Barclays PLC (BCS) 2025 Q2 法說會逐字稿

Welcome to Barclays Half Year 2025 Results Analyst and Investor Conference Call. I will now hand over to C.S. Venkatakrishnan, Group Chief Executive, before I hand over to Anna Cross, Group Finance Director.

Good morning, everyone. Thank you for joining Barclays' second quarter 2025 results call. I'm very pleased to announce very strong results for this quarter. Income grew by 14% year-on-year to GBP7.2 billion. Profit before taxes grew by 28% to GBP2.5 billion, and earnings per share grew by 41% to 11.7p.

Return on tangible equity was 13.2% in the first half of the year and 12.3% in the quarter. This compares to 11.1% in the first half of 2024 and 9.9% in the second quarter of last year. Cost-income ratio at 59% in the second quarter is a 4 percentage point improvement versus last year. This performance drove an eighth consecutive quarter of growth in tangible book value per share now to 384p, and it has driven strong capital generation with a CET1 ratio of 14%.

As a result, we are announcing a GBP1 billion buyback today, up from GBP750 million in the first half of 2024, and we expect to initiate this in the coming days. And we are also announcing a dividend per share of 3p. This total of GBP1.4 billion of shareholder distributions for the first half of 2025 is up 21% year-on-year.

And we expect our distributions to continue to build progressively, supported by increasing capital generation. These strong results mark the midpoint of our three-year plan to deliver a better run, more highly performing and higher returning Barclays. I'm very pleased with the group's operational and financial progress so far.

We remain committed to and confident in achieving the full objectives of this plan, and this includes a return on tangible equity of circa 11% in 2025 and more than 12% in 2026. By design, our plan is delivering operational improvements across each of our divisions to drive structurally higher and more consistent group returns in 2026 and beyond.

In the second quarter, we achieved a further GBP200 million of gross efficiency savings or GBP350 million for the first half of 2025. This is a good progress against our target of circa GBP500 million for the year.

All of our divisions generated a double-digit RoTE in the second quarter. This includes a 2.6 percentage point year-on-year improvement in the Investment Bank's RoTE to 12.2% and a 1% improvement in the US Consumer Bank RoTE to 10.2%.

Before handing over to Anna to take you through the results in more detail, let me share a few reflections on our progress at the midpoint of our plan. I am very pleased with what we have achieved so far. Our three-year plan set out in February 2024 outlined a roadmap to produce higher and more balanced returns.

We have seen the value of clearly articulating our targets and capital framework, the value of providing transparency for shareholders and the value of driving accountability and disciplined execution internally. I would stress that our 2026 targets were never intended to be a resting place, and nor do they represent the extent of our ambition for RoTE capital distributions or the proportion of group capital allocated to the Investment Bank.

We are executing against our plan, as we said we would, resulting in higher shareholder returns. And the momentum, which we are seeing across the group positions us well to deliver our RoTE guidance and targets by continuing to drive income growth by increasing operational leverage and with our business mix changes.

Since 2023, we have deployed GBP17 billion of business growth risk-weighted assets into our UK focused businesses, Barclays UK, the UK Corporate Bank and Private Bank & Wealth Management. This includes GBP10 billion from organic growth. This organic progress and the acquisition of Tesco Bank mean that we have now deployed more than half of the planned GBP30 billion by 2026.

Within the Investment Bank, we have intentionally kept RWA stable for 3.5 years. This is driving efficiency and productivity and to ensure that the division is a consistent source of capital generation for the group. I am very pleased with our performance halfway through the plan with annualized income growth of 9% since 2023, in line with the division's high single-digit growth target.

I think about the Investment Banks performed through two lenses: structural and cyclical. Structural improvements in the business are driving broader and deeper client relationships, and they are supporting income in a range of environments. A good example of this progress is in our markets franchise, where we now rank top 5 with 60 of the top 100 clients in the business.

This is well on our way to our target of 70 by 2026, up from 49 in 2023. By strengthening our institutional client franchise, we have increased market share in our three focus businesses by more than 1 percentage point during 2024 and with good momentum since then. And in financing, good momentum of client onboarding and balanced growth contributed to a [23%] year-on-year increase in income in US dollar terms in the second quarter with particular strength in prime.

So stable income streams now account for 40% of the Investment Bank's income in the past year, up from 29% in 2021. From this structurally stronger base, the Investment Bank is also better positioned to monetize cyclical market activity by helping clients to manage volatility as we demonstrated in the early part of the second quarter of this year.

This cyclical activity is included in traditional areas of strength for us, such as credit and macro and also in new areas of strength such as equity derivatives and prime. Our work is not finished. With the ongoing execution of our plan, we will continue to produce structurally higher and more consistent returns for our shareholders. And with that, over to Anna to take us through the second quarter.

Thank you, Venkat, and good morning, everyone. Slide 5 summarizes the financial highlights for the second quarter and first half of 2025. Before going into the detail, I would remind you how our results are affected by FX rates. The year-on-year performance in Q2 was impacted by a weaker US dollar, which decreased our reported income, costs and impairments.

I'll call out these effects where appropriate. The group delivered a Q2 RoTE of 12.3% against the previous year's 9.9%. Excluding the effect of last year's business disposal losses, income rose 9% with growth across all divisions, while our efficiency actions led to another quarter of positive jaws of 4%. Profit before tax increased by 28% year-on-year to GBP2.5 billion, and our earnings per share grew 41%, supported by the effect of share buybacks.

As ever, I am focused on four aspects of performance, income stability with an emphasis on growth, cost discipline and progress on efficiency savings, credit performance and a robust capital position. By focusing on these four building blocks, we are now driving higher returns on a sustainable, predictable and consistent basis.

And from this strong foundation, I am now looking for signs of increasing momentum across our businesses, which I'll call out as we go, starting on slide 7. Income in Q2 increased 14% year-on-year to GBP7.2 billion. We grew stable income streams by 13% year-on-year supported by sustained retail and corporate NII growth and 15% growth of financing income within the market. Elsewhere in the Investment Bank, our multiyear investments meant we were well positioned to help clients navigate volatility in April and throughout the quarter.

Group net interest income increased 12% year-on-year in Q2 to GBP3.1 billion. Stable deposits for the group supported continued reinvestment of the structural hedge alongside lending momentum. Within this, we have consistently taken market share in UK corporate bank deposits and lending since 2023 and year-to-date. And in Barclays UK, we maintained our share in current accounts and chose to remain disciplined on term deposit pricing in the quarter amid strong competition.

The overall stability of deposits will support growth of the structural hedge income as we show on slide 9. Income from the structural hedge is material and predictable and underpins our confidence in delivering NII guidance for the group and Barclays UK in 2025. And beyond 2026, we currently expect the structural hedge to deliver multiyear NII growth. We have now locked in GBP11.1 billion of gross structural hedge income in 2025 and 2026, up from GBP10.2 billion last quarter.

As we said in April, our plan assumes that we reinvest 90% of maturing hedges at a 3.5% yield. In each case, the Q2 outcome was more favorable than these assumptions. On rates, we locked in hedges at a higher rate at circa 3.7%, and we kept hedge balances flat. As you can see on slide 35 in the appendix, reflecting the continued stability hedgeable deposits.

Moving on to costs. The group cost-to-income ratio was 59% in Q2 down 4 percentage points year-on-year. Total costs increased by GBP219 million year-on-year or 5%, which includes a circa GBP100 million increase in investment costs, mainly from the acquisition of Tesco Bank and associated integration costs.

The effects of business growth, inflation and other investments on the cost base were largely offset by gross efficiency savings. Structural cost actions in the first half were around GBP100 million down slightly versus H1 '24.

Looking ahead, we expect structural cost actions to be skewed towards the second half of the year and to be towards the top of the GBP200 million to GBP300 million normal annual range. Inclusive of these costs, we remain well positioned to deliver a circa 61% cost-income ratio in 2025, in line with guidance and the high 50%s target in 2026.

Turning now to impairments. The Q2 group impairment charge of GBP469 million equated to a loan loss rate of 44 basis points. The UK credit picture remains benign with low and safe delinquencies in our consumer books and wholesale loan loss rates are low or through the cycle expectations. The Barclays UK charge was GBP79 million in Q2, resulting in a loan loss rate of 14 bps.

The improvement versus Q1 reflected a release of credit card provisions and diminishing post-acquisition stage migration effects for Tesco Bank balances. The US Consumer Bank impairment charge of GBP312 million was stable year-on-year and down 22% versus last quarter. The acquisition of General Motors card balances is expected to lead to a circa GBP100 million day 1 charge in Q3 and a post-acquisition stage migration charge of circa GBP50 million for the next few quarters from Q4.

Including this charge, we continue to expect a group loan loss rate within the through-the-cycle guidance of 50 to 60 basis points for FY 2025. Focusing on the US consumer bank, 90-day delinquencies were stable in the quarter, whilst 30-day delinquencies fell 20 basis points to 2.8%, consistent with normal seasonal trend. The loan loss rate of 456 basis points increased by 18 basis points year-on-year, reflecting modestly higher write-offs. Consumer behavior remains resilient with payment rates in our book above pre-COVID levels and consistent with Q1 and a stable mix of new account acquisitions as can be seen on slide 39 in the appendix.

I said I would highlight signs of increasing momentum, which we are seeing. So turning to our UK businesses on slide 13. We are on track to deploy GBP30 billion of business growth RWAs in the UK by 2026, having achieved GBP17 billion so far, including GBP10 billion organically.

During 2024, the three UK businesses delivered circa GBP1.5 billion of organic business RWA growth per quarter on average. This has accelerated to circa GBP2 billion per quarter in half one 2025. Given the momentum that you can see on the slide, we expect this growth to continue.

Mortgage balances have grown for the past four quarters and strong purchase activity continues to support resilient demand. This includes stronger demand for higher LTV products including Kensington, where application margins are around 4 times higher than comparable Barclays-branded mainstream mortgages.

In credit cards, the organic acquisition of 1.6 million customers in the past 18 months has supported consistent balance growth. And we expect this to lead to higher interest-earning lending from half to 2025 as promotional balances mature. Core business banking lending has started to inflect with a headwind from COVID era or loan repayments diminishing.

This growth has been supported by GBP1.6 billion of loans provided to UK business banking customers in half one up 50% year-on-year. And UK Corporate Bank lending has grown for the past three quarters as clients continue to draw down lending facilities. Given momentum across these products, we remain confident in achieving the GBP30 billion target in 2026. This implies a little over GBP2 billion of growth per quarter, modestly above the recent run rate.

Turning now to Barclays UK in more detail. You can see financial highlights on slide 14, but I will talk to Slide 15. RoTE was 19.7% in the quarter, NII of GBP1.9 billion increased 16% year-on-year and 2% quarter-on-quarter with NIM stable versus Q1. We remain confident in our guidance for NII to exceed GBP7.6 billion in 2025, which in turn means more than GBP3.9 billion in the second half of the year.

Reinvestment of the structural hedge will continue to support material and predictable NII growth alongside sustained lending momentum. In addition, we expect a neutral or positive contribution from the product margin in Q3 and Q4. This partly reflects the benefit of promotional card balances translating into higher interest-earning lending in half two. In addition, as an accounting matter, the phasing of some historic swap maturities suppressed product margin in half one. This was known when we upgraded our guidance for NII last quarter and will not repeat in future as these swaps expire.

We would therefore encourage you to look at H2 2025 as a reasonable baseline for NII dynamics beyond 2025, noting that NII is expected to build in Q3 and Q4. Non-NII of GBP264 million rose modestly versus Q1, and we continue to expect a quarterly run rate above GBP250 million. Cost growth of 14% reflected the acquisition and subsequent ongoing integration of Tesco Bank.

As a reminder, we expect the cost-income ratio (technical difficulty) fell by GBP1.8 billion in the quarter as customers took advantage of favorable term deposit rates around the new season. We were disciplined around pricing for term deposits, which was competitive in the first half of the quarter. This dynamic moderated later in the quarter, and our market share in current count has remained stable.

Lending once again grew by GBP1.6 billion quarter-on-quarter, driven by mortgages and credit cards. Mortgage redemptions will increase in half two versus H1, but our recent retention experience and the momentum that we are seeing underpin our confidence in sustained loan growth.

Moving on to UK Corporate Bank on slide 18. Q2 RoTE was 16.6%, inclusive of a GBP39 million litigation and conduct charge. This charge was in relation to a historic issue and drove a 19% year-on-year increase in costs in this business. Excluding this, costs increased by 2%, while income grew 17%, NII was up 21% year-on-year, reflecting deposit and lending growth and the benefit from structural hedge reinvestment.

Operationally, investments into our digital and lending propositions have helped to attract around 330 new clients during H1 2025 and circa 880 new clients in the first half of the three-year plan.

Turning now to Private Bank & Wealth Management. Q2 RoTE was 31.9%, and net new assets under management of $0.9 billion helped support 8% year-on-year growth in client assets and liabilities despite a weaker US dollar. An annualized growth of 11% since 2023 is in line with our double-digit growth target.

Within the quarter, growth of assets under supervision offset a reduction in short-term deposits held at the end of Q1. Income growth of 9%, matched cost growth of 9%, resulting in a broadly stable cost-to-income ratio. As previously guided, we are continuing to invest in this business underpinning sustained growth and a high 60%s cost-to-income ratio in 2026.

Turning now to the Investment Bank. RoTE was 12.2% in Q2 and 14.2% in half one. Total income was up 10% year-on-year, which, coupled with broadly stable RWAs, now for 3.5 years, drove an 80 basis point improvement in income over average RWAs to 6.7%. We continue to be similarly disciplined on costs, which rose 2%, resulting in another quarter of positive jaws and a cost-income ratio of 59%.

Using the US dollar figures to help comparisons to US peers, markets income was up 34% year-on-year. As Venkat mentioned, the growing breadth and depth of our client relationships are supporting structurally higher income while better positioning the investment bank to monetize cyclical activity.

Our performance in Q2 helps to demonstrate this. In April, for instance, we monetized cyclical market activity by supporting clients through the period of volatility. While in May and June, structural improvements in the business enabled a higher daily income run rate in markets versus last year despite more normalized volatility. This was supported by momentum of more stable financing income, which grew 23% year-on-year in US dollar terms.

This occurred across financing products with particular strength in prime, supported by growth in balances and wider spreads. We also delivered this performance whilst managing risk well, maintaining stable VAR and incurring two trading book loss days, one in April and one in May, in line the average since 2019.

Looking at our income by product, FICC rose [35%], reflecting growth across the credit and macro franchises and in financing. The mix of our macro business weighted towards rate and FX was well suited to activity in the quarter. Equities income was up 34%, driven by strength in cash, prime and equity derivatives. In banking, the environment was quiet in April, but improved in May and June, and our half one market share was stable at 3.4%.

Banking income fell 10% in the quarter, reflecting the year-on-year effect of our large ECM transaction in Q2 2024. Looking through this effect, ECM activity gains momentum towards the end of Q2 with Barclays acting as bookrunner on 7 of the top 12 US IPOs in the quarter.

In DCM, we grew market share in all products and activity picked up as the quarter progressed, particularly in investment grade and the pipeline for leveraged finance is encouraging. And whilst advisory activity has been subdued, our net volumes are up nearly 40% year-on-year, which we expect to support stronger completed market share in the future. In transaction banking, income increased 4%, whilst corporate lending income was impacted by fair value losses on lending positions.

Turning now to the US Consumer Bank. RoTE was 10.2% in the quarter, up from 9.2% in Q2 2024. The business performed as we expected it to in the quarter with operational improvements supporting our confidence in delivering a RoTE of greater than 12% in 2026.

Total income increased 7% year-on-year in US dollar terms, reflecting end net receivables growth of 5% to $33.9 billion on a managed basis. NIM expanded to 10.8%, and we expect continued momentum towards our greater than 12% target in 2026, reflecting three effects.

First, asset repricing actions taken last year are supporting margins and will continue to feed through in the coming quarters. Second, we are growing higher-margin retail balances as a percentage of net receivables from around 15% currently to circa 20% by 2026. Third, we are improving our funding mix with retail deposits growing by $0.7 billion quarter-on-quarter or 27% year-on-year, increasing the share of funding from core deposits to 73%.

The acquisition of General Motors Cards receivables is also expected to enhance RoTE from Q4 2025 despite a GBP50 million stage migration charge in the quarter that I mentioned earlier. We continue to complement income growth with efficiency, driving a 2 percentage point improvement in the cost-to-income ratio to 48% on track for our mid-40%s target by 2026.

Moving to capital. We ended the quarter in the upper half of the 13% to 14% target range with a CET1 ratio of 14%. This is a deliberate consequence of the strategy, which was designed to drive higher and more consistent returns, improved capital generation and higher shareholder distributions. We generated around 100 basis points of capital from attributable profits in H1 and expect around 170 basis points this year aligned to our circa 11% RoTE target.

This enabled us to increase distributions by 21% year-on-year in half one to GBP1.4 billion, in line with our guidance to deliver a progressive increase in total distributions in 2025 versus 2024. This included an announced GBP1 billion share buyback and which will reduce the reported ratio by circa 30 bps to 13.7%.

RWAs were broadly flat at GBP353 billion, net of GBP5.8 billion reduction due to FX. Barclays UK and the UK Corporate Bank saw a combined RWA increase of GBP2.2 billion. Given our continued discipline, investment by RWAs remained broadly in line with the Q1 level and represented 56% of the overall group RWAs.

Looking ahead, we note that some European banks have recently provided detail on the effect of output floors, which for Barclays are not expected to be binding at any point. This reflects our business mix and applies at both the group and the ring fence level.

As usual, a word on our overall liquidity and funding on slide 28. We have strong and diverse funding, including a 74% loan-to-deposit ratio and a net stable funding ratio of 136%. And we are highly liquid across currencies, with an average LCR of 178%, incorporating the initial effect of methodology changes introduced in June.

Although these changes will utilize some of the group's GBP135 billion surplus funding position, we expect the LCAR to remain broadly within levels reported in recent years. These measures reflect purposeful and prudent management of our balance sheet and risk delivering resilience and capacity to support customers in a range of economic environment.

TNAV per share increased 12p in the quarter and 44p year-on-year to 384p. Attributable profit added 10p per share during Q2 and the unwind of the cash flow hedge reserve added 9p. We expect the majority of the remaining cash flow hedge reserve to unwind by the end of 2026. This unwind, combined with earnings growth and buybacks give us confidence that TNAV will continue to grow consistently as it has done for the last 8 quarters.

So to summarize, we are pleased with the strong performance of the bank in the first half of the year, which sets us up well to deliver on all our 2025 guidance and 2026 targets. Over to you, Venkat, for concluding remarks.

Thank you, Anna. So halfway into the three-year plan. As you can see, we remain firmly on track to deliver our goals. We are working hard to deliver sustainable operational and financial improvements across our businesses. And this, in turn, will drive higher group returns and shareholder distributions.

And as we have said, 2026 is a point in time for us and we have ambition beyond it. By making structural improvements, we are improving the profit signature of the bank to drive higher returns in the years to follow. I will now open for questions and answers.

(Operator Instructions)

A couple of questions, please. First of all, on capital and then one on the Investment Bank. On capital, you're at 13.7% sort of obviously after the buyback. That's a pretty comfortable position given your 13% to 14% FRTB been delayed. When you think about your capital position versus the over GBP10 billion in distribution, and obviously, M&A options that you've appeared on the press contemplating how do you see upside to distribution versus additional firepower to for M&A, whether that's a buffer in the US or something else, if you can maybe sort of walk us through your thinking?

And second, on the Investment Bank, obviously, trading, you've explained on a very strong clearly doing better than US peers. And that's worked very well, but investment banking fee is not so well. So in a world where we seem to be heading famous last words to low volatility environment. I know you've touched on it at the end of the quarter, but I'm just sort if you can elaborate if that low volatility banking fees picking up thesis has held at the later part of the quarter.

And as we look into the rest of the year, can we still expect sort of decent growth in that -- in a low-volatility environment, i.e. banking fees making up for whatever sort of normalization of global markets we might see?

Okay. Alvaro, thank you very much for kicking off the call for us. I'll take the first question, and then I'm going to hand to Venkat. So look, our capital position just reflects the execution of the strategy. The strategy is designed to create higher, more consistent returns, which, in turn, allows us to return more to shareholders and indeed invest in the business.

And that's really what you're seeing here. It's exactly what we expected. So as you call out 13.7% post the buyback, we indicated at the beginning of the year that actually we expected to operate towards the upper half of our capital range just because of the Pillar 2 that we're carrying in advance of the US model being implemented. So we are exactly where we expected to be.

And the broader aspects of your question, I would say the capital hierarchy remains completely intact. So we're generating higher levels of capital from more consistent and higher returns. And our priorities are: number one, of course, regulatory; number two, distributions. Those distributions are up 21% year-on-year. The buyback is up 33% year-on-year.

And we said that the distributions should be progressive in 2025. That's what you're seeing. And of course, our guidance and target for the three years is at least 10%. So that all remains intact.

And then finally, continuing to invest in the UK businesses. We do believe our plan is an organic one. And you can see at the halfway point, we put down GBP17 billion of the GBP30 billion RWAs that we are planning to. So that's how we feel about capital really noting just the execution of the strategy. Venkat?

Yeah. Thanks for the question, Alvaro. On the Investment Bank, so let me give you a longer-term view and then I'll come to you a very specific question. So on the Investment Bank over the last six quarters and in fact since before then, we've been obviously investing in our structural capabilities. What you see in the results in the Investment Bank is a combination of deep structural improvements, which we think are sustainable over the long run and then cyclical aspects, which benefited the trading business and may have been a headwind for the banking business, and then I'll come to that.

So on the structural side, basically, you're seeing deeper client engagement. One of the statistics we put out was we are number 6 Investment Bank. So of our top 100 clients, who are we in the top 5 bit. That number was 49 before the plan started. Our target is 70. We are at 60 now. You can see it in the market shares which we have in global markets, financing is up 23% year-on-year in US dollars. Our three focus areas are up by 1 percentage point, '24 versus '23 and that's the latest data we have. And then I mentioned the top 5 clients.

And then when you look at the overall -- and then when you look at banking, capital discipline has really taken route return on risk-weighted assets is improving and market share has improved, although a little slower this year. So that is the structural benefit that we see. And you can see it in the results, when you look at the Investment Bank's performance versus consensus, the six quarters now, we've beaten consensus and the size of that beat has been growing to about GBP300 million-odd this quarter.

So I think what you're seeing is the combination there of both structural and cyclical. So let me come to cyclical. Cyclical in the markets business has been helped obviously by volatility, and that's been a tailwind. And in banking, as you point out, as decision-making has slowed, that volatility has been a bit of a headwind.

Now looking forward, we are seeing that headwind in fact anticipating as there is more deal activity and we expect that to continue. As for markets, I think a lot of the positioning that's taken place in the last six months has been in reaction to immediate volatility. So what I would call shorter-term risk management, and that has obviously delayed longer-term decision-making, which drives banking.

Now though in the market side, you could see more longer-term positioning and decision-making as people take a clearer view on different asset classes and within asset classes rotation. I hope and expect, given all the structural improvements I outlined that we will benefit from that.

Guy Stebbings, BNP Paribas.

Two questions, if I may. The first one was on Barclays UK. I was wondering if you could expand on this historic swap maturity impact that land in H1 that comes out in H2 and should support expansion of the product margin in the second half. I don't know if you can sort of frame the size of that perhaps?

And then attached to that, looking at your full year guide and talk to quarter-on-quarter growth, it looks like we're getting to a sort of exit quarterly run rate of about GBP8 billion or so on the NII UK consensus at [8.3] for next year. It doesn't feel overly challenging versus that sort of exit rate. So can we infer that you're comfortable with market expectations next year, perhaps even some upside despite the miss in the second quarter?

And then the second question was on the US consumer business on the impairment side. Encouraging to see that step down impairments in Q2 and the lower 30-day delinquencies. Perhaps I can invite you to comment on how you're thinking about impairments in the second half and beyond on that book.

I mean there have been some sets the 2026 impairment guide could be challenging to get to that sort of 400 basis points long run. So are you sort of more confident on delivery there today than perhaps three, four months ago?

Okay. Thanks, Guy. Why don't I take both of those, and I'm sure Venkat may add on the second. So let me start with BUK NII in totality. So we are confident in the greater than GBP7.6 billion. And when we gave you that guidance, we were clearly aware of the swap matter that you're talking about here. So the phasing is panning out as we expected it to.

And therefore, that means by definition, we were expecting income to be in excess of about here. So the phasing is panning out as we expected it to. And therefore, that means by definition, we're expecting income to be in excess of GBP3.9 billion in the second half of the year. And within that, I would just add for Q4 to be higher than Q3, and I'll come back to the second part of your question in a minute.

So what really drives that? Well, there's clearly the things we talked about, which is the structural hedge, loan growth. So you can see the momentum in the UK The other thing I would just call out as a product margin must, Guy, is not just a swap effect, but it's also the fact we expect to see maturing card balances, maturing promotional card balances in the second half of the year.

And obviously, we expect to see deposit trends to continue to mitigate. But this swap point, it's a historic matter, and it's an accounting point and its accounting timing. And it basically relates to the maturity profile of historic swaps versus how we recognize swaps against products internally. It's purely timing.

To try and put some quantum around it, what I would say is it's probably most of the consensus miss in Q2, and it was relatively similar across Q1 and Q2. So it's a [half 1 versus half 2 points]. It's now behind us. it's not operational, purely accounting timing. And from '22 onwards, we're now booking our swaps in a different way. So I'm not expecting this will recur.

So in terms of the jumping off point, as I said in my prepared remarks, please use half two as a jumping off point for NII next year. And within that note, the Q3, Q4 momentum. It's a bit too early to talk about explicit numbers or consensus for next year. But just please note from this, I guess, our confidence in terms of that building NII momentum not just in meeting '25 guidance, but underpinning RoTE in 2026, and having momentum even beyond that point.

So let me now come to US consumer impairment. Look, it's fallen Q-on-Q as we would have expected it to seasonally. And you can see that 30-day delinquencies are down 20 basis points, so it's performing well. Interestingly, within that, the lowest FICO bands are also down year-on-year in delinquency, which I see as encouraging.

What we expect in the second half is obviously normal seasonal trends. You tend to see a build towards the back end of the year, just as holiday spending picks up. The only other notable thing I would call out is, obviously, in Q3, we onboard the General Motors back book you should expect to see GBP100 day 1 charge then. And then you're going to see migration effects probably about GBP50 per quarter for a few quarters just because we onboard things at Stage 1. But overall, I think within the context of the group guidance of 50 to 60 basis points, we're very comfortable. Venkat, anything to add?

Yeah. Look, I would just add at a broader macroeconomic level. It has been remarkable really quite how resilient the US economy has been and the UK economy to everything that's going on in tariffs. Obviously, there is inflationary pressure, but employment remains very strong. And I mean, the Fed is having the meeting tomorrow, but it's not cut 1 so far this year.

So I think we have to see how that plays out. But I would say at a macroeconomic level, there is room for hope in the strength of the economy, especially as the frequency of tariff announcements and the amplitude of tariff changes reduce both frequency and amplitude reduce.

Jason Napier, UBS.

Two, please. The first -- just focusing on the retained targets for 2026. I guess at the halfway point for the strategic plan, the bank is doing better than expected, right, as Venkat, you mentioned, you've beaten in the IB six quarters in a row and consensus is pretty close to your GBP30 billion revenue target for next year. But the market is well over GBP1 billion below your expectations for the Investment Bank.

So I wanted to invite you to sort of give us your thinking on that GBP30 billion guide. Is it still that number because not in the habit of refreshing it every quarter? Is it the cyclical tailwinds in the IB that you've enjoyed so far you think the headwind from here? Because if we put in your IB number, if we add that to consensus, you're a 13% RoTE company. Not the sort of more than 12% at which we seem to be a little bit stuck.

And then secondly, perhaps just as a follow-on, consensus beyond 2026 has got a growing revenues by 3% and costs by 2%. I wonder whether just at a footprint level, do you think that makes sense? Are the markets in which you're playing growing that little in the next few years?

Okay. Thanks, Jason. I'm going to start and then hand to Venkat. So we've retained and indeed repeated our targets for '25 and for 2026. And when we step back, we're clearly on a strong platform here. So at the end of the first half of this year, we're sitting on a 13% RoTE. And we clearly got momentum across all five of the businesses. And really, this is what the strategy is about.

So we're not surprised by these results. Our objective was to drive income momentum and income stability whilst holding costs and capital discipline, and that's exactly what we're doing here, and you can see that in the results.

So clearly, what it does is it gives us, obviously, confidence for the current year. But even more than that, it gives us confidence for 2026 and beyond as a RoTE matter. And income-wise, that being a specific part of your question, -- what you're seeing here is clear NII momentum, as I covered in the previous conversation, loan growth will underpin that you're going to see the maturation of card balances that will underpin that. You can see the structural hedge underpinning that.

And then elsewhere in the bank, you can see the progress that we are making structurally in the IB, both as a revenue matter and in terms of a rating matter. So we believe that with each passing quarter, clearly, we're more confident and hopefully, the market becomes so in that delivery.

But beyond 2025 and 2026, so hopefully, you're starting to see a pattern here. The strategy is not hard. As I said, it's about driving income momentum and stability, keeping cost controlled and being really disciplined about where we allocate our capital. We're not going to suddenly stop doing that at the end of 2026. So from our perspective, we expect to continue to driving that level of momentum.

Venkat, you may want to ask specifically?

Yeah. Look, Jason, you've asked a question or two questions, which really hit at the heart of what our strategy and our strategic plan is. So one is -- what is the -- how well are the businesses performing? And how are you getting that better performance? As Anna just said, there's an important part that is structural. We are just trying to run the place much better. And with deeper client engagement, greater efficiency and cost, greater revenue growth, strong risk controls.

And we are very happy with the numbers we've seen over the first six quarters. We think the structural underpinning, as Anna said, give us expectations to carry that forward not just into the next six quarters but beyond that. So one part is running the bank better.

The second part comes to the footprint as you put it, which is what are the businesses and where are they. Now a large at-scale bank like us should grow at top line roughly at the nominal rate of the economy in which we are. And both in the UK and in the US, that nominal rate, the US is running 1% GDP growth real Q4 '25 to '24. It's probably going to be 2% next year. But with inflation is around 4%-ish, call it a 5%, 4.5% to 5% nominal growth similar in the UK.

So you would expect us, absent of capturing market share to grow at roughly that level is what I would think in the long run, a good bank should do. That's not a target. That's not a forecast. That's -- but it's just saying to you that when you think about how our footprint is, right, that's a reasonable assumption to start with.

Rob Noble, Deutsche Bank.

Can I just ask on the promotional card. Aren't they booked at effective interest rate? So why would you get a pickup in H2 from there? And if you could just elaborate on the size of the balances on promotional, how much is rolling, what the EIR rate is?

Secondly, I think there's been sort of one quarter's growth in the last eight in the UK deposit book. And I presume a couple of years ago, that wasn't the plan. So what's not what stop working there, what's going -- what could be improved to turn the deposit to give you the confidence for it to be stable going forward?

And then lastly, how big is the Kensington book now? And what's it growing at? And who are you taking share from in that business?

Okay. Thanks, Rob. I will take those. I'm not going to go into the details of EIR assumptions. But what I would say is that when we do reflect effective interest rates across our cards books, we do so conservatively as we do across all of our businesses. And typically, what we're doing there is we're showing -- we're spreading the upfront fee, but we're also reflecting a bit of post promotional balances. But actually, what we're seeing is the 24 cohorts maturing nicely, and that's really what we're calling out here.

And in terms of UK deposits, we're broadly following the trends of our peers. And current account market share is being maintained. And you can see that we are not encountering anything unexpected simply because we're rolling 100% of the hedge. Our planning assumption is 90%. We rolled 100% of it in the second quarter. So that tells you that things are broadly panning out.

We continue to see some deposit migration, but that is the seasonal side, that continues to just normalize. So nothing unexpected here. And on Kensington, we're seeing now high loan-to-value mortgages occupy about 25% of our flow. That's up from around 15% a couple of years back. I won't call out Kensington balances specifically but they are being very, very helpful in helping us address the full scale, the full breadth of the mortgage market, which is why we are now taking grow share a little ahead of stock.

Retention is very good. And of course, what's notable about Kensington is the margins are much richer. They're about on equivalent products, they're about 4 times the scale of a normal UK mortgage margin. So we're really pleased with its performance, and it's fully integrated now into the business.

Chris Cant, Autonomous.

I have a couple on regulation, please. So firstly, thinking about what's happening in the US. If we get these SLR changes and your US competitors have effectively significantly more leveraged balance sheet capacity handed to them and they seek to deploy that in markets. How should we think about the effect of that on the IB growth you've seen over the last five, six years, particularly around financing? Do you see that as a competitive threat? And what can you do about it if those peers now have more capacity to muscle in?

And with regards to CCAR and the US consumer business, the reasoning you've given for retaining that business in the past is partly because it helps your CCAR performance. Obviously, CCAR is getting more benign. Do you now feel less compelled to retain that business? What is the argument for keeping that?

On the UK side of the fence, if I could just invite you to comment on what, if any, outcomes we might expect from the current UK capital framework review that's happening in the background? Are you expecting that to be a positive? And Venkat, I know you've expressed some views contrary to your peers and other banks around the ring-fencing regime. What are your updated thoughts given the changes we may see there?

Thanks, Chris. So I will start on the first two of those, and then I'll hand to Venkat for the third point on the UK capital framework. Look, on SLR, we note comments. We're confident in our ability to continue to grow our prime business and indeed our fixed income financing business. We're seeing that continue good balance growth, good spreads and actually expanding a bit into Asia, which is relatively new for us. So very much open for business and confident in our ability to grow.

And really what's underpinning that is a couple of things. Firstly, as we look at our US peers, it looks like the leverage is not binding for all right now. So this may or may not make a significant amount of business difference rather. And secondly, we look forward to what the FTC might do in the UK as that looks at the framework more holistically, as you point out. So no specific concerns.

On CCAR, look, Barclays in the US typically has a good CCAR results has exactly the same this year, a low point of 10.8% draw a stress buffer of 3.3%. And we still see that diversified banks across that CCAR stack get a better result. And that is very, very clear.

There were some aspects of this year's CCAR stress test, where the market shock component was a little lower than we might have previously seen. We can't always anticipate that, that will be the case. So important that we don't react to one stress test in isolation.

And just stepping back, this is a business that we believe we can improve the returns on. You can see that we believe we can get the returns, not just to be in line with the group, but more towards mid-teens. And it offers income and geographic diversification of the particular capital efficiency point. So that's how we feel about CARs. Venkat, do you want to?

Yes. Moving to the UK First of all, I welcome the broader capital framework review that was announced recently. And I think I welcome it in 2 ways. One is it's an important topic. And the second is it's looking at the entirety of it, which is not just capital rules itself, but stress testing and everything that goes into the final number.

And the way I think about it is that capital and capital regulation is an important part of a healthy banking system and of growth. And so it is what you do to run a robust banking system. Ring fencing is an important -- it's a bedrock of depositor protection. And what it helps is with the so-called gone concern, it so well. It is if a bank has a problem like Icelandic banks did in 2007, '08, then how do you make sure that depositors get their deposits back over and above the protection scheme? And what can you do in terms of the assets that are attached to those deposits.

The Governor of the Bank of England a few weeks ago, spoke at the Treasury Select Committee, and he made a point that about 99% of assets from ring-fenced banks are deployed within the UK and 32% of the corresponding assets from non-ring-fenced banks are deployed in the UK. That's the illustration of the problem.

So that's why I continue to believe strongly in the maintenance and sustenance of that ring-fence as it is structured. I mean, let's see what comes out of the government review, but that's my view, certainly. And then on capital, as I said, that is part of growing the economy and growing the banking system.

Now the governor made another point last week at the Treasury Select Committee where he said there is no trio between financial stability and growth. He's absolutely right. Financial stability is a senior, it's a necessity. But not all regulation necessarily contributes to financial stability, and that's where the debate is to be had, which regulation is excessive. Super floors gilding delivery in the whole capital framework and can you relax some of that regulation and improve growth? I'm optimistic for those outcomes.

Jonathan Pierce, Jefferies.

Two questions, please. The first is on these additional structural hedge tailwinds that you've alluded to post 2026. The yield on the hedge at the moment is about 2.5%. So if you take your guidance over the next 18 months with probably exiting next year at about 3.2%, you're assuming a reinvestment rate of 3.5%. Where is the extra tailwind coming from into 2027 and beyond? Is it just an averaging effect of the 2026 maturities? Or is there something a bit more material going on? That's the first question.

The second question can try again on capital, if that's okay, at the moment, to understand you want to operate in the upper half of your 13% to 14% Tier-1 target range. Consensus though, is it's still a bit above 14% by the end of 2027. So how are you thinking this sort of pans out? I know your comments on Pillar 2A dropping with US IRB and Basel 3.1, and I suppose one-for-one that would reduce your equity requirement by maybe 50 basis points.

And then you've got this point on the SBC having a look and maybe something happens there elsewhere in the capital stack into the medium term, would it be unreasonable to assume that you could operate towards the lower rent at the 13% to 14% range. Because obviously, the delta there versus consensus would be worth about GBP4 billion, which is not immaterial.

Thanks, Jonathan. So the comment on the structural hedge tailwinds is this and it's just to help people sort of think beyond, I guess, the targets that we've already given you for 2026 and to understand how we feel about NII growth through 2026 and beyond. But the average yield on the structural hedge in 2027 will still be below 3.5%. Simplistically, that is what we're saying. There's nothing funny or quirky or anything in the kind of '26 maturities. It's literally that simple. That's what we're drawing out there.

I think the other point that we are drawing out this time that's perhaps a little bit different is the locked-in level of that hedge. So remember that this year, and you can see it on the structural hedge slide on slide 9. The locked-in amount for this year is 97% and a bit lower than that next year, but you can see us really getting good line of sight of about 80%.

So to your second question, look, from our perspective, we still think 13% to 14% is the right target range for us. We plan across multiple, multiple years when it comes to capital. There are a few regulatory moving parts out there, whether that be what the [FPC] is doing. Obviously, we don't know what is happening yet on Basel III in terms of Pillar 2A. We also don't know what's happening in terms of sort of international alignment.

So there's a lot on the regulatory front, but it's still uncertain. What's important to us is that we're delivering on our distributions as we currently set them out to at least GBP10 billion, and you can see that prioritization that we're doing there.

But fundamentally, the plan was designed to create a higher returning bank. And importantly, what you're seeing now is about with higher returns and higher capital. That is really, really important for the consistency not only of shareholder distributions, but our ability to invest in the businesses longer term. So we are happy with the range that we've got, and we'll just await regulatory clarity when it comes.

Understood. I don't suppose there's any chance you could tell us what the maturity yield on the hedges is in 2027?

Not off the top of my head. The average is about is about 3%, but we'll come back to you if there's anything that we can help you on the detail. Okay. sorry, that's 3 years average rather than the specific maturing yield. But we'll come back to you.

Okay. Thank you.

Chris Hallam, Goldman Sachs.

Two questions on RWAs in the Investment Bank. I guess the dynamics here in Q2 feels similar to what we saw in Q3 last year, so US dollar depreciation Q-on-Q. Last year, you let that through to lower headline RWAs this quarter. That hasn't been the case.

So I guess, what's changed there this quarter without reinvesting the FX tailwind. You would have obviously seen a step down in RWA as a percentage of group towards the target. You would have seen the CET1 tailwind, but then you also, I guess, would have missed out on some commercial opportunities. And I suppose being there for clients on the financing side continues to be an important part of the rankings improvements you flagged. So how are you thinking about juggling those priorities given that they may be at the margin a little bit mutually exclusive? Do you feel comfortable saying 56% is peak and it trends down from here?

And then secondly, just a confirmation, I think, on RWA productivity, there was a tick down in the second quarter. Obviously, Q1 was quite a high number. And I think you want to call out in the quarter, maybe it's the CICB one-offs Q-on-Q. And feels like that level of RWA productivity is a level that would support the RoTE target for next year. So I just wanted to check that you agree with that.

Okay. Thanks, Chris. Look, step back for a minute. The RWAs in the IB have been broadly flat for 3.5 years. That is our clear strategic intent. And what we keep coming back to quarter after quarter after quarter, it's a key part of the plan and the capital discipline that we talked about. What you might see in any particular quarter is either higher or lower levels of client activity as we pass the quarter end, and it's honestly nothing more than that.

You can see that we are very disciplined in the way that we manage our risk. You can see that in the far and in the lost days. So -- and if you look at the distribution of trading income, that's all on page 37. So we deployed more RWAs to support clients, not really in taking materially more risk. That's what you should expect us to do. And we really don't feel the RWA discipline and growth in the IB are mutually exclusive.

So since the beginning of the plan, the IB RWA has said, well, more than the plan for two years before the plan started have been flat, and we've got an income CAGR of 9%. That's what we're trying to do here.

And I think you're seeing that flow through into the second part of your question, which is really about RoTE productivity. There's a clear seasonality to the IB generally higher in Q1, higher in Q2 than Q3 and Q4. Typically, and so you're seeing nothing more than a seasonal change year-on-year. It's up meaningfully, I think, 80 basis points year-on-year. So what we're doing here, which is driving capital discipline in banking and driving our focused businesses in markets is working.

And what's really important to us and is probably the most important plan for part of the plan for me is not just the returns in the IB, but the consistency of those returns. That's really important. So you're going to see that hopefully in the coming quarters.

I'll just add, not just consistency with quality. So the consistency go together, right? As we do more in financing revenue as we do more in corporate banking revenue, you get the consistency, but you're also getting more predictable, high-quality revenues. So to endorse everything Anna just said, always.

Andrew Coombs, Citigroup. .

One on the UK and one on the US, please. On the UK, I just wanted to come back to the deposit trends. You talked about being disciplined on term deposit pricing against very tough competition. If I look back over a longer period of time, your deposit balance has contracted in [four of the five] of the last quarters.

And so perhaps you could just elaborate on how you think about margins versus volumes on that UK deposit book, what it would take for you to reengage in terms of pricing dynamics more broadly across the space?

And then secondly, on US consumer. I wanted to ask about mix shift and what it means to your targets. If I look at your NIM in US consumer, impressive Q-on-Q improved 30 basis points. At the same time, you're talking about a GBP50 million additional charge over the quarters from Q4 on post-acquisition stage migration from General Motors. Just given that mix shift, that you've seen with AA coming out, General Motors coming on.

What does it mean for your targets? The GBP40 billion receivables, the greater than 12% NIM, the 400 basis points cost of risk in that division, and they're all now subject to a slight change.

Thanks, Andy. I'll take both of those. So look, we had a similar question on deposit trends earlier in the call. There's nothing specific going on here. We feel like we're broadly following our peers in terms of market share, particularly in current accounts, and you can see that, as I said, in the role of the hedge.

Let me specifically speak about fixed-term deposits and they are seasonal, which I think is probably what's underpinning your question. So look, the season was very, very different this year. We can all, I guess, have a view about why that might be the case. But it was bigger and earlier than we've ever seen before.

And if you look at the quantum of flows during the early part of April, I think the second week of April, the flows on those that were around GBP6 billion, not for us, but for the market. But if you look at the average of May and June, that's more like GBP1 billion a week. So that gives you an idea of the scale of flows.

The pricing we felt was not economic, and therefore, we stepped back from fixed term pricing in the ISA season and remained disciplined. We did however, grow our ISA balances year-on-year and feel like we had a good season. So where we think it's important for the relationship we do step into pricing, and you can see there's a divergence between our core pricing and our relationship pricing. And over time, you might see that -- you've seen it widening, particularly through Q2. So it is important to us, but we're not going to price uneconomically in the market whilst we have a stable underlying base.

Just moving to US consumer. Look, we've said a number of times. It's a plan in many parts. It's about NIM, you're seeing NIM going up. Why is it going up? It's because we repriced the book last year, and that's feeding through. Also because US deposits are up 27% in that business. The cost-to-income ratio is now 48%, and it's headed downwards risk is well controlled. So we are controlling everything that we can within that business and driving the operational discipline as we said we would in the plan.

We clearly still have ambition to grow in the business. And we're looking for a balance, you might recall, of being roughly 15% in retail at the moment and moving much more towards 20% in retail. And actually, GM will fulfill a large part of that move for us that will clearly flow into NIM and will give us a better risk-adjusted return, which is what we are trying to do. So we do want to grow this business. We've gained one partner in GM. We've retained four. But RoTE and the North Star, we're not going to grow it to meet a target and compromise RoTE. And indeed, that's true of every single business across all five divisions.

Amit Goel, Mediobanca.

So two questions. One, again, just a follow-up on the product margin. I just wanted to check what your thinking is in terms of 2026? Given there are a few more kind of parts to it versus '25. Would you expect a positive contribution then?

I guess I'm just thinking that, in terms of the broader guide, so there's the GBP7.6 billion of NII in '25, there's two-third of GBP1 billion hedge benefit in '26. So that by itself gets you to kind of the [8.3] consensus NI, there's potentially a little bit of volume growth. So then the product margin is the -- is kind of the delta then.

And then the second question, just on the IB, I mean, I think it's obviously a very strong performance in markets. Costs were well contained. Just curious how you're thinking about investment then also into that business and managing that cost piece if revenues continue to be strong?

Okay. I'll take the first and then hand over to Venkat for the second. Look, as I said, it's a bit too early to talk about 2026 NII or particularly the product margin. And I just call out a couple of things. One on the numerator and one on the denominator. So on the denominator, we do intend to continue to originate assets. And you can see that coming through not only in our strong mortgage growth, so we've had four consecutive quarters of mortgage growth on a net basis and cards continue to grow.

Now clearly, more mortgages in the mix will slightly dilute your margin, but only on a mix basis, higher NII, of course. So I think growth in assets, but I would call out this maturity of the cards and promotional card balances. We said it would start in '25. Actually, the longer maturities, which is the larger part of the promotional balance mix really starts to mature in '26 and beyond. So you're going to see a bit more from there. So I think you've got a numerator and a denominator impact which is why I'm not going to be drawn on the product margin specifically. Venkat?

Yes. Amit, when we announced our plan six quarters ago, one of the things we said about the investment bank is that in markets we have been doing a lot of investment in technology over the past few years and that we would expect to see the benefits of that investment coming through in the -- during the period of this plan. And that's what we're seeing.

And then in banking, we said that we'd identified important segments of the market, including tech and health care M&A and also capabilities in the Corporate and Transaction Bank, which we were investing in. We've been doing so, and I think we're seeing the results of that. So expectations should be that we continue to operate according to the plan we laid out.

Perhaps we can go to the next question, please, operator, noting that, that last question -- that is the last question of the call. Thank you.

Perlie Mong, Bank of America.

Just a couple of quick ones. So the UK, I noted that very clearly, done GBP10 billion of organic or allocation to the business. I guess there is a little bit of nervousness about a UK macro from here. Certainly, there are some the business around what the autumn budget might have.

So in the case that confident drops off and maybe activity comes down and you find it more difficult to allocate the remaining in the UK business. Do you have plan B? Like would you do acquisition to top it up to make sure you hit GBP30 billion? And if that's the case, how would you think about that in the context of the GBP10 billion distribution? So I guess that's number one.

Number two, quickly touching on cost. So I think previously, you've said that you would expect cost to come down in 2027. I guess it looks like the efficiency savings are coming through as expected, all on track. And if anything, the FX should be a little bit of help as well. So is that still what you would expect that -- sort of maybe closer to GBP17 billion next year?

Okay. Thank you, Perlie. So we're pleased with the GBP10 billion organic growth in the UK And you can see from slide 13 that, that momentum is picking up, not just in the UK in the areas that we've talked about before, which is cards and mortgages. We talk about a lot, but also in UK Corporate. So we've had three successive quarters of growth in UK corporate, and you can actually see the UK business banking now starting to turn.

And when we set our plan, we focused that plan on areas where we were either underweight or we felt we had opportunities to grow because we lost market share. So that's true of, for example, high loan-to-value mortgages or corporate and business banking, where we have had a much higher loan-to-deposit ratio than our peers in the past.

So we remain confident that we can deploy that, noting that we're at a run rate of around GBP2 billion per quarter in 2025 and we're GBP17 billion at the halfway point. We've got six quarters to go. You can do the math, particularly given that, that momentum appears to be picking up.

So it is and always has been an organic plan. And our capital hierarchy as I said before, remains intact. Number one, regulation, number two, at least GBP10 billion; number three, deploy capital into the UK. So we're not going to compromise on the quality or the returns of that lending in order to meet a target. We're very disciplined.

And then on second question, actually, we said it was 2026 when costs would come down. That's still our plan. Our cost-income ratio guidance for the full year of this year is 61%. You can see that we've got a strong platform for that from the first half. I just note a couple of things. Firstly, income is a bit seasonal and secondly, the fact that we did say that we would expect to skew our structural cost actions into the second half of the year.

So we've done about GBP100 million so far, expect us to be at the top end of the GBP200 million to GBP300 million, all of that is contained in the 61% guidance that we've given you for the cost income ratio. And at this point, we're GBP1.35 billion through a GBP2 billion target. So we feel that we've got real momentum. Perlie, I wouldn't change how we feel about the 2026 cost position. It's a really, really key part of the plan and delivering higher returns, more consistent returns.

So with that, we will close the call. I'd like to thank you for all of your questions today. We look forward to seeing many of you either on the road over the next few days or indeed on the analyst call next Monday. And if we don't see you then have a good summer break when it comes. Thank you for that.

Thank you.

That concludes today's conference call. You may now disconnect.