Barclays PLC

LSE:BARC

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to Barclays Q1 2023 Results Analyst and Investor Conference Call. I will now hand you over to C.S. Venkatakrishnan, Group Chief Executive; and Anna Cross, Group Finance Director.

[Venkatakrishnan, Group Chief Executive]

Good morning. Thank you for joining us on today's call. Let me start by saying how pleased I'm with our first quarter's performance for 2023. This was a record quarter of profitability for the bank. We generated 11.3 pence of earnings per share, which is well above the 8.4 pence of EPS in the first quarter of 2022, and our profit before tax of £2.6 billion for this quarter, is up 16% year-on-year.

We grew income by 11% or £741 million year-on-year, to £7.2 billion. This has demonstrated the broad-based and high quality sources of income, which we have across the Group's businesses. Supporting this income momentum, we maintained our focus on costs and our disciplined approach to investment, resulting in a cost to income ratio of 57%.

We have delivered a 15% return on tangible equity, with all three of our operating businesses generating a double-digit return. And what this means is that we are very confident of being above 10% for the full-year RoTE, in line with our group target. I'm especially proud that we delivered this strong performance while supporting our customers and clients through what has been a challenging environment for the banking sector globally.

As you think about these results, I would like to emphasize three factors, which I think have driven it. The first factor is our risk management approach, developed over a number of quarters and years, which has helped to underpin this performance. The second is a series of disciplined investments over recent years, which have helped to drive top-line growth. And third, our approach to capital management which continues to support attractive shareholder returns.

Let me begin first with the risk management. We have highlighted before that we have intentionally positioned the Group's balance sheet to protect against downside risk in a volatile macro-economic and market environment. This risk management has shown itself in different ways. In our Markets business to begin with, we have maintained a defensive risk profile since the start of 2022 and managed our risk well and adroitly throughout.

In interest rate risk in our banking book, we have successfully positioned ourselves for rising rates and minimized the capital impacts from the large moves in interest rates which we have experienced. In our credit portfolios, we have maintained robust coverage ratios and limited our risk appetite in specific products and sectors, and added first loss protection to our portfolios where appropriate.

Now the U.K., coming to liquidity, has not experienced liquidity concerns that we've witnessed elsewhere in the world. At Barclays, our customer-led liquidity deposit strategy over many, many years has laid the foundation for the highly liquid diverse and stable funding base which we have today. All of these deliberate actions over a long period of time have proven their value in a quarter like this one. We were able to operate normally in a volatile environment, and deliver strong returns to our shareholders.

The second big factor is investments. As we turn to investments, you will see that they are behind the income growth that we see in today's results. In our Markets business, our consistent investment in our platform has driven significant growth year-on-year in financing income, including prime, and market share gains over several years. This has contributed to the Corporate & Investment Bank delivering its second highest quarterly income on record, just shy of £4 billion, and a 15.2% return on tangible equity.

In our U.S. Cards business, our Gap partnership is performing well and we also grew cards balances organically across our other partner portfolios, while credit continued to normalize in line with our expectations. This growth in U.S. Cards, along with 15% year-on-year AUM growth in our Private Bank, have helped to drive 47% higher income in our Consumer Cards and Payments business with a 10.5% return on tangible equity.

Now as we've have mentioned previously, we plan to consolidate our U.K. Wealth business with our Private Bank in this the second quarter of 2023. This will enable us to operate a more efficient, competitive and customer-focused Private Banking and Wealth business from a unified platform. We will update you on this important step in due course.

And lastly, turning to our U.K. Consumer business, Barclays U.K. Investment in our transformation program is generating efficiencies, and allowing rates tailwinds to drive strong profitability, while maintaining a cost to income ratio of 56% and generating an RoTE of 20%. Our positive momentum in Barclays U.K. is reflected in the increase in active Barclays app customers, its growing up to 10.7 million users by the end of first quarter of 2023, which is up 8% year-on-year.

In other areas, we are laying the foundation for our future, such as our investments in support of our strategic priority to capture opportunities from the transition to a low carbon economy. In fact this quarter, Barclays helped Nextracker, the leading provider of intelligent, integrated solar tracking and software solutions, raise $730 million through an initial public offering. This was the first major renewable energy IPO since 2021.

And the third point is Capital. On Capital, the £500 million share buyback, which we announced earlier this year, along with other capital items that we have highlighted, have brought our CET1 ratio to 13.6% as expected, around the mid-point of our target range. Our profits delivered 53 basis points of CET1 ratio in the quarter, supporting further capital distributions for our shareholders over the coming year. This remains a key focus for the bank. When we consider our capital allocation, we are carefully balancing capital returns with the disciplined investments about which I just spoke to you, and which are driving improved returns for shareholders.

So in summary, we have delivered a very strong quarter for the first quarter of 2023 it's a very strong performance. We generated a 15% RoTE, with double-digit returns across all of our operating businesses. Our risk management and robust liquidity, have helped insulate Barclays from recent events in the industry, and enabled us to continue to support our customers and clients. Our investments are delivering growth and improved returns, and we remain committed to returning capital to our shareholders.

With that, thank you for listening, and I'll hand over to Anna to take you through the financials in more detail

[Anna Cross, Group Finance Director]

Thank you, Venkat, and good morning everyone. Q1 was another quarter of consistent delivery, with a statutory return on tangible equity of 15%. Whilst Q1 is usually strong for returns, as Venkat mentioned, we are confident of achieving our RoTE target of above 10% for the year. The cost income ratio was 57%, better than our guidance of low 60s for the year, reflecting Q1 income seasonality.

The loan loss ratio was 52 basis points within our 50 basis points to 60 basis points guidance for 2023. Our highly liquid and stable balance sheet positions us well to pursue our returns objectives, with a CET1 ratio of 13.6%, a conservative loan to deposit ratio, and a liquidity coverage ratio of 163%. Our 15% return reflects income growth of £741 million year-on-year to £7.2 billion, while total costs were flat at £4.1 billion. Within that, operating costs increased £523 million, offsetting the decrease in Litigation and Conduct. Profit before impairment was up 31%.

As we expected, impairment increased £383 million, against a low comparator, resulting in a 16% increase in profit before tax overall to £2.6 billion. Earnings per share were 11.3 pence, partially offset by the 5 pence full-year dividend, driving the increase of 6 pence intangible net asset value in the quarter to 301 pence per share.

I'm now going to emphasize key drivers of our returns; income, costs and risk management. First, Q1 again demonstrated our broad-based income momentum. We are benefiting from the rate environment, and also seeing the results of our targeted investment initiatives. Second, as we invest, we are maintaining cost discipline, driving cost efficiency to mitigate inflation, whilst directing investment into areas which we expect to generate attractive returns for shareholders. And third, we continue to manage risk tightly, which along with our prudent balance sheet positioning and liquidity management, underpin our delivery against targets in this environment.

Starting with income on slide 8. Income increased a 11% year-on-year with growth across the Group, partly from margin expansion, but also from client activity and selective growth in the balance sheet. Barclays U.K. grew 19%, mainly from net interest income. Consumer, Cards & Payments increased 47%, including the effect of the stronger U.S. dollar, driven mainly by U.S. cards, and also growth in both Payments and the Private Bank.

CIB reported its second best quarter on record with income up £38 million at just under £4 billion, including some benefit from the U.S. dollar strength. We are particularly pleased with the quality and diverse sources of strong income growth, which we'll look at on slide 9. The £741 million increase mainly reflected growth in net interest income from several businesses across the Group.

In Barclays U.K., NII grew £279 million, reflecting broadly stable balances and a stronger margin. In Consumer Cards & Payments, income growth of £420 million reflected the significant U.S. Cards balance growth, up 30% and improvement in margin. CIB income was broadly flat despite a reduction of around £370 million in intermediation income in markets. The financing income in markets increased by around £160 million to just over £800 million. This reflects the investment we have made in that area over the last few years, as we mentioned at full-year, and also benefit from inflation.

Whilst this revenue stream is relatively more stable, it will be subject to fluctuations and seasonality from quarter-to-quarter, as client demand is impacted by the market environment, where spreads and inflation are expected to moderate. Transaction Banking contributed over £300 million of growth, mainly net interest income from higher margins, including the structural hedge, plus some year-on-year growth in deposit balances. Transactional activity drove some fee income growth across both the Consumer and Corporate businesses.

We've illustrated on Slide 10 why we remain confident about the momentum in net interest income from the roll of the structural hedge. You can see the quarterly build in gross income from the hedge, to £773 million in Q1. Although swap rates have moderated from Q4, reinvestment rates are still well above the yield of about 1% on hedges, which mature this year. So the build in gross hedge income is expected to continue, and two-thirds of this accrues to BUK. We reduced the size of the hedge marginally again in Q1, reflecting the deposit migration to interest-bearing accounts, particularly in corporate, as expected. In total we have over £50 billion maturing in 2023 and expect to reinvest the majority of that.

Turning now to costs on Slide 11. Total costs were broadly flat year-on-year at £4.1 billion, and our Group cost income ratio was 57%. Operating costs, excluding litigation and conduct, which was immaterial this quarter, increased by £0.5 billion. £0.1 billion of this came from FX moves, with around 30% of Group costs in U.S. dollars.

Efficiencies generated by previous cost actions broadly offset the effect of inflation to date. The increase also reflected disciplined investment to drive returns, and generate further efficiency savings. The 30% U.S. Cards balance growth, including the Gap acquisition, along with further marketing and partner spend and FX moves, drove the £170 million increase in Consumer Cards & Payments. The CIB increase of around £280 million included a £40 million increase in European levies, which are a Q1 event, and FX impacts of c.£60 million.

We have also invested selectively in a number of CIB initiatives to support both the income momentum you see in our current performance and to improve resilience and controls. These include technology platform enhancements, to generate income and to deliver better client experience. For example, we have improved our financing platforms, supporting the growth in that area, and e-trading systems, and developed a unified interface for corporate clients. We have also invested selectively in front office talent.

In Barclays U.K., our focus is on transformation, as we automate and digitize our customer service models. The efficiency savings we've referenced previously are more than offsetting inflation and helping to fund the continued investment in digitization and product simplification, to improve our service for customers.

Turning to the cost outlook. Our cost guidance for the year is unchanged and we continue to target a Group cost income ratio in the low 60s. Litigation and conduct is expected to be lower year-on-year, resulting in some reduction in total costs. To give some color on the expected phasing of costs through the year, we currently expect Q1 to be the high point for Group operating costs in 2023, based on current FX rates, but with different dynamics by business. We expect CIB quarterly operating costs also to be lower than the Q1 level.

Moving on to impairment on Slide 12. We haven't changed the baseline macroeconomic variables for modelled impairment from the full-year, but they are more severe than for Q1 last year. Our total impairment allowance at the quarter-end was £6.3 billion, a slight increase from £6.2 billion at full-year, driven by a normalization in customer behavior. At the end of the quarter we retained post model adjustments for economic uncertainty of £0.3 billion.

On Slide 13, we've shown key coverage and delinquency metrics for our two largest unsecured books, U.K. and U.S. Cards. U.K. Cards balances have reduced by around 40% since 2019. We continue to see high repayment rates in U.K. cards across the credit spectrum, and arrears rates remain stable and low. The coverage ratio is 7.7% in U.K. cards, slightly up on the year-end, with 21.6% coverage of Stage 2 balances.

By contrast we've continued to grow U.S. cards. Delinquency rates have picked up a little, as we continue to see normalization of credit behaviors. However, they remain below pre-pandemic level. As we grow, we are maintaining strong coverage levels, with an increase from 8.1% at year end to 8.9% overall, and higher coverage ratios at Stage 2 and Stage 3. The resulting impairment charge for the quarter was £524 million, compared to the very low charge of £141 million last year. This charge translated into a loan loss ratio of 52 basis points, and we are reiterating our guidance of 50 basis points to 60 basis points for 2023, reflecting the expected normalization in credit. The Barclays U.K. charge of £113 million reflects both the lower level of unsecured lending compared to pre-pandemic and benign credit performance.

The bulk of the charge is in Consumer Cards & Payments, and U.S. Cards in particular. This reflects the continuing normalization of delinquencies, plus some seasonality following holiday expenditure. Continuing balance growth with a seasoning effect as balances grow post-pandemic, is also contributing to the increase. This was particularly the case for Gap, where balances were Stage 1 at the point of acquisition; as some balances have migrated to Stage 2, we have seen impairment increase as expected.

Turning now to the performance of each business, beginning with Barclays U.K. on Slide 15. Profit before tax increased 27% and return on tangible equity was 20%. Income grew 19% to £2 billion, with costs up 9%, reducing the cost income ratio by a further five percentage points to 56%. Net interest margin was 318 basis points, up 8 basis points on Q4, as we benefitted further from the roll of the structural hedge and the lagged effect from recent base rate rises. These impacts continued to be moderated, as we expected by product margin impacts, notably in mortgages, and also from migration of deposits into higher rate products during the quarter.

As we indicated at full-year results, overall we still expect the NIM to build over the year, though more gradually than we saw from Q4 to Q1 and we continue to guide to a Barclays U.K. NIM above 320 basis points for the year as a whole. There were no incremental headwinds from the treasury effects we highlighted in Q4, and we expect a modest reversal of these over the rest of the year, supporting the margin progression.

Looking next at Consumer Cards & Payments on slide 16. The return on tangible equity was 10.5%. Income increased 47%, reflecting growth across International Cards, Payments and the Private Bank. U.S. Cards balances grew 30% to $28.5 billion, including $3.3 billion from the acquisition of the Gap book plus organic growth. Total costs were down 3%, reflecting the non-recurrence of the significant litigation and conduct charge last year. Excluding this, operating costs were up 29% reflecting continuing growth across the businesses, and still delivering positive jaws. Overall the cost income ratio improved to 58%.

As I discussed earlier, the increase in impairment was in line with our expectations and overall loan loss rate guidance. Looking next at the CIB on Slide 17. Return on tangible equity was 15.2%, while CIB income was broadly flat, against a very strong comparator. Markets had a stand out first quarter in 2022, so income down 8% is a creditable performance, with FICC continuing to perform strongly up 9%. This was offset by equities, reflecting lower volatility compared to prior years, which impacted intermediation income, and derivatives in particular.

As I mentioned we continued to see good growth in financing. Investment Banking fees were down 7%, reflecting the lower industry fee pool, although within this advisory fees were up 15%. Our deal pipeline remains strong, and we would expect that to drive improved fee income as rates and market conditions stabilize.

As I mentioned earlier, Transaction Banking was another strong performance, up 68% year-on-year to £786 million. Total costs decreased 2%, reflecting non-recurrence of the significant litigation and conduct charge last Q1. Excluding this, operating costs increased 15%. Overall we're pleased with the continuing development of this franchise. There's a slide in the appendix on the Head Office result, which was a loss before tax of £84 million.

Turning now to capital and liquidity on Slide 18. We have consistently maintained strong capital and liquidity levels, as illustrated on this slide. We ended this quarter with a CET1 ratio at 13.6%, which is in the middle of our target range of 13%, 14%. Our liquidity pool ended the quarter at £333 billion, with a liquidity coverage ratio of 163%, and a net stable funding ratio of 139%, both substantially ahead of the regulatory requirements of 100%.

Looking in more detail at capital, as we flagged at the year end, three items reduced the CET1 ratio by around 40 basis points. The reduction in IFRS9 transitional relief, the completion of the Kensington acquisition, and the recently completed £500 million buyback announced in February. Our capital generation from profits was strong, contributing 53 basis points in the quarter, of which 10 basis points was applied to the dividend accrual. The expected increase in RWAs amounted to 21 basis points, as we invested in opportunities in the Markets businesses, supporting our strong income performance.

We ended the quarter at 13.6% and our MDA is now 11.4%; so our target range of 13%, 14% gives comfortable headroom. Looking forward, we expect strong organic capital generation to support increased returns to shareholders and further business growth in line with our three strategic priorities. Recent events in the sector have increased the market's focus on deposit funding. At Barclays, we have grown deposit balances substantially ahead of loan volumes for many years.

As shown on Slide 20, we have seen an overall increase in deposits of £10 billion, or 2% this quarter to £556 billion. This increase has been driven by international term-deposits in treasury. These are mainly from corporates, and reflect the flight to quality in the market. Excluding these, underlying customer deposits across the businesses are down just 1% in the quarter. This is consistent with previous Q1 experience, and is largely as a result of expected seasonal effects, including payment of tax bills in January, and some FX moves.

Of total group deposits 41% are insured, with over 70% of U.K. retail, and over 90% of U.S. consumer deposits covered. Our franchise deposit strategy means we have remained highly liquid through the quarter and have a liquidity coverage ratio of 163%, well ahead of the regulatory requirements, and equivalent to a surplus of £122 billion. The liquidity pool of £333 billion is held 82% in cash, with the risk in the residual debt securities tightly managed. We have invested in liquidity management over many years and our approach focuses not just on the LCR, but also on a set of internal stress metrics that apply conservative stresses to our balance sheet in multiple scenarios, across various time horizons.

So, to recap and summarize the outlook on slide 22. We delivered earnings of 11.3 pence per share in Q1, and generated a 15% return on tangible equity. Whilst Q1 tends to be a seasonally strong quarter for returns, we are confident of achieving our target of above 10% for the year. We have broad-based and high-quality income momentum from the investments we have made in CIB and in growing CCP, while the rate environment and structural hedge also continue to drive income. We will balance this investment with cost efficiency, given inflationary pressures, and we expect the litigation and conduct charges to be lower than in 2022.

Whilst we expect operating costs, which exclude litigation and conduct, to be higher year-on-year, we currently expect Q1 to be the high point for quarterly operating costs in 2023, based on current FX rates. The cost income ratio for the quarter was 57%, and we expect to deliver a statutory cost income ratio in the low 60s this year, as we progress towards our target of below 60%. We remain focused on risk management in readiness for potential deterioration in the macroeconomic environment.

We expect an increase in the impairment charge this year, as we grow U.S. Cards in particular, and have seen an increase in the charge there in Q1, as expected. We continue to guide to a loan loss ratio in the range of 50 basis points to 60 basis points for the full-year. Our capital ratio remains strong at 13.6%, and we expect to deliver attractive capital returns to shareholders balanced with disciplined investments to drive returns. Thank you.

And we will now take your questions, and as usual I would ask that you limit yourself to two per person, so we get a chance to get around to everyone.

[Operator]

[Operator Instructions]. Our first question today comes from Omar Keenan from Credit Suisse. Please go ahead, Omar. Your line is now open.

[Omar Keenan, Credit Suisse]

Good morning everybody. Congratulations on a great set of numbers. I've got two questions. If we look at Barclays' businesses, clearly, there's been a tailwind from higher interest rates. But also, as you mentioned, there has been a market share and investment story over some time, which does imply that structurally, the RoTE potential has improved. However, the RoTE hurdle is unchanged. So I just wanted an updated thinking from you on that RoTE hurdle. Do you think greater than 10% adequately reflects Barclays' cost of equity? And if not, I was just hoping to explore your thinking on what you think the barriers are to giving a more challenging hurdle? And if you think it does need to be fine-tuned, whether you're considering any Investor Days in the future to do that.

And my next question is just on capital generation. So historically, Q1 has been the trough for capital generation. Can I just check, it sounds like that's expected to be the case this year. And are there any specific headwinds on capital that you called out? And conceptually, it does seem that the interim buyback has not been larger than the full-year buyback. Is that something that is applied as a rule? Or is there no particular constraints on what interim buyback can be relative to the full-year? Thank you.

[Venkatakrishnan, Group Chief Executive]

Thanks, Omar. It's Venkat. So let me answer the first question and Anna will take the second one. Look, you're absolutely right that our businesses have delivered strong double-digit returns across the spectrum. And this reflects quality and breadth of performance across the group, which reflects the investments we've made over a number of years. And the 15% RoTE for this first quarter, in my opinion, is a very serious down payment on the target, which is above 10%. So that -- it's above 10% means 10% is a floor. It is not a ceiling. It is not reflecting the extent of our ambition. We -- our view is with this strong start, we are very comfortable and we expect to meet that target of above 10%.

[Anna Cross, Group Finance Director]

Yes, sure. Omar, you're right. We said that in the past. Typically, it is what we expect that Q1 is a lower point in our capital generation and trajectory for the year just because of seasonality. Obviously, all of that is prior to any distribution or buyback. Equally, we'll come back and consider that buyback when we come back to the half year. That's the cadence that we've established. We don't have hard and fast rules. And we'll look both at our expected capital print at that point in time, but also our expectations of capital generation in the second half when we do so. Thank you.

Can we go to the next question, please?

[Operator]

The next question is from Jason Napier from UBS. Please go ahead, Jason. Your line is now open.

[Jason Napier, UBS]

Good morning. Thank you for taking my questions. The first one, Anna, it's not enormous within the Group context. But I wondered whether we could explore the loan loss charge in Barclays U.K. for Cards. Stage 1 -- sorry, Stage 2 and 3 balances are down. You talked of the higher degree of transactors in the book. Unemployment hasn't risen. So I just wonder whether there was a preemptive component to that charge? Or is this the sort of run rate before the economy starts to sort of noticeably slow at a headline level?

And then secondly, perhaps Venkat, for you. I mean, the Barclays implied cost of equity is above 20%. Some firms in that position have decided to not grow the balance sheet at all, the likes of Unicredit and StanChart, for example, and drive perhaps bigger buybacks. I appreciate it's easier to run a bank where revenues are going up and banking is a fixed cost per volume gain. But I just wonder whether you could sort of simply talk about whether the valuation of the bank affect your attitude to growth. Sort of how much would you expect RWAs to expand given the share price and the market environment that we find themselves in? Thank you.

[Anna Cross, Group Finance Director]

Thanks, Jason. Our impairment charge in the first quarter, both for the Group and for the individual businesses, is as we expected it to be. And what's really driving that charge, Jason, is two things. The first is that the cards book is 40% lower than it was pre-pandemic. So you need to take that into account when you're comparing this to what I would describe as the historic growth rate for BUK.

The second thing is that the credit environment and credit behavior is actually benign. So we're seeing very conservative behavior from our customers. They're repaying at extremely high levels. They're managing their volumes very carefully, and you're seeing that come through in a low impairment print. Clearly, as the economy recovers, we might see that rise. But we would also expect to see credit card income rise at the same time because, obviously, those two things are strongly linked, but not a surprise to us. Venkat?

[Venkatakrishnan, Group Chief Executive]

Yes. So Jason, thank you. It's a good question. What I would say when you look at this quarter's results if you see the benefit of the investments, which we've made not just in terms of the profits of the revenues we've produced, but the stability in our metrics of capital. And what you see is that we are running our business for the long-term. And when you run that business for the long-term, you obviously hope that the stock price will ultimately recognize the value of those businesses. And so what we are aiming to do is to create a series of a set of businesses, operate them well, run them efficiently, manage our risks well and produce numbers.

Some quarters will be better than others, but we hope we could do this kind of thing very steadily. And then that will be recognized and reflected in the stock price. Capital return is an important part of that strategy, just as investment is an important part of our strategy. And we take our capital return very, very seriously, and we will balance it with the investment needs of an ongoing business that we expect to be successful.

[Jason Napier, UBS]

Thank you, Venkat. If I could just sort of follow-up on that. What sort of RWA growth do you think the sort of environment. And there's potential market share gains given some of the volatility in the industry that we're seeing. What sort of balance sheet expansion would you have in mind for this year, do you think?

[Anna Cross, Group Finance Director]

Jason, why don't I take that? I mean, really it depends on the opportunities that that we have in front of us. But you can see that we're doing it in a very disciplined way. We expected to deploy RWAs into markets in the first quarter, and that's what we've done. So where we see opportunities, we will obviously pursue them, but only in a very disciplined way, very focused on returns to shareholders. Both returns are in RoTE terms, but our ability to distribute capital.

[Jason Napier, UBS]

Thanks very much. Thank you.

[Anna Cross, Group Finance Director]

Thank you. Next question, please.

[Operator]

Our next question comes from Joseph Dickerson from Jefferies. Please go ahead, Joseph. Your line is now open.

[Joseph Dickerson, Jefferies]

Hi, good morning. Thank you for taking my questions. Just a quick one. Your Slide 10 on the hedge income is rather interesting because effectively, if you just assume your 375 average Q1 level of swap rates versus the yield, you're looking at somewhere south of about a £7 billion gap. So it's a very big number, considering that the market only expects you to grow your revenues in the U.K. bank by about £300 million, £25 million on 2023. And I wouldn't have thought that assuming rates -- assuming that number stays flat, right, so theoretical, I wouldn't have thought that mortgage pricing and deposit mix shift would have eaten up the bulk of that.

So I just wonder your thoughts there because it seems like there's still an incredible amount of momentum behind the hedge repricing, the obvious caveat of where swap rates go, but we're actually sitting here higher today than 375.

[Anna Cross, Group Finance Director]

Thanks, Joe. Why don't I take that question? We've shown this slide for some time on what it's useful. And I think what it highlights is that we have got structural hedge momentum, and we've seen that actually fairly repeatedly over the last few quarters. And you've seen that, particularly in our BUK NIM bridge. And it's one of the reasons that we are calling out that we still expect our BUK NIM to continue to rise in the current environment despite the product dynamics that you call out. And it really underpins the guidance that we've given you already of a greater than 320 NIM. So it's as we expected it to be Joe and fairly consistent over the last few quarters.

[Joseph Dickerson, Jefferies]

Yes, thanks. It's just very impressive when you look at, I think it's Page 21 or so of the release, where you look at the net number being £1.7 billion. I mean it's a rather extraordinary gap. So it just seems to me like the market is missing something on that, normal caveats notwithstanding.

[Anna Cross, Group Finance Director]

Okay. Thank you. Do you have another question? Or shall we?

[Joseph Dickerson, Jefferies]

Just one. That was all.

[Anna Cross, Group Finance Director]

Okay. Thank you. Next question, please.

[Operator]

Our next question is from Rohith Chandra-Rajan from Bank of America. Please go ahead. Your line is now open.

[Rohith Chandra-Rajan, Bank of America]

Hi, thank you very much. And good morning. I had a couple on CIB revenues and costs, please. Firstly, on CIB revenues. I mean congratulations here on a particularly strong performance. I think that's very commendable given the tough prior-year comps that you had.

And I was wondering if I could just ask in terms of the trends on the corporate side in particular. So lending was better quarter-on-quarter, which I presume is just primarily fewer marks. And then Transaction Banking was a little bit weaker quarter-on-quarter. So I was just wondering if you could help us understand firstly, what's happened in the first quarter? And then secondly, how we should think about that -- those two revenue lines for the remainder of the year?

And then the second was on costs. You mentioned Q1 is the high point for both CIB and group costs. I think particularly about the CIB. Is that particularly relating to the compensation accrual and maybe the SRF contribution in the first quarter? Or is there something around the phasing of either investment spend or cost savings that we should think about as well as the year progresses?

And then I guess the conclusion from sort of both of those is strong revenue performance, but jaws in the CIB was still minus 14% in Q1. How should we think about that for the year as a whole? And more broadly, how are you managing that business in terms of costs and revenues?

[Anna Cross, Group Finance Director]

Okay. Thanks, Rohith. It felt like there were about 10 questions in there, but I'll try and remember them all. So just on the first one on corporate lending. Remember, there are a few things in there. There's corporate lending itself, then there's the cost of our first loss protection, there's a leverage loan mark, and there's also the cost of the hedges against our leverage pipeline.

So the quarter-on-quarter movement that you see is really caused by two of those. You're right, it's the marks. So we've taken no material marks this quarter. The second point, though, is if you recall from the full-year, we said that we managed down our leverage loan pipeline. We've continued to do that again in Q1. And therefore, the scale of those hedges, it's smaller and therefore, the costs are smaller. And that's really what's moving that line.

On the Transaction Banking side, the reduction in income is coming from a couple of things largely you'll see that the balances are broadly stable. But remember, during the quarter, actually what happens in Transaction Banking typically as we see corporate dividends being paid in the first quarter. So the average balance tends to dip down and then grow towards the back end of the quarter. And also remember, you've got fewer business days within Q1.

So you've got 90 business days versus 92, I think. So that has an impact on any kind of banking income. Taking all of that together and going forward, I think we expect our CIB NIM, which we very rarely talk about, to be broadly flat for the year. And the reason I say that is you've obviously got deposit migration going on within Transaction Banking. But we feel like that's very well progressed.

And on the other side, you've got actually quite helpful asset mix going on within corporate because in the current environment, there's slightly higher levels of both trade and sales finance, which are slightly higher margins. So overall, that NIM is pretty stable. And with an expanding franchise, we think that's useful for the future.

On the CIB cost point, this is largely a seasonality point. So you're right, we accrued compensation costs in line with revenue and returns on the CIB. So you're seeing a higher level there. You're also seeing the SRS, so the European levy, which is a Q1 event, but is higher year-on-year.

And in scale terms is about £90 million. And you're seeing a fairly consistent run rate in terms of investment that's underpinning the growth that Venkat said. So that's why we're saying we expect it to sort of tick down from here. We're very focused on returns in that business. You can see that the cost income ratio at 55% is actually better, I think, than the market expected despite that increase in cost. So it's very deliberate on our part. And of course, we start to deliver positive in this business. But at this point in the cycle, we're in an investment phase. But hopefully, that gives you a bit more color.

[Rohith Chandra-Rajan, Bank of America]

Yes, very helpful. Thank you very much.

[Anna Cross, Group Finance Director]

Thank you. Next question, please.

[Operator]

Our next question comes from Jonathan Pierce from Numis. Please go ahead. Your line is now open.

[Jonathan Pierce, Numis]

Hello, two questions, please. The first, just on the AT1. You've issued quite a lot of it over the last eight to nine months. And I guess, there's an argument that you prefunded the instrument that's callable in September in the overall stat at nearly £14 billion, I think is higher than you would ordinarily look to run with. So can you talk a little bit about how you feel with regard to AT1 issuance over the rest of the year and whether specifically you can still call that September instrument without refinancing it?

The second question is just on this Barclays U.K. NIM. The 21 basis points drop in the quarter due to product margins. I mean, obviously, the hedge keeps on giving something like 13 basis points every quarter. For the next few quarters, sooner or later, the bank rate elements tend to drop away. So thinking about the balance between these two, it would be helpful if you could give me a sense of how much of that 21 basis points is coming from the component part of mortgage refinancings, deposit migration. And I guess in Q1, whereas an element related to the actual losses deposits as well, that would be helpful. Thank you.

[Anna Cross, Group Finance Director]

Okay. Thanks, Jonathan. I'll take both of those. Yes, you're right. We issued AT1 in the first quarter, two very successful AT1s in the U.K. and actually in Singapore. We typically operate with a surplus of AT1 in our capital stack. We do that deliberately in part to give us flexibility -- in part to give us flexibility around, for example, FX volatility that we might encounter, but also because we deploy it flexibly into our markets business, where despite the fact that the cost of that AT1 is higher than the Tier 2.

Obviously, the returns in the markets business are sufficiently high to make that a good economic trade for us. So that's why we typically run with a surplus. We have got a call opportunity later in the year. We assess every call in line with the economic circumstances at that point in time. So we'll be looking at that very carefully as we ordinarily would. So no change there.

On the Barclays U.K. NIM, 318 in the quarter, up eight basis points. That is as we expected. And the product migration again is as we expected. And as we were talking about at the full-year, we haven't given a split of that by business, Jonathan. But the larger part of it in mortgages.

What's happening there is it's just a portfolio effect of the fact that most mortgages that are maturing this year were written in 2021, where asset margins were wider than they are now. We have seen some deposit migration. That's within our expectations.

As you can see, we haven't moved our product hedge on the retail side. So that 21 basis points is not a surprise to us. I'll just remind you that as the year progresses, we expect to see continued hedge momentum. We expect that migration to continue, but we also expect to see some modest treasury tailwinds as we called out at the full-year, and it's really taking all of those pieces together. That means that we are confident in our guidance of greater than 320 for the year.

[Jonathan Pierce, Numis]

I'm sorry, just a quick follow-on that. Do you think without the treasury movements turning into tailwinds, the U.K. NIM would still manage to creep up. In other words, will this 21 basis points ease, do you think, over the course of the year to a level more consistent with or even below the structural hedge tailwind?

[Anna Cross, Group Finance Director]

So I would say, yes, because they are modest treasury tailwinds. We did talked before about expecting more product compression earlier in the year than later. And that's part of the seasonal movement that we see in deposits around Q1. And I'd also encourage you just have a look at the asset margins and how they played out in 2021. That might help you.

[Jonathan Pierce, Numis]

Yes, that's very helpful. Thanks a lot.

[Anna Cross, Group Finance Director]

Thank you. Next question, please.

[Operator]

Our next question is from Guy Stebbings from Exane BNP Paribas. Please go ahead. Your line is now open.

[Guy Stebbings, Exane BNP Paribas]

Hi, good morning. Thanks for taking the questions. The first one was just on your comment on the Gap portfolio and Stage migration. Could you perhaps elaborate on the dynamics on that book. I would presume the quality of that book is not quite as strong as the rest of your very good quality card portfolio. So can you maybe give us kind of the coverage ratio on that portfolio and how it compares to the rest of the book to help us gauge what stage migration or normalization of these sales might mean for impairments in the coming quarter?

And then on costs, thanks for the helpful guidance on Q1 being a high point for the group and for CIB. I presume that struck off a certain revenue assumption. And if you had a really strong revenue performance, you might very understandably not hold yourself to that guidance. So could you share any more details on what those assumptions are that go into the guidance, in particular, anything on revenue or what sort of market backdrop you're assuming on the CIB? And then just one very small point of clarification. On the ESRS, I think you said it was £90 million. Is that the absolute number? So how does that compare to a normal year, if you like? Thank you.

[Anna Cross, Group Finance Director]

Okay. Guy, why don't I have a go at those. So when you purchase a portfolio, you purchase it at Stage 1. So when we acquired Gap, it was all Stage 1. As Gap has started to season and started to mature and grow, we see some natural migration into Stage 2. That means that customers are starting to borrow more. We've got new customers coming on to the box exactly as we expected. If you use your credit card more than you did previously, you might progress to Stage 2 even though you're showing no signs of delinquency. That's just the way IFRS 9 works. So it's within our expectations.

And in terms of sort of coverage of NIM, we don't disclose individual partner ratios, whether that be delinquency or NIM. But what I will tell you is that we manage each partner individually. We manage them on a risk-adjusted return. The Gap is a very good quality portfolio. But it is a retail portfolio, and we typically expect the risk -- the cost of risk to be higher in that type of portfolio than we would in an airline one, but we would also expect the NIM to be higher.

So overall, think of this as us managing a risk-adjusted return. So even though impairment might be higher, we'd also expect NIM to be higher. So that hopefully deals with the first question. On the second one, the easy bit is, yes, around £90 million in absolute terms on the IFRS. It doesn't move around a little bit, not quite as mechanistic as the bank levy in the U.K. But that is up year-on-year, which I think we've talked about in the slides.

From here on in, we have -- we obviously have an expectation of performance. Let me try and help you with that. We've given you, I think, clear guidance in terms of how we expect costs to move from here. We've also, by inference, given you some income guidance because we've given you a cost-income ratio expectations for the year. So hopefully, that will be somewhat helpful in getting you to the range of income that we expect, albeit at group level.

The only other thing I would say is that the guidance we've given is based on the FX rate. It's also based on our current expectations of a normal seasonal profile in CIB revenues and driven very much by the performance costs underpinning that. So hopefully, that's helpful. And next question, please.

[Operator]

Our next question comes from Alvaro Serrano from Morgan Stanley. Please go ahead. Your line is now open.

[Alvaro Serrano, Morgan Stanley]

Hi, good morning. A couple of questions from me. One on, just more a follow-up. On the deposits, it's great to see that you saw sort of deposits up actually, and we've seen quite different reports from some of your peers and overall. Can I just maybe sort of press you to -- you mentioned the flight to quality, but I don't know if you can size that flight to quality like some of the U.S. players have done.

And more importantly, going forward, and I'm thinking here in particular in BUK, what would you expect the deposits to do from here? Do you continue to expand to slip or more stability? And the second question is more of a follow-up on the previous question on markets. You mentioned, Anna, that you're kind of expecting a normal seasonality that FICC was very, very strong on a very strong comp. So maybe to give us some comfort or some more color, could you maybe talk us through Q1 if a lot of that was March volatility? Is it more consistent that gives you the confidence for that normal seasonality? Thank you.

[Venkatakrishnan, Group Chief Executive]

Hi, Alvaro, I'll take the questions. So the first one on deposits. You're right. I mean, we've gone up a little over the quarter, £10 billion. We saw a normal seasonality within the BUK deposit base, which has a very slight shrinkage. And that was due to basically people paying their taxes.

The broad point within the U.K. context is that it has not seen the movement across banks that you've seen in the U.S. because there's not been the kind of deposit pressure you've got in the U.S. from some of the very large regional banks having problems. So in the U.S., it's very much a function of that regional bank issue and the movement from regionals to the big money center banks. You don't have that in the U.K. So it's been behaving the way we would expect it to in the first quarter, and we'd expect that same seasonal trend in the second quarter.

Where we have seen a bit of inflow is in what we would call our treasury deposits, we've called it out, which are basically corporates around the world placing deposits, stand deposits with us, which is -- it's a nice thing to have. It's a show of confidence. And so that is what's been driving it. And I would say, otherwise, in the U.K. context, think of it as just the normal seasonal slow.

Coming back to markets, I'll say two things. As far as the first quarter goes, it was a case of great volatility in fixed income markets both before March and in March, right? So if you remember, in the early part of the year, interest rates started rising. And then there was a big view that actually that things were going to -- that the Fed was going to stop making having interest rate rises after a certain point. And there's a bunch of sort of shall we say, bearish trade on rates and bullish trades on spreads in January. That reversed in March. So you see volatility.

But I think the important thing what I would like to say about our FICC franchise is that our market share has continued to grow in that franchise. And as it has in equities over a number of quarters and years based on deepening client relationships, investment in technology, investment in people, right? So I expect as we go forward in the next quarter and the one after that for that market share to be sustained, if not to grow. And we did well in the first quarter of this year. We did -- in the second quarter, I'll also remind you that Q2 of '22 was a very strong point of comparison with the volatility that you had post structure in Europe. I mean, so far, you've not seen that in this quarter.

[Alvaro Serrano, Morgan Stanley]

Thank you very much.

[AnnaCross]

Okay, thank you. Next question please.

[Operator]

Our next question comes from Chris Cant from Autonomous. Please go ahead. Your line is now open, Chris.

[Christopher Cant, Autonomous Research]

Good morning. Thanks for taking my question. If I could ask two, please. On the structural hedge, you said in the slide that about two-thirds of the hedge income is coming through in the U.K. But where does the other one-third get booked by business, please? And how much of that will be coming through the Transaction Banking line? I'm just trying to get a sense of how much growth we should expect there. Are you able to guide this all, please, on your expectations for revenues for the corporate lending and Transaction Banking line?

I know you don't generally talk about the revenue outlook, but I would hope that those lines might be a little bit forecastable. And I think that was a source of the beat in the quarter versus consensus. So perhaps we're missing something there. And then on the BUK side of things, in terms of the mortgage book, could you give us a sense, please, of where you're writing new business today versus where the average spread on the back book is in terms of what's rolling? Thank you.

[Anna Cross, Group Finance Director]

Okay. Let me take those, Chris. So the majority of the rest of the structural hedge does appear in Transaction Banking. There's a little bit in the private bank. But as you can imagine, much less given its scale and also given that those are much more interest-sensitive balances. So that's where you see it going. That's in part driving the NIM in the CIB up year-on-year.

And then there's another smaller part from assets, which I called out before, from the sales and trade finance side on that. In terms of corporate lending, I called out before, we've seen some movement quarter-on-quarter because we haven't taken marks because the pipeline is much lower., From here, let's see where that goes, but it's certainly much recovered on the prior-quarter. We've given some guidance on this line before, but just remember the other thing that's in there is our SRT costs, so our first loss protection costs.

If I take all of that together, actually our corporate income is pretty stable. And the reason I say that is you're seeing a NIM that's stable for reasons that I said before. You're seeing good balance growth coming through. Actually, we've seen some year-on-year corporate lending growth as well. So as an outlook, it's performed. And as you say, a lot more stable than some of the other parts of the CIB. So we're pretty confident in its outlook.

I think the other thing I'd just call out is we've obviously seen quite a lot of deposit migration there already. If I contrast the sort of three different deposit franchises we have, we've seen most migration in private banking, as you'd expect, a lot in corporate and probably less in personal. So hopefully, that gives you some guidance there.

And in terms of BUK mortgages, we don't talk about specific margins. That's not something we ever disclosed. But if you're looking for the effects of the compression, I would say mortgage margins have been relatively stable, and they're pretty consistent across the market given the very competitive nature of it. And if you were to look back at the spread over swap in '21, then you're going to see that compression effect quite clearly, I think. Hopefully, that's helpful.

[Christopher Cant, Autonomous Research]

Just if I could come back on the sort of CIB revenue line items. So we should be interpreting kind of corporate lending £100 million a quarter from here and Transaction Banking growing from £750 million to £800 million as the hedge benefits come through. I think as alluded to in an earlier question, the structural hedge benefits prospectively are quite medium. And if a lot is coming through that Transaction Banking line, presumably should be expecting that to grow sequentially from here. Is that fair?

[Anna Cross, Group Finance Director]

So let me just correct you slightly. I'm not going to give you a quarterly income number for corporate lending simply because the number of factors in there. But given that we've hopefully seen the stress of leverage lending behind us, then hopefully, it will stabilize from here at least. On the transactional banking side, you've got two things going on there. You've got hopefully potential further growth coming from the expansion in Europe, but also the U.K. franchise.

But there is some NIM effect in there. Because although we're well through the deposit migration and Transaction Banking, I'd still expect more to come in corporate. So very sophisticated, actively managing their balance sheet, which is what we've seen and we'd expect it to continue.

[Christopher Cant, Autonomous Research]

Okay, thanks.

[Anna Cross, Group Finance Director]

Okay, thank you. Next question, please.

[Operator]

The next question is from Edward Firth from Stifel. Please go ahead. Your line is now open.

[Edward Firth, Stifel]

Yes, thank you very much. Good morning everybody. Just a question for Venkat, actually. If you think of a question on the profitability of your businesses. BUK is now making around a 20% return. And I guess, if I look at your forecast or your guidance, you're going to expect that to go up from here, so probably mid-20s or even higher. That's I guess double what you're targeting for the group as a whole. And just like that business in recent years, you've been ceding market share in some of your key areas.

And I wonder, at what point do you start to think that, actually, that is an area now where we should be putting more capital in and start trying to gain share, particularly in things like credit cards, deposits, that type of stuff. And actually, because it would seem that, that would make logical sense, given you look at the sort of the profitability mix of the business as a whole. So that was the key question.

And I guess related to that. I see that, and it maybe be part of the answer. BUK costs were up 9% year-on-year. Is that the sort of cost growth? It's quite punchy. Is there sort of one-off in there? Or should we be expecting that sort of cost growth for the year as a whole? Thanks very much.

[Venkatakrishnan, Group Chief Executive]

Thank you very much. So let me begin with the first part of it, and I'll ask Anna to talk a little about cost growth, about costs. So you're right, the profitability of the RoTE of BUK is 20%. We are not making any statement about how that would grow quarter-on-quarter. I think what you're seeing is the impact of, on the one hand, rising interest rates. On the other hand, especially when you look at the mortgage business and the NIM, we've spoken about those dynamics. So you see that all coming together and producing good numbers.

I'll make two statements about just our market positioning in BUK. We aim and continue to be a sort of a full-service bank across small businesses, retail, mortgages, credit cards, everything. What you've seen is risk positioning on our side, particularly in credit cards since around Brexit, a little after that, where we have backed off from some of the longer-term balance transfer offers and sort of the two aspects of them.

And you're seeing a prudent risk positioning. We will assess that as we assess all risk positioning over time depending on facts and circumstances, how the economy grows, and we will make those changes. So it's not a question of ceding or gaining market share. It's a question of just managing the risk profile of the book. And that's what you should see it as.

At the same time, if you look at our Kensington mortgage acquisition from last year, what that is, is about building a capability for issuing mortgages or offering mortgages to people with complex incomes. It's something we felt we needed. And we will build that capability, and that will be part of the [indiscernible] items. I'll turn it to Anna for cost.

[Edward Firth, Stifel]

Sorry, Venkat, could I just come back?

[Venkatakrishnan, Group Chief Executive]

Yes, go ahead.

[Edward Firth, Stifel]

Thanks, I mean the credit environment does look very benign. All your forward-looking indicators show no deterioration. And so I'm just wondering at what point do you start thinking, well, this is by far and away my most profitable business? It's time to start competing a little bit and taking some share and seeing if I can grow it. Is it something like -- is this something you review annually? Or is it something you -- I mean, at what point could we start seeing that change, I guess, is what I'm trying to get to grips with?

[Venkatakrishnan, Group Chief Executive]

Yes. So we look at a fairly frequently -- frequent basis about our positioning and how much we want to take risk in certain -- in all parts of the U.K. market. So it's not something that happens annually. It happens, frankly, monthly, quarterly through risk committees. And we've been doing it since the start of this year.

As I said, you're right that if you look at the trailing credit behavior, it has been fairly benign. And we continue to see what you continue to see in the U.K. consumer is a resilience to the shock of higher energy costs, resilience to the shock of higher mortgage rates and managing the overall inflation. Now we will watch it month-to-month, quarter-to-quarter and we will make our decision. So it's not something that we sort of decide annually and it's put cost in stone at that point. No, we're watching it carefully.

[Edward Firth, Stifel]

Okay, thanks very much.

[Anna Cross, Group Finance Director]

Thanks, Venkat. Let me add one thing, actually, and then I'll go on to cost. The other thing is that as we step back into a market, you don't always see the results immediately. And the example I'd give you is actually our card book. So we stepped back into promotional balances. We're very thoughtful about where we position ourselves. But that sort of balanced transport -- transfer business takes a while to season through and get interest earning lending. So there's a little factor from there. And also the way that we are rebuilding our cards portfolio, we're obviously investing a lot in new products like the product, which is more fee-based and probably a slightly different demographic sector. So there's a lot of activity in there, I would say, for new growth forward as well.

Just moving to costs. BUK is in the midst of a transformation. We talked about that a few times. And essentially, what we're doing is we're generating efficiencies, which are absorbing inflation, and then we are also reinvesting them into future transformation. So the kind of thing we're doing is we are obviously changing our physical footprint to your branches but more flex locations with simplifying our product stack with digitizing all of the journeys. So there is some quite heavy investment phases happening in there. That means the cost profile can be a bit lumpy. I wouldn't call out anything specific in Q1, but it's not a steady state is what I'd say.

To help you from here, Venkat mentioned Kensington. So you should expect some integration costs from Kensington in Q2. But thereafter, you're going to start to see a cost profile that reflects the transformation starting to come through. So hopefully, that gives you a view of how we expect things to pan out this year and maybe a bit of background on the nature of the cost.

[Edward Firth, Stifel]

Yes, it's great. Thanks very much.

[Anna Cross, Group Finance Director]

Okay. So thank you. So we'll go to our last question, which I think is Andy Coombs from Citi.

[Operator]

Yes. Please go ahead, Andrew. Your line is now open.

[Andrew Coombs, Citi]

Good, good morning. Thanks for taking my questions. I'll keep it to one, actually, given I'm the last one. But just on Slide 17, I wanted to focus on the footnote around the financing revenues. So there, you talked about the 25% growth year-on-year was in part due to inflation. In a more normalized environment, you'd expect it to be around 10% growth. Can you just elaborate a bit more on that comment?

You previously last quarter talked about the financing revenues being more stable and an example of where you gained market share that you think you can keep, but I was just interested in that comment specifically in the footnote, it sounds like there's an element of one-off nature in Q1 '23. So can you elaborate, please? Thank you.

[Anna Cross, Group Finance Director]

Okay. Thanks, Andy. Okay. Let me help a bit here because this is obviously quite a new disclosure for us. We've done it a couple of times now. But financing right, any of the business is really has impact from balances, from spreads and from seasonality. What we're seeing in Q1 is continued good growth in client balances that reflects the investments that we put down that we talked about today.

The spreads do reflect the macroeconomic environment. So for example, in Q1, we saw very conducive spreads in our fixed income financing business, given the rate of volatility. But we actually saw a bit of compression in prime because of the reduction on the equity side. The reason that we called out inflation in particular is that there are some positions within our fixed income financing business that are linked to inflation. And we're calling it out just to be helpful.

They're not one-off. But the reason that I'm calling them out is that in a lower inflationary environment, we might expect them to generate less income. So -- and then the final thing I would say, Andy, is just this business is quite seasonal. So it tends to be heavier in the first couple of quarters just because of dividend season and then also tends to sort of be a little bit lower in the second half.

Actually, you can see that in the disclosures from some of our peers is given the disclosures for quite a lot loan growth. So hopefully that will help you shape it but it's not a one-off but we are just calling out simply because of its scale in that particular quarter. But underlying that, we're seeing 10% growth, which we think reflects the investment that we've made. And you can see actually even at 10% growth, the real stability in this business, but it's afforded to the markets business in Q1.

[Andrew Coombs, Citi]

It's helpful, thank you.

[Anna Cross, Group Finance Director]

Okay. Thank you. And with that, we will conclude today's call. Thank you very much for joining us for your questions. And I will see some of you the week after next. So thanks very much, and have a great day.

[Venkatakrishnan, Group Chief Executive]

Thank you.

[Operator]

Thank you, everyone. That concludes today's conference call.