Barclays PLC

Good morning. Thank you everybody for coming here and welcome to our full year 2023 results presentation as well as our investor update. You could see the agenda for the day on this slide. And so what we will do is we'll first go into the results for 2023 before turning to the broader investor update. So as you saw this morning, I'll start with the results announcement with the performance highlights, and then I'll hand over to Anna to take us all through the financials. So we are delivering against our guidance. So we achieved, delivered on all our targets in 2023, and together with our consistently strong capital position throughout this year, what this enabled us to do was to give shareholders a material increase in distributions. Excluding the Q4 structural cost actions, Return on tangible equity was 10.6% for 2023, in line with our target of above 10%. And on the same basis, our cost-income ratio was 63%, in line with our guidance for the low 60s for the full year. As well as being accretive to future returns, the structural cost actions did not limit our ability to deliver a 37% year-on-year increase in total distributions. which now amounted to three billion pounds. This three billion pound number for 2023 included a total dividend of eight pence per share, with the full year amount of the dividend of 5.3 pence being announced today. And as well as a full year buyback of one billion pounds, which we expect to start in the coming days, and that's on top of the 750 million at the half year. Tangible book value per share has increased by 36 pence year-on-year to 331 pence, and our CET1 ratio was 13.8%, which is at the top end of our target range, which you'll recall is 13% to 14%. Overall, we view this performance as a strong foundation on which to build towards our revised financial targets over the next three years. and which we announced this morning and we'll talk about in greater detail in a few minutes. But before that, the financial part of these results, Anna, over to you.

Thank you Venkat and good morning everyone. Turning now to slide five. I think I'm going to need a script. Thank you very much. On a statutory basis, ROTI was 9% for full year 2023. This included the 0.9 billion of structural cost actions taken in Q4. And given the materiality of those Q4 charge over and above normal annual cost actions, I'm going to exclude it from the financial performance metrics today. On this basis, 2023 return on tangible equity was 10.6%. I would note that there was no impact from the over-issuance of securities this year, but given the material impacts to income and costs in 2022, I will also use adjusted numbers as comparators. Group profit before tax. was 7.5 billion, down 3% year-on-year, and income increased by 0.7 billion, while costs were 0.2 billion higher, excluding the Q4 cost actions. Within costs, litigation and conduct charges were small this year, at 37 million, compared to around 0.6 billion in 2022. And operating costs, which include L&C, were up by 0.8 billion. Impairment charges were 0.7 billion up to 1.9 billion, representing a loan loss ratio of 46 basis points, better than our three recycle guidance of 50 to 60. As usual, I'll now cover the three drivers of our returns, income, costs and credit risk management. We saw a continuation of year-to-date income trends through the fourth quarter, resulting in total income up 3% at £25.4 billion for the year. Barclays' UK income was up 5%, with growth in net interest income from rate increases outweighing lower cards income and the transfer of UK wealth in Q2. Consumer cards and payments income grew strongly, up 18%, driven by higher margins and balance growth in both US cards and the private bank. Corporate and investment bank income was down 4%, as lower volatility in markets and a record low banking wallet impacted the industry. This outweighed the tailwind from interest rates in the corporate bank. On the next slide, you can see net interest income across the bank and that it grew by 2.1 billion or 20% year on year, driving a 44 basis point increase in Group NIM to 3.98%. The biggest contributors to NII growth were CCNP and CIB, together adding 1.3 billion with around one quarter of the total NII growth coming from BUK. Going forward, whilst we will still report net interest margin, we will guide to Group NII, excluding the investment bank and head office. This is expected to be around 0.3 billion lower in 2024, at around 10.7 billion. BUK is expected to be approximately 6.1 billion of this, excluding the impact of Tesco, which I'll touch on shortly. The benefits from the structural hedge are expected to be offset by continued product market pressures, particularly in the UK. Turning now to the structural hedge in more detail. The structural hedge is designed to reduce volatility in NII and manage interest rate risk. As rates have risen, this has dampened the growth in our NII, but in a falling rate environment, we will see the benefit from the protection that it gives us. It generated $3.6 billion in gross hedge income in 2023, up from $2.2 billion in the prior year. It also provides a high degree of confidence in the net interest income growth assumed in our forward plan. To illustrate this, 3.8 billion of gross hedge income is already locked in for 2024 from the hedge investment we did through 2023, and this will continue to build. Given trends in retail deposits, we do expect the notional balance to reduce in 2024 at a broadly similar rate to Q4 23, before stabilizing in 2025. We have approximately 170 billion of hedges maturing over the next three years and we expect to roll around three quarters of them over the period. And with reinvestment rates remaining well above the average maturing yields of around 1.5% for the next three years. So we do expect the reinvestment to outweigh notional hedge declines. Turning now to cost. on slide nine. As guided, quarterly costs through the year remained below the Q1 high point. This excluded the Q4 bank levy of 180 million, which was flat year-on-year, and the cost-income ratio for the year was 63%, excluding the Q4 structural cost actions. Group costs of 16 billion were up 0.2 billion year-on-year. Operating costs increased to support business growth and enhance resilience and control. For example, partner focus spend to drive balanced growth in US cars and Kensington mortgages in the UK, as well as technology investments to support markets within the CIB. The impact of inflation was more than offset by efficiency savings. Looking at the 927 million of Q4 structural cost actions in more detail now on the next slide. These were across three main categories, people, property and infrastructure. Around half was in our head office and relates to our merchant acquiring and German consumer financing businesses, as well as a Canary Wharf office lease exit. A large proportion of this head office charge is goodwill and intangible write-downs and which will have no impact on capital. And the other charges are spread across the businesses. We expect the overall payback to be just under two years, with around half of the cost savings landing in 2024. You'll hear later how these cost actions are a key pillar in our plans to improve efficiency and drive a more productive cost base going forward. Moving on to credit on slide 11. The impairment allowance was broadly stable at £6.3 billion and we maintained our balance sheet coverage at 1.4%. the total impairment charge for 2023 of £1.9 billion was up around £0.7 billion year-on-year, and the full-year loan loss rate of 46 basis points was below our through-the-cycle guidance. As we expected, this included a higher Q4 loan loss rate of 54 basis points, driven by an increase in US cards. US cards was also the largest component of the full year charge of 1.5 billion in CCNP. The full year Barclays UK charge was around 300 million with a loan loss rate of 14 basis points. We continue to see conservative consumer behaviours across all our UK portfolios and we do expect the loan loss rate in the UK to increase over the next three years as we grow unsecured lending. I'll go into more detail on the US cards impairment on the next slide. Our US cards portfolio credit trends are in line with the broader industry. The US consumer bank loan loss rate is elevated in comparison to recent periods as we build our impairment reserves because of an increase in delinquencies. Write-offs are low. but we do expect them to increase during 2024, which is why we're building the reserve now. As a result, our U.S. cards coverage ratio stands at 10.2% on an IFRS 9 basis, and when calculated on a U.S. accounting basis, the CECL coverage ratio of 8.2% is in line with our U.S. cards peers. the portfolio remains high quality with 88% of the book above a 660 FICO. We do expect the impairment charge to remain elevated through the first half of 2024 and then to reduce in the second half. Overall, I'd expect the charge for 24 to be below the 2023 level and we're guiding to a 400 basis points loan loss rate through the cycle. A brief word on Q4 performance on the next slide before I take you through the businesses. Profit before tax excluding Q4 structural cost actions was 1 billion down 0.3 billion. Income was down 0.2 billion year on year at 5.6 billion. The second best Q4 in the last five years after 2022. This was driven by a reduction in non-NII, partially offset by an increase in NII, whilst operating costs were broadly stable. Impairment was around 50 million higher, at 0.6 billion, with a higher Q4 charge in CCNP from US cards, partially offset by a lower Barclays UK charge. Moving now to the business performance, starting with Barclays UK on slide 14. Roti was 19.7% in Q4 and has been consistently around 20% every quarter this year. Total income was £1.8 billion, with net interest income stable at £1.6 billion and a £0.2 billion reduction in non-NII year-on-year. This reflected the transfer of UK wealth business in Q2 and a number of one-offs. we would expect non-NII to revert to a run rate greater than 250 million per quarter going forward. The NII generated a NIM in BUK of 307 basis points for Q4 and 313 for the full year. We said at Q3 that our 305 to 310 basis points guidance was sensitive to the level and mix of deposits And the deposit trends that we saw in Q3 slowed materially in Q4. Deposits were down 2.1 billion compared to the reduction of 6.6 billion in Q3 as the pace of deposit outflows and migration to higher savings rates slowed. The other NIM drivers played out broadly as we expected, and you can see these on the chart on the right-hand side. The structural hedge continued to be a tailwind to NIM, although a more modest seven basis points in Q4 due to lower swap rates and a reduced hedge roll in the quarter. Bank rate effects turned negative in half two, reflecting pass-through in pricing, and mortgage churn continued to ease. We also saw a positive contribution from Treasury in the other category as we flagged earlier in the year. Looking forward to 2024, we are guiding to NII for Barclays UK of circa 6.1 billion compared to 6.4 billion in 2023. We will have a building tailwind from the hedge roll. However, in the short term, consistent with our industry expectations, we do expect this to be more than offset by some further reduction in deposits, but at a slower rate than in 2022 and a net reduction in mortgage balances. This excludes the impact of the Tesco bank acquisition, which I'll summarise on the next slide. The acquisition accelerates our intention to grow unsecured lending in Barclays UK, which we will discuss in more detail later. The transaction involves the acquisition of 8.3 billion of unsecured lending balances, roughly half credit card receivables and half unsecured loans, and approximately 6.7 billion of customer deposits. This will result in 8 billion of RWAs in completion, which is expected to be in half too. Given the uncertainty around this timing, our 2024 guidance does not include the impact of the acquisition, although it is reflected in our 2026 plans that we're announcing later today. Once completed, we estimate initially generating NII of around 400 million annualised and growing from that level. And as we complete the integration, cost will be somewhat elevated, but this should be broadly neutral to the group cost-income ratio. And as usual, following a portfolio acquisition, we also anticipate elevated impairment initially under IFRS 9, but again, expect that to normalise. As a result, we forecast a slightly reduced BUK roti in 2024, but once integrated, the business will have an attractive roti profile, accretive to the group roti over time. Turning now to consumer cards and payments. Continued growth in U.S. cards receivable and private bank client balances drove a $0.1 billion increase in CC&P, total income year-on-year. U.S. cards balances grew to just over $32 billion, up $2 billion in Q4, reflecting seasonally higher year-end spend. Client assets and liabilities in the private bank grew by $4 billion in the quarter to around $183 billion, with most of the growth being in invested assets. This is a positive trend for the future, but the initial growth is in assets under supervision, which does attract lower fees. CC&P ROTI was 2.6%, reflecting the impairment build in US cards I've just talked about. And this will be the last time we report the CCNP segment as we start to disclose our US consumer bank and our private bank and wealth management businesses separately. Moving on to the CIB. CIB income of 2.4 billion was impacted by lower year-on-year global markets income. The Q4 market environment had lower volatility in markets and subdued industry activity for banking. Investment banking performed relatively well in this context, up 13% in US dollars and up 36% on Q3, with DCM outperforming the market and offsetting continued lower activity in ECM and M&A. We maintained our banking market share in 2023 whilst we repositioned the business in a record low year for the industry wallet. Markets income was down 14% in US dollars against a record Q4 comparator for us, whilst our business mix also affected us. Corporate lending income was materially down on Q3 at 40 million, primarily due to leverage loan finance marks of 85 million. Underlying corporate lending income was stable. Transaction banking deposits were also stable, whilst income fell slightly versus Q3. Whilst deposit migration continues, this was at a slower pace than earlier in the year, and as a result, we are now again rolling a portion of the structural hedge related to corporate deposits. Looking at markets in detail on the next slide. There were several factors driving our performance in markets this quarter. Similar to Q3, both our business mix and the record comparator contributed to thick income being down 22% year-on-year in dollars. Lower volatility in UK gilts compared to Q4-22 and an industry-wide slowdown in rates and credit impacted Barclays more than our peers. And conversely, the market rebounded in securitized products where we currently lack scale. Equities performed broadly in line with peers up 3% in U.S. dollars year on year. Looking at the longer term trends in markets over the last four years, our share in income has been consistently higher than in the previous three. And our income now includes a greater proportion of financing, which, as we've said before, provides greater stability to our overall market's income. Turning now to the capital funding and liquidity metrics on the next slide. We continue to maintain a well-capitalised and liquid balance sheet with diverse sources of funding and a significant excess of deposits over loans. Looking at capital in more detail on slide 21, we finished the year with a CET1 ratio of 13.8%. The announced £1 billion share buyback will take us to 13.5% in the middle of our target range. We generated 18 basis points of capital from earnings in Q4 2021. and just under 150 basis points over the full year, both of which exclude a circa 20 basis points impact of the Q4 structural cost actions. Excluding the reduction due to FX, the 6 billion increase in RWAs reduced capital in Q4 by 23 basis points. We'll say more about our RWA flight path over the next three years later, but I want to address two main headwinds here. The first is a move of our US cards portfolio to an internal rating based or IRB model. We continue to make significant progress towards at least 85% of credit risk RWAs being IRB, which is the level required by the PRA for IRB bank. This move results in an expected increase in RWAs of around 16 billion from half to 2024. We don't expect any further material impact from model migrations from current portfolios beyond US cards. The second headwind is Basel 3.1, which we have quantified publicly for some time. The PRA's recent policy paper was constructive, and we've also worked through some refinements and mitigations. Furthermore, our previous Basel 3.1 guidance included an element for US CARDS RWAs, which has been superseded by the IRB migration. The aggregate impact of these factors means a materially lower impact from Basel III on implementation. And given this lower estimate, the total effect of the two headwinds is broadly aligned to the previously guided day one impact of Basel III.1, towards the lower end of the 5% to 10% of group RWAs. Furthermore, as more risks are captured in Pillar 1, we would expect some offsets in our Pillar 2 requirements. On this slide, we're illustrating the drivers of the RWA increase from implementing IRB for US cards. When applied to U.S. cards, our IRB models generate greater risk-weight density versus standardized models. And the key driver is that the models include 2009 financial crisis stress loss assumptions despite current and expected experience being materially less adverse. Under the US Basel III end-game treatment, we expect our peers in the US to also experience a capital increase, although noting that these rules are yet to be finalised. There will be further details on planned migration in the US Consumer Bank presentation later on. So, to summarise, we delivered on our financial targets in 2023. This, along with our strong capital position, enabled us to deliver a material increase in distributions to shareholders. It also represents a strong foundation on which to improve over the next three years. I'm now going to take the Q&A. Given the time constraints we have, please can I ask you to limit yourselves to a maximum of two questions per person, and please stick to the full year results topics. There'll be plenty of time to discuss the investor update later on. And if you could please introduce yourself as usual, not least I'm blinded by lights, so I can't actually see you very well. So thank you. Alvaro.

Hi, Alvaro Serrano from Morgan Stanley. A couple of questions, please, on the market's performance in Q4. You've touched, obviously, on the drivers behind it, but I wonder in the guidance you've given for 2024, what kind of environment are you factoring in given... It's proven to be pretty volatile and maybe the general environment for CIB, how you see it and what you factored in that, how sensitive that 10.5 to changes in the environment. And related to the Tesco slide, I mean, it does look pretty profitable, but maybe when you discussed Tesco and the discussion was had at the board, how did you compare that acquisition versus potential topping up your share buyback that you would have been able to announce otherwise? Thank you.