Barclays PLC (BCS) 2005 Q2 法說會逐字稿

Here we are, one of our new gizmos. Anyway, we're very happy to welcome you here to our new headquarters at 1 Churchill Place. And we will follow the usual format this morning but before we start, can I just introduce my ex-co team - Naguib Kheraj, the Group Finance Director, David Roberts from International Retail Commercial Banking, Gary Hoffman from Barclaycard, Roger Davis from U.K. Banking, Bob Diamond from Barclays Capital, Barclays Global Investors and Wealth Management, and Paul Idzik, the Chief Operating Officer. Thank you, I'll hand over to Naguib.

Good morning everybody. I'm delighted to be reporting another strong set of results this morning. Today's numbers are a clear demonstration that our strategy is working. Before I go into the numbers, let me quickly clarify the basis on which we're reporting today.

Our 2005 results include all the IFRS standards. But 2004 comparables exclude IAS32, IAS39 and IFRS4. We have decided it's clearer to give one set of numbers under IFRS, rather than try and estimate pro formas under U.K. GAAP as well.

So, moving to the headlines, profit before tax is up 9% at £2.7b. Earnings per share and economic profit are up 4% and we had a return on equity of 23%, enabling us to declare a dividend per share of £0.092, a 12% increase on last year.

There's been strong income growth, which is up 14% at £7.9b. 95% of this growth in income was organic. And 53% of our income was non-interest income. We're continuing to invest for the future, so cost growth is up at 14%, in line with income growth. Impairment charges are up by 20%. This is in line with the growth in loans and advances over the period.

The growth in profits is well spread, and not overly dependent on any one area. Our productivity program in U.K. Banking is making good progress, and we're seeing the payback from recent investment in our global product businesses, which has delivered outstanding results once again.

Most of all, we're seeing the benefits of diversification in our universal banking model. It's a measure of our strength and breadth that even when Barclaycard profits were down, we're able to report strong profit growth as a Group.

So let me give you a bit more detail on each of the business areas. In U.K. Banking, profit before tax was up 10%, with a very strong performance in Business Banking, where profits were up 20%. This was driven by strong balance sheet growth, with good cost management and risk performance.

Profit before tax in retail is down 2%, but underlying profits were up 6%, if you exclude the sale of Edotech from last year. Income was broadly flat, with a good performance in current accounts, offset by weaknesses in mortgages and some erosion in deposit margins. We've continued to make significant investment in U.K. Retail and despite this, costs are down 4%.

This has contributed to a 3-percentage-point improvement in the cost/income ratio of U.K. Banking compared with the first half of last year. Most of this improvement has come from U.K. Retail, delivered mainly through the cost line.

On the income line, we are working hard to improve customer experience. We're investing in customer-facing people, and in the branch network. We've also launched new products in general insurance, mortgages and current accounts in the last three months. As you'd expect, this will take a while to feed through into the bottom line. John will talk more about U.K. Banking later.

Barclays Capital has had an outstanding first half, with profits up 20%. There's been plenty of volatility in the capital markets, which has led to mixed results for global investment banks. Our performance continues to place us at the upper end of the industry, which reflects both the customer orientation of our business and our ability to manage market risk.

Our income continues to be better diversified by product and geography. Commodities, foreign exchange and equity derivatives all contributed strongly to the growth this first half. And risk consumption was well controlled, with daily value at risk lower than 2004.

Impairment charges were in line with the same period last year. We're continuing to grow headcount, though at a slower rate than 2004. So far this year we've added 500 people in BarCap. About 60% of these were in the front office, which should drive further revenue growth in 2006.

Barclays Global Investors delivered a stunning 60% increase in profits, to £242m. Strong growth in assets under management in 2004 gave us very good momentum going into this year. And we've put on another $60b of net new money this first half.

As you know, BGI is the dominant player in exchange-traded funds. Assets under management here grew by 24% since last December. Over 50% of the net new revenues in BGI were generated by our active business, which has continued to deliver out-performance across the board. Average alpha is about 100 basis points on our flagship equity products.

We've upped the pace of investment in BGI to build new revenue streams, including fixed income and alternative assets. And we expect to invest further this year and next year.

In Wealth Management, which we used to call Private Client, profits were up 39% to £89m, driven by growth in deposits and lending, as well as higher levels of client transactions. The cost/income ratio improved by 4 percentage points. Our new multi-manager product has been popular, and the conversion of customers from discretionary services is going well, with minimal attrition.

There was a stable performance from the closed U.K. Life Fund. We're now operating the time bar on endowment redress, which could lead to an increase in claims this year but should lead to a reduction from next year onwards.

Profits were down 17% in Barclaycard, which was mostly the result of increased impairment charges and continued investment in international expansion. It's important not to lose sight of the fact that Barclaycard produced 11% growth in income this half, driven by good balanced growth in U.K. loans and international cards, and margin improvement in U.K. cards. Juniper contributed 4% of this income growth.

Our international credit card businesses continue to perform well, especially in Germany and Spain. In the U.S., Juniper is performing according to plan. We expect to post a loss of up to $100m in 2005 and 2006, as we increase marketing spend in that business, and that investment is impacting the overall results in Barclaycard. But we're very pleased with the progress at Juniper. There has been strong growth in balances, which are up 24% since completion in December. And the number of cards in issue has increased 60% to 1.7m.

In International Retail and Commercial Banking, there's been strong profit growth of 30% or £43m. The integration of Banco Zaragozano is well ahead of plan, and profits before integration costs in Spain were up 30%. Mortgage performance across Spain, Italy and Portugal has been particularly good, with total European balances up 24%.

The acquisition of ING Ferri and ING Private Banking is now complete, and will strengthen our business in France. IRCB also benefited from the sale of some preference shares in First Caribbean and some non-core assets in Spain.

Moving to risk management, overall conditions have been relatively stable. In Corporate and Wholesale, credit risk conditions were benign and our impairment charge was actually down 19%, despite the fact we're running a significantly bigger book. Asset quality remained strong, and we're very comfortable with our coverage ratios.

As I mentioned earlier, there's been a significant volatility in the capital markets this year. Barclays Capital's results demonstrate that we handled that market risk well.

The area that's been the focus of attention in this reporting season is consumer credit risk in the U.K., so I'm going to talk about that in a bit more detail. In mortgages, there's been a small increase in arrears from a historically low base. This has had no impact on impairment.

Turning to unsecured consumer lending, and looking at arrears as a percentage of balances, in overdrafts they've actually fallen. But we have a bigger book, so overdrafts have contributed a small increase to the impairment charge. Arrears in U.K. consumer loans increased in the first quarter and then fell in the second quarter. This is also on a bigger book of business, so there was a modest increase in impairment as a result.

Arrears in credit cards rose in the first quarter and continued to grow, although at a slower rate, in the second quarter. The increase in the retail impairment charge was almost all in Barclaycard, so I want to cover this in more detail.

Impairment in Barclaycard was up just over £100m, or 26%, between the second half last year and the first half this year. This shows a breakdown of that increase, including both cards and loans, and U.K. as well as international. The substantial majority of the increase was in U.K. cards, and there are three factors which contribute to it.

Growth in the book, including Juniper, accounts for about 40% of the increase. 30% is due to the increase in arrears and about a quarter is due to lower recovery rates.

The common factor for customers in arrears is a high degree of debt relative to income. They are not concentrated at the top or bottom end of the income scale. And the pressure on household cash flows has come from the cumulative impact of a number of small factors, such as higher mortgage rates, fuel bills and Council taxes.

As the longest-standing card business in the U.K., we're used to dealing with arrears, and we've done all the right things to manage our exposure. Interest rates and unemployment levels are really the key drivers of consumer credit loss, and forecasters don't expect a step change in either of these, which is reassuring.

The other area I know you're interested in is cost growth. Much of this reflects the success of past investment. Performance-related costs are the result of strong profit growth in Barclays Capital and BGI. Costs in Barclays Capital also reflect the full run rate of investments made last year, as well as new investment this year.

We're continuing to invest to drive future growth, particularly in our global product and international businesses. We're very comfortable with this, because we have a good, strong track record in delivering attractive returns and managing cost growth carefully. You will remember that about 50% of the cost base in Barclays Capital has significant flexibility built into it, which allows us to adjust cost growth to the revenue experience.

There were also one-off costs of close to £50m in this half, incurred by our move to this building in Canary Wharf. It's worth noting that the overall cost base in U.K. Banking declined by £21m compared with the first half last year. This could have been greater, had we not chosen to continue to invest in this business for future growth. In aggregate, costs for the Group were actually lower than the second half of last year.

Turning to the balance sheet, we've seen good overall growth in assets since the start of the year. Loans in Business Banking showed very strong growth at 13%. Mortgages were slightly lower, reflecting some run-off in the book, but overdrafts and small business lending were slightly higher. There was good growth in U.K. consumer loans and international card balance growth reflects the rapid development of that business. We also saw good lending growth in Wealth Management and IRCB.

On the other side of the balance sheet, there's also been good growth in liabilities. Looking at deposit balances, U.K. Business Banking is up 9%, U.K. Retail's up 2%, Wealth Management's up 6% and IRCB is up 1%. In addition to the on-balance sheet growth, we've also seen good growth in assets under management, in Wealth Management of 4% and IRCB of 9%.

Moving to margins, we've improved the disclosure here to give you greater transparency at the business level. Asset margins have been largely resilient, though IAS39 requires some fees and commissions to be reclassified as interest. The material impacts of IAS39 are in U.K. Business Banking and Barclaycard loans. In Business Banking, margins were stable if you exclude IAS39, and in Barclaycard loans the margin reduction was less pronounced.

Margins were slightly better in U.K. Retail Banking. Within this, the margin on new business in mortgages improved.

In U.K. Cards, margins have also improved relative to the second half last year, because we passed on the effect of rising interest rates to customers last October. And the impact of promotional offers was slightly less pronounced this year.

In addition to the impact of IFRS, margin reduction in Barclaycard loans reflects both the competitive environment and the change in the mix of lending, with a higher weighting to secured loans. In IRCB, margins have slightly reduced because mortgages are now a bigger proportion of the business. Margins on deposits have declined modestly across U.K. Banking, but there's been very significant growth in balances in Business Banking. Margins in other areas were broadly stable.

As you know, we completed the Absa transaction last week, which will help accelerate the internationalization of our earnings. We now hold just over 56% of the shares, and the price we paid represents 8.8 times consensus earnings and 2.3 times book value.

We haven't been explicit before about our approach to managing the currency risk because it was market sensitive. I can now be clear about what we've actually done, which is to hedge in full the currency risk of our capital investment, in line with our policy of protecting our sterling capital ratios.

There will be some differences between Absa's reported results on a standalone basis and what's reported in Barclays. These include the hedging and funding costs, as well as the amortization of intangible assets. Having accounted for these differences, we expect the transaction to be mildly accretive to earnings per share this year, and more significantly accretive next year. Obviously Absa's had an effect on our capital, so let me talk about capital management in a bit more detail.

We've worked hard over the last year to manage our capital more effectively, whilst retaining our AA rating. We've changed the mix of our equity between ordinary shares and preference shares, and tight capital management has enabled us to make £700m of buybacks last year, maintain progressive dividend growth and fund organic growth, as well as acquisitions, without issuing ordinary equity.

All of this has clearly impacted our ratios, as has IFRS. Our Tier 1 ratio at the end of June was 7.6%. This included the preference share funding for Absa, in anticipation of its completion in July. The impact of that transaction reduces the Tier 1 ratio by about 90 basis points.

We've been saying for some time that we thought there was scope to reduce our capital ratios and we've successfully managed to do that and increase our leverage, without jeopardizing our credit rating. Going forward, we think the capital ratio we ought to be working towards is about 7.25% for the Tier 1 ratio. Don't think of this as a hard target, though. We'll adjust this level according to changes in the environment and the business mix.

In the absence of other transactions, we should see our ratio rise above this in the second half of 2006, as we continue to generate capital through earnings. Share buybacks are the swing factor in our capital management, and a hurdle we use in evaluating investment opportunities. This year, we've chosen to use the capital we've generated to fund organic growth and invest in Absa, as well as a number of other smaller acquisitions. We think this will generate a better return than buybacks.

We've increased the dividend by 12%. In general, we feel comfortable with a dividend about twice covered by earnings. Over time, we expect to grow dividends per share roughly in line with earnings per share, though when earnings growth is high, dividend growth is likely to be lower and vice versa. We continue to have a weighting biased towards the final dividend.

We told you in May how the elements of IFRS, which only take effect in 2005, will affect our reporting. Let me just repeat this. Effective interest rate alters the mix between interest income and fees and commissions. Some of our hybrid capital is reclassified from debt to minorities, which explains some of the difference in the rates of growth between profit before tax and earnings per share.

And then we've eliminated some items at the center, which we didn't have to under U.K. GAAP, such as the insurance income relating to loan underwriting. We also indicated greater volatility in some areas. This has resulted in some ups and downs, including hedging-related gains reported at the center and significant changes in the reporting of insurance activities right across the Group. We've reported a 4% increase in earnings per share for the first half. Without the impact of IFRS, this would have been a little higher.

Moving to the outlook for the full year. Pre-Absa, we continue to target double -digit income growth, and cost growth in line with income growth as we continue to invest to develop the business. We expect impairment losses to be broadly in line with risk tendency. We'll be reporting five months of Absa for the full year, which will appear mainly in IRCB but some of it will show up in Barclays Capital and in Barclaycard.

We'll be consolidating Absa in full and reflecting the after-tax effect of 44% in the minority interest line. Absa will bring its reporting year in line with ours from the end of this year. I'd also like to highlight the effect of the preference shares we've issued, which will have a significant impact on the minority interest line for the full year.

So let me summarize. We've made a strong start to the year, with good progress in each of our four strategic priorities. U.K. Banking is delivering on its cost/income ratio promise, and Business Banking continues to post strong profit growth. We're seeing the benefits of diversification, and those areas where we've invested the most have delivered the profits we expected. This is most evident in Barclays Capital and BGI.

The Absa deal will accelerate the internationalization of our earnings, and we continue to be focused on good risk management, tight cost control and the judicious use of capital. All this translates into a very good result for shareholders.

Thank you and I'll hand over to John.

Thank you Naguib. Can I ask you just to have a little look at your mobiles, because there was one ringing there and it would be nice to have them all off.

Well, I'm pleased to be reporting record results for the first half, with economic profit exceeding £1b for the first time. And the story behind these results is a simple one. We're doing what we said we would. We're delivering good profit growth. We're benefiting from having a group of businesses which is well integrated, but also well spread. We've accelerated the pace of strategy execution because the strategy we have is a good one, and it's working well. We have momentum.

Our aim is to position Barclays as one of the handful of universal banks that lead the global industry. And our portfolio of businesses makes this ambition legitimate. We're not totally reliant on any one geography or any one customer segment. We have critical mass and competence in a range of segments, and we have a substantial and growing geographical spread.

We have a strategic framework for achieving this, and it's shown on this slide. I won't recite it to you. But this is our magnetic north, for the purposes of capital allocation, resource prioritization and for both organic and non-organic activity.

We look at what we do and what we might do, strictly by reference to this set of priorities, which itself is derived from our assessment of the expected stop and flow of economic profit in the industry over the course of the next ten years.

When I presented at our interims 12 months ago, I told you that in pursuing our strategic priorities, we would focus on four themes of execution. First, I said that we were very focused on increasing customer satisfaction and employee engagement, because we see these as the preconditions for sustainable long-term growth.

Second, I said that we intended to invest heavily for the future, while remaining mindful, of course, that our owners expect us to deliver good profit growth every six months, and we described that as Earn, Invest and Grow.

Third, I said that we would broaden the base of our earnings within Barclays to achieve higher growth over time, in particular by increasing the proportion of revenue that we generate from outside the United Kingdom.

And fourth, I said that we must achieve top quartile productivity in all businesses, and that in particular we intended to improve the cost/income ratio in U.K. Banking.

I'll give you a report on how we've been doing in these four areas. I put customer satisfaction and employee engagement first because I believe that getting those right is the essential precondition for success in the other three.

We're pushing hard, and we're making progress in this area. We measure assiduously, through regular and extensive employee opinion surveys, through active management of our talent and through tracking customer satisfaction and propensity to recommend.

One measure of how we're doing is new customer flows. Balance sheet growth is partly attributable to existing customers doing more with us, but also to new customers coming to Barclays. A few examples since December - 750,000 new customers in international cards, 150 new institutional clients in BGI, 20% more financing and risk management clients in Barclays Capital, 200,000 new U.K. current account customers, 130,000 new savings account customers, 100,000 new customers of general insurance.

We're directing significant resources to this area of focus, which brings me to the second and third themes I talked about a year ago - Earn, Invest and Grow and earnings diversification. I'll address them together because they're so closely interwoven. Under this heading I'll review each business grouping, and I'll talk also about the impact that acquisitions have had on broadening our income mix as we build our universal banking group.

The spread of our portfolio, in terms of the customer segments we serve, the geographies we serve them in and the product mix we offer, gives us substantial strategic options and provides a hedge against the cyclical trends that affect individual markets. So notwithstanding that profits have fallen in Barclaycard, at Group level we've achieved good top line income growth and good profit growth because so many other parts of the business have been performing well.

The portfolio is constructed to help us capture synergies. I've talked about this before, and I won't retrace that ground, save to touch on one area. We're clear that we can do better in long-term savings and investments. It's an area where the synergy opportunities for Barclays are both clear and large.

By putting together under common management the three naturally synergistic areas of investment banking, investment management and wealth management, I believe we're opening up a good source of future income growth, well illustrated by what we've done this year in Spain and France. In these two countries, product which was customized by BGI to local specification has sold in very large quantities.

It's in part to capture such synergies that we've transformed Barclays over the course of the last few years, building great businesses, even though we've not engaged in transformational M&A, and nowhere more so than in Barclays Capital and Barclays Global Investors. We've invested heavily in these businesses, absorbing the investment cost in the P&L account but still showing good profit growth.

To illustrate what I mean, the combined pre-tax profits of these two businesses in the first half of 2000 was £251m. The comparable number this half was £945m. We've achieved this without the cost, or the attendant risks, of an acquisition. Meanwhile, a consequence of our Earn, Invest and Grow discipline has also been the diversification of the earnings of these businesses by both geography and by product.

BarCap is the best example of this. It's gone from being a narrowly based U.K. business to a global leader. Today, two thirds of its income comes from outside the U.K. And we've also extended our product offering in Barclays Capital. For example, two of the most significant sources of growth during the first half were equity-related products and commodities, which until recently were quite small businesses.

Likewise, in Barclays Global Investors, which has long been a pioneer in the industry, 50% of the increased pool of profits in BGI now comes from active management, 20% from exchange-traded funds and 30% from the traditional institutional index business. This is a big change, even from two years ago when, for example, iShares was a small component of BGI.

I'll not say much in the context of Earn, Invest and Grow about wealth management, but I will point out that the profit turnaround is gathering momentum, and I'm looking for wealth management to be one of the engines of growth for the Group in the future.

As you've seen, and as you've been hearing from Naguib, this has been a tough year so far for Barclaycard. I won't go over the same ground as Naguib, but I do want to underline a couple of points here. Card businesses are periodically subject to downturns. This is something that we understand. We have a lot of experience in managing these cycles.

We took a conscious decision three years ago to increase not only partnership activity in the U.K. but also international card activity, and this will continue to serve shareholders well. We are strong believers in the profit growth opportunities in cards, both in the U.K. and outside, and we'll continue to invest because we have in Barclaycard a world-class credit card franchise.

In U.K. Banking, we've been focusing on three things. The first is getting the cost/income ratio down, and we've made a good start by delivering a 3-percentage-point improvement in the first half of 2005. We did that while continuing to invest heavily in the business.

The second is our intention to continue building Business Banking. This is our most profitable business, and if Barclays is to flourish then Business Banking needs to perform strongly. It has, yet again, as you've seen in the first half, and this is one of the standout performances of the Group.

Which brings me thirdly to U.K. Retail Banking. Let me tell you how I see this picture. It's not just one big business, it's made up of a number of aligned profit centers - current accounts and overdrafts, mortgages, general insurance, the distribution of savings and investments, small business and premier.

The first point to make is that, as you've heard from Naguib, underlying profit growth in U.K. Retail was 6%, so we've started to turn the corner. But it's clear, when I look at the performance of U.K. Retail Banking versus some of its competitors, that the largest relative opportunities for us are in mortgages, which has under-performed in the first half, in general insurance, where we've been very active in the first half, as you've seen, and in long-term savings and investments where, as I was just saying, our distribution power, coupled with the manufacturing and structuring capabilities in BarCap and BGI, creates an opportunity which we are grabbing.

U.K. Retail Banking is too important to have flat income. It is getting a lot of attention and a lot of investment. We've changed, radically, the area leadership of the branch network and the leadership of the branches themselves. We've increased the number of front-line staff, and we've cut queuing times. We've refurbished over 500 branches. We've installed some 500 self-service kiosks. We've introduced branch value and service measures. We've put in place a new direct channels team, and we've launched new propositions across a range of areas, from general insurance to mortgages to current accounts.

I'm looking to see improvements in this business translate into meaningful income growth. The right enablers are being put in place.

So, as you've heard, we're diversifying the earnings of the Group by heavy organic investment in all our businesses. Now, M&A provides another potential route to broadening the base of earnings to achieve growth. Our view, as you know, is that strategy should dictate M&A activity and not vice versa. We've been active in the first half in extending our business through acquisition, and through consolidating and integrating assets that we've recently acquired.

This has been a big focus of International Retail and Commercial Banking, where profits in the first half have been lifted by organic growth and by the benefits of integration. In Spain, the integration of Banco Zaragozano is going very well, and we're exceeding the synergy targets that we set ourselves by some 20%.

The revenue uplift from selling Barclays products to our Zaragozano customers, in particular mortgages, credit cards and investment funds, has been very strong. The Absa transaction, which completed last week, gives us exposure to a well-run high-growth market and creates the opportunity for synergies with our existing businesses, both in South Africa and across the African continent. Absa is South Africa's leading retail bank, with a strong brand and a strong leadership team.

In addition to the synergies that we'll capture in core banking activities, we see good scope for deploying our global product capabilities in the area of credit cards, institutional money management and investment banking. In the year to March 2005, Absa profits were up 23%. The business is flying.

Barclaycard International is another business which is complementing good organic growth with the benefits of non-organic activity. Although it's still early days, we're pleased with our Juniper acquisition. You will recall that our intention is that we will be showing a pre-tax profit of about $150m in 2008.

This organic and non-organic investment across the Group is having a big and progressive impact on our earnings mix. In 2000, our non-U.K. businesses accounted for less than a fifth of profit before tax. This has now increased to a quarter of our profits, and the acquisition of our controlling stake in Absa will cause our non-U.K. profits to rise to one third. We have further to go, but we've made significant progress.

The fourth area I pointed to a year ago was that of productivity. What I want is top quartile productivity in each area where we choose to compete. Relative to full year 2004, all our businesses have either improved their cost/income ratios or remained best in class. Overall, we're up there with the best and the majority of businesses, but not all, and where we aren't up with the best, we're taking action.

So we're making progress in the areas of focus that I highlighted 12 months ago. If you pause a moment, and stand back from the detail, what does the big picture portray to our owners? The impact of what we've been doing is shown on this next slide. You can see the sharp change in profit performance during this period. This acceleration has been generated by compound growth in income of 11%, enabling us to deliver compound growth in dividends of 13%.

What is it that I hope you'll see in this performance? Well, let me tell you what I see. I see a well-balanced and well-aligned portfolio of businesses. We're serving wholesale and retail customers, lots of them, in many countries in the world, and where we do this, we compete with the best. We have a good track record in market risk management, and Barclays Capital has demonstrated the ability to manage this well in all market conditions. This has enabled us to provide strong and reliable financing and risk management services to our clients.

We have a strong focus on economic profit. We have aligned our compensation plans to support this focus and we've created an organization that thinks like shareholders, because 45,000 of our employees are shareholders and their compensation is driven by things that matter to shareholders.

We have strong capital disciplines and we manage our balance sheet well. We know that our owners regard dividend as a key part of total shareholder return, and you can see a recognition of this in our dividend payout over the course of the last years. And finally, we're very well placed to grow earnings outside our home market as well as in it, because of the strength of our global product lines and the strength of our brand in non-U.K. retail and commercial banking activities.

Before I end, I want to say a few words about the outlook. I feel confident but watchful about global and U.K. economic trends. The U.S. and Chinese economies, which have been the key engines of global growth in recent years, should continue to provide a solid underpinning to world economic growth. In the U.K., we expect growth this year to be at or near trend, a little lower than in the last couple of years but still above 2%.

The principal threats to an economy are typically in the areas of interest rate and employment. These threats are subdued. Rates have now fallen, and there's no reason to believe that we face a spike in unemployment. We take nothing for granted, but the environment is one in which we can move forward confidently.

I'll finish by repeating what I said at the start. The story I've relayed in the last minutes is a simple one. We're doing what we said we would. We're delivering good profit growth. We're benefiting from having a group of businesses which is integrated but well spread. We have accelerated the pace of strategy execution because the strategy we have is a good one, and it's working well. And we have momentum.

Thank you. I'll be very happy to take your questions and could you, in the usual way, when you want to ask a question just say who you are and tell us which organization you represent?

Good morning, it's John-Paul Crutchley from Merrill Lynch.

Morning, J-P.

Firstly, congratulations on a good set of results. I just wanted to focus on probably a bit of the business which often gets less attention, although you have talked a bit about it today, but BGI, where clearly this is becoming quite an engine in terms of the Group, in terms of profit contribution and growth.

First, I just wanted to understand, in terms of a change in the asset growth over the period, obviously more so in sterling against dollars, obviously which is the base currency of the Group, partly reflecting exchange rates movement we've had, I'm just trying to get a feel for what that does in terms of driving the profit contribution from the U.K. side into the second half where it looks that exchange rates will be in your favor?

And secondly, you did allude to more investment in that business, and I just wondered what that does in terms of what we can expect in terms of the earnings contribution growth going forward in that business? And I had a second question about Juniper, if I can come back to that.

I'll make a couple of comments about BGI and then Bob may want to add. J-P, you're right to observe that currency does have an impact, and if you look at the gross assets under management growth during the first half, it's £72b and £33b comes from net new flows of money, £32b comes from the impact of currency and £7b comes from the impact of market move. So that's the first thing to say.

And if you look at the make-up of the earnings of BGI, over the course of the last couple of years, something like 50% of its profits have been coming from the United States business, and something like 30% have been coming from the U.K. So the U.K. is an important component, but we have seen very strong growth in other parts of BGI, such as Asia. For example, BGI is the biggest foreign money manager in Japan. We've made very good progress in Australia over the course of the last years, and so on.

Bob, anything you want to add? The area of investment, I think was what J-P was particularly asking about.

Having never had a question on BGI over the last few years --

Great, we love it.

I can't resist getting up here. John's answered that part of it right. It is 80% outside the U.K., the BGI business. It's close to 60% in the U.S. in terms of geographic mix. It's a very, very global business. I think what's interesting in terms of going forward, you've seen some stunning numbers the last couple of years, and none of us are going to say we can continue with those kinds of levels.

But it's not a business that we think has peaked out. If you look at the growth areas, there is a change going on in the whole alternative asset, or hedge fund area. The shift toward more actively managed funds is secular, it's not cyclical. In BGI, it's the 14th biggest hedge fund in the world. Within BGI, it is the largest institutionally owned hedge fund.

And as we see pension funds moving to alternative assets, as clear as night follows day you're going to see them look not for six guys and a dog in Greenwich, Connecticut, running a hedge fund, but you're going to look for the institutional backing of someone like Barclays. So we're pretty bullish on the institutionalization of the alternative asset space. BGI today is the largest manager of hedge funds owned by an institution. It's over $10b and it really is long-short equity, global assent. It's real alternative asset active management.

I think the second thing that goes unnoticed is you all know about BGI. It's quantitatively driven. A lot of the power of the franchise is in the global technology, both from a clearing point of view and an analytical point of view. And the barrier to entry in terms of some of the things we're doing in long-short or long-short fixed income are driven by the fact that we've invested in technology for 20 years, and we have a technology base, both for our research but also for processing $1.4 trillion in assets for doing that kind of business that can't be matched by small, start-up companies.

So that alternative asset space is exciting for us going forward. Fixed income is also a space that we really have been under-represented in BGI. It's been primarily in equity manager. We've picked up over $11b in active fixed income mandates in the first half of the year. Peter [Conez] who's running that business is really doing a good job, and I think over the next few years, you'll see some growth there and of course, you've heard a lot about iShares but the growth in iShares - the growth in exchange traded funds so far this year, globally, for all exchange traded funds, about 80% of that growth is going to BGI.

So with alternative assets, with fixed income and with continued growth in exchange traded funds, we are pretty positive about the growth prospects for the business.

You can see there's been a lot of pent-up energy about answering BGI questions! J-P, you had another question?

The second was just actually on Juniper. I think when we first talked about that acquisition when you made it, your heart of it, the key competitor, or the main competitor in that space was MBNA which is obviously clearly going through its own issues in terms of being acquired. Now, I'm just wondering if that is a threat or an opportunity in terms of your intention to grow that business?

We absolutely see it as an opportunity. There is of course a lot of turbulence in that particular client base at the moment, and we are the natural competitor. So it's a good development, I think, and what's very clear, and you've heard it a bit in what Naguib and I had to say, that we've got a lot of momentum in Juniper at the moment and we're pleased with that acquisition.

Thanks, it's Mark Thomas of Kepler. I had two completely unrelated questions. Just first of all, can you give us some reconciliation between what the securitization data is telling us about U.K. credit card which has about 4% total delinquency against what we actually saw this morning, namely, can we use that securitization data in any way, shape or form?

Shall we take that one first of all, and let Naguib comment?

Yes, and Gary may want to add to it. I think there are a lot of difficulties in comparing different sets of data, and I think one of the things we struggled with for today was to try and help you understand what was going on in our business in a way which would actually be comparable to what other people have shown.

The securitization data actually is comparable only to the assets that are securitized and different people securitize different portions of their book. They also have some different definitions of what they put into the arrears so actually, the bottom-line is it's quite hard to make those comparisons. The securitization comparisons are probably quite useful in broad terms, but I wouldn't draw too many conclusions about small differences between different companies.

So perhaps I could do it slightly differently then and say, my understanding was that the Barclays securitization vehicle was all of the U.K. mainstream book so if all of the mainstream book is in securitization vehicle, how do you reconcile what we see on the Barclays securitization against the arrears which are showing up here?

Well, the big difference would be the Monument isn't in the securitizations and in the Monument book we've deliberately had a different branding strategy to target our higher risk component of the business where we're also charging higher rates to compensate for the risk.

Gary, anything you want to add?

Just to reiterate, Mark, that I think you should use the securitization data to look at the trends in delinquencies and charge-offs, and specifically you will see in there the comparison of us between competitors. We do use different rules for how we define charge-offs at 180 days versus 365 days and there are slightly different definitions about delinquencies as well.

I reiterate Naguib's point again that the main difference between our securitization data and the data you've seen on screen today is around the Monument portfolio and some other small other portfolios that we've got. I think the other thing to add would be that in terms of customers that are three payments in arrears, the proportion of those customers is steady at about 1%.

Mark, you had another question?

Yes, it's just a couple of aspects of Barclays Capital income which I'd like to explore a little if I may. First of all, could you say how much of the £175m net income financial instruments designated at fair value is actually Barclays Capital?

And secondly, I note there's £50m more income from Group which is actually going into Barclays Capital. Should we regard the new level of Group to Barclays Capital as a sustainable level or will that just drop off in the second half?

Do you want to give some high level answers?

Yes, on the first question, which is the fair value number, most of that actually is nothing to do with BarCap. Almost all of it is in the insurance accounting, and as you know, the insurance accounting has got much more complex under IFRS.

The net impact on the bottom-line of that fair value change in the insurance is zero, because the other side of it is actually benefits due to policyholders. So it's the returns that accrue to policyholders that we have to show in our books under IFRS. That's why we concentrate on the income line net of insurance, because that's the one that really relates to our shareholders.

In terms of the fees paid between the Group center and BarCap, they were particularly high in the first half because we had a lot of capital raising activity, and in U.K. GAAP, what we used to do is we would take the new issue fees in the center and amortize them over the life of the instrument. Under IFRS you can't do that, you have to take them as an expense upfront if the underwriter is an in-house entity. That's the explanation of the difference.

Thanks, good morning, it's Simon Samuels from Citigroup Smith Barney. Like J-P, I'd also like to congratulate you on something else actually, which is that you seem to have hit your cost/income target in the U.K. Banking division, a three-year target after six months. The comparator was 57% cost/income and you've delivered a 51%, with 2 percentage points [primer] over three years seems to have all come through.

So my question is really what -- is that --

It sounds like a bit of an irony in that question.

Well, no I mean, it --

Go ahead, Simon, we're waiting for the question.

Well, the question is, what happens over the next 2.5 years? Are you now there in terms of your target cost/income in the Retail -- in the U.K. Banking division? Are you prepared to commit yourself to a new target? Is there something unusual in the first half of this year on revenues or costs that has artificially depressed that number?

Right, well Simon, we accept gratefully your congratulations and I'm going to let Naguib just one opening comment and then pass it to Roger.

Yes, one of the things that we have done in our planning this year was we expected a weighting of costs more oriented towards the second half in the U.K. Banking so if you think about it from the business point of view, things like marketing spend where you're promoting new products, what you want to do is get the products sorted and get the infrastructure in place before you put your foot on the pedal on some of the spend. So it's entirely understandable that we were doing some things in the first half that we want to put a lot of weight behind in the second half.

And we also have said all along that we're looking to manage this process over a multi-year period where we're investing in the business. We've also got spend in order to get other costs out, and some of that will actually show up in the second half.

Roger?

I didn't expect to be let off quite so easily, Simon, but thank you. The plan is very clear. You take the number you start at this year and we will deliver 2% of that this year, next year and the year after. I look forward to your congratulations again in six months time.

Simon, another one?

I know I didn't advertise I had a second question but I do have one. At the -- could you just, for the sake of clarity, the risk tendency, the comments about, in your outlook statement, John, about you'd expect the impairment losses this year to be approximate to the risk tendency? Just for clarity, can you just confirm that -- well, obviously first of all that number, your comment, obviously excludes the risk tendency Absa.

It is that.

And also, is that the risk tendency today and then we grow it for the growth in the book, and then think about any changes in the quality of the book?

Well, we've given you the 1575 number and I won't bore the audience again with a definition of a risk tendency but you know very well what it is, and it excludes flow, so we are, I think, unusual in giving an assessment of a forward view. You have the number 1575. I confirm that it excludes Absa.

Thank you.

And here at the front, Ian?

Good morning, thanks, it's Ian Smillie from ABN.

Good morning, Ian.

The question is going to center on the dynamic between asset growth and profitability. You had a 20% risk weighted asset growth over the last 12 months yet the profit on risk weighted asset margins has come down by 13% from 183 to 159.

Now, the balance sheet has geared up over the same period. Your excellent Tier 1 ratio has fallen quite sharply over that time to a level from which it probably can't go any lower, so the question is, going forward, should we expect risk weighted asset profitability to stabilize at this new, lower level or from here should we expect the Group profitability as measured by ROE to start to fall quite sharply?

Naguib?

Yes, it's a good question and there's a lot of moving parts in all of that. I think one of the things to be careful about, in periods where you've had very sharp growth like we have done in the first six months of this year, it doesn't always follow that the income is in the same period. So sometimes you put the asset on closer to the end of the period, and you see some of the income in future periods, so I'd look at this over a longer time series, and it is something we pay a lot of attention to.

But there are vagaries between the growth rate in WRAs and the growth rate in assets that are entirely splittable when you go into a lower level of detail. The other thing is that we've not been very active users of securitization to manage regulatory capital use because in the past we've been running quite a lot of surplus capital, and I think one of the things we can do going forward is to be more active in securitization to improve the return on equity. And it is one of the things we'll look at.

Thanks.

Is there a question here, halfway down the room on the right-hand side?

Thanks, it's Alistair Ryan at UBS. On Barclays Capital, another sort of bonanza six month period, and you --

Thank you.

An inevitable question in two parts, seasonality and cyclicality. Should we anticipate, perhaps, a little less seasonality this year than last given the slowdown in cost growth and that Q2 is fairly rough in the markets? And secondly, on cyclicality, I think that market tends to use the shape of the yield curve as a benchmark for BarCap's ability to deliver profits. Is that still reasonable, or is it now more diverse and therefore should 2006 hold up rather better than 2005?

Well, I'll pass to Bob, but may I just say, because I can't resist the temptation, that this is the area of our business where the market has consistently underestimated our performance, half in, half out for as long as I can remember. Bob?

I'm afraid it's another long answer. You gave me the opportunity. John hit the nail on the head. We've had the sustainability question for a long time. I've think I've gone to a lot of lengths with many people in this room to spend a lot of time with you on why that's wrong, and it's a much broader platform that you're giving it credit for.

Now, I was surprised to see Stephen Green on CNN the other night with the HSBC results down 18% in the second quarter on investment banking, and he said, you know, interest rates were not as volatile as we thought. They didn't go up as much as we thought, flatter curve. And that's what you have been saying about our results, so why are ours up 20% and theirs are down 18%?

It's a very broad platform, and remember what I said to you 18 months ago about the Alpha Plan. You're worried about the cost. It was very, very focused. And I'll tell you exactly what I told you 18 months ago when we launched the Alpha Plan. We saw opportunities and we saw some gaps in our own business. We saw a gap in the U.S. where we could increase market share on the client side of the business, and we saw an opportunity because the market's growing in continental Europe, to increase our client coverage and broaden and deepen.

So around clients, it was the U.S., continental Europe and derivatization of the sales force, and what are the results? In the first six months of this year, client business in the U.S. is up 60% and in continental Europe, it's 70%. We're doing 100% more in derivatives, shifting the balance of our mix from cash to derivatives. It's exactly what we told you.

We also said that there are three asset classes, not fixed income, three asset classes where we're going to see above normal growth over the next four to five years. It was credit, particularly structured credit and credit derivatives. It was commodities, the full suite of commodity products, and it was structured equities.

Well, what's happened in the first six months of this year in commodities, £200m in revenues, more than we've done in any other full year, we're competing with the best in the business now in commodities because we've been investing for a number of years.

In equity derivatives, 50% increase, and the best period we've ever had before, number one in the market in fund derivatives, and in credit structuring, very strong period, through very difficult markets, the best quarter we ever had in the second quarter in credit, rated in the top three by the recent survey and a strong pipeline, over £10b in CDOs we have as a pipeline for the second half of the year that we can execute on.

So the areas we've been investing in, it's not spaghetti against the wall. It's been very focused and it's been focused on the areas where we saw gaps in our performance and opportunities from the market. So I think you've got to look at this as a much broader platform than you've been looking at it in the past.

Right, next question, here, on your right?

Good morning, it's Nick Lord from Deutsche Bank. If I could just maybe ask you a question about the delinquency slide you've put up on page 9 of Naguib's presentation, and you showed the stabilization in delinquencies in the cards business Q2 versus Q1 I suppose, and compared to where it had been at the end of December.

I'm just wondering if you could just remind us what the relative balance is, or what happens to relative balances over those periods because if I remember in the market, Q1 was quite weak for credit card balances, and whether that would change the overall picture that's being presented there on credit card delinquencies?

Credit card balances, extended credit was about flat, actually, over the period, so balance growth has no impact. Loans were up a bit so even though the loan delinquency percentage is down, the growth in the book actually has an impact on the impairment charge. The other thing I'd say about this, to be careful when you look at the analysis of impairment, the arrears, or the delinquency is one component. The severity is another component, and you've got to look at the two things together.

Next question.

Sorry.

Nick, yes?

Just going back to that, just specifically on the card balances though, at the end of Q1 would card balances have been above or below December 2004?

Well, Nick, we try and give a lot of detail but we're not going to give quarter-by-quarter balances, we're really not. Next question please, Robert?

Good morning, Robert Law of Lehman. Can I have a couple of questions please on issues that have somewhat been touched on already? First of all, on the Retail side, can I go back to Simon's question on the costs in the Retail business? I think when you started this three-year program I think you gave a figure of something like £300m of gross expenses you could take out.

I understand that you have a cost/income ratio target rather than revenue cost targets but could I ask, of the cost gains that you plan to take out, how much of those have been realized already? So what I'm getting at is, do you need this to be revenue related in the future or if revenue doesn't come through, are there still further cost measures that will give us some confidence about that?

[Indiscernible], Robert, we're going to have revenue growth come what may, wherever we are on the cost/income ratio goal, but Roger?

Sure. Naguib partly answered this question earlier when he pointed out that although you saw a saving of £21m on the costs line, we could have a greater saving than that but we passed quite a large sum back into the investment, the branches, the kiosks, the people, everything that you've heard about.

And the plan remains exactly as we stated it last October. We think in the first couple of years of the plan, there's up to [inaudible] to take out and we will allow that either to drop straight to the bottom-line because we've made a promise on the cost/income ratio, or we'll reinvest it if we think we can drive income, and John's made it very clear to you and to me that we need to drive the income of this business, and so in the first six months of the program, it takes time for that income to come through.

What you should be looking for is an increase on the income side, driven in part by further investment, generated by the cost savings but rest assured that we do have the ability, if the market gets very difficult, to allow more of it to drop straight through to the bottom-line because I don't want to be on the wrong side of Simon's comments in six, 12 or 18 months time.

Just before you go, Roger, could you just tell us how much of that £300m have you realized so far?

I'm afraid not.

Worth a try!

Your second question, Robert?

On Barclays Capital, could I ask you to comment on the further expansion plans from here, and the cost growth from here, divestment plans in Barclays Capital from here?

Yes, Bob, do you want to say anything?

Yes, the Alpha Plan which I gave you a pretty good review of, there's more detail, and I'm happy to spend time with you, is the plan we're operating on. There's no strategic change. There's no business model change, but Alpha will be a couple more years.

I think the shift you'll see, and it's very interesting, the two things I'd highlight to you is that what I came away from the first half on, and certainly the numbers were good in an absolute sense, but even more in a way in a relative sense, when I look at five or six of the big competitors, printing down numbers in the first half, it's a payback for what has been a relentless focus on clients, relentless focus on a client centric model, not proprietary trading, and I think when you see revenues up 25% in the first half of this year, in those market conditions, and our [DVaR] lower, it really is telling you a story that we believe in, and it's nice to see the numbers emphasize that story.

So over the next couple of years, do we feel good about the growth prospects for BarCap? Yes. Do you already know where they are? Yes. It's investment in the client side of the business, in the U.S., and in continental Europe, some investment as well in Asia which has been pretty exciting, and we see three asset classes which merit continued investment, structured equity products, commodities and credit, particularly credit derivatives, and we would hope that you'll begin to see the benefits of what we did in the U.S. in building a suite of mortgage products, home equity loans, commercial mortgage BACS and residential mortgage BACS, three businesses, as you'll recall, we were not in 18 months ago.

We're in all three of them now, and two of the three are already positive from a PBT point of view. So it's all the areas you've known about before, we feel good about our prospects but it's nothing different than what we're doing now, more of the same.

Can we have the next question, at the back?

Yes, good morning, it's Stephen Andrews from UBS, just a quick question for Roger again actually, while he's on a roll on his Retail Banking. In what was a very solid set of results, I think the one area which I'd think you'd admit there is room for improvement is that retail revenue line, and I just again want to come back to the revenue versus cost dynamic in the retail bank.

Clearly your first half -- the performance was really driven by the cost line but if I'm reading you correctly, you are flagging more marketing spend in the second half. Is it fair to say that you're going to put your foot down and try and turn the performance round in the revenue line in the second half of the year too?

Just before Roger comments, I think it's important. This is a very big business. We're looking after a third of the adult population of the United Kingdom. We've got 14m customers there, and you know just as I know that you don't turn that with a flip of a switch but we're absolutely determined about the revenue line, and I made the point in my presentation that we can't have a business that is that important and that large with flat revenue for any length of time. Roger?

Well, I'm as passionate as Bob about this, and was waiting for the chance, but I'll try and keep it shorter, I promise. Look, we've said all along that we've had to re-tool the business. We've got 2,050 branches. We've got 20,000 people in them. We've made some massive changes to the management, the leadership, the people in those branches, the way in which they're rewarded. We've scrapped product targets.

That takes time, and what I've said all along, internally and externally, is last year we had to get ready. The clock started ticking this year and the amount that would come from the income side would increase six months on six months through the life of the plan. So we absolutely expect to see an improvement on the income line in the second half, but it is certainly not going to be where I'd like to see that income line in, say, 12 or 18 months time, as the whole momentum of the business pulls forward.

You may have seen recently we've launched a new current account. It's the first time we've advertised a current account on television for six years. Now, this is going to take time to sweep through. What I'm excited about is the momentum that I can see beginning to build in that network and that's what I hope to be able to show you, six months on six months as we go forward.

So thanks Roger. There was a question right at the back. There we are.

Thanks very much, it's Michael Helsby from Fox-Pitt, hi. Just on Retail costs, sorry to go back to that, it might have only dropped £21m on the first half, but I think it's dropped more than £200m on the second half of last year. I seem to remember again, going back to the Retail Day that you had, that you said you were going to invest, or you had to spend about £370m in the first year to actually start the cost program moving. So I was just wondering if you could actually reconcile the movement in the costs from the second half of the year to what was put out?

I think, Michael, you're rightly observing that there was some progress in the first half, but there was a lot of progress versus the second half. I think we've given pretty full answers about what our expectations are, which levers we're expecting to pull, where we've been placing the investments. I don't think we can add intelligently to what we've said so far.

Okay, can I just have a -- sorry, one more follow-up on Barclaycard?

Yes, you can.

About 18 months ago I think you -- the standard line was that you denied that you did sub-prime lending. I think it's now moved on --

I hope I didn't sound quite so defensive.

No, the way you did actually.

I do remember your question then.

Yes, but I think now we've moved on a little bit from that and you'd acknowledged that you do. And I think it's in the Monument book, but it's also in the Barclaycard Classic card as well, so I was just wondering, clearly, with the arrears in there are running ahead of the mainstream book. The prices that you charge are obviously a lot better.

I'm going to ask --

Can you just give us a feel for how [inaudible]?

So let me just say, Michael, in the first half, to give you an idea of selectivity, I've never seen our rejection rate higher than in the first half of this year. One in two every -- one in every two applications for Barclaycard borrowing from potential customers was turned down. So we are selective, I assure you. Gary?

We are selective. Let's take it back a little bit further than the 18 months. Four years ago Barclaycard was a single brand, U.K. credit card business. We said three years ago that we would transform Barclaycard into a multi-brand, and we've got Barclaycard, obviously, Monument. We've got Clydesdale, we've got our partnerships with Littlewoods. We've got our partnership with Sky and House of Fraser, consumer finance, international business based in the U.K.

So from single brand credit card U.K. business to multi-brand consumer finance business, international based in the U.K., now that does mean, of course, that we go to some different customer segments but we are not moving down to sub-prime. We've always said that we are not in the sub-prime business. We reject, as John said, around 50% of customers. We've reduced limits for 83,000 customers at £150m of exposure.

And the important point, right back to the question about the Monument book, is it's a young book. It's not a high risk book, it's a young book, and in young books you expect higher impairment rates than you'd do in seasoned books like the Barclaycard Classic.

We'll go to the next question please.

Can I just come back on that?

No, no, thank you Michael, we've given you two bites of the cherry. There's a question here in the middle.

Derek Chambers from Standard & Poor's Equity Research, two questions. First one, on the U.K. Business Banking, obviously you've got good momentum there. The balance sheet has grown substantially, the revenues have grown substantially. Could you say how much of that balance sheet growth, which I suppose includes acquisition right at the end of the period will be reflected in further growth in the second half?

Well, without giving a forecast, Roger, do you want to comment?

Going back to a previous promise, I think October three years ago when we presented on the business bank built for growth we said we were building a business that would sustainably grow substantially in excess of the historic rate. And I can't do that on one outstanding half. We've generated, I think, 16% [CAGR] over the period, so I'm not saying we'll necessarily do as well in the second half, because that will be close to a forecast, but I think you can look to see this business continue to grow at the sort of rates that we indicated back at that October meeting.

It's quite noticeable that if you look at the Bank of England statistics, then the rate of growth in the market in terms of assets in Business Banking businesses over the last 12 months have been about 15%, and our rate of growth, as you see from our numbers, is about 31%.

Could I ask a question?

You can, yes.

Which relates to the Head Office functions and the trading income there, you said that a £12m item in interest income which is non-allowed hedging, but you also refer to a trading income of £55m. Is that something that can be expected to normalize to zero or is it something else?

Yes, I would expect that to be a small number, not that sort of size going forward.

Tom, I've seen you, yes, here we are, in the middle.

Thank you John, it's Tom Rayner at Citigroup. I just wanted to really a general question about the decision not to give the pro forma comparison, I suppose. A lot of the discussions on growth at divisional level pre-tax double digit and better and at Group level 9%. When I look down to the EPS level fully diluted the growth is 3.5 and the [deed] you've indicated a little bit better, if we include the 32 and 39.

I'm also wondering whether, though, there's some positive volatility items in there that we also need to be able to strip out to get to the underlying growth again on a pro forma basis. But I'm trying to get a bit of feel more possibly when I'm looking at Barclays Capital, but it's a general question, I suppose, for what the second half to first half seasonality really does look like?

But just turning it to Barclays Capital, very strong --

Tom, so we can refer to your first question.

Yes, I think that actually, looking at other results, I found it very hard to understand what was actually going on in anyone else's business. I wouldn't regard myself as an uneducated reader, so I think actually, more pro forma would just make it more difficult to follow, so what we've tried to do is give you the cleanest set of numbers that we can give you. Most of what we've got is directly comparable, year-over-year. The places where it's not comparable, we've highlighted, particularly in things like margin, or the difference between interest expense and minority interest.

The big ones we've actually highlighted to you, but I don't think providing more pro forma would be helpful. There are a number of items that go the other way that are quite complicated to go through and we wouldn't want to publish them in detail because they're not disclosures that we would make on an ongoing basis. The big one in Barclays Capital would be day one P&L on derivatives where there's a change under IFRS. It's quite a big number in the first half. It will be a recurring thing, but if you are looking at period versus period comparisons against last year, it would have decreased the rate of income growth in BarCap.

Tom, I'm going to take your second question. Then we've only got time for two more questions and then we'll go. Tom, you were going to Barclays Capital I think.

Well, the second question very much was on that revenue performance in Barclays Capital, which I have to say has beaten our expectations quite comfortably, and I am trying to get a sense for the sustainability of that and the seasonality compared to --

Tom, we've already answered what we've said. I doubt it, actually. I don't think you're going to learn a lot more. You had very full answers from Bob in terms of sustainability and investment and growth expectations.

Fine, can I --

I don't think we're going to add to that.

Just in terms then, under the full IFRS, what the below the 703 pre-tax, what the allocation of the new [press] is doing, can you give me any sense of whether there's a distorting?

That sounds like one for the Finance Director.

Sorry, I'm not following your question.

Well, when I look at the 19% growth in pre-tax, £703m, if I was able to allocate all of the below-the-line items on a like-for-like basis, what sort of growth rate would I be looking at then?

Not hugely different in BarCap.

Okay, thank you.

Right, two last questions, here at the front.

Good morning, it's James Hamilton from WestLB. I just want to pick up on the previous point. You have disclosed in the statement that I think there's £67m of positive contribution to the Group from banking volatility. And I appreciate there's a lot of other things that you haven't disclosed, but that's a reasonably large positive number, particularly given that the attributable profit has only grown by £43m?

No, well, Naguib made several references in his presentation to ups and downs. Is there anything you want to add?

Yes, I think the over -- what we've given you is an overall impact of all those volatility elements that relate to this year's standards being implemented is a net negative.

One last question?

Can I quickly just say, are you - is it implicit that there was a positive volatility number that would have been in the first half of '04? I know you haven't disclosed it.

Well, we don't know what it would have been in '04 because we weren't working on those standards in '04.

Right, one last question, if there is one, here.

Thanks, it's Richard Staite from SocGen.

Hello, [Rupert].

I'm just interested in this very strong loan growth in the Business Banking area. I expect you've taken market share but the market itself seems to have been very strong. You yourself have seen very strong growth in areas like wholesale and retail lending, 13% up during the first six months. And how do you square that against what's happening in the economy? Obviously parts of the economy seem to have been very weak in the past few months, especially Retail? Can you explain why that's happening?

Yes, it seems to us that the drivers of growth in the economy have shifted pretty significantly over the course of the last two or three years, and I'm not telling you anything you don't already know, but clearly, three or four years ago the consumer and consumer spending was the principal engine of economic growth, and that's shifted to business and corporate activity, and of course, government expenditure.

And it's very striking, I think, the variable strength and weakness across various sectors within the economy so retail sales on the high street have been quite weak, but there are plenty of other parts of the economy that have been performing pretty strongly. I think we'll wrap it up there. Thank you very much for being with us. Of course, the IR team are available for further questions if you want them.