Barclays PLC

Welcome to Berkeley's Full Year 2025 Fixed Income Conference Call. I'll now hand over to Anna Cross, Group Finance Director, and Dan Faircloth, Group Treasurer. Good afternoon, and welcome to the Full Year 2025 Fixed Income Investor Call. I'm joined by Dan Faircloth, our Group Treasurer. Let me begin with a brief overview of our financial performance in 2025. and key areas of the progress and targets update announced this morning. Barclays achieved all financial targets and guidance in 2025. We generated a return on tangible equity of 11.3%, top-line income grew by 9% year-on-year to $29.1 billion, and we achieved our NII guidance for the Group and for Barclays UK. our cost-income ratio once again improved year-on-year to 61%, and the group low loss rate for 52 basis points was comfortably within the 50 to 60 basis points through the cycle guidance. Finally, we remained well capitalised, ending the year at the top of our 13 to 14% target range after accounting for today's buyback. This positions us well to deliver against our 26 targets and provides a solid foundation for future progress. Taking a step back, since 2021, Barclays has been on a journey to sustainably high returns. So far, this has been through stabilising the bank's financial profile and exercising capital discipline, keeping RWA stable in the investment bank and building on its strongest areas. whilst prioritising growth in our highest-returning UK businesses. Alongside this, we have simplified our processes to drive efficiency and exited non-strategic businesses. Year by year, we are improving the profit signature of the group, and by delivering stronger financial results, we've created capacity to invest to secure sustainably higher returns which extends beyond 2028. We believe that our plan continues to be constructive for fixed income investors, and slide five provides the highlights. Looking forward, we are confident in delivering group growth to greater than 12% in 2026, building to more than 14% in 2028. Stable income streams in the retail and corporate businesses will materially drive income over the next three years. This is supported by the structural hedge, which will drive circa 50% of total income growth. We expect modest cost growth, supported by plant efficiency savings and normalisation of the elevated cost base in 2025. This combination will deliver positive jaws in every year of the plan, as we have done in the last three. yielding a low 50s group cost income ratio in 2018. Meanwhile, the group has operated around the three-cycle low-loss range of 50 to 60 basis points for the past decade, and this range remains appropriate going forward. Our strong risk management position is supported by a risk transfer capability where we executed our first UK consumer loan securitization in Q4. We will continue to grow in our home market. So far, we have deployed 20 billion of the 30 billion planned business growth RWA over the three years to 26. We expect this momentum to continue, enabling more than 5% loan growth annually to 28. And we will continue to maintain broadly stable investment bank RWA at around 200 billion. As a result, we expect investment bank RWAs as a percentage of the group to fall to circa 50% by 2028. This is later than the initial target of 2026, as it reflects the postponement of previously anticipated regulatory changes. And finally, a word on our capital priorities. Stronger returns will drive capital generation of more than 230 basis points in 2028, an improvement of more than 30% over the next three years. And we continue to exercise disciplined capital allocation. First, by holding a prudent level of regulatory capital, which remains our top priority. As you have seen, we have been operating around the top of the 13 to 14% target range ahead of the expected regulatory developments, which Dan will cover shortly. Second, by distributing capital to shareholders. Third, we will maintain capacity for selected investments to support structurally high returns beyond 2028. Given the strength of capital generation, This capacity does exceed the level of investment set out in the plan today. I'll now hand over to Dan for detail on the four-year performance.

Thanks, Anna. Let me begin first with capital on slide 8. We ended the year with a CT1 ratio of 14.3%, generating 173 basis points of capital from profits. Given this strong capital position, we've announced a £1 billion share buyback and an £800 million final dividend, equivalent to 5.6 pence per share. Adjusted for the buyback announcement, the CT1 ratio is 14%. Looking ahead, we continue to expect between £19 and £26 billion of regulatory RWA inflation. Within this, the circa £16 billion effect of IRB migration in the US Consumer Bank remains our best estimate. Around £5 billion of this will now happen with the implementation of Basel 3.1 on 1 January 2027, with the remainder anticipated for later that year. In addition, we continue to expect a Basel 3.1 Day 1 impact of £3.10 billion of RWAs. We expect to provide further guidance later in the year as we work through the final rules. We are likely to use the option available to implement some elements of FRCB later, on the 1st of January 2028, which may defer small amounts of this impact. We expect a reduction in the Group Pillar 2A requirement following each of these changes. We have been operating around the top of our 13-14% CT1 range, with the returns and distributions in the plan announced today based on this level. Post implementation, we will consider where we operate across the range. On the broader regulatory landscape, in the UK, we welcome the constructive tone in the recent FPC review around bank capital requirements and the considerations of other major jurisdictions. However, it's important to emphasise that the FPC's reduced system-wide benchmark for Tier 1 capital does not affect the industry's current capital requirements or operating levels in itself. Instead, the review represents the start of a process of engagement. We will continue to work closely with the Bank of England with a view to promoting international alignment and the competitiveness of our business and of the UK's financial services sector. Moving up the capital stack, on slide 10 we show our tier 1 and total capital requirements as a proportion of RWAs. We continue to target a prudent buffer against each of these requirements, which helps us manage any RWA and FX movements, as well as our issuance and redemption profiles. Our tier 1 ratio is 17.9%. maintaining a healthy headroom above our 14.6% regulatory requirement. Within this ratio, we have an 81 component of 3.6%. Looking ahead, we expect to maintain robust ratios across all tiers and have a light capital redemption profile this year, including no 81 calls. Turning now to slide 11, we issued £16 billion of NREL in 2025 with an NREL ratio of 35.8%. In 2026 we expect to issue 10 billion pounds with a skew towards senior reflecting more limited requirements for 81 and tier 2. This target is lower than last year given pre-funding in 2025 and the maturity profile throughout 2026. We have continued to see currency diversification where it makes sense. We've also extended our weighted average life, our historically tight spreads. This included a non-core 10 euro 81 and a non-court $20 senior, with both seeing strong investor demand. This can be helpful in reducing sensitivity to credit spreads and our go-forward annual issuance requirements. Onto the next slide on liquidity. Our average LCR of 170% represents £131 billion in excess of our regulatory requirements. Our average net stable funding ratio was 135% and the loan-to-deposit ratio was 73%. both demonstrating a continued robust liquidity position. On slide 13, you can see that our deposit base increased by £25 billion across custom segments. We saw strong corporate growth driven by the development of our US dollar offering in the International Corporate Bank and an improved market share in the UK Corporate Bank. Retail deposits also grew both across our UK businesses as well as in the US Consumer Bank, reflecting the ambition to build core deposits as a percentage of total funding. Our deposit base continues to demonstrate a high level of diversification between customer segments, geographies and currencies. A significant proportion also benefits from long-standing operational relationships and deposit insurance, reflecting its stability as a source of funding. Stable deposits across the Group led to the full reinvestment of mature and structural hedges throughout 2025, compared to our prior standing assumption of 90%. We also reinvested these hedges at interest rates of circa 3.8%, higher than the 3.5% assumption. As a result, gross structural hedge income increased £1.2 billion to £5.9 billion, contributing 46% of 2025 group NII, excluding the investment bank and head office. Looking forward, we've already locked in £6.4 billion of gross structural hedge income in 2026, and £17 billion over the next three years. This income will build materially and predictably as we fully reinvest maturing hedges at higher yields. The increase in the average hedge duration to 3.5 years reduces the quantum of maturing hedges to circa £35 billion per year from around £50 billion in recent years. This slows the pace of short hedge income growth that therefore prolongs the expected positive effect until at least 2029. Turning to slide 15, another area of focus in recent months has been digital assets, which are gaining significant traction within traditional financial services and present an exciting opportunity for Barclays. Venkat talked this morning about our ambition to leverage digital technology to better serve our clients. We are playing a leading role in the UK industry innovation and are well-placed for bridge developments in the technology space between the US and the UK. We are developing the tokenisation of our own deposits, which will lead to quicker and more straightforward transactions for our clients. Over time, we expect this to enable the tokenisation of other assets, in particular across our capital markets businesses. In this space, we are participating in the Sterling Tokenised Deposit, or GBTD, pilot phase, This is focused on connecting traditional and tokenised deposits in the UK and overlaying new functionality such as programmability. The GBTV will allow us to test both retail use cases such as remortgages and wholesale use cases such as corporate bond issuance and investments. We are also exploring our role in the stablecoin value chain and use cases for clients. Here, Barclays is working with other leading GCIDs to investigate potential benefits and implications of jointly issuing a one-to-one reserve-backed form of digital money. We are actively engaged with authorities in core jurisdictions to foster innovation while ensuring key risks are mitigated. Digital assets present the opportunity to significantly transform key activities within the financial services industry for our clients, and we are excited to drive this transformation. Finally, a quick word on credit ratings. Our target remains for Barclays PLC Senior to qualify as a single A composite across all indices. This would require an upgrade from either Moody's or S&P. We believe the outcomes of our strategic plan and the targets announced this morning support the objective in terms of increased profitability, greater capital generation and a continued rebalancing of the group. We will continue to engage with all credit rating agencies on this topic. With that, I'll hand back to Anna.

Thank you, Dan. To summarise, these targets represent a realistic ambition of what we expect to achieve in the next three years and is underpinned by our robust capital and liquidity positions. We'll now open the call for questions. Operator, please go ahead. If you wish to ask a question, please press Start Later by 1 on your telephone keypad. If you change your mind and wish to remove your question, please press Start Later by 2. Our first question comes from Lee Street from City Group. Please go ahead.