Barclays PLC (BARC) Earnings Call Transcript & Summary

Thanks, everyone, for coming to this session. Before we start, I just wanted to remind everyone, we're going to do the polling question. If you want to bring it up in your mobile phones at the back of your pass, if you scan the QR code on the blue track the polling questions should appear in your mobile, and I think it's interesting to open the debate. So with that, I can read it out. Hopefully, some of you will have put it on your screens by now. Yes, that's the one. What do you think is key for Barclays to achieve over 10% RoTE -- to achieve their over 10% RoTE target medium term, number one, stronger investment bank trading and fee income driven by market share gains and growth in capital markets; number two, better net interest income as U.K. rates rise and U.S./U.K. cards balances grow; number three, key initiatives in payments and consumers, such as Amazon JV's gaining critical mass; number four, cost discipline, particularly around performance cost if revenue environment is softer; and number five, lower for longer cost of risk. And while I give you a few seconds, I'm delighted to introduce the second session of the day. We're delighted to have Barclays new CEO, recently appointed CEO, Venkat. So thanks, Venkat, for coming.

Thank you, Alvaro.

I think this is your -- is this your first conference since you've been appointed?

Yes, it's my first outing, so to speak. Yes, thank you. And I'm very glad that it's your conference.

Thank you. We're delighted, certainly.

Thank you.

Before we start, maybe that's given a few seconds for the results. So I think the main driver is better net interest income in U.K. and the cards and actually, cost discipline 29% and investment banking, 23%. So actually, it's really about the retail part of the business. I think that's probably a good setting for the discussion. Look, maybe the first sort of question. It's on -- it's probably the -- on the current situation probably. You've taken over as CEO now a few months back. Maybe you can start with how do you see the group? And obviously, now the situation in Russia, sort of Ukraine is an area of focus. You clearly don't have any direct presence. However, I think we're all sort of know that you're head of risk background, I think, gives you unique insight. So maybe you can start with giving us some color how you think about the potential risks around obviously not direct, but maybe indirect or second order effects, trading, et cetera, et cetera. I mean as an opening?

Yes. So thank you, Alvaro, again. It's very nice to be here. I think the important thing to view Russia-Ukraine is it's a very enormous event. It's a tragic event at a human level. We are seeing the effects of it day by day, and a human tragedy of this proportion has not been seen in Europe arguably for 70 years, certainly not since the Balkan conflict in the early '90s. So the very first thing, while we talk about the financials -- financial impact is to keep in mind that human tragedy, which all of us have a duty to try to help with. The second thing is the context in which it happened. So even before the Russia-Ukraine events, we presented our earnings the day before. And one of the things I had said was I felt that this was going to be more than usually risky environment. And the reason for that was we were coming off from a period of low -- very high liquidity in the marketplace provided by central banks. We have seen inflation being more persistent perhaps than central bankers had thought through 2021, and we were beginning to see the first responses. You'd had it in the U.K. and expecting it in the U.S. In addition, even at the start of this year, asset prices were inflated, certainly in the equity markets, not -- I'm not saying wrongly inflated, but they were at high levels. Spreads were at low levels. Leverage within the system had been increasing because the cost of leverage was low. And unusually, compared to previous economic cycles where you might have seen this thing -- been in the similar environment, a fair amount of leverage was among private equity and private credit, which you could argue on the one hand is slower to respond because they don't have the mark-to-market pressures. But on the other hand, by its very nature, it's not as obvious as if it were in the public markets. So in that context, which if you just said all of that without bringing in Russia-Ukraine, you would have had a reason to be cautious about the environment to begin with. And the other thing I would say, we had certainly been spending some time thinking about, and those of you in the business know this, is there are cycles in the business. The last financial crisis was 15 years ago. Many of our traders, you walk onto any trading desk, are on average in their 30s. So they were quite young in the last financial crisis. And very, very few people, I might be one of the only ones, had traded in the '90s, when you actually had consistently rising rates. So there was a question of experience with this kind of situation. So now on to that, layer Russia-Ukraine, right, onto that environment. And then I think what you get is potentially a catalyst for a more abrupt movement. So until this point, you might have said, well, there are all these tensions in the market. There are these extremes, but "the air can be let out of the bubble slowly" because everybody knows about them, the central banks are attentive to them, and the air can be let out slowly. And then this thing comes, which might puncture the balloon, right? It has not yet. It has not yet, to be very, very clear, but it creates the risk of a more sudden move. So then in that context, I think it's important to look at 3 issues. The very first order, of course, is your direct exposures in Russia, what do you have onshore, what do you -- who are you lending to, et cetera? How do you make sanctions work. And as you mentioned, Alvaro, we were fortunate to have exited Russia directly about 6, 7 years ago. So we don't have a direct presence. But of course, we're a large investment bank. We make markets. We trade. And so our exposures were mainly around ruble trading, counterparty exposures, some corporate bank deposits. We obviously bank people here in London, and we bank certain Russians and Russian entities through our private bank. And we've been managing -- they're all relatively well secured. So it's more managing the sanctions risk than a real credit risk issue. Moving beyond the first order to the second order where I think, by the way, we still are, right, is what I would call contingent and counterparty risks. So the contingent risk is that you have credit exposure to somebody who themselves have credit exposures in Russia. The most obvious example of that in the immediate short term is the commodities complex and people who trade in the commodities complex but also companies who are exposed to commodity price changes. And then the counterparty risk is a variant of the contingent risk, which is in your actual trading businesses, who are you dealing with who may have cash flow problems because of exposures to Russia. And that is something we've been very attentive to I'm, as you see, a former risk officer, and it'll take me some time to shed that memory. But I think it's important day by day to find out these things and to make sure that you manage them well. In events like this, it's been my experience that you find linkages across the world that, in retrospect, will always look obvious, but at the time or before the time are not apparent to you. And you'll find notice linkages in terms of people who you didn't think would be having Russian exposure having it. But you also have linkages in the sense of somebody else's contingent and counterparty exposure affects them, right, the so-called domino effect. And I think we are very much in Phase 2 of worrying about those things. We're not out of that, right? And then I think there's Phase 3, which is probably beginning. And Phase 3 or the third order effect is what is going to happen to the broader economies of Europe, the U.K. and the U.S. not just economically because of the impact of cost of living, fuel prices, inflation. There's going to be some fiscal cost of managing the human impact of this, especially in Europe and the humanitarian impact, I should say, more accurate word, and what impact it in turn has on government fiscal and monetary policy and how that deviates from prior expectations. Look, so I think if anything, if -- my view is that the further away you go from Europe, the smaller those effects are. So I think the U.S., both by the size of its economy and by its distance from this issue, is going to be less affected. I think the U.K. is going to be a little more affected. And then, of course, Europe is going to feel the bigger brunt for a variety of reasons, including exposure to Russian commodities. In that context, I do think though that the interest rate environment will still be pricing in higher rates. I think the challenge for central banks is the age-old inflation versus growth. And I think though the inflation problem is clear and present, and you'll see it right in front of you. And this week, we're going to sort of get news today in the U.K. -- in the U.S. and tomorrow in the U.K. about what they think. My expectation is that they would emphasize the inflation risk today versus the growth risk of tomorrow or day after tomorrow. But that growth risk might affect the total number you'd expect over the full year. So I gave you a very long answer I'm sorry to...

That's the topic of the current situation, that's an extremely useful sort of food for thought. Maybe if we start sort of a couple of questions on how you see the bank in the current circumstances, where you want to steer the businesses. Maybe I can -- I had a couple of questions on the CIB. I'll bundle them together and let you sort of get in which direction you want. You're currently Top 6 investment bank globally. You said, I think, with the full year results that you want to maintain that. Where do you think you can still have room to gain market share? And obviously, we've had 2 very strong years at CIB. And we're heading into some kind of more normalized environment. So with that in mind, how confident are that you can gain market share and stabilize, keep profits sort of at a good level?

Well, you always have to work at it, right? Because it is what I call both a cyclical business and a volatile business. I think one of the things that has enabled us to achieve this position over the last few years is both a commitment to the business, which was a question about Barclays, to be frank, 5 to 7 years ago. So we are committed to the business and a commitment to investing in the capabilities, which means both people and technology. And I think if you demonstrate a commitment, you invest in people, you invest in technology, and you do it reasonably well, you get clients who entrust you with their businesses, whether it be on the trading side or the banking side. And hopefully, you delivered for them and you built upon that, right? That is the premise we have. That's the approach we will take. Obviously, you have to adjust it for the kind of environment in which we find ourselves. In the banking side, what I would say is that, obviously, we all know that deal volume both in equity and debt capital markets has shrunk compared to a year ago. And so the market has shrunk. What we try to do is to be relevant to our clients in this period, hoping when that recovery comes that we can participate. The -- I certainly think the external environment will have a dampening effect on risk appetites in that primary market. And people will be thoughtful. The longer it goes, though. And if there are companies that find themselves in difficult situations, it presents opportunities for those who are better capitalized. And you saw that even -- you see it after crises, how long it takes is very hard to say and where those opportunities are and when they are and how you can help clients is very hard to say, but we have to manage through that. My joke on the market side is always, volatility is a good thing, but be careful what you wish for. So in general, a little amount of volatility is good for trading. In an environment like this, as you -- as I indicated from the previous answer, you've got to be very, very careful, and you've got to be very prudent and very watchful and be on high alert. And so through this quarter, we sort of manage day-to-day, right? With a lot of attention to managing our risks. So when it comes then to market share, I think over the long term, we still want to continue to maintain and grow our market share. We're happy with our position. You can make a very good living if all goes well as the #6 investment bank. We've been -- in terms of areas, we've been spending more time and money and investment on our prime business, which was growing in balances. Of course, we have to see the impact of these capital markets, what's going on in the market on leverage, right? Because that business does well both as a function of how much balances you have and how much leverage people employ. But that's a business we're committed to. We've been trying to grow and securitized products. I will describe it as filling in gaps and in the banking side in technology and health care, filling in gaps to take advantage of what is in the new economy and to make sure that we have a full capability as an investment bank. And of course, and I'm sure we'll come to this, an important aspect of that is capturing the opportunities as the world transitions to a low-carbon or 0, net 0, environment, which could be the next big area where we want to make sure that we put the skills and capability.

Maybe switching on to the retail side of the business. I mean, sort of Barclays is pretty unique in the sense you've got the payments and the consumer lending part. There are more uncertainties at the moment, but how do you see there the recovery progress? In particular, I'm thinking the U.K., which is probably slower than the U.S. to recovering balances. How do you think about the recovery and the potential there? And in particular, you have the JVs with Amazon in U.K. and Germany. When's that going to take off? And is that sort of that's idiosyncratic to Barclays? Presumably, you can -- that's not going to be -- there's a structural growth there versus the cyclical considerations. How do you think about that opportunity in the U.K. in terms of consumer?

Look, we've got a strong platform in the U.K. We've got obviously a very large market presence across the retail spectrum, deep penetration with customers from retail all the way to small businesses and corporates and a historic presence with them. Like all banks, we have to adjust and adapt to a digital revolution, which, to be frank, all banks, I mean, the banking sector itself, was slow to realize and slow to disrupt itself as is always the case. We're paying a lot of attention to doing that. On the -- I'll take your question in 3 parts. On the Amazon side, the work which we're doing, both in the U.K. and Germany, I think first thing is a form of buy now pay later. Buy now pay later, by the way, it's a nice name, but it's as old as the hills, right? People were always offering credit. I grew up in India, when you, by the third week of the month, if you went to a small shop, he -- his business, his lending business offering people credit who had to wait for the next paycheck was almost more important than the margin he made on selling groceries. But he wrote it in the ledger then or she did. So it's an old product. For us, those joint ventures are important, both because it's a catalyst to develop the right technological solutions. So you do it. You work with a large partner. You learn to work to their standards. You learn to write the right APIs and build that capability. And then -- and we obviously do it with a view towards ultimate growth in market share and profitability. But it gives you, if you like, the infrastructure which you can then try to deploy in other ways. So it's important. And I think when we think about technology in the consumer side, it's as important to think defensively as it is offensively. If you put any project only by the lens -- if you view it only by the lens of what's my returns going to be next year and the year after that and the year after that, many of these things don't make money for 3 to 4 years. On the other hand, you don't do it, you will slowly lose your clients, right? And I think that's part of why banking has always been slow to react to these things because banks, big banks have had large market shares, and many big companies, which are disrupted by technology, have large market shares. And then it grows slowly, slowly, slowly, and then it grows a lot. So we are trying to think very hard on both these terms, both defensively and offensively. And these technologies, whether it's buy now pay later, whether it's various things we do in payments, will be viewed through both those things. And I think it's important to invest, and sometimes you'll see the returns slow, sometimes it will take some time. But even when you don't see it soon, there's a very important defensive capability in it for a bank. As far as the credit card business and lending and growth, so there's a good news/bad news side to this. The good news side is that, obviously, credit conditions are very benign. The bad news side is our lending balances are low, right? It is at the point in the cycle that every pound move we put in our lending balance sheet is net profitable to us because certainly, default rates have a long time to catch up before they eat into that profit margin. And so we are trying to be prudent but aggressive in capturing balance growth and market share. Some of the economic conditions we spoke about earlier could still make it a worse credit environment sooner than we might have thought in January, but I still think there's a way to go, and you can do this. I think that growth has been faster in the U.S., and we can talk about the U.S. later, than it has been in the U.K. And I think in the U.K., part of it is, with COVID, you have seen less discretionary spending on credit cards, which in the U.K. is a little more balanced towards travel and leisure than it is in the U.S. In the U.S., people spend more broadly on their credit cards. Here, there's more debit card usage for certain types of purchases and more credit card usage for certain different types. So there's a segmentation of purchasing behavior. And the segmentation that's in credit cards has been more affected by COVID and longer to recover. And also, we acted very prudently, defensively on our lending at the start of COVID. Okay. I'll take credit or blame for that as the Risk Officer. And obviously, we could not anticipate then how much there would be help from the government and how benign the credit conditions would be. But if you sat in mid-March in 2020, you had every right to be worried, I think. And so we will have to undo some of the effects of that.

I think you mentioned U.S. We've already seen a pickup in balances there. I think they were up 5% of credit card balances in the U.S. in Q4. But it does feel like you're deploying sort of more capital there, and you've got the Gap portfolio that's coming onboard I think it's in Q2. Can you talk a bit about the outlook there and how you're trying to position the business in the U.S.?

Yes. So our U.S. business has millions and millions of credit card borrowers or users, some of them borrow from us, many of whom borrow from us. But we actually have a few dozen customers. Our customers are the large corporates with whom we have partnership deals. So if you do a credit card with American Airlines say, and you have a lot of people who use it and earn miles, I bet you most of them don't know that actually it's Barclays inside, right? It's actually important for us, and it's important for our corporate partner. We are not competing with that corporate partner for that customer. We're not trying to sell them a mortgage. We're not trying to sell them a checking account or a savings account. We are trying to service them well with a credit card, give them the right marketing offers, the right benefits that come from that credit card, run a smooth operation and let our corporate partner get loyal customers for whatever other business they're in, whether it's airlines or hotels or whatever it is. So it's a very nice business from that point of view, which is it's a win-win, right? If you can make the economics work, it is a psychological win-win, right. That business has been travel and hospitality heavy. What that means is that the customers we have are in partnerships or earning points on either a hotel or an airline. They earn a point for every dollar they spend even if they go buy food and groceries. But during the COVID period, obviously, they value the airline mile less, and they weren't buying airline tickets with it and spending. So we were affected a bit by the sector concentration, which we had among our partners. We've tried to, in a very big way, diversify that now with 2 accounts. One is Gap, which is the clothing stores, which includes Gap, Banana Republic, Old Navy, please go buy your jeans there. And that gives us 2 things. It gives us firstly a different demographic because they are not -- they don't travel as much, and it's more small-ticket spending. It's slightly lower credit quality, but you can also earn more. It gives us the ability to learn how to market to these customers. It's a different marketing game when you're talking about those kinds of customers than airlines. It also gives us in-store credit cards, which is what we call private label cards, which you can only use in the Gap shop or whatever. So it broadens our business and gives us better capability. And the other account is AARP, the American Association for Retired People, from whom I was shocked to receive a credit card offer the other day. So anyway, the -- what that is, obviously, is a very different spending and different demographic, but higher credit risk. So it's a very important diversification for our portfolio. The business is very competitive, I should say, right? And so we have to be very careful in credit selection. We think these are 2 good accounts. We have to be very careful in credit selections, and we have to earn our right to win by the service we provide. And that's really, really important. And the last thing we have to manage in that business is concentration. While we may have a few dozen clients, you can't take on an account that is so big that it dominates your portfolio, right? So it's a risk management and relationship management game at many levels, but touch wood, we think we're good at it, and we've been very profitable at it.

I want to leave time for questions. So I'll ask one final one that, I guess, it's might be cost asset quality question, but it's related to the commitment to or the 10% RoTE target that you still aspire to. How confident are you about the levers to achieve that? Obviously, sort of performance costs is one, with the revenues uncertainty that we have, cost is going to be one angle that you need to manage, but also there's uncertainties around how the asset cycle. I realize you've had you still have postmodel adjustments, but maybe you can give your thoughts on how confident are you can manage costs and your thoughts on asset quality to have confidence that 10% medium term [ fit ].

And by asset quality, you mean impairment?

Yes. Provisions, yes.

Provisions. So look, there's revenue, there's cost, there's investment, and there's impairment, right? And cost and investment is sort of variable and fixed costs. On the revenue side, based on the polling results, I should hope for certain outcomes from monetary policy this week. So please pray with me. The second thing, I would say, obviously, there are some tailwinds to us from higher inflation and higher interest rates and our ability to pass on some of it and to keep some of it through our deposit betas. I think from a cost point of view, we've tried very prudently over the last few years to manage our costs. We try to find productivity gains through actions which we can take, and we try to be prudent in our investment. And I think, look, we are in the first 3 months of this year, and depending on how things go, we will adjust that to try to reach our cost targets. I think as far as -- as the impairment cycle goes, it's -- the underlying flow level of impairments is fairly low, right? We're seeing low levels of actual realized defaults. What we have, though, in our models is an estimate of impairment. You all know the great blessings of IFRS 9. But there are 2 parts to that which are affecting how much we have in reserves. One is what we call economic uncertainty, and the other is what we call model uncertainty. So what is economic uncertainty? Economic uncertainty, we try to go to -- we use consensus numbers at the end of every quarter. And for instance, if you looked at consensus economic variables at the end of Q4 last year, they were probably affected by Omicron because people did not know what would happen to growth from that. We are in the process right now, but it's reasonable to expect some amount of either a variation in the range of outcomes or even a lower average outcome we'll see it. It depends on how Russia affects the mood, right? That's economic uncertainty. On top of economic uncertainty, and this is the risk officer in me, there's something we call model uncertainty, which is even if you knew the variables perfectly, every model has error, right? What you think is the impairment is not going to be the impairment. That error gets magnified during periods in the economic cycle. And if you think about these models, they've all been calibrated for a long period of declining interest rates and declining inflation. How accurate do we expect them to be in rising interest rates and rising inflation? I don't know the answer. But I think less accurate. And we have to calibrate after there's a judgment, right? So I think underlying asset quality in terms of realized defaults, certainly on the consumer side is -- and on average, on the corporate side is fairly benign. I say on the corporate side on average because with this Russian situation over time, there will be idiosyncratic events you will see for the reasons of counterparty risk and contingent risk that I mentioned. -- that you'll see across the universe, I think. But the model uncertainty is going to be there. And so we're going to have to look at it. But I believe we are being prudent.

I just -- I will open it up for questions. I don't want to ask all of them. Who wants to ask a question?

There's a lady at the back there.

Yes, thank you.

I'd like to follow up on the question you just had. so it's a [indiscernible]. So what's your attitude to the models? Do you need to see how the models perform as you recalibrate to be more comfortable to extend credit? Or you extend credit to actually see how the models are recalibrated? So what's the sequence in there?

So in an ideal world, if you build these models and run them forever, the credit decisioning models would be identical to your credit impairment models. It's not that way partly because there are various accounting and other rules around the impairment models, and your credit decisioning models have a greater amount of human overlay at an individual credit level. So what I would say is that the credit view on the consumer side is bullish, and we very much are looking to increase credit exposures, especially on the retail side, to do lending. And we have the -- and as I said, I think because we will -- even if we have conservatism in our impairment calculations, we're going to earn more than we lose. I think on the impairment side, we will get a bit better understanding as we go through a period of rising rates and as the economic environment becomes more clear, right? If it just becomes clear in the sense that people say, "Well, I'm going to have higher interest rates and higher unemployment or higher interest rates and lower unemployment." Okay, that's clear, right? And then you can actually make a better forecast. And these are features that we did not invent or put in, in the last year. They were features that were put in 3, 4 years ago. And I actually think they were prudent features because -- at that time, when I was running risk and we were building these models, we were deeply uncomfortable about what you were doing and the amount of data you were using to do this forecast. We were very worried about the full cyclicality of it. And we try to put in these measures to make sure that we were being prudent about the way we approached it.

Next question, please.

Can I ask a question? Historically, every time a computer scientist or a statistician came in, in credit, got killed. This is my experience over 30 years. I always had a scientist, was a derivative French mathematician, was an American peer-to-peer lending with artificial intelligence, then the credit cycle changed, the data were any longer relevant and the guy got killed. I mean -- so I can see now that the venture capitalist guy in America are the new kids on the block, and so that money flowing of them, more losses, higher valuation, so they keep on pouring capital. But the music is about to stop, and we're already seeing the music stopping for all the people like me and you. Do you think competition, as a result, is going to ease, and we're going to see dead body at the first real recession which is likely to happen because of the fiscal is interlimited, rates are now rising. And by the way, we also have a couple of missiles flying around left and right. So do you think the competition out of these guys is going to ease, and hence, it's going to be better for, let's say, older business model like yours, which is about 400, 500 years old?

Thank you, David. I didn't recognize you initially because of the lights. Good question. So this is going to sound rich and complaining from a guy who trades at a valuation of 0.6 talking about firms that trade at a valuation of -- well, I mean, if earnings are negative, you can't even sort of talk about the PE. I am deeply skeptical about lending decisions which are made by certain newer technology companies based on what I think are more limited periods of data and what I think are approaches that run the risk of overfitting to the data because they use lots of variables to try to come to it. Now I could be wrong. They're much smarter than I am. They're certainly younger. They're much smarter. They have access to types of data, high frequency, broader, which may be more relevant to the customers they're banking maybe. And they may have caught on to some secret sauce that the old guys haven't figured out. But you're right, the history of banking sort of tells you that fundamental things apply, right. I think there was a small evidence of this in the very early days of COVID when in the first March/April period of 2020 you had a few of these fintech lending firms suddenly cut off, suddenly cut off and looking to people to give them cash infusions or sell their portfolios. And then they got rescued as everybody got rescued by fiscal policy and monetary policy. It will be interesting in a longer term, whether you're going to see that effect or not. As I said, I can only speak for myself, if we were to use those kinds of models for lending within our bank, maybe we're too old fashioned, maybe we're too conservative, maybe we're 300 years old, but we would subject it to a lot of scrutiny before we agreed to lend on that basis. I'm not saying I'm right. I'm just saying this is an issue.

Next question, please?

I've got a question on capital return that I wanted to ask earlier. Obviously, you've done the -- you announced the 1 billion share buyback. I'm just thinking in the current environment of heightened uncertainty, your 1st of January capital is now 14. You've given some Basel IV sort of longer-term impacts. How do you encourage us to think about distribution going forward? Should we take into account Basel IV? Are you going to be more prudent given the environment? I sort of just want to think about what amount of capital is available for future distribution.

Yes. At our earnings, we said that if we produce a 10% RoTE, that creates about 150 basis points of CET1 accretion, which we think allows us both to invest, hold capital and distribute. We made some adjustments for regulatory moves at the end of -- which brought us from our 15 plus to 14. Basel IV, look, 2 rules in life. Capital only goes up, but it doesn't happen sort of monotonically. It happens in jumps at various points. I think Basel IV is still a little early. It's -- so we don't know when it will come, but we've had a history of being able to sort of build the models and manage it over time. So I can see us being comfortable managing through that at a price to book at which we trade, mathematically, returning capital is very, very attractive. And obviously, there's a balance between dividends and share buybacks. And if we can maintain the 10% RoTE, we think we can be reasonably accretive.

There's a question there. Is that [ Florent? ] Yes.

I was hoping a clarification on what you said earlier about trading. I was just -- my understanding of what you said is given the environment you described at the start of the year, you took down a bit risk appetite? And would that have helped you to navigate some of the turbulence we've seen?

So I was referring, actually, to overall thinking about the risk in the bank, and there's a part of -- it actually relates to the question Alvaro just asked, which is we said on our CET1 ratio that we're going to operate in a range of 13% to 14%. And we did enough of a capital return projection to keep us at 14% at the higher end of that range. And staying at that higher end of the range was in part a view about the overall uncertainty in the environment. So that's the way I'd answer it.

Next question, please. Maybe I'll ask the last one, and we haven't discussed rates. And considering the answer at the beginning, it's a bit unfair that we haven't. In particular, in the U.K., you've had -- you gave the 2.60%, 2.70% NIM guidance for this year. Thank you. That's quite high rate sensitivity versus what some of your competitors have announced. Maybe you can run us through why you think it's higher and maybe sort of what are your thoughts around how much of that can be competed away, which I think is clearly part of the debate at the moment?

Yes, you are right that it is slightly higher. Look, I think we've been reasonably prudent about the assumption of the number of rate rises. We didn't think it was going to be 7 for the U.K. We put in 4 or 5, I think, and then made assumptions about so-called deposit data and also assumptions about our income that's going to come from our structure and product hedges, which we have been very, very disciplined about even during the low points in rates. There was a lot of debate then whether you take some of that stuff off and so on. We didn't, right, because we think that this is a -- it's a feature, not a bug, right? That's something you keep over a period of time. So I think when you look at it in that broader context of expectations of rate rises, our structural hedges, what we think about our own deposit mix, and the beta in terms of just not only what do you think we can pass through but how sticky they will be, no, they're all models, and they could be wrong. And to the earlier question, those models have also not been tested in rising rates and sustained rising rates. So there is a little bit of risk. So we try to be prudent about it. So I'm comfortable still with the numbers we set out.

Great. Conscious we're coming to the end. If there's no last questions, we'll come to the end. I just want to say thank you very much, Venkat. I thought that was a very thoughtful session. You've given a lot to think about. Thank you very much.

Thank you, Alvaro. Thanks very much for inviting me.