Barclays PLC (NYSE:BCS) Q4 2023 Earnings Call Transcript Q4 2023 Earnings Conference Call February 20, 2024 3:30 AM ET
Company Participants
C.S. Venkatakrishnan – Chief Executive Officer
Anna Cross – Group Finance Director
Adeel Khan – Co-Head of Global Markets, Trading
Denny Nealon – Chief Executive Officer, US Consumer Bank
Vim Maru – Chief Executive Officer, Barclays UK
Conference Call Participants
Alvaro Serrano – Morgan Stanley
Joe Dickerson – Jefferies
Guy Stebbings – BNP Paribas Exane
Ben Toms – RBC Capital Markets
Rohith Chandra-Rajan – Bank of America
Jason Napier – UBS
Raul Sinha – JPMorgan
Ben Toms – RBC
Andrew Coombs – Citi
C.S. Venkatakrishnan
Good morning. Thank you everybody for coming here and welcome to our Full Year 2023 Results Presentation as well as our Investor Update. You could see the agenda for the day on this slide. And so what we will do, we’ll just go into the results for 2023 before turning to the broader investor update.
So, as you saw this morning, I’ll start with the results announcement with the performance highlights and then I’ll hand over to Anna to take us all through the financials.
So, we are delivering against our guidance. So, we achieved — delivered on all our targets in 2023. And together with our consistently strong capital position throughout this year, what this enabled us to do was to give shareholders a material increase in distributions.
Excluding the Q4 structural cost actions, return on tangible equity was 10.6% for 2023, in line with our target of above 10%. And on the same basis, our cost-to-income ratio who was 63%, in line with our guidance for the low 60s for the full year as well.
As being accretive to future returns, the structural cost actions did not limit our ability to deliver a 37% year-on-year increase in total distributions, which now amounted to £3 billion. This £3 billion number for 2023 included a total dividend of £0.08 per share with the full year amount of the dividend of £0.053 being announced today and as well as a full year buyback of £1 billion, which we expect to start in the coming days, and that’s on top of the £750 million at the half year.
Tangible book value per share has increased by £0.36 year-on-year to £0.331. And our CET1 ratio was 13.8%, which is at the top end of our target range, which you will recall is 13% to 14%.
Overall, we view this performance as a strong foundation on which to build towards our revised financial targets over the next three years and which we announced this morning and we’ll talk about in greater detail in a few minutes. But before that, the financial report of these results.
Anna, over to you.
Anna Cross
Thank you, Venkat and good morning everyone. Turning now to Slide 5. I think I’m going to need the script. Thank you very much.
On a statutory basis, RoTE was 9% for full year 2023. This included the £0.9 billion of structural cost actions taken in Q4. And given the materiality of those Q4 charge over and above normal annual cost actions, I’m going to exclude it from the financial performance metrics today.
On this basis, 2023 return on tangible equity was 10.6%. I would note that there was no impact from the over-issuance of securities this year, but given the material impacts to income and costs in 2022, I will also use adjusted numbers as comparators.
Group profit before tax was £7.5 billion, down 3% year-on-year, and income increased by £0.7 billion, while costs were £0.2 billion higher, excluding the Q4 cost actions. Within costs, litigation and conduct charges were small this year at £37 million compared to around £0.6 billion in 2022. And operating costs, which include L&C, were up by £0.8 billion. Impairment charges were £0.7 billion to £1.9 billion, representing a loan loss ratio of 46 basis points, better than our through-the-cycle guidance of 50 to 60.
As usual, I’ll now cover the three drivers of our returns: income, costs and credit risk management. We saw a continuation of year-to-date income trends through the fourth quarter, resulting in total income up 3% at £25.4 billion for the year. Barclays UK income was up 5%, with growth in net interest income from rate increases outlaying lower card income and the transfer of UK Wealth in Q2.
Consumer cards and payments income grew strongly, up 18%, driven by higher margins and balanced growth in both US cards and the Private Bank. Corporate and Investment Bank income was down 4%, as lower volatility in markets and a record low banking wallet impacted the industry. This outweighed the tailwind from interest rates in the Corporate Bank.
On the next slide, you can see net interest income across the bank and that it grew by £2.1 billion or 20% year-on-year, driving a 44 basis point increase in group NIM to 3.98%. The biggest contributors to NII growth were CC&P and CIB, together adding £1.3 billion with around one quarter of the total NII growth coming from BUK. Going forward, whilst we will still report net interest margin, we will guide to group NII excluding the Investment Bank and head office. This is expected to be around £0.3 billion lower in 2024 at around £10.7 billion.
BUK is expected to be a point — approximately £6.1 billion of this, excluding the impact of Tesco, which I’ll touch on shortly. The benefits from the structural hedge are expected to be offset by continued product market pressures, particularly in the UK.
Turning now to the structural hedge in more detail. The structural hedge is designed to reduce volatility in NII and manage interest rate risk. As rates have risen, this has dampened the growth in our NII, but in a falling rate environment we will see the benefit from the protection that it gives us. It generated £3.6 billion in gross hedge income in 2023, up from £2.2 billion in the prior year. It also provides a high degree of confidence in the net interest income growth assumed in our forward plan.
To reiterate this, £3.8 billion of gross hedge income is already locked in for 2024 from the hedge investment we did through 2023, and this will continue to build.
Given trends in retail deposits, we do expect the notional balance to reduce in 2024 at a broadly similar rate to Q4 2023 before stabilizing in 2025. We have approximately £170 billion of hedges maturing over the next three years, and we expect to roll around three quarters of them over the period and with reinvestment rates remaining well above the average maturing yields of around 1.5% for the next three years. So, we do expect the reinvestment to outweigh notional hedge declines.
Turning now to costs on Slide 9. As guided quarterly costs through the year remained below the Q1 high point. This excluded the Q4 bank levy of £180 million, which was flat year-on-year and the cost-income ratio for the year was 63% and excluding the Q4 structural cost actions. Group costs of £16 billion were up £0.2 billion year-on-year.
Operating costs increased to support business growth and enhance resilience and control. For example, partner focused spend to drive balanced growth in US cards and Kensington mortgages in the UK as well as technology investments to support markets within the CIB. The impact of inflation was more than offset by efficiency savings.
Looking at the £927 million of Q4 structural cost actions in more detail now on the next slide. These were across three main categories; people, property, and infrastructure. Around half was in our head office and relates to our merchant acquiring and German consumer financing businesses as well as a Canary Wharf office lease exit.
A large proportion of this head office charge is goodwill and intangible write-downs and which will have no impact on capital and the other charges are spread across the businesses. We expect the overall payback to be just under two years with around half of the cost savings landing in 2024. You’ll hear later how these cost actions are a key pillar in our plans to improve efficiency and drive a more productive cost base going forward.
Moving on to credit on Slide 11. The impairment allowance was broadly stable at £6.3 billion and we maintained our balance sheet coverage at 1.4%. The total impairment charge for 2023 of £1.9 billion was up around £0.7 billion year-on-year, and the full year loan loss rate of 46 basis points was below our through-the-cycle guidance.
As we expected, this included a higher Q4 loan loss rate of 50 points, driven by an increase in US cards. US cards was also the largest component of the full year charge of £1.5 billion in CC&P.
The full year Barclays UK charge was around £300 million with a loan loss rate of 14 basis points. We continue to see conservative consumer behaviors across all our UK portfolios, and we do expect the loan loss rate in BUK to increase over the next three years as we grow unsecured lending.
I’ll go into more detail on the US cards impairment on the next slide. Our US cards portfolio credit trends are in line with the broader industry. The US consumer bank loan loss rate is elevated in comparison to recent periods as we build our impairment reserves because of an increase in delinquencies.
Write-offs are low, but we do expect them to increase during 2024, which is why we’re building the reserve now. As a result, our US cards coverage ratio stands at 10.2% on an IFRS 9 basis, and when calculated on a US accounting basis, the CECL coverage ratio of 8.2% is in line with our US cards peers. The portfolio remains high quality with 88 of the book above 660 FICO.
We do expect the impairment charge to remain elevated through the first half of 2024 and then to reduce in the second half. Overall, I’d expect the charge for 2024 to be below the 2023 level, and we’re guiding to a 400 basis points loan loss rate through the cycle.
A brief word on Q4 performance on the next slide before I take you through the businesses. Profit before tax excluding Q4 structural cost actions was £1 billion, down £0.3 billion. Income was down £0.2 billion year-on-year at £5.6 billion, the second best Q4 in the last five years after 2022.
This was driven by a reduction in non-NII, partially offset by an increase in NII, whilst operating costs were broadly stable. Impairment was around £50 million higher at £0.6 billion with the higher Q4 charge in CC&P from US cards, partially offset by a lower Barclays UK charge.
Moving now to the business performance starting with Barclays UK on slide 14. RoTE was 19.7% in Q4 and has been consistently around 20% every quarter this year. Total income was £1.8 billion with net interest income stable at £1.6 billion and a £0.2 billion reduction in non-NII year-on-year. This reflected the transfer of UK Wealth business in Q2 and a number of one-offs. We would expect non-NII to revert to a run rate greater than £250 million per quarter going forward.
The NII generated a NIM in BUK of 307 basis points for Q4 and 313 for the full year. We said at Q3 that our 305 basis points to 310 basis points guidance. We’re sensitive to the level and mix of deposits, and the deposit trends that we saw in Q3 slowed materially in Q4.
Deposits were down £2.1 billion compared to the reduction of £6.6 billion in Q3 as the pace of deposit outflows and migration to higher savings rate slowed. The other NIM drivers played out broadly as we expected, and you can see these on the chart on the right-hand side. The structural hedge continued to be a tailwind to NIM, although a more modest 7 basis points in Q4 due to lower swap rates and a reduced hedge roll in the quarter.
Bank rate effects turned negative in half two, reflecting pass-through in pricing and mortgage churn continue to ease. We also saw a positive contribution from treasury in the other category, as we flagged earlier in the year.
Looking forward to 2024, we are guiding to NII for Barclays UK of circa £6.1 billion compared to £6.4 billion in 2023. We will have a building tailwind from the hedge roll. However, in the short term, consistent with our industry expectations, we do expect this to be more than offset by some further reduction in deposits but at a slower rate than in 2022 and a net reduction in mortgage. This excludes the impact of the Tesco Bank acquisition, which I’ll summarize on the next slide.
The acquisition accelerates our intention to grow unsecured lending in Barclays UK, which we will discuss in more detail later. The transaction involves the acquisition of £8.3 million unsecured lending balances, roughly half credit card receivables and half unsecured loans, and approximately £6.7 billion of customer deposits. This will result in £8 billion of RWAs in completion, which is expected to be in half two.
Given the uncertainty around this timing, our 2024 guidance does not include the impact of the acquisition, although it is reflected in our 2026 plans that we’re announcing later today. Once completed, we estimate initially generating NII of around £400 million annualized and growing from that level. And as we complete the integration, costs will be somewhat elevated, but they should be broadly neutral to the cost — group cost-income ratio.
And as usual, following a portfolio acquisition, we also anticipate elevated impairment initially under IFRS 9 but again expect that to normalize. As a result, we forecast a slightly reduced BUK RoTE in 2024, but once integrated, the business will have an attractive RoTE profile accretive to the group RoTE over time.
Turning now to Consumer Cards and Payments. Continued growth in US cards receivables and Private Bank client balances drove a £0.1 billion increase in CC&P total income year-on-year. US cards balances grew to just over $32 billion, up to $2 billion in Q4, reflecting seasonally higher year-end spend.
Client assets and liabilities in the Private Bank grew by £4 billion in the quarter to around £183 billion with most of the growth being in invested assets. This is a positive trend for the future, but the initial growth is in assets under supervision, which does attract lower fees.
CC&P RoTE was 2.6%, reflecting the impairment build in US cards I’ve just talked about. And this will be the last time we report the CC&P segment as we start to disclose our US Consumer Bank and our Private Bank and Wealth Management businesses separately.
Moving on to the CIB. CIB income of £2.4 billion was impacted by lower year-on-year global markets income. The Q4 market environment had lower volatility in markets and subdued industry activity for banking. Investment Banking performed relatively well in this context, up 13% in US dollars and up 36% on Q3 with DCM outperforming the market and offsetting continued lower activity in ECM and M&A.
We maintained our banking market share in 2023 whilst we repositioned the business in a record low year for the industry wallet. Markets income was down 14% in US dollars, against a record Q4 comparator for us, whilst our business mix also affected us.
Corporate lending income was materially down on Q3 at £40 million, primarily due to leverage loan finance marks of £85 million. Underlying corporate lending income was stable.
Transaction Banking deposits were also stable whilst income fell slightly versus Q3. Whilst deposit migration continues, this was at a lower pace than earlier in the year. And as a result, we are now again rolling a portion of the structural hedge related to corporate deposits.
Looking at markets in detail on the next slide. There were several factors driving our performance in markets this quarter. Similar to Q3, both our business mix and the record comparator contributed to FICC income being down 22% year-on-year in dollars.
Lower volatility in UK gilts compared to Q4 2022 and an industry-wide slowdown in rates and credit impacted Barclays more than our peers. And conversely, the market rebounded in securitized products where we currently lack scale. Equities performed broadly in line with peers up 3% in US dollars year-on-year.
Looking at the longer-term trends in markets over the last four years, our share in income has been consistently higher than the previous three. And our income now includes a greater proportion of financing which, as we’ve said before, provides greater stability to our overall markets income.
Turning now to the capital funding and liquidity metrics on the next slide. We continue to maintain a well-capitalized and liquid balance sheet with diverse sources of funding and a significant excess of deposits over loans.
Looking at capital in more detail on slide 21. We finished the year with a CET1 ratio of 13.8%. The announced £1 billion share buyback will take us to 13.5%, in the middle of our target range. We generated 18 basis points of capital from earnings in Q4 and just under 150 basis points over the full year, both of which exclude a circa 20 basis points impact of the Q4 structural cost actions.
Excluding the reduction due to FX, the £6 billion increase in RWAs reduced capital in Q4 by 23 basis points. We’ll say more about our RWA flight path over the next three years later, but I want to address two main headwinds here. The first is a move of our US Cards portfolio to an Internal Ratings-Based or IRB model.
We continue to make significant progress towards at least 85% of credit risk RWAs being IRB, which is the level required by the PRA for IRB bank. This move results in an expected increase in RWAs of around £6 million from half2 2024. We don’t expect any further material impacts from model migrations from current portfolios beyond US cards.
The second headwind is Basel 3.1, which we have quantified publicly for some time. The PRA’s recent policy paper was constructive, and we’ve also worked through some refinements and mitigations. Furthermore, our previous Basel 3.1 guidance included an element for US cards RWAs, which has been superseded by the IRB migration. The aggregate impact of these factors means a materially lower impact from Basel 3 on implementation. And given this lower estimate, the total effect of the two headwinds is broadly aligned to the previously guided day one impact of Basel 3.1 towards the lower end of the 5% to 10% of group RWAs.
Furthermore, as more risks are captured in Pillar 1, we would expect some offsets in our Pillar 2 requirements. On this slide, we’re illustrating the drivers of the RWA increase from implementing IRB for US cards. When applied to US cards, our IRB models generate greater risk weight density versus standardized models. And the key driver is that the models include 2009 financial crisis, stress loss assumptions despite current and expected experience being materially less adverse.
Under the US Basel 3 end game treatment, we expect our peers in the US to also experience a capital increase, although noting that these rules are yet to be finalized. There will be further details on planned migration in the US consumer bank presentation later on.
So to summarize, we delivered on our financial targets in 2023. This, along with our strong capital position, enabled us to deliver a material increase in distributions to shareholders. It also represents a strong foundation on, which to improve over the next few years.
I’m now going to take the Q&A. Given the time constraints we have, please, can I ask you to limit yourself to a maximum of two questions per person, and please stick to the full year results topics. There’ll be plenty of time to discuss the investor update later on. And if you could please introduce yourself, as usual, not least I’m blinded by lights, so I can’t actually see you very well. So thank you.
Question-and-Answer Session
A – Anna Cross
Alvaro?
Alvaro Serrano
Hi. Alvaro Serrano from Morgan Stanley. A couple of questions, please. On the markets performance in Q4, you’ve touched obviously on the drivers behind it. But I wonder in the guidance you’ve given for 2024, what kind of environment are you factoring given it’s proven to be pretty volatile? And maybe the general environment for CIB, how you’re seeing it and what you factored it in that, how sensitive that 10.5% in the environment.
And related to the Tesco slide, I mean, it does look pretty profitable. But maybe when you’ve discussed Tesco and what the discussion was with head of the Board, how did you compare that acquisition versus potential topping up your share buyback that you would have been able to announce otherwise? Thank you.
Anna Cross
Okay. Thank you for that. So thanks for both questions. So in terms of the markets environment, I’m not going to give a trading update at this point. But what you will see later on is that the assumptions that we’re making about both the markets and the banking wallet are very reasonable actually. We’re not expecting an increase in the market’s wallet in particular in 2024. So we believe they’re reasonable assumptions. And actually, that leaves the actions to grow revenues largely in our hands, and Venkat and Adeel will talk about those later.
In terms of Tesco, we will be talking later about our desire to grow lending in the UK and unsecured lending in particular. Now many of you have commented on the fact that we’ve lost market share in unsecured over the last few years. And actually, what Tesco does is it allows us to accelerate and secure the plans that we would otherwise have pursued organically. And we believe that we can make those investments and fulfill the distribution plans, not only the ones that we’ve announced today, but the targets that we are giving ourselves over the next three years. So we’ll balance shareholder returns with investments but in our high returning businesses.
Okay. Next question, please. If I could go to Joe, please. Thank you. If you’re beyond the first row of tables, I really won’t be able to see you.
Joe Dickerson
Thank you. It’s Joe Dickerson from Jefferies. Just a quick question since we’re sticking to the Q4 here. This other element of the UK NIM keeps on rearing itself. So that was a favorable nine basis points quarter-on-quarter. Do you expect that to smooth out over 2024, this kind of volatility from the other aspect? And I suppose related to that, what are the market indicators we might be able to look at to see how that line is moving? Because it’s been pretty material now for — off and on for some quarters.
Angela Cross
Okay. So just to remind you, what’s included in that other. So two things really, basically any other product other than deposits and mortgages. So to the extent that we’re seeing cards or, indeed, our SME lending moving around, you’re going to see it flow through there but also treasury. So our NIM, remember, is an all-in NIM, some of our peers have a banking NIM, which excludes those treasury impacts. Really, what’s going on in the fourth quarter is a reversal of what we talked about a year ago. And as such I don’t expect that that impact to reverse as we go into 2024. So it’s really a reversal of the previous impacts in most material form. Thank you. Okay. Can I go to this corner, please?
Guy Stebbings
Thank you. It’s Guy Stebbings form BNP Paribas Exane. One on UK mortgages and one on US cards. I think you said in your remarks earlier that you’re going to see a net reduction in mortgage balances in the UK, excluding the Tesco acquisition. It just seems a little bit odd given some of the improving dynamics within that market from a volume perspective, in terms of the data. So I just wanted to check assumptions there. Also, some peers have talked better new lending spreads in 2024 versus 2023? And then on US cards, it’s quite a step up in capital requirements from that model change. Just interested to hear if that changes your views at all in terms of the appropriate pace of growth for that business, or was this something that was always going to happen at some point in time? It’s just particular timing? Thank you.
Angela Cross
Thank you, Guy. So the mortgage market through 2023 and actually as we enter 2024 has been somewhat dominated by refinancing activity. So it’s pretty skinny margins, still attractive but skinny. And it tends to lead to a negative net in the market, which is what we’ve seen. So we’re calling out nothing more than that, really, that the trends through the tail end of 2023 have been towards negative net. And similarly, that matches up with, I would say, the broader macro trend around deposits, where with QT and a sort of more constricted money supply, we’d expect deposits to fall. So it’s really that, that we’re calling out in BUK, a contraction in the market in those two larger products, which we would expect to reduce our net interest income expectations before ultimately we see the balance sheet start to grow, and we’d expect that in the second half of 2024.
Your second question, so I’m not going to comment too much on the strategy of the cards business because we’re going to come to that. But we obviously always knew that we were going to have to go through an IRB conversion for US cards. We typically update the market when the quantum becomes clear and when the timing becomes clear. And that’s become clear to us in Q1 of this year. Why are we updating you now?
As I said previously, we included an estimate for it contained within our Basel number. Actually, the way things have turned out, it’s a bit bigger, it’s a year earlier, but conversely is offset by some of the updates that we have on Basel. But later on, Denny will take you through some of the ways in which we expect to specifically counter at this. Okay. Thank you.
Ben Toms
Good morning. It’s Ben Toms from RBC. Just back to the NIM, if that’s okay. Your NIM for the full year came in above expectations. Can you just talk a little bit about the deposit dynamics you saw in Q4 and where they were better than you previously expected? And then into 2024, I think you talked about deposits, expectations for the deposit balance to continue to fall. Maybe just about how you would extrapolate Q4 into 2024? Thank you.
Anna Cross
Thank you, Ben. Yes, we ended the year with a Q4 NIM of 307, bringing the full year to 313. You might recall at Q3, we said we expected to be between 305 and 310, but that was largely dependent on deposit dynamics. And actually, it might be good to go to Slide 15, if we can because it might be helpful for this question. We said it’d be largely dependent on deposit dynamics, and if we saw a replication of Q3, we’d be at the top end of that range. And by my math, that’s around 296. We ended up at 307 and the biggest driver is really that movement that you can see on the slide, where the deposit pressure in Q3 was 16 basis points and the deposit pressure in Q4 was 7. And that’s really because we saw a stabilization of deposits across Q4. And I think that comes sort of in two ways.
Firstly, customer behavior, customer migration really slowed down. And secondly, we saw a stabilization in pricing as the rate environment settled. So as a result, it was a markedly different deposit — deposit environment. Now clearly, we take that forward into 2024, noting those macro trends. And I would say, also noting that Q1 and Q2 tend to be fairly active as a deposit matter just because of seasonal effects, so paydown of tax, et cetera, but also because of the season. But in the second half of 2024, I would expect this deposit activity to slow down and perhaps a little. And of course, we’ve got that ongoing impact of the structural hedge.
So as we go into 2024, I think it’s fair to say perhaps there’s a bit more NIM stabilization than we might have expected. But we expect downward pressure on the balance sheet coming from both deposits and mortgages. And we’d expect to start growing the balance sheet again really towards the back end of the year, particularly, for example, through organic card growth in the second half of 2024. And of course, none of that includes Tesco, and we’ll update you when we know the completion date.
Okay. Where next? Rohith?
Rohith Chandra-Rajan
Thanks. Good morning. Rohith Chandra-Rajan, Bank of America. Thanks for the color on FICC. Just in markets, the equities business, looks like it’s been struggling with market share for about the last 18 months or so. So I was wondering, if you could give us a little bit more color about if there are particular product areas that have been more challenging relative to the peer group. And then secondly, just on — back on capital. You seem very confident that it’s just US cards where we’ve got model updates. Why do you not expect them anywhere else, because that’s already been completed? Or you think the risk weightings on the other models are in the right place?
Anna Cross
So on equities, actually, performance is fine in the fourth quarter. Nothing I’d specifically call out. Adeel is going to talk later on about a couple of specific product areas, where we want to do — where we have a bit more focus on going. So I’ll let him pick that up then. But there’s nothing — there’s nothing stand out. There’s nothing particular that I would call out for Q4.
On the capital point, as I said before, it’s a requirement for IRB banks to get to 85%. The eagle-eyed amongst you, if you look in the Pillar 3, I forgot which table, but it might be 28, you’ll be able to see that actually post-US cards, we get to around 67%. The step between here and full compliance is largely around the wholesale models. And actually under standardized, the wholesale models do a pretty good job of having the right weights against counterparties to reflect what would otherwise be an advanced treatment.
So on wholesale, which is our only remaining big movement to make, we are not anticipating a significant movement in RWAs. And of course, outside of cards, you’d expect a movement from standardized to advance to actually reduce the RWAs. It just doesn’t in particular with cards. And our UK cards book is already IRB-compliant. So this brings the US cards book up in alignment with that. Okay, Andy. I think, Andy, you might be our last question in the interest of time.
Andrew Coombs
Good morning. It’s Andrew Coombs from Citi. Two questions, please. First, on the UK, we talked about the net interest income, which came in notably ahead of consensus, of course. So in the UK, net interest income, we’ve already talked about and came in notably ahead of consensus expectations. But on the flip side, the non-net interest income came in below expectations. I know there is the transfer of [indiscernible] there. Are there any other one-offs you’d like to call out in the non-NII in the UK?
And my second question, a similar vein. The corporate revenues in CIB, again slightly lower in the quarter, anything you’d like to call out there in terms of leveraged finance, marks or hedges or anything else in that line item? Thank you.
Anna Cross
Okay. Thank you, Andy. So on the non-NII in UK, as you pointed out, it has changed structure because we moved UK Wealth into Private Banking and Wealth, and we did that in Q2 of 2023. The other thing just to call out is, previously, we’ve seen relatively lumpy debt sales go through that line in the past. Don’t expect that going forward. We’ve got a forward flow arrangements. So it drips through the P&L in a much more gradual way.
In terms of the one-offs across Q3 being positive and Q4 being negative, they’re all too small really. There’s nothing I would specifically call out, which is why we’re trying to be helpful here and give you some guidance to help you model it going forward and saying that we expect it to be above 250.
And on the corporate lending line, clearly, that does include the costs of our SRT and it does include the cost of the portfolio hedges. But really, the only significant point in the current quarter is £85 million of leveraged loan marks that we took in the quarter. I wouldn’t call anything else out specifically. I’d say that underlying corporate lending income is broadly stable from where it’s been over the last few quarters.
Okay. And with that, I will close the full year part and invite Venkat to pick up the strategy update.
C.S. Venkatakrishnan
Thank you, Anna. Right. So now we come to the strategy update part. It’s been 10 years since our last Investor Day. A lot has changed in the world since then. A lot has changed at Barclays. So today, what we do is we present our vision for the future. It’s a vision of a better run, more strongly performing, higher returning bank. It’s a vision of a Barclays, which encompasses a potent collection of businesses and capabilities. Each is strong by itself. And together, they are mutually beneficial and reinforcing.
It’s a Barclays, which is appropriate to a changing and multipolar world, one which values a UK based bank. Equally, it is a Barclays, which seeks to deepen and broaden its role in the UK even as it engages with the world from London. As I say, we are very bullish on the UK as a place in which to do business and from which to do business.
Importantly, it is a vision for Barclays that is committed to generating strong financial returns and distributing them to shareholders. In my two years as CEO, I have worked very closely with my colleagues and the Executive Committee, outside of it and with the Board, examining the path on which we have been, the direction we need to take forward. And what you will see in here today are the results of that work.
We are creating a simpler, a better, a more balanced bank, words, which I will come back to later. It’s dedicated to higher returns for its investors, and how we do that is equally important. It’s a vision anchored in ambition — measured ambitions, I call it, and it’s driven by disciplined delivery. And as I said, it’s harnessed to our home here in the UK.
So we’ve embraced this plan of measured ambition, measured confidence. We start actually with very strong foundations. Over 20 million UK retail customers, and that is before Tesco, and we bank a one-fourth of UK corporates. In the US, our credit card business has a further 20 million customers.
In our Investment Bank, we’ve built leading global markets and banking businesses, which are at scale today. I repeat, at scale today, delivering for our clients at a time when many competitors have pulled back and, in fact, some still continue to do so.
For a long time, fixed income has been the calling card of Barclays. We are number three in credit and joined first fixed income financing. Our investment bank has led landmark transactions. And importantly to me, we were the top UK investment bank in 2023. This is a title to which I feel we all always must aspire.
I said that we did an investor update 10 years ago, and Barclays has changed since that time, in fact, changed substantially for the better. We’ve strengthened the back financially, improved its capitalization and are now leaner.
We reduced our headcount by about one-third over this period and our footprint more than 50 countries then to 38 today. We’ve exited non-priority businesses in Africa, in Asia, in European retail banking as well as commodities, and there are two more in advanced stages of discussion.
We’ve reduced our RWAs by about 20% in this period, strengthened our CET1 ratio by 4.5 percentage points to 13.8% at year end, as we just spoke about. And at the same time, unfortunately, we have incurred about £16 billion on litigation and conduct issues and costs.
To me, this is a very, very disappointing number. And it is a stark and serious reminder as to why it is so important to run a bank well. And at the heart of running a bank well is what I call running it in a consistently excellent way. It is the surest way we have to preserve our reputation, protect our bank and all our shareholders.
Over the same period, we have reset our financial performance, particularly in the last three years, delivering return on tangible equity above 10% since 2021 and distributing £7.7 billion to shareholders in that period, which is 35% higher than the prior seven years put together. And while this has been an improvement, it is not enough. And indeed, our shareholder experience needs to be better. We have listened, we have heard and we will do even better. So how will we do even better? At one level, I want Barclays to be renowned for excellent operational performance. To me, operational performance and financial success are two sides of the same coin.
Operationally, we have worked to what I call this new standard of consistent excellence for over 1.5 years, looking to reduce complexity, harnessing technology, promoting strong risk and controls and aiming to deliver a better customer experience. We need to continue to do this.
Financially, we need to drive towards higher returns from our businesses while improving our efficiency. As I will talk about, we will invest RWAs in our higher return in consumer and corporate businesses while maintaining the RWAs and the investment bank broadly stable at their current absolute level.
As you will hear, the Investment Bank RWAs will shrink in real terms as they will have to self absorb the impact of Basel 3.1. Crucially, we are targeting higher, more predictable shareholder distributions. And lastly, we will have clearer financial reporting, which will allow you and us to mark our progress more easily.
So what will this plan deliver? First of all, improvement in RoTE from 9% statutorily in 2023 to 12% and above — to greater than 12% in 2026. Second, we plan to distribute at least £10 billion to shareholders between 2024 and 2026, and this is about 50% of our current market capitalization.
Third, we are putting a cap on the RWAs in our Investment Bank, reducing its share of RWAs from 63% in our current CIB construct to around 50% by 2026. And to me, these are the three important parameters and numbers that we’re focused on.
How will we do this? Over the next three years, we aim to make the bank simpler, run it better and make it more balanced. What does simpler mean? It means, first of all, a simpler business structure and then one that is organized and operated in a simpler way. I’ll spend some time on this slide.
From today, we will run Barclays through a business structure that, as I said, delivers greater accountability and transparency in reporting to investors. And there are three messages I’d like to bring out on this slide. One, why is this a simpler structure; two, why do we have each of these five businesses; and three, why do they fit together, okay?
The structure is simpler because even though we go from three units to five, this reflects the way in which we serve our customers and clients and it increases the transparency on our performance. We will no longer report either consumer cards and payments or the corporate and investment bank in their current construct. Instead first, we bring private banking and wealth management at Barclays into one unit and we report this separately from the US Consumer Bank, which contains our specialty credit card partnership business in the US. From the old CIB, we have created the UK Corporate Bank, which serves midsized corporates in the UK. And this will be managed and reported separately from the Investment Bank, which now comprises global markets and investment banking. The investment banking part also includes our international corporate bank, which serves multinational corporate and institutional clients under one roof.
As part of our effort to become a simpler business, we’ve also considered the strengths and weak opportunities within our portfolio. As a result of that, if you look at what is in gray, we are in advanced discussions on the sale of our German consumer business and our Italian mortgage book, and this will complete our exit from European retail outside of the UK.
We are also evaluating options for our UK merchant acquiring business, which I will talk more about later. So the first point was the five businesses. The second point is how do we think about each of these businesses? We are at scale in Barclays UK, we are at scale in the Investment Bank, and we are a scale in the UK Corporate Bank. Our focus is on improving each one of them. Some parts will need to grow and they will.
In the Private Bank and Wealth Management space, we are very profitable, as we show you, but we need to scale further. And in the US consumer bank, we are on a journey to scale while mentioning our specialist — maintaining our specialist focus, which must be more profitable. And that includes better management of capital and the lower cost to income ratio, and we’ll talk about that.
Finally, why does this collection of businesses fit together? The way we think about it is either they have a UK focus and/or they bring synergies to the bank. For instance, if you take the US consumer bank, it has client synergies with the investment bank but also with our US cards capability as our Tesco mortgage — Tesco Bank transaction shows. And given that we have in that transaction entered into a partnership program, which is, in fact, the focus of our specialty business in the US. Further, the US consumer business diversifies investment bank in the US stress test CCAR.
Lastly, we’ve announced management changes this morning for our five businesses. They reflect both the promotion of the next generation of leaders for our important businesses as well as a rotation within Barclays to broaden the experience of some of our existing business heads. So Barclays UK will be run by Vim Maru, who ran the equivalent business at Lloyd’s, and we look to him to apply his experience with Barclays UK.
The UK Corporate Bank will be run by Matt Hammerstein, my colleague who has run Barclays UK for over half a decade and is now ready to step into this new challenge. His deep experience in the UK makes him an opportunate and fit person to run this division.
Private Banking and Wealth will be managed by my colleague, Sasha Wiggins, who has served as both my Chief of Staff and managed our public policy effort most recently. She has her career anchored in our Private Bank before she ran our business in Ireland, and she brings the knowledge and the profile and the connectivity within the bank to achieve this ambition successfully.
And our Investment Bank will be run by Adeel Khan as Global Head of Markets and Cathal Deasy and Taylor Wright, who remain Co-Heads of Investment Banking. Stephen Dainton, who co-ran Markets with Adeel, is appointed President of Barclays Bank plc and Head of the Investment Bank management.
My colleague, Paul Compton, who’s been with us on the Executive Committee for eight years, will step back from his current role as Global Head of the CIB and become Chairman of Investment Banking, speaking and working with our most critical clients. The US Consumer Bank continues to be run by Denny Nealon. These business leaders or all members of the Barclays Executive Committee, and they will report to me.
So, that was the structure. Equally important in running the bank in a simpler way is how we operate them. We removed 5,000 roles in 2023. We are also repositioning about 30% of the people from our common platform, Barclays Execution Services, which we call BX. That’s about 20,000 people. And we are driving that — moving them into the businesses driving closer ownership, greater accountability, and speed of execution.
We are focused on technology, which is a big driver of simplicity. 75% of our workload so far has been moved to the cloud with a plan to get this to 85% to 90%. We expect to decommission a further 450 to 500 legacy systems on top of the 400 that we have decommissioned to-date with a much greater focus in the future on buy versus build.
So, I said, first, a simpler bank and then a better bank. What does better mean? Having the simpler business means we can focus on delivering better performance for our customers and clients and as well as improving — delivering an improved financial performance for you, our shareholders.
And we managed to do it in these ways. First, to better returns. As you have heard, we aim to deliver greater than 12% RoTE by 2026. To do that, we will continue to generate consistent high returns Barclays UK, the UK Corporate Bank, and Private Banking and Wealth, while investing more in these higher-returning businesses.
At the same time, we aim to improve the investment banks RoTE from 7% in 2023 to be in line with the group target of above 12% by 2026. And in the US Consumer Bank, we are also targeting an RoTE of for 2026, in line with the group. So, up from the 4% in 2023, and building back towards the levels of RoTE, which we have delivered previously.
So, we are generating higher group returns by a combination of delivering higher returns from businesses which need to improve and allocating more core capital to businesses that have consistently generated higher returns, and we expect them to continue to do so.
The second part of running better is to continue to invest selectively. We have spent £300 million on cost efficiency and revenue growth and protection in 2023, and this number is increasing to £500 million by 2026.
And while we continue to invest selectively in the investment bank, the proportion that goes to consumer-facing businesses will grow to 70% and the absolute amount will double. We are getting capital resources, as I said, and investment resources.
Better income is not just higher income, but better quality income. And we aim to grow our total income to around £30 billion by 2026. Today, we already have a balanced mix of NII and non-NII, which is relatively resilient through rate cycles.
But if you look at the bottom of this chart, you see two parts: retail and corporate and financing. We consider these two to be more stable income streams and they have grown by about 35% since 2021. And the proportion from these more stable income streams will be about 70% of the bank’s total income by 2026. This slide reflects the anticipated effect of the announced acquisition of Tesco Bank and the planned disposal of our German cards business.
Lastly, and very importantly to me, happy and satisfied customers are the sine qua non for any enterprise. And we need to improve our customer experience and outcomes. I mean, to illustrate this in the UK our Net Promoters Score ranked 8th among 12 leading banks. This is not good enough.
We aim to improve the customer experience by investing in it deeply, and making it not just a point of focus, but a point of ambition and a point of pride. Our investments across all businesses are aimed at operational excellence and client satisfaction. As I said at the start, they are the same thing, and it’s the same side of one other side of the coin of financial performance.
So we spoke about simpler. We spoke about better and we spoke now I’m going to talk about balanced bank. And what does it mean? It means a more balanced allocation of RWAs with more capital deployed to our highest returning opportunities and it also means a more balanced geographical footprint, more concentrated in the UK and in the US.
We will continue to add discipline on how we allocate capital both across the bank and within the businesses of the bank. Of the £50 billion which we now expect an RWA increase between now and 2026, we intend to allocate about £30 billion to our three UK businesses: Barclays UK, the UK Corporate Bank and Private Banking and Wealth Management.
Now this includes the about £8 billion in RWAs in the Tesco Bank acquisition, which we announced 10 days ago. Of the £20 billion in RWA increases are allocated to the U.S. consumer bank, about £16 billion is driven by the changes in regulation that Anna spoke about earlier.
Investment Bank RWAs as I have said will be relatively stable and, in fact, shrink in real terms because they are absorbing — we are absorbing in the investment bank, the impact of Basel 3.1. Over the medium-term, this will rebalance RWAs between our consumer and wholesale businesses and will support more consistent and higher returns.
As I have said, the investment bank is both very competitive and at scale. Our prior CIB construct accounted for about 63% of the group’s RWAs. The newly segmented investment bank accounts for about 58%. And as a result of the rebalancing of the group that we’ve announced today, it will reduce to about 50% by 2026.
Further, as I’ll talk about later, we will recycle capital dynamically to the highest returning areas within the investment bank, and I’ll talk about that in the next presentation. And we do that so that it can grow income without needing more capital, improving productivity and returns for the group. Taken together, all of this delivers a more balanced bank.
Now, coming to geography, I said earlier that, we feel very confident in being a bank that operates in the UK and from the UK, and it is time to grow in our UK market. We have been UK-centered bank for 330 years. We are still transatlantic with an important presence in New York. But the UK is a great place to run a scaled banking franchise. The economy has remained resilient. The legal and regulatory environment is extremely strong and trusted. And for our international businesses, people want a UK counterparty. Taken together, operating out of London, we aim to be the UK-centered leader in global finance.
So in summary, we aim for stronger returns, greater shareholder distributions and operational excellence. They all go together. We will do so by having a simpler structure, better operation and financial performance and a more balanced business. So I repeat the words I said earlier. On the one hand, simpler, better, more balanced that’s the type of bank. On the other, we get there with our approach of being disciplined, consistently excellent in our operations and risk managed in a way that will deliver enhanced returns for our shareholders. So what I will do now is turn it over to Anna to talk through what all of this means in financial terms for our shareholders in more detail. Anna?
Anna Cross
Thank you, Venkat. As you’ve heard, our new three year framework sets out more ambitious financial targets, it’s going already, and meaningfully higher our shareholder distributions. I’m now going to take you through what underpins these plans. We start from a strong foundation, having delivered RoTE above 10% for three years now, excluding the structural cost actions taken in the last quarter. Our objective is to deliver RoTE above 12% in 2026 as we grow and generate further efficiencies. Along the way in 2024, we aim to deliver returns of greater than 10% whilst we reposition the organization and navigate the changing macroeconomic environment.
Our plans to 2026 include the announced acquisition of Tesco Bank and the planned disposals of the German consumer business and Italian mortgage book, where we are in advanced discussions. I do anticipate that these planned disposals will reduce RoTE in 2024. So on an underlying basis, I expect we’ll deliver around 10.5%, broadly flat to 2023. But this inorganic activity focuses our businesses for RoTE improvement beyond 2024.
So in executing these plans, we are focused more on what we can control. And over the coming slides, I’ll talk you through the drivers of RoTE across income, costs, impairment and why we’re comfortable with the assumptions that we have made. But before I do though, I would like to cover the impacts from the cash flow hedge reserve on this slide.
With a year-end value of negative £3.7 billion, it is currently a drag to tangible book value per share. As we expect its value to increase going forward, we’re confident that our tangible book value will increase from the year-end position of 331p per share. And whilst mechanistically, it creates a drag on routing. It’s worth remembering that its movement — that movements in the cash flow hedge reserve don’t impact our ability to distribute capital.
So, turning first to income. So what underpins our nearly £5 billion of income growth? First, a tailwind from our structural hedge; second, some reasonable assumptions in the investment banking wallet; and third, the deployment of RWAs into areas where we have a credible opportunity to grow. So the plan includes the capital effect of £30 billion of RWAs deployed into high-returning UK business, and we will focus that on areas where we are, frankly, underrepresented. For example, we’ve been traditionally been underweight in high-value mortgages. Our acquisition of Kensington provides us with the capability to expand in specialty mortgages and drive higher margins.
In our UK corporate bank, our ratio of loans to deposits is very low and much lower than our peers. In UK cards, we have lost ground and aim to recover it. And clearly, the acquisition of the Tesco business accelerates and secures our plans in this respect. As a reminder, we hedged the return from rate-insensitive deposit balances and our equity, and in doing so, we smooth our income profile through rate cycles, reducing interest rate risk.
Given that we are at the point in the cycle where rates may have peaked and are now expected to fall, it acts as support and stabilizer. We have around £170 billion of hedges maturing over the next three years at an average yield of 1.5%, significantly lower than current swap rates. The expected NII tailwind is significant and predictable. £8.6 billion of aggregate income is already locked in over the next three years. And in addition to that, reinvesting around 3/4 of the £170 billion at current swap rates would compound over the next three years to increase structural hedge income in 2026 by £2 billion versus 2023.
Turning now to the assumptions that underpin our investment bank. Venkat and the Adeel are going to take you through how we plan to improve our RWA productivity and reallocate capital within the investment bank overall to generate higher income and returns. But it’s very important to us that our growth in the investment bank is driven more by the execution of our own initiatives than by the market wallet. So we are not assuming that the market wallet returns to the highs of 2020 and ’21. In fact, our plans assume that the market’s wallet is broadly flat to 2023, and the investment banking wallet reverts to the 10-year average from last year’s decade lows.
Going forward, we do expect higher income from the investment bank. Of course, managing costs is at the heart of what we control, and I’m now going to explain how both the efficiency programs and the changing shape of our investment spend deliver a more efficient and profitable bank. I gave a breakdown of our structural cost actions earlier. And to date, we’ve used efficiency savings to offset inflation. Now we expect these to more than offset inflation, bringing us capacity for business growth.
The first £1 billion of savings lands in 2024, including payback from around half of the Q4 structural cost actions and a further £1 billion of cost efficiencies is expected through to 2026. And it’s really important to stress that the efforts will not end there but continue to benefit our businesses beyond that point. We would expect in our business growth cost to flex in line with income. So overall, we’re targeting a cost-to-income ratio in the high 50s by 2026, improving from 63% in 2023.
Given the income target of £30 billion by 2026, we’d expect costs to be higher in absolute terms versus 2024 at around £17 billion. So spend on regulatory change has been very intense in the run-up to Basel 3.1, and we anticipate that this will peak in 2024 and then fall to a more normal level as material projects complete. This will give us the capacity to invest more in income growth, efficiencies and returns without increasing our total investment spend.
And on the next slide, you’ll see how these actions will improve efficiencies in each of our businesses. We expect to drive better cost income ratios across all of our divisions and not all of them, however, will be top quartile compared to peers by 2026. Whilst the leading cost efficiency is a goal for all of our businesses over time, for some of them, we don’t believe it’s a credible ambition within this plan period.
Barclays UK and the investment bank fall into that category and together represents some 70% of the cost savings we’re expecting. And whilst the 2026 targets will take us more in line with the top quartile of peers, they don’t represent the scale of our ambition, and we’re committed to driving further efficiency savings beyond that point.
In BUK, our ongoing transformation program has been successful in streamlining and digitizing, but there is more to do. And you’ll hear more on how the identified savings will offset inflation and facilitate growth. In the investment bank, we spent about £3 billion since 2021 to sustain and grow future income, and around two-thirds of that is in market technology whilst the focus in banking has been more on people. And we will now monetize the investments. So in the future, we aim to self-fund further investments, and total costs are expected to rise only modestly from 2023 levels.
Turning now to our risk positioning. I explained earlier that we plan to increase RWAs in Barclays UK, UK Corporate and Private Banking and Wealth by an aggregate £30 billion. This is a substantial shift in capital allocation and will reflect significant growth in lending across all three businesses in the planned period.
When considering the associated risk, it is essential to understand where we start from in balance sheet terms. We’ve grown lending between 2019 and 2023 by £29 billion but that’s through mortgages at low LTVs and lending to corporates over which we have significant loss protection through risk transfer trades.
Our unsecured lending has fallen despite US cards growth. So, at this point in the cycle and as inflation continues to fall, we see an opportunity to reestablish our position in lending in the UK and unsecured in particular. And because of where we start, we’re comfortable that we can do that within our existing risk appetite whilst maintaining our 50 to 60 basis point loan loss rate through the cycle target.
In Barclays UK, as we grow, we expect the normalization and loan loss rates towards 35 basis points, consistent with the 2019 level. In the US Corporate Bank, we expect the loan loss ratio of about 400 basis points through the cycle as we grow a more diversified portfolio and optimize our credit mix, still prime but not exclusively super prime like our LI files.
And finally, as we grow our UK corporate bank lending book, we’ll maintain our diversified portfolio, including our long-standing prudent approach to commercial real estate. And we’ll continue to use significant risk transfer protection where appropriate, and I expect a loan loss rate of about 35 basis points.
Over recent years, we benefited from our diversified business model through a range of macro environments. And this diversification has provided us with relative stability to RoTE during the 2020 to 2023 period that we’ve just experienced.
For example, in 2022 at the onset of the pandemic, our global markets business supported our performance when elevated impairment charges impact to the rest of the group. In 2023, we’ve seen a weaker investment bank income and decreased volatility and lower deal activity. But in this environment, our consumer and corporate businesses have provided ballast to group returns.
We believe there’s a natural offset built into our diversified business model by income and by geography and further supported by the stabilizing effect of the structural hedge. And reflecting this, we are confident that we can deliver consistent returns in a range of scenarios, providing a floor to our ambition. And on this slide, we’ve provided you with our macroeconomic and market assumptions, which we view as realistic.
The next few slides describe how our drive towards higher and more predictable returns come together for our shareholders. We have a clear hierarchy for capital allocation. In order of priority, first, how much capital do we need to run the bank, taking into account regulatory changes including Basel 3.1.
Our 13% to 14% CET1 ratio range remains unchanged with sufficient flexibility and appetite to operate within the range and absorb headwinds.
By doing so, we’ll deliver for our investors, our customers, our clients and our colleagues regardless of the environment. Our next priority, having maintained our target regulatory capital is to our shareholders, and going forward we expect to generate a greater amount of free capital for shareholder distributions.
And third, we will balance this thoughtfully as we invest selectively in our higher-returning divisions, resulting in a more profitable RWA mix over time and a better bank for our stakeholders. We set a high bar for investment returns relative to the importance we place on shareholder distributions.
In 2023, our 9% statutory RoTE delivered more than 125 basis points of CET1 capital accretion. By 2026, with higher returns, we expect this to grow above 200 basis points. We expect meaningful capital generation over the next three years. Taking into account capital demands from regulatory change and investment in higher-returning businesses, we expect to have meaningful free capital supporting our distribution plan on the following slide.
We have distributed a total of 7.7 to shareholders over the past three years compared to £5.7 billion over the preceding 7, and we expect this to increase further through to 2026. We’ve made one step change. And as you’ve heard today, we plan to make another and return at least £10 billion to shareholders between 2024 and 2026. And this is in addition to today’s announced full year final distribution.
Including those distributions, the total would be at least £11.8 billion by 2026 and represents approximately 55% of our current market cap. From this year onwards, we plan to keep the total dividend broadly stable and grow dividend per share progressively through lower share count. Over the past three years, we’ve reduced our total number of shares in issue by around 13% and do expect further reduction from the higher planned share buybacks from here.
So to summarize, there are three key points of reset in today’s targets. First, we’re targeting a RoTE of above 12% in 2026, up from 9% statutory in 2024. Second, we expect this improved profitability to support our plans to distribute at least £10 billion to shareholders between 2024 and 2026.
And finally, the proportion of the RWAs in our investment bank to the rest of the bank will reduce to around 50% by 2026. We have also set ourselves some supporting targets, which allow us and you to track our progress. We expect to grow our income to around £30 billion by 2026 with more stable income streams growing by around 15% and maintaining a high-quality mix.
We aim to improve our cost-income ratio to the high 50s as we balance future investments with further efficiency savings and capitalize on the cost actions we’ve taken already. And we maintain a 50 basis points to 60 basis points loan loss rate guidance as we grow our loan book within the existing risk appetite, all the while maintaining a solid foundation and operating across our 13% to 14% CET1 ratio range.
Now I’ll hand back to Venkat.
C.S. Venkatakrishnan
Thanks, Anna. So to summarize this first part of the presentation, what is the investment case for Barclays? As I said, we have very strong foundations. We have a high returning UK retail and corporate franchise, which complements our top-tier global investment bank with scale in our home market in the UK and in the US.
We manage our capital in a disciplined way, growing our higher returning divisions, while improving RWA productivity within the investment bank. And over the medium-term, we will rebalance our capital allocation between and across our consumer and wholesale businesses, and we do this in order to support more consistent and higher returns to our shareholders.
So from a strong foundation of double-digit returns over the life of the plan, we plan to deliver over 12% RoTE by 2026. And I think this reflects both ambition and realism. We are well-capitalized, have deep liquidity, sound risk management. And when you combine that with consistent and improved profitability, we believe it enables a higher return of capital to you, our shareholders. And we plan to return at least £10 billion, as Anna said, to shareholders between 2024 and 2026. This is our vision for a better run, more strongly performing and higher-returning Barclays.
So I will now open for question and answers, for which we have about half an hour assigned. Please limit yourself to two questions per room that we can get around as many of you as possible. As always, please introduce yourself, and there will be more time for Q&A after the business presentations.
Question-and-Answer Session
A – C.S. Venkatakrishnan
Alvaro.
Q – Alvaro Serrano
Thank you. Alvaro Serrano from Morgan Stanley. Again, just a couple of questions on, I guess, capital allocation and distribution. The disposals you’ve earmarked, Germany, sort of, the mortgage — Italian mortgage business and the payments merchant acquiring, is this about, sort of, simplifying the business, sort of redeploying capital to sort of your core regions that you identified? And/or how much do you need this to further £10 billion distribution? I guess where I’m coming from is, there’s quite a bit of headwinds, as Anna pointed out probably earlier than expected on credit card. Do you need these disposals for the £10 billion distribution to happen? How much are they dependent? And should we think about the £10 billion to be a progressive number? Or is it back-end loaded? Or can you maybe talk about that? Thank you.
A – C.S. Venkatakrishnan
Yes. So let me answer the first part about the actions and then Anna can cover the capital piece. We’re doing this to simplify our business, right? We — in fact, one of these things was identified many years ago is something we wanted to do in Italian mortgages. And German cards, we are not the best holder for that asset. It’s a non-core to us. So that’s the reason to do it. Obviously, if you gain some benefits from it, you can deploy it elsewhere. But the primary purpose is the simplification of our business and concentrating on our core capabilities.
A – Anna Cross
Thank you, Alvaro. Let me pick up the capital detail there. So, if I just take the businesses in turn, As Venkat said, the overall objective is simplification. Our German cards business is not large in scale. You’ll see from our disclosures, it’s about €4.5 billion.
And as we noted earlier, we would expect that to be — the disposal to be slightly accretive to capital but not an enormous number given the scale of the business. Our Italian mortgage business, we are relatively well-progressed. We might expect some negative impact on RoTE from the sales I called out previously, but we expect that to be capital-neutral. So, it’s actually neutral to our distribution plans.
And in relation to the payments business, we’re not required — or our distribution plans do not require any action on that business at all. As we said, we’ve got it under a strategic review as we consider in future options for it. But we don’t require a sale of that business to fulfill the £10 billion.
As it relates to specific timing, the way I would think about it is we’d expect 2024 to be broadly similar to 2023 and we’d expect distributions to increase over time at the point when Basel 3.1 is behind us and when the high returns for the businesses start to come through. So, I would say a gradual increase over time.
Okay, I was going to say Jason has his hand up for longer. So, let’s go to Jason.
Q – Jason Napier
Thanks. Good morning. Jason Napier from UBS. Two — thank you — and perhaps following on from comment you’ve just made. The impact of disposals in the round, all of the potential things that you’re trying to get done on this year’s RoTE, I appreciate Italy probably is a loss-making endeavor but there may be gains elsewhere. So, what have you got in the RoTE guide for this year for that?
And then secondly, the targets for 2024 quite clearly suggests no negative operating leverage from all the moving around that’s going to take place in the balance sheet and so on.
And while I appreciate a lot of the guidance you’ve given for 2026, as you look at consensus for 2024, it’s at least 10% lower in profit terms than you’re suggesting you’ll achieve today. Is there any color that you can provide on the place where you think the market is too pessimistic? Thank you.
A – Anna Cross
Yes. Okay. So, I referred to it in my scripted remarks. We’d expect the impact of inorganic to be around 40 or 50 basis points this year. So, that’s why we’ve distinguished between our statutory target of greater than 10 and indeed the number that I called out on an underlying basis, which is around 10.5. And as a RoTE matter, the biggest moving part in there is actually Italian mortgages. But as I said, no not expected to have a significant impact on capital. So, hopefully, that’s relatively clear for 2024.
In just of 2024, I would say as I look at consensus, obviously, our plans are above their — my expectation of cost is broadly an element with consensus, so I think around 16.5%, I would be happy with that number. There is clearly a difference in terms of income expectation. I’d also call out, it looks like there’s a difference in terms of impairment expectation as well. Remember, before I talked about US cards perhaps being a little bit heavier in the first half of the year and then falling later. So, I think they’re probably the biggest difference is, Jason.
Q – Raul Sinha
Thank you. It’s Raul Sinha from JPMorgan. If I can have two as well, please. The first one is just one of the key highlights of your plan is the growth ambition both in the UK and outside the UK. And I guess if we look at the evolution over the last few years, the change here seems to be the ambition to grow the UK and in particular, I guess, a change in the UK unsecured and cards strategy. I think, Anna, you described it has not a change in risk appetite. And I was wondering if you could elaborate that. Because from the outside, it might appear that you are changing your risk appetite to take more risk in the UK. So that’s the first question.
The second question is, there are plenty of people out here who are more — who reward cost-cutting plans and might be less optimistic on the revenue environment. So, just on that point, the 1.7 billion of business growth-related costs, could you give us a little bit more color in terms of how permanent those costs might be, and if you ended up in a macro environment, which is slightly different from what is in your plan, how much of that 1.7 billion can be flexed quite easily? Thank you.
A – C.S. Venkatakrishnan
Shall I take the first part, Anna on the risk and then you take the second part on cost. So within our broad risk appetite, which is the way we generally look at not just what our expected losses, our credit losses are, but also internal stress tests and so on. This fits well in. In a sense, it’s a reversal of a risk position, which the former Chief Risk Officer took a few years ago, where post-Brexit and in COVID, we were extremely cautious on the UK consumer, rightly or wrongly. And equally, there was a structure which we had in our credit card business that favored longer bigger balance transfers.
What we’re talking about now is something that does not emphasize that. It is a generally higher quality, but broader expansion of unsecured lending. And this is both in loans and in cards. The Tesco portfolio by our judgment has a very similar credit profile to our own. And so it is within the broader risk limits. Obviously, you’re taking on more risk by doing it than if you didn’t, which is the point of your question. But we think on a risk return basis, it’s going to be accretive, which is why — of course, why we do it.
A – Anna Cross
Thank you, Venkat. I think also, Raul, it’s really important to remember where we start. So in BUK, I think over the last 10 quarters or so, we’ve had a very, very low loan loss rate. We’ve consistently — under consensus consistently under 30 basis points. So we’re starting from an extremely low base rate. And actually, we’ve already started acquiring. We stepped back into the market in ’22. It just takes a while for that lending to season through, which is what we’re observing now.
On your second question around costs, our fundamental objective here is the RoTE, it’s 12%. And therefore, as far as Venkat and I are concerned, the primary target is the cost-income ratio target. The £17 billion is the number that falls out, okay? And that £1.7 billion is the business growth that we would expect to flex.
Now most of that is run the bank cost, there’ll be an element of performance costs in there. And of course, we will seek to flex that if the income is either up or down relative to that £17 billion, and that’s why we’re calling that number out specifically. As to your point around the macro though, I’ll take you back to the point where we feel like we’ve made realistic assumptions. We’ve got a well-diversified bank. So we’re confident in our ability to grow. We’ve set out today for you the expectation of that, which is 30 and 17. Obviously, over time, we’ll flex both of those numbers, but the RoTE is the heart.
A – C.S. Venkatakrishnan
And when we’ve looked at this plan through the range of economic scenarios Anna put out, we think it’s fairly robust. Nothing is ever totally in variant, but it’s fairly robust to changes in that. Okay. Sorry. And then Joe and then Andy, all right?
Q – Ben Toms
Ben Toms from RBC. You mentioned at the beginning, if you wind back 10 years and look at the last investor update and since that point in time, we’ve had £16 billion of litigation and issues. Going forward, could you just give us kind of what you’ve penciled in to the plan for conduct and litigation going forward, given that was probably quite a big surprise versus last time. And maybe comment on whether there’s anything in there for motor finance.
And then secondly, in terms of the ambition for the investment bank and keeping RWAs flattish, 50% of total group by 2026. Can you maybe just give some color on which product lines are the ones in the investment bank that will probably bear the brunt of absorbing the Basel 3.1 RWA inflation?
A – C.S. Venkatakrishnan
Can I just say on the second half, why don’t we wait until we have the investment bank presentation? You’re going to get more detail on that. And then if you still have a question, we can on the first half, Anna, if you want to take it.
A – Anna Cross
So as we plan going forward, obviously, we plan for an ongoing and relatively low level of litigation and conduct costs just purely as a technical matter if we were planning for anything in a concrete way or if we expected anything in a concrete way, then we’d be providing now and calling that out in today’s results. So that’s how we think about it.
As it relates to motor finance, we exited the business in 2019. Up to that point, we had a relatively low single-digit market share. There’s clearly the FCA review ongoing. There are a number of potential outcomes from that. And so at this point, we have not sought to make a provision both because of that range of outcomes, but also because we haven’t received a material number of complaints. So that’s the reason why we haven’t provided at this stage
A – C.S. Venkatakrishnan
Sorry, Joe, go ahead. Then I’ll come back there.
Q – Joe Dickerson
Hi, thank you. It’s Joe Dickerson again from Jefferies. Just on the — looking at the optionality in the UK merchant acquiring business. One, I’m supposing there’s nothing in the 2026 targets that suggests completing something on that front, correct me if I’m wrong. And then two, is this something that you’re looking at more from a cost efficiency standpoint? Or what would be the rationale there? Is it that it doesn’t fit with the integrated overall payment solution, et cetera?
A – C.S. Venkatakrishnan
So let me again go to the second part first and then Anna can come to the first part. We’ll talk more about it. But in a nutshell, what it is, is about a form of partnership to deliver better technology more efficiently on acquiring to our clients. We intend to remain in the full ecosystem of payments, which includes acquiring. It’s just we think that part can be delivered better in partnership with others, and that’s what we’re talking about. And so we’ll come back to that.
A – Anna Cross
And Joe, just in relation to the 2026 targets, we’ve included merchant acquiring within those targets, partly because we are exploring options at this point in time, we haven’t made any decisions. But also, as Venkat pointed out this business in whatever form is critical to Barclays, the Barclays ecosystem, and in particular, to our corporate and SME clients. So either way, it’s a service that we would expect to have.
A – C.S. Venkatakrishnan
Yes, Andy. Andrew Coombs
Q – Andrew Coombs
Thank you. Andrew Coombs from Citi, again. Two questions. First, big picture strategic question. If you believe the press is part of Project Minerva, originally, there were some bigger strategic decisions considered the US cards, the equities business, et cetera, et cetera. Obviously, what you’ve decided today is more kind of shifting things around the edges and reallocation of capital as opposed to any larger exits or divestments. So if you could just elaborate on thoughts there, if there was anything you consider anything you ruled out, that would be helpful.
Second question, number-specific question on Slide 48, our favorite hedge roll. I missed this initially, but in the footnote, you say you only plan to roll three quarters of the hedge, which would suggest quite a sizable decline in the notional. So why is that? What’s the rationale there? And if you could also just provide us with the split of where the income is recognized now on the new segmentation basis. So two-thirds will be in UK, but how does the other one-third split between IBAN and corporate UK?
A – C.S. Venkatakrishnan
So, what I said at the start, Andy, was that in two years as CEO, working with my colleagues, working with the Board, we’ve obviously taken a broad and deep look at the bank and the direction which we want to take. And your question was specifically about the investment bank. And it has been very clear to me from the very start that the investment bank, a, has been at scale, approaching scale, that the businesses which we have work fairly well together and are linked and are mutually reinforcing. We’ll talk a little about efficiencies which we can do within the investment bank, between banking and markets and even within markets. So I’ll come back later to that question about where are we getting our the efficiencies from when we come to the investment bank section.
But it’s equally important to recognize where we start from in the investment bank. There are many businesses in which we are not. And we are at scale for what we do. We are not in commodities. We are not in Asian equities. We are not in local emerging markets other than in India and a bit in Brazil and Mexico, actually Mexico. So there are things we are not in and we don’t plan to get into them. And if you even look at the last three or four years, the areas we have built are three and talk about it, areas of focus.
Financing is one of them where we’ve been steadily accreting market share. Equities has been one of them through prime, but not just prime; and securitized products because in the fixed income is the calling card of Barclays, as I said, and you can’t be in fixed income without being strong in securitized products. And we’ve always been good in origination and financing and what we are doing is building trading. So it is very conscious of the ecosystem in markets — and in banking, as we will talk about, it’s been debt capital markets heavy moving to equity and ECM. But it fits together. We don’t feel the need at the scale which we have and the footprint that we have to take any of the sort of more drastic actions that others have taken.
So let’s come back to US cards. I believe it’s a business of great synergy, as said, and it stands on its own two feet. It had a low RoTE print this year, but we’re going to talk to you about how we manage the capital change as well as how we — not just in some capital management but also cost management. So we’ll come back to that.
A – Anna Cross
And on the hedge roll, I mean, what that three quarters tells you is that we do expect continued migration and reduction in deposits called out the sort of broader macro effects and really we’re reflecting those. So that’s why we’re saying we — our assumption is that we’ll roll about three-quarters of it, and that’s what builds up the math that I referred to. As to where that actually lands, still two-thirds within BUK. The rest of it will be spread across UK corporate. There will be some in the investment bank both because of the international corporate bank, but also remember, the equity structural hedges allocated through RWAs and then obviously the private banking and wealth. So perhaps we’ll come back to you and others, Andy, with a bit more of a detailed split of how we expect to land in the future.
Q – Andrew Coombs
Thanks.
Q – Guy Stebbings
Thank you. It’s Guy Stebbings from BNP Paribas Exane. Building with you on the first of Andy’s question again around the outlook for the IB in the plan. I presume you had multiple iterations that you considered, and one of those perhaps you wouldn’t have constrained capital to the IB at all as you are in real terms here ex the regulatory changes. I’m just interested in that plan, how much incremental revenues you might have generated from the IB. Obviously, not looking for a number, but just in broad senses. And with that being the case, if you are constraining capital, I’m just trying to get a sense as to how much that could inhibit market share gains? Thank you.
A – C.S. Venkatakrishnan
So just as we — I said, we came to a conclusion very quickly that the IB was at scale. We came to a conclusion equally quickly that it was at the appropriate scale, right? And in fact, what we needed to get was capital efficiency, which is what we are doing. And that’s what we’re going to talk about. So in essence, the analysis didn’t go there. I didn’t think it needed to go there, right? Capital efficiency was what we thought we could get. And what you will see later is a plan that looks to get greater revenues with less capital. Right. Other questions, yes.
Q – Rohith Chandra-Rajan
Rohith Chandra-Rajan. And just kind of follow on from that, actually. If your revenue aspirations end up being more capital intensive than you currently planned for, how would you deal with that? Would you not go for those revenues and maintain your RWA expectations? Or would you try and cut costs further to compensate? Or would — I guess the other option is to change your distribution. So when you’re thinking about those options, what would be the ordering there? So that was the first one.
And then the second one was just, you’ve given us some very helpful information on how you’re re-segmenting the businesses. Curious to understand a bit more about how that changes the way that you actually run the business. So this essentially is a breaking out of subdivisions within existing businesses. So what synergies or improvements does that drive across the business? Is it just focus or is it something else?
A – C.S. Venkatakrishnan
Shall I try both?
A – Anna Cross
Yeah.
A – C.S. Venkatakrishnan
Okay. So I think when you look at the way we — Anna described the capital and the use of capital, she said there were three things. The first thing was to be a well-capitalized bank, and that is the 13% to 14%. The second thing was the shareholder returns, the £10 billion. And the third thing was after that, investments. If you look at the investments we’re making and have been making and we lay out in this plan, they are in businesses that are today returning in the high-teens or 20% and above. well above what most people would consider our cost of capital. So that’s basically the answer to your question, Rohith, that if we have that waterfall, we have the discipline that anything we are going to do is going to be above what is our accepted cost of capital. And so, I don’t foresee ourselves breaking from that waterfall, right? We’re going to be guided by it. That’s the first part.
On re-segmentation, and Anna, you should stick into both. But on re-segmentation, first of all, as I said, it’s guided by how we run our businesses and our clients. There are tremendous synergies, including synergies, which you might not easily anticipate. I spoke about the synergies between US cards and the UK cards business. Tesco is a 20 million credit card portfolio, 20 million is a lot of people to bring on to your systems. When we did GAAP, we did 10 million, right? So we clearly have an experience of a scale that, frankly, no other UK bank can match.
You’ll also see synergies between private banking and wealth and our corporate bank, private banking and wealth and our investment bank in terms of both products and clients and, of course, private banking and wealth and our UK banking network. We’ll talk about that and the corporate bank synergies to everybody else. So there are strong synergies, which we intend to exploit and continue to exploit as we go through this. And you’ll hear more about it in the afternoon, later today.
A – Angela Cross
I’ll just reiterate that the capital allocation priorities are very clear. On the second point, the way I think about it, we report how we manage, not the other way around. And we want to manage the business in a very client-focused way. And therefore, our reporting is changing in alignment with that. But we will still continue to generate the synergies that Venkat is talking about. We will still leverage common technologies and common services across our BX entity. So still very, very focused on keeping the firm connected with that consistency.
A – C.S. Venkatakrishnan
And when you think about that last point about common technologies and services, when you run a large bank today, as some of you who work in one now, there’s a lot of investment that you have to make. We spoke about some regulatory change. It’s models, it’s fraud systems, it’s all sorts of things, risk systems. And to be able to, in essence, spread it across many businesses is really important, right? So it’s a synergy in cost that people don’t often think about, but redeploying quantitative resources, redeploying databases and technology is a big part of it.
Other questions? All right. So we reassemble at 10:45. So there is food and drinks at the back. We’ll come back to our regular presentations. The ladies, is somewhere there and the gents is somewhere outside. Thank you. So we’ll see you at 10:45, about 20 minutes.
End of Q&A
[Break]
C.S. Venkatakrishnan
Thank you. All right. So we’re now going to begin with the discussions about the individual businesses. We’ll begin first with the Investment Bank and then we’ll go to U.S. Cards and Barclays U.K. And then I will come back to spend two minutes on — not two minutes, a few minutes, on the U.K. Corporate Bank and Private Banking and Wealth.
Later this year, you’re going to hear from the heads of those businesses in more detail. And then within the Investment Bank, Adeel Khan is going to talk about the Markets business. I will cover banking at a higher level. And later this year, you’ll hear from Kahil and Taylor in detail on banking.
So let’s begin with the Investment Bank. For over two decades, investors have been asking questions about the size and the importance of Investment Bank at Barclays. And you heard a little even today. Should we have it? Will it be competitive? Is it good for the U.K. to have an investment bank and more?
Let me be very clear. I am proud of what we’ve achieved. We have built a leading business, a globally competitive investment bank. As I’ve said, it’s performed very well. It is at scale. It is a critical part of Barclays, and will continue to be an important part of Barclays.
I’m equally clear that there is a lot more to do. Our investment bank has to be higher-returning, and relatively speaking, it has to become a smaller part of Barclays. As I’ve also said in answer to some of the questions, our Investment Bank is a focused business. We powerfully cover large sections of the global capital markets with deep client relationships.
And what we want to do is strengthen this position in our key areas of coverage. We aim to deepen our client relationships and to monetize the investments we have already made. And even as our investment bank grows in absolute income, we aim to hold our capital broadly flat to today’s levels.
And so importantly, therefore, we expect a higher RoTE from our investment bank. And we’re going to be more efficient in our use of capital, as I’ve discussed earlier. But the simple way to think about it, is that we are looking for the Investment Bank to grow and to contribute more while consuming less, to contribute more while consuming less and we’re going to show you how.
So what is the Investment Bank? We’ve changed that structure, as I mentioned earlier. And so going forward, its two businesses: Global Markets and Investment Banking. Together in 2023, they contributed £11 billion of top line revenue to the bank. The UK Corporate Bank was part of what we called the CIB, and that is now reported separately and I’ll talk about it later.
There is also an important business, the international corporate bank, which serves our largest corporate clients in the UK and elsewhere. It already works closely with our investment banking business but now will be managed, operated and reported as one unit. This combination of businesses will allow us to deepen our relationships with clients, both large cap and multinational corporates, which require access to the full spectrum of investment banking capabilities. And so that is beyond DCM, ECM and advisory into corporate lending and transaction banking.
The Global Markets business, which comprises fixed income and equities, remains the same. Important, of course, is how markets and banking cooperate and work together to deliver the entire suite of investment bank capabilities to our clients, and I’ll come back to that.
So today, the investment bank has strong foundations. As I said, with the scale and breadth to succeed amongst our largest global peers, and we are focused on our core strengths, which is very important. It’s diversified and has a stable top line, which I will take you through, and we have focused top tier businesses and have demonstrated strong risk and capital discipline.
The secret sauce in our investment bank is in our synergies. I’ll repeat it. The secret sauce in our investment bank is in our synergies. We are big enough to offer multiple sophisticated products to our clients, but both nimble and culturally driven to work closely across banking and markets to customize delivery and to create tailored solutions. And this nimbleness and cultural drive are really important.
In fact, we are renowned for the sophistication of our service, especially our fixed income and risk solutions for our clients. About 55% of our revenues come from the Americas, which is the largest financial market in the world, and which is why I believe we are the only known US domiciled investment bank that can consistently compete with the US banks and win.
This audience more than anybody else should appreciate the importance of a strong research franchise. And so I think you know us well here. We have many top research teams and we are maintaining momentum as a top five research house globally. We lead with data-driven content and help clients identify and adapt to changing thematic trends of the future, and these capabilities underpin our client relationships. And it’s an important ingredient in helping us grow our rankings both with our top 100 markets clients and with banking clients and you’ll hear Adeel about that in a minute.
So let’s go to financial performance. Looking at our financial performance over the last three years, what you will see is that our income has been relatively stable at around £11 billion, and I’ll talk a little about that. But RoTE has reduced from 14% three years ago to 7% in 2023.
Both RWAs and costs have risen as we’ve invested deliberately in the business. But what we want to show you now is how we will improve our RWA productivity, capture cost efficiencies and generate income growth by monetizing the investments, which we have already made. We aim for the RoTE of the investment bank to be in line with the group’s greater than 12% target by 2026 through three key levers: income, RWA productivity and cost — income, RWA productivity and cost.
So let me start with income. One reason why people have always questioned the value of the investment bank within Barclays is they think that it’s a volatile business. And up to a point, it is. There are parts of this business income that fluctuate with the markets and fluctuate with the economic environment. What we have been doing though is to construct a business that has greater stability through two things: one is diversification and the other is what we call ballast, businesses with stable income.
So if you look at the top-line, it has been in the £11 billion to £11.5 billion range since 2020 through changing, and some would argue, volatile market environment which include COVID, which include recent geopolitical instability.
So let me take those two things first. First, you take diversification. We get diversification between the volatility-related elements of banking fees and market trading revenues or what we call intermediation, the top two lines. And in volatile markets, trading revenues go up, deal volumes tend to shrink.
And in common times, the opposite happens. So this means a combination of the two more stable than for banks which have only one deal making or only have trading, right? That’s the diversification between the relatively volatile elements.
Then you come to the ballast, which is what you see circled at the bottom. And the first part of that is our financing income, the money which we make from lending to institutional clients against stocks, what people call prime, and against bonds, which we call fixed income financing.
It’s a business in which we have invested heavily over the last number of years. It’s technologically complex and it’s very sophisticated. You have to manage the risks well. And our income has grown from around £1.8 billion in 2019 to £2.9 billion in 2023. Adeel will talk about this in a moment.
The second source of ballast is our international corporate bank. That income has grown also. It’s helped, of course, by the rising interest rate environment. But in turn, it makes for a more stable top-line. So I said first is income. And you continue with income, and what you’ve got, as I said, is a scale business overall, but two businesses at slightly different stages of evolution and success.
In Global Markets, we’ve made significant investments in technology and capital and we’ve had a corresponding growth in revenues. What we want to do now is monetize the investments which we have made and continue and deepen our capital discipline. The bottom-line here is that the markets business is at scale, it’s well invested in, and it’s a counterparty of choice for the most sophisticated investors in the world.
The investment banking business is at an earlier stage of maturity. It has just gone through a repositioning under new leadership. We have to strengthen in DCM and in the UK and with financial sponsors — we have strength in DCM and in the UK and with financial sponsors, but we need them to broaden and we need to deepen.
We’re happy to focus here on RWA productivity, trying to move the business from being debt-heavy, which tends to be RWA-heavy to be more balanced across advisory and ECM, and fully integrate with our international corporate bank.
Anna spoke to you earlier about the income growth in the investment bank and how much of it is under control, is in our control. And on this slide, what I want to convey to you is that over half of our income growth is coming from initiatives, which we control. This means, of course, doing things better, because our team and client relationships can improve and deepen. And it is not arising from heroic assumptions about wallet growth or market share.
We expect high single-digit income CAGR through 2026, but over half of that comes from management initiatives in markets and banking, which Adeel and I will cover in more detail shortly. The remainder comes from a normalization of the industry wallet. But as you heard from Anna earlier, it’s not the industry wallet going from lows to highs, but it’s going from its currently low levels to more historically normal levels.
So the first lever was income. The second is RWA productivity. So moving to that second lever, what does RWA productivity mean? And why is it important? As you can see from the top left, as we’ve increased RWAs in the markets business, we’ve actually kept the ratio of income to RWAs relatively constant. This reflects capital discipline, which we need to continue by recycling capital continuously to higher returning opportunities. And it also benefits from the higher velocity of capital, which we allocate to markets.
On the other hand, the right hand side shows banking income over RWA, and this has declined over this period, which reflects the reliance on DCM in our current mix. As I mentioned, we have a plan to improve this, and I’ll cover this among the key initiatives in a moment.
Overall, we intend to increase RWA productivity by reallocating capital towards the higher returning international corporate bank, and that’s within investment banking, and as well as towards financing opportunities in markets. So income, RWA productivity, costs. And so the third important lever is costs. We have invested in a very planned and focused way in the investment bank, both in markets and banking, to the tune of about £3 billion in cash investment in the last three years.
In markets, it’s mostly been about technology. Investing in the modernization of our infrastructure not only simplifies our operations and reduces costs, it also drives improved stability on our platforms, which leads to better client outcomes. Remember what I said at the start. Technology excellence and client outcomes are the same thing.
In investment banking, of course, it’s much more of a human capital business. And what we’ve invested is in people with a focus of the infusion of talent in our focus sectors and products. Now, what we intend to do is to monetize these investments and grow future income with relatively modest cost growth expected across the investment bank. So this includes higher performance costs, given the higher income, which we have in our plan. We will, of course, continue to make focused investments in our client franchise, but we expect these to be self-funded by efficiency savings. Overall, we expect to deliver an improved cost income ratio from around the 69% we have now to the high 50s by 2026.
So, let me now take you through these two pieces, and Adeel Khan is going to begin — I’ll begin with investment banking and then Adeel will go to market. So in investment banking, I said that our markets and banking businesses are at different stages of evolution. What our markets business did three to five years ago has been paying off, and we look to do the same in investment banking.
So we start with some points of advantage. As I said, we are consistently number six globally. We finished this year over 2023 as the top UK investment bank, which is a position I always inspire to hold. We look more like a US bank than a European one. If you look at 66% of our revenues coming from the Americas and which is a much more profitable market than Europe.
I’ve also said debt and DCM is the calling card of Barclays, where we are number five globally. We’ve also ranked number five with financial sponsors and have established ECM and advisory practices, but we need to grow them, and I’ll describe that shortly. We intend to leverage our strength in DCM in several ways. We drive greater product penetration with clients, making existing capital allocated to our loan book work harder for us.
First, we aim to broaden the product relationship with existing clients, principally by a treasury-oriented products and services. Second, we will continue to provide sophisticated rates, FX and equity risk management solutions to our clients through ongoing collaboration with global markets. And these synergies are important. This kind of business is typically originated with investment banking clients, but designed and executed in our markets business. Adding incremental products requires minimal additional capital and provides attractive recurring revenues, as I’ll cover on the next slide.
Our international corporate banking business is already well established in the UK, where if you look at it, 92% of our UK investment banking clients, have corporate banking dealings with us. That number is far lower outside the UK, and we aim to increase that by fully integrating our treasury platform into the investment bank. The ICB generates high-quality income and about 80% of it is recurring, therefore, making it more stable and more predictable, and it is capital efficient, helping RWA productivity, which is an important area of focus for us, as I said.
We also need to rebalance our investment banking mix. We recognize clearly that we are overweight in DCM, and we are going to grow the proportion of our relative share in ECM and M&A, and we aim to do this in two ways. First, we have invested on the top right to upgrade talent in technology health care and energy transition. Over 60% of the hires for which we made in 2023 were in these sectors. And together, they represent — these sectors represent about 40% of the industry wallet in the last three years, and we are confident that they will continue to be important. We also have an opportunity to leverage our strong position with financial sponsored relationships, where we rank on par with our US peers and to do more, ECM and M&A with the same sponsor clients as our US peers do.
So to summarize on investment banking, we’ve got the products. We’ve got the client relationships. We’ve got the capability. What we’ve got to do now is to translate it into returns. And the bottom line in the Investment Bank is we expect to generate about £700 million of income growth by 2026 from management initiatives. We will do this by building our key share to the levels we had a few years ago in the ways in which I outlined, and by improving our income productivity to drive further returns.
I will turn over now to Adeel to talk about global markets, and then I’ll come back to conclude.
Adeel Khan
Thank you, Venkat. Good morning, everyone. My name is Adeel Khan. I run the markets business at Barclays, and I’ve been here for the last 15 years, a stat I’m incredibly proud of. So before I start, I think it’s important to set the stage. Over the last few years, we’ve all lived in an increasingly challenging environment. This has been experienced by a lot of few.
As Venkat mentioned, we’ve gone through a pandemic, a war in Middle East and Europe and also a unpredictable inflationary environment. So our clients have also experienced this and the increasingly need a more reliable partner. So with all of this in mind, our ambition for the business is fairly simple.
Number one, we want to be a consistent partner for our clients. And secondly, we want to drive stable double-digit returns for our shareholders. So how do we do this and what are our drivers for success.
Firstly, we won deep, broad client relationships within our business. Secondly, we want prudent risk and capital discipline within our businesses. And lastly, we want to transform our technology to drive better outcomes. So now I will run you through our plans for the next few years. But before that, let’s start with the numbers.
So on the top left, you can see in 2019, we produced £5.3 billion of revenues. Now we knew at £5.3 billion, we cannot produce stable double-digit returns or be consistent to our clients. So we embarked on a new strategy. And over the last four years, we have increased our average revenues by £2.2 billion. And today, we run a £7.5 billion revenue franchise.
Now we care deeply about the capital we use to produce these numbers. And last year, our income to RWA ratio was 6.2%. Now that is a little light compared to where we like to operate, and we have generally operated higher. Plus in periods of volatility, like 2020, we were at 8%, which means we serve as a natural hedge for group income.
Now over this period, we’ve also grown our institutional client market share by 200 basis points. In fact, since 2019, we have been the second fastest-growing client franchise among the major banks. Now if you look on the right, you can see that we have diversified ourselves across geographies, capabilities and businesses. Our regional footprint has a strong lean towards Americas.
As Venkat mentioned, we are the only non-US bank with scale access to the largest capital markets pool in the world. Our businesses are equally weighted among equities, spread and macro. And while individually, these revenue streams can be volatile depending on the operating environment, together, we think they are stable.
And lastly, we have grown financing. It is one-third of our revenues today. This is a stable and predictable income that allows us to be more strategic with our clients.
So in summary, when you think about markets today, it is a business with deep, broad client relationships. It’s also highly diversified, so it can produce stable double-digit returns. And lastly, it is at scale at scale to be competitive and a relevant player in the market.
Now Venkat talked about simpler, better and more balanced, I will walk you through the same journey and starting with simple. So for us, it’s very simple. Our client franchise is what drives everything. On the top left, you can see through an intense focus on our clients, we have been improving our client franchise. Today, we are a top five client franchise in global markets, in fixed income and in equities.
In fact, what is more impressive because you have US banks in the mix here is that we have grown our client franchise by one notch in markets, two notches in fixed income and three notches in equities. Within our client franchise, we have also grown our share with the top 100 clients by 220 basis points. And our growth and progress is not limited to that account base. We’ve made similar progress with the next 150 and the rest of our clients.
Now if you look on the right, you can see how many of our top 100 clients we rank top 5 with. In 2021, that number was 30%. We wanted to deepen our relationships with these clients. Why? Because they are large and they’re growing. They’re also more complex. So they like to partner with the same reliable banks again and again. And that brings more predictability and stability to our income. So we implemented an accountability framework with a lead client executive per account. And we figured out where we needed to lean in across the investment bank and the group versus asking for more. And today, through that framework, we have grown our number to 49. Now we will apply the same framework and intensity of coverage to grow this number further to 70 by 2026.
Now staying on the team of simpler clients are important. They bring us to business, but the stability of our platform relies heavily on how well we risk manage ourselves. On the left, you can see that we have broadly kept flat broadly stable VAR profile despite transacting much more volumes to our platforms. Over the last few years, we’ve also made a deliberate effort to move away from illiquid longer-dated type intermediation activities into more flow focused businesses. And so because of that today, we turn over 80% of our market’s cash balance sheet on a weekly basis. And this is what enables us to outperform in periods of volatility like Q1 2020 and Q2 2022. At the same time, 70% of our capital profile today is under two years, and that is how we recycle 20% of our intermediation RWAs every quarter towards higher returning opportunities.
Now on the right, you can see the bell curve of our income distribution, and you can see how we have shifted it to the right. In 2019, half of our trading days, half of our trading days sat in the £0 to £15 million bucket. Today, we have moved them all into the £16 million to £30 million bucket. This effectively means we have raised the floor on our income, and it also makes us more stable. In this process, we’ve also taken the number of our loss days or loss-making days from 16 to seven in 2023.
Now moving to the team of better. Let’s start with our businesses. Here, you can see the strength of our franchise. Our top five revenue rank businesses are 53% of the wallet today. So effectively, we are a top five player in half of the market’s wallet. This is a very large wallet of nearly £100 billion. And within these businesses, we have a strong market share of 11% today.
In 2019, we had 8% market share. And over the last few years, we have grown that, and we’ve held a double-digit market share now for the last three years. Also today, 72% of our income comes from these established capabilities, which again means we are more stable.
So how did we achieve this? Since 2019, we used our capital discipline and allocated them an extra five points of capital. And now five years later, their contribution to our revenues has increased by 12 points versus the respective wallet contribution only growing by two points. This tells you that there is strong evidence here that when we provide oxygen to our established capabilities, we can outperform the market.
Let’s take the example of our equity prime business, which Venkat talked about. In 2019, we were outside the top five. This is a business that requires a huge amount of infrastructure. And we know in order to finance a client, we must be able to execute clear, settle and asset service to collateral across all major global markets. So when the operating environment changed in 2020, we invested. And today, we run a top five franchise that actively competes with its US peers.
Now I’d like to make two final points on this slide. Firstly, the 11% market share we have here, this is in our established capabilities. We want to grow this further. This is where we have operating leverage.
And secondly, as Venkat mentioned, prior to 2019, we did make some very difficult decisions. We exited commodities. We exited parts of our onshore emerging market trading businesses. We exited parts of our Asia equity business, and that is what has allowed us and enabled us to be consistent to our clients for the last few years.
Now moving on to the rest of our franchise. There are parts of our franchise where we are not top five. We still have a healthy market share of 5% within these businesses. And we think about — when we think about these businesses, they are important to us for two reasons. Firstly, they help us maintain a stable ecosystem to our clients, so we can be consistent to our clients.
Secondly, they represent opportunities for us either because we have lost some market share or the operating environment is changing. For example, last year, in European rates and equity directives, we did lose some market share due to idiosyncratic reasons. But traditionally, these businesses have been very large for us because in rates, we have our Sterling franchise. We’re also a primary dealer in 17 countries. And our corporate derivative franchise through banking brings us large structural advantages. Similarly, in equity derivatives, we are one of the largest issuers of structured nodes. So over the last 12 months, we are addressing our platform gaps, and we have already allocated them the capital they need to regain their lost market shares.
Securitized products, is a different example. This is where the operating environment has changed. The life cycle here is you originate a pool of assets, you finance those assets and finally, you trade those securities. We have a top three origination franchise. We’ve built the top five financing franchise, but we did not trade these securities. So in 2021, when QT was starting, we realized there was an opportunity. So we invested in the product. And today, just as the operating environment is improving and our clients need us, our investment is starting to come alive.
Now these three opportunities together represent an extra £500 million of revenues for us, and just a 1% market share here gives us an extra £200 million of revenues. So given our historic market shares and the fact that our client franchise has stayed strong within these businesses, it gives us confidence that our plans are measured and prudent.
Now staying on the team of better, a common dependency across all of this is technology. Today, within our trading businesses, our clients increasingly experience us through our electronic offering and in our financing businesses through the stability and delivery of our platforms. Now this experience relies heavily on running a smooth life cycle of a transaction. And the life cycle of a transaction through pre-trade, pricing and post-trade has large dependencies on your technology infrastructure.
So our journey here started by simplifying our infrastructure. We started getting rid of legacy applications, legacy point-to-point feed, and we have now decommissioned 84 applications since 2021. Once we simplified our infrastructure, we started modernizing it. We started putting new applications in the cloud. We started containerizing new applications, and we also started creating more reusable applications.
So what happens once you have simplified and modernized your infrastructure, you start to become more stable and agile. And today, we run a much more reliable platform. Our outages are down by 78%, and that is something our clients care about deeply. At the same time, our breaks are down by 53%, and that is something our regulators care about deeply. And finally, now we are more agile. We are releasing more algorithms. We’re deploying product features quicker within our platforms.
So, why does all of this matter? Because eventually, we want better electronic platforms, because we want these businesses to play a bigger role in our revenues as their capital-light businesses. And you can see that our efforts are paying off. Today, we are ranked number one on London Stock Exchange, and we have grown our low-touch equity and FX revenues by 87% since 2019.
So finally, moving to the team of more balanced. We want to be more predictable and stable. So we did that by growing financing. Since 2019, through a very deliberate strategy, we have grown our financing revenues at a 13% CAGR for — from £1.8 billion to £2.9 billion in 2023. Today, they represent 36% of our markets revenues, a very stable 36%.
Now, why did we want to grow these revenues? Firstly, they represent stable and predictable income for us. Secondly, if you look at all the consolidation, AUM consolidation going on among clients, their financing needs are going up. This gives us an opportunity and enables us to be a much deeper partner with our largest accounts.
Thirdly, these are RWA efficient businesses that are secured lending businesses. So, we like the risk profile — the risk-weighted profile of these businesses. And lastly, there are huge barriers to entry here. So, to operate at scale, you require a huge amount of investment.
Now, our platform has been tested over the last few years here. Between 2019 and 2023, there were some very large moves in asset prices. And these moves happen in a very, very short period of time. That is the worst kind of operating environment you can have for this business. Despite all of that, we managed our credit and operational risks very well through this period.
Now, I want to share two more facts with you before I leave this slide that gives us confidence in our financing platform today. Today, we have a financing relationship with 96 of our top 100 markets clients.
Secondly, over the last — or since 2021, over 50% — more than 50% of £1 billion-plus hedge fund launches. These are large, very experienced hedge fund managers. They chose Barclays to be their prime broker at the beginning of their journey. That gives us a lot of confidence in our platform, but it also tells you that clients are trusting us at the beginning of their journey.
Now, to wrap-up, we will stay focused on clients. We want to further deepen our relationships by achieving a top 5 rank with 70 of our top 100 clients. We’re going to remain prudent around risk and capital management. We’re going to deliver an extra £500 million through a three select intermediation businesses, while maintaining momentum in our top five franchises.
We will complete and monetize our technology transformation, so capital-light businesses can play a bigger role. And finally, we’re going to bring more balance to our financing revenues by growing them by an extra £600 million.
Now, I’d like to finish by saying we have been executing a strategy that is working since 2019. We have been consistent to our clients. We have been a reliable partner to our clients. At the same time, we have the ability to produce double-digit returns regardless of the operating environment. So, the next few years are about executing the same strategy with the same precision and discipline that we have applied over the last few years.
Thank you. And now I’ll pass it back to Venkat.
C.S. Venkatakrishnan
Thank you, Adeel. So, I’ll wrap up on the Investment Bank. So, what you’ve heard from Adeel in the market side, and what you heard from me is that overall, we intend to improve the investment banks RoTE to be in line with the group target of about 12% — above 12% by 2026.
We recognize that this is a significant increase on the 7% last year. And I believe from what I’ve told you though, that and what you’ve heard from a deal, that this is a credible and achievable ambition built from the foundations we’ve developed. Our income growth target in this is a high single-digit CAGR, and it’s firmly predicated on initiatives which are within our control. And it monetizes investments which we have made in cost and capital, driving strong operating jaws and resulting in a cost-to-income ratio in the high 50s.
You have heard that we are limiting the proportion of the Investment Bank RWAs to the rest of the group at around 50% by 2026, as we allocate more capital elsewhere to higher return in consumer and corporate businesses. We can achieve this, while absorbing regulatory inflation within the investment bank, due to the capital discipline, which already exists in our markets business and a pathway to improving return on RWA in the Investment Bank.
And as I said at the start of this, we are looking for the Investment Bank overall to do more with less, keeping the cloud clients at the heart of what we do and indeed deepening those relationships with clients. We expect this plan to generate stable and attractive returns on a consistent basis, supporting our group targets and delivering value to our shareholders.
So I will now hand over to Denny Nealon to take you through the US Consumer Bank Presentation.
Denny Nealon
Okay. So, good morning, everybody. I’m Denny Nealon, CEO of the US Consumer Bank, a role I’ve held for the last four years. I’ve been in the financial services industry more than 25 years, having previously worked at JPMorgan Chase and Bank One and have been with Barclays since 2004. I’m excited to be here today and talk with you about the US Consumer Bank, a business that was previously reported within the consumer, cards and payments division.
I’ll focus my comments on three areas. First, I’ll provide an overview of the business, as well as some key US market characteristics. Then I’ll review our financial performance and key performance drivers. And finally, I’ll walk through our plan to achieve mid-teens road on a sustainable basis post migration to IRB capital rules.
Now, let me tell you more about the business. So the US Consumer Bank has been part of Barclays for 20 years, and we’re principally focused on providing credit cards to US consumers. We operate in what we call partnership cards, which is essentially a business-to-business to consumer model, where we partner with global corporations. Partners choose us to help them drive increased sales and customer loyalty through the co-brand or reward cards that we provide.
Focusing on partnership cards is a conscious choice that we made, which plays to our strengths in a market where we would otherwise have to invest significantly to build brand awareness. The strategy has worked well for us. We’ve grown significantly and are now the ninth largest issuer in the US and a leading partnership issuer. We have approximately 20 million customers across 20 partnerships and [Technical Difficulty]
Yes, thank you. Okay, so starting back with Slide 92. As you can see on this slide, we partner with 20 leading U.S. brands across multiple industries. And I already mentioned a few of them by name. A key point here, very strong relationships, many of whom have been with us for more than a decade and our historical renewal rate is about 90%. And importantly, this portfolio is very balanced by size without undue concentration risk.
That said, the current portfolio mix is heavily weighted to airlines. So we are diversifying our sector exposure. The addition of GAAP in a partner in 2022 was a noteworthy first step, which I’ll talk more about later.
So Slide 93 and now turning to financial performance from 2021 to 2023. First point, first I’ll point out that the 4% road he delivered in 2023 is clearly below our target level. I will explain the drivers of this performance shortly. But it’s important to state that this level of return is not representative of the strong underlying performance of the business.
We’ve grown net receivables by $10 billion, or 45% over the last two years to $32 billion. We’ve achieved that through a balanced mix of strong organic growth post-COVID and strong inorganic growth from the acquisition of the AARP and GAAP portfolios, with combined balances of close to $4 billion at acquisition.
Alongside balanced growth, we have also seen significant growth in income and an improvement in NIM to 10.9%, driven by the benefits of a higher interest rate environment, the addition of the GAAP portfolio, and normalizing revolve rates from COVID lows, and a steadily improving cost-to-income ratio, in part reflecting benefits of beginning to scale the business.
But offsetting these, the loan loss rate increased to 500 basis points as we built reserves for the expected rise in write-offs, which were coming off of historic lows consistent with those seen across the industry. In addition, new accounts were down significantly due to less travel during COVID, which otherwise would have matured and added to profitability in 2023. This, along with a large allowance build, resulted in a lower-than-normal RoTE of 4%.
Now, switching to the next slide, Slide 94, I’d like to use the remainder of this presentation to articulate why we are confident that we can deliver returns in line with the group target by 2026, even in the face of regulatory headwinds in the form of IRB and late fee legislation, and also give some color on the impairment outlook and why we think it will revert towards our historic long-term average in the future.
Now moving to Slide 95. We have a very clear path to deliver RoTE in line with the group target by 2026, which incorporates three elements. The first is the stabilization of consumer credit performance. Second, the specific actions we’re taking, which will improve performance by scaling the business, driving improved operational efficiency, and expanding margins, each of which I’ll talk about in more detail shortly. And third, it considers regulatory headwinds that we are actively working to mitigate. But first, it’s important to understand USCB’s track record, which gives us confidence that we can deliver on this plan.
If you move to Slide 96, please. As you can see from this slide, the business has a long track record of growth, returns, and prudent risk management.
In the nine years before COVID, the business delivered an average RoTE of 16%, helping the group achieve its return targets over that time. The RoTE performance since 2020 has been uneven, reflecting impacts from COVID, but given the recent balance recovery and normalization of customer behavior, we expect future performance to return to the more consistent pattern delivered between 2011 and 2019.
It’s also worth noting that we are making very deliberate investments to scale of business. New account originations incurred J-curve effect, principally driven by upfront marketing and day one impairment build, which dampens in year RoTE. That said, these annual new account vintages mature to RoTEs of greater than 20% over time.
This is one of the key reasons why scaling the business is so important. This J-curve effect will decrease significantly at greater scale with a mature higher returning back book becomes a larger percentage of the total portfolio. Additionally, greater scale has the added benefit of reducing volatility when we add new partners in the future.
Now moving to slide 97. We’re back up. Okay. Now building on the theme of USCB’s strong track record. What we wanted to highlight on this next page is how the business compared to other top 10 US issuers over the last 10 years, using delinquency rates as a proxy for credit quality.
And as you can see from the chart, we have consistently maintained our position within the peer group during the period. Even in the early and mid-2010s, when our average FICO score was a bit lower than it is today. And being positioned in the middle of the peer group is consistent with our partnership-focused model, where we balance the need to deliver resilient risk-adjusted margins for shareholders with trying to say, yes, to as many of our partners’ customers as we can.
While we’ve seen a recent uptick in 30-day delinquencies, this is expected as we are coming off historic lows during COVID, and as you can see, very much in line with industry trends.
We believe this 10-year period demonstrates two things: first, that we have demonstrated strong credit discipline over time; and second, that we have not taken on outsized risk to grow the portfolio at the rate we have.
Now let’s take a closer look at the drivers of impairment over the last few years. As previously mentioned, the recent normalization of delinquencies was expected and is largely a reflection of customer activity catching up from COVID lows.
While write-offs have been broadly stable, you can see that we’ve rebuilt loan loss reserves to cover the write-offs we expect in the future following the normalization of delinquency rates. While this positions us well for the future, the in-year impact in 2023 was significant.
Now looking ahead, we expect delinquencies to continue to tick up in the first half of 2024 and then to stabilize. The result is that we expect the 24 and 25 impairment charges to be below 23 levels and for our loan loss rates during those periods to be closer to our long-term average rate of around 400 basis points.
Importantly, we remain well-provisioned as evidenced by a strong total coverage ratio of 10.2%. As you can see, we’ve also provided our US legal entity CECL coverage rate of 8.2%, which is in line with US peers.
Finally, it’s important to note that we continue to feel encouraged by the health of the US consumer. Unemployment levels remain near historic lows, moderation in inflation is contributing to real wage growth. There are still healthy levels of excess savings and strong spend and repayment levels persist.
Now in line with the group, our plan to improve returns can be viewed through the lens of simpler, better and more balanced. And I’ll speak to these individually in a moment. But to summarize, we are looking to improve operating efficiency, scale and diversify the business, improve margins and optimize the use of our balance sheet.
Now, starting with simpler. As you can see from the charts, recent investment in the business has improved operational efficiency, but we recognize there’s more to do. We’ve invested to digitize the business and built the retail platform as part of the Gap acquisition, which will enable us to add new partners more efficiently in the future. This increased investment onboard Gap, combined with lower card balances and subdued income post-COVID, drove our cost-to-income ratio in 2021 to 60%, significantly higher than our long-term average. Since then, though, these investments have helped reduce the cost per average active account by 15% and contributed to a reduction in cost income ratio to 51% in 2023.
Now looking forward, as we continue digitizing, automating and scanning the business, we expect a further reduction in cost per average active account, contributing alongside margin improvements to a cost-to-income ratio in the mid-40s by 2026, broadly in line with our historic average.
On the left-hand side of the slide, we provide a few examples of what we mean when we say we can become more efficient and improve customer experience by digitizing and automating key customer journeys. Transaction dispute or rewards are two great examples of common points of customer friction, which today too often result in customers reaching out to our call centers. We can simplify processes like these that customers can self-serve through the device of their choice without ever picking up the phone. That’s simpler for our customers and more efficient for us. And we have similar opportunities on the colleague front and so are investing significantly to upgrade colleague tools and are leveraging automation to eliminate manual time-consuming activities.
Now, moving to better and more balance. We will also look to scale and diversify our business, targeting $40 billion in net receivables by 2026. That strong track record of growth since 2011, where we’ve grown receivables at an 8.5% CAGR versus a 5% industry average, gives us confidence that we can achieve this through a combination of organic and inorganic growth.
We see a large opportunity to grow in the retail vertical, and we expect the retail portion of the portfolio to increase from around 15% today to around 20% by 2026. And this will also help us rebalance our FICO mix to improve risk-adjusted returns. We also plan to recalibrate our risk-based pricing in response to industry-wide lead fee reductions. We expect that over time, this and other actions will fully offset any headwinds from these changes.
Now on the liability side, today, we’re about 60% funded by core deposits, which is a great low-cost way of funding our card assets. We are investing in new capabilities for our deposit platform, including targeted marketing to our partners and a tier-based pricing strategy, which should result in around 75% of funding coming from core deposits by 2026. Overall, we expect these actions to drive more than 100 basis points of NIM expansion by 2026.
Now turning to the shift to IRB capital requirements, which you heard Anna speak about earlier. The first point, I’d like to make is to reiterate that this is a PRA driven adjustment that is industry-wide and not US CV specific. There is no underlying credit problem that is driving this increase in RWAs. We expect US card issuers to also see an increase in 2025 under proposed Basel rules. But as you can see, the capital treatment for us under IRB is significantly more conservative than the current standardized model. This will impact us in the second half of this year with an expected RWA increase of around £16 billion or our risk weighted density equivalent increase of around 60%.
While this will have an adverse impact on returns, we’ve been focused on a series of actions that will reduce the impact and help deliver returns in line with the group target by 2026 and mid-teens returns over the long run. These actions include: re-optimizing credit line strategies and leveraging strategic risk transfer agreements to reduce capital requirements, enabling USA need to continue to grow but at a less capital-intensive rate.
So, to summarize, the US partnership market is very attractive with solid economics, ample room for growth, and require specialized capabilities and expertise that we have developed over the last 20 years. We have a proven track record of winning and growing partnerships, producing strong outcomes for our partners and customers and delivering strong value return for shareholders.
Although there remains some uncertainty with regard to the macroeconomic environment, we are well positioned. We have extensive experience managing credit through multiple cycles and are also well equipped to manage regulatory change. As you can see, we are outlining key targets for the business that underpin our commitment to deliver returns in line with the group target by 2026.
First, we will continue to scale the business and grow receivables to £40 billion. We will deliver a net interest margin of more than 12%, which represents more than 100 basis points of growth. We will drive cost-to-income ratio down to the 51% we saw in 2023 to the mid-40s, reflecting our long-term average. We will continue to manage credit risk prudently, and we will manage loan loss rate to around 400 basis points, also consistent with our long-term average.
On RWAs, we are taking action and expect 2026 RWAs to be around £45 billion, which represents an RWA density of around 145%. As we deliver upon these targets, we will be building momentum in the business that not only will deliver returns in line with the group target in 2026, but will generate increased confidence in our ability to achieve our long-term goal to deliver mid-teen roadies on a sustainable basis.
Thank you for your time today. I look forward to future opportunities to discuss the business deal. I will now hand over to Vim Maru, CEO of Barclays UK.
Vim Maru
Good morning, everyone. I’m Vim Maru, the new CEO of Barclays UK. I know many of you here today through my 20 years in financial services, and I look forward to getting to know you again in my new capacity. So let me take you through how Barclays UK or BUK, as we call it, is going to support the ambitions and targets that Venkat and Anna just set out.
As you know, BUK is our ring-fenced bank. It serves retail customers and small business clients across the UK. Barclays 330-year heritage helps to build deep customer trust and a strong brand position. Whilst our history gives us those foundations, our focus is on positioning the business for the future as a growing high-returning business, which delivers good customer outcomes. That’s about making BUK more efficient, investing in our client and customer relationships and growing through more tailored products.
Before I come to each of those, let me briefly remind you exactly what BUK is. BUK operates at scale in an attractive and sophisticated market. We have 20 million active customers. The depth and breadth of those relationships provide a robust and strong deposit base. That is the foundation of our lending businesses where we are a leading player in the mortgage, credit card and loan markets for individuals and small businesses.
Over 80% of our income is generated by net interest income, and we are committed to growing this through a combination of lending growth, asset margin enhancement and the structural hedge program that Anna mentioned earlier. That structural hedge program is a fundamentally important part of how we manage the business through an interest rate cycle.
The strength of our deposit franchise is the result of significant investment in focus over many years, irrespective of the rate cycle. That hedge helps ensure we can maintain investment in our customers, efficiency and asset growth. All of that underpins our plans to maintain a high RoTE performance. RoTE for the past three years has been around 18% or higher. We have been disciplined in the way we have delivered these returns with positive jaws in our cost-to-income ratio, low impairments through tight credit controls during the pandemic and a conservative funding profile with low loan-to-deposit ratio.
We know we have more work to do to drive more efficiencies and lower our cost to income ratio, which we aim to reduce to around 50% by 2026. Our prudent risk and funding profile means we have the capacity to grow lending whilst maintaining our discipline, thus enhancing our profitability.
So how do we intend to do that? Consistent with the group’s strategy, we are focused on making BUK simpler, better and more balanced. We will be simpler by investing in digitization, automation and technology, delivering material efficiencies. We will be better by investing in customer experience and our product offering, supporting the relationships that underpin our deposit franchise and creating opportunities to broaden these relationships.
We will be more balanced. We have positioned the business conservatively over the past few years. Now is the time to grow by winning back market share on the asset side of the business, particularly in unsecured lending and business banking. I’m going to spend a little time on each of those to bring them to life and how we intend to deliver.
On delivering a simpler BUK, we have invested significantly in transforming the business in the past three years. That combined with economic headwinds over the pandemic led to a cost-to-income ratio of 68% in 2021. Our investments and changes in the environment have brought that to 58% today. But we must go further. Our aim is to get that to about 50% by 2026.
In the chart on the left, we have segmented our cost base into four parts to show how we think about our costs. We are focused on driving efficiencies across all four, but I have singled out the top two, because this is where we believe we lag peers.
On distribution, this covers the cost of servicing our customers day-to-day. We have historically operated with a higher number of branches, creating higher associated real estate and people costs. We have acted by reducing our branch presence as customer behavior has shifted. Our focus will now shift on optimizing the way we engage with our customers and communities. We will do that through a far more efficient and flexible footprint. By the end of this year, we will have over 900 touch points available across the country, including branches, flexible community sites and shared banking hubs.
Of course, the primary basis of customer interaction today is through our digital channels. In fact, 98% of customer interactions are now digital. Our touch point optimization will strengthen that further completing our digitization work and leveraging our physical footprint as a value-added complement to it.
In Operations and Technology, we are in the process of automating the parts of our operation, which are not yet processed straight through and simplifying and upgrading our technology capabilities. The historic complexity and fragmentation of our technology means that the transition cost has increased this proportion of our costs. However, this is an investment in our future capabilities and further efficiencies that we must make. The evolution of our cost base over the last three years has been shaped by these investments.
The left side of this slide outlines the impact of our cost actions to date. We have streamlined BUK through actions such as rationalizing our product portfolio, reducing our branch numbers and headcount and simplifying our technology estate, all of which I mentioned on the prior slide. That has brought base costs down by 7% and contributed to our cost-to-income ratio declining from 68% to 58%, notwithstanding the impact of inflation on our underlying costs. That gives us confidence in our ability to drive our cost-to-income ratio to about 50% in 2026 as our investment in efficiency will continue to offset any lingering inflation. This cost discipline not only delivers efficiency today, but it also creates capacity to invest in both future cost efficiency and future revenue.
On the right-hand side of this slide, you see that our plans reflect an 80% increase in transformation investment spend over the next three years to £1.2 billion from £700 million in the prior three year period. Our investment in driving cost efficiencies will continue through customer journey, automation, optimization and simplification. The mix of investment will evolve with continued focus on revenue growth as we align our products with customer needs better and capture the opportunities of the partnerships that you saw on a prior slide.
Combined with the benefits of our investments to date, we expect the income benefit from investment to increase by about £600 million in 2026 from £100 million in the prior period. Combined with the expected efficiency savings, that makes our aim to deliver a cost-to-income ratio of 50%, both achievable and credible.
Let’s shift to how we make the UK better. That requires increased focus on an investment in improving our relationship with our customers and clients. As I mentioned at the beginning, our starting point is strong, evidenced by a deep deposit franchise rooted in trust earned across multiple generations. We know that our focus on transformation over the past years has disrupted those relationships. You see that in the dip in our overall Net Promoter Score in the chart on the top left here.
For example, the scale and pace of our branch closures as well as the product and service simplification that we’ve undertaken has disrupted how we interact with and support customers. Meanwhile, work required to update the information that we hold on business clients has created understandable frustration on their part. We are committed to enhancing that position from here on.
I showed you earlier that we’ve rationalized our product offering by 32% and made our range simpler. We did that in part for efficiency, but also so that we could invest in tailoring our offering to better align the service that we provide with the needs and expectations of our different customers. We have much more to do to get that alignment as precise as it needs to be. Getting that alignment right creates the opportunities for us to enhance our relationships with our customers and as we do so, we would expect to see average balances grow and an increase in the number of needs that we solve for each customer.
By being better, we improve customer satisfaction, we support our deposit franchise, and we maintain the foundation of a resilient funding profile that enables us to grow the asset side of the business. And that brings me to the third priority, how we intend to make BUK more balanced.
As I mentioned at the beginning, we are a scale player across our balance sheet. The last three to four years has benefited scale players on the liability side of the business as consumers and businesses retained high cash balances across the pandemic, coupled with economic uncertainty, the severely limited their appetite or need for borrowing. We believe we are at the beginning of more stability in the UK with the inflation outlook having moderated and the consequent rate stability, giving more confidence to borrowers, both individuals and businesses.
We are also confident that our investments to date have placed us in a good position so that we can capture the opportunity that recovery will present. A quick reminder of where we have come from. We made deliberate choices to navigate the longstanding economic uncertainties in the UK with a low-risk profile. That was prudent, but it led to market share declines, particularly in unsecured lending and a lower margin profile in mortgages and a persistence of a low loan-to-deposit ratio in business banking.
In short, we didn’t take the opportunity to reallocate or recycle underutilized risk appetite from one area of BUK to another. That opportunity is now in front of us. I’d like to bring each of those to life a little more now.
In unsecured lending, our plan is to grow market share. We have simplified our customer journeys and revamped our credit and affordability models to enable this. In consumer loans, we have historically focused on relationship lending, but we will shortly begin to open up our lending to all qualifying customers, whether they bank with us or not. I will shortly come back to a dedicated slide on the recently announced Tesco deal.
In mortgages, our aim is to improve application margins through a number of initiatives. First, by improving our broker support, including by simplifying how we support brokers and improving the platform through which they provide us with their applications. Secondly, we will do more high loan-to-value lending as a proportion of our total book. Our current position versus peers is conservative at 6%. We have capacity to grow that proportion without materially shifting our risk position.
We also have the capability to offer specialized solutions through our Kensington acquisition from last year, where the margin opportunity is typically significantly higher than that of our existing Barclays product range. And finally, we intend to increase our focus on the mortgage needs of our Premier and Blue customers who are far more likely to come to us directly.
In Business Banking, we will grow our lending market share by leveraging our existing relationships on the liability side, both in terms of access to customers and our ability to automate credit decisioning given the visibility we already have on their financial positions.
We will also continue to broaden our lending proposition, including in the asset finance space and accelerate digitization of client journeys to make it easier for them to access what we offer. Whilst lending is at the heart of our growth opportunity, we will conduct this in a controlled way that maintains our disciplined risk profile. I’d like to bring that to life explicitly.
As I noted earlier, we made deliberate choices to derisk during periods of macroeconomic uncertainty in the UK. While that impacted market share negatively, it also led to historically low loan loss rates. You see that clearly on the left side of this slide. Today, that rate stands at 14 basis points versus 36 basis points in 2019. It’s worth noting that even that 2019 level was lower than years before that. We have capacity to grow within the parameters of our historic loan loss experience and our 2026 plan delivers a risk profile that is consistent with that 2019 level.
The right side of this slide shows you that same information in a graphical format for BUK at the top and then cards and loans below that. You can see the larger Blue Eagle representing 2026, lies in between the 2019 position to its right and the 2023 position to its left for the business overall. My point simply that we have room to grow as we pivot the UK to take advantage of opportunities to increase market share and margins and deliver a more balanced asset profile within BUK and ultimately, for the group.
Given the recent announcement of our intention to acquire the retail banking business of Tesco and enter into a long-term exclusive partnership, you will naturally wonder how that fits within the ambitions that I’ve just shared. This slide outlines what that banking business is. £8 billion of high-quality unsecured loans split evenly between credit cards and personal loans, funded by £7 billion of non-transactional deposits that fit neatly into what I outlined earlier about being better. We are naturally excited by this opportunity. It takes us a long way towards the unsecured lending growth ambitions that I just shared. In particular, this provides the opportunity to grow both the lending and deposit products through the Barclays and Tesco brands, which we believe appeal to different segments of the market.
The long-term exclusive partnership with Tesco also provides an unparalleled platform to work with the UK’s leading loyalty program as well as the opportunity to market through Tesco channels and the open market. This builds on our existing UK partnerships with other leading retail, consumer electronics, and loyalty program brands.
Importantly, the customer base is similar to ours, leading to broadly aligned risk profiles. So, this fits squarely within the risk appetite framework that I outlined earlier.
By delivering on our plan, we position BUK for the future and deliver an attractive and sustainable RoTE profile that is high teens in 2026 on a larger balance sheet. Underpinning that is continued growth in income, where we expect a compound annual growth rate of mid-single-digits CAGR over the next three years, concentrated in net interest income.
Our continued focus on efficiency will lead our cost-to-income ratio to around 50% by 2026. We expect the better utilization of risk appetite to normalize our loan loss rate towards the 2019 level in a controlled and disciplined progression. And as we grow our asset position, our RWAs will necessarily grow as a result and BUK’s contribution to the Group’s RWA profile is expected to grow.
Given our focus on unsecured lending, you should expect the impairment build in RWA growth to be slightly more weighted towards the first year than the associated revenue build. That will cause RoTE to moderate in 2024, then recover to our target.
Our ability to invest in that future revenue growth, as I said at the very beginning, is protected by the structural hedge, reflected in the 2024 net interest income guidance of £6.1 billion that Anna referenced earlier, although that excludes any contribution from the Tesco portfolios when that transfers to the UK expected in the second half of this year.
So, our focus on efficiencies will make us simpler, our focus on our customers and clients will make us better, and our plans for growth will make us more balanced. We have invested significantly in recent years to prepare the business to growth. We are now ready to seize the opportunity before us.
Thank you for your time, and I will hand back to Venkat.
C.S. Venkatakrishnan
Thank you. So, we will now spend a little time on the Corporate Bank and Private Banking and Wealth, which are two new reporting units. I mentioned that we will also come back later in the year with a presentation on each of these by Matt and Sasha, respectively, in addition to a deepdive on the Investment Bank. So, you will have the opportunity later to hear from them.
The UK Corporate Bank is the beating heart of Barclays’ 330-year history. We have relationships with about 25% of the UK market. These relationships average 18 years in length and they are covered with a network of locally-based teams around the country.
Under the resegmentation, the UK Corporate Bank includes a large part of the operations, which we previously reported in the corporate lending and transaction banking lines. It also includes corporate card issuing previously included in consumer cards and payments. So what this does is that it brings together our trade and working capital solutions into one business.
The integrated business has reported strong returns and last year generated about £1.8 billion in income. The income streams are diversified, and the key priority for us is to grow the fee income alongside capital-efficient growth in lending.
So what is it that we do here? On this slide, I’ll summarize the breadth of our offering to corporates. We support clients with their short and long-term financing needs, including extending finance to support the transition to net zero. We provide working capital solutions through card issuance, overdrafts, invoice discounting and traditional revolving facilities. We help clients to move their money, to pay suppliers and employees, to collect money from their customers and reconcile their transactions.
We also help clients to invest liquidity through a range of solutions. We support clients in managing risk as they grow their international exposure through our award-winning trade finance and FX propositions. And what this range does is it positions us well to grow over the next few years, while giving clients access to expertise in other parts of the group.
Our clients’ needs are evolving quickly, and we are focused, therefore, on delivering operational needs simply and seamlessly. And to meet these, we have priority areas, which are well defined, starting with the importance of our leading payments ecosystem. And digital delivery is important because it frees up time for our clients and also makes our bankers more efficient, allowing them to spend their efforts sharing data-driven strategic insights.
And this client interaction will enable us to deepen and to broaden our client relationships. And as growth opportunities emerge, clients want us to make it easier for them to access the right financing structures in quick and simple ways.
I said I will talk about payments. We spoke earlier about looking for a partnership in our merchant acquiring business. So I want to say a little bit about the payment ecosystem, which is about making and receiving payments. This is an essential part of the functions we provide our corporate clients.
We are one of the largest sterling clearers in the UK. We are a leading corporate card issuer with more than £12 billion of payments per annum and the third largest merchant acquirer across Europe. That’s the far right.
We process over 300 billion payments a year a pound in payments a year, which we estimate represents one in every three card payments in the UK system. Our objective always is to bring the best capabilities and the most efficient services to our clients, and we pursue the models which deliver these outcomes.
Our traditional bank payment systems have largely been built in-house over many years and are very resilient. What we are doing now is focusing on developing further digital solutions. And the landscape across card issuing in the middle and merchant acquiring on the right has been fast moving with much innovation.
We’ve had years of experience combining strong in-house capabilities with those provided by some of the partners listed here in order to benefit from greater scale in technology and operations.
In merchant acquiring now, which is on the far right, we are exploring how best via partnerships to provide further benefits of scale, global scale and new technologies and innovation to our clients. That is what that strategic exploration is about.
As with the rest of the bank that you’ve heard, we talk about simpler, better and more balanced. We are focused on making this business simpler by enabling clients to access the solutions and services more easily. Our main digital channel, something we call iPortal already gives clients access to a wide variety of services through a single entry point, and they can self-serve about 30% of their needs, and the adoption for these solutions is around 90%. We plan now to build on this, expanding our self-service capabilities through both online and mobile access and increasing the efficiency, speed and frankly, better controls. And what this will allow us to do is to decommission legacy systems. And what we’ve been doing is also investing in stable and automated back-office platforms and the tools our relationship teams use, making their client interactions, as I said, more productive.
All of this, we expect will improve the client experience while using efficiencies to fund investment and it allows us to retain our low cost income ratio. We aim to be better by deepening the relationships, which we have. We were the first bank to introduce industry specialist teams more than 20 years ago, and we continue to lead and to innovate. Our network of business development directors has resulted in more than 550 client wins in 2023 and a growing market share. And we are hiring additional coverage bankers in areas where we see growth opportunities and continuing to develop our propositions.
Recently, we migrated our trade finance business from legacy technology to cloud-based systems. 40% of our clients use five or more products, which is up three percentage points over the last two years, and this demonstrates our ability to increase that penetration. And as we deepen our relationships and improve our offering, we think we can do more with 28% of our clients using two products or fewer today, the potential for revenue growth here is significant. And we are confident that we can increase our share of wallet from existing clients and grow through new client acquisitions.
So next, I want to focus on lending, which makes us more balanced. We have a loan-to-deposit ratio here in the UK Corporate Bank in the low 30s, and we are well-placed to grow, providing a better balance for the business as we grow more fee income. And we will deploy more RWAs to support this effort, which in turn can lead to deeper and wider client relationships.
Our existing book is well-diversified across sectors, and we have a track record of low impairment. And so we’ll continue, of course, to use the group’s significant risk transfer program, providing first loss protection and reducing both impairment risk and capital requirements.
Within our credit risk appetite, there are areas where we can be more competitive on price and take larger credit positions with stronger clients. And we are confident in that way of growing lending at attractive risk-adjusted returns as we develop our digital delivery and product offering. And we also expect to generate business for other parts of the bank, leveraging our track record in the debt capital markets.
So finally, on the corporate bank, I just want to highlight some key financials and summarize our ambitions. As I said, a key priority is to grow fee income alongside a capital-efficient growth in lending, our recent performance positions as well to achieve this. Over the last two years, we’ve grown at a 15% CAGR. This reflects, of course, the benefit of — to NII from rising rates, but also double-digit growth in fee income and net client growth. And while loan and deposit volumes have been stable, our propositions and client relationships have enabled a 10% growth in clients in the last two years.
The income growth has actually helped us with resulted in a healthy cost/income ratio and contributed to returns increasing from 14% to 20%. We have the opportunity now to grow income further while we increased our investment in simplification and automation. So we still aim to deliver a cost income ratio in the high 40s. And post COVID, we have benefited from a gradual release of modeled impairment, and we expect a more normalized impairment profile going forward. Overall, we expect returns to moderate from the 20% we reported last year, but we still target high-teens over the coming years.
So to summarize, the UK Corporate Bank is already delivering strong returns. We are confident we can continue to grow at these attractive returns despite the normalization of rates and impairment Lastly, Private Banks and Wealth Management. On top of my mind, day I became CEO, who was an ambition to realize the great opportunity that the Private Bank and Wealth Management business provides for Barclays.
We had a strong private bank, have a strong private bank, both in the UK and in select international markets. But the wealth management business in the U.K. and our digital investing business, what we call smart investor was unprofitable and subscale. Moreover, these two businesses sat in separate parts of the bank on either side of the ring plans.
Over the last 12 months, we have put them together again with the regulatory commission. And what this does is it provides us with a very significant opportunity to serve the financial needs of UK customers in our retail business, together with serving our high and ultra-high net worth clients. In addition, it enables us to have a single investment function and shared platforms.
We aim to provide advice to our customers and clients at each stage of their financial — personal financial journeys. And we will do so with robust financial management tools, which are fairly priced, managed transparently, constructive simply and delivered efficiently. So this is the Private Bank and Wealth Management business today. As you can see on the left-hand side, the business has been structured into four distinct segments.
Firstly, self-directed digital investing for those who are starting out or want to invest anything from £1 upwards, a UK wealth management proposition for those that are more advanced stage in their financial journeys. And of course, a service for high and ultra-high net worth clients domestically and internationally, who have a full access to a full suite of private banking products.
What you see on the right is that the business has grown its assets and liabilities on the average of 10% a year over the last five years, and it’s reasonably well diversified both geographically and in terms of products. The combined business today is already producing high returns, 31% in 2023 compared to 14% RoTE in 2021. A good part of that growth has come from deposits, given the impact of higher rates, but we’ve also been growing our investing and lending offerings. The income has grown from £1 billion to £1.3 billion, and our cost-income ratio has shrunk from 86% to 69%. This is a very good and profitable business, but what it needs to do is to scale, particularly in the digital investing and the U.K. Wealth Management segments. Again, given its high contribution to the group, this is an area of investment.
So again, we’re going to do this by being simpler, better, and more balanced. Part of what I, being simpler, as I said, was to combine the businesses. We now have one management team, a single investment function, shared platforms, and simpler segmented customer propositions. And there are significant efficiencies from doing this. Part of being better is for us to fully leverage the synergies across the bank. And we are developing a more effective two-way referral flow for clients with other business units within the group.
Barclays U.K. provides us with a significant source of new client referrals into digital investing and wealth management. And having a closer collaboration with the investment bank enhances our distinctive point of differentiation by giving private banking clients access to a wider range of investment solutions.
Being more balanced is in part by growing our digital investing and U.K. wealth management offering to the scale that is aligned to the size and scale of our U.K. retail bank. This proposition has very high operating leverage and we are focused now on making specific enhancements to provide better service to our customers.
Very recently we launched a new pricing structure and we will now focus on the content and digital capabilities we need to enhance the customer service and journey. In the U.K. wealth management space, we will lower the entry point to £250,000, and again focus on providing easily accessible advice, digitally enabled as much as possible, and a simplified transparent investment proposition. Both of these will be better integrated within our banking app and our website.
Moving to the private bank. Across the U.K. and our international business, we have over £160 billion of client assets and liabilities. And we provide a high-touch personalized client service. Our priorities are actually fairly similar for both segments. We need to build out our teams, including our U.K. regional footprint, as well as our teams in the international markets where we already have an investment banking presence. Also we need to invest in systems and processes to enhance the client experience.
In addition, we will invest in our client solutions, including alternatives and lending capabilities. Altogether, these priorities are going to require an investment into our private bank, which will lead to our RoTE being greater than 25% by 2026, which is slightly lower than last year’s numbers. We aim to deliver high-quality, double-digit asset and liability growth across segments and maintain a cost-income ratio in the high 60s.
To conclude, we have a great opportunity in this business, and it’s one that I’m really excited about. We need to be simpler in terms of our business and the propositions, which we provide our customers and clients. We need to be better in terms of our service and technology capabilities and more balanced by scaling our UK wealth offering.
Now, almost every bank talks about doing better in private banking and wealth. And so you might well ask, what makes Barclays succeed. I think there are three things. One is the scale and depth of our franchise in the UK and how few of our customers use our investment services today. There are 3 million customers in Barclays UK with investable assets who we benefit from our digital investing or our UK wealth offering.
The second in my opinion is that the UK market could be better served, particularly for those customers in the intermediate stages of their financial journey. I think there’s a real role for us to provide a service which is transparent, which is competitive, which is digitally available, but with access to human advice.
And finally, we have proven we can grow this business. Over the last few years, five years, we’ve grown client assets and liabilities by 10% per annum. We have won awards internationally, the best foreign private bank in Switzerland, the number one private bank in Monaco, the number one international private bank in India. And we are confident we can achieve an RoTE of greater than 25% by 2026. And to me, private banking and wealth represents a very attractive opportunity for the bank. It’s a capital-light fee income-based business and high returning.
So with that, what we will do is I’ll invite my colleagues to come up, and we will move to the final part of Q&A or for today’s investor update with Q&A on the business presentation, which you’ve heard. As previously, please limit yourself to two questions and introduce yourself. And I am the MC [ph]. All right. Who would like to go first?
Yeah, Alvaro.
Question-and-Answer Session
Q – Alvaro Serrano
Happy to go first, again. To first again Alvaro Serrano from Morgan Stanley. Just a couple of questions. One is on the efficiency gains in the investment bank. I don’t know if you can make it a bit more tangible for us, given any examples of where you see capital efficiencies in particular. Obviously, there’s been discussion in the past about leverage finance deals that are still on the balance sheet. Is that a source of capital efficiency? And if so, maybe help us quantify it or give us a bit more sort of flavor on how easy those efficiencies are to deliver?
And second, on US Cards, the 12% NIM. You’ve listed sort of quite a few things that drive the NIM improvement and rates wasn’t one of them. And I realize this business, it is lower rates is good for it. So maybe, I’ve seen your rate assumption at the back, but can you quantify maybe how much rate plays into that NIM expansion in the US Cards business? Thank you.
A – C.S. Venkatakrishnan
So, why don’t I take the first one? I’ll pass it to Anna to start on the second one, maybe, Denny, you can chime in afterwards. So, at a macro level within the investment bank, efficiency, capital efficiency, which is what I think you’re talking about, RWA per unit income is going to come in a few ways. Within markets, as we’ve said, we’ve always — we’ve maintained a high level. And I think recycling capital and focusing on liquidity and sort of revolving as a deals at 20% a quarter of what you put out and increasing that is going to be one source.
In investment banking, it’s coming in a couple of ways. Number one, it is from the move from DCM, which is capital heavy into ECM and M&A. The second is recycling capital as it gets released into — into international corporate banking and the transactional services, which are going to be closely managed by the Investment Bank of managed within the Investment Bank and which represents higher recurring revenue and an allocation of RWAs into the financing side of markets. So at a macro level, that’s how it happens. Obviously, with individual clients, over time, we will assess whether we are getting the right mix of business for the capital which we lay out. And — but that’s part of exactly that reallocation. Anna, then do you want to start on them?
A – Anna Cross
Yeah. Sure. Why don’t I start, and then I’ll hand to Denny. So you’re right, we’re not calling out rates. We saw a benefit from rates in 2023 actually because of the lag effect of repricing as rates rose within the US, which obviously we don’t expect to recur. Actually, our NIM expectations are much more about what we expect to happen to pricing to mix. And deposits do matter, but only to the extent that we expect a greater proportion of retail funding in the future. But Denny, you might want to expand on pricing?
A – Denny Nealon
Really as Anna just said, there’s really four things going on. So I think the whole industry will see some margin compression as rates come down. So that’s built into our forecast. But I highlighted three things that are going to help us drive NIM expansion. One is we have — we are going to be going more in the retail sector. We expect that to help us rebalance our FICO mix they’ll help deliver higher margins.
Second, alongside the late-fee legislation, we’ll be re-pricing some of our existing accounts. And then we have a really strong award-winning deposit platform, and we’re investing in that. And so we expect to get more value from that going forward. So those three things are what offset that margin compression that you can expect from rates drop.
A – C.S. Venkatakrishnan
Next question Yeah, Joe? Joe then Rohith, and Raul.
Q – Joe Dickerson
Hi, Joe Dickerson from Jefferies. Just in terms of the competitive landscape in your two US areas, so the investment bank and then the Cards and Payments business. Could you just perhaps elaborate on how the Basel end game may be impacting the competitive landscape in the US, although, I do see that the banks in the US have done a pretty good job of pushing back on that. But your views on that would be interesting. And then in the consumer space and cards, in particular, we’ve seen in the past 24 hours, Capital One in Discover, effectively Capital One going to the network business. So, how you see the impact on the landscape changing in the US cards or not as may be the case as a result of that merger.
A – C.S. Venkatakrishnan
Yeah. So let me start with Capital One discover, then I will just give a broad answer to the first part of your question and let a Adeel and Denny talk about that. Unless, Anna, you want to add something, too? So on Capital One Discover, look, we’ve got to see the details on it. Clearly, it is a transaction that is based on a cards portfolio as well as payment rails and payment capabilities. And it shows, if anything, that these things are valued in the banking system today.
As I hope you’ve seen in the last few hours, both cards and payments are critical parts of the Barclays proposition as well, and something which we think we’re good at and trying to do better. So that’s my sort of first takeaway from it. And we’ll, of course, have to see the details. And I will say that there is a regulatory angle of it, which, you know, my colleague Jason Goldberg, I have to plug Barclays Research, wrote overnight with Terry Ma. And we have to understand that better as well. Okay.
So then coming back to the competitive landscape in the U.S. So at one very high level, capital rules generally increase over time and banks adjust to them, The big banks adjust, right? And I imagine that’s what ultimately will happen. And what I do hope is whatever settles down in the U.K. — in the U.S. capital landscape is relatively mirrored in the U.K., whereas you know the regulators also have a competitiveness mandate in addition to financial safety. So we’ll have to see where it goes. And what we hope is that it’s sort of fair across both sides of the pond.
What you have seen us do is move to internalize what that will be, both at the overall Basel level, as Anna said, to the lower end of 5% to 10%, which includes what we said for IRB in the U.S. cards business, already included in U.K. cards, and then we’ve got a bit of corporates to go. So I think it will all finalize over the next two years. Hopefully, it will be relatively even but we will adjust competitively as we have done in the past. Adeel?
A – Adeel Khan
Yes, I agree with what completely agree with what you’re saying. I think as Anna referenced the impact of Basel, we expect it to be the lower end of 5% to 10%. So that that means mid to high single digits for markets. And look, I think, I go back to what I said earlier in my presentation, our ambition is to generate double-digit returns for shareholders. So if they’re businesses that will be impacted because of Basel, will be ruthless about allocating and reallocating capital within our portfolio to accommodate for that.
A – C.S. Venkatakrishnan
And on the card side, what I’d say is, as we showed actually on the slide, we expect that through the actions that we’re taking that we’ll be able to get our density rate to similar levels to what U.S. issuers will have. So I don’t think there’s going to be any competitive issue there.
And at the end of the day, we’ve had capital differences over the years between the U.S. and U.K. over time. And it’s never kept us from winning business at good returns in the past, now, or in the future. And really, because what that really is about at the end of day is not just about price, it’s about can we help partners drive their business forward by helping them increase sales and customer loyalty. And we think because of the capabilities that we’ve built, we do that pretty well. Anna, anything to add?
A – Anna Cross
Yes, just a couple of comments, Joe. The first would be, clearly, we’re reacting to what we know here, and there’s some time to go to see the final rules. So what the teams are doing is they’re firmly focused on what we can control, both in Denny’s world and in Adeel’s world. We would expect to see some increase in capital in the U.S. from our U.S. peers. The exact level of that, we’ll see.
I think what’s really important for us to just remember though is that less than 10% of our Greek capital is in the IHC. And so for us some of these movements in US rules are less important than what happens with our primary regulator in the — with the PRA in the UK, which we still expect to be the binding position for Barclays.
A – C.S. Venkatakrishnan
Rohith.
Q – Rohith Chandra-Rajan
Thank you. Rohith Chandra-Rajan, Bank of America. A couple of questions along similar lines. Sorry to be boring. The US — sorry, the IB, thank you for the additional commentary around kind of the flows of the RWAs. I think — so, so far, really, you talked about optimization and move from DCM into ECM and Advisory and then a negative in terms of – a small negative in terms of Basel 3 in markets.
Is there anywhere else within particularly, I guess, the markets business, where outside of optimization you might be taking some capital away from businesses in order to fund the capital-light growth that you’re talking about in some of the focus areas for markets? That would be the first one.
And then again, on — the second one is just on — again, on US cards. I guess what you’ve shown is you have some inefficiencies relative to your local peers from a capital density perspective, which you expect to offset through mitigation, but that usually comes at some cost.
And Venkat, you talked earlier about the benefits of being a diversified business, but when you’ve got a standalone cards business without a broader US retail offering, there are some, I guess, some headwinds from an efficiency perspective relative to peers. So what is it that makes Barclays a good cards business in the US compared to a large US bank, for example.
A – C.S. Venkatakrishnan
Right. Adeel, do you want to take the first one on – let me start on cards and Den you can fill in. Thank you, Rohith. So we really think about our business through the lens of two components. We have a bunch of top five revenue rent franchises where we are maintaining a pretty high income to RWA ratio.
And then you have the non-top five franchises, which we showed you. If you look at the non-top five franchises, there are two types of businesses there. One, which we need to maintain to be stable to our clients. Within those, we have a pretty, pretty low capital footprint. And then you have the rest of our franchise, which we think we have room to improve because we’ve either lost market share or the operating environment is changing.
If you look at that component of our franchise today, we have 38% of our RWAs allocated versus them driving 28% of our income. So it also tells you that those three focus businesses which we’ve talked to you about, we’ve already allocated the capital they need and the technology resources they need so we can drive that income over the next — over the coming years.
A – Adeel Khan
So then coming Rohith to the question on the US cards business. The first thing to import that I focus on is we have to have an apples-to-apples comparison. This is a specialized partnership card business. We are not looking to compare this to a broad-based US bank’s cards business, which includes its own branded cards. We are not in branded cards.
In fact, the important thing, whether you talk about this or whether you can talk about our markets business or investment bank, is that we focus on the things which we try — which we think we do very well and which are attractive to our clients. This specialized cards business has a few attractive features to it.
Number one is we have 20 corporate clients, B2B, B2C, 20 million customers. We are not competing with the end customer — for the end customer with a corporate client. We are not trying to sell them a mortgage. We’re not trying to do other things with them, which many other banks might. And what it does is allow us to focus on increasing the engagement with the corporate — which the corporate customer has with the underlying client. And that is the thing that leads to the revenue uplift for the corporate client, and that’s what Denny had on one of his pages, 6x, 7x. So we don’t compete.
Second is we are good at what we do. And that’s an indication of both the blue-chip quality of our clients and the 90% renewal rate that he spoke about. So it’s an apples-to-apples comparison would not have us talk against the broader US banking market. Of course, there are things we need to do better. We need to adjust for the capital rules, we need to improve and increase our sort of own funding of this and manage our costs better. And as we get scale, improve the RoTE. So we have a lot to do to improve it. But the apples-to-apples comparison is not versus a general US bank. Anything to add?
A – Denny Nealon
You answered that really well. I’m very proud of you. No, I’d just piggyback on something I said earlier. We are a specialist issuer. Most of the largest US banks, I think you’re really asking about, they don’t compete every day in partnerships. They focus on their own proprietary brand. And the other thing I’ve pointed out earlier is the size and scale of the partnership market is very significant. So there’s a big game to play for, and we believe that we have built a sustainable competitive advantage and the capabilities we bring to the table. And as Venkat said, that focus on helping drive our partners’ businesses forward is different than most banks bring to the table. And so what we build is about how do we — because we believe if they do well, we do well. And so our focus there is pretty unique, and it’s worked really well.
A – C.S. Venkatakrishnan
And if I may add one thing — sorry, Raul, just one thing on risk management in that business is underlying credit risk management, but it’s also choosing your partners well, choosing partners with whom you can actually bring that expertise to bear and managing that relationship over time, right? And in the end, if those attributes that lead to a high renewal rate and it’s those attributes that lead to a test cultures in use in the UK. Sorry, Raul.
Q – Raul Sinha
Thanks, Venkat. It’s Raul here from JPMorgan. Still plenty of questions, but I’ll stick to two. The first one is on what’s going on in the UK in terms of consumer duty. So — in terms of consumer duty. So there’s a broad agenda that is leading to various implications for financial services players. Obviously, apart from motor finance, you’re present in most products in the UK, but one of the features of the UK market is very limited cross-selling. So I guess the question for you and for Vim is where do you think are the risks for you in your current business model as configured, especially as we go into the new rules, July this year on the back book? And then secondly, where might be the opportunities for you as other players have to reconfigure their own pricing. And I think your recent stock broker changes have probably been a step in that direction.
A – C.S. Venkatakrishnan
Let me start with the second half, and then I’ll turn it over to Vim. So I think consumer duty, which is a very beneficial way to look at actually what products people provide to customers and managing mis-selling risk across an appropriateness risk across the consumer product landscape is a good thing for the customer.
As in all forms of regulation, it actually ends up benefiting the larger players because what we were able to do is understand it, manage it, absorb the fixed costs, and operate.
Frankly, over the long-term service as a barrier to entry. I think, therefore, when I spoke earlier about Wealth and I said fairly priced, transparently constructed, efficiently delivered, it’s easier for us to do these things than for smaller companies because we can, — A, we know how to do it because we do it in other parts of our business; and B, we can sort of structure it and absorb the cost better. So, I think it’s an advantage to the large players as generally forms of regulation are.
A – Vim Maru
So, I think a couple of things to add. And I think that point about our scale and what we’ve done in the past is quite important because I think one of the things that struck me about Barclays and you’ll see it in other banks too, I guess, is just the culture from a customer focus perspective is really strong. And treating customers fairly has been around for a while and the nature and behavior that we have here has been strong, too.
Of course, Consumer Duty made us think through every line of our business and consider very carefully with the tweaks that we should make, but it’s not been as heavier lift because of the culture that’s already innate in our business. And so I think that’s been a huge help in where we were and the steps that we have to take. And actually, I think we’ve made lots of great progress.
I think the important thing here is a level playing field. Actually, there are some things that sit outside of the fence in terms of regulation and then making sure that the regulators then apply all of that in a similar and coherent way right across the market. I think that’s the important thing to call out.
And then you touched a little bit about sort of limited cross-selling. To some extent, when you look at our balance sheet, and I talked about it, conscious steps that we’ve taken have led to that. And actually, one of the things that we’re trying to do as we lean into the changing shape of our balance sheet as we move forward is actually protecting our franchise and increasing that cross-selling capability.
So, at the moment, some of our customers are going somewhere else for a credit card because of what we’ve chosen to do in the past. That’s a real opportunity for us to really deepen the franchise and increase the number of products and services that we offer to our customers.
Q – Raul Sinha
One more just on buyback capacity, mainly for Anna. I’m sorry to ask about the next buyback when you’ve not even started this one. But the capital walk for 2024 is quite difficult to nail down, just given the moving parts that you’ve got. You start with 13.5% pro forma and then obviously, first quarter of every year, usually there is a trading related RWA pickup. So, it tends to be not very capital-generative.
And then I guess you build capital towards your 125 basis points per year sort of run rate through the year. But when we think about the moving parts around the £16 billion of RWA you had on coming in the second half, plus the various acquisitions, Tesco, whether or not you sell the timing of German cards, should we still be thinking about six months as the right kind of beat of looking at capital return and buybacks? Or do we think about that as sort of end of 2024?
A – Anna Cross
Thank you. So, I think the root of this is the capital-generative nature of the business and our ability to consistently generate capital year-on-year out, which we’ve demonstrated. And I would say that, clearly, there is some seasonality to the business. You’ve called it out, we typically deploy more capital in Q1, but typically, we generate more capital in Q1. That’s what we demonstrated in most years.
Around the £16 billion and indeed the onboarding of Tesco, those are in our capital flight path. And you wouldn’t expect me to talk to you specifically about timing today. That’s a matter for the Board, and it’s something that we’ll consider. But we have got a fairly a fairly consistent pathway going, if you like to look at it that way. And the other thing that we’ve done is very clearly highlight for you today our priority, which is number one, regulation; number two, the shareholder; and three, investment. So that should tell you how we’re thinking about the return of capital as we go through 2024, but actually beyond 2025 and 2026.
A – C.S. Venkatakrishnan
We have time for one more ahead. Go ahead, Ben.
Q – Ben Toms
Ben Toms from RBC. You talked about the improvement in application margins in the UK for mortgages. I just wonder whether you might give a sense of where we’re at now and where you expect those application margins to go to? It sounds like it’s largely mixed base for those margins?
And then secondly, in Wealth and Private Banking, the RoTE. I appreciate the guidance is greater than 25%, which includes some scope for a bigger than that, but the step down from where you are today to that number is relatively large. Is there something in there for the fact that you’re still having to invest in that business in 2026, and therefore, post 2026, you’d expect a step-up? Or is there an acceptance that it requires ongoing investment in that business every year? Thank you.
A – C.S. Venkatakrishnan
Right. Do you want to start with mortgage? Go ahead.
A – Anna Cross
I will. So as you know, we don’t — we comment on spreads and mortgages. What I would just say is that spreads have been attractive, but pretty thin, as I said earlier. Because the market is very much dominated by refinancing activity and you see that typically in Barclays, if you look at our loan to values, they are low, just above 50% of the portfolio, and we’re acquiring in the sort of mid-60s. So there is a real margin opportunity here for us to utilize the capability that we’ve got within Kensington. And then, you might want to add to that, but…
A – Adeel Khan
I think — so mix is one, for sure. I think the other is process and service, which I think I’d call out because at the moment, if you don’t have great service and growth process, you end up having to compete more on price. And so I think as we invest more in our capabilities that I talked about, that should help us be able to compete better in the broker market as well as in the direct market, too.
A – C.S. Venkatakrishnan
All right. All right. One final question, Andy, for you.
A – Andrew Coombs
Andrew Coombs from City. I just down the UK. Firstly, a clarification on slide 114, you talk about mid single-digit NII CAGR in the targets. Is that off of the 2023 6.4? Or is that off the 2024, 6.1 plus the 0.4 from Tesco’s?
A – Anna Cross
Very simply, it’s from 2023 from the 6.4%…
A – Andrew Coombs
Perfect. And then more broadly, you outlined some of the initiatives on slide 111 that you have in order to grow the revenue base within that mid-single-digit Nii CAGR, there’s kind of three moving parts. One is those initiatives that you’ve outlined. The second is the impact of the structural hedge. And then the third is the impact to lower rates, I guess, if I had to break it down to three parts. How much of that revenue CAGR, broadly speaking, is from your own initiatives that you are now implementing, do you think?
A – Anna Cross
So Andy, we haven’t broken that down. I think what we have done is we’ve given you an indication of the RWAs that we expect to deploy within this business, not directly but if you take the £30 billion and imagine it splits broadly in alignment with the RWAs of the businesses that we’re focused upon. Then you’ll get an indication of really how much we expect to come from lending growth. And we gave you some modeling tools, if you like, around the structural hedge earlier, so the £170 million, the reinvestment and two-thirds of that goes to the UK.
A – Andrew Coombs
Right. So sorry, go ahead.
A – C.S. Venkatakrishnan
Just going to build. I think it’s pretty broad-based as well in terms of those initiatives. So it’s not concentrated in one area or the other. And the structural hedge is really important, but the dynamics change between 2024 and 2026, because obviously, you still got some deposit migration happening now, then you have a different effect coming with rates. And then, of course, all of those lending actions that we’ve talked about there on that slide start to play through into 2026.
A – Anna Cross
Just very conscious, we didn’t answer Ben’s second question, which was why do we expect a greater than 25% RoTE in the private bank? Do you want to pic that one?
A – C.S. Venkatakrishnan
Yeah, sorry. My bad. Its investment, so it is — investment is what brings it down from the 30% plus down to 25%. I think on this one, we are looking out to 2026. We are starting from fairly early levels in both the digital investment and the wealth management business. So it would be full hardy of me to project beyond 2026. But I think it’s important to say that this is an important and attractive business for us, and we’re going to invest.
A – Andrew Coombs
Great.
End of Q&A
C.S. Venkatakrishnan
Thanks. So those who follow Test Cricket know that launch has taken promptly at 1 PM So I want to thank you for coming. And let me just repeat and thank you for being here for the last 4.5 hours. So I hope you got the sense of why Barclays. We’ve got very high return in UK, retail and corporate franchises. We have a top-tier global investment bank. We’ve got multiple levers to allocate capital in a discipline where we’re looking to drive growth within the higher returning divisions of the bank and greater RWA productivity within the investment bank. We are resetting our level on RoTE to 12%, higher than 12% in 2026 and capital return of at least £10 billion in the next three years, 2024 to 2026.
Those are summary statistics. There’s a lot more. We are available over lunch to chat with you as well. So thank you for coming, and thanks for spending the time with us. We really appreciate it.
