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.