Barclays PLC (BARC) Earnings Call Transcript & Summary

All right. Thank you very much. Thanks, everybody, and thanks for coming, and welcome to our UK Corporate Bank deep dive. When we had our Investor Day in February, what we promised to you was a series of updates on the places, on the businesses which we have not covered in depth on that day. And this is the first of them on the U.K. Corporate Bank. As you know, the UK Corporate Bank is one of the very high returning businesses which we have in the U.K. in our home market. And we're very excited about A, what we've accomplished, what we've achieved the momentum in the business and its prospects. And so it's my pleasure to introduce Matt Hammerstein to cover this business in detail. Some of you will remember him from his previous role as Head of Barclays U.K. I asked Matt to Head the U.K. Corporate Bank earlier this year. He brings to it a broad range of skills in the U.K. and across and with a great experience in Barclays and the industry. And I think you will see how well positioned he is to lead both the business and to have the business continue to provide the best corporate banking for our clients in the U.K. So without further ado, Matt and his team.

All right. Thank you, Venkat, and good afternoon, everybody. For those of you, as Venkat said, that don't know me, I am Matt Hammerstein, Chief Executive of U.K. Corporate Bank. As Venkat mentioned, you may have met some of you in my prior role as Chief Executive of Barclays U.K. a role I held for 5 years. There is some experience I've gained over 20 years of experience here in the U.K. across the retail and corporate banking landscape sets me up well to lead this business through its next phase. I'll do that though with a talented team. I wanted to just take a minute to introduce to you three of them that are in the room with us here today. So David Farrow, on the front row, leads our client coverage teams, Karen Braithwaite leads our global transaction banking capabilities, and Florence Akende is our recently appointed CFO. We're excited about the opportunity ahead of us so let me now turn to why we believe you should be excited, too. As many of you will be aware, the UK Corporate Bank previously sat within the Corporate and Investment Bank. As we continue to differentiate our coverage model for the UK Corporate Bank clients focused on their lending and transaction banking needs, we decided to split out the UK Corporate Bank. We've also integrated our payments and card issuing activities, which previously sat in card -- Consumer Cards and Payments into this division. And I'll just pause for a minute because the slides aren't yet tracking with me, and you'll otherwise be wondering why I'm talking about all these things and the slide will hope bring it to life. So there we go. So although the UK Corporate Bank and International Corporate Bank are now reported through different divisions, our global transaction banking capabilities span those divisions, which we view as a core strength, enabling us to enhance our client proposition and create operational efficiencies for the two divisions. Overall, the newly combined UK Corporate Bank generated around GBP 1.8 billion of income in 2023 and a return on tangible equity of 20%, making it one of the group's highest returning businesses. That's a strong foundation from which to grow balances and income, particularly with a positive outlook for the U.K. economy. In February, Venkat described the UK Corporate Bank as the beating heart of Barclays, given its role in our 330-year history. You see that in the depth and breadth of client relationships across the U.K. mid and large corporate market with an average relationship length of 18 years. We maintain these relationships through teams based locally in over 50 offices across the U.K. We also support a full range of corporate client needs across three areas: first, Business Banking within Barclays U.K. supports micro and small business clients whose product and service needs are closely aligned to the U.K. retail customer base; second, the UK Corporate Bank, our focus today, serves mid to large-sized corporates. These are clients with over GBP 6.5 million of annual turnover through to FTSE 350 companies, representing around 13,000 clients; and third, the International Corporate Bank has relationships with FTSE 350 clients, multinationals and financial institutions. I should note that our card issuing activities, while part of the UK Corporate Bank, serve the needs of more than 250,000 clients across this client contingent. Using Bank of England data, we estimate that our UK Corporate Bank has 22% of the like-for-like U.K. share of deposits. At the same time, we estimate that we hold about 90% of the lending share. That difference reflects our previous focus and strategy. We see a real opportunity to begin to redress this imbalance, and this is the foundation for our lending growth aspirations. I'll come back to that a little bit later. As you've already seen, the business has had an improving financial profile over the last three years. Although the rising rate environment helped, we've also had balanced growth across diversified income streams alongside previously managed credit risk. We believe we have strong foundations on which to build further over the life of our 3-year plan. As I mentioned earlier, UK Corporate Bank has a comprehensive suite of products to address typical client needs. It also delivers broad sources of income. Income grew by 1/3 over the last 3 years to GBP 1.8 billion. Within that, deposit income grew by 2/3 to just under GBP 1 billion across a full suite of deposit products, interest-bearing, non-interest-bearing, and foreign currency accounts. Encouragingly, over the same period, income from transactional products, which have a large noninterest income component, grew by 21%, with growth across each of the product areas, trade finance, payments and receipts, card issuing, and foreign exchange. Client-driven transactional products are intrinsic to the day-to-day operations of our clients so provide a recurring income stream. This income increased year-over-year, and we expect to grow these capital-light income streams out to 2026 through even deeper client relationships, which I'll cover shortly. Corporate lending represents an important income growth driver. We believe it's the right time to lean into corporate lending growth in the U.K., contributing to the group's objective to increase risk-weighted assets by GBP 30 billion across our higher-returning U.K. businesses. Venkat also noted in February that the U.K. economies remain resilient, and the legal and regulatory environment is strong and trusted. While they don't appear on this slide, as products, I'd like to take a moment to emphasize the complementary relationship between the UK Corporate Bank and the other businesses in the group. Payments is an important service to the U.K. economy, an opportunity that spans business and consumers. For instance, business banking within Barclays U.K. benefits from payment trends data for midsized U.K. corporate businesses served within the UK Corporate Bank. In turn, our service of U.K. corporate clients benefits from consumer spend data from Barclays U.K. Client referrals from UK Corporate Bank also benefit other divisions, including the Private Bank and Wealth Management for their personal investment needs and the Investment Bank when they need access to the capital markets. UK Corporate Bank clients also benefit from wider group capabilities. For example, our climate tech escalator, which supports the next wave of climate tech solutions from idea to IPO. This allows startup and climate tech ventures to collaborate, innovate, and scale all within the Barclay's ecosystem. Through these synergies and the broader combination of businesses that we have, we believe our Corporate Bank offering is advantaged compared to our peers. We've grown income over the last 3 years, driven by both net interest income and noninterest income growth. While the strong deposit base has enabled the business to capture the tailwind from higher rates to date, the structural hedge provides predictable support for future net interest income growth as rates decline. Of the group's product structural hedge notional of GBP 194 billion as of the end of the first quarter of 2024, circa GBP 20 billion resides within the UK Corporate Bank today. We expect the notional to reduce at a similar rate to the group, given the expected level of maturing hedges. Over time, we expect this to be more than offset by improved margins as we roll the hedge on the higher rates. Noninterest income has grown over 50% since 2021, driven by higher client activity. We expect to grow this further in the coming years. This is attractive, recurring income. The related transactional products are not big consumers of capital and the business is less dependent on rates. So how are we going to drive this income growth? The foundation for this is our depth of client relationships, evidenced by our strong, stable deposit franchise. As you can see here on Slide 7, where we've seen a migration of deposits from noninterest-bearing to interest-bearing accounts in recent years, our experience was consistent with the industry and predicated on rational client behavior. Our overall total balances have stayed broadly stable over this period. As outlined in February, our ambition going forward is to grow deposits in line with the U.K. corporate deposit market. In addition to the structural hedge tail winds, we have 2 additional [indiscernible] to grow income, which I'll cover on the next few slides. The first additional [indiscernible] income growth is the opportunity to help clients with a broader range of their needs, leading to an even higher take-up of products and services. However, we acknowledge, but first, we must improve the quality of their experience with us. 57% of clients rate our overall service as very good to excellent. We plan to improve that and move towards the top of the peer set, which would imply a level of at least 69% as of today. As you can see on the slide here, our digital proposition ranks the lowest versus our peer group when it comes to online satisfaction. We also see this clearly in our data as only 30% of our client servicing interactions are undertaken digitally, and we make it too complicated for clients to access our products and services because of multiple digital touch points. This has contributed to just over 1/4 of our clients having two or fewer products with us currently. As we make it simpler to access our services, we believe clients will use more of our products, improving our products for client metrics. The second additional [indiscernible] income growth is to grow our lending balances. As you can see on this slide, we ranked lowest among peers on availability advance. Only around 35% of our existing clients borrow from us, which we believe is below peers. As a result, our loan-to-deposit ratio is meaningfully lower at 31%. This excess of deposits within the business has significant funding benefits for the broader group. While we want to grow lending balances from both existing and new clients, we're not targeting a specific loan-to-deposit ratio, given that we also aim to grow deposit balances over the plan. Our plan also is seeing conservative growth in the lending market over the next three years. So that's the backdrop. But how do we make our UK Corporate Bank a simpler, better and more balanced franchise and facilitate the growth we're targeting? Let me take each of these in turn, starting with simpler. Consistent with the broader group, we're focused on disciplined cost management and made clear in February that our group-wide objective is to deliver GBP 2 billion of gross efficiency savings over the next three years. Within the UK Corporate Bank, we intend to contribute around GBP 100 million, which will more than pay for inflation in the cost base and provide capacity for investment to drive future returns. We expect the combination of these factors and the income growth that I covered earlier to drive our divisional cost-to-income ratio down to the high 40s by 2026. Within this, we factored in the need to increase investment in the business so that we can simplify the client offering and set the business up for growth. We believe increasing investment spend over the next 3 years of more than 50% will enable that. A big part of that increase will be focused on improving the client experience, including through our global transaction banking capability. That have produced benefits both in the UK Corporate Bank and our International Corporate Bank for the reasons I covered earlier. Under investment in our digital proposition we've fallen behind peers. That's negatively impacted client experience. We intend to rectify this as a key priority over the next three years while also improving our operating efficiency. This slide highlights two examples. First, we will consolidate our five online access channels to one, making what we call iPortal the only digital channel through which clients access our products and services by 2026. Second, a number of our clients want to self-serve seamlessly. However, our digital capability is not advanced quickly enough to enable this. Within our primary digital channel, iPortal, so far, we have enabled clients to self-serve around 30% of their common servicing needs. Adoption for these capabilities has been high at more than 90%. We intend to double the number of self-serve-enabled capabilities over the next three years. This will increase efficiency and reduce the cost of our operational support teams. Having said all our intentions, I want to share some examples of success to date, where we feel we've already invested effectively in enhancing our global transaction banking capabilities. We expect this investment to facilitate greater end client engagement and drive higher income. We went live with our Trade360 capability, which is market-leading earlier this year. This proposition enables risk mitigation and facilitates the provision of working capital funding, enabling businesses to trade domestically and cross-border in all parts of their supply chain. That differentiates our capabilities amongst our U.K.-focused peers, evidenced by our award as the Best Trade Finance Bank in the U.K. in 2024. The platform has already helped us bring business as both existing and new clients value the improved functionality and self-serve capabilities. While in the early stages of rollout, our enhanced cash management capabilities will help streamline payments and collections for clients with more complex needs. Our virtual account management offering enables clients to create efficiencies through better visibility and speed of execution when managing their cash, further strengthening our deposit franchise. Improvements across this space make it easier for clients to do more business with us. These are two important examples of how we're investing to help create deeper client relationships. There's a clear opportunity to grow income by encouraging clients to do that. The investments that we're making in the client experience and the focus we have on building deeper relationships will, we believe, improve this metric. The chart on the left here illustrates that opportunity. On average, our clients use four of our products and services today, with 28% of clients using only one or two. If these clients will use two or three more products on average, we would generate 3x more income per client. This increases exponentially to at least 10x more income if they were to use, on average, seven products and services. So let me be clear, I'm not suggesting that we're aiming to increase product take-up of all of our client base as their needs vary considerably. I wanted simply to illustrate to you how compelling the opportunity is for us to achieve that across some of our client base as we invest. To evidence the traction that we've had to date, it's worth noting that the number of clients using seven or more products is up, 2 percentage points over the last few years. As you might expect, these now represent some of our most profitable clients. Turning now to the lending opportunity and how we're helping the group be more balanced. As I've noted, our share of lending today is meaningfully below our share of deposits. There are a number of historical reasons for this. Over recent years, we've intentionally focused capital allocation elsewhere within the Corporate and Investment Bank. We've also purposely restrained lending in this segment due to our historical view of the U.K. economy. We, therefore, invested less in our lending proposition in recent years, resulting in a weaker client experience with some U.K. sectors and regions deprioritized. We're now working hard to rectify this with a particular focus on improving and simplifying the client experience. As part of this, we intend to reduce the average time for clients to access a lending facility by around 50%, increase the number of corporate bankers, especially in sectors and geographies where we've been under-invested, adjust pricing to be more competitive, and provide more tailored lending solutions to clients. To be clear, this investment is fully factored into the greater than 50% increase in investment that I mentioned earlier, and importantly, our cost-to-income ratio target of high 40s in 2026. We're assuming relatively modest market growth in corporate lending in the U.K. over the next three years, we expect our balance growth to be driven lower by share gains across core lending and trade finance solutions. This lending growth will, of course, contribute to our group-wide objective to increase risk-weighted assets by GBP 30 billion and our higher returning U.K. businesses as we prioritize growth in our U.K. home market. We're seeking diversified and broad-based growth across regions and sectors. We expect support for clients on their transition to net zero to be a contributing factor to our lending growth, given the urgency and scale of investment required. Here again, across the Barclays Group, we have access to world-class capabilities that we can leverage to benefit our U.K. corporate clients. This is already delivering great client outcomes. I'll come back to one specific example in just a minute. Before I do that, let me emphasize, for the avoidance of doubt, that as we grow and scale our lending proposition, we will maintain a disciplined approach to risk management. That will not change. Today, our loan book has very limited sector concentration. Even in a sector like real estate, which may experience greater stress at different points in the cycle, the asset quality is supported by the fact that around 70% of the book is secured. We also target where we lend within the real estate sector carefully. We have very little exposure to office space and a good spread of diversification across residential and commercial property. We also use significant risk transfer or SRT trades. This helps to minimize credit risk and impairment on the book, leading to a more efficient use of capital. As of today, circa 40% of the book is protected through the purchase of first loss protection on our exposures. There's an income implication of doing this, offset by the avoidance of impairment charges on single-name exposures in recent years and reduced risk-weighted assets. You should expect us to continue this activity at a broadly similar level going forward. And the risk-weighted asset growth that I discussed earlier will be net of the impact of this protection. Considering all of the above, we expect our loan loss rate to be around 35 basis points over the next three years, a moderate increase on the underlying charge in recent years once you strip out post-pandemic charges and subsequent releases. Before I close, I want to bring all of what I shared with you to life through the voice of one of our clients. Our client couldn't be with us here today so here's a quick video to represent their input. [Presentation]

So that's just one example, but I hope you agree a compelling one of how we're making a difference to corporate clients across the U.K. We know we have an opportunity to do far better through the investment that I've outlined today. But the big question is, what does it mean for our shareholders? We're targeting growth in lending, deposits, and transactional products, delivering high-quality and recurring income growth. We're focused on operational efficiency, driving the cost-to-income ratio down to the high 40s. At the same time, we will remain disciplined on asset quality, and we will look to grow our share of lending whilst maintaining our share of deposits. The business is already delivering strong returns. And despite impairment normalization, we continue to target a high-teen return on tangible equity in 2026. With that, we'd be delighted to take your questions, specifically on the UK Corporate Bank. When asking questions in the usual way, please state your name and institution. And if you could try to limit yourself to two, that would be ideal. I think we've got a roving microphone that will be around just to help us manage the dialogue.

Could you maybe just [indiscernible] get out of the [indiscernible].

Yes, you don't need to repeat. So the first part of the question was on loan growth, and in particular, what types of spreads we're likely to see. And I think the second part was on share gains, and do we need to use price to be able to realize those, if that's a fair characterization. So just I won't get into the details on loan spreads here. I think we've been very disciplined over the past on pricing. Our overriding objective here, I hope comes across clearly, is on the returns metric. So we're not going to take decisions to grow the loan book that's going to jeopardize our ability to deliver that returns target. The pricing discipline that we have in place, we've maybe overly perfected it the last six to seven years. And again, we're going to use that deliberately as we go forward to make sure that we stay disciplined with that returns mindset. I would say we do take some liberty, obviously, in certain client relationships, depending on the breadth and depth of those relationships to price accordingly. But we're not going to do things that you would regard as silly in terms of pricing in order to be able to grow lending. So the second part of your question, I think, is where is the share therefore going to come from? I think there's opportunity everywhere. If you look across our portfolio, we're underweight generally. I called out the fact that there may be a few regions and sectors where we're particularly underweight, where we have opportunity in lots of places, given that imbalance that you see in our loan-to-deposit ratio. What we think is going to work hard for us is making sure that in some instances, we've gone from lead bank, so there's 35% of clients still borrow from us. We may have dropped from lead bank to Tier 2 or 3, we've got to get back into the lead position. For other clients that are borrowing but not from us, we've got to get back into whatever lending opportunities there are to do with them. Bear in mind, we've maintained those strengths of relationships through this whole period so that deposit share isn't an accident. It's because of the depth of relationship that we have. We want to lean into that relationship to make sure that we can participate in whatever borrowing opportunities those clients have. On pricing, as I mentioned specifically, we, in the first quarter, took the opportunity to make sure we're competitive on price. So I think most of these clients would just make sure that we're in the game on price. You don't necessarily need to leave to get your fair share of the borrowing opportunities, given the relationship. And so that's what we'll do, I think, over time, fight our way back into those relationships and make sure that we're getting our fair share of whatever borrowing opportunities thereon. The last thing I would say is, of course, there will be growth. The forward-looking assessment or assumption we've made is conservative, but that will create opportunities. Obviously, grow a bit alongside that as we get our fair share of that growth. And it is conservative. If you look historically, that 2.3% growth in the market was ahead of GDP of about 1.1% over the same period. So if GDP growth ends up being faster and there's more growth in the market, obviously, there's upside to what we've set out. Does that help?

It's Raul Sinha from JPMorgan. Can I have two, please? The first one is just on the playing field in the U.K. I don't know how relevant this might be to your business, but the SME support factor is one of the key things that the industry is talking about with the Bank of England currently. And some of the banks have talked about how this might disadvantage some of the U.K. banks relative to perhaps more international players who are present in this market. Have you thought about that? Is that relevant at all to your business? And then the second question is I was interested in a little bit more color on the digital proposition. You called out the historical under-investment of how you're moving to fix that in terms of your initiatives. Could you perhaps give us a little bit more sense of what are the product rollouts you've got planned and what sort of time frame you're looking at to close the gap to where you really want to be?

Yes, thank you. Just on the SME support factor, it's not as material for the segment of the market, but we cover it. I mean, it will be to a bit lower end of the book. And I think some of the smaller clients in business bank in Barclays U.K., it isn't a critical factor for this business. Just something that we keep a close eye on to participate in this industry-wide conversation, but it isn't something that is going to have any material influence, I don't think, on what I've just set out here. On the digital proposition, there's three things I tried to call out in terms of the investment there. So one is just a better user experience. So part of that is just working through each of the individual journeys that exist within our digital capabilities to make sure that from the client point of view, they work as simply and as effective as they possibly can. We just haven't, I don't think, with the investment in the energy into that, that we need to. Two is that channel consolidation. So I talked about going through -- we have five different ways in which a client can access our capabilities today. That's hugely inefficient from their perspective, even a more professional large organization that has a finance or a treasury function that would be accessing that, so consolidating that down to one and making it super simple for them to get access to it, we think we're doing very significant things in terms of the quality of the experience that they have with us. And then finally, increasing that volume of capabilities that are able to be self-served. We only have 30% of the activities the client might want to do with us today. Doubling that to 60% is a very significant shift in the efficiency from their perspective because as I say, you've got 90% uptake rate on the 30% we've already done, tells us unequivocally clients want to work digitally, and we would expect them to because it will be more easy for them and they can be in better control in what they're doing, and it's just faster in terms of their ability to control their own business. So getting that double to 60% is going to make a huge benefit for them. Second, those enhanced propositions. I wouldn't emphasize anything more than the two that I talked about. So on Trade360, that's a platform, but it enables us, again, in a distinctive way that I alluded to, to support clients, to have those international commercial opportunities associated with their businesses. We can facilitate that in a very flexible, very efficient and again, in an automated way, given the capabilities there are very self-serve oriented. We've implemented that for our U.K. and Irish clients, but there are enhancements within that platform that we need to do for things like sales receivable financing. We haven't yet put that in, and there are some further legacy work we need to take another system out that would relate to that, that will make it even simpler for to get the benefit out of that. So that is just an embedment and enhancement strategy across that within the suite of capabilities and needs clients have on trade and working capital. On enhanced cash management, we only just got started. So virtual account management really helps, as I said, from an efficiency standpoint, clients to be -- have better visibility of exactly where their positions are within a single account architecture and then to manage that in far faster and simpler way than they would before. That's relatively new to us. It's not generally new to some of the market leaders around the world. So clients are using great time take up of that so far. Then we've got a long list of ideas from clients about how we can enhance that north, but give even more utility out of it. And then beyond that, a whole host of other things that we can do to make that enhanced cash management capability work even harder for clients. All of that, we expect to get done in the next three years. Hence, the 50% increase in investment. It's a significant lift because we're behind and we know we've got a huge opportunity to do better for clients.

It's Ed Firth from KBW. I have two questions really. The first one is back to the question on loan growth. Because I guess if you look at the credit experience over the last five years, you could argue that the bank sector as a whole is not really lending out money. We've been through COVID crisis. We've been through a cost of living crisis. Just has been closely 0 across the piece, which is, I guess, would have surprised us all maybe five years ago. So to what extent do you agree with that? And do you see capacity to, in a world where they're looking for U.K. growth to pick up, I guess the bank sector could be one part of that. So you [ kind of talk ] 1%, 2% growth in loans, it feels quite threadbare in an environment where we might want the U.K. economy to be investing and growing, et cetera. And I'm just wondering how you think about the opportunity to actually push that much harder because clearly, you could argue credit has been much too tight at Barclays and across the whole sector for the last five or six years. So I guess that's my first question, how do you think about that? And then my second question is in fact [indiscernible] risk transfer stuff. I guess over the years, it is bit more of [indiscernible] to come nervous about these sort of perfect solutions to problems. And 40% is huge, I guess when you look at it. How do you think about how that might perform if we do have a credit cycle? Because clearly, I can understand why people wouldn't want to take your risk today because there aren't any losses. But is there a risk that if we start to see losses, if you see 40% of your capital coming back on the balance sheet, how do you see that as a risk and how do you protect yourself against that?

Yes, let me take your question on the growth opportunity, and I may ask for some help from a friend in the front row on the SRT question, just because she would have thought about it more extensively than me. On loan growth, I'm not arguing with you about the fact that we've been too restrictive. I think that's what I said emphatically. So we need to change that past year and do more, I think, to help our clients and the U.K. economy grow. No question about that. At the sector level more generally, you do still see reduced demand. That is a fact. You can see it in the Bank of England data. We hear it all the time from clients. They're still absorbing a lot of turbulence over the last few years, whether it was the pandemic, supply chain disruption, the inflationary environment, the dynamics in base rate. And whilst confidence is improving a few articles in the paper today at the smaller end of the market, maybe confidence is improving, but they probably have less options. So they've got to move because they don't have a lot of optionality. The clients we serve tend to have a bit more optionality, and I would say in general, we're still sitting on their hands. And the reason for that is because they're waiting for something to change to give them the confidence to invest. And they'd rather sit on the liquidity today because that preserves flexibility. So something is going to happen to trigger that, whether it's the election or something on base rate and interest rate outlook certainly. But if we look beyond that, over this three years, our hope is that there will be faster growth than 1% but we're not planning for that. And if there is faster growth, we're going to be there to help support that. In terms of the sector level sort of credit restrictiveness, I think they're in post-Great Financial Crisis, there's been a -- the cost of us providing credit as banks is a lot higher today, and there are others who can provide that lower. So you've seen a shift. Our restrictive credit position has been while other new entrants have come in, insurers and other debt providers who have a different capital structure, and therefore, a different cost and therefore, they can participate differently than us, whether it's a good bet or indifferent thing, I think we will find out through time. But I think our focus is on what we can do to try to help our clients and the economy by changing our posture and providing as much support as that confidence comes back. Does that help? I might just ask Anna to help on the SRT question.

I'll start and I'm certain our previous COO may also have a view. So the way we think about it, Ed, is, if you think about it from Matt's perspective, what it allows them to do is it gives them real impairment protection and we've seen that over the last few years. We've seen real benefit against single names, and we convinced ourselves that actually, the economics of this are very beneficial for Barclays. We also see that in our stress testing. So the protective way of SRT gives us is extremely effective in many of the U.K. stress tests that we run. And we see that not only within corporate, the UK Corporate Bank that Matt is running, but also in our International Corporate Banks and some of the protection extends across to there. And of course, there's the capital protection as well. As to your point about the kind of reinvestment risk, we think about that in two ways. One is the way we access that market. We've seen over time, demand for that kind of asset class grow. And actually, spreads have become more and more attractive over time, and that probably reflects the differential capital regulation that we face across different financial institutions. But as a sort of treasury matter the way we manage the bank essentially matter. The way we think about this is to ensure that we have rolling programs so that the maturity dates of those SRT programs are staggered over time, and that would allow us to manage the risk of that SRT where we to enter a period where the market was shut or indeed less economically favorable to what we're trying to achieve. Anything?

I mean not much substantial. What I would say is, of course, credit investors, and we've got a few [indiscernible] markets, but which grew up in credit here, credit investors always like to take credit risk and hope it never materializes. But realistic ones know that you will have it. And one advantage of having this program for a long period of time is people get used to your credit parameters. They know it. Starting a program in the middle of a credit crisis of [indiscernible] writing is hard. And as just a factual matter, we have this program running in 2015, 2016. I think three delinquencies which we had in the U.K. Carillion, Patisserie Valerie and Governance were all in the credit risk programs then. So people lost money on it, some money, but we continue to participate as you've seen. So proof of the pudding is in the [ eating ].

Ben Toms from RBC. Just one, please. We're six months now into 2024. And as you look at your financial targets table, incrementally, I'm just interested in which targets look a bit more difficult than they did at the beginning of the year or which targets look a little bit easier? Conscious that wage inflation is probably running higher than people expect at the beginning of the year and maybe asset quality is looking a bit better, but just interested in your thoughts on that, please.

Yes. Thanks, Ben. Well maybe just step back a little bit and take a little bit wider angle lens rather than specifically in year. I think the dynamics at the start of the year, I think, it reinforced the priorities that we've got. You've certainly seen stabilization on deposits, deposit migration. And there's still that lingering uncertainty on sort of where base rate will go and how that plays through on client behavior as well as dynamics within deposits and clients. So I think what it's reinforced to us is we are very significantly helping clients with their deposit and payment activity today. We've got the balance opportunity there as they continue to protect the liquidity to the point that I made to Ed earlier, there's upside opportunity with that as long as it persists. And we've got the structural hedge to protect us as it progresses in case the rate environment changes and their behavior changes as well. Meanwhile, we're putting that investment into those transactional products that help diversify the income stream so that we reduce the reliance on that net interest income dynamic over time. And then the lending growth is really sort of, it will be the icing on that cake and that it will be a little backdated because you'd expect the balance to grow over time and the income from that will come alongside but after the balance growth. So as we look at the first part of the year, it's very dynamic from a client perspective, but that dynamism, if you place through our sort of income statement and balance sheet in different ways, and we can help clients in both ways and still have a credible path to sort of commitments that I've set out for the business here today. The one dynamic that was footnoted in one of the slides is, of course, the group liquidity pool because that has a different behavior that's maybe a little bit independent of the underlying dynamics of the business that will flow through with a little bit of volatility income particularly strong period in 2023 because of the inflation environment and the carry that came from that liquidity pool. That's changed a little bit in the first half of the year, and you'll see that in the first quarter numbers that we produced for the UK Corporate Bank. And one of the jobs Florence and I certainly have, from quarterly results from here on is to help explain that dynamic within the business performance. You can separate it from the underlying performance to see the path through to the commitments here.

Rohith Chandra-Rajan, Bank of America. I have a couple, please. First one, just coming back to loan growth. And that low ranking that you mentioned in terms of availability of finance, you mentioned a couple of things on that, I guess. One was risk aversion and the other one was capital allocation. Your comments around cost of risk suggests not much change in risk appetite. So what sort of availability of finance is then to drive the growth? Is that really primarily about capital allocation, which I guess is a function of being separated from the CIB? And then the second one is just on loan interest income. So that's grown very nicely over the last few years and has become an increasing proportion of overall income moving from 30% to 35% or so. Is that trend you expect to continue? And is there a particular element within the transactional products that would drive that? Or is it all about customer relationship penetration?

Thank you. So just on the loan growth, the capital allocation, I would say, is the strategic lever that unlocks the opportunity. I think the fact that we've been -- that we've ended up in the imbalance that we have today manifests itself in many different ways. So part of it would be pricing. I talked earlier about the fact that in the current first quarter, we already took steps to make our pricing match the market. We were unmatched for a period of time so, if you will, deliberately priced our way out of the market so that we could have lending available but probably at prices that most of the relationships are probably not going to take up. There were some things on terms as well, where we had our focus on amortization tenor was a little bit out of line with the market. And we're starting to see that elongate a little bit as confidence comes back into the market. We're going to have to make sure we match the market on terms as well as price. But I would see those as the capital allocation, the question unlocks the opportunity, but we've got a lot to then do on very specific things that make sure that when the client has a need, we're in that conversation with a chance to win it. And then it's down to us to execute to make sure that we do win it because we know for a fact over the last few years, we weren't even in those conversations because that low ranking on availability of finance became a generalized perception, and they weren't even considering lending to us unless we were very deeply in the relationship and moving down from lead to second or third tier in the way that I described earlier. So I would say it's a range of factors. The capital allocation is just the gaining opportunity, if you will, to then solve the other ones that unlock the growth opportunities that I've outlined. And then on noninterest income, I hope I've set out very deliberately that we do expect the mix to continue to shift. That's the deliberate investment in those transactional products. And we know we've got a lot to do to stay ahead of the path and be as good, if you will, a provider of services in that enhanced cash management space and trade and working capital as anybody else, certainly in the U.K. market. Within it, I think it's -- of the two options you mentioned, it is more about the client relationship rather than saying there's any one dominant product that would contribute to that growth. It's making sure that the range of client needs is appropriately met, I think, it's the biggest opportunity that we've got rather than picking a winner and just trying to, if you will, push it hard, if you will, across clients.

It's Chris Cant from Autonomous. I have one on deposits and one on loans, please. Just following up the previous question really on the loan growth piece. Is part of the argument here essentially that you're unshackling from the broader CIB is enabling you now to actually deliver growth? That seems to be part of the pitch. And is it that you feel like you've left money on the table? So I know you're in the front row, Venkat. I think previously, you said that you sort of left some money on the table within the U.K. business in terms of not growing in credit cards for a long time. Was it sort of a bit of a strategic misstep here, and that's really the strategy is just correcting that? And then with the deposit piece, you've shown on Slide 7 the reduced mix towards noninterest-bearing accounts and you're saying that, that's going to stabilize. But could you comment on what's happening with the other larger piece of the high there in terms of pricing? So has pricing around corporate deposits already started to stabilize, in which case, we should start to see the benefit of that structural hedge coming through over the next couple of years? Or is there still a net drag in terms of a correction of the spreads on that interest-bearing piece of the book still to play through?

Yes. So just on the loan growth, we'll let Venkat decide if he wants to offer comment as well. We can all sort of revisit the past. I think the point we're making is we've got an opportunity, I think, in the context of the group's strategy and intention to create a more balanced group to put more capital to work with U.K. Corporates. And we've set out, I think, very deliberately and specifically the fact that to try to help you understand that we're not doing that on top of an already strong position, we're doing it on a position where there is clear opportunity to do that. The bigger thing I would say is this beating heart concept. We've been in this business 300-and-some-odd years. It's probably the original foundation of what was Barclays. We've been a steward of the business over that period of time. And that's why we have the strength of relationships we do. There's a strategic recognition here that the imbalance that you've got is a strategic risk. We need to help those relationships be broader. Clients want them to be broader and we've got to make sure that we can be there to do it. Otherwise, if you will, you put the strength of that relationship, which isn't deposits payments at the moment at risk over time. So that was a strategic element to that. The reason I say that is if you look at the financial commitments that I've set out, the lending growth is important strategically, but there's a lot more in what I outlined that's going to play a significant role in producing those financial outcomes. And there's a big opportunity here strategically to support U.K. growth, rebalance the group and make sure we get that balance back in those current relationships as well as if you were making that contribution to the financial outcomes. But let me just pause there. I don't think, Venkat, if he wants to add anything else.

Two parts of what he said, there's no relationship between this and the CIB, right? So this has its own targets, its budgets and so on. And the previous link of the Corporate Bank and the organizational structure didn't affect any of this. It is true as in credit cards that we adapt to the defensive risk cost share here post Brexit. You can argue whether you went too much too far. But if you remember that time the U.K. alone with those names I mentioned, there were lots of other midsized corporates, which went through a tough period because of the relationships with the U.K., the whole export provision, the ability to import. And so there were certain problems we avoided. Probably we might have gone too far, but we look to redress that balance.

And Chris, on the second part of your question, so we -- I think delivered this at the back end of this year and the start of this year, seeing client migration from noninterest to interest-bearing accounts stabilize. Clearly, there's uncertainty associated with how client behavior will evolve going forward, depending upon their perceptions and the reality of how the interest rate yield base rate will evolve over time. But we have seen that stabilization happen and maintain itself broadly. To your point about margins, the thing I would emphasize is I mentioned the fact that we've got about GBP 20 billion of GBP 194 billion of product group structural hedge notional. Anna's talked, I think it quarterly outcomes about the fact that about GBP 170 billion of that is expected to roll by 2026 or mature by 2026, 75% of that it will roll. You would expect to profile of the GBP 20 billion within U.K. corporate to mature and roll at about the same proportion as the group. And of course, as it rolls, it's rolling on higher rates. So even though the notional is coming down, you're getting a rate enhancement. So the margin contribution of it is effectively offset and therefore neutral relative to the past. So as long as we see that sort of relatively stable client behavior, the hedge has been helping us make sure that we're protecting margins over the course of the plan period. Does that help?

It's Andrew Coombs from Citi. I have 2 or 2.5 questions, probably. The first one is hopefully a simple one, but my understanding was that the card issuance business or the corporates, which is now in your division, even that's for all the corporate clients, was historically run under the same umbrella as [indiscernible]. It now sits in the head office. There's a debate as to whether it is core or whether it will be divested or not. But with that in mind, can you just confirm what the two businesses are completely separated now and there's no remaining overlap? And if that business were to be divested, it wouldn't have any impact on your franchise? And then my second question, I hope you kind of understand my logic with this. I've always done the corporate lending line taking under the old disclosure quite hard to model because there was always a lot of leveraged finance marks going through, those sort of hedging marks going through. And so I was quite relieved in the new disclosure that when it was split out between the two segments, your corporate lending level is very stable. It was GBP 60 million to GBP 70 million a quarter. So again, can you just confirm that it should be more stable in your mind from here? I guess my half question attached to that is when you look at the Q1, you actually saw a nice uptick in that number to 72 on the lower loan balance number. So just trying to work out there's any funnies in there or genuinely better pricing or something else that's driving that?

Yes. Thank you, Andrew. So on card issuing and merchant acquiring, so the businesses are reported separately, as you say. Merchant acquiring and head office and card issuing is fully integrated into the business. The team and I manage the merchant acquiring product within the Corporate Bank, even though it's reported separately. And that's on purpose because it is a fundamentally important part of the service that we provide and that holistic sort of cash management and payments capability that we provide clients. So the reason for the separation and reporting is just to signify, to use different words than you did, we've been very open about the fact that we are in the market for a partner to help us make sure that, that merchant acquiring business can be as good in the future that it have been in the past. And what that recognizes is there's just a tremendous, if not a profound, amount of technological advancement happening in that merchant acquiring space. And we're probably not best suited to provide the support that, that business needs to stay competitive advantage. We want it to stay competitively advantaged because our clients want access to a competitively advantaged merchant acquiring capability. So we talked openly about that, I think Venkat and Anna did in the Investor Day in the 20th of February. We're in process with those conversations, and we'll update you on that as soon as we get any material event that would require us to provide an update. But I think the difference I would take is we're not looking to take that away from clients. We want to provide the best-in-class capability possible, and we're just trying to find a different path to which to do that. And then on the corporate lending, there's no funnies in there. It should be relatively stable. Obviously, the intent that I've set out here today to grow our lending position didn't start today. We've been at that probably from the back end of last year, let alone the first quarter of this year. There will be some volatility in it, not least of which for the reasons that I said earlier about the demand environment. So we are very deliberately out talking to as many clients as possible and key business introducers and brokers to help them understand that, that historical availability of lending is going to change. So that we're in more of those conversations and we win more deals and rebalance that imbalance between deposits and loans. So hopefully, that upward trajectory will continue to grow as a positive volatility. Any other questions? One in the back? Ed?

I don't want to leave any space, so if I've got time, I'll take another one. One of the things I'm sort of -- a lot of us are trying to think about is the impact of quantitative tightening. Obviously, there's been a huge amount of liquidity shoved into the market over the last 15 years. And that's starting to burst in quite a meaningful manner. And I'm just wondering what you're seeing in terms of your business. Is that affecting liquidity amount, I guess, at the larger corporate end? Are people making different choices about products they're taking from you? And how does that affect your thinking perhaps over the next four or five years when we could see GBP 100 billion, GBP 200 billion, GBP 300 billion coming out?

Yes. Let me -- I can answer it from the client perspective. And again, I may need to ask a friend how we thought about it at the group level and the system-wide sort of considerations and implications. I think at the client level, some of the reasons that I said earlier, their view is far more close to home, which is making sure their business is as well positioned as possible in the environment as it sits today and they expect going forward. And my suspicion is that, that individual client level, they can't quite yet connect the theory of quantitative tightening and what the Central Bank you talking about in terms of what that means for them other than the fact that it's another factor that creates a little bit of uncertainty and unease that says, "I'd rather stay liquid until I understand a little bit more about how this is going to play out." And that is the overriding, I think, disposition that we see in clients today. So I think that's probably the -- we're not getting into it I think more [indiscernible] the primary way in which I think that's influencing client behavior. It's just another one of those things they hear about, have to think about, don't know quite what to do with and therefore, causes them to be a little bit less confident in investing than they might otherwise be. And just to be clear, they've got business plans, the corporates that we talk to. They know what they do as soon as they get the confidence. It's not for lack of ideas. They just got to get the confidence to put the capital to work and therefore, reduce, if you will, liquidity flexibility that they're protecting right now. But I don't know, Anna, if you had anything else to say about quantitative technique.

We did talk about it a little bit on the 20th of February. But I think, as Matt quite rightly says, we are yet to see real evidence of that sort of macro expectation translating into either definitive household or corporate behavior. But it's one of the reasons that we said as we roll a hedge about GBP 177 billion, we might expect to only roll 3/4 of it because our expectation is that the U.K. money supply will fall over time, just that linked to QT, but it's very difficult, as Matt says, to pick it up in any specific client behavior we see so far.

Any other questions?

[indiscernible] I was just sort of wondering, maybe it's a slight rude question. But just kind of stepping back a little bit on ultimately, ROEs. So I imagine, and correct me if I'm wrong, but the ROE of lending in the corporate market in the U.K. is probably dilutive to the current business that you have kind of in place? And maybe you can't have everything without the other. And obviously, you potentially are sort of leaving money on the table by not lending to your clients. But I guess the kind of question is sort of a group perspective, is this the best place to be putting that capital to work? And then obviously, I appreciate the sort of a cost element to the ROTE in this business and the sort of high teens target in 2026, particularly obviously presumably the deposit margin will be kind of coming down at some point. So yes, I'd love to sort of maybe just get a little bit more sort of color on that.

Thanks, [ Rob ]. I'll take a stab at the start and then I'm sure Anna will want to share a few thoughts. So I think at the business level for the reasons that I said earlier, I think strategically, you could definitely make a choice, which is, I would describe it very short term, which is to try to optimize returns within the environment. And you may be able to [ take ] higher returns out of the business by not lending to these clients. And to some respect, that's what we've done for the last sort of seven or eight years and ended up in the position that we're in. I think the view that we're expressing certainly is strategically that's probably not that sustainable because these clients, they want relationships that are a bit broader than that and they need help a bit broader than that. So are you suboptimizing short-term returns for medium and long-term sustainability of the business to a degree. But I think, the very first question that we all asked, we're not going to do several things to get back and balance wrong in the other direction. It's about optimizing over time. That's the whole point, I think, of a good strategy. And then two is that point that Venkat made, I think, at Investor Day about rebalancing the group to demonstrate our commitment to core U.K. and this is a significant part of it. Now having said all of that, the business, over the last three years, has produced high-teen returns on tangible equity. So even if you sacrifice would've return to make it bigger, feels to me like that's a good upweighting to the overall group return. But Anna may have a slightly different view.

Well, I don't. Just good. So I think that's exactly the way we think about it. I mean, this is a business driven by its relationships and therefore, ensuring the health and the breadth of those relationships over time is really the strategy. Exactly the same with our Private Banking and Wealth business exactly the same as the plans that we outlined in the U.K. You're right to touch on the sort of group financial engineering of this though because there is a piece here where just to the natural ebbs and flows of a rate cycle. Clearly, a lot of the profitability of banking at the moment sits with deposits. And at a point in time, that will pass to the asset side of the balance sheet. So the way we think about it is that over the next few years, we really do want to get that momentum into the asset side into the lending growth of the business. We've got tremendous tailwind at the moment coming not only from our deposit strength but also from the structural hedge benefits that go with that over the next few years beyond the term of the plan that we talked to you about, clearly, that will dissipate at a point in time, and you would really want your lending growth to be picking up at that point in time. So this is an early addressing of that structural switch around, if you like, in the industry that we expect.

Excellent. So I'm assuming -- I'm sure you may have some more questions. We're obviously going to be around once we end the formal session. So it just leaves me in conclusion to just say thank you all for joining this afternoon. I hope you found the session insightful and helpful. And for those of you in the room, very welcome to stay and have some refreshments where we'd be more happy to have an informal conversation about anything else in your mind. Thank you very much.