Barclays PLC (BCS) 2015 Q4 法說會逐字稿

Welcome to the Barclays 2015 full-year results fixed income investor conference call.

I will now hand you over to Tushar Morzaria, Group Finance Director.

Good afternoon, and welcome to our full-year 2015 results fixed income call.

I'm joined here today by Dan Hodge, our Group Treasurer; and Steven Penketh, Head of Our Capital Markets Execution.

This morning, Jes Staley, our Group Chief Executive Officer, announced initiatives to accelerate our strategy to simplify the Group, building on our strength as a transatlantic, consumer, corporate, and investment [bank] in order to improve performance.

I'll briefly recap the key points.

We made great progress over the last few years.

Our core business is already fundamentally strong.

We reduced our cost base, further built up our capital levels, significantly reduced our non-core businesses and products, and we made great progress in improving our culture and values while taking significant charges for past regulatory and mixed conduct issues.

We finished the restructuring; we today announce two key decisions.

First, further simplification of our business through our intention to sell down our 62.3% stake in Barclays Africa Group Limited to a noncontrolling, nonconsolidated investment over the next two to three years subject to regulatory and shareholder approval if and as required.

Second, aggressive acceleration of the rundown of Barclays non-core.

Our intentions for Barclays Africa are driven by specific challenges we face as owners such as the international reach of the UK bank levy, the G-SIB buffer, MREL and TLAC, and other regulatory requirement, as we carry 100% of the financial responsibility but only receive 62% of the benefit.

This makes the returns we realize significantly below the 17% reported locally and we, therefore, believe that it is in the best interest of the Group to reduce our position.

We've reiterated our guidance of reducing Barclays non-core to approximately GBP20 billion for year end despite the announced one-time enlargement of around GBP8 billion as we include further businesses we plan to exit.

This will, however, bring forward associated costs and losses which we expect to help to fund through the reduction of the dividend we pay in 2016 and 2017 to 3p each.

The combination [fixed] dividend reduction and our plans for the Africa sell down if implemented are expected to contribute at least 100 basis points of pro forma accretion to the Group's CET1 ratio over the next two to three years.

As we prepare for regulatory ring-fencing requirements, Jes also announced the creation of two core divisions further simplifying the Group, Barclays UK and Barclays Corporate & International.

I'll leave it to Dan to talk about it in more details.

These businesses represent the future of Barclays.

They are complementary, of equal importance to the Group, and generated double-digit returns on tangible equity on an indicative adjusted basis for 2015.

And therefore, Barclays doesn't need new business revenue initiatives or major cost programs in our core operations to deliver attractive returns, but we need to close our non-core unit converging the Group's RoTE towards the core RoTE.

We also need to settle our outstanding legacy matters while maintaining a strong credit profile and we need to manage the Bank with strong controls to avoid any further conduct issues.

We will measure our success against our three financial targets, which you can see on this slide and we'll be aiming to achieve these in a reasonable timeframe.

Before I hand over to Dan, a few words on our full-year results.

2015 was another year of progress with improvements in profitability through all our core operating businesses after adjusting for the currency effect in Africa.

We increased adjusted PBT in our core businesses by 3% to GBP6.9 billion, with an RoTE of 10.9% and an average tangible equity base that was 13% higher.

Notably, profits in Barclaycard were up 22%, and the IB delivered a 17% increase in profits despite a challenging market.

Group adjusted PBT was, however, 2% lower due to the active non-core rundown as evidenced by a GBP29 billion reduction in BNC RWAs.

As we continue to drive the non-core rundown in 2016, there will again be a significant drag on Group returns.

This will reduce as we stem the losses and further reduce RWAs.

Total operating expenses excluding CTA reduced by 4% to GBP16.2 billion, below our guidance of GBP16.3 billion.

We delivered positive jaws and the direction of travel on cost continues to be downwards.

And lastly, adjustments over the year totaled a net GBP3.3 billion, resulting in a statutory PBT of GBP2.1 billion compared to the adjusted PBT of GBP5.4 billion.

Our results show that our core businesses are already fundamentally strong with franchises that position us well for the future.

As we execute our strategic priorities, we are therefore confident in delivering a strong RoTE underpinned by an even stronger financial metrics.

With that, Dan, over to you.

Thanks, Tushar, and good afternoon, everyone.

Since the half year when we last hosted this call, there have been a number of regulatory developments relevant to our fixed income stakeholders.

I will today talk you through how we think about these and their impacts on Barclays.

The market environment has been challenging this year and remains uncertain.

However, Barclays is operating from a position of strength.

We've demonstrated excellent CET1 progression and are comfortable with our trajectory in maintaining prudent buffers above future regulatory minimum levels.

Our liquidity position is very robust.

We have a well-balanced and solid funding profile, and we are proactively managing our cost of funds as demonstrated by the following measures.

The senior cash tender in January, the prepayment of all GBP12 billion of our funding for lending for the Bank of England, as well as our OpCo subject cash tender, and reopening of the January senior cash tender announced earlier today.

Illustrating our robust liquidity position and whilst our expectation, if we did not access term wholesale funding markets for the entire remainder of this year, all else being equal, our LCR would be expected to stay above 100%.

Also, our conservative risk management practices have enabled us to withstand stress throughout previous periods of market volatility, and we are confident that this will continue to be the case.

So despite some market uncertainty, which we continue to monitor and manage carefully, we are pleased with where we are today and we are confident in our forward-looking trajectory.

Turning now to slide 6 and the progression we've made to date on capital and leverage.

We've achieved consistent growth in our CET1 and leverage ratios over 2015.

Our CET1 ratio grew by 110 basis points to 11.4% in 2015, 30 basis points of which was achieved in Q4.

This was despite absorbing 100 basis points of conduct and litigation charges.

The annual improvement was mainly a result of our continued proactive Barclays non-core rundown as well as reductions in investment bank RWAs.

The leverage ratios strengthened by 80 basis points to 4.5% in 2015, 30 basis points of which was achieved in Q4.

This annual progression reflected leverage exposure reductions in core and non-core as well as AT1 issuance in Q3.

The ratio is already well in excess of the fully phased in 2019 regulatory minimum expectation for Barclays which is likely to be below 4%.

On the next slide, slide 7, I'd like to spend some time on how we think about future capital requirements.

The phase-in of CRD IV buffers commenced on January 1, 2016 when the CRD IV mandatory distribution restrictions framework became operational.

We've also seen an increase in our Pillar 2A requirement for 2016 to 3.9%, which resulted in a 60 basis points increase in the CET1 component to 2.2%.

Similar to last year, part of this increase is due to the RWA reduction achieved in 2015.

We are, however, not permitted by our regulator to comment on other drivers.

Our mandatory distribution restriction hurdle from 2016 is therefore 7.8%, and our expected stress test hurdle is 7.2%.

Compared to our 11.4% CET1 ratio, this represents significant buffers of 360 basis points or GBP13 billion and 420 basis points or GBP16 billion respectively.

Also, relevant to our AT1 holders in particular are the distributable reserves of Barclays PLC which was GBP7.1 billion as of year-end 2015.

This is five times the ordinary dividends and AT1 coupons paid externally by Barclays PLC in 2015.

We would also reiterate that in determining any proposed ordinary share dividend and the appropriate dividend payout ratio, it is our Board's intention to take into account the relative ranking of instruments in our capital structure.

In terms of how our minimum CET1 levels may evolve, there are a number of variables to consider.

We would expect Pillar 2A for UK banks, which is updated at least annually, to reduce over time following Bank of England guidance.

While this reduction would likely be offsetting increase in RWAs, we would expect that such a shift would drive a reduction in overall minimum regulatory CET1 ratio levels and a corresponding fall in actual headline CET1 ratios.

Our current fully phased-in G-SIB buffer remains at 2% following the November 15 update which was based on our December 14 balance sheet.

However, we are at the low end of the 2% tier with a score of [350], which is only 21 points above the top end of the 1.5% tier.

While we do not have full influence over this buffer, we are optimistic about achieving a reduction to the 1.5% tier over time as our deleveraging is significant on a relative basis.

We expect this deleveraging to continue, particularly given planned accelerated Barclays non-core rundown, further reductions in level 3 assets, and intentions to reduce our interest in Barclays Africa.

Another variable is the counter cyclical buffer.

For illustrative purposes, we have here assumed a future 1% counter cyclical buffer on UK exposures which we see as prudent in the medium term.

This would equate to around 50 basis points on a consolidated basis for Barclays.

Should other countries where we have meaningful exposure, such as the US, introduce a counter cyclical buffer in the future, this would also impact our overall requirements.

Changes to RWA may also impact future CET1 ratio levels.

We expect further non-core reductions to largely offset RWA growth in other non-IB businesses going forward.

Therefore another target, we see RWAs around GBP360 billion broadly at year-end 2015 levels as a reasonable planning assumption for Group RWAs on a look-forward basis before any RWA recalibrations.

However, if you also take into account our planned intentions for Barclays Africa, the look-forward planning assumption for Group RWAs would be at around GBP330 billion.

Most of the current [Bar] RWA proposals do remain uncertain, and implementation timeframes continue to be extended.

The proposals for market risk RWAs or the fundamental review of the trading book are the most advanced with final rules published in January.

These rules are still to be calibrated, and we'll need to proceed through a number of legislative processes which may impact the final outcome for implementation in Jan 2019 at the earliest.

Our initial estimate is a GBP10 billion increase in RWAs before management actions, further Barclays non-core rundown, and any potential offset of incremental RWAs through Pillar 2A.

The rules and calibration of other Bar proposals, including the standardized approach for credit risk, counterparty credit risk, and op risk, among others remain uncertain.

We continue to closely monitor these developments and remain confident that our proven track record of efficiently managing RWAs will allow us to anticipate potential changes and manage our balance sheet accordingly.

Due to all these variables, the way we think about managing our future CET1 ratio is a function of our future minimum requirements and CRD IV buffers plus a prudent management buffer currently planned at 100 to 150 basis points rather than a fixed target.

This reflects the strategic importance to us as staying well above the distribution restriction hurdles.

We've updated our internal management buffer calibration from our previous plan of around 150 basis points to reflect reduced uncertainty around the capital rule sets, and overall capital expectations, as well as reduced risks for Barclays specifically.

We will continue to review this periodically.

In addition to minimum capital requirements, stress testing is also a key part of our capital planning.

As you can see on slide 8, our diversified business model positions us well to withstand stresses in a macroeconomic environment as evidenced in the 2014 and 2015 Bank of England stress tests, which we comfortably passed.

The market derived stress losses to Barclays were below 300 basis points post management actions both in 2014 and 2015.

We cannot guarantee this will always be the case in future stress tests as the focus of the tests will vary.

However, with 100 to 150 basis points internal management buffer and ability to use the capital conservation in counter cyclical buffers in future stress tests, a buffer to even the most stringent hurdle in 2019 on a fully phased-in basis will be around 400 to 450 basis points.

This provides ample headroom to accommodate even more severe stress test outcomes should that be required even before management actions.

Turning to slide 9. What about our ability to create capital in order to maintain prudent buffers above [LDA] and stress test hurdles.

Meeting a future instructive CET1 minimum level of around 11.7% with a 100 to 150 basis points management buffer on top would require only 130 to 180 basis points of CET1 ratio accretion over the coming three years.

We are very confident about achieving this accretion based on our recent trajectory and for the following three forward-looking reasons.

First, our business division generated double-digit adjusted RoTEs in 2015.

As we continue to reduce our cost base and deal with outstanding conduct and litigation items, our ability to generate capital organically will improve further.

Second, we expect to aggressively reduce RWAs of Barclays non-core to GBP20 billion by [end] 2017.

Third, the planned intention to sell down our stake in Barclays Africa.

Together, this is expected to provide us with considerable CET1 capacity above future minimum CET1 ratio levels to grow non-IB businesses as well as to absorb potential headwinds.

As we've always said, the progress to our future ratio might not be linear.

Over the course of 2016, we expect the CET1 ratio to improve further although Q1 is likely be to lower as a result of seasonality and taking actions to improve returns.

Moving then to MREL and TLAC on slide 10.

Over the past few months, the FSB reached an agreement on the final TLAC term sheets and the Bank of England published a consultation on MREL for UK banks.

Our 2016 MREL requirement is expected to be set at currently applicable regulatory minimum requirements.

For Barclays, this is currently 13% including the first phase-in of CRD IV buffers for 2016 which is well below our year-end 2015 PRA transitional total capital ratio of 18.6%.

The Bank of England expects to set transitional MRELs until January 1, 2019, for G-SIBs providing banks the time and flexibility to manage the progression for future requirements.

Throughout 2015 and the early part of 2016, we have continued to execute our transition towards a HoldCo capital and funding model to GBP9 billion equivalent of additional HoldCo capital and debt issuance combined with proactive liability management exercises of OpCo securities.

As of year end, our outstanding consolidated total capital and HoldCo senior unsecured debt already accounted for around 20% of RWAs, only marginally below the 2019 Pillar 1 TLAC minimum requirements including assumed CRD buffers.

CRD IV buffers were around 5%.

However, as OpCo legacy capital will no longer qualify for TLAC ratio purposes post January 1, 2022, the binding target for us is expected to be the MREL TLAC requirements applicable at that point in time.

Excluding OpCo capital from our debt 2015 position, would reduced the spot ratio to around 15%, we illustrate on this slide the issuance volumes required across AT1, Tier 2, and HoldCo senior over the coming six years to meet the Pillar 1 TLAC minimum requirement of 23% with assumed CRD IV buffers plus an illustrative 1.5% internal management buffer.

This would equate to around [GBP6] billion per annum.

This feels comfortably within range, particularly when you consider that the simplistic illustration is before expected CET1 accretion and does not take into account the potential benefits of our plans to reduce our stake in Barclays Africa.

Future MREL requirements remain uncertain and could be higher than the January 1, 2022 Pillar 1 TLAC minimum.

However, we believe that higher requirements should also be manageable given our aim to accrete CET1, our plan intentions of Barclays Africa, and flexibility in our issuance plan.

You should not see this illustration as our medium-term issuance guidance.

Our actual medium-term issuance plans would depend on final MREL calibrations, future total capital requirements, and the evolution of our balance sheet.

While the execution of any issuance plans, as always, is subject to market conditions and most importantly investor appetite.

In terms of the MREL stack composition, we currently expect to build towards around 2.2% of RWAs or around GBP8 billion in AT1 [form] based on our CRD IV minimum and updated 2016 pillar 2A requirements.

This would imply just under GBP3 billion additional on top of the GBP5.3 billion outstanding to date.

So you can expect us to continue to be a measured issuer over time, markets permitting.

For Tier 2, we're incentivized to hold at least 3%.

With 3.9% at year-end 2015, we are currently well above that.

Whilst we're therefore under no pressure to issue Tier 2 capital, we will need to continue to transition our Tier 2 layer to the HoldCo over time.

You can expect us to look at this market on an annual basis.

We maintain our view that the appropriate balance between Tier 2 and senior unsecured debt in our future MREL TLAC stack will be determined on an iterative basis by reference to the most efficient cost of capital and funding for the Group.

This is clearly driven and set by investor demand and market capacity.

So we will continue to engage proactively with our fixed income community on this on an ongoing basis.

Moving then to liquidity and funding on slide 11.

We continue to maintain very robust and well balanced liquidity and funding profiles.

At year end, our liquidity pool stood at GBP145 billion and the LCR was 133%.

The year-on-year increase in the LCR reflects our continued deleveraging and an increase in customer deposits.

We also have a Pillar 2 requirement for liquidity risk.

While we're not permitted to disclose this, we are compliant and incorporate the guidance in our funding plan.

Our material LCR liquidity surplus of GBP37 billion has enabled us to take PBT enhancing actions so far this year such as our MREL efficient senior and capital OpCo cash tenders and regulatory payments.

While we expect the liquidity pool to be lower next quarter end reflecting these deliberate actions, we intend to continue to maintain a prudent surplus to regulatory requirements.

In terms of our broader funding structure, the loan to deposit ratio at the retail businesses was stable at 86% or 95% for the Group.

In addition, the NSFR remained comfortably above future minimum requirements, up 106%, well ahead of implementation timelines.

Our proved wholesale funding has reduced further, now GBP142 billion, which is GBP29billion lower than a year ago reflecting reduced wholesale funding needs as we continue to run down Barclays non-core.

So what does this mean for our issuance plans?

During 2015, we issued GBP9 billion equivalent of public and private term senior unsecured and secured debt, Tier 2 and AT1 capital, GBP6billion of which was issued by the HoldCo.

We had a good start to this year completing a successful GBP4 billion senior debt issuance from the HoldCo coupled with a liability management exercise of much of our OpCo senior benchmarks.

Unfortunately, markets have been fractured since then.

Whilst we hope and expect this to be temporary, the strength of our liquidity position and credit fundamentals positions us well should the current conditions persist.

We will of course seek to further diversify our funding profile at the HoldCo over time, across currencies, tenders, and types.

In seniors, the US dollar market will remain a core market.

We will also continue to look for opportunities to diversify with issuances also in sterling, euro, and peripheral currencies.

Note that we also executed another EUR100 million of private MTNs in January and will also seek to further build out this private MTN program at the HoldCo over time.

We also expect to remain a frequent issuer from our cards platforms and we will continue to issue structured notes from BB PLC, albeit likely below historical averages.

Turning then to slide 12 and structure reform.

Since our Q3 update, we made good progress on our structure reform plans.

This morning, Jes announced the immediate establishment of our new key divisions and exciting growth prospects of both.

Barclays UK, a personal and business banking franchise of true scale, and Barclays Corporate & International, a diversified transatlantic wholesale and consumer banking franchise.

The creation of these divisions simplifies the Group and concentrates Barclays' competitive advantages together in the right places.

Barclays UK will be a leading UK retail banking franchise, UK consumer credit card business, and a committed provider of lending and financial services for small businesses.

With 22 million retail customers and almost 1 million business banking clients, it is the country's leading business banking franchise, second largest wealth manager in the UK, and number one card issuer in England.

Barclays UK is a very profitable business that we want to grow further leveraging the strength and depth of our consumer and client relationships across the UK coupled with technological innovation.

Barclays Corporate & International will comprise our corporate banking business, which is number two in UK corporate lending, our top tier investment bank, our strong and growing international cards business, our international wealth offering, and our leading payments capability through both corporate banking and the Barclaycard merchant acquiring expertise.

These businesses offer scale in wholesale banking consumer lending, strengthen our key markets, excellent growth potential, and a good balance in its revenue streams, delivering further resilience and diversification.

The balance sheet of Barclays UK will be almost entirely UK focused while the balance sheet of Barclays Corporate & International will be larger, well diversified across several business lines and geographies, with a majority of its assets in the UK and US.

At current scale, the investment bank RWA to market activities only account for around one-third of Barclays Corporate & International RWAs.

To be clear, Barclays UK and Barclays Corporate & International are currently only business divisions.

The legal entity restructuring to create our UK ring-fence entity is not expected to occur until 2018.

The creation of these divisions are however critical milestones.

Ultimately, Barclays UK will become our newly created UK ring-fence banking entity while BB PLC and its operating subsidiaries will host Barclays Corporate & International.

We will be publishing a restatement document reflecting the new divisional structure ahead of our first-quarter results in April.

But we have provided indications of some of these restated financials on this slide, all of which are based on spot December 2015 figures.

While the business mix of these divisions will clearly be different from one another, you can see that the indicative year-end financials while balanced and coherent, the RWA density is expected to be similar.

Both have loan-to-deposit ratios of 100% and both divisions generated double-digit adjusted RoTEs in 2015.

The future ring-fence bank will be established as a well capitalized legal entity and BB PLC will continue to be similarly strongly capitalized.

We expect their respective capital, liquidity, and funding requirements to be comparable to those of the Group and we will similarly hold prudent buffers above minimum requirements.

Therefore, we expect that both divisions when separately assessed should support solid investment grade credit ratings.

On slide 13, we set out an illustration of the expected funding profile of these businesses.

Based on year-end 2015 financials, Barclays UK will have had an indicative loan-to-deposit ratio of around 95% being largely deposit funded.

However, the future ring-fence bank will also be subject to an internal MREL TLAC requirements.

Therefore, the year-end 2015 liability composition can be expected to shift by the time the UK ring-fence entity is formally incorporated to include capital and term senior unsecured funding downstream for the HoldCo.

The funding profile of Barclays Corporate & International is also expected to be well balanced across deposits and wholesale funding.

As of year-end 2015, the indicative loan-to-deposit ratio would have been around 85%.

By the time the ring-fence bank is established, BB PLC term financing needs are expected to largely be met through downstream MREL TLAC from the HoldCo, and it is expected to have notably fewer wholesale liabilities raised directly from the markets.

As we previously said, to the extent that there is BB PLC issued capital and debt outstanding at the time of legal implementation, we would expect this to remain at BB PLC and not be transferred to the ring-fence bank since the ring-fence bank is expected to meet its term unsecured funding and MREL TLAC needs from the parent.

Lastly, BP PLC is expected to continue to raise secured funding through our US card securitization program and short-term unsecured funding through CP and CD programs.

So to round up, we're well progressed with our plans for structure reform.

Having formulized our divisional structure to the future legal entity design, we expect to be able to manage a smooth transition to our formal legal entity construct over time while minimizing disruption to our strong returning core businesses.

All these changes will fundamentally impact the organization of Barclays.

We're not changing our core client proposition.

We'll continue to run our businesses, serve our clients and geographies, and operate within a unified governance of risk management framework as set by the Board of Barclays PLC just as we do today.

Let me conclude with slide 14 before handing back to Tushar who will open the call up for Q&A.

2015 has been a year of progress on executing our strategy.

Our core businesses are profitable and underpin the earnings accretive capacitive of our franchise.

Group returns will improve further as we take out more costs and continue to deal with conduct and litigation issues.

We have significantly reduced our non-core division and will now focus on completing the rundown.

We have made excellent progress in further improving our financial strength.

We will continue to focus on transitioning towards a HoldCo model while maintaining a regular dialogue with our regulators and investors.

Lastly, our newly created business divisions will position us well as we continue to prepare the organization and our stakeholders for structure reform.

Tushar, with that, I'd like to hand back to you.

Thank you.

Hope you found this call helpful.

We'd now like to open it up to questions.

With a reminder, I'm joined here today by Dan Hodge, our Group Treasurer; and Steven Penketh, Head of Our Capital Markets Execution.

With that, could we have the first question, please, operator.

(Operator Instructions)

Your first telephone question today is from Paul Fenner of Societe Generale.

Please go ahead.

Hi.

Good morning, everyone.

Thanks for taking the question.

Thanks for the presentation.

I've got three very quick questions.

First of all, on MREL, thank you very much for the disclosure around the spot MREL as opposed to the transitional.

You're obviously being currently measured on a group basis.

Is there a stage at which the PRA starts to ask you to be measured on a spot basis, i.e, the requirement flips from Group to HoldCo or is that not the way it works?

The second question is, I hear what you say about the 7.8% MDA minimum, if you like, a buffer over which you can make as many distributions as you like.

You're obviously aware of the debate there's been on the continent around whether it's SREP, whether it's a total capital requirement, and it's become clear that it's the SREP.

My question to you is, do you think that there's a stage at which above the 7.8% that the PRA would probably start putting some pressure to limit distributions and if so, where might that be?

And then the third question is, there was no mention of it today on the earlier call, is Brexit.

What is it?

How is it that you're thinking about it?

What sort of planning can you put in place to get a sense of contingencies?

Thanks.

Thanks, Paul.

So why don't I ask Steven to take you through MREL and how we think about it in terms of where it's applied.

And I'll ask Dan to cover distribution restrictions and planning that we're doing around any Brexit scenario.

MREL fundamentally is a single point of entry home regulator target.

You're looking at it from a holding company.

And the end number, the spot number that will be given further rundown in 2016 with regulator will flow from the Holding Company down to the underlying subsidiaries.

There have not yet been targets set for the what will become independent subsidiaries of ring-fenced bank and non-ring-fenced bank for good reason because they don't actually exist as yet.

Everything will go straight to BB PLC.

There will of course be if you look at the material and overseas subsidiaries effective MREL targets set although it's really divvied up as a TLAC at the moment from a TLAC term sheet from overseas regulators.

So for example, from a US IC perspective, you see that it's 14% for 2019 plus a 2.5% buffer, 16% by 2022 with a 2.5% buffer.

Fundamentally, we would expect the MREL figure that we've given at the top of the house to be the overall consolidated requirement that will be distributed appropriately across the Group.

So thanks, Paul.

Just taking the comments around MDA and SREP.

What I would say around that, I don't expect our sort of minimum distribution restrictions to sort of move towards an SREP float.

While I think it's pretty clear to us as we laid out here on slide 7 that we're going to need to meet sort of the solvency minimum plus Pillar 2A plus the phased-in buffers.

We're at the point at which we have the distribution restrictions.

And therefore, as we've articulated, it's very important that we have a material buffer and above that as you point out, sort of 3.6% at Jan 16.

That's really -- I think that's really the key.

That's really the key around that one.

Do we think we're going to come under

pressure before we hit those kind of levels?

Yes, I think it's fair.

As you do start getting towards that point, we would like to put a lot of pressure on ourselves I think in advance of the regulator putting pressure on us.

It's really, really important that we don't go near the levels at which distributions get restricted.

And in fact, we absolutely size our buffers in a way to make that a remote possibility.

We do a lot of work in terms of calibrating the 100 to 150 basis points.

We look at sort of BAU volatility and noise we see through risk weighted assets and capital.

We run sort of large sort of one-off events to also resize our buffer in a way to make sure we pass our stress tests.

So I think we've be putting ourselves under a lot of pressure long before, in fact, the regulator taps us on the shoulder

To the other point around Brexit, as you'd expect of a global institution, we are assessing this from multiple perspectives including what it will mean for risks, operations, employees.

This does involve an estimate of secondary impacts on macro variables such as FX and interest rates.

It's very hard to say exactly of course what the outcome is going to be.

The impact largely depends on you how arrangements with Europe will be structured in terms of the single market access.

There are many potential outcomes of both.

What we're focused on doing is scenario planning for those different potential outcomes.

Thank you.

Next question, please, operator.

The next question is from Lee Street of Citigroup.

Please go ahead.

Hello.

Good afternoon, and thank you very much for taking my questions.

Just a question on risk weighted assets.

You guide for GBP360 billion of risk weighted assets, which is about where you're presently at.

But you're obviously going to have the rundown of the non-core for about GBP35 billion.

My question is, where's the growth going to come from in RWAs that will take you back up to the GBP360 billion level?

Secondly, you mention that Barclays is working very hard to manage all of its legacy issues.

Just any commentary you've got if you remain in conduct and litigation issues, which ones worry you the most and any comments on the proximity to settlement of any of them.

And finally, will you actually be allowed to disclose your specific MREL requirement?

Is that clear yet?

That would be my questions.

Thank you.

Thanks, Lee.

Why don't I answer your first two on risk weighted assets, and then turn it over to Steve to talk more about MREL requirements.

On the risk weighted assets level, as you rightly point out, Dan suggested that we should use GBP360 billion -- or investors can use GBP360 billion as a reasonable planning assumption.

Of course, you're right to point out that we would want to wind down non-core and intend to wind down non-core so that you'd expect if that gets down to GBP20 billion, which is our expectation, another GBP35 billion or so comes out of there, post the perimeter change.

At some point as we wind down our holding in Africa, that will deconsolidate and that will have a further reduction as well.

In terms of growth, I wouldn't use the GBP360 billion as a target.

Dan was quite clear, don't think of it as a target but just as sort of a safe near-term kind of planning assumption.

But in terms of growth in risk weighted assets, I think the areas that we would like to grow steadily is probably more on that consumer and corporate side, but we don't expect them to grow in these kind of scales.

To put that into context, our ring-fenced bank, which obviously houses most of our -- well, entirely our UK consumer and business banking, has about GBP70 billion of risk weighted assets.

So just looking proportionately, you wouldn't expect that to be growing in sort of GBP10 billion size or anything like that.

It will be much more modest growth than that.

The other place where we would like to grow in the international entity would be our US card business and our corporate banking business.

But again, they probably exhibit similar characteristics to the UK business in the sense you wouldn't expect them to grow in significant scale.

I think it's probably reasonable to assume GBP360 billion is a near-term sort of planning assumption, but I think that over time that continues to sort of drift down as we wind down non-core and deconsolidate the Africa business.

What we won't be doing is expanding the utilization for our investment bank, and we'd like to think that things like fundamental review of the trading book, many of the sort Basel-type revisions to RWA, either we'll be able to absorb them just through management actions and various other opportunities that we have available to us or indeed Pillar 2A may substitute that into Pillar 1 and Pillar 2A reduce it.

The second question on legacy issues, a lot of people obviously would like to know exactly where we are in some of these items and it's very hard for us to really talk very openly about them because obviously they're fluid and ongoing in nature.

I'd say the one that's perhaps the most significant that we would like to resolve and get behind us as expeditiously as we can, obviously being economical about it, is the DOJ investigation on RMBS underwriting.

I can't give you a timeframe on that but you'll have noted some of the American banks have worked through that issue with the DOJ and other banks have commented on their status with them.

That's the one that we'd sort of focus on trying to expedite.

Then the only other one I'd probably call out is we did take a large additional provision for PPI.

That's on the assumption that the FCA's consultation period -- sorry, their window for redirect is consistent with their consultation that they just put out there, and it's an estimate of the claims experience that we would expect over there.

So again, that may have some variability in there as well.

On MREL, why don't I hand over to Steve.

Lee, I think the MREL numbers obviously are subject to a consultation process at the moment.

The one thing that we do know which is why we've illustrated it this way is that TSIP banks will have to be at the minimum from a [tier back] perspective by 2019 and 2022.

The MREL number itself actually comes in and crystallizes in 2020.

At the moment, it's set at the minimum capital of 13%.

I think that the timeline from here on in is discussion between us and the Bank of England as to what that actual MREL number will be for Barclays.

Once we've actually got crystallization on that number, there will obviously be a communication policy agreed as well around that, not just for us but also for the UK industry I would expect.

So watch this space.

Okay.

Very clear.

Thank you very much.

Next question, please, operator.

The next question is from Greg Case of Morgan Stanley.

Please go ahead.

Good afternoon, guys.

Thanks for the call.

Just a few from me, if you don't mind.

So firstly, I note that your HoldCo downstreaming slides from previous quarters has disappeared.

I was wondering if there was anything to read into that in terms of your policy on downstreaming.

Also, just in terms of excess liquidity, I note the comments that you made around your LCR and to your access to funding.

With the maturity profile that you put out there, the non-core rundown and the HoldCo issuances that you're planning for this year, are there any other levers other than LME that you could be pulling to reduce those excess liabilities?

I assume you don't want to be running those cash balances that you're running today.

I'm assuming they will be growing from here.

And then also just on the ratings at the non-ring-fence bank, I was wondering if you had any comments around the IG rating and whether or not that's achieved through a level of ALAC or loss [given failure based] instruments lifting up the senior rating.

Essentially the question is really, would you see a material difference between the sub ratings and the senior ratings for the non-ring-fence bank?

Thanks.

Thanks, Greg.

Why don't I hand these around.

I'll ask Steve to talk about the HoldCo and downstreaming of debt and Dan can cover the other two questions on excess liquidity and the ratings profile of the non-ring-fence.

Nothing to read into the fact that the downstreaming slides on a like-for-like basis has been taken away apart from the cyclical observation.

Obviously it hasn't done us an awful lot of good in the context of spread performance generically in the market.

Fundamentally, we still are rating capital and funding at the Holding Company and downstreaming BB PLC on a like-for-like basis.

Thanks for the questions today, Greg.

In terms of this sort of surface liquidity, and you're right, obviously we have taken some steps already on that.

If you look at the non-core rundown and the need to issue more wholesale debt, you might sort of form the view that we're going to be generating a large surplus here.

But that obviously ignores the fact that as Tushar was just saying, we're intending to grow some of the core business as well.

I wouldn't anticipate seeing a material increase in the LCR from where it is today.

Clearly, we also look at liability management exercises when it's the right thing to do, so from an economic capsule regulatory perspective.

So as I would sort of expect to see it running sort of close to the levels that we have been running it at, and I don't sort of view that as a large drain on the returns of the organization.

The reason for that is the really kind of expensive liabilities are the ones we go after anyway through our liability management exercises.

That's where the cost of running certain liquidity comes in.

That's actually quite a small portion of the total liabilities we have.

Most of the liabilities which one might sort of regard as surfaces, if you like, are actually fairly inexpensive.

You can sort of you attribute it to cheaper deposits or shorter-term wholesale money market funding.

We're very comfortable running at these sort of levels.

In terms of the ratings or the non-ring-fence bank, we talked a little bit about that one.

Now we obviously can't predict precisely what the rating is going to be in the future.

That's for the agency to determine.

We are however very confident that both the ring-fence bank and non-ring-fence bank by which we mean BB PLC, it won't be materially different from the present ratings that we see for BB PLC.

so that will be a reminder, A2 for Moody's, A- for S&P.

That's very much because of all the work we've done on designing the distribution of businesses, designing the allocation of capital and funding, and to hit all those metrics for those entities.

So we look very, very hard at capital strength, credit quality, asset quality, funding, liquidity, returns.

In such a way, as I said earlier in the scripted comments, we hope to achieve solid investment grade ratings, and you can actually not just sort of take my word for that on conference.

You can see some of the data we've already started to share about the strong performances and the strong balance sheets of these two parts of the Group at the end of 2015.

So we think these are fundamentally well diversified entities, and we are very confident about BB PLC now and in the future.

Okay.

Just on the sub-debt as well, would you expect the ratings to remain broadly similar or are they more at risk?

The sub-debt in the end state will actually come from the Holding Company, as you would expect.

To the extent that you end up with additional support and tranches thicken the Holding Company, you'd expect that benefit to fundamentally go to the senior debt I think rather than the subordinated debt.

I would expect the subordinated debt at the Holding Company to remain pretty much stable.

We certainly won't be issuing any additional sub-debt or the expectation is that we would not be doing that from the Operating Company.

Next question, please, operator.

(Operator Instructions)

The next question is from Robert Smalley of UBS.

Please go ahead.

Hi.

Good afternoon.

Thanks for doing the call also in US time.

Greatly appreciate it.

First, following up on Greg's point, what interests us is downstreaming on a not like-for-like basis because when that happens essentially you'll be demoting the entire senior HoldCo asset class.

So continued disclosure on that would be important.

But a couple of questions.

One, just in terms of the non-core assets, you had a one-time increase in that.

Can we assume that there won't be any traffic between the core assets and non-core assets that essentially those are the non-core assets and they will be worked down and there won't be any interchange between the two, is the first question.

Second question, disclosure of distributable reserves is one step, but you're going to be a more frequent issuer in the AT1 market.

Besides the market settling down, what else do you think as an issuer you can do to restore confidence in that market?

And then three, in terms of page 12 and 13 and funding and capital between the three entities, PLC, the ring-fence bank and non-ring-fence bank, I'm hard-pressed to see how from a funding perspective, even though we can look at the consolidated entity, how funding wouldn't be more expensive even if you raise as much as you can from the Holding Company and downstream it to the non-ring-fence bank, there will still be some funding that the non-ring-fence bank does, so how do you mitigate higher cost from funding.

And then, while I know we have to look at capital on a consolidated basis, we will have to apportion it between the three entities.

How do we get the regulators to make sure that they don't look at capital allocation between the three units and instead of one and one making two, they want one and one to make three, and impose higher individual minimum on each one of the units?

Thanks, Robert.

I'll take your point on the downstreaming and the transparency on that, so take that feedback on-board.

Thanks for that.

I will answer your question on non-core, and I'll hand over to Steve to talk to you a bit more about particular reserves or any other forms of disclosure we can help with AT1 investors, and Dan can cover how regulators may think about capital requirements and entity levels that indeed sort of funding costs within the non-ring-fence bank.

Thank you.

In terms of non-core, it is a one-time perimeter switch in the sense that we have transferred.

In this case actually not so much heavy balance sheet orientated businesses, they're more expensive businesses from a cost standpoint rather than balance sheet side standpoint.

So it's a relatively modest GBP8 billion of risk weighted assets that have gone over, but GBP600 million of expenses or costs.

In terms of the two-way traffic between the two, we haven't transferred anything from one way or another.

It's been sort of both have got a brick wall around them.

It's the first time we're putting more into non-core and really that's when Jes came into the Company and did his own review of the businesses he considered strategic, nonstrategic.

I think at the end of this confidence of being successful is pretty high.

When we get to the end of 2017 and risk weighted assets are around GBP20 billion, I think at that stage we'd consider folding non-core back into the core division.

So I don't think you'll ever be in a situation where non-core literally whittles away to zero and you see it at zero and then we close it.

It will just be dissynergistic for us to have some of the many of the wall to management teams and full separation between the folks managing non-core and the folks running our day-to-day operating businesses.

At some point, that just becomes dissynergistic.

My sense is that that is around 5% or a bit below 5% of Group resources, and risk weighted assets is probably a reasonable measure as is perhaps costs.

Therefore the dilution effect of non-core folding back into core is minimal in terms of returns or P&L perspective.

Steve, do you want to cover the distributable or AT1?

The AT1 confidence generally, obviously what we have here is a fundamental sell off beginning of the year that to be honest surprised us, I think surprised many.

Because I think there's been a dislocation that is actually divorced from [media syncratic] credit risk if you're thinking about deferral risk on these underlying securities, certainly from our perspective.

With respect to deferral risk, I think Dan's already touched on these points very persuasively in his original address around the importance to us of maintaining a management buffer that is significantly above distribution restriction zones to ensure we can actually keep paying AT1 as it falls due.

We've also made statements in the past about the fact that how we view the capital hierarchy.

Although we cannot actually give sort of verbatim comfort, there are reasons around different capital hierarchies.

We've always said I think in the past that we would intend to respect capital hierarchies when it comes to distribution payments on our securities.

And I think the other action to point out is that irrespective of your management buffer, you also have recovery actions that you would take well in advance of actually hitting a distribution restriction zone as far as AT1 is concerned.

So we would hope as you see the Common Equity Tier 1 story unfold, you see the capital build and you see the market generally settle down, over what has been frankly very fractured period since sort of middle of January, that the AT1 yields would actually come in as well and then price appropriately in the context of the capital stack versus equity in Tier 2.

Okay.

I'll take the final question there.

We sort of talk about this potential risk of the [summer path] risk and I think you captured it well there with the arithmetic.

We're quite confident on this point and here's why.

The capital requirements are still evolving.

So we don't have absolute sort of end state certainty yet in terms of what the required ratio is going to be for the ring-fence bank or for BB PLC for similar reasons to those I articulated earlier really for the Group as the various parts are moving around still.

From what we can see at the moment, though, we don't expect the requirements to be significantly different in terms of the minimum capital ratio requirement for ring-fence bank, BB PLC.

So not that different from each other and not that different from the Group either.

In addition, I would say that we're very, very deliberate in terms of how we allocate our resources into these different entities to specifically avoid getting to a situation where we're trapping capital or funding within these subsidiaries.

I think the best example I can give about it, I talked about the average risk weights being quite similar earlier.

That's really important because if you had one entity with a very low average risk weight and one with a very high average risk weight, the one with the low risk weight would become leverage constrained.

You'll need to dump extra sort of subordinated debt capital down there.

This is also about the design, and so we're happy we've got that design right.

So obviously, the desired end state here is for the opposite to be true and rather than have dissynergies from our various subsidiaries from a capital perspective, we have synergies.

We think that a holding company model can help us achieve that.

We raised our debt and equity at the Holding Company so we can concentrate diversification of that level and ultimately seek the path and the benefits of that diversification to our subsidiaries.

Okay.

I think that's the final question, so we'll wrap up the call now.

We hope you found this very helpful.

We'll continue to run the call at the full-year results and at the half-year results and to the extent you'd like to share any feedback on the usefulness of these calls with us, please do so and we'll try and incorporate that the next time we get together.

With that, thank you very much for joining us.