Barclays PLC (BCS) 2013 Q2 法說會逐字稿

Welcome to the Barclays half-year results fixed-income investor conference call. I will now hand you over to Chris Lucas, the Group's Finance Director.

Good afternoon, and welcome to our interim results fixed-income call.

This is the second fixed-income call that we have done, and due to your feedback in February, we just have to keep the format the same. I'll start by highlighting some key aspects of our results. I'll then hand over to Benoit De Vitry, our Group Treasurer, who will talk about funding, liquidity, and capital, as well as balance sheets and leverage. After that we will open up for questions. This call is designed to address issues affecting our debt holders. We then intend to discuss the rights issues, that we announced this morning.

Moving on to the results, we've seen the (inaudible) solid performance this morning in the ability of our business to generate premium. Despite a challenging microeconomic environment, we think our larger businesses remain resilient. We continue to maintain our strength and our accustomed position. Components has continued to improve with (inaudible) appetite and the quality of our risk management. Costs remain well-controlled. Excluding transformed charges, we've reduced operating expenses, and our cost-income ratio is moving well in the direction of our 2015 target.

[Important to know] financial strength remains the central focus, and we continue to make steady progress in adapting to the new regulatory environment. The plan we've announced this morning will further strengthen our capital and leverage positioning. We've also made good progress with our transform program which is designed to help us deliver our 2015 targets. Our financial performance should be viewed in the light of the significant restructuring costs we've taken, especially in Europe RVB, and the investment bank, as well as the macroeconomic environment.

We will be investing in the second half of the year in order to build long-term competitive advantage. With restructuring in investments, are set to achieving our targets, but they will impact our numbers in the intervening period. We've also announced further provisions for [PPI], an interest rate hedging product this morning, which we believe significantly relieves uncertainty about these issues.

That's all I want to say on the results. I'll hand over now Benoit, to talk in more detail about Treasury subjects.

Thank you, Chris, and good afternoon, everyone. We continue to make progress on our goal of insuring the treasury function, taking a holistic view of the news of the Group, and the tenets, cohesive capital, balance sheet, funding and liquidity plans for the benefit of all stakeholders.

Before I address each in turn -- each topic in turn -- I would like to explain how I [feel] of today's announced plan to move the P-I leverage ratio requests impacts Barclay's debt holders. We have been nurturing our adjusted gross leverage ratio for some time now, and fee-leverage ratios as a sensible cross-checks, and backstop on (inaudible) measures. As stated in on the full-year 2012 call, we are taking steps to reduce (inaudible) volatility and overall leverage. We do so now with a request for PRA leverage ratio of 3% by June 2014. While our estimated conditional CRD IV leverage ratio is 3.1%, focus has now shifted towards our fully-loaded CRD IV ratio. Assuming that all CRD IV capital and leverage adjustments were incremented overnight, our fully-loaded leverage ratio would have been 2.5% at the end of June.

In calculating the PI leverage ratio, we have applied PRA adjustments of $4.1 billion to our estimated, fully loaded, CRD IV PPI capital. This adjustment has reduced from the GBP8.6 billion used by the PPI (inaudible), principally significant accounts of combined provisions and reduced impact of prevention valuation adjustments. This brings our PI leverage ratio to 2.2% at the end of June.

Let me take you through our plans to deliver a 3% PPI leverage ratio by June 2014. I will focus on the leverage as we are confident that we can deliver the PPI of 7% of just a (inaudible) ratio target by the end of the year. After careful considerations (inaudible) on the leverage plan that balances the interest of all the company's investor, customers and clients with the objective of meeting the PPI leverage ratio target by June 2014. The PRA agreed with this plan. It should be viewed as a positive for fixed-income investor as we bolster our capital in terms of clients, in absolute terms, and relative to global banking [tools].

The actions contained in the leverage plan are one, raise approximately GBP5.8 billion net of expenses to [an underwritten] (inaudible) as announced today. Two, reduce CRD IV leverage exposure by GBP65 billion to GBP80 billion to approximately GBP1.5 trillion pound, through low execution risk management actions, which have already been identified by the board. Three, raise up to GBP2 billion of CRD IV-qualifying additional tier-one securities, with a 7% fully loaded CET1 trigger as part of our previously articulated migration toward our end-state capital structure. And four, potential of earnings and other form of capital accretion, as a result of the current provisions announced today, the Board believes that Barclays has further strengthened its ability to retain earnings, and generate capital ability going forward.

The leverage plan actions to reduce leverage exposure are not expected to have much impact (inaudible) as we plan to reduce potential future exposure of PAC (inaudible) to improve application of existing (inaudible) agreements, and further that the quality managements, leading to an estimated GBP32 to GBP35 billion deductions.

(Inaudible) securities financial transactions, or SFT, leverage exposure of the CRD IV application of structural and enhanced (inaudible)qualifying data, resulting in and estimated GBP20 billion to GBP25 billion reductions in the effective components of the leveraged exposure measure. And finally, reduce our liquidity (inaudible) at GBP15 billion to GDP20 billion. These actions have sweeping effects on the CRD IV leverage, but relatively little effect on (inaudible) leverage ratios, which is why they are now a priority under the original plan.

Our core remains, but we have a duel purpose on those with (inaudible) assets and leverage ratio constraints. We are confident that we can acclimate those into our plan. The addition of the leverage plan is expected to result in Barclays PRA leverage ratio being above 3% by June 2014.

Now we'll start on the right issue -- the anticipated dividend payout for the remaining of 2013 of the same level per-share as that for 2012. While the precise path of (inaudible) remain subject change, the Board expects accumulation of capital generation to retain earnings and the execution of the leverage plan will result in significantly higher level of capital by December 2016. Accordingly, subject to meeting applicable regulatory requirements, the Board expects to have dealt a 40% to 50% dividend payout policy from 2013.

Now I would like to turn to funding. During the full-year 2012 results call, I provided you with an indication of how we see our funding plans for the 2013 - 2015 period, and how effect of clear principle (inaudible) our approach to issuance. Barclays continues to be well funded across (inaudible) in all major currencies. Our targets remained unchanged as we continue to maintain stable and diverse resources that are cost-effective and positively contribute to the Group implementing its targets. We indicated that the composition and structure of our funding will change, with lower ceiling of debt funding costs and meet the changing needs of the business. This will result in a more stable and diverse sources of funding.

The Group (inaudible) ratio improved to 102% at the half-year, as we attracted customer (inaudible) at a higher level than expected. As stated previously, we aimed to manage this ratio to between 102% and 107% of applied, which is much (inaudible) lower than in the recent years. Yet, in shares by the investment banks was not funded by retail (inaudible). We might see this ratio to move outside of this range from time to time, and it is not always controllable, but we should consider the direction of travel as established. While (inaudible) increased in the first six months, all sale funding decreased to GBP217 billion from GBP240 billion at the end of 2012.

Excluding the impact of our liquidity [pool]l, our outstanding wholesale funding has a weighted-average maturely of 61 months. As previously stated, we expect these to reduce slightly over the next 2.5 years as we will balance the behavioral duration of assets and liabilities and reduce our reliance on funding of maturity of less than one year. Reduced term insurance in the first half of the year, and issuance planned to 2015, reflect our changing needs. (Inaudible) the pre-funding of 2013 requirements in 2012, (inaudible) and the continuous deliberating of our balance sheets has meant that we have only issued publicly $1 billion of (inaudible) to date. This was offset by $1 billion of (inaudible) GBP11 billion of maturity in the first half of 2013 and (inaudible) maturing in the remaining six months of the year. Please note that the numbers reported in the slide are net of buybacks.

Moving onto liquidity -- funding requirements are clearly linked to our broadly defined liquidity risk appetite, and with the) liquidity maturity rates. At the half-year 2013, our liquidity (inaudible) stood at GBP138 billion and were presented at the close of full-year 2012 GBP12 billion, and in Q1 of 2013 of GBP3 billion pounds. (Inaudible) was partially driven by the right sizing of the surplus for (inaudible) requirements in order to reduce carrying costs and reflect lower market volatility. As the slide demonstrates, H1 2013 results continue to show our relative and absolute strength both in terms of size and high quality contribution of (inaudible) to meet up to its standards.

As part of our plans to reduce leverage exposure to meet the PPI 3% leverage ration, and subject to market conditions we will continue to reduce the surplus we currently hold over [industry] standards without countering our (inaudible) risk appetites. Therefore, we are now expecting our liquidity call to be between GBP110 billion and GBP130 billion by December of 2015. At the half-year 2013, our estimated liquidity coverage ratio, or VCR was 111%, accrue balance to a GBP14 billion surplus of 100%, and GBP40 billion of (inaudible) suggests that 80% will remain by 2015. However, currently, we plan to maintain at least a 100% VCR as part of our own commitment to sustaining (inaudible).

At the half-year, our net spend-income ratio, or [NFS], was estimated to be 105%, compared to 104% six months earlier. We expect the composition of (inaudible) to be further optimized to reduce its carrying costs as we substitute cash held at central banks with highly-rated government bonds. Although, however, our approach (inaudible), we remain very conservative and consistent with UK industry requirements. Moving on to capital and capital structure -- our reported Quarter 1 ratio at the end of June was elevated from 1% compared to 10.8% at the end of 2012. Adjusting for (inaudible) charges, Barclays delineated GBP1.5 billion of capital from earnings, indicating the earnings generated the strength of the franchise.

(Inaudible) increased our CAT run ratio, but unfortunately, (inaudible) in February. On the transitional CRD IV basis, we estimate CAT1 ratio to be 10% and on a fully-loaded basis, 8.1% primary as a consequence of the (inaudible) impact of adjustment capital, increased (inaudible) reductions, and the impact of (inaudible) charges. The [5.8 billion lights] issue announced this morning will translate into 123 basis points inclusive, now estimated CRD IV ratio at the end of June 2013. While the (inaudible) path of future regulation remains subject to uncertainty, the Board expects its ratio to increase in the second half of 2013, with an estimate -- with a accelerated achievement of a target of 10.5% fully-loaded [CT] ratio early in 2015.

In addition to the 10.5%, [CAT1] ratio targets, we remain committed to building out our 2% continued capital bucket, as previously communicated to the market, comprising 1.5% in the additional Tier-One four-months-- I'm sorry, in 0.5% in Tier-Two four-months. The $4 billion of Tier-Two (inaudible) that we have raised to date include (inaudible). As you know, we (inaudible) to publish CT1 ratio and CRD IV adoptions in January 2014, and on transitional CRD IV (inaudible) thereafter. Those right issue, which will translate into buffers of 559 basis points, or GBP21.6 billion equivalent, and 424 basis points, and GBP20 billion, respectively, as of June 30, 2013. We will continue with our plan to raise CRD IV compliance in Tier-One [above the medium term] as originally (inaudible), with the expectation that we will raise up to GBP2 billion by June 2014, which will count towards the PI leverage ratio.

(Inaudible) our acceleration toward the 10.5% fully-loaded CET1 targets, our projected path of continuing capital generation it makes sense that the trigger for these securities (inaudible) to our 7% fully-loaded CE 1 ratio. (Inaudible) Tier-Two (inaudible) capital levels. Our commitment remains to the transitioning of our capital structures to one we consider efficient and compliant with regard to our requirements.

Before I hand it back to Chris, we have, in the past couple of months, seen in a loss of (inaudible). We welcome the progress as a means of reducing (inaudible) that issuers and investors have to deal with at this time. Final outcomes for the duration (inaudible) are still unclear, but we have a number of scenarios that we plan for. I propose we address specific points in Q &A (inaudible). We believe that neither have been applied to you regarding the recovery and (inaudible) reduction the UK banking reform bill materially changed how we are thinking about the implementation of central reform in the UK or in Europe.

We support (inaudible), and a single point of entry as a tool to improve visibility of financial institutions in this tough situation, and continue to work with the authorities to help them achieving their goals in a way that minimizes impacts for all of our stakeholders. (Inaudible) in the US, we continue to be fully engaged with regulators as we plan internally for the best options we deliver, which are available to us, to meet the scope of eventual regulations, without materially impacting our business. We wish to include the announced made today, (inaudible) to move towards our capital plans (inaudible) transformed in February of this year. But in all other important respects, our approach to capital, liquidity, and funding have not changed. While we still have some way to go to address all of the (inaudible) issues, that effect your decision making, I think today's announcements (inaudible) income investor.

Thank you, Benoit. With that I would like to open up the call for questions. As a reminder, Benoit (inaudible) head of capital and funding execution.(Inaudible)

(Operator Instructions).

Your first question today is from Lee Street, Morgan Stanley.

Hello, good afternoon. Thank you for hosting this call.

A couple of questions from me. Obviously I know that you restated the full year 2012 CRD IV [common equity] tier 1 capital number in addition to the restatements to the leverage exposure. I was wondering as it pertains to the fully loaded common tier ratio, given that CRD4 and CRR1 are now finalized, could we consider that the core Tier 1 ratio [as presented there] are essentially fine or might be subject to change are pretty important for your future AT1 (inaudible) as well as your existing Tier 2 CoCos?

As you can expect, we have spent quite a bit of time with the PI in preparations and we have a good, a regular dialogue with them on that. We have clarification from their part, as you should expect for the UK's part of Europe, CRD IV [text] will be used for measuring the exposure. As you expect, that would continue to be the case.

Okay. Pretty robust and comfortable, then, with the ratios you presented shouldn't be subject to future changes? Is that a fair take away from that? Not so much on leverage on the actual ratios, for your tier 2 CoCos you future AT1, that's all I'm really focused on, your actual [core] ratios, not the leverage front?

I'm sorry about that. On the ratios, our new models our still --

On ratios I think it's clear that the CRD IV rules being published is final, but there still a way to go on the implementation of some of the technicalities. We're expecting the EVA technical standards, in some areas, particularly potential valuation adjustments which has been a topic of discussion for us through the last few months of the PRA. (Inaudible) clarified, models are currently being completed, and these models need to be approved by the PRA. We've told the PRA of our approach, and we've made good progress there, but until that finally is concluded, we won't know exactly how that works, and the last one I would say is central counterparties. It's not 100% clear exactly whether all central counterparties will be approved in Europe under the ESMA rules. That may have an impact on the risk rates we have, and on the business we flow through there. We have made good progress. I think we are closing in on what would be a solid number for you, but there's still some outstanding bits to resolve.

Okay. Fair enough, fair enough. Second, just two quick ones, hopefully. Does the GBP2.5 billion adjustment in terms of revised CRD IV (inaudible) capital for full year '12 -- no one asked on the call this morning, could you just give a short overview, or just short explanation of what that relates to?

You're talking about the PRA adjustment?

No, the revised CRD IV and other refinements of GBP2.5 billion from the full-year 2012 CET-1 balance to get to full-year 2012 revised estimate?

Two key parts to that. One is the restatement that we announced on the Fifth of January to do with the IFRS 19 and IFRS 10 changes, that amounts to about GBP1.4 billion of that GBP2.5 billion, and the remainder of GBP1.1 billion, relates to the potential valuation adjustment there, with -- included an additional portfolio in that, and that's on the assumption we may get tax relief on EVA. That is one of the points that remains outstanding with the EVA.

Okay. One final one before I finish. The moment between your fully-loaded trigger (inaudible) and your new future AT1s, taken account for the [rights] that should get you up to about 9.3%. Do you think that level of headroom, that 230 basis points is that sufficient enough to get an AT1 (inaudible) today at these levels? Or is not, what level of headroom might you be looking for before you might consider issuing?

I think that in the context of the AT1 triggers, obviously it makes sense when you've actually done a rights issue of this size to move to a fully-loaded trigger in any event. Otherwise there's no real value in additional [tier-1 security you're] selling. I think that our message to the market back in November when we sold our original AT1 -- the direction of travel with the context of capital growth was clear, both organically and also the direction of travel from the regulators' perspective of how much capital banks needed to hold generally going forward was clear. That certainly proved to be right in many respects. I think that is exactly the same message we would deliver within the context of AT1 this time around. We've given the message that we're going to reach the 10.5% target. That's our common-equity Tier 1 target and our fully-loaded target, and that's precisely what we would expect to articulate on the road in any AT1 issuance.

Okay. Thank you very much for your answers today, gentlemen.

Thank you. The next question is with Alan [Bau] of JPMorgan.

Thanks for the call. A few questions for me. First question perhaps, for Stephen. I was just wondering how you think about the opportunity costs for leaving legacy instruments outstanding which have been disqualified for regulatory purposes, excluding the plaque in this instance?

How do you think about the opportunity costs, whether you view it against the cost of issuing senior-secured as you show on slide 10, I guess, filling in your plaque you clearly have totally unsecured there. When thinking about filling up that plaque do you think, well I could issue senior unsecured, that's my cheapest, or are you trying to fill that with Tier 2 capital?

This is Benoit. On the first part your question, as you know, James, we can't comment on our intention to call outstanding instruments ahead of time (inaudible) as they are subject to regulatory approval and conditions anyway. (inaudible) on a variety of factors including regard to your positions and impact and this is not changed for we're not going to comment on anything we're going to do on existing securities.

Okay. That wasn't -- the question is more like, how you look at the opportunity cost, whether you are going to be looking to fill your Tier 2 capital ratio with surely subordinated debt, or whether you're happy to include senior. Slide 10 would suggest you're happy to include senior in there.

That part of the question is, we are comfortable with the capital structure as we showed today. We're currently running 17.2% for capital. The reason that we have indicated on the capital stack that we could use unsecured senior debt is in case of a stress, you could have a situation that the core Tier 1 goes down. And therefore, you need to be able to fill that up with some senior unsecured. That is not the way we intend to run -- (multiple speakers).

Okay. Just my second question. Have you locked down exactly what your trigger for any future two AT1 issuance would be? Obviously your Tier 2 CoCos were at 7. Where would you be looking to do a AT1 CoCos?

I hope you have seen the PRA statement where there's very clear directions on their part on the AT1. We have not - since we already formed the Tier 2, don't expect to have any more Tier 2 before the [decision] for the time being is not relevant

Okay. Thank you.

Thank you. The next question is from Corinne Cunningham with Autonomous

Couple of questions just on the new style of AT1. First of all, all your existing deals have been done in dollars. Do you think this is a marketplace where you will be able to tap different currencies, or do you think it's still the case that it's only really dollar-based investors that are primed and ready for style of issuance?

I will take the first part of the question. As you know, we have [shown the] approval to do it in our ECM as well as [write down]. When we did the first and second road show for the Tier 2, there was clearly a difference of opinion between different regions on what part or it that have. Where [a permanent] write down was preferred [in some countries] and was preferred in the US, and less preferred in Europe. If you go to issue is [nascent] format you may have more interest in different currencies.

Yes. I think that's right. The expectation we would have for -- because it would be when we come to market with an additional Tier-One capital security in accordance with this plan, our first new world AT-1 would probably would be to do a large investor road show as we did last time round and canvass appetite across many different regions in many different currencies, and we'll listen to investors with respect to their respective appetites at the time and make the decision then.

Okay. Regarding the existing Tier 2 CoCos, it seems to me that you always said you wanted do 0.5% of CoCos with at Tier 2 host. It seems to me that the regulatory backdrop has become a big tougher in terms of what the regulations are more what you are looking for. Does that change your view as to the role of those Tier 2 CoCos? Or are you still very happy to have a 0.5% of risk-weighted assets out there, I guess some kind of a --?

No, it doesn't change our view at all. If you recall, what we said to the market back in November, with 2% contingent capital -- because ultimately that gets you from a 7% trigger back to a 9%, which is a minimum common equity Tier 1 standard at the bank at this time. 2% is the right number. The 50 basis points top-up in Tier 2 has already been achieved as you well know through the [offering] that we've actually issued in the market so far. The new trigger requirements, interesting, obviously, you have a different trigger in both those, two different types of capital security. Ultimately will come together anyway in the course of the next few years. So given the date, 10 years on the outstanding Tier 2s, I wouldn't expect to refresh that.

Also, when we issue the Tier 2 securities, we're very clear, they were used for specific stress with the PRA. This is still [varied] this has not changed. We do get some specific benefit from the capital stack with them.

I didn't quite catch one of your answers to the previous question. The question was about whether or not your 5% portion of the PLAC or capital base. Whether you were -- saying your base case is to fill that with sub and just have some senior that is ready to top it up? I didn't quite hear the answer to that one?

I will ask Robert to say it in English. (laughter). (Inaudible)

The point Benoit was making was, we aim to fill the stack with capital, so 17% would be filled up with Tier 2 at the top end of that stack. If you're then going through a stretch, clearly, you would lose some capital at the bottom end, at the common-equity Tier 1 end. That would flow through. So your 17% will automatically drop to say 16.5 %, 16%, and so on. What that will do, if you've got some senior issuance stacked behind the Tier 2, that would automatically drag that senior issue you've already got outstanding into the 17% number.

Okay.

I just add one thing. In conflict to the BAU philosophy in keeping capital in place at 17%, obviously your trade-off there is to make sure that you actually keep your senior unsecured at that spread as tight as possible. There's an inflection point, really, where we are actually paying up for additional capital because of the 17% whole gives you a much bigger trade-off in the context of senior unsecured because the lion's share of your debt stack is actually senior unsecured credit. So it certainly the right thing from an efficiency perspective to keep that 17% capital number on a BAU basis.

There's obviously a read across here with the new [RD and the bailing] requirements, and that sets a different basis. That is 8% of total liabilities, as opposed to 17% of risk-weighted assets. Have you thought yet about how you'd like to set up the 8%? Or is that to be decided when the rules are finalized?

We certainly have as you know, as you've just articulated, the rules are still in the infancy at the moment. The RRD requirement is 8% MREL. In actual fact, if you look at a lot of bank balance sheets, it is not 100% -- it's not that different from the 17% ICB plaque requirements.

The devil's in the details. It depends on the precise determination of the liabilities stack in the calculation of the MREL, but there's a long way to go on that. It is just entering trial log phase now, and I'm sure there will be plenty of petitions put out by both the investor community, the banking community, et cetera before we get locked down to give us a little bit more clarity on precisely how to run it. But on first blush, it doesn't seem to be that different from what we've articulated in the context of the 17% ICB proposals.

Thank you.

Thank you. The next question comes from James Hyde USA Prudential.

First of all, I'd like to examine the possible tail event that could help anything -- headline ratios get to near 7%. Since you've taken the conduct risk charges now, there is now this GBP4.1 billion that the PRA deducts. I was wondering, what kind of exposures are they working on that? Also, related to this, I want to understand your NPLs and potential problem loans seems to have a big restate from around GBP19.9 billion, GBP20 billion down to about GBP16 billion -- probably a question for Chris. I want to know, what's is going on there and how does that fit in with the likely asset quality reviews and standardization of NPL definitions that might come in Europe? I'm trying to get a feel for, are we likely to have some old-fashioned credit surprises?

That's the first part. The second part is, just want to try again to get some color on where you think this new Basel leverage definition gets you to in terms of total denominator? I know someone tried to ask this morning. I want to try again. I'm trying to get a feel for what that ratio would be and if -- how much of a challenge it would be to meet them?

I think it is important to understand the adjustment, the (inaudible) adjustment is not in the trigger calculation of the [NEHE1] or the current Tier 2 we have. To answer your question of size, we've indicated on a Tier 2 that we have on the current [CTO1] measure we have 500 each basis points and on the CRD IV we have 400 basis points [price capacity to absorb shock.] The GBP4.1 billion PRA deductions you're referring to is [deducted against venerable] portfolio, specifically [of some] mortgages, UK commercial real estate and Europe mortgages and PB adjustments. This is all PRA adjustment before which we are not taking any loss on it at this stage.

Sure. That is exactly the point, it's that it is a different ratio and I wondered to understand what it was, to see if it could come as a sudden shock that would actually hit the relevant ratios, rather than the PRA adjusted ratio? That's what I'm asking.

You can calculate we capacity we have to absorb a shock. If we issue that where we have a CTO1 ratio fully loaded about 10% you would have 300 to 350 basis point capacity to absorb shock based on a GBP440 billion of [phase] that will be a [GBP115 billion] of losses.

Okay.

In terms of the potential credit risk loan and coverage ratios, just wanted to make sure we're looking at the same data. I am on page 66 of our results announcement and it's showing me CRLs and PCRLs are and moving around but by a much smaller amount than you are suggesting.

Well, it's the restate. That's why. I'm not saying they are moving around like for like, but there seems to have been a restate from the full-year spreadsheet that I have. The [IL] spreadsheet's that's provided.

Looking for [place]. Richard Caven is here and he will go off and do a little bit of investigation and come back to you.

Okay. I will take it up with him later. >Okay.

Thank you. (Operator Instructions).

The next question today comes from Louise Pitt of Goldman Sachs.

Good morning, guys. Thank you for holding the call, especially in New York hours. It helps a lot. Many of my questions have been answered. I have a couple more. The first one is, your indication that the AT1 issuance that you are proposing by June of next year is going to be included, is different to existing contingent capital obviously. Do you expect that determination to be industry-wide for the UK banks? Or is this a specific situation to Barclays?

I can't comment on that. The PRA questions. There's a PRA statement supporting our announcement this morning. One is a very clear paragraph would describe what we expect the differentiation of AT1 which I would assume is for banks like us.

Okay.

Have you seen the PRA statements?

Yes. Yes. We've seen it all this morning. In terms of both ratios that you are going to have different trigger levels in the Tier 2 and the proposed AT1 on contingent capital, are you intending on a quarterly basis to report your capital based on both calculations?

Yes.

Yes, we are.

Okay. And then, just finally -- you commented in the slides that you put up for fixed income for the call this morning on single point of entry and resolution signs. I was wondering if you could comment a little more on your potential HoldCo issuance? Are you expected to be required to issue additional debt and/or capital? Obviously the capital is at the HoldCo level, but you have a lot of debt at the bank level. How is that expected to change under the current guidelines?

We are still in discussions with regulators about the overall positioning in the context of issuance. I think that fundamentally, obviously, you're very familiar in the states with the HoldCo issuance model, where you have equity and subordinate to debt coming out of HoldCo. The think a number of things to take away from that, really -- if you were to employ the same model here in the UK, if you were issuing additional Tier 1 out of HoldCo or Tier 2 out of HoldCo for example, there are fundamental principles in the RRD that say that no creditor can be left worse off than they would have been in insolvency, which makes sure that ultimately, there should be no significant structural subordination between HoldCo issuance and BB PLC issuance.

At the moment, I think we are still considering where we will issue our next capital security [outlook], but that will be determined prior to going on the road and selling the security itself. But we don't consider that to be a problem.

But just to follow up on what you just said, in terms of the RRD guidance that no creditor should be left in a worse position, you mean that you couldn't subordinate the existing bank debt?

Yes. The idea would be if you actually raised something at HoldCo, if you were to downstream it as a relevant portion of debt, whether it's senior, Tier 1 or Tier 2, and it was downstreamed as that senior Tier 1 or Tier 2 debt, then that claim would be recognized in an insolvency as ranking alongside external debt currently issued by the [approaching] company.

All you mean instead of downstream is as equity. Okay. Understood.

And then finally, I want to comment on something you said earlier which I think is helpful. Not many banks have commented on. The comment about paying off the Tier 2 in terms of your total 17% capital ratio, keeping spreads tied up by having that buffer in Tier 2? I think that is something that is really welcoming to hear on your call. I just wanted to make that comment for you, because I think that is something not a lot of bank management teams are recognizing.

Thank you.

Thank you for that.

The final question today comes from Tobias Grun of Wellington Managements.

Yes. Hello there. Most of my questions have actually been answered. I have one very brief follow-up one. That is the AT1 that you're going to be issuing sometime between now and June of next year, is there any clarity on what this would convert into if triggered? There were rumors flying around earlier today that it might be debt into equity. So that's in sharp contrast to existing Tier 2 CoCos? Can you comment on this?

I am not going to comment on what we are going to choose. I would say now we have shareholder's approval to issuance which we didn't have when we did the first issuance on the Tier 1 CoCos. Now we have the option to use one or the other one and we will choose whatever is the one we prefer at the time.

Okay. So it is a combination of cost to you, and I guess appetite from the market?

No. We have a policy to have a very diversified source of funding. There is other considerations discussed that we have -- there's not a lot of consideration we have which is not just only cost. To answer you question, we have the choice, one or the other one.

Thank you.

Thank you very much indeed for joining us. There is one outstanding question that we're going to do a bit of research on and come back. Other than that, thank you very much indeed for joining us today. It is much appreciated.

Ladies and gentlemen, this concludes today's call. If you would like to hear any part of the conference again, a recording will be available shortly. Thank you for joining.

(Operator Instructions).