Barclays PLC

Welcome to the Barclays Q1 2022 Analyst and Investor Conference call. I will now hand you over to C.S. Venkatakrishnan, Group Chief Executive and Anna Cross, Group Finance Director.

Good morning. I am pleased to report a strong first quarter for 2022 for Barclays. Our strategy is delivering and we saw income growth in all three of our main operating businesses. Group income was up 10% to £6.5 billion for this quarter Profit before tax was 2.2 billion pounds, and group return on tangible equity was 11.5%. This comes after absorbing an increase in costs, and that increase was driven in particular by the remediation of a legacy portfolio, as well as an over-assurance of securities in the US, something which I will talk about in a moment. Our group income has benefited from broadly improved performance in our consumer businesses, Barclays UK in consumer costs and payments assisted by rising rates. Global markets has also performed well as we helped clients navigate the volatility of the first quarter both before and after the appalling invasion of Ukraine. Unsecured lending balances remain well below pre-pandemic levels and impairment was 141 million pounds for the quarter. We remain well capitalized with a CET1 ratio of 13.8% comfortably within our target range of 13 to 14%. Before Anna and I continue talking about the highlights of our quarterly performance, let me start by addressing two matters. The first is the over-issuance of securities in the US, and the second is our exposure to Russia. As part of our structured products business, Barclays is a frequent issuer of structured notes and exchange-traded notes in the US, as well as elsewhere. In March, we identified that the securities offered and sold under our U.S. shelf registration statement had exceeded the registered amount for a period of about a year. As a result, we will be conducting a recession offer to eligible purchasers of these affected securities. Details of this will be published in due course. The quantum of the pre-tax loss due to this recession is about 500 million pounds. Anna will take you through the impact on our financial statement, including the allocation of these losses between 2021 and the first quarter of 2022. This situation was entirely avoidable, and I'm deeply disappointed that it occurred. The necessity of a strong controls culture has never been clearer to me. In fact, we have made considerable progress improving our controls since 2016. and so the fact that this happened is particularly upsetting. I have commissioned an external review of the matter with oversight from the board, and this review is focused on what happened, how it could have happened, and where accountability lies. At the same time, I take some comfort from our response and our ability to absorb this issue financially. The matter was escalated immediately, both internally and to our regulators, with whom we are cooperating constructively. To date, we have not found any evidence of intentional misconduct, and having reviewed all our other issuance programs, we note that they're all within applicable limits. However, the fact that this over-issuance occurred reflects a weakness in our control environment, and we are taking steps to address this. We are also enhancing the internal controls in relation to our debt securities issuance activities as an extra safeguard. In view of our ongoing discussions with the SEC concerning the impact of this issue, we are delaying the execution of our stock buyback until these discussions have concluded. This is not a question of whether we will be proceeding with this buyback, but when we will be proceeding. Our capital position is strong as reflected in the results we have just received, and we expect to be in a position to proceed with the buyback towards the end of the second quarter. Let me now turn to Russia. We have been witnessing a horrific human tragedy unfolding in Ukraine over the last few months. The human element of the conflict is what we feel first and foremost. We have also been dealing with the market repercussions. Barclays itself has no onshore presence in Ukraine or in Russia, following our exit there some years ago. The exposure we do have to Russia is principally through the facilitation of client activities in the corporate and investment bank. As illustrated on the slide, though, we reduced this exposure significantly through the quarter, and we have managed to control it carefully. We know that we need to remain vigilant to protect the group from second and third order risks, which includes fiber threats. We are, of course, working closely with governments and regulators around the world to comply with sanctions. Turning now to some of the highlights of the quarter, I'd like to start first and talk briefly about the strong performance of our markets franchise. Global markets income has been notably higher since 2020. This has been driven by a number of factors, including what is happening externally in the marketplace, as well as the results of a number of strategic decisions which we have made over time. To begin with, the franchise is benefiting from the ongoing growth of the global capital markets themselves. Our margins have also improved, reflecting the higher level of market volatility that we have experienced since the start of the COVID-19 pandemic. We have also benefited from competitor exits in some of the product areas where we have made strategic investments, including in our equity prime financing business. But many of the drivers of our success also results from the positioning of our business, including the investments which we have made in our client offering and the digitization of our platforms. As I mentioned at the end, we have also taken steps to diversify our income streams, improving the consistency of our performance, especially during changing market conditions. We have grown our financing income by approximately 40% between 2018 and the end of 2021. And in fact, in the first quarter of 2022, that income growth continued up around 10% on the previous quarter. So our global market business is growing in strength and capability. However, as I said to you in the previous quarter, this growth will not always be monotonically in a straight line. Our relative performance will be stronger in some quarters than in others. For instance, in Q4 of 2021, we underperformed our competitors. While in Q1 of 2022, our performance has been particularly strong versus our competitors. This relative performance is determined by three things. The first is the businesses in which we engage. The second is the strength of our interaction with clients. And the third is particular idiosyncratic opportunities in which we have helped clients manage their exposures. In Q1 of 2022, all these three factors contributed to increased revenue. As I've already outlined, our business mix means that we have relatively limited direct exposure to Russia and to the commodities market. We have managed the exposure, which we do have, proactively and dynamically. Q1 also saw increased trading activity, commencing with rising interest rates in January and February and increasing after the invasion of Ukraine. Thanks to the strength of our client franchise, we were able to help many clients manage their risks and exposures during this period, responding to rising rates and fluctuating equity prices. We were also able to help a number of important clients manage very large currency and debt exposures related to Russia. In summary, the investments we have made over the past few years in this business are now delivering, positioning us to continue to serve our clients when they need us most. Turning now to the economic environment, rising interest rates at both the short end and the long end of the yield curve are leading to higher net interest margins for the bank. we are already starting to see some of the benefits from rises in the base rate flow through to our consumer businesses. However, both the UK and the US economies, while they are forecast to continue growing over the next three years, face a threat from rising inflation. One compensating aspect is that unemployment in the UK and the US remains at low levels. We are very focused on the impact that higher prices are having on our customers and our clients. A great many are facing far harder conditions this year as a result of inflation, particularly from supply chain difficulties and higher energy costs. We will support those who bank with us to navigate this difficult period wherever we can, and we will continue to support the wider economy just as we did through the COVID crisis. We remain focused on our three strategic priorities, which I outlined at the end. The first, to deliver next generation digitized consumer financial services. Second, to produce sustainable growth in the corporate and investment bank. And third, capturing opportunities as we transition to a low carbon economy. Across our Barclays UK and consumer cards and payments businesses, we are continuing to invest in our digital capabilities to enable our customers and clients to transact and interact digitally. We are building out more cost-effective infrastructure, using consumer data more effectively, and we have invested to grow our payments business. Within wholesale banking, we are investing to sustain our position as the sixth-ranked global investment bank. This will allow us to continue to take advantage of the growth in capital markets and to help our clients manage risk, as you have seen in the results this quarter. As I've already touched on, we have also sought to diversify our income in the corporate and investment bank, including by investment in more consistent annuity-type financing businesses in global markets. We are also targeting growth in transaction banking and our corporate banking offering in Europe. Finally, our third priority is to recognize the scale of opportunity in climate-related financing and to realize it. We want Barclays to be able to benefit as we support our customers and our clients to transition their businesses and their activities towards lower carbon emissions. Helping finance this transition is a key part of our strategy to becoming a net zero bank by 2050. We are well on the way to reach our target to facilitate 100 billion pounds of green financing by 2030, having already facilitated over 65 billion pounds. We also recently announced important updates to our climate strategy targets and progress, including our work to reduce our finance emissions. We have set 2030 reduction targets for four of the highest emitting sectors in our portfolio and further tightened our restrictive policies with respect to the financing of thermal coal. As part of our commitment to give shareholders a say on climate, we are offering our shareholders a vote on our climate strategy targets and progress at our annual general meeting in Manchester next week. In conclusion, we had a strong quarter. This is despite the over-issuance of securities in the US, which was a disappointing controls matter and has impacted our costs. We have maintained the double-digit group return on tangible equity that was a feature of our performance throughout 2021. And I am confident in our ability to sustain this on an ongoing basis. and we continue to target an ROTE of greater than 10% in 2022. As I've already mentioned, we will be proceeding with our planned £1 billion share buyback program, and we expect to be in a position to do so towards the end of the second quarter. Thank you, and over now to you, Anna.

Thank you, Venkat. Good morning, everyone. You'll have seen our announcement about over-issuance of securities in the US a few weeks ago. At the time, we expected the Q1 results to reflect circa 0.5 billion of litigation and conduct costs pre-tax in respect of this. Following subsequent discussions with regulators, we have apportioned 0.2 billion of these estimated costs to 2021. We also have 0.2 billion of customer remediation relating to a legacy partner finance portfolio in CCP, which we weren't expecting at the time of our four-year results. I'll highlight the effect these charges have on Q1 as we go through the presentation. I'll start with a summary of our Q1 performance. Overall, we continue to focus on delivery of our three targets, for ROTI, the cost income ratio and CET1. ROTI for the quarter was 11.5%, despite the impact of the litigation and conduct costs, with both Barclays International and Barclays UK delivering double digit returns. Our cost income ratio was 63%, elevated by the level of L&C costs in the quarter. However, Operating costs were broadly flat against income growth of 10%, demonstrating the operating leverage of the businesses and our cost discipline. The CET1 ratio ended the quarter at 13.8%, comfortably above the midpoint of our target range. This capital print includes the impact of the 1 billion share buyback program announced with full year results. Overall, we delivered a PBT of 2.2 billion and 8.4 pence of EPS. I'm going to focus on income, cost and impairment trends across the group before I briefly summarise the results of the individual businesses. Income was 10% higher than Q1 2021 with all the businesses contributing. CIB delivered growth of 10% demonstrating the diversification within the CIB and its ability to deliver attractive returns in a variety of macroeconomic environments. Markets income increased 26%. This reflects the high level of activity by our clients as we help them reposition in the light of geopolitical uncertainty and rising rates. FIC revenues were up 37%. reflecting increased volumes and attractive bid-offer spreads in volatile markets. Equities revenues were 1 billion, up 13% year-on-year, with particular strengths in derivatives. Quarterly comparisons of market income are affected by various factors, and our Q1 year-on-year increase does benefit from our business mix. But as we look at the development of our market's income over multiple quarters, we are pleased with the development of our franchises on a trend basis. One example is financing activities, which performed well within FIC and equities with increased balances and healthy spreads. Balances in equity prime were up 14% year on year, evidencing our successful expansion of that business over the last few years. Investment banking fees were down 25% year-on-year, reflecting lower primary issuance volumes, particularly in equity capital markets. Debt capital market to income was down just 8%, outperforming the market, whilst advisory was up and the deal pipeline remained strong. Income in CCP increased 10%, reflecting growth across all three constituent parts. In international cards, US balances grew by 13%, or $2.6 billion year on year, although there was, of course, a seasonal decline during Q1. Given this, we are confident of delivering balance and income growth in 2022, both organically and with the acquisition of the GAAP portfolio. which is due to complete towards the end of Q2. However, the income effect of this balance growth will be dampened by the J-curve effect, particularly from customer acquisition in growing portfolios like American Airlines and JetBlue. In the payments business, despite Omicron-related restrictions in January, transactions turnover was up 17% year-on-year, contributing to an increase in income of 44%. The private bank franchise is developing well, with income up 20% year on year, as client balances continue to grow in both banking and investment products. Barclays UK grew income by 5%, predominantly driven by personal banking, where income was up 11% year on year, This reflected the strong origination of mortgages throughout 2021, which continued into Q1 2022 with a further £1 billion of net balance growth. Whilst the mortgage market is always very competitive, personal banking margins have increased overall due to the impact of rising rates on deposit income. Fastly card UK income fell by 12% year on year. Although spend levels have increased by 35%, balances were down year on year and fell 0.3 billion in Q1 because of seasonality and elevated repayment rates. We do expect Q1 to be the low point for UK card balances, with spend recovery generating some growth in lending balances from here. although recovery in interest earning balances is expected to remain slower. Finally, to pull out some key income themes across the group. Loans and advances have grown year on year by 7%, more than matched by deposit growth of 10%. Whilst the market environment for primary issuance has been challenging, that same environment has driven high levels of client activity across both financing and trading in the CIB's markets business. Increased economic activity has driven transactional fees across consumer and corporate businesses. And lastly, of course, there is a tailwind from rising interest rates, which impact product margins across our franchises, but also income from the structural hedge. We expect this effect to be more meaningful in coming quarters. and you'll find our usual slide on sensitivity to rate increases in the appendix. Looking now at costs. The cost performance this quarter is of course dominated by the L&C charges. We manage our statutory costs and we're not going to adjust all our performance metrics to exclude L&C. However, we do view this quarter's L&C as exceptional So we focused particularly on the trends in operational costs. These were broadly flat as we exercised good cost discipline and delivered strong positive jaws. Base costs, which exclude structural cost actions and performance costs, were up by 0.6 billion, mainly due to the 0.5 billion increase in L&C. The Q1 allocation of costs relating to the over issuance of 0.3 billion is charged to the CIB. And the 0.2 billion relating to a legacy partner finance portfolio is in CCP. Looking now at the cost trajectory for the year. When we set our guidance for base costs for the year, we didn't anticipate L and C costs of 0.5 billion in Q1. There has also been some increase in expectation for inflation and the dollar has strengthened further since full year results. So we have seen some increase in our outlook for all in costs for the year. Efficiency and cost discipline remains crucial and we continue to seek to balance capacity creation with investment for growth. We are reviewing expenditure plans in the light of the expected cost of the L&C for the year and the impact of both inflation and FX, and may postpone some investment programmes. As we mentioned at full year, based on current plans, we would expect structural cost actions to be materially lower than last year's total of 0.6 billion. You will appreciate that there are a number of moving parts this early in the year, but I'm currently comfortable with the published market consensus of around 15 billion for all in costs this year. Moving on to impairment. We reported a modest charge of 0.1 billion for the quarter. This is stage three impairment relating to net charge off. and some expected migrations through the impairment stages as economic activity recovers. Delinquency rates in the businesses are stable at low levels, with 30-day arrears in UK cars at 1% and US cars at 1.6%. Whilst we are seeing some recovery year on year in unsecured lending, balances are well below pre-pandemic levels. We are tracking customer and client behavior very carefully, including patterns of spending in order to identify early signs of pressure from affordability. So far, we haven't seen any particular worrying indicators, but we have specifically considered affordability risks and have broadly maintained coverage level with UK cards at 12.8% and US cars at 10.4%. Further details on coverage ratios are included in the appendix. Turning now to the performance by business. BUK income increased 5%, while costs decreased 3%, reflecting lower operational costs plus efficiency savings, partially offset by increased investment spend. We have started to implement the cost actions we reflected in the Q4 results, but it will be a while before we see the full expected benefit, given the timing and payback. The BUK roti was 15.6%, and we're feeling good about the momentum in the business. Finally, a few words on forward margin expectations for BUK. The NIMS for the quarter was 262 basis points, up 13 basis points on Q4, principally reflecting the effect of rate rises. There are still a lot of variables, but given the pass-through on the initial rate rises and the expectation of further rises, we're increasing our NIM guidance for the full year to 270 to 280 bps. That assumes the UK base rate reaches 1.75% by the end of the year. Turning now to Barclays International. BI income increased 10% to 4.8 billion, while cost increased as a result of the conduct and litigation charges. Despite this, strong business performance delivered a ROTI of 14.8%. I'll go into more detail on the next two slides, beginning with the CIB. Income was up 10% to 3.9 billion. Excluding L&C, operating costs increased by just 2%, delivering strong positive jaws. In total, costs increased by 19%, reflecting the Q1 portion of the provision relating to the over-issuance. There was a 33 million net impairment release, reflecting an improved view of the watch list. Overall, the CIB generated a ROTI for the quarter of 17.1% despite the LNC charge, which impacted the ROTI by around 3 percentage points. Turning now to consumer cards and payments. Income in CCP increased 10%, reflecting growth across international cards, payments and the private bank. The increase in costs was largely due to the L&C charge of close to 200 million. There was also an increase in investment and marketing spend relating to the expansion of the business, including preparations for the GAP partnership. The impairment charge was 134 million, reflecting the flow through to delinquency in US cards. The ROTI was minus 1.5%, But excluding the L&C charge, the ROTI would have been in double digits. Turning now to head office. The income of 23 million included a one-off gain from the sale and leaseback of UK data centres of 86 million. Costs were broadly in line with the usual run rate, and the loss before tax for the quarter was 73 million. Before I moved to capital, Quick summary of our liquidity and funding. We remain highly liquid and well funded with a liquidity coverage ratio of 159% and a loan to deposit ratio of 68%. Moving on to capital. The CET1 ratio ended the quarter at 13.8%. comfortably within our target range of 13% to 14%. At four-year results, we flagged the effect of the announced buyback programme and the regulatory changes which took effect on 1 January. These two elements reduced the year-end ratio on a performer basis to 13.9%. The apportionment to Q4 of part of the charge relating to the over-issuance doesn't affect the headline year-end ratio. However, there was a further 19 basis points impact from the Q1 charges relating to the over-issuance and associated RWA moves and a six-bit headwind from the fair value reserve movements principally caused by the higher rate environment. We would expect circa 12 bits of the over-issuance impact to reverse when the related hedges are no longer required. Underlying capital generation was strong, with 51 bps accretion from profit. This was partially offset by increased RWA deployment, as we would expect in Q1. Looking at our capital requirements, our MDA hurdle is 11%, so we have comfortable headroom at current levels. There are a couple of factors affecting the ratio over the balance of the year that I want to mention. Firstly, our recent disposal of ABSA shares adds around 10 basis points to the capital ratio in Q2. Secondly, we expect to go into the triennial pension valuation at 30 September in a surplus position, both from an IFRS and a funding point of view given the recent announcement from the pra on structured contributions we expect to unwind 1.25 billion of contributions in q4 which would otherwise have been spread over 2023 24 and 25 from a capital point of view absent other impacts from the triennial This could bring forward around 30 basis points reduction in the ratio. I would note, however, that given the surplus position of the fund, the element of our Pillar 2A requirement for pension risk may reduce. Going forward, we are confident in the organic capital generation of the group. We announced with our annual results in February that we would be launching a one billion buyback. In view of our ongoing discussions with the SEC concerning the impact on last year's 20F filing of the over-issuance of US securities which we announced on 28th of March, we are delaying the execution of the buyback until we have concluded these matters. To be clear, This isn't a question of whether we will be proceeding with a buyback, but when, and we expect to be in a position to start towards the end of Q2. As we've said previously, the Board considers capital distributions regularly throughout the year. It isn't just a matter for annual discussion, as you saw in 2021. Finally, on leverage, our spot leverage ratio was 5% and the average UK leverage was 4.8%. So, to recap, we reported statutory earnings per share of 8.4p for Q1 and generated an 11.5% ROTI, despite the litigation and conduct charges. The business performance is robust. and we're focused on delivering our target of double digit ROTI this year and on a sustainable basis going forward. We have an income tailwind from expected balance growth and rate rises in the consumer businesses and the CIB franchise is in good shape after an excellent Q1 performance. Given the 0.5 billion of litigation and conduct in Q1 2022, the increase in expectations for inflation and the strengthening of the dollar, we have seen some increase in our outlook for costs for this year. But we'll continue to review our expenditure plans and it's early in the year. But overall, we're comfortable with the current consensus of around 15 billion for all in costs. Reflecting macroeconomic uncertainty, we have maintained strong coverage ratios and expect the run rate for impairment to be below the pre-pandemic levels over the coming quarters. Our capital ratio remains strong despite the Q1 L&C charges and we remain confident of delivering attractive capital returns to shareholders whilst also investing for future growth. Thank you and we will now take your questions And as usual, I would 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. Our first question comes from Jonathan Pierce from Numish. Your line is now open. Please go ahead.

Hello there, both. I've got two questions. The first one is just a numbers one. The hedge income looks like it could be pushing £2 billion per annum by the time we get towards the end of the year. So could I just invite you to maybe tell us how much of that is actually in Barclays UK as opposed to CIB, please? That would help. The second question is a much broader one on these buybacks. Thanks for the clarity that it's a question of when, not if, but can you maybe just set out for us in a bit more detail what exactly needs to be done in the coming weeks to get the £1 billion going? Is it purely the refiling of these 20Fs or is there anything that's more out of your control that we should be thinking about? And sorry, just a supplementary to that, and this may be jumping the gun a bit, but Capital accretion over the rest of the year, organically at least, should be pretty good as it often is in the last nine months. Just wondering whether you think there's any scope, given what's happened in the last couple of months, whether there's any scope for the buyback to be topped up later this year, which I think may have been your intention at the full year results. Thanks a lot.

Okay, thanks, Jonathan. I will take both of those. In terms of the structural hedge income, approximately 60% of it sits in the UK, so hopefully that's quite straightforward. In relation to the other matter, as a UK matter, we have concluded and agreed with our auditor and the UK regulators that there is no need for us to refile either BB PLC or B PLC in the UK. We are still in ongoing discussions with the SEC in relation to our requirement to potentially or possibly refile B PLC and we have concluded that we will refile B PLC. So you're right, It relates directly to that. Until we've concluded that, we have decided, so it's a Barclays decision, that we will delay the commencement of the buyback. What I would say, Jonathan, is that we're well progressed in our preparation, and in fact, the basis of that restatement is what we've actually printed today. with a re-attribution back into FY21. And, you know, we've got really constructive discussions with the SEC. So that's why we've positioned it as we have as a when rather than an if. And you're right, you know, we're really pleased with the capital print in the first quarter. And we feel like there's momentum in the business and actually across all three businesses. So we'll continue to consider our distribution plans for the rest of the year, but we would expect to accrete capital. We've guided today that we are still continuing to target double digits. That's about 150 base points. We've delivered 51 from AP in the first quarter. So it does feel like the momentum is there, but it's something that we'll discuss with the board. Typically, we discuss that throughout the year. It isn't just a matter for the year end. You saw that last year, and I wouldn't believe it would be different this year.

Okay, that's really helpful. So just to be clear then, once these 20Fs, one or two, have been refiled, buyback will start. We're not waiting to see what the SEC is going to do with regard to potential fines or remedial action in the control function. It's literally just the 20S.

Correct.

Great. Thanks a lot.

Thank you. Next question, please.

Our next question comes from Joseph Dickerson from Jefferies. Your line is now open. Please go ahead.

Hi, good morning. Thank you for taking my question. Just a question on the provisioning. I guess If I look at the card coverage in the UK that's at 13%, I mean, this is like almost an adverse outcome in a stress test. What's driving that level of conservatism given where we are on unemployment rate and household indebtedness and so forth? And, you know, more broadly, do you think that you're taking enough risk in unsecured? So two topics on unsecured. And then also, staying in the same area, could you just comment in terms of what you're seeing in terms of some of the higher frequency spend data? I mean, your own monthly Barclaycard survey shows areas such as nonessential spending are up like 17% on March of 2019. At some point, you'd think some of this is going to turn into revolved balances, particularly as travel picks up. Is that a correct assumption?

Yes. Thanks, Joe. I'll take the provisioning. I'm sure that Venkat will have a view on risk, and then I'll revert back on the high-frequency data. So when we were at the year end, we were cautious, and we were cautious about a few things. We were clearly cautious because we were at what would appear to be the Omicron variants, we were cautious also about impending inflationary and affordability pressures. I would say that since the year end, our concerns about COVID have abated somewhat, but the tragic events in Ukraine and the ongoing impact of inflation around the world and how that plays into affordability has probably changed that concern a little. So we've been cautious, Joe. and that's why we've maintained coverage. You're right, unemployment forecasts are low, but the way I think about unemployment is we use it in the models as a shorthand for disposable income. So even though unemployment forecasts are low, it is absolutely certain that the affordability pressure is out there and therefore we will see some pressure on monthly disposable income, and that's why we've taken the position that we have. Venkat, what about, you know, the risk positioning?

Yeah, so, Jo, you're absolutely right, and, you know, that first of all, credit conditions otherwise are relatively benign. Obviously, with these inflation and cost of living pressures and interest rate rises consequently coming from central banks, There is a greater chance today than there was even three or four months ago that growth gets affected and employment gets affected later on this year. Having said all of that, especially in unsecured, I would characterize this as a demand problem and not a supply problem. We have abundant risk appetite to lend unsecured both in the UK and in the US. Obviously, we will do it where it's affordable to our customers and where it makes sense from a credit risk point of view, but credit risk is benign. So we are very much open for business, I'd like to say. And I think what you're seeing is a demand issue. And we are also anticipating in the UK that as discretionary spending or non-essential spending rises, into the summer with holidays that we would see balance growth. I think the UK is a little behind the US in that.

I completely agree with that, Joe. If we look at our high frequency spend data, we can see purchases up in credit cards in the UK. We can see actually payment volumes up when we look at our payments, business payment volumes are, or you know, the turnover is 17% up year on year. And actually, when we look back to 2019, which is the last year pre-COVID, you know, our purchase volumes are up versus that as well. So there's definitely recovery in spending. We continue to see elevated levels of repayment in cards in both the UK and the US, actually, which is probably some reflection both of consumer confidence and the large liability balances that we've seen accrete through the COVID period. So I think that will probably form a little bit of a dampening on growth, but essentially what is happening is what we expected to happen, which is we're seeing purchases as a strong lead indicator. I expect to see balance growth from here, and actually lending growth will probably follow that.

Okay? That's very clear. Thank you both.

Okay, thank you. Next question, please.

Our next question comes from Rohit Chandarajan from Bank of America. Your line is now open. Please go ahead.

Hi, good morning. I had a couple, please, one on the CIB and one on costs. I mean, obviously a great quarter for the CIB in Q1, and congratulations on that. But as Venkat mentioned, the CIB doesn't move in a straight line. So I was just wondering what the sort of market environment you were sort of baking in to support that 10% ROT for the group for the full year, particularly for the CIB, so market environment for the CIB. And then linked to that, just in terms of the controls review, is that... Is that specifically around the structured products business or is it broader based than that? And then the secondary would just be, I wonder if you could just provide a little bit more detail in how you're thinking on costs as chains. So the six to 700 million increase in cost expectations for this year relative to previous guidance, how much of that is incremental litigation and conduct? How much is inflation? How much is performance related? How much is FX? So if you could provide any clarity around that, that would be really helpful. Thank you.

Thanks, Rohit. I will begin with the CIB and then Anna will cover costs. I think the market environment will continue to be one characterized by volatility, both in interest rates, in credit stress, and in equities. I obviously hope and don't anticipate that there will be the kind of severe shock to the system that the Russian invasion of Ukraine created in late February. But I'm thinking about it more like the environment that prevailed, let's say in January, up to the Russian-Ukraine invasion, and that is probably prevailing right now, now that that shock has abated. So it is one characterized by higher volatility, and I think I think investors and clients, investor clients and corporations will continue to have to reposition their portfolios dealing with that volatility and form views about how they want to take their risk profile, what they want to assume their risk profile going forward, which is not an easy thing. More broadly, I think, you are beginning to see a little bit of deal activity come back into the market. Obviously, the Elon Musk acquisition of Twitter, for which we were an advisor in finance, as has been reported, has idiosyncratic elements to it, but it is, we think, a harbinger of some improved deal activity, and that will help the banking side. As far as the controls review itself goes, You know, there's what's going on externally, which is focused very much on this particular incident. And from everything we've seen so far, there was no intentional misconduct. And it seems to be a relatively specific matter. Having said that, as I've said before, I take a controls culture and a risk management culture extremely, extremely seriously. And I'm very disappointed when I see surprises like this. And so we will do whatever we need to do to ensure that we don't face such surprises. And if that means looking internally at other things, we will. But it is the most important thing to emphasize is a no surprise culture and learning from it when it happens. And I'll turn to Anand Kost.

Okay, thanks, Rohit. Yes, you're correct. We've guided to 15 billion all-in costs this morning. I want to be clear that that is a statutory number. So the movement that you are seeing is predominantly around L&C, about 500, I would say. And that's really what's changed here. And we're clearly disappointed by that. Let me help you understand how I think about costs. I think of it permanently as us working across three different factors. The first is what we invest to underpin the growth of the business. The second is how we drive efficiency programs through the business. And then the third is how we are managing headwinds from inflation and indeed from FX. What's different again is that the pressures around that third element are certainly higher than they were. Although I remind you that whilst FX might be a headwind to costs, it's a tailwind for the P&L overall. Typically what we try and do is bring the net impact of those three as close to null as we can, so growth can drop to the bottom line. That is harder in the current environment, which is why we've given that guidance around all in. We do have levers though, and you've seen us be really disciplined in the first quarter. So whilst we've got revenue growth of 10%, we've got operating cost growth of 1%, and we got positive jaws in all three of the businesses. So you should expect us to continue to be thoughtful and disciplined.

Thank you. Could I just follow up on that, Anna, in terms of the levers? I mean, presumably that inflationary pressure builds as we go into next year. So I think you talked about the potential deferral of investment spend. Would that be the key lever that you pull to manage a more inflationary environment for a year or two?

Yeah, I think there is a few levers. There's that phasing of investment. Clearly we'll prioritise the investment that we think is strategically important. That's the right thing for the business. But we may push out decisions that are a bit more marginal. The second one would be driving efficiency harder. We clearly set off in Q4 of 2021 our BUK transformation, for example, that's not really going to deliver a whole load in 2022. But beyond that, and that's simply because of the timing of when those investments start from 23 onwards, you'd expect that to start coming through. So I would say driving efficiency really hard. And then the third thing is just the timing and extent of any structural cost actions that we may choose to take We've guided to those being down materially year on year. And as we take them, we are thoughtful about the returns and the business at that point in time. So think of us pulling those three levers, Rohit.

Okay, thank you very much.

Okay, thank you. Next question, please.

Our next question comes from Alvaro Serrano from Morgan Stanley. Please go ahead.

Good morning. Just a couple of questions. Again, on the structured notes issue and the review from the regulators, apart from the refiling, what do you think the potential range of outcomes could be? And in particular, I'm thinking if they do ask you to reinforce controls, is this a material source of cost inflation? that we should potentially sort of have to think about. And the other sort of question for me is a bit around the consumer, and I'm thinking UK, but if there's any relevant comments in the US, that would be very welcome as well. Obviously, balances are not taking off yet. and the outlook obviously you now have the so the uptick in in utility bills and potentially more in later in the year uh without you still confident that it's going to grow what what drives that confidence um and and what do you think it is it's sort of just travel the bigger sort of it still makes you the pickup and travel still still makes you confident on that despite all the consumer squeeze and i'm thinking obviously more in terms of demand and and balance growth for the next few quarters. Why are you so confident? Thank you.

Thanks. Hi, Alvaro. So let me begin first on the structured notes side, and then Anna will cover the consumer balances. So look, first of all, in the cost estimate that we've given you, we've given you our best estimate at this point, which is primarily related to the rescission offer itself. The broader issue about controls, it's early for me to say, look, I think we're doing this external review. As I said, there is no, from what we've seen, there is no intentional misconduct, and it appears to be an isolated matter. We, of course, will internally, as I said in answer to the previous question, I hate surprises, and when surprises happen, I would like to look more broadly. But we have spent a lot of time and money on improving the controlled culture of this bank since 2016. And we've done a lot, and if you look, whether it's been financial risks or other risks that have been hitting the industry over the last many years, there are many things which we have avoided. So I feel good about what we have accomplished. Obviously we did not achieve perfection, otherwise this would not have happened. So this is upsetting that it's happened. but I take some comfort in everything that we have done so far and we will continue to look as you have to after one of these things happen. But my hope and expectation is that this is a very specific matter.

Okay, I'll take the question on cards balances in the UK and the US. You know, they are different, so let me draw that out. So in the UK, we are still confident. The reason for that is because of the trajectory and purchase activity that we see. You're right, the mix within that we might expect to tend towards travel as we head into the summer. I think the other thing just to remember is that as we went into COVID, we were risk off. We were conservative, we were cautious as we went into COVID. That's a decision that we took at the time, but since then we've stepped back towards consumer risk in the UK, as Venkat outlined previously. We're doing so in a thoughtful way, given the environment, but over time, us stepping back into the market to acquire cards will feed through into higher balances. So it's partly around purchasing behaviour, but it's also that flywheel effect of stepping back into the market. The US is completely different. So in the US, we've seen balances grow by 2.6 billion in the year. They're up 13%. That's nearly all organic. You know, we're seeing heightened purchase activity there too. So that gives us confidence in terms of the organic growth of the folks we already have borrowing on the card. And then of course we had strong acquisitions throughout the back end of 2021 and you're starting to see that now coming on Actually, what you're seeing most of right now is the contract income of that, but that will again feed through to balances. And then inorganically, we've got gaps coming on board at the end of Q2 in the US. So I think we're constructive in both the UK and the US for different reasons, but we'd expect balances to grow in both.

Thank you very much.

OK, thank you next question.

Our next question comes from Chris Kant from autonomous. Please go ahead. Your line is now open.

Good morning, thank you for taking my questions. If I could just come back on the shelf issuance problem first, could you explain a bit more detail what you've done to size the potential impact here in terms of the provision you've taken? Presumably these instruments changed hands several times. Do you have any obligation to compensate previous owners of the instruments or just the current holders? I note that in today's release, you've indicated an unquantifiable contingent liability on a subset of the ETN. So when do you think you'll be in a position to quantify that potential risk? And then secondly, is there a risk of some regulatory fine here? I appreciate that you've indicated this was basically an unintentional error. It's not sort of a risk culture issue. But you have lost your well-seasoned issuer status in the US in 2017 and paid a fine. So I guess you're already on the naughty step for want of a better term. Could that be a factor in how the regulator views the recent over-issuance problem? Thank you.

OK. Thanks, Chris. What we've put in the financial statements this time is our best estimate at this stage. And you're right, it's focused on the structured notes rather than the ETNs. But worth just calling out that within the 15 billion, the ETNs are 2 billion of that over-issuance. I can't go into detail on the way we've constructed the provision. What I would say is that there are differences in the products and the way that the products trade in the market that underline the reason why we have treated them differently. in the way that we've called it out. So, you know, we are not able to determine if or what any liability would be with the ETNs, whereas with the equity structured notes, you know, they perform differently in the market and therefore that's relatively clear. As relates to, you know, further discussions with the regulator, Venkat, do you want to pick that up?

I think the broad framework on this, and obviously we can't forecast exactly what will happen, but I think there are two or three things importantly to keep in mind. Number one is we seek at all times to have frank, open, harmonious relationships with our regulators. In that way, this issue has been escalated immediately to them, was escalated immediately to them, We have regular discussions, and we're working constructively to resolve it. We have not, in the external review, found any evidence yet of internal misconduct, any sign of internal misconduct. I think all those are contributory, but the ultimate outcome is, our hope is to resolve this matter appropriately, offering the right remedies under law, to those who have been affected and working constructively with our regulators to end the matter.

Okay, thank you.

Okay, thank you. Next question, please.

Our next question comes from Omar Keenan from Credit Suisse. Your line is now open.

Good morning, everybody. Thank you very much for taking the questions. I've got one market question. and one Barclays EK NIM slash structural hedge question. So just on markets, so you talked about improved margins from historically low levels and environment of persistent volatility. And I understand that picture for FIC. And I can see that 22 is likely to be quite good for the franchise relative to last year, especially given the normalization of rates we had last year. But what I'm trying to understand is how you think the equities business will behave specifically and how volatility dependent you think Barclays equities franchise is versus how directional it is. I'm just trying to understand the likelihood of those businesses performing together as they did in the first quarter. And then my second question is just on the Barclays UK NIM guidance. Could you just give us some colour around the specific assumptions behind the revised NIM guidance? I think if we think about the number of Bank of England rate hikes that are now in the base, I think it's probably around 35 to 40 bps on average, something like that. Is that fair? And just on a question related to the structural hedge, I just wonder how much you're thinking about how to manage the structural hedge given the shape of the yield curve and what you're expecting from interest rates. I'm just wondering if the bias is going to be for yields to head up, whether you'd be tempted to shorten the duration a bit without suffering on yield to increase your year two to year four rate sensitivity. Thank you.

Yeah. Hey, thanks Omar. Let me begin with the market questions. and then both the name and the structural hedge. I'll turn it over to Anna to answer. On the market side, you know, you've asked about both FIC and equities. Let me say two things. First on FIC, there is higher volatility on the trading side. On the equity side as well, I think there has been a period since last year, it's been slightly different things, but it's been increased volatility in the equity market. since last year. At the start of the year, as you remember, it was very idiosyncratic single stock movements, the mean stocks, as they call them. It has become more broad-based now with higher interest rates and greater volatility in indices. And I think one way to think about it for us is we have both a strong cash and a strong derivatives franchise, and the derivatives franchise tends to benefit from increased volatility. And the one thing I'd like you to also keep in mind, both for fixed income and equity, is how much we have been making progress in what I would call financing and financing-based revenues, which are a little subject to volatility but are much more stable fee-like income. So obviously equity prime has been a growth area and we sort of called it out in our slides with a You know, 40% growth over a four-year period ending in 2021, but even a 10% growth in the first quarter of this year. And then fixed income financing, of which we are a leading participant in the market, top three, if not top two, has been low in absolute revenues for the past number of years, with rates being very low, spreads being very low, rate wall and spread wall being very low. But it's starting to pick up. with widening credit spreads and higher interest rates. So I think that combination of financing revenue across equity and fixed income is something we have been strong in, we continue to invest in, and it is fee-like income, but in markets like this, I would anticipate that that continues, and some of it is really quite independent of markets as franchise revenues.

Thanks for the question, Omar. So Barclays UK NIM guidance, we've guided today that we expect to be between 270 and 280 bits for the year. The key assumption there is we are assuming that we exit the year with a base rate of 1.75%. I would say the assumptions within there, let me tell you about what I think the levers are. The first is clearly that base rate move. We've seen to date, I would say, little pass through or low levels of pass through. I would expect pass through to increase as rates continue to rise. Of course, it's difficult to call specifics. We've not been on this pathway in the UK for quite some time, but in general, I would expect pass-through rates to increase somewhat from here. The second thing is obviously the structural hedge, and I'll come back to that in a little bit more detail, but obviously the structural hedge will increase in income terms over time, and that adds to that build in our NEM. And then there's probably one which is a bit more of a dampener, which is obviously what we're seeing in terms of mortgage margins. The mortgage margins are definitely very competitive. And whilst we like the business and are pleased with our growth, just the mixed effect will have a dampening effect on MIM, but obviously a positive impact on NII in cash terms. The wildcard is really what happens to cards balances, so that one's a little bit more difficult to call. The thing I just say about base rates before I go on to structural hedges, whilst we're calling that we are using a 1.75% exit rate, the rises in Q3 and Q4 don't really have that much effect on 2022, both because of the timing and obviously we're assuming an escalated pass through as we go on. Just coming to the structural hedge. The structural hedge is there to dampen the volatility from interest rates in UK NIM and indeed NIM generally across our banking products. It's not an expression of how we feel about rates. And to that extent, when we move that hedge around, typically what we're doing is we're extending it in quantum to reflect higher deposits. We are not doing anything else. So we are not intending to change it in terms of duration at this point. It's a Caterpillar, so 1.60 of it will reprice every month. Just to reiterate though, taking all of those things together, we're guiding up on NIN because all of those things are net benefit to the overall income of the UK.

That's lovely. If I could just ask you a quick follow-up question. You've kept your rate guidance of £275 million for 2015. Should we take that as a signal that that will be the rate sensitivity for the next hike?

That's a more general disclosure, Omar. It's difficult to be specific about any particular rate hike and we would not do that. It's quite dynamic because of not just the timing of them. So it depends where you are on the curve, for example. But it's also because we're making multiple decisions across different businesses. You know, it'll be different in corporate versus UK, et cetera. So don't think of it as an expression of intent. It's a sensitivity.

Okay, lovely. Thank you.

Okay, thank you. Next question.

Our next question comes from Ed Spurth from KBW. Please go ahead. Your line is now open.

Yes, good morning everybody. I just had two questions please. The first one was really about credit. I hear what you say about sort of conservatism and caution on the outlook, but if I look on page 18, you've got your variables that you use for your expected loss computations. In that you've got UK GDP in your base case, we're growing at 5.7% this year and 2.5% next year. And if you look at the probability, table below that you've actually got a probability waiting to do better than that and yet I mean consensus is what almost two percent below that for this year and even lower again for next so it seems to me you've been quite aggressive in expected loss assumptions so I guess my first question would be am I reading that right what is the sensitivity right if you were to put more of a sort of consensus view of growth expectations in your expected stock how might that affect your your expected loss computation? So that would be my first question. The second one was really one for Venkat, really a broader strategy question, Venkat, because, I mean, I guess now you've had a bit of time in place. One of the frustrations I have with Barclays is if you look at your CIB business, I mean, it's just smashed expectations again and again. And again this quarter, you're 40, 50% ahead of what everybody was thinking. And yet, look at the market reaction again today. It's like everybody shrugs their shoulders and wanders off. um as a sort of ceo looking at it afresh is there anything you can do about this do you think i mean are you looking at how can you get people to start giving you value for the performance in that in that business and i'm thinking i don't know people have talked in the past about floating some of it off can you split it up and give us more visibility on the sort of stable underlying earnings because it must be immensely frustrating frustrating for you and for everybody who works there that these earnings are just basically ignored

Thanks Ed. I'll take the first question and then I'll hand over to Venkat. So on your question around our macroeconomic variables, we didn't update those in the quarter, we rolled them forward from Q4, which is what you're seeing. They clearly changed towards the back end of the quarter, or rather to be specific, consensus changed towards the back end of the quarter, and we didn't update for that, but we don't think that's significant. The reason I say that is GDP is not a big driver of ECL in our models, the one that really matters is the unemployment rate. And actually, if anything, if you look at our unemployment metrics that we are feeding into the models, they are on the conservative side. And really, much of the conservatism that we are posing here relates to our post-model adjustments. And you can see that in the disclosure and actually see that in the way that the coverage ratios are. That's why the stage two coverage ratios are elevated because that's where the P&A sits. So, you know, yes, the macroeconomic variables are important. Some of them are more important than others. And I would say that unemployment is the one you should really watch but our PMAs are a significant part of our non-defaulted stock level, so we're pretty comfortable with it.

Venkat?

Sorry, can I just have one quick follow-up on that? You've still got a 47 percent probability weighting to an upside and only a 20 percent weighting to a downside. Should we expect that to be a bit more cautious as we go through the year?

So the probability weighting is actually a modelled output, Ed, and we can spend a bit more time with you on this outside of here if you want. But essentially, it's mathematically derived from the divergence between the scenarios. So the further apart they are, the lower the probability in simple terms. So it's not an active decision we make. It's actually a mathematical output of the pathways. But we can take you through that in a bit more detail.

Yeah, that'd be great. Thank you.

Okay. Thanks for the second question, Ed. So first of all, what I would like to say is if you take a five to six year perspective on the bank, Going back, there were two questions about Barclays on the CIB. One was, should we have a CIB? And the second is, if we had a CIB, would we be any good at it? On the first question of should we have a CIB, I think the argument which we made in 2016 was that it was an important source of diversification for the bank. And I think the events through 2020 and 21, and in fact early 22, have shown that that was true. So I think that question of should we have a CIB is sort of, I think, off the table. But equally, because of that, the corollary is that we very much wanted to be part of what this business is about, of what Barclays Bank is about. The second question being, if you had a CIB, would you be any good at it? I think your own kind words describing our performance I would take as evidence that that question should be moving off the table. Because I think we are showing that we are actually reasonably good at it. So then the broader strategy question is, well, the question you're asking is, well, but you don't seem to be getting credit for it in the share price. Well, it has the salutary effect of making me a more patient human being. But beyond that, I think the... Question really is conversion of the earnings into buybacks and a capital return. And clearly the events of this quarter have, you know, delayed that satisfaction just a bit. And the second is consistency. So I think what you should expect from us from a strategic point of view is to keep to the diversification, to keep to try and producing good earnings, to keep to try with our objective of a decent return of capital to shareholders, and then the story will find its acceptance.

But sorry, if I could just come back with just one question. I mean, there must be some elements of that business, which is what I call the sort of core recurring business. I mean, I'll be honest with you, I've got absolutely no idea what CIB revenue is going to be this year. And I guess you probably don't either. So that does make it very difficult for investors to put any value to it in a meaningful manner. But I guess within the business, there must surely be a sort of underlying revenue, which we do know what it's going to make this year, which we could perhaps highlight in some way. Is there something in that or not?

Yeah, so I think there is. Let me try to do it for you in a qualitative way without giving you numbers. First of all, you've heard us talk a lot about financing, which equity financing and fixed income financing. Equity financing is what we call our prime business. This is where... we have balances from investors around the world who want to borrow against stock or borrow against bonds, and they keep balances with us. We've shown you that the prime balances in our businesses have grown tremendously, 40%, I think 18 to 21, another 10% in the first quarter of this year. And those are franchise relationships that endure, and they've happened because we've invested in that business. and they've had some competitors who've exited that business and we've been able to gain some market share from it. That is one part of the business that is relatively repeatable. When you think broadly inside the CIB and capital markets, both debt capital markets and equity capital markets, again, they oscillate a bit quarter to quarter, but the size of the capital markets has been growing. and we've been always historically very strong in debt and are getting stronger in equities, and you expect to see that and the associated revenues. And then there's the part about trading, where again, I think you should expect a certain base amount, which will come every day because portfolios need to be rebalanced, people take new positions, and people have to trade and rebalance with people on Wall Street like us. And on top of that, there is an element which comes from either very special situations like the ones we spoke about earlier today, or because of higher volatility in the markets, which means people need to rebalance their portfolios more than they normally do because it's moved because of market movements or because they're taking position. We're seeing a bit of that now. I anticipate that this year we'll have a higher level of that volatility simply because of rising interest rates and the adjustments people need to make in their fixed income portfolios and their equity portfolios because of equity volatility. I expect that to be higher this year. Can I tell you what that is three years from now? No.

Sure. Okay. That's very helpful.

Thank you. Okay. Thank you. Next question, please. And the next question will be the last one for today. Thank you.

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

Yes, good morning. Thank you for taking my question and also congratulations on the strong print today. Just quickly two follow-up questions, one on UK cards and one on the CIV. And I was just wondering on the UK cards if there's anything specifically to call out for Barclays Performance, just it seems like at the market share in terms of credit card balances in the UK, keeps dropping lower, even though there have been comments about a year ago about your intention to lean back into the recovery and regain some of the market share lost. And I was just wondering, how shall we think about the card progression balances going forward? Should that be in line with market, that you are roughly content with a market share of around 15%? Or would you also see an ambition to regain some of the market share in UK cards? And secondly, on the CIP, I was just wondering, you called out share gains in prime financing. I was just wondering if you could comment how you see the competitive landscape evolving. Are there still opportunities out there for further share gains? Or could you actually see some of that reversing with some of the European banks pushing back in terms for revenue ambitions? Thank you.

Okay. Thank you, Martin. I'll take the first and then pass to Venkat. So your questions about UK cards and Barclays specific performance. I think the first thing to say is that we are in cards and are actually nowhere else, exactly the same. We are not targeting a specific market share. That is not part of our philosophy. Our performance, I think, reflects the fact that we did step back from risk. We actually stepped back from risk post-Brexit, and we stepped back at the beginning of the pandemic. And therefore, you know, as we step back in, the response is not an immediate one. It takes a while for those customers to join us, to start to borrow, and so on. So I think... We would hope that we'll see balances grow over time from stepping back into that market, but it's not instantaneous. There is a delay. I think that's what we're seeing now. I think the other thing I would just say is it is our intention over time that we will reshape that business, and you're seeing evidence of us doing that now. So ensuring that we've got products that are focused on spend, not lend. So our Avios product launched in February. Too early to talk about specific numbers, but we're pleased with how that's going. So I think the cards business of the future isn't going to be a replica of the cards business of the past for quite a few reasons.

Venkat? Yeah, and Martin, thanks for the question. Look, our competitors, we take them extremely seriously. We respect them. They're all strong professional banks, and many of them are bigger than us. What I'll say to you is market share gains come in two ways. One is if competitors exit a particular area, which has happened with certain products and certain banks. And then the second is, more sustainably, how you continue to deal with your clients the services you provide, the investments you make in your capabilities, and the continuity which you have in strategy and client facilitation. We have been on this journey for a number of years with a consistent investment, a consistent approach to the strategy. Our footprint has remained relatively consistent, which is concentrated in the US and Europe, and in Asia, building it out slowly, but based in trading centers in Hong Kong, Singapore, and India, and serving China in an offshore basis. There are things which we do, there are things which we don't do. What we do, we try to do really well, and we try to offer enough to customers and deal with them in enough products that they keep coming back to us. So I'm very hopeful that with the team which we have and the investment we make and the consistency in that strategy, that we'll continue to get customers coming back to us, leading, I believe, to market share.

Thank you very much.

Okay. Thank you, everybody. We'll look forward to seeing many of you over the next few weeks.

And in the meantime, take care.

Thank you. This presentation has now ended.