Barclays PLC

Welcome to Barclays Q1 2023 Results Analyst and Investor Conference Call. I will now hand you over to CS Venkata Krishnan, Group Chief Executive and Anna Cross, Group Finance Director.

Good morning. Thank you for joining us on today's call. Let me start by saying how pleased I am with our first quarter's performance for 2023. This was a record quarter of profitability for the banks. We generated 11.3 pence of earnings per share, which is well above the 8.4 pence of EPS in the first quarter of 2022. And our profit before tax of 2.6 billion for this quarter is up 16% year on year. We grew income by 11%, or 741 million pounds year on year, to 7.2 billion. This has demonstrated the broad-based and high-quality sources of income. which we have across the group's businesses. Supporting this income momentum, we maintained our focus on cost and our disciplined approach to investment, resulting in a cost-income ratio of 57%. We have delivered a 15% return on tangible equity, with all three of our operating businesses generating a double-digit return. And what this means is that we are very confident of being above 10% for the full year. ROTE in line with our group target. You know, I am especially proud that we delivered this strong performance while supporting our customers and clients through what has been a challenging environment for the banking sector globally. As you think about these results, I would like to emphasize three factors which I think have driven it. The first factor is our risk management approach, developed over a number of quarters and years, which has helped to underpin this performance. The second is a series of disciplined investments over recent years, which have helped to drive top-line growth. And third, our approach to capital management, which continues to support attractive shareholder returns. Let me begin first with the risk management. We have highlighted before that we have intentionally positioned the group's balance sheet to protect against downside risk in a volatile microeconomic and market environment. This risk management has shown itself in different ways. In our markets business to begin with, we have maintained a defensive risk profile since the start of 2022 and managed our risk well and adroitly throughout. In interest rate risk in our banking book, we have successfully positioned ourselves for rising rates and minimized the capital impacts from the large moves in interest rates which we have experienced. In our credit portfolios, We have maintained robust coverage ratios and limited our risk appetite in specific products and sectors and added first loss protection to our portfolios where appropriate. Now, the UK coming to liquidity has not experienced the liquidity concerns that we've witnessed elsewhere in the world. At Barclays, our customer-led liquidity deposit strategy over many, many years has laid the foundation for the highly liquid, diverse, and stable funding base which we have today. All these deliberate actions over a long period of time have proven their value in a quarter like this one. We were able to operate normally in a volatile environment and deliver strong returns to our shareholders. The second big factor is investments. As we turn to investments, you will see that they are behind the income growth that we see in today's results. In our markets business, our consistent investment in our platform has driven significant growth year-on-year in financing income, including prime, and market share gains over several years. This has contributed to the corporate and investment bank delivering its second-highest quarterly income on record, just shy of £4 billion, and a 15.2% return on tangible equity. In our U.S. cards business, our GAAP partnership is performing well, and we also grew cards balances organically across our other partner portfolios. while credit continued to normalize in line with our expectations. This growth in U.S. cards, along with 15% year-on-year AUM growth in our private bank, has helped drive 47% higher income in our consumer cards and payments business with a 10.5% return on tangible equity. Now, as we have mentioned previously, we plan to consolidate our U.K. wealth business with our private bank in just the second quarter of 2023. This will enable us to operate a more efficient, competitive, and customer-focused private banking and wealth business from a unified platform. We will update you on this important step in due course. And lastly, turning to our UK consumer business, Barclays UK, investment in our transformation program is generating efficiencies and allowing rate stalemate to drive strong profitability while maintaining a cost-to-income ratio of 56%. and generating an ROTE of 20%. Our positive momentum in Barclays UK is reflected in the increase in active Barclays app customers. It's growing up to 10.7 million users by the end of the first quarter of 2023, which is up 8% year on year. In other areas, we are laying the foundation for our future, such as our investments in support of our strategic priority to capture opportunities from the transmission to a low carbon economy. In fact, this quarter, Barclays helped Nextracker, the leading provider of intelligent integrated solar tracking and software solutions, raise $730 million through an initial public offering. This was the first major renewable energy IPO since 2021. And the third point is capital. On capital, the 500 million pound share buyback, which we announced earlier this year, along with other capital items that we have highlighted, have brought our CET1 ratio to 13.6%, as expected, around the midpoint of our target range. Our profits delivered 53 basis points of CET1 ratio in the quarter, supporting further capital distributions for our shareholders over the coming year. This remains a key focus for the bank. When we consider our capital allocation, we are carefully balancing capital returns with the disciplined investments about which I just spoke to you and which are driving improved returns for shareholders. So in summary, we have delivered a very strong quarter for the first quarter of 2023. It's a very strong performance. We generated a 15% ROTE with double-digit returns across all of our operating businesses. Our risk management and robust liquidity have helped insulate Barclays from recent events in the industry and enabled us to continue to support our customers and clients. Our investments are delivering growth and improved returns, and we remain committed to returning capital to our shareholders. With that, thank you for listening, and I'll hand over to Anna to take you through the financials in more detail.

Thank you, Venkat, and good morning, everyone. Q1 was another quarter of consistent delivery with a statutory return on tangible equity of 15%. Whilst Q1 is usually strong for returns, As Venkat mentioned, we are confident of achieving our ROTI target of above 10% for the year. The cost income ratio was 57%, better than our guidance of low 60s for the year, reflecting Q1 income seasonality. The loan loss ratio was 52 basis points within our 50 to 60 guidance for 2023. Our highly liquid and stable balance sheet positions us well to pursue our returns objectives with a CET1 ratio of 13.6%, a conservative loan-to-deposit ratio, and a liquidity coverage ratio of 163%. Our 15% return reflects income growth of $741 million year-on-year to $7.2 billion, while total costs were flat at $4.1 billion. Within that, operating costs increased 523 million, offsetting the decrease in litigation and conduct. Profit before impairment was up 31%. As we expected, impairment increased 383 million against a low comparator, resulting in a 16% increase in profit before tax overall to 2.6 billion. Earnings per share were 11.3 pence, partially offset by the 5 pence full year dividend, driving the increase of 6 pence intangible net asset value in the quarter to 301 pence per share. I'm now going to emphasise key drivers of our return. Income, cost and risk management. First, Q1 again demonstrated our broad-based income momentum. We are benefiting from the rate environment and also seeing the results of our targeted investment initiative. Second, as we invest, we are maintaining cost discipline, driving cost efficiency to mitigate inflation, whilst directing investment into areas which we expect to generate attractive returns for shareholders. And third, we continue to manage risk tightly, which, along with our prudent balance sheet positioning and liquidity management, underpin our delivery against targets in this environment. Starting with income on slide eight. Income increased 11% year on year, with growth across the group, partly from margin expansion, but also from client activity and selective growth in the balance sheet. Barclays UK grew 19% mainly from net interest income. Consumer cards and payments increased 47% including the effect of the stronger US dollar driven mainly by US cards and also growth in both payments and the private bank. CIB reported its second best quarter on record with income up $38 million at just under $4 billion, including some benefit from US dollar strength. We are particularly pleased with the quality and diverse sources of strong income growth, which we'll look at on slide nine. The $741 million increase mainly reflected growth in net interest income from several businesses across the group. In Barclays UK, NII grew $279 million, reflecting broadly stable balances and a stronger margin. In consumer cards and payments, income growth of $420 million reflected the significant US card balance growth up 30% and improvement in margin. CIB income was broadly flat, despite a reduction of around $370 million in intermediation income in markets. The financing income in markets increased by around $160 million to just over $800 million. This reflects the investment we have made in that area over the last few years, as we mentioned that full year, and also benefit from inflation. Whilst this revenue stream is relatively more stable, It will be subject to fluctuations and seasonality from quarter to quarter. Client demand is impacted by the market environment with spreads and inflation are expected to moderate. Transaction banking contributed over $300 million of growth. Mainly net interest income from higher margins, including the structural hedge, plus some year-on-year growth in deposit balances. Transactional activity drove some fee income growth across both the consumer and corporate businesses. We've illustrated on slide 10 why we remain confident about the momentum in net interest income from the role of the structural hedge. You can see the quarterly build in gross income from the hedge to $773 million in Q1. Although swap rates have moderated from Q4, reinvestment rates are still well above the yield of about 1% on hedges which mature this year. So the build in gross hedge income is expected to continue, and two-thirds of this accrues to BUK. We reduced the size of the hedge marginally again in Q1, reflecting the deposit migration to interest-bearing accounts particularly in corporate, as expected. In total, we have over $50 billion maturing in 2023 and expect to reinvest the majority of that. Turning now to costs on slide 11. Total costs were broadly flat year-on-year at $4.1 billion and our group cost income ratio was 57%. Operating costs, excluding litigation and conduct, which was immaterial this quarter, increased by $0.5 billion. $0.1 billion of this came from FX moves, with around 30% of group costs in US dollars. Efficiencies generated by previous cost actions broadly offset the effects of inflation to date. The increase also reflected disciplined investment to drive returns and generate further efficiency savings. The 30% U.S. card balance growth, including the GAAP acquisition, along with further marketing and partner spend, and FX moves, drove the $170 million increase in consumer cards and payments. The CIB increase of around $280 million included a 40 million increase in European levies, which are a Q1 event, and FX impact of circa 60 million. We have also invested selectively in a number of CIB initiatives to support both the income momentum you see in our current performance and to improve resilience and control. For example, we have improved our financing platform, supporting the growth in that area, and e-trading systems, and developed a unified interface for corporate clients. We have also invested selectively in front office talent. In Barker's UK, Our focus is on transformation as we automate and digitize investment in digitization and product simplification to improve our service for customers. Turning to the cost outlook. Our cost guidance for the year is unchanged, and we continue to target a group cost income ratio in the low 60s. Litigation and conduct is expected to be lower year on year, resulting in some reduction in total. We expect Q1 to be the high point for group operating costs in 2020. 2023, based on current SX rates, but with different dynamics by business. We expect CIB quarterly operating costs also. We haven't changed the baseline macroeconomic variables for models impairment from the full year, but they are more severe than for Q1 last year. Our total impairment allowance at the quarter end was $6.3 billion. At the end of the quarter, we retained post-model adjustments for economic uncertainty of $6.3 billion. On slide 13, We've shown key coverage and delinquency metrics for our two largest unsecured books. We continue to see high repayment rates in UK cards across the credit spectrum and arrears rates remain stable and low. The coverage ratio is 7.7% in UK cards slightly up on the to grow US cards. Delinquency rates have picked up a little. As we grow, we are maintaining strong coverage levels with an increase from 8.1% at year end to 8.9% overall and higher coverage ratios at stage two and stage three. The resulting impairment charge for the quarter is $524 million compared to the very low charge of $141 million last year. This charge translated into a loan loss ratio of 52 basis points, and we are reiterating that the UK charge of $113 million reflects both the lower level of unsecured lending compared to pre-pandemic and benign credit performance. The bulk of the charge is in consumer cards and payments and US cards in particular, this reflects the continuing normalization of delinquencies effect as balances grow post-pandemic is also contributing to the increase. This was particularly the case for GAP where balances were stage one at the point of acquisition, as some balances have migrated with Barclays UK on slide 15. Profit before tax increased 27%, and return on tangible equity was 20%. Income grew 19% to $2 billion, with costs up 9%, reducing the cost-income ratio by a further 5 percentage points to 56%. Net interest margin was 318 basis points, up 8 basis points on Q4, as we benefited further from the role of the structural hedge and the lagged effect from recent base rate rises. These impacts continue to be moderate during the quarter. As we indicated at full year results, overall, we still expect the NIM to build over the year, though more gradually than we saw from Q4 to Q1. And we continue to guide to a Barclays UK NIM above 320 basis points for the year as a whole. There were no incremental headwinds from the Treasury effect we highlighted in Q4, and we expect a modest reversal of these over the rest of the year, supporting the margin progression. Looking next at consumer cards and payments on slide 16. The return on tangible equity was 10.5%. Income increased 47%, reflecting growth across international cards, payments, and the private bank. U.S. card balances grew 30% to $28.5 billion, including $3.3 billion from the acquisition of the Gap book, plus organic growth. Operating costs were up 29%, reflecting continuing growth across the businesses and still delivering positive jaws. Overall, the costing and overall loan loss rate guidance. Looking next at the CIB on slide 17. Market have a standout first quarter in 2022. So income down 8% is a creditable performance with thick continuing to perform strongly up This was offset by equities, reflecting lower volatility compared to prior years, which in financing. Investment banking fees were down 7%, reflecting the lower industry fee pool, although within this, advisory fees were up 15%. our deal pipeline remained strong, and we would expect that to drive improved fee income as rates and market conditions stabilize. As I mentioned earlier, transaction banking was another strong performance, up 68% year-on-year to $786 million. Total costs, excluding this, operating costs increased 15%. Overall, we're pleased with the continuing development of this franchise. There's a slide in the appendix on the head office results, which was a loss before tax of $84 million. Turning now to capital and liquidity on slide 18. We have consistently maintained strong capital and liquidity levels as illustrated on this slide. We ended this quarter with a CET1 ratio at 13.6%, which is in the middle of our target range of 13 to 14%. Our liquidity pool ended the quarter at $333 billion with a liquidity coverage ratio of 163%, and a net stable funding ratio of 139%, both substantially ahead of the regulatory requirements of 100%. Looking in more detail at capital, as we flagged at the year end, three items reduced the CET1 ratio by around 40 basis points. The reduction in IFRS 9 transition relief in February. Our capital generation from profits was strong, contributing 53 basis points in the quarter, of which 10 basis points was applied to the dividend accrual. The expected increase in RWAs amounted to 21 basis points as we invested in opportunities in the markets business supporting our strong income performance. We ended the quarter at 13.6%, and our MDA is now 11.4%. So organic capital generation to support increased returns to shareholders and focus on deposit funding. At Barclays, we have grown deposit balances substantially ahead of loan volumes for many years. As shown on slide 20, we have seen an overall increase in deposits of $10 billion from the Treasury. These are mainly from corporates. and reflect the flight to quality in the market. Excluding these, underlying customer deposits across the businesses are down just 1% in the quarter. This is consistent with previous Q1 experience and is largely as a result of expected seasonal effects, including payment of tax bills in January and some FX moves. Of total group deposits, 41% are insured, with over 70% of UK retail deposit strategy means we have remained highly liquid through the quarter and have of $122 billion. The liquidity pool of $333 billion is held 82% in cash, with the risk in the residuals focused not just on the LCR, but also on a set of internal stress metrics that apply to so to recap for share in q1 We are confident of achieving our target of above 10% for the year. and conduct charges to be lower than in 2022. Whilst we expect operating on current FX rates, The cost income ratio for the as we progress towards our target of the low 60% we expect an increase in the impairment charge this year as we grow U.S. cards in particular and have seen an increase in the chart. Our capital ratio remains strong at 13.6%. And we expect to deliver attractive capital returns. Now take your questions.

And as usual, I would ask that you limit yourself to... If you change your mind and wish to remove... Your line is now open.

Good morning, everybody. Congratulations on a great but also, as you mentioned, there has been a market share and investment story over some time. It doesn't imply that structurally the that roti hurdle do you think what you think the barriers are to giving a more challenging hurdle and if you think it does need to be fine-tuned so Historically Q1 has been the trough for capital generation. Can I just check sounds like that conceptually it does seem that the interim buyback has not been larger than the full year buyback. Is that something that is applied as a rule, or is there no particular constraint on ? We'll take the second one.

You're absolutely right that our businesses have delivered strong double-digit returns across

And, you know, the 15.15%, so that it's above 10% means 10% is a floor.

It is not a ceiling. It is not reflecting the extent of our ambition.

We... Yeah, sure. Omar, you're right. We've said that in the past. Typically, it is what we expect, that Q1 is the lower point in our capital generation and trajectory for the year, just because of seasonality. Obviously, all of that's prior to any difference in the last year. That's the cadence that we've established. We don't have hard and fast rules, and we'll look both at our expected... Question, please.

Our next question is from Jason.

Emma, it's... It's not enormous within the group context, but I wondered whether balances are down. You talk of the high degree of transectors in the book. Unemployment hasn't risen. So I just wondered whether there was a preemptive component to that charge, or is this the sort of run rate before the economy starts to sort of noticeably is above 20%. Some firms in that position have decided to not grow the balance sheet at all. It's easier to run a bank where revenues are going up and banking is efficient. fixed cost volume game to growth. How much would you expect?

Our impairment charge in the first quarter both for the group and for the individual businesses is as we expected it to be and what really driving that charge, Jason, is two things. You need to take that into account when you're comparing this to what I would describe as a historic run rate for BUK. The second thing is that the credit environment and credit behavior is And you're seeing that come through in a low impairment print. Clearly, as the economy recovers, things are strongly linked. But not a surprise to us. Thank you.

So, not just in terms of the profits of the revenues we've produced, but the stability in our metrics of capital, and you obviously hope that the stock price will ultimately recognize the value of those businesses. And so what we are aiming to do is to create a series of set of businesses, operate them well, run them efficiently, and then that will be recognized and reflected in the stock price. Capital return is an important part of that strategy, just as investment is an important part of that strategy.

Do you think the sort of environment and there's potential market share gains given

Jason, why don't I take that? I mean, really it depends on the opportunities that we have in front of us. And that's what we've done. So, you know, where we see opportunities, we will... both returns as in ROTE terms, but our ability to distribute capital.

Jefferies, please go ahead. Go ahead, Joseph. Your line is now open.

Hi, good morning. Thank you for taking the time. Effectively, if you just assume you're 375, somewhere south of about a 7 billion gap. So it's a very big number, considering that the market only expects you to and I wouldn't have thought that, you know, assuming rates, assuming that number stays flat, right, so theoretical, I wouldn't have thought that momentum behind the hedge repricing, the

Thanks, Joe. Why don't I take that question? We've seen that actually fairly repeatedly of calling out that we still expect of our BUK NIM to continue to rise in the current environment despite the product dynamics. So it's as we expected it to be and fairly consistent over the last few quarters.

Thanks, Anna. It's just very impressive when you look at, you know, I think it's page 21 or so. It just seems to me like the market's missing something on the out here. Normal caveat's notwithstanding.

Okay, thank you. Did you have another question or should I?

is from Rohit Chandra Rajan from Bank of America. Please go ahead. Your line is now open.

Hi. Thank you very much. Strong performance. You know, that's very commendable given the tough price. better quarter-on-quarter, which I presume is just primarily fewer marks. And then transaction banking was a little bit weaker quarter-on-quarter. Those two revenue lines for the remainder of the year. I think particularly about the CIBs, is that particularly relating to the compensation accrual and maybe the SRF contribution in the first quarter? Or is there some sort of both of those is strong... revenue performance, but Jaws in the CIB was still minus 40%.

Okay. Thanks, Rohit. It felt like there were about 10 questions in there, but I'll try and remember them all. So just on the first one on corporate lending, remember there are a few things in there. There's corporate lending itself. Then there's the cost of our first loss protection. There's leverage loan marks, and it's really caused by two of those. You're right, it's the marks, so we've taken no material marks this quarter. The second point, we're going to do that again in Q1, and therefore the scale of those The hedges is smaller, and therefore the costs are smaller, and that's really what's moving that line. On the transactions, you'll see that the balances are broadly stable, but remember during the quarter, actually what happens in transaction banking typically end of the quarter and also remember you've got fewer business days within Q1 so you've got 90 business days versus going forward I think we expect our CIB NIM which we very rarely talk about to be broadly slapped for the year and the reason I say that is you've obviously got deposit migration going on within quite helpful asset mix going on within so Overall, that NIM is pretty stable and with, you know, an expanding franchise, a seasonality point. So you're right, we accrue compensation costs. costs in line with revenue and returns on the GIB. So you see that it's higher year on year. And in scale terms, it's about $90 million. And you're seeing a fairly consistent run rate tick down from here to here. We're very focused on returns on that business. You can see that the cost income ratio at 55% is actually better, I think, than the market expected, despite that increase in cost. At this point in the cycle, we're in an investment phase. Hopefully, that gives you a bit more color.

Yeah, very helpful. Thank you very much.

Thank you. Next question, please.

Our next question comes from Jonathan Pearce from Numis.

Quite a lot of it over the last nine months. The overall stat at nearly $14 billion, I think, is higher than you would expect. ordinarily look to run with. So can you talk a little bit about how you feel with regard to ATO1 issuance over the rest of the year and whether specifically you can the 21 basis points drop in the quarter due to product margin going to drop away. So thinking about the balance between these two, it would be helpful if you could give me a sense of how much of that 21 basis points is coming from the component part as well. That would be helpful. Thank you.

Okay, thanks, Jonathan. I'll take both of those. Yes, you're right. We issued 81 in Singapore. We typically operate with a surplus of AT1 in our capital stack, we do that deliberately in part to give us counter, but also because we deploy it flexibly into our business are sufficiently high to make that a good economic trade for us. So that's why we typically run with a surplus and assess every call in line with the economic circumstances at that point in time. So we'll be looking at that very carefully as we ordinarily would. So no generation, again, is as we expected and as we were talking about at the full year. We haven't given a split of that by business, Jonathan, but the larger part of the fact that most mortgage exchanges that are maturing this year were written in 2021, where asset margins were wider than they are now. We have seen some deposit migration. That's within our expectations. The 2021 basis point is not a surprise to us. I'll just remind you that as the year progresses, we expect to see continued headwinds as we call out at the full year and it's 20 for the year.

I'm sorry, just a quick question. Would still manage to creep up? In other words, will this 21 basis points ease, do you think, over the course of the year?

I would say yes, because they are more modest Treasury tailwinds. Part of the seasonal, you know, the seasonal and how they played out in 2021.

Next question is from from B&P Paribas.

Please go back to that portfolio and stage migration. Could you perhaps elaborate on the dynamics on that book? I would presume the quality of that book is not quite as strong the rest of your normalization ECL might mean for impairments in the coming quarter. And then on costs, thanks for the helpful guidance on Q1 being a high point for the group and for CRM. What those assumptions are that go into the guidance, in particular anything on risk. revenue or what sort of market backdrop you're assuming on the CIB. And then just one very small point of clarification on the ESR.

Why don't I have a go at those. So when you purchase a portfolio, you As GAP has started to season and started to mature and grow, we see some natural migration into stage two. That means, you know, if you use your credit card more than you did previously, you might progress to stage two, even though you're showing no signs of delinquency. That's just the way IFRS 9 works. So it's within our expectations to disclose individual partner ratios, whether that be delinquency or NIMH. But what I will tell you The gap is a very good quality portfolio, but we would also expect the NIM to be higher. So overall, think of this as us managing a risk-adjusted return. So even though impairment might be higher, we'd also expect NIM to be higher. So that hopefully deals with the first question. On the second one, the easy bit is, yes, around 90 million in absolute terms on the SRS. It does move around a little bit, not quite as mechanistic as the bank levy in the UK. From here on in, we have... We obviously have an expectation of performance. Let me try and help you with that. We've given you some income guidance because we've given you a cost-income ratio expectation for the year. say is that, you know, the guidance we've given is based on the FX rate. It's also based on our current expectations of a normal seasonal profile in CIB revenues and, you know, driven very much by the performance cost.

Please go ahead. Your line is now open.

Hi, good morning. A couple of questions for me. One of them is more and we've seen quite different reports from some of your peers and overall. like some of the U.S. players have done. And more importantly, going forward, and I'm thinking here in particular in BUK, there's more of a follow-up on the previous question on markets. You mentioned, Anna, very strong calm to maybe to give us some comfort or more consistent that gives you the confidence for that normal seasonality. Thank you.

Hi. I'll take the questions. So the first one on deposits, you're right. I mean, we've gone up a little over the quarter, 10 billion pounds. We saw a normal seasonality within the B-UK deposit base, which is a very slight shrinkage, and that was due to basically people paying their taxes. The broad point within the UK context is that it has not seen the movement across banks that you've seen in the U.S. because there's not been the kind of deposit pressure you've got in the U.S. from some of the very large regional banks having problems. So in the U.S., it's very much a function of that regional bank issue and the movement from some regionals to the big money center banks. You don't have that in the U.K., It's been behaving the way we would expect it to in the first quarter, and we'd expect that same seasonal trend in the second quarter. Where we have seen a bit of inflow is in what we would call our treasury deposits, we call it out, which are basically corporates around the world placing deposits, time deposits with us, which is, you know, it's a nice thing to have. It's a show of confidence. And so that is what's been driving it. And I would say otherwise, in the UK context, think of it as just the normal seasonal flow. Coming back to markets, I'll say two things. As far as the first quarter goes, it was a case of great volatility in fixed income markets, both before March and in March. So if you remember, in the early part of the year, interest rates started rising, and then there was a big view that that actually that things were going to, that the Fed was going to, you know, stop making, having interest rate rises after a certain point. And there was a bunch of sort of, shall we say, bearish trades on rates and bullish trades on spreads in January. That reversed in March. So you see volatility. But I think the important thing, what I would like to say about our FIC franchise is that our market share has continued to grow in that franchise. And as it has in equities, over a number of quarters and years based on deepening client relationships, investment in technology, investment in people. So I expect as we go forward, in the next quarter and the one after that, for that market share to be sustained, if not to grow. And we did well in the first quarter of this year. And the second quarter, I'll also remind you that Q2 of 22 was a very strong point of comparison with the volatility that you had post-Russia-Europe. I mean, so far you've not seen that in this quarter.

Great. Thank you very much.

Okay. Thank you. Next question, please.

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

Good morning. Thanks for taking my question. If I could ask two, please. On the structural hedge, you said in the slides that about two-thirds of the hedge income is coming through in the UK but where does the other one-third get booked by by business please and how much of that will be coming through the transaction banking line I'm just trying to get a sense of how much growth we should expect there um are you able to guide us all please on your expectations for revenues for the corporate lending and transaction banking line I know you don't generally talk about the yeah the revenue outlook but I would hope that those lines might be a little bit forecastable, and I think that was a source of debate in the court of our consensus, so perhaps we're missing something there. And then on the BUK side of things, in terms of the mortgage book, could you give us a sense, please, of where you're writing new business today versus where the average spread on the back book is in terms of what's rolling?

Thank you. Okay, let me take those, Chris. The majority of the rest of the structural hedge does appear in transaction banking. There's a little bit in the private bank, but as you can imagine, much less given its scale and also given that those are much more interest-sensitive balances. So that's where you see it going. That's in part driving the NIN in the CID up year on year, and then there's another smaller part from assets, which I called out before from... from the sales and trade finance side on that. In terms of corporate lending, I called out before we've seen some movement quarter on quarter because we haven't taken marks and because the pipeline is much lower. From here, let's see where that goes, but it's certainly much recovered on the prior quarter. We've given some guidance on this line before, but just remember the other thing that's in there is our SRT costs, so our first loss protection costs. If I take all of that together, actually our corporate income is pretty stable. And the reason I say that is, you know, you're seeing a NIM that's stable for reasons that I said before. You're seeing good balance growth coming through. Actually, we've seen some year-on-year corporate lending growth as well. So, you know, as an outlook, it's performed, and as you say, a lot more stable than some of the other parts of the CIB. So we're pretty confident in its outlook. I think the... The other thing I just call out is we've obviously seen quite a lot of deposit migration there already. If I contrast the sort of three different deposit franchises we have, we've seen most migration in private banking, as you'd expect, a lot in corporate, and probably less in personal. So hopefully that gives you some guidance there. In terms of BUK mortgages, we don't talk about specific margins. That's not something we ever disclose. But if you're looking for the effects of the compression, I would say mortgage margins have been relatively stable and they're pretty consistent across the market, you know, given the very competitive nature of it. And if you were to look back at the spread over swap in 21, then you're going to see that compression effect quite clearly, I think. Hopefully that's helpful.

Just if I could come back on the CIB revenue line items. So we should be interpreting corporate lending a hundred million a quarter from here and transaction banking growing from 750 to 800 as the hedge benefits come through? I think it's alluded to in an earlier question that the structural hedge benefits respectively are quite meaty and if a lot's coming through that transaction banking line, presumably we should be expecting that to grow sequentially from here. Is that fair?

So let me just correct you slightly. So I'm not going to give you a quarterly income number for corporate lending simply because of the number of factors in there. But given that we've hopefully seen the stress of leverage lending behind us, then hopefully it will stabilize from here at least. On the transactional banking side, you've got two things going on there. You've got hopefully potential further growth coming from the expansion in Europe, but also the UK franchise. But there is some, you know, NIM effect in there, because although we're well through the deposit migration and transaction banking, I'd still expect more to come in corporate. So very sophisticated, you know, actively managing their balance sheet, which is what we've seen, and we'd expect it to continue. Okay, thanks. Okay, thank you. Our next question, please.

And the next question is from Edward Firth from Stouffville. Please go ahead. Your line is now open. Yeah, thank you very much. Morning, everybody.

It was just a question for Venkat, actually. You think of, of course, the profitability of your businesses. BUK is now making, what, around a 20% return, and I guess if I look at your forecast or your guidance, you're going to expect that to go up from here, so probably mid-20s or even higher. which is, I guess, double what you're targeting for the group as a whole. And I'm just struck back to business in recent years, you've been seeding market share in some of your key areas. And I wonder, at what point do you start to think that actually that is an area now where you should be putting more capital in and start trying to gain share, particularly in things like credit cards, deposits, that type of stuff. Because it would seem that that would make logical sense, given you look at the sort of the profitability mix of the business as a whole. So that was the key question. Then I guess related to that, I see that, and it may be part of the answer, BUK costs are up 9% year-on-year. Is that the sort of cost growth? It's quite punchy. Is this a one-off scenario, or should we be expecting that to the cost growth for the year as a whole? Thanks very much.

Ed, thank you very much. So let me begin with the first part of it, and I'll ask Anna to talk a little about cost growth, about cost. You're right, the profitability of the ROT of BUK is 20%. We're not making any statements about how that would grow quarter on quarter. I think what you're seeing is the impact of, on the one hand, rising interest rates. On the other hand, especially when you look at the mortgage business in the name, we've spoken about those dynamics. So you see that all coming together in producing good numbers. I would make two statements about just our market positioning in the UK. We aim and continue to be a sort of a full-service bank across small businesses, retail, mortgages, credit cards, everything. What you've seen is risk positioning on our side, particularly in credit cards, since around Brexit, but a little after that, where we have backed off from some of the longer-term balance transfer offers. and sort of the juicier aspects of them. And you're seeing a prudent risk positioning. We will assess that as we assess all risk positioning over time, depending on facts and circumstances, how the economy grows, and we will make those changes. So it's not a question of seeding or gaining market share. It's a question of just managing the risk profile of the book. And that's what you should see it as. You know, at the same time, if you look at our Kensington mortgage acquisition from last year, What that is is about building a capability for issuing mortgages or offering mortgages to people with complex incomes. It's something we felt we needed, and we will build that capability, and that will be part of the arsenal of items. I'll turn it to Anna for costs.

Sorry, Ben, can I just come back? Yeah, go ahead. I mean, the credit environment does look very benign. All your forward-looking indicators, show no deterioration. I'm just wondering, at what point do you start thinking, well, this is by far and away my most profitable business. It's time to start competing a little bit and taking some share and seeing if I can grow it. Is it something you review annually, or is it something you... At what point could we start seeing that change, I guess, is what I'm trying to get to grips with.

So we look at a fairly frequent basis about our positioning and how much we want to take risk in all parts of the UK market. So it's not something that happens annually. It happens, frankly, monthly, quarterly through risk committees. And we've been doing it since the start of this year. As I said, you're right that if you look at the trailing credit behavior, it has been fairly benign. And we continue to see, what you continue to see in the UK consumer is a resilience to the shock of higher energy costs, a resilience still to the shock of higher mortgage rates, and managing the overall inflation. Now, we will watch it month to month, quarter to quarter, and we will make our decisions. So it's not something that we sort of decide annually And it's, you know, put costs in stone at that point. No, we're watching it carefully.

Okay, thanks very much.

Thanks, Venkat. Let me add one thing, actually, and then I'll go into cost. The other thing is that, you know, as we step back into a market, you don't always see the results immediately. And the example I'll give you is actually our card book. So we stepped back into promotional balances you know we're very thoughtful about where we position ourselves but you know that sort of balance transfer transfer business takes a while to season through and get into interest you know interest earning lending so there's a little factor from there and also you know the way that we are rebuilding our cards portfolio we're obviously investing a lot in new products like the Avios product which is more fee-based and probably a slightly different demographic sector. So there's a lot of activity in there, I would say, for new growth forward as well. Just moving to costs. BUK is in the midst of a transformation. We talked about that a few times. And essentially what we're doing is we're generating efficiencies which are absorbing inflation and then We are also reinvesting them into future transformations. So the kind of thing we're doing is we're obviously changing our physical footprint, fewer branches but more flex locations. We're simplifying our product stack. We're digitizing all of the journeys. So there's some quite heavy investment phases happening in there. That means the cost profile can be a bit lumpy. I wouldn't call out anything specific in Q1, but it's not a steady state is what I'd say. To help you from here, Venkat mentioned Kensington, so you should expect some integration costs from Kensington in Q2, but thereafter you're going to start to see a cost profile that reflects the transformation starting to come through. So hopefully that gives you a view of how we expect things to pan out this year and maybe a bit of background on the nature of the cost.

Yeah, that's great.

Thanks very much. Okay, so thank you. So we'll go to our last question, which I think is Andy Coombs from Citi.

Yeah, please go ahead, Andrew. Your line is now open.

Good morning. Thanks for taking my question. I'll keep it to one, actually. It's been... given that I'm last up, but just on slide 17, I wanted to focus on the footnote you put around the financing revenues. So there you talk about that the 25% growth year-on-year was in part due to inflation, and in a more normalized environment, you'd expect it to be around 10% growth. Can you just elaborate a bit more on that comment? You previously, last quarter, talked about the financing revenues being more stable and an example of where you've gained market share that you think you can keep. But I was just interested in that comment specifically in the footnote. It sounds like there's an element of one-off nature in Q123. So can you elaborate, please?

Thank you. Okay. Thanks, Andy. Okay. Let me help a bit here because this is obviously quite a new disclosure for us. We've done it a couple of times now. So Financing, like any other business, has impact from balances, from spreads, and from seasonality. What we're seeing in Q1 is continued good growth in client balances that reflects the investment that we put down that we talked about today. do reflect the macroeconomic environment. So, for example, in Q1, we saw very conducive spreads in our fixed income financing business, given the rate volatility, but we actually saw a bit of compression in prime because of the reduction on the equity side. The reason that we've called out inflation in particular is that there are some positions within are fixed income financing business that are linked to inflation. And we're calling it out just to be helpful. They're not one-off, but the reason that I'm calling them out is that in a lower inflationary environment, we might expect them to generate less income. And then the final thing I would say, Andy, is just this business is quite seasonal, so it tends to be heavier in the first couple of quarters just because of dividend season, and then also tends to sort of be a little bit lower in the second half. Actually, you can see that in the disclosures from some of our peers who've given this disclosure for quite a lot longer, so hopefully that'll help you shape it. But, you know, it's not a one-off, but we're just pulling it out simply because of its scale in that particular quarter. But underlying that, we're seeing 10% growth, which we think reflects the investment that we've made. And you can see, actually, even at 10% growth, the real stability in this business that it's afforded to the markets business in Q1.

That's helpful. Thank you.

Okay, thank you. And with that, we will conclude today's call. Thank you very much for joining us, for your questions. And I will see some of you the week after next. So thanks very much and have a great day.

Thank you. Thank you, everyone. That concludes today's conference call.