Barclays PLC

Welcome to Barclays Half Year 2024 Results, Analysts and Investor Conference Call. I will now hand you over to CS Venkatakrishnan, Group Chief Executive, before I hand over to Anna Cross, Group Finance Director.

Good morning everyone and thank you for joining Barclays' second quarter 2024 Results Call. At our Investor Update in February, we set out a three-year plan to deliver a better run, more strongly performing and higher returning Barclays. We are continuing to execute in a disciplined way against this plan and this is our second progress report. Our second quarter and first half performance keeps pace with our 2024 and 2026 financial targets, which are first, grow returns with a target return on tangible equity of above 12% in 2025. Second, distribute more capital to shareholders with a target of returning at least 10 billion pounds between 2024 and 2026. And third, rebalance the bank with a target to reduce RWAs in the investment bank from 58% of group RWAs at the end of 2023 to around 50% by 2026. Return on tangible equity was .9% in the second quarter and .1% in the first half of the year on track for our target of above 10% in 2024. Total income for the second quarter was 6.3 billion pounds and it was 13.3 billion pounds for the first half. And as you will hear from Anna, we continue to be focused on the quality and stability of our income mix. We are also increasing our net interest income guidance for 2024 from 10.7 billion pounds to approximately 11 billion pounds. We continue to control our costs well and are seeing the benefit of the cost actions, which we took in the fourth quarter of last year. Our cost to income ratio was 63% in the second quarter and 62% in the first half. We continue to manage our credit carefully. Impairment charges have improved in the US consumer bank in line with our expectations and our overall credit performance is strong, particularly in the UK. We remain well capitalized. Our CET1 ratio was .6% comfortably within our 13% to 14% target range. This has enabled us to announce the first installment in our plan to return at least 10 billion pounds to shareholders by 2026. We have a total payout of 1.2 billion pounds for the first half of 2024, including a 2.9 cents dividend per share and a 750 million pound buyback. Across the bank and within each of our five divisions, we are striving for an improved operational and financial performance. You see on this slide, slide four, the returns on tangible equity for each of our divisions and for the group alongside our 2026 target. And I will take you through our financial performance in more detail shortly after I've covered a few divisional highlights. Starting with our three UK focused divisions, Parklays UK, the UK corporate bank and private bank and wealth management. We said in February that we plan to deploy an additional 30 billion pounds of RWAs into these higher returning UK businesses by 2026. Parklays UK's return on tangible equity was .3% for the quarter. We are seeing stability in the balance sheet with interest rates now expected to stay higher for longer. Deposits are stabilizing faster than we anticipated, with savings broadly flat quarter on quarter, given the pricing actions which we took earlier in this year. And we saw positive growth lending across products as we managed the mortgage book well in a competitive environment. The announced acquisition of Tesco's retail banking business is progressing well, and we are on track for completion in November this year. This will represent around eight billion pounds of our WAs out of the 30 billion which we announced earlier. In the UK corporate bank, Matt Hammondstein presented our ambitions for this business in June, the first of our deep dives following the investor update. We have an opportunity to grow our share of lending in the UK corporate market through deepening our client relationships and investing more in the client experience in order to make it easier for them to access more of our products and services. We delivered 18% ROTE in the UK corporate bank in the second quarter and target continued IT returns in this business in 2026. Private banking and work management delivered an ROTE of .8% in the second quarter as client assets and liabilities grew by 14% year on year. With simpler pricing and service improvements, we have seen a meaningful increase in new customers signing on to our smart investor digital program over the first half of this year. In the investment bank, ROTE for the quarter was 9.6%. We remain committed to delivering improved RWA and operational productivity to drive higher returns for this business, and you can see evidence of progress. In markets, fixed performance is relatively stable with European rates improving year on year while we continue to focus on expanding our overall market share. Securitized products continue to perform well. Investment banking fee income was up 45% year on year as the industry wallet grew and we increased our share overall. ECM had a strong quarter driven by our lead role in helping a long-standing corporate broken client, National Grid raised £7 billion in the landmark rights issue. The co-heads of investment banking, Cahill DC and Taylor Wright, will present a deep dive on their business on the 1st of October. Finally, the U.S. Consumer Bank delivered an improved ROTE of .2% for the quarter as we continue to grow and drive operational improvement and while impairment charges normalize. We took proactive actions to reduce credit lines last year and to build reserves early and as a result, our impairment performance in the first half has played out as we expected. Overall, we remain execution focused. One area in particular is cost discipline. We achieved a further £200 million of growth cost savings this quarter taking the total for the first half of the year to £400 million and this is on track for our targeted £1 billion for the quarter. We have made progress with the non-strategic business disposal which we talked about at our investor update. In this quarter, we completed the sale of our performing Italian mortgage portfolio and have announced the sale of our German consumer finance business. Finally, as I said, the £1.2 billion shareholder distribution is the first installment of our greater than £10 billion capital return plan. I will now hand over to Anna to take you through the second quarter financials in greater detail.

Thank you Venkat and good morning everyone. On slide six, we have laid out Barclays financial highlights for Q2 and H1 and you'll see the same throughout the presentation for each business. As before, I won't talk to these slides but have included them for ease of reference. Turning to slide seven, the headline message is that Q2 remained in line with a plan we laid out in February. We delivered a statutory roti of .9% despite a circa 50 basis point headwind year on year from the cash flow hedge reserve. Excluding the loss on sale from the business disposals that Venkat mentioned, Q2 roti was higher than last year at 11.8%. First half statutory roti was .1% and we continue to target above 10% in 2024 or around .5% on an underlying basis ex-disposal. Just like Q1, I was looking for four things in these results. Number one, income stability. Number two, cost discipline and progress on efficiency savings. Number three, credit performance and number four, a robust capital position. Overall, we are where we expect it to be and I will cover these in more detail on subsequent slides. Starting with income on slide eight, total income was up 1% year on year at 6.3 billion and was impacted by the 240 million loss from the disposal. Excluding this, income was up 4%. At our investor update in February, we emphasized the quality and stability of our income and how the more stable revenues that we generate from retail and corporate as well as financing in the investment bank provide ballast to our income profile. Together, these businesses contributed 73% of group income in Q2. Retail and corporate income included the loss on sale from disposal and the underlying business income was broadly flat. Financing income was also stable year on year at 0.8 billion despite the inflation linked tailwinds that we have called out previously. We saw year on year growth in both investment banking fees and intermediation. Turning to net interest income on slide nine, as in Q1, NII, ex-investment bank and head office was broadly stable in Q2 at circa 2.7 billion. Structural hedge tailwinds continue to offset the pressure on NII from deposit migration. We observed more stable deposits in the second quarter than anticipated and we expect this to continue into the second half. We have also updated our UK rate expectations for 2024 and now assume one base rate cut to 5% by the end of the year. Together, these trends mean that we have increased our 2024 guidance for group NII, ex-investment bank and head office to circa 11 billion for the full year, up from 10.7 billion. Within this, NII guidance for Barclays UK increased from 6.1 billion to circa 6.3 billion, excluding the Tesco bank acquisition. A further UK rate cut to .75% towards the end of the year, which is currently assumed in the latest consensus, would not materially change NII this year. Moving on to the structural hedge on slide 10. As a reminder, the structural hedge is designed to reduce volatility in NII and manage interest rate risk. As rates have risen, the hedge has dampened the growth in our NII and in our falling rate environment, we will see the benefit from the protection that it gives us. The expected NII tailwind from the hedge is significant and predictable. 11.7 billion of aggregate growth income is now locked in over the three years to the end of 2026, up from 9.3 billion at Q1. We have around 170 billion of hedges maturing between 24 and 26 at an average yield of 1.5%. As we said in February, reinvesting around three quarters of this, around .5% would compound over the next three years to increase structural hedge income in 2026 by circa 2 billion versus 2023. In response to greater stability in customer and client deposit behaviour, we have slightly increased the average duration. Given the high proportion of balances hedged and the programmatic approach we take, we are relatively insensitive to the short-term impact of potential rate cuts. We have provided a sensitivity table to illustrate this in the appendix on slide 35. Moving on to my second focus area, cost discipline. Total costs in Q2 were up 1% at 4 billion, whilst operating costs were up 2% year on year. We delivered a further 0.2 billion of gross efficiency savings, bringing the total for H1 to 0.4 billion, and we remain on track to deliver 1 billion for the full year. These efficiencies have helped us to offset inflation and created capacity for investment. Our cost to income ratio was 63% in Q2, 62% for H1, and we still expect it to be around 63% for 2024. Turning now to my third focus area, impairment, which continues to trend positively. The impairment charge of 384 million equated to a loan loss rate of 38 basis points for the quarter, the low are through the cycle guidance of 50 to 60. The Barclays UK charge was just 8 million, a loan loss rate of one basis point, which reflected continued benign credit conditions, and an 18 million release of economic uncertainty PMAs. Our UK customers continue to act prudently with little current signs of stress, evidence by continued low and stable delinquencies. Starting from this low base, we expect the Barclays UK loan loss rate to track towards circa 35 basis points over time as we complete the Tesco bank acquisition and grow the balance sheet as outlined in our investor update. In the US consumer bank, the charge increased year on year to 309 million and the loan loss rate to 438 basis points. On slide 13, you can see the mix of reserve bills to write off within the impairment charge for the US consumer bank continue to evolve as we guided. We expected write off to increase during 2024, and as such took proactive action to reduce credit lines and build reserves early. In line with industry trends, there was a fall in delinquencies in Q2 versus Q1, which in part was due to seasonality and higher customer repayments. From here, we would expect future quarters to follow normal seasonality, with delinquencies rising towards the end of the year. We still expect the US consumer bank impairment charge to improve in the second half compared to the first, resulting in a lower full year charge in 2024 versus 2023. And we continue to guide to a loan loss rate trending towards the long-term average of 400 basis points. I will cover my fourth focus area, which is our capital position, after I have walked you through our business performance. As I mentioned, you can see Barclays UK financial highlights and targets on slide 14, but I will talk to slide 15. ROTI was a strong .3% and total income was 1.9 billion. Income was down 74 million on year, driven by deposit and mortgage product dynamics, and the transfer of UK wealth in Q2 2023. NII of 1.6 billion was up 48 million on Q1. NIN increased by 13 basis points to 3.22%, reflecting increased NII, but also lower asset levels, which we do expect to grow over time. As you can see on the chart, continued structural hedge momentum more than offset product margin pressures. Looking to the second half of the year, we expect the positive behaviour to continue to stabilise and share an impact in mortgages to be neutral to marginally positive. As I mentioned earlier, we are now targeting circa 6.3 billion of NII for Barclays UK in 2024, excluding Tesco Bank, which is now expected to complete at the beginning of November. At Q3 results, we will provide more details on the expected financial impacts. Non-NII was 290 million in Q2, and we continue to expect a run rate above 250 million per quarter going forward. Total costs were 1 billion, down 4% year on year due to efficiency savings and the transfer of UK wealth in Q2 last year. The cost to income ratio was 55%, moving on to the Barclays UK customer balance sheet on slide 16. At Q1, we said we expected underlying deposit trends and loans to stabilise in the second half. Deposits have stabilised faster than we anticipated, with balances reducing by only 0.5 billion in the quarter. Whilst net lending remains negative, gross activity has increased across portfolios, reflecting our focus on growth. Gross mortgage lending was just under 20% higher than Q1, however, this was more than offset by a 2.5 billion. Application volumes were strong, with a more balanced high loan to value share, as per our stated ambition. UK card balances were stable at circa 10 billion, acquisition volumes were strong, and we added half a million new Barclay card accounts in half one, in line with our UK growth plan. As we said previously, this will take time to flow into net balance sheet and interest earning lending. Business banking gross lending also increased meaningfully, offset by paid owner of government backed loans. This shape is as we expected, with a stabilisation in net lending in the second half, and then growth from there, over the planned period. Moving on to the corporate bank on slide 18. UK corporate bank delivered Q2 roti of 18%, income was down 6% year on year at 443 million, as increased deposit income from higher interest rates was more than offset by lower liquidity pool income. Loans were flat quarter on quarter, as demand from corporate clients remained muted, whilst there was a seasonal pickup and deposit balances post Q1. As we said at the corporate bank deep dive in June, we expect to generate lending growth within this business. You can see the early signs of this, if not yet in balances, in circa 1 billion of RWA growth year to date, which reflects an increase in client facilities. Total costs increased by 10% year on year to 235 million, reflecting investment spend, which we expect to continue in support of our growth initiatives. Turning now to private banking and wealth management. Roti was 30.8%, supported by strong growth in client assets and liabilities, up around 10 billion on Q1, and around 25 billion versus the prior year. The year on year increase in income was mostly attributable to the transfer of the UK wealth business, which occurred in May last year. Underlying growth from higher balances and higher interest rates was offset by continued, although slowing, deposit migration. Cost increased 37 million year on year, mostly as a result of the transfer, but also due to ongoing investments in growing the business. We expect costs to be slightly higher in the second half versus the first, from our investments to grow our platform, hiring, and efficiency related measures. Turning now to the investment bank on slide 22. Q2 Roti was 9.6%. Total income of 3 billion was up 10% year on year, driven by growth in investment banking and market. Total costs were up 5%, delivering 5% positive cost to income jaws, despite higher structural cost actions linked to headcount actions in the second quarter. This resulted in a cost to income ratio of 63% for Q2, down 3 percentage points year on year. RWA productivity measured by income over average RWAs was 5.9%, 40 basis points better year on year, albeit down seasonally on the Q1 level. As we set out in the investor update, we are focused on improving this key metric from the 2023 level to drive higher investment bank return. RWAs were 3 billion or .4% higher versus Q1 at 203 billion. This is within the bounds of normal client trading activity, driven largely by temporary factors. As you know, we are committed to keeping investment bank RWAs broadly stable at year end 2023 levels, reducing the proportion to 50% of the group by 2026. Now looking at the specific income lines in more detail on slide 23. Using the US dollar figures as usual to help comparisons to our US peers, markets income was up 6% year on year. Equities income was up 24%, again reflecting good performance across equity derivatives, prime and cash. Thick income was down 2% against the prior year quarter that we said included a circa 100 million benefit from inflation linked positions. Excluding this, thick was up 6% and this is the last quarter in which you will see material impact. We continue to make progress in our three focus businesses and markets. Equity derivatives saw strong client activity and the market for securitized products remained favorable in Q2, allowing us to continue to monetize the investments we have made here. European rates improved, but we have more to do as we continue our focus on expanding share in this business. Financing income remained around 800 million despite the positive inflation effect in the prior year, providing the more stable income stream to market that we have emphasized. This reflected strong growth in client balances, offsetting spread compression as we continue to scale the business and deliver on our 0.6 billion financing income growth target by 2026. Investment banking fee income was up 45% year on year with gains across all products. Our year to date banking fee share was 3.6%. We have increased share across most products in a rising industry wallet, but we still have work to sustainably improve this. GCN income was up 55%, again delivering improved performance across both investment grade and leverage finance. ECM was up 76%, benefiting from the large transactions that Venkat mentioned and the market is showing encouraging signs of recovery. Advisory income increased 7% year on year and our pipeline of announced deals looks healthy for the rest of the year. Finally, in the international corporate bank, our US and European deposit balances increased in the quarter, which we see as a lead indicator of future client product take up and fee income growth. These were offset by the impact of the changing rates and inflationary environment on deposits and liquidity pool returns year on year, taking income down by 5%. Turning now to the US consumer bank on slide 25. US CB generated ROTY of .2% as income growth was offset by higher impairment versus the prior year as we expected. Income grew 7% as card balances were up by $1.7 billion year on year to $31.2 billion. From now on, we will report end net receivables on both a managed and a reported basis. Managed balances were $32.3 billion and include the receivables sold to Blackstone in Q1. As a reminder, in the turn, we are paid a fee and also continue to incur the cost of managing these balances. NIM reduced by .4% from .1% at Q1, driven largely by increased amortization of rewards paid to customers, which can be lumpy. We continue to target a NIM for this business of greater than 12% by 2026. The proportion of core deposits in our funding mix was 67% as we target above 75% by 2026. Efficiency savings as a result of last year's structural cost action offset inflation resulting in broadly flat costs and a cost to income ratio of 50%. Cost increased versus Q1 due to higher partner spend and are expected to trend up modestly in half two as we continue to grow our book. We now expect migration to internal rating space or IRB models to be in Q1 2025, reflecting a refined approval and implementation timetable. This is a timing impact only and does not affect our 2026 target. Turning now to head office on slide 26. Head office income was down 207 million year on year, mainly due to the loss on sale of our performing Italian mortgage book. This sale is expected to reduce group statutory ROTE for 2024 by circa 45 basis points that have a broadly neutral capital impact. The announced sale of our German consumer business is not expected to complete until later this year or early next, but has a negligible ROTE impact. On completion, we expect the transaction to reduce head office RWAs by circa £3.4 billion generating around 10 basis points of CET1 capital. Turning now to the balance sheet. Starting with my fourth focus area, our robust capital position on slide 27. The CET1 ratio was .6% at the end of Q2 comfortably within our target range and we generated 35 basis points of capital from profits in the quarter. This supports our announced half year distribution of 1.2 billion comprising a 2.9 pence dividend and a £750 million buyback. We expect to begin the buyback soon, having completed the previous 1 billion buyback earlier this week. The half one dividend in absolute terms is consistent with the prior year, but is 7.4 pence higher per share driven by the share count reduction from the buyback. This year's total capital return is still expected to be broadly in line with the 2023 level of 3 billion consistent with the capital distribution plan we laid out in February. Risk weighted assets were 1.8 billion higher on Q1 at around 351 billion as you can see in more detail on slide 28. Our guidance remains for regulatory driven RWA inflation to be at the lower end of 5 to 10% of December 2023 group RWAs. This includes both expected Basel 3.1 and U.S. Consumer Bank impacts as we said in February. TNAB per share increased 5 pence in the quarter to 340 pence. Attributable profit added 8 pence and the reduced cash flow hedge reserve drag on shareholders' equity added 2 pence. Additionally, share buybacks reduced our share count by 2% over the same period driving TNAB accretion of 3 pence per share. This is partially offset by dividends paid and other reserve movements. Year on year, TNAB is at 49 pence or 17%. Before I conclude, as usual, a brief word on capital and liquidity on slide 30. 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 remain focused on disciplined execution. This is the second quarter of progress against the targets we laid out in listening. Moving now to Q&A, as usual, could you keep to a maximum of two questions so we can get around to everyone in good time?