Barclays PLC (BARC) Earnings Call Transcript & Summary

Good afternoon. I think I know most of you in the room or have met most of you by now. But for those that don't, I'm Jason Goldberg, and I cover the U.S. large-cap bank stocks here at Barclays. Thank you for attending our 21st Annual Global Financial Services Conference. The feedback so far in the presentations and meetings have been terrific, and I'm sure the rest of the conference will measure up. Tons of people to thank, but I'm going to wait until tomorrow to do that to make sure everything goes smoothly over the next day or so and I want to kind of maximize our time here at lunch today. Very excited to showcase the home team today at lunch in Barclays. As you know, Barclays is a British Universal Bank that's diversified by business, by different types of customers and clients, geographies. You have a large-scale retail and business bank in the U.K. and international bank containing a top-tier global corporate and investment bank and a broad international consumer lending cards and payments franchise. Very pleased to have Venkat return to the stage this year after making his debut as CEO last year. He's been Barclays Chief Executive as of November of 2021. Prior he's Head of Global Markets and Co-President of Barclays Bank and was Group Chief Risk Officer before that. Joining Venkat on stage this year, we're pleased to have Anna Cross, Barclays Group Finance Director since April of last year. So a perfect business mix and a perfect to perfect resumes should make for a fruitful lunch discussion today. So Venkat and Anna, thank you for joining us. We'll throw up the first ARS question just because we've been asking these in all the sessions so far. But maybe we just begin to kind of set the stage. We're a couple of months since the 2Q earnings release, maybe just take us through your performance highlights, remind us what you've been emphasizing to investors.

Yes, sure. What's really important to us is to deliver our consistent results. consistent high performance and Q2 was another step along the way. So we had a great RAT at 11.4%, and that brought us to 13.2% for the half year. And really through every line of the P&L, we saw good income growth, 6% growth, and that's comping against quite a difficult quarter last year. We're very focused on containing our costs and our costs increased by 2%, so positive jaws and very laser focused on maintaining that cost discipline and delivering our commitments. And then impairments, of course, remain pretty benign in the U.K. and in the U.S. And when we take all of that together, what we saw was fantastic capital generation from all of our businesses that allowed us to deliver not only a strong CET1 ratio, but also give a really good return to our shareholders in the terms of dividend and buyback.

Maybe pull up and look from a big pick perspective. Just given my introduction, I talked about Barclays positioning across the consumer corporate payments landscape across the U.S., U.K. and just a high level, maybe talk about what you're seeing, hearing from your broad customer base with respect to the overall macro environment.

So I think, first of all, let's begin here in the United States where we've got a prominent credit card business, but also a large corporate and investment bank business, I think we are seeing the approach to the soft landing where there may be one more hike left in the Fed, but clearly a normalization of inflation, seeing that growth is continuing to be fairly stable at low levels. And on the credit portfolio itself, fairly benign. I mean it's behaving the way it should. Riskier parts of the businesses are slightly more delinquencies than less risky parts, but it's all within how we would predict it using our models. The U.K. is not that much different in terms of delinquency behavior. It is still fairly benign. The U.K. economically has had slower growth or less growth. And the U.K. is a few months behind, maybe a couple of quarters behind, both in terms of monetary policy adjustment as well as in terms of the control of inflation. Now what you saw this morning in the U.K. was a slightly higher unemployment print, which means that the effects of monetary policy tightening, which we've seen over the last 1.5 years or so, seem finally to be hitting the labor market, which I think brings us a little closer to the end game. So I think overall, this is working out to be in this tightening phase, more benign than many had feared and it is coming towards what I'm hoping is a softer landing.

I think that's right. I mean one of the things I'd call out is that despite the fact that affordability pressures are really out there, we know that. Our customers are acting proactively and rationally. And that's both our retail customers and our wholesale clients. So for example, in the U.K., we see customers changing their spending behavior. We see them paying down their debt. We see them being really thoughtful about where they place their deposits to get the highest yield. So they're really managing their balances proactively. So we're not seeing that credit stress. Our mortgage book in the U.K. continues to perform really well. And actually, in the U.K., we stress our affordability very significantly. It's one of the conduct rules that we have. So that's really playing out actually to the customers' benefit and our credit benefit. So we're really well placed though, I think, both in terms of the credit decisions we've taken in the past, the provisions we've got on the balance sheet, but also some of the extra protection that we've put around ourselves in terms of our securitizations across wholesale.

Maybe put up the next ARS question to get the audience involved. What are you most concerned about for proposite returns outlook in the current environment. I guess we can come back and address that. But I guess when you think about returns, Anna, you mentioned 13.2% ROTC in the first half, obviously, appears likely to be over 10% for the year. But looking out, what kind of returns do you think Barclays is capable of?

Yes. I mean let me just add to what Anna said. I mean looking at 13% so far for the first half of this year. But that builds on 2 years of over 11% double-digit returns, 11% and 13% or 13% and 11% in the past 2 years. And that, by the way, is true not just at the aggregate group level, but it's true across the businesses of the group, all performing at a double-digit level. So what you're seeing is businesses that operate in a manner we'd expect them to through the different ups and downs that they individually experience as well as put together, give a fairly stable earnings profile to the bank. And so our target is above 10%, and we are fairly confident of meeting that target for this year 2023. And as we said, we see the monetary policy environment and the economic environment being stable as we approach the end of the year. And consumer is behaving in the way Anna said, which is tightening their balance sheet and being prudent themselves, which when you add their individual credit risk posture to our credit risk posture on top of that makes us believe that we've got a fairly well controlled and good portfolio.

I guess is, when you look at the audience response, there seems to be equal concern about the revenue outlook and the regulatory outlook. I guess when you think about how Barclays is positioned, I guess, maybe where are you kind of most concerned about and how you're approaching it?

So I think on the revenue side, what you're seeing is obviously the normalization of interest rates and the stabilization of that aspect of our earnings. You continue, I think, on the investment banking side. Many of the people at the conference have spoken about it. The stabilization in the markets and in the view is leading to some hope and expectation of a revival of activity, which we are seeing very, very early signs up, but it will take time to play out. It's not something that's happening this week or this month. And I think on the regulatory outlook, the rules are fairly fresh, a little fresher in the United States than Europe and it's complex. It's large. We are multijurisdictional. We have to digest the impact. But suffice it to say that we'll work with the impact and we'll manage our business appropriately in line with the rules.

I guess you mentioned the interest rate backdrop. And when I asked around Barclays investors, net interest margin actually came up a lot. In the U.K. in July, you lowered guidance modestly, I think, from 3 spot 2.0% to 3.15%. Maybe talk to what factors could lead to further changes going forward? And perhaps you can talk to your structural hedge program and how that will work to help to stay margins.

Yes, sure. I think as we go into this, Jason, it's really important to understand our U.K. net interest income in the context of the group. So because it's a little bit different from both our U.K. peers and indeed our U.S. peers. So for Barclays, about 50% of our earnings come from net interest income. And of that, about half of it is BUK. So it's our retail business, and that's the number that we're focused on here. So it gets a huge amount of attention, but I keep reminding people, we've got net interest income from our corporate book and from our private bank as well. Hopefully, one day, someone will ask a question on the call. But in terms of the U.K. NIM, what we called out at the half year were really trends around how customers were managing their deposits. As interest rates continue to rise, what we see is that they are using their deposits to manage their daily lives. They're managing the affordability pressures that Venkat talked about. And it's coming from rates and inflation. So we're seeing a slight reduction in balances across the industry. Barclays is no different. We're seeing customers seeking higher yields on their savings products. So really, what we guided to at the half year was a continuation of those trends that we expect deposit levels to fall within Retail Banking for customers to continue to move their money towards high-yielding deposits and actually for savings pricing across the industry to rise. Into Q3, those trends are persisting, which is what we expected. It's what we should expect given the macro backdrop. Now clearly, that has some impact on NIM. And it's important to note, I think, that we're in an environment that we've never been before, seeing rates rise rapidly. And so there's some uncertainty here, but actually, there are also some positives underpinning NIM, one of which you've mentioned, which is the structural hedge. But one of the other things that we've seen through 2023 is a real compression on the mortgage side. I think we and our peers are all calling out that we expect that compression to ease somewhat as we go into 2024 that will lessen the impact on NIM, but what's most important is the structural hedge. That's there for us to manage the stability of our U.K. retail income. And what we have is a significant amount of that hedge, $50 billion coming to maturity in 2024 at rates of around 1% that will get rolled at the prevailing rate right now. So that gives us some real stability to the NIM as we look forward above and beyond the deposit trends that we're seeing.

Maybe shift gears in terms of expenses and just the cost base in terms of how you're managing costs in the current inflationary environment. And what do you think to balance kind of the desire to continue to invest in the business, invest in technology, yet managing the company for the current landscape?

Why don't I pick up costs and you can go in with investment. So we're super focused on cost and on cost discipline. And we gave some very clear guidance at the beginning of the year around expecting to be in the low 60s for cost income ratio and also that Q1 would be the highest operating cost point for the year for both the CIB and the group. And we reiterated that guidance at the half year. And for us, what we're doing is we're very focused on generating efficiencies to offset the impact on inflation. We've done that successfully so far, but then across each division, we're approaching costs slightly differently. So BUK, our retail business, very focused on transforming that business to make it more digital, more efficient. Within CCP, which is our Consumer Cards and Payments business, that's got U.S. cards in it and a private bank. That's a business that we're growing, but we're disciplined to create operating leverage, positive jaws. And then within the CIB, we've been investing very selectively in businesses that contribute to the continued great performance of that business. And we're focused over time in generating positive jaws in that business, too.

Yes. I mean, just to emphasize what Anna has said, there's a part of investment that we make, which continues to give us cost benefit. And the digitization of our BUK retail offerings is exactly about that, investing in technologies that later on, you can manage other costs better. And then we will continue to invest in areas that allow us to have to generate fee income in a relatively capital-light way. Our wealth business and our private bank is one part of that and we will invest in those things which over a long period will provide attractive returns to our shareholders.

Maybe we'll put up the next ARS question. But how comfortable are you with Barclays asset quality and provisioning. And just maybe we could expand upon that, but there's kind of limited signs of credit stress out there? Just how do you see credit performance developing from here across the portfolios. I think there's a particular interest in the U.K.

Yes, it's interesting. As rates have continued to rise in the U.K. and inflation has been a bit more persistent than perhaps we expected. We saw a very natural reaction from the market and analysts actually predicted higher levels of impairment. I think what we're finding is that our customers are sensitive to interest rates, but just not in that way. We're seeing them manage their deposits very actively. And on the asset side, they're proving much more resilient than perhaps the outside world expected. In Q2, our impairment charge, I think, was lower than consensus anticipated, but it was the size and in the shape that we expected, predominantly focused on our U.S. Cards business, which is a business that we're growing and one where we're seeing impairment trends sort of normalize in line with the industry. So we're seeing no difference there to our U.S. peers. We're seeing an increase in delinquency, but within normal bounds as that business continues to grow. In the U.K., actually, what we've seen is much more conservative asset behavior from customers very little market growth across unsecured, actually, our secured book performance very well. I mentioned before the affordability testing that we do but also nearly 50% of our book is on a 5-year fixed rate, which means customers have the opportunity to manage their financial position before they refix. So we reiterated our guidance, and it's good to see that folks agree with us. Around 50% to 60% loan loss ratio for the full year. That gives some headroom in the second half, both for seasonality and some deterioration if that's what happens in the macro economy. But overall, we feel like we're really well positioned.

Maybe go to the next ARS question. What do you think it will take for Barclays to close this valuation gap? And before I ask the next question, I'll warn you. So we pulled investors before this that kind of what's on your mind. So as credit quality name ROE and expenses, maybe not surprising. The next question comes from my wife, but Barclays is trading at 1.5x tangible book which she thinks is too low. What do you think the market is missing? And what are you doing to change that?

You might get a better answer from my wife. So obviously, it's a question that preoccupies my mind, preoccupies Anna's mind and that much about senior management. I think that at the end of the day, there are 2 important things for us to emphasize in our performance and to convey to you our investors and our shareholders and including Jason's wife. The first is that we -- actually 3 things. The first is that we run each of our businesses in such a way as to produce attractive, high stable RoTEs, right? and in a way that they can look at and they can say, yes, this is predictable performance. These are high RoTEs. We went through the last couple of years. We've been doing that, but we need to continue to show that. The second is that the composition of the bank comprises businesses which when put together because we know individual businesses have seasonality, produce the same thing at the group, right? So we must be in businesses which matter and operate them well. And as you've just been hearing from Anna, you've been hearing from me, if you look at our footprint in the investment bank, I mean, if you want to look at the scale and scope of our investment bank, just look around you in this room. And just look at this conference and look at the reach of this conference. We have a sixth ranked investment bank in the world in banking and in trading and in markets and many segments of that, we are much higher than that because there are things we don't do. We're sixth ranked globally, but we have a smaller footprint in Asia. We are sixth ranked globally, but we don't have a commodities business, nor do we intend to, right? which means there are some things we are doing much better at in certain regions. So that's a great at-scale business. The scale business in the U.K., we are in every part of that economy. There are some things which we need to do better like wealth and the monetization of our capability in payments and our U.S. credit card business, including the Xbox card, which I spoke about yesterday is a real jewel and there are things that where there's tremendous opportunity to grow. So I think we've got to show a, that we can operate these businesses very well at good RoTEs; b, that there is the right package well put together and c, that we emphasize shareholder returns. And you've seen that in the first half that showing a willingness and based on the ability of the returns we've generated to share that. So I think that's important. Rinse-repeat, rinse-repeat.

I'll tell her. I guess you mentioned capital return in this year, and I think that was well received. Just maybe expand upon how you're thinking about Capa priorities looking out.

Yes. I think first of all, very mathematically, when the share trades as it does at half of book, share buybacks capital return more generally is one of the most valuable things you can do. If you look at us in the last 2.5 years, including dividends and buybacks, we returned about 25% of our market care. If you look at us in the last couple of years, my calculation is right. We've done about 13% of our shares have been bought back. So these are numbers where the mathematics will ultimately work. And so that's a very important thing for us. And we've spoken about one claim on the bank works, the bank generates profits and there's a claim of the profits. The claim on the profits can come from certain regulatory items. We've spoken a little bit about that. We are in the Basel endgame. I think it was mentioned here that, that Basel endgame was 10 years long, yesterday, somebody mentioned it. But I think we are near the end of the Basel endgame. Second thing, is that -- so there's greater clarity on that. The second thing is we spoke a little about investment, the things that are important to us. And then there's capital return, which is as important as any of the others. And in fact, higher importance because it places a hurdle, a minimum requirement hurdle on other things where you might spend your money.

I guess, interesting as you look at the audience we spot, it seems to be evenly distributed you just talked about, you talked about capital distributions. You talked about wanting to drive a sustainable rinse, repeat ROTC. I mean, how I guess, do you feel about the business mix as it stands today?

So I like the business mix. I think that we are in businesses which we operate and run well and we operate in a run in a predictable manner. It's clear that in the marketplace, some aspects of our businesses attract a higher valuation multiple than others. So for instance, U.K. retail banks or monoline retail banks trade at a higher multiple than Barclays does. And so we've got to assume that's true of our monoline retail business, which is as good as any of them. So what we've got to do as we think about the mix over time is maintain the strength and stability and presence of our investment bank, which is a built-out entity. We're not looking to do anything much more than run it extremely well and continue to emphasize and grow, as I said, capital-light fee businesses, which would have a higher RoTE evaluation. So that over time, the proportion of the bank changes so that a greater portion of our revenue comes from capital-light fee-related businesses.

Maybe put up the next ARS question. How do you see Barclays business on capital and capital returns. And I guess, you addressed this in your prior comments on capital returns. But I guess just given where you are on capital and stock trading at half of tangible book, is there an ability to do more?

Well, what we do is very, very carefully balanced among the 3 things we said, which is investment, making allowances for what regulatory matters might come ahead, and we are towards the end of the Basel endgame. And then prioritizing capital returns. We completely get the importance of it, the effects it has on sentiment and quite mathematically the effect it has in [indiscernible].

Got it. And then in the second quarter, just looking at the markets businesses, tough year-over-year comps, lower volatility in markets impacted results so along with others. What kind of gives you comfort your investments in the franchise are paying off? And maybe just some color you provide on the [indiscernible].

So I'm very, very proud and pleased with our markets business. If you look at it year-on-year-on-year, we continue to gain market share. We continue to be more meaningful to our clients. One of the things which we measure is of our top 100 clients with what fraction of them are we in the top 5, so overall, we are a sixth-ranked bank, but with what fraction of our 1,200 clients are we in the top 5. And that number has gone up by about 20% in 2 years, right? So I think it's around 40% now. That is the one thing. We talk about it in our earnings. And to look at that and to see continued growth is an indication of market share. The second thing that I look at is where the places where we are making investments, we've seen growth. And we've seen that absolutely in our prime business. We've see it everywhere, but I pick up the prime in the financing business as one simple example of it where we've seen 9% growth year-on-year. We spoke about that as well. And the way you've got to think about that is this is a place where funds work with us to manage their cash, to clear their trades, to help them with their futures clearing and to help them borrow stocks and to finance fixed income instruments, right? So we act in effect like their bank, helping them operate all of these things. If you do well, provide great service and manage your risk carefully and well, this can be a fantastic business. That's what we try to do. That's what our clients trust us to do and we continue to gain market share and gain clients among the most prominent investors across the world, frankly. So in the markets business, those are 2 important things. And they all sit side by side. You run a trading and facilitation business. We've always been known for our excellence in fixed income, which continues. We're building out in equities and we continue to do well in equities, including Prime-hired senior leadership into equities recently and securitized products. The trading goes hand-in-hand with the financing and the global reach into the largest investor clients in the world.

I'm going to have one more kind of question written down. So there's questions in the audience, start to get them ready. And Venkat, you touched on this earlier, so I thought maybe I could expand on that. You mentioned the investment banking pipelines. Obviously, last few quarters have been depressed kind of revenues across the street. You kind of touched on Greensea's maybe expand that in terms of what you're seeing, what you're hearing from clients?

Yes. I was asked yesterday on TV, do I see the green shoots, and I responded, I'm smelling them. And Anna is a great Gardener, so she told me that's the appropriate order of things. In my mind, activity is dependent on 3 things. First of all, there's the debt capital markets. And on the debt capital markets, it's a bit of a machine. Security is mature, they need to be refinancing. There's a little bit of timing of interest rates. There's a little bit of people finding windows where there's investment appetite. You saw a bit of it starting earlier this month, where we were prominent in many large DCM trades on the day after Labor Day and the 2 days of Labor Day. So that's a timing issue. Mergers, buyouts and equity capital markets are less time dependent and more and less dependent by a process on a process, but more dependent on people feeling that a few circumstances have come together. One is that the economy in the market has stabilized in a manner that you can understand the business model of a company and the business model is not going through change. The second is that there's availability of cash, and there is cash. The third is that asset prices have fallen to a value that people believe are attractive. And I think in financial assets, you've seen a correction over 18, 24 months, and we may be getting to that point. And the fourth thing is that banks or other institutions are already willing and able to lend and the length at a length and in the type of terms that an investor needs to make a good aggregate return, which may be falling into place. So those -- the first one, economic stabilization seems to be falling into place. Cash there is, the ability for people to assess whether asset prices have corrected seems to be falling into place. And then the last one is bank lending and lending terms seems to be falling into place. So what we've got to test now in the next few months is whether that coming together produces some deals. We think there's activity under the surface, the ducks are paddling furiously and we'll just see over the next few months how much they move.

Got it. Any questions from the audience? I guess Venkat, the audience kind of thinks of things. There's one.

Thanks very much for your comments. I wonder if you could comment a bit further on the current state of coordination between the U.S. and U.K. European regulators in terms of having broadly similar standards so that you don't have to work to the highest of highest common denominator and current coordination versus what you've seen in the past. I appreciate your [indiscernible].

A little during the spring certainly in Switzerland, so I think the coordination is high. I think the coordination is, by and large, fairly efficient. They try as best as they can to implement one common set of Basel standards. We may or may not like the standards, but they try to keep them common. And then they try to do a little bit of managing of the standards for the local banking environment, which they have. So I think in the U.S., for instance, there's obviously a lot of emphasis on market risk because of the large market banks that there are. There's some emphasis on credit and operational risk as well. Operational risk is getting a little more emphasis these days. Interest rate risk in the banking book was something that the U.S. in the past emphasized a little less and the Europeans did. I think the events of the spring would have changed that as far as the broad banking community goes. In Europe, I think they focused a lot on credit risk because that is actually the biggest risk in their banking system. They don't have many banks, which are deeply involved in the financial -- in the trading businesses and with a few exceptions, of course. And the U.K. is somewhere in between. And the U.K. tries to balance both because it has a jurisdiction over foreign banks in London, London is a financial center as well as the important U.K. banks and a few of them are global. We are global in the investment banking market, and there are a couple of others who are global more in commercial and retail and wealth management across Asia. So I think you will continue to see a fairly close level of coordination and harmonization as best as you can get it, it will never be perfectly harmonized. And then there will be different rules in each jurisdiction, but they are also aligning about the ring fencing of activity, about double leverage about SOLIS regimes, do you double count capital or not. Those will be always tailored to the local jurisdictions. Would you add anything, Anna?

I think the only thing I would add is that it's great to have all 3 sets of Basel rules now. Now that we've got the European and U.K. and U.S. rules. We, of course, as Barclays because we operate in the way we do, we will be subject to all 3. But we and the other banks have got a good track record of being able to manage our way through regulatory change and actually, this time should be no different.

You've mentioned about CIB market share gains. Can you quantify that for us? And what areas are you gaining market share?

In aggregate, over a longer period, we've gained market share across the board in the CIB. So in markets, it's been in fixed income and in equities and especially in financing in prime. And in banking, we've always been very strong in DCM, and the gains have been in equity capital markets and a little bit on M&A. So quarter-to-quarter, those things will jump up and down. Quarter-to-quarter, they'll jump up and down in part because of -- in the investment banking side, merger activity is large and episodic. If you're in, you're in, if you're out, you're out. And in trading, it plays a little to your style. So for instance, we don't have a commodities business. Sometimes that will affect us. We don't have a strong emerging markets business locally. We do emerging markets, but we do it in hard currency, primarily out of London and New York. I mean we have operations in India and Singapore, but it's a largely London, New York business. So if local emerging markets do well in one quarter, you'll see us fall back a bit. And sometimes, you will see Asian equities where, again, we are not as prominent. If they have a bad quarter, we'll do well, if they have a good quarter won't. So things go up and down. But the thing I would ask you to look at is overall ranking, which is stable to increasing share with the top hundred clients that where are we in the top 5, which is increasing. Those things that we point out and the growth of our prime business, which we talk about, look at those things and they are increasing.

So just a quick question on sort of macroeconomic events. If you end up with an event that causes oil and natural gas prices to spike again. And you have that coupled with a cold winter. Given the U.K.'s dependency on NGL spot prices, what do you think? how are you guys modeling the impact on the U.K. economy for that kind of perfect storm? And what do you think the likelihood would be that the government, as messy as it is right now, could come together and provide some sort of safety net so that it doesn't cause the [wheel] sort of start coming off in the winter and spring.

Do you want to start and I'll add?

Let me start and I'll add. So we obviously stress test our portfolios and we set up our portfolio exposures based on assumptions of how it could perform if certain things go bad, happen in an extreme way. No, we may not imagine every scenario, we may not imagine that scenario. But we certainly -- the primary impact of that scenario is a stress on our consumer business and an ability of people to pay their consumer debt. We've been very cautious as we said to you on unsecured consumer debt. Our balance is in our U.S, U.K. cards portfolio are down about 40% since pre-covid levels. Now it's down a little more than I'd like. And I'd like to grow that business because I'm generally bullish on U.K. credit right now, consumer credit right now. But we'd like to grow that business. But having said that, our exposures are limited. And then when we stress our portfolio, we are not making any assumptions of government support. If that happens, so be it and great. And we took a cautious view on consumer lending post Brexit and at the start of COVID not assuming government support, right? And I do think that's the right thing to do because you can never see how government support will come to individuals and corporates. It came and it came in good measure. And you could argue that we took to conservative stance, but I'm always happy to take that conservative sense because go back to what we said at the very beginning, we want you to know the factors that drive this bank's income and show to you that when the outside world changes, our own portfolio and our own income changes in the way you would expect and the amount it would expect, right? So we don't make huge assumptions about those things. So we try to run a robust portfolio, which will perform through changes in the environment, Anna?

Yes. I think the other thing I'd say is the factor that really generate sharp changes in our asset quality is actually unemployment. Unemployment in the U.K. remains low. It's pretty stable despite perhaps a tick up today. And in the modeling that we do we do forecast an increase in the unemployment. But absent that, our customers are behaving in quite an interesting way, actually. They are cautious but very confident, so they're cautious in that they continue to deleverage their own positions. So about -- actually, more than 1/4 of our customers right now are overpaying on their mortgages, which given the interest rate environment, it's quite an incredible thing, but it tells you how they're feeling about their environment. So they are being super cautious. We are clearly seeing the impact of that on our net interest margin, but we're seeing the benefit in impairment. And I think it really would benefit us in the kind of environment that you've just described, simply because the customer is clearly a bit cautious about what might happen over the next few months. So we're happy with the way they're behaving. As Venkat said, we stress their performance through a number of different macro scenarios. But when we look at their micro behavior, their micro behavior shows us that they're being very defensive, which, given the uncertainty that we have is good news.

Thanks. I appreciate your comments on prioritizing capital returns. But with your stock trading at about 0.5x book and you're generating an ROE in the low double digits, it would imply that buying back your stock would produce a return on that investment in the mid-20s, let's say? So why wouldn't you make a firm commitment to the market that essentially you're not going to invest incremental capital into capital-intensive businesses and instead put all of that into buying back your own stock until it reflects something closer to what you deem fair value.

So let me start. I think many of the conversations I've had with investors and Anna has said in the last couple of days, we've been very clear that some of our financial targets and our guidance needs a bit of a revision. We've said above 10% on RoTE. We've said that we prioritize capital returns, but we've not given hard and fast numbers. So it is something we're working on, and it's something we agree with you. It's a desirable thing to do.

Maybe I could follow up. You talked a little bit about the U.S. card franchise and I mentioned the new Xbox [indiscernible]. But just maybe more broadly, just because it's a question I get asked about covering kind of the larger U.S. issuers being the big banks or the monolines. Just how does Barclays compete against maybe some of those bigger U.S. players and kind of what differentiates you in the marketplace and kind of what are you looking to achieve there?

So it's a business we've been in for a long time. We're really good at it. And we're very focused on partnerships. And so for us, the way we think about this business is it's got 20 million retail customers, but there's really only 20 clients. And those clients are very large institutions with whom we have broader banking relationships. And what we're really doing in this business is we're providing another product for them, which is actually a way for their customers to balance their lifestyle. So that's how we think about it. It's an extension of the business that we have. Actually, what's really unique about us versus our U.S. peers, is we don't have a competing card. So we don't compete in the wallet. The partners that we work with really value that, so they value the customer service and the operational excellence that we have, but also the fact that we've chosen to partner with them, and we're not competing with them. So we think that marks us out actually. We grew the business extremely well across the sort of travel and entertainment portfolio. Last year, we took our first steps really into retail with Gap. And that's really sort of doubled the addressable waterfront of that business for us. But we're really disciplined because it is a competitive business in the U.S. And in the past, where we found that we haven't got the right returns from our partner, we've walked away from the relationship. But anything you'd add?

Yes. I mean we've acquired a new demographic wholesale -- travel and leisure, retail, gamer.

Any other questions from the audience?

There's one down there.

As an example, potentially of the conservatism with which you're running the consumer business, and I'm not as familiar with Barclays, but obviously, I'm more interested after this lunch. I think it's been great. I'd be curious what your reserves are against credit card as, for instance, or consumer loans to the extent you disclose it?

Yes, we do disclose it and we can help you. I'm going to send one of my Investor Relations colleagues to your start of the room very quickly with a nice pack of information. But we do disclose our coverage levels across U.S. cards. And you'll see that they show up really well, actually against our peer set. They're around 8% overall. And the way we do impairment in the U.K. is a little bit different versus CECL, but we can talk you through that. But essentially for our cards book overall, it's around 8%. And I think very typical for our U.S. peers. Within that, it will vary by partner actually. We're really focused on risk-adjusted returns. So I might expect the retail portfolio to be a little bit higher than that. But of course, we're getting a higher margin on that business, too. But we'll come and find you and share it with you.

And if anybody else is part of that 38% who don't own our stock, but is in this room, we'll send you that package.

Any final questions for Venkat and Anna. If not, please join me in thanking them for their time today. Thank you.