Barclays PLC

2019 was another year of progress for Barton. We continued the positive momentum across our businesses, and this allowed us to increase returns to shareholders. We have delivered a 9% return on tangible equity, and we will pay a dividend of nine pence per share, three times the dividend level in 2017. Our common equity tier one ratio stands at 13.8%. above our target at around 13.5%. Income was up 2% on the year. We've maintained our cost discipline, reducing operating expenses to below 13.6 billion pounds. This combination meant we improved our cost-income ratio for the third consecutive year to 63%, with positive jobs across all operating businesses. Profits before tax including litigation and conduct, with 6.2 billion pounds for the year, with a profit of 1.3 billion pounds in the fourth quarter. Earnings per share was 24.4 pence. This sustainable performance is grounded in our diversified model. Our income is generated across a mix of customers and clients, products, geographies, and currencies. As a result of the counter-technical benefits of our consumer and wholesale mix, our business is resilient through an economic cycle. 45% of our income comes from outside the United Kingdom and 47% of our income comes from our consumer banking and payments business. We have delivered on our target ROTE for 2019 and our focus on continuing to improve returns to the group. Barclays UK and our consumer cards and payment businesses are consistently high-returning at 17.5% and 15.9% respectively for the year. We continue to make good progress with our digital strategy in Barclays UK. More people than ever are now using our top-ranked banking app, with over a million more customers active on mobile than we had last year. We also fully integrated Barclays card accounts into our banking app during the year, so that our customers can now access even more of our products in one place. Investment in our capabilities is enabling us to improve the client experience and increase efficiency across our cards and payments business, strengthening existing relationships and helping us to build new ones. We just partnered with Emirates Airlines, the world's largest international carrier, to provide a new co-branded credit card to U.S. consumers this spring. This is a great growth opportunity for partners and adds to the strong and profitable partnerships we have with top brands in the U.S. like American Airlines and Uber. We've also recently signed a new European agreement with Visa, which will help us expand into new markets and invest in developing faster and smoother payments for merchants and consumers while maintaining the protection and security that our customers and clients expect. In the UK, we've joined up with British Airways in an exclusive deal to reward our premier banking customers with obvious points earned if they do more business with Barclays. We believe there are good opportunities to unlock further growth across the consumer banking and payments landscape, building and deepening relationships in the UK growing our partnerships and new propositions in the U.S., and strategically expanding in Europe. Looking at our corporate investment bank, we are pleased with our progress. Despite a 6% decline in the industry wallet across markets and banking since 2017, we have grown revenues in those businesses by 9% over the same period. That has underpinned a 230 basis points improvement in returns across the corporate and investment bank as a whole. Our top tier market business has gained 90 basis points of share since 2017, over nine times that of our closest European peer, and comparable to the highest gain in U.S. banks. And our banking franchise saw 10 basis points of share gain just last year, with many of our European peers seeing their share decline giving us a ranking of sixth globally for the first time, and more importantly, we are fifth in the U.S. We added some significant marquee deals in 2019. Barclays is acting as an exclusive financial advisor and lead financer for Danaher in its $21.4 billion acquisition of the biopharma division of GE Life Sciences, the largest ever acquisition in the life science tools market. We were also acting as corporate broker, financial advisor, and sponsor to the London Stock Exchange and its 27 billion in pending acquisitions for benefits. As part of that deal, we were the underwriter, book runner, and facility agent on branch facilities totaling $13.5 billion. In corporate banking, we have been driving returns through a careful focus on the return profile of each client. Balancing the capital committed in lending with the amount of transactional banking business a client does with us. As a result, we have seen a 90 basis points increase in 2016 in return on risk-adapted assets. We continue to manage our capital holistically across the corporate and investment banks, dynamically adapting our capital allocation to match our opportunities. The 8% return for 2019 is not yet where we believe it should be, but represents real progress. The profitability and cost efficiency of our model means that we are also sustainably creating the capacity to grow. We are focused on growing fee-based, technology-led annuity businesses with lower capital intensity. There are three areas where we have a significant customer base and believe we can differentiate Barclays over the next three to five years. Firstly, payments, we are in the unique position of being a bank with merchant acquiring, card issuing, and supplier payment capabilities. That means that we issue debts and credit cards to consumers, provide businesses with the ability to accept payments in-store and online, and we help clients make payments to suppliers as they order goods and services. This ability to see the payments landscape from all sides Alongside the significant investment in technology we have already made, great opportunities to deliver real value to our corporate clients to consumers. We helped one of the largest UK insurance clients realize millions of pounds worth of additional online customer transactions simply as a result of the improvements we made to their payment routes. Those improvements were powered by the insights we get from machine learning, against the large data set that comes from seeing every stage of the payment process. We're also connecting to the procurement system of our clients, taking out time and cost by limiting paper and manual property, while giving access to working capital. We see good growth opportunities to build our leading payment position in the UK. Only around 25% of our 1 million UK small business customers use our payment services today. So there's a significant opportunity to grow here. One of the ways we're doing that is by moving to digital application and onboarding, which will reduce fictions for small businesses and make signing up much more efficient. And we're embedding our payment acceptance capabilities in the software of third-party partners, which is helping us to scale much faster. We're also looking to further expand our European payment system. We recently signed a major client to our new European-wide payment acceptance proposition, supporting their entire UK and Europe business with thousands of new payment terms. Secondly, we're growing our transaction banking proposition in corporate banking, everyday fee-based banking services. We're continuing to expand the proposition across Europe with our single platform now live across seven of our nine hearted European countries. We added 360 new European clients in 2019 without the expense of bricks and mortars, which has helped us to grow to over 10 billion euros in our European deposit base. Improved client coverage and increased integration with our payments business and FX team is also helping to grow and diversify our income, as well as deepening the relationships we have with our corporate customers across more products. We now have over $500 million in fee and commission income from transaction banking and are targeting 5% to 10% annual growth rates in that number over the next few years. Thirdly, we see a significant long-term opportunity to grow our UK wealth, advice, and investment platform. We want to bring an integrated digital first experience across banking, financial planning, and investments to over 1 million of our existing premier banking customers. We're just beginning a multi-year program to transform our smart investors and wealth management businesses, building fee-based income with low capital intensity. We already have some 24 billion pounds of assets under management with good growth potential as we deliver this integrated platform. These are all areas that can increase our profitability without significantly increasing capital deployment, enabling us to further diversify Barclays without limiting our commitment to the businesses we're already in, or our capacity to return more capital to shareholders. In summary, we were pleased with our continued delivery in 2019, which again demonstrated the strength of our strategy to be the British Universal Bank. We know that our success over the long term is tied not just to sustainable financial results, but to the progress of our communities and the preservation of our environment. We are committed to playing a leading role in the transition to a low-carbon economy and are actively engaged in conversations with all of our stakeholders to ensure we make the greatest difference. In 2019, we achieved our 9% return target and increased returns to shareholders, while remaining in line with our target CFE1 level. We have a good control of our costs, both in absolute terms and are still improving cost-to-income ratios. we continue to believe that it's appropriate to target a return of greater than 10%, and we are managing our business to achieve just that. Given the low interest rate environment, however, it has become more challenging to achieve a 10% return this year. Nonetheless, we are confident that Barclays is well-positioned and will further improve returns immediately in 2020. We expect future earnings to drive increased returns to shareholders, as we anticipate a significant reduction in charges related to litigation and conduct from this year onwards. We intend to pay a progressive ordinary dividend supplemented with additional cash returns to shareholders, including share buybacks, as and when appropriate. Through continued cost discipline, we will also increase the capacity to invest selectively across our business, including the opportunities I've just outlined. Barclays is in a strong position. well-placed to face the challenges and opportunities ahead, and we look forward to delivering for all of our stakeholders in 2020 and beyond. Now I'll hand you over to Tushar, who will take you through the numbers in more detail.

Thanks, Jeff. I'll begin with a quick summary of the results for the full year and then focus my comments on Q4 performance, our cost trajectory, and our capital position. We reported a property for a tax of $6.2 billion, generating 24.4 pence of earnings per share, excluding litigation and conduct. up from 21.9% in 2018. This delivered in ROTE is 9%, the third consecutive year of underlying ROTE progression, and in line with our target for the year. As Jake mentioned, we still believe that about 10% is an appropriate target for Barclays over time, but achieving this in 2020 has become more difficult. We are nevertheless confident of reporting meaningful year-on-year progression in ROTE for 2020. I include litigation and conduct charges in my commentary as usual, but following the PPI provision of 1.4 billion at Q3, we hope that in future there will be less need to discuss the gap to statutory profitability. In 2019, this gap was largely due to the PPI provision, which resulted in a statutory EPS of 14.3 pence. The residual PPI provision is 1.2 billion, and we are well advanced with progressing the last volume of licence receiving Q3 in the run-up to the deadlines. We grew income 2% year-on-year with growth in CIP and PCP and income held up well in Barclays UK despite the challenging rate and margin environment. Costs are down 2% delivering positive tools both at the group level and in each of our operating businesses. At just below $13.6 billion, costs are in line with our guidance for the year. Cost control will remain at 1%. existing targets delivering a top 50% cost-income ratio over time. The reduction in the year from 66% to 63% represents good progress towards this. Impairment was $1.9 billion up on last year's charge, which benefited from improved macroeconomic variables, but credit metrics remain broadly stable across both secured and unsecured portfolios. We ended the year with a capital ratio of 13.8%, close to 60 basis points year-on-year, reflecting the change in treatment of operational risk at Q3. Our underlying capital generation more than offset the litigation and combat headwind of close to 60 basis points, allowing us to pay a significantly increased dividend of nine-tenths. We are comfortable with our capital target of around 13.5%. Although our capital ratio will go backwards in Q1, we are confident of generating capital in 2020 to fund increased return to shareholders. Looking now at the fourth quarter, income increased 4%, reflecting improvements across all the operating businesses. The cost rate of 3.5 billion was down 9% and reflects substantial cost-efficiency measures across the group, including the lower bank levy charge, which resulted in positive yields of 13%. Contentment was 523 million, down 120, reflecting non-recurrence of the 115 million for economic uncertainty in the UK, which we took in Q4 last year and remains in place. Credit metrics remain reassuring, with improvements in arrears in UK cars and flat arrears in US cars. Improved Q4 performance contributed to our delivery of the full-year ROTE of 9%. Looking at the businesses in more detail, starting with the UK. The UK reported an ROTE of 18.7% for Q4, with income up 5%, despite the challenging income environment. while COPS decreased 8%, delivering strong positive draws for both Q4 and for the fourth year. As in recent quarters, we had lower interest earning lending in UK cars, continuing to reflect reduced risk appetite and high customer repayments. This was more than offset by the benefits of Treasury operations and debt sales. As I mentioned at Q3, our debt sales this year were concentrated in Q4, but would more normally be spread across the year. In personal banking, we saw continued growth in mortgage balances, up a further $1.9 billion in the quarter, as our flow again exceeded our stock share. Although mortgage pricing remained competitive, we saw some margin improvement in the quarter. In market class, balances were down $0.2 billion, as in Q3, to $14.7 billion, reflecting both our risk appetite and balance paydown. As I indicated at Q3, NIM was just above 300 basis points at 303, resulting in a full-year NIM of 309. This reflected our growth in secured lending, and I would expect that to continue in 2020, resulting in a NIM below 300. The combination of these factors and a low-rate environment would suggest a 2020 income run rate below the Q4 level. The cost decrease reflects efficiency savings, which more than offset continued investment, particularly improved digital capabilities to serve our customers. Cost management will remain a priority in 2020, given the income environment, but we won't delay key investment spend, including branch optimisation, which will benefit the digital transformation of the UK bank, and this year I would expect that spend to be skewed towards the first half. Benefit for the quarter was down year-on-year because of the one-off in Q4 last year that I mentioned, but up on the low Q3 print at $190 million. UK carbon instances were down slightly and other credit metrics are benign. As we look forward, the 200 million run rate we've referenced in the past is looking too high, absent significant deterioration in the economic conditions. Turning now to Barclays International. The BI businesses delivered an ROV of 6% for the quarter compared to break-even last year, with improvement in both CIV and CPT. I'll go into more detail on the businesses on the next few slides. Although Q4 is seasonally the weakest quarter for the CID, ROPE was 3.9% compared to a small loss last year, contributing to a full year ROPE of 8%, up from around 7% in 2018. Income was up 8% at 2.3 billion, while costs were down 9% at 1.8 billion, delivering strong positive draws. Market income included a gain of $55 million on TradeWeb, and a 37 million negative from CBA catching net of treasury activities. It had a good quarter of 27% reflecting strong performance, particularly in rates. Ex-keys increased 9% despite a lower contribution from derivatives, as cash equities and ex-keys financing reported year-on-year growth. Overall, market income was up 20% year-on-year. Banking was down 7% against our record key fall last year, as our stress before the timing of deal completion can make the banking line quite lumpy from quarter to quarter, but we're happy with the way the franchise is developing. The corporate income line is down 9%, reflecting market moves on loan hedges. We reduced GID costs by 9%, as cost efficiencies outweigh continued investment in the business. And going forward, we will clearly be aiming for positive tools, adapting the cost base to the income environment. RWA decreased by over $13 billion in the quarter to $172 billion, but was similar to the $2 expect an increase through Q1, which will include the new securitization rules introduced on the 1st of January, as well as these analyses. Sending out consumer cards and payments. We continue to generate attractive returns in CCP, with a Q4 ROV of 15.3%, up from 5.4% in the Q4 last year. Income increased year-on-year by 6%, reflecting improved Treasury contribution. You'll recall that we disclosed a 16 million negative last Q4. The costs were down 10% resulting in strong positive draws. The US card would continue to increase the focus on the co-brand portfolios of scaling back own brands. This resulted in overall growth in net receivables of just 1%, but within that the co-brand balances increased 3% year on year. At this stage in the US economic cycle, I think growth in the co-brand balances is likely to be in mid to high single digits per annum, but overall balance growth will be lower. We also felt some income growth in Germany and in private banking and payments. As Jeff mentioned, we are particularly encouraged by the outlook for payments growth following the major investment in systems we've made over the last few years. Reduction in costs also reflects the refocusing in the U.S. consumer business as we scaled back our own brand offering while continuing to invest in other areas. Payment was slightly down year-on-year at $299 million and down on Q3, which you will recall included a $30 million increase from macroeconomic updates. Credit metrics also remain well-controlled, with not much movement in the 30 and 90-day arrears. Turning now to head office. The head office loss before tax of $167 million was a little higher than the Q3 loss of $116 million. The delta is largely attributable to the after-dividend, which we receive in Q1 and Q3 each year. Costs continue to run in the $50 to $60 million range, while the negative income reflects the main elements I referenced before. and the residual negative Treasury items. There are also some negative income in Q4 from the sale of close to $1 billion of our Italian mortgage portfolio. Now I want to focus a little on costs. We delivered on our cost guidance in 2019, and although we aren't selling fixed cost guidance for 2020, we are very focused on delivering positive juros in order to drive the group's cost-income ratios to top 60% over time. Through cost efficiencies, we have delivered an absolute reduction of $1.4 billion over the last three years, while continuing to invest in key business initiatives. Together with income growth, we've generated a 9% point reduction in the cost-income ratio. Looking at a bit more detail at these cost-efficiency actions, I've shown here some examples of the productivity gains that our third code, BS, has been driving over the last two years, under four main categories. For example, in procurement, the Expo has delivered an 11% reduction in suppliers since the end of 2018. On the real estate front, we've cut over 1 million square feet of floor space, while creating new campuses in New Jersey, Pune, and Glasgow. Overall, these savings totaled around $550 million in 2019, and many of the actions are ongoing through 2020, so we expect to drive further significant costs for capacity creation. The result of this is that we are spending less on run-the-bank costs and more on change to banks. For example, between 2018 and 2020, we expect to reduce costs allocated to mandatory regulatory controls by a third. Key now decreased in the quarter by 12 pence to 262 pence, full slack on 2018 despite a currency headwind. Key 4 included a negative currency impact of 7 pence, another reserve headwind of 6 pence, reflecting revenues and credit spread tightening. These more than offset 4 pence of EPS. As you know, the sterling dollar rate has been volatile over the last couple of quarters, with a significant benefit in Q3, followed by the Q4 headwind. There have also been material growth moves, with increases in the quarter, or reductions since year end. The capital progression, by contrast, was a positive story. On capital, the CP1 ratio increased in the quarter by 40 basis points to 13.8% Although Q4 is our seasonally weakest quarter for underlying profitability, we still generated 28 basis points, more than offsetting the 18 basis points applied to dividends and 81 coupons. The other contributor to the increase was the significant reduction in RWA. This is mainly due to depreciation of the dollar, capital friction action, and the seasonality at year-end in the CIB. I would remind you that the RWA reduction from the weakening of the dollar is broadly hedged by the move in the dollar to Q1 capital. Looking on the next slide at our capital requirements, a year-end CQ1 ratio of 13.8% is comfortable against our target level of around 13.5%. As you know, CQ1 tends to be our weakest quarter for ratio build, and I would expect a lower capital ratio at 31st of March, reflecting both the seasonal build in RWAs and the increase in securitisation RWAs that came in on the 1st of January. Nevertheless, we remain confident about capital generation from our businesses, despite the increase capital bills will be held over the next few years by the lower pension deficit contributions agreed with the trustee following the recent tri-year valuation. It showed a significant reduction in the funding deficit to $2.3 billion. These are the details in the next slide. As you know, our capital returns policy is to combine aggressive dividends with share buybacks as and when appropriate, but we won't be saying anything about the precise timing and quantum of buybacks until we are ready to announce one. We show on this slide our current capital requirements, and also an illustration of how this might change to reflect the expected counter-cyclical buffer increase indicated by the Bank of England. There is expected to be some reduction in the PIL-SUA requirement, but overall it would increase our MBA hurdle, all other things being equal. So for many times, we look at capital through a number of lenses, and our target level isn't only based on the buffer over MBA. We wouldn't see this change increasing our target capital level of around 13.5%, and we don't see it severely affecting our capital distribution plans. Our UK leverage ratio at the end of the year was 5.1% on the spot basis and 4.5% for Q4 on the daily average basis. These are prudent levels for us to hold above our UK leverage requirement, which is currently just below 4%. With the material portion of our exposures being short-term or liquid in nature, we have proven our ability to manage our leverage exposure dynamically. Our spot and average measures will generally be wider apart than most UK tiers, which have less flexibility and more static leverage positions. But also note that we expect the implementation of CRR2 to provide a meaningful benefit to our leverage position, given our level of settlement balances and the effect on derivative exposures. Our funding and liquidity position remains strong. We issued $8.6 billion equivalent of MREL debt in the year, broadly in line with our plan to issue around $8 billion. We plan roughly 7 to 8 million in the current year. Our MRL is currently at 31.2%, in line with our expected end requirement. We're also pleased with the recent rating upgrade from Moody, which has moved our tier 2 debt up to investment grade. Our liquidity coverage ratio was 160% at the end of the quarter, and our loan-to-deposit ratio was 82%. Before I conclude, a few words on ESG, which is rightly becoming an increased focus for both our investors and for other stakeholders. Our key principles on ESG are guided by a core objective of delivering sustainable returns for the long term. This slide shows a number of key 2019 highlights in this area. With the publication of our annual ESG report in March, we will be providing information on how we take in a leading position on climate change and the transition to a low-carbon economy. As well as enhanced climate-related disclosures to supplement our outwardly extensive environmental, social and governance reporting. Special recap. Reporting an ROPE of 9%, including litigation in conduct for the year, is possibly fewer than 4%. We still believe that about 10% is an appropriate target for parties over time, but we acknowledge that achievement of this in 2020 has become more difficult. We are nevertheless confident in reporting meaningful year-on-year progression in ROPE for 2020. This progression remains a key priority for the group, while also delivering attractive capital returns to shareholders and investing in key business growth opportunities. We've made a dividend of 9 pence a year, up from 6.5. With our fee-to-earn ratio at 13.8%, against our target of around 13.5, we are well-placed to generate capital to fund increased distribution to shareholders. Thank you. I will now take a question, and as usual, I'd ask if you limit yourself to two per person So we get a chance to get around to everyone.

If you wish to ask a question, please press star followed by one on your telephone keypad. If you change your mind and wish to remove your question, please press star followed by two. When preparing to ask your questions, please ensure your phone is unmuted locally. So confirm that star followed by one to ask a question. Our first question today comes from Alvaro Serrano of Morgan Stanley. Please go ahead.

Good morning. Thanks for taking my questions. You're clearly quite confident, as you said, to deliver a meaningful improvement to ROT this year. I've got two questions related to that. First of all, in the ID, what kind of revenue environment are you factoring in or do you expect? Can you give us a handhold of a bit there? Because obviously FIC – It was very strong last year. You had guild gains in there. You had trade web gains. So it seems like you might have some revenue headwinds. So what kind of revenue environment would you expect given the start of the year? And second, I had a question a bit more color on costs related to the flexibility you've quoted. I'm not sure if you can give us the comp ratio that you gave us last year in the ID, but if not, a bit of color around what are the non-comp trends last year and what should we expect for 2020 and where you retain that flexibility.

Thank you. Thanks, Alvaro. It's Tushar here. Why don't I kick off on both of them and Jess will add a couple of points at the end. I think the backdrop of your question, generally speaking, is where do you see our returns improve from here? What are the drivers? And I know you sort of focused in on the investment bank, but it may be helpful if I just sort of give you a backdrop of some of the momentum that we've got across all of our businesses. And there's puts and takes here and you'll model it obviously as you see fit. But we're pleased with some of the momentum in our UK business, pleased with the mortgage growth, pleased with deposit growth. We have seen a little bit of stabilisation of interest margin in the mortgage business and we hope to continue to grow balances there. I think the other thing that we're seeing is probably some softening, continued softening, I guess, of our unsecured balances, but against the backdrop of a relatively benign credit environment. You may have picked up from my comments, my scripted comments, that our impairment guidance is probably a bit higher than we'll expect to see. Within the CID, we are pretty pleased with the performance that we've had this year. And actually, I don't think it's just talking about one year. It's really over three years where you've We've shown a slide that's had our revenue performance improve against the backdrop of a consistently downward industry revenue backdrop. None of us have the crystal ball on which direction revenues are going to go in this year or beyond, but what I would say is that even in a down market, you've shown us able to improve the returns and the profitability in the CID over three years, and just away from sort of pure investment banking revenues where, you know, you've seen our market share improve and we've published some stats around that. You've seen the risk-weighted assets, return on risk-weighted assets in the corporate bank improve. You've seen us talk about some of the momentum that we have in transaction banking, particularly in Europe and some of the growth we expect to see there. And likewise in the cards business, I think you'll expect us to see, I'm talking about US cards here, continued growth in balances and therefore profitability. On the cost side, again, the broader backdrop is disciplined cost management. We've had our costs reduced over a number of years now consecutively in pound sterling with everything included in there. In terms of the comp pool around the investment bank, we haven't published that ratio, but what I would say is that we did talk about having comp flexibility to ensure that we could flex our cost base to the income environment and of course you've seen that the investment banking industry share is down year on year and you'd expect us to sort of factor that into the compensation awards that we would have. Trends around non-comp, you know, we put a slide out there on a whole bunch of activities that we have going. whether it's in real estate, whether it's in the use of suppliers, whether it's decommissioning applications. And, you know, we showed that we had about over £500 million of gross productivity. We continue to see momentum on those initiatives and new ones going into 2020 and beyond. And, again, that would give us flexibility to manage our cost base accordingly, you know, depending on the environment that we're in. The final comment I'd have before Jess may want to add some things is You know, positive operating leverage is important for us. We're pleased that we've got positive operating leverage across all of our businesses this year, both in the quarter and for the full year. And, you know, we'd like to continue to drive our cost-income ratio down, so that's something that's quite important to us.

Yeah, well, maybe the only thing I'd add is, you know, for a longer-term view, my own point of view, the sheer size of the capital markets continues to grow, and the capital markets continues to... to replace bank balance sheets in terms of funding economic growth. Current with that, you have seen capacity lead the intermediary space as banks have pulled back. Those two factors at some point, I think, should start to have an impact on the overall revenue characteristics of the intermediaries in the capital markets.

Thank you. Appreciate the question. We have the next question, please, Alfredo.

The next question comes from Jonathan Pearce of Numis. Please go ahead.

Hi there. Can you hear me?

Yeah, I can hear you, Jonathan.

Perfect. Two questions, please. First one on your equity tier one trajectory in the first quarter. Last year, about a 20 basis point drop in the first quarter, IFRS 16. It was obviously impacting there a little bit on the neutralisation of share awards and so on and so forth. Is that what you're expecting, maybe a touch more, because I guess a securitisation add-on is a bit more than IFRS 16, but is it that order of magnitude in Q1, a sort of 20, maybe 30 basis points max drop in the XCTO1 this quarter?

Yeah, have you got two questions or anything? If you have, we'll take them and I'll do them in one shot.

Yeah, the other one was connected, actually, risk-weighted asset growth more broadly over the year, how do you see the trade-off this year between organic growth and securitizations, mortgage add-ons? Can you give us a bit more color on that? I also note that it's probably connected to the improved impairment performance as well, that the asset quality movements appear to be negative now. So I'm just wondering, in a balance this year, pro-signicality, growth, regulatory add-ons, How do you see RWAs moving over the full year as a whole, please?

Yeah, no, thanks, Jonathan. So on the, if you like, near-term move on CT1, you're right. We will have, obviously, we called out the securitisation inflation, just the change in the regulatory rules there. That will flow through as well as the regular seasonality that you would expect, Q1 being typically quite often the most profitable quarter. It isn't always the case. You sort of said, you know, 20 basis points last year. Is that a sort of similar thing to think about this year? I'm sort of reluctant to quote a number, but it's not unusual to see that kind of move in Q1. So, look, I'll let you sort of model that as you see fit, but, you know, I don't think you'll be that far off the mark there. In terms of RWA sort of evolution over the year, in terms of regulatory inflation. The other one in the pipe you called out, which was mortgage risk weights, and we sort of guided to that, no changing guidance previously. Again, low sort of single-digit type impact. Beyond that, you know, I don't think we'll be utilising a lot of RWA inflation to fuel sort of the business activity. You know, it's pretty modest in both the consumer businesses. And in the CIV, you know, it'll sort of bounce around over the course of the year, but I don't expect much significant growth. So I think if you're sort of in a roundabout way thinking about how much profitability gets absorbed by sort of reinvesting onto our balance sheet, you know, I don't think it'll be significant compared to sort of previous years outside of the regulatory inflation that we've sort of talked about.

Okay, that's great. Thank you.

Thanks, Jonathan. Can we have the next question, please, operator?

The next question on the line comes from Claire Kane of Credit Suisse. Please go ahead.

Good morning.

Claire, you're a little bit hard to hear. I don't know if you're far away from your speaker.

Yes, sorry, I'll speak up a bit.

That's better, thank you.

So, Barclays UK, on the income of Q4 2020, was a bit higher than maybe the other quarters. And you mentioned the Treasury gains and the debt sales. But if we look year on year, non-interest income was up 110 million. So how much of that would you assume is sustainable? Do you think that the full year 19 print is sustainable for 2020? That's my first question. The second question then on costs for Barclays UK, you mentioned the investment spend. Can you give us an indication of how the investments spend for 2020 as compared to 2019, and if we should expect absolute costs to be higher in the first half 2020 than the second half? Thank you.

Yeah, thanks, Claire. Yeah, in the UK, we did call out debt sales. Don't sort of confuse these with sort of debt sales from our liquidity pool. These are just selling... low-rated receivables, essentially, that we do as a regular part of business. I'd encourage you guys not to sort of think of that as a non-recurring item. It is a recurring thing we do every year. Just so happened in 2019, the bulk of it was actually in Q4, so it sort of squashed up together a bit. But if you go in previous years, it's normally more evenly across the quarter, and it's just a regular thing we do every single year. So, you know, I'll let you sort of model the line with everything else that's going on there, but, you know, I wouldn't be stripping out too much in terms of a one-off impact there, if any. In terms of... Is it sustainable? Yeah, yeah. I mean, we think... Look, I think the headwinds that we have in BUK is mostly the rate environment. So, obviously, with a lower flatter curve, Some of the hedges that we have on place are just mostly going to be less meaningful than we had in the previous year, and I sort of called that out in earlier calls. I think on fees and commissions, you know, things like debt sales and other things would – you know, I wouldn't sort of think of them as the non-recurring. The only other thing I guess that – if you really wanted to get into the micro-ease of modeling, just be a little bit careful about his overdrafts. Sort of switched around a bit from fees into net interest income again. So, I mean, it's sort of a broadly offsetting, but the geography may be different. I just have two things on the cost issue.

One is, as we move from spending all of our money to run the bank to having the balance of run the bank and change the bank, what that does give us, and I think we did some of it in 2019, is more control over our cost line. And obviously, we want to invest for the future and for growth, and we will. But discretionary spending, you've got greater control to manage that during the course of the year. And I think the other thing we showed during this year is variable compensation is variable. And so we're going to match our costs and our compensation management through the course of 2020, much like we did in 2019, was very much a focus on the profitability of the bank.

Yeah, and just to round off that point, you asked about the shape of the UK costs. We'll be front-loading, I sort of called that out in my descriptive comments, so I do expect a higher cost trajectory in the first half relative to the second half, and that's really because of the sort of investments then that we have around managing our real estate footprint as well as some of the digitisation activities going on. So if that's of any help in your modelling. Thanks for your question Claire. Can we have the next question please operator?

The next question comes from Joseph Dixon of Jefferies. Please go ahead.

Hi. Thanks for taking my questions. I guess a couple of things. So, first of all, what are the milestones you need to see to gain more comfort around, for lack of a better word, certainty on the UK to release the overlays you've taken? Because it's hard to see in the macro backdrop. Yeah. anything getting worse. If anything, surveys point to the contrary. So what are the milestones you need to see in the timing associated with releasing some of the overlays you've taken as a result of the uncertainty? And I suppose in a somewhat related manner, if I look at the top two lines of your assets on the balance sheet, the cash and cash equivalents have been moving up quite a bit, and they're now 20% of tangible assets. And that's also seems the timing of the increase in those seems to have also corresponded to the post-referendum world in the UK. So you've hit yourself both ways, both in terms of having cash and the success liquidity and then the impairment overlay. On the balance sheet angle, do you see this number coming down over time also as some of the certainty comes back into the picture? And is this just what What is it we need to see and look at as a milestone for those things to unwind? Thank you.

Yeah, why don't I cover those two, and I may hand over to Jeff to maybe talk about just the – how he sees the UK environment generally, which I think is the sort of crux of your second question. On the impairment overlay, I mean, just for those that – may not be familiar, we did take a charge in the fourth quarter of 2018 of $150 million related to sort of uncertainty around the future sort of economic forecast around that period, given all the political uncertainty and the sort of very sort of past dependency of where the UK economy may have gone. And we've kept that provision in place right through to 2019. I think, Joe, I'm not sure there's a sort of a numeric quantitative trigger point to your answer that I'll call out. What I would say is that, you know, as we each quarter assess whether we think we have a better, tighter set of external data to project our forecasts on, there'll be less and less need to have that uncertainty overlay, and that's just an assessment we'd make every quarter. On the liquidity on our balance sheet, I mean, you're right, it's driven by customer behaviour, a lot of cash being left on our balance sheet rather than demand for credit. You see that particularly in sort of small business and sort of corporate-type activity. You know, it's worth saying that sentiment, I'd say, has... qualitatively feels better. I don't think you could say that's transmitted into actual change in demand for credit or a drawing down of those cash balances into credit assets. But, you know, if sentiment continues to improve, you know, we'd look forward to seeing that. But I can't say we're seeing that yet. Anything you want to say on the UK environment, Jess, or...?

No, I think obviously having the political uncertainty of Brexit behind us, I think you've already seen it as a positive thing. You've already seen it in business confidence and discussions with both international businesses in the U.K. and domestic. We see, I think, relief in terms of that political issue being put behind. We obviously have trade negotiations both with the European Union and what's possible now with the U.S., The other thing we're also mindful of is really the current government is comfortable, provided it's not for operating costs, to increase the fiscal deficit as a percentage of GDP. And that is invested in infrastructure and whatnot that generates capital. And that's also very positive for the economy. So I think one's got a more positive outlook today than one would have had a few months ago.

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

Sure. The next question comes from Andrew Coombs of Citi. Please go ahead.

Good morning. If I could ask a couple of questions, please. First, on CIB revenues, and second, on costs and the ambition for CIB. On CIB revenues, you make the point your marketing and banking fees are up 9% in 2017. That has been part of set by a decline in the corporate and transaction banks and both the down year and year again in the fourth quarter, which I think you draw out due to market-to-market on loan hedges. I'm interested in your thoughts on those businesses, particularly corporate lending, but also transaction banks going forward. You've talked about a number of initiatives. You've talked about 5% to 10% growth in transaction banking and unity revenues. But to what extent do you think you can offset the lower rate environment? Are you confident that that business can grow versus what we've seen in the past? And then on cost, If I look at slide 23, the 550 million savings, you've not quantified anything for 2020. More broadly, you're now talking about positive jaws rather than an absolute cost focus. So is it fair to say the priority is not for an absolute cost reduction anymore? It's much more about you think about the cost in relationship to the revenues, and it will ultimately depend on the top line going forward.

Yeah, thanks, Andy. On your first question... on the sort of transactional banking and corporate lending. The corporate lending line, it can be a little bit noisy because of the hedges going through that line. I think if the sort of gist of your question is, you know, is that sort of, if you look through the loan hedges, you know, take maybe a trading average or something like that so you see through that noise, is that stabilised out? I'd say it probably has obviously somewhat driven by the rate environment, but I think it's a reasonable sort of jumping off point. Obviously the returns on that lending book has increased, so the productivity of the capital we have against that book has improved. You can see a slide on that. On transaction banking, this is an area we are quite excited about. We've talked about our European transaction banking offerings to our clients. We've talked on the slides about adding about 300 or so clients, attracting about 10 billion or so. of Euro deposits, expecting that to grow and expecting the annuity revenues to be, you know, growing at a sort of high, sort of 5% to 10%, high single-digit type territory, and we feel very good about that.

Maybe I'll just, before it sure goes to cost, you know, we talked about improving the return on risk-weighted assets by 90 basis points. We don't even give the actual number of return on risk-weighted assets, but that's a meaningful increase over the last years in terms of transactional revenue versus our revenues from the extension of credit. And then I think also we shouldn't underplay, so we've completely re-engineered the front office of our corporate banking offering across Europe. So before it was reliant on the bricks and mortars of our branches in Italy and Spain. It's all gone now. We put a whole new front office system and out of the box in the first year we had a 360% good-sized corporate clients across Europe that delivered some 10 billion pounds of Europe deposits. So that's a whole other, if you will, geography to feed into that transaction banking.

Yeah, very much so. I guess just to round off that point, and the other thing we've seen good progress in is the connectivity between, if you like, that corporate payment business, but also our payment acceptance business. And you've seen the rollout in Europe there as well. And the connectivity and the cross-referrals of clients there is something we feel very, very good about. Going on to cost. Yeah, look, we've had a fixed cost target for a number of years now. I mean, virtually ever since I've been here, I think. And hopefully you've seen us delivering against those objectives every year. with costs going down virtually every year as well. You know, for us, I think, as the company sort of completed, if you like, its intensity around restructuring and various other reorganisations that we had to do on the backdrop of changing regulation, you know, ring fencing and CCAR and FREX and all the kind of good stuff that's gone on there, you know, we're more and more focused on operating JAWS and wanting to drive that forward. So I think you'll hear us talk a little bit less about absolute cost targets, but very much trying to drive positive operating jaws. And as you said, I think, Andy, you know, cost sort of tracking income, but with a bias towards positive jaws. And again, I'd encourage you to look at that on a trend basis. For example, in the UK bank, we will be front-loading some of the investment spend for this year. But, you know, I've encouraged to look at all my positive jewels on sort of a trend basis rather than literally every single quarter. Thanks for your question, Sandy. Thank you. Can we have the next question, please, operator?

The next question comes from Chris Kant of Autonomous. Please go ahead.

Good morning. Thank you for taking my question. I wanted to come back onto capital, if I could, please. You've indicated that MDA... Headroom is not the only consideration in reiterating your circa 13.5% CT1 target, but you're now in effect saying that 100 bps of headroom over MDA is acceptable per the slide. You expect your MDA to go to 12.5. You used to target 150. The only other banks I'm aware of in Europe targeting such a low level of headroom to MDA are Piraeus and Novobanco. Could you explain a little bit more why you're happy to run with a lower headroom than basically all European peers' targets. And as a follow-up question, this can be my second question, you still state circa 13.5%, but that would imply that you would be happy to run a little bit below 13.5%, which would be less than 100 bits of headroom. So could I please confirm that you're happy to run with less headroom to MDA than the likes of Novobanco, please? Thanks.

Thanks for your questions, Chris. I must admit I don't track all the European banks that you seem to track. I don't have those particular numbers to hand. But what I would say is we do look at capital target level for us against a number of lenses. You know, distance to NBA is important, obviously particularly important because of the dividend stoppers and various other restrictions that are involved in. About 100 basis points is over £3 billion. And we have run a wider distance to MDA in the past. Now, in the past, of course, we've had quite significant conduct litigation type items that have been running through our capital line item as well as extensive restructuring. So what that does is make some of these charges quite episodic and large in nature. And therefore, we felt it's very prudent to be running a wider distance to MDA while that was going on. I think you should expect to see a bit less of that now. So I think that's one thing. I think the other thing, of course, is distance to MDA is important, but so is stress test capacity, so is PRA buffer capacity, and various other things that are sort of linked to that. The other thing I'll say is it's a little bit speculative, I guess, but we're all assuming that the counter cyclical buffer does come in at the end of December, and of course that's the stated objective of the SPC and the Bank of England. Were it to come in at that time, I think you would expect it to be alongside a very buoyant, healthy economy. So there's some, you know, you'd expect it to be a very positive operating environment that ought to be beneficial to profits as well. So I think you should look at it in the context of that. And on the flip side, if the economy is going into some form of stress or difficulty, then I think the SPC has said that they would not invoke the account of fixable buffer, in which case our distance to MDA would sort of automatically recalibrate to where it was. So I think it's just important to look at all of those things in the round rather than on one particular item. You've also, and I think you've asked me this several times in the past, it seems to be something that It's just a theme, I guess, that comes up. You know, what does circa 13.5 mean? Would we be prepared to go below 13.5? Look, I think the way I always think about these things is, you know, there are a lot of things that sort of go up and down when you're managing an organization of our complexity. And, you know, we don't manage these things to the sort of second decimal point. There'll be puts and takes, but we look at it in the round. And I think somewhere around the 13.5 level, is entirely appropriate for us. You know, we're a little bit above that at the moment, and we're fine with that. We may be closer to that in subsequent quarters, and I guess we'll be fine with that. I'm not sure that's probably going to answer the question the way you'd like me to, but probably all I'm going to say on it.

If I could just push you a bit on your observation on the counter-cyclical buffer implying a buoyant operating environment. I guess, firstly... My interpretation of the Bank of England's change there is they've just changed their view on the normal through the cycle level. It has nothing to do with the buoyancy or otherwise of the UK economy. They just think that's the long-term average. And secondly, if it was a buoyant operating environment, in what way does that change? negate the need to change your capital target when your NDA has just come up by quite a bit. I'm a bit confused as to how the operating environment feeds into the setting of your capital target. Obviously, a buoyant environment would make it easier to increase your capital to a new, revised, higher target. But I'm a little bit confused as to how philosophically that fits into your process of setting your capital target in terms of how buoyant you expect the UK economy to be. Thanks. Great.

It just means you're more profitable.

Okay, so you could move to a higher capital target then?

It just means you're more profitable, so you're generating more capital each quarter. Can we take the next question, please, up right now?

The next question is from Robin Down of HSBC. Please go ahead.

Good morning. Can I come back to the very opening question that Alvaro gave you? You're obviously signalling this morning that you expect a meaningful improvement in the ROT this year, which I Starting from sort of 9%, I would guess we'll probably be pushing up to around sort of 9.5% or so. I'm looking at the consensus today, or the consensus you published pre-results, and it's at 8.5% for 2020. Now, I can see some of the gap might be down to sort of actual equity levels being slightly lower than perhaps consensus and forecast. But, you know, to go from a sort of kind of an 8.5% to sort of, let's say, a mid-9% level does suggest, you know, some single 100 millions of extra PBT versus the consensus. And I'm conscious, obviously, you're making this forecast, you know, very early in the year, which kind of feels quite brave in terms of crystal ball gazing. But what is it you're looking at when you look at the consensus versus your own sort of management budgets and thinking, well, they've got that wrong? And I'm guessing one element is the UK bank levy. I assume the the new kind of lower level we've seen in 2019 might stick. But where else, you know, is consensus going wrong here, if you like, in your view? Is it the impairment charges or is the kind of sort of 2% revenue growth versus 1% cost inflation just not positive enough in terms of draws? Perhaps, you know, if you could give us a bit of color, it would be very helpful.

Maybe I'll take the first crack and then, Robin, have two shots. I'm in. I mean, so having done this for four years, we have beat Consistence in terms of ROTE every year. You know, we delivered 4.4% in 2016. We delivered 6.5%, which was credited above Consistence in 2017. 8.5% in 2018. Again, people thought it was a stretch, and then obviously 9%. versus consensus in the whole course of the year, consensus was pretty much around 8.81. So, one, if we can do in the fifth year what we've done one through four, hopefully we have a meaningful improvement in the 9% level and well above the 8.5 that the street has us in for 2019. I would point to a couple of things, and just on the slide, you know, we've moved some 500 million pounds of costs from that were basically used to run the bank to we made 500 million pounds of investments, whether it's new training algorithms in the investment bank or moving from monthly to weekly downloads of a new version of our banking app and the new services that we're putting on that platform. to rolling out the new technology front office for the corporate bank in Europe. Those are all investments that we believe are going to generate revenue, and perhaps we're more optimistic than the street is in the impact of those investments. We also have been, I think, demonstrating our ability to capture market share, particularly in the IV and markets business. when you improve markedly your prime balances, those are prime balances that are very sticky and they stay, and it's very stable income. We saw that during the course of the year, and now we'll have the benefit of that through the entire year. Obviously, we can't predict where markets go, but we're fairly encouraged by that. We also have the other side of the equation, which are credit spreads or virtually at all-time tights versus where they were over the last decade. And, you know, we do have a $1.7 trillion balance sheet that we have to fund. And as your credit spreads come down, your funding expense also goes down.

But I'm sure you want to add to that. Yeah, no, I think that was pretty comprehensive, Jess. I mean, in some ways, Robin, it's just maybe a recap of some of the comments I made to Alzara's question. You know, I do think... We're very pleased with the momentum that the business has, whether it's growth in our secured mortgage portfolio, high-quality deposits coming in on both the corporate and consumer side. Plans we have around transactional banking, improvement in productivity of our corporate lending book. Really excited about the payments business, expansion into Europe and being able to offer new products and services there. you know, the wealth business we've been investing in, you know, that will improve. I think on the impairment side, it does feel, you know, we've talked about a UK 30-day, 90-day unsecured delinquency is actually trending down a little bit and stable in US cards. We've added a new airline to our stable of airlines in U.S. card, Emirates Airlines, which we announced this morning. We think there's about 2 million Americans that fly with that already, so it gives us the opportunity to grow that business. So there's a multitude of things that we are very excited about. As Jeff says, we don't have the crystal ball on the economy, but as we sit here now, we think with that momentum in the businesses, with the credit environment that we're in, and the discipline we have around cost that we should be able to improve returns from where we were this year. You know, time will tell how well this year pans out. Thanks for your question, Robin. Can we have the next question, please, operator?

The next question comes from Guy Studdings of Exane B&P Paribas. Please go ahead.

Morning. Thanks for taking my questions. Firstly, I just want to come back to Barclays UK NIM and what sort of assumptions you're making there, anything that can help us gauge the sub-300 basis points guidance, which clearly could imply size or downside risk. You've talked about some of the headwinds in terms of rates and mix, but on the other side, you've referenced the overdraft fee income changes, which should help here, presumably, albeit unhelpful for OI. Perhaps you could size that for us and whether there's any other offsets for NIM so that it'll give us a bit of reassurance that below 300 base points isn't meaningfully below 300 base points. And also, in terms of mixed effects coming through there, looking at asset quality performance, it does sort of beg the question whether you might change your strategy here in the future in terms of card growth. That's the first question. And I just wanted to come back on capital, if it's helpful to do that first. Just to sort of check my interpretation here is correct. I mean, presumably one of the reasons for running with a lower MDA is because the increase in the counter cyclical will allow you to draw down more on stress test losses in the future in terms of stress testing. So your implied PRA buffer should be lower or less equal even before considering lower conduct losses, which seems likely given PPI and potentially a favourable revision from Bank of England on provisions for stage two losses as well. I mean, is that a fair assessment or am I missing anything? Thanks.

Thanks, Guy. Let me do it in reverse order. It is a fair assessment, and I sort of, when Chris asked the question, I did sort of say we look at capital across a number of lenses, including stress testing, and that's both our internal stress testing as well as the Bank of England as well as PRA buffers. And you've seen on the slide that we put out this morning that the offset that the Bank of England talked about in terms of So the two offsets to the increase in chemical buffer drugs lower our reference rate for passing the stress test. So I think that's a fair interpretation there. Again, we look at these things in the round across a multiple of lenses. Yeah, it's a fair point. On the NIM, yeah, I think the point I'd want to really emphasize here, this is as much just expression of the shifting mix in our business as opposed to just net interest income on a like-for-like basis coming down obviously we have a little bit of a headwind from structural hedges and sort of grinding into slightly lower rates but put that to one side you know we would expect all other things being equal to grow our interest earning balance sheet mostly driven by mortgages now that's just been massive a margin product with a lower impairment outcome, so a lower sort of mathematically constructed net interest margin. So in the answer to your question then, Guy, it really depends on how much we grow that mortgage business relative to our unsecured business. I would say that our business is pretty healthy at the moment. You've probably seen various reports on the healthiness of application volumes. We are growing our share of the mortgage market ahead of our current stock share at the moment, which we're very comfortable with. So, you know, I'll let you sort of form your own opinion as to how much equity you know we did about approximately $2 billion or just a bit less than that, $2 billion in the fourth quarter and $6 billion in the year, give you a sense of where it could be. But think of it as a mathematical outcome that we're still trying to drive up our net interest income, all other things being equal from a higher interest earning balance sheet.

Okay. Are you able to give any numbers around the changes in overdraft? Feel in common how that moves into NI?

I don't have them to hand with me here. I'm loathe to chuck it out on a call. But perhaps when we get together, maybe if you put in a call into IR later on, they may be able to dig something out from our disclosures rather than me throwing out a public number on a call like this.

Okay. Thanks a lot.

Thanks, guys. Can we have the next question, please, operator?

The next question comes from Raoul Sinner of JP Morgan. Please go ahead.

Hi, good morning. I've got a few follow-ups, but mainly one on capital. The pension deficit reval, which looks like it's about $4 billion, benefit to your capital projection for the next few years. How does that impact the stress test performance, Tushar? And will that sort of help your base stress test plan, base capital plan going into the stress test? And also, does that feed into the pillar 2A eventually, if not the PRA buffer? That's the first one. The second one is on, you know, how should we think about the payout ratio now that you are at your capital target? 38%, obviously, on a clean basis sounds quite low compared to your peer group. You know, should we get – should we think about an update on, you know, what is the right payout ratio at the intrams or – Would you encourage us to wait until the next justice is out of the way and we should really think about this as an FY 2020 event? Thanks.

Yeah, thanks Rahul. Yeah, on the pensions, I think that's right. Obviously, our base trajectory has improved just because of the lower deficit reduction contributions, a total of about £4 billion over the projected period. Under Pillar 2A, it's a little bit more complicated than that. Pillar 2A is essentially trying to capture the level of volatility that you may have in your sort of pension surplus deficit, more an accounting measure of the surplus deficit rather than the actuarial measure, which is the jumping off point for our triennial. We have been de-risking that pension plan, taking advantage of, if you like, the lower I definitely don't want to speculate on how the PRA may look at that as a pillar to a matter, because they'll look at it from multiple, multiple lenses. But on a standalone basis, if you'd be risking the pension plan, that ought to be helpful. But, you know, there's many other things that go into that. In terms of payout ratio, you know, if it's something that, you know, something we discuss at the board, you know, quite a lot, and I think we'll talk more about this as the year progresses. You know, I think at the end of the day, though, Rahul, dividends are important to us. We would expect them to increase over time. We've talked about progression of increase. Obviously, we have good cover at the moment, and we'll see kind of how much we increase that as the year goes on, and we'll supplement that with variable returns, probably buybacks as and when appropriate, and we'll talk more about that when the time's right. Thanks for your questions. Can we have the next question, please, operator?

The next question comes from Ed Firth of KBW. Please go ahead.

Good morning, everybody. Can I just bring you back to these debt – well, two questions, I guess. The first one is, can I just bring you back to these debt sales in the UK business? Because I'm not sure I really understand exactly what's driving that and where they come from and Is this a book of debt? Do you have an unrealized gain that you can tell us about? How should we be thinking about this? In what circumstances? Are they bigger, smaller? Do they come? Do they go? All those sort of drivers, I guess, would be my first question. And then the second one, yeah, I could just invite Jess. Obviously, the wires are full of the investigation from the PRA, et cetera. Could I just ask you to give whatever your formal pieces are on that as well? Thanks very much.

Thanks, Ed. So why don't I cover debt sales? Yeah, there's no sort of nothing new here. This is something we, I think all banks do as a way of life. Generally speaking, when you have bad debt, there are other businesses that are sort of much more suited to dealing with those bad debts, both as a customer proposition and as an operational matter. So it's just something we do from time to time. Just so happens we did it in the fourth quarter this time round. As a P&L matter, Ed, these are fully charged off. So these are fully impaired, if you like, and to the extent that the recovery value in someone else's hands is different to us because they're operationally geared to do this in a way that we wouldn't be able to do. That's how this thing works. But there's nothing more to it than that. And they happen all throughout the year. There's nothing particularly magical about them.

So it sounds like in sort of benign environments, you generally would get – it's going to be easier to sell non-performing loans. Is that a fair assessment?

Yeah, yeah. Yeah, I guess so. I mean, the only thing I wanted to stress was – 2018 had debt sales, 2017 had debt sales, 2016. This is something we've been doing for years. There's nothing new about it. It just happened to be clustered in the fourth quarter, that's all.

And it's normally around the sort of 100, 150 level, is that the sort of, for a year, and you just happen to have it all in the fourth quarter?

No, I don't want to give a number out like that, having got that disclosed, but I think what you're looking at is the fees and commissions lines being higher in the fourth quarter compared to previous quarters. A big chunk of that is going to be explained by this year. But I wouldn't say any more than that. Anything else?

Yes, I'm happy to. I think it's very well known that my time with J.T. Morgan began in 2000 when I started to run the private bank where he was an existing client. I've had a professional relationship with him in that period. As I left Morgan, the relationship began to taper off quite significantly. and the relationship stopped before I joined Barclays, and obviously there's been no contact whatsoever since then. The inquiry by the FCA is very narrowly focused on whether I have been transparent and open with the bank, and I feel very comfortable that going back to 2015, I have been transparent and open with the bank. You know, reading the R&S, the Board has done a review of that issue, And they have confirmed that they're also comfortable that I was transparent and open with them with respect to that relationship. And now the process will just go on with the SBA. But, again, I've had no – I had no contact whatsoever with Jeffrey's while I've been here with – with Jeffrey Epstein while I've been here with Barclays.

Great. Thanks so much. Thank you, Ed. Why don't we take one more question and then we'll call it a day. I'm sure we'll get to meet everybody else in there. We'll only go after the question and the call as we meet you after this. But let's take one more question, please, operator.

Our final question today comes from Farhad Konwar of Redburn. Please go ahead.

Morning, Jess. Morning, Tushar. Thanks for taking my question. Sorry, I was trying to come in from Barclays, UK. You talk about the mixed effect. unsecured and unsecured. But if I look at the structural hedge, the net contribution, it came down by 300 million, which is around 15 basis points, which kind of explains the entire reduction in your NIM in Barclays, UK. If I look at the swap rates right now, three-month LIBOR was at 75 bps, five-year, seven-year, or like 75 bps as well. So it feels like that's going to zero at the moment. So that 500 million of net hedge contribution is going to zero and is worth about 25 basis points. Am I right in thinking that it's just going to mechanically roll off if nothing changes in the yield environment? And can I get an understanding of how that would roll off? Because then it feels like your starting point is a heck of a lot lower than 300 basis points. And then from there, we can think about mixed shifts and such like. Is that a fair assumption? And then just to follow up on the underlying picture, I think you said earlier that there have been some margin improvements in the mortgage market. Do you think that's sustainable or do you see competition... heating up from here. And then my second question was on payments. You talk about it as a big opportunity. I think the last time you said it's still loss-making. When can we expect this to be starting profitable, and what kind of scale of profitability and profits can we expect in the payments business over the next couple of years? Thanks.

Thanks, Fahad. Yeah, I think I'm not sure I'm following your logic that much on the on the NIM sort of the way you're thinking about it. It's probably something we might want to have a chat with you outside this call. But I think if you're saying a jumping off point is 25 basis points lower NIM from where we are today, I think that's way too much of a... Just on the hedge income itself, the 500 million on the front book, if you look at the current kind of yield environment, I'm assuming you're refinancing that at zero. So

If things don't change, that $500 million will just go to zero. I mean, is that incorrect?

Yeah, no, I don't think you've got that right, Fahad. We'll give you a call outside of this, but I think you're way off the mark there. Okay. The amount of net interest income headwind just from the rate environment staying where it is, fighting through, I think you may be overestimating that, so we'll... pointing to the disclosures to help you sort of get to the right one. I think probably some disconfusion.

And so I'd say on the payment side, it is very profitable for us. So, you know, you don't break it out as a segment unto its own. But payments courses through a lot of what the bank does. For sure, our merchant acquiring business is quite profitable. Our merchant to supplier payments business is obviously a very big component of our small – of our small business banking and corporate banking. So roughly a third of the GDP of the British economy goes through our payment pipes, both as a bank and also as an acquirer. So they're very profitable and we're investing in payments. And then as you've seen, what you see happening in the corporate bank in Europe is also part of that. So payments is a profitable part of the bank. We just don't break out the numbers in a segment basis.

The final question you had was on mortgages and sustainability. I try not to speculate too much on it. It feels like a good environment at the moment. Application volumes are up. It's usually a sort of approximately three months delay from applications into actual lending. So we'll see how much of that sort of transfers. But at the moment, it feels like a reasonable environment and margins are sort of stable. But we'll monitor it closely.

I just want to ask one question on the hedge, just back to that point. So in your disclosure on margins, you say the structural hedge contribution went from 800 million in 2018 to 500 million. That 300 million was just a reduction in NII. Am I misunderstanding that? And that would have cost you around 15 basis points of margin.

Yeah. I'll just give you a call after this. I think you're looking at the gross numbers there rather than the... No, it's the net.

The gross numbers are 1.7 and 1.8 billion. The net was 0.5 and 0.8.

Yeah, Fahad, honestly, your numbers are way off. Let's give you a call outside of this rather than going on this. We'll give you a buzz and sort it out. Okay. Thank you, everybody, for the call. Appreciate your time, and I know that we'll see you on the road over the next few weeks. Thank you very much.