Barclays PLC

Good morning. I have recorded this message in anticipation of possibly not being able to join you on the day.

I am pleased to report that Barclays has delivered our target return on tangible equity of greater than 10% for the year 2022. We continue to see broad-based income momentum across the group. We have invested in growth opportunities and realized returns from those investments across all three operating businesses. In the corporate and investment bank, we grew income year over year and delivered a double-digit ROTE. I want to highlight our global markets business, which has managed risk very adroitly through a volatile year and continues to gain not only market share with clients, but mind share with them as well. Our consumer cards and payments business grew income across each of its components, which is payments, our private bank, and U.S. cards. In U.S. cards, our new partnership with Gap has helped to drive strong income and balance growth, and scale to the business by doubling our total number of end customers. In Barclays UK, our ROTE has returned to pre-pandemic levels. As our sensitivity to interest rates has driven higher income, our investment in efficiency programs have enabled significant cost control and positive jobs. More broadly, we have managed our costs in a very disciplined way across the group, and we maintain a cautious approach to both the macroeconomic environment, how we position our balance sheet throughout the year, and how we continue to do so. Finally, our organic capital generation from profits has enabled continued distributions to our shareholders. I want to use this opportunity to review our progress against our three strategic priorities, which we laid out one year ago. Although much has changed in the world, in the UK, in the US since last year, our priorities remain appropriate and fitting to the environment in which we operate today. First one is to deliver next generation digital financial services. The second is to continue to deliver sustainable growth for our corporate and investment bank. And the third is to continue to capture opportunities as we transition to a low-carbon economy globally. Against the first priority, which is the delivery of digital financial services, we took several important steps in 2022 to broaden our capabilities and our product offering. In the UK, investment in digitization is a core part of our Barclays UK transformation strategy. both helping simplify our products and driving improved efficiency. The Barclays Banking app has over 10.5 million users now, and with the number of logins growing by about 8% during 2022. This translates directly into product demand, as 94% of our new 5% Rainy Day Saver accounts were opened online. The ability to offer help online also benefits our customers, with nearly half a million using our banking app to manage their mortgages, for example. From April, when that functionality was added to the app, over 8,000 mortgage holders chose to switch their mortgage rates with us online within four days of a base rate change. We are diversifying our product offerings further. We now expect to complete the acquisition of Kensington Mortgage Company a specialist mortgage lender in the first half of 2023. In the U.S., our partnership with GATT has broadened our product offering, opened up a meaningfully new addressable market for us in retail partnership cards, and provided us with scale and further growth opportunities. Our second priority is to deliver sustainable growth for the corporate and investment bank, the CIB. We have invested in the CIB consistently over many years in our technology, our people, our capabilities, our product offerings, and our focus on our clients' needs. As a result, we have built a globally competitive business that is now delivering attractive and sustainable returns. In 2022, we managed our risk well, not just in Q4, but throughout the year as we supported our clients during periods of high volatility. and the diversification which we have built within the CIB has proved valuable as we grew our broad overall income. Even though investment banking activity was subdued, we have continued to invest appropriately in talent so we are prepared for the future. Our global market business performed strongly relative to our peers, and it has consolidated increases in market share and positioned as well for the future. Anna will talk more about how investment in the financing businesses, which are part of global markets, has helped to provide a more stable income stream along with intermediation, even in periods of low volatility. Our third priority is to capture opportunities as we transition to the low-carbon economy. We are steadily building our capability and our reputation with clients in this area. Recent examples of our assistance to clients include As I mentioned in our Q3 earnings call, acting as sole M&A advisor to Con Edison on the $6.8 billion sale of their clean energy business. More recently, acting as lead left book runner on Portland General Electric's $500 million green financing equity offering for the construction of a wind energy facility and other renewable investments. We continue to make good progress in two priority areas. The first is facilitating sustainable finance, and the second is investing in sustainable technology startups. As we finance the transition, we have announced a new target to facilitate $1 trillion of sustainable and transition financing between 2023 and the end of 2030. And we are on track to meet our target to deliver 100 billion pounds in green finance well ahead of the 2030 target date. Our commitment of sustainable impact capital has generated substantial demand. And in December, we announced we would increase our investment to 500 million pounds by 2027. This investment will have an enhanced focus on decarbonization technologies, including carbon capture and hydrogen. When we set out to build a diversified bank at Barclays as a management team in 2016, none of us imagined the sheer rate and magnitude of change which we would go through in the next seven years. Our businesses, I'm happy to say, are performing well individually, and they fit well together. While our performance in 2022 was very gratifying overall, it was marred by the over-assurance of securities in the US, which I have discussed previously. I am determined that an incident like this should not happen again. And we are committed in Barclays to operating at a very high level, reliably and consistently, day in and day out. Our focus will be on high quality client service, on shedding complexity, and achieving operational excellence. In summary, we have achieved a great deal this year, reaching our financial targets for the group and supporting our customers and clients. None of this would have happened without the skill and dedication of our colleagues across the firm I'm grateful to every one of them for their hard work and commitment to our purpose. Thank you for listening, and I will now hand you over to Anna.

Good morning, everyone. I'm going to talk first about full year, then Q4. As Venkat mentioned, it was another year of delivery across businesses with a statutory return on tangible equity of 10.4%. Income growth of 14% outweighed the 6% growth in operating costs, which exclude bank levy and litigation in conduct, or L&C. Despite the increase of $1.2 billion in L&C, profit before impairment was up 9%, with a statutory cost-income ratio of 67%. This allowed us to absorb a $1.9 billion delta in impairment as the charge began to normalize following releases in the prior year. This earnings momentum and capital discipline is reflected in the year-end CET1 ratio of 13.9%. EPS was 30.8 pence, and our total distributions in respect of 2022, dividends plus buybacks, will be equivalent to 13.4 pence as we balance investing for growth with returning capital to shareholders. All operating divisions delivered double-digit ROTI for the second year running. Our UK Retail and Business Bank Barclays UK, or BUK, again delivered strong double-digit ROTI at 18.7%. Our international consumer business, consumer cards and payments, delivered 10% ROTI despite elevated legacy L&C charges, and we invested in growth. Our corporate and investment bank delivered 10.2%, despite the effects of the over-issuance of security. I now want to highlight the main drivers of income, costs, and impairment. As I do so, I'm going to emphasize three key themes. First, strengthen income, not just because of diversification, but because of performance. Our businesses have performed strongly and in the way we expected them to. I'm going to focus particularly on markets, which has outperformed global competition in FY22 because we have invested and been committed. Second, our cost strategy to grow the business and drive efficiency. And third, our risk management across retail, wholesale, and interest rates, including the structural hedge and the liquidity pool. All three businesses contributed to our income growth of 14%. This growth comes not just from margin expansion, but from client activity and selective growth in the balance sheet. The UK grew income by 11%, largely as a result of higher net interest margin. Income in CCP increased 35%, including the effect of the stronger U.S. dollar. Within this, international cards was up 39% from balance growth. U.S. card balances were up by around 31% or $7 billion year-on-year, both organically and with a $3.3 billion gap-back book. Payments income grew 25% and the private bank grew 30%, again benefiting from increased rates, but also from an increase in client assets and liabilities by 10% to $139 billion. And I expect to say more on the development of that business in the future. CIB income was 8% on top of a strong 2021. Within this, corporate was up 2%, with growth in transaction banking offsetting the corporate lending income expense, which included marks on leverage lending and higher costs of our increased credit protection. Investment banking fees were down 46% in US dollars, in line with the industry, reflecting the challenging environment for primary issuance and M&A. Markets, by contrast, were up 24% in US dollars, with a standout performance in FIC, up 48%. Clearly, volatility provided a tailwind as we helped clients manage their risk, and the business managed its own risk well. Equities income was down 4% in dollars. Whilst derivatives were weaker, our equity financing income continued to grow. I now want to focus on how we have invested in a more sustainable income base for markets by growing financing to complement our trading businesses, and how investing in capability more broadly across markets has increased share relative to our peers and with our top clients. In markets, we buy and sell securities and derivatives for clients. and earn a bid offer spread or commission income for this intermediation role. We also finance client portfolios lending against trading positions appropriately margined and at conservative LTVs. A key part of our strategy has been to grow this financing business. As a result, Whilst we have long been top ranked in fixed income financing, we are now also top five in private services. With investment in robust technology and risk management, this is good business for three reasons. First, intermediation income goes up and down with volatility. Whilst financing will also fluctuate to some extent with the leverage needs of our clients, it has a more stable base than intermediation. Second, having a strong financing capability complements client intermediation flows. Clients that trade with you also tend to finance with you. Finally, financing is prudently margined and carefully structured is relatively RWA efficient and therefore generates an attractive return on capital. We have been investing in systems and talent in financing over a multi-year period and are now seeing the results. We manage the business with an integrated approach across fixed income and equity financing, allowing our multi-strategy clients to realize cost savings. Consequently, an increasing amount of our market's income now comes from financing across FIC and equities, and this has grown at a 16% CAGR over the last three years. Financing is only part of a multi-year investment in technology and talent across markets, expanding our product offering in line with our clients' needs and growing market share. Our top 100 clients represent around 40% of the market wallet. We have grown share by serving them in an integrated and focused way and have increased the proportion of these clients where we have a top five wallet share by 37% in the first half of 2022 alone. As a result, we have outperformed all but one of our top 10 global peers since 2019, with 114 basis points growth in revenue share. Market conditions have varied over this period, so this multi-year share gain illustrates strengths across our asset classes. We believe that with continued investment in human and technological capability, good risk management and strong offerings across trading and financing, we can continue to gain sustainable share in the market business. Moving on from market, I want to remind you of our interest rate sensitivity, which underpins the income momentum from our consumers and corporate businesses. As I've highlighted before, a lot of this comes from the role of the structural hedge, as you can see on the left-hand chart. Although the long end of the curve has moderated from the Q4 average, reinvestment rates on the hedge role are still well above the average yield and the yield on maturing hedges. Although the size of the hedge was marginally reduced in Q4, We have over 50 billion maturing in 2023 and expect to reinvest a large proportion of that. And remember, the portion we lock in has a multi-year effect. Looking now at our cost performance and strategy. As guided, costs were 16.7 billion. This includes L&C of 1.6 billion, an increase of 1.2 billion year-on-year. Costs excluding L&C were 15.1 billion, an increase of 0.9 billion. With around 30% of our costs in US dollars, this increase is due to the stronger dollar year-on-year and inflation. Investment to drive the three strategic priorities was largely funded out of cost efficiency savings. Our statutory cost income ratio was 67%, flat on 2021, significantly affected by the elevated level of L&C. Excluding L&C, the cost income ratio was 61%. Looking forward, movements in the U.S. dollar will affect our sterling cost prints And 2023 costs will reflect further investment in growth and the continuing effect of inflation. The dynamics of this will vary by business, with growth opportunities at attractive returns more concentrated in selected areas of the CIB and in consumer cards and payments. In BUK, the focus is more on transformation, with efficiency savings to fund continued investment in digitisation, and we are aiming for a significant further reduction in the cost-income ratio in 2023. We manage title costs, including litigation and conduct charges, with the aim of generating positive jobs on a statutory basis, and are targeting a cost-income ratio in the low 60s this year, as we progress towards our longer-term target of below 60%. Moving on to risk management. The Forecast Baseline Macroeconomic Variables, or MEDS, we have used at the full year for model impairment are worse than a Q3 and the start of the year. This increased modeled impairment by circa 0.3 billion in the quarter, but we utilized part of the post-model adjustment for economic uncertainty as planned to offset this, leaving 0.3 billion of the uncertainty PMA. The charge for the quarter was 0.5 billion and 1.2 billion for the full year, a low loss rate of 30 basis points. Our total impairment allowance at the year end was $6.2 billion, a slight decrease in the quarter from $6.4 billion, but with strong coverage ratios across the portfolios. Given current economics, we would expect the loan loss ratio for full year 23 to be in the 50 to 60 basis point range, closer to historical levels. This will be affected by product mix, including planned growth in U.S. cards, and by changes in the macroeconomic outlook. We've updated here the metrics we shared at Q3 to illustrate consumer credit quality. In the UK, our growth has been in mortgages, whilst UK cards has reduced by around 40% since 2019. We continue to see high levels of repayment in UK cards, and arrears rates remain stable and low. Consumer behavior and the risk performance confirms that the quality of the card book overall has improved, and this is reflected in some reduction in coverage, but the ratio is still 7.6% in UK cards with a 19.2% coverage of Stage 2 balances. We've grown US cards, but have maintained strong coverage levels. with 8.1% overall and a 33.6% Stage 2 coverage. A few comments now on our wholesale risk management. As we have grown share in CIB, we have managed risk carefully. Whilst RWAs in the CIB have grown, the increase year on year has been as a result of the stronger dollar and regulatory changes. there was actually a slight decrease from other business-related factors. We also kept tight control on leverage, with leverage exposure for the group down year on year, despite FX and the growth in financing. Looking at the wholesale lending risk, CIB loans to customers and banks at amortized cost grew by $18 billion last year, or $15 billion excluding FX. Most of this increase is in lower risk areas of corporate lending and we've increased the first loss credit protection. Commercial real estate lending as a sector is facing some headwinds in respect of valuation and liquidity. Total CRE loans across the group are 16.6 billion down year on year and just 4% of our total loan book. It is an area where we have taken a cautious approach with UK exposures broadly static for a number of years and well collateralised. Another topical area is leveraged lending commitments. We have actively managed down pipeline over the last couple of quarters, halving our syndicate commitments and have taken some marks on remaining positions in the corporate lending income line. In summary, we feel confident in our risk management across our lending portfolios and trading businesses. Some comments now on our Q4 results. Profit before impairment of 1.8 billion was up 29%, with income growth of 12%, outweighing cost growth of 6%. Both income and cost growth numbers are of course affected by the stronger US dollar year on year. The impairment charge of 0.5 billion represented a 49 basis point loan loss rate, close to our expectation for 2023. There was a small net tax credit in the quarter and ROTI was 8.9%. Looking now at each business, beginning with the UK, income grew 16%, with costs down by 8%, reducing the cost-income ratio by 15 percentage points to 58%. The NIM for the quarter was 310 basis points, up 9 basis points on Q3, as we saw further benefits from rates. This was moderated by product margin pressure, notably in mortgages, and effects from Treasury activities, which are included in the other category on the NIM bridge. We would expect to see similar pressures in Q1. However, for 2023 as a whole, we're guiding to a reported BUK NIM of over 320 basis points, as tailwinds from the building structural hedge benefit through the year outweigh these other dynamics. BUK ROTI was 18.7% for the quarter, Moving on to CCP. Income increased 46%, reflecting growth across international cards, payments, and the private bank. Total costs were up 22%, delivering strong positive jaws despite our continued investment in growth. The impairment charge was $287 million compared to $96 million last year. This reflected the growth in U.S. cards balances back to pre-pandemic levels, including the effect of the GAAP portfolio. As balances grow, we do expect some stage migration, but risk metrics remain below pre-pandemic levels. The Q4 rating was 13%. Turning now to CIVs. Income was down 2% overall with another standout performance in FIC, up 56% in dollars, offset by lower investment banking fees. I want to focus here on the Q4 corporate income, which was up 8% overall. Within this, transaction banking was up 78%, reflecting strong NII growth and growth in fees. As in Q3, the corporate lending income expense reflected both fair value losses on leveraged finance lending of $85 million net to market gains on related hedges and the continuing high costs of hedging and credit protection. The underlying corporate lending income remained stable. Total costs increased by 13%, reflecting continued investment to support income growth initiatives, plus the impact of inflation. The impairment charge was 41 million, and the ROTI for the quarter was 5.4%. There's a slide in the appendix on the head office results, turning now to capital. We ended the quarter with a CET1 ratio at 13.9%, towards the top end of our target range. I'm going to focus here on the movements in Q4, but there's a full year bridge in the appendix. Our capital generation from profits was strong, contributing 31 basis points. As expected, there was a headwind of close to 30 basis points, from the acceleration of the capital effect of pension deficit contributions. But we have now completed the triennial valuation with a funding surplus and don't have deficit reduction payments in 2023. We are very focused on managing the capital risk in the liquidity pool and the effect of movements in the fair value reserve on capital were immaterial in the quarter. We've announced a further buyback of 500 million to supplement the earlier buyback and dividend totaling 7.25 pence, making the return of capital in respect of 2022 equivalent to 13.4 pence per share. I do expect moderation in the ratio this quarter. For example, the 15 basis points impact the buyback and the investment in Kensington. We also plan to lean into the seasonal opportunities in markets in Q1, as we usually do. Looking further ahead, a quick update on Basel 3.1. We previously estimated 5% to 10% RWA inflation, but following the recent publication of the consultation paper, Our current estimate would be towards the bottom end of that range for the January 2025 impact, and that's pre-mitigation. Our MDA is now 11.3% and our target range remains 13 to 14%. In conclusion, we remain confident in our organic capital generation to support further business growth in line with our three strategic priorities and capital distributions. A quick comment on the move in equity. TNAV increased 9 pence in the quarter to 295 pence per share, reflecting 6.5 pence of earnings and net positive movements in reserves. we remain highly liquid and well funded with a liquidity coverage ratio of 165% and a loan to deposit ratio of 73%. So to recap and summarize the outlook, we reported statutory earnings of 30.8 pence per share in 2022 and generated a 10.4% ROTE delivering against our target of over 10%. We are aiming to generate a double digit ROTE again this year as we pursue our three strategic priorities. We have a diversified mix of businesses, but it is investment in the businesses and the way we manage risk that allows them to perform and gives us confidence in continued progress. Income momentum comes from investment we have made to underpin the sustainability of CIB and grow the balance sheet of CCP. And in BUK, we are guiding to an increased NIM in excess of 320 basis points this year. We will balance this investment with cost efficiency given inflationary pressures And we wouldn't expect the elevated level of litigation and conduct experienced in 2022 to occur. So we are aiming to deliver a statutory cost income ratio in the low 60s this year as we progress towards our target of below 60%. We are very focused on risk management and readiness for potential deterioration in the macroeconomic environment. As a credit risk matter, we expect an increase in the impairment charge this year as we grow US cards in particular and are guiding to a range of 50 to 60 basis points, absent further macroeconomic deterioration. We also expect some normalization of the group's effective tax rate. Our capital ratio is strong. and we are confident of being able to balance our investment for future growth with delivering attractive capital returns to shareholders. 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 round to everyone.