Barclays PLC

Welcome to Barclays Q1 2025 Results Analyst and Investor Conference Call. I will now hand over to C.S. Venkatakrishnan, Group Chief Executive, before I hand over to Anna Cross, Group Finance Director.

Good morning, everyone. Thank you for joining Barclays' first quarter 2025 results call. At our progress update 11 weeks ago, we outlined expectations for the second year of our three-year plan. These were to deliver a better run, a more strongly performing, and higher return in Barclays. I'm pleased with our performance and progress to date, including in this the first quarter of 2025. While the environment has certainly become more uncertain, we are firmly on track to achieve the full objectives of our plan, including approximately 11% return on tangible equity for 2025. Our confidence reflects the inherent diversification of our business, the careful and proactive approach which we adopt to managing risk, and our ongoing focus and delivery of operational efficiency. All of this is supported by a robust balance sheet, including a 13.9% CET1 ratio at the end of the first quarter. This is intentionally towards the top of our 13 to 14% target range. In addition, we are supported with very strong liquidity. In the first quarter, Barclays generated a return on tangible equity of 14%. This was achieved even as tangible book value grew 11% year on year to 372 pence. Total income for the first quarter was 7.7 billion pounds. And importantly, the quality and stability of our income continues to improve. Looking ahead, we remain confident in our income growth profile. And today, we are upgrading 2025 NII guidance for Barclays UK and the group, reflecting favorable deposit volumes and mix. And we will amplify our top line growth through positive operating leverage, as we did again during the first quarter with 6% JAWS delivering a 57% cost-income ratio in the quarter. Moving on to our Q1 performance, we are improving operational performance across the businesses to drive sustainably higher financial returns. Last quarter, we released around $150 million of the set of $500 million growth cost-efficiency savings, which we expect during the year. These savings structurally improve our cost base, and the level of consistency of our returns, including beyond 2026. We are generating higher returns in two ways. First, by allocating more capital to the highest returning UK businesses. And second, by improving returns in the lower returning businesses in the bank, namely the investment bank and the US consumer bank. Across the three UK businesses, we continue to grow our risk-weighted assets in the quarter and delivered returns at or around the full year 26 target levels. Returns in the investment bank were supported by ongoing execution of management actions and strong activity in markets. In particular, in fixed income and credit where we monetized activity well and continued a disciplined approach to risk management. As you would expect in a period of uncertainty, weaker client confidence is delaying investment banking transactions. But for us, it has been more than offset by the benefits of the impact of volatility on trading revenues and markets. While ROTE in the U.S. consumer bank fell year-on-year to 4.5 percent, the operational performance of the business continues to progress as we expected. Finally, we are continuing to simplify our businesses. Two weeks ago, we announced a long-term partnership with Brookfield to transform our payment acceptance business. We are looking forward to working closely with our partner to enhance the client experience, drive long-term growth, and improve financial performance for this activity. Earlier in the quarter, we completed the sale of our German consumer finance business. So while we remain focused on executing our strategy and achieving our targets, we are obviously paying close attention to the recent market volatility and what it may imply for economic growth and business activity. And so before I hand over to Anna, let me offer some reflections on the current backdrop. I want to emphasize at the outset that our strategy has been designed to deliver in a range of economic and financial environments. And I reiterate our confidence in achieving the targets which we have set out financially and operationally for 2025 and 2026. Our role as ever is to help clients navigate the changes in the environment. We must do so while prudently managing our own risk. We are well positioned to do this. We start with a business mix that is diversified geographically across hotel and retail and by product. And in fact, all of this is well illustrated by the first quarter results which we are discussing. Last but not least, our customers start from a resilient position. In the UK, Household balance sheets are robust and spending trends have been stable. In our U.S. consumer businesses, our balances are skewed to prime and super prime customers. And spending and payment rates across our U.S. customer cohorts have remained stable, including among lower FICO customers. On the wholesale side, corporates are cautious about new borrowing and demonstrate a desire to maintain liquidity. Having said all that, The current environment and market volatility undoubtedly require attention and management. Looking ahead, we expect net interest income to grow further and for markets revenues to be roughly commensurate with volatility. However, transactional and lending income could slow as companies and individuals become more cautious. This income mix provides a good measure of structural protection and stability. On top of this, we have to protect ourselves, as we always do, with active risk management. We have long established programs to transfer and hedge risk, and we will continue to do so as warranted by this environment. Finally, we continue to provision prudently across all our portfolios. In conclusion, While we recognize the risks that are inherent in the current environment, we remain confident in our income outlook and are positioning ourselves carefully to navigate through this current circumstance. We remain committed to and confident in delivering our 2025 guidance and 2026 targets, including an approximately 11% ROTE and a progressive capital distribution this year. I will now hand over to Anna to take us through the first quarter financials.

Thank you, Venkat, and good morning, everyone. Slide four summarizes the financial highlights for the first quarter. Before going into the detail, I would remind you that we are focused as ever on what we can control. The plan and targets we called out at the investor update are based on realistic assumptions about the external environment. These are unchanged from the four-year results and are shown in the appendix. The group's diversified business model by income and geography helps support returns in a range of environments, delivering a Q1 ROTI of 14%. This was against the previous year's 12.3%, with much of the improvement reflecting income growth across all five divisions, particularly the Investment Bank and Barclays UK. Operating leverage is a key aspect of the plan to structurally improve group returns. Income rose by 11%, while costs rose by 5%, delivering 6% positive jewels and driving a 19% increase in profit before tax to $2.7 billion. This performance was further amplified by the effect of the share buybacks during the past year leading to a 26% increase in earnings per share. I remain focused on four aspects of performance. Income stability with an increased emphasis on growth. Cost discipline and progress on efficiency savings. Credit performance and a robust capital position. These underpin our aim to deliver higher returns on a sustainable, predictable and consistent basis. I'll now cover these in more detail, starting with income on slide six. Income in Q1 increased $700 million to $7.7 billion. This growth was broad-based, including from stable income streams in retail, corporate, and financing activities within markets. In the investment bank, we captured the benefit of greater market volatility during the quarter supported by our investment across the business. And in Barclays UK, stronger than expected deposit trends are supporting higher NII as shown on the next slide. Group net interest income increased 13% year on year to 3 billion. In Barclays UK, we now expect more than 7.6 billion of NII during FY25, up from circa 7.4 billion previously. Two changes have led to this improvement in our outlook. First, Q1 seasonal deposit volumes were higher than we expected, particularly in current accounts, consistent with more normalised behaviour. Second, the mix of savings has stabilized faster than we expected. This improvement in deposit mix supports our confidence in lowering Tesco Bank's post-acquisition funding costs. These developments and a strong start to the year across other businesses mean we now expect Group NII, excluding the IB and head office, to be more than $12.5 billion for FY25, up from circa 12.2 billion previously. The continued strength of deposits also supports greater longer-term income stability via the structural hedge. We have now locked in 10.2 billion of gross structural hedge income over the next two years, up from 9.1 billion last quarter. And this income will build further as we reinvest maturing hedges We said in February that we expect to reinvest three quarters of maturing hedges as a 3.5% yield. In Q1, we were able to lock in hedges at a higher rate than our assumption with a stable hedge notional. Continued deposit strength means we now expect to reinvest around 90% of maturing hedges during 2025 and 2026. versus 75% previously. Given this reinvestment profile and our planning assumptions for 3.5% swap rates, we expect the contribution from the structural hedge to continue well beyond 2026. Moving on to costs. The group cost to income ratio was 57% in Q1. This provides a strong foundation to deliver guidance of circa 61% in 2025 and the high fifties target in 2026 with scope to improve further thereafter. Total costs increased by 189 million year on year with around half of this increase related to run rate costs for Tesco Bank. Key one costs also included circa 50 million for the employee share grant announced at the four-year results. These and other investments in business growth and inflation were partially offset by around 150 million of gross efficiency savings as part of the 500 million we expect in 2025. Expenses associated with structural cost actions were modest in Q1. and are likely to be weighted towards the second half of 2025 and within the two to 300 million normal annual range. Turning now to impairments. I know that developments in the US in particular are a big focus, so we have included some additional color on the positioning of our US card business in the appendix. Customer behavior does not reflect risks the economic outlook, and we start from a resilient position, including an IFRS 9 coverage ratio of 10.4% or 8.3% on a CECL basis. Both 30 and 90-day delinquencies were stable in the quarter, as you can see from the two lines on this page. The USCB loan loss rate of 562 basis points increased versus Q4, reflecting reserves billed for higher seasonal balances and a post-model adjustment. I'll discuss this more on the next slide in the context of the group. The Q1 group impairment charge of 0.6 billion equated to a loan loss rate of 61 basis points, modestly above our 50 to 60 basis points through the cycle guidance. As a reminder, our impairment charge is based on consensus economic forecasts prevailing towards the end of the quarter. These forecasts were largely unchanged from FY24 and so do not reflect elevated US economic uncertainty. To address this, and consistent with our approach to uncertainty in the past, we increased the probability weighting of downside scenarios in our IFRS 9 calculations for U.S. portfolios. This led to a net post-model adjustment of $74 million, included within the U.S. Consumer Bank and the Investment Bank. The impact for U.S. cards relates mainly to a change in the weighted average peak U.S. unemployment rate from 4.7% to 5.2%, resulting in a 38 million adjustment. While in the investment bank, a reduction in the weighted average US GDP growth from 1.6% to 0.8% led to a net 36 million model adjustment. Outside of the US, the increase in the Barclays UK loan loss charge was mainly driven by the addition of Tesco Bank. This included a circa 30 million charge for the post-acquisition stage migration of some Tesco Bank balances, which should diminish beyond Q1. Aside from Tesco Bank, the loan loss rate for Barclays UK increased modestly, but remains low. You can see financial highlights for Barclays UK on slide 12, but I will talk to slide 13. ROTI was 17.4% in the quarter and total income rose 14% year-on-year to $2.1 billion. The integration of Tesco Bank is progressing well with the improved deposit mix providing greater confidence on lower post-acquisition funding costs. As a result, we now expect circa $500 million of NII from this business in FY25 included within the updated NII guidance versus circa 400 million we expected previously. Stronger structural hedge income also supported greater NII versus Q4 and more than offset product margin headwinds. Non-NII of 252 million was weaker due to seasonally lower customer spend and we continue to expect a quarterly run rate above 250 million. Overall, income growth of 14% exceeded cost growth of 9%, enabling the cost-to-income ratio to fall to 56% despite higher investment and run rate costs for Tesco Bank. Moving on to the Barclays UK balance sheet. Deposits in the quarter were stronger than expected, with balances down only £1.1 billion, consistent with a more normalised behaviour. The mix of deposits continues to develop favorably, with customers choosing to retain liquidity through current accounts and instant access savings accounts. Loan growth also continued in Q1, with $1.9 billion of net lending driven by mortgages partially offset by lower business banking lending as clients continue to repay COVID-era loans. Indicators of future lending activity continue to improve, as we pursue our strategy to deploy capital into the UK. The momentum and breadth of UK growth that we saw in the second half of 2024 continued in the first quarter. Growth mortgage lending remains strong, including among home movers and first-time buyers, supporting net lending of 2.2 billion. We acquired 386 new credit card customers as part of our strategy to regain market share in unsecured lending. This should support future growth in balances as customers' appetite to borrow normalises. And we saw continued deployment of risk-weighted assets in the UK corporate bank supporting 1.3 billion loan growth as clients continue to draw down lending facilities. Moving on to slide 17. UK Corporate Bank delivered a Q1 rating of 17.1%. Income growth of 12% exceeded cost growth of 3%, leading to an improved cost to income ratio of 53%. NII was up 23% year on year, reflecting higher average lending and deposit balances, while non-NII fell 10%. While this line can be volatile, We expect investments in our digital and lending propositions to drive non-NII growth over time. Impairments remain low and stable, decreasing quarter on quarter with lower single name charges. Turning now to private bank and wealth management. Q1 ROTI was 34.5%. Blind assets and liabilities grew versus Q4. including net new assets under management of $1 billion. An income growth of 12% exceeded cost growth of 9%, leading to a cost-to-income ratio reduction to 68%. As previously guided, you should expect an increase in investment costs in the quarters to come to support advisor growth, product development, and digital capabilities. Turning now to the investment bank. Q1 ROTI of 16.2% was supported by income growth across most areas of the IB. Total income was up 16% year-on-year, while total cost rose 5%, resulting in positive jewels and a cost-to-income ratio of 54%. Capital productivity, measured by income over average RWAs, was 7.7%, or 120 basis points better year-on-year. More now on income by business on slide 22. Using the US dollar figures as usual to help comparisons to US peers, markets income was up 16% year on year. FIC rose 21% with particular strength in macro products across rates and FX and in securitized products. Equities income was up 9% or by 27% excluding the prior period's one-off gains on vis-a-vis shares. Financing and equity derivatives were particularly strong. Investment banking fees rose 4%. Our fee share was 3.5%, including an improvement in ECM and advisory. While clients are waiting for a more stable market environment before transacting, pipelines remain strong. In transaction banking, income increased 8% as we continued to implement our treasury coverage model. This also contributed to U.S. deposit balance growth of around 50% year-on-year, which we see as a lead indicator of transaction banking income growth. And corporate lending income increased strongly year-on-year, reflecting gains on leveraged finance positions. The investment bank is on a multi-year journey to generate higher and more consistent returns. Volatility creates opportunities in markets where we generate around two-thirds of investment bank income. Investments we have made into this business allowed us to monetize these opportunities well during Q1. We did this while prudently managing risk with stable VAR, and no-loss days in our trading book. And in banking, we entered into the most recent period of volatility with limited exposure to risk, including in Lev Fin. We are also making good progress in our management actions, including in our three focus businesses, equity derivatives, European rates, and securitized products, all while growing the more stable income streams within the investment bank, including financing. Turning now to the U.S. Consumer Bank. U.S. Consumer Bank ROTI was 4.5% in the quarter, including the $38 million post-model adjustment I mentioned earlier. Total income was up 1% year-on-year, as lower NII was offset by higher non-NII. NII was down 1% with NIMS of 10.5% driven by a full quarter impact of rate cuts in Q4 24 which drove spread compression with deposits taking longer to reprice than assets. This interest rate risk is hedged with the offsetting benefit reflected in non-NII which increased 9% year on year. We remain confident in achieving NIM of greater than 12% by 2026 and expect meaningful progression during 2025 as the impact of our repricing actions take hold in the portfolio. Total costs were up 5% due to an increase in partner-related expense, which is mostly offset in higher non-interest income. We continue to make good progress in increasing digital adoption and driving efficiency. End net receivables increased 4% year-on-year to $33 billion on a managed basis, all from organic growth. We continue to see strong retail deposit growth, including $2 billion quarter-and-quarter and $4 billion year-on-year, driven by the tiered savings product that we launched in Q3 2024. The percentage of total funding coming from core deposits now stands at 68%, and we expect this to increase going forward in line with our target of greater than 75% in 2026. Moving to the main developments impacting head office. Earlier this month, we announced a long-term partnership with Brookfield for our payment acceptance business, previously referred to as merchant acquiring. This business is strategically important, but had become less able to compete in recent years. Given technology changes in the sector and absent investment, financial performance was expected to deteriorate. Through the partnership, Barclays will invest circa $400 million, mostly in the next three years, to enhance the range of services, improve efficiency and support growth. This will begin in Q2 and has no material impact on our current financial targets or guidance. Over time, we expect the partnership to improve the financial performance of the business as part of Barclays Group. If Brookfield choose to increase their ownership interest after three years, our investment will be fully recovered and we will retain an interest of around 20%. Moving to capital. We ended the quarter at the top end of our 13% to 14% target range with a CET1 capital ratio of 13.9%. This included 53 bits of capital generation from profits and a 12-bit benefit from the sale of German consumer finance partially offset by the 28 BIP impact of the 1 billion share buyback announced at FY24 results. RWAs decreased around 7 billion from Q4 to 351 billion, with FX accounting for circa 3 billion of the move. The sale of the German consumer finance business reduced head office RWAs by 3.3 billion, while Barclays UK and the UK Corporate Bank saw a combined RWA increase of 0.8 billion. Investment bank RWAs were 56% of the overall group and broadly flat from Q4, excluding FX, despite the higher income and usual Q1 seasonality. As usual, a word on our overall liquidity and funding on slide 29. We have strong and diverse funding, including a 73% LDR and an NSFR of 136%, and we are highly liquid across currencies with an LCR of 175%. These measures reflect purposeful and prudent management of our balance sheet and risk, delivering resilience and capacity to support customers in a range of economic environments. PNAV per share increased 15 pence in the quarter and 37 pence year-on-year to 372 pence. Attributable profit added 12 pence per share during Key 1 and the unwind of the cash flow hedge reserve added 4 pence. We expect the majority of the remaining cash flow hedge reserve to unwind by the end of 2026. This unwind combined with earnings growth and buybacks, give us confidence that TNAV will continue to grow consistently, as it has done for the last seven quarters, and to a greater degree than current consensus expectations. So, to summarise, we are pleased with the strong performance of the bank in Q1, which sets us up well to deliver on all our 2025 guidance as we build towards our 2026 target. Over to you Venkat for concluding remarks.