Barclays PLC

Welcome to Barclays Q3 2024 results analyst and investor conference call. I will now hand over to CSV N. Kathakrishnan, Group Chief Executive, before I hand over to Anna Cross, Group Finance Director.

Good morning everyone and thank you for joining us for Barclays' third quarter 2024 results call. As a reminder, 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. I'm encouraged by our progress three quarters in. We are continuing to execute in a disciplined way against this plan and are on track to achieve our 2024 as well as our 2026 target. Return on tangible equity was .3% in the third quarter and .5% -to-date. We achieved this even as we grew tangible book value by 35 pence per share -on-year to 351 pence at the end of the quarter. This resulted from strong organic capital generation and the meaningful impact of buybacks in reducing our share accounts. Total income for Q3 was 6.5 billion pounds and is 19.8 billion pounds -to-date with a continued focus on the quality and stability of our income mix. Given the ongoing healthy support from our structural hedge, we remain confident on the strength of the income profile of our business in a falling rate environment. These factors lead to our upgrading Barclays UK as well as group NII targets today. We continue to control costs well and are seeing the benefit of the cost actions which we took in the fourth quarter of 2023. Our cost to income ratio was 61% both in the third quarter and -to-date. Impairment charges have improved in the US consumer bank in line with our expectations and our overall credit performance was strong, particularly in the UK with a group loan loss rate of 42 basis points -to-date and 37 basis points in the quarter. Importantly, we also remain well capitalized ending the quarter with a .8% CET1 ratio, comfortably within our target range of 13% to 14%. Across the bank and within each of our five divisions, we are focused on delivering an improved operational and financial performance. Anna will take you through our financial performance division by division shortly, but let me cover first a few highlights. Barclays UK delivered a return on tangible equity of .4% for the quarter and over 20% -to-date. We have seen a continued stabilization in deposit balances and growth lending trends are encouraging. We're on track to complete the acquisition of Tesco Bank on the 1st of November this year. This strategic relationship with the UK's largest retailer forms part of our commitment to invest in our home market, where Barclays has a crucial role to play in mobilizing the finance and investment which is required to deliver growth. Our partnership with Tesco will help create new distribution channels for our unsecured lending and deposit businesses and our expertise and partnership cards developed over decades in the US will further enhance the well-established Tesco Club Card royalty scheme. In the investment bank, we are committed to delivering improved RWA and operational productivity to drive higher returns. ROTE for Q3 was 8.8%. Year on year, the investment bank has delivered positive cost to income jaws and improved market share in investment banking. And the US consumer bank delivered an improved ROTE performance at .9% as we continue to grow the business and drive operational improvement, while impairment charges reduce against a background of subdued inflation and a strong labor market. Overall, as an organization, we remain execution focused. We achieved a further 300 million pounds of gross cost savings this quarter, taking a total of 3.5 billion pounds on track for our targeted 1 billion pounds for the full year of 2024. Simplifying the bank has been an important part of our strategy. We continue to make progress with the non-strategic business disposal that we spoke about at our investor update. Earlier this week, we announced the sale of our non-performing Italian mortgage portfolio. Finally, we are about two-thirds of the way through executing the 750 million pound share buyback, which we announced in the first half of the year, which together with the first half dividend is the first step towards achieving our target of greater than 10 billion pounds of capital return by 2026. I will now hand over to Anna to take you through our third quarter financials.

Thank you Venkat and good morning everyone. On slide six, we have laid out Barclays financial highlights for the third quarter as well as year to date. Profit before tax was 2.2 billion, up 18% from 1.9 billion in Q323. Before going into the detail, I would just note that the quarterly performance was impacted by a weaker US dollar, which is a headwind to income and profits, but positively impacts costs, impairments and RWAs. I'll call these out where appropriate. Turning to slide seven, Q3 performance is in line with the plan we laid out in February. We delivered a statutory ROTI of .3% up on last year's 11%. And the year to date ROTI of .5% leaves us on track for our statutory ROTI target for 2024 of greater than 10%. We continue to target a 2024 ROTI excluding inorganic activity of circa 10.5%. We now expect that the impact of all inorganic activity in 2024, including Tesco Bank, will be broadly neutral. So I don't anticipate a material difference between the two measures. As in the first half of the year, I was looking for four things in our performance. Income stability, cost discipline and progress on efficiency savings, credit performance and a robust capital position. On all four, we are where we expect it to be. And I'll cover these in more detail on the subsequent slide. Starting with income on slide eight. Total income was up 5% year on year at 6.5 billion. Excluding FX, income was up 7% year on year. Since our investor update in February, we have been emphasizing continued stability in our income streams. Revenues from retail and corporate as well as financing in the investment bank provided balance to our income profile and together contributed 74% of income in Q3. Turning to net interest income on slide nine. Group NII excluding investment bank and head office was stable year on year at 2.8 billion. We now expect our full year group NII to be greater than 11 billion. Within this, we have increased NII guidance for Barclays UK to 6.5 billion, having previously guided to 6.3. Both numbers exclude the impact of the Tesco Bank acquisition. We also now assume a UK bank rate of .5% by the end of the year or a total of 325 basis point cuts in 2024 compared to the five we had assumed in February. Deposits continue to stabilize and increased structural hedge income continues to provide a strong tailwind as you can see 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 a 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. 12.4 billion of aggregate growth income is now locked in over the three years to the end of 2026, up from 11.7 billion at Q2. 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 at around .5% would compound over the next three years to increase structural hedge income in 2026 by circa 2 billion versus 2023. 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. Please note that we have added additional disclosure on slide 38 in the appendix on the split of the structural hedge income allocation across our five divisions. Moving on to costs on slide 11. Total costs in Q3 were flat year on year at 4 billion. Excluding FX, costs were up 2% in the same period. We delivered a further 0.3 billion of gross efficiency savings, bringing the total for the nine months to 0.7 billion. These efficiencies have helped us to more than offset inflation and created capacity for investment. We remain on track to deliver 1 billion for the year and continue to expect a further 1 billion of efficiency savings across 2025 and 2026. Our cost to income ratio was 61% in Q3 and for the nine months year to date, we remain on track for our full year target of around 63%. Turning now to impairment, where credit conditions continue to trend positively and in line with our expectations. The Q3 impairment charge of 374 million equated to a loan loss rate of 37 basis points. The U.S. consumer bank charge reduced 276 million, a loan loss rate of 411 basis points, which benefited from methodology enhancement in the quarter. Our U.K. customers continue to act prudently with few current signs of stress, evidenced by continued low and stable delinquencies. The Barker's U.K. charge was just 16 million, a loan loss rate of 3 basis points, and this included a post model adjustment release of around 50 million. I'd remind you that under the IFRS 9 accounting, we expect to incur a day one impairment charge for the Tesco unsecured lending balances on completion in Q4. As we said in February, the Tesco bank acquisition, alongside our broader U.K. balance sheet growth plan, are factored into our guidance for the Barker's U.K. loan loss rate to track towards 35 basis points over the life of our three-year plan. All in all, we reiterate our through the cycle guidance of 50 to 60 basis points for the group and expect FY24 to be at the bottom of this range, inclusive of the estimated day one impact of Tesco bank. Excluding the impact of Tesco bank, we would expect to be below this range as we are seeing limited signs of stress in our U.K. customer base, and our guidance for the U.S. consumer bank impairment charge to improve overall in the second half remains unchanged. Looking now in more detail at the U.S. consumer bank impairment charge on slide 13. The mix of reserve bills to write off within the impairment charge for the U.S. consumer bank continues to trend as we guided. We expected write offs to increase during 2024, which you can see is the case from the light blue bars on this page. 30 and 90-day delinquencies are broadly stable, and we expect them to follow seasonal trends. There is no change to our impairment guidance. As mentioned, we still expect the U.S. consumer bank impairment charge to improve overall in the second half, resulting in a lower full year charge in 2024 versus 2023. And we continue to guide to a low loss rate trending towards the long-term average of 400 basis points. Our coverage ratios remain strong. Our IFRS 9 coverage ratio reduced 70 basis points quarter on quarter to 10.3%, primarily driven by a debt sale, while our CSIL coverage ratio increased 20 basis points to 8.1%. Before going into individual business performance, let me say a few words on the lending trends that we are seeing. Gross lending activity is encouraging across our portfolios, reflecting our focus on growth in the U.K. In mortgages, we are seeing a pick up in gross lending with increased flow in higher loan to value lending, and customer confidence is also returning with strong purchase activity from first-time buyers and home movers. In a similar vein, U.K. card acquisition volumes remain strong. We have added around 800,000 new Barclays customers this year, consistent with our strategy to regain market share in unsecured lending. In the U.K. corporate bank, we have extended client lending facilities by deploying around 1.2 billion additional RWAs this year, which we expect to drive lending balance growth as customers draw down. And we have seen some evidence of this in Q3. Turning now to Barclays U.K. You can see Barclays U.K. financial highlights and targets on slide 15, but I will talk to slide 16. ROTI was .4% in the quarter, and total income was 1.9 billion, up 73 million year on year, or 4%. NII of 1.7 billion was up 69 million on Q2, as NIM increased by 12 basis points to 3.34%. As you can see on the bottom chart, we saw continued structural hedge momentum and small tailwind from product margin and lending volume. We have updated our 2024 .U.K. NII guidance to 6.5 billion from 6.3 billion. Excluding Tesco Bank, reflecting balance sheet trends turning more positive earlier than expected. Non-NII was 280 million in Q3, and we continue to expect a run rate above 250 million per quarter going forward, although we expect the securitization that we announced earlier in the week to have a modest negative impact on non-NII in Q4. Total income from Q3 was 1.9 billion, down 4% year on year, and versus Q2, demonstrating continued progress on delivering efficiency savings from the ongoing .U.K. transformation. The cost to income ratio improved to 52% this quarter. Moving on to the Barclays UK customer balance sheet on slide 17. The stabilization and deposit trends that we called out at Q2 has continued in Q3. Deposit balance is reduced by 0.5 billion in the quarter, a similar quantum to Q2. Net lending was broadly flat in the quarter at 199 billion. Within this, we saw growth in mortgages, cards, and unsecured personal lending, offset by continued paydown of runoff portfolios, notably government-backed lending in business banking. As Venkat mentioned, we have made good progress on the acquisition of Tesco Bank. Following the court process last week, we will complete the acquisition on 1st November, with estimated financials being confirmed at full year 24 results. The current estimated day one financial impact is a circa 0.3 billion net positive profit before tax, driven by an income gain resulting from consideration paid being below fair value, which is partially offset by a day one impairment charge. The impairment charge assumes all balances are required as stage one loans. Reflecting 12 months expected losses, with subsequent impairment bills required in future years. The profit before tax benefits statutory group ROTI in 2024 by about 50 basis points. Overall, when including the circa 7 billion RWAs, we expect to see around a 20 basis points negative impact to the group CET1 ratio, which is lower than the circa 30 basis points previously guided. Moving on to the UK corporate bank. UK corporate bank delivered Q3 ROTI of 18.8%. Income grew 1% year on year to 445 million. Non-NII was flat year on year, but down in the quarter, mainly due to lower income from transactional products. This line can be variable due to the inclusion of non-product items such as liquidity pool income. However, we do expect non-NII to increase over time as we invest in our digital and lending proposition. Total costs were flat year on year at 222 million, with future investment expected as we continue to support our growth initiatives. Lending balances decreased by 0.9 billion in the quarter, and underlying growth was more than offset by a circa 2 billion reduction due to refinements to the perimeter with the international corporate bank. This same adjustment also impacted deposit balances. Turning now to private banking and wealth management on slide 22. Q3 ROTI was 29%, supported by strong growth in client assets and liabilities up around 3 billion on Q2 and around 23 billion versus the prior year. Income reduced 3% year on year, driven by lower NII from the non-repeat of a timing-related one-off in Q3 23, which offset growth from increased client assets and liabilities. Versus Q2, NII was up 1% driven by increased client balances overall. Costs were up 3% year on year as we continued to invest in this business, including in growing platform, hiring, and efficiency-related measures. Turning now to the investment bank. Q3 ROTI was 8.8%, up .8% year on year. Total income of 2.9 billion was up 6% year on year, and total costs up 4%, delivering positive costs to income jaws. Excluding FX, total income was up 9% year on year and costs up 7% year on year. RWA productivity, measured by income over average RWAs, was .7% in the quarter, 30 basis points better year on year, with -to-date RWA productivity at 6%. Period end RWAs were 9.1 billion lower versus Q2 at 194 billion, with FX accounting for around 6 billion of the move. At Q2 we had an uptick in RWAs, which I said was temporary in nature. The reduction we've seen this quarter, excluding FX, is a reversal of that. Now looking at the specific income line in more detail on slide 25. Using the US dollar figures as usual to help comparison to our US peers, markets income was up 7% year on year. FAKE income was up 7%, driven by a strong performance in credit, securitized products, and fixed income financing. Equities income was up 7%, aided by strong performance in cash equities and equity derivatives, as we helped clients through market volatility in August. Financing income was up 6% year on year, reflecting increased client flows and balances, with this business delivering more than 750 million in four of the last seven quarters. Investment banking fee income in dollars was up 67% year on year, with gains across all products, in particular a strong quarter in advisory, which was up 146%. DCM, the US dollar figure, was up 55%, delivering improved performance across both investment grade and leverage finance. ECM was up 9% against a wallet that was down 6%. Our year to date banking fee share was 3.5%. We have increased share across most products in a rising industry wallet, but we still have work to do to sustainably improve this. Finally, in the international corporate bank, transactions banking was up 5%. We continue to grow US deposit balances, which we see as a lead indicator of future client product take up and fee income growth. This was more than offset by an 85 million impact from fair value losses on leverage finance lending, which are reported in corporate lending, resulting in total ICB income being down 21% year on year. Turning now to the US consumer bank. US consumer bank generated a ROTI of .9% up from .4% in Q3 last year, mainly due to the lower impairment charge following a higher provision build in the second half of 2023. Income fell 2% year on year, driven by a weaker US dollar. Excluding FX, income was up 2%, driven by an increase in card balances, which was 31.6 billion. NIM was stable on Q2 at 10.4%, but down from .9% in the prior year, reflecting higher rewards earned by customers through increased spend. In Q4, these impacts are expected to be less of a headwind, and we continue to target a NIM for this business of greater than 12% by 2026. In terms of the funding mix of the business, the proportion of core deposits was broadly stable versus Q2 at 66%, as we target above 75% by 2026. Costs were down 3% on the prior year, as efficiency savings and the FX tailwind offset inflation and growth, driving a cost to income ratio of 50%. Excluding FX, costs were up 1%. We still expect costs to trend up modestly in Q4, as marketing spend during the holiday season will support continued growth in the business. Turning now to slide 28, and the summary of the financial impacts from inorganic activity announced in 2024. As a reminder, at our Q2 results, we announced the disposal of our performing and cash flow Italian mortgage portfolio and the German card business. Earlier this week, we announced the disposal of our non-performing Italian mortgage portfolio, which is expected to complete in Q4-24. These disposals, along with the Tesco bank acquisition, have a broadly neutral impact on statutory 2024 Group ROTE, whilst causing a circa 10 basis points drag to the CET1 ratio. These transactions are a key component of reshaping the bank to be more focused in areas we have competitive strengths, enabling us to deliver higher future returns. Turning now to the balance sheet, and starting with our capital position. The CET1 ratio was .8% at the end of Q3, up 24 basis points versus Q2, and comfortably within our target range. This includes the impact of the ongoing £750 million half-year buyback that came off capital post the Q2 quarter end, 46 basis points of capital generated from profits in the quarter, and a £4 billion reduction in RWAs, excluding FX. We continue to expect this year's total capital return to be broadly in line with the 2023 level of £3 billion, consistent with the capital distribution plan we laid out in February. Let me turn briefly to our regulatory capital and the upcoming changes under Basel 3.1, as well as the US Cards model migration. The combined expected RWA impact of £19-26 billion is in line with previous guidance of the lower end of -10% of group RWAs as at the end of 2023. However, the timing has changed for both items. You will have seen that the PRAs Basel 3.1 implementation date moved to 1 January 2026, and the impact is expected to be between 8 and 15 billion post mitigation. The IRB migration of our US Cards portfolio has also moved from our prior expectation of Q1 2025, and will now take place after Basel 3.1 implementation, for which we are building a Basel compliant model. The total impact to RWAs from the IRB migration still stands at circa 16 billion, of which around 5 billion will be reflected at the time Basel 3.1 is implemented and is now included in our Basel 3.1 impact estimate. The remaining 11 billion relating to the IRB model will come after Basel 3.1 implementation, at a date to be determined and is subject to model build and portfolio changes over time. Specific to this, there is likely to be a modest increase in Pillar 2A, applicable at some point in 2025 and until the model is implemented, reflecting the difference between models and the current standardised risk weighting, acknowledging we already hold Pillar 2A capital against the majority of this risk. As previously noted, the total impact of Basel 3.1 will also depend on further guidance from the PRA on the approach to Pillar 2A, where we expect some offsets for risk now to be capitalised under Pillar 1. Risk weighted assets decreased by 11 billion from Q2 to 340.4 billion, as you can see in more detail on slide 31. FX drove around 7 billion of the reduction, with lower investment bank and head office RWAs also contributing. As usual, a brief word on capital and liquidity on slide 32. We maintain a well capitalised and liquid balance sheet with diverse sources of funding and a significant excess of deposits over loans. Turning now to TNAV. TNAV per share increased 11 pence in the quarter and 35 pence year on year to 351 pence. Of the elements we control, attributable profit added 11 pence per share in the quarter and the share buyback, which reduced our share count by 2%, added 2 pence per share. We have seen further unwind of the negative movement in the cash flow hedge reserve in 2022-2023, which caused a drag on shareholders' equity and this added 9 pence in the quarter. These positive moves were partially offset by dividends paid and other reserve movements. In summary, we remain focused on disciplined execution. This is the third quarter of progress against the targets that we laid out in February which we are either reiterating today or upgrading. Thank you for listening. Moving now to Q&A. As usual, please could you keep to a maximum of two questions so we can get around to everyone in good time. If you wish to ask a question,