Barclays PLC

LSE:BARC

Earnings Call Transcript 2023-Q2

[Operator]

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

[C.S. Venkatakrishnan, Group CEO & Executive Director]

Good morning. Thank you for joining Anna and me on today's call. Let me start by saying we continue to deliver a consistent strong performance quarter-on-quarter. In particular, our second quarter results show resilience against a mixed macroeconomic backdrop and against the viewed market activity.

This performance again demonstrates the stability and strength of the franchise, which we have built over many years. We generated GBP 6.3 billion in income in the second quarter of up '23, up 6% year-on-year, excluding last year's impact from the [indiscernible] securities. This growth reflects the diverse sources of income, which we have built across the group.

Our focus on cost discipline delivered a cost-to-income ratio of 63% for this quarter, putting us on track to meet our guidance of low 60s in 2023. Our deliberate and prudent approach to risk management over many years it's providing protection against macroeconomic uncertainty. As a result, our credit performance continues to be in line with our expectations. Together, these foundations have generated a profit before tax for the bank of GBP 2 billion in the second quarter, earnings per share of 8.6% and a return on tangible equity of 11.4%. This second quarter performance means that we have delivered for the first half of 2023. And income, which is up 9% year-on-year, again, excluding the over issuance. And a return on tangible equity for the first half of 13.2%, again, in line with our target of above 10% for the year.

Despite the mixed macroeconomic backdrop, we continue to invest thoughtfully where we see opportunities to build competitive advantage and to service our customers and clients more effectively. In Investment Banking, building on our strength in the U.S., we are growing our market share in the U.K. and in Europe, and we have risen to #1 ranking in fee share in the U.K and a #2 position in Germany for the second quarter of 2023 as well as our sixth position globally.

While announced volumes have been muted, client consideration of [indiscernible] alternatives remains active in anticipation of improved market conditions, and we have been deeply engaged in a full range of risk transfer activity. For example, Barclays was exclusive provider of financing for [indiscernible] $3.6 billion deal with Back west Bancorp in the last quarter. We're also seeing continued momentum in financing income within our Markets business and maintain our top-tier rankings in businesses such as credit trading.Despite lower client activity in markets and banking across the street, I'm particularly pleased with the growing strength of our client franchise.

For several years, our client-centric markets business has targeted greater share of flow revenue from our top 100 clients. As a result, our income from these clients is up over 10% for the first half of 2023. In the consumer bank in the U.S., we have built upon the succession of our partnership with CAP and announced a new long-term collaboration with Breeze Airways, an airline startup from a co-founder of JetBlue.

We also continued to make good progress in financing the transition to a low-carbon economy. We recently provided approximately GBP 100 million in loans to support more West offshore wind farm, a development that is expected to supply up to half of the electricity for Scotland. And recently, we extended our popular greener home rewards scheme in the U.K. to help support more of our mortgage customers with financing energy efficiency improvements to warehouses. As I have said in the past, shareholder distributions are a key focus for the bank.

Our reported CET1 ratio at 30th of June was 13.8%, up 20 basis points from the first quarter and solidly within our target of 13% to 14% and for the bank. Core to this is our consistently strong balance sheet and the capital generation capacity of our franchise. We are therefore announcing an increased capital return, to shareholders with a 20% growth in our half year dividend to 2.7p per share.

We are also pleased to announce a share buyback of; GBP 750 million which is an increase on the $500 million we announced at year-end and completed in the first half.

Over the past 12 months, our combined dividends and buybacks, including those announced today represent a yield of about 10% at current share price levels. And our buyback programs have in aggregate reduced our share count of shares in issue by over 10% since 2020. And so to reiterate, capital and shareholder distributions are a key focus for us going forward. As we have described for more than 18 months now, inflation and higher interest rates in developed economies, have changed both client and customer behavior. We have continued to position Barclays accordingly, and that is driving the consistency and stability in our results. I will briefly describe our approach and Anna will elaborate on these points shortly. First, we have taken a prudent approach to credit risk management and to our balance sheet, maintaining strong capital and liquidity metrics over the long term. In particular, we continue to balance carefully our credit exposure with the provision of lending and liquidity. Our customers are cautious, but they remain resilient. We have provided incremental and tailored support while also ensuring that it is simple and convenient for them to access the right product to meet their needs. We understand the impact of inflation and high interest rates on our customers, and we want to help them. For our U.K. mortgage customers, we are providing options to switch to interest-only mortgages for 6 months or extensions of their mortgage term where appropriate. We are also enabling customers approaching the end of a fixed rate mortgage deal to lock in a new rate up to 6 months in advance. Of those customers who have made their mortgage rate switch application directly to us, over 1/3 have done so using the Barclays app.

On the savings side, we provide a range of instant access and fixed savings products, which allow our customers to select the right rates for their savings goals. For those customers who rely on instant access to savings, we recently increased the rate on our everyday favor by 50 basis points. In addition, since its launch in September last year, our rainy day paver account, which pays 5% up to GBP 5,000 has proven popular with customers. Over 435,000 accounts have been opened as of the end of June this year, of which 95% were opened digitally. We also regularly conduct outreach to highlight where a better savings product might be available to customers, and we have seen some significant shifts in behavior as a consequence.

As interest rates rise, our customers become increasingly sensitive to their impact. And as a result, we have issued further guidance on our Barclays U.K. net interest margin, which Anna will address shortly. Finally, we have also continued to exercise cost discipline against this backdrop by capturing efficiency savings to manage inflation and by being thoughtful and careful about how we invest in our businesses. Anna will cover costs in more detail, but suffice to say that we have delivered on our cost guidance this quarter and remain committed to driving a lower cost-to-income ratio over time.

So in summary, we remain very confident of meeting our targets for the full year. Our targets are anchored on a greater than 10% return on tangible equity. I reiterate that this remains a floor and not the extent of our ambition. We are managing the bank well and generating a consistently strong statutory performance across the range of different economic scenarios and market scenarios which we have been experiencing. This quarter represents another important step towards demonstrating value for our shareholders.

We have increased shareholder distributions and remain committed to doing so going forward. And we do this while continuing to support our customers and our clients. With that, thank you for listening. I'll hand over now to Anna to take you through the financials in more detail.

[Angela Cross, Group Finance Director & Executive Director]

Thank you, Venkat, and good morning, everyone. Starting with the format highlights on Slide 7. Our return on tangible equity for the quarter was 11.4%, broadly in line with Q2 last year, resulting in a 13.2% return for the first half. This is in line with our expectations, and we are very confident of achieving our rate target of above 10% for the year. This takes into account business trends and income and our latest view on impairment, I'll come back to each of these. We guided to cost in Q2 being lower than Q1 and half delivered.

The cost/income ratio was 63% for the quarter and 60% for the half, and we continue to guide to low 60s for the full year. Although we are still guiding to a low loss rate of 50 to 60 bps for the full year, we continue to see limited signs of stress across our portfolio. And this quarter, the loan loss rate was 37 bps. This reflects the prudent positioning of our balance sheet, as Venkat mentioned, and we believe our risk management discipline will limit credit risk downside for us if the global economy slows.

Our liquid and stable balance sheet positions us well to pursue our returns objectives and return capital to shareholders. Accordingly, we are paying a half year dividend of 2.7p and and have announced a further buyback of GBP 750 million to start immediately, which is a total return of 7.5p per share for the first half. There was no effect this quarter from the over issuance of securities, which did impact litigation and conduct costs and income for Q2 last year.

To provide a more meaningful comparison, we have excluded these impacts from the comparators in this presentation. On this base, ink was up on a strong Q2 last year, whilst operating costs, which exclude litigation and conduct, were also up 6%. Litigation and conduct was GBP 33 million this quarter, and profit before impairment was up 12%. The impairment charge increased to GBP 372 million against a low comparator and in line with our expectations, resulting in profit before tax increasing to GBP 2 billion and earnings per share to 8.6p.

The tangible net asset value accretion from earnings was more than offset by negative reserve movements, mainly reflecting further rate rises, reducing TNAV by 10 in the quarter to 291 per share. I'm now going to cover the key drivers of our returns, income, costs and risk management, starting with income on Slide 9. Total income increased 6% or around GBP 335 million year-on-year, reflecting our diverse sources of income.

Barclays U.K. income grew 14% with tailwinds from higher rates year-on-year and from the structural hedge, partially offset by lower product margins. Consumer Cards and Payments increased 18%, driven mainly by U.S. Card Balances. CIB was down 3% year-on-year at GBP 3.2 billion. The strength in corporate lending and transaction banking income and stability in financing income in markets partially offset the impact of market conditions, which were less favorable for intermediation income and for deal flow in banking.

So we benefited, again, from our diverse business model within the CIB. Looking at the group as a whole, if you compare our revenue in this quarter with 4 years ago, you can see that we have grown income by around GBP 400 million in both the CIB and across our consumer businesses. Turning now to costs on Slide 10. Total costs were GBP 4 billion, up 2% year-on-year. Our cost/income ratio improved from 65% in Q2 last year to 63%, an increase of 57% at Q1 as we expected, and this is factored into our unchanged low 60s guidance for the full year.

We delivered lower operating costs in Q2 versus Q1 at both the level and in CIB, in line with our guidance, and we continue to expect Q1 to be the high point for quarterly operating costs this year, again for Group and CIB. We are focused on capturing cost efficiencies across the group. For example, in Barclays U.K., we are investing in transformation to improve service for our customers by automating, digitizing and simplifying our offering, whilst also driving a lower cost income ratio over time.

CTT operating costs were up GBP 96 million year-on-year, reflecting growth in our U.S. Card portfolio, including the acquisition of GAP towards the end of Q2 last year and the U.K. wealth transfer from the U.K. during the quarter. And CIB operating costs were up GBP 114 million year-on-year as we continue to invest selectively in our clients' franchise through technology enhancements in talent and in improved resilience and controls.

Moving on to credit on Slide 11. We have maintained our long-standing prudent approach to provisioning and continue to hold strong coverage levels. Our impairment allowance at the quarter end was GBP 6.1 billion, a slight decrease from GBP 6.3 billion at Q1. We updated the baseline macroeconomic variables for modeled impairment from the full year, notably with some reduction in forecast unemployment in the U.K. and U.S. However, these remain more severe than the forecast used at Q2 last year. And at the end of the quarter, we retained post-model adjustments for economic uncertainty of GBP 0.3 billion.

Our guidance for our loan loss rate in the 50 to 60 bps range allows for some potential credit deterioration and seasonal effects. The GBP 372 million charge translated into a loan loss rate of 37 bps. Looking in more detail by business on Slide 12, the Barclays U.K. charge of GBP 95 million reflects the lower balances and a lower risk book of unsecured lending compared to before the pandemic as well as our prudent positioning in mortgage lending.

There is some increase in the provision against mortgages, and I'll come back to why we remain comfortable with our credit risk here despite the significant rise in interest rates. As expected, the majority of the charge is again in Consumer Cards and Payments and U.S. Cards in particular. It reflects the normalization of delinquencies with a seasoning effect as balances grow, and this includes the GAAP acquisition, which is performing as we expected.

The next three slides illustrate why we are confident in our provisioning and our prudent approach to risk. On Slide 13, we've shown key coverage and delinquency metrics for our two largest unsecured books, U.K. and U.S. Cards. Repayment rates in U.K. cards remain high across the credit spectrum and arrears rates remained stable and very low by historical standards. Overall, we are confident that the credit quality of our U.K. card book has improved since 2019.

We've continued to grow U.S. cards in an appropriate and controlled way that is consistent with the opportunities we see there. As we expected, delinquencies at all FICO levels have been increasing, but our risk mix has improved with our average but for the box strengthening slightly since the end of 2019 to over 750, and this includes GAAP. In addition, the proportion of the book better than a FICO is now 89% compared to 86% at the end of 2019.

As we grow, we maintained strong coverage levels across both U.K. and U.S. cards, notably, Stage 2 coverage of around 18% and 33%, respectively. Moving on to the mortgage book on Slide 14. There are a number of factors that contribute to our comfort in the higher rate environment. First, we have applied strict affordability tests since 2013, using rates above current levels.

Second, looking at the profile for refinancing, the proportion of the book on 5-year and over initial fixed rate has increased materially since 2019 from 33% to 51%. This shift delays a potential increase in rates for many borrowers, allowing them more time to mitigate the impact. Fixed rate maturities in half 2 totaled GBP 17 billion. And as you can see from the chart, a significant proportion of these borrowers have locked in rates ahead of the end of their fixed rate terms.

So our mortgage customers are taking thoughtful and appropriate actions. Third, and as a credit backstop, the BUK is conservatively positioned from a collateral point of view with balanced weighted loan-to-value of 52.8% only 2% of mortgages, which are refinancing over the next 2 years have LTVs in excess of 85%. Given the market-wide focus on commercial real estate, we also wanted to share more detail on the portfolio to highlight our position.

As we have followed a prudent lending policy here for over 30 years, this is not an area of concern for Barclays. As you can see on Slide 15, commercial real estate as a proportion of our customer loan book is around GBP 17 billion or just under 5%, which is below the industry average. It is diversified across segments and the weighted loan-to-value of 49% provides significant headroom for a potential stress in prices.

No individual segment has an LTV of higher than 58%. We know the office component has received particular attention and this is just GBP 1.9 billion. Turning now to the performance of each business in the quarter, beginning with Barclays U.K. on Slide 16. Profit before tax increased 25% and the return on tangible equity was just over 20%. Income grew 14% to GBP 2 billion, with costs down 1%, improving the cost/income ratio by 9 percentage points year-on-year to 55%. We expect to improve this further as the benefits from our transformation program feeds through. The net interest margin was 322 bps, up 4 on Q1, in line with our expectations, and this would have been 2 bps higher without the transfer of U.K. wealth to consumer cards and payments.

The moving parts are set out in the bridge on the slide. We benefited from the steady role of the structural hedge, which again added 13 bps as in each of the last few quarters from some large effects from previous bank rate rises. There was also a 6 bps increase from the reversal of some of the treasury headwinds, which we called out at full year. These positive impacts were moderated by both mortgages margins and the developing deposit dynamics.

On the next slide, I'll cover how we see NIM evolving from here. Our customers are cautious and resilient, and we see benefits in our credi performance, but this also affects our income outlook. Through recent macroeconomic developments, have prompted customers to change their behavior and us to revise product pricing. First, inflation is expected to be more persistent; second, base rates are forecast to peak at higher levels; and third, swap rates increased further during Q2, increasing mortgage pricing.

In this environment, our customers are behaving rationally and have started to use surplus deposit balances to manage their finances more actively. For instance, business banking customers are drawing down on deposit balances for use in their businesses and to pay down debt. In Personal Banking, over 1/4 of our customers with mortgages have been making excess repayments, reducing their loans ahead of potential remortgaging.

And throughout the book, customers are seeking higher yields for their savings and, we have changed our pricing in response. Accordingly, we now expect the BUK NIM to be below 320 bps for full year 2023 our current view is around 315 bps, which reflects our expectation for customers to hold lower deposit balances, changes in deposit pricing, and the 2 basis points impact from the transfer of U.K. well. Of course, the precise outcome will be sensitive to a number of inputs notably the level and mix of deposits and other macroeconomic factors, including inflation and rates.

At the same time, the high swap rates are providing a tailwind to future years from the structural hedge as we lock in fixed receipts at meaningfully higher rates, which I'll cover on the next slide. Slide 18 illustrates the importance of the hedge to the level and visibility of our future net interest income. Swap rates increased sharply during Q2 to around 5%, and reinvestment rates are materially above the yield of 1% on on hedges maturing this year.

As a result, gross hedge income is increasing and over 90% of the GBP 3.6 billion expected for this year was already locked in by the half year. We have a further GBP 50 billion to GBP 60 billion, maturing in each of 2024 and '25, at yields between 1% and 2%. The precise level of reinvestment will depend to an extent on customer behavior, but the building effect of the hedge roll gives us confidence that gross income from the hedge will grow strongly in 2024 and 2025. I would remind you that around 2/3 of the benefit is in the U.K., where the hedge has contributed incremental NIM in each of the last few quarters.

Looking next at Consumer Cards and Payments on Slide 19. The return on tangible equity was 11.8%. Income increased GBP 195 million or 18%, reflecting growth mainly in international cards and the transfer of U.K. Wealth. Period-end U.S. card balances grew organically by 12% to GBP 29.5 billion and average balances were up 27% year-on-year as the GAP acquisition was completed late in Q2 last year. We delivered positive operating jaws despite operating costs, which exclude L&C being up 14% and reflecting continuing growth across the businesses.

Both income and costs included around GBP 35 million from the transfer of U.K. Wealth. As I discussed earlier, the increase in impairment was in line with our expectations. We've included a summary in the appendix on the wealth transfer. The combination with the private bank creates the top 5 U.K. wealth management business, and we believe we can develop the business more effectively as a single entity.

Looking next at the CIB on Slide 20. Return on tangible equity was 10%, while income was down 3%, a resilient performance against a very strong prior year comparator reflecting our diversification within the CIB. Corporate lending and transaction banking increased strongly year-on-year to over GBP 900 million. Markets, which was down 20%, reflected lower market volatility impacting intermediation income, but there was some offset from financing income, which grew 9%.

As I mentioned last quarter, we are benefiting from the effects of higher inflation and financing. Investment banking fees were down 15%, reflecting a lower industry fee pool. Cost decreased 2%, but operating costs, which exclude all litigation and conduct, increased 6%. As I mentioned earlier, this reflected selective investment in our client franchise.

Turning now to capital and liquidity. As you can see on Slide 21, we continue to maintain strong capital funding and liquidity. Looking in more detail, beginning with capital. Our capital generation profits was again strong, contributing 39 bps in the quarter, of which 8 bps was applied to the increased dividend accrual. Taking into account the EUR 750 million buyback we have announced our CET1 ratio would be 13.6% and in our target range of 13% to 14%. Our MDA has increased in July from 11.4% to 11.8%, and we remain comfortable with our target range.

Looking forward, we expect strong organic capital generation supporting attractive returns to shareholders. We have grown deposits substantially ahead of loan volumes for many years and have a low loan-to-deposit ratio of 72%. As shown on Slide 23, we have seen a stable level of deposits overall this quarter at GBP 555 billion. This reflects an increase in international deposits and treasury offset by some decline in retail and business banking deposits, in line with the market trends we discussed earlier.

We are comfortable with the stability of the group's overall deposit funding base and our diversified sources of deposit funding. Our franchise deposit strategy means we remain highly liquid based on both our internal stress framework and our liquidity coverage ratio well ahead of the regulatory requirements. The liquidity pool of GBP 331 billion is held 80% in cash with the risk in the residual debt securities tightly managed.

So to recap and summarize the outlook on Slide 25. We delivered earnings of 8.6p per share in Q2 and generated an 11.4% return on tangible equity and are very confident of achieving our target of above 10% for the year, underpinned by our diversified sources of earnings. The cost income ratio for the quarter was 63%, and we expect to deliver a statutory ratio in the low 60s this year.

We remain focused on risk management. And while we expect an increase in impairment year-on-year as we grow U.S. cards in particular, we are confident of delivering a loan loss rates within our guidance range of 50 to 60 bps for the full year. Our capital ratio remained strong at 13.8%, and we expect to deliver attractive capital returns to shareholders followed with selective investments to drive profitability.

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 Joseph Dickerson from Jefferies.

[Joseph Dickerson, Jefferies]

I just had a question, firstly, on rate sensitivity because I can't find any tables or disclosure in today's releases. I guess are you now approaching as regards base rates, a position whereby the bank is liability sensitive? Or how should we think about rate sensitivity going forward? And then secondly, can you discuss your strategy with some of the European consumer businesses, such as the German consumer business, I think there have been some press headlines about the disposal of that business. That would not -- that would actually have a relatively significant contribution to capital present really gain on it, not game changing, but certainly would free up another, call it, GBP 750 million or GBP 1 billion of capital, if you were disposed of it. So I guess how are you thinking about those peripheral consumer businesses that you still have?

[Angela Cross, Group Finance Director & Executive Director]

Thanks for your questions. so I'll cover the first one and then hand across to Venkat. So you're exactly right. What we are saying is that given where base rates have now got to, we expect further rate rises from here would have no impact on our net interest margin if that might be even slightly negative. And that's simply because, as we've said for some time, the higher rates go, the higher the pass-through will be. Don't forget though that this higher rate environment also impacts the yield curve, and we are seeing that benefit come through and get locked into on our structural hedge. Venkat, do you want to take the second question?

[C.S. Venkatakrishnan, Group CEO & Executive Director]

Yes. Thank you, Anna. So Joe, yes, we are looking to sell the German credit card business. It's a nice business, but it's not really been -- it's not really core to our overall consumer footprint. There will be a modest RWA release when that happens. But it is small in the context of the bank. I mean, it's something, but it's small. Yes.

[Operator]

The next question is from Jason Napier from UBS.

[Jason Napier, UBS]

Just to start off with, I guess, first one, a lot of the investors that I talked to would like to see Barclays we care about the sort of risk-weighted asset growth that it envisages for the CIB, like many of them would like to see no growth in that division at all or perhaps some kind of constraint around the share it represents in the group. I just wanted your your views on that desire. And then secondly, just looking at Barclays U.K., the division has a better income to loan tally than almost anyone else in the sector, but it's cost-to-income ratio is 10% above Lloyd's and 13% above NatWest. You must have done loads of sort of internal work in the past. Can you talk about what it is about the cost structure of that business that makes it so much less efficient than the major peers that we look at?

[C.S. Venkatakrishnan, Group CEO & Executive Director]

Jason, I'll take the first one, and I'll talk a second one [indiscernible] Anna. So on the first one, I think I have been pretty clear that when we look strategically at the investment bank, it's been a great success. It has been 5 years ago, the question that was asked of us was should you have one. And If you had one, would it be any good? And I think we've shown that it's important for us to have one. It's a great diverse business, and we're pretty good at it. We are the top-ranked European investment bank, so in markets penetrating, However, I also recognized that at approximately 60% to 70% of the bank, it is much more important now to grow the bank that's outside of the investment bank. -- and that is -- and to get a better balance overall in due goods. Now having said that, within the investment bank, there are some relatively attractive RoTE businesses, such as financing and prime. And we have been within the investment bank investing a lot in those. So the real -- when you get to the heart of your question, it's something, of course, we would agree with, which is to increase RoTE and to increase the proportion that fee-based and relatively capital-light businesses play in our entire product mix.

[Angela Cross, Group Finance Director & Executive Director]

Yes, we've thought a lot about this. And I'd put it down to a couple of factors. The first risk appetite does play a role here. So -- and that is both around liquidity and credit risk appetite. So you'll know that Barclays U.K. has a lower loan-to-deposit ratio than some of its peers. And we've managed our credit extremely carefully within Barclays U.K. as we do obviously, across the group. And it's part of the group risk appetite that we focus on, obviously, we've got global opportunities to place risk and many varieties of it. So I think risk is a large part in the way we manage that risk. But of course, it's also about the cost base, which is what the transformation in Barclays U.K. is about. So we're extremely focused on cost and efficiency, and we are working extremely hard on our physical and digital footprint and the benefits that, that gives to our customers. So what you see at the moment is us reinvesting the benefits of that transformation to make it go faster. But over time, we would expect to see the cost-income ratio of the business to trend over Hopefully, that gives you some clarity about how we think about it. So next question, please.

[Operator]

The next question comes from Jonathan Pierce from Numis.

[Jonathan Pierce, Numis Securities]

I've got two. The first is on the hedge. Thanks for the extra disclosure. Hedge maturities in 2024, 2025, particularly the scale of them. But I wondered if you could be a bit more precise on the yields that these things are coming off because you've got GBP 100 billion to GBP 120 billion in maturities over those 2 years makes a big difference if the average yield on the [indiscernible] 1% versus 2% the range could be as wide a GBP 1 billion or so. I'm also just a supplementary to that, wondering where all the hedges that were written in 2020 when the 5-year swap rate was close to 0. Where are those on are those coming off? And I thought there'd be a bunch of those in 2025. The second question is a more broader one on distributions. In particular, going forward, the sort of split of the free capital generation goes towards dividends versus buybacks. I mean we can all understand you want to do a lot of buybacks over the next few years of this rating. The consensus dividend payout ratio is about 27%, I think, over the next 2 or 3 years. And as an argument, I suppose, the payout ratio could be a bit higher than that. I mean ultimately, cash in pocket today is just as important as enhanced cash and profit in a few years' time. So thoughts around the distribution split between dividends and buybacks moving forward would be [indiscernible]

[Angela Cross, Group Finance Director & Executive Director]

Okay. Thank you, Jonathan. Just picking up the first one, I'm glad you like the slide. So we're talking about Slide 18 here. What that shows is that we've seen a strong pickup in yield from FY'22 to '23. So our income has gone from GBP 2.2 billion to an expected GBP 3.6 billion this year. And your question is really, how that flows from here? Difficult to be completely precise about the maturing yield because it does impact on on how much we roll into your calculation. But what I would say is that it's probably a lower end of the range for 2024 and in the range for 2025. Typically, these are about 5 year swaps. So you're going to see the benefits coming through of 2020 vintage sort of from '25. On your broader question, the way we think about it is we want a progressive dividend, which is why you've seen us grow the dividend at the half year, year-on-year. So that's up by 20% year-on-year. And that's really -- that should demonstrate to you are confident in our ability to distribute capital consistently from here, but we want to be able to supplement that from time to time with a buyback, as you said, particularly given where the valuation of the bank is right now. And so -- at this point in time, we, together may see around GBP 1.2 billion of distribution at the half year, which is 5% of our current market cap. So hopefully, that will underline to you our commitment to return capital to shareholders in dividend and buyback.

[Jonathan Pierce, Numis Securities]

Okay. That's helpful. So just quickly come back on the hedge point. In 2025, it sounds like you're saying the average yield to maybe around the midpoint, about 1% to 2% range. If you've been bar the stuff that was put on [indiscernible] pandemic, which was obviously fair that if you've been putting a hedge on typically at 5 years rolling, why is the yield on the stuff coming off at that level when the 5-year swap rate was pretty close to 0 in 2025 -- in 2020, sorry.

[Angela Cross, Group Finance Director & Executive Director]

There is a blend in, Jonathan. We can take you through it in a bit more detail. So there will be a large part vintage, but they're not all 5 years. So we can take it through do it with you in a bit more detail at the [indiscernible].

[Operator]

Our next question comes from Guy Stebbings from BNP Paribas.

[Guy Stebbings, BNP Paribas Exane]

The first one is just on deposits. In BUK, I think they felt about GBP 4 billion to GBP 5 billion in the quarter, presumably that includes some outflows in current accounts and interest-bearing site accounts and the inflows into time so perhaps you could help us understand those moves in terms of the mix of deposits, either at Box U.K. or at group level. And then as we look forward, it sounds like you expect that had been to persist at maybe current levels, whereas 1 of your peers noted the experience thus far in Q3 was maybe a little bit better than May or June and thought that less base rate movement less prompts for customers to move money. So I just wonder if you share those sort of news or not, it sounds like maybe you're embedding slightly more conservative there. And then on the CIB, I guess we've become quite accustomed to top line beats and market share gains or market for quite a while. This quarter was a little bit soft. I just wondered if you had anything into that, and you need to change or pivot mindful you got a true view in the background? Or do you just largely put it down to 1 quarter, and there will always be a degree of apologies and perhaps you've been seeing some green shoots from here.

[Angela Cross, Group Finance Director & Executive Director]

So we don't disclose the split by deposits. But when we look at our peers who've reported thus far, the trends that we've experienced don't look markedly different. But actually, what we're saying at this point in time is the migration behavior is broadly as we expected it to be. What we're seeing is that customers are holding a lower level of deposits -- and they're doing that for very positive and proactive reasons. We think that the pot for that behavior is three things: Firstly, rates have risen beyond the level that any of us expected.

Secondly, inflation is much higher and more persistent than we expected; and thirdly, mortgage rates are obviously higher than they have been at any point other than a brief period in the third quarter of last year. our customers are sensitive to these higher levels of interest rates, but not actually in the way that consensus is assuming it's manifesting itself in them using their deposits proactively to manage their financial position, and we're seeing the benefit of that in our impairment. So we said in the scripted comments that over 1/4 of our customers are using that excess deposits to pay down our mortgages in advance of a fixed rate change. We think that's the right thing for them to do. And whilst it will impact on income, it's also going to impact our impairment. Because those three factors of rates, inflation and indeed mortgage rates, we expect to persist, we also expect this deposit behavior to persist into the third quarter. And really, that underpins much of the guidance that we've given you around the forward path for [indiscernible] from here. Hopefully, that gives you some [indiscernible] in how we are thinking about it. Then [indiscernible], do you want to pick up the second?

[C.S. Venkatakrishnan, Group CEO & Executive Director]

On the CIB, I would very much view this as -- and I'll explain to you how it's just a quarter where in the quarter, both in fixed income, equities and in banking, we've been in the middle of [indiscernible], right? So our performance is consistent with that of the U.S. peers. We are very much in the middle of the pack. And there's a little bit of a stylistic story in it. If you look at fixed income, where we're off just a little more. We had an excellent quarter in the second quarter of 2022. We also -- this was a quarter in which securitized products, which is an area of growth for us has done very well. So banks with big securitized products businesses did better than those without. And equities volatility was a little bit more muted, and we have a very derivative heavy business. And banking has been fine. As I said in my words -- remarks a few minutes ago, [indiscernible] share increase in the U.K. and Germany continue to maintain our global ranking. So I think if I take a slightly longer-term view, we continue to aim to gain market share with our biggest client, which is a specific objective of ours. We continue to do well within markets and in banking. And then the last thing I want to point out in terms of the diversification of the business and referring to the question that was asked earlier, I think from Jason about the CIB. If you look our transaction banking numbers and our corporate banking overall has been doing extremely well. So that part of the business, which is imports related to transaction volume in part related to interest rates, but it's also in part related to just plain good old fee income has been doing very well. So net-net, you put it all together, that's what leads to a CIB with double-digit ROTE and a continued accumulation and holding of market share.

[Operator]

The next question comes from Alvaro Serrano from Morgan Stanley.

[Alvaro Serrano, Morgan Stanley]

I guess we've got a couple of really follow-up questions. Anna, you mentioned, I think, just now around the -- it's really the deposit balances that are driving the structural heads down in the -- and the margin guidance down in the U.K., you've reduced around EUR 4 billion. And is that the run rate of reduction in deposits we -- that you might expect for the next few quarters that we should expect for the next few quarters? And I guess, more than related to the level of rates is, obviously, it's [indiscernible] level rates, but I guess clients are focusing on their rollover of mortgages, so it could last a bit longer than just with rate movements when base rate moves. Is that a fair observation of the EUR 4 billion run rate and it's more to do with the level of rates and then the movement of rates? And then the second question, also a follow-up on on the strategic review and Venkat, some of the points you've made during the call of growing sort of balancing the business a bit more outside the investment bank. Obviously, the obvious part of the business to grow is U.S. cards, given I'm not sure there's a lot of room in the U.K. When I think about it, that's quite a capital-intensive business and there are some [indiscernible] that are pulling back actually from growing cards and payments. Is that idea to deploy more capital become bigger in the U.S.? Or is it also an option of taking capital outside the investment bank to distribute? Is that another way of balancing the business?

[Angela Cross, Group Finance Director & Executive Director]

So the disclosure that we've given you on the structural hedge is actually for the group as a whole. We've included it in that Barclays U.K. section just because of the impact and the link it has to Barclays [indiscernible]. But that reduction in the hedge that you're seeing quarter-on-quarter actually relates to our corporate business as it has done in prior quarters. And really, what we're doing there is I think we've described before the way we build the hedge we identify the rate insensitive balances and then we maintain a buffer and it's -- we maintain a buffer when we put the hedge together. What we're doing in corporate is we are very conservatively maintaining that platform in the current environment. Again, I think we've spoken before about the fact that our corporate businesses or our corporate clients were really very proactive in moving their deposits and really it's a continuation of that previous story. Today, we haven't actually changed the role of our hedge within the retail book. Of course, we are very focused on that every single month. But I'd just remind you that because of the way that we roll this hedge very mechanically, we have the opportunity every month to reassess it and pause or reduce the size of the role. So we've got plenty of room and plenty of time to adjust it. But to date, in retail, we have not had the need to do that. And secondly, the pickup in this hedge in '24 and '25, we would expect to be pretty strong, simply given the amount that we got maturing indeed the yield on that maturing level. So that will impact the U.K. will also impact the broader bank, but that's what you should read from Page 18 as opposed to any specific concern about the level of BUK deposits. Venkat, do you want to pick up the second point?

[C.S. Venkatakrishnan, Group CEO & Executive Director]

Yes, Alvaro, thanks for the question. So I think 1 way to look at is CIB, non-CIB the way I prefer to look at it is to continue to improve -- to increase the amount we have of fee-paying relatively capital-light businesses. There are a couple that exist within the CIB. As I've mentioned to you, transaction banking is one of them. Our financing business is one of them, but there are many outside the CIB. And as far as -- and you should therefore look for us to continue to put an emphasis on saying relatively capitalized businesses. I think we would like to grow cars, but I would actually also like to increase the capital efficiency in our cost business and that's something we're spending some time on. So it's not just growing the current RWA density, but growing in a more efficient way. And that's an important feature. So net-net-net, look for us to be increasing more fee-paying businesses and relatively capital light.

[Operator]

The next question comes from Chris Cant from Autonomous.

[Christopher Cant, Bernstein Autonomous]

You talked quite a lot about investment J curves in the CCMP segment over the last couple of years, but it feels like the revenue engine stalled a little bit there in the second quarter. Could you talk a bit more about what's going on? Why the revenues came under some pressure there? And I guess, echoing an earlier question in terms of some of the investor sentiment around some of the strategic headlines we've seen in the last couple of months. If you are wanting to invest outside of the [indiscernible] in [indiscernible] some of those CC&P segments, would you consider providing a bit more visibility? It's a slightly odd division. There's quite a lot in there. And we don't really see the economics of the different bits of that business. I know you gave us the revenues, but obviously, we don't see the rest of the P&L. If that's something you would consider to make investors a bit more comfortable with some of the growth aspirations? I had one follow-up, please, to Guy's question. In terms of deposit trends, obviously, you've given us this revised NIM guidance. Have you seen an acceleration in turning out behavior in June, July, please, specifically just in response to the large hiring swap rates. You've referenced various drivers of the change in the NIM guide, but I'm particularly keen to understand what you're seeing with respect to turning out? And I guess that feeds then into the quantum of hedge maturities, you will be able to reinvest looking into '24, '25.

[Angela Cross, Group Finance Director & Executive Director]

So let me start your first question, which was about the quarter-on-quarter movement in CCP. This is largely about U.S. card I wouldn't link it directly to J curves or anything specific around the momentum in that business. There are some small FX impacts. There's also a little bit of seasonality in there. We typically expect slightly higher income in Q1 and Q4 just because of the patterns of holiday spending in the U.S. I think the other, though, just to note is that we have seen an improvement in risk performance I would say, real risk performance quarter-on-quarter. And that's coming from a couple of things. It's from the stabilization of the delinquency trends. It's also from the fact that GAAP is now fully embedded and is seasoning out and performing well in line with our expectations. So we're seeing that in the impairment line, as you can see that we also see it in the income line because it impacts fees. So overall, very happy with it. It's going in the right long-term direction. This is a business that we want to grow as Venkat said. So I wouldn't read too much into the quarter-on-quarter movement. On your particular point around presentation, we hear you. Actually, there are two important businesses within CC&P and we are quite reflective about how we might think about and present those in the future. U.S. cards is obviously 1 of them. We'd also call out Wealth and Private Banking, which we've now brought together into a single division. So we'll reflect on that and update you in prior -- in subsequent quarters, but we are very thoughtful about it. And then to your second question, we're not seeing any real difference in deposit trends following the exit of Q2. It's been fairly consistent actually through Q2 and into Q3 so far. As I said, the trends that we're observing, we don't believe are different to those of the industry. The one that's a bit different from our expectations, does this use to sort of more current account deposits, I would say, simply customers proactively managing their financial situation. So I wouldn't call out any specific impact on the hedge.

[C.S. Venkatakrishnan, Group CEO & Executive Director]

And finally, just step in for a second, Chris. And you and some of the previous questions have focused rightly on sort of where we want to grow, what the balances were, what's the investment? Equally, I hope it's clear that not just how we're thinking about avenues of growth, but we really value doing it in such a way that creates returns for our shareholders. And and we want to prioritize that. And so that's a big pot behind continuing with the dividend program and the buyback program at 7.50. So it is a balancing act, and I just didn't want you to miss the other side of the balance, which is what we've been returning to shareholders. SP1.

[Operator]

The next question comes from Benjamin Toms from RBC.

[Benjamin Toms, RBC Capital Markets]

Firstly, on mortgage spread compression, it's fairly significant headwinds in NIM this quarter. But if you look at [indiscernible], it looks like the headwind fades as we go through half 2 as the spread of mortgage rolling off the book comes down and the pressure looks like it comes back again in 2024, albeit to a lesser extent than we're seeing currently. Is that the right way to think about the shape of the headwind is the first question? And then secondly, back on the structural hedge fade. But in terms of the extra disclosure given that's really helpful. I guess the key question is the quantum of the total gross income in '24 and '25. That's not disclosed, but you described as being strong. If we look at latest market pricing, it looks like the tailwinds could be something like an additional EUR 1 billion of revenues in '24 and another EUR 1 billion of revenues on top of that in 2025. Can you give some kind of sense about whether that's the right kind of ballpark way to think about it?

[Angela Cross, Group Finance Director & Executive Director]

Thank you, Ben. So you're right about mortgage margins at the moment. The mortgage market is very competitive, very focused on refinancing. That means that spreads remain attractive relatively thin. We don't see that changing much through 2023. Remember, we know exactly who is maturing. This year and what rate they're on. And in fact, in the disclosure that we've given you is that many of them have already refixed already. So we've got a very good view about what the forward impact of that is. We would expect it to be much less, probably largely neutral actually in 2024 because what we're really seeing at the moment is the vintage written in 2021, which was on much wider margins and on 2-year fixes, it's that's rolling off, really. So by the time we get into 2024, we'd expect the impact of mortgage compression to be much more neutral. And in many respects, the margin story for 2024 is much simpler, which leads me to your second question. It's a wee bit early to give very precise guidance around 2024. What I would say though is the following: Given the scale of maturities that we have and the yield on those maturities, we would expect a strong pickup. And clearly, we would expect that to mitigate any continued depositor behavior that we see through 2024. So I would expect it to provide a stabilizing effect as we go into 2024, noting again that mortgages will be broadly neutral and actually base rates, we would expect to be broadly neutral. So it's really a much simpler picture in margin terms in '24.

[Operator]

The next question comes from Adam Terelak from Mediobanca.

[Adam Terelak, Mediobanca]

I want to dig into NIM into 2024. I know you just mentioned the hedge. Can you give us a sense of the deposit assumptions in this year's guide? And then how much deposits might be able to move further beyond '23 and into '24. So I'm just trying to think about what the kind of the volume of deposit repricing opposite, that hedge benefit you're talking about could be the kind of scale of the 2024 NIM from the 315 you're expecting this year? And the question completely different pocket. U.S. regulation, the [indiscernible] new look [indiscernible] Basel III finalization might look like. How does that impact your U.S. IHC how impact your card growth plans there? Because I know the minute capital ratios between your U.K. business and international franchises are fairly well balanced. Does that change if you're going to see material risk-weighted inflation on the U.S. regulations? And does that change your greater plans?

[Angela Cross, Group Finance Director & Executive Director]

So let me talk about our deposit assumptions for 2023 first. So as I said, in Q2, we've seen that sort of increased proactivity from our customers. We expect that to continue into Q4 -- into Q3 rather. And by the time we get to Q4, normally what happens is we actually see a build of deposits in Q4 because people stay up on their way into the holiday period. We're not assuming that this year, but we are assuming the movement in deposits will somewhat stabilize in the fourth quarter. So that's our version of that seasonal effect in this forecast. So what we're expecting in NIM term is that for the NIM to step down in Q3 and then be a bit more stable into Q4. And remember, we've got really good visibility on the hedge. So of the GBP 3.6 billion in gross income this year, we've already locked in GBP 3.3 billion of it. We know who our mortgage customers are and when they're going to refinance. So really, what we're doing here is answering 3 questions. The first is, what happens if and when base rates go up again. And we are clearly saying that we expect that to not have a positive impact on NIM, it might actually be slightly negative. And that's because at these rates and beyond, we'd expect pass-through to be high. The second question we have is around deposits, and I'll just told you what we think. Sets down again in Q3, somewhat stable thereafter into Q4. The third and really important question is, what do we expect to happen to unsecured lending? In the current environment and given the productivity that we see from our customers, we are not assuming that, that is going to grow. You're seeing some headline growth, but that's not interest earning growth. Now as I say, this is having some downward pressure on our U.K. In but it is also impacting the impairment, and we are seeing very strong low levels of impairments coming through in the U.K. Hopefully, that gives you a bit more clarity I think...

[Adam Terelak, Mediobanca]

Can you say anything on deposit migration in '24 and changes in mix beyond 4Q? Or is it two crystal balls?

[Angela Cross, Group Finance Director & Executive Director]

So too early to tell, as I noted before. All I would say is that given the strong pickup in the structural hedge, we would expect those two things to be offsetting.

[C.S. Venkatakrishnan, Group CEO & Executive Director]

So I just want to emphasize the point Ema at the end about the relationship between them and impairment. Having spent a lifetime in credit markets. What I will say to you is the NIM you want is not the highest NIM but the best kind of NIM. The one that balances your return with risks of credit impairment. We think we increasingly see the evidence that we've got a very good kind of NIM because what you are seeing is a reduction in it, but reduction for the right reasons. And the reasons are that people are using extra balances to pay off mortgages and reducing the impairment risk on the portfolio. So as you think through these numbers and as you think through our credit portfolio, I would urge you to keep it in mind because that's the way and I think about it. And that's the way we've been targeting and developing and shaping the credit profile of the [indiscernible]

[Angela Cross, Group Finance Director & Executive Director]

Absolutely. On your second question, Adam, which is about Basel 3.1 in the U.S., again, it's a bit early. We're expecting that guidance today. So it will take us a while to work our way through that. We've guided to the overall expected impact from Basel 3.1. And of course, we'll update you on that as these rules become clearer and more final.

[Operator]

Next question comes from Rohit Chandra-Rajan from Bank of America.

[Rohith Chandra-Rajan, Bank of America Merrill Lynch]

I had a couple on CIB, please, if that's all right. The first one was just on transaction banking, where there was clearly a very strong revenue trend last year as rates were all rising. And that's come down slightly over the past couple of quarters. So is transaction banking now, is that margin piece done and this is now a kind of volume-driven revenue line? That would be the first one. And then just on cost management in CIB. So costs have been coming down, but they've not kept pace with the revenue trends. I was just wondering how we should think about the cost trajectory there going forward. Is this -- should we expect the investment spend to drop out at some point or efficiency improvements to kick in? Or is this more about market share gains and revenue growth and market recovery going forward, so the revenue line more than the cost line?

[Angela Cross, Group Finance Director & Executive Director]

And thank you for the question, which, of course, is on another very strong [indiscernible] for Barclays. So the one we talk about a lot is Barclays U.K., which is half of our net interest income, corporate is a quarter of it and CTP is the other quarter. So thanks for the question. What's happening in Transaction Banking is continued stability in deposits. These are very long sticky relationships with our corporate clients. We've seen earlier migration there as we would expect, that's a bit more stable now. And really, what you're seeing over the last couple of quarters is that both slightly odd in the [indiscernible]. So Q1 is relatively small in business days. Q2 has got more more calendar days, but fewer business days because of the bad holidays that we have through May.

So it's actually a slightly odd quarter. So we saw probably fewer fees coming through there because of the fewer business days, but higher deposit income because of the more calendar days, if you can decode all of that. But just stepping back from all of it, given that it's based on corporate relationships and given that our structural hedge also impacts this business, we see it as being pretty stable actually as an income line. And corporate lending is a much cleaner picture this quarter as well because it doesn't have any leverage loan marks in it. So that's a much closer picture to what I would expect that to be a clean quarter. On CIB costs, we've clearly been investing in our CRB for the reasons that then cuts gone through. What you're seeing at the moment is that, that cost trajectory around investments is reaching maturity really. And what you're seeing over time is the income growth -- whilst there might be difference this quarter to quarter, that income growth is coming through behind it.

So you're seeing what were quite strict negative [indiscernible] now abating somewhat. I won't talk about specific quarters, Rohit, but clearly, our objective here is for this business to have strong returns and cost income ratio is a key part of that. So we are focused on it. And you'll see that it's part of our overall story, but we don't think that our CIR is in line with our peers. And clearly, we're seeing the benefits of the growth coming through, but very RoTE focused. Just noting we've had double-digit ROTE in this division now for 10 our of 14 quarters. So we feel like we're investing in the right things. Hopefully, that helped.

[Operator]

The next question comes from Edward Firth from KBW.

[Edward Firth, KBW]

Venkat, I just wondered if I could bring you back to the strategy question because I think that probably is the key one at the moment. I mean, I heard what you said about the success of the CIB over the last 5 years. And what it's worth, I agree with you. But if I let you share price over that time, it's down between 10% and 20%. So I guess, although we agree, the wider market clearly disagrees or clearly doesn't see the value in what you've created. And so I guess in that context, I also heard your comments about strategic review and perhaps fee income being a focus. But how sure are you that that is enough to start closing the valuation gap on the peers? And at what point -- are we not approaching the point now after perhaps 5 or 10 years of this strategy where we start to think doesn't something more radical need to happen to actually start closing the gap because you're now at a huge discount. I mean, Lloyd's is on [indiscernible] Natwest is on 0.8, 0.9. You're down 0.5 or less. And I'm just -- is there sort of a sense of how we can do something to close that. Does that make sense?

[C.S. Venkatakrishnan, Group CEO & Executive Director]

Yes. So what I want to say to you is obviously First of all, thank you for your comments on the CIB. I'm glad you agree that we've been making progress on it. It's clearly insufficient, right? That's what the price to book was steady. And I think there are 3 or 4 aspects of that. One aspect is the proportion of the bank's revenue, profits, risk-weighted assets that are sitting in the CIB. It does feel that, that is a drag on the overall valuation by say 60% to 70%, right? So in other words, the success of the CIB has been great, but it's now -- the rest of the bank has to pull its own weight. That's the part, again, where I'd say both within CIB and the rest of the bank that we've got to the proportion of relatively capital-light, relatively taking revenues. And we are putting in place the pieces that allow us to think about this in an operator in a good way. So the merger of the private bank and the wealth business from the U.K. is one such piece. The investments we continue to make in our cards portfolio in the U.S. although I repeat the point I made earlier, not just to make investments in the card portfolio to make it more capital efficient or another part of that piece. And I think it's important also that we have -- we don't surprise the market in the way we did last year with that securities issuance problem. So we're spending a lot of time improving internal end-to-end management and efficiencies for that, we don't have negative surprises. But then ultimately, you come to the last part, which is to run the businesses at a very high level of operational efficiency, which includes in some part, scale, so that people believe that you can produce these higher returns sustainably over long periods of time and guide you to how we might do that. And I think we're spending time thinking about that. And at the right time, we'll share.

[Angela Cross, Group Finance Director & Executive Director]

Did you have another question?

[Edward Firth, KBW]

One, I guess just to sort of follow-up to that. I mean I get what you say about the sort of balance of the business, but so growing organically or changing organically is not really going to change that materially in the next 5 years, I don't imagine. So unless you're going to do something really material in terms of buying some retail banking or buying a big stable banking part to rebalance it and/or sell or close down a significant part of CIB. So the balance is not going to change materially. I mean it's been pretty much 60-40 for 7, 8 years I would imagine.

[C.S. Venkatakrishnan, Group CEO & Executive Director]

Look, I think you've got to a process in a very thoughtful, carefully deliberate way. That's would be doing.

[Operator]

Can we go to the next question, please, which will be our last question for this call?

[Angela Cross, Group Finance Director & Executive Director]

Our final question today comes from Robin Down from HSBC.

[Robin Down, HSBC]

Just a couple of quick ones for me. Firstly, apologies if I missed this earlier, but the webcast kept crashing it out. But can you give us any sense as to where mortgage completion margins were you in Q2? And the second question, perhaps a little bit more kind of slightly philosophical question about the structural hedge. Why are you reinvesting at the moment? Because if you reinvest in the structural hedge today, 5-year swap at kind of 4.8 on our probably after next week's base rate rise is going to be around 5.5. There's a negative spread there. And it feels like you've gone beyond hedging your current accounts and equity, and you're partially hedging now sort of deposits where you have effectively 100% deposit beta. So just philosophically, why are you reinvesting a structural hedge now? Why are you not actively looking to kind of run it down, whether it's a kind of negative to sort of near-term income.

[Angela Cross, Group Finance Director & Executive Director]

On your first point on mortgage completions, I think we've been pretty consistent in not quoting spread. All I would say to you is that the mortgage market is extremely competitive, largely intermediated, and you wouldn't expect our spreads to be markedly different from the market as a whole. What really matters, though, in mortgages is the current churn impact that we're getting, which, as I said, we'd expect to lessen into 2024. As to your second question, on the structural hedge and the philosophy around that. So the reason that we have the structural hedges to smooth the income of our banking book businesses over time. It is not there to be an expression of where we think rates will go, either up or down. It's there to protect and [indiscernible] the income pathways on those really important banking businesses for us, whether they be in corporate or in retail. And what it's done is it led to a slower income pathway on the way up. And to the extent that we keep reinvesting in it, it will stabilize our long return income. And at any point when rates start going back then, again, it will protect income on the down side. So for us, it's not an expression about how we feel on rates, it's actually an expression about how we manage our income and how we think about our risk actually in these critical franchise businesses. But thank you for the question.

With that, I'd like to thank you all for your questions this morning and your continued interest on and focus on our plans, not only for Q2, but the great questions on our longer-term strategy. If you've got further questions, please follow-up with the IR team or I will see many of you the week after next or analyst breakfast. But to everyone, I really hope you have a great summer break, and we will see you soon.

[C.S. Venkatakrishnan, Group CEO & Executive Director]

Thank you.

[Angela Cross, Group Finance Director & Executive Director]

Thank you.

[Operator]

Thank you. That concludes today's conference call.