Barclays PLC
Q3 2021 Earnings Call Transcript

Published: 21 Oct 2021

[Operator:]

Welcome to the Barclays Q3 2021, analyst and investor conference call. I will now hand over to Jes Staley, Group Chief Executive and Tushar Morzaria, Group Finance Director

[Jes Staley:]

Good morning, everyone. It's been another consistent quarter for Barclays. Tushar will take you through the numbers in more detail in a moment, but at a headline, let me say that I'm very pleased with our performance. Our return on tangible equity for the group was 14.9% for the first 9 months of this year. We clearly expect now to deliver a RoTE above 10% for 2021. Our profitability remains robust with year-to-date profit before tax of close to 7 billion pounds. This our highest per -tax profit level on record. Earnings per share was PS30.8 for the nine months. And we remain in a strong capital position with a CET1 ratio of 15.4%, well above our targeted range of 13% to 14%. We are managing our costs appropriately. Our cost income ratio for the first nine months for the year was 64%, and if you exclude structural cost actions, our cost-to-income ratio was in fact 61%. Looking at our performance by division, we had another great quarter in the corporate and investment bank. Revenue was driven by the continuing strength of our debt capital markets franchise, as well as strong performance in advisory and equity capital markets. In fact, the third quarter was the best quarter ever in investment banking fees. We continue to evolve the Investment Bank towards more annuity-like revenue streams, including our important securities financing businesses. Corporate bank is making good progress on its strategic priorities, including income diversification, growth and higher return in transaction banking, and optimizing the use of loan capital. Its returns are now in double-digits. Our consumer businesses BUK and CCP have performed well. As we recover from the impact of the global pandemic, both businesses have benefited from positive trends in UK and U.S. consumer spending. While interest-earning balances may take time to grow in the UK and U.S. cards, UK mortgage growth remains strong with mortgages growing by some 2.3 billion pounds in the quarter. We should not forget that in the past years, both Barclays UK and CCP have regularly produced double-digit returns, and they remain very good businesses. Income from payments activity also continues to recover well, up 17% year-on-year. This is both the result of the pickup in the global economy, as well as early benefits from our strategic initiatives around payments. We're also expanding our unsecured lending in the UK, U.S. and Europe. We are deepening our engagement with customers through card acquisitions and corporate partnerships, including the exciting collaborations we recently announced with GAAP, AARP, and of course, Amazon. We have built our business to be able to deliver double-digit returns through the economic cycle. Diversified as we are by income type, by customer and client, and by geography. Our one bank approach with call the power of one Barclays also allows us to realize synergies across our consumer and wholesale businesses. This means we can target and unlock new growth prospects. Specifically, we are focused on positioning Barclays to capture opportunities from 3 principal areas. First, as a capital markets grow further to become the dominant financial driver of economic growth, we have built, and will maintain our market position of one of the top six global Investment Bank. Second, as technology transforms consumer financial services, Barclays is building and delivering next-generation digital products and services. And finally, we recognize that the transition to low carbon, represents a defining opportunity for innovation and growth. We want to be alongside clients as they transition, using our advisory and financial expertise to help them navigate this period of extraordinary change. This week, in fact, I joined a number of our clients at the UK Global Investment Summit in London. The summit could not have come at a better time, just a month before 26 conference and it explored ways that the UK can play a leading role in dealing with decline that challenge. Because we have the last full-service UK Investment Bank, Barclays can and will play, a meaningful role in that aspiration. So, Barclays is performing well. While our diversified model and strong balance sheet gives us growth potential for the future. Returning excess capital to shareholders still remains a key priority. We've already turned over 1PS.5 billion of excess capital so far this year. And our CET1 ratio still stands well above 15%. So, we are in a very strong place as we head into the end of the year. Tushar?

[Tushar Morzaria:]

Thanks, Jes. As usual, I'll start with a summary of our year-to-date performance and then go into more detail on the quarter. The strength of the CIB continues to offset the effects of the pandemic on our consumer businesses, where we are seeing initial signs of recovery in terms of spending metrics. Overall income was broadly flat year-on-year, despite a 9% weakening in the average U.S. dollar exchange rate. Costs increased by 0.6 billion to 10.7 billion, including structural cost actions of 0.4 billion, principally in Q2. This increase also reflected high performance to cost accruals due to improved returns, while base costs were flat. And there's no change in the cost guidance we gave at Q2. After the release of 0.8 million in Q2, we had a modest impairment charge in Q3, generating a net release for the 9 months, of 0.6 billion, compared to a charge of 4.3 billion for the same period last year. This resulted in a PBT of 6.9 billion, a significant increase on the same period last year's profit, of 2.4 billion. The EPS was 30.8, generating a rarity of 14.9%. Our capital generation, year-to-date puts us in a position to pay a half-year dividend of 2 pence and launch a share buyback of up to 500 million in August, going on from the 700 million buybacks, completed in April. And still in Q3 at 15.4% CET1 ratio, well above our target of 13% to 14%. I'll say more on the capital flight path later on. Turning now to Q3. Income was up 5% year-on-year to 5.5 billion despite the weaker U.S. dollar. Within this, we saw growth in CIB and BUK, partially offset by lower income in CCP. Costs abroad is flat year-on-year, delivering positive jaws. We had an impairment charge of 0.1 billion compared to a 0.6 billion from Q3 last year. As a result, profit before tax was 2 billion for Q3, up from 1.1 billion last year. Distributable profit for the quarter was 1.4 billion, generating an EPS of 8.5p and a RoTE of 11.9%. I would remind you again that these are all statutory numbers and take into account I litigation and comeback charge of 32 million. TNAV increased from 281 to 287 pence in the quarter, principally reflecting the 8.5 pence of EPS. Our capital position strengthened further in the quarter with the CET1 ratio increasing to 15.4% driven by profitability. Few words on income costs and impairment before moving on to the performance of the businesses. We've mentioned the benefit of diversification throughout the pandemic. And in Q3, we again delivered resilient group income performance. CIB income was up 8%, despite the U.S. dollar headwind and the Investment Bank continued to perform strongly. We saw a 6% increase in the UK income, with strong performance in mortgages, while the quarter-on-quarter trend in unsecured lending balances stabilized. CCP income was down year-on-year, reflecting lower average U.S. card balances and the weekly U.S. dollar. Recent recovering spending is encouraging, but like many of our peers, we continue to see elevated payment rates. Income from unified payments and the private bank increased year-on-year. While unsecured lending remains subdued, the income outlook for the consumer businesses, the UK and CCP reflects a continuing tailwind in secured lending in the UK, plus portfolio acquisitions in U.S. cards, and spending recovery in Payments. The BUK mortgage business had another strong quarter with 2.3 billion of organic net balance growth to reach 157 billion. In unsecured, we saw some balance recovery in U.S. costs and the quarter-on-quarter decline in UK costs stabilized, with the balance trajectory continues to be impacted by higher payments rates. I would remind you that in the U.S., we have added $0.6 billion of balances, with the acquisition of the AARP back book at the end of the quarter. We are seeing clear signs of recovery in consumer spending in both the UK and the U.S. The building interest-earning balances is expected to take time to materialize. Lockers is well positioned for a rising rate environment for the effect of a steep yield curve on the role of a structural hedge and the effect of potential base rate increases on deposit margins. The table on the right of the slide shows an illustrative example for a 25-basis point parallel shift in the current yield curve. You mentioned previously an expectation that the role of the structural hedge would be a further headwind in 2022. However, the expansion of the hedge we mentioned that Q2 and the current yield curve should eliminate this headwind and an increase in base rates would be a clear positive for income. You will recall that most of the recent increase in the size of the hedge will benefit Barclays International rather than the UK. Looking now at costs. Starting with base costs, as we label cost, excluding structural cost actions and performance costs. These base costs were broadly flat year-to-date in line with our expectation for the full year. Overall cost increase was a result of the increases in performance costs, which is largely in Q1 and structural cost actions. Just to remind you of the phasing of the structural cost actions through the year. You can see on this slide, we have charged 392 million year-to-date, including the Q2 real estate charge. You recall that lapsed with expected to result in annual cost savings of about 50 million from 2023, We are evaluating prime structural cost actions for Q4, although the precise size is still to be determined. These are likely to include the continuing transformation of the BUK cost base, as you mentioned the Q2. There'll be some structural cost actions into next year, but I wouldn't expect a charge as large as this year. As I indicated at Q2, we getting for full-year base costs, we brought in line with 2020 at around 12 billion. Within this, we continue to make investments, and there is underlying cost inflation, but we're going to offset these increases through efficiency savings and are getting a tailwind from the weekly U.S. dollar. Last year's costs were 13.9 billion, allowing for increases in performance costs and the structural cost actions, I'm broadly comfortable with the current cost consensus of between 14.4 billion and 14.5 billion. Looking forward, as the recovery strengthens, we'll continue to manage the balance between growth and investment spend and cost efficiencies with the aim of delivering positive in order to achieve our target, sub-60% cost income ratio in the medium-term. Moving onto impairment, reported a net charge for the group of a 120 million for Q3, which arches in B UK and CCP, offset by a net release in CIB. On the right, we've shown the split of the charge for the recent quarters into Stage 1 and 2 impairments, and the stage 3 impairment on loans in default. As you can see, the charging Q3 is principally on stage 3 balances, after large book ups last year and a net release in Q2. On the next slide, we show the macroeconomic variables and post model adjustments. The EMEA's used for the Q3 modeled impairment are shown in the upper table. And you can see the improvements in the baseline GBP and unemployment forecasts. However, the EMEA's used for the downside scenarios broadly offset these improvements in terms of the modeled outputs. In addition, we want to make sure that we don't lose sight of the risks as the wind-down of support schemes Phase 3. Results of is that we are maintaining X significant economic Uncertainty PMA at around 2 billion in the quarter, thus sharing the table. This is continuing to leave us with materially higher unsecured coverage ratios than pre -pandemic. As you can see on the coverage slides, we've included in the appendix. With these levels of coverage below or unsecured balances and improved macroeconomic outlook. Expect the quarterly impairment charge to remain below historical pre -pandemic levels in the coming quarters. Turning to Barclays UK. The UK income increased 6% year-on-year, with the continuing strong performance in mortgages, and non-recurrence of last year's customer support actions. Cost decreased 6% generating posted Joel s of 12% this quarter. As we showed on the earlier side, credit card balances were flat at Q2 at 9.6 billion are still down about 20% year-on-year The level of Q3 comp balances reflects the high payment rates, and we expect the spend recovery to take time to feed into interest-earning balances that drive net interest income growth. Mortgage balances again grew with a net increase of 2.3 billion in Q3. Margins for the mortgages booked in the quarter were attractive, but the pricing on new mortgages is very competitive and we do expect the churn margin to turn negative next year. NIM for the quarter was 249 basis points, down on the 255 reported for Q2. Our outlook for full-year NIM is now around 250, at the top end of the 240 to 250 range we previously indicated. This still implies the Q4 margin in the low-to-mid 240s as a result of the mix effects from the depressed level of interest-earning card balances and the continued growth in mortgages compliant with the moderation in mortgage margins. The decrease of costs of 6% reflected efficiency savings, and lower operational costs, which more than offset investment spend. There was an impairment charge for the quarter of 137 million, almost half last year's charge, reflecting the low levels of delinquency and reduced on secured exposures. Customer deposit increased further by further 1 billion and the RoTE for the quarter was 12.7% Turning now to Barclays international. BI income increased 4% year-on-year to 3.9 billion despite the U.S. dollar headwind. While costs were slightly up. Impairment was a net release of 18 million, resulting in a RoTE of 15.9% going. We're going into more detail on the businesses on the next 2 slides. The momentum in the CIB continues with income, up 8% on Q3 last year to 3.1 billion. Cost increased by 2% delivering positive . It was 128 million net impairment release compared to a charge of 187 million last year. This generated in the RoTE for the quarter of 16.6%. Global markets income decreased 8% overall in sterling or 3% in dollars. But equities reported its best at Q3, up 10% at 757 million with strong performances in derivatives and equity financing, including further growth in prime balances to reach a record level during the quarter. FICC decreased 20% against a strong comparator last year. However, our franchise is proving robust despite the lower levels of market volatility. Investment Bank fees, on the other hand, reached a record level at 971 million, up 59% year-on-year. We were pleased with our increased diversification, was advisory equity capital markets and debt capital markets all contributed strongly to the record performance. Despite the healthy deal flow, the pipeline remains at the high level we referenced the Q2. Sponsor activity continue to be high and our overall fee share of 4% continued the momentum we have achieved over recent quarters. Corporate lending income was 168 million, reflecting lower average balances and higher cost of credit protection. Transaction banking income was up 16% year-on-year, 430 million, no swap on Q2 with an improvement in deposit margins and increased client activity. As I mentioned before, the increase in variable compensation accrual reflecting improved returns, was skewed towards Q1 this year. Overall costs were up 2.7%, 1.7 billion, resulting in a cost-to-income ratio of 56%. Turning now to Consumer Cards and Payments. Income in CCP decreased 8% to 0.8 billion, reflecting lower income from U.S. costs, partially offset by growth in unified payments in the private bank. The decrease in U.S. costs income reflected a weaker dollar, the 4% reduction in average costs funds is year-on-year, and higher customer acquisition costs. As I mentioned earlier, like our peers, we have experienced high payment rates. However, quarter-end balances were rough on Q2 at around $21.1 billion. If growth includes $0.6 billion from the RoTE acquisition and organics -- organic balance growth was $0.4 billion. Another positive trend is that new accounts have increased over the first 9 months, and this has contributed to the increased balances. It also means increased customer acquisition costs. Unified payments income was up 24% year-on-year, on Q2 as we saw the initial effects of the spending recovery. Private bank income increased 10% year-on-year, and client balances grew. Investment in high-end marketing spend was reflected in an increase of 5% in CCP costs. The charge was a 110 million and the RoTE was 10.5%. The recent developments in our partnership portfolios, the prospects for the U.S. cards business are encouraging. I want to remind you that the translation of recovery in card balances into income and profits will be affected by the so-called J-curve as we invest in partner and customer acquisition and in card utilization. We're pleased with the recovery of the unified payments income as we pursue our growth ambitions across payments. Turning now to Head O office. The negative income of 110 million was a bit above the 75 million run rate I mentioned at Q1, reflecting some hedge accounting losses driven by interest rate volatility. Costs of 114 million included some costs related to discontinued software assets, while the other net income line was a positive with another fair value gain on business growth fund. Loss before tax for the quarter was 147 million. Moving on to capital, the CET1 ratio increased in the quarter to 15.4%, well above our target range of 13% to 14%. Profits generated approximately 54 basis points of accretion. Offsetting this, the further buyback of up to 500 million, launched in August, reduced the ratio by approximately 16 basis points. The Q3 pension contribution had an effect of 11 basis points before tax, and a dividend accrual in the quarter amounted to eight basis points. RWAs were up slightly in the quarter reflecting some headwinds, from FX moves. We showed some elements of the future capital progression on the next slide. As we indicated at Q2, we expect to end the year well above our target range of 13 to 14%, and we've shown on this slide the 3 specific headwinds which will reduce ratio at the start of 2022. This would reduce the current ratios by around 75 basis points. Going forward, we are confident that the balance between profitability, investment in growth, and remaining capital headwinds will leave us with net capital generation to support attractive distributions to shareholders over time and be comfortably with a now CET1 target range. For sport and average leverage ratios were around 5%. Finally, a slide about our liquidity and funding, remain highly liquid and well-funded for the liquidity coverage ratio of a 161%, and the loan to deposit ratio of 69%, reflecting the continued growth in deposits. Such a recap. We have generated an 11.9% statutory RoTE for the quarter, and 14.9% for the year-to-date. Although Q4 is generally the weakest quarter of the year for RoTE, we expect to be clearly above our target of 10% for the full year, and we are focused on delivering this on a sustainable basis. We can see some recovery in lead indicators in consumer income and the CIB performance remains strong. Although costs in 2021 are expected to be higher than 2020, cost control remains a critical focus and we expect costs, excluding structural cost actions and performance costs, to be around 12 billion this year. Reported a modest impairment charge for the quarter, but have a net release of 0.6 billion for the year-to-date, and we expect the run rate for impairment to be below pre -pandemic levels over the coming quarters. Despite the 2 buybacks announced earlier in the year, totaling up to 1.2 billion, and the half-year dividend of 2 pounds per share. Our capital ratio of 15 24% at the end of the quarter remain comfortably above our target range of 13 to 14%. Although there are some capital headwinds coming installed of 2020 to remain confident that being in a position to make attractive capital returns to shareholders while also investing for future growth. Thank you. And we'll now take your questions. And as usual, I'd ask that you limit yourself to 2 per person so we get a chance to get around to everyone.

[Operator:]

If you wish to ask a question, please. Your first telephone question is from Rohith Chandra-Rajan of Bank of America.

[Rohith Chandra Rajan:]

Hi, good morning. I had a -- good morning. I had a couple, please. One is almost where you just finished there, just to clarify what you're saying on the Slide 23, particularly the right-hand side on capital -- particular the right-hand side of the slide. So, beyond the start of 2022. Despite looks like organic capital generation is offset by over headwinds, but a thing to show you commented that you expect to be net cash flow generative. And so, I was just wondering if you could clarify what it is you're saying there, and if you -- I would put any numbers around those other headwinds. That was the first question. And then the -- was just on the CIB, and particularly, cost income there. So, it's obviously a good revenue performance say keeping up with peers and the cost income mid-fifties for the last few quarters is also pretty much in line with your major peers. Is that a level of efficiency that you think you can maintain even if we get some fade in the revenue environment for the CIB? Thank you.

[Tushar Morzaria:]

Thanks, Rohith. Why don't I start and this question, Jes may want to add a word or 2. On your first one, in terms of the future capital costs, I guess. it will be on this year and into next. I think the gist of your question is that we expect it to generate more capital than the various clinical headwinds, business growth and what have you that we may have. But certainly, our objective, I've cautioned you before you get your rulers out and trying to figure out from the slides whether there's any subliminal message. There isn't. It's what it's been over a number of years, we do expect to be net to capital generative over most years. And there will be headwinds from time-to-time, but we think we've got a sustainable level of profitability and it should more than compensate for that. In terms of CIB efficiency, to be honest, while efficiency metrics are important for us, returns are more important. And the way we think about it is, we want to keep the CIB above double-digits. Leap through a cycle, if not most points in the cycle. The way we think about it, it's almost just the fact that to be above 10%, you are going to be operating at the kind of efficiency levels that we broadly have today. I mean, it will go up and down obviously, depending on where variable pay goes, and where income revenues go. But to get to a 10% or so return on the sort of capital levels, you have a reasonably efficient unit, and that's sort of how I think about it.

[Jes Staley:]

And that -- just that if you take away that structural costs, typically, the main building here in Canary Wharf that we got -- that we took the charge on the second quarter. Across income ratio is 61% of target 60. I think, how we get below 60 will be more a function of efficiencies and B UK then, and -- then in the CIB.

[Rohith Chandra Rajan:]

Thank you.

[Tushar Morzaria:]

Thanks for your questions Rohith. Can we have the next question, please operator.

[Operator:]

The next question is from Alvaro Serrano of Morgan Stanley. Please go ahead.

[Alvaro Serrano:]

Good morning. Couple of questions from me. On the CIB revenues. Very strong performance in beat versus consensus. But looking at your U.S. peers, the mix is different, seemed like. Equities is probably not as strong, and you made up for it in . Can you talk to what you think explains that in particular in equities. And as we look forward, does that have any implications for the outlook, or how we should think about the outlook and the pipeline from here. And my second question is on cost. I've seen you've given the right sensitivity, which is obviously very relevant at the moment. But on the costs and in particular on the structural cost, that 12 billion, I think in the last call, you were sort of -- Tushar, you alluded to that you would expect roughly the same number. I've seemed to remember in 2022, inflation pictures picking up, and the offset to the rate is could be cost. And if you can make any reflections, are you going to be able to offset input cost inflation with cost efficiencies in 2022 as well, because I think you alluded to in the previous quarter? Thank you.

[Jes Staley:]

Thanks Alvaro, I'll take the first question and then -- and Tushar will take the second one costs. On the CIB revenues, first, into the market size -- or the markets side, we were a little bit lighter than the U.S. peers. I'd say it's sort of function of two things

[Tushar Morzaria:]

Just maybe to round that up, but we'll set a record in equities. In Fact, those ED being following buckets for some time, the equity revenues approaching a fixed income revenue. So, the diversification in our markets business is something we're very pleased with. Just moving on to costs. I think you're very right to point out inflation. For us, it's principally about labor costs. That's the real sort of of inflation for us rather than sort of other complicated supply chain mechanics. It's something we're used to. We obviously have a lot of our operations actually in India and we've had that for some year. That's a high inflation country so we are used to having to deal with on a percentage basis. So, the meaningful increases in labor costs year-per-year, we do that by absorbing that through our own efficiency programs. Of course, if that spreads around to all other countries, that puts a bit more pressure. I think for now, for planning purposes now, the 12 billion into next year feels about right. But we'll see how we do in terms of ensuring that we have a sufficient efficiency programs to more than offset that, while continuing to invest in the business. We feel it's a very good time to be investing in the business, but for now, 12 billion feels about right, and we will certainly keep you posted as we go into the rest of the year.

[Alvaro Serrano:]

Thank you very much.

[Tushar Morzaria:]

Let's take questions that we have. Next question, please, operator.

[Operator:]

Next question. Today comes from Jonathan Pierce of Numis Securities. Jonathan, please go ahead.

[Jes Staley:]

Hey, Jonathan.

[Jonathan Pierce:]

Hello Dave. 2 questions. The first on the hedge. There is obviously a huge build in the hedge in the third quarter, which was more than the capacity you said you had at the end of the second quarter. So, I'm wondering, is there more to go on the hedge? And maybe you could talk to how this hedge was puts on in third quarter. So is it will roll off every month from now over the next 5 years. So, first question is on the hedge. The second question, thanks for you updated rate sensitivity. I wonder though if you could just talk to the subsets of the 275 that specifically relates to an increase in UK base rate. We can find the triangulated pullout, the structural hedge, pull out the non-UK parts of Barclays International book, but maybe you could just tell us how much of the 275 would arise as a result of a 25-basis point move up in the short end in the UK. Thanks very much.

[Tushar Morzaria:]

Thanks, Jonathan, I'm going to take both of them. In terms of the hedge capacity, I think we have to feel like we're fully expressed in terms of the amount of nominal hedge that we want to be running. You're right that we guided to increasing that hedge and nominal at Q2, which is broadly of what we've done. Obviously, deposits continue to track up anyway. That's got an influence in everywhere sort of if you like, where we would like to be. In terms of the role profile. It's kind of there's nothing unusual that same for the strip of swaps that we been used for a number of years. Into next year, if you want to look at on a 12-month basis, it's in the full of somewhere between 30 to 40 billion of ROE that you should expect and they will refinance into to whatever rights that we'll be providing as we go into next year. As you know, we have expressed that as a strip of 6-to-7-year maturity swaps. Which I guess hopefully it's helpful in terms of -- I think the point of your question was, can you just tell us how much of the Year 1 net interest income sensitivity comes from, just base rate rises and pass-through assumptions versus just hedge role. I would say in the majority in Year 1, you would pay probably more driven by base rate rises, and then the grinding effect of the hedges sort of come through in 2 years -- 2 and 3. Obviously, all of this will be somewhat dependent on the strength of the curve that we use as a reference point, how steep it is, or what have you. But think of it as being the front end of the first year, and most of the base rate story, and beyond that becomes more the grinding effect of structural hedge. So, a number at least gives you a sense of how we think about it.

[Jonathan Pierce:]

Okay, that's helpful, but just to clarify. So, I mean, it looks like probably 50 million of the 275 is the hedge. So, let's call it low two hundred in terms of deposit revenue, specifically, nearly all of that is UK base rate.

[Jes Staley:]

Yes, that's right. It's mostly predominantly sterling, I don't think I've -- that is obviously split across our UK bank as well as our international bank for the large corporate business, UK corporate business. In that it is a sterling -- almost entirely a sterling exposure, but 40-60 across UK and International.

[Jonathan Pierce:]

Brilliant. Thanks.

[Tushar Morzaria:]

Thanks, Jonathan. Could we have the next question, please?

[Operator:]

On next question comes from Joseph Dickerson of Jefferies. Please go ahead.

[Joseph Dickerson:]

Hi, good morning, guys. Thanks for taking my question. I guess. What one thing to me is why are you being so conservative, at least from an external observers point-of-view with the 2 billion of management overlays that you've got sitting in your provisions. When I look at, call it 15% loan loss reserve on the UK unsecured block and nearly 12% on U.S. cards, which would kind of be levels I would have thought about if you had an 8 or 9% unemployment rate as the base case in each jurisdiction. For as why the conservatism, I'm not hearing you on things like furlough scheme, etc., but it still seems like a fairly high number, particularly when -- if you go back the management adjustments at the full-year '20, we're about 15% of your overall ECL allowance. So, I guess just what's driving that there. And then are share buyback's still something you'd like to do with your CET1 ratio at 15.4%, and yes, lots of moving parts, but hopefully still capital generation in the fourth quarter. Or are there other inorganic opportunities you might look at as well?

[Tushar Morzaria:]

Yes. Thanks, Joe, why don't I take the first one and I'll ask Jes to talk about capital returns. The 2 billion pounds or so for the management overlay. It's really there because as you're aware of when we wrote these models, there's no concept of a pandemic scenario we could have model, and historical calibration that we still use. And we got to think these models really can pick up the effect of government support. And more importantly, the removal of government support schemes. So, in some ways, you're right, we're getting towards the -- towards the back end of that. Now, having said that the first game in the UK is still just being unwound now, we do have, which most people probably don't appreciate as much, but the support schemes in the U.S. are actually . And we'll go on a bit longer. You've got the Care Act in Social Security payments and extended unemployment benefits and what have you. But as the schemes begin to unwind, we'll see the full effects of that. And either you feel like the models have underestimated the amount of destruct that may present a tough one, in which case, we'll digest the provision hopefully and we won't need any more. Or alternatively, we -- turns out it's a much smoother adjustment than that we might have thought it could've been, in which will be posted for us. A final word on credit before I hand it over to Jes is though I would just stress how the credit environment kind of is when we look at a few things like delinquency data s. They're as low as we've seen. I think yielded sort of multi-decade lows in the U.S. And if you look at that watch list, which is sort of names that we would be closely monitoring the credit risk in our corporate and investment banking nines. I mean, that's about life as I've seen as well. So, the credit environment, if piece that weekly. Yes, it's a good environment if you'd like to be going into the removal of the support scheme. So, we'll see how that plays out. Jes?

[Jes Staley:]

On the buyback, that still remains an instrument for us to use as we return excess capital to shareholders, which was clearly our goal. I think returning capital, whether it's through dividends or buybacks, there needs to be a certain cadence to it. We have done 1.2 billion this year. The second buyback of 500 million, that's still in progress now. We are buying back stock and that will be something that we will continue to do in the future in terms of inorganic. we clearly -- if we see an opportunity, we'll make investments of our capital. I think probably the best example would be the GAAP transition, which our transaction where we increased our number of consumers in the U.S. that have a Barclays credit card from 11 million to 22 million in that single transaction. We will make investments like that, that we think will be very viable in the long run. But we also recognize the economics of the buyback are pretty hard to beat, given where our stock is trading. So, we closed the quarter at a very strong capital 15.4% and we continue to as an objective to return excess capital to shareholders.

[Tushar Morzaria:]

Thanks for your questions Joe. Could we have the next question, please, operator?

[Operator:]

Certainly, our next question comes from Omar Keenan of Credit Suisse. The line is open.

[Omar Keenan:]

Thank you. Good morning. I have a follow-up question on rate-sensitivity, and one on the capital plan, please. On the rate sensitivity, I was wondering perhaps if you could just use your view of the competitive landscape to perhaps tell us or give us a guess of how long the new upgraded rate sensitivity to 275 million can be maintained as the Bank of England hikes rate, and what sort of level of base rate there might be before we got something that looks like closer to 150 million again. And then just on the point on the rate sensitivity, is the 275, is that kind of an exit benefit from year 1 rather than a change to NII over the first year? And then my second question on capital was just a follow-up to Rohith 's point. If I think about the 14.7% from the first of Jan '22. And, I guess, if we wanted to super fully load that and a couple of banks are talking about 5% inflation to risk-weighted assets from the completion of Basel, that would take that number to about 14. That was imply that pretty much all of the earnings going forward should be freely available for shareholders, at least for a number of years. Is that broadly right, or are we ignoring something like output floors? And just related to that and the point on the GAAP portfolio, when you look at the M&A opportunities out there, are there still interesting things available? Thank you.

[Tushar Morzaria:]

Thanks Omar. I'll just an organic opportunity and how we think about that. On the rate sensitivity, think of this as -- we're not trying to be too clever here. It's taking the yield curve as you see it, immediately shifted it up by 25 basis points parallel and running that each calendar year. It's assuming that rates went up instantaneously today. And then what would happen in the first year based on our own sense of where deposit rates would re-priced, in other words, our own cost assumptions in the grinding effect that we would see on our strip of swaps and grinding into high fixed receipts. So, in terms of your question about will that sensitivity decrease? I think perhaps what you really maybe looking into it the first rate, pass-through assumptions, will they change as, as base rates continue to increase. That gets quite a hypothetical. I think it's been a long time since we've had a sustained sort of rate rise from such a low level. so, I'm sort of low to speculate. But generally speaking, you might find that you -- and we've got a lot of liquidity, and that's the -- really the backdrop of it. You might find you sort of pass through it a little bit more as the right environment gets higher and higher. The other thing I would stress though, is we have lots of different sort of liabilities on. We have. Obviously corporate liabilities. We have every day savings account; we have current accounts. We'll see our fixed term deposits. We have savings bonds. it's not a one size fits all which does make it quite tricky to see from the outside. So, there's -- the sense we've given you, is really just all of that blended in, and how we see it. In terms of capital and the just before Jes talks about inorganic. About before, I think we're due a consultation paper by the PRA over the winter months. That will give us some clarity as to what we may see there. I think many banks that try to have a stab at this already, go somewhere between 5 and, some cases, 10% of double inflation and we'll -- when we get the consultation paper out, we'll be able to get a price about a guidance of what it may mean for us. Timing of this will be important. I know that it's like to fully load, and I understand that it makes sense. But this thing is going to be implemented into three whatever years out than what we've had a good track record of adapting to that. Output flows, again, I wouldn't speculate on that. That feels further out on the horizon and I wouldn't want to speculate on where that may go until we get further clarity from the regulators. But by and large, I think the gist of your question or your almost inferred answer is about right, which is we are net capital generative and it's important that we aim to get the bulk of that capital back into shareholders' hands. And that will lead me on to Jes to talk about inorganic.

[Jes Staley:]

Thanks. I think -- Take the context that six years ago we set the strategy of the bank to be the universal banking model that we've got. And what we've really been striving for is it is to provide Barclays a level of stability that I think, for many years, it did not have. Now it leads to the most profitable 9 months in the history of the bank. And I think you are -- we are reaping the rewards now of the stability of our strategy, and that is paramount to the Bank. We will engage in transactions that have real structural gains for us. I think the partnership we have with Amazon in Germany and now Amazon in the UK, where every time someone goes on Amazon to make a purchase, and they go to the checkout. And if it's over a 100 Euros in the case of Germany, you're getting a number of options to finance that purchase and that's all Barclays behind that. And so that's an extremely important relationship we have with Amazon. And then there are a number of less visible ventures that where we're partnering with tech companies to advance the digitization of our offerings, particularly our consumer banking business. So, we will partner with people and we will have alignments with things like the GAAP and like Amazon. But I think when we are delivering the level of returns that we're delivering now and we're pretty confident that we can maintain through the cycle a 10% or better return on tangible equity, it's a strategy that's working and we want to endorse that strategy.

[Tushar Morzaria:]

Thanks for the questions, Omar.

[Omar Keenan:]

Thank you.

[Tushar Morzaria:]

Can we have the next question, please, Operator?

[Operator:]

Our next question comes from Guy Stebbings of Exane BNP Paribas. Your line is now open.

[Tushar Morzaria:]

Hey, Guy.

[Guy Stebbings:]

Good morning. Thanks for taking questions. The first one is on consumer asset quality. And I ask just because there was some slight, you're seeing movements in terms of ECL in the period. So, there's a full stage 2 exposures in international retail pharmacies, with 185 million increases in ECL in the second, which I presume drove that the , but it doesn't look like there was much flow into stage 3. You haven't seen a pickup in a raise and your other achievable sounds quite reassuring. So perhaps you could just give a bit more color as to what drove the increase in stage 2 retail in the U.S. which still seems to be the case in the UK. That just something to do with up a model assumption perhaps. and then the second question, which is back to UK NIM, I guess we're now in the backend of October so I presume we got very good visibility on the mortgage pipeline, issue spreads, etc. So can we think about the circuit 250 as being pretty much 250 spots, just given where we are at this point of the year, 1 or 2 basis points swinging on the full-year number has quite a big on the implied exit rate. So, any color there would be useful.

[Tushar Morzaria:]

Thanks Guy. On asset quality, in the U.S., one of the things that may not be obvious to folks is, when we took on the back book for AARP, actually you have to bring on the day one impairment provision through the P&L. For that, if you like, as a flight for the non-recurring effect in this quarter's Charging CTP. So, of that PS110 million, I think it was in CCP between 20 or 30 of it was coming from AARP on day one for that stuff on nonrecurring. You'd actually see the same thing happen again for GAAP when we bring that on probably in the second quarter. So, I'll leave it to you whether you want to look through that or how you think about that. So that -- hopefully, that's helpful. I mean, away from that, of course, as I mentioned, credit quality is looking very benign. We've not really seeing any signs and at the moment. And mortgage margins, or UK blended net interest margin. I want to give a precise number. I mean, things even though like you cited as any sort of 2.5 months business to go before the M&A. Things can still move around a little bit. Depending obviously on base rate changes which may or may not come before we saw the year-end and I'm not the kind of guy that wants to speculate on that. We think it will be somewhere around the 250 sort of full-year NIM, and give anything too precise for the moment.

[Guy Stebbings:]

All right. And just to clarify, I assume that doesn't receive any benefit, from a base rate hike decidedly new year?

[Tushar Morzaria:]

No, not no, we don't find and believe we got a crystal ball on that, no.

[Guy Stebbings:]

Thank you.

[Tushar Morzaria:]

Thanks Guy. You can update, next question, please, operator.

[Operator:]

Our next question comes from Chris Cant of Autonomous. Your line is now open. Please proceed with your question.

[Chris Cant:]

Good morning. Thank you for taking my questions. If I could just clarify your rate sensitivity, comments please on the currency split. If I look at your annual report that shows the FX split, with a bit under 50% coming from Sterling. So, does the balance sheet change -- what on the balance sheet has changed over the 9 months such that the vast majority of the sensitivity is now to Sterling? And as a further point of detail, what deposit entry are you assuming in the 275 million, please? My understanding was the previous disclosures you gave in the slides assumed about 50%, so it increased the sensitivity by 80% since what you included in the 2Q slides. What do you now see in terms of profit? And then, if I look at the CIB, obviously if I had another very strong period in the 9 months. If I look at the nine months as a whole and I compare against the equivalent period in 2019. So pre - COVID, ignoring 2020, a very elevated provision charges and not division, revenues were up 23% on the 9 months fine scene and costs around 1%. And this is 9 months, we're looking through the levy. I know you referenced a very It will remuneration tough up. Mitch, you took in 1Q of this year, but looking at those numbers in the round, it's not obvious that you've had much of a comp reaction to the dramatically high revenues. If revenue for us going forward, should we actually expect costs to flex lower, or does a revenue decline just fallen to the bottom line, because it looks like the revenue step up has largely fallen through to the bottom line in this period. Thank you.

[Tushar Morzaria:]

Thanks, Chris. I'll suffice for them. Jes may want to add some more comments on investment banking for the compensation. In terms of the rate sensitivity, I think you're trying to compare an annual report disclosure to what we had on our flight. But there is a difference in prep if you're like basis of prep. The previous sensitivities, we just took a sort of hypothetical 50% pass-through everywhere. Whereas this time around it's -- I guess the likelihood of changes in interest rates becomes more real. We'll see if that ever happens and all -- but at least that's what conventional thinking is. We've tried to get more of an indicative of what may really happen rather than just a hypothetical 50%. I think if you want to go through the basis of prep, which sounds like you may want to do, I'll suggest I'll get someone in IR to give you a call after this and they can take you through it to see we've got the various moving parts. In terms of the CIB and compensation relative to income improvements, I guess the way -- again, it will get a little bit complicated with the accounting. The accounting for the compensation component as compared to the actual size of the bonus pool, and you've probably seen this in previous disclosures, aren't unfortunately the same thing, just given the way deferrals and everything works through. I would say that if you look at a year like 2021, we accrued a meaningful increase in the bonus pool as you'd expect us to do, where returns performance is, it's not just really an income story for us. We do try and look at returns holistically. We would obviously flex that down. Of course, if performance is not as strong as it is this year as it was next year, that we'll see through, but again underwrite for us till you do get the slight timing mismatches between, I feel a lot economic awards and the way they are accounted for. And again, you're probably pretty good at already. I imagine Chris, but maybe work somebody in maybe take you through some of that for the bigger moving parts of statues in place.

[Jes Staley:]

We do want to, obviously, stay competitive with the market. And we are constantly tracking what -- how the industry is accruing and what information we can glean about the direction of compensation. As Tushar said, we are accruing at a pretty robust level, variable compensation this year. And I feel very comfortable that we will remain competitive with the U.S. firms in terms of banker pay.

[Chris Cant:]

In terms of the 2019 comparison and then deferred compensation, I know that was an issue for you historically. I thought about it largely went through by 2019 in terms of the changes that you made a few years back on the accruals. So basically, it's just a function of what your competitors are paying. So, if revenues come down at an industry level and comp does not flex down elsewhere, then we would expect to see the same thing for Barclays. So, the cost line is really going to be a function of what we see elsewhere, or how we should think about it.

[Tushar Morzaria:]

Look, we won't later disappoint, but you've hopefully seen us move compensation over the years, up and down based on performance today in 2019, actually reflects the compensation down which was actually on the back of an up year, but for the investment bank. Because we're trying to get the right balance between shareholders and an employee. So, on labor the point, but obviously all things matter, your relative position, your own performance, particularly sort of areas of investment. All things matter, I guess Chris.

[Chris Cant:]

Okay. Thanks.

[Tushar Morzaria:]

Thanks for your question. Can we have the next question, please, operator?

[Operator:]

Of course, Our next question comes from Robert Noble of Deutsche Bank. You may begin with your question.

[Robert Noble:]

Morning or can I ask on the U.S. COO business how much of the drag on the income comes from acquisition incentive close to cause. I'm what does it normally we'll see additional spend that you're putting through the top lines require customers at the moment and should I expect that to increase or stay at current levels that it is? And then secondly, thanks you for the interest rate sensitivity disclosure. If I look at market interest rate expectations, now, which way either 25 basis points over the next three years, do you expect that you will actually see some net benefit on the entire balance sheet from interest rates following the path it's implied by the market at the moment. What would you lose? The same amount in impression or less? Thanks.

[Tushar Morzaria:]

In terms of acquisition costs for the contrary income as well as I guess on the coast line, we believe this is to be a growth business. We want to be opening new accounts continuously. Hopefully, we will be adding portfolios, thing in the future as well. So, I wouldn't guide to acquisition costs. There's a kick start, and then it ebbs away. What you're really seeing is, of course, a kick start from very little activity last year, and the income to come through later on. And you got to remember, I think for us, we think about this thing is sort of a three-stage thing. First of all, people need to be attractive to your caught. And so that comes with new account openings and various rewards programs that are encouraged and your account openings. A continuum. Secondly, once you have to call it, got to be incentive to utilize that card and be top of the wallet. So that's not new accounts, but your existing customers and that requires marketing spend and branding, mostly for our partners behalf, but that's important not to continue and of course if you see these activity levels, account openings, spend doubles, which are actually better than pre -pandemic levels already in some cases. You would expect that to translate into revolving balances. So, I think, the way l think about it, is while we won't quote a number out to you. Think of these as recurring, perpetual, if you like, cost in a growth sector. In terms of IR sensitivity, as rates go higher and higher and higher. We've given it as a block parallel shift to 25-basis points. I get the point that people will want to have all sorts of scenarios that we would run for them at different yield curve shapes and everything. I mean I've been doing that every single day. I remember, six months ago, we're talking about negative rates and now we're talking about who knows what the future will be, we don't try and be too clever on that. So, we'll try and refrain from running sort of multiple smarts, I think one thing that you are sort of I think raising is. How linear it with sensitivity, for long rates, it's completely linear. It's just for the mechanical effect of swaps grinding into high fixed receipts. In terms of the base rates effects, the pass-through assumptions probably will change as you go up the base rate increase spectrum. And generally speaking, are getting taught to be precise on this because we haven't really experienced this historically from such a low level. But you probably end up proportionately passing through more as you get into higher right levels. Somewhat driven because we go phone much liquidity in the banking system at the moment. And it for that's changing higher interest rates. I guess. You may call from through more, but that's become pretty hypothetical at the moment, Guy, I'll talk to be precise on that. I'm sorry, Rob. On that previous questions, but hope that answers your questions, Rob.

[Robert Noble:]

Yeah, that's great. Thank you very much.

[Tushar Morzaria:]

Thanks. Can we have next question please, Operator?

[Operator:]

Thank you. Our next question comes from Fahed Kunwar of Broadband. Please proceed with your question.

[Fahed Kunwar:]

Hi. Morning, guys. Thanks for taking the question. I just had one question, actually, on CCMP. If I look at 3Q '21, the run rate right now, I think it's 3.2 billion. I appreciate your points around the J-curve and the GAAP balance coming on, but does the 16% growth implied in consensus? It feels very strong. Could I get a sense of how in scale of how you see that J-curve progressing when we think about CCMP revenues out to 2022? Thank you.

[Tushar Morzaria:]

Yeah. Thanks Rob. I'll refrain from giving a precise number because of the phase, so we're revolving balances. We do expect to increase the next year. But it's very hard to be precise just given we don't have any historical levels to calibrate on. I wouldn't of course, annualize, when you've currently got, we would expect income to be up next year. Obviously, if we see revolving balances increase sooner in the year, that increase will be higher and you've got the GAAP portfolio coming in the second quarter. So, I will refrain from giving precise guidance, but we are optimistic as we go into next year. Account openings are running really strong. Activity levels, they're running really strong, Credit conditions remain benign. We've seen a very strong payment recovery already this year that's included in that segment and that we expect. Hopefully, we'll bounce -- continue to bounce into next year. So, we are optimistic in the -- in where that business is going. And in some ways, it's probably -- we will probably a little bit more cautious about the pace of revolving balance increase, and for once we may have been right in our caution. Those seem to be more playing out how we expected and perhaps some other optimism out there, but that's okay. We are optimistic into next year.

[Jes Staley:]

As Tushar said, the leading indicators are account openings and consumer spend and payments. And that we are back to pre -pandemic level, so that should forecast well in terms of balances recovering as well.

[Fahed Kunwar:]

Thank you. Very helpful. Thank you, Jes.

[Tushar Morzaria:]

Can we have the next question, please, operator?

[Operator:]

Our next question comes from Robin Down of HSBC. Kindly begin with your question.

[Robin Down:]

Good morning. Thanks for taking the questions. Just a couple of quick ones. Really, kind of reinterpreting some of the earlier questions. If I could start with the sensitivity. You've hopefully structural hedge element hasn't really kind of changed, although volume growth, since you've off gave you some activity. which kind of suggests the non-structural hedge element is coming roughly doubled. And I think previously you were talking about a 50% pass-through of the first 25 basis points rate increase and it still feels like you're not quite at 0 pass -through with these numbers. It doesn't quite square without going from roughly 100 million sensitivities up to just over 200 million. One of your competitors, though, is likely consuming 0 pass-through. So, I just wanted a full part. You can say we'll look -- yes, which also means they're a pass-through onto retail and commercial deposits to customers or whether you're still being a bit conservative here. On the second question, on the capital, can you put a slightly different way to the Is there any particular reason, as we run through the early part of next year, why you should be running comfortably above the 13% to 14% target range that you set? Is there any particular reason why you feel the need to come and retain extra capital above that. Or can we realistically come and expect everything above that range to be handed back to shareholders sort of fairly early on. Thanks.

[Tushar Morzaria:]

Thanks Robin. Why don't I start on both of them and Jes may want to add some words on capital. On interest income sensitivity, which I won't speculate on other competitors in a posture assumptions or pricing, or what have you, that wouldn't be appropriate. I think for us, we used to use a sort of a , like 50% on the hypothetical arbitrary number as I guess, as I said before. I guess most people are expecting right. More likely to move than not at the moment. Who knows if that's the case. And so, we've tried to be a bit more helpful in terms of what our process assumptions could be in reality. It is, of course, there's so many different products out there. I don't think it's not sensible just to give a single number because we'll see corporate deposits, the different current accounts different to consumer savings accounts, different to private banking health, different to fixed, you name it. But it's at least our sense of indicatively what may happen. And thought probably leave it there really, and Robin, I'm not sure there's much more I can say other than that. I'll let you -- we -- you're really trying to get to what we'd been fairly conservative. We don't think so, but others will be the judge of that, I guess. Then we will see when that happens. In terms of capital returns, in the 14% -- look, I think what you'd expect from, I think most institutions, is that you'd expect us to be predictable, reliable, consistent, in terms of how we get capital back to shareholders' hands. So, we did a buyback at the full-year results. We did another one at the interim, basically announcing them alongside our dividend for the full year in the interim. The 13% to 14% stated target is our target. They're some headwinds that we've called out. There will be more information around for the or for things like that, but would expect us to be a reliable, consistent return of capital back to shareholders, at appropriate levels. It's probably more something that we discussed more at sort of the full-year results rather than an off quarter like this. But Jes, is there anything else you want to add?

[Jes Staley:]

At the interims, the statement we made was we have a progressive of plan for our dividends, so we'd like to see a predictable Increase in our dividends over the, over the cycle and want to clearly put behind us 2020. So, you should expect that. And as I said, there will be a cadence to returning additional excess capital. So, we continue with our target of 13% to 14%. And as we come out of this pandemic, in a more normalized environment, our flexibility just increases.

[Tushar Morzaria:]

Thanks for your questions, Robin. Can we have the next question, please, Operator?

[Operator:]

Certainly. The next question comes from Martin Leitgeb of Goldman Sachs. Your line is open. Please, proceed with your question.

[Martin Leitgeb:]

Yes. Good morning. Just a question related in a way to interest rate. I was just wondering if you could comment on the outlook for big driving, just in light of prospect to pile rate falls in the UK and in the U.S. Do you see this as potentially from structures for the industry revenue outlook from here, just given. Can be piece of the COO or could you ought to see some headwinds in terms of some of the valuation impact? And for the UK specifically, was just wondering, we're seeing an increase of around 40, 60 basis points in the Q2 and 5-year swap rates. Would you expect banks to increasingly pass on this increase to mortgage rates or do you think competition could be passed, just given access deposits that have a limited pass-through? Thank you.

[Jes Staley:]

Thanks, Martin. Why don't I take them? I think a high -- as long as asset prices are still well supported and financial markets still orderly and there's a functioning economy, generally speaking, higher rates are positive in both wholesale and consumer business. In regards to FICC, I think, in a higher rate environment, you might see wider financing spreads, might see wider bid offer spreads. Really just a function of higher rates. Obviously, as asset markets move around, that tends to increase implied volatility levels. They tend to be better for pricing, tends to encourage volumes. So that tends to good. So generally speaking, yes, price asset markets that move around and sort of drift higher, including interest rate is generally a positive, and I think definitely true for the FICC complex. The financing business, not one we've talked about much. We've talked a lot about in equities. Financing, spread, thin picker, almost an all-time low. So, if they wait that will be very positive for our business. On the UK mortgage market, but I think you sort of have summed it up well. That there's sort of tension between, you got higher wholesale, sort of swap rates and a lot of liquidity. Our loan to deposit ratio I think is even below 17. Now at the group level, so long liquid, we are. So, I think you'll see that tension. I think you're seeing participants in general probably beginning to increase customer rates. I think you've seen a few lenders do that last week. That sort of makes sense in a way, just because of the compression that, as you pointed out, that's come through from the 2 to 5-year swap rate. And I think most lenders will be looking very closely, making sure that they're still able to meet the hurdle rates. That might provide some sort of pricing support. But it's a toll to be too precise as we go further out, there is a lot of liquidity in the banking system as you're aware.

[Tushar Morzaria:]

Thanks for your questions, Martin, could we have the next question, please, operator?

[Operator:]

Our next question comes from Benjamin Toms of RBC. Please proceed.

[Benjamin Toms:]

Good morning. Thank you for taking my questions just wonderfully, please. Can you just talk a little bit about your ambitions to enter the buy now, pay later space. Thank you.

[Tushar Morzaria:]

Go ahead.

[Jes Staley:]

We are actually in the buy now pay later business today. But in a regulated way. What we're going to do is get into the unregulated buy now pay later space, which we think may not be long unregulated. But I think, the customer care efforts of the bank, I think ultimately will accrue very much to our favor. Offering consumers different ways to finance purchases, I think is an important activity of the bank as we do it very actively in the UK, we do a very actively in the U.S. and in Germany. But the non-regulated space, we're not going to get involved in.

[Benjamin Toms:]

Thank you.

[Tushar Morzaria:]

Thanks for your question, Benjamin. Can we have the next question please, Operator?

[Operator:]

Our next question comes from Adam Terelak of Mediobanca. Please begin with your question, Adam.

[Adam Terelak:]

Morning. Thanks for the questions. I just want to ask about the structure of the buyback. Clearly, at the minute, you're announcing a half-year and full-year. But that means that there are periods of the year where you're not able to be in the market. So, the current 500 million will be done well before you report 4Q results. Given the capital strength, given you're looking to return more, but it not makes sense to be announcing buyback and top ups to the accrual for that buyback on a more regular basis? And then secondly, I wanted a bit more detail on UK NII for the quarter. Are you flagging some difficult -- well, some headwinds from the interest-earning assets in the consumer business? Can you give us some numbers around that? Just to kind of size that into the model. And just a bit of discussion as to how decline acquisition on bank transfers and things is looking how much of a headwind than it is in, and on how that might develop over the next few quarters will be right. Thank you.

[Jes Staley:]

Yes. Thanks, Adam. On the timing of share refresh, the share buybacks. Look, well it’s been long time since then Barclays as an institution that done a share buyback, we announced one at the full-year results. We announced another one at the interim. So, I think that's probably the kind of cadence that you should expect from us and -- I think for banks, we don't try and have the crystal ball on share prices or interest rates or anything. We just want to be consistent, predictable, and a regular cadence. And that's what you should expect from us, whether that comes in share buyback or indeed managing our interest rate sensitivity or what have you. It's more that, than trying to be too clever, and in and out and trying to time things or what have you. So that's what we're about, and that's what you should expect from us. In terms of acquisition costs with regards to net interest income, yeah, I think a previous question are asked for can we size these -- which you haven't done in the disclosure, so I won't put it out on a call like this. But I would say that -- well,

[Tushar Morzaria:]

these are continuum. So, think about these as costs that we would expect. Assuming we're growing our businesses, which we expected for the foreseeable future, and be incurring for some time. And I think as soon as you see revolving balances increase, you'll be able to see what sort of net interest income that generates. In some ways, I mean, it's -- I mean, it's not that complicated, so you, guys, to do. You probably know what we charged on these calls and you know what a billion of balances will give you, in terms of net NRI, less funding cost. You probably can go back and get a pretty good sense for yourself. But think of these costs, it's not sort of one-off in away, but in permanent .

[Jes Staley:]

May be just add the . So, we spent the last decade sort of rebuilding the bank's capital base which we've now completed, and again, we're over our target. And this year 2021 was really the first year that we began to return in meaningful amounts excess capital to the shareholders, and we'll see how the program evolve as we go into 2022.

[Tushar Morzaria:]

Thanks for your questions, Adam.

[Adam Terelak:]

Great. Thank you very much.

[Tushar Morzaria:]

I think we got time for one more. Could we have one more question, please, operator?

[Operator:]

Final question this morning comes from Andrew Coombs of Citi. Andrew, please begin.

[Andrew Coombs:]

Thanks for taking my question. Let's start the big picture one finish with One for GX, which is on the capital markets outlook. I mean, you create a very strong year. If you look at the industry as a whole, it looks like we're going have the best revenue profile since 2009. Obviously, pace 2009 with them for quite a substantial decline in industry revenue. So, you talked about fixed income, indication of higher rates, what that might mean in our volatility, but would love a few thoughts on where you see the capital markets revenue profile from here. And then specific to Barclays, when you look at the improvement in your own revenue profile, how much do you think is beta versus how much do you think is alpha? Market share gains that are sustainable and you can hold on to?

[Jes Staley:]

Yeah, I know. Thanks, Andrew. As I said, I think there is a fundamental tailwind in the capital markets to the degree that regulators have structured the financial systems, such the capital markets are a more attractive place to finance economic growth than bank balance sheets. And I think that will continue. And you see that in the overall level of both the debt and the equity markets, as well as the derivative markets, which allow people to manage their risk. You need to look at volumes in the capital markets. You need to look at spreads in the capital markets. And then you need to look at As we said, ad market share. One of the exercises that sort of led to us being optimistic about our position in the Investment Bank is we are running -- and like use, going back in 2009 or 2009, 2007, we have twice the level of capital that we had back then. And back in 2007, if you put a AAA security on your balance sheet, the risk-weighted asset of that was 0. And obviously, when we turn the lights on the morning, we get risk-weighted assets. If you took the current profitability of Barclays Investment Bank, and applied the capital level of 2007, and the calibrates and the risk of 2007, our 16% return in capital yields more than double that. And that to a certain extent is one way to look at the underlying growth that we've seen in the capital markets in the last decade. And I don't think that is going to reverse. In terms of Beta versus Alpha. We have gained market share both in the markets business as well as in the primary side. That's part of the alpha. I think that's an important part of our improved profitability. I think capacity from the European banks has withdrawn and I think that has accrued to our business. And then maybe another point that I'll leave you with as part of the beta, prime brokerage is obviously a very important component of an investment bank. There's a very recurring revenue theme in prime brokerage. We have gone in the last 3 years from being the 10th largest prime broker in the system, we're now 4th globally. and that's business that we have been awarded. I think we have a terrific team in Prime Brokerage and that underpins, I think, the Beta side of our Investment Bank, if that helps you.

[Tushar Morzaria:]

Thanks very much, Andy. I think that's it for question. So, thanks for joining us this morning. I'm sure we'll get a chance to speak to some of you on the road in the next few days. But otherwise -- take care and see you all next time.