Barclays PLC (BCS) 2003 Q4 法說會逐字稿

We'll adopt usual format. John Varley will present the numbers followed by Matt. Presentation will stay no longer than 45 minutes. The market consensus seems to be that we have to finish it about quarter to ten, which we'll try to do. Naguib Kheraj is joining us on the actual he is the new Finance Director. John Varley, now Deputy Chief Executive. Questions afterwards in usual format there. Will you say where you are coming from and we'll as we can. John.

Thank you Peter, and good morning. This part of the presentation will here Naguib. Of course, it's my pleasure to report the detailed figures to you from the last time. I will as usual provide an overview of the group results, and comment on the financial performance of our businesses during 2003, followed by an update on margins, costs, risks, and capital performance versus financial goals. The presentation of the groupwide financials reflects the changes driven by the impact of Regulation G, which I referred to at our preclosed statement in December. The numbers I give you today are of course based on the organizational structure and operation in Barclays group in 2003. We'll provide you with the 2003 financials based on the new structure, which came into effect in January at our preclosed announcement on the 27th of May.

Let me run through the performance highlights before getting to the detail. 2003 was a strong year for Barclays, a good momentum reported at the interim was maintained in the second half using sharp profit growth year-on-year. All businesses with the exception of BPC made an increase contribution. In most cases, the percentage increase in profit was double-digit. Income growth was the principal source of this profit performance supported by good flows of new customers and by existing customers doing more business with us. For example, the UK Open Plan customer numbers up 600,000. 67% of customers joining Woolwich Open Plan were new for the group. A 15% or 600,000 increased in online banking customers, a record 1.5m new customers to Barclay Card UK and 0.25m new customers taking of eBay's technology and so on.

Cost continued to be actively managed with a strong emphasis on improving efficiencies, and also on investing for the future. Our 1b ton cost challenge has exceeded. Risk is well controlled, although we have grown income, it's not been at the expense of stopping our guard on risk policy. We've maintained our risk disciplines and applied them to all our activities during the year. Risk policy on our loan books both wholesale and retail is good. M&A activity increased during 2003 with the acquisition of Charles Schwab Europe, Financial Services, Banco Zaragozano, and Gerard. We're ahead of schedule in the subsequent integrations and are delivering our synergy target in all cases. We remain well capitalized, and have combined asset growth, acquisitions, a strong increase in the dividend and buybacks to optimize capital utilization. We also report that we achieved our primary goal, which was to deliver our top quartile total shareholder return for the 2000 to 2003 goal period. The 2003 was a strong year, and we bring good momentum in 2004.

Last with the results of group level. Operating profit rose by 18%, profit before tax by 20%, and an after-tax by 23%. This is after absorbing the year-on-year impact of two significant factors -- the swing from our pensions credit to a pension charge and the consequences of the competitive requirements. Income grew 10%, with growth well distributed across the businesses. Expenses rose 9%, this falls to 6% if we exclude the year-on-year pensions impact.

Provisions were down 9%, net return on equity was 17%, earnings per share rose by 26%. We've increased the final dividend by 12%, giving a full year dividend 20.5 . We're always interested in semi and half on top move . In income, where second half 2003 income exceeded second half '02 by more than 800m ton, and second

half '03 income exceeded first half by more than 400m ton. And in expenses where most of the second half increase was attributable to strategic investment, the impact of acquisition, and the performance-based revenue related expenses. You encouraged us to continue with the supply of additional schedules for each business which we introduced interims last year. We therefore included these again, and they can be found in the middle of your presentation pack today. Having given you these, I'll restrict my comments on each business for the headline financial performance.

First of all PFS. In August, we were interested to know whether we could sustain the first half performance of PFS during the second half, and I think the full year numbers show that we could and did. The performance was driven not by one or two, but multiple business lines, and as is the case twelve months ago we start this New Year with more customers and a bigger business. PFS's operating profit rose 11%, income was up 7% or 9% on a risk-adjusted basis. We've good contributions from most business units. Second half income was comfortably higher than first half. The income growth lead us in PFS with general insurance, consumer finance, and mortgages. As for others in the industry, the IFA business remain difficult. Open Plan had 2.6m customers by year-end, but total balance is exceeding 50b pounds. Within Open Plan from Barclays, annualized income per customer was 397 tons, well that's up to 249 outside Open Plan. In Woolwich, the numbers were 311 per customer in Open Plan over the 165 outside. Expenses in PFS rose 7% with two-thirds of the increase attributable to the year-on-year impact of the pension charge and increased strategic investment expense. Provisions fell 9%, reflecting improved asset quality. Average ratios strengthened. Woolwich integration synergy is at 375m, exceeded our 2003 target of 330m. Next block is product line, year-on-year comparisons of the full BPC performance, it may be difficult by three factors -- the employee stipend, the impact of acquisitions, and first Caribbean being reported as an associate for the the year. So acquisitions on the Caribbean are contained in the numbers on this slide. The impacts of the closed life-fund business isn't although of course details are included in the results statement, because we are showing you here the performance of the ongoing business. As a consequence of these things the headline for an operating profit of 11% does not tell the whole story. If you adjust for the BPC's profit performance year-on-year, they will be flat. Forecasting for the aggregate BPC headline, let me talk first about the life assurance business and then acquisitions in Spain. A loss in the Barclays life assurance business in 2003 was 77m pounds relative to a loss of 87m pounds in 2002. Within this the cost of endowment address more than offset the improvement in investment performance. We did three acquisitions in 2003, Charles Schwab Europe, Banco Zaragozano, and Gerard. In terms of contribution to operating profit, the aggregate effects of this acquisition largely offset the impact of the deconsolidation of the Caribbean business. Spain was a high spot in the year. The original Barclays Spain business has gone very well with operating profit up 36%. Banco Zaragozano also had a good year with operating profit up 15%. Integration of Banco Zaragozano was ahead of schedule, meanwhile we have recovered 23% of the purchase consideration without any reduction in the core earnings capability of the business.

Turning to BPC as a whole, 2003 was not an easy year for world businesses. The average FTSE 100 Index was 12% lower than the average for 2002 and average interest rates were some 30 basis points lower. Income fell 4% year-on-year, but performance stabilized here in the second half. We actively managed expense base in order to mitigate the impact of lower income. Expenses were broadly flat, but you should expect cost to rise because of the full-year impact of acquisitions. Performance in the second half gave some ground for optimism. Underlying H2 income was up versus H1 '03 and up also versus H2 '02.

Next the Barclaycard. Barclaycard builds on the success of recent year posting another record set of results. Operating profit increased 17% driven by strong organic growth and the contribution of acquired businesses. All the performance indicated in the business are pointing in a right direction following for customer, outstanding customer, new customer recruitment, cost income ratio, and risk metrics. Income grew 15% reflecting 14% growth in UK extended credit balances, which was significantly ahead of the average rate of growth of the last three years. Second half income was well above first half. Expenses here rose 14%, it increased on accounts of impact of acquisition, stronger business volumes, greater marketing activity, and ongoing strategic investment. Provision increased 15% in line with book growth.

New Barclaycard International performed well and made a profit of 4m pounds in 2003, extended credit balances here grew 43% and income was up 48%. Business Banking entered 2003 supported by good prior year momentum, but with the knowledge that it needed to absorb both a significant H2 income of the consequence of the competition and a significant and adverse year-on-year swing in pension cost. Business Banking handled these twin challenges . Items that particularly catch my eyes in these results are first the cost income ratio, this improves another points to 41%. Second, the strength of fees in commission, and third the quality of the loan book. The flow of new lending has been dominated by the best quality risk rates.

Operating profit in business banking rose 7%, income was up 5% for banking volume growth and stable lending margins, year two income rose second half and the first half. Expenses increased 1%. Productivity gains in back office offsets the down and the impacts of the pensions charge. Provisions increased 10% in line with book growth, provisions as a percent of lendings were flat as 50 basis points. Average loans grew 11% versus 4% in 2002. We maintained a selective but more average deposit grew 5%. Barclays Africa, goes on a good start. 2003 operating profit was up 27% year-on-year driven by good income growth of 18% and improved operating efficiencies. Expenses rose 16% and included a higher level of investment in the business.

Next Barclays Capital. These results show Barclay's Capital had another excellent year and managed through record income generation. The finance continued investments in front office origination and distribution capability, while maintaining a top quartile cost-to-income ratio of 61%. Operating profit, which was up 35%, was achieved from a strong and broadly based income performance. Income rose 18% or 26% after provisions. Despite the historical trend in Barclay's Capital of lower second half income, Barclay's 2003-second half income exceeded first half, which positions us well for 2004. Average daily value-at-risk was 26m pounds, the equivalent figure for 2002 was 23m. Both profit and income rose remarkably faster and utilization. Expenses rose 22%, protecting the impact, a strong financial performance on variable compensation as well as the impact of ongoing investigation. Investment in front office staff was a feature of 2003, and we found further increases in 2004. Finally on the businesses, Barclay's global investors, CCI continued the excellent performance of the first half and reported a record year. I'll describe the performance in BGI in my usual clinical way, but let us not miss the powerful and positive drama of the financial performance here. BGI attracted some 67m pounds of net new assets during the year, which gives us good momentum in the 2004 income line. Operating profit rose 73%, business in exchange traded funds, which we call iShares, were strong. Income here grew 85%. Expenses rose 9% mostly reflecting the growth in performance related cost. Let me turn now to margins. The most important row of numbers on this slide is the domestic margin. You'll see that this margin rose during the year. Barclay's Group net interest margin fell by 14 basis points versus 2002 and by five basis point versus the first half. The margin movements reflect the choices that we've made in terms of business mix, pricing and the operation of the hedge. The 14 basis points in net interest margin was more than early attributable to the fall in the international margin, which you can see amounted to 19 basis points. International compressions arrived primarily from three things. The deconsolidation of the high-yielding Caribbean business, the fall in global interest rates and the increase in higher quality lower-yielding asset market capital. The net interest margins improved relative to 2002 in mortgages and consumer finance and remain stable in retail savings and corporate lending. The contribution of the structural hedge amounted to 19 basis points compared to 22 basis points in 2002. Managing the expense base remained a key priority in 2003. We sought to strike the right balance between driving efficiencies and investing for the future. Headline expenses grew 9%. However, as I have said, when you adjust for the $200m year-on-year impact of the swing in pension costs, this increase falls 3% to 6% versus income growth of 10%. If you then take account of the impact of acquisitions, 1% and a strong business performance on variable compensation 4%, you can see we maintained a tight grip on costs. Headcount, acquisitions continued to fall. The cost-to-income ratio was maintained at 58%. So, what was happening in the main expense line. BIU cost roughly 60% of the increase was attributable to the pension swing and most of the remainder was directed at increases in sales and origination results in Barclay's Capital and Barclaycard, which are both businesses where we wish to push growth hard in the future. Revenue related costs rose sharply, primarily as a consequence of the strong performance in both Barclay's Capital and Barclay's global investors. We think as these as good costs. The run rates of strategic investment significantly in the second half of 2003. $247m in the second half versus $145m in the first. when we met in August last year. We expect strategic investments to remain in the $380m to $550m range that we've talked about before. We reported in August that we had already captured over $1b of cumulative cost savings since the start of 2000 and hit our 1b pound cost turn some six months ahead of schedule. By year-end, we delivered 1.26b. Top quartile benchmarking is now fully embedded at business unit level and is the key driver in keeping our focus on productivity improvement. On the subject, here is our usual slide. , the estimated cost-to-income ratio for the top quartile benchmark relative to our businesses in 2003, cst opportunity implied by this slide will amount to between 200m and 300m per annum. This would be achieved by getting those who are not already top quartile, two top quartiles and getting those who are ready there, that we are a 1% point growth every year, but this isn't the end of the story. The 2002 benchmark, you observe on this slide will soon be updated for 2003 numbers. Our best competitors would have become more efficient in 2003, the for us will rise, and we will reach our ambition. This suggests to me that 200m to 300m is likely to underestimate ahead of the opportunity. Full businesses, already. TSF was relative to its ratio of 2002 despite absolving the pension charge. EGI meanwhile has improved significantly relative to 2002, and in BPC, productivity performance is more to do with income and expense during the year. Our ambition and attentiveness to productivity remain high, and we have in a somebody well practiced in the art of cost program management. Next to risk, we maintained our emphasis on risk-adjusted value creating business. We did not take volumes, take the market share. Provisions were 9% lower than in 2002, excluding the prior impact of transition businesses on recurring Argentina. Provisions still fell 3% year-over-year notwithstanding, but loan balance we are up 11%. At the group level, the charges of percentage of average loans improved 85 basis points and 73 basis points. In the wholesale book, provisions fell 10%. We benefited here from more stable credit environment, and from the preponderance of better quality risk rate in the stock and the credit risk. The charges of the percentage of loans improved from 71 basis points to 63 basis points. Meanwhile in the retail books, profit contributions between line and asset growth remain well within risk dependency. Increase in Barclay's was partially offset by the provisions and the FS, which was due to improved collections and credit risk management. The provision charges as a percentage of loans in the retail book improved from 84 basis points in 2002 to 78 basis points. Risk tendency increased slightly from $13.75m to $13.90m. The risk environment improved during 2003, and as we look forward to 2004, we see good loan growth opportunities. Our appetite for participation in these is positioned by where we start, which is with all of our loan books withheld. A few words on PCRLs and coverage ratios. PCRLs were 3% lower, 5.6b versus $5.8b in 2002. NTLs fell 370m pounds year-on-year, EPL's rose 170m pounds year-on-year. All of this increased and more attributable to two specific situations and corporate books, where we believe we've been extremely prudent in EPL characterization. Behind the lines, EPL trends therefore are down. Coverage ratios strength relative to both 2002 and 2001. If you look at the balance sheet, we focus capital management on five areas. Maintaining our double AA rating growth in the business, financing corporate activities such as the acquisition of , delivering dividend growth and using buyback to manage any excess capital. We retained one of the strongest and most stable credit ratings among the top banks in the world. Our tier one capital ratio was 7.9% despite the impact of goodwill acquired in , which amounted to roughly 50 basis points ratio which we follow most closely, the tier one equity ratio, 6.5% at year-end. We increased the dividend by 12% with cash cover . Finally a few words on our economic profit and total shareholder return goals. I'm looking back here at the 2000-2003 period that will cover goals for the next four-year periods 2004-2007 in just a minute. Economic profit in 2003 was 1.420b pounds resulting in a cumulative economic profit of 5.3b for the 2000-2003 goal period. This represents 87% of the four-year goals. And a of 13% for the four-year period. Operating profit, EPC, EPS, and dividend per share all had a of 10% or higher for the same period. Demonstrating the strong ET growth, that acted as a powerful driver of earnings for Barclay's The generation of 5.3b pounds of cumulative economic profit also served the objective, which would drive the achievement of top quartiles, total shareholder return relative to our peers. I'll try and in the total shareholder return league, Barclay's did finish in the top quartile versus its peers. Now to close, I will return to the summary slide. It's the strong base camp from which to enter the new four-year goal period. Thank you.

Hi, good morning. Thanks John. Well, as you saw the group had a very strong year with performance well spread across all the businesses. Indeed, five of the seven business groupings had a record year. As you heard, 2003 also marked as the final year of our four-year goal cycle and we achieved the primary goal of delivering top quartile shareholder return among our peer group for the four years. This return also exceeded significantly the TSR of the FTSE 100 Index and FTSE Banks for the whole period. Obviously we're pleased about that. We embark now on the next four-year goal cycle and we do so, we're confident. Relative to TSR is the asset tester performance and achieving top quartile will therefore remain our primary goal for the 2004 to 2007 period. To achieve it, we believe it will be necessary to deliver annual growth and economic profit of 10% to 13%. This would produce a cumulative EP in the range of $7.3m to $7.8m compared to $5.3m in the previous four years. We will also require that each business obtain and sustain top quartile productivity versus peers. Now these are stretching targets, I know, but stretching target has served the company very, very well in the past and has increased our metabolic rate and our anxiety. Our confidence in the future is founded on the payback that we're now seeing from the investments made in rejuvenating our core domestic franchise, building businesses that can grow on non-UK earnings, acquiring and integrating businesses that bring new product capability and new customers. Improving productivity and equipping our people with advanced tools to do the job better and the intent to do so, as well and most important we have put in place a senior leadership team, which in my view compares well with any in our industry, UK or globally. This team was developed with executives from within Barclay's ensuring strong continuity for the future and sustain momentum in strategy execution. The new organization and leadership structure announced in October will accelerate the phase right across the board. I'll say a few words, just a few on each major priority area. First we created UK Banking, which brings together most of Personal Financial Services and business banking and UK Premier. We have invested heavily in these core UK businesses in recent years and their performance has improved as a result. Business banking has achieved impressive results with strong customer satisfaction earned from superior propositions and excellent service. Personal Financial Services has resumed good growth of focusing on upgrading its infrastructure to transform our and improve our service for customers. In addition integrated customer propositions plan have been popular with customers and have our offerings and savings. So, UK Banking we see attractive upside potential from the work of recent years. A single integrated business with 14m personal customers, 730,000 business customers, and 500,000 mass affluent customers. We'll deliver more joined up multichannel proposition, enhanced service, wager simplicity, and tangible benefits to customers for doing more of their business with us. And also we expect the new organization to capture cost synergies and improve productivity from reduced overhead and produce support service. Roger Davis is Chief Executive of UK Banking. Secondly, and we created a portfolio comprising our non-UK retail and commercial banking operations and Barclays private brand. We've named the new grouping Private Plans and International. We've made progress in developing our retail and commercial banking activities outside the UK. The acquisition of Banco Zaragozano and its integration with our existing operations in Spain gives us a significant presence in that attractive market. Our operations in Africa, Caribbean, France, Italy, and Portugal are all showing the benefits of management action. And our African business in particular deserves the tip of the hat for delivering a very strong 2003 performance in often very, very difficult circumstances. By bringing these growing businesses together, we're giving increased focus and energy to growing our earnings outside the UK in retail and commercial banks. Last year, I shared with you my views on the performance of Barclays Private Bank, which mostly but not exclusively, for market-related reasons was below par. Since then, BPC has made very good headway with clear signs of improvements emerging in the second half of 2003. We continue to build on this program. Following the move of UK Premier to UK Banking, Private Plans has been refocused on private banking, stock broking, investment management, and offshore banking. We expect the acquisitions of the Charles Schwab, Europe and to have a strong positive impact on this business. We intend to move Private Plans to a more global as distinct from multinational model like those implemented in Barcap, PGI, and . If market conditions improve,; we will capitalize on the better platforms we have built for this business. David Robert, Chief Executive, Private Plans and International.

Third, Barclays now has three competitively advantage global product businesses in Barclays Capital, Barclays Global Investors, and Barclays Credit. The numbers delivered by Barclays Capital and BGI speak for themselves. In 1999, these two businesses combined contributed approximately 400m pounds. In 2003, this contribution had more than doubled just under 1b pounds -- that's an increase of 600m a year. That's a significant improvement in four years. Both businesses have invested heavily in client-focused business models and propositions that resonate with the emerging needs of clients and in mobilizing the high quality human capital messages. Barclays capital is a leading player in the league table, fourth in Global all debt, third in European debt. The clear leader in sterling bonds and also now top 10 in US investment grade corporate bonds. At the same time, it's diversifying its product range and sources of revenue and most importantly, it has grown revenues without losing a tight grip on risk and it's also demonstrated its ability to grow in all market environment. It has maintained focus on a core set of risk management and financing products -- all building out complementary areas including equity-linked products, better derivatives and commodities. It has also continued to extend its geographic reach, building in particular its European and US distribution in client upgrade. It's investing market-specific product opportunities . Barclays Capital has a scaleable platform, which gives it the scope to continue cost effectively to expand around the globe.

Barclays Global Investors too continue to diversify its business mix with its advanced active product range accounting for 20% of assets and now 50% of revenue. It has exchange traded funds business, mobilized share -- is now the largest in the world . Overall BGI has over 1t US in assets under management. and the growth potential for BGI is great. The share business has nowhere near and reached its full potential either in the United States or in other parts of the world where it's till in its infancy. Another area for you to watch is the Advanced Active business, which has been growing strongly and has established an excellent track record. With over $200b under management, BGI's advanced active business is moving up the lead tables in size and is already a significant contributor to profits. With only a 2% share of the active market in the US for example, BGI has enormous opportunities for growth in this area. I've given the strong growth prospect. We are committed to sustained investment in BGI and Barclay Capital. And Bob Diamond is responsible for our global wholesale and . Barclaycard is our third global product business. It is performing extremely well and is in the early stages of executing the global card strategy approved last year. Meanwhile, our UK business continued to grow strongly, with domestic recruitment up 27% over 2002. We are building our success in the UK by bringing together our UK consumer credit businesses and Barclaycard UK into a single management grouping for the first time. This change will allow us to deliver different and better propositions for customers and to proactively help them make form choices in their best interest. Barclaycard International is going nicely. Cards and issue increased by 11% to $1.4m in 2003 and growth was strongest in two of Europe's biggest economies, Germany and Spain. Our aim is for Barclaycard International to be as important as the UK business in a decade. We launched a strategic alliance with Standard Bank in South Africa last summer and have since announced our entry into Portugal and Ireland. There are only a handful of expert in the card business in the world and Barclaycard is one of them. And this is what equips us for accelerated expansion internationally, both in our own name and as a manufacturer of financial institutions you can benefit from our economies of scale, scope, and specialist expertise while we benefit from their distributions. Gary Hoffman, the Chief Executive of Barclaycard and UK consumer finance. So, all the business groupings are doing well and are in a good position to grow. Where there have been opportunities we've accelerated their development through acquisition or in 2003 alone and through other non-organic activity. In all cases, we have remained true to our value driven discipline and we are delivering expected benefits in each case. We will continue to augment our organic strategies through selected deals, only if they meet our stringent value creating criteria. Finally, we will maintain our focus on providing world-class tools to our people. Tools in areas such as risk management, cost management, value based management, technology, marketing, human resource management. In the case of human resources, we are alert to the obligation to introduce for our employees when possible, creating policies that respond to the emerging social issues confronting the workflow. And in that regard, I would like to mention two recent initiatives. Our groundbreaking after work gives our employees incentive to contribute more of their pension and reduce the investment risk they face. Our agreement to mitigate the impact on employees of outsourcing demonstrates a commitment to help our people call for the forces of change in society without compromising the needs for us to drive the business forward. In both cases, we work closely with our on creative solutions consistent with our commitment to be an employer of choice. And with our belief to financial service is fundamentally . The global economic outlook is much healthier than 12 months ago with rapid expansion in the US in the third quarter and the fourth quarters leading an international upturn. The UK remains in good shape and is becoming more balanced with moderation in UK consumer spending likely to be more than offset by significantly stronger investment and excellent performance in government spending. So, we expect a GDP growth in 2004 to be around 2.8% and this should benefit Barclays, given the breadth of our business across retail, corporate, and institutional segments. So, the global economic outlook has become more favorable although we are never relaxed or complacent. We will continue to maintain our strategic focus and we will continue to respond appropriately for opportunity or challenge. I want to close by thanking Barclays people everywhere for terrific handwork and great commitment. They have driven the business forward and they have delivered shareholders who are coping with continuous transformation throughout the bank. More than any, as I said earlier, it is their drive, their professionalism, and their desire to deliver to customers that gives us the most confidence in our future. Thank you.

Good afternoon. My name is Jane.

Good morning. It's James from Bank. Before Christmas, John told us that some customers, customers even a tiny increase in interest rate could be mean additional benefit. Do you stand by that comment and can you reassure us that those customers are the customers of .

Well James, I mean, I think -- you know what I was talking about then. I was talking about some citizens that What I was saying was that if you look at the country, a disproportionate advantage of the borrowing in the country falls on the shoulders of about 10% of in the country and it is a statement of fact that for people who are heavily indebted an increase in interest rate will cause some problems for them. I went on to say as it also is required that when I look at the load of credit risk embarked over the course of the last one, two, and three years, it is dominated by the best quality risk rate. I can see that as I look at Barclays card, I can see it as I look at on-card consumer lending and PFS, I can see it in the mortgage business, I can see it in business banking, I can see it Barclays Capital, I see it right across the water front and if you ask me how do I feel today about the risk outlook, well it's a lot more sanguine than I did a year ago. A year ago, we were all struggling to know what the world was going to deliver in 2003, difficult to predict how the market was going to be, difficult to predict where the interest rates were going to be. This time this year, the world feels a more predictable place. And as I identified our risk books are very well placed to capture growth .

If you have any

If you look at the share prices of German bank, it seems that investors are feeling a lot more optimistic profitability of banking in Germany. I wondered if you share on this new sense of optimism and can you help me to make money in Germany?

I could recommend a better place for their money at the moment is Barclays but beyond that obvious point You would have to assume that they are going to do better than they have been doing . There is a lot of rationalization needed in the German economy and it is supposed to be dealt with over the next two or three years in terms of the unleveled playing field caused by the bank. Secondly, they need to take a cleaver to the operating models they are using in retail banking whether it is far too expensive, that really has nothing to do with . And I think what happens is it causes -- because the retail business is so weak of the major banks in Germany, it causes them to have to play, probably a bit more aggressively than they'd like in the wholesale market. That gives you a different risk profile and thirdly, they will need to get off the cocaine of bank lending, and their warehousing enormous amounts of debt. This is quite old-fashioned stuff; it's been in passe for more than a decade. And therefore their exposure and warehoused exposure on their balance sheet the local corporates is very, very. heavy, rather than being securitized indicators. And as a result when the German economy went flat, it caused a difficulty and that's caused difficulty to asset quality of banks, but I mean, fundamentally some of these big banks are very good banks and I think a combination of getting the right environment for retail banking and frankly, I think, I believe some policy changes are overdue by the banks If they do those two things, then I would expect that they will do well. It's a good big economy.

Anything that could be Barclays?

. I think that in looking at our business, anything we do, you look to what you can bring to our businesses and we try and cross pollinate best practices and best ideas around the business to other parts of the business. So, anything we do that we find that works very, very well for us here, we clearly introduce it to our operation also. You probably ought to spend a bit of time talking about our results.

Peter Toeman from Morgan Stanley. Actually same one from the previous question, which is given your comments about stepping up the pace of international cost, what we see is now about the US some points actually.

US of course has 50% of the world's economic profit and in card business as in the United States. not obvious, but why does the penetration rates of credit cards in United States is over 75% of households and the multiple card clients that will be much, much higher than the 49% in the UK. So, I mean there is a very big and very profitable card business environment in United States. On the other hand it is littered with corpses over the years of those they got it wrong. Credit card business is a very good business if you do a well and it is a terrible business if you get it wrong. If you get any given number of fundamentals wrong in that business. So the subframe is not a big re-occupation for us. It hasn't been here, not as paced we've planned. At best, we plan what is called the near plan segment not the subplan and I am not madly in favor of getting into the subplan business in any immaterial way not as bad as.

and want immediately behind.

Thanks good morning. . I have two questions big income markets and we will see you right after the expansion time. I think John because headcount rises from and I guess the cost income ratio and if I look at properly income ratio jumps sharply affecting the half year from sort of 57%, top to about 54%. It always has a seasonal bias, but this rate is based upon -- So my question Bob really is what your expectations are for the income ratio going forward about?

You feel over the years very good about cost income ratio particularly in the contract. If you look us against our peer group, I don't think you would find anyone in the peer group who has had the level of organic investment we've had. Putting that in context, Matt talked about the '99 -- you know the 2003 growth. On the revenue side it is even, it is equally dramatic in terms of revenues going from well under 1b pounds to 2.5b pounds this year. So, the second half is usually higher in cost. Because if you think about an organic growth strategy it is logical that all the people are going to hire during the year. I just not going to be in place in one with always hope to do the second half of the year. So, one of the things that I always ask if you -- is to when you look at our results keep in mind that we have a very strong opportunity to build organically, which is terrific in the long run, but it can do something that strategic investments don't do to the P&L. And if I can just state for a second and address the other question, which is 2004, I am going to differ from some of to the people in this industry. We are very optimistic about 2004. There is two big misnomers out there, I think. One is that our bond chop or a fixed income chop, which I think you are all beginning to realize going on and I say this -- I think this is the fifth straight year you've told me this is not sustainable going forward. I am quite used to it. And the second is about rising interest rates. 2003 had very low rates, a very flat curve and low volatility. There is nothing about that is good for our business in interest rate, go around derivatives in government bonds we see a real opportunity of rising rates particularly at the reflection of stronger economies and more government debts being raised. Our governmental derivatives businesses is going to be stronger. And on the capital rising side, while the increasing rate is the function of a stronger economy, acquisition finance will be back, corporate depending will be back. And of course, if you take all those things together, we were very optimistic for 2004

Okay, and the second question. On the rises on the mortgage market. You are going to show that mortgage was only 3%. You cite your lack of interest deposit based in various long-standing positive market. I think that CML estimate about 25% mortgage etcetera. So, your share, the prime market is 1% to 2% or 2.5% to 3%. So, rates to be delayed share of stock. So, my question is why is that the case. Why is your share of the standard mortgage markets very low, and what are your intention of the market share going forward?

Our strategy on mortgages is characterized really by two things. First of all, we have to be credible with customers in the mortgage market and we are as a result of the Woolwich acquisition. And the second strategic test is are we making money, and I made reference to the fact in my presentation that one of the drivers of income growth in PFS during the course of the year was mortgages and there are parts of the market, we talked about this before you, just referred to one or two, where we think there is in 2003, and the back end of 2002, there was a value disruption rather than value operation opportunity, partly what you refer to, but also the quite a lot of broker introduced business. The commission structures and the average duration of the mortgages there means that lot of outflow has been value destructive. What you see in Barclays in 2003 is a tactical approach. That doesn't represent our strategy. Clearly our strategy is to have a larger net share of flow than 2% and you likely draw attention to the fact that our share of stock is 8% to 9% and our share of gross is about 7% during the course of the year. We have concentrated and I think we are right to concentrate on those two particular areas and as a result of having credibility with customers, we can be selective about the parts of the market that we go into, because I know that when we decide to go back into some of the areas that you have referred to and we will in time, I know that we will be credible there, because we have a brand, which has a lot of power in the mortgage market. Meanwhile, the one other point I would make, it's a point of detail, but an important one. The pipeline of business that we are looking at the end of 2003 is up versus the pipeline of business at half-year stage and it's broadly in line with where we were 12 to 18 months ago.

(Audio Dip) from UBS. The analytic cost line in technology replace for 2004. In particular, looking at the growth in staff salaries, I think was 99 in 2003 and you took about over 4,000 staff salaries on a underlying basis before position. Could you give us, fair to sort the commentary on any of the outlook for headcount and the outlook for average cost inflation?

I think a line on staff cost would include incentive payments. That would be capital related in Barclays capital in BGI, which would explain the increase year-on-year. If you were looking at the core UK Bank, you'd fine the much lower number because we wouldn't have included that big variable element. In terms of the outlook for '04, there are a couple of factors that will drive that line that John referred to in his speech. Particularly the acquisitions that we made in '03, where we wouldn't have had the full-year impact as Zaragozano, Gerard all climbs in the '03 numbers, which will affect '04 and the organic growth plans that we have in both Barclay Card and Barclays Capital, that we would expect would drive the topline in '04. It's that one of the number one business.

It's Thomas Rhino with CitiGroup Smith Barney. Just asked whether you share the concerns, I think raised in the FC; say by the head of NBNA, with regards to the changing currency loss in the UK which comes into effect in April? Maybe, comment to the increasing this tendency receiving in Barclay Card.

comment, but the headline here is, the simple answer is that we are not concerned. We clearly keep our eye carefully on insolvency and personal bankruptcy, but if I look at that part of the charge-offs in Barclay Card that are driven by this particular characteristic, it's a very small single-digit percentage of the overall charge-off. So, take an extreme case that was a double. It would not have a material impact on the group as a whole and I think the one other point that you mentioned risk tendency. Remember that the raise of growth in risk tendency in Barclay Card is lower in the second half of the year than in the first half of the year. The numbers went from 435 a year ago to 490 at half-year stage and 525 as we speak today. So, what we had is graduated increase in risk tendency reflecting a significant growth in extended credit activity and as you heard from me, strong flows of new customers. The only thing to that would volume, which we are more concerned about the indicator of unemployment. and unemployment is fine, you have seen the latest numbers yesterday. There are no signs of increased unemployment in that. It might be a indicator of what people getting into long-term difficulties. So, not concerned about that. On the specific on bankruptcy just to reinforce what John said, it's single digits in terms of our overall charge-offs. Charge-offs in 2003 remain flat in Barclay Card that that indicate to me this service list charged off through bankruptcy would have probably come through as charged off anyway. That would have come through for us anyway. We will see the on bankruptcies because the change from three years to one year in terms of discharging of the bank comes in April, we will keep a closer eye on it, interesting to us to note that the number student bankrupt has increased, three fold already, interest which reflect on our own students lines around that, but we are not worried about it. We will keep a closer eye on it and we have got quality parameters and score cards that we can change if we see an indicator that worry us, but we are not worried.

Thank you. It's Simon Moore, . I have a question on your economic profit growth, Naguib, in three small parts. First of all what's the risk-weighted asset growth, it tends to 10% to 30% economic profit growth? Secondly, is the organic customer loan growth within the higher or lower, and that's second? And thirdly, given in the second half, you are reducing both debt securities and trading loan, will that trend continue, and will it bring win full gains?

Selecting first two and then let Naguib answer the third, Simon. I mean the first, I said I like to answer the first two as I gave you a probably around the median term plans. But I know you might not find that quite interesting, but we are not intending to hear it. I think unlike some, unlike many, we give you a clear sight as we can into our four-year goals over time and we report on them regularly. We are showing you what you think the economic profit performance means to be to support a top quartile title shareholder return performance over the course of next four years. We of course do have detailed underlying views about customer number and so on, but I am sorry that I am not going to share them with you.

On the issue of balance sheet movements in the second half, there is not a moving parts in that actually amongst the moving parts we still have average loan balance that's up significantly in business banking so that will bring a down story. You are also have half settlement balances which is a very big number in Barclays Capital where the year-end balance would be a lot lower than the second half, that would be about $9b movement half on half which makes looking a total balance sheet number not really relevant in terms of thinking about risk and and revenue growth that's driven off asset because the settlement balance number really doest not have that analysis significantly. The other thing that draw your attention to in the second half is the commitment to the customer number where commitments to customers were up 8% in the second half, up 13% for the year as a whole. Those are commitments that wouldn't have yet made a prudent balance sheet.

Can we take the one at the back, right at the back, and then the one after. Next .

Gentlemen, it's John-Paul Crutchley, Merrill Lynch. I want to ask about economic profit target question from a slight different angle. You are talking between 7.3 to 7.8 economic profit, if I just take the loans about range and assume a run rate over full-year basis, you seem to talking around the $1.8b of economic profit against a peak over the last four years about $1.4b, so I guess it's always too wise to achieve an economic profit, given that your balance sheet in terms of capital that's growing the earnings space, given that you highlight on the balance sheet you want to maintain the ratings where they are, as soon as your employees material run rate the earnings growth going forward, which you disagree with that conclusion which you reach them growth

It is actually quite interesting. If you look at the record over the last four years, the economic progress, despite having a number of moving parts driven by transaction, in fact not very far away from PVP earnings per share or any other , and I think if you look at it over a period of time, we wouldn't expect that there would be a huge difference in the rate of growth of economic profit and the rate of growth in other independent ones. And I think that would be a reasonable way to look at it. I don't think the target that we've outlined today really tells anything about an expectation that it would be driven more by gearing up or not gearing up the balance sheet or more by acquisitions or not by acquisitions. I think at the end of the day, economic profit, the reason why the good measure is used, because it takes into account all factors, so it's not heavily distorted by things that we do around gearing or acquisitions, because they have been flown through ultimately into the economic profit number.

shall lead into confusion, which suggest about the metabolic rate in terms of literally must increase response based target.

That's true. Yes, that is true relative to our stress target.

Yes.

Two very quick questions and then a slightly longer one. You can probably answer the first one John. If you are going to see mortgage acquisition costs this year compared to last? Secondly, given your confidence, can we expect this very top end of your range?

Well, we give -- on the strategic investment, we give a range and you are going to have to decide, where in the range we are going to be. If the range is defined by the SI experience over the course of the last year, and I am not going to say anything further than the 380 to 550 that I have given you. We are giving you a reasonable clarity in expressing that range. In terms of mortgage drain, I'm not going to give you a precise figure, because -- of course there is some benefit, I wouldn't regard it as substantial in financial terms and I wouldn't regard your own on it, which I read the other day as being accurate. There is some benefit in a lower net share of flow, but that is not one of the drivers. In other words, some, one has been an addition as a result of that, it is not one of the drivers of performance in 2003, and now you have your long one.

That is supplementary.

I mean -- in terms of disclosure here, and going back to the earlier question about potential US . I was just looking at the historic record in terms of Barclays. Obviously we are close to the transition in the late 80's, take the attributable profit from 1998 to 2002. It is a spectacular on the US advanced resourcing. Now, I do expect probably there are issues in terms of what . Do you believe you have a competitive advantage which means you can't expand in the US in any material you like?

I think you can with something, perhaps in the numbers that I have given you today. But the one thing you can't cable with is the performance of Barclay's Capital and Barclay's Global Investment during 2003. By any standards they are not the ball out of park and a lot of that is driven by the United States activity. So, If you ask me, are we self-confidant? We have business models that are working well in the United States and it is that self-confidence, something that causes us to want to grow faster, the answer to that is an unambiguous yes. I think that the track record of Barclay's in the United States over the course of last years is very incredible.

Right. Okay. This question here revenue growth in the past four and a half years has been 4.5 minus two 4.5 and was nearly 15. It's been quite up and down in percentage growth terms. Is there anything in the way that you have managed things now that you can tell us about that makes that will be less revenue growth volatility in two, three years?

Well, the second half of 2002 was, I guess in many sense is -- we felt like I think, and we did see some real pressure in parts of the business in the second half of 2002. I am not sending you anything you don't already know. The way I would look at it is, we had income growth of 5% in the first half and it was 10% for the full year. So, if I look at the second half, it is up 15% versus the second half of 2002 and it is up 7% versus the first half of 2003. So, in all those areas, actually what I see is our income performance underpinned by broad contribution. I also look -- I think it is relevant to your point of volatility. I also look at the composition of income growth in Barclay's over 2003. The income growth was about 1.1b pounds. You can see that in all businesses with the exception of Barclay's for the full year. And Barclay's Private Clients itself, as I mentioned in my presentation, is increasing second half versus first half. If you then look at that makeup of income by net interest income and fees and commission and dealing profits and so on, you have got net interest income rising $400m. We have got fees and commission rising $340m, dealing profits rising $220m, your other income rising $130m. Now that I think by any standards shows the quality of the performance and I think very much to me goes to the point about sustainability.

That expand from Goldman Sachs. I have a question, a two-part question, frankly Barclaycard and consumer finance. Firstly, looking at the reduction in assets in Barclaycard about $1b since the half year. Is it strategically -- is it your view that strategically you will maintain securitization as a way of financing or asset going forward? And what is the likely shape off the P&L, as you securitize assets in Barclaycard. And secondly, when you acquired Providian, you know Prime business again back in April of 2002. You mentioned then that this would pass to gain more experience in the near Prime market. What in fact has been that experience, and how do you intend to capture? I guessed you mentioned the time of the month is about 2m customers. A, do you expect that market time to grow, in view of the shorting of the discharge period of bankruptcies, and B, how do you aim to start equate the share in that market?

Okay, with the Providian now Monument branded business question first. Needs to dispel a myth not everyone share this profession, but there are a number of people that say that we acquired a SubPrime or predominantly near Prime business. That's not true. There is no SubPrime business in Monuments, or indeed in the Barclaycard portfolio. In sense of the near Prime elements of the Monument business, that's less than 25% business overall. In sense of our definition of near Prime, which is those customers that haven't really have a track record, or as compared to SubPrime where they've had a poor track record. Then only 25% of the Monument business is near Prime, the rest is Prime business. It has performed as we expected. In the Barclaycard portfolio overall, near Prime business represents only 5%, about 419m of balances. Yes, we regard there to be further expansion in the near Prime business. We recruit in terms of new customers, 25% of new recruitment is in near Prime, 75% in Prime, but we do expect that to be further money to be made in the near Prime market, as penetration rates increase from the 49% of cards in the UK to about 60% over the next five years, compared to the 75% in the mature and saturated market of the US that we would expect to see further expansion there. But our delinquency rights have been as expected, and we're pleased with what we've done with the Monument business. We have 650,000 customers in the Monument business. You're right about the statement of securitized assets, the difference between the total asset and WRIs in the balance sheet is around 8% net increase in securitized balances. And we'll continue to use securitization as an instrument where appropriate.

Just if we can stay fully from the final question. .

Thank you, Michael from ABN Amro. Just a couple of quick questions. First of all on the cost of the endowment redress, and if you could figure on that please. Also a lot of the growth in the other income line in the AFS business appears to be coming from credits or insurance, I'm sure about quite a large feature in Barclaycard as well. I was wondering if you could put a few figures on the actual income in 2003 and in 2002. And I just like to come back to Gary as well on SubPrime, if you're done after that?

Yes, on the Endowment question, the numbers on last year was $95m, and in terms of the general insurance, there is some disclosure in the pack on the contribution of the insurance. You're right to say that it was an increase year-on-year, and the number we report there is the number of all of that business around the group.

And just on the Prime. I'd just like to pick up on what your definition is because you if you've actually surfed around the Internet, and I think judgments in the line, and big advertisements, so it become off the target credit. . So, it doesn't really seem to hang together with what you're actually saying use your leisurely time and interest on that.

It's like your looking at, but --

Yes, the one with the Barclays card, Yes, showing that credit.

I just suggest, we call it a day now, whereas Paul is available to answer questions on the phones anytime. Thank you very much indeed. Thank you.