Barclays Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 24, 2023

There are 13 speakers on the call.

Operator

Welcome to Barclays Q3 2023 Results Analyst and Investor Conference Call. I will now hand over to C. S. Venkatakrishnan, Group Chief Executive, before I hand over to Anna Cross, Group Finance Director.

Speaker 1

Good morning. Thank you for joining Anna and me on today's 3rd quarter results call. Against the background of mixed market activity and the competitive environment for UK Retail Deposits, the group generated income of GBP 6,300,000,000 in the quarter, down modestly year on year, excluding last year's impact from the over issuance of securities. Our profit before tax was GBP 1,900,000,000 with earnings per share of GBP 8.3 We maintained a strong capital position with our CET1 ratio at 14%, up around 20 basis points on the 2nd quarter the operator and at the top of our target range. In this context, we delivered a 3rd quarter return on tangible equity of 11%, taking us to 12.5% for the year to date and we continue to target above 10% for the full year.

Speaker 1

To We are managing credit well with year to date loan loss rate of 43 basis points versus our through the cycle guidance of to 50 basis points to 60 basis points. Costs reduced by 4% in Q3 year on year, excluding over issuance costs last year. And in Q4, we will continue to drive further efficiencies and greater productivity for the bank. We expect this to continue to contribute to delivering enhanced returns for shareholders. We will update you on these and other actions alongside our full year results in February.

Speaker 1

To now turning to the business highlights. We continue to grow our U. S. Cards business with end net receivables up 11% year on year the U. S.

Speaker 1

Dollars 30,000,000,000 and we announced a new partnership with Microsoft and Mastercard to issue Xbox's first ever co branded card the U. S. The integration of our U. K. Wealth business and our private bank is also progressing well.

Speaker 1

We grew clients' assets and liabilities to nearly £180,000,000,000 and invested assets to around £105,000,000,000 to the company with this business making nearly GBP 900,000,000 of income in the year to date and generating attractive returns. In Investment Banking, we led prominent transactions in this quarter, including the ARM IPO in the U. S. However, in the mixed market environment, We've had pockets of underperformance relative to U. S.

Speaker 1

Peers. In part, this has reflected our business composition. We performed well in Equity Capital Markets, which is a smaller business for us relative to others. We were also selective on leveraged finance deals as a risk management matter, which has affected our debt capital markets performance. We continue to be cautious about the market backdrop, but are confident in the potential of our business.

Speaker 1

Pat as an example, we are acting as sole financial advisor to Capri in their $8,500,000,000 acquisition by Tapestry the Q3 and expected to close in 2024. In market, this was our 2nd highest Q3 income print in a decade the company with income of 4% quarter on quarter, better than the U. S. Peer average. However, income was down 13% to Extreme volatility in gilts in our home U.

Speaker 1

K. Market. This quarter, we did not benefit to the same extent as our U. S. Peers did Mr.

Speaker 1

Shneur from the volatility in U. S. Rates. As we have said previously, investment in our combined fixed income and equity financing business to our overall markets income. Over the past 4 years, our ranking in equity prime brokerage has moved up to our joint FIP, complementing our existing strength of fixed income financing, where we ranked jointly 1st globally for the first half Barclays.

Speaker 1

Turning now to Barclays UK. We delivered a routine in the business above 20% the operator for the quarter. Both income and expenses were broadly stable, generating a costincome ratio of 56%, and we intend to improve this over time as we continue to transform the business digitally. There has been an impact on our deposits and margins from retail customers seeking a higher return on their savings, which Anna will cover in more detail. However, at the group level, deposits were up £7,000,000,000 our Q1, demonstrating the strength of our diversified deposit and funding base.

Speaker 1

Our performance over the past to the next 3 years compared to the previous 5 shows that we have reset and stabilized group returns, providing a solid foundation on which to build even further. To Anna and I look forward to providing an investor update in February alongside our full year results, where we will talk more about our plan to deliver further value to our shareholders. This will include setting out our capital allocation priorities as well as revised financial targets for costs, returns and shareholder distributions. We have just completed the GBP 750,000,000 buyback announced at the half year, taking total shareholder distributions to around GBP 1,200,000,000 so far this year, including dividends and buybacks. This is up over 30% on the first half of last year and reflects our commitment to returning capital to shareholders.

Speaker 1

Thank you for listening. And I will pass it on to Anna now.

Speaker 2

Thank you, Venkat, and good morning, everyone. Turning now to Slide 6. Return on tangible equity for the Q3 was 11%, which takes us to 12.5 the next few quarters. The cost income ratio was 63% in Q3 and 61% for the 9 months in line with our low 60s guidance for the full year. We continue to see limited signs of credit stress Our loan loss rate for the quarter was 42 basis points 43 for the 9 months.

Speaker 2

And we have maintained strong capital and liquidity positions. As you just heard from Venkat, we will update you with revised financial target at an investor update alongside our full year results. As part of this update, we are evaluating actions to reduce structural costs, which may result in material additional charges in Q4 impacting this year's statutory performance. Excluding any such charges, we continue to target Arote above 10% for the full year. Focusing now on Q3, starting on Slide 7.

Speaker 2

There was no impact from the over issuance of securities this quarter, But given the largely offsetting impact to income and costs in Q3 last year, I will again use the adjusted numbers for the prior period. To the group profit before tax was around £50,000,000 lower at £1,900,000,000 with income down 2% and costs the financial results, down 4% year on year. Within total costs, operating costs were stable And there were no litigation and conduct charges this quarter compared to €164,000,000 in Q3 last year. Impairment charges were up $52,000,000 to $433,000,000 with the charge and business mix as we expected, TNAV, largely driven by growth in U. S.

Speaker 2

Cards. TNAV increased 25p to 3.16p, Reflecting our profit and positive cash flow hedge reserve movements broadly offsetting last quarter's downward move. To As usual, I will now cover the 3 key drivers of our return, namely income, costs and credit risk management, Starting on Slide 8. Group income was down 2% at 6,300,000,000 The 8% stronger sterling U. S.

Speaker 2

Dollar rate in Q3 year on year reduced our reported income CIB income fell 6% with lower activity in the Investment Bank, Partially offset by corporate income growth year on year. Consumer cards and payments income was up 9%, driven by growth in U. S. Cost receivable and the U. K.

Speaker 2

Wealth business transfer from Barclays U. K. In Q2. To Excluding the transfer, CC and P income was up 5% and VARs' U. K.

Speaker 2

Income was up 1%. To Net interest income across the bank grew by €179,000,000 or 6% year on year, driving a 13 basis point increase in Greek NIM to 3.98%. Barclays U. K. Contributed around half of group NII this quarter with approximately 20% from CIB and 30% from CC and P, mostly U.

Speaker 2

S. Card and the Private Bank. To the U. K. NII was €17,000,000 higher year on year with NIM of 304 basis points below where we anticipated at Q2, which I will come back to when I cover Barclays UK.

Speaker 2

CC and P NII increased by $64,000,000 mainly from U. S. Card balance growth, Partially offset by private client deposit migration to our higher yielding products. To This generated NIM of circa 8.9% in Q3, which was up from circa 8.3% at Q2 and included a small one off increase in private bank, so we would expect NIM to step back a little In Q4, CIB NII increased €94,000,000 year on year, which included an improvement of 9 basis points to 3.65 percent in NIM driven by the benefit of rate rises in Transaction Banking. To Moving on to costs on Slide 10.

Speaker 2

We are delivering our operating cost guidance you with costs in Q2 and Q3 of around €4,000,000,000 below the Q1 high point. The company. The cost income ratio improved year on year to 63% consistent with Q2. Barclays U. K.

Speaker 2

Costincome ratio was 56% with total costs flat year on year As we progressed our digital transformation and rationalization of the physical footprint and headcount, Consumer Cards and Payments operating costs increased by 9%, broadly in line with income as we invested to grow U. S. Cards CIB operating costs were stable year on year and below the Q1 levels as guided. As we said, we are evaluating actions to reduce structural costs across the group, and we'll give more detail to our investor update. Moving on to credit on Slide 11.

Speaker 2

We are seeing the benefit of our long standing prudent approach to provisioning, both in terms of credit decisions we have taken in the past, the financial results reflected in our balance sheet provision and coverage ratios as well as the credit protection we have in the CIB. The impairment allowance increased by $300,000,000 to $6,400,000,000 This was primarily driven by our U. S. Cards portfolio In line with our expectations, we updated the macroeconomic variables from Q2, resulting in a modest impact on expected credit losses. We maintained robust coverage ratios of 1.4% for the group and 8.6 the next slide, starting with U.

Speaker 2

K. Cards. To We continue to see conservative customer behavior across our U. K. Portfolios and credit performance remains benign.

Speaker 2

Customers are being disciplined about building unsecured balances with U. K. Cards repayment rates high across the credit spectrum. Although we have grown balances modestly over the past year, interest earning lending balances have decreased, impacting NIM, benefiting credit performance. We do expect IELs to grow in 2024 as our more recent customer acquisition activity begins to mature.

Speaker 2

30 day arrears Rates remain stable and low relative to historic levels. The nature of our U. S. Cards proposition is different. As a reminder, we are the partner card issuer for around 20 clients' rewards programs, including some of the biggest brands in the U.

Speaker 2

S. Given our historic SKU to travel and airlines, this is a high credit quality portfolio. Our risk mix you. Has improved since the end of 2019 with 88% of the book above a 6.60 FICO compared to 86 at the end of 2019, including the addition of the GAAP portfolio in 2022. To On the chart, you can see that 30 day arrears rates are now in line with our pre pandemic experience at 2.7% As we expected, our impairment coverage also increased to 9.7% with Stage 2 now at 35%, reflecting our expectation of higher unemployment from September's low level of 3.8% to a peak of 4.4% by Q3 2024.

Speaker 2

This was, of course, result in increased arrears, which are reflected in our balance sheet provisioning. Moving on to the impairment charge on Slide 13. To the impairment charge of $433,000,000 was up around $50,000,000 year on year, giving a loan loss rate of 42 basis points. To Most of the Q3 charge was driven by growth in U. S.

Speaker 2

Card balances, continued seasoning of the GAAP book in line with expectations and the increase in arrears that I mentioned. Our guidance of 50 to 60 basis points through the cycle to our financial results. We are mindful that Q4 usually sees a higher charge, in part reflecting seasonality and our expectations of U. S. Cards growth over the holiday season.

Speaker 2

This generally leads to higher balances and some build in impairment under IFRS 9 where increased utilization even by customers who are making timely payments can trigger Stage 2 migration. The Barclays the U. K. Charge was €59,000,000 with a loan loss rate of 10 basis points and this has been below 30 now for nearly 3 years. Even though our customers are experiencing affordability pressures, This is not translating into credit stress as they manage their finances proactively.

Speaker 2

The CIB had a small release We are seeing no real observed credit deterioration with our synthetic credit protection also working well. Moving now to the business performance, starting with Barclays UK on Slide 14. Profits were stable year on year ROCE of 21% for the quarter. Excluding the U. K.

Speaker 2

Wealth transfer, income was up 1%.

Speaker 3

To the financial results.

Speaker 2

Costs were broadly stable as our transformation plan progressed, resulting in a cost to income ratio of 56% for the quarter. Loan growth remains muted, reflecting customer caution in the current macroeconomic environment and our prudent risk positioning. To the financial results. The reduction in business banking assets was driven primarily by repayment of government backed loan schemes of CHF 2,700,000,000 Mortgage balances were stable in the quarter at £166,000,000,000 with remortgaging still contributing most of the activity. Now looking at BUK NIM, which was 304 basis points.

Speaker 2

As a reminder, the U. K. NII is around 25 percent of group income and one basis point of NIM equates to around €20,000,000 of NII annualized or less than 0.1% of group income. At Q2, we said that we expected NIM to step down in Q3 and then to stabilize into Q4. Most of the moving parts played out as expected in Q3, with structural hedge tailwinds continuing and mortgage margin pressure somewhat easing.

Speaker 2

The impact of base rates was also in line given pass through rates have increased. To However, the step down in NIM in Q3 was larger than expected with deposit the financial results and mix trends more pronounced. Average balances quarter on quarter actually contributed a larger deposit effect the period end balances we have shown on the slide. When combined with pricing effect, This reduced NIM by a net 21 basis points compared to a net 6 basis points in Q2. To you.

Speaker 2

You can see that we grew deposits during the pandemic by £53,000,000,000 to £258,000,000,000 by the end of 2022 our customers built up cash with us in their current and instant access accounts. We anticipated that these balances would fall our customers manage their finances proactively, paying down debt and locking in high yields on their residual savings. To our current account moves appear in line with the latest Bank of England industry data, but intense competitive pricing We did not capture as much of the flow into higher rate products. We emphasized at Q2 our sensitive guidance is to the level and mix of deposits and this remains the case. We now guide to a range of 3.05 to the 3 10 basis points for the full year.

Speaker 2

To help frame this, if we see similar trends in Q4 as we did in Q3, 3, both in terms of mix and volume, full year NIM would be towards the top end of this range. Turning now to structural hedge income, 2 thirds of which accrue to Barclays UK. Slide 16 illustrates the importance to the hedge to the level and visibility of our future net interest income. The hedge is designed to reduce volatility in NII. So in an environment where rates are peaking and eventually start to fall, it will help to stabilize NIM.

Speaker 2

It also provides a high degree of certainty to future NII. The chart shows that 95% of to our financial results. Our 2019 gross hedge income is already locked in. And the next 2 years, portions of locked in NII have increased by £300,000,000 to £400,000,000 per year since H1 as we rolled a further quarter of hedge maturities. Notional hedge balances reduced by €4,000,000,000 in Q3 to €252,000,000,000 Given the trends we are seeing in retail deposits, we expect the notional balance to continue to reduce more or less in line with lower hedgeable deposits.

Speaker 2

To swap rates currently at around 4.5% means reinvestment rates remain well above maturing yields We're around 1% to 1.5% for the next 2 years. And with $50,000,000,000 to $60,000,000,000 of hedges maturing annually over this period, We expect the reinvestment effect to outweigh notional hedge declines. Turning now to Consumer Cards and Payments the Private Bank, total invested assets were 105,000,000,000 up 27%, excluding U. K. Wealth, as clients moved deposits to money market funds and other investments with us.

Speaker 2

Payments income was modestly down year on year as customers adjusted their spending to lower value essential items, which have lower margins offsetting the 9% increase in payments processed. ROTE was 9.6%, reflecting both higher income and operating costs year on year as we grow these businesses. Moving on to the CIB. To CIB income fell 6% year on year in sterling terms, in part reflecting the stronger sterling U. S.

Speaker 2

Dollar rate. The more stable elements of our CIB income performed as we expected. In markets, the relative the company's ability from our combined fixed income and equity financing businesses was visible again compared to the downward move in intermediation. Ann Corporate delivered strong year on year income growth, reflecting higher rates in Transaction Banking and the non repeat of leveraged finance marks this time last year in corporate lending. As you heard from Venkat, markets was down 13% in dollars versus a record Q3 in 2022.

Speaker 2

SIC fell 19% in dollars as we benefited less from U. S. Rates volatility Compared to gilt volatility in the U. K. This time last year, fixed income financing income reduced to due to a normalization of inflation linked benefits as we have mentioned previously.

Speaker 2

Adria's smaller and securitized products, which was an area of strength for some of our peers. Equities was up 3% in dollars Our derivatives and cash performance was partially offset by equity financing as client balances continue to grow, albeit our financial results. Banking fees were down 24% year on year with a better performance in ECM not sufficient to offset weaker DCM and advisory given the relative scale of those businesses for us. Combined with stable costs and a small impairment release, RoTE was 9.2%, which Even in a mixed quarter like this one does not reflect the potential of our franchise. CIB RWAs were relatively stable to our shareholders and liquid balance sheet with diverse sources of funding and a significant excess of deposits over loans.

Speaker 2

Looking at these metrics in more detail, starting with capital on Slide 20. Our CET1 ratio increased around 20 basis to 14%. Attributable profit generated 37 basis points, totaling 128 basis points over the last to the next 3 quarters. As we indicated previously, our NDA hurdle increased to 11.8% from the increase the U. K.

Speaker 2

Countercyclical buffer, and we continue to operate with ample headroom. While Basel 3.1 remains at proposal stage, We continue to guide to the day 1 RWA impact to be at the lower end of the 5% to 10% range. This reflects what we see from all the proposals across the jurisdictions we operate in, including the U. S. As a reminder, the PRA's rules remain the most relevant on a group consolidated basis.

Speaker 2

Our total deposit position remains stable as we have our diverse deposit franchise across consumer, U. K. And international corporate customers. Within that, the decline in the U. K.

Speaker 2

Deposits that we discussed earlier was more than to manage seasonal fluctuations that we often see around year end from balances held for financial sector clients. Our LCR of 159 percent represents a surplus of $116,000,000,000 above our minimum regulatory requirements. We continue to be comfortable with our liquidity position, and we have demonstrated its robustness throughout the market disruption earlier this year. So concluding with our outlook, we are evaluating actions to reduce structural costs to help drive future returns, you, which may result in material additional charges in Q4 impacting this year's statutory performance. Excluding any such structural cost actions, we continue to target RoTE above 10% in 2023 the cost income ratio in the low 60s.

Speaker 2

Our loan loss rate guidance remains 50 to 60 basis points. This is higher than the year to date experience allowing for some potential seasonality in U. S. Cards in Q4. As of now, we are not seeing anything that concerns us and we would view the guidance as that's through the cycle range.

Speaker 2

Our CET1 ratio was at the top end of our target range and strong capital generation in the year to date support our commitment to return capital to shareholders. We will provide more detail at an investor update of our full year results in February, including our capital allocation priorities and revised financial targets. To

Operator

to Flo Baitis. Our first question today comes from Alvaro Serrano Morgan Stanley. Please go ahead. Your line is now open.

Speaker 4

Hi, good morning. A couple of questions please on the first one on U. K. NIM. Your guidance, I think I understood the top end of the guidance, the 3.10 assumes a similar sort of deposit trend as in Q3, I.

Speaker 4

E, I guess, your guidance implicitly to says that things could get worse in Q4 in terms of mix and volumes. Can you maybe sort of explain what happened during Q3 and why Have you given yourself some room for deteriorating trends? I think most of the guidance from your peers and to And maybe even yourselves was that once the rate sort of hikes were over, you would see much more stable deposits. So interested to see why you've left yourself some room for deterioration. And second point second question is on the restructuring charge in Q4.

Speaker 4

To your 10% RoTE guidance is now ex this restructuring charge. The question is, to the year because I would have thought given the provisions are going much better than expected, you would have had plenty of room to cover potential restructuring without going to your RoTE guidance, but that doesn't seem to be the case. So maybe how should we think about year end distribution? Obviously, Cowen doing better, is that more restructuring

Speaker 2

Thank you, Alvaro. Good morning, and thanks for starting off the questioning. I'll take the first one, and then I'll pass to Venkat for the second half of that. So let me just talk through U. K.

Speaker 2

NIM in the Q3. And just to level set and reiterate what I said on the call, A basis point of near miss €20,000,000 annualized, less than 0.1 percent of group income. What we said at Q2 was that we expected NIM to step down in the 3rd quarter and somewhat stabilize to the 4th. There were a few moving parts within that, and much of it has played out as we expected. So we've seen a lessening of the impact of mortgage churn.

Speaker 2

We've seen a continued tailwind from the structural hedges. Actually, deposit pricing played out roughly as we expected, and you can see that that's negative in the quarter for the first time as we indicated it might be. What's really different is the movement in deposits. And what I said on the call earlier was that actually the movement in average deposit is a bit more significant than the quarter end might indicate. And whilst we saw very similar trends to the overall Bank of England movement in current accounts through the quarter.

Speaker 2

We captured less of that into fixed term deposits than we might have expected to, and that related purely to the intensity of competition that we saw During the quarter, it's very intense at particular point. And it's really that that's made the reference. So I would say it's the positive behavior that has somewhat intensified in response to pricing. To So previously, we said that we expected that to be more stable in Q4, and that's simply because to to just because of these competitive dynamics, and that's really what's causing us to change that outlook. We're not saying that it will be better or worse in the Q4.

Speaker 2

I think what we are saying is that this customer deposit behavior has been relatively difficult to predict, and that's why we're giving you a range to indicating to you that if we saw something similar, that would be towards the top of that range. That's the reason for the change in guidance. Venkat?

Speaker 1

Yes. Thanks, Anna. And to Alvaro, I'm sure you sort of caught this through the presentation, but just to add on the NIM point for 1 minute. To Overall group deposits, as Ana said, BUK NIM is part of our overall NIM. Our overall deposits grew about $7,000,000,000 quarter on quarter, to And our NII is up about 6% year on year at $3,200,000,000 and NIM itself at 3.98% at the group level, again 13 bps higher.

Speaker 1

So, Ana, to think about in the larger context. And also coming back to the restructuring charge, 2 things I would say. To One is you should think of this structural cost action as in part to the investor update, which we will provide in February. So what this is, to We have to announce it now because as we work through it, we will likely take a charge in Q4. That's why we announced it now.

Speaker 1

But you should think of it as not something related to a quarter or the last two quarters, but part of the larger restructure structural improvement of efficiency and productivity for the bank. As for your specific question, what I would say is a few things. Number 1 is that We very deliberately start this quarter at a strong capital position of 14%, And we've got a capital generation of about 130 basis points of CET1 ratio year to date. This underpins our ability to return capital to shareholders. As far as our desire, you know, we completed a €750,000,000 buyback to the first half and so total distribution so far this year are €1,200,000,000 which is about 30% higher versus the first half of last year.

Speaker 1

And this really reflects our commitment to return capital to shareholders. We spoke about the efficiencies we're driving across the group. Equally, you should know that we are comfortable to operate in the full range of 13% to 14%, and we have been there in the past. Obviously, any capital action ultimately is approved by the Board and approved by regulators. But from our point of view, and we'll come back with the details In February, from our point of view, good initial starting position, good capital generation across the bank, understand the importance and the priority to our shareholders in returning capital, willingness to operate through the range.

Speaker 4

Thank you very

Speaker 2

much. Next question please.

Operator

To The next question comes from Jason Napier from UBS. Please go ahead, Jason. Your line is now open.

Speaker 5

Good morning. Thank you for taking my questions. To 2 for me. The first is coming back to the issue of the flag restructuring charges of Venkat. As you mentioned, capital Really strong.

Speaker 5

And in fact, the Q3 beat alone is £1,000,000,000 relative to consensus. And so I guess anything that you could say to provide a rough sense of how much you're looking at spending here. I appreciate this is not the venue at which you wanted to give it. But to today, conversations with investors are that there's no there seem to be risks on the payout front with to No sense of how much cost savings we might be talking about or where in the group you might be looking to be more efficient. Clearly, we think it's the right to But the $1,000,000,000 beat on CET1 is 7% of annual group costs.

Speaker 5

You could do a lot with that. So anything you can do to be helpful on What the payback would be for the charges that are already in mind and which are triggering these provisions? That would be the first. And then secondly, linked to that, at your conference in New York last well, in September last month, month before. You said you were happy with the mix of business to the group.

Speaker 5

And so I wonder whether you'd give us a sense as to when you talk about updating investors on capital allocation priorities, to whether you're really just talking about what grows faster in future or whether we should have in mind a sense that the present mix

Speaker 1

to Yes. Good questions, Jason. Thank you. Let me begin on both of them and then I'll let Anna add on any details. So on the capital versus Look, this is not the right place to be keeping it.

Speaker 1

I think, as I said in the answer to the previous question, to Alvaro, we started a good point on capital. We've been accretive on capital and due to spending and the restructuring In the larger term context, I'll let Anna add to that in a minute. And on the second thing, what I would say is, I mean, I view the investor update in a simple way. It's obviously complex to analyze and execute, but I view the question in a simple way. It is what do you think is the target return that this bank can generate for its shareholders?

Speaker 1

So what's the RoTE ambition? How it's comprised at the group level and in the individual businesses. How much can it improve in the individual businesses? And therefore, what is it that you wish to I also said in New York, it's very, very clear that the market values different businesses differently, Right. And we obviously have to take that into account in the way in which we think about our capital allocation.

Speaker 1

To And so you sort of put it all together and you get the picture of where we think we want to go, but obviously more details on that to And then ultimately, once you do that, then to be targeted about saying what of that growth and return to you, which you target returning to investors, because I do absolutely take the point that we don't to We announced that the buybacks on a half yearly basis, and we should we don't have a target out there for that, and that would be something that I think our investors We're fine, decided to.

Speaker 2

Anna? Thanks, Venkat. Jason, we're still going through the process of evaluating those actions, As we said, so we haven't come to a finalized list yet. We have called them material. Let me help you a little.

Speaker 2

You'll note that from our RA, We have called out the year to date restructuring charge is around €120,000,000 So We've shown that to you and told you that it's largely in the U. K. In any typical year, we run at between €200,000,000 or €300,000,000 So by calling this out, we're indicating to you that it will be higher than that, but I can't comment on specific levels simply because we haven't finished the work. But as Venkat said, as we take those physicians. We're extremely focused on future returns, and we understand and are committed to shareholder returns.

Speaker 2

So that's very much in our mind. The other point around sort of the strength of the capital position. We've been operating with good cost and capital discipline all year. That's clearly the foundation of where we step out from in February, and we'll tell you more then.

Speaker 5

Thanks very much.

Speaker 2

Okay. Thank you. Can we have the next question please?

Operator

The next question comes from Rohit Chandra Rajan from Bank of America Merrill Lynch. Please go ahead. Your line is now open.

Speaker 6

To Hi, good morning.

Speaker 7

Thank you very much. I just wanted to, sorry, come back on the BUK NIM and really to the trends that you were seeing on deposits through the Q3 and then what you're seeing so far in October. So Annie, you mentioned that the averaging effect was actually worse than the endpoint position, to I'm suggesting that actually things got better in September perhaps. So I was wondering if that's continued in October. So really how we think about sort of the trajectory of those deposit flows through the quarter and then into Q4.

Speaker 7

And then just to to clarify that when you say, if current trends if Q3 trends continue, then they expect to be at the top of the guided range. Is that essentially to taking the margin bridge on Slide 15 and excluding the 5 basis points impact to from pricing. Is that how to think about that? Thank you.

Speaker 2

Thanks, Rohit. Why don't I take those? So what we really mean by the Our average in point is that the outsides were probably a bit more evenly spread through the quarter than they were in the second quarter where to We saw somewhat of an increase in intensity towards the second half. And I don't think It was lessened in September at all. There were certainly quite a few headline rates out there that were extremely Extremely competitive.

Speaker 2

In terms of October, I'd just call out the fact that we haven't yet seen the 1st month's end. So we're still midway through the 1st month. There's nothing in what we can see so far that's really to that's sort of beyond our expectations or our outlook on our own forecast. That's all I can really say at this point in time, but I would just sort of highlight that what we're seeing to the impact of the pricing. In terms of the sort of range of guidance, I mean, what we're really saying rather than any particular point on the bridge is that depending on where those deposit flows go, you could end up with a very different exit rate.

Speaker 2

So that's what we're really calling out to you. To And clearly, if we saw trends similar to what we saw, I. E, the deposit trends continue, Similar to what we saw in Q3, we would be towards the top end of that range, and that would give you a particular jumping off point for 2024. What I would highlight though is that the structural hedge continues to protect the NIM overall. And what you have seen over the last quarter is that we've been able to lock in another large chunk both of 20 20 to Just because of the way that hedge is rolling month on month.

Speaker 3

So, I'm very happy.

Speaker 7

Thank you. Yes, that's very helpful. Thank you. Just a quick follow-up for Kurt then. So given that you talked about the hedge into the coming years And you're expecting this deposit stabilization in Q4.

Speaker 7

I mean, do you have a view going into next year in terms of deposit trajectory given what you're seeing in terms of competition in the market.

Speaker 2

So it's What this year has taught us is that customer deposit behavior is quite difficult to call. So what I'm not going to do is give you a 2024 NIM outlook. What I can tell you is that there are three factors that we're looking at. 1 is positive, 1 is neutral And one is more negative. So the positive impact is clearly the impact of the structural hedge.

Speaker 2

To And we are seeing that the impacts quarter on quarter of mortgage churn are starting to dissipate. To What is more difficult to call is the impact of this ongoing deposit behavior, both the reduction in deposits because customers are using them in order to manage the broader economic environment, to But also the BEM seeking higher rates. Difficult to call out when that would stabilize at Rohed, but all I can say is that there are other to the factors in the mix, most importantly, the structural hedge.

Speaker 1

Okay. Thank

Speaker 7

you very much for that.

Speaker 2

Okay. Thank you. Next question, please.

Operator

Our next question comes from Chris Karant from Autonomous. Please go ahead, Chris. Your line you now

Speaker 8

open. Good morning. Thanks for taking my questions. 2, please, one on NIM and one on ROCE. So I appreciate everything you've said about the difficulty in predicting the positive behavior and the fact that the UK NIM is not the be all end all for your group revenue dynamic.

Speaker 8

Obviously, we had some pretty dramatic shifts in your NIM guidance over a few quarters and there's a huge range of possible 4Q exit levels The range you're now giving us. So a very simple question, please, to help us our own views on what might happen. What's the average cost And then on ROTE, in terms of the risk to 10% ROTE target the operator to discuss

Speaker 3

the financial results of the financial results of the financial results of the financial results of the financial results of the financial results of the financial results of the financial results of the financial results of the financial results of the financial results of the financial results of the financial results

Speaker 8

of the financial

Speaker 3

results of the financial results of the

Speaker 8

financial results of the financial results of the year to date and weigh far out of the 4Q, to To get to say 9% ROTE including restructuring charges, that would imply a sort of a negative bottom line number to the Q4. You've obviously delivered pretty strong ROTE year to date. The fact that you're flagging potentially Not being able to hit the greater than 10% ROTE inclusive of restructuring charges implies Q4 could be a net loss. To Is that the right way for us to be thinking about this? And within that, when you're flagging the $120,000,000 of restructuring charges year to today, is it the case that when we get to the Q4, the catch up to the normal 200,000,000 to 300,000,000 is going to be to In the ROTE calculation and then the exceptional charge on top of that excluded?

Speaker 8

Or is the whole amount potentially going to be excluded when you calculate your ROTE the end of the year to assess delivery on that target. Thank you.

Speaker 2

Okay. Thank you very much, Chris, why don't I take those 2, and I'm sure Venkat will add it if he wants to. So you're right, there has been some to considerable movement on the U. K. NIM, particularly in the last quarter.

Speaker 2

As I said, Clearly, that's driven by customer deposit behavior. And I would highlight for you that As we look at U. K. NIM, we are actually looking at quite a narrow measure. So in comparison to our peers, remember, they would be including all of the corporate income and asset base within there.

Speaker 2

And so really, you should be looking As you make comparisons to the rest of the U. K, you should be looking across both the U. K. And the corporate NIM position. We don't disclose the average rate paid on our deposits, although what we have given you this time to be More helpful is a split of our deposit balances and indeed how that has trended over time.

Speaker 2

To And it's showing very clearly that, that movement into term, as you would expect and as many have commented from Bank of England data. On your second question, so to be clear, what we are not is giving any kind of PBT forecast for the Q4 here, and it wouldn't be appropriate for us to do so. Not least, We haven't concluded our assessment of the structural actions that we may take. Merely what we're calling out is a few things. Firstly, we're clearly going into the 4th quarter with good ROTE momentum.

Speaker 2

We've delivered 12.5% year to date, Somewhat ahead of consensus. However, the 4th quarter does have some seasonal impacts in it. So Typically, we see lower CIB income. Typically, we see higher impairment in U. S.

Speaker 2

Cards, in particular, Simply because of the seasonality in spending, we also see impacts from the bank levy, you. And we've just given you an indication that we see a continuation of deposit trends in the U. K. So Not saying anything more than that in that typically you expect ROCE to be lower in the Q4 than in the preceding 3. And to the extent that we take decisions in that 4th quarter that may impact the ROTE.

Speaker 2

Now as we do so, we are very focused on future returns for the business. So our overall objective here is to improve the returns of the business through time. Clearly, efficiency and effectiveness is a key part of that. So So we're just calling out our intention to continue that cost focus for the business.

Speaker 1

Yes. And I cannot emphasize that last to Dana. I cannot emphasize too much that last point which Anna made, which is that think about this in terms of the investor update in February to the longer term plan for productivity and efficiency in this bank.

Speaker 8

If I could just follow-up on the ROCE point first, I mean, the year to date, you've done $4,400,000,000 of profit. Your average tangible It's probably going to be something like €47,000,000,000 for the year. So you're pretty much all the way there to delivering a 10% royalty on the 9 months to date. To So to get to a point where you're flagging to us that you might not do greater than 10% for the full year, to Woodstein. I mean, I think unless I'm missing something there, the math implies potentially very, very material to Am I missing something there?

Speaker 8

I mean, it does seem in the context of Doctor. Baig, where I had some investors asking whether you might be announcing a surprise buyback. This is obviously kind of top of mind to your investor base, how you're going to be balancing these things. Are we looking at potentially greater than a bit of restructuring or cost to achieve or whatever we're going to be titling it in the Q4. I mean that's even except Susanality and Bank of America.

Speaker 2

So Chris, I understand the math of what you're putting in front of me. I'm going to say the same thing that we have not yet concluded on those plans. To the extent that we do, we will update the market further at full year, both in terms around the costs to also the ongoing impact that we would expect them to have. Just as investors do, to on top of our mind, too, as Venkat pointed out. So as we take these decisions, we will be extremely mindful.

Speaker 2

Ann, as you said previously, we go into the 4th quarter very deliberately at the top end of our capital range.

Speaker 8

And on the deposit cost point, if I could just on that as well, please. I mean, how if I frame it slightly differently, how do you to expect investors to be able to take a view on what might happen with the BUK NIM unless we're armed with Basic information about what you're currently paying on deposits relative to the types of offers that are out there in the market. You'll flag competitive offers as a key driver for the fact you're reguiding them lower and seeing deposit attrition, but We don't know how much better those rates are relative to what you're currently paying or have been paying earlier in the year. It's very difficult for us to take a view on What's going on there without that?

Speaker 2

So Chris, all I would say is that you both on our website and indeed in any branch. You will see that we are competitively positioned across our term deposits, across our ISAs, across our instant access, for example, Rainy Day Saver. So we don't genuinely believe that there's something mispriced in our savings franchise. We're happy with it. From to you.

Speaker 2

Quarter to quarter, you will see other competitors operating in a different way.

Speaker 8

Okay. You.

Speaker 2

Okay. Next question please.

Operator

The next question comes from Guy Stebbings from BNP Harry Baer. Please go ahead, Guy. Your line is now open.

Speaker 8

Hi, good morning, everyone. A couple of questions on deposits, firstly, the U. K. And then outside the U. K.

Speaker 8

So 1st, I'm trying to understand the comment that pricing played out as expected. Are you talking for Barclays or for the industry? I I would think about pricing and then movements in deposits for individual institutions is very much linked, I. E, how do you price up more in line with some peers than the balance movement would have been such a headwind.

Speaker 3

So perhaps you could clarify that, but I'm

Speaker 8

just trying to think about it in the context of how you might want to react more to protect balances in the future in a competitive marketplace. And then outside the U. K, clearly that was much stronger. Could you just give a bit more color around what you're seeing, what the strategy is there and sort of Are you having to pay up? Or is this very much profitable deposit growth that you're seeing outside the UK?

Speaker 8

Thank you.

Speaker 2

Okay. Thanks, Guy. I'll take both of those. So what I meant by the pricing was as we expected. Clearly, we knew at Q2 when we reported to you the price changes we were going to make and therefore that deposit bucket, the one that's called bank rate is broadly as we expected it to be.

Speaker 2

Now what subsequently happened to both the level and mix of deposits is much more driven by the external competitive environment, and that's what we are Very similarly to what I just said to Chris, we are Happy for the overall level of our savings pricing. Our strategy is to encourage our customers to develop to healthy savings habits. We are pricing to, as far as possible, maintain our franchise rather than to attract hot money, and we will price competitively but not uncommercially. So to the extent that we see competitive pricing going to In that direction, then obviously, we would not follow it. I think the other thing just to put in the mix as everybody is looking at the impact of the U.

Speaker 2

K. NIM, please do not discount the impact on impairment. So all of this behavior, this conservatism in behavior is also flowing through into the impairment line and the U. K. Impairment has been lower than consensus for 9 successive quarters.

Speaker 2

So just worth bearing that in mind. To the second point that you asked about, which is around the deposits elsewhere. I mean, in a high rate, persistently high inflationary environment, we would expect to see high level Deposits flow from retail customers towards corporate. That's exactly what we see. And given our franchise, that is to what you're observing.

Speaker 2

So U. K. Corporate deposits are very stable. You see some migration, but very stable in totality. And what we've seen in the quarter is a continued inflow, more from global corporates.

Speaker 2

To that particularly fairly long tenure term funding Competitively priced, but good for the deposit franchise overall. So It's very much a continuation of what we called out actually in Q2 and indeed Q1.

Speaker 1

If I may just Stefan and emphasize the point Anna made about the link between deposits and impairment. I think it's to me, it's one of the interesting things that we've Seane, where we've seen people using their deposits to pay down debt in whether it's mortgages or other things. One, it shows that they had the ability to do it. So obviously, it's helpful with impairments, but it also gives you an idea of the type of credit quality of customer we have, Which I think is a good thing. So as Anna said, 9 quarters of continuously of positive surprises, meaning lower impairments than consensus in the UK and people using deposits to Shneur to pay down debt.

Speaker 1

It's all a good thing about credit quality.

Speaker 2

Okay. You. Thank you, Guy. Next question, please.

Operator

The next question comes from Benjamin Hans from RBC. Please go ahead. Your line is now open.

Speaker 9

Good morning, both, and thank you for taking my questions. Firstly, It's around just some recent press speculation that you're looking to sell a stake in your U. K. Merchant acquiring business. I know you won't want to comment on that directly, so perhaps the to the operator.

Speaker 9

The first way to

Speaker 3

phrase the question is to

Speaker 9

ask what do you think is the best way of Barclays generating value out of its U. K. Merchant acquiring business going forward? And then secondly, I noticed your statement around the PRA rule was being the most relevant to the expected impact under Basel 3.1. In that context, the regulator gave a Mansion House speech last week.

Speaker 9

Our interpretation of that speech is that we will likely see a softening of the rules around Basel 3.1 when they're announced later this year and in May 2024. Would you agree with that assertion? Thank you.

Speaker 1

To Right. Let me, Benjamin, let me take both of them. First of all, in the UK Merchant Acquiring business, I think to We are fortunate that we've got a business that has both issuances and acceptance. And it is very much a business, which is targeted at corporates and SMEs. And it's to And what it does is that it adds another quiver to our arrow.

Speaker 1

It's a very positive quiver to our arrow when we deal with them. To We provide them transaction services. We provide them obviously basic banking, foreign exchange services to And then Pavan, so much inquiring. The business itself overall is very good. I think there's a broader strategic question for us, which other banks have faced, which is it's a very technology driven business.

Speaker 1

How well do you what is your competitive advantage in this? Is your competitive advantage in developing the technology to or in implementing the technology of building machines which you put with clients or is your comparative advantage in helping service them as part of a larger set of banking to the services. That's the question we are looking at. And then I think the commercial arrangement will come out of the answer to that question. So that's the way we are thinking about that business.

Speaker 1

As far as Basel 3.1 goes, to I'll say 2 things. I also heard the Mansion House speech with interest. I think the UK rules are to solidifying. They will probably on the market risk side resemble the U. S.

Speaker 1

Route. And It is still too soon to say how much of an impact, what kind of changes going forward there are from what we've seen. So I don't want to sort of comment one way or another. I mean, the only thing I would say on this more broadly is, I think at the end of the day, I know there's some commentary to the U. S.

Speaker 1

Banks that the impacts are greater on them. But these capital regimes and we've been under the UK capital regime, of course, These capital regimes are very difficult to calculate apple for apple. And so I think At the end of it, when you look at what the Fed has done and when you look at what the Bank of England has done, what you're probably going to have is roughly comparable capital regimes between the U. S. And the UK, Roughly comparable.

Speaker 2

So let me just round that off. I think, Ben, we're obviously to we note these speeches with interest, but we're waiting the final rules, both in the U. S. And in the U. K.

Speaker 2

And elsewhere. To And of course, we don't yet know what the impact of any changes around Pillar 2 might be. To Until we see it in print, still some uncertainty. So we continue to guide to that 5% to 10% that we've given you to the next question.

Operator

To. The next question comes from Jonathan Pierce from Numis. Please go ahead, Jonathan. Your line is now open.

Speaker 6

To Hello there. 2 from me again, please. The first, I just wondered what was in this 7 basis points other drag that's coming through in the U. K. NIM in the quarter.

Speaker 6

And I think you described it in the email as product mix. Chris. But is it just that or is there some treasury effect coming through there again like we saw earlier in the year and if so how large? The second question is to just focus on one of the bright spots of today's numbers, the TNAV, Very powerful move in the Q3. The cash flow hedge reserves seems to run my own by about 20%, I think, in just 3 months.

Speaker 6

To I don't want to preempt anything you're going to say for the year on new financial targets and the like. But are you completely comfortable that in the medium term, including next year in 2025, that you can still do to greater than 10% RoTE target as it is today, all in including any additional structural cost actions that make them through next year. To against this quite powerful move up in the TNAV because there's nothing to suggest the TNAV isn't going to keep moving up apace from here. To So that's a few questions, thanks.

Speaker 2

Okay. Thanks, Jonathan. I will take both of those. So in the 7 bps Other, to It's product. It contains pretty much everything else that isn't to the left.

Speaker 2

There's nothing significant in there individually. There's a bit of cards. To There's a bit of business banking as we see the government backed lending being paid down. There's also a little bit on Barclays Partner Payments to Barclays Partners Finance, rather. You might recall that we said that we were pausing new business in that space Whilst we replatformed that business technology wise because that's unsecured, although it's small, it can have an impact on NIM.

Speaker 2

So Nothing more than that, nothing specifically in Treasury to call out at all. On TNAV, Clearly, that has moved significantly in the quarter. In part, that is actually a reversal of what you saw TNAV from the beginning of the year. So just to sort of unpack this a little bit. Clearly, what drives TNAV over time is attributable profit, and that's driving good returns as we have done this quarter.

Speaker 2

So that's 8 basis points. There was also 3 basis points that came from the fact that we'd conducted a large part of the share buyback by the end of the quarter, and this is obviously a per share measure. You're right to call out the cash flow hedge reserve, which was 10p in the single quarter. But if you look at the disclosures at the back of the results announcement, actually, you can see that to Jim from the beginning of the year. And what's actually going on here is that as rates fell back a little bit In the Q3, the negative drag from that cash flow hedge reserve just lessened a little bit.

Speaker 2

But that was just unwinding. You might recall in the second quarter, there was a big move in the opposite direction that actually depressed Tiena. So really, as we think going forward from here, we try and strip out that kind of quarter to quarter volatility. What we're really focused on is the accretion of profit to and driving robust returns, and that's really what we'll come back to you on in February. To

Speaker 6

Okay. Thank you.

Speaker 2

Okay. Thank you, Jonathan. Next question, please.

Operator

To. Next question comes from Adam Terrillak from Mediobanca. Please go ahead Adam. Your line is now open.

Speaker 10

Monal, thank you for the questions. I want to come back to deposits and competition for deposits again. Clearly, you've been to surprised in the quarter by the level of competition out there, but the comments you're giving us back is very much that you're confident in your current pricing. I mean, what needs to change in terms of the level of competition out there for that for your view on that to change? If you look at your savings rates, they're clearly a step below your closest peers.

Speaker 10

And from what we can see in the data, then you're losing deposits that whilst pricing up might be a threat to NIM, at least to keeping deposits on the platform. So I just want to kind of understand your approach to competition short term but also medium term if these very competitive rates continue to stay out there. And second, you mentioned on the hedge that the hedge Tim. I'm down in relation to your hedged hedgeable deposits. If I look at the disclosure you've given us today, then It looks like you're hedging much, much more of your savings products than your peers.

Speaker 10

So I'd just like to get a bit more color around how you run that hedge versus your deposits, what your hedged hedgeable deposits actually are and how you see those developing over the next couple of quarters. Thank you.

Speaker 2

Okay. Thanks, Adam. Why don't I take those and I'm sure Venkat might add particularly on pricing. To So as I said on the previous answer, we are pretty comfortable with the way that we are placed to Across the industry between what I would describe as bigger banks and challenger banks, you might have a different need for liquidity, particularly over the next couple of years as TFS and E runs off. So we are mindful of that, and we keep our savings pricing under review.

Speaker 2

But as we are making savings decisions, we think about the franchise and we think about our liquidity and our balance sheet. Those decisions will be different bank by bank an institution by institution. I wouldn't comment further than that. In terms of the hedge, our hedge strategy has been very, very So what we do is we identify rate sensitive balances. We exclude those from the hedge.

Speaker 2

And then on top of that, we maintain a buffer and we hedge the remaining balance. We monitor that hedge on a monthly basis. And what you can see year to date is that we have trimmed our corporate hedge Thus far, we do that by making the decision to pause all or part of the role month by month. And those are active decisions that we take. So we've got ample opportunities to adjust that hedge As we see deposits behavior changing, as compared to our hedge strategy versus competitors.

Speaker 2

I wouldn't comment on it.

Speaker 10

Just a follow-up then, does that imply you see rate in sense

Speaker 2

to There are some balances within our deposits overall that are rate insensitive. So much of our current accounts would be rate insensitive simply because They relate to operational deposits. That will be true in BUK as it is in the Corporate Bank as it is in the Private Bank. To Although you'd expect those constituents to behave differently, so that is certainly true. There is also some rate insensitivity in savings because customers and indeed you.

Speaker 2

Corporate do use some of those savings balances as sort of rainy day funds simplistically. And particularly in instant access accounts. We see customers turning over their savings within the period of about a year, for example, so we have demonstrable evidence of that to

Speaker 3

to The

Operator

next question comes from Edward Burke from Stifel. Please go ahead, Edward. Your line is now open.

Speaker 11

To Yes, good morning everybody. Could I just ask you just trying to get the implications right for sort of 2024 and 2025 now? Because If I look at your the math correctly, and I suppose I'm just checking my math here, it looks like you've got an exit margin of somewhere around 290% into next year. To And I guess we would imagine that that's going to continue to deteriorate because a lot of these deposit trends to our long term trends. If you look back to the last time, interest rates were up 5%.

Speaker 11

The structure of deposit franchise was completely different and the margins were much to smaller than you're getting today. If that is the case, that looks to me like we're looking at maybe €500,000,000 €600,000,000 off consensus for next Just for net interest income and yet consensus is only looking at a 10% return on tangible even now. So Where do we get I mean, I assume you want 10% to be some sort of a base and you wouldn't want to be delivering lower than that. Is it the cost? Is it the cost program?

Speaker 11

Is that should Should we be looking at a cost program to offset that? Is that where the difference comes from? Or how else can we get ourselves back to 10%? Or should we be thinking that actually that is a risk now? To

Speaker 2

Okay. Let me take that, and I'm sure Venkat will add.

Speaker 4

Sure.

Speaker 2

So What we've done is so I'm not going to comment on the exit rate from Q4. What we've done is we've given you a range, Ed, and we've told you what will

Speaker 3

to No, but I just checked

Speaker 11

my math. That was all. I mean,

Speaker 2

if it's a 3%

Speaker 8

we know what 3% are. Okay.

Speaker 11

So it is 2.19%. That's great. Thanks.

Speaker 2

To So your math, as I would expect, I'm sure, is very robust. As we've said before, It may or may not deteriorate next year. I mean, we've got a real tailwind from the hedge, so I'm going to go back to that. Secondly, we've got this neutralization of the mortgages month to month. And then you have ongoing deposit behavior.

Speaker 2

So you're right to say that we're in a different place to where we were sort of and we're going all the way back to 2,006, 2,007. I mean, I would remind you that at that point, the liquidity position of the very large banks was very different. To So all of the large banks were running loan to deposit ratios well in excess of 100%, 150%, 160%, 170% some instances. And therefore, those fixed term deposits were essentially being used in lieu of wholesale funding to large part. So it's a different structure of market overall.

Speaker 2

So I'm not going to comment on where we end, but I would urge you to consider that. In terms of the so we then make the jump from BUK to group. So a percentage point or a bit to Of BUK ROTE is £20,000,000 that's 0.1 percent of group income. So in all of these considerations, we need to consider the rest of the group. So yes, the U.

Speaker 2

K. NIM is to stepping back a bit, but we're also in a position where actually the market for markets and particularly banking is significantly So banking is coming off a decade low. We've seen pretty low levels of unsecured lending in the U. K, relatively muted demand for Wholesale debt, both in SMEs and in Corporate. And of course, if you look across into CC and P, the U.

Speaker 2

S. Cards business continues to Small part of the group. You're right to call out efficiency. We're very focused on that. We see that as a key part of driving our returns.

Speaker 2

And obviously, we'll come back to you with the whole picture in February.

Speaker 1

Yes. I'll just add on the efficiency part of the structural cost actions. Think of it to as a longer term approach to increasing the growth of this bank, correct? That's what the efficiency is about. It's not about making the ledger work.

Speaker 11

Can I just come back on that? In terms of efficiency, though, I mean, Are we talking CIB efficiency? Because your retail bank is making over 20% return on equity. I mean, that feels like a really good number to on most benchmarks. I don't know why you would want to take costs out of that particularly.

Speaker 11

Is it so is it like head office and CIB? Or where would we be seeing that? To

Speaker 1

So look, we'll give you the details later. I applaud you for recognizing the RoTE of our retail bank. It has not come up yet, but it is you're absolutely right. It's doing 20% and it's doing well. But in every part of the bank, there are things which we can do better, Okay.

Speaker 1

And so that's not to take away from the performance of the retail bank, Anna?

Speaker 2

I would not.

Speaker 1

Okay. Thanks.

Speaker 11

Thanks, Joanne. Okay.

Speaker 2

Next question, please. To.

Operator

The next question comes from Joseph Dickerson from Jefferies. Please go ahead, Joseph. Your line is now open.

Speaker 12

To Hi, thanks for taking my question. I guess a couple of things. Just going back to this charge that you intend to take to in Q4, could you just talk about what your hurdles are in terms of payback and timing, just to give us a sense of timeframe and payback. And then secondly, on the CC and P to margin. There was a 63 on my number, 63 bps pickup quarter on quarter to in the margin, which was significant.

Speaker 12

And I guess, how do you think about the trajectory of that, to Particularly given the growth in U. S. Receivables, and I presume that a fair amount of the growth in the U. S. Receivables is coming GAAP, which is a higher yielding book.

Speaker 12

So how do we think about the margin trajectory in CC and P? To

Speaker 2

Okay. Thank you, Joe. I'll take those. So I'm not going to go into the Q4 charge in detail at this juncture. We're obviously still evaluating actions.

Speaker 2

You. You might expect that depending on what those charges relate to, the payback might be slightly different. So you'd expect, to, for example, property to take longer to pay back, whereas other actions that we might take would be faster. But when we talk to you in February, Joe, we will outline what we've done and what we expect that payback to be. To In terms of CT and P, you're correct.

Speaker 2

The net interest margin has stepped forward in the quarter. There are 2 real impacts in there. The first is growth in U. S. Receivables.

Speaker 2

So the growth In the cards business, as we said, balances are up 11% year on year, and that clearly has a powerful effect. To to what we see in either corporate or in BUK. So that has an offsetting impact. Although in the Private Bank, what we see is a flow into invested assets, so we retain that income. It just goes on to a different line.

Speaker 2

There is a one off in the Q3. It's not huge, But I would strip that out ongoing. So that's why we're saying we'd expect Q4 NIM to step back towards to Q2, NIM. So don't think of this step up as permanent. I think there is momentum in the number, but this is somewhat exaggerated by that one off.

Speaker 3

To And

Speaker 12

then can I just be cheeky and ask one other question just given because I think there's been some confusion?

Speaker 2

Yes, it's a small one.

Speaker 12

To It's a very small it's kind of a yes or no question anyway. But just the do you expect to deliver to in line with your 10% or greater return in 2024.

Speaker 2

To we will come back to you on 2024 guidance when we talk to you at the full year. As Venkat said, that's when we plan to update the market on our expectations for returns, capital allocation, cost, to distributions, but you should read that we are very focused on returns ongoing. To Okay. Thank you. So can we go to the final question, please?

Speaker 3

To

Operator

Our final question today comes from Andrew Coombs from Citi. Please go ahead. Your line is now open.

Speaker 9

To Good morning. Thank you for squeezing me on. Two questions, one hopefully very short. First question, You're encouraging us to look at the group NII, including the CIB. So perhaps you could just comment on the transaction banking revenues.

Speaker 9

Obviously, after lot year on year, but they are down Q on Q, which slightly bucks the trend versus what we've seen at U. S. Peers. So perhaps you can elaborate on what drove the Q on Q decline there. And then second on broader point on deposits and pricing, Just in relation to the 14 point FCA action plan, I think their fair value assessment was due by the end of August.

Speaker 9

You had to provide details to the shareholders on communication and evidence, what you are providing to the consumer by end September. I think the next big thing is this whole debate around on sell versus off sale, which comes in from the 1st July 2024. So anything you could say on sell versus off sale? How big a bucket of off sale products you have, how the pricing compares, etcetera, etcetera. Thank you.

Speaker 2

Okay. So

Speaker 3

Let me

Speaker 2

start. So in terms of Transaction Banking, Just step back quarter on quarter. There was a relatively small impact from deposit migration. And again, I would say within corporate, we're seeing migration from our noninterest bearing into interest bearing, Those deposits are remaining within the bank. So that's certainly not the larger part of it.

Speaker 2

What we did see is an impact from the returns in our liquidity buffer. There's Nothing idiosyncratic going on there, more that for any liquidity buffer, the returns are in 2 parts. The first is to Carrie. And then the second is, in any particular quarter, you would see some disposal income. In this environment, our disposal income has been very, very low.

Speaker 2

And given that much of that buffer income is Actually attributed to Transaction Banking, it's had a disproportionate impact to the next question. That will obviously move around a little bit. So we'll see what happens through 4th. So on the consumer duty piece on FCA, we actually did our mailing to you through July August in relation to savings. That was exactly, as you point out, designed to ensure that our customers to Are very much aware of the savings businesses to the results that we have and the rates on offer.

Speaker 2

And increasingly, we see our customers using digital means to you. In November December to our current accounts. And for us, off sale is relatively small, so I wouldn't call it out as an impact. To Okay. So with that, thank you, Andrew, for the Andy, rather, for your final question.

Speaker 2

Really appreciate you attending the call today. Thank you for to your continued interest in Barclays. We look forward to seeing many of you on the road over the next couple of weeks

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Earnings Conference Call
Barclays Q3 2023
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