Barclays PLC
Q4 2015 Earnings Call Transcript

Published: 3 Mar 2016

[Jes Staley:]

Good morning, and welcome to Barclays. Early today, we published our 2015 results. They show a core business which is fundamentally strong, with franchises that position us well going forward. Before we focus on our plans for the future, Tushar will walk through the details of our 2015 results. Tushar?

[Tushar Morzaria:]

Thanks, Jes. I'm going to take you through our recent financial performance, and some of the actions that we've taken to accelerate our returns, before handing back to Jes. So I'm delighted with the progress that we've made in 2015 in implementing our strategy, with improvements in profitability for all our core operating businesses after adjusting for the currency effects in Africa. Overall adjusted income fell 5%, as a result of the active rundown of non-core, which finished 2015 with RWAs of 47 billion; reduced operating expenses excluding CTA by 4% to 16.2 billion, below our guidance of 16.3 billion. And total costs were down by 6% delivering positive jaws. Non-core losses increased to 1.5 billion which led to a 2% fall in overall adjusted profits or 8% on a statutory basis after taking into account adjusting items. This resulted in a statutory attributable loss of 394 million due to the non-deductible nature of many of the adjusting items. Impairment improved a further 2%, resulting in a loan loss rate of 47 basis points. I'll now take you through the main adjusting items. An additional 1.45 billion of PPI provision in Q4 reflected our best estimate of the effect of the potential 2018 deadline, and the Plevin ruling, taking the total for UK customer redress for the year to 2.8 billion. We took litigation provisions of 1.2 billion during the year, largely relating to FX settlements and various civil actions. We settled two civil RMBS claims with NCUA, but a DoJ mortgage related investigation remains outstanding. Losses on the sale of European retail businesses increased to 580 million, with a Q4 announcement of the disposal of the branch-based business in Italy. Adjustments over the year totaled 3.3 billion, resulting in an adjusted PBT of 5.4 billion and attributable profit of 2.7 billion. We're paying a final dividend of 3.5 pence per share, making 6.5 pence for the year. And from now on, we will be paying dividends semi-annually. Going forward, we'll focus on return on tangible equity, rather than return on equity, as our key returns metric; for 2015, ROTE finishing broadly flat on 2014 at 5.8%. Turning now to our core performance, we increased adjusted PBT in our core businesses by 3% to 6.9 billion, with an ROTE of 10.9%. On an average tangible equity base, that was 13% higher. There was a standout performance from Barclaycard with profits up 22%, and the IB delivered 17% increase in profits, despite a challenging market environment. Adverse currency moves again affected the Africa banking results. The head office loss reflected a negative treasury result in the income line and the initial structural reform implementation cost which we flagged in Q3. In future years' structural reform costs will be borne in full by the businesses. Core EPS was 25.7 pence. And focusing now on each of the core operating businesses, first, personal and corporate banking, which reported a 12% increase in PBT, excluding the effects of the U.S. wealth business disposal. Corporate, in particular, performed well with income up 5%, achieving above-market growth in lending and cash management. Income from personal banking was down 3% as a result of lower fee income and some mortgage margin pressure, partially offset by increased deposit income. And wealth income reduced by 2%, excluding the impact of the U.S. business sale. Taken together, PBT income would have been flat on 2014 without the impact of Barclays Wealth Americas. The mortgage market remains highly competitive. We aren't chasing market share, but nevertheless, have maintained a share of around 10% in the last few months. Net interest margin for 2015 remained healthy at around 300 basis points. Impairment reduced by 22%, giving a loan loss rate of 17 basis points despite an uptick in Q4 which principally related to some single-name charges in oil and gas. And with total operating costs down by a further 4%, we delivered positive jaws, resulting in a cost-to-income ratio of 60%, which we will drive down further as we continue to digitize the business. And overall, this drove an increase in ROTE to 16.2%. This slide shows the traction we are getting as we continue to expand our digital business. We originated 1.6 billion of unsecured lending digitally in 2015, roughly 50% up on last year. And this exceeded the amount originated via the branch network at a cost-to-income ratio in the low 20s. Turning now to Barclaycard, which delivered PBT growth of 22%. Income grew by 13% to 4.9 billion, mainly driven by the U.S. business. NIM was 913 basis points for the year. Going forward, we expect it to be in the high 800s, as we continue to grow the business internationally. Non-interest income, which grew by 7% in 2015 will continue to experience some pressure as the European interchange caps have a full year effect in 2016. Impairment increased by 6%, but the loan loss rate reduced to 289 basis points. It's a bit higher than at the end of September, as we flagged with the Q3 results but we expect the LLR to be broadly stable going forward. We generated positive jaws, despite costs increasing 11% to 2.1 billion, reflecting investment in business growth as well as some strengthening of the U.S. dollar. Overall ROTE for Barclaycard reached 22.3%. Now let me turn to Africa Banking. On a constant currency basis, PBT grew by 11% to 979 million. The 10% depreciation in the rand year-on-year turned that into a 1% reduction when reported in sterling. While the underlying performance in rand was encouraging, income grew by 7% driven by continued good momentum in retail and business banking both inside and outside of South Africa. Costs also increased by 5% reflecting inflationary pressures, partially offset by the benefits of our strategic cost programs. Impairment increased by 11%, resulting in a loan loss rate of 109 basis points. We continue to monitor the challenging macro environment in Africa, but given our conservative risk profile in the region, we feel well positioned. And now, the investment bank. The investment bank reported a 17% increase in PBT on the back of flat income, and a 5% reduction in the cost base. This included a 5% reduction in compensation costs, with the charge for performance costs down 8%. Attributable profits more than doubled, as did ROTE, to 6% which is not yet where it needs to be, but it's heading in the right direction. I was particularly pleased with the year-end RWA level of 108 billion. There's seasonality in that figure, and Q1 on a like-for-like basis is likely to show some increase. But you may have seen in our materials that we're going to do a one-time top up of non-core, which will include the IB exits we announced in January. Looking at Q4 in more detail, total income was down 12% at 1.5 billion in challenging markets. Banking was down 17%, driven by lower equity and debt underwriting fees given the difficult market conditions but were partially offset by increase in advisory fees. The banking team continues to work on landmark transactions. For example, we acted as financial advisor to Anheuser-Busch InBev on the acquisition of SAB Miller for an announced equity value of $117 billion; the fifth biggest M&A transaction ever. Q4 markets income was down 11%, within which credit increased 28%. This was driven by higher income in client credit flow mainly from success in our U.S. business, partially offset by lower income in securitized products, reflecting our strategic repositioning. Macro was down 13%, reflecting subdued client activity, particularly in Asia. But following the significant restructuring over the last 18 months we believe our macro business is in good shape and well positioned, with a 4% increase in full year revenues. Equities had a tough Q4 with income down 25% year-on-year driven by weaker performance in equity derivatives and losses on block positions that were closed in Q4 of 2015, despite a decent performance in cash equities. So we've made solid progress in 2015. However, we still have further work to do as we continue to reduce the cost base and optimize capital to generate attractive and sustainable returns. I would note that the investment bank income in January and February was broadly in line with the same period last year. However, in light of current market conditions and on the back of particularly strong March 2015 we would not expect a stronger performance as last year for the whole of Q1. Now for non-core, where we've made encouraging progress. Since the start of 2015, we've reduced RWAs by 29 billion ending the year at 47 billion. Leverage exposure reduction was dramatic, more than halving to 121 billion. Looking first at the full year, income reduced from 1.1 billion to an expense of 164 million, primarily due to the sale of income generating businesses, like Spain; the active rundown of asset portfolios; and fair value losses, notably 359 million on the ESHLA portfolio. Costs reduced 40% to 1.2 billion, reflecting the exit from various businesses. And the direction of travel here continues to be downwards. The attributable loss for the year was 1.5 billion and the drag on Group ROTE was just over 500 basis points. As we continue to drive the non-core down throughout 2016, there will again be a significant drag on group returns. But this will reduce as we stem the losses and get RWAs down to the levels we are targeting through 2017. Of the 29 billion full year reduction in RWAs, we achieved 8 billion in Q4 with 6 billion reduction in derivatives through a combination of trade unwinds and RWA efficiencies. And we have a good pipeline of transactions to deliver further RWA reductions over the next few quarters. On derivatives, we have signed a trade novation agreement with JPMorgan whereby they have agreed to have a substantial number of trades novated to them which will deliver RWA reductions over the course of 2016. On businesses, the Italian and Portuguese sales announced in Q3 and Q4 should deliver RWA reductions of 2.5 billion in the first half of the year as those sales complete. Enlargement of the non-core perimeter, notably with additional activities from the investment bank, Egypt, and southern European credit cards, added £8 billion to the non-core RWAs as at the end of 2015. However, given the excellent track record, we are confident in the ability of the non-core management team to eliminate these RWAs efficiently. And we're still guiding to around 20 billion of non-core RWAs at the end of 2017 despite the perimeter top up. Leverage exposure was reduced by a further 30 billion in Q4. Savings from our ongoing cost programs and business sales drove the 125 million reduction in quarterly costs since Q4 2014. And we expect further significant cost reductions to be driven by business disposals including Italy, Portugal, and the index business. The enlargement of the non-core perimeter adds around 600 million to the cost base, and restructuring costs for non-core are expected to be close to 400 million in 2016. We expect to exit the majority of these additional costs in the course of 2016, and are planning for further cuts in 2017; so the trajectory will continue to be downwards thereafter. And finally, the chart on the bottom right demonstrates the evolution of income. There's some noise in these numbers, notably the ESHLA fair value movement I referred to earlier which was 156 million in Q4. But the Q4 aggregate of 212 million negative income for non-core is consistent with our expectation for meaningful negative income in 2016 excluding the impact of future ESHLA fair value movements. The fair value movement from ESHLA is hard to predict but it is likely to be another significant negative in Q1 as the result of continued gilt swap asset widening -- spread widening. There'll continue to be a funding cost but this will be less volatile. Derivatives will also be a mix of elements; the cost of exiting derivative positions and underlying funding costs, and some fair value movements on the residual portfolio. The first of these will the dominant feature, particularly in 2016, as we drive down RWAs. By 2017, non-core income should be a much smaller negative and should be driven, principally by residual funding costs. Turning now to group costs, since 2013 we've reduced our total adjusted cost base by 2.7 billion to 17 billion. We finished 2015 with a cost base, excluding CTA, of 16.2 billion, inside our guidance of 16.3 billion; and also, significantly below the original 2015 target of 16.8 billion, which we gave in 2013. Direction of travel on costs continues to be downwards. We've been asked in recent weeks about exposures to the oil and gas sectors. These total around 18 billion, split just 4 billion on balance sheet, plus 14 billion off balance sheet. Impairment of just over a 100 million has been charged in the oil and gas sector in 2015. And while we may see some increase in impairment in the sector in 2016, we don't expect a dramatic increase in the overall Group charge. We've run sensitivities on various scenarios. For example, if oil prices were to stay at around $30 per barrel throughout 2016 we estimate this would result in an increase in our impairment for this sector of around 250 million. Turning now to the liability side of our balance sheet, I haven't spoken about our funding and liquidity position for some time. However, given the recent dislocation in credit markets, I thought it'd be sensible to update you on our strong liquidity position, and our conservative and diversified funding profile. Our liquidity pool stood at 145 billion at the end of the year, comprising very high quality assets. The LCR was 133%, driven by continued deleveraging and an increase in customer deposits. The NSFR remained comfortably above future minimum requirements at 106%, well ahead of implementation timelines. As you know, we've been proactively managing the transition to a single point of entry model, positioning us well to meet our future TLAC and MREL requirements by issuance from our HoldCo. As at the end of 2015, our consolidated total capital and HoldCo senior debt was about 20% of RWAs. We were pleased with the take-up of our tender offer for OpCo senior debt and $4 billion of new HoldCo issuance in January. And this morning, we've announced a tender for certain OpCo senior and subordinated debt, which further supports our transition to a HoldCo capital and term-funding model. Moving now to capital, we've built significant capital since 2013, accreting 230 basis points. And that's after absorbing significant conduct and litigation provisions, which have had an aggregate impact of around 150 basis points on our CET1 ratio during that time. So, as an indication of our ability to accrete capital ratio organically year by year, our accretion over the last 12 months was 110 basis points; and without conduct and litigation adjustments, that would have been 210 basis points. In Q4, the CET1 ratio increased to 11.4% as RWAs decreased by 23 billion, offsetting the reduction in CET1 capital caused principally by the PPI provision. We expect the CET1 ratio to improve further over the course of 2016, although Q1 is likely to be lower, as a result of seasonality and actions that we're taking to improve returns. We improved our leverage ratio again this quarter to 4.5%, with leverage exposure down a further 113 billion. TNAV decreased 14 pence this quarter to 275 pence, principally reflecting the post-tax effect of the 2.2 billion from adjusting items. When I think about our future capital requirements, I'm focused on our buffers to the level at which mandatory distribution restrictions apply, and the Bank of England's stress test hurdles. These are very important for our shareholders and credit investors, as is the level of distributable reserves, which, for Barclays plc, was 7.1 billion as at the end of 2015. There've been changes to our current regulatory requirements since last year. Our distribution restrictions hurdle has gone up as the CRD IV buffers start to phase in. We've also seen an increase in our Pillar 2A requirement with the CET1 component now 2.2%. We do expect Pillar 2A to reduce over time, following statements made by the Bank of England to offset Basel-driven adjustments to RWA calculations. One of the proposals the market has focused on relates to market risk, risk-weighted assets. And based on an initial analysis, we estimate an increase to RWAs of around 10 billion, which is before management actions and further non-core run-down. We've also assumed a countercyclical buffer of 50 basis points. This results in a minimum CET1 level of 11.7% in 2019. I would note

[Jes Staley:]

Thanks, Tushar. As Tushar's presentation has shown, the core businesses in Barclays today are strong generating attractive earnings, with excellent prospects for growth and collectively, they already deliver a return on tangible equity which is above our cost of equity. Our principal task is, therefore, to liberate those businesses from the two major factors which drag them down today. The first is a group of legacy products and businesses that are neither sufficiently profitable, nor strategically important to Barclays. And the second is the continued impact of billions of pounds of enforcement and conduct expenses that are largely the product of past failures in our culture. We're going to address these matters head on now, with the objective of putting most of these issues behind us in 2016. And we will achieve this in three ways. First, through simplifying our core business; second, by aggressively accelerating the rundown of our non-core operations; and third, by working hard to resolve our remaining legacy conduct matters as soon as is practical, while managing the Bank with strong controls to avoid creating any new issues. Over the last several years, changing regulation and enforcement actions, arising from poor historical business practices, have, in large measure, shaped our strategy. Many of these regulatory changes were necessary. In the lead up to the financial crisis, banks around the world levered themselves to extraordinary levels, and bankers paid themselves based on profits they expected to earn in the future. And then it all came tumbling down and workers and families around the world suffered as did the global economy generally. The understandable response to this was to insist that banks take dramatic corrective action. At Barclays, over the last few years these forces have driven a significant restructuring of our business. Since the 2008 financial crisis, capital requirements have risen dramatically, through a combination of heightened risk-weight assets and increased absolute ratios. Just two weeks ago, the Bank of England suggested that the new capital requirements were today 10 times those which were in place going in to the financial crisis. At the same time that we have been required to increase capital, we have also had to pay out very large sums of money, as a result of past conduct issues. Barclays should take responsibility for what we got wrong, and we have been doing so. And we will continue to work to resolve the remaining legacy conduct issues as efficiently and as expeditiously as possible. But these costs in large measure have cancelled out the considerable earnings of our business. In the last four years, Barclays has generated over £20 billion in earnings before conduct charges, levies, and taxes, while we've paid out this roughly £20 billion in conduct charges, levies, and taxes. As a result, Barclays has not actually produced any retained earnings in aggregate from 2012 to 2015. These circumstances have forced us to grow our capital ratio by reducing the size of our business and client segments, rather than by simply retaining earnings. If you do not earn any profit, investors will not value your shares at anywhere near book value. And if you are trading below book value and you have to increase your capital ratios then you only have one choice, which is to reduce risk-weighted assets. First, you cut risk at the margins. But if those cost cuts are insufficient then whole businesses sometimes have to go. This process has forced Barclays to become much more focused on which businesses are our strength and which businesses are more marginal. In the last few years, we have nearly halved the investment bank's risk-weighted assets, and we've sold entire businesses. As a result of these and other measures, Barclays has increased its CET1 ratio from 9.1% in 2013 to 11.4% today. Since I started three months ago, we have taken further steps to simplify the Group. We have made substantial progress in exiting European retail banking, selling our Italy and Portuguese businesses, while we continued to evaluate selling our French business. We have closed trading and banking operations in nine countries. And we've put our cards business in Southern Europe up for sale. We've sold our wealth management business in the United States and now we also intend to do so in Asia. We've exited marginal products in client segments. And we reduced our headcount by more than 5,700 people. These are important steps and they build on the efforts Barclays has made over the past few years. But to finish our restructuring, we must make some further difficult choices. So today, I'm announcing two key decisions. First, we will further simplify our business by reducing our ownership in Barclays Africa to a non-controlling, non-consolidated interest. And second, we will aggressively accelerate the rundown of our non-core operations, funded by a cut in our dividend to 3 pence in 2016, and 2017. First, Africa. It is our intention, subject to required shareholder and regulatory approvals to reduce our interest in Barclays Africa Group Limited to a non-controlling, non-consolidated position over the next two to three years. This has been a very difficult decision to make. Barclays has been in Africa for over 100 years. We have some excellent franchises across the continent, with a great management team and dedicated colleagues. But we face a regulatory environment where we carry 100% of the financial responsibility for Barclays Africa and yet receive only 62% of the benefits. The international REITs of the UK bank levy, the G-SIFI buffer, MRELs and TLACs, and other regulatory requirements present specific challenges. The returns Barclays realizes from its controlling interests in Barclays Africa are significantly below the 17% return on equity reported locally. Because of these specific challenges we believe that it is in the best interest of shareholders to reduce our position. Given what is driving this decision, we have flexibility with respect to the pace at which we reduce our ownership. And as a result, we will execute this change in our investment opportunistically and responsibly over the next two to three years. On the financial side, reducing our interest to a non-controlling, non-consolidated position will also materially improve our CET1 ratio, though not until we deconsolidate Barclays Africa as a regulatory matter. In the medium term, this will allow us to invest in the core franchises of Barclays. But this also has a positive effect of shrinking our cost base by some £2 billion. Our headcount will be reduced by around 44,000 people. And, of course this will significantly reduce the organizational complexity we see in Barclays today. We will now actively engage with Barclays Africa to ensure that this process has a satisfactory and appropriate outcome for all stakeholders. Second, besides simplifying our business, we also need to accelerate the separation of our profitable core business from the drag of our non-core businesses. Our non-core risk-weighted assets started at about 110 billion two years ago. As Tushar noted, by the end of 2015 we reduced this to £47 billion. And then, because of some of the actions we've taken since my arrival we further simplified the group, our non-core risk weighted assets have risen to £55 billion. Those one-time additions, however will also meaningfully increase the costs associated with non-core this year. Our non-core businesses act as a significant drag on our group profitability. With that in mind, we have decided to accelerate the wind down of non-core, even though it'll bring forward costs and bring forward losses. Those costs and losses will have to be funded. To give us the flexibility to aggressively accelerate our exit of non-core activities, we have decided to adjust our dividend. It is our intention to reduce our dividend to 3 pence in 2016, and 2017. This will help us accelerate the rundown of non-core. Once we have made the reductions in non-core and have clarity on the remaining conduct issues we should be in a position to pay out a significant portion of our earnings over time. To be very clear, I recognize the importance of paying a meaningful dividend as part of total shareholder return, and I am committed to doing so in the future. But for today the reduction of the dividend is the right choice. These are hard decisions but we believe the shareholder value created by getting non-core closed will significantly exceed any downside of cutting the dividend for two years. These strategic actions will bring forward the completion of our restructuring, and the emergence of a simpler and very profitable Barclays. And I want to tell you a bit more about that Barclays and why I'm so excited about our future. Barclays will focus on our strength as a transatlantic consumer, corporate, and investment bank. The Group will be anchored in two financial centers of the world

[Martin Leitgeb:]

It's Martin Leitgeb from Goldman. I have two questions, please. The first, on capital and your guidance on capital, and I'm just struggling to add them together here. So we are starting at an 11.4% core Tier 1; then, obviously, Africa is going to lift that, depending on execution price, by around 80 basis points, roughly. If I then tie in the guidance on non-core, so an incremental 35 billion RWA reduction by 2017 that mechanically already gets me to north of 13% core Tier 1. You mentioned earlier that the core bank is profit making, I think, at a pace of roughly 3.5 billion to 4.5 billion at the moment. Just doing these numbers, do you imply there is some substantial loss somewhere else to come, so either the exit losses, which you pin-point at roughly 1 billion incrementally; or it leaves room for substantial fines or litigation? Or is there anything else missing? Is there any consideration on the preference shares? Or which part are we missing, or is it just a conservative guide? The second question then is on the ring-fenced entity. You disclosed a loan-to-deposit ratio of 95%. To what extent is that a going-forward ratio? Should we think of a steady state loan-to-deposit more towards 110? And what does that imply for the future set-up of the ring-fence? Do you have space to shrink branches substantially because you have too many deposits at the moment?

[Jes Staley:]

I'm going to pass to Tushar. The only thing I'd say is, if you can remember, the objective of the reduction in the dividend in 2016, 2017 is to accelerate the elimination of non-core, which will bring losses forward. But with that, pass it to Tushar.

[Tushar Morzaria:]

Yes, Jes is right. You've got to think about the timeline trajectory. You're right in terms of the sale of Africa should be very capital-accretive, but we're in no rush to sell that. We'll sell that at the right time, at the right price. And all the options are available to us, whether that's a strategic sale, private placement, sales in to equity market or of any combination of them. We'll look to see what the best opportunities are. But you only get the capital benefit once you deconsolidate. And regulatory deconsolidation, I think, will happen at below 20%, so there's still some time to go before then. Between now and then of course we'd like to accelerate the wind-down of our non-core unit. And the capital that we save, if you like, from the dividend adjustments will be helpful to that. We've guided towards a meaningful negative income in 2016 as we wind down the asset sales and business sales, and also guided to some increase in costs in non-core. So that balances our capital position as we go through this journey. We should accrete capital in both well certainly in 2016, and beyond; and we should comfortably get above any minimum requirements that are there for us. But don't lose sight of the timing of when the dividend and the Africa benefits come through.

[Jes Staley:]

One of our key goals is to put restructuring behind us once and for all, and that's a lot of what is in this business message.

[Tushar Morzaria:]

If I just take the LDRs, for the LDR, you're right, we have about 95%, so a little bit more deposit funded in the ring-fenced bank. We're quite comfortable with that. Do I think we would run the ring-fenced bank with an LDR of greater than 100%? Probably not, but that might change, ebb and flow, depending on marking conditions. We have a relatively conservative risk profile. And even on that risk profile, the returns are substantially above double-digits, actually; you'll see that through the restatement. It's a very profitable business, and very prudently risk-managed. So I don't think we need to strive to grow assets any quicker than we currently are doing. We're happy with our market shares. We're in the top of market shares where it's important to us. For example, in business banking or personal current accounts our market share is very healthy. I don't think we need to chase that any harder.

[Andrew Coombs:]

It's Andrew Coombs, Citigroup. Three questions from me. The first would just be on the non-core guidance. I think you said the extra 600 million costs predominantly relates to the perimeter change, can you give the equivalent adjustment or equivalent number for the revenue base from that perimeter change as well? Second question, would just be taking your revised core cost guidance. 12.8 billion target, you've got another 2.2 billion of costs from BAGL, then the 800 million from the perimeter change. So it would seem like you're downgrading your core cost guidance for the second consecutive quarter. Could you elaborate on that? And then the third point, would be just your decision to no longer provide a quantitative ROT or ROE outlook. What was the reason for dropping any quantitative guidance there?

[Jes Staley:]

Let me make a quick comment, and then Tushar can come in, too. On the convergence of the Group, return on tangible equity with core, I think the important thing is you already see in 2015 that core ROTE of 10.9%, which we believe is already over our cost of capital. So I think the other way to say it is we believe that we will deliver at that convergence a Group ROTE above our cost of capital and you can back in to what that means for the share price. In terms of our core costs of £12.8 billion, that is completely consistent with what we were guiding to last year.

[Tushar Morzaria:]

Yes, I think I remember all three of your questions, Andrew. The income associated with the £600 million of costs in perimeter switch, we'll make it very clear to you through the restatement, we haven't put it up on the slides yet, and you'll get the restatement before the first quarter but those are not very profitable businesses. So, for now, you could probably assume that they're breakeven in total together. Some of them are profitable, like Egypt's a profitable business, and parts of southern European cards are, but they're relatively small numbers in the scheme of things. Second thing is that £12.8 billion, there is a slide in the appendix, and I'll run through it real briefly now, but we can spend more time with you, or Catherine and the team can spend more time with you. The 14.5 billion is what we've been guiding to since 2014, May 2014, for our core costs in 2016. At the end of the third quarter, you know we added £400 million to that, due to structural reform. There was already a £200 million CTA budget that we'd already kept running since 2014, so that's the 600 million there. We've moved £600 million of costs out of there into non-core, so that's 600 million coming back down, so we're back down to 14.5 billion. We're removing Barclays Africa Group from there of 2 billion. And then what's happened is, behind the scenes, you've noticed, up till now I've never adjusted for foreign exchange, because we've had rand and dollars. Now, of course, there's no diversification. And with three quarters to go, just sort of opening the book up on really the FX component of that, so we're just striking dollars at the prevailing rate. That will change over the course of the year. It'll be what it'll be. And then, to keep it a little bit simpler, this is the final year of specific costs coming, just removed 2015's conduct litigation charges of about 200 million running through the core, which has been about consistent year on year. Timing of that is always a little bit uncertain, so just to show you that. So, it's very consistent with what we said at the third quarter. I think your third question was around explicit guidance on ROE target. Yes, I think Jes probably covered that in the first instance. I think what we really want to say is we actually like the return on tangible equity for our core businesses. It will grow over time. We do expect that EPS to improve. We're going to take further costs out as we carry on going, and we do expect revenues to climb a bit. Corporate income grew by 5% last year; personal income actually grew as well; mortgage margin depression offset that a little bit; Barclaycard income grew, so we do expect EPS to grow in that core business. But really, the crux of what we're laying out here is to get rid of non-core so the Group converges to that growing core.

[Tom Rayner:]

Tom Rayner from Exane BNP Paribas. Could I just ask you on your decision to sell down Africa, please? Despite a fairly difficult FX environment, it still made a 12% return in 2015; that's pretty much double what you made in your investment bank. I think it's actually more than you made in your entire core business. So I just want to get a sense, really, the decision to sell here. Is it really about the long-term value of this business to Barclays or is it more about the need to short-term fix your Group's capital position? I think it's an important question, because obviously that then might color future strategic decisions. So I'm trying to understand, really, the thinking there. And I hear what you say, Jes, about not wanting to reduce the RWAs any further in the investment bank, but obviously GBP30 billion out of that on 2015 numbers would look to have been a more obvious decision. But just --

[Jes Staley:]

It's a difficult call. But I would say the regulatory headwinds that we've gotten include the regulations to structure to drive banks to become simpler institutions. That 17% or 18% return on equity that you see in Barclays Africa locally, by the time you get through bank levies, and G-SIFI buffers, an MRELs, and TLACs, and all those issues, that 17% or 18% reduce -- is cut back to a single-digit number of return on our investment in Africa. There is a significant cost of having 100% of the liabilities and only 62% of the revenues, and that's -- and given where we are already that's not going to go away. The second issue I would make is the complexity of the business in terms of 44,000 employees, the cost bases. And we just think that the growth opportunities in the retail business in the UK, the card business, as Tushar outlined, our corporate business and ultimate belief in the recovery of investment banking industry, that's a simplified trans-Atlantic business model that we think is the best way to take Barclays forward.

[Tushar Morzaria:]

Just to add to that, Tom, Jes is right, we're not exiting Africa, I mean Martin sort of asked the question in another way, because we felt we needed to raise capital for the sake of raising capital, it was because we're a disadvantages owner of that African business. So you want to have exposure to Barclays Africa, you may as well buy it directly because you don't suffer the friction cost of owning it through the Barclays Group. So that's really the driving force behind it. We don't see those friction costs getting any lower. It will be the same friction costs no matter if another G-SIFI went to China and Barclays Africa Group. It's not unique to us. It's a friction cost of the way the regulatory environment has evolved. The other thing is, on the investment bank. It's worth just dwelling on that little bit. Could we take £35 billion out of our investment banking risk weighted assets? If you look inside the investment bank, about £70 billion of risk weighted assets of that 108 billion is in our markets business. Of that, over 20 billion will be consumed by operational risk weighted assets, and those are quite permanent and fixed in nature. So you're left with less than £50 billion, if you like, risk weighted assets that we could reposition. Obviously, if you want to take out £10 billion, £20 billion, £30 billion out of that, that's a monumental reduction, and probably results in the foreclosure of that unit if you were to think of it in that sort of space.

[Arturo De Frias:]

It's Arturo De Frias from Santander. Two questions, please. One on the dividend cut and one on the size of the -- well, size, future profitability of the investment bank, because you have made it clear that the size is not going to change much, going forward. On the dividend, you tell us that you are cutting the dividend because you want to fund potential losses from an accelerated disposal of non-core, but at the same time you say that you expect most of those disposals to take place in 2016. So I guess most of the losses will take place in 2016. I fully understand that you would cut dividend one year, I fully understand that you would cut the dividend of 2016 to phase those losses. But why you have decided to cut the dividend of two years in one go, if you really expect that most of the downsizing is going to take place in year one? On the investment bank, you are saying, very clearly that you don't expect the investment bank size or RWAs to change much excluding probably Basel IV. But the fact is that, as several of my colleagues asked or mentioned, the LTE of the IVs are still 6% which is well below the rest of core, cost of equity, any measure. So if you think that the size of the investment bank is the correct one, it probably implies that you think that the ROE is going to go back to normalized or reasonable levels relatively fast. So my question would be is that what you think? Do you think that the ROT of the investment bank will go back to cost of equity in, say, one year or two years? Because, if not, I guess, as Tom mentioned just before, it would be easier to reduce the investment bank, or it would make more sense to reduce the investment bank than to sell down Africa?

[Jes Staley:]

Yes, as I said, we believe that the investment banking as an industry right now does not cover its cost of capital. We've done a lot with IRB. We have doubled our return terms of equity in one year. But the plan is premised on the notion I just don't think you can have a global capital market of the size necessary to fund economic growth with the intermediate industry being chronically generated in terms of below their cost of capital. It's not sustainable. And then, if you look back in time, whether it's the financial crisis of 2008 and 2009, or even before, the one in 2001, there is a kind of cyclicality between investment banking and consumer banking. Institutions that came out strongest during the crisis essentially had losses in investment banking in '08, strong performance in consumer banking in '08, losses in consumer banking in '09, and record years in investment banking performance in '09. And there is a kind of cyclicality, and to be so short sighted and to say that an industry will chronically underperform its cost of capital I just don't think is the right conclusion to make. In terms of the dividend?

[Tushar Morzaria:]

Yes, let me just add one thing to Jes point, and then I'll cover the dividend. I think the other thing that I always felt at Barclays, what we're really trying to construct is a core set of businesses that can generate a sensible return through a business cycle, and in most years in that business cycle. And obviously, within that core set of businesses there will be ups and down; corporate banking will be better than personal banking, or card will be better than what have you. And it's really the aggregate that I think we look at. When we look at the aggregate in a year like 2015, or indeed 2014, or that, it was getting a double digit return on tangible equity. So I think that portfolio kind of works. And in different years it will have different mixes in that portfolio, but through the cycle I think that's a very resilient, good returning mix of businesses. And we feel, we made the adjustments in the investment bank, that it's, especially the markets business is less than 25% of Group risk-weighted assets actually substantially less than 25% of risk-weighted assets that sort of feels like an appropriate balance. But we'll drive the business hard. We'll continue to drive costs down. And we don't like 6% return on tangible, so we'll continue to drive that forward. But the portfolio business is important to us. On the dividend, there are many ways in which we could do this. I think, first and foremost, it's really important that we stay a dividend payer. As Jes mentioned, dividends are an important part of the way Barclays will be returning value to its shareholders, and dividends will always be an important part of that. So rather than take the dividend down to zero and pay no dividends, we felt it was an important step that we preserve paying the dividend. And then, it's our judgment that we think the best way to do it is just do 3p two years running. But you could do it different ways if you choose to do that

[Jes Staley:]

Barclays has not reduced its real estate footprint since the crisis, and there is tremendous savings for us to do so. We want to make sure that we have the earnings coming forward that allow us to make statements around a real estate which have significant savings, and we'll get that done in 2016.

[Michael Helsby:]

Michael Helsby, Bank of America Merrill Lynch. I've got three questions, if that's alright. Firstly, Tushar, thanks for the cost bridge that you gave us before. Can you tell us what the associated uplift to revenue would be from the stronger dollar in 2016? On the, I'm conscious that you've flipped from an ROE target to an ROT target. Clearly, you carry a lot of goodwill in the balance sheet. That's quite a meaningful reduction in reduction in your view of core profitability. Now, I appreciate the equity base has gone up 100 bps, but still that doesn't cover it, so if you can talk about that. And then thirdly, I'm just struggling again with the, I totally get that you've cut the dividend to pay for the non-core reduction. I totally get that. I think the worry that people have got in the room is that it implies that the comfort that you've got in the profitability of the Group is a hell of a lot lower than certainly what the market thought before; i.e., that the core profitability ex-Africa, which is 3.9 billion this year, clearly non-core losses are going to be a bit higher, but that's going to get fully absorbed by litigation conduct costs in 2016, 2017. And that's what we're worried about. So do you expect your tangible book to be going up from here, because it seems to seem that you might be? Thank you.

[Tushar Morzaria:]

Shall I take them, Jes?

[Jes Staley:]

Yes.

[Tushar Morzaria:]

Trying to remember the order that you did them, but I don't. First and foremost, foreign exchange and the effect on revenues, we actually like a strong dollar, weaker sterling, which is kind of what our 500 million re-strike of costs implies. So costs go up, but revenues do go up more than that. You've seen our U.S. card business, which has been the growth engine in cards, actually. That's been incredibly powerful. I don't think we've called out the regional splits, but the U.S. card receivables, for example, is getting to the scale of our U.S. card receivables. This is getting quite a sizeable business. So it's very well balanced to a strong dollar. And, of course, the investment bank is profitable in the U.S. as well. And so revenues will go up more than expenses will go up, in both of those businesses. And that's where most of our dollar costs are. So 500 million increased in expenses revenues are going up substantial more than that. It's a profitable mix.

[Michael Helsby:]

You must have worked that out. [Indiscernible] costs, you must have worked the revenue out. It's a simple question can you tell us what the revenue there was?

[Tushar Morzaria:]

We haven't called out, if you take 2015 dollar-booked revenues, what they'd retranslate at, simply because for card obviously we can do something close to that, but the investment bank its capital markets are different this quarter than they were last quarter; and even the geographical mix is a little bit different as well. So that's sort of too hypothetical, I think, to add a huge amount of rationale to.

[Jes Staley:]

And your other question, on the ROTE, we're simply moving to what we think the industry is using. We think the industry is looking at return on tangible equity at the cost of capital of around 10. So if your ROTE is above that, I think that's generally what the industry has been using. And on the conduct issues, we have are assumptions. But obviously, that's not something that we can predict.

[Tushar Morzaria:]

On the tangible, it's not a reduction in our outlook of profitability. If anything, your last question, I think it links to the second one. We're not expecting just to be hovering around this EPS level in the core of 25 on -- a little bit over 25 pence. We do expect it to grow. And we do expect to be even to absorb the -- when you take Africa out, it's worth about a little under 2 pence of that EPS, we get just about £300 million attributable profit. We should be able to cover that just through normal business growth. So the dividend shape that we've given is in no means driven by any concerns we have in the profitability of the core, either in 2016, or 2017, or beyond. We think the core business will carry on from strength to strength. It's not that -- it's specifically to give us plenty of flexibility to wind down non-core. So it's not a statement on our core profitability.

[Jes Staley:]

Also, the IB's increased contribution to earnings per share last year was greater than all of Africa.

[Tushar Morzaria:]

Yes, sorry, on that one, I didn't answer that, if you go back to May 2014, or even before then, I did say at the time it's really important as we wind down non-core we do that by preserving book value and growing it over time. And we have essentially preserved book value. I can't remember exactly what it was in May 2014, but it's roughly where it is today. You've got to remember, step back, what have we done? We've taken more than half of the risk-weighted assets out, took round about 70 billion, 60 billion of risk-weighted assets out; about, by my reckoning, somewhere around 4 billion to 5 billion of leverage out over that period. And book value hasn't gone backwards. I don't expect book value to go backwards at all. And, in fact, I continue to think that we'll preserve and grow it over time, as we go through the non-core journey that we're embarking on.

[Chintan Joshi:]

Chintan Joshi from Nomura. I have two questions. First one on capital, you were kind of indicating that 12.7% to 13.2% is your range for capital without the G-SIFI reduction benefits, so let's call it 12.2% to 12.7% once Africa is sold. Africa, you're at 11.4% today and if I view some of your pro forma numbers for Africa, you're quite -- almost meeting the top end of that 12.7%. And then, you've cut your dividend, which adds maybe 30 basis points. So the problem with that argument is your meeting your capital requirements on a pro forma basis, but you are not giving us an indication of when the Africa sale begins, which makes it a jam-tomorrow story. So at least can we get some indication of are you planning to sell the first tranche pretty soon, so we can start seeing that capital progress? Or give us a better timeline of --

[Tushar Morzaria:]

Chintan, you know better than to ask that.

[Chintan Joshi:]

I do. But look at the stock price and what it's telling you is nobody is believing your jam-tomorrow capital story, and this is giving you a chance to address that. The second question is around your non-core. If you look at -- where should I think about your stranded costs in non-core looking in to 2017, 2018? You had a guidance of 125 million run rate, exit run rate in Q4 2016, now you've added 600 million to the non-core. How should we think about that 125 million? Thank you.

[Tushar Morzaria:]

We're not guiding towards a near-term sale of Africa, which is why Jes spoke, he said think of it over the next two or three years. If the pricing is good, if there's a -- there's all options available to us. We don't have to run out and sell this. And you've hit the nail on the head

[Chintan Joshi:]

So, restructuring charges, you have guided to about 1 billion with 400 million, 500 million for the U.S. HoldCo. Is that still your guidance?

[Tushar Morzaria:]

That's inside the 12.8 billion. Yes, so that hasn't changed. The core has all our structural reform costs in there, inside that 12.8 billion; and non-core had an extra 400 million. Nothing to do with structural reform, it's about dealing with the costs in non-core. That won't reoccur. And the bulk of that 600 million that we're transferring over will disappear in 2016.

[Jes Staley:]

Shall we try the telephone question from Fiona? Is that going to work?

[Operator:]

We have a question from Fiona please go ahead.

[Unidentified Analyst:]

It was really on RWAs going forward, because obviously in the past you've said that regulatory change wouldn't alter your 400 billion. Obviously, now we've got a number of moving parts. So I wonder if you could update us on that over and above the market risk commentary. And also, on op risk, whether there's any update on op risk RWAs?

[Jes Staley:]

Again, just to be clear, on the exit of non-core we are staying with our 20 billion risk weighted assets at the end of 2017. And I think in terms of the Basel IV, we have a number for that…

[Tushar Morzaria:]

Yes, Fiona, group risk weighted assets, you're right, we guided to 400 billion way back in May of 2014. I think we will be running the Group lower than that. We're at about, rounding it up, say to about 360 billion at the moment. Of course, at some point, we would like to deconsolidate Africa. That will take us down to, I don't know, call it 325 billion. Won't give specific items to what you expect, but we won't be operating at 400 billion. We'll be probably closer to today's levels I think over time, but we'll sort of give you more sort of near term guidance as we go through. Your question on operational risk --

[Unidentified Analyst:]

Sorry, could I just check that, so that means that the 35 [Multiple Speakers]?

[Tushar Morzaria:]

Additional risk weighted assets have been guiding to an increase in Pillar 1 which hasn't happened. And I can let you know that we don't expect now an increase in Pillar 1 risk weighted assets; but you'll have seen, of course, our Pillar 2A has changed.

[Unidentified Analyst:]

Can I just check that 325 billion, so basically you're saying that the run off of non-core, 35 billion will be offset by other inflation over time? That's your base assumption.

[Tushar Morzaria:]

Well, it gives us the flexibility to grow things like the corporate book. I mean of course, look if we get rid of 35 billion in non-core in two years there is no way, as much as Amer and Ashok, and people like that, would love me to give them £35 billion of consumer orientated risk weighted assets, they're going to be able to deploy that. So you should expect the group to just drift down and we'll give you more near term guidance as we do that.

[Chris Manners:]

It's Chris Manners from Morgan Stanley. Three questions, if I may. The first one was just on the balance of the group. I know in the past you've been talking around maybe 30% of the risk weighted assets that the bank should be investment banking. As I run the math and I take our Africa, take out non-core, it looks like you're about, pro forma, 40% of the risk weighted assets in IB. So how should we think about that? Is that steady run rates for Barclays from here or would you be actually looking to rebalance that over time? Second question was on the cost base. And £12.8 billion of guidance this year, obviously, that's got 600 million of CTA and SRP and restructuring charges in it, and giving a 12.2 billion base. Is that what we should be looking at for '17 or in '18? Or have you actually got more cost efficiency savings, digitization, etc., which could bring that cost base down? And last question, I was looking at your slide, and you talk about the stress test hurdle. You got a 1 Jan, 2018, stress test hurdle of 8.2% versus your capital print of 11.4%, giving it 320 basis points of stress buffer. How do you think about that? Is that enough? Are you comfortable with 320 basis points? I know that you're looking to go to over 400 bps over time, and what does that mean for the 2016 stress test?

[Jes Staley:]

Maybe just quickly, on the RWA number, as we've talked about the market risk and the operational risk, the IB right now is about 25% of the group's total risk weighted assets. And ultimately, we could expect relief for two, three years from you on the African side and then obviously wind down the non-core. But, as Tushar sort of alluded to, we've got a lot of core businesses that are generating very strong returns on tangible equity. And we would love to have the room to provide more capital in a prudent way to our retail business, to our card business, to our corporate business. We'd also hope to see our operational risk go down as we improve our model performance, as we put the conduct issues behind us. We've got the capital base to support the RWA levels that we've got. And we very much look forward to the day that we're investing by growing risk weighted assets to generate even better returns on our capital to our shareholders. But, with that, do you want to answer the other question?

[Tushar Morzaria:]

Chris, I'd just go back to the point about the markets risk weighted assets. Market risk weighted assets contribution to the group; it's about 70 billion today. It includes operational risk weighted assets, as well as counterparty credit risk, and market risk, etc. That sort of feels about right, the corporate book, the lending book, which is a difference to the 108 billion that we have at the moment, [indiscernible] that will be run alongside the corporate. We'll have an integrated corporate and investment banking division, if you like, as we've done in the past, so it'll be run as an integrated corporate lending book, and that's how we're thinking about it. So, that still feels like the appropriate balance of the group. Cost trajectory from this point on, we'll continue to guide through as we go through the, I mean you should expect us to continue to drive out efficiencies, continue to do better on cost. We've taken costs down, I think, must be the third year running, perhaps even longer than that, I haven't gone back and checked. But you should continue to see a glide down. And we'll continue to give you more near term guidance as we go through the year. Did I miss one of your questions there?

[Chris Manners:]

The last one was on the stress buffer [Multiple Speakers].

[Tushar Morzaria:]

Yes, I'm pretty okay with it at the moment. I mean you see in the last stress test, the one just past, our drawdown was actually the lowest of the UK banks I think, and substantially less than -- I know it was off a lower capital position, of course. It's obviously a slightly simpler business that we've got now, as well as non-core's materially lower than it was at the back end of last year. So I'm pretty okay with that. I think when you look at our fully phased-in end state you end up with about a 400 basis point buffer to stress. And I think the stress test will change every year. I think that gives you plenty of capacity to absorb any drawdown. And looking historically at what I think the Bank of England has taken banks down by, that feels like a good place to be. But today, I think we're in a good place as well.

[Chris Manners:]

Got you. Because one of the things I was thinking about is that, surely, wouldn't it have been better to cut the 2015 dividend, rather than cut the future dividend, so you would actually have a better buffer to stress? It just seems odd to say we'll cut the future dividend to fund the non-core run down, rather than cut the current.

[Jes Staley:]

Well, we did make a commitment to pay the 2015 dividend, and we fulfilled it.

[Chris Manners:]

Fair enough.

[Alastair Ryan:]

It's Alastair Ryan from Bank of America. Just one question, on slide 17, from the outside, it's relatively hard for us to work out whether there's anything mechanical in the actions you've announced today to reduce the G-SIB buffer or the very high Pillar 2A add-on that Barclays gets relative to the banks at present. I assume that the things you're doing would act on those figures. But we can't work out, from the outside, whether that is the case, because those are quite high buffers you're running at Barclays, it will be smaller and simpler and less risky and those buffers should come down, in fact, in the opposite direction. Now I appreciate your comments on timing, these things are slow, whereas the non-core losses might be quick, but can you give us any clarity on, when you're finished, how much might those go down by?

[Tushar Morzaria:]

Yes, unfortunately, I can't, as you know, I can't tell you what's inside a Pillar 2A. No one's allowed to talk about what's inside their Pillar 2As, that's part of the rules, so I can't give you too much of insight in to that. But I would expect it, the Bank of England have been clear last year that there was an element of prefunding, if you like, for any future risk-weighted asset rule changes inside Pillar 2A for banks. I think that's a reasonable thing for them to say. So you would expect, as those rule changes, you transfer out of Pillar 2A in to Pillar 1. In terms of the buffers, I always think of it not just buffers to MDA restrictions. So, of course, it's super-important. And people can be, depending on if you're a simpler bank, maybe you can run slightly lower buffers, or what have you, but I think you've got to look at it as a stress test as well. And I think when you put the two together. This sort of framework is how I've thought about it. Again, when we get nearer to 2019 and we feel we can run tighter buffers if that makes sense for our credit investors and equity investors, of course, that's a choice that's available to us. But I think for now this is reasonable guidance for us to shoot for and we could get there in good time.

[Manus Costello:]

Manus Costello, Autonomous. I had a couple of questions on the new Group structure, please. Firstly, by getting rid of Africa you're significantly reducing the diversity of the non ring-fenced bank, and rating agencies tend to like diversity, so I wondered, diversification, I should say. I wondered whether or not you're going to have to run with a higher core Tier 1 ratio in the non ring-fenced bank relative to the ring-fenced bank, as a result of that lack of diversification. Secondly, more strategically, you talked, Jes, about the benefits of a diversification for the Group as a whole by having the two structures now, the CIB, or the BCI business and the ring-fenced bank. Are there any synergies between the two? And if the market fails to recognize the diversification benefits which you think are evident, is there the possibility of a future split down the line?

[Jes Staley:]

So, two questions. First, on Africa and the diversification, as I said, I think a transatlantic bank that is a consumer, corporate, and investment bank is a very strongly diversified model. And we'll set with the diversification that, that provides us, as opposed to the diversification that we get out of Africa. There is this push/pull between, on one side, the more diversified the better; on the other side, the regulatory framework makes increased complexity much more expensive for you to manage. And we don't own 100% of Africa, we only own 62%. So I totally buy on the diversification benefit, if you look at the stress test with the Bank of England here. We clearly benefit from that diversification, particularly in the investment bank. So we'll play diversification from the consumer, corporate, and IB side. And also, in the non ring-fenced bank it is very diversified. Don't underestimate the size of our card business, both in merchant acquiring in the UK to the U.S. card business. We have more credit card users in the U.S. today than we have in the UK, and what's possible in the payments business. And then in the synergies, I think it's a very good point. I think there's tremendous synergies between corporate banking and investment banking, there's a reason that almost all of the institutions that have a corporate bank and investment bank have put them together, whether it's the credit side, whether it's following the continuum from using a bank balance sheet to using the capital markets to fund your clients. I think there's easily synergies between the corporate and the investment Bank. And there's a whole customer interface, or client interface that I think is enhanced by having both a corporate and investment bank exercising synergies on a side-by-side basis. But we like the diversified platform that we get, both in the ring-fenced bank, together with the revenue diversification we get in Barclays corporate and international; and we think collectively, that gives us the best portfolio businesses for our shareholders through the cycle.

[Manus Costello:]

Okay. Sorry, just to be clear, do you think you'll run with a higher core Tier 1 ratio outside the ring-fence, relative to inside the ring-fence, or will those numbers be the same?

[Tushar Morzaria:]

It's hard to be precise, obviously, because we don't know what the equivalent of G-SIFI for domestic banks specifically is going to be. We can make some guesses around that, and various things like countercyclical buffering and things like. So it's hard to be specific. I wouldn't have guessed them to be too different actually, is my expectation. We've done our work in terms of what ratings we expect from each of those two, if you like, sibling [ph] big banks. There's a multitude of things that drive the rating capital's just one of them but type of asset mix, returns, etcetera we don't feel you need to run that dissimilar a capital level. But when we get precision around that we'll guide you to that. But I don't expect them to be that different.

[Peter Toeman:]

Peter Toeman from HSBC. You've given us a 60% cost-to-income ratio for the Group in the future; I wonder if you could tell us how that might breakdown between Barclays UK and Barclays corporate and international. And then within Barclays corporate and international the bit that we recognize is the investment bank today, what sort of cost-to-income ratio might be there?

[Jes Staley:]

I think the one thing to say is the important to note is that's a cost-to-income ratio target for the Group. Right now, our Group cost-to-income ratio is about 83%. So we are putting out there a target which is a significant improvement over currently where we are, albeit the core, I think, is slightly north of 60% [[ph]] right now, about 16 [indiscernible] so, in terms of the breakdown between the non ring-fence and the ring-fence?

[Tushar Morzaria:]

Yes, we're not going to give specified guidance on that at this stage. I think the given the mix of businesses, though, you would probably expect the ring-fenced bank to be running quite a relatively lower CIR. Obviously, we've got the UK card business in there, which is an extremely efficient business and generally our retail businesses tend to be operating a lower cost-to-income ratio. Offsetting that, you do have the private banks, which will tend to be a little bit higher. We're not giving that split. But generally, the rule of thumb, probably, the ring-fence will run a lower cost-to-income ratio just because of its structural mix of businesses relative to the non ring fence.

[Sandy Chen:]

Sandy Chen from Cenkos Securities. Probably going to ask the same kind of RWA, sort of capital question again, but in a different way. Who is going to run corporate and international, I'll tell you where I'm going, in the sense of you've got, will it be a Barclaycard exec? And the reason is that you've got a very high RoRWA business that's very cost efficient with plenty of growth opportunities, as you've just pointed out, standing next to a potentially capital-constrained RWA sort of limited investment bank. Can you answer that question and maybe elaborate in terms of [multiple speakers?

[Jes Staley:]

It's a very good question. In terms of Barclays UK, the CEO that will be Ashok. We are clearly going to run a credit card operation across Barclays UK and Barclays corporate and international, and that will be run by Amer, reporting to me as Group CEO. And in terms of Barclays corporate and international, on an interim basis, I will be doing that, but we will appoint someone to be CEO of that business going forward. And last question back there.

[Jonathan Pierce:]

It's Jonathan Pierce, Exane. I've got two questions, please. First one, on a point of detail in non-core, losses this year clearly huge, can you talk about the tax relief against those losses? And maybe, if you could just talk a bit more broadly about the forward tax guidance over the next couple of years. And then, I've got a second question on capital.

[Jes Staley:]

Clearly, we'll pass the tax question to you.

[Tushar Morzaria:]

Yes, you do get tax sheltering against those losses. I think the Group adjusted tax rate, it's a little bit more complicated when you get conduct-related items because many of them are non-deductible, so you get these slightly weird quarterly effects. But looking through that, ignoring sort of these one-time conduct-related items, just the underlying tax rate for the Group, we've guided to being in the low 30s. I think what we've experienced to date is a reasonable projection, prospectively.

[Jonathan Pierce:]

Okay. Thanks. The second question is a broader question on capital and, to some extent, Group strategy. You've announced an LME program this morning. Strikes me that there's quite a lot of other outstanding subordinated debt that was issued during the crisis that is one of the Group's biggest issue, actually, in the short to medium term depressing Group returns by about 2 percentage points, you're not touching that. It has very little regulatory value. I guess there's clearly quite a high capital cost of dealing with that. But can you talk a little bit about your intentions here regards to LME, moving forwards? Should we assume that that crisis-issued debt is here to stay now until first call? Or might you, in the scope of what you've announced this morning to improve your capital ratios, take a look at that at some point in the next year or two?

[Tushar Morzaria:]

I know where you going. I'm not going to, obviously, talk specifically about any future LME exercises. But you've seen that we did something in January; we announced something again today. We actually did something for AT1, actually, back last year. So LME is something that we'll continue to look at, continue to optimize, and to ensure that we use all available measures to continue to improve Group returns. If you look at perhaps one of the more subtle things on Jes slide, but it's an important one, the hierarchy of objectives, and the three sort of things we'll measure ourselves by, the number one is returns. And, of course, the opportunity to improve returns through liability management exercise is something that we will look long and hard at, at all opportunities that come our way. I won't comment specifically, but it's something that's sort of front and central our mind.

[Jes Staley:]

But there's a lot there, for sure. Okay, thank you very much for coming. And we'll hang around for a couple more questions, one-on-one. But we appreciate your attention. Thanks.

[Operator:]

Thank you. That concludes today's conference call.