Barclays PLC

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Good morning.

We all know that 2020 was not a normal year. The pandemic has caused fear and dislocation in societies around the world. And it's caused huge economic harm and uncertainty with hardship and stress for millions of people. And it has brought tragedy to so many families, including among friends and colleagues. In common with others, It has tested our resilience as a business and our values as a corporate citizen. While we have faced significant challenges, I want to say, first of all, how proud I am of the way in which our colleagues at Barclays have responded to an extraordinarily difficult year. Their efforts have been a driving force that has enabled us to step up and play our full part in the battle to contain the damage that this terrible disease is costing all around us. That commitment from our colleagues and the core resilience of our business meant that we have stayed profitable in every quarter of 2020. And that strength in turn has allowed us to support our customers and clients and the communities around the world where we live and work. During 2020, We provided almost 700,000 payment holidays to our customers. We weighed around 100 million pounds in overdraft interest and banking fees. And we have committed a further 100 million pounds to charities supporting the most vulnerable through our community aid package. We've helped our clients raise over 1.5 trillion pounds in the global capital market. and extended some 27 billion pounds to companies through the UK government's lending schemes. And we've been able to deliver all of that support while holding our top line steady. Overall, group income was 21.8 billion pounds, up 1% on 2019. But it is the composition of that income which shows most clearly how our diversified model has worked to absorb the shocks of 2020 and still delivered resilience overall performance. Our consumer operations felt the impact of the pandemic most acutely, with Barclays UK income down 14%, while our consumer cards and payments business was down 22%. But at the same time, in our wholesale business, corporate and investment banking income was up 22% for the year, stabilizing group income at a time of extreme stress. Before provisions, we generated a profit of almost 8 billion pounds for the full year. These were heavily tempered, of course, in the approach we have taken in terms of impairment charges driven by the pandemic. Full year impairment charges were 4.8 billion pounds to take the group's total impairment reserve to 9.4 billion pounds. reflecting our cautious view of the impact of COVID. However, we were encouraged that the fourth quarter charge was down 19% relative to the previous quarter at just under 500 million pounds. And we expect 2021 full-year payment charges to be materially below the 2020 level. Overall group profits before tax is therefore 3.1 billion pounds. including generating a profit before tax of £646 million in the fourth quarter. The drivers of that performance were in the investment bank, where markets and banking both delivered the best ever income performances, up 45% and 8%, respectively. It's important to note the standout market performance reflects not only the significant growth in the global capital markets, but also material market share gains by markets.

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We have consistently grown share in markets over the past years, moving from market share of 3.6% in 2017 to 4.9% in 2020. And growth has been across macro and credit and equities. Markets and banking income together has grown 45% over the same period relative to an industry wallet, which has grown roughly 20%. Together, these data points illustrate the tangible momentum we have built in our investment bank, a business delivering improving returns year over year and producing a return on tangible equity of over 13% in 2020, despite a high impairment chart. While corporate income was down 13%, including the impact of lower interest rates, the CIV as a whole delivered income of 12.5 billion pounds up 22% year-on-year, and profit before tax of £4 billion, up 35%. Our consumer card and payments business at Barclays International did, however, make a loss of £388 million for the full year. This was driven by impairment charges, a fall in income caused by lower credit card balances, margin compression, and reduced payments activity as a result of the pandemic. CC&P did, however, return to profit in the last two quarters. Barclays UK profit before tax decreased 47% during the year to 546 million pounds, with performance in the year impacted by a significant reduction in income and the COVID-related impairment charges we took. We did, however, see growth in mortgages in 2020, and the business has done a little better since the apparent nadir of the second quarter. We saw a profit in Barclays UK in the fourth quarter, 282 million pounds. Let's not forget, Barclays UK is a business which, in the decade prior to 2020, regularly produced high returns, as did consumer cards and payments. These remain good businesses with strong fundamentals, and I expect to see performance improve in both of them as the economy returns to normal. That said, beyond the immediate impact of the pandemic, UK retail banking does face some strategic long-term challenges. Near zero interest rates, lower charges for overdraft and other services, and the provision of many core banking services for free. In response, we continue to invest in our technology platform, offering digitized finance to enhance our relationships and experience for our customers. And we continue to focus on running the business efficiently so that we can generate appropriate profitability while continuing to deliver support to our customers, clients, and communities. Overall, group operating expenses, excluding litigation and conduct, rose 1% to 13.7 billion pounds, including roughly 370 million pounds of charges for structural cost actions. This translates to a group cost-to-income ratio of 63%, flat versus 2019. We remain attentive to costs and continue to target a group cost-to-income ratio of below 60% over time. 2020 group ROTE was 3.2%, and earnings per share were 8.8 pence. We expect to deliver a meaningful improvement in group ROTE in 2021. and remain committed to a target of above 10% over time. At the same time as navigating the effects of the pandemic on our business and working hard to support customers, clients, and our communities, we have continued to strengthen Barclays for the long term. In this respect, in 2020, we made particular progress on our approach to climate change, setting an ambition to be a net zero bank by 2050 as well as a commitment to align all of our financing to the goals of the Paris Agreement. In late November, we set out a plan and a methodology for how we intend to achieve this. Our own operations are already net zero, and our commitment extends to the financing we provide to clients, covering capital market activity as well as lending. We will ultimately expand this approach to cover our entire financing portfolio, but we have started with energy and power, which between them account for up to three quarters of emissions globally. We've also set clear goals to help accelerate the transition to a green economy, including 100 billion pounds of green financing by 2030, and directly investing 175 million pounds in sustainability-focused startups over the next five years. Barclays Capital position strengthened significantly through 2020. with our CET1 capital ratio increasing by 130 basis points in the year, including 50 basis points in the fourth quarter, to stand at 15.1% at year-end. We anticipate some capital headwinds in 2021 from pro-cyclical effects on RWAs, the reversal of regulatory forbearance applied in 2020, and increased pension contributions. Nevertheless, we remain significantly above our CET1 ratio target of between 13 and 14%, and well above our minimum regulatory requirement, with prudent provisioning for impairments. Given the strength of our business, we have therefore decided the time is right to resume capital distributions. We have today announced a total payout equivalent to five pence per share for 2020, comprising a four-year dividend payment of one pence per share and we will execute a share buyback of up to 700 million pounds. We expect to comment further on capital distributions when appropriate.

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So in summary, Barclays remains well capitalized, well provisioned for impairments, highly liquid, with a strong balance sheet and competitive market positions across the group. I expect that our strong and diversified business model will deliver a meaningful improvement in returns in 2021. At the same time, we will remain committed to playing our part in supporting customers and clients, our colleagues, and our communities as we emerge from the COVID-19 crisis. On that, I hand it over to Tushar to take you through the results in more detail.

Thanks, Jeff. I'll comment first on the full year results, then summarize the fourth quarter performance. Our priority during the pandemic has been to support the economy, serving our customers and looking after the interests of colleagues and other stakeholders. It's been a very challenging year, but the pandemic has shown very clearly the benefits of our diversified business model. Despite the effects of the pandemic, we reported a statutory ROT of 3.2% or 3.4% excluding litigation and conduct. Litigation and conduct was just 0.2 billion, but we had a large PPI charge in Q3 last year, so I'll still reference numbers excluding litigation and conduct. The impairment charge of 4.8 billion, up almost 3 billion year on year, reduced PBT from 6.2 to 3.2 billion. However, as you can see from this bridge, the increase in CIB income of 22% more than offset the 19% decline in consumer and other businesses. With income up 1% overall, we delivered neutral draws and a cost income ratio of 63%, slightly in excess of the group's target of below 60% over time. TNAV increased from 262 to 269 pence over the year. Our capital position is also strong, with the CT1 ratio strengthening further in Q4 to reach 15.1%, up 130 basis points over the year. Under the temporary guardrails, which the regulator announced in December, our statutory profitability allows us to distribute five pence in aggregate by way of dividend and buyback. We plan to launch a share buyback of up to 700 million by the end of Q1, which is attractive for us from a financial point of view at current share prices and is equivalent to four pence per share. In addition, we are paying a dividend of one pence and reaffirming our intention going forwards to pay dividends supplemented as appropriate by share buybacks. The level and form of distribution was determined by the current circumstances and you shouldn't read anything particular into the level of overall payout ratio or the mix chosen on this occasion. We'll update the market further on distributions at the appropriate time. Few words on income, costs and impairments for the year before moving on to Q4 performance. This slide shows a split in the 1% income growth with a 22% increase in CIB, more than offsetting declines of 14% and 22% in BUK and CCP respectively. In the CIB, our share gains in markets and the momentum across the businesses position us well for the future. However, conditions remain challenging for the consumer businesses. with reduced unsecured balances and a low rate environment, as we show on the next slide. We've highlighted in the chart from the right the continuing headwinds from balance reductions in UK and US cars. We saw some signs of recovery in consumer spending in both the UK and US in Q3, but further lockdowns its spending over the Christmas period, and this is continuing in Q1. As a result, credit card balances were down in Q4 in the UK and flat in US in dollars. rather than seeing the usual seasonal increase. We've also put in the slide a reminder of the specific headwinds that the consumer businesses are experiencing. Although customer support actions affecting BUK fall away in 2021, the effect of low unsecured balances and interest rates is continuing. Looking now at costs. Full year costs were up 1% overall at 13.7 billion due to an increase in structural cost actions to around 370 million. but underlying costs were flat year on year. The bank levy increased, but is expected to be lower in 2021, with decreases in both the rate and scope of the levy. The COVID pandemic has resulted in additional costs for the group, for example, building out the teams to help customers in financial difficulties, and these will remain elevated in 2021. However, the group will continue to drive cost efficiencies while investing in the franchises where appropriate. You're already familiar with the increase of 2.9 billion in the impairment charge. This has been driven by deterioration in the economic outlook as a result of the pandemic and has led to significant increases in the charges in each businesses, as you can see. However, this book up in provisions in Q1 and Q2 has not yet been followed by material increases in defaults. As you can see, much lower charges for Q3 and Q4 in the second chart. We've shown the charge for each quarter split into stage one plus stage two impairment mostly relating to balances which aren't past due, which I'll refer to as the book-ups, and the Stage 3 impairment loans in default. As you can see, most of the elevated impairment in Q1 and Q2 was from book-ups, while most of the Q3 and Q4 charges were on Stage 3 balances. We've shown on the next slide the macroeconomic variables, or MEVs, we've used in the expected loss calculation. Go light. Go grand. Keeps you going. We've updated the MEV slightly in Q4. However, I would emphasize that with the reduction in unsecured balances and given the ongoing level of government support, the models on their own would have generated a significant provision right back in Q4. However, there is significant uncertainty as to the level of default. We'll see as the sports teams are worn down. We have therefore applied significant post-model adjustments, totaling 1.4 billion, as you can see on the table. increase in our total impairment allowance by 2.8 billion to 9.4 which broadly maintains our increased level of coverage as you can see on the next slide based on forecast unemployment levels we would anticipate an increased flow into delinquency in 2021 but given our level of provisioning we would expect a materially lower charge for 2021 Unsecured balances have come down significantly from 60 to 47 billion through the year, and coverage has increased from 8.1 to 12.3%, with even higher coverage in the credit card books. The wholesale coverage has almost doubled over the year to 1.5%, and a large proportion of this is in selected sectors, which we consider to be more vulnerable to the downturn. We include in the appendix the usual detailed slides on unsecured coverage, selected wholesale sectors, and payment holidays. Turning now to Q4 performance. Q4 income decreased 7% year on year as continuing strong performance in CIB in both markets and banking was offset by income headwinds in BUK and CCP. Costs increased to 3.8 billion, including Q4 structural cost actions of 261 million and an increased bank levy charge of 299 million. Impairment decreased 31 million to 492 million year on year, of which £444 million was for Stage 3 defaulted loans. Despite the headwinds, Q4 was still profitable with a PBT of £0.7 billion and an ROT of 2.2%. Turning to Barclays UK. The headwinds we've referred to in the previous quarters continue to affect the UK with income down 17% year on year. Unsecured balances reduced further in Q4 with gross card balances down from £16.5 to £11.9 billion. a decline of 28% over the year. Mortgage balances on the other hand were up 5.1 billion year on year with a net increase of 1.9 billion in Q4 and pricing continues to be attractive. There was significant increase in BUK business banking lending over the year as bounce back loans and fee bills reached roughly 11 billion in aggregate. Loan balances grew by almost 12 billion in total to 205 billion. Deposit balances also continued to grow, resulted in a loan-to-deposit ratio of 89%. Q4 income included higher debt sales, which contributed to the increase in income compared to Q3. Q4 NIM was up on Q3 at 256 basis points, but we expect a clear reduction in 2021 as secured lending continues to grow. This is expected to take full year NIM to around 240 basis points, absent any changes in base rate. So the income outlook remains tough with low demand for unsecured lending and the headwind from the structural hedge, despite an expectation of continued mortgage growth. Costs increased 11% year on year as COVID related costs and increased structural cost actions more than offset efficiency savings. The cost increase includes around 30 million of quarterly costs in our partner finance business, which was transferred from Barclays International earlier in the year. Impairment for the quarter was 170 million, down slightly year-on-year and well below recent quarters. Arrears rates continue to be stable. Turning now to Barclays International. BI income was stable year-on-year at 3.5 billion, reflecting the strong performance in CIE offset by lower income in CCP, and ROTE was broadly flat at 5.9%. I'll go into more detail on the businesses in the next two slides. The corporate and investment bank delivered an ROT of 6.2% in Q4, traditionally the weakest quarter of the year, up from 3.9% last year, with strong performance across markets and banking. Income was up 14% year on year at 2.6 billion on a flat cost base, delivering strong positive draws. Markets income increased 19% in sterling, the best Q4 level since 2014 when the investment bank took its current form, and up 22% in dollars. The full year market's income of 7.6 billion was also a high since 2014. FIT increased 12% with particularly strong performance in credit. Equity's income was up 33% with strong growth in derivatives and cash equities. Banking fees were up 30% year on year with good performance across debt and equity capital markets and advisory following some weakness in advisory earlier in the year. Corporate lending this quarter wasn't distorted by the volatile mark-to-market moves we had in earlier quarters. Reported income of £186 million reflected limited demand for corporate lending, with further pay down of revolving credit facilities. Transaction banking income remained depressed at £344 million, with further increases in deposits more than offset by margin compression. CRB costs were flat, reflecting tight cost control, reducing the cost-income ratio from 80% to 69%. Impairment increased slightly year on year, but was well down on the previous three quarters at $52 million. We started the year in the investment banking franchise in good shape and are optimistic about the future. Turning now to consumer cards and payments.

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Incoming CCP was down 25%, principally driven by U.S. card balances, which are down 22% in dollar terms. In addition to affecting balances, lower spend volumes were also a headwind for interchange in US cards and for payments income. In the payments businesses, although volumes were down, e-commerce accounted for over 50% of the volumes. Card balances in the US ended the year flat on September in dollar terms, while then seeing an increase in Thanksgiving and Christmas spend. So the income growth we were hoping for in 2021 is going to be tough to achieve in the absence of significant improvement in economic conditions. Costs were down 4%, resulting in a 64% cost-income ratio. Impairment was 239 million, well down on the levels for Q1 and Q2, reflecting lower balances, with arrears rates slightly up in the quarter, but still well below the level our provisioning assumes. Turning now to head office. The head office loss before tax was 416 million, reflecting one-offs in both income and cost lines. The negative income included the Q4 expense of 85 million, relating to the repurchase of half the outstanding tier two contingent capital notes. This would roughly half the 100 million or so annual legacy funding costs in head office we had guided for in 2021 and 2022. The other main income elements, residual negative treasury items and negative income from hedge accounting will continue in 2021 and are expected to be at similar levels to the past. I will suggest around 300 million negative income in total in the absence of a resumption of the APSA dividend. Q4 costs of 222 million were above the usual run rate of 50 to 60 million due to around 150 million of cost actions and the inclusion of a further 22 million of the community aid programme we announced at the start of the pandemic. Moving on to capital. We finished the year with a very strong capital position. The CT1 ratio was 15.1% up materially from 13.8 at the end of 2019 and an increase of 50 basis points in Q4. This reflected capital generation from profits across the year, regulatory support, and the cancellation of the full year 19 dividend at the start of the pandemic. The strengthening of the ratio was achieved despite the increase of 11 billion in RWAs. You can see the elements broken down in the bridge on the top half of this slide. IFRS 9 transitional release didn't move significantly this quarter as the bulk of the impairment charge didn't qualify for release. In Q4, the main contributors to the increase were profits and 30 basis points from the new regulatory benefit of software assets. We're expecting the software benefit to be reversed at some point this year by the PRA, and I'll say more about the slide path for capital on the next slide. We're happy with the headline capital ratio of 15.1%, but I wanted to remind you of some factors which will reduce the ratio in 2021, particularly in Q1, and why we are comfortable to run at a level materially below 15.1%. We've shown at the start of this bridge a couple of easily quantifiable factors, which will affect the ratio in the early part of the year. The proposed buyback of 700 million is not reflected in the ratio and would reduce the year-end ratio by 23 basis points. In addition, the temporary PVA relief brought in last year was reversed on the 1st of January, and the IFRS 9 transitional relief reduces. So you could think of a rebased ratio at the start of 2021 of 14.7%. This is still well above our target range of 13 to 14%. I would remind you that our MDA hurdle is currently 11.2%, and we've included the usual slide in the appendix showing how that is calculated. Our target range is designed to allow for fluctuations in the MDA, for example, if a UK counter cyclical buffer is reintroduced. Going forward, we remain confident of generating capital from profits, although I'm not going to forecast a precise level of capital generation. We've shown here a number of additional headwinds to the ratios that we are aware of, on top of the expected reversal of the software benefit. The two that are most difficult to forecast are the migration of impairment into stage three defaulted balances, which will not qualify for transitional relief, and potential procyclicality, which could inflate RWAs. This didn't materialize during 2020 in the way we had expected, but we are likely to see some effect from credit migration during 2021. Nevertheless, we are confident that the balance of these elements will leave us with sufficient capital generation to continue distributions to shareholders and be comfortable in our CT1 target range. Both spot and average leverage ratios were at or above 5%. Finally, a slide about our liquidity and funding. We remain highly liquid and well-funded, with a liquidity coverage ratio of 162% and a loan-to-deposit ratio of 71%. This positions us well to withstand the stresses caused by the pandemic and to support our customers. So to recap, we were profitable in each quarter of 2020, generating a 3.2% statutory ROT for the year, despite the effects of the COVID pandemic, which led to significant reductions in income in the consumer businesses and an increase of close to 3 billion in the impairment charge. I'll summarise on this slide the various comments on the outlook we've made. While the income outlook for the consumer businesses is challenging, given the economic environment, the CIB is well placed for 2021 and beyond. We continue to see the benefits of our diversified business model coming through, allowing us to take a measured approach to costs and continue to invest in the future of the group despite the difficult economic environment. We've taken very significant impairment charges in 2020, but with 9.4 billion in balance sheet provisions, we expect a materially lower charge in 2021. We're distributing the equivalent of five pence per share by way of dividend and share buyback. Although we expect a reduction in our CT1 ratio in 2021, our starting point of 15.1% should put us in a good position to pay attractive capital distributions to shareholders going forward. Thank you. And we'll now take your questions. And as usual, I'd ask that 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 question, please ensure that your phone is unmuted locally. To confirm that star followed by one to ask a question. The first question today comes from Joseph Dickerson of Jefferies. Please go ahead, Joseph.

Hi, good morning guys. Thanks for taking my question. I guess just a couple of things. On the capital distribution, the PRA was pretty clear in their December document that you could move away from these, I think they used the word temporary guardrails, and return to more normal levels of board decision making in respect of the half year. And when I look at where the pro forma CET1 is, In addition to the fact you generated 81 basis points of capital in 2020 with a 4.8 billion.

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Impairment charge suggests on a fairly conservative basis, you've got somewhere between one and a half billion plus of excess capital. I mean, is that something you could seek to use for buybacks in respect of the half year? I guess, how should we think about the timing of further given that your shares are meaningfully below book, that's quite accretive. And then secondly, I guess just on the card outlook, both in the US and the UK, you give a great deal of precision around the outlook for the UK NIM, but a lot of that is linked to card spend and lend. And I guess what's the outlook there? Because you said you would need to see, I think Tushar, you said in your comments, significant improvement in economic conditions. We're starting to see that if you look at the US retail sales data coming in for January at 5% versus 1% and the stem checks being dropped into people's bank accounts in in January, it seems like there's the setup is quite prime for recovery and in spend. But you sound a bit more cautious, so I'm just just wondering what the what the delta is there, thanks.

Yeah, thanks Joe. Good to hear from you and I want to take both of those questions in terms of. Capital distribution, I mean hopefully you've seen this morning that it's very important to the board here that we're in a position to return as much capital as we can into shareholders hands consistently and hopefully the actions we've taken this morning are a good demonstration of that. I think I'd also agree with you that we feel very comfortable With both our starting capital position, albeit we've called out some natural headwinds, but you can even see that as you perform for some of the numbers that we can quantify, we're still in a very strong capital position. And we are capital generative. We expect to be more profitable this year than we were last year, and that will no doubt help. In terms of... announcements for further buybacks or dividends or anything. I think that's probably something to talk about at the right time. Today, I don't think we're in a position to make any announcements on that. Of course, the guardrails are in place. The PRA will do their reverse stress testing. They'll come up with their conclusions thereof. And I'd agree with you that getting capital back into shareholders' hands is a priority for us and the actions that we've taken today demonstrates our sort of focus on that. And we have a very strong capital position to be starting from in our view. In terms of card balances, UK and US, yeah, I think you're right in the sense that spending, I think, as spending recovers, that will be helpful in the US in the sense that we start benefiting from the interchange fees that are available there. And also, actually, even in the CCT segment, we do include our merchant acquiring business as well. And of course, that'll respond very quickly to the increases in spend level. I just think that the growth in card balances themselves may lag that a little bit. Obviously, folks have been saving and acting very rationally And it remains to be seen just sort of their propensity to take unsecured credit on while there's still a reasonable amount of cash on deposits in bank balance sheets. So look, I think it's a very sort of difficult judgment. We've tried to be sort of cautious. You'd expect us to be cautious, but there's as the world moves on and vaccines have their desired effect quicker than perhaps was anticipated and spend levels recover, that ought to be a benefit, of course. But it's difficult to be precise in that judgment, just given where we are at the moment.

That's fair. Would you agree that the recovery and spend and connecting that to LEND is probably driven more by improvement in mobility and reopening is not essential. Spend picks up where there's probably a greater propensity to revolve a balance. Is that kind of the goalpost that we would look for?

Yeah, definitely, Joe. I mean, you know, usually on essential spend that tends to be driven more by debit card transactions and non-essential spend tends to be more where credit cards are deployed. So I think that's a good lead indicator to see non-essential spend pick up. There's more propensity for that to improve card balances. It's a good lead indicator.

And sorry, just one more thing, just to make sure that we both agree that the PRAs said that you can return to more normal level, more normal board level transactions. capital decision making in respect to the half year unless, you know, with normal caveats around the economy not falling apart, etc.

Yeah, look, I, yeah, and we'll talk about more of that when the time's right. I think, let's get through this season, let's get through, you know, whether the reverse stress test and various other things. But look, getting capital back to shareholders' hands is a clear objective for the board here, and hopefully our actions this morning are a good demonstration of that, where we've Distributed, I think the maximum that was allowed under the existing guardrails.

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Great, thanks. OK, thanks Joe. Can we have the next question please, operator?

Sure, the next question comes from Jonathan Pierce of Numis. Your line is now open.

Morning all. Two from me as well please. Hi there. Firstly, the NIM in the UK Bank. Could you give us a sense of the trajectory of the NIM as the year goes on? I presume we're just stepping lower and lower through the year such that we probably exit below 2.4%. Would that be correct? And maybe as part of that, can you give us an idea of what you're thinking on mortgage margins as the year goes on? I notice you're leading the charge back down in terms of some of your headline rates. The second question is on just a technical one I guess on capital headwinds in the first quarter you've got still quite a big unhedged bond portfolio and looking at the report and accounts 25 basis points shift up in the yield curve hits you by four or five hundred million pound which hits capital as well so is it based on where curves are at the moment given a big move up in the last few weeks is there another headwind coming in Q1 maybe 15-20 basis points from the bond portfolio revaluation thanks a lot

Yeah, thanks Jonathan. Why don't I take both of them as well? NIM trajectory, it's actually quite a difficult one for us to forecast because you've got a few moving parts on there. You've got the yield curve itself. Now, that's obviously been steepening in recent times. That probably wasn't put into when we were sort of running our own projections. And who knows if that continues to steepen or flattens out again. We don't know. Obviously, steepening is helpful to us, probably more helpful in the out years, but will have some benefit in current year. Front book mortgage margin is, of course, another one that's going to be driven by sort of dynamics of supply and demand in the mortgage market. It's held up actually reasonably well and some of the headline rates that you see, I know people do scan and pick up, just got to be careful that you correlate that to where most of our production has been and is likely to be. So we do expect in the forecast we gave some moderation to front book mortgage margin, but it's actually probably held up kind of OK actually, a bit better than perhaps we might have forecast. Now again, The real thing here will be what happens on the other side of the stamp duty holiday, if you like. The Chancellor will announce what his plans are around that at the March budget, so I think we'll have a better picture then as well. Volumes also, I guess, is another one that's not that straightforward to forecast again in an uncertain year. Mortgage volumes have been actually, again, pretty robust, so I think that's probably... helpful. And the earlier question, Jonathan, on the recovery and unsecured balance, of course, it's a very high margin product. If there is an increase in non-essential spend, then you'd probably see an earlier recovery in unsecured balances, and that may be helpful in the margin. We try to be cautious in all of these, and things have moved pretty fast. The yield curve has steepened a lot probably since when we were doing this, and Quite frankly, the pace of vaccine rolled out is probably surprised us a little bit as well. So yeah, let's hope that that optimism continues, but we shall see.

So sat here today, the message then actually you think all else equal based on what you see right now, you could do a bit better than 2.4%. It's possible.

Of course it's possible. The brain person sitting here in the sort of sixth week in February is forecasting the next sort of, you know, 40, six weeks or something of NIM. But yeah, at the moment, look, the dynamics are probably marginally helpful. I'd agree with that. In terms of just the other point, Jonathan, on the trajectory, no, I wouldn't expect us to be below or well below 240 basis points at the end of the year. We'll be sort of gradually grinding down on the current projections, but not sort of going well below 240. Your second question, is there another headwind due to sort of AFS or fair value of OCI? Not really. It's not significant. If it was, we'd have called it out. And the other thing, of course, is when you have significant moves in currencies and yield curves, typically that's a reasonable trading environment for the other side of the businesses. And that's obviously a very important part of OCI. of our opportunity set here. So no, I wouldn't call that a headwind.

OK, thank you.

Thanks, Jonathan. We have the next question, please.

The next question comes from John Pease of Credit Suisse. Your line is now open.

Yeah, thank you. So my first question is, Could you help us maybe size the material improvement in impairments you're expecting for 2021? A few European banks have suggested that the impairment level might come back close to a through-the-cycle rate. If I annualise your second half 2020, that's probably similar, a little bit above your through-the-cycle rate. Do you think you could sustain that H2 2020 run rate in impairments for this next year as you think about things? And then if I could just ask a little bit about the investment bank and how have you started the year in 2021? I think you mentioned you were well positioned. A few of your peers have talked about revenues being up year over year. Has it been the same for you? Thank you.

Yeah, thanks, John. John Peace and Jonathan Pierce. Well, this is going to be a tongue twister for me, but hi, John. The impairment and where we are, yeah, I mean, you're right to point out we've also been running at a relatively low run rate, both in the third quarter and the fourth quarter. Really, the big wild card here is when or if do we get to see the defaults that our models are forecasting? And we're not seeing it yet. You could make the case that there's going to be plenty of government support out there, in which case, We don't get to see those levels of unemployment or that in that degree of consumer stress and we may end up being over provided. But we're trying to do this as straight as we can, so we've actually even called out in our slide this morning. Have we just let the models run by themselves?

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We would have had a lower impairment balance as a result of that by about 1.4 billion. We've taken up what's called a post-model adjustment to supplement where the models were. And that's really because, you know, the models... just can't cope with this sort of very unusual sort of economic picture that we're in at the moment with sort of, you know, big fluctuations on quarter on quarter in economic data. But look, at the moment, it's fair to say that the impairment picture, the underlying credit picture looks incredibly benign. You can see that in our corporate, for example, the fourth quarter tends to be the highest quarter for corporate defaults. And you can see we only have 52 million in the fourth quarter. And that's extraordinary when you think about all the headlines that you're reading. haven't really budged on our unsecured credit. So it looks pretty benign, but I think we need to wait and see when we're on the other side, if you like, if the economy is reopening. Jess, you might want to add anything on that.

On your second question, John, about the IV in the first quarter, we don't comment during But I would say, or highlight a couple things. One, last year was a very robust market for the capital markets. We underwrote about one and a half trillion pounds worth of debt for sovereigns and corporates. That's in the public inventory now. And the corporate bond market itself grew by 40% over the last two years. And that drove a lot of the secondary market activity, underscoring the market's performance last year. Also, we grew our market business last year about 45%, whereas the overall industry grew about 20%. So we continue to capture market share. I'm sure you saw the commentary this morning from Credit Suisse and Deutsche Bank. So I'll sort of leave it there. Thanks. Any questions, John?

Yes, the next question, please, operator.

The next question comes from Alvaro Serrano of Morgan Stanley. Please proceed with your question.

Good morning. Thanks for taking my questions. There's one follow-up question on the NIM guidance in UK, please. The 240, so that's 16 basis points reduction versus the Q4 level. Can you maybe, I know it's difficult, but quantifying in terms of your assumptions and the way you think about the guidance, how much of that reduction is structural hedge versus consumer or lending mix? So we can maybe draw our own conclusions around the recent steepening and views. And second, on the cost outlook, In the past, you've given more specific cost guidance. I realize you've taken some restructuring charges, and you've also called out that COVID expenses will remain elevated, I think is the word you used. Maybe you can give a bit more detail. It's easier to get detail by division. I don't know if you can comment on BGK outlook versus the overall group. Thank you.

Yeah, thanks, Alvaro. Why don't I handle both of them. In terms of NIM in the UK, I mean, the first thing I would say is just to sort of contextualize this, of course, you know, one of the comments that you probably picked up from our releases this morning in our slide where is net interest income for Barclays is somewhere around 35, 36, 37% for the group of the UK net interest margin is is only a portion of that, so it's a relatively small part of our top line. The bulk of it is in fee and other types of activities, but nonetheless, of course, an important area. In terms of the mix of that and structural hedge contribution, I guess two comments I'd make on that. As I mentioned a little bit earlier, Alvaro, you know, we haven't captured in sort of latest yield curve moves and probably that's what's prompted your question. So, you know, the steeper curve, how much of that might influence. The only thing I'll do is there's a slide in our appendices, which I'll get the IR team to point you out if you haven't already come to it already, where we've given a sort of sensitivity slide to an interest income for upward shifts in the yield curve and downward shifts in the yield curve. Now, these are I'll be careful with these because we're assuming parallel shifts and it's very complicated to start cleaning slides for steepening and shallowing and various other shapes. But at least it gives you a sense of the sensitivity. It tends to affect more the outer years, but if there's a steepening, as we've seen, and it stays or continues to steepen, it will have some benefit into this year as well. I'll probably leave it at that, Alvaro. The other thing that may be helpful actually is from our margin disclosures, you'll be able to see the notion or the fetches that we run and the contribution that the gross fixed leg has. So you'll get a sense of the all-in yield and you can make your own assumptions as to what that might refinance and model that accordingly. The final comment I'd say is... We do expect balances to grow this year, interest earning balances to grow, and they did grow last year as well. So NIM, of course, is one part of the equation for an interest income. And I know you guys know all this, but just for the fear of stating the obvious, you need to take a view on balances as well. And there we do expect a decent growth in the mortgage business. And we like to see growth in the unsecured business. We haven't seen that yet. To the earlier question from Joe, I think it will really be predicated on when non-essential spend returns and how quickly that transmits into revolving credit demand. Costs. Structural sort of cost actions is a way of life for us. We don't call it restructuring. We don't put it below the line. It's something we do every single year. We've given you some comparisons in the past. We will do some more again. in 2021 and we'll include it in our overall cost line and not try and be clever about reporting things above and below so you can see the full effect of that. I think the good news is given the diversification of the top line, particularly some of the strengths we've seen in the CIB and we're optimistic about that as we go into 2021, that will give us the capacity to, first of all, continue to in some of our consumer franchises. We really like those businesses. We'd like to diversify, for example, our US car portfolio. We're very excited about the UK mass affluent wealth proposition. We like transaction banking. We think we've got very good positions there. And the diversification of the top line does allow us, in addition to the efficiencies that we'll naturally create and capacity we'll create in our cost line every year to continue to invest, I haven't given guidance by division And I don't think we'll do that at this stage. It is again, it's an uncertain world and I think it's difficult to give precise guidance because look, we don't really know when economies are coming out of lockdown and what the economies look like on the other side of lockdown. We're probably feeling more optimistic than we were when we were probably writing a lot of this, but it's a sort of a fast moving picture. So probably more to come at the right time. Thank you. Thanks, Alvaro. Could we have the next question, please, operator?

The next question comes from Benjamin Toms of RBC. Please go ahead, Benjamin.

Good morning. Thank you for taking my questions. The first is on the CIB. So it's performed well this year and the market share has materially increased. Do you see yourselves continuing to take the same market share gains in the IB or is it a lot harder work to win share from here? And then secondly, just on real estate optimization, which you've spoken about before, there's not much detail about that in the slides. Is that because it's a 2022 thing? It's now not the right time to go faster and harder on branch reductions. Can you just give some more color around real estate optimization, please? Thank you.

Yeah, Ben. On the market share side, obviously we have good momentum in the IB through every quarter of last year. And across equities and macro and credit.

So yeah, we hope to continue to gain

to gain market share. And also, we do expect the size of the market to continue to grow and that supports the financial performance of that business. In terms of branch closings, the consumer in the UK is definitely moving to interactions with Barclays through our digital channels. Our sales through the internet and our payments business were up over 30% last year. And the usage of our mobile banking app, for instance, also was growing at a very robust pace. So as that transition happens and our consumers engage with us, and we advance our digital offering, branches get used less. And we're going to be very prudent in how we deal with branches. We still have over 700 in the UK, but I think you gradually see that number go down as we have over the last couple of years. So yes, I mean, there will be further branch closures.

Thanks for your question Ben. Can we have the next question please operator?

The next question comes from Rohith Rajan from Bank of America. Please go ahead.

Hi, thank you. Good morning. My first one, sorry, it's another follow up on the BUK NIM. The slide that you mentioned before on the structural hedge rate sensitivity, would suggest something like a potential 100 million uplift from the moving rates that we've seen in recent weeks. So I just wanted to check that that's roughly the right ballpark. And in that 240 guidance for BUK, what are you assuming in terms of cards balances, I guess, on average through this year? And then the second one was on CCMP. I guess there are obviously two parts to that business. So in reference to an earlier question, I think you suggested that the payments part of the business should sort of track spending trends. Is it fair to assume that the mix of the cards business probably means that that lags the broader trends in US card balances, given the sort of bit more exposure to travel and leisure?

In terms of the structural hedge potential upside from the sort of recent steepening in the curve, I don't want to sort of quote too much around whether it should be $100 million. The reason I say that is, you know, the slide you're referring to is sort of parallel shift rather than steepening and, you know, five-year rates and ten-year rates are all up. It's directionally positive, but I'm reluctant to give you a precise number on that, but it's a positive, and I'll just leave it at that right here. The 240 basis points NIEM guidance, we actually assumed UK card balances would be flat to maybe even down slightly. Now, that's obviously, when we're making all of these projections, the world moves so quickly that maybe too cautious and maybe economies recover quicker and normal central spend picks up quicker. So we'll have to see. As you know, Roy, it's a twofold thing. First of all, you've got to have the spend sort of in the right categories the demand if you like and then the credit appetite as well so we'll see how that goes but we were rather cautious in our forecast expecting card balance to be flat maybe even slightly down a little bit in the CCP segment in terms of the US card balances yeah I mean it will follow spend so again in some ways the good news about the US market is people value these rewards. And they're not just spending because they need unsecured credit. They tend to value these. It's a very slightly different dynamic. And of course, the cards that we have are very much non-essential spend, travel, entertainment, hospitality, leisure, et cetera. So if spending in those categories were to come back, and the case may be that it ought to start coming back over the course of this year, you'll see some benefits flowing through. Probably in the second half of the year rather than the first half of the year, there is a timing sort of thing when people start booking their travel and holidays and all that. By the time it ends up on your card balances, there's some sort of lag. But probably be a bit more quicker to see that recovery in the US, just the nature of the business in the US and our partnerships in the US relative to the UK.

If you see the payments business in the UK, We've made a significant investment in the technology which runs the merchant acquiring business and we're starting to see that have an impact, particularly as I said, through Internet sales and whatnot. We're also connecting all of our applications that run our small business banking group with our merchant acquiring group, and that will also have, I think, an impact on the growth of our merchant acquiring business, particularly in the small business space, which is where the profitability really lies.

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Thank you. Could I just clarify on the UK cards balances? When you say you flat to down year on year, are you talking about the year end position? I presume you're talking about the year end position rather than the year end.

Yeah, so by the time you get to point to point, 31st of December, 31st of December, we thought it would be flat, maybe marginally down. And hopefully we'll get it on that.

Thank you very much.

Thanks, Robert. We have the next question, please, operator.

sure the next question comes from ed firth of kbw your line is now open good morning everybody um just a quick question on on the capital headwinds um the two areas that i was just wondering about one is procyclicality i think in the past you you talk about five billion or something at the half year as a sort of procedure the orders of magnitude number is that have i remembered that wrongly that was the first one um and then secondly you you highlighted in your words Regulatory forbearance that would be coming back this year. Can you just remind me roughly what we're talking about in terms of numbers for that as well? Thanks.

Yeah, so on the second part of your question, Ed, regulatory forbearance, a good example is PVA, which was sort of granted in the, I think it might have been the first quarter of last year and it reverted on the 1st of January. So that's one example. I think software capitalization, I probably put it as a similar example where PRA has been quite straightforward in saying all along that they never considered it to be good capital, so they'll no doubt reverse it, and it looks like they'll do that during 2021. So those are probably the two clear examples that come to mind. I think all in all, though, Ed, I'd still sort of come back to the broader point there. I just wanted to be help you with your model and there are headwinds out there but you know we're still well above our stated sort of guidance in terms of target ratio and we expect to be generating capital, net capital over the course of the year so just in the round we're still pretty comfortable with everything.

And it's a criticality number, have I remembered that correctly? I'm not saying that I want to put that in my model or anything but just to get a sense.

The number we called out was 10 billion of pro-cyclicality that we've seen in 2020. I can get the other guys to sort of just point you to the right direction of the table. The RWA table will probably, you can sort of disentangle that and get to that number. What it will be for this coming year, that's a tough one to forecast. It's actually surprised us on the downside. A lot, you know, I've guided to this sort of practical cavity kind of coming in Q2 Q3 and Q4. I guess I'm going to stop guiding at some point because it hasn't happened yet, but you know if you if you believe sort of conventional thinking that at some point the stress in the economy results in default, you ought to see some prospects county, but you know it hasn't happened yet and it's. Not happening in the near term play that way.

Sure, OK.

Thanks Ed. Next question please operator.

The next question on the line comes from Jason Napier of UBS. Please go ahead.

Good morning, thank you for taking my questions. The first one I guess for Tushar just coming back on the commentary around costs. You've retained your sort of medium term 60% cost income objective and I guess where consensus is now is that costs are going to be broadly flat this year with revenues down 5%. I would have thought that coming into 2021 with probably a higher headcount than planned and those strategic costs for last year and COVID costs in the base that better than flat would have been consistent with what Jez has said in the past about delivering a sort of a stable cost income ratio and CIV over time. I just wonder whether you might give a bit more concrete guidance on the direction of travel for costs in aggregate. It doesn't seem sensible, unless there was an awful lot of investment that didn't happen last year as a consequence of COVID, not to have better flex and costs if revenues are going to be down as consensus expects. So that's the first one. And then secondly, as you've already highlighted, the risk overlays that you've had to apply throughout the second half of last year are mammoth. and everyone continues to be positively surprised on the lack of movement into stage three. I just wonder, the coverage levels you've got are huge and rising still. How confident are we, given how long this has been going on, perhaps that the stage splits are right? If we can be sure that stage two is as big as it ought to be, then perhaps we can think about what provision releases might be sensible into the second half. Do you have a good handle on which of your customers are recipients of furlough aid and so on? Because clearly the payment holidays are almost all gone now and yet things continue to proceed really very strongly from a credit perspective. So I guess if you could just talk to confidence around staging splits and coverage, that would be helpful.

Yeah, I'll do them in reverse order, Jason. So on terms of staging splits, On many of our customers, they do have current account relationships with us. Of course, for those customers, we have a lot of insight as to their specific situation. it's an open market product that we have in our unsecured books. So you don't have to be a current account customer to have a credit card with us. And if you're not, obviously we have less visibility in your specific circumstances. I would say though, I think at the end of the day, we don't have any historical data to calibrate this to either. So we are being, I think in our words, appropriately cautious. And you can see that in the words you used, the risk overlay. If this turns into a relatively smooth adjustment, and I think the real unknown here is of course the involvement of governments and the fiscal response and what will happen here. There's a think tank that I think announced their report this week already talking about staging out furloughs and things like that to kind of make a smoother transition as possible. If that were to be the case, then unemployment levels really don't go anywhere near where our our MEDs are currently being modeled, then there's a case to say we may be over-provided. We'll know in good time, but we've tried to be as transparent and as open as we can. The other thing I think that's in there as well that is, again, a very hard thing for the models to pick up is the glut of savings. you may have higher unemployment levels, but you've got a lot of cash sitting in deposit accounts, and that may lessen the stress, and balances have fallen as well. I think this has all surprised us as to look at the key three, key four, and even into key one, how benign credit is looking. I think it's surprising all of us, but we'll be on the other side of the lockdown it feels like soon enough, and we'll know for sure. On costs, Yeah, I think I think for us Jason is we. You know the cost income ratio is an objective for us and it's something we manage sort of not trying to rush to get to anyone particularly. We try and manage the company for the medium term and so it is important that we continue to invest and cost income ratio is as much a function of income as it is costs and we have some areas of growth on the top line that we are very excited about. You've seen that in the CIB. I think in terms of market share pick up there, there's potentially more to come. We're doing really well in some of our electronic trading capabilities. We're doing really well in Securiply's products as a relatively small product set for us, but growing extremely quickly. In equities as well, you've seen probably the last six months of the year, um probably our performance in our equities trading line which is which has been quite interesting for us equity capital markets is another really interesting area for us in uh building out that franchise that's doing really well at the moment um and in the consumer businesses you know we'd like to diversify our cards portfolio aarp the american retirees portfolios coming online this year i just talked about some of the the investments we're making into our payments business so I think it's important for us to continue to invest and focus on the top line as well. And with the way we're able to do that is because we can generate capacity for our ongoing efficiencies during the course of a year like last year and a year like this year to fund that without expenses climbing in a way that doesn't make sense. But that's how we think about it. And ultimately, to get to a the right sort of shape of the company, we've got to think about the top line and not just the cost line when we look at cost-income ratio. I don't know if there's any more you want to say on that, Jess.

Let me just add, another line of growth that I think we'll start to articulate more explicitly relates to our point-of-sale financing. We have a terrific partnership with Amazon in Germany. That's their second largest market. They have 40 million consumers that regularly use Amazon online. We have a great partnership with Apple in the UK. We fund all of the iPhones and tablet sales on an installment basis. Those are just two examples. We are rolling out our port of sale financing as we build out the payment space.

Thanks for your question, Jason. Thank you. Can we have the next question, please, operator?

Your next question is from Guy Stebbings of Exane B&P Paribas. Please go ahead.

Morning. Thanks for taking the questions. First, I just wanted to come back to costs, and then I had a question on sort of longer-term consumer balance outlook. So on costs, just focusing firstly on the CIB, costs were broadly flat this year despite the very strong revenue performance. I know in the past you've talked about your cost base being less variable on the CIB than some US peers, but even so one might have expected a higher cost. If consensus is right for 2021 and CIB revenues are markedly lower in 2021 than 2020, appreciate that might not be your view, But if that was the case, should we expect a reasonable drop in costs, especially given some of the FX movements as well? And I appreciate it's hard to guide on cost income this year, given the uncertainties on top line. But to the previous questions on sort of efficiency gains, perhaps structural cost charges are flat or down this year or last year. Perhaps the levy should be lower. I mean, I think that the absolute cost base should be near a 13.5 or perhaps lower in 2021 and consensus somewhat higher. And then the second question is just on consumer balances longer term. I mean, we've seen your UK consumer balances decline over 30% since the start of 2020. They're still declining and not the similar situation in the US. As we look further ahead, I'd be interested to get your views on how many years it takes to recover those balances. Would your central assumption be that we just model low, mid-single digit as the recovery takes hold per year, which would take 10 years to get back that balances, or given the very unique nature of this crisis, It could rebound much sooner than that. Thanks.

Yeah, well, then I have a start with both of them. Cost in the CIB. Of course, there is flex there in terms of the bonus pool, and we've made that, given the sort of framework that we're operating in, sort of the bonus cap framework here in, I guess, still for us in the UK, as flexible as we can. We made some changes, I think, when Jess first arrived to give us that. So there is some flex there, and we'll be judicious about the pace of investments and all that, but I'll go back to your earlier comment, Guy. We probably do have a different view of the income outlook than you may have, not you specifically, but others in general may have. And I think the investments that we've been putting into the CIB have been rewarding us quite well, and so we'll continue to balance that appropriately. In terms of consumer balances, I can't imagine it's going to take that long to recover. I think, you know, we're living in very sort of a weird sort of contraction that's been very dramatic. I don't think you'll see a sort of steady sort of multi-decade buildup as we've seen in the past. I think the other thing, as Jeff mentioned, you know, unsecured balances, cards are important, but, you know, point of sale finance, you know, customer behavior is changing, particularly younger customers, much more... into the sort of installment financing at the point of purchase. It's great business for us. Just mentioned the Apple partnership in the UK. You know, we've got a tie-up with Amazon in Germany, and there's various other things that, you know, we'll talk about at the right time. So, you know, I think it'll be a more rapid recovery than that, albeit you've got to see an economy that's sort of, you know, back to sort of a more quote-to-normal level, whatever that is these days, and I think you'll see a relatively quick recovery.

I think, you know, when they... When they reversed the lockdown and all the shops and restaurants and stores I think the spring back in spending is going to be to the upside. So I would echo what Tushar said, that this is not going to be a sort of low single-digit grinded out over a decade. I think the response to the pandemic being over, given how aggressive the fiscal and monetary policy has been, is going to be strong, and we'll feel it in our numbers. Again, I go back as well. For the last decade, both our consumer businesses in the UK and in the US were generating consistently mid-teen to high-teens returns on capital. I think that is more a reflection of the fundamental strength of those two businesses than what's happening in a once in a century pandemic. And going back to the cost income ratio or whatnot, we get any sort of recovery to where those businesses look like in 2018 and 2019, and we hit our financial targets.

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

The next question comes from Robin Down of HSBC. Please proceed with your question.

Hi. Yeah, I just wanted to come back on the impairment side. I'm a bit confused, if you like, as to what you've done, because you've increased the macro, or you've moved the macro assumptions more positively since Q3. And then you've also changed the weightings of the scenarios towards the upside scenarios and away from the downside scenarios. And yet, at the same time, you've applied a billion pounds to imagine overlay. It just feels somewhat inconsistent. I suspect we're not going to get the answer to this, but are there any particular trigger points that you're looking at? Because I can't help but feel that as we come out of lockdown running through this year, that we should be looking for net releases to come through at some point in the second half. So that was just one question. If there's any particular triggers that you're looking at in terms of that, because I can't really see why you put the extra billion aside. And then second question on structural costs. Apologies if this was asked earlier on, but any kind of view as to what those look like in 2021 and what the payback might be from them? Thank you.

Yeah. So Robin, on the first question on impairment, the sort of more technical point, the weightings on the scenario, actually it's a function of GDP actually so the way the way these models work is they will take economic outlooks and a baseline economic outlook and then project scenarios either side of that two up two down and these are model driven weighting so it's just a function of model that model is based on historical data and how economies and the sort of confidence level or the different projections of baseline to actual worked out. That's purely just mathematics, if you like, behind the scenes. The PMAs, what that indicates is that it's a view of trying to... The challenge we have at the moment is the way the models were written were calibrated of previous business cycles. Previous business cycles, you never had such rapid expansion and contraction in economic data. And so what you tend to have is the model just exaggerates those moves. So when unemployment starts growing, it massively overshoots. And when unemployment sort of stops and starts falling, it just thinks the recession's over and it just releases everything immediately. And I think we'll all probably say at the moment that it's just hard to know for certain how the economy will adapt to a sort of post-lockdown world. I think we're close to that point. The early signs are that credit looks incredibly benign and governments are looking to do their best to smooth the transition. You know, were that to be the case, then we probably won't see the levels of unemployment that sort of the models are working off and we may be over-provided. But, you know, we'll know in good time. We've tried to be about these are how the models are currently working and what we're having to do to um try and counteract the the exaggerated moves the models may have um on costs we haven't called out um specific sort of structural cost actions for 2021 we do this every year if there's anything sort of meaningful and you know important and we'll call it out as we go along um but but nothing nothing to say specifically at the moment you know going back to the impairment you know i won the crisis

began, we wanted with the financial resiliency that the bank was showing and the level of capital that the bank was accumulating, we wanted to be prudent in the impairment line and obviously got our impairment reserves to 9.4 billion pounds, which given the size of our balance sheet is a very strong position to have. And then I think all of us are positively surprised by the degree of the government's both here and in the US and in Europe, indeed, response to try to maintain the economic damage being caused by the pandemic. And that is encouraging. And if we are coming to mass vaccine rollout that we've seen in the UK, that's going to make the credit picture much brighter for us.

If I could just come back. I appreciate fully that you want to be proven. know if we were all in charge of bark because we'd be doing the same thing but the reality is you know if the economic sort of outlook is as you forecast and we forecast and consensus forecasts it just feels like you've just sorted away another billion pounds that you didn't need well robin i mean we're trying to do what we think is the right level of provisioning for you know what we

We think we have it right, but you can certainly make the case that credit will turn out better than is forecast. And I'll leave that to others' judgment. We think we've got it right, but look, we're all looking at a crystal ball that we've never had experience before.

And you saw almost all the US banks released in the fourth quarter. And that's not because they got it wrong in the first quarter of last year. It's just they're reflecting what they're seeing on the ground. Yeah, OK. Great, Robbie.

Can we have the next question, please, operator?

The next question is from Chris Kant of Autonomous. Your line is now open.

Good morning. Thank you for taking my questions. I had a bit of a couple on costs and then one on effects, please. So the 60% cost income ratio target has been a medium term target for a while now. What's the timeframe to hitting that? And in terms of the mix of the business, how do you see the shape of the group in terms of profit splits going forwards when you're thinking about that 60% cost income ratio? Because if I look at controllable costs and income, so parking, litigation, conduct, and the levy, in 2019, the two consumer divisions generated 5.5 billion of pre-proven profit, and the CIV was 3.3. and for 2020 those numbers have basically flipped on their head and it's now 3.4 billion for the consumer facing businesses and 5.8 billion from the CIB from the commentary it doesn't sound great in terms of the consumer outlook and so what are you assuming there in terms of the longer term structure of the group because the CIB cost income ratio in 2020 was at the very low end of the industry, 55% for the full year, I think it was. So is that actually sustainable? You've never delivered that in the CIB in any previous year. It would seem necessary to assume that you can maintain that cost-income ratio to be able to get the group below 60 if the mix of the businesses is now so skewed towards the CIB. And then in terms of FX, you've talked in the past about 40% of revenues being in dollars. That was back in 2019, I think you gave that remark. What was that number in 2020, please, given the skew towards the CIB? And related to that, how much of your cost base, please, is in dollars? I'm just trying to think about the FX headwinds you're facing for 2021, which looks like it's going to be about a 7% to 8% year-over-year dollar headwind. Thank you.

Thanks, Chris. Why don't I take them? Look, the 60% cost income objective is something we've had for, as you say, some time. I think we were getting towards that sort of zone in 2019. In fact, we were a million miles away in 2020, but obviously 2020 was a year that none of us forecasted would be what it was. We feel we have the The diversification in the company, we've obviously seen a fairly sharp decline in the consumer facing businesses and a big pick up in wholesale. No doubt we would expect to see an improvement in the consumer facing businesses as economies recover and we'd like to continue to think that we can consolidate and continue to improve wholesale businesses have. With that mix in mind, we still believe we have a path to a 60% cost income target. It's very hard to be precise on, you know, it can only work if you've got this percentage in consumer, this percentage in wholesale. You have to manage it on a sort of a variety of outcomes, and we believe we can do that. We can't give you a year on it, obviously. You know, this is a It's a very uncertain world we live in, so I think it's very difficult to forecast with any degree of precision at the moment, but we still feel that that's an achievable objective for the company in a reasonable timeframe, albeit we won't give you the precise timeframe at this point in time. In terms of foreign exchange, yeah, you're right that we called out approaching something like 40% of our income was in dollars two years back or so. It's been a mixed bag this year, of course. The investment bank's done real well. And our cards business in the US, of course, has come off as balances have come down. So there's sort of pluses and minuses there. It's fair to say a stronger pound is a headwind for us because we are profitable in dollars and that is just who we are. So we don't give a sort of a cost breakout dollars because we obviously have folks in India, we have folks in all sorts of different parts of the world, so it's not quite as straightforward as that. But yeah, it's a headwind. The other sort of... I guess if you're going to model effects across all lines, Chris impairment as well. I guess all to be a tailwind. You know the. I'll see the consumer cards and payments. A lot of that US car driven and even on the. Investment banking sort of credit portfolio component of our credit books. That's very dollar denominated as well, so but you know.

We're going to keep the diverse five model Chris and again. the pandemic will get behind us and consumer business will start to grow again. And we'd like to keep that balance between the investment bank and consumer businesses. And in a normal economy, I think the 60% cost income ratio is very achievable given that we delivered 63% in a very abnormal economy.

If I could just follow up on the FX point, please. I mean, could you help us out a bit there? This does feel like quite a big effect for you year over year. You're not willing to comment on the outlook for CID revenues. You don't want to comment on group level costs. It would be really helpful if you could give us some breakdowns in terms of allowing us to get a sense of the currency effect. I mean, is it more than 40% of revenues in 2020 in dollars? I suspect it is. And I guess the percentage of costs higher than the percentage of revenues given that you're a UK domiciled bank with a group centre cost base which is going to be presumably more in sterling. Am I along the right lines there? Is it sort of 45% revenues, 50% costs or something like that?

Chris, I'm not going to comment on your numbers. Yeah, we haven't disclosed that I don't have disclosing stuff like that on the fly on a call like this, but suffice to say that you know we are profitable in dollars. A stronger pound is a is a headwind, but I'm not going to give you any more color than that. Maybe in the future will maybe break out the geographic splits or something like that, but. Who would say that? We have the next question please operator.

The next question comes from Rob Noble of Deutsche Bank. Please go ahead, Rob.

Morning, all. Thanks for taking my questions. Most of them have been answered, so just one quick one. You highlighted it would be tough to grow income in CCP. Do you think you could grow non-interest income in the UK this year? And how's the lockdown experience in January, February in terms of spending non-interest income been compared to last year? Thanks.

Yeah, I mean, real brief, Rob. Ron, sorry. But we'd like to think so. I mean, again, it's a little bit of a call on economic activity, but we'd like to think so. I mean, focusing on some of our fee-generating opportunities is important to us. We've given you some of the ideas where that is, certainly in the world of payments, certainly in the world of some of the wealth activities that we have. So, yeah, I think it's a priority for us, yeah, and depending on if we've got the right economic circumstances, there is a possibility we could do that, yes.

Thank you.

Thanks, Ron. I think we've only got one question left on the queue, so we'll just take the last question, please, operator.

The final question we have time for today comes from Martin Lightgeb of Goldman Sachs. Please go ahead.

Good morning. Firstly, could I ask on your market share ambitions in Barclays UK, and this is related to cards and mortgages. On cards, Barclays UK card balances were down more than that of Deere and more than that of the system in 2020. And equally, since 2016, there has been a de-emphasising of card growth in the UK, at Barclays UK. How should we think going forward? Should we think your market share and credit cards to stay roughly stable, or should that increase or decrease from here, given appetite and opportunity? And related to that, a similar question for mortgages. It seems like you're growing your flow share slightly ahead of the stock share in the UK. I know that the comparatively high excess deposit base now within Barclays UK, does that give grounds to maybe faster grow and share gains in mortgages going forward? And second question, if I may, more broader, just on the regulatory framework in the UK post-Brexit. how should we think on a kind of a medium-term basis the regulatory frameworks to evolve? We have seen software intangible treatment being slightly tougher compared to some of the other regulators. Is that the direction of travel or could they equally be items and elements where the regulatory framework could make things easier from a Barclays perspective? So I don't know, ring fencing or if anything, all the way around, if anything, you would wish for which would change in terms of regulatory framework going forward? Thank you.

Yeah, thanks Martin. I think in terms of market share of our consumer businesses, cards and mortgages. Cards, you know, we've sort of said quite openly that actually this is going back a long way, but from the time of the Brexit referendum that we were taking a very cautious approach in UK credit. um we're probably a little bit early but glad we were cautious sort of leading up to a pandemic which of course none of us forecast it probably just turned into a better um net pnl outlook for us because late vintage lending is where you you typically take most of the pain um i think from this point on um now we're on a different part of the cycle i think you'd expect us to um if anything possibly even lean into risk um you know as you sort of go into an upswing um so i certainly wouldn't expect our market share to on increasing it again. Mortgages is likewise. We are running our natural stock of mortgages. We're running well above that at the moment and I think that's something we would be minded to continue to do as long as the returns are there. We're very focused on the risk-reward balance at the moment. I think it's a very attractive business from our vantage point. you know you would like to increase market share probably in both but uh for probably slightly different reasons mortgages were probably already doing that and i think for uh unsecured credit i think we're at a point in the cycle where we'd want to be leaning into that and again i just mentioned in the past it's not just cards unsecured credit can take um different forms um different forms of lending so we would look at that in the round as well i'd also add that you know if you look at the challenger banks uh and the digital banks

They clearly have headwinds and challenges. And I think that always makes our market share more defendable. And I think you'll see that happening over the next couple of years.

Thanks for your question, Martin. And I think that's all we have at the moment.

On regulation?

Oh, sorry. Okay. Real brief on regulation. I'm not sure there's much insight I can give you on that, Martin. The PRA were very involved in, I think, influencing the European rulebook. So I think a lot of what they would want to see probably made into the rulebook and the bits that they probably didn't agree with, for example, software capitalization, they've been pretty open and straightforward about. So I'm sure things will evolve over time. I think they're very sophisticated, very extremely responsible and balanced regulator and I expect they'll be continuing that thing. But I don't have any sort of greater insights to any big changes that they will do or not do. I'm not sure I've got anything to comment on that. Okay, with that, thank you all, everybody. I'm sure we'll get a chance to speak to some of you over the videos, I guess, in the days to come. With that, we'll see you later.