Barclays PLC (LON:BARC.L) has reported its financial results for the second quarter and first half of 2024, demonstrating progress in line with its three-year plan aimed at enhancing bank performance and delivering higher returns. The bank's second-quarter return on tangible equity (RoTE) stood at 9.9%, approaching its goal of exceeding 10% for the full year.
Total income for the quarter reached GBP 6.3 billion, with net interest income now expected to be around GBP 11 billion for the year. Barclays has also announced a total payout of GBP 1.2 billion for the first half, consisting of dividends and a share buyback program.
Key Takeaways
- Barclays' Q2 RoTE was 9.9%, nearing the 2024 target of above 10%.
- Q2 total income was GBP 6.3 billion, with net interest income guidance for 2024 increased to GBP 11 billion.
- The bank announced a GBP 1.2 billion total payout for H1, including dividends and buybacks.
- Cost savings and credit management remain focal points, with total costs up only 1% in Q2.
- Barclays' CET1 ratio was 13.6%, within the targeted range of 13-14%.
Company Outlook
- The bank forecasts a structural hedge income increase of about $2 billion by 2026.
- Barclays is set to maintain cost discipline, achieving GBP 0.4 billion in gross efficiency savings for H1.
- UK balance sheet growth is expected to continue, with positive performance indicators.
- The US Consumer Bank anticipates a lower full-year charge compared to 2023 despite a Q2 charge increase to $309 million.
- The bank is on track with its plan and does not foresee changes in guidance or capital distribution.
Bearish Highlights
- Q2 saw a higher impairment compared to the previous year.
- Net interest margin (NIM) decreased from 11.1% in Q1 to 10.4% in Q2.
- Head office income decreased by GBP 207 million following the sale of the Italian mortgage book.
Bullish Highlights
- Income grew by 7%, bolstered by a $1.7 billion increase in card balances.
- The bank generated 35 basis points of capital from profits in Q2.
- Barclays remains well-capitalized with a strong liquidity position.
Misses
- The bank reported a decrease in NIM primarily due to increased amortization of customer rewards.
Q&A Highlights
- Executives discussed the ongoing sale of the merchant acquiring unit, describing it as complex and pending further updates.
- The bank is focused on improving capital efficiency and awaits final UK and US rules before commenting on the impact of Basel 3.1 regulations.
- Barclays' strategic goal includes keeping investment bank RWAs flat while growing RWAs in other, higher returning areas.
Barclays continues to execute its rebalancing strategy, improving operational and financial performance across its divisions. The bank's focus on disciplined execution has kept it on track to meet its strategic targets, as evidenced by the steady results of the second quarter. The bank's executives remain committed to achieving a more robust and efficient operation while navigating the complexities of regulatory changes and the macroeconomic environment.
InvestingPro Insights
Barclays PLC (BARC.L) has shown resilience in its latest financial results, with a focus on maintaining a robust performance trajectory. According to InvestingPro data, Barclays currently holds a market capitalization of $42.93 billion, reflecting its significant presence in the financial sector.
One of the notable InvestingPro Tips points to Barclays' Price to Earnings (P/E) ratio, which stands at an adjusted 7.22 for the last twelve months as of Q1 2024. This is an improvement from the current P/E ratio of 8.76, suggesting that the bank's earnings are growing faster than its stock price, potentially indicating an undervalued stock.
Another key metric is the bank's Price to Book (P/B) ratio, which is 0.47 for the same period. This low P/B ratio could imply that the market is undervaluing the bank's assets relative to its stock price or that investors are not confident about future growth.
InvestingPro data also reveals a dividend yield of 4.39% as of February 2024, coupled with a dividend growth of 8.87% for the last twelve months as of Q1 2024. This demonstrates Barclays' commitment to returning value to shareholders, which aligns with the bank's announcement of a GBP 1.2 billion total payout for the first half of the year.
For investors seeking more comprehensive analysis, InvestingPro offers additional insights, with a total of 15 InvestingPro Tips available for Barclays, providing a deeper dive into the bank's financial health and stock performance. These tips can serve as a valuable resource for those looking to make informed investment decisions regarding Barclays PLC.
Full transcript - Barclays PLC ADS (BCS) Q2 2024:
Operator: Welcome to Barclays Half Year 2024 Results Analyst and Investor Conference Call. I will now hand you over to C.S. Venkatakrishnan, Group Chief Executive, before I hand over to Anna Cross, Group Finance Director.
C.S. Venkatakrishnan: Good morning, everyone, and thank you for joining Barclays' second quarter 2024 results call. At our investor update in February, we set out a three-year plan to deliver a better run, more strongly performing, and higher returning 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 2026 financial targets, which are, first, grow returns with a target return on tangible equity of above 12% in 2026; second, distribute more capital to shareholders with a target of returning at least GBP10 billion between 2024 and 2026; and third, rebalance the bank with a target to reduce RWAs in the investment bank from 58% of Group RWAs at the end of 2023 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 GBP6.3 billion, and it was GBP13.3 billion for the first half. And as you will hear from Anna, we continue to be focused on the quality and stability of our income mix. We are also increasing our net interest income guidance for 2024 from GBP10.7 billion to approximately GBP11 billion. We continue to control our costs trend and are seeing the benefit of the cost action, 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. Impairment charges have improved in the U.S. Consumer Bank in line with our expectations, and our overall credit performance is strong, particularly in BUK. We remain well capitalized. Our CET1 ratio was 13.6%, comfortably within our 13% to 14% target range. This has enabled us to announce the first installment in our plan to return at least £10 billion to shareholders by 2026. We have a total payout of GBP1.2 billion for the first half of 2024, including a GBP0.029 dividend per share and a GBP750 million 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, Slide 4, the returns on tangible equity for each of our divisions and for the Group, alongside our 2026 target. Anna will take you through our financial performance in more detail shortly, after I've covered a few divisional highlights. Starting with our three UK-focused divisions, Barclays UK, BUK corporate Bank, and Private Bank & Wealth Management. We said in February that we plan to deploy an additional £30 billion of RWAs into these higher-returning UK businesses by 2026. 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. 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. And we saw positive growth lending across products, as we managed the mortgage book well in a competitive environment. The announced acquisition of Tesco (OTC:TSCDY)'s retail banking business is progressing well, and we are on track for completion in November this year. This will represent around GBP8 billion of RWAs out of the GBP30 billion which we announced earlier. In the UK Corporate Bank, Matt Hammerstein presented our ambitions for this business in June, the first of our deep dives following the investor update. 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. We delivered 18% RoTE in the UK Corporate Bank in the second quarter, and target continued high-teens returns in this business in 2026. Private Banking & Wealth Management delivered a 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 investment Bank, RoTE for the quarter was 9.6%. We remain committed to delivering improved RWA and operational productivity to drive higher returns for this business, and you can see evidence of progress. In markets, fixed performance is relatively stable, with European rates improving year on year. While we continue to focus on expanding our overall market share, securitized products continue to perform well. Investment 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 our lead role in helping a long-standing corporate working client, National Grid (LON:NG), raise GBP7 billion in the landmark rights issue. The co-heads of investment banking, Cathal Deasy and Taylor Wright, will present a deep dive on their business on the October 1. Finally, the U.S. 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 lines last year and to build reserves early. And as a result, our impairment performance in the first half has played out as we expected. Overall, we remain execution-focused. One area in particular is cost discipline. We achieved a further GBP200 million of gross cost savings this quarter, taking the total for the first half of the year to GBP400 million, and this is on track for our targeted GBP1 billion for the full year of 2024. 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 mortgage portfolio and have announced the sale of our German consumer finance business. Finally, as I said, the GBP1.2 billion shareholder distribution is the first instalment of our greater than GBP10 billion capital return plan. I will now hand over to Anna to take you through the second quarter financials in greater detail.
Anna Cross: Thank you, Venkat, and good morning, everyone. On Slide 6, we have laid out Barclay's 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 remains in line with the plan we laid out in February. We delivered a statutory RoTE of 9.9% despite a circa 50 basis point headwind year on year from the cash flow hedge reserve. Excluding the loss on sales from the business disposals that Venkat mentioned, Q2 RoTE was higher than last year at 11.8%. First half statutory RoTE was 11.1%, and we continue to target above 10% in 2024, or around 10.5% on an underlying basis ex-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 expected to be, and I will cover these in more detail on subsequent slides. Starting with income on Slide 8, total income was up 1% year on year at $6.3 billion, and was impacted by the $240 million loss from the disposals. Excluding this, income was up 4%. 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 financing in the investment bank, provide a ballast to our income profile. Together, these businesses contributed 73% of Group income in Q2. Retail and corporate income included the loss on sale from disposals, and the underlying business income was broadly flat. Financing income was also stable year on year at GBP0.8 billion, despite the 2023 inflation-linked tailwinds that we have called out previously. And we saw year on year growth in both investment banking fees and intermediation. Turning to net interest income on Slide 9. As in Q1, NII, ex-investment bank and head office was broadly stable in Q2, at circa GBP2.7 billion. Structural hedge tailwinds continued to offset the pressure on NII from deposit migration. We observed more stable deposits in the second quarter than 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 GBP11 billion for the full year, up from GBP10.7 billion. 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. 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 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 and predictable. GBP11.7 billion of aggregate gross income is now locked in over the three years to the end of 2026, up from GBP9.3 billion at Q1. We have around GBP170 billion of hedges maturing between 2024 and 2026 at an average yield of 1.5%. As we said in February, reinvesting around three quarters of this around 3.5% would compound over the next three years to increase the structural hedge income in 2026 by circa $2 billion versus 2023. In response to greater stability in customer and client deposit behavior, 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 on Slide 35. Moving on to my second focus area, cost discipline. Total costs in Q2 were up 1% at GBP4 billion, whilst operating costs were up 2% year-on-year. We delivered a further GBP0.2 billion of gross efficiency savings, bringing the total for H1 to GBP0.4 billion, and we remain on track to deliver GBP1 billion for the full year. These efficiencies have helped us to offset inflation and created capacity for investment. Our cost-to-income ratio was 63% in Q2, 62% for H1, and we still expect it to be around 63% for 2024. Turning now to my third focus area, impairment, which continues to trend positively. The impairment charge of $384 million equated to a loan loss rate of 38 basis points for the quarter, below our through-the-cycle guidance of 50 to 60. The Barclays UK charge was just $8 million, a loan loss rate of 1 basis point, which reflected continued benign credit conditions and an GBP18 million release of economic uncertainty PMAs. Our UK customers continue to act prudently, with little current signs of stress, evidenced by continued low and stable delinquency. Starting from this low base, we expect the Barclays UK to continue to grow and grow the balance sheet as outlined in our investor update. In the U.S. 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-offs within the impairment charge for the U.S. Consumer Bank, continue to evolve as we guided. We expected write-offs to increase during 2024 and as such took proactive action to reduce credit lines and build reserves early. In line with industry trends, there was a fall in delinquencies in Q2 versus Q1, which in part was due to seasonality and higher customer repayments. From here, we would expect future quarters to follow normal seasonality, with delinquencies rising towards the end of the year. We still expect the U.S. 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. 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 Barclays 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 GBP1.9 billion. Income was down GBP74 million on-year, driven by deposit and mortgage product dynamics and the transfer of UK Wealth in Q2 2023. NII of GBP1.6 billion was up £48 million on Q1. NIM increased by 13 basis points to 3.22%, reflecting increased NII, but also lower asset levels, which we do expect to grow over time. As you can see on the chart, continued structural hedge momentum more than offset product margin pressures. Looking to the second half of the year, we expect the positive behavior to continue to stabilize and share an impact in mortgages to be neutral to marginally positive. As I mentioned earlier, we are now targeting circa GBP6.3 billion of NII for Barclays UK in 2024, excluding Tesco 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 GBP290 million in Q2 and we continue to expect a run rate above GBP250 million per quarter going forward. Total costs were GBP1 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. At Q1, we said we expected underlying deposit trends and loans to stabilize in the second half. Deposits have stabilized faster than we anticipated, with balances reducing by only GBP0.5 billion in the quarter. Whilst net lending remained negative, gross activity had 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 stated ambition. UK card balances were stable at circa GBP10 billion. Acquisition volumes were strong, and we added GBP0.5 million new Barclay card accounts in Q1, in line with our UK growth plan. 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-backed 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. Moving on to the corporate bank on slide 18. UK Corporate Bank delivered Q2 RoTE of 18%. Income was down 6% year-on-year at GBP443 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, as 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 facilities. Total costs increased by 10% year-on-year to GBP235 million, reflecting investment spend, which we expect to continue in support of our growth initiative. Turning now to Private Banking & Wealth Management. RoTE was 30.8%, supported by strong growth in client assets and liabilities, up around GBP10 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, deposit migration. Costs increased GBP37 million year-on-year, mostly as a result of the transfer, but also due to ongoing investment in growing the business. We expect costs 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 RoTE was 9.6%. Total income of GBP3 billion was up 10% year-on-year, driven by growth in investment banking and markets. Total costs were up 5%, delivering 5% positive cost to income draws, 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 three percentage points year-on-year. RWA productivity, measured by income over average RWAs, 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 this key metric from the 2023 level to drive higher investment bank returns. RWAs were GBP3 billion or 1.4% higher versus Q1 at GBP203 billion. This is within the bounds of normal client trading activity, driven largely by temporary factors. As you know, we are committed to keeping Investment Bank’s RWAs broadly stable at year-end 2023 levels, reducing the proportion to circa 50% of the Group by 2026. Now looking at the specific income lines in more detail on Slide 23. Using the U.S. dollar figures as usual to help comparisons to our U.S. peers, markets income was up 6% year-on-year. Equities income was up 24%, again reflecting good performance across equity derivatives, prime and cash. FICC income was down 2% against a prior year quarter that we said included a circa GBP100 million benefit from inflation-linked positions. Excluding this, FICC 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. Equity derivatives saw strong client activity and the market for securitized products remained favorable in Q2, allowing us to continue to monetize the investments 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 GBP800 million, despite the positive inflation effect in the prior year, providing the more stable income stream to market that we have emphasized. This reflected strong growth in client balances, offsetting spread compression as we continue to scale the business and deliver on our GBP0.6 billion financing income growth target by 2026. 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 this. DCM income was up 55%. Again, delivering improved performance across both investment grade and leveraged finance. ECM was up 76%, benefiting from the large transactions that Venkat mentioned, and the market is showing encouraging signs of recovery. Advisory income increased 7% year-on-year and our pipeline of announced deals looks healthy for the rest of the year. Finally, in the International Corporate Bank, our U.S. 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 deposits and liquidity pool returns year-on-year, taking income down by 5%. Turning now to the U.S. Consumer Bank on Slide 25. USCB generated RoTE 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 year-on-year to $31.2 billion. From now on, we will report end net receivables on both a managed and a reported basis. Managed balances were GBP32.3 billion and include the receivables sold to Blackstone (NYSE:BX) in Q1. As a reminder, in return, 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 Q1, driven largely by increased amortization of rewards paid to customers, which can be lumpy. We continue to target a NIM 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 offset inflation, resulting in broadly flat costs and a cost-to-income ratio of 50%. Costs increased versus Q1 due to higher partner spend and are expected to trend up modestly in half two as we continue to grow our book. We now expect migration to internal rating base or IRB models to be in Q1 2025, reflecting a refined approval and implementation timetable. This is a timing impact only and does not affect our 2026 target. Turning now to head office on Slide 26. Head office income was down GBP207 million year-on-year, mainly due to the loss on sale of our performing Italian mortgage book. This sale is expected to reduce Group's statutory ROCE 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 ROCE impact. In completion, we expect the transaction to reduce head office RWAs by circa GBP3.4 billion, generating around 10 basis points of CET1 capital. Turning now to the balance sheet and starting with my fourth focus area, our robust capital position on Slide 27. The CET1 ratio was 13.6% at the end of Q2, comfortably 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 GBP1.2 billion, comprising a GBP0.029 dividend and a GBP750 million buyback. We expect 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 GBP0.074 higher per share, driven by the share count reduction from the buyback. This year's total capital return is still expected to be broadly in line with the 2023 level of GBP3 billion, consistent with the capital distribution plan we laid out in February. Risk-weighted assets were GBP1.8 billion higher on Q1 at around GBP351 billion, as you can see in more detail on Slide 28. Our guidance remains for regulatory-driven RWA inflation to be at the lower end of 5% to 10% of December 2023 Group RWAs. This includes both expected Basel 3.1 and U.S. Consumer Bank IRB impacts, as we said in February. TNAV per share increased GBP0.05 in the quarter to GBP0.340 pence. Attributable profit added GBP0.08 pence, and the reduced cash flow hedge reserve drag on shareholders' equity added GBP0.02. Additionally, share buybacks reduced our share count by 2% over the same period, driving TNAV accretion of GBP0.03 per share. This was partially offset by dividends paid and other reserve movements. Year-on-year, TNAV is up GBP0.49, or 17%. Before I conclude, as usual, a brief word on capital and liquidity on Slide 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. In summary, we remain focused on disciplined execution. This is the second quarter of progress against the targets we laid out in February, which we are reiterating today, and we remain on track. 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.
Operator: [Operator Instructions] Our first question today comes from Alvaro Serrano from Morgan Stanley (NYSE:MS). Please go ahead. Your line is now open.
Alvaro Serrano: Thanks for taking my questions. Good morning. One on costs, please. And in the roundtable, I think it was in May. You mentioned there would be structural costs in Q2. I haven't seen any many of them called out and it's been the second quarter now that you've done better than consensus. So just wondering what the underlying sort of run-rate cost ratio will be reducing the cost for the full year. That’s the first one. And also UK in Investment Banking doing very well. I had a question on the revenue performance in U.S. cards. NII is down. You reached that 12% margin during your scripted comments I just wanted to see if you can give us any color around the path to that top 10 NIM over the next few quarters and how much of it is rate dependent. Thank you.
Anna Cross: Okay. Thank you Alvaro. Good morning. Okay, first question. Just starting 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 SBAs as than we have done historically, which we said was a GBP200 million to GBP300 million run rate. So for the full year, the thing that's really important here is the delivery of our growth efficiency savings. We've done another 0.2 in the quarter so it’s 0.4 in the half year. We got really good line of sight to that GBP1 billion. So that’s really what’s underpinning the cost results that you're seeing. And I just to reiterate, our cost guidance for the year is circa 63%. The consensus of total cost is there or thereabouts. So that's how I'd guide you there. In terms of the U.S. 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 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 repayment that we have. And thirdly, within that, there is a little bit of lumpiness in terms of customer reward monetization, that ultimately is a really good sign because it means we're growing the book, but the way it can sort of chunk itself to counter our revenues it can be bit lumpy. So that’s all that's happening. So we haven’t changed our charge rate to a 12% NIM. That’s really around pricing optimization. It's around increasing our proportion of retail within the book and also really focus on our funding costs, and you'll note that our retail deposits are now 67%. We're really pushing that towards greater than 75% to deliver that 12% NIM. But thank you for the question.
Alvaro Serrano: Thank you.
Anna Cross: Can we go to the next one, please? Thank you.
Operator: The next question comes from Joseph Dickerson from Jefferies. Please go ahead, Joseph. Your line is now open.
Joseph Dickerson: Hi, good morning. Thank you for taking my questions. I guess my two would be, is there any follow-through in 2025 and 2026 from this upgraded UK NII? As you mentioned there's an implied GBP2 billion of structural hedge income growth, assuming that you reinvest 75% of the maturities, but it seems like your NII upgrade today is based in part on more stable deposits. So would it be unreasonable to assume there's some upside to that GBP2 billion based on greater than 75% of the maturities being reinvested? That's number one. And then 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 GBP3 billion of incremental risk-weighted assets to grow revenue. So I guess, how do we square the circle in terms of maintaining the RWA balances relatively flat on 2023. I mean, it was nice to see the revenue productivity picked up year-on-year, but still, we've had a few questions on that today. Thank you.
Anna Cross: Okay. Thank you, Joe. I'll take both of those. So on the first point, what we've seen and observed over the last quarter is a real stabilization in our deposit position. And that really led us to upgrade our NII today for the UK and for the Group to circa GBP6.3 billion and to GBP11 billion. The way we think of that is really an underpin to what we are doing. This is a plan of many parts. 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. So as we continue through the plan, we're pleased to see this progress. But as I said, a plan of many parts, and we have more things to deliver around our efficiencies and obviously around our capital allocation. So that's the reason really why we’re not upgrading 2026 at this point in time. Of course in isolation, the movement in rates, you would expect to have some impact on that GBP2 billion number. But we're not going to mark to market our 2026 targets on a quarterly basis because we're just very, very focused internally on disciplined execution against the targets that we've given already.
Joseph Dickerson: Thank you. [Indiscernible]
Anna Cross: Yeah. Thank you. On the second one, in terms of RWA, I mean, there's nothing really to call out here, and that may not any change in intention. What we saw, particularly towards the end of the quarter was some increases in RWAs 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 for home build RWAs, they are broadly flat. And again, you can see that and you called out the RWA productivity. We're pleased to see that go up year-on-year while also growing the other side of the balance sheet. So I would say largely temporary in nature and nothing really to call out specifically. But thank you for the question. Can we go to the next caller, please?
Operator: The next question comes from Benjamin Toms from RBC (TSX:RY). Please go ahead, Benjamin. Your line is now open.
Benjamin Toms: Good morning. Thank you for taking my questions. First one is on the RoTE is tracking slightly ahead of guidance for this year. I appreciate your guidance is not greater than to extent you are your plan [Technical Difficulty] I think portion would reconsider your cash dear years or should be whatever the. And then secondly, [Technical Difficulty]. Thank you.
Anna Cross: Okay. Thank you very much, Ben. In RoTE terms and in terms of delivery of our plan, we are on track versus where we would expect to be at this stage after two quarters. So we're firmly in line with our plan, and therefore, it wouldn't cause us to change either our rate of guidance for this year or the longer term or indeed our capital distribution plans, and that's why we've reiterated them today. In terms of deposit trends, you're right, we've seen greater stability or that stability come a little faster than we expected. Perhaps that's how to think about it. And we do, however, expect the structural hedge notional to continue to fall broadly in line with broader deposit 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 reassessed 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. But at this point, I wouldn't change the sort of overall pathway. Okay. Thank you, Ben. Perhaps we can go to the next question, please.
Operator: The next question comes from Guy Stebbings from BNP Paribas (OTC:BNPQY). Please go ahead, Guy. Your line is now open.
Guy Stebbings: Hi, good morning, all. I have some questions. And just some questions around Slide 10 and the hedge. Firstly could you confirm how much of the notional is attributed to the locked income component you referred to 4 in ‘25 and 3.2 in 2026? So presuming it's sort of an order make of 75% in 25% and 55% in '26, but any color 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 sort of how that breaks down between each year? And just a sort of final one on this slide. Maybe I'm reading too much into dotted lines and sort of putting a rule context it, 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 3%. So can I just check I'm not reading too much? Maybe how about that line dotted cross. Thank you very much.
Anna Cross: Okay, thanks, guy. And on your first question. We probably need to come back to you in relation to start. On the second question around the 1.5% maturing yield. So the way I think about this is that coverage, the sort of tenor that we've got here is between 2.5% and 3%. But there's actually a range of maturities within there, and that really reflects. How we think about the composition of our deposit book and the varying behavioral sort of trends that we see within there. So we haven't guided or given you any clarity consistent about how that actually breaks down between those tenors. But just to say, over the next few years, we expect that will mature near within our 1.5% which is consistent over that period. And then on the final question, which was around the gross yield. Again, we don't guide to gross yield. We've given you some mass in February, which is really how we expect that structural hedge income over time. What I would just say is you can see that it continues to grind higher and I think this slide shows us that well. So at Q1, we were at GBP9.3 billion of locked-in income. Now we're at GBP11.7 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 have for last year of 3.6. So that's really how we focus on it, less about the overall yield and more about how much are we locking in base as a combination of the notion of but also obviously the yield and hedge it fast. So that’s how we think about that. We’ll come back with a bit more color.
Guy Stebbings: Okay. Perfect. Thank you.
Anna Cross: Okay. Thank you. Perhaps we can go to the next question, please?
Operator: The next question comes from Amit Goel from Mediobanca (OTC:MDIBY). Please go ahead. Your line is now open.
Amit Goel: Hi. Thank you. So my two questions. Maybe they follow on a little bit from Joe's but first one is, I think, consensus outside of the IB now already largely reflects the 26% target. So again, I'm just wondering how much hope there is to be both levels. I mean, especially in the UK where rates the better. And I guess by extending the duration of the hedge, I suppose that the point a bit more sticky. You're talking about stabilization. So the '25 again reduction in hedge size, 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 RWA increase in IB has been a bit temporary in the quarter, but that is where we've seen most of the increase year-to-date and quarter today. So just curious when we'll start to see the allocation trend towards that 50% target, which could be important for seeing further re-raising. Thank you.
Anna Cross: Okay, thanks Amit. In terms of the pathway on NII, not only for the UK Hey, but for the other parts of that core part of corporate banking, international corporate Banking and indeed, our private banking and wealth business. I mean, 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 it relates to the hedge as I said not on a mark-to-market hedge income on a quarterly basis. We gave you some moving parts and just to remind everybody, we've got 170 billion maturing over the three years. We've got a maturing yield of about 1.5%. We expect high to roll about 75% of that. And at the time of the investor update, when swap rates were around 3.5%, we though that would probably yield around GBP2 billion. Again, there are some movements in the yield curve that might in isolation, push that number up a bit. But this is a plan of many, many parts. So we're very focused on delivering the greater than greater than 12% RoTE in the round. On your second question around capital allocation, I want to reiterate, we think those are largely temporary and there's obviously also a natural seasonality to the RWA path within the IB. I think more fundamentally, though, what we're talking about here is the two-part strategy: firstly, holding that broadly 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 first of November. But also, but also really the organic progress that we're making in terms of the balance sheet. Now you can't see that yet coming through a 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. The mortgage market is up. We're taking a greater share of that. And we're also taking a good share of high loan-to-value mortgages. Our cards balances are up quarter-on-quarter and in corporate lending, whilst we haven't seen the balance sheet move yet, you can see the RWAs going up because we've extended balances to clients. So I think it's really sort of quarter four onwards that you're going to start to see this move meaningfully but just to reiterate on the RWAs 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 for the question. Perhaps we could go to the next one, please.
Operator: The next question comes from Edward Firth from Stifel. Please go ahead. Your line is now open.
Edward Firth: Good morning, everybody. I had two questions, please. The first one was U.S. consumer cards, credit quality. I think you said to see the provision charge has turned. But if I look at your non-performing loans in the quarter, they were up, I think, 7% or 8%. So just trying to get a sense as to where we are in that price and how we should expect that to progress from here if that's okay. And that’s the first question. And then the second question I'm just trying to sort of square the BUK performance with some of your targets and with some of the revenue coming through from the hedge because you're making around a 20% return on equity in the first half and even if I normalize impairment but when you when you take your share of the hedge benefit 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 ‘26 and I know it's greater than 15% encompasses an awful lot but I guess mid to high 20s there's a long way ahead of that. So I'm just trying to think what should we be thinking about in terms of the difference between the greater than 15 and the mid to high 20s? And how do you think about a mid to high 20s return in a sort of we had to listen to the FTA talking about consumer duty yesterday. I mean should we be expecting some of this GBP2 billion hedge to actually go to depositors or are you we should be confident that we can hold the bulk of that thanks so much.
Anna Cross: Thank you, Ed. I'll start on cards and Venkat might want to add something on USA quality also and then and then we'll go into the UK performance. Then really the U.S. CB and impediment pathways is panning out as we expected. The last year when we saw the macroeconomic variables particularly around unemployment start to increase what we expected was first delinquencies would increase, and secondly real if you like non-performance and write-offs 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. And so this time last year we got ahead of this in a couple of ways, the first was by building our reserve proactively. And so you can see that reserve build through the second half of last year and that was in anticipation of the write-offs and that movement of non-performing loans that you're now 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. You're going to have relatively high levels of write-offs 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 helped. And just to remind you, this is a high-quality book. Venkat, anything to add?
C.S. Venkatakrishnan: Yeah. I’d add everything Anna said. And I think the other thing to look at is, 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, pointed 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 and anticipated. And we've, 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. But the charges -- non-performing piece is exactly as Anna said. It's following upon a provision bill, which was earlier.
Anna Cross: Okay. Then on your second point, just around BUK performance, 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 obviously we expect NII to grow over time, but I'm also expecting that the RWAs here are going to grow over time. And clearly we haven't seen growth in assets in BUK 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 liabilities to really trying to grow the asset books for when the curve turns. 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 led to our RoTE thought process. Venkat, anything to add about that?
C.S. Venkatakrishnan: Yeah. I completely agree. You have to look at this business, as Anna said, over a cycle. And the composition of the revenues shifts from liabilities to assets over that period. And as assets revenues increase, so does your equity. And that will have the effect of moderating the RoTE. And then impairment. Impairment has remained fairly low. And the UK, we'll see what the Bank of England does later today, but the UK employment picture has remained strong. There's really only one way this thing can go. And so you've got to be careful about where impairments go in the long run. And that would be the other moderating influence.
Anna Cross: Yeah. And I think you sort of called that out in your remarks. So we're still expecting the sort of longer-term trends here. To your specific point on the FCA and the consumer duty, there is nothing specific in our RoTE guidance that relates to that at all. We feel we have the right ranges both across savings and indeed elsewhere, and they're in compliance with it. So there's nothing there that would mitigate or moderate that RoTE.
C.S. Venkatakrishnan: Yeah. And look, this is an important protection measure for consumers. We fully support it. 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 they're good practices.
Edward Firth: Great. Thanks so much.
Anna Cross: Thank you. Can we go to the next question, please?
Operator: The next question comes from Chris Cant from Autonomous. Please go ahead, Chris. Your line is now open.
Chris Cant: Good morning. Thank you for taking my questions. I have one on the UK and one on consumer, please, the U.S. consumer. So on the UK, in your remarks, you referenced the stabilization in deposit books coming off the back of pricing actions that you've taken earlier in the year. I mean, you don't give us 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.e. lower overall interest expenses in the first half versus the second half of last year. 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 domestic peers do provide, that would be very welcome. And on consumer, obviously, income down, you've spoken to that in terms of the amortization and various other things, bits of 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% NIM back-end loaded within the plan? Thank you.
Anna Cross: Okay. Thanks, Chris. So we don't disclose our deposit costs. Obviously, within the interest costs 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. And I would just say, really, it's about range. It's about pricing consistently. It feels like we've performed well in the first quarter, sorry -- first and second quarter. The savings market overall has grown. And 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 account share has actually been flat throughout. So it feels like we've managed that well. In terms of consumer in the U.S., there is a bit of seasonality to U.S. 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. Cards growth takes a while, so you're going to see this happen over time. There are also some headwinds to NIM, an income that we called out, so specifically around late fees, 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 optimization. We're continuing to build our deposits in the U.S. So I'd expect these to manifest themselves gradually over time, the implementation of that. But you're going to see some lumpiness from, for example, the implementation of that late fees whenever it comes.
Chris Cant: Thank you. 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. I guess off the back of that we saw deposit volumes compress for Barclays to a far greater degree than for those peers, so customers moved elsewhere because you weren't keeping up, I guess, with even the large incumbent banks. We've seen that stabilize in the first half. Is it just that the customers who were going to move have now moved and actually you've retained a meaningful pricing differential to large peers, or do you feel like you've substantially caught up with large peers in terms of your rates?
Anna Cross: So as I said, we've seen that market share trend really stabilized in the second quarter. And what that tells 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.
Chris Cant: Okay, thank you.
Anna Cross: Thank you, Chris. Perhaps we could go to the next question, please.
Operator: The next question comes from Robin Down from HSBC. Please go ahead, Robin, your line is now open.
Robin Down: 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 break-even 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 for around GBP30 million, GBP40 million a quarter? Is that how we should be thinking about that? And the second question, I guess, is probably more for Venkat. I think you quoted on Bloomberg this morning saying that the sales and merchant acquiring unit is underway. I was just wondering if you could give us any kind of updates on that disposal. Thank you.
Anna Cross: Thank you, Robin. So on German cards, I mean, you're broadly in the right ballpark. It's not a significant PBT contributor to the bank, and therefore, on sale, the meaningful difference that you're going to see in the P&L or balance sheet is actually the release of their RWAs, and that's really what drives that 10 basis points of CET1 accretion that will happen either in Q4 or Q1 is our expectation. So you're in the right ballpark. Venkat?
C.S. Venkatakrishnan: 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 to 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 kind of service we'd want. So that process is still ongoing. And what I said also on the call is that, 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.
Robin Down: Okay. Great. Thank you.
Anna Cross: Thank you. Perhaps we can go to our next question, please.
Operator: Our final question we have time for today comes from Andrew Coombs from CitiGroup. Please go ahead, Andrew. Your line is now open.
Andrew Coombs: Good morning. Thank you for taking my questions. A couple of strategic ones, please. Firstly, on U.S. 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 U.S. banks, the delay in Basel 3.1 could potentially be much longer. I know when you gave your investor today, 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 U.S. banks post Basel 3. But in an environment where Basel 3 doesn't get introduced in the U.S., or Basel 3.1 -- sorry, in the US, how do you feel about the competitive positioning of that business? If a co-brand deal comes up for renewal, do you think you can still price competitively versus the U.S. peers given a higher risk rate density? And then second question, similar theme, strategy, but investment bank given, I know you said the IB RWA increase is temporary this quarter. But if somebody comes to you and says, I'd like an extra GBP100 million of RWAs, I think I can generate more than 12% RoTE on that from your investment bank. You've always said your North Star is the RoTE. So do you say, yeah, fine, please go ahead? Or is it a case of reducing the RWAs from 63% down to 50% a Group in the investment bank by holding them stable as a more of a priority? Thank you.
Anna Cross: Okay, thank you, Andy. I'll start and then I'll hand over to Venkat. So on consumer, you're right, these regulatory models are complex to implement. We've just seen a movement over the quarter end really that takes us from Q4 to Q1. That has always been an acceleration of the Basel requirements for us. And we talked about that in February. So we always expected there to be a gap. Obviously, we'll have to see what happens to the U.S. 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're focused on the things that we can control. So we're focused on the commercial actions that we said we would take, which are really around improving the capital efficiency of the business through doing trades like the one that we've already done with Blackstone. We continue to work on the NIM, as I alluded to before, through pricing, through deposits, et cetera. We've got a big program here of efficiency and digitization. All of those things will improve the returns of the business. So we're really sort of focusing on execution of the piece here that we can control and which we have line of sight to.
C.S. Venkatakrishnan: Yeah, I'll just add to what Anna is saying, which is that we will control what we can control. And we try to do that in a very efficient way. And we're doing things in capital management which try to alleviate what could be the impact of these changes. So more broadly speaking, of course, we have the view, which we've shared publicly, that we think the changes in the UK and the U.S. ideally should be similar and should happen at roughly the same time. That would be our wish. And then if I come to your point on the RWA and the increases, what I would say to you is the strategic ambition or goal of this bank is to keep IB RWAs roughly flat, absorbing some of the capital impacts we've spoken about, and then growing RWAs 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, right? 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. All right?
Anna Cross: And just to remind you, Andy, that the areas that we want to grow our RWAs in, so that GBP30 billion, they are in the areas of the bank where the returns are meaningfully higher than the Group average. So across BUK, across the corporate bank, and indeed across private banking and wealth, they are at least high teens, 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. 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.
C.S. Venkatakrishnan: Thank you.
Operator: Thank you. That concludes today's conference call.
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