Barclays PLC (BCS) 2004 Q2 法說會逐字稿

Shall we make a start? Welcome, everyone. We've got three presentations from you -- Matt Barrett first, then Naguib and John Varley. They'll take about 40, 45 minutes, then we'll have questions. When we get to questions, could you please say who you are and where you come from? We'll try and wrap the whole thing up not later than 11 o'clock, though I hope we'll finish a bit before that. So, Matt?

Good morning. We are just weeks away from a changing of the guard at Barclays. On September the 1st, John Varley will take on the CEO job, and I will succeed Sir Peter as chairman. Accordingly, my remarks today will be brief, so that you have the maximum time to hear from Naguib, our new finance director, on the results for the first half of the year, and then and most importantly, from John Varley, on his own priorities for the future as our new CEO.

Barclays is today a very different bank then the one I joined five years ago. It is one that has turned challenges into opportunities for the future, and capitalizing on these opportunities will be the test of John Varley and his senior leadership team, which in my view compares very well with any in our industry in the UK or globally.

Now nothing gives me more pride nor more optimism than the competence and commitments of these outstanding executives. And the five years ahead should outshine the last five by far.

We are today bigger, stronger, better regarded. We are in good shape, fit for purpose, and well-positioned to accelerate growth.

By the late 1990s, the story of Barclays had reached a critical juncture, and it faced a myriad of problems, both internally and in the market. And yet even then, Barclays was special. It had a great brand and the loyal base of customers and staff that often accompany such a long and illustrious history. What was lacking was a clear strategy, demanding objectives, a passion to outperform, a sense of urgency, and a resolve to break out of the pack and emerge as one of the premiere financial services organizations in the world. And though profitable, we were a chronic underperformer. Well, we needed to get our act together, and fast, and we have gotten our act together.

It's not all been easy, of course. There have been bumps in the road. But we kept our focus and our nerve and we are today in my view in an excellent position to grow at a faster pace.

What are the building blocks? We have a clear strategic framework that has served us well, giving us a roadmap to follow in all market conditions, and the benefits of sticking to the same themes of the strategy for five years, in contrast to frequent u-turns, have showed through in performance. And the adoption of organic growth as the first priority -- i.e., to build value, supplemented by selected M&A activity, has served us well. We put in place the disciplines of value-based management and stretching value goals that have been a catalyst for profitable growth and also increased our metabolic rate.

Good business is good craftsmanship, and the best tools must be available and the people must know how to use them. They have them, and they use them well. We've improved our organizational fitness, and the capabilities that are core to strategy execution, such as risk management, technology, human resources, marketing and brand, and productivity.

Great institutions are built the hard way -- brick by brick, and with a relentless attention to the basic fundamentals and not through razzle dazzle plays. The cumulative effect of thousands and thousands of people, resolved to do everything they do just a little bit better every day, is what yields results, and this is our approach. We built progressive, distinctive business models in tune with the changing world around us, and aligned the needs of clients, customers, and shareholders. Now we have more to do here, for the foundations are now secure.

We are becoming a high-performing organization, able to attract the best and the brightest from all walks of life. We have raised our game in the area of corporate responsibility and in partnership with our union, unify, we have developed innovative, market-leading policies in a number of areas critical to our times -- outsourcing, pensions, equality and diversity, life balance, and so on. And by the way, if you want to call all this no more than enlightened self-interest, you won't get an argument from me.

The collective impact has been gratifying. At the end of last year, we completed our first four-year cycle ranked in the top quartile compared to our peer set of banks in the world. The last four years have been the most profitable in Barclays 315-year history. We have built a growth platform on three powerful competitive advantages -- strong leadership, great people, and a very attractive portfolio of businesses. Most important, we are serving more people than ever and we're doing so better than ever. In some businesses, for example, UK business banking, Barclays Global Investors, Barclays Capital, Barclays Spain, we are acknowledged as market leaders for innovation and service.

We feel we have achieved much, but we are not at all complacent, for Barclays is by no means yet the institution it can be, and it will be. We never lose sight of the economic that we are an economic enterprise, whose success benefits millions of people whose pension funds are invested in us, and for this reason, we will never waiver from a preoccupation with financial performance. But we are also aware that sustained value creation can only be achieved by having a loyal and satisfied customer base, served by competent and committed employees and from a reputation in the community at large for trustworthiness and integrity, and we will continue to be sensitive to the need to strike the right balance in advancing the interests of all constituencies.

John Varley and the senior executive team are deeply committed to these values, and you can expect them to go about the task with energy, with focus, and with urgency.

I'll end on a person note. I have now been a CEO for more than 15 years, and privileged to have served in two great banks in that role, one on each side of the Atlantic. A major motivation for me in accepting the chairmanship of Barclays is the fact that my successor as CEO and the team around him are world-class individuals, and they will take this bank to a higher plain. I'm truly excited about the opportunities ahead to make a good bank a truly great bank, and I promise to preserve the example Sir Peter set, of forging a true partnership between the board, the management, and our shareholders, using whatever expertise and experience I have gained in the banking business, for now 42 years. So now, let me pass the torch to the next generation of Barclays leadership, and over to you, Naguib, and then over to John. Thank you.

Good morning. It's a real pleasure this morning to be reporting such strong numbers in my first official results presentation. At the trading update in May, we said we'd had a record quarter. We'd gone on to see an even strong second quarter, with a noticeable pick-up in balances and profits in UK banking and in Barclay Card, and continued acceleration in Barclays Capital and Barclays Global Investors. That means that the first half was also a record for Barclays.

Profit before tax was up 23%, at L2.4b, earnings per share were up 25%, and return on equity was 20.4%. This enabled us to increase the dividend by 17%. Profit performance was the result of very strong growth in income, up L859m, or 14%, compared with the same period last year. Net revenues or income less provisions, were up 17%. As we signaled in February and again in May, we continue to invest heavily in organic growth, and this is reflected in the cost line. Provisions fell 10%, reflecting a reduction in non-performing and potential problem loans, and with such a strong performance at the after-tax profit line, and tight control of capital, economic profit was up 41%.

Looking at the breakdown of profits, we're very pleased that every division showed growth in the first half. It's clear that the global businesses are fueling a higher rate of growth for the group overall. This mix distinguishes Barclays from most of its UK peers, and the diversified earnings demonstrate the benefit of this distinctive portfolio.

UK banking delivered a solid result, with profits up 6%. Within UK banking, business banking contributed another strong performance, with double-digit growth in profits. This was driven by good loan growth, related fees, combined with very tight cost control.

In retail banking, growth was more modest. There was strong performances in current accounts, savings, and general insurance, but these were largely offset by a decline in profits from mortgages and the cost of investment in customer-facing staff and infrastructure.

Private clients and international saw good growth in the wealth businesses as market conditions improved, especially in the first quarter. The overall result for the division was up 52%. Excluding acquisitions, underlying profit before tax was up 29%. International performed well, particularly in Spain, where the integration of Banco [Zeragazano] is ahead of schedule. Profit before tax before integration costs was up about 30% in Zeragazano, and all of the recently acquired businesses in this cluster are trading ahead of plan.

Barclay Card notched up double-digit growth yet again, despite the rise in base rates, which wasn't passed on to customers during the period. Volume growth was good, relative to last year's first half, and after a slow start to the year, balances picked up the second quarter. We're particularly pleased with the performance in consumer loans, and in the non-Barclay Card branded businesses, of Monument and First Plus. Barclay Card International continued its rapid expansion, with strong growth in balances and income.

In Barclays Capital, growth was outstanding across the board. This reflects investment made to broaden and deepen the business in recent years. Earnings and volumes in our primary business were up, even though overall market volumes are down. Wholesale credit conditions continue to improve, and this drove provisions sharply lower. We've continued to invest heavily in 2004, and despite the cost of that investment, which is all taken through the P&L, profits were up 37%. We've got an excellent track record of delivering strong growth from investment in this business. Compound annual growth in profits over the last five years has been 20%. And this is what gives us confidence to continue along this path.

Barclays Global Investors produced another stunning set of results. Income was driven by very strong asset-gathering in 2003, which set us up with good momentum going into 2004. Net new flows of money were again strong this year. And we continue to see margin improvement through the addition of more actively managed business, and the very rapid growth of our exchange-traded fund business, which made a good contribution to profits this year. BGI has tremendous operational leverage, so income growth of 36% has translated into profit growth of 73%.

Income growth was well diversified across the group. Barclays Capital clearly stands out, at just over L350m pounds. Private clients and international contributed L180m, and then BGI, Barclay Card, and UK banking each added about L100m in incremental income, so you can see the benefits of our distinctive portfolio coming through.

In private clients and international, UK banking, and Barclay Card, income growth has been driven by good growth in the balance sheet. We can see this in both loans and deposits.

Staring with loans, and these are average balances here, taking it from the top down, private clients and international is up 52% on the same period last year. This is the result of acquiring [Zaragazano] and also of mortgage growth across all our European businesses. Consumer loan balances are up 11%, extended credit balances and cards are up 10%, and business banking loans are up 8%, but there's more muted growth in mortgages.

Turning to deposits, and again, looking at average balances, business banking is up 9% on the first half of last year, private clients and international up 7%, and UK retail up 5%.

Let me move on to talk about margins. Overall group margin was stable from the second half of last year to the first half of this year, and it's 10 basis points down on the first half. What lies behind this is a decline in domestic margin, partial offset by a rise in the international margin. Overall, margin performance is resilient, showing the benefit of a diversified balance sheet and an effective hedging policy.

This slide shows the key movements in margin from the first half last year to the first half this year, and as you'd expect in a rising rate environment, the structural hedge has had a negative impact on margins, even though it made a positive contribution to income in the period. At six basis points, this accounts for more than half the net margin movement for the group.

Mortgages had a four basis point impact, as the proportion of our book on standard variable rate decline from 19% down to 15%, but it's reassuring that the margin on new business in mortgages was exactly in line with the second half of last year, at 41 basis points.

In UK credit cards, two factors affected margins. Most of the change results from not passing on base rate rises to the customer, which is usually a temporary phenomenon. The second factor is an increase in balances on special promotional rates. These accounted for about 12% of extended credit balances at the end of June.

Moving to where margins increased, we've seen a healthy improvement in business banking loan margins, which had a two basis point impact at a group level, and a significant gain in UK retail deposits, which moved group margin up by four basis points. This is exactly what you'd expect to see from active margin management in a rising rate environment. Margins were stable in loans and deposits in PC&I, as well as in consumer lending. So for me, there are two conclusions on margins.

First, the margin story is not one of inexorable decline, and secondly, volume growth and our management of the business mix has kept overall income and profits growing.

Let me turn now to some analysis and discussion of costs. Costs were up, broadly in line with income when compared with the first half of last year. But up only 1% on the second half. This slide shows the make up of the cost increase compared with the first half. The most significant increase is L175m, invested to drive future revenues. We've done this by adding more customer facing staff in UK banking and in Barclay Card UK, and by continuing the very rapid organic expansion of Barclays Capital and Barclay Card International. The increase in performance-related compensation of L142m is based on profits and is a flexible cost. Then there's the impact of the businesses we acquired, investment in our UK branch infrastructure, and regulatory programs, which we expect to have a more significant impact in the second half.

The message I'd take away from this is that most of our cost increase is the result either of performance-related pay, driven by higher profits, or investments made to drive future revenues. We see this organic cost growth a an alternative to the goodwill we'd incur if we pursued strategic acquisitions.

Our cost growth doesn't mean we're relaxed about cost management. As I said, costs were up only 1% over the second half of last year, and they actually fell by L120m across UK banking, Barclay Card, and the international component of PC&I.

If we're going to achieve our profit growth and shareholder return objectives, we can't be complacent about efficiency. Since group productivity is affected by mix, it makes most sense to look at this at a divisional level. We've set targets for all our businesses to operate at top quartile productivity ratios relative to their sector. For those that are top quartile already, we expect continuous improvement.

Business banking, Barclay Card, Barclays Capital, and BGI already operate at the more efficient end of the spectrum. We're very focused on where we have issues -- UK retail, and PC&I. Across these two divisions, productivity measures should increase annual profits by at least L500m over the next three to four years. This will be the result of action on both costs and revenues. You can expect to see an improvement in the cost-income ratio in UK banking of at least two percentage points per annum in each of the next three years, starting in 2005.

So efficiency and productivity lie at the heart of our approach to cost management. But you can't have a sustained strategy of organic growth if in the top line without investing through the cost line. We moderate our cost growth by our expectations for profit growth. We're not interested in big J-curves, and in Barclays Capital, where our costs have risen fastest, we've shown we can flex those costs when necessary, as we did in 2002.

Any of you who've discussed the subject with me know I'm not a fan of crude JAWS analysis without taking into account other measures. I'm much more interested in profit growth and in risk-adjusted income, where provisions are an important part of the profit picture. Nevertheless, you might like to know at a group level, compared to the second half of last year, we had a positive JAWS of 6%.

The results for the first half are once again underpinned by good risk performance. Provisions were down 10%. This reflects a decline in non-performing loans and potential problem loans. NPLs are down 3% from December, last year, PPLs are down 38%. And the decline in PPL arguers well for the outlook. Our provisions coverage of PCRLs is 60%, well above the ten-year average of 51%, so the decline in provisions isn't a reflection of a less prudent approach to cover. Credit conditions in the wholesale business continue to improve, and provisions in Barclays Capital were down sharply.

Turning to the retail sector, I know there's concern in the market about the level of consumer debt, combined with the potential impact of rising interest rates and the slowdown in the housing market. Let me give you some examples of indicators we monitor carefully. The proportion of credit customers making only minimum payments is stable by number and value. Delinquency rates in cards and consumer loans have also been stable, and in mortgages, our arrears have actually fallen. On top of that, the flow of names into watch list categories in business banking is also down. So whilst we're vigilant and we continue to operate cautiously in terms of new exposure, we're very comfortable with the risk outlook.

Most of our growth has been organic, so we continue to generate surplus cash. Our confidence in the outlook is reflected in the growth of the dividend of 17% for the first half. We've targeted a fairly constant equity tier one ratio in 2004, and this enabled us to support balance sheet growth, a healthy dividend increase, and L600m of shareholder buybacks. We'll continue to use the buyback program as the swing factor in capital managing. And one of the benchmarks we look at when we consider alternative deployment of capital is the impact on shareholder value of buybacks. We have one of the strongest capital structures in the industry, coupled with diversified earnings and a high return on equity, and this is reflected in our credit ratings. But we believe we're at the upper end of capitalization required in order to maintain those ratings and our capital flexibility. We think we could reduce our equity ratio without affecting those ratings. But we won't take a firm view on the scope for changing capital ratios just yet. We need to know first how the regulators will treat various adjustments to the balance sheet under the new international accounting rules. We expect to know more on this later in the year.

Other than this issue, our preparations for the implementation of the new international accounting rules is well-advanced. We'll be holding seminars later in the year to help guide you through the impact of these new rules.

So to summarize, this has been a record half-year for Barclays. Profit before tax was up 23%, earnings per share were up 25%, and this was achieved through strong income growth, and our profit growth was well-diversified. We've continued to accelerate the pace of investment to drive future growth, particularly in our global businesses, which had an outstanding first half and have excellent prospects. We've renewed our focus on productivity targets, and our success in achieving these will be an important driver of future profit growth, especially in UK banking.

Risk management continues to be very effective. Whilst we're vigilant, we see no deterioration in risk trends. Our strong cash generation and capital position has enabled us to provide shareholders with a 17% increase in dividends and return L600m in buybacks. We believe our well-diversified portfolio positions us strongly for future growth. Thank you very much, and I'd like to hand over to John.

Good morning. My focus today is to tell you what's on my mind as I take up my new role, and with my executive committee colleagues, set about the task of acceleration. I'll give you a more detailed statement of strategy when we present our annual results in February. I'll speak this morning for about 20 minutes.

A shareholder asked me late last year to summarize the Barrett era. I said that it could be best be summed up by the fact that Matt had given Barclays its confidence back. Of course, the shareholder then asked me what I would like my successor to say of the Varley era. My answer was that I will want to have shown our owners that when they invested in Barclays, they invested in growth.

Over the last five years, we've developed a strategy to which we are committed -- it's delivering strongly; we've invested a lot in it. We have created both choices for the future and the capability to stretch ourselves further. We believe that it's got plenty of unfulfilled promise, and I don't intend to change it. I'll come back to strategy in a minute. First, let me tell you why I believe so strongly that we're on the right course.

My confidence is rooted in our track record of strong financial performance and in our growth prospects. By investing in Barclays, you get growth potential and value. If you look at the first half of this year, there aren't many companies in the developed world that show a return on equity of over 20% but have dividend growth of 17%, and a current dividend yield of 5%. Relative to our average return on equity since 1999 of 18%, the market's current valuation assumes a forward sustainable ROE of about 11%. Our performance in 2004 is no one-off; the slide I'm about to put up shows our four-year compound growth performance across a range of metrics. Here it is.

Income growth, 10%. EBT growth, 12%. EP growth, 10%. EPS growth, 9%. Dividend growth, 13%. This track record underpins our confidence that we have the right strategy, and we have the ability to step up the pace of execution.

Our strategic priorities have provided us with a roadmap; here's a simple statement of them. Defend and extend our UK franchise. Accelerate the development of our global product businesses. Develop retail and commercial banking in selected countries outside the UK. Enhance operational excellence. You'll be familiar with this content; it's borne out of our analysis of global markets and our assessment of our ability to capture growth opportunities in the financial services industry over the course of the next 10 years. This roadmap remains the basis of strategy execution for us. But I want to accelerate the delivery of our strategy; this means faster execution, faster growth. Of course, no strategy should be set in stone -- as events or conditions change, we'll be appropriately nimble, and we will continue to subject our strategy to the disciplines of stretching public goals, which provide us with a performance benchmark.

We talked about new goals -- total shareholder return, economic profit, and productivity, in February. You said they were stretching; we said they're meant to be. It's early now in our new, four-year cycle, but you can observe from the economic profit line in the first half that we're serious about delivering.

Key elements of our strategy - in accelerating our delivery, I'll be directing my energies at the following key areas. First, portfolio composition. Second, the value of earning, investing and growing simultaneously. Third, geographical asset allocation and income mix. Fourth, productivity. Fifth, customer and client satisfaction and employee engagement. I'll say a few words on each of these.

First of all, portfolio composition. This slide shows you the leading banks in the world by market capitalization. Only one has not engaged in transformation or M&A over the course of the last five years, and that's Barclays. In other words, we win our place in the premiere league by virtue of the strength and diversity of our portfolio of businesses, created primarily through lower-risk organic growth. Our portfolio shape is distinctive; I want to protect and nurture that distinctiveness. It gives us strategic options. It provides a hedge against the cyclical trends that affect individual markets. It creates risk diversification. The portfolio enables us to compete vigorously inside and outside the UK. It's the product of choice and decision, not of good luck or fate. In constructing it, we have synergy in mind. The importance to our private client business of the manufacturing and structuring capability in BGI. The importance to business banking from the financing and risk management capability in Barclays Capital, the ability to sell credit cards into our Spanish business, and so on.

Next, earn, invest, and grow. The portfolio is also the product of an investment approach that requires that we earn, invest, and grow at the same time. We will not sacrifice good short-term returns for speculative, out-of-the-money strategies. This approach has enabled us to deliver the five most profitable years in our history, while making the heavy investments that are producing today's and tomorrow's growth.

We told you at the preliminary results in February that we intended to quicken the pace of investment in organic growth, and so we have. Let me give you a few illustrations. Those of you who came along to the business banking seminar in 2002 may remember that we introduced to business banking something we call ``value aligned performance measurement.'' This tool, which we think is unique in the United Kingdom, enables us to concentrate better on the things that matter -- value, persistency, customer service, retention, contribution per customer, rewarding customer loyalty, by delivering real-time information via laptops to the relationship salesforce in business banking. Combined with significant cost efficiencies, it's had a profound and positive effect on the business, not least by aligning value creation and reward. Roger Davis and his team are, as I speak, introducing the same approach into our UK retail business. As a result, we've abolished individual sales targets for branch staff. In the future, branch staff will be rewarded for customer satisfaction, and for the value they create, which is made up of customer loyalty, customer retention, new product sales, and the active use by customers of the products that they buy from us. We plan a seminar on UK banking in October, and we'll talk more about value-aligned performance measurement then. But I speak with conviction when I say that it will be a driver of growth in our UK retail business.

In Barclays Capital first half, 2004, income was more than double first half 2000 income. You've seen us steadily increase our range of activities while sharply boosting absolute and relative growth in the contributions from the United States and from mainland Europe. Headcount in Barclays Capital has risen sharply in the last 12 months, but there's been no dilution in revenue per capita and the staff cost to revenue ratio is flat.

Here are two slides that illustrate the sort of opportunities we see in investment banking. I'll focus on the United States. This slide shows you the areas that we've targeted in the United States over the course of the last years, and the consequent growth. The formula is to be selective, to be deploy the best talent, and to be remorselessly client-focused. It worked, as you can see -- market share in our chosen areas have risen sharply.

Now look at the second slide. It shows you the areas in the U.S. debt capital market where, up to now, we've chosen to compete, compared with the areas that we haven't. As you can see, we've had about 38% of the U.S. debt capital market in scope up to this point. By far the biggest capital market in the U.S. is mortgage-backed securities not an area where we've been active until now. But quite a lot of our U.S. recruiting in late 2003 and 2004 has been directed at this opportunity.

In Barclay Card II, we see lots of room for growth in the UK and internationally. One of ambitions here is that Barclay Card International should, within 10 years, become a contributor to the group as meaningful as Barclay Card UK, and you've heard Matt say in the past, we believe there is only a handful of credit card companies in the world which have the brand, power, and technical competence to compete successfully outside their home market. Barclay Card is one of them.

Our success in Germany illustrates while I feel confident about our recent expansion into, for example, Spain, Ireland, and South Africa. Barclay Card started to manage a German file in 1994. It was a classic invest-and-build story, taking about four years to get to profitability. As you can see from this slide, over the last three years, the compound growth in turnover, extended credit balances, and new accounts has been double-digit.

I give you these examples to illustrate that our policy of earn, invest, and grow has been successful. As we ramp up investment, and I acknowledge we are, our investment decisions are based on a successful track record of market analysis and growth.

Next, geographical asset allocation and income mix. We earn too little outside the United Kingdom. We intend to change this. Our income generation outside the home market has expanded strongly in absolute terms -- for example, about 70% of the income of wholesale and institutional now comes from outside the UK. But because our UK profits have been growing strongly, the mix has not shifted much. About 20% of our income, the average of the last three years, has come from outside the UK, and I'd like to see that percentage grow. The overwhelming evidence of stock markets as income diversity is valued greatly.

Within Barclays, you get a good mix of retail and commercial banking in the UK, with global and regional businesses. I want and expect our core UK banking businesses to grow; they will, and I hope that that rate of growth will surprise you. The increase in non-UK earnings will come from our global businesses - investment banking, investment management, cards, and private clients, and from international, where we currently have strong operations, principally in Spain and Africa.

Market evidence also suggests that earnings quality rises with growing fees and commissions income. Income from this source has been rising, and I'd like to see it continue to go higher. One driver of this will be BGI. A confluence of events in the investment management industry is playing to BGI's strengths, and as you can see from today's results, is creating rapid income and profit growth. Another driver will be growth in our private client business, an area where the contribution has fallen over the course of the last three years, but to the development of which I attach considerable strategic importance.

Productivity -- as Naguib pointed out, we are not as efficient as we should be in certain businesses. I regard this both as a serious issue and as a significant opportunity. We expect top quartile productivity in every part of the portfolio. Productivity is prerequisite of sustainable competitiveness. There is no trade-off between growth and productivity, so our focus on productivity in all business areas will be sharp and remorseless.

What do our customers and people think? When I look at how we're doing, I want to measure success through the eyes of customers and employees. So there are two simple but acid tests for me. Do our customers and clients value their relationship with us? Are the people of Barclays proud to work here? The answers to these questions are the proxies for future growth. Each part of Barclays must be able to answer ``yes'' to those questions.

In some parts of the business, as you've heard from Matt, our service of customers and clients and our track record of innovation is first-class. But there are other parts of Barclays where we would not consistently be held up as exemplary. We see this as an opportunity to improve, to earn the loyalty of customers by being excellent in what we do for them.

Turning to our people, we spent much time this year communicating our ambitions to them, building our teams, beginning to accelerate. What do you our people think and feel about this? It's vital to me as we position ourselves for growth that our people understand, take pride in, and are motivated by Barclays' ambitions and by the aspirations of their particular business area. Here's what they aspire to.

They want Barclays to be a leader in whatever business we choose to compete in, with our brand being seen as a force to be reckoned with in the global financial services industry. In the area of UK banking, they believe that Barclays should be the leading bank in the UK. For our private clients business, recognizing that the wealth management industry has gone through three tough years, the mantra is ``bounce back,'' and for the international component of PC&I, their aspiration is ``growth engine.'' The people of Barclay Card want their company to become the most admired card and consumer loan business in the world. BGI's mission is to be the best investment manager in the world. For Barclays Capital, the drumbeat is to be the premiere European house in risk management and financing.

Now these aspirations have to be anchored in perceived achievability, or else they're vacuous. But believe me, they are seen to be achievable by our people.

Finally, before I wrap up, a few words on M&A, a topic constantly on peoples' minds, for better or for worse.

I believe you know us well enough not to think of us as reckless throwers of a dart a corporate development dartboard, but I'm often asked about our stance on corporate development. I know that our words are carefully scrutinized for signs that Barclays has shifted its standards. The audience typically alternates between the hope that we might become more adventurous, and the fear that we will do just that. We see M&A as the servant of strategy, not the master of it. It's a useful way to accelerate strategy execution if it fits with our strategy and if the price is right -- i.e., the transaction passes our value screens. We have never been, nor will we become, crassly opportunistic or speculative in our corporate development activity.

For example, I would like the percentage of earnings that we get from the United States to grow over the coming years, but when I look at where we are today in the U.S. interest rate and consumer cycle, when I look at our current share price, and at already inflated U.S. prices, I have no intention of paying in paper rated at nine times earnings a big premium for expensive American retail and commercial banking businesses. At our current share price levels, I can tell you we are buyers of shares, not sellers. The deals we've done these last years, from the [Woolidge] to [Gerab] late last year were not transformational, nor were they intended to be, but in aggregate, they have contributed to reshaping substantial parts of Barclays, they've added to our capabilities, and we've learned a lot from doing them. We're not shy of corporate activity if it fits.

Last year, we made a small but interesting acquisition in Spain when we bought Banco [Zaragazano]. Most commentary has been on the price of the acquisition, not on the business opportunity. In fact, we paid a little over two times book, with a price/earnings multiple of less than 10 times, if you take account of subsequent disposals, and if you build in the impact of the in-market synergies we announced. We expect the businesses that we now have in Spain to make well over L200m a year, within three or four years. I believe our owners will look back on the acquisition of [Zaragazano] and see it as a good decision.

Going back further in history, but to a point I remember well because it was on my watch, be bought Wells Fargo Niko Investor Advisers, now called BGI, for less than L300m at the end of 1995. The current value of the business is many, many times what we paid for it, given first half profits of L157m. BGI is now one of the very few genuinely global investment managers in the world. Looking back, it was a good acquisition by any standards.

I said at the start of this presentation that I wanted today to share a few thoughts, as this transition period comes to its close, and my last slide summarizes where I'll be directing my activity in the weeks and months ahead.

Continuity -- we have a clear strategy, it's working, but there's much more to go for. Pace -- we've built strong foundations during these last five years, and we're going to increase the pace of execution. Portfolio shape -- we have a distinctive and diverse portfolio, which gives us strategic options, and a hedge against cyclical trends. We will increase the proportion of revenues from outside the UK. Performance -- we will invest in future growth, but we will be mindful at all times of keeping the profit line moving forward. We have a simple but heart-felt performance standard, where we choose to compete, we shall aim to be the best. Productivity -- we will achieve top quartile productivity in all of our businesses. Customers and employees -- with these all-important stakeholders, I repeat, that I have two critical tests. Do our customers and clients value their relationship with Barclays? And are the people of Barclays proud to work here?

Let me end by saying that as we face the future, I'm privileged to lead a great executive committee team, which combines experience, energy, skill, and determination. We know each other well. We share a desire to be the best. We're deeply committed to the success of Barclays. So let me introduce them. In addition to Naguib, Gary Hoffman, David Roberts, Roger Davis, Bob Diamond, Chris Lendrum, and David Weymouth.

Thank you. Good morning. It's [inaudible] from UBS. Good revenue growth was driven by strong [inaudible] profit performance up 52%, year on year. Now historically, you've guided us to measure that against an average [inaudible] at risk, during the same period, was up 66%, so could I ask you why the ratio of [inaudible] deteriorated, if that's-- and also if that's something that we should extrapolate, going forward? And as a second point to that question, in the section of [buying at risk], you mention some of the benefits of [inaudible] opportunities and I was wondering if you could quantify the P&L benefit from that, please?

Why don't I take a first, rather general aspect of that, then I'll let Bob comment as he wishes to. Ian, I think the way that we look at DVAR is, DVAR is desirably quite flexible, and although the average DVAR during the first of this year is $38m, and that's up from an average of $26m for the full last year -- I think that's the better comparison, frankly, 38 versus 26. You can see from the numbers, 47m on the high side, and 26m on the low side, in the first half of this year, that we've moved with quite a broad range. And as it happens, at the end of the first half, as we report in the announcement, we're at the bottom end of that range, which is 26m. Now, the way I think about this is to say, ``How does that increase in DVAR'' - so that's 38 this year, first half average, versus 26 full-year, 2003, how does that compare with economic profit growth, and are we getting the appropriate improvement in economic profit, relative?

Now the answer to that is an emphatic ``Yes.'' Our economic profit growth in Barclays Capital is up over 60%, whereas the DVAR growth is in the mid 40s, and that's exactly the relationship and exactly the standard that Bob and his team have been managing Barclays Capital over the course of the last years. Bob?

I think that's right. I also think and I've talked to many people about this before, dealing profits is a funny number. What I would ask you to do is, and the way the P&L gets reported in banking, is you see net interest income, dealing profits, fees and commissions. It's not how we run the business, it's how banks generally report, and we need to be consistent with that.

The best proxy I can give you is to add together net interest income and dealing profits over the period, and you'll see a fair amount of consistency there. And what that is is that's the growth in our secondary business, and I think what's important in this environment is our secondary business is performing extremely well. We've had corporate issuance down 30, 35% in the first half this year versus the first half last year. But we're doing a lot of business with brokers, and as I've signaled to you last year, rising rates is not a concern to us. A lot of our corporate clients are working on the duration of their existing liabilities, the currency of their existing liabilities, the interest rates on their existing liabilities, and they're concerned about the rate environment, and rightly so. So we're doing a lot of risk management business, which will show up in secondary. Whether it falls into interest and dealing profits is a completely arbitrary accounting decision, so keep those numbers together, and as John said, I remain committed to what I've said to you for every year for four or five years - you'll see us grow revenues, profits, and economic profit, both DBT and economic profit, at a plane more steep than overall risk, and that's our commitment. It's a client-driven franchise, and you can expect to continue to see DVAR or economic capital grow only line with the business in a plane less steep than the economic profit.

[inaudible] two questions, one on costs, and one on revenues. The one on costs, and it's perhaps for Naguib to address -- you've asked us to support-- well, you told us the first half costs will outperform the second-- the second half of last year, up 15% on the first half of last year, and of my question is, does that matter? And what I'm sort throwing your way, or really, what you need to comment is, A, the historic seasonality of the cost base for Barclays -- is that still the case? B, the [inaudible] costs, which I think made it into the Q1 stage as well, so perhaps you can quantify that? And then C, there's been a 20% in Bar Cap's headcount, just in the first six months of this year, 1,100 people. And, you know, we haven't seen the full P&L impact of that at the half-year stage, because that sort of parallels the second half-- so really question is, what do we expect in terms of seasonality in the H2 prospects versus H1?

Thank you. Yeah, you make a very good observation -- does it matter? And one of the things I would say about that is we gave you some analysis and interpretation because we do think that the cost make-up matters. I wouldn't worry too much about the precise patterns and relationships, period to period. I think the important point is the cost growth is going into things that are related to growing the business, and if you look at the second half versus the first half, we do have a pattern that's a consistent pattern going back where costs are slightly higher in the second half than the first half, and there's all sorts of factors that go into that. You highlight one of them that will be significant this year, in terms of the headcount growth in Bar Cap. And I think what's right to say there is we haven't seen the revenue impact of that headcount increase particularly, or the cost impact in full in the first half. Typically, when you bring on new people, there's a delay before you see the revenue come on, and also, the costs are more weighted towards the second half, because you typically hire as you go through the first half, not on January 1. So you can expect to see costs a little bit higher in the second half than the first half. And just confirming, Simon, the comment about the regulatory programs. We would expect those to have a higher impact in the second half, as we've ramped up the activity to make sure we meet the deadlines for those projects at the end of the year.

Simon, can I add one point of philosophy, which is that our owners rightly want ``and,'' not ``or.'' They want to see us investing heavily in the business and you've seen from Naguib's analysis that we are investing heavily in the business. But meanwhile, we are moving the profit performance briskly forward. So, along side that 15% cost growth, we got 25% EPS growth. That's the ``and'' point.

Your second question was on revenues at the investment bank. I, just again, revenues, go back to Naguib's point, talking about the evolution of the [green] margin since the [inaudible] but it seems like the most significant contribution to stability was somewhat oddly the decline in the average balances for the international business, which is obviously a thinner margin business than the domestic business. What I'm particularly interested is this very significant spread compression, so not margin, but spread compression within the domestic business, down 24, 25 basis points, whether we look year on year or half on half, which I think is about the biggest decline we've seen in that line, excluding the [inaudible] acquired Willow. So my question is really whether you could comment on the likely evolution of that, whether that's now at a lower base and stable, or whether that pace of decline continues.

Naguib?

I can take that, John. I think one of the things, when you look at group net interest margin, I would urge quite a lot of caution in getting too worked up about movements in that line, because the impact of the inclusion that balances out of Bar Cap can cause quite large swings in that number, so we can go up or down 10 basis points on group margin just by the impact of what's happening in the Bar Cap balance sheet, and net interest income-- or net interest margin is not a particularly useful way of analyzing Bar Cap, and it's only a portion of Bar Cap's balance sheet that feeds into that particular line.

I think where people have an interest in the trends in interest margin is really in the core UK businesses, in retail and commercial banking, and in cards, and I think what I was trying to get across in the presentation earlier is we've got some areas where we've seen a little bit of margin pressure, in mortgages and in credit cards, and we've seen some other areas, where we've had margin expansion, which is exactly what you'd expect in this kind of environment. So our outlook for margins is we don't see any heavy storm clouds out there. You'll see a bit of movement around that number, but the more important thing is what's happening to profitability.

A couple of questions. I have two questions, sort of cost-related, if I can. First, I guess, suppose to John, perhaps maybe both can answer. It's a very heavy investment program going on in the UK with [inaudible] slowdown, I guess thinking more into next year on income. I wonder if you could comment on [inaudible] recruitment and sort of guarantees to [inaudible] 2001 or 2002, just because the [inaudible] isn't there.

The second is just in terms of ambition, just on the core UK bank approach, in terms of the [inaudible] cost ratios -- that's clearly very ambitious. I'm wondering if you can comment on if we should expect some restructuring charges ahead of [inaudible] business as usual--

Right, [Geoffrey], I'm going to make a comment about Barclays Capital, first of all, and then I'll ask Bob to comment. And then we'll ask Roger to take the question on UK business banking productivity ratio.

On Barclays Capital, although we've emphasized, and you can see it in the numbers, that there has been significant headcount growth in the first half of this year, don't lose sight of the fact that there was significant headcount growth in the second half of last year, the cost of which has fed through, as well as some of the income pick-up, has fed through into the first half of the is year, and what's happened to the staff cost to revenue ratio? It's flat. If you then look at net revenue to costs, again, you can see a very stable performance, and it's been a trend and a feature of the growth of Barclays Capital over the course of the last years that its efficiency ratios and its productivity ratios have been held in a very tight framework, notwithstanding the significant growth in the expense line over that time. So you can see cause and effect, I think, in the way in which the business is being managed in the first half numbers, even though of course there is expense ramp up, which will feed through into the second half. Bob?

I think the other important point, JP, is this is not planting 1,000 seeds and let the flowers bloom. It's a very, very targeted area where we see opportunities for us to expand in the [inaudible] business, so it's about Continental Europe. You saw us add about 30 people in institutional sales in the second quarter in Continental Europe, and what have I been saying? We're too Anglo-Saxon, we're too UK-oriented, the growth is coming from the Continent, we need to be more European, we need to be more derivatives [inaudible]. So we have 30 outstanding professionals, six of them managing directors, most of them just getting on the ground now, as we need to-- we'll see the revenue impact in the second half of the year, but this is a critical area. We see the underlying growth rate of the markets of 15% to 20%, 20 to 25% compound. We've seen an opportunity to build a residential and a commercial mortgage-backed business in Europe. That's a new revenue source for us. And if you think about the U.S. market, I'll give you the example of one of the biggest fixed-income managers in the States, ranked number one or number two, in credit and interest rates, but 50% of their business is in residential and commercial mortgages, so as we bring that up, we already have the client relationship. We have an opportunity now to build the product, and to bring the profitability in, so it's very targeted -- I've signaled to all you, Continental Europe, which is underlying market growth, U.S., which is an opportunity to pick up market share. We talked about the explosion in credit, the opportunities in considered and in equities, and some of the U.S. products we haven't [milked] before, and that's exactly where you've seen the hiring. Just over 500 people in the front office, facing clients and developing product. The balance is-- we continue to build out the technology platform [inaudible] is our productivity continues to improve. So the trades processed per person, fully processed in the back office, continues to improve, and we're riding productivity there.

And then lastly, what I would say is what I said to you six years ago, seven years ago, two years ago -- we have never and will never hire anyone based on title. We've never brought anyone in as a managing director who wasn't one, and we don't do long-term contracts. I know everyone in the market likes to say the other guy is doing them. I've told you before and I'll tell you again, we don't do them.

Roger?

Thanks, John. To back three years, JP, when I was a callow youth who arrived from the Far East, when [inaudible] John actually didn't allow us to make the sort of promise about what we would do to the business bank that didn't allow us to make [inaudible]. And if you look back at the last three years, the reduction in cost [inaudible] another 2%, the first time down to 33-- has been driven by BAU, there has been an element of restructuring, that has to do with the change of business, because that's [inaudible]. But if you look at the-- and it's on page 28, the breakout of the first half, you'll see 5% JAWS, 6% on income, 1% on-- because that's how you drive the cost-to-income ratio. And I am absolutely delighted that Matt and John have shown sufficient faith in us this time to go public before we get it, rather than after. I mean, if you [inaudible]

[inaudible] and the second question is related on the mortgage market. You'd done a share of net mortgage at 2%. You cite your lack of interest in participating in various non-standard parts of the market. I think the CML estimates about 25% of the mortgage market in the UK is kind of buy-to-let, self-served, high LTV, et cetera, so your share, if you like, the standard prime market, is not 2%, but it's, you know, 2.5%, 3%. It's still woefully below your share of stock. And so my question is, why is that case? And why is your share of the standard mortgage market so low, and what are your intentions in terms of market share, going forward, there?

Well, Simon, the- 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 Woolidge 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. Now there are parts of the market, we've talked about this before, you've just referred to one or two, where we think there is, in 2003, in the back of end of 2002, there was a value destruction rather than value creation opportunity, partly what you refer to, but also the broker-- quite a lot of the broker-introduced business, the commission structures there and the average duration of the mortgages there means that a lot of that flow 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 rightly draw attention to the fact that our share of stock is 8% or 9% and our share of gross is about 7% during the course of the year. But we have concentrated, and I think we're 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've referred to, and we will in time, I know that we will be credible there. Because have a brand which has a lot of power in the mortgage market.

Meanwhile-- I mean, the one other point I would make, it's a point of detail, but an important one, the pipeline of business that we're looking at the end of 2003 is up versus the pipeline of business at the half-year stage, and it's broadly in line with where we were 12 to 18 months ago.

[inaudible] Yeah, the first question that I really wanted answered is up to [inaudible]--

True--

[inaudible] which is, if the largest is discounted 11%, what do you think is the ballpark on the [inaudible] what do you see as [inaudible]

I've learned from the current chief executive that it's very unwise either to moan about the existing state of our share price or to speculate where it may go, so I'm going to remain silent on that point.

Can you tell me what the probabilities might be to [inaudible] risk assumptions, if your [inaudible] consumer--

Risk [inaudible]

[inaudible]

Well, I think the wrong way of looking at it, Simon, is what is the breadth of the advance of Barclays over the course of the last 18 months? How broadly based is the income growth? Have we been investing significantly for future growth? Have we, meanwhile, been generating a good return on capital? Now the answer to all those questions is yes. I mean, last year, we produced profit growth of 20%. This year, we've produced profit growth of 23%. Earnings per share growth over the last 18 months averaging about 25.5%. That is a strong performance by any standards, and that's what I keep coming back to. And we know that if we continue to product that sort of performance, ultimately the arithmetic will dominate the share price. That will happen at some stage, but I'm not complaining about where our share price is today. I am hopeful that it will go forward over time; of course I am. But our job is to manage the portfolio in such a way that we create growth, and I believe that you have a lot of evidence in front of you today that we're doing just that. Peter next?.

[inaudible] a couple of very quick questions, more on a strategic mode. I note pensions costs are down a bit; is there anything driving that? Secondly, last year's full-charge [inaudible] and then just in terms of the [inaudible] restructuring, I know you're saying [inaudible] but it looks like HSBC is taking share, [inaudible] is taking share, Royal is taking share. What do you think you'll be doing differently to be able to generate the incremental revenue of [inaudible].

Mickey, would you like to handle the pension charge, first of all? Then I'm going to turn to Gary just to comment on the card charge.

Yeah, I think John made a comment at a results presentation last year, or the year before, that the pension accounting was one for the people in [Anoraks]. There's a lot of very complicated things that go in the actuarial advice that results in the pension charge, but I think the first charge is a good indication of what the second half charge would likely look like, this year.

Gary?

Our risk tendency is up because of record recruitment over the previous two years, so 1.5 million new accounts in 2003, compared to 1.2 in 2002. We've had a good improvement, again, in the first half, of 560,000, and our provisions charge is broadly in line with our asset growth, with our lending, and the reason why provisions have not been growing at much as risk tendency is because we've been very successful in improving that collections operations and in our average base [inaudible] overall. Clearly, the new business we put on tends to be more risky than the mature, seasoned business that we've had for some time, but the book overall is very seasoned.

I think, Mark, on the point about UK, you've heard from Naguib that the balance growth has been quite strong over the last 12 months, so you know, 10% in current account balances, 5% in savings balances, we've seen good growth in open plan balances. They're up from 47b at this time last year to 53b at the end of June. So across all of those areas, we're seeing good advances. And a critical test for us is, what do the new customer flows look like? So if I look at new customer flows just since the beginning of this year, 100,000 new customers in current accounts, 200,000 new customers in savings, 400,000 new online banking customers, 200,000 new open plan customers, 550,000 in Barclay Cap, and so on -- see what I mean? And these are-- you know, I roll the numbers off my tongue, but they're in units of 100,000 and there are lots of them. And I think that is the acid test of the franchise health of Barclays -- is it doing more business with existing customers? The numbers would tell you yes. Is it attracting lots of new customers? I've just pointed to some of them.

Peter?

Peter Toeman from Morgan Stanley. I remember the time of the trading statement, the Bar Cap performance in Q1 was described as ``excellent,'' and I guess from what you said today, Q2 was even better, but I wanted to confirm that that was actually the case, and 875m of realization gains within Bar Cap has [inaudible] Q1 and Q2 profile?

And I think you should regard Q2 as ``more excellent.'' You've only got to look at the performance that we've announced today in Barclays Capital and compare that some of the things that you're seeing among our competitors in investment banking, and I think it is the stand out result. Why is that? It's because it's based on a client-focused business model, and that is distinctive.

Good morning, John. Point is on execution-- can I just come back to the point on Barclays Capital staff costs, because similar to Peter's comment on private equity realizations, I just want to acknowledge that staff costs revenue ratio is flat in half two. If we strip out the [inaudible] other income, the staff cost to Bob's definition of primary and secondary revenues, the ratio has actually gone up from 49% to--

I- I take-- I really take issue with that approach. I mean, why should we say ``if we take some of the things, and analyze by reference to the rest of the things, it looks different.'' Well of course it looks different. I mean, that's the arithmetic at work. The point that we make is that there is a breadth of business base in Barclays Capital that is significantly different than where we were five years ago. If you look at the contribution of equity products, if you look at the contribution of currencies, commodities, private equity, than we are seeing a material contribution to income, over 30% of the income in the first half of this year comes from those sources. So, I don't regard realizations in private equity as anything different, and I certainly wouldn't strip them out for the purposes of ratio calculations. I think the ratio calculations and indeed the ratios themselves are very steady over a five-year period, which I think is the answer to what happens in any particular half. There may be gyrations in a half, but can you see a trend there? Can you see an approach to cost management in Barclays Capital over that period? The emphatic evidence is yes.

John, can I just add one thing to-- in the other operating income line, it's not all private equity, so there is some other income in there which gets classified that way because accounting requires it to be classified that way. I mean, it could just as easily have ended up in interest income or dealing profits, so don't interpret that line as all being private equity. That's just part of what's in that line.

Yeah, it's [inaudible] from Deutsche Bank. It's a question for John on portfolio construction and diversity of earnings -- Barclays Capital prefers not to [inaudible] half on half or year on year [inaudible] and is clearly now about 24% of your earnings. Everything you've said so far suggests that it continues to be a very strong growth story there. So my question to is, do you think Barclays Capital will continue to be the dominant part of your growth, do you think that you [inaudible] back and forth, and if there is more balance, what do you [inaudible] see that balance--

Well, I'm certainly looking to Barclays Capital and Barclays Global Investors to be strong engines of growth over the course of the coming years. I mean, if you look at their combined profit contribution in 1999, it was L400m, and if you look at the same number in 2003, as an example, it was L1b. Now as it happens, it was my point about UK versus non-UK, we have seen good growth in our heartland banking activities in the United Kingdom. You see that in Barclay Card UK, you see it in business banking, and in retail banking, over the course of the last years. So don't think that I have some view that we can take our foot off the accelerator in the UK banking business as we look to invest heavily, and we are investing heavily in these other global product businesses. We won't end here, and I think one of the strengths of the portfolio is the ability of- great strength in our heartland banking activities to provide the opportunity of investment in the global product businesses, both inside the United Kingdom and outside the United Kingdom. We have in mind, because I know you have in mind, balance, but I do believe that notwithstanding the very rapid growth in Barclays Capital and Barclays Global Investors over the course of the last years, you still see balance and I would expect to continue to see balance in the portfolio, going forward.

So you do have a sort of a view that [inaudible] upper limits of--

No, I don't. I think that would be-- that would be entirely academic. My answer is in the answer of balance. What you have is a diversified portfolio. I'm looking for diversity in terms of geographical contribution, I'm looking for diversity in terms of net interest versus fees and commissions income, and as I have those aspirations, you should rightly test me on, ``Are they realistic?'' And I believe the make-up of the group makes them realistic.

[inaudible] top ten banks in the world, by market capitalization, not by a transforming acquisition, and I'm [inaudible] page 19, where you share that [inaudible] growth 13% over the last three or four years, and how it's the fastest-growing metric there, and [inaudible] effect on earnings per share versus share buybacks. So my question is, in light of your, first of all, [inaudible] transforming acquisitions [inaudible] but going forward, do you think that growth will continue to be [inaudible] that chart, and in light of your desire to get more profits from outside the UK, can we assume that any [inaudible] transforming acquisitions will be outside the UK?

Well, the point I was trying to make first thing this morning is that because of the make-up of the portfolio and because of the engines of growth that we have in it, we are not reliant on transactions to achieve our financial and strategic goals over time. Simply stated; just that. And I think that a dependency on M&A is a dangerous thing, and I firmly believe that. But have we closed our eyes to acquisition opportunities over the course of the last years? No, we haven't. We've done about eight transactions in the last four years that would have registered on your screen, and some of those have been in the United Kingdom and some of those have been outside the United Kingdom. So I say again, and I have nothing really to add to what I said in my presentation, which is that we don't think of M&A as something separate; we think of it as the servant of what we're seeking to do in our strategic development, and that's absolutely how we will continue to regard it.

On your point about dividend, I mean, you had a fairly clear statement from Naguib around how we use buybacks as a swing factor, how our capital strength and indeed our performance enables us to give good, progressive dividend growth over the years. If I look back at the amount of dividend we paid in 1999, for example, it was about L700m, and that would compare with about L500m of dividend, we're declaring, as I speak today. So you can see that that number has moved quite briskly over the period. We're not going to give you a dividend forecast, but you should regard the 17% that we've declared today as being a statement of confidence in the future.

Hi, it's [inaudible], HSBC. I'd like to come back to the domestic margin question, because I'm [inaudible] convince me that it's not going to carry on, the rates of decline we've seen already. We're talking about going back into the flows in terms of the mortgage market. [inaudible] as we have a flat, we saw a four basis points decline, and you've got about 12% of your [inaudible] promotional rates, so evidence suggests that there's going to be a further decline in the second half, and can you tell me where I'm wrong?

Mike, we're happy to have a more detailed conversation offline, if that would be useful, but I think it's important to say that we are playing an orchestra here. We're conducting an orchestra, and on one of the instruments, but just one of the instruments, is margin. And so for us, far more important than the particular movement in margin, although of course we keep our eye on that, half on half, far more important than that is, what's happening to the income line, what's having to the relationship in income and cost, and what's happening to profit?

Now, I think that the evidence that you see in front of you today should be very comforting to you, notwithstanding the fact that we have seen some degradation for the reasons that Naguib has described, in the domestic margin. We are seeing very strong earnings growth. And he's also made the point that the domestic margin performance is made up of a number of parts. We see some strength in some areas of the business, and we've seen some pressure in other parts. But do we feel out of control? Are we supine when it comes to managing margins? No, we're not at all, and I think that the emphasis that I would give is, please look first of all at the profit line, and regard margins as a contributor to that, but not the unique contributor to that.