Barclays PLC

Welcome to Barclays Q1 2024 Results Analyst and Investor Conference call. I will now hand over to CS Venkata Krishnan, Group Chief Executive, before I hand over to Anna Cross, Group Finance Director.

Good morning. Thank you for joining us on today's results call for the first quarter of 2024. At our investor update a little over nine weeks ago, we set out a three-year plan to deliver a better run, more strongly performing, and higher returning Barclays. To do so, we aim to make Barclays a simpler, better, and more balanced bank. We are executing in a disciplined way against this plan, and this is our first progress report against our longer journey. I am happy with our overall Q1 performance, which keeps pace with our financial targets for 2024 to 2026. These are, first, grow returns with a target ROTE of above 12% in 2026. Second, to rebalance the bank with a target to reduce RWAs in the investment bank from 58% of group RWAs to around 50% in 2026. And third, to distribute more capital to shareholders with a target of returning at least £10 billion over 2024 to 2026. We also set a target for return on tangible equity above 10% in 2024, and in the first quarter we delivered .3% in line with our plan. Total income for the quarter was £7 billion, of which group net interest income, excluding the investment bank and head office, was £2.7 billion. Our cost to income ratio was 60%, demonstrating ongoing cost discipline, as we see the benefit of the cost actions which we took in the fourth quarter of last year coming through. We achieved around £200 million of growth cost efficiency savings in Q1 out of our targeted £1 billion for the full year 2024. We remain well capitalised. Our CET1 ratio was 13.5%, which is at the midpoint of our target range. And we have completed about 35% of the £1 billion share buyback, which we announced at full year 2023. Across the bank and within each of our five divisions, we are driving an improved operational and financial performance to enhance returns, which Anna will cover in more detail shortly. Our business re-segmentation and the framework of targets which we laid out on the 20th of February have helped to provide both internal and external transparency, as well as accountability in our delivery. As Anna and I talked to our colleagues across Barclays, we are encouraged by how the organisation has embraced this plan. In February, we described a three-year plan of measured ambition and disciplined execution. As part of this, we have set up a transformation office which is responsible for monitoring our delivery across all aspects of the plan. One important aspect was proceeding with the non-strategic business disposals that we announced at our investor update. We have announced the sale of our performing Italian mortgage portfolio and we remain in advanced discussions on the sale of our German consumer business. Turning to the financial side, overall, we are where we expect it to be at this stage. You can see on this slide the returns on tangible equity for each of our divisions and for the group for the quarter, alongside our 2026 targets. These are the most important metrics for me and the Executive Committee team and Anna will take you through each of them shortly after I cover a few points on divisional execution. In the Investment Bank, we are continuing our journey to improve returns. ROTE for the quarter was 12%, broadly in line with the group. As with any quarter, there were some areas of strength, some areas of potential improvement and others where we should do better. We said in February that we will hold ourselves to account in a detailed and transparent way on a group basis and by division. In global markets, we did not capture market opportunities to the same extent as some of our competitors did. For example, FIC was not as strong as we would have liked and we will have more to do on European rates, one of the three focus areas which we identified in February. On the other hand, we are starting to monetize investments made in the other identified focus areas, securitized products and equity derivatives. I'm pleased about this and Anna will talk to you about this in more detail. In Investment Banking, DCM delivered an improved performance in the quarter and we have the potential to do better. As we said at the investor update, we are focused on improving our performance in ECM and advisory, but there is naturally a longer pathway to success in these businesses. As an example of our progress in advisory, our recently established energy transition group has announced nine transactions since late December, showcasing our active advisory role in one of our focus sectors. In Barclays UK, we expect our recently announced acquisition of Tesco Bank to complete in the fourth quarter of this year. Our strategic partnership with the UK's largest retailer will help accelerate our planned growth in unsecured lending in our home market. This is an important step in our plan to deploy an additional 30 billion pounds of RWAs into our higher returning UK businesses. Barclays UK, the UK Corporate Bank and the Private Banking and Wealth Management Division. Over the medium term, this will rebalance RWAs between our businesses and support more consistent and higher returns for our shareholders. One divisional number that stands out on the slide is .3% ROTE in our US Consumer Bank. Although this has progressed from last year's .1% ROTE, we recognize we have a lot more to do in order to deliver returns in line with our overall group target of above 12% in 2026. And we have a detailed plan to do so as we set out in February. There was a notable point of execution in this quarter in this division. We announced the sale of $1.1 billion of credit card receivables to Blackstone as we manage capital in the business and strive to improve returns. Our UK Corporate Bank delivered a ROTE of 15.2%. We look forward to telling you more about this business in a deep dive scheduled for the 18th of June. I will now hand over to Anna to take you through the first quarter financials in more detail.

Thank you, Venkat, and good morning everyone. On slide 6, we have laid out the Q1 financial highlights for Barclays and you'll see the same throughout the presentation for each business. I won't go through these slides but have included them for ease of reference. Starting on slide 7, the headline message is that Q1 was in line with the plan we laid out at the investor update in February. We delivered a ROTE of .3% and earnings per share of 10.3 pence in Q1. There were a number of items driving the -on-year ROTE move. Income and returns were lower in the investment bank compared to a strong prior year Q1 comparator. Operating costs, which exclude bank levy and litigation and conduct, were down 3% reflecting ongoing strong cost discipline as well as efficiency savings, including some benefit from the structural cost actions taken in Q4 2023. Total costs were up 2% -on-year at $4.2 billion, which included a $120 million charge in Q1 2024 from the revised Bank of England levy scheme. We expect this to be partially offset by increased income over the course of the year, resulting in a net annualised reduction in PBC of circa $50 million for 2024. Impairment was broadly flat -on-year. And finally, TNAB per share increased 34 pence -on-year to 335 pence, including the effect of a less negative cash flow hedge reserve driven by the rate environment as expected. Overall, we continue to target a statutory ROTE of above 10% in 2024. At our investor update in February, we emphasised the quality and stability of our income. The more stable revenues we generate from retail, corporate and financing in the investment bank provide balance to our income profile. I will talk about the individual business driver shortly. Together, these contributed 68% of group income in Q1 and are expected to continue to grow above 70% by 2026. Total income was down 4% -on-year at $7 billion and group net interest income, excluding the IB and head office, was $2.7 billion, as you can see on slide 9. NII was broadly stable -on-year, even though the balance sheet, composition and rate outlook are very different between those two points in time. Our long-term structural hedge tailwinds offset the pressure on NII from deposit movements and mortgage margins, as well as rate headwinds going forward. We still expect group NII ex-investment bank and head office of $10.7 billion for the full year and Barclays UK NII of $6.1 billion, excluding Tafco Bank, which we now expect to complete in Q4 2024. The profit balances were impacted by seasonal reductions in Q1, in part due to tax payments. We expect underlying deposit trends to continue to slow after Q1 and loans to stabilize in the second half. We expect the benefits from the structural hedge, which you can see on slide 10, to largely offset these product dynamics, resulting in a broadly stable NII. As a reminder, the structural hedge is designed to reduce volatility in NII and manage interest rates risk. As rates have risen, the hedge has dampened the growth in our NII and in a falling rate environment, we will see the benefits from the protection that it gives us. We have around $170 billion of hedges maturing between 2024 and 2026 at an average yield of 1.5%, significantly lower than current slot rates. The expected NII tailwind is significant and predictable. $9.3 billion of aggregate income is now locked in over the three years to the end of 2026, up from $8.6 billion at the year end. As we said in February, reinvesting around three-quarters of the $170 billion at around .5% would compound over the next three years to increase structural hedge income in 2026 by circa $2 billion versus 2023. Turning now to costs on slide 11. Total costs were up 2% at $4.2 billion, including the $120 million charge from the revised Bank of England levied scheme. Operating costs were down 3% year on year. Our cost to income ratio was 60% and despite the levies, we still expect it to be circa 63% for 2024. We expect a total of $1 billion of efficiency savings for full year 2024, half of which will be driven by the structural cost actions we took in 2023 and half by prior and ongoing efficiency investments. We have achieved $0.2 billion of this in Q1. These efficiencies have enabled us to offset inflation, regulatory and control spend and created capacity for investments. Turning now to impairment on slide 12. The loan loss rate of 51 basis points for the quarter was within our food and cycle guidance of 50 to 60 and the impairment charge was broadly flat year on year at $513 million. The Barclays UK charge was $58 million equating to an 11 basis point loan loss rate. Starting from this low and stable base, we expect to track towards circa 35 basis points over time as we complete the Tesco bank acquisition and grow the balance sheet as outlined at our investor update. The charge of $410 million in the US consumer bank increased year on year, whilst the loan loss rate was 610 basis points, a slight decrease on the Q4 level. Slide 13 shows that our actual loss experience in the US consumer bank remains low. Although we have seen a sequential quarterly increase in RIPOT, our delinquency rates have increased in line with the industry. As we said before, we expect RIPOT to increase during the remainder of this year, which is why we have been building reserves. We expect the US consumer bank impairment charge to remain elevated through the first half of 2024 and to improve in the second half, resulting in a lower full year charge this year. And we continue to guide to loan loss rates trending down towards the long term average of circa 400 basis points. Turning now to the businesses. As I mentioned, you can see Barclays UK financial highlights and targets on slide 14, but I will talk to slide 15. ROTE was .5% and table income was 1.8 billion, down 135 million year on year, driven by the economic and deposits and mortgages, lower card income and the transfer of UK wealth in Q2 2023. NII of 1.5 billion was broadly stable on Q4 and we continue to target circa 6.1 billion of NIIs for Barclays UK in 2024, supported by the strength of the structural hedge tailwind. The NII target excludes the SGO bank, which we expect to contribute circa 400 million of additional annualised NIIs following Q4 2024 completion. Non-NII was 277 million in the quarter following the non-repeat of one-off in Q4 last year. We expect a run rate greater than 250 million per quarter going forward as we guided in Q4. Total costs were 1.1 billion, down 3% due to efficiency savings and the transfer of UK wealth in Q2 last year, partially offset by an increase of 54 million from the revised Bank of England levy scheme. Cost to income ratio was 58 cents. Moving on to the Barclays UK customer balance sheet on slide 16. Normal Q1 seasonality was a contributor to the 3.9 billion deposit reduction from Q4 to 237 billion. Underlying deposit trends were as expected and broadly consistent with Q4. Deposit migration has continued to slow and pricing in the savings market has stabilised. On the lending side, lead indicators such as mortgage applications and card acquisition volumes are largely positive, but will take time to flow into the balance sheet. Gross mortgage lending remained in line with 2023 trends with balances of 163 billion. However, we grew our flow share in high loan to value mortgages as per our stated ambition. UK card balances were stable at circa 10 billion, acquisition volumes are strong and concealer spending was in line with expectations, whilst repayment rates remained high. Moving on to the financial highlights for the UK corporate bank on slide 17. This is new divisional disclosure since our resegmentation, so the numbers may be less familiar. As a reminder, our UK corporate bank serves mid-size UK corporate clients and has relationships with around 25% of the UK market and includes our corporate card issuing business. As you can see on slide 18, the UK corporate bank rose fee of 15.2%. Income was down 6% year on year at 434 million, primarily due to the interest rate and inflationary environment driving lower returns from the liquidity calls. Total costs increased by 20%, reflecting investor spend to support growth and the impact of the revised Bank of England's levy scheme, which alone reduced rates by around 3%. Turning now to private banking and wealth management, which is another one of our newly resegmented divisions, created following the combination of our private bank and UK wealth businesses in Q2 last year. This is a high returning business with opportunities for growth going forward. Moving to slide 20, ROTI was .7% supported by growth in client assets and liabilities. Although we have not restated the historical financials prior to the UK wealth transfer in Q2 last year, we have called out the ROTI impact of circa 3.4%. Income increased by around 50 million year on year, driven by 48 billion of balanced growth, both from the UK wealth transfer and an underlying 19 billion increase, consistent with strong equity market levels. This was partially offset by continued, although slowing, deposit migration. Costs increased year on year, mostly as a result of the transfer, but also due to ongoing investments in growing the business. Turning now to the investment bank on slide 22. The investment bank delivered a Q1 ROTI of 12%. Total income of 3.3 billion was down 7% versus a strong year on year comparator. Total costs were down 2% driven by non-repeated last year's European levy, lower performance related costs and included this quarter's Bank of England levy charge of 33 million, resulting in a CIR of 60%. RWA were up 3 billion on Q4, reflecting normal seasonality. RWA productivity measured by income over average RWA was 6.5%. The plan remains to improve investment bank RWA productivity whilst keeping RWA in the division broadly flat as we set out in the investor update. Now looking at the specific income drivers for each business line in more detail on slide 23. When we think about this business versus our peers, we use a US dollar comparator, so that's what I will talk to you here. Market income was down 5% year on year. Within this, equities was up 30% and fixed was down 19%, with both comparisons impacted by specific items. Equities included a non-recurring gain on Visa B shares of 125 million and was up 11% excluding this, with good performance in cash, prime and equity derivatives, one of our focus businesses from the investor update. Thick performance in Q1 last year included inflation-length gains, which we called out at the time, with income down 14% excluding this, driven by industry-wide lower activity in macro. We can do better here. We have work to do to regain market share in European rates, another of our focus businesses. Conversely, the market for securitised products, our third focus business, has been favourable and given the investments made, we have been able to monetise this more than we would have done in the past. Excluding the inflation-length gains last year, financing income across thick and equities remained around 700 million, providing the more stable income stream to markets that we have focused on. Investment banking fee income was up 6% year on year in dollar terms. DCM delivered improved performance across both investment grade and leveraged finance, and ECM also showed encouraging signs of recovery. Advisory income was lower against a strong comparator, but we have a healthy pipeline of announced deals, which will add to revenue on completion. As with the UK corporate banks, international corporate bank income was impacted year on year by the changing rates and inflationary environment on deposits and the FIDICI pool returns. Turning now to the US consumer bank on slide 25. The US consumer bank generated a rate of 5.3%, reflecting higher internments versus the prior year, which more than offset higher income and lower costs. Income growth of 4% included an increase in NII on higher card balances year on year. Total costs were down by 9%, reflecting efficiency savings and lower marketing spend, driving a cost to income ratio of 46%. Endnet receivables reduced in line with normal seasonal trends in Q1 versus Q4, and also included the sale of $1.1 billion of own brand credit card receivables to Blackstone, ending the quarter at just over $30 billion. As a reminder, this transaction reduced RWA through the derecognition of these receivables, which we continue to service for a fee. The late fees legislation, once it comes into effect later this year, will be a headwind to fee income, but we expect to mitigate this through actions to drive higher NII, including from revised pricing, although there will be a lag while these actions are introduced. We are looking to increase the proportion of core deposits in our funding mix in this business to around 75% by 2026. At 67%, the mix was broadly unchanged on last year, but up sequentially from year-end levels. Turning now to head office on slide 26. Head office income was up 22% year on year at $194 million, driven by a gain on disposal of legacy investments and increased German card income, partially offset by lower payments income, hedge accounting and treasury items. The sale of our performing Italian retail mortgage book is expected to complete in Q2, generating a pre-tax loss of circa $225 million whilst reducing RWA by circa $0.8 billion. The transaction will have a negative 2024 ROTE impact of circa 45 basis points, but it is broadly neutral to capital. We are also in discussions with respect to the disposals of the remaining non-performing and Swiss franc linked portfolios. We expect these disposals to generate a small pre-tax loss, but again be broadly neutral to capital. Turning now to the balance sheet, starting with capital on slide 27. The CEG1 ratio was .5% at the end of Q1, where we expect it to be in the middle of our target range and down 30 basis points on year-end. This reflected seasonally higher capital usage in Q1 and the ongoing $1 billion full year 2023 buyback that comes off the CEG1 ratio post year-end. Our capital distribution plans remain unchanged, to return at least $10 billion of capital to shareholders between 2024 and 2026, with this year's totals broadly in line with the 2023 level of $2 billion. Moving on to risk weighted assets in slide 28. RWA increased by around $7 billion in line with our expectations driven by normal season of trends versus Q4 in the investment bank. There were also some regulatory model changes in Bathurst UK, which we expect to be partially offset over the course of this year. Our guidance remains for regulatory driven RWA inflation to be at the lower end of -10% of December 2023 Group RWA as we reiterated in February. As I noted earlier, TNAB per share reaches 335 pence up 34 pence -on-year, driven by attributable profits and the reduced cash flow hedge reserve drag on shareholders' equity. Additionally, share repurchases reduce our share count by 4% over the same timeframe, driving TNAB accretion of 7 pence per share. I won't dwell on this slide, but we continue to maintain a well-capitalized and liquid balance sheet, with diverse sources of funding and a significant excess of deposits over loans. In summary, we are focused on discipline execution. This quarter is the first step in delivering the targets we laid out in February and which we are reiterating today. Thank you for listening. Moving now to Q&A, and as usual, please could you speak to a maximum of two questions so we can get around to everyone in good time.

If you wish to ask a question, please press star followed by 1 on your telephone keypad. If you change your mind and wish to remove your question, please press star followed by 2. Our first question today comes from Joseph Dickerson from Jefferies. Please go ahead Joseph, your line is now open.

Hi, good morning. Thank you for taking my questions. I just had a question on the, a couple of questions on the UK business and then the US business, just in terms of the UK balance sheet versus the NII performance. I note that the NIM, which I'm glad we're not talking about as much anymore, was up two bits and it looks like separately the current account makes shift is starting to settle now with 59 billion of current account balances versus 60 billion last quarter. Do you think that we have kind of arrested the mix away from current accounts? I mean clearly the Bank of England data shows some flow into non-interest bearing accounts at least for the first two months of the year. So just wondering what the outlook there is because it seems like that you can easily deliver on your target for this year on the NII guide there. So any comment around those moving parts would be helpful. And then in the US, I guess, how do we get the trajectory on the credit loss number? How should we think about that from the 610 basis points in Q1 to 400 basis points by 2026 given that I suppose unemployment could deteriorate in the US or what have you, but clearly part of the mix is also going to be coming from the gap portfolios. I'm just wondering what's the confidence in the moving parts to go from 610 to around 400 basis points and on the US, can you also just confirm that the late fee matter is embedded already reflected within the guides that you've given for that unit at the update in February? Thank you.

Good morning Joe and thanks for the questions. I think just on the Buk question, I think it's worth just reflecting on slide 16 where we've shown you the balance sheet progression as a deposit matter. And I think you're right, we are seeing some stabilisation in underlying deposits and the way I read that is partly through the current account movement, but it's also whilst you continue to see some movement towards time deposits, that rate of change has definitely slowed down. And what we see in Q1 is a mixture of those deposit trends continuing but at a slower pace and what I would describe as normal seasonality. So in Q1 people pay the tax bills and they also sort of pay off credit card bills etc. And you also see that a little bit in business banking. So I think it's as we expected to see, from here on in I think now in Q2 and beyond you get almost beyond the ice season which can cause a bit of noise in the UK. I think we'd expect those deposit trends to continue. So that's how I'd characterise those changes in the UK. As far as the US is concerned, I think worth looking at page 13 which is a replication of the slide that we gave you at the year end and what that shows is we expected write off to increase in the US because delinquencies had been rising through last year in line with the industry and as the standard requires us to we reserve in advance. So what you see in Q1 is really a switch around in the balance between reserving and actual write off. So write off has gone up and reserving is now starting to settle back down. So for 2024 we expect higher impairment charges in the first half, lower in the second half and for the year as a whole to be lower than 2023. And in terms of the longer term trend in this business, I mean you're right in terms of one of our objectives is to have a higher proportion of retail but actually our gap portfolio is very high quality and the FICO balance that we've got in the book now is no different to what it was pre-gap. And as we grow that retail proportion in time what we also see is a roll off of legacy slightly lower FICO portfolios such that the mix remains broadly similar to what it is today. So that's why we're guiding to this longer term position of 400 and that's what gives us confidence. And just to confirm on your final piece, yes we did include late fees, the late fee matter in our ROT projections. We'd expect those to come in, I mean obviously planning for May, they may be slightly later than that. We have offsets to come in the plan but they slightly lag the imposition of the legislation so you'll see a bit of a gap there but that's what we expected.

Thank you, Joanna.

Thank you, Joe. Next question please.

The next question comes from Benjamin Toms from RBC. Please go ahead Benjamin, your line is now open.

Good morning, thank you for taking my questions. The first is on the investment bank please. You noted this morning there's more to do in European rates within the IB. Can you just give us some more colour on what's left to do there? Is that investments in people or infrastructure or both? And when do you think we'll start seeing some progress for that product line? And then secondly, your, so it nimblers up in the quarter by two basis points, the NII was slightly down by about 2%. Can you give us some guidance whether you think that we've now seen a trough in your NII? Thank

you. Yeah, thanks. So let me begin then and then Anna will take up the NII point. So in European rates, it's people and a little bit of dealing with, of intensifying the client penetration. So I would expect, so we've, you know, hiring people, we've already got today a very strong presence in the primary markets in Europe, in DCM and especially with government bond trading. And what we are doing is supplementing the skills that we have on the trading desk. And I would expect not in months but in quarters to start seeing some of the improvement. Of course it's a function of market environment as well, but it's mostly an investment to people.

Thanks Ben. On your second question, I think it's worth looking at the new disclosure that we've given you around the NII movement in the UK, which is on the bottom right of page 15. And what we're seeing here in the quarter is more stability in margin than we saw throughout 2023. And you can see there that there's still some product margin dilution, which is coming from mortgages and it's also coming from those deposit changes, but largely offset by that continued strength in the structural hedge. And what's really going on here is balance sheet movement. So the reduction in deposits that I talked about before, also just more of a broader market-wide movement in terms of reduction in mortgage balances. So we continue to guide to 6.1 or circa 6.1 billion for the full year, still confident in that guidance. And I'd just reflect perhaps on the NII across the group more broadly, which was stable year on year. And we do think that's taking into account not just the UK, but the corporate bank, private banking and wealth as well, and indeed our US cards business. So we're pleased with that as a result. And that's a good position from which we can grow. And the other thing I would call out is of course that circa 6.1 is ex-TESCO, and we now expect Tesco to complete in the fourth quarter of this year. Okay. Thank you, Ben. Next question, please.

The next question comes from Alvaro Serrano from Morgan Stanley. Please go ahead, your line is now open.

Good morning. A couple of questions, one on the IB and another follow-up on provisions in the US. On the IB, there's a few moving parts that you've called out. But I also note your US competitors, there's been a bit of a mix, sort of messages on the pipeline. So I just wanted to pick your thoughts on the seasonality you see during this year considering the one-offs we've seen in the quarter. What seasonality could we expect in markets? And also in DCM, maybe the numbers obviously are up, but according to Dealogic and other MPOs, it could have been up more. How do you see the pipeline there? Because as I said, some of your peers were a bit more cautious. And on the US cars noted,