unk> talked.
Chris Cant: Talk about Opex. Please.
Speaker Change: Gosh, Chris.
Speaker Change: Hey, sorry could you start to get in place we picked up head office, but perhaps you could start your question again.
Chris Cant: Yes can you hear me now.
Speaker Change: Yes account heightened clear thanks, Jay Hello.
Chris Cant: Okay, Okay great.
Speaker Change: Yes.
Speaker Change: I wanted to ask about.
Speaker Change: Looking into 'twenty five 'twenty six could you give us some color on what the sort of underlying group center numbers look like after the various mortgage book fulfillment Magellan conflicts have gone I think this is a source of significant discussion within consensus how people are thinking about.
Speaker Change: Sort of the underlying head office and it has been an area, where historically consensus has got a little bit out of kilter with your own expectations. So any color on.
Speaker Change: Once the transactions you've currently got in the pipeline.
Speaker Change: What goes backwards.
Speaker Change: Income cost run rate looked like and I appreciate that thats still the payments business in there.
Speaker Change: Which may or may not grow at some point, but sort of what's the sort of go to run rate as things stand the transactions.
Speaker Change: Once the transactions you can train them.
Speaker Change: Yes.
Speaker Change: And then on the U K, just a point of clarification.
Speaker Change: Mid single digit growth almost 2024 number.
Speaker Change: Excluding Tesco.
Speaker Change: And then we put Tesco on top to take essentially the six five that you're now guiding mid single digit growth on that and then 400 million on top because what youre, saying for 2025.
Speaker Change: Sure.
Speaker Change: Okay. Thanks, Chris.
Speaker Change: Let me, let me pick up prices.
Speaker Change: First one I appreciate head office has been.
Speaker Change: A bit volatile.
Speaker Change: The current year.
Speaker Change: Because it's housing our inorganic activity.
Speaker Change: Before they actually slow apps.
Speaker Change: So just to remind you that there is no inorganic activity in the current quarter. You can also get some volatility in that from from hedge accounting and so we're seeing a bit of that in the quarter, but year to date is a zero number and we expect it to be timing.
Speaker Change: It's early to guide you to what that run rate is that we will do that in time.
Speaker Change: But just to remind you nothing in the current quarter and just appreciate it's very difficult to model at the moment, but once we get beyond that we'll give you more guidance.
Speaker Change: The U K and let me just clarify for you.
Speaker Change: So ex tax go I expect some increase.
Speaker Change: The.
Speaker Change: The mid single digit guidance that we gave you for the UK did increased tax guys because that was from $23 26, sorry.
Speaker Change: Included task, obviously in our odds of you're right rich to $30 million and it's included in the mid single So I would say overall, we're expecting some organic at Tesco on top to that.
Speaker Change: Okay, that's clear.
Speaker Change: Thank you.
Speaker Change: Okay. Thank you next question please.
The next question comes from Edward Firth from <unk>. Please go ahead.
Edward Firth: Hi, good morning, everybody. Thanks for the question.
Speaker Change: Sorry.
Edward Firth: I have two questions.
Edward Firth: One was just on the B U K.
Edward Firth: Interest rate sensitivity.
Edward Firth: It's quite striking.
We are not highlighting the corners.
Edward Firth: This quarter.
Speaker Change: Thank you said it was it was minimal marginal account of yours that works in terms of your sensitivity to rates falling going forward and I'm just trying to understand.
Speaker Change: Commentary you could give to help us understand why that is is that just like a temporary thing.
Speaker Change: As the hedge rows of them than you would expect some more sensitivity or is this something that you said are structurally changed there.
Speaker Change: Obviously on the way up we saw NII, Greg very strong on the back of higher rates. So that's one question.
Speaker Change: And then the other question was on the U S.
Speaker Change: The margin that I take your comments about the still targeting greater than 12, I think you said there was a lot of.
Speaker Change: Incentive programs or loyalty programs that you were running at the moment.
Speaker Change: Again any help you could give us an example of business perspective, how that works because.
Speaker Change: In the U S loyalty program is a huge part of the business is a huge part of attracting.
Speaker Change: These are customers et cetera.
Speaker Change: And I'm just trying to think what is it you're expecting to change in the market more broadly or how is your offering them a change that's going to allow you to choose those loyalty offerings, but still maintained momentum in the business. Thanks very much.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks, Ed I will tell you expect to start on the first one we gave you some guidance on the interest rate sensitivity in the previous quarter and that really showed for a 25 basis point parallel shift.
Speaker Change: This $50 million in the first year.
Speaker Change: And then what you saw was that film over time and that fills out the talk that way I think about it.
Speaker Change: It is in the first year, it's dominated by the lag effect.
Speaker Change: It's sort of 60 day regulatory lag that we have particularly in the U K and then in the outer years do you see the impact of the hedge grinding mill, Iowa in response to that parallel movement. So that's really what's going on that if I go back to what I said in products.
And for that product margin on page 16, just to clarify we've got two offsetting impacts and that there is a negative movement.
Speaker Change: The delay in pricing or repricing and liability.
Speaker Change: There is an offset which is coming through from our asset margins, which are expanding now you might expect that an event with maintenance.
Speaker Change: Overall, we would expect the other liability margins start to compress you see asset margins widening out and of course, we've got specific actions around things like high loan to value mortgages.
Perhaps driving a little bit faster.
Speaker Change: And so it's not that it's not that it's just a matter of some offsets.
Speaker Change: And actually I would expect a bit more of that like just because of the way the months.
Speaker Change: On out.
In Q4.
Speaker Change: On your second question on U S margin next and then.
Speaker Change: Clearly lower than it was at the beginning of the year and indeed last year and.
Speaker Change: And our expectation is that it.
Speaker Change: A greater than 12%.
Speaker Change: And all of the actions that we're taking.
Speaker Change: On the 10 that are taking place.
Speaker Change: In the current quarter, and if you look sort of sequentially across the last few quarters.
Speaker Change: Two things going on there is natural seasonality in this business. So you see more purchase activity.
Speaker Change: More borrowing activity as you go into the holiday season, which is much more seasonal than the U S than it is in the UK.
Speaker Change: You'll see that natural shape.
Speaker Change: Second thing is remember we did that risk transfer in Q1.
Speaker Change: Whilst we swapped out NII for fee income.
Speaker Change: But obviously, it's slightly accretive overall to see some movement in the geography of the P&L and the balance sheet.
Speaker Change: And then thirdly as we've called out there are a couple of things that we were just observing as a customer master actually other things or unhelpful, but there are two the first is that customers are managing that balance as well the repaying, perhaps a little bit faster than we expected and in the context of the broader disk.
Speaker Change: <unk> is about the U S economy, I don't think not unhelpful and we see the other side of it and positive impairment.
Speaker Change: Not uncomfortable with that the second point is that customers are using their reward not necessarily more pasta that we would have previously expected again long term for the franchise, whilst that puts a bit of a headwind into near term NIM.
Speaker Change: Things have really engaged with the colors are really engaged with the brand program. So it's good news.
Speaker Change: So that kind of explains Q3 as I go beyond Q3, and think about that fails to greater than 12.
Speaker Change: Things that we talked about in February where our number one repricing that repricing action has actually taken place is complete but what happens is customers have to actually purchase under the new terms and conditions. So it's going to direct and then over time.
Speaker Change: Second action was really around our funding mix. So we are now around 67% of retail funding, we want to get up to around 75%.
Speaker Change: Going to take a while for us to build what we've launched the savings products that will underpin and youll see more on that in time.
Speaker Change: So those things are really important the last thing I would add is a key part of that moved to 12, how do we start to see more.
Speaker Change: Folio towards having a richer mix in at retail and you can see that we've announced our new partnership with GM, but again is another plank of the strategy.
Speaker Change: We're not going to get to 12 operated and 12 immediately you're going to see it.
Speaker Change: In March over the next few quarters.
Speaker Change: Greater than 12 is still our target.
Speaker Change: Feel like we're on track.
Speaker Change: Great. Thanks very much.
Speaker Change: Okay got that.
Speaker Change: Next question please.
Speaker Change: The next question comes from guys stepping from T&D Powerbar. Please go ahead.
Speaker Change: Hi, good morning, Thanks for the questions I had one on capital then one back to product margins in the U K.
Speaker Change: On slide.
Speaker Change: Slide 30, thanks for clarifying the various timings.
Some of the moves being pushed out and can the U S. Consumer business just wondering if that changes how you manage capital so in theory, which frees up some gaps in the next 12 months that perhaps the street a little bit more early in the panel or should we think that youll youre more like to run at the very top end of the 30% to 40% range, maybe even above it.
Speaker Change: Especially if there is a credit to a temporary uptick just think about how you're thinking about that cost ratio. During 2000, we've gotten out of the way.
Speaker Change: <unk> thousand three six for some of those come through.
Speaker Change: And then on the product margin.
Speaker Change: Come back to that point and so the lag effects.
Speaker Change: It might be more meaningful in Q4 deposits I would've hoped there would be some sort of catch up from the August rate. If you like can you take the day one hit on me how much deposits you have to wait to cost some of it back on the rate card.
Speaker Change: Just check that sort of thinking is correct in your comment around the lag the lag effect.
Speaker Change: Been greater in Q4 was maybe.
Speaker Change: Reflection of an assumption of two rate cuts and then maybe if it was just one rate cut it wouldn't be as more powerful versus what you saw in Q3. Thanks.
Okay.
Speaker Change: Thanks, Guy I'll take back some hedging bank thats going to get question at some point.
Speaker Change: But just on the first one around capital.
Speaker Change: Look this this regulatory movements that we set out for you on page 30, our timing and timing in mind.
Speaker Change: And we would reiterate today, our expectation about distributions here greater than $10 billion for the three years of the plan.
Speaker Change: For the current year, we'd expect it to be broadly similar to last year of around $3 billion and we said in February that we would expect it to be progressive thereafter.
Speaker Change: I'll, just say exactly the same today.
Speaker Change: In our Q4.
Speaker Change: It is normally when we talk about.
Our distributions and royalties have been but we see that's really around timing and you would expect us to sales capital as we head towards by Basel.
Speaker Change: The IRB implementation.
Speaker Change: Just on product margins and really what I was referring to is you've got.
Speaker Change: About a month's worth of that lag in Q3, youre going to see the remainder of it in Q4, and we are expecting because we use consensus so can.
Speaker Change: <unk> got three rate cuts.
Speaker Change: The current year, we are expecting a couple of rate cuts in Q4, so you're going to see if youre going to see impact.
Speaker Change: In Q4, and actually into Q1 of next year.
Speaker Change: Okay. That's great. Thank you.
Speaker Change: Okay. Thanks, guys next question please.
Speaker Change: The next question comes from Amit <unk> from Mediobanca. Please go ahead.
Speaker Change: Hi, good morning, Thank you.
Speaker Change: So two questions from me.
Speaker Change: Just related to that product margin.
Speaker Change: But essentially just on the UK business that kind of see the balance sheet still.
Speaker Change: Youll contracting a little bit.
Speaker Change: In terms of total loan balances.
Speaker Change: Because of them.
Speaker Change: I guess, maybe showing a little bit of growth.
Speaker Change: Now.
Speaker Change: So just kind of curious the interplay between.
Speaker Change: Kind of the pricing, which goes into that put up margin versus balance sheet growth.
Speaker Change: And when can we start to see.
Speaker Change: A bit more organic growth and capital redeployment.
Speaker Change: <unk>.
Speaker Change: The UK business.
Speaker Change: And the second question.
Speaker Change: Just relating to the U S.
Speaker Change: Container business.
Speaker Change: And just curious how significant or not to see.
Speaker Change: Airline partnerships.
Speaker Change: If there's any color.
Speaker Change: We can get that.
Speaker Change: The contribution of that please.
Speaker Change: Politically.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thanks, Amit first advise and then.
Speaker Change: I hadn't have bank have.
Speaker Change: Really helpful. As we saw on the sort of leading indicators page.
Speaker Change: And we've included this time, it's on page 14.
Speaker Change: And as I'll take you back to February what we said in February was we didn't expect a significant change in the net balance sheet, particularly in the U K and the current year and that was because of our expectation and the known maturities that we have an option mortgages that for example in business banking.
Speaker Change: What we did expect with the change in the growth production.
Speaker Change: What we've shown you on page 14 is what I look past, what we look at we can we count.
Speaker Change: To give ourselves comfort that we are driving that growth production.
Speaker Change: So in mortgages is relatively straightforward, it's actually operate lending you can see that setting forward.
Speaker Change: Water on quarter. It's obviously helped by the fact that the mortgage market itself is strong and robust but also the fact that we are broadening our range.
Speaker Change: Within that market and we're really pertain Kensington to work now, which we bring unable to do over the last few years.
Speaker Change: The second point is on card acquisitions, and you can see that meaningful desktop in 'twenty four but we already saw desktop journey in 2023.
Speaker Change: And actually what you see over time is that there is.
Cards volumes will start to feed into interest earning lending.
Speaker Change: And then finally on the U S U K DB enough.
Speaker Change: Asking about corporate here, but it's a bit more difficult thats clearly.
Speaker Change: You've put out lines.
Speaker Change: <unk> clients.
Speaker Change: Which is shown here in terms of <unk> and then there's clients in time, we'll draw down on them. So in terms of what's happening in terms of lead indications and lead indicators in the balance sheet I'm happy we're going in the right.
Speaker Change: In the UK, specifically, we saw positive net lending in the businesses that we've got in Taipei.
Speaker Change: So we saw positive net lending and mortgages were seeing it in cards, what we've got offsetting that is some runoff in portfolio switch obviously.
Speaker Change: No longer core it's not the right word.
Speaker Change: The example of government lending within business banking.
Speaker Change: Different either in percentage terms or in directional terms from from our peers Youre hearing similar things. So I think we're happy overall.
Speaker Change: And obviously as we increase our card lending so you get a mix impact as we.
Speaker Change: The increase the proportion of lending at higher loan to values, you got a mix impact and that's really what's flowing into the product margin and giving that positive.
Speaker Change: And so let me answer that on the second half.
Speaker Change: Okay.
Speaker Change: Obviously, we will not talk about any specific.
Speaker Change: So there is time to talk about.
The right time to talk about that.
Speaker Change: So we have something to say.
Speaker Change: So to not talk about individual client profitability or financials.
Speaker Change: We announced GM a couple of days ago, and so we're speaking about that.
Speaker Change: And if there's any other clients will tell you that right now.
Speaker Change: Okay. Thanks, Amit.
The next question.
Speaker Change: The next question comes from Chris <unk> from Goldman Sachs. Please go ahead.
Speaker Change: Good morning, everybody.
Speaker Change: For me as well.
Speaker Change: And the IV, if we think about the gradual rebalancing of our business clearly dynamics in the quarter for PCM were very strong for you in across the street, but given the organic reduction and notably as you saw in the quarter in the IB.
Speaker Change: The improvements in asset productivity.
Speaker Change: Year over year Destocking to make selective decisions to deemphasize DCM and where are you comfortable doing less well.
Speaker Change: And when we think about reallocating those RW agent for the financing businesses should we sort of assumed $750 million of the Shaw for market financing revenues, assuming supportive markets.
Speaker Change: Okay, and then second on Tesco. Thank you for the additional disclosure and the update today.
Speaker Change: What steps are you planning to take over the next sort of 12 to 24 months to improve the product margin and healthcare banking, if I look at asset productivity or NII versus hard everybody, there's quite a bit lower and Tesco bank from the rest of the UK business looking at the $400 million in the $7 billion of <unk>. So how are you planning to scale NII.
Speaker Change: Softer than <unk>.
Speaker Change: Capital Resourcing question.
Speaker Change: Alright, So Christopher T J P IV and then.
Speaker Change: On top of our Tesco.
Speaker Change: On the IV first of all Big picture, we are looking to keep powder periods in absolute terms relatively flat to the current number for us.
Speaker Change: Yes.
Speaker Change: The relative reduction in <unk> as a percentage of the group happens to close the rest of the group growth.
Speaker Change: Second.
Speaker Change: And the investment bank are to GSK.
By about 9 billion this quarter compared to the previous one but about six effects.
Speaker Change: FX and three was actual action.
Speaker Change: 1% down.
Speaker Change: I wanted to pick up and down in the quarter as normal business mix.
Speaker Change: We are not looking to deemphasize CPM.
Speaker Change: We're looking to do.
Within the investment bank.
Speaker Change: B.
Speaker Change: <unk> proven field of Highland capital to clients looking at the totality of that relationship and that relationship is not just ECM, but includes M&A and equities.
Speaker Change: <unk>.
Speaker Change: Corporate banking, we deal with them and.
Speaker Change: And Thats the way to think about FX and lending is a project that lending is not the only project for it and we don't want to industry demand.
Speaker Change: And as far as revenue of 750 from financing.
Speaker Change: Look we've been stable at that number what I would say is.
Speaker Change: While we have been gaining clients and gaining market share in that business.
Speaker Change: Actual revenue is a function of two things.
Speaker Change: As a function of what happens.
Speaker Change: And the composition of balance with fixed income and equity and so what the market's doing.
Speaker Change: As well as spreads within that so I can't tell you that it's going to stay at this level of noncore up or down it depends on that mix. What we do think we have.
Speaker Change: As a diversified business between fixed income and equities, a competitive business and both but particularly strong fixed income business.
Speaker Change: And the diversified business among the types of clients, where users regionally product wise and within fixed income asset class right, meaning spreads versus.
Speaker Change: Paul.
Speaker Change: So that's what we think contributes to our good and stable mix.
Speaker Change: I'm reluctant to put floors and ceilings on numbers.
Speaker Change: Thanks, Chris and the only thing adds up to that is that 9 million.
The reduction of <unk> 6 million with FX as bank has set the other $3 billion of shifts the reversal of our clients positioning that we saw in the Q2 that we have a time frame.
Speaker Change: And I, just kind of frames attached to whatsoever.
Speaker Change: At the year on pet scan.
Speaker Change: The next year or say for the next sort of 12 to 18 months. Our focus is really on integration and our focus will be on customer.
Speaker Change: Customer service has that is our primary focus as it would be in any partnership of it was a gap in the U S. So this is just a wrap.
Speaker Change: Application of what we would do with any other partner cost.
Speaker Change: Yes.
Speaker Change: Over time, we would expect this to be ROE accretive.
Speaker Change: <unk> for a number of reasons, whether that the efficiency whether that be funding benefits that you might expect to accrue and obviously, we'll update you on in.
Speaker Change: Instead of in the course of time, but really our objective over the short term is going to be to integrate well and really ensure that that customer experience is a formalized.
Speaker Change: Okay. Thanks very much.
Speaker Change: Thanks, Chris perhaps we could go to the next question. Please.
Speaker Change: The next question comes from <unk> Serrano from Morgan Stanley. Please go ahead.
Speaker Change: Good morning.
Speaker Change: A couple of questions on the investment Bank for me please.
Speaker Change: First of all on the performance of <unk>.
Speaker Change: Strong.
Speaker Change: In the Coker.
Speaker Change: But similar to Q2, where you called out.
Speaker Change: Large deal there is there any lumpy deals that we should bear in mind.
Speaker Change: Is the performance sustainable.
Speaker Change: This thing ultimately a mask about the pipeline from here.
Speaker Change: Given the strong performance.
Speaker Change: And second is on the <unk>.
Speaker Change: On the leverage finance marks.
Speaker Change: It feels like it's a bit of an odd.
Speaker Change: Fourth quarter to take those marks and with credit spreads.
Speaker Change: Actually very tight.
Speaker Change: Maybe could you give us a bit of color on what's driving that as a portfolio.
Speaker Change: Single sort of thing at all so you're looking to sell something in the March or should we expect more of this in the coming quarters just Columbus. Thank you.
Speaker Change: Hi.
Speaker Change: I'll take the first question and then I'll take that question so on fee performance.
Speaker Change: Q3.
Speaker Change: Nothing special to call outlook, we are part of certain larger views, but I wouldn't say that annuity that there is anything else to call out.
Speaker Change: As I've said elsewhere.
Speaker Change: What we can see activities pick up over this year compared to the previous year.
Speaker Change: We expect it to continue to be relatively firm.
Speaker Change: Obviously, there are a couple of Wildcards out there in terms of what happens with the U S elections and economic policies.
Speaker Change: Greg policy in the U S on M&A activity after that but assuming no major surprises.
Speaker Change: <unk>.
Speaker Change: Expect to continue to be firm.
Speaker Change: Okay. Thanks Heng.
Speaker Change: So let me pick up the second one.
Speaker Change: I mean less than it is an important part of our business.
Speaker Change: Right in the current environment, what we see is that market overall, performing really well sales are clearing quickly.
Speaker Change: Patiently, we find that either.
Speaker Change: Some are very tight.
Speaker Change: Suffolk has feature of our business is a feature of the market overall and not something that we would.
Speaker Change: Particularly call out so it is normal what we do at the end of every single quarter as we expect our balance sheet and we use.
Speaker Change: Veiling market information in order to assess the fair value of the balance sheet.
Speaker Change: And why we feel we need to take market than we do.
And that's what we've done in the current quarter. So it's very much.
Speaker Change: And as I say occasionally occurs it's episodic I wouldn't comment on.
Speaker Change: <unk>.
Speaker Change: <unk> is we would never day.
Speaker Change: I would just remind you all size of vessels, which has some hedging against the cost of that hedging oil type players.
Speaker Change: Three corporate lending.
Speaker Change: We protect ourselves in that way and I would say overall, our exposures are probably off the higher than 2003 that are lower than they have been historically, so it's a well risk managed book and really this is this is sort of.
Speaker Change: <unk>.
Speaker Change: The kind of thing we see normally on an X product.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Thanks Elvira.
Speaker Change: Please go to the next question please.
Speaker Change: The next question comes from Jonathan Petersen from Jefferies. Please go ahead.
Speaker Change: Alright.
Speaker Change: Two please.
Speaker Change: First is.
Speaker Change: Sorry, just back on rate sensitivity.
Speaker Change: The hedge on vacation days could again by the way helps us a bit more precise.
Speaker Change: The tailwind Santa Banca Teekay.
Speaker Change: So struggling with a bit is the rate sensitivity, but the $50 million in year one I.
Speaker Change: I hear what Youre, saying, you've asked a lot of that being related to instant deposit bank. Thus.
Speaker Change: With this $40 billion of hedge mature to the year is.
Speaker Change: Guidance is of course, a 25 basis point shift in the curve.
Speaker Change: Would be knocking 50 million include the <unk>.
Speaker Change: Hedging coming in.
Speaker Change: Not quite sure.
Speaker Change: What's going on here are you, saying that.
Speaker Change: No.
Speaker Change: So what we might call manage margin.
Speaker Change: From a 25 basis point rate reduction until just simply because the structural hedge is now so large in the context of that.
Speaker Change: Deposit book.
Speaker Change: Be helpful. Just wanted to stand wind up 50 state level the lowest in the sector.
Speaker Change: Difficult to triangulate.
Speaker Change: <unk>.
Speaker Change: The second question sorry. This is just for the models really understood that business.
Speaker Change: As of year end.
Speaker Change: The two pits than like a bit of clarity on office UK. So for the full billion pound increase nearly possibly at the methodology.
Speaker Change: Policy changes at the time, you said that would policy with us and to the rest of the year. It would seem like it has with US yet is that coming in Q4 and.
Speaker Change: And then in the other direction.
Speaker Change: I think it's pointing to about two and a half billion op risk increase in the fourth quarter response about the right number to be sticky in the spreadsheet. Thanks.
Speaker Change: Okay, Jonathan let me hit the first one so I would say we set a $170 billion over three years. So I think you're probably closer to around $60 billion hedge maturing and really what's going on here.
Speaker Change: E.
Speaker Change: Remember you've got the underlying maturing right around one point.
Speaker Change: <unk> percent.
Speaker Change: The rates are coming down you're still getting a pickup.
Speaker Change: From the structural hedge.
Speaker Change: And it's only really in the out years, when not grind out that.
Speaker Change: That youre seeing that more meaningful difference. So I think it's it's nothing more than that that we can talk you through that.
Speaker Change: Got it that's helpful.
As it relates to our <unk>.
Speaker Change: Our relative sensitivity.
Speaker Change: About next quarter.
Speaker Change: Rates went up because we were clearly less rate sensitive on the way.
Speaker Change: Hey.
Speaker Change: So you would expect us to be less sensitive on the way down.
Speaker Change: So that is exactly what's coming.
Speaker Change: Through right now.
Speaker Change: Perhaps we hedge a little bit more we certainly hedge more proactively we are looking forward and assessing that on a monthly basis.
Speaker Change: <unk>.
Speaker Change: Adjusting those hedges very high accurately as we go to reflect and.
Speaker Change: The detail of customer on client behavior.
Speaker Change: I think it's the benefit of a price that we're seeing and the fact that we've just done that Barry.
Speaker Change: Programmatically over a very long period of time.
Speaker Change: We're not seeking here to have any kind of view as to where rates will go with Jeff lessening the hedge roll and we're reacting to.
Speaker Change: We're reacting to customer behavior and the second question I think we will have to come back to you on that one.
Speaker Change: Operator.
Speaker Change: Yeah.
Speaker Change: So let's do that.
Speaker Change: Thanks Scott.
Speaker Change: Just want to emphasize the final point of structural hedging.
Speaker Change: This is true for metrics this is edge.
Speaker Change: Try to understand as best we can.
Speaker Change: Deposit base.
Speaker Change: Balances customer behavior affecting that exit.
Speaker Change: And as Ana said, therefore, if it works very well.
Speaker Change: It provides you.
Speaker Change: With the protection, meaning you don't see the benefits as rates rise as much as you would otherwise and Youll see you don't see the losses as risks fall, meaning that your NII remains stable because of that.
Speaker Change: <unk>.
Speaker Change: And that's what we're trying to do in Modena fits perfectly railroad.
Yes.
Speaker Change: Sorry.
Speaker Change: Just follow up on that.
Speaker Change: Does that mean.
Speaker Change: Fully behind the idea of hedging that that's not the issue just to check.
Speaker Change: The rate sensitivity table ignores.
Speaker Change: Any sorts of yields pick up on the hedge associated was purely yield because 20 basis points lower this is the impact tumors in which case, if youll reinvesting 40 billion to <unk> 25 basis points less.
Speaker Change: Entirety of average asset via the entirety of the $50 million, you're pointing to in year one.
Speaker Change: Which just implied everything else is nothing.
Speaker Change: Just checking the case, it's just very small in year in year one Jonathan.
Speaker Change: Hi, Rudy.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Alright, thank you.
Speaker Change: Yes.
Speaker Change: Next question please.
Speaker Change: The next question comes from Robin down from HSBC. Please go ahead.
Robin: Good morning, Thanks for taking my questions and also thank you for that.
Speaker Change: Our disclosure on the structural hedge so that's very useful.
Robin: Apologies.
Robin: Bringing it back to.
Robin: The U K.
Robin: Interest income issue I think it is important because the main topic of conversation amongst investors. This morning.
Robin: We look at the $6 5 billion.
Robin: For this year that kind of implies a Q4.
Robin:
Robin: Run rate X test case.
Robin: 686 9 billion.
Robin: If rather than kind of a 400 million.
Robin: Tesco is where it kind of <unk>.
Robin: 273.
Speaker Change: I think you are looking to grow next year.
Speaker Change: Especially given the.
Speaker Change: Some of the product hedge is B U K.
Speaker Change: Hedge benefit is more in kind of outweigh.
Speaker Change: And because of rate reduction impacts.
Speaker Change: No.
Speaker Change: While not materially.
Speaker Change: Materially above the $7 one that concerns us.
Speaker Change: Next year, so is there something I'm missing so big to make it.
Speaker Change: To frac that Youre anticipating.
Speaker Change: Thank you.
Speaker Change: So robin I'm, not going to I'm not going to comment on consensus.
Speaker Change: For 2025 at this stage.
Speaker Change: Just kind of reiterate the fundamentals of what we're talking about here, which is the U K, we expect over the past half NII growth of mid single digit petco as part of that you can see that there is NII momentum in the business organically, we pulled that out you can see over the last two quarters.
Speaker Change: It's coming from asset growth is coming from.
Speaker Change: The momentum from the structural hedge now as I've said before we haven't really seen the full impact of the rate cuts yet, but we would.
Speaker Change: Still expects the net of all of that into 2025 to be positive and then obviously you're going to have <unk> on top of that I'm not going to give you specific numbers now that the.
Speaker Change: If you have not changed from where we were in February which is we expect NII for the UK stick around.
Speaker Change: Before Kevin.
The view has.
Speaker Change: Has changed in that sense.
Speaker Change: We've now got six 5 billion.
Speaker Change: Interest income forecast of the UK this year.
Speaker Change: Come about from from what was originally six one.
Speaker Change: Definitely.
Speaker Change #100: Is there any reason why comps annualized Q4.
Speaker Change #100: Six nine but about.
Speaker Change #100: 400 million for the test goes.
Speaker Change #100: So I have a starting basis seven three.
Speaker Change #100: Look at 2025 numbers.
Speaker Change #101: So robin you're right, we have are priced off the U K.
Speaker Change #100: Guidance. So we just saw.
Speaker Change #100: Taiwan now around $6, five and really what's happening here is clearly there is a change.
Speaker Change #100: In our expectation.
Speaker Change #100: All right for the current year, we started in a position where we.
Speaker Change #100: Stopped us in a position, where we had five rate cuts.
Speaker Change #100: In February we were expecting three.
Speaker Change #100: And then the other three including the one we have already has a further two and then the other thing that's happening here is clear.
Speaker Change #100: Stabilization in that balance sheet earlier than we expected at the beginning of the year I said I expect the balance sheet to get smaller before it got bigger.
Speaker Change #100: <unk> seen two quarters now nearly three quarters of real stabilization in deposit.
Speaker Change #100: Perhaps a bit earlier than we expected and we've seen.
Speaker Change #100: Asset momentum turn perhaps a little bit earlier than we expected I am not going to comment on.
Speaker Change #102: Your numbers for 2025, I'm really going to leave that to you, but just bring you back to our expectation that we expect NII for the UK to Glenn.
Speaker Change #100: Alright, thank you.
Speaker Change #100: Okay. Thank you next question please.
Speaker Change #103: The next question comes from Paula <unk> from Bank of America. Please go ahead.
Speaker Change #104: Hi, Thanks for taking my question. So can I, sorry can I bring you back to the to the hedge.
Speaker Change #105: So obviously the hedge is a very.
Speaker Change #106: Very large component of the way you manage the interest rate risk so with the scale of the hedge does that mean that your sensitivity to long rates would be higher than perhaps other banks. All your peers, just all else equal would you expect more sensitive to the long with because the reason I'm asking is because there's obviously a lot.
Speaker Change #106: A discussion around neutral rates in Europe and in the UK. So I'm just wondering if that is the reason why.
Speaker Change #107: Your sensitivities, but lower on.
Speaker Change #107: In a parallel shift scenario because maybe it is a little bit of difference between a shortening of the moment.
Speaker Change #108: So that's the first part of the question I had a second part is it sounds like the notional is more stable than that.
Speaker Change #108: We all might have expected previously.
Speaker Change #108: Yes.
Speaker Change #109: And you previously assumed reinvestment of 75% of the maturing hedges I guess the question is does it matter, whether you reinvested, which are simply let it roll off because obviously, we are investing into a higher yield is.
Speaker Change #109: It's a positive but equally if you run off.
Speaker Change #109: Run off at a one 5%.
Speaker Change #109: Hedge and then just sort of let it roll on to the to the variable rate that is removing a neg.
Speaker Change #109: Removing the drag so does it matter, whether you are investing or not.
Speaker Change #110: Okay. Thanks.
Thanks, Charlie.
Speaker Change #111: I will take.
Speaker Change #111: Bye bye.
Speaker Change #111: <unk>.
Speaker Change #111: And.
Speaker Change #112: A tenor of what where hedging is between two and seven.
So.
Speaker Change #112: I wouldn't say, we're any more sensitive along into the tariff and then others, we really try and and that reflects what we think the varying behaviour lives is a different pocket.
Speaker Change #112: What we have.
Speaker Change #112: So.
Speaker Change #112: Call that out as a key difference and then on your second point just to just to bring everybody back to the 75 and the 170 would.
Speaker Change #112: Indicators to give you some math you could then update as we go rather than a specific forecast.
Speaker Change #112: From us.
Speaker Change #112: To the extent that.
Speaker Change #112: The notional.
Speaker Change #112: It's more stable I mean, clearly we have a choice every single quarter every single month as it rolls up environment.
Speaker Change #112: Right, we're getting a pickup from that maturity as it rolls off even if we just left overnight.
Speaker Change #112: The difference in the structural hedge is obviously secure.
Speaker Change #112: And so the structural hedge issues.
Speaker Change #112: Can pay which is why we do that programmatically and why we're really focused on.
Speaker Change #112: How much income are you locking in 'twenty, five and 'twenty six.
Speaker Change #112: Which we've shown you again on page 10, so that marketing number is now 12 4 billion three year. So for us, it's really about the certainty and stability of NII, rather than big opportunity kind of every every month cafe and just to remind you that equivalent number was $8.
Speaker Change #112: In February.
Speaker Change #112: Okay.
Speaker Change #113: Okay. Thank you currently I think we are going to our last question in the key please thank you.
Speaker Change #114: Our final question today comes from Andrew Coombs from Citigroup. Please go ahead.
Speaker Change #113: Okay.
Speaker Change #114: Good morning.
Speaker Change #116: Two questions one more precise one board.
Speaker Change #116: First question just to offset.
Speaker Change #118: You talk about the two modest increase followed by part offset of the later of RW inflation.
Speaker Change #118: Probably too early but anything you can provide in terms of quantum and does that potentially even change your 13% to 14% core tier one ratio target.
Speaker Change #118: Just first question second question much more broad based question, but budget looking.
Speaker Change #118: Looking into the budget thinking about both the UK business on the investment bank.
Speaker Change #118: Assuming we don't get a bank tax is there anything else you're looking at in terms of when you're thinking about future customer activity.
Speaker Change #118: CGT and the bias in that market the employer's national insurance contributions in the SMA et cetera et cetera. Thank you.
Speaker Change #118: Okay. Thank you Andre and so.
Speaker Change #118: Is it too early to say.
Speaker Change #118: What we called out here.
Speaker Change #118: As you can imagine in advance of implementing this model.
Speaker Change #118: We actually have been holding some color too.
Speaker Change #118: Already there may be some modest increase and not before we implement the model in the fall.
Speaker Change #118: So that's all we're calling out it's difficult to give any specific guidance around.
Speaker Change #118: Tim or exact timing.
Speaker Change #118: You'll note that we've had moments.
Speaker Change #118: And I'm just reiterating we are already holding color today.
Speaker Change #118: For that.
Speaker Change #118: And then the other point I'd make is that obviously, we still await and volatile guidance from the PRA.
Speaker Change #118: So there is some expectation that.
Speaker Change #118: We'll get some guidance around how the two offsets.
Speaker Change #118: We're really trying to avoid double counting between Taiwan, and volatile and pellet that exist currently.
Speaker Change #118: And really we need to see all that put together holistically before we give you firm guidance.
Speaker Change #118: And on the budget listen, obviously very large UK bank.
Speaker Change #118: Rich.
Speaker Change #118: Operates across different sectors of the economy, so whether it's taxation, whether it's borrowing and financing by the government.
Speaker Change #118: Whether it is private investment in Hudson with public investments.
Speaker Change #118: Individual investment behavior that comes out of whatever the budget says, we would expect to see activity across everything which we do.
Speaker Change #118: I can't tell you, where and how much and what the net of it is.
Speaker Change #118: But expect us to be actively engaged across all the different dimension of it.
Speaker Change #118: With that thank you everybody. Thank you very much everybody and I really look forward to seeing some of you on the road, we will see you at the sell side breakfast in November.
Speaker Change #118: Thank you for your continued interest in Barclays to have a great day. Thank you.
Speaker Change #118: Yes.