Barclays PLC

Good morning, everyone. My opening comments will be short today, given that it was a pretty straightforward quarter. Today we've announced that Barclays earned 1 billion pounds of attributable profit in the first three months of 2019. We earned 6.3 pence per share. The profit before tax was 1.5 billion pounds, with positive draws driven by a 3% reduction in costs versus a 2% reduction in revenue. Our group cost-to-income ratio was 62%, a modest improvement over last year. And we will continue to target a ratio of 60% or better over time. From a revenue perspective, the UK produced another solid quarter. Within the CIV, investment banking fees were weak. But for the sixth consecutive quarter, we outperformed our U.S. peers on average in the markets business, which, like Q1 last year, generated a double-digit return on tangible equity. Turning to capital, our CT1 ratio was 13%, with group risk-weighted assets broadly flat year-on-year, though we did have a typical seasonal increase in the first quarter versus Q4 of 2018, which is what you'd expect. Within that total, there were actually significant increases in the risk-rated assets allocated to our consumer franchises versus Q1 of 2018, both in Barclays UK and in international cards and payments, while the risk-rated assets allocated to our CIB declined year on year. The positive effect of that change and mix may be seen most clearly in our international cards and payments business. where a 20% increase in capital allocation year-on-year contributed to an increase in profitability of over 20%, while delivering a return on tangible equity of 15.4%. Our tangible net asset value was 266 pence, which represents the fourth quarter in a row where we have grown Barclays' book value. Our total operating expenses in the first quarter were 3.3 billion pounds. In 2016, we took a charge of just under 400 million pounds to allow us to better align variable compensation accruals with the firm's revenues. What you see in the first quarter is Barclays using this discretion around variable compensation to manage our costs and help deliver expected profitability. And I would add, if we have continued weakness in our revenues like we saw in the first quarter in the investment bank's fee income, we will seek to further manage costs. Now let me turn to the leadership changes I announced earlier this month. The reorganization had two goals. First, to put under Ashok Bhatwani oversight of the execution of plans in our global consumer banking and payments businesses. As technology sweeps the financial industry, particularly in payments, we need to harness the unique platform that we have at Barclays. The payment space may be the biggest opportunity and challenge the bank will face over the next decade. It is also great to have Matt Hammerstein, representing Barclays UK, join the executive committee reporting directly to me. The second goal is was to have a more granular execution focus and oversight on the businesses within the corporate and investment banks, and accordingly to bring the CIB closer to me as the group's CEO. So I welcome Alistair Curry, Steve Dayton, and Joe McGrath to the group executive committee. This portfolio of businesses in our transatlantic consumer and wholesale bank gives us the best opportunity to put the recent path of Barclays behind us. and simply execute towards the returns that our shareholders expect. That said, let me be clear. Management is very aware of the execution challenges we must still meet in order to deliver acceptable returns on a consistent basis, particularly in the corporate and investment banks. We are confident, however, that this management team can meet the challenge, given the enormity of what we faced three years ago. Barclays then was without strategic direction. The operational and control issues were acute. The bank was undercapitalized and only occasionally profitable. And we faced enormous litigation and conduct issues, all of which we have addressed. So a 9.6% return on tangible equity in the first quarter of this year is a good step towards our objective of delivering greater than 9% in 2019. Now let me hand it over to Tushar to walk you through the numbers in detail.

Thanks, Jeff. I'll begin with the group results and then give some brief comments on each of the businesses. As Jeff mentioned, profit before tax was $1.5 billion compared to the statutory loss of $0.2 billion last year. I'm pleased to note that litigation in conduct was not material in this quarter, but it was $2 billion last year, with the profit excluding this decreased 10%. I will exclude litigation in conduct charges in my commentary as usual. Group ROTE was 9.6%, with a double-digit return in both BUK and BI. Income was down 2%, but we reduced costs by 3%, delivering positive jaws. The income environment has been challenging in Q1, particularly for the CIV. Regardless of conditions, cost control will remain a critical focus throughout the year, as we pursue our 2019 ROTE target of greater than 9%. Impairment was up $116 million year-on-year, were down £195 million on the Q4 impairment figure, which included the specific charge of £150 million to reflect economic uncertainty in the UK. Importantly, delinquencies remain stable. We can't predict macroeconomic changes with precision, but the credit environment remains benign. The effective tax rate was a little under 17%, and attributable profit was £1 billion. Fee now of £266 was up £4 in the quarter, driven by earnings per share of 6.3%, despite currency and pension headwinds, and TNAV is up 15 pence across the last four quarters. The CC1 ratio is in line with our target of around 13%, down slightly on year-end, reflecting the seasonal increase in RWAs. Looking at the businesses in more detail, starting with BUK. BUK reported an ROP of 16.4% to Q1, up slightly from 15.7% on an increased equity allocation. Both income and costs were broadly stable. Overall income was down seasonally on Q4, with NII reflecting Q1's lower day count. Year-on-year growth in deposit balances and mortgages was offset by continued NIM erosion, reflecting both product mix and competitive pressures. We mentioned that in Q4 we had pulled back from some of the more aggressively priced product categories. This affected our completions in Q4 and Q1, with net mortgage additions of $0.6 billion in Q4 and $0.3 billion in Q1. However, mortgage pricing has improved slightly in Q1, and we are having application volumes at significantly higher levels than in Q4. Our increased focus on secured lending continues to have a mixed effect, with a minimum of 318 basis points in Q1, down from 320 in Q4, and I expect slight downward pressure to continue. However, we expect volume growth to contribute to a higher income run rate in the remaining quarters of the year. Costs reflected our continued investment in the digital transformation of the business I mentioned at full year that we expected the 2019 investment spend to be weighted towards the first half of the year, and we would expect negative draws in Q2, but positive draws in the second half, and for the year as a whole. And PEM was just under the 200 million run rate we've referenced in the past, and delinquencies are stable. Turning now to Barclays International. CI delivered an ROT of 10.6% for the quarter on an income of 3.6 billion. The main drivers of the year-on-year decline were a decrease of 6% on income, reflecting the challenging income environment faced by the CID, and an increase of $152 million in impairment due to largely the non-recurrence of favourable macro forecast updates in Q1 last year. Looking now in more detail at CID. Overall, income was down 11%, but we reduced costs by 9% as we cut compensation accruals, reflecting the income environment, and continued to implement cost-efficiency programmes. With the income decline, we saw resilient performance, particularly from the FIC businesses. Markets overall were down 6% in sterling or 12% in dollars, but FIC was up 4%, comparing favorably with U.S. peers through and principally by rates, which delivered significantly improved performance. This reflects previous management changes and investment in technology, and as usual, the FIC performance reflected CDA and EVA, both of which were headwinds year-on-year. Equities was down 21% year-on-year, with weakness in derivatives in common with US peers. Banking decreased 17% year-on-year, with fees down particularly in acquisition financing. However, our market share of global banking fees, based on Geologic data, was up slightly on full year 2018. So the banking franchise remains in good shape, with a strong pipeline, and as we've said in previous quarters, the timing of fees can be lumpy. The corporate income line was down 13%, reflecting steady performance in transaction banking, but a decline in corporate lending income, due to both the reduction in lending in 2018 and a significant negative mark-to-market on hedges in Q1. The underlying corporate lending income for the quarter was around $200 million, which excludes the mark-to-market, but the figure does include the running costs of credit protection. The mark-to-market losses on hedges were high due to our policy of taking a conservative approach to hedging exposure, particularly in leveraged finance, and credit spread tightening and other market moves through Q1. The negative other income line, which included the CID share of the net treasury result in Q4 and in prior quarters, is now allocated out to the other business lines. There was an impairment charge of $52 million compared to a net release of $159 million, with no recurrence of the favourable macroeconomic forecast updates we saw last year. RWAs increased by £5.7 billion from the seasonally lower year-end level, but allocated tangible equity was down slightly year-on-year, with RWAs reduced by more than £4 billion over the same period. The ROT was 9.5%, excluding litigation in conduct, or 9.3% on a statutory basis. Whatever the income environment through this year, we will remain very focused on cost control, and you can see the Q1 number as a statement of intent in this regard. Filling out the consumer cards and payments. We continued to generate attractive returns in CCP while growing the business. ROPE was 15.4% on an increased equity allocation, and income grew 6% driven by U.S. cards. Currency was favorable with a 6% year-on-year sterling dollar move, but we also saw U.S. card receivables increase by 6% in dollars, adjusting for the LLD portfolio which we sold in Q2 last year. As we highlighted at full year, A share of the BI net treasury result is reflected in the income line. This was a smaller negative than Q4, but still a headwind year-on-year. Again, the airline portfolios, notably JetBlue and American, saw double-digit growth. The balance decline from Q4 was in line with the normal Q1 seasonality. Costs increased as we continued to invest in the growth of the international carbon payments businesses. Impairment was down 59 million, year-on-year at 193 million. and well down on the seasonally high Q4 level of £319 million. Absent significant macroeconomic development, we would expect Q4 to be the seasonally highest quarter for impairment this year, with Q1 the lowest. Turning now to head office. Head office was relatively simple this quarter, with negative income of £95 million reflecting the excess levity funding costs we put through head office. This year we were counting for the after-final dividend in Q1, in line with the dividend declaration date, and this offset the hedge accounting drag that we have flagged in the past, which will continue through the rest of the year. I'd also expect around 100 million negative Treasury items through the head office income line spread across 2019. We've announced that we will call the 14% RCIs at the end of Q2, which will benefit the incoming head office by about 65 million per quarter from Q3. Costs of 52 million, excluding litigation and conduct, were broadly in line with the usual run rates. Below the PDT line, the preference share redemption has reduced the non-controlling interest charge. Group costs were down 3%, $3.3 billion for Q1. We're leaving our cost guidance of $13.6 billion to $13.9 billion for 2019 unchanged. However, I want to stress that should the challenging income environment of the first quarter continue, we expect to reduce 2019 costs below $13.6 billion. Key cost levers we will review throughout the year are further flexibility in compensation costs, particularly in the CIV, depending on the income performance, and prioritisation and adjusting the pace of investment spend. GX has improved cost efficiency, driving operating leverage and enabling capacity to invest, with flexibility in the phasing of this spend. Cost control is important in achieving our return target, but we will balance this with the group's longer-term interests and opportunities. PNAV increased in the quarter by 4 pence to 266. Earnings per share of 6.3 pence were partially offset by net reserve movements, including the dollar currency headwind and pension surplus re-measurement. Q1 showed the usual seasonality in our capital ratio, with the increase in RWAs of 7.8 billion offsetting the 39 basis points contribution from profits. There was also the regular Q1 headwind of 8 basis points from vesting share awards, which we did not neutralise through new share issuance. As a result, the CC1 ratio finished the quarter at 13%. The RWA increase reflected higher activity levels at the end of the quarter in CID and 1.6 billion from the implementation of IFRS 16 for operating leases. We continue to feel confident in our ability to generate capital and remain comfortable with a capital ratio of around 13%. As you know, we paid a dividend of 6.5 pence for 2018 and have indicated some progression in 2019 We remain confident that going forward, our capital generation will fund both our investment plans and increase distribution shareholders. We also have a strong leverage position. At Q1, the average UK leverage ratio was 4.6%, slightly up on 4.5% at Q4, and flat year-on-year. The spot leverage ratio was 4.9%, comfortably above the 4% minimum UK requirement. We monitor leverage daily, but continue to view it as a backstop capital measure strategy. with the risk-based measure being the primary management ratio for the group. Our funding and liquidity position remains strong. Our loan-to-deposit ratio of 80%, down from 83% at year-end, reflected conservatism in light of the Brexit uncertainty at the end of the quarter. We have diverse price funding sources, including roughly two-thirds coming from both consumer and wholesale deposits, which are not directly ratings-dependent. So we aren't overly reliant on wholesale funding markets, either at a group level, or in the respective businesses. We're well on track to meet our future MREL requirements, currently at 27.7%, compared to an expected requirement of around 30%. We issued $2.2 billion in the year-to-date, in line with our current plan to issue around $8 billion in 2019, compared to the $12 billion we issued in 2018. The Q1 issuance included $2 billion of AT1, which we continue to view as a valuable and cost-effective element of our capital stack and funding structure. As most of you will be aware, we issue MREL out of our holdstow in line with the Bank of England's preferred structure, and MREL represents just 8% of our overall funding. The liquidity coverage ratio was 160% at the end of the quarter, with a liquidity pool of £232 billion, which represents just under 20% of our balance sheet, positioning us conservatively in light of the continuing Brexit uncertainties. So to recap, we remain on track in the execution of our strategy. We reported an ROT of 9.6%, excluding litigation and conduct, for 9.2% on a statutory basis, and continue to target ROT of greater than 9% and 10% for 2019 and 2020, respectively, based on a CT1 ratio of around 13%. We remain very focused on cost control and will continue to monitor the income environment closely throughout the year. We reported four consecutive quarters of team now decreasing, and we are at our CT1 target of around 13%. Thank you, and we'll now take your questions. And as usual, I would ask you limit yourself to two per person.

If you wish to ask a question, please press star followed by one on your telephone keypad. If you change your mind and wish to remove the question, please press star followed by two. When preparing to ask your question, please ensure that your phone is unmuted locally. To confirm, press star followed by one to ask your question. First question today comes from Joseph Dickerson of Jefferies. Joseph, your line is now open.

Hey, Joseph.

Joe, you may be on mute.

No, I'm not on mute. Can you hear me?

Yeah, we can hear you.

Hi. Hi, sorry. Good cost performance in the investment bank. I guess the question that I have, and I only have one this time, is the 11% increase in cost in the consumer cards and payments business. Presumably you're making some investments here. Is this to expand into new channels in the U.S.? Is it merchant acquiring in Europe? Some color there would be helpful. And then I also would just have a suggestion that at some point it would be very useful to hear from what the new management plans are for the overall payments strategy. So some sort of investor seminar there would be very, very welcome, I think, by the investment community.

Thanks, Joe. Yeah, we'll certainly take that feedback on board. And, you know, we're very excited to have Ashok looking across the full spectrum of consumer banking and payments. So, yeah, we'll certainly take that on board. In terms of the cost increase in CCP, yes, I mean, CCP is an important business for us in terms of continue to invest and drive our profits. You'll have seen over the last 12 months attributable profits up, I think, in sort of close to 20% on a 20% higher capital base and, of course, the returns are sort of compounding at about 15%. So it's a business we like the characteristics of. We continue to... grow the cars business there. We continue to grow in the U.S., that is, and we've talked quite a bit about the airline portfolios particularly, and we are probably growing them quicker than other parts of the portfolio. That has, obviously, costs associated with it, account acquisition costs, which are up front before the revenues come in, and as we continue that sort of steep growth, you would expect to see that. The other thing we like about the airlines portfolio is... the FICO scores are actually relatively high for that customer cohort. And, you know, I know there's some sort of concerns about how quickly you would like to grow an unsecured credit book this late on in the cycle. And I think that sort of fits risk characteristics quite well, where we like the income growth there and we like the risk characteristics that brings as well. We are continuing to invest in our payments business as well. You know, and I think as Ashok sort of speaks more publicly about this, he'll talk about some of the things that we're We're very focused on that. The other thing, Joe, I would just remind you, there is a little bit of an FX component in there as well. So the 11% probably overstates the expense growth. There was, I think, a 7% move or so in foreign exchange. So probably more mid-single digits is probably where the real underlying growth is. But still, the costs that we like and would continue to want to invest in that business just to see profits continue to drive up. And it's most likely you will see us do something in terms of investor presentation around the global payments platform later this year.

Great.

That would be very helpful. Thanks, guys. Okay. We have the next question for you, Govreda.

The next question on the line comes from Jonathan Pierce of Numis. Jonathan, please go ahead.

Morning. I've got two on – well, one on capital with a few bits to it, and then just a quick one on the CIB. On capital risk-weighted assets, I was hoping, Tushar, you could give us a bit more colour on some of the one-off RWA items that will come through in the next year. Obviously, we've seen IFRS 16 this morning, but thinking in particular about securitisation, CCR changes next year, mortgage risk weights, those sorts of things. And maybe alongside that, if you can give us a quick comment on the story around this op risk, obviously still up at $57 billion. Is there anything? you can do there. That would be my first question. So broad question on risk-weighted assets. Second question, on CIB, it's difficult to get to what's going on below the PBT line because you don't split out tax and coupons. But it looks like there was another tax credit in the first quarter helping the CIB ROTE number. Is that correct? And maybe I could ask that you split out those below the line items moving forward if possible.

Thanks, Jonathan. Why don't I take them? I just may want to add something at the end. In terms of RWA, your first question, any violence you want to give in terms of inflation coming through the pipes? Nothing to call out at this stage. You mentioned mortgage risk weights. Again, nothing I'd call out here. We will guide it at the right time. In terms of contextualising this, as you're probably aware, we run a through the cycle model and have 180 day default definition we'll be moving that to a 90 day default definition but we're already through the cycle when I look at mortgage risk rates for ourselves I think we're towards the upper end of our peer set and probably couple that with slightly lower loan to values than the average peer set so there will be an impact and we will call that out near the time but hopefully impacts us a little bit less than others The other items you called out, you know, securitization, again, nothing to call out at this stage, but we will keep you posted as the Egon goes through. Off-risk is an interesting question. It's sort of a bit of a bugbear of mine, as some of you may already be aware. We've had our operational risk-weighted assets in Pillar 1 stubbornly stuck at, you know, 56, 57 billion, actually ever since I've been here, even though we've, you know, fairly materially reduced costs. risk-weighted assets and the composition of businesses over that time. I think the other thing that's a slight bugbear of mine is that, of course, you know, it's a very high level of Pillar 1 operational risk-weighted assets. And, of course, what does that do? That means we probably have a commensurately – you know, I imagine across the UK banking peers that operational risk capital is no doubt – say it looks like we have a higher component in Pillar 1 versus Pillar 2, and you'll appreciate that all that does is means that your Pillar 1 reported capital ratio optically is reported at a lower level, even though your distance to MDA is consistent. So, you know, on our numbers, if we were to have a Pillar 1 operational risk weighted up at a level consistent with UK peers, then our capital ratio would probably be over 14%. Now, on the flip side, you've probably increased pillar two, so I don't think our distance to MDA would ever change. I think our MDA level would increase, but, you know, that may look a little bit more similar to other UK peers. So a little bit of a bugbear in mind. Hopefully we'll make some progress in getting that recalibrated over time. But no, I don't think that will happen in the near term.

I think, Jonathan, as you think strategically about the bank, if you go back, A number of years ago, the operational risk-led assets were sort of 14%, 15% of our total capital base. Now it's up to 20%. When you think about size and scale of the bank, if that risk number is not going to move, shrinking the bank aggravates your problem because I'm sure you can calculate the return on operational risk-led assets is zero.

Mm-hmm.

Jonathan, the second question on the CIB, and I think really what you're driving at is, was there anything unusual in the tax line? Nothing unusual. We did have a sort of 17% effective tax rate for the group. Now, it's a little bit confusing because we're under a different accounting standard to this time last year. We've applied IS-12. It doesn't make any difference to reported returns, but does affect the calculation of attributable profits of the tax credits on ITU-1. In new money, if you like, on a post-IF12 basis, you know, I'd go to an effective tax rate of somewhere around 20%. So I think for the rest of the year, you'd expect it to pick up. But, I mean, I don't think that's just usual seasonality. But for your model, somewhere around 20% is probably a reasonable estimate.

But sorry to come back on this. It looks like, though, in the CIB, if we take out these – or rather add back these coupons and compare the number to the pre-tax, that the tax rate is sub-15%, looks like it's sort of 10% to 13% in the first quarter. You're suggesting that that's not the case?

No, I haven't, no. So I'm not calling out the actual tax rate in the CIB. Obviously, you said that's not disclosed, so I won't sort of call it out on this call. But to help you out in terms of the overall dynamics for the group, the Q1 tax rate of 17%, it's probably lower than you'd experience over the course of the full year. And obviously, you know, that will affect both the CIB as other divisions as well. I think overall for the group for the full year, around 20% in a sort of post-IS12 basis is something that you should probably be thinking about. Brilliant. Thanks a lot. All right. Thanks, Jonathan. Can we have the next question, please, operator?

The next question on the line comes from Robin Down of HSBC. Robin, please go ahead.

Hi, yeah, good morning. Just a couple of questions from me then. Just following up really on Jonathan's questions on RWAs, we've got this seasonal uplift again in CIV RWAs in the first quarter. I was kind of slightly surprised to see that given the sort of lower levels of activity we saw more broadly in Q1. So I just wondered if the guidance for effectively a flat CIV RWA number for the full year you know, whether that kind of still stands, that you effectively expect this to unwind in Q2, Q3. And then the second question is a much broader question around consensus. You're still sticking with the target of 9% plus ROT for this year. I think the published consensus was for 8.2%. Is there anything that you, when you look at the sort of consensus P&L, is there anything that you look at and you think, well, that stands out and that looks materially different to to what you would expect, because the cost number seems to be broadly smack in the middle of the range. The impairment number, I think, feels like it's roughly where perhaps previous steering has been. The tax rate looks fairly reasonable. What's sticking out for you that's the gap between consensus and where you think you'll turn out?

Thanks, Robin. I'll answer them both, and Jess may want to add comments as I go along. In terms of the RWA seasonality, yeah, I mean, I think this year will probably feel like a typical year for us where we generally take a very deliberate small step back in capital in Q1 and then we steadily accrete capital in Q2, 3 and 4. You can see we're pretty capital generated from organic profits, 39 basis points of organic profits in the first quarter alone. And I think this year you'll see... So you've probably seen the low point of capital for the year, and I'd expect to see steady accretion from this point on. I think in terms of the RWAs, we did deliberately increase the RWAs, sequential quarters in the CIB, a little bit flattered by foreign exchange, don't forget, so probably overstates the move. The capital allocated to CIB It's probably a better measure because it takes sort of everything to account, currency rates and all the deductions and everything like that. We're slightly down, actually, year on year. And actually even headline RWAs and the CID are slightly down year on year. So quite a typical, but capital should progress upwards from this point on. In terms of consensus, so look, I won't comment on any individual line items, but we feel pretty good with where our businesses are positioned. So if I sort of just go around the houses very briefly, If I look at our UK business, you probably picked up on my scripted comments, that I would expect the UK business to have positive jaws over the year, probably negative jaws in the first half, negative jaws in Q2, but positive jaws over a full year basis. We are growing the balance sheet. Deposits have grown as well, even though we're sort of growing the secured book as opposed to the unsecured book, so you've got a sort of a mixed effect in our net interest margin. And that will feel top line. So, you know, I would expect top line to improve as well alongside those sort of full-year positive draws. I look at CC&P. You know, probably steady growth there. We're growing in sort of mid-single digits on a U.S. dollar basis. And I think with relatively decent risk characteristics. So, you know, we feel pretty good about the opportunities that they're in. CIB. You know, obviously a little bit harder to have the crystal ball on the revenue environment for CIB, but I do think our investment banking fee number for the first quarter was a little bit low, and I think that's the calendar effect. We think we picked up market share, at least according to the deal logic surveys, and, you know, I would expect Q2 fees to be certainly higher than Q1, and the pipeline looks pretty strong. In our sales and trading business, again, a little bit trickier. to forecast, but a lot of other commentators, we haven't given any guidance on Q2, and I've certainly worked on this call, but other commentators have talked about the quarter finishing stronger than it started, and many people have referenced that. I look at the credit lending line, there was a syndicate hedge loss that we called out there, it was about £50 million, that obviously wouldn't be recurring, may come back, may stay where it is, but I wouldn't sort of annualise that. And the final thing I'll say is on the impairment line item, credit conditions look pretty benign at the moment. I've been saying this for a little while yet, but as far as we can see, it looks like pretty good credit conditions both in the U.S. and in the U.K. We look at our watch list. We look at our affordability metrics. We look at indebtedness. We look at delinquencies. We look at sort of spend patterns. It looks reasonable at the moment, so I think we're okay at the moment with that regard. And cost flex. You know, we have talked about, you know, we don't have the crystal ball on the income environment, obviously harder to predict, and we will be able to flex our costs should the income environment turn out in a way we would expect and are prepared to go below our 13.6 billion guidance if necessary. And you've seen us sort of take sort of actions consistent with that in the first quarter. Jess, anything else you wanted to add on that?

No, I would just echo that. When you're facing restructuring like creating a ring-fenced bank or adjusting your legal structure for Brexit or writing a $2 billion check to the U.S. Justice Department, your ability to correlate your expenses with your revenues is less than we have today as this bank is now normalized. So I'd say the main difference between the 9% and the 8.2% is our belief that that we can more align expenses with revenues. Obviously, we view the first quarter investment banking fee to be not a new normal, so we'll expect a recovery there. But then we'll align expenses with revenues and are quite comfortable still with our 9% or better target.

Brilliant. Great. Thank you.

Thanks, Robbie. Could we have the next question, please, Alfredo?

The next question on the line is from Guy Stebbings of Exane BNP Paribas. Guy, please go ahead.

Morning. The first question is coming back to Barclay, UK. Loans and advances in personal banking dropped for the first time, I think, in eight quarters in Q1. I appreciate the lower pipelines of the quarter and the better flows in Q1 you mentioned. But equally, given the step up in new mortgage lending volumes around a couple of years ago, presumably the redemption profile is starting to build. And the market still feels pretty competitive. So should we expect the pace of growth to slow versus last year? And if that's the case, I'm trying to understand where the top-line revenue growth is going to come from in Barclays UK, given the spread pressure we're seeing across personal Barclays card and business banking in the first quarter. Or would you be comfortable with negligible top-line growth if you delivered on positive jewels? So that was the first question. And then secondly, on cost flexibility, If you decide it's necessary to move to below a $13.6 billion cost target, could you talk us through some of the specific actions that you'd be taking in order to deliver that and at what point you would need to make that decision? I think you've referenced compensation costs and the ability to prioritise or delay investment spend. So should we think about this as predominantly flexing the bonus pool in the IB or could there be an impact on investment in payments, digital, things like that? Thanks.

Yeah, thanks, Guy. Why don't I take the first one and Jess can talk a little bit about how we're thinking about cost action. In terms of sort of the balance sheet for Barclays UK, yeah, we had a little bit of a slowdown in mortgage growth in the tail end of last year, very deliberate. We felt pricing was getting too tight, quite frankly, and so we stepped away from some of the products where we saw that, and that sort of therefore did mute balance sheet growth. in Q4, and therefore, again, in Q1. It did grow, but sort of very modestly. I would say application volumes are up considerably in Q1. We have seen pricing improve, at least for the areas that we're most interested in. And therefore, I would expect to see top line grow as a consequence of that as we go through the rest of the year. Obviously, as you're probably aware, the first quarter obviously has a lower number of just days in the quarter. So the NII line is a little bit lower compared to the other three quarters. It's just a function of that. But, Nina, you asked the question sort of would we be comfortable with positive jaws with the negative top line. It's not what I expect to see. I would expect to see positive jaws with an increased top line given the pipeline of assets that we've got coming on and the net interest margins that we have there. Hopefully that's a bit helpful there.

Jesse, you want to talk about the cost line? Yeah. As I sort of alluded to, the new reality now that we've completed the reorganization and restructuring of the bank is we do have a higher component of discretionary investment in that 13.6 to 13.9 cost line. You know, we got together in October of last year and and approve what we call MGI's or our material growth initiatives. And these are investment spends mostly around technology from digitizing or further enhancing the mobile banking app to increasing the algorithms for electronic trading, et cetera. We approved a budget for those in October, began to execute it. We have the ability through the executive committee of pacing that level of spend. So we're going to continue to invest in technology to allow the bank to grow. It's critically important. It's what was sort of not properly attended to a number of years ago. But there is the ability to seek more efficiencies as you make those investments and to pace the speed at which you are making that investment vis-a-vis the compensation line, as we said, you know, we took a pretty substantial charge to net income in 2016 and 17 in order that we could align variable compensation with the profitability coming out of the investment bank. So part of the answer to your question is, you know, let's see where the revenue shortfall comes from. But if it's coming from the investment banking line, I think you would look us to rely more on the variable compensation expense as a management of cost rather than the investment spend. But we have both levers, and we're very comfortable in using them in order to deliver the profitability that we're looking for.

Okay. Thank you.

Thanks, Guy. Could we have the next question, please, operator?

The next question on the line, gentlemen, comes from Ed Firth of KBW. Ed Firth, your line is now open.

Yeah, morning, everybody. I just wondered if you could help me with the capital or the tangible equity allocation to the CIB, because that seems to be going down in the quarter while risk-weighted assets are going up. And I wonder if that is in some way related to the post-pre-tax deductions. How does that actually work? Because I guess given the focus on this number, it is quite important that we understand the drivers.

Yeah. Is that your only question, or do you want to ask both? Yeah, it is. Yeah, no, that's the only one. Okay, very good. you're absolutely right we do it not just on a straight percentage of risk weighted assets we take all of the deductions into account for example prudent valuations and various other things that you're aware of so that's why in some ways the The risk-weighted asset headline moves can sometimes be inflated or deflated by foreign exchange as well. The equity allocations are a much better gauge of where we're allocating capital, and it's very much on a consistent basis. I would say if you look at the year-on-year, so you get a trend view rather than just on an individual quarter view, You'll see an increase in Barclays UK division allocated capital. You'll see an increase in our CCT divisional allocated capital and flat to slightly down bias in CIB and that's kind of how you'd expect us to be operating probably for a period of time. We do want to grow the consumer businesses and the capital in them modestly over time. They're not very capital consumptive businesses but we won't be looking to increase the CIB if anything, probably the flat to downward pressure. But in this quarter then, so what was the, was it a PVA adjustment that changed it? Yeah, I mean, there are a number of items that go through there, but it would have been the capital deductions line rather than the risk credit assets line. PVA would have been one of them, but there are other deductions as well. I haven't got a full name in front of me. Okay. Thanks so much. Thanks, Ed. Can we have the next question, please, Operator? Yeah.

The next question on the line comes from Martin Leitgeb of Goldman Sachs. Martin, your line is now open.

Yes, good morning. Just one question from my side as well, and I was just wondering if you could provide a bit of color in terms of how you're thinking about capital distribution within the wider group, and here specifically Barclays Bank and Barclays Bank UK, so your ring friends and non-ring friends bank, and And I was just looking at the latest disclosed capital numbers here for, and it shows that the ring fence bank is running at a somewhat higher capital level in terms of quarter one and leverage compared to non-ring fence. Is that something you think is likely to continue and would you be able to provide us with the kind of target capital levels you would have for those entities? Thank you.

Yeah, so, yeah, okay. So both the Barclays Bank PLC and Barclays Bank UK PLC, the Barclays Bank PLC is a sort of diversified integrated bank with consumer as well as wholesale businesses, and Barclays Bank UK is our sort of ring-fenced bank. I think given the monoline nature of the UK bank, it will probably run at a capital ratio higher than the more diversified bank. Obviously, we set those capital levels as we would for the whole group, whether it's for our internal stress draws, whether it's the sort of the individual buffers, and, you know, you have the sort of domestic systemic buffer as well that will obviously be higher than where you don't have a domestic buffer in Barclays Bank as a legal entity matter. It's only applied at the group level. So all the sort of technical differences do feed in. So, you know, you'll get those disclosures, I think, on a semi-annual basis, and you're welcome to sort of go through them at that time. I think probably the most important thing, though, to sort of understand kind of as a management matter where we'd want to put capital to work is sort of the response I gave to sort of Ed's question as well on allocated equity. You would expect to see on a trend basis the capital that prescribed to the UK retail and business banking segment increased. And you would expect to see the capital allocated to consumer cards and payments increase on a trend basis. And corporate and investment banks flat to, you know, probably flat with a little bit of downward pressure. And that will just make its way into the legal vehicles in which those businesses operate in. Thank you. Thanks, Martin. The next question, please, operator.

The next question on the line comes from Chris Kant of Autonomous. Chris, your line is now open.

Good morning. Thank you for taking my questions. I had to, please. Once following up on an earlier question, I just wanted to come back to you on this commitment or conviction in the 9% ROTI and what that implies for consensus. So your TNA at the end of the quarter is set at £45.6 billion. That would imply net income for the year, ex-litigation and conduct of 4.1 billion, consensus at 3.7 billion. Are you really telling us that consensus is 10% too low? That's the first question. The second question, I don't think I'm alone in having a couple of gripes around the international division of the construct, in particular the lack of a specific CIV consensus and the absence of certain disclosure items, including the bridge from PBT to the net income you use for ROTI, which we've had referenced a couple of times. on the call already. Now that CCNP is being managed separately from the CIB, for reporting purposes, are you going to start treating CIB as a separate operating segment, please? I think that is what IFRSH suggests you should be doing going forwards. Thank you.

Yep, thanks, Chris. Why don't I take both of them? So without, you know, we obviously have a conviction and a confidence that we can make a 9% return I understand obviously consensus doesn't have the same conviction that we as a management team do, and that's okay. You'll have your own views on the various line items, the sort of question I took earlier, and we'll have our own view. I think the only thing I would say is that none of us will be able to perfectly predict the operating environment over the next three quarters. It may be better, it may be worse than any of our predictions are. We feel we've got enough diversification and enough parts that we should be able to navigate through. We have a degree of confidence that we should be able to get to 9% return, but we don't take anything for granted. To call out, we are prepared to flex costs where appropriate. Things don't pan out in a way you would expect. We can deal with some of those outcomes through the cost flex that we have. I guess Yeah, we have that degree of confidence. We understand that consent isn't there, and that's okay. We won't always have the same outlook. In terms of IFRS 8, so this is a little bit more complicated, I guess. So in the way IFRS 8 works, you're looking at segment managers, and we have two segment managers. We have my boss, Jeff Staley, who's segment manager, For Barclays International, which is sort of very equivalent to Barclays Bank PLC, and we have Matt Hammerstein, who's Chief Executive of Barclays UK, and that's the other segment. So that's our IFRS 8 disclosures. We do go beyond that, of course. We do give our financial analysis beneath the UK segment and the international segment. Look, I take your point for more disclosure in international. We have had some consistent feedback on that, and I know I've been... sort of nodding at people, but I continue to hear it loud and clear and do leave it with us. I don't sort of just listen to it and then sort of ignore it. It is something that we're working on behind the scenes to try and be as helpful as we can. So please don't take it in the spirit of we're not ignoring all of your feedback. It's taken on board and we will be doing something on that.

No, I want to add one more thing, Chris, which is, again, Where Tushar and I sit, we've been living this progression of profitability over the last three years. And so the very valid question when we set the 9% target a little over two years ago was, how do you get from a 5.6% ROTE to a 9%? Last year, we delivered 8.5%. I think the gap between the expectation and what we believe that we can deliver is should be shrinking given the trend line of the last couple of years. You know, the other point that I would make is, you know, we have been, you know, as managers, you know, we're responsible for the culture and conduct of the bank. And then next we're responsible for the risk level of the bank. And only finally the profitability. And with the targets in mind, we have been extremely prudent around taking risks. We have basically flatlined our receivables in the U.K. unsecured consumer credit portfolio, not allowing that to grow a single quid since the referendum. We have been very disciplined in our loan to values around the mortgage book and what we do in the buy to lend space. So very, very prudent on that. Our overall corporate loan book, we've actually decreased. And I think if you look at how we have performed on the impairment line versus corporate credit, particularly in the UK, I think we've done exceedingly well. Of the 100 largest bankruptcies in the UK last year, we only experienced seven of which two were fully hedged. And given that we're roughly 25% of that market, we think that's an outstanding performance. People talk about the levered loan line. We haven't had a single levered loan in the last two years criticized by our regulators. We feel very comfortable and have been quite conservative. You see it in the corporate net interest line this year, the amount of hedges that we placed for the first quarter to keep that book very, very safe. So, you know, the other part of this is if you take, you know, and impairment is a very big number, you know, and the beat last year was quite significant and it's an important number this year. You know, if you keep the credit markets really benign, you can ask yourself, given how we have managed risk, is there room there as well? So you've got risk, you've got cost, and then obviously you've got what we're trying to do around revenues. And I think given the progression of profitability that we've seen and faced of being very conservative as a bank on risk measures, again, that underscores our confidence for hitting 9%.

If I could just push you a little bit more on that and, again, to come back to this earlier question, what is it that you think is wrong in consensus? I think saying that you didn't want to talk about individual line items for 2019 was a bit more defensible in 2018, but we are now one quarter into 2019. You're talking about a challenging revenue environment and flexing costs to offset that, yet your guidance would imply that consensus is 10%. wrong at least. You know, that's based on the 9% number, not the more than 9% number you're targeting. So could I just encourage you to please give us a steer on what it is? As you just referenced the provision line, is that what you think you can beat on versus consensus in addition to managing costs to offset any revenue pressure? Is that where consensus is wrong? Thanks.

Yeah, Chris, I'm not going to sort of say more than perhaps I've already said. We've hopefully given you enough context on how we view the outlook for the businesses. Talked about sort of the UK bank. I think the income will rise. We think we'll have positive jaws. We think CCP continues to grow. We think on the fee business, the investment bank, we think will do better than we did in Q. So I've given you plenty of sort of context there. I think the credit environment does feel benign. I'm giving you some sort of seasonal view that CCT impairment will be sort of low point for being Q1, high point of being Q4, and there'll be a sort of trajectory in between. But, you know, delinquencies and various other forms of sort of credit stress indicators look very well controlled. And then we have, you know, a range of outcomes that we could execute on our cost line. So I don't want to sort of get into, you know, this line item in consensus is different or anything like that. I think, you know, you guys can can take your own views based on all that sort of commentary and have your own outlook, and that's okay. None of us have the perfect crystal ball on this.

The other thing I might just add is, again, we have gained market share four quarters in a row in one of the biggest revenue pools of the bank, which is our capital markets markets activities. And I think there is a going on in the street, a reallocation of capacity in the flow businesses around equities, credit rates and currency that's going on in the industry. I think we've benefited from it over the last year and a half.

Okay. Thank you. Can we have the next question, please, operator?

The next question on the line is from Robert Noble of RBC Capital Markets. Robert, please open your line.

Morning. I was just wondering how low are you willing to push the cost-income ratio in the investment bank if the revenues are weak? And as you stand here looking at April as it's going now. Is the environment sufficiently recovered to stay within 13.6 to 13.9 at the group level, or is it more likely you're going to come in below that?

Thanks. I'll start with this one, just something I want to add. So, look, I'm not going to give guidance out for Q2, so I won't sort of talk specifically around April. I think, look, in the CIB I think Jess has sort of covered it, but it's essentially a paper performance type environment and we have the ability to reflect the decisions we make around variable compensation in the year in which those revenues are booked as well. We'll only make those decisions as we get to the full year, but I guess you're seeing this quarter a real conviction here that we will pay for performance, and if performance is good, we'll pay for it, as we did last year, and if performance isn't good, then we won't pay for it, which may have been in first quarter, and I'm not sure there's much more I'd add to it than that. Thanks. Thanks, Robert. Can we have the next question, please, operator?

Our final question today comes from Andrew Coombs of Citi. Andrew, your line is now open.

Good morning. I'd like to add to on international... Revenues, please. First on U.S. cards and second on the equities business. With respect to U.S. cards, you helpfully have given the disclosure again that 70% of the partnership is covered until 2022, which obviously on the flip side means that 30% is not. And one would assume that the majority of that presumably relates to the former Apple contract. Obviously, Apple Card has recently launched. So, I'm interested to see if you think this is a potential headwind to your U.S. card growth. Is there a risk of your existing customer base switching onto the new Apple product? And my second question would be with the equities franchise. One of the areas of the bank which did see a lot of success last year, you took quite a bit of market share. I don't like to judge too much from a single quarter, but if I look at Q1-19, I think you're down 26% year-on-year. It's slightly worse, not a lot worse, but slightly worse than the U.S. peers and the Swiss peers have reported. So is that just a function of business mix? I know you draw out derivatives in particular as being softer. So I'm interested in any comments you have there. Thanks.

Thanks, Andrew. I'll start with them and Jess may want to add again. Yeah, the Apple portfolio, it's a different portfolio. So the launch of the new Apple product is really the Apple Pay card, sort of embedded within the phone. That's a separate and distinct product offering than our business. Ours is much more of a point-of-sale finance business, and they don't necessarily overlap at all. You know, the Apple Pay product is all about encouraging you to use Apple Pay and getting cash back in a low APR and what have you. Ours is financing the purchase of Apple products in the stores and various other channels that you buy those Apple products in, both UK and the United States. We do have a rewards card that we've had in the past, but that was, again, linked to the point of finance there in business rather than... sort of the Apple Pay card that's recently been launched. So, again, don't sort of conflate those two different things. We have a very good relationship with Apple. I've been a partner with them for a number of years. And, you know, I think if you look at some of the interesting stats, if you look at – I don't have these to hand, but something on the lines of one in, I don't know, five or something like that, iPhones that are purchased in the U.K. are sort of financed or are quite a self-financed business there – We'll get the exact stat, but it did something around that level, just to give you a sense of how embedded that sort of financing channel is, that's distinct and separate from the Apple pay card. On equities, the only thing I'd remind you, Andrew, is there's other things on the credit card side.

And the point of self-financing, Apple was very clear to keep that separate from pay cards that they negotiated with Goldman because of the service that we provide there. The one hit that we did face, which again was a conscious decision because we didn't like the profitability profile and the risk profile, was LL Bean. So that was one of our co-brand cards that we did not renew. And what you've seen in our FICO scores, how high they're going, focus really has been on the airline co-brand cards, which led to the growth you saw and ultimately to the improvement of profitability year over year in the first quarter of 20% in the U.S. card, which I think is something that we should call out. We like the co-brand space. We also, going back to one of the first questions on the call, we like what the co-brand space potentially means to us around payments and the global platform, but more on that later, and then, Tushar, you want to go back to Catherine?

Yeah, yeah, no. Yeah, more to come, I guess, on that. You see, on sort of the equities business, the only thing I'd remind you, Andrew, is that We've probably had a slightly more difficult comparative period in Q1 2018. I think our revenues are up from like 40% if you go back to the Q1 disclosures. So I think I would characterize it as broadly in line with our US peers on a dollar basis. It actually feels okay to us given that it was equity derivatives that felt less buoyant this quarter than it did last quarter. So all other, whether it's financing, cash, et cetera, I think we held our own quite well. So we're actually quite pleased with that performance, and obviously we did very well in BIC relatively, which is also pleasing. But nothing more than that, I'd say. Okay, I think that's it. So thank you, everybody, for joining us, and hopefully we'll get to see some of you in person in between now and the interims. So thank you.