Barclays PLC

Welcome to the Barclays Half-Year 2021 Results Analyst and Investor Conference Call. I will now hand you over to Jeff Daly, Group Chief Executive, and Tushar Mazaria, Group Finance Director.

Good morning, everyone. I'm joining you from New York this morning while Tushar is in London. I am pleased to report that Barclays has had a strong first half of the year. Our financial performance has been good, with robust revenues and profitability. and we have had opportunities to grow our business further. I'm also particularly pleased that we have been able to increase distribution to shareholders. Throughout the COVID crisis, we have demonstrated support for customers and clients at a time when they really needed it. I'm mindful we will need to continue to do that over the coming months and that this pandemic is not over yet. But we are seeing encouraging signs that the global economy is recovering. and this is reflected across Barclay's businesses. We've had a good start to the year, with group profit before tax of 5 billion pounds. That's quadrupled the same period last year. Earnings per share were 22.2 pence for the first half. For two quarters running, all three of our major lines of business have delivered double-digit returns on capital. Our return on tangible equity for the group with 16.4%, and we expect to be able to deliver our target of above 10% RODI this year. We remain in a strong capital position. Our CT1 ratio is 15.1%, which is above our targeted 13 to 14% range. That strength means we have been able to increase capital distributions. We have provided a half-year dividend of two pence per share, and we will initiate an additional share buyback of up to 500 million pounds, following the 700 million buyback we completed earlier this year. Improved macroeconomic conditions resulted in a net impairment release of 797 million pounds in the second quarter. We will continue to maintain prudent impairment coverage ratios over the coming months, and we will also be careful to gauge the real economy as government support measures are lifted. But it's very important to note that even without impairment releases, the group's return on capital would have been above 10% in both the first and second quarters. We're also managing our costs appropriately, with a cost-to-income ratio of 64%. Our base costs remain stable, but we have taken a number of structural cost actions in the second quarter, most notably reducing our real estate footprint in Canary Wharf, London. Excluding the structural cost actions, our cost-to-income ratio actually, for the half year, was 61 percent, close to our 60 percent target. We're also focused on investing in the right parts of the business to deliver future income growth. That means investing in talent and technology in the investment bank as the capital markets continue to grow. It means investing in the corporate bank, particularly in Europe. It means investing in our U.S. consumer franchise organically and through scaling up our U.S. card partnerships. And it means continuing to transform our U.K. payments capabilities through technology, most notably in merchant acquiring and small business banking. Our performance continues to benefit from the breadth of our business, with our income diversified by type, by customer and client, and by geography. I'm pleased to see the strong performance of the investment bank continue for another quarter, demonstrating the sustainability of the franchise. One of the drivers for this is the continued growth of the global capital markets themselves. Since 2018, there has been a 53% increase in the market capitalization of global equities and bonds outstanding, and we reflect in our business that increase. As more and more businesses and institutions use the capital markets as a source of funding, Barclays is well-positioned to continue to benefit. I'm encouraged by the improved performance we have seen in Barclays UK and in our consumer card and payments business. Both businesses have benefited from the economic recovery and we have taken actions to improve future revenue growth. Many of our leading economic indicators improved in this quarter. UK debit and credit card spend was up 11% in June versus the same month in 2019. US card spend has almost recovered to 2019 levels. It was up 21% in the second quarter compared to this year's first quarter. Unsecured lending balances have lagged spent, with U.K. car balances down 300 million pounds in the second quarter. Recovery in consumer spending in both the U.S. and U.K. is encouraging, but it will take time to rebuild interest-earning balances. Mortgage growth, however, remains robust, with the portfolio up 3.3 billion pounds in the second quarter. And applications continue at elevated levels and pricing is at attractive margins. As I've spoken about before, we're excited about the development of our payment services, particularly our new Barclays Q platform. Taken holistically, payment activities represent some 8% of total group income. As I said in the first quarter, we believe there's a 900 million pound income growth opportunity for Barclays in payment over the next three years. In the first half, we've already seen evidence of this growth, with payments income up approximately 15% year-on-year, or around 120 million pounds. We continue to expand our digital capabilities with merchants, and have worked in collaboration with the CIV to deliver better services. This quarter, we have successfully integrated a number of solutions into our corporate bank iQuartel platform. To take just one example, clients can now manage both their merchant servicing accounts and their bank accounts, without needing separate login credentials or processes. We've also launched a new platform to deliver our franchise FX capabilities to e-commerce merchants. We have established new client relationships, as well as strengthened existing ones. I'm delighted that a leading UK supermarket has recently decided to consolidate all of its famous processing with Barclays. Like so many of our partners, they're also leveraging some of the next-generation services we offer through Barclays Q, including things like point-of-sale finance, using data, and analytics. We remain focused on the sustainable impact of our business and on our role in society. I'm extremely proud of what we've been able to do to help people during the pandemic. To date, our 100 million COVID-19 community aid package has supported over 219 charity partners around the world. Our colleagues have raised more than 13 million pounds using our matching gift program. All that money has gone to charities delivering COVID-19 relief. As we approach the COP26 meeting in the second half of the year, we also continue to think deeply about our environmental impact, specifically how we can best support the global economy's transition to low carbon. The Paris Agreement sets us on a clear path to make that transition, and the world has come together behind it. Barclays shares that commitment. That is why we were one of the first banks to set an ambition to be net zero by 2050, not only for our own operations, but across our entire portfolio. That means we are accelerating the transition through the way we deploy finance, helping companies of all sizes, from startups to global corporations, At the smallest scale, via Barkley's principal investments, we have a sustainable impact capital initiative to invest 175 million pounds in new companies. This helps these new companies get the early stage capital they need to finance their growth and to innovate new technologies. Companies like AirX, a clean tech company helping to reduce energy consumption in homes. So far, we've made seven similar equity investments. all over the world, and we have a very strong pipeline. At the other end of the scale, we're using our financial and capital market expertise to support large companies. We're helping them raise money through the equity and bond markets and advising on M&A transactions. Take electric vehicles as one example. This year, we helped a company called Blank, who make charging equipment, raise over $200 million through the equity markets. We also led a $400 million placement for an electric bus manufacturer called Proterra. Both these companies are making a significant contribution to scale up low-carbon transport networks in the United States. So let me close by repeating how pleased I am with our first app performance. It provided a strong platform on which to build in the second half of the year and beyond. Our balance sheet has never been stronger, and we will remain focused on returning excess capital to shareholders. As the global economy continues to emerge from the pandemic, Barclays remains fully committed to playing our part. Now we're going to take you through the quarterly numbers in more detail.

Thanks, Jess. As usual, I'll start with a summary of our H1 performance. We again saw the benefit of our diversification as the strength of the CIB continued to offset the effects of the pandemic on our consumer businesses. Overall income decreased 3%, but this reflected the weaker U.S. dollar. And on a constant currency basis, income was up around 2%. Costs increased by 0.6 billion to 7.2 billion, including the structural cost actions we flagged at Q1 of 0.3 billion. It's also reflected higher performance cost accruals due to improved returns. I'll go into more detail on the other cost drivers shortly. After a small impairment charge in Q1, we had a large release in Q2, giving a net release for the half of $742 million compared to a charge of 3.7 billion for last year. This resulted in a PBT of 5 billion, a significant increase on H1 last year. The EPS was 22.2 pence, generating an ROT of 16.4%. The CT1 ratio ended a half at 15.1%, well above our target of 13 to 14%. This has put us in a position to declare a half-year dividend of 2 pence, and announced a further share buyback of up to 500 million, falling on from the 700 million buyback completed in April. Turning now to Q2. Overall income was up 1% on Q2 last year, but was up around 7% on a constant currency basis. We saw some increase in the consumer businesses and the CIB performed well against a strong comparator. Cost increased by 10% or 0.3 billion, reflecting the structural cost actions principally a charge following the real estate review we mentioned in Q1. The improved macroeconomic outlook and lower unsecured balances resulted in a net impairment release of 0.8 billion compared to a charge of 1.6 billion last year. The profit before tax was 2.6 billion, up from 0.4 billion last year. In light of the corporate tax increase scheduled for 2023, we have recorded a benefit of about £400 million through the income statement for re-measurement of UK deferred tax assets, although this will largely reverse in the course of next year if the proposal to reduce the bank's surcharge is enacted. As a result, the effective tax rate in the quarter is lower than we would expect on a normalised basis. Of the income statement benefit, close to half is offset through reserves. The tributable profit for the quarter was 2.1 billion, generating an EPS of 12.3 pence, and an ROTE of 18.1%. I would remind you, these are all statutory numbers absorbing a litigation and conduct charge of 66 million. PNAV increased from 267 to 281 pence, principally reflecting the 12.3 pence of EPS, and also one pence from the completion of the April share buyback. A capital position strengthened in the quarter with a CQ1 ratio increasing to 15.1%, driven by robust profitability and reduced RWAs. A few words on income, costs and impairment before moving on to the performance of the businesses. I've already mentioned the benefit of diversification, which is visible in the Q2 income performance. CIB income was down against a tough Q2 comparator, but the investment bank performed strongly versus peers. Meanwhile, we saw some increase in BUK income, which was up 11%. In terms of outlook, the CIB remains well-positioned despite the currency headwind and some moderation in FIC activity so far this year. The income outlook for the consumer businesses, BUK and CCP, reflects a continuing tailwind in secured lending in the UK with the prospect of a slower recovery in unsecured lending in both the UK and the US. The BUK mortgage business had another strong quarter with 3.3 billion of organic net balance growth. In unsecured, we saw further balance reduction in UK cars by $0.3 billion to $9.6 billion, and although the US car balance has ended the quarter up at $20.1 billion, this increase is weighted towards full-payer balances. We are now seeing clear signs of recovering consumer spending in both the UK and the US, but as we flagged at Q1, the building interest earning balance is expected to take some time to materialise. And to remind you that the translation of recovery in card balances into income and profits will be affected by the so-called J-curve as we invest in partner and customer acquisition and in card utilization. This is expected to dampen returns initially as we reinvest, but over time will leave the consumer businesses well-placed to generate attractive risk-adjusted returns. We still expect a headwind to NII from the role of the structural hedges, given the low-rate environment, However, the recovery from the trough in yields since year end, plus a slight extension to our hedge maturities, mean we currently expect the headwind from the roll of the hedges to be around 300 million this year. The low end of the range I referred at Q1. Based on the current yield curve, any further headwind next year would be materially lower. Note that this is based on the current sizing of the hedges. We are still considering whether to increase the hedges and have identified 20 to 25 billion of additional potential capacity. Were we to do this, the headwind next year would reduce further. I would note that most of this potential increase would be in Barclays International rather than the UK. Looking now at costs, we plan to keep our base costs close to flat this year. That's costs excluding structural cost actions and performance costs. In Q2, we implemented the structural cost actions we mentioned at Q1 results. The charge was 0.3 billion, resulting in Q2 costs being up 10% year-on-year at 3.7 billion, and a 67% cost income ratio. Across the first half, the cost increase was also 10%, and you can see on the right-hand chart of this increase reflected those structural cost actions in Q2, and the increase in the performance accrual, the bulk of which was reflected in Q1. The structural cost actions in Q2 primarily related to real estate. Following the review we flagged at Q1, we took the decision to vacate 5 North Colonnade Building in Canary Wharf by the end of 2022. This is expected to result in annual cost savings of about $50 million from 2023. Other structural cost actions will continue through the second half of the year, including a continuing rationalisation of the BUK cost base. So overall, the total for this year will clearly be higher than the $368 million for last year. Cost actions will continue next year, but I wouldn't expect another real estate charge the size of the Q2 charge. The next slide shows the key drivers of the base costs. Last year's total costs were $13.9 billion. Excluding structural cost actions and performance costs, the base costs were around $12 billion. We've shown here the key drivers, which we expect to be broadly offsetting each other this year, assuming the June 30th sterling dollar rate of 1.38 applies through the second half of the year. First, increases in costs associated with volume-related or demand-led growth, for example, UK and US card origination, and taking advantage of the high levels of activity in the primary and secondary markets in the investment bank. Although these drive higher costs, we would expect to see associated income generation, and we believe the start of a new economic cycle is exactly the right time to be leaning into growth. Secondly, investment spend, including the strategic investments we've talked about previously, like in growing payments, our US partner cars expansion, and parts of our global markets and investment banking businesses. This also includes ongoing investment in technology as we continue the transition to cloud-based technology and migration to digital channels across the bank. Capacity for these investments is created by continuing to improve the way the bank is run, driving cost efficiency savings. These actions include decommissioning applications, the optimization and automation of processes, and more selective use of suppliers. Finally, we also have some specific tailwinds this year from the weaker dollar, lower bank volatility and non-repeat of the community age package, which gives us greater capacity for gross cost investment at an early point in the cycle. I'm not going to give forecasts for each of these elements, but I would expect them to result in the aggregate base costs for the year being in the region of 12 billion. Looking beyond that, as the recovery continues, we'll continue to manage the balance of growth and investment spend and cost efficiencies with the aim of delivering positive jewels to achieve our target sub-60% cost-income ratio in the medium term. Moving to impairment, there was a net impairment release in each of the businesses, with the largest release being in BUK, as you can see from the chart on the left. On the right, we've shown the split of the charge for recent quarters into Stage 1 and 2 impairment and the Stage 3 impairment on loans in default. As you can see, there was a significant Stage 1 and 2 book-ups in Q2 last year, whereas the charges in Q3 and Q4 were principally on Stage 3 balances. In Q1 this year, we had some release of Stage 1 and 2 book-ups resulted in a small net charge. In Q2, we've seen a large net release of stage one and two impairment amounting to just over a billion, with the stage three impairment was just 221 million, resulting in the net release of 0.8 billion. The stage one and two release was driven by the improved macroeconomic variables we've used and the level of unsecured balances, but our coverage ratios remain above pre-pandemic levels. The MES was used for the Q2 modeled impairment as shown in the upper table. And you can see the improvements in the 2021 and 2022 forecasts. However, there still remains uncertainty as to the level of default we'll experience as support schemes are wound down despite the improved economic forecasts. We want to make sure that as we apply improved MEVs, we don't lose sight of this risk. Therefore, we've made refinements to our post-model adjustments to focus them more on the cohorts of borrowers we believe are most at risk from the tapering of support. The result is that we're maintaining a significant economic uncertainty PMA, which has increased slightly to 2.1 billion in the quarter, as shown in the table. As I mentioned, this still gives us materially higher coverage ratios than pre-pandemic across wholesale and unsecured consumer lending, as you can see on the next slide. Unsecured balances haven't increased materially in Q2 and are still down by 28% year on year. Despite the impairment release, coverage was still 10.2%, well above the 8.1% pre-pandemic level. The wholesale coverage ended the quarter at 1.1%, also well up on the pre-pandemic level. Coverage on home loans was maintained as the book grew by $12 billion since the start of last year. With these levels of coverage, the lower unsecured balances and improved macroeconomic outlook, We expect the quarterly impairment charge to remain below historical levels in the coming quarters. Turning now to BUK. The year-on-year comparison for Q2 was dominated by the large impairment release compared to the charge taken last year. Income also improved year-on-year, but the outlook remains challenging. The income growth overall was 11%, primarily non-repeat of prior year COVID-19 customer support actions, plus increased mortgage balances and improved margins. These are partially offset by the lower unsecured lending balances. As we showed on the earlier slide, card balances reduced a further 0.3 billion in Q2 to a quarter at 9.6 billion, a decline of 26% year on year. We expect some increase in aggregate card balances in the second half of the year, but the spend recovery will take time to feed in through to interest earning balances that drive net interest income growth. This contrasts with mortgage balances, which again grew strongly, with a net increase of 3.3 billion in Q2. Mortgage pricing continues to be attractive. Although we expect some erosion of margins over the coming quarters, mortgages should remain a positive factor for net interest income, but we'll dilute the NIM. NIM for the quarter was 255 basis points, broadly flat on Q1. Our current outlook for full-year NIM is now at the top end of the 240 to 250 basis points range we mentioned at Q1, but with NIM reducing in Q3 and Q4 due to the mixed effect from continued growth in mortgages and the level of interest earning card balances. Costs increased 7%, reflecting investment spent and higher operational and customer service costs, in part due to ongoing financial assistance, partially offset by efficiency savings. Impairment for the quarter was a release of 0.5 billion, reflecting the improved MERS, low levels of delinquency, and reduced unsecured exposures. Turning now to Barclays International. BI income was down 5% year on year at 3.8 billion, and the impairment was a net release of 271 million compared to a charge of 1 billion, resulting in an ROT of 15.6%. I'll go into more detail on the businesses in the next two slides. CIB income decreased 10% on Q2 last year to $3 billion, reflecting the headwind from the 13% depreciation in the US dollar and cost decreased by 4%. There was a $229 million impairment release compared to a charge of close to $600 million last year. ROT for the quarter was 14.8%. Although global markets income decreased 22% overall in sterling, or 13% in dollars, Equities reported its best-ever Q2, up 15% at $777 million, with strong performances across all business lines, including further growth in prime balances, which reached a record level. FIC decreased 39% against a very strong comparator last year, however our franchise is proving robust despite the lower levels of market volatility. Investment banking fees, on the other hand, reached a record level at $873 million, up 19% year-on-year. Advisory, equity capital markets, and debt capital markets all contributed well to the record performance. Despite the strong deal flow, the pipeline increased still further during Q2. Corporate lending income of $38 million was affected by single-name market-to-market write-off, which goes through the income line rather than impairment for technical reasons. Without this, the income would have been nearer the run rate of close to $200 million, which I've referenced in the past. Transaction banking income was up slightly year-on-year at 396 million. As I flagged at Q1, the increase in the variable compensation accrual reflecting improved returns is expected to be skewed towards Q1 this year. Overall costs were down 4% at 1.6 billion, resulting in a cost-income ratio of 55%. Turning now to consumer cards and payments, the ROTE for CCP was 21.8%. compared to a loss last year with the big driver being an impairment release of $42 million against a charge of over $400 million last year. Income in CCP increased $146 million to $0.8 billion, reflecting two one-offs, the non-recurrence of the circa $100 million visa loss and the property disposal in the private bank this year. U.S. cards income was down slightly year-on-year, reflecting the weaker dollar. The reduction in U.S. card balances year-on-year was 9%. Encouragingly, quarter end balances were up on Q1 at around $20 billion, but average balances over the quarter were lower. The increase in payments income reflected the non-recurrence of the visa loss, but was also up year on year adjusting for that and up 17% on Q1 as we saw the initial effects of the spending recovery. Costs increased 18%, some of which was accounted for by the litigation and conduct relating to a legacy portfolio in the quarter. Threats of the increase reflected investment and higher marketing spend. We are seeing clear signs of spending recovery, but the timing of recovery in interest earning balances in unsecured lending remains uncertain. With the recent development in our partnership portfolios, the prospects for the US cards business are encouraging. But as I mentioned in Q1, it will take time for the new business to generate consistent, attractive returns, given the J curve on new business and the gradual recovery of interest earning balances with existing customers. Turning now to head office, the main point to highlight in Q2 head office result was the structural cost actions, which include the property charge for the building in Canary Wharf. The negative income of £27 million was a bit below the £75 million run rate I mentioned in Q1, reflecting small positive one-offs. Excluding the £266 million property charge, the Q2 costs were £59 million, in line with the usual run rate. The loss before tax for the quarter was $338 billion, including that charge. Moving on to capital. The CT1 ratio increased in the quarter from 14.6% to 15.1% flat on the end of last year. We had flagged at Q1 that the reversal of the software benefit might come in Q2, but this is now expected to be implemented at the start of 2022. We had strong profitability in the quarter, but in this bridge we separated out the effect of the reduction in IFRS 9 relief RWAs were down more than usual at the quarter end, a reduction of about $7 billion compared to March, adding 34 basis points to the ratio. We've shown some elements of the future capital progression on the next slide. We've shown here a number of future headwinds to the ratio. The further buyback of up to $500 million will reduce the ratio by approximately 17 basis points. There's a pension deficit reduction contribution scheduled for Q3 with an effect of 11 basis points before tax. These factors will reduce the 15.1% ratio by close to 30 basis points. Overall, the balance of the year, we expect some further decline in the ratio, as impairment on Stage 3 balances feed through to the ratio, and as we see some increase in RWAs from the 30th of June level. However, we'd expect to end the year comfortably above our target range of 13% to 14%, with a software reversal which is expected to be circa 40 basis points, plus other regulatory capital headwinds reducing the ratio at the start of 2022. We are confident that the balance between profitability and these elements will leave us with net capital generation to support attractive distributions to shareholders over time and be comfortable within our CT1 target range. However, we will take into account the residual uncertainty as to the extent and pace of recovery from the global pandemic in determining the size and timing of such distributions. Both spot and average leverage ratios are around 5%, and as you know, we'll be focusing on the UK leverage rules rather than CRR, following the recent publication of the leverage framework by the regulator. Finally, a slide about liquidity and funding. We remain highly liquid and well-funded with a liquidity coverage ratio of 162% and a loan-to-deposit ratio of 70%, reflecting the continued growth in deposits. So to recap, we've generated an 18.1% statutory ROT for the quarter. That reflects the net impairment release of close to 800 million while maintaining good coverage levels. We won't see this sort of release every quarter, but we do expect the quarterly impairment charge to be below historical levels in the coming quarters. We are seeing the start of a slow recovery in consumer income and the CIB performance remains strong. Although costs in 2021 are expected to be higher than in 2020, Cost control remains a critical focus, and we expect costs, excluding structural costs and performance costs, to be around $12 billion this year. We expect ROT for this year to be above our target of 10%, and we are focused on delivering this on a sustainable basis in the medium term. In April, we completed a $700 million buyback announced in February, and capital at the end of the quarter remained at 15.1%, comfortably above our target range of 13% to 14%. This has allowed us to declare a half-year dividend of 2 pence per share and announce a further share buyback of up to 500 million. Thank you, and we'll now take your questions. As Jess is in New York and I'm in London, we'll do our best to coordinate our responses. 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's star followed by one to ask a question. Your first telephone question today is from Joseph Dickson of Jefferies. Your line is now open. Please go ahead.

Hi, good morning. Thank you for taking my questions. Good set of results here. Just on the liquidity pool, which is now, I think, at $291 billion, up about 9% in the first half. You've got three-quarters of that sitting in cash and deposits with central banks. Do you see an opportunity to diversify that book a little bit more into the bond side and other securities to try to get a yield pickup? Because it must be quite a drag for you. That's question number one. The second question is on your cost income ratio aspiration of the 60% over time. I guess, how would you define over time? I mean, I think consensus is still above that level in 22 and 23. So I was just wondering in kind of, you know, a ballpark range, what year you might expect to achieve that on your plans. Thanks.

Yeah, thanks, Joe. Why don't I take both of them and Jeff can add some comments afterwards as well. On the liquidity pool, yeah, we do look at this pretty closely. I mean, you know, a lot of the increase in the liquidity pool is, of course, from our deposit base. You know, deposits are about half a trillion pounds. You know, at Barclays, it's incredible how much money has been left with us. Obviously, very, very cheap level of deposits and central bank rate. are obviously well above that. So I wouldn't say it's a drag. We do look at ways of optimizing the performance and we absolutely do consider a range of securities and other sort of high quality collateral that we operate from time to time. And that's actually been a reasonable story for us. Our treasury team that manages liquidity has done actually a really good job in generating a decent yield on that money for us. On your second question on cost income ratio, yeah, I mean, it's first and foremost, you know, returns are the most important. And so we're pleased that, you know, we can generate decent returns. Now, the cost income ratio is as much of an output of where the income level will be relative to cost as much as an input. What I mean by that is when I look at the mix of the businesses at the moment, you've got The consumer businesses that have a cost income ratio in the sort of 70 plus percent region, that's obviously higher than we would expect them to be, and that's as much a function of their income lines. We've talked about sort of reduction in unsecured balances and obviously a lower rate environment. We're pretty positive on the consumer outlook. I mean, things do look like they're recovering. You see now mortgage balances pick up extremely nicely. Spend levels are back to sort of pre-COVID levels. You know, you've seen a tick up in U.S. card balances, not yet interest-paying balances yet, but that's all sort of positive indicators. So I think as you see the income levels continue to pick up in the consumer businesses, you'll naturally see that cost-income ratio there decline. And of course, in the CIV, you know, cost controls are very important and you can see we're operating in the sort of the low 50s. You know, we won't put a time limit on that because of, you know, there's so many things that go into that. But I think for us, the way we've always thought about it is a 10% return for the group, which we ought to do this year, but, you know, hopefully we'll do every year. When it settles down into a post-pandemic sort of environment, it's almost, likely to be accompanied by somewhere around a 60% cost-income ratio, and that's just given the mix of the businesses. Jess, you want to add any other comments on that?

I'll just highlight that a lot of the cost initiatives and structural cost charges are directed to the consumer businesses as we move to a more digital platform away from taxes, et cetera. And as spending recovers and consumers recover, I think you'll see the revenues grow in our consumer business well outpaced costs. And so, you know, I think as Kujo said, we don't want to give an exact date, but I think the consumer business has got, you know, a pretty good runway to help us get to that cost-to-income ratio. That being said, you know, what's most important for us is delivering that 10% return on tangible equity.

Thanks, Chuck. Great. Thanks, Chuck.

The next question is from Omar Keenan of Credit Suisse. Your line is now open. Please go ahead.

Good morning, thank you very much. Hello, thank you very much for taking the questions. I just wanted to ask a follow up on Joe's cost question. So you're guiding to base costs, excluding performance costs being around 12 billion and appreciate that the cost income target going forward. But I wonder whether you could just help us perhaps think about that base costs in absolute terms, perhaps into 2022. you know, in particular, I think the Barclays UK restructure structural cost actions. Perhaps you could give us just a little bit color, a little bit more color as to what the annual cost saving potential could look like there from next year or 2023. And my second question is just on the consumer businesses. So you mentioned that Spending is recovering, which is a really good sign, but interest paying balances, not yet. I was wondering whether you could give us some color around what you're seeing on consumer behavior. Is it more payment rates are elevated to do with savings balances, or is it particular types of spending that haven't yet recovered, and what it might tell you about when those balances should start growing? Thank you.

Yeah, thanks, Omar. Again, why don't we do it the same way? I'll answer both of them and Jeff will have some comments after me. In terms of base costs and where we go from here, I guess a few things on this. First and foremost, cost discipline is important to us. It's important to us because We want to grow our top line and we want to create the capacity to allow investment to sort of lean in, if you like, to the beginning of a cycle. So discipline around our sort of efficiency measures and productivity measures are really important. You've seen this morning we've guided to base costs for this year being in the region of £12 billion, subject to the usual caveats around currency rates and what have you. I think for next year, well, before I go into next year, I think also when I look at a consensus for this year, our published consensus of around $14.4 billion, that probably feels about right to me. When I look at all of the other sort of components there, we're sort of sitting here in the second half of the year where I think we may end up on performance costs and the balance of structural cost actions that we'd like to do. So hopefully that gives you some sense of what this year will shape up. In terms of next year, for base costs, I think as we sit here now, I think a reasonable planning assumption is a similar level for base costs year on year, so about £12 billion. I think that will give us the right framework to continue to create capacity to continue to invest in some of the more exciting sort of growth opportunities that we have and You know, you've heard Jess talk about payments. We're really excited about US cards. There are sort of parts of the investment bank we're continuing to invest in as well. So that all feels about right to us. In terms of structural cost action, you sort of talked about our UK bank. Yeah, that's something we're looking at very closely. Obviously, where we have opportunities to accelerate the transformation of the UK bank, we will potentially take advantage of them and we'll call them out as we go along. And the whole objective function there is to absolutely lower our cost base in absolute terms subsequently. So a good example would be, say, this isn't to do with the UK bank, but the whole idea of the property write-off that we took in Q2 will save about a £50 million annualised run rate from 2023 onwards. you know, that just gives you a sense of the kind of way we think about that. Property don't tend to have the best paybacks, only because the lease lends are quite long, but the numbers can add up over time. And we think about a similar thing for BUK. Why don't I switch gears and quickly cover some of the consumer patterns, and I'll hand over to Jess. In terms of spend, spend levels are definitely pretty good at the moment, as we see it both in the US and in the UK. It feels like they're back to pre-pandemic levels. In terms of when these spend levels convert to card balances, I think in the UK you want to see more and more discretionary spend. Travel and holiday is a big factor. Obviously this year is a little bit unclear as to, you know, with various changes to travel restrictions and vacations and what have you. But I'll say that the lead indicators feel good. It's just... It's just very hard to forecast with a degree of precision when you expect the full spend levels to convert into into revolving balances. You know, we did see deposits again tick up from on the consumer side in in Q2, so it's sort of rational behavior. But you know, as. As these spend levels continue, I mean, I think it's inevitability that will convert into revolving balances. In the US, probably a bit sooner. We've got the sort of the vacation season. We've got back to school. We've got Thanksgiving. We've got Christmas. You know, these are typically sort of good sort of areas for non-discretionary spend. And, you know, I look at account openings in US cards. I mean, they're doing real well. Again, levels ahead of where we would expect them to be. And the good news is we've seen balances reform there with just You know, they're sort of full-payer balances at the moment, but nonetheless, it's a very good lead indicator. Jeff, anything you want to add on the cost of consumer spending?

Yeah, I might look at it this way. I think in the U.S. side, the indication that we have would lead you to believe, as we do, that the U.S. consumer is returning to their historic use of credit card receivables. I think the credit card industry does have the characteristics of the interchange fees in the U.S. as well as the robust reward programs, and we're seeing a much more rapid recovery in balances there. And also, you may have noted our own initiatives, whether it's the renewal of JetBlue or the work that we've done with a couple of major retailers. I think you should look forward to the U.S. car business recovering to historic levels in terms of activity. In the U.K., I think it's a slightly different story. I think the U.K. consumer has demonstrated a little bit more focus on balance sheet than preserving an income level. And in the focus of that, we do think that there is a degree of a shift from unsecured borrowing to secured borrowing. Our credit card receivables are off some three billion pounds year over year. Our mortgage portfolio was up 3 billion pounds just in the second quarter alone. So that movement from unsecured to secure, I think, is real. Then on top of that, I think you'll see increased activity in terms of point-of-sale financing, as Tushar alluded to. And the work that we're doing between our merchant and acquiring businesses, our small business, banking businesses, and our consumers in terms of our technology platform, I think, positions us extremely well to capture that point of sale financing as it grows.

Thanks for your question Omar. Thank you. Give me the next question please operator.

The next question is from Rohith Chandra Rajan of Bank of America. Your line is now open, please go ahead.

Hi, good morning. I had a couple as well please. The first one was on capital. So I guess when you think about capital distributions in addition to the dividend, You've indicated a CET one ratio above the target level at full year this year, but how comfortable would you be moving into the 13 to 14% target range as we hopefully get more clarity on the economic recovery? I guess late this year early next year. So that's the first one and the second one. Sorry, coming back to costs and this time really, I guess on the structural costs. So slide 16 gives an indication of what you expect for the second half of the year. I was just wondering how we should think about those structural costs in terms of the run rate beyond 2021.

Yeah, again, why don't I kick off and I'll just to add a couple of comments after me. Yeah, look, the target range is 13 to 14. So, you know, you would expect at some point for us to be comfortable operating into that target range. We said for the remainder of this year, we would expect to be comfortably above there. So, pretty strong capital position and plenty of capacity to continue distribution. I mean, part of the reason for that, there's probably two real reasons for that. One is as you As you know, and we've called out, there are some sort of technical headwinds that come into next year. You've got software amortization reversals. You've got transitional relief on IFRS 9. You've got SACC. So, you know, a bunch of bits and pieces that you'll be aware of. And on top of that, you know, we just see how the adjustment to the post-pandemic economy fares over the next handful of quarters. And, you know, you'd expect us to be prudent there. But It's a pretty decent capital position and plenty of capacity to continue to get capital into shareholders' hands, which is a priority for us. In terms of structural cost actions and run rate from this point on, I think we'll call these out as we go along. Think of these as sort of episodic, sort of notable items, if you like, where we're doing something very specific. as the real estate exit we talked about in Q2. I think for the rest of the year, probably a skew towards our UK bank, where we look for opportunities to maybe accelerate some of the transformation that we'd like to do there. That will definitely yield run rate benefits. The best guidance I can give you at the moment, Roy, is we talked about our base cost of about $12 billion this year, subject to the usual sort of currency rate caveats. I think that's a good planning assumption for next year. And what inside there that will be is continuing efficiency programs. So if you like, our run the bank costs are going to be lower than that. But we would utilize that capacity to continue to lean into some of our growth areas, be it on transactional banking, be it on, you know, our mortgage book is growing real nicely. We like payments a lot, et cetera. But I think it gives you a sense of what next year's cost shape will look like. Jess, any other comments you'd like to make?

Maybe just to add, you know, between the 700 million buyback already executed in April and now the 500 announcement. So 1.2 billion pounds of buybacks. And this really, and, you know, Barclays hasn't engaged in a buyback program in many, many years. So this is a new thing. And I don't think it's a one-off. And with the level of profitability that we're now generating and the capital levels that we have, if we have shareholders that are They remain willing to sell stock at such a discounted book value. We're happy to buy it.

Very good. Thanks for your question, Roy. Can we have the next question, please, operator?

The next question is from Jason Napier of UBS. Your line is now open. Please go ahead.

Good morning. Thank you for taking my questions. The first one, I guess ties together net interest margin outlook, consumer behavior and the hedge update. I was interested to read that the skew on larger hedge notional was mostly involved with sort of BI balances. A BUK has 50 billion more deposits than it did at the end of 2019. And I just wondered what your assessment around that balance is. The fact that it's not included in a bigger notional, does that mean you're expecting balances to fall? And is a decline in those deposits a prerequisite for better behavior on the interest-bearing part of the unsecured book there? And then the second question, and I think, Jez, you've probably already answered this, but I want to have a crack at it anyway. On my numbers, at least, Barclays is the cheapest stock in earnings that we cover in Europe. And I just wondered how management and the board see that, whether it's an issue, whether it says anything about strategy. You know, there is in some quarters calls for banks to sell valuable assets. I'm particularly subscribed to that view myself. But I wonder whether the valuation of the business says anything about, you know, whether the firm becomes a target, whether you ought to be doing things around mix of business and so on. Thanks very much.

Yes, thanks, Jason. I'll ask Jeff to cover the second question around valuation, and I'll just cover the first couple. In terms of net interest margin, the hedge notion that we talked about, actually, we have been increasing the size of our hedges actually over the course of last year and into this year. You'll see that, Jason, from the disclosures. It's sort of been steady sort of every quarter rather than a sort of big step up. That's actually been mostly in the UK bank, those increases. Where we haven't actually, if you like, done much is on the corporate side of the business. And there we've identified, actually, I mean, that 25 billion that we sort of talked about potential capacity is a mix of UK and corporate, just more towards corporate. Obviously, were we to do that, that would still be, you know, possibly accretive to UK NIM, but certainly accretive to corporate NIM. The other thing is that you'll see from our disclosures and our comments earlier this morning, we have slightly lengthened the duration of hedges as well. So, you know, that's been sort of a good thing for us to do, given the steepening of the curve that we've seen, although it's flattened recently, but as we were lengthening, the curve was steepening nicely. In terms of interest earning lending balances, I don't think we will necessarily expect that deposits would start running down, if you like, as a prerequisite for interest earning balances to increase. But nonetheless, consumers are in credit conditions are There's no real stress in our books. Delinquencies continue to take down. Credit conditions remain pretty benign across corporate and consumer. know that it's got a sort of a benefit on the impairment line that we shouldn't ignore run rate impairments obviously are running much lower than they were pre-crisis but i think the most important thing for iel or interest earning lending balances formation is just discretionary spend and i think all the lead indicators look okay there um it's just that you know none of us really know for certain when when they will uh move into um uh sort of revolving balances and of course of that discretionary spend, travel is such an important item. And, you know, the summer months will be important for that, I think. Jess, will I hand over to you for valuation?

Yeah, that's a good question. First, obviously, well, the board and management are keenly focused on our stock price and the market value of the bank. It's important for our shareholders, obviously, it's important to the board and to management. I'll just step back a little bit. Six years ago, we embarked on a pretty extensive restructuring of the bank. We reduced the headcount of Barclays over a year and a half period by 55,000 people. Things like exiting retail banking from France to Italy to Spain to getting out of the Africa footprint that we had to reducing the investment banking footprint much more to the developed markets as opposed to the emerging markets. It was a very extensive restructuring. That is behind us. And the bank has a strategy that we set for ourselves in 2016, and we're going to stick with that. And it is now delivering. You see it in the profit levels that we're delivering now and the level of capital we've got. And now we're beginning to return the excess capital that the bank is beginning to generate. We also, as we were doing the restructuring, had to go through things like PPI charges, which were extensive settlements around capital raises with Qatar, et cetera. All of that is also behind us. So we have the profitability target of the 10% ROCE. I think you're right. If you look at the execution of profitability today versus other competitors in Europe, I think there's a lot of room to move in the stock. It has moved a lot over the last 12-month period, but we think there's a lot of runaway in front of us. We keep running the bank as profitably as we are, and it will land where it needs to land. Thanks very much.

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

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

Good morning, thanks for taking my questions to please first on PMA's the slides talk about PMA adjustments and developing over next few quarters. As you learn more about macro, how should we think about that? Obviously it's very big number. How much conceptually in the PMA is because you don't think the models are working correctly in the current environment versus how much is sort of the standard deviation around the macro inputs to the models, because I guess on the latter, as we see the end of furlough in 3Q, you will know one way or the other. I mean, the sort of the range of possible macro outcomes feels like it has to be narrowing as things like government support comes off. So how should we think about that developing, really? Just sort of interested in any color you can give us there. And then on costs, particularly in the CIB, So if I backed out correctly, basically all of the performance top up in the first half was in one queue. I think it was a very modest amount in two queue. And historically, you've always said that, you know, you think about accruing costs in CIB evenly during the year based on your view of where performance is going to be. So you don't generally see this kind of cost seasonality. And I think the last two times you had big drops in 2Q costs versus 1Q back into the 2016-17. You then had very chunky kind of 4Q cost prints. So is there a risk of that this year? Has your view on revenues changed, meaning that your 1Q performance accrual was wrong? How should we think about that? I guess I'm trying to get a sense of how you are thinking about managing the performance or accruing the performance costs the cost income ratio 53 percent of the first half seems seems very very low i guess and just trying to think about the sustainability of that thank you thanks chris um again why don't i i'd do that um i'll cover pmas and just touch on the cost shape for the cib and jess may want to add a comment on on cib costs um the pmas um

The way we think about this is, as you've seen from our disclosures, we have about 2 billion in sort of management overlays that are very specifically to do with the difficulty that the models have in sort of correctly forecasting how consumers may be impacted by the tapering of various support measures, both in the UK and in the US. I think you're right, Chris, to point out that the tapering has begun. I mean, literally only just begun. And so we will know over, it's always hard to put an exact timeframe on it, but probably into the earlier part of next year, what this means to corporations and customers. Our view is that... The reason we're holding on to those overlays is because we think we need them. We think that there will be some elevated levels of defaults we would expect. Were that to happen, then we would just, if you like, digest that PMA and it'll get released on a P&L neutral basis. Of course, if it's a more smoother adjustment, and at the moment conditions look pretty benign, we're not seeing really any stress indicators in our books, then as our coverage levels perhaps get closer to pre-pandemic levels, there may be some P&L benefit will come through, but it'll be a number of quarters. I don't think you'll see it in any sort of one period necessarily. And you've got to remember it's across consumers and sort of vulnerable sectors as a corporate matter as well. On CIB costs, well, I mean, I've hopefully caught from one of the earlier questions, Chris, that I think consensus for this year's overall costs feels about right to me. So that gives you a sense of, if you like, the total aggregate. You know, CIB costs, you know, typically a normal shape in the CIB is that the performance is stronger in the first part of the year and not as strong in the second part of the year, so our compensation accruals ought to be reflective of that. We obviously make the decisions on compensation at the end of the year. We've got all the information in front of us, all the returns, all the various other dynamics that go along with that. But, you know, I think the 14.4 for the full year across everything we got feels about right. So, I'm not sure there's more color I would give on that. But, Jeff, is there anything you'd want to add?

Yeah, maybe just, Chris, one way to think about it or the way I think about it is in the consumer businesses, your revenues have a lower level of volatility than in an investment bank. But your cost basis also has a lower level of volatility. In many ways, your costs in a consumer business are more fixed. There's operating leverage to that. And as we see the U.S. and U.K. consumer businesses recover at the end of this year and then in the next year, I think you'll see a pretty significant improvement in the cost-to-income ratio in a consumer business. And in the wholesale businesses, I think your revenues do have higher volatility But your cost line also, because of the variable compensation, gives you greater variability to your cost line. And we have demonstrated over the last number of years, and it's well digested inside of the bank, that the accrual of variable compensation at Barclays will start with the reflection of the profitability of the wholesale business overall. Profitability goes up, accrual goes up. comes under pressure, we will try to secure profitability by taking down the accrual of variable compensation. So I would not straight line the variable compensation we've identified in the first half of this year. If we see revenues slack off some, you'll see the accrual slack off.

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

The next question is from Ed Firth of KBW. Your line is now open. Please go ahead.

Yeah, morning everybody. I hope you can hear me OK. Yeah, I have two questions. The first one, sorry about costs again, but I guess you've given us this new disclosure so we can all get very excited forecasting it going forward. But from the tone of what you're saying, it sounds to me like a good performance for Barclays going forward is to broadly keep your sort of 12 billion costs flat. the structural costs are going to be there or thereabouts where they are this year because you've got a lot of stuff to do in the UK and the performance stuff is going to broadly go with revenue. Is that like a sort of fair way of looking at it going forward? I suppose that's my first question. And then my second question was just coming back on provisions and coverage. I'm not sure I quite understand how it works because I think you highlight a 1.9 billion management override in your provisioning. But I mean, if I took that out, your coverage ratio would be sort of you know, down in the low 60s, which is way below the coverage you had even before the crisis. So how should we think about that? I mean, as we look to sort of like a normal world, should we be looking at that management override as something that can come out, or should we be looking at your coverage ratio, which I think used to be in the sort of mid-70s? Is that the sort of level that we should be thinking of as a sort of future level? Does that make sense? Sorry.

Yeah, no, that's okay, Ed. So, again, why don't I take a couple of those with me? um on the costs um yeah i mean let me just paraphrase i think what you said to to make sure um if you like the guidance i'm giving is is it's just in my words rather than yours should we say yeah i think that the 12 billion the 12 billion base costs for this year you know plus or minus you know fx rates and what have you that feels about right to us and is a decent planning assumption into next year. Don't forget that base cost does include, you know, a lot of the investment programs that we've got going on. So the J curves in restocking interest earning balances in the unsecured book and, you know, growing our payments franchise and all those good things. So there'll be efficiency programs that will be on the other side of that to absorb that. The structural cost actions for this year, I think you're right to say they'll probably be more skewed towards uh the uk bank and we'll we'll tell you precisely sort of what's going on there as we go through the year um and then performance costs you said revenue i'll just be a bit more cautious there i think you know and jess will probably want to emphasize this as well returns are important to us we sort of anchor them in returns um you know to try and get the right balance between shareholders and employee rewards and you know it's not a straightforward just formula of course there's a whole bunch of things we look at we look at sort of you know, what businesses generated those returns, what is the pay mix for those businesses, what is the competitive environment, what areas are we investing in, you know, all those kind of things. But I have to say the starting point is probably anchored in returns. On provisions and coverage. So, look, we think we need, if you like, those management overlays. We think they'll be digested as the economy adapts to sort of the post-pandemic environment and the government schemes are removed. So we'll see what's required and what isn't. I think if you look like for like, the books are probably much less riskier in some ways than they were pre-pandemic. Why is that? Well, we've got lower balances for a start. So you've got lower unsecured balances, sort of the riskier part of the book, much higher mortgage balances, but those are very low risk. you know, consumers have been deleveraging. You can just see that from the deposit growth on the balance sheet. So I think, you know, if you're like on a unit of risk basis, you know, it's a much riskier book than we had then going into pandemic, which is, don't forget, at the back end of a super long consumer credit cycle. So we don't know what coverage levels we'll need to have, Ed. Obviously, we'll have to wait and see kind of what the environment sort of is around that time. But yeah, I wouldn't lose sight of it. It's a different sort of shape book than we had going into the crisis. Jeff, do you have any comments you want to make on that?

No, he's lost it. All right. Can I just come back on the cost then? So just come back on your comments on cost, because I guess there's a lot of discussion at Q1, and there's still a lot of discussion if I look at the range of consensus about whether costs would go down going forward and that the structural cost was a one-off. I mean, from what you're saying, it doesn't sound like that's obvious, let's put it that way.

Is that a fair comment? The best guidance I can give you is that the base costs, the planning, a good planning assumption for next year is roughly flat year on year. The structural cost actions, the way we think about them is we don't think of them as run rate. This isn't something we're going to be doing like literally for the next umpteen years, otherwise there'd be base costs. These are episodic, specific in nature with a very specific objective, just like we've had in the real estate charts often. And so we'll call them out and explain what's going on there. But, you know, our base costs, which is kind of, you know, really what the bank's sort of running at, I would say a planning assumption is 12 billion into next year. Great. Okay. Thanks so much. All right. Thanks, Ed. We have the next question, please, operator.

The next question is from Guy Stebbings of XM BNP Paribas. Your line's now open. Please go ahead.

Hi morning, thanks for taking questions which have been answered already, but firstly on Barclays UK NIM just guidance for the top end of the range still sort of simple maths suggests we're ending 2021 at or even below sort of 245 basis points unless the entire step down comes in Q3. I'm just wondering if you can give us a bit of context around that. 10 basis points or so move, perhaps quantify or give a relative importance to the drivers between the hedge headwind, mortgage spread compression and mixed effects, just so we can think about whether there's upside to that number and how that might evolve into 2022. And then on consumer, thanks for the commentary so far. I just wanted to circle back on UK balances and the reduction we saw in Q2 in gross balances. In terms of any sort of monthly trends was the majority of that coming in in April given spend data subsequently is improved and trust data looks like it's improved in in May and June and and in the US I Appreciate all the points you're making around the growth coming from less interest paying balances, but is any reason why? balances in absolute terms should be slowing versus the growth we saw in q2 and And then we've got the growth in partnerships to come on board as well. Just strikes me that 31 billion of balances in CCMP could be four or five billion or so higher in 12 months time, given that underlying growth and the partnerships. Or am I being a bit too optimistic on timing there? Thank you.

Yeah, thanks, Guy. Why don't I handle both of them? In terms of UK NIM, our assumptions are as follows. We expect to see mortgage growth, but at slightly tighter margins than we've had in the first half. It's been a really robust first six months of mortgages, a record production for us, and our flow has been above our stock of market share, and at slightly wider margins than we anticipated. So that's very good. We're actually still pretty optimistic on the growth in mortgages, but expect the margins to be a bit tighter than we saw in the first half. So we may be correct there, we may not be. Unsecured balances, we're not expecting any interest earning balance growth. So if we do see growth, I hope we do, but we're not forecasting it. If we do, that'll obviously be quite accretive to NIM. And the third thing on sort of hedge, we talked about the 25 billion or so capacity that we have. It's skewed towards the corporate business, but to the extent we utilize that, it'll be partially accretive to, in the UK bank as well, will be mostly skewed towards the corporate bank. And of course, you know, the dynamics of the yield curve as well, and the slight extension of duration that we put on the hedges as well. So hopefully that gives you the building blocks to take your own view of whether we're, you know, what you think about our assumptions on UK mortgages, on secured lending, and sort of hedge notional and duration. But sort of our view, no unsecured growth, continued mortgage growth, but at tighter margins. and no sort of forecasted changes in head notional or yield curve dynamics, you know, we think would be at the top end of NIM per hour guidance. But, you know, you can form your own view with those building blocks, hopefully. In terms of unsecured balances, we've made a comment. You probably haven't got to it yet because it's sort of within our results announcement. I'm sure you'll sort of get to read over the next few days. But you'll notice that commentary there says it's sort of stabilized. So, yeah, if you're like, The reductions were in the earlier part of the quarter, and it sort of stabilized as the quarter went further on. If that's of help to you guys.

Maybe just one other thing to add on the U.S. card side. There's a dynamic to that business which we like a lot, which is our card business is driven by our corporate partnerships, which we are adding to, and you're right to identify that we're going to be growing that portfolio both organically, but also by agreeing to new partnerships in the U.S. What that does is it levers the corporate investment banking relationships that we have in the U.S. and connects it to our ability to manage, we think effectively, consumer credit and manage the reward programs for these large partnership cards. So, yeah, it's got a nice synergy. Corporations definitely look at both their wholesale relationships and those that would provide something like a co-brand cart, and therefore it fits very well within our portfolio. And our market share in the partnership business or co-brand business in the U.S. we think gives us the scale to be quite competitive. Yeah.

Thanks for your questions. Thank you. We have the next question, please, operator.

The next question is from Adam Terrelak of Mediobanker. Your line is now open. Please go ahead.

Morning. I had a follow-up on cost and then one on CC&P. On the cost side, sorry to label the point, but in the £12 billion ongoing, I mean, could you give us a sense of the gross moving parts in terms of savings against reinvestments? And then, I mean, you talk quite positively about growth opportunities. I mean, why not spend more if there is so many upsides to revenues out there? And then on the CCMP, firstly, just the gain in the private bank. Could you size that for us? And then digging into the NII, clearly it's down 8% Q on Q. You've mentioned interest earning assets, average interest earning assets being down. but is there some of the J curve effect spend hidden in the NII or is that in fees? I just want to understand kind of the moving parts in terms of the revenue mix in CCMP this quarter. Thank you.

Yep, thanks Adam. Why don't I take them? Yeah, the sort of growth, if you like, capacity generation and investments, but I haven't sort of given guidance on that, so I won't call it out. But it's meaningful sort of gross efficiency saves that we're putting back into the, if you like, investing back into the company. In terms of why don't we spend more, look, I think with all of these things, we keep it under review. We have a high conviction in the income environment in the outer years. That's why we're spending more. if you like, more in some ways on a constant currency basis this year than we did last year. That's a statement of our conviction that now is the time to invest. We want to add new partnerships to our cars business, which I'll come on to. We want to do the infill stuff on our investment banking business, whether it's the prime business or it's equity capital markets, new sector coverage, securitized products. We like the payments business a lot. We like transactional banking, particularly in Europe. So there's lots of things that we are investing in because of the conviction we have on revenues. And on a constant basis, we are spending more this year than we did last year. But we think that balance is about right going into next year. But we'll keep it under review, depending on how the macro environment adapts for us. In terms of your specific questions on consumer costs and payments, The private bank gain that you see sort of year on year, you may have heard it in my scripted comments, there was a property sale, so that accounted for part of that. In terms of NIM, the average assets were, although they were down in the quarter, they did end up at the period end. So I guess what that tells you is that you know, car balances in the US have stabilized and hopefully beginning to grow. We've got the American retirees partnership coming online at the back end of the third quarter. So we should expect to see a little bit of growth there. You're then into the sort of, you know, the spending season, if you like, in the fourth quarter with Thanksgiving and Christmas and what have you. And, you know, we've got account openings that are, you know, Actually doing really, really well at the moment. So you know, we'll we hope to see a balance formation in the latter part of this year. That'll be that'll be accretive, but we'll see where we go from there. Hopefully that answers your questions, Adam.

But is that maybe? So go ahead. I'll go ahead and then I'll add a comment.

I was asking whether there's any kind of cost associated with the marketing and ramping up of.

um card balances in terms of the j curve that is a revenue contra and whether that was material in the course or not yeah there is um actually the the it's actually you get the j curve effect uh some of it is contra revenue some of it's in cost and of course as we um as we open new cars and people have a line uh there'll be an impairment and a slight capital tick up so the j curves kind of across all lines of the p l but um Yeah, there is an income component as well. And if you want to get into the sort of specifics of the accounting geography, there's probably not one for this call. You could have a, you know, get investor relations to maybe, you know, if you wanted to get the exact geography right for your model, someone in Chris's team in IR could probably help you with that. Understood.

Thank you. And I guess what I would add to it is, you know, one way to think about this is, you know, in 2015, 2016, 2017, we executed the restructuring that we talked about. In 2018, we sort of set forth a profitability target for the bank of 10% or above 10%. And we spent the last couple of years asking or being asked questions by this community and others, you know, how do you get to that 10% ROTE? That question seems to have been moved aside in part because we have invested in driving revenues And as we said, we are quite confident that we'll deliver that 10% RODI this year and have the strategy and the cost controls in place to consistently return that level of profitability.

Thanks for your question, Adam. Thank you. Could we have the next question, please, operator?

The next question is from Jonathan Pierce of Numis Securities. Your line is now open. Please go ahead.

Hello there. I've got two questions. One on these bonds that got redeemed in June. I think they were issued out of Barclays Bank PLC, but is there any benefit to the UK bank? Because if there is, again, the margin guidance for the second half looks slightly odd. But maybe you could tell us where the benefits of those bond redemptions, because they've obviously had some pretty big coupons, where the benefits of that are coming across the divisions. The second question is a broader question on distributions because with the buybacks this year along with, I don't know, let's call it six pence dividends for the full year, you would have distributed around about £2 billion for 2021. Is there any reason to believe that that level of distribution is not sustainable or possibly could even move up a leg in 2022 because Everything you're telling us here, I mean, there's the software gains obviously to come out, but the pension contributions dropped next year. The gap between the fully loaded and the transitional equity term ratio is only about 40 basis points now. You appear to have taken a lot more RWA procyclicality than the other banks, so one would hope there isn't too much more of that to come. The scope for increased distributions next year seems very much there. Would you disagree with that? Just to finish on that question, if you can give us a sense as to how the shape of these distributions will look moving forwards, because the dividend you're pointing to for this year is a very low proportion of the earnings. What would that be expected to step up next year? Thank you.

Yeah, thanks Jonathan. I'll get Jeff to talk a bit more about the distributions, but I want to cover the other points quickly. The bond redemptions that you're referring to, they're Barclays Bank, so that's where most of the impact will be. So I think that's a logistic question. I mean, spreads are pretty tight, and the tightening of the spreads is obviously helpful for us as a tailwind going into, well, next year and beyond. On distribution, in terms of capacity, this year's a slightly unusual year because EPS has got a, a component of it, which are these provision releases, which aren't necessarily, at this stage, capital generative, although they may be in subsequent periods, as you'll be very familiar with. I think, though, you know, could we repeat sort of these levels of distributions into subsequent years? You know, the way we think about it is capital return to shareholders is really important, for us as a board and a management team. It is important we do that in a measured and appropriate way. And I think the quantum of distributions that you're seeing from us over the course of this year is a good example of our ability to do that on a sustainable basis. And that's why we do it in a prudent, measured way. But Jeff, any other comments you want to make on that?

Maybe just to add one very good question. You're right. So we are directing towards a six-pence dividend for the year. That is both a function of the profitability of the bank, but also our intention to get back on a path of managing a progressive dividend for our shareholders. And we know that income flow, particularly for our retail investors, is very important. On the other side, when you're trading at 50% to 60% of book value, the economics just pushes you towards a buyback, which we are executing. So I just sort of add those two commentaries.

OK.

Thanks very much, Jonathan. All right. Thanks, Jonathan. Can we have the next question, please, operator?

The next question is from Robin Down of HSBC. Your line is now open. Please go ahead.

Good morning. Thanks for taking the questions. Most of mine have been asked, but can I just come back to, firstly, can I say thank you for the extra disclosure on structural hedges, giving the figures to the nearest million rather than the nearest 0.1 of a billion is quite helpful. But obviously looking at that, that suggests that there isn't much by way of structural hedge pressure anticipated in the second half. So that kind of brings me back around to kind of Jonathan's question and the question earlier about the Barclays UK margin. I hear you in terms of the mix change towards mortgages and away from consumer credit. But I think what we're all going to find when we do the basic modeling is that we can't get nine or 10 basis points of margin decline in the second half just from doing that. So I guess, you know, a couple of questions. Firstly, are you assuming anything in there on the Aeschler portfolio? I think that's kind of slightly flattered, declined there, slightly flattered the margins in perhaps certainly in Q1 and perhaps a little bit in Q2. But are you assuming kind of some sort of bounce back in values there? And I guess the second question then really is, you know, just more broadly, when you say you're going to be at the top of a sort of 240 to sort of 250 basis point range, I mean, with 251, 252, would that be sort of within your description of being at the top end? Because I'm struggling. I think a lot of people in this call are struggling to see how you get to just 250, having done kind of 254, 255 in the first half. So any added color would be just greatly appreciated.

Yeah, no worries. Thanks, Robin. Let me have a crack at that. In direct response to the question about ESHLA, we're not making any real assumptions around that. It's got a degree of variability to it, and we don't try and get too clever and try and forecast that. So, you know, it'll bob around a bit, but nothing in our forecast that sort of drives it one way or the other. You know, in terms of NIM for the remainder of the year, as I say, the building blocks for us is Mortgages continue to grow well, but at tighter margins. We don't see unsecured balances growing. We haven't included any expansion of hedge or sort of, you know, yield curve dynamics or anything else into there. If you're wondering, what would make NIM better? I guess better mortgage margin would be one thing. The mix being slightly different, so mortgages grow, but unsecured balances grow as well, would definitely make a difference. If we were to do something different on the size of the hedge nut, although that tends to sort of more of a grinding effect, that doesn't happen instantaneously, but there's a yield curve dynamic that could feed through over the next couple of quarters. When we say top of the range, I'm going to try not to give a precise number, really because there are all these moving parts, and I think you're doing the right thing, Robin, which is you know what the sort of building blocks are and you'll have your own view as to whether we're being optimistic or cautious in our outlook. But I'd rather not guide you to the nearest greatest point. I'd rather just give you the building blocks, give you a sense of what we think of those building blocks, and then obviously you'll form your own views around our sort of optimism or cautious approach to it. I've got not much more to add than that, I think, Robin.

I think it just strikes me and I suspect it strikes a number of other calls as being a quite cautious estimate at this point. But I'll leave it at that. Fair enough.

Fair enough. Fair enough. All right. Thanks, Robin. Just looking at an eye on the clock. Could we have one more question, Operator? And then I think we'll wrap the call up. The last question, please, Operator.

The final question we have time for today is from Martin Leitgeb of Goldman Sachs. Your line is now open. Please go ahead.

Yes, good morning and thank you for taking my questions. Just a brief one from my side, one on UK cards and one on the investment bank. On cards, just looking at the data, it seems like Barclays lost a little bit of market share in the second quarter. I mean, I think the data we have from the Bank of England is broadly stable as of May and there's a slight decline for Barclays. Okay, maybe I'm reading too much into nuances here. But I was just wondering, comments at the turn of the year where that you're ready to lean into the recovery, which could be rather as retaking some of the market share in the UK. Does that just take time to manifest itself? Or maybe could you talk a little bit what you're doing and how quickly we should expect maybe this ramp up in UK to come? And secondly, on the investment bank, I was just wondering if you could comment a bit more on the outlook for investment banking revenues. I think some of the comments earlier were that the pipeline on the banking side is even stronger now and you're calling out share gains in the second quarter. Has the outlook here potentially for share gains again improved over the last few months and how should we think about the broader trajectory? Thank you.

Thanks, Martin. Why don't I take the UK cards bit and I'll ask Jess to talk about the IB outlook. Yeah, we like UK risk a lot and we do want to lean into UK risk, so to speak. You're seeing us express that quite remarkably in mortgages at the moment where our market share of flow is well above our share of stock. um uk cards we like a lot as well it does take time i mean i'd caution anyone to look at sort of these short-term um surveys and data there's um there's all sorts of sort of odd things that go on there you've got um zero balance transfer stuff you've got you know transactors but you could build balances be doing an interest on and you know there's so i just feel like i'd look at it on a rolling basis you're right though martin we have seeded market share for the leading up to the pandemic And that was, as you're well aware, about sort of more cautious stance on the back of Brexit and some of the disruption we expected there. But, you know, we're keen on growing that business, and we expect to do so over time, definitely. Jess, you want to touch on IB?

Maybe just to echo what you just said about UK cards, I think appropriately going into or at the outset of the pandemic, we did take a conservative approach around unsecured credit, and I think you see it in the impairment numbers that are happening now. And now that the recovery, I think, seems to be well on its way, we are much more comfortable in leaning into, as Tushar said, U.S., UK both secured and unsecured credit. In terms of the investment banking outlook on the revenue side, You're right, the banking pipeline, i.e., M&A, DCM, and DCM continues to be quite strong and building for us. That's encouraging. We did see some market share gains. But we want to do the right business with the right clients for the right reasons. We feel comfortable about our position in investment banking space. And then, as I said in my remarks, I think to a certain extent, what What goes less appreciated is there is volatility in markets revenue, driven by volatility in the markets themselves. Underlying the capital markets are growing at a very fast clip, 53% over the last number of years. And that is because, in our view, the regulatory framework of the large financial systems today are to rely financing less on bank balance sheets and more on the end capital markets. And the growth of that capital market is going to feed into our trading of securities and derivatives around that market. And so we expect with some volatility, the trajectory will continue to be growth. Very clear. Thank you.

Thank you.

Well, we'll wrap the call up there. Thanks for everybody joining us and hopefully we'll get a chance to speak to many others as we do calls and what have you thereafter. But with that, I'll close the call. Thanks very much, everyone.

Thank you. That concludes today's conference call.