Barclays PLC

LSE:BARC

Earnings Call Transcript 2018-Q3

[Operator]

Welcome to the Barclays Q3 2018 Results Analyst and Investor Conference Call. I'll now hand you over to Jes Staley, Group Chief Executive; and Tushar Morzaria, Group Financial Director.

[James Edward Staley, Group CEO & Executive Director]

Good morning, everyone, and thank you for joining the third quarter earnings call. I am pleased to report another quarter which demonstrates that we are firmly on track to produce improved returns to shareholders as our strategy continues to deliver. Performance in the third quarter of 2018 was significantly better than we achieved in the same quarter of 2017, for the group and in both of our constituent businesses, Barclays U.K. and Barclays International. Notwithstanding the usual seasonal effects in the numbers, overall, the group produced a return on tangible equity in the third quarter of 10.2%, which means an RoTE for the 9 months to date of 11.1% due to litigation and conduct. As you know, our returns targets announced this time last year are to achieve a group RoTE of greater than 9% in 2019 and greater than 10% in 2020, based on a CET1 ratio of 13%. We are demonstrating with each passing quarter that Barclays can achieve those return targets and on a sustainable basis. Year-to-date profit before tax is up 23% at GBP 5.3 billion. This reflects a strong performance across the bank as well as a benign impairment environment. Barclays U.K. year-to-date PBT was up a touch to just over GBP 2 billion, and the 9 months RoTE is an impressive 18.9%. The quarterly performance was strong, showing a significant improvement over Q3 2017, with PBT up 18%. Barclays U.K. remains a leader in digital banking and we continue to invest to maintain that position, including in the development of our Open Banking platform, which we launched in September. We are the first major High Street bank offering a true open banking API aggregation solution within our mobile banking app. Already, we've seen encouraging numbers of our customers link their accounts from other banks, and use of the feature is increasing daily. We have a pipeline of exciting applications to complement our Open Banking solution. And from what we're seeing, we expect take-up of aggregation for customers to accelerate over time, and that represents an exciting growth opportunity for Barclays. Year-to-date, PBT in Barclays International was up 11% versus the same point in 2017, and that translates to a 9 months return on tangible equity of 11.6%. In the quarter, income in our Markets business was up 19% year-on-year, and we continue to outperform peers as we have done now for 4 consecutive quarters. In fact, on a dollar basis, Barclays has demonstrated the best markets income growth of any bank that has so far reported for the third quarter, and that is also true the 9 months to date in 2018. In Banking, we produced a solid performance in DCM, where we remain a top 3 bank globally and have generated record income in U.S. dollars for the year-to-date in 2018. Equity underwriting, however, did underperform in the quarter due to weakness in tech and biotech. After a run of strong quarters, Banking fee income was down compared to Q3 2017, impacted mostly by the timing of deal completions. October, consequently, has started off much better. Our advisory business remains in very good shape, ranked fifth in the U.S. and the U.K. combined year-to-date. And we're pleased to be on some of the largest M&A transactions recently, including Sky/Comcast, Michael Kors' acquisition of Versace, and Randgold Resources. Overall, Corporate and Investment Bank has produced an RoTE for 9 months of close to 10%, and we're pleased with how the business is competing and progressing. Our Consumer, Cards and Payments business within Barclays International had another strong quarter, producing an RoTE of 19.9%, and the growth potential and trajectory of this business is clearly attractive. We are a top 10 player in U.S. credit card receivables, the #5 co-brand card issuer in the U.S. and we have around $14 billion in retail deposits. We have recently successfully relaunched our Frontier, Hawaiian Airlines and Upromise co-brand cards, and we're delighted to be named in the #3 spot in the latest J.D. Power satisfaction survey. As well as targeting growth from the existing portfolio, we want to build our U.S. consumer offer out from its strong base. And as part of that, we are planning to launch next year a digital-only current account. And of course, as we develop that consumer offer in the U.S., we have a huge edge in being able to leverage the knowledge and technology leadership of Barclays U.K. and apply that across the Atlantic. Our service company, BX, continues to drive improvement in efficiencies and effectiveness. We have generated positive jaws year-to-date and are well on track to meet our cost target for 2019, as well as our goal of a group cost-to-income ratio of below 60%. But beyond helping us to control the expense line, BX is also creating operating leverage. This means that we have the capacity to invest in opportunities where we can grow revenues, as well as the capacity to invest in initiatives and changes which lead to further efficiency savings. It also means that we have capacity to invest in strengthening our core systems and processes. A good example of this is in the payments space. By way of context, we process more than 6 million corporate payments a day, at a typical total daily value of around GBP 350 billion. Electronic initiation of such payments is preferred by both us and our customers. It is quicker, cheaper and less error prone than manual processing, and it is also much less susceptible to fraud, so it's safer. We saw that there was a sizable proportion of our Corporate Banking clients still making payments requiring some degree of manual intervention, principally through faxed instructions, which could take up to 4 hours to process. So we invested in an easy-access electronic system for that client base to initiate payments and then trained them on how to use it. Doing so, corporate fax payments across EMEA and Asia dropped from an average of 4,000 a week in the first quarter of 2017 to roughly 250 today, and that number continues to go down. Migrating to a self-service digital model moved the processing time to literally seconds and improved the client experience enormously. For Barclays, this initiative, along with similar others in flight, will generate significant savings for the Corporate Bank in 2019 and frees up huge amounts of colleague time for more value-added activity. Those savings can then be redeployed both to drive top line growth, such as enhancing our digital offering, as well as to improve our legacy architecture in risk and finance, which makes the company more resilient.Now given it is a topic of significant public interest and we are just 5 months away from the U.K.'s departure date, I want to update you this morning on Barclays' preparation for Brexit. As you know, our plan for being able to continue to serve clients within the EU beyond March 29 next year is to expand our banking license in Ireland, to build our presence there appropriately and to transfer all of our branch operations in the EU to Barclays Bank Ireland. I'm pleased to say that the work to effect that plan is well in hand, with the Central Bank of Ireland having approved the business expansion. We therefore expect Barclays Bank Ireland in its new incarnation to be fully operational before the U.K.'s exit in March. Beyond that particular project, we're also conscious of the need to consider the potential impact of Brexit on the U.K. economy. In that respect, we continue to manage risk prudently, taking a conservative approach to U.K. credit card balances, for example. Our levered loan exposure from financing activities in the U.K. has actually dropped 25% in the last 2 years. And while we intend to grow our U.K. mortgage book, we will have a bias in doing so towards lower loan-to-value products. I should say that we are not seeing yet any concerning signs of stress among our U.K. consumers or business customers, nevertheless, we feel very well positioned to cope with that situation should it arise. And finally, of course, Barclays is an internationally diversified group, with nearly half of our income today generated outside the United Kingdom. So we have an inbuilt hedge against economic challenges arising solely in this country. We continue to see our strategy delivering a diversified set of attractive businesses and geographies, underpinned by a common core operating platform in BX, all translated into sustainable performance. Earnings per share for the first 9 months of 2018 stand at 21.6p. We have grown our CET1 ratio to 13.2%, and that has been achieved even after a 60 basis point impact from litigation charges we took in the first quarter related to mortgage-backed securities and PPI. The excess capital now being consistently generated by Barclays will allow us to improve cash returns for shareholders, and this remains a top priority for management. We have already announced our intention to pay a dividend of 6.5p for 2018. But in addition, I'm also particularly pleased that the PRA has granted us permission to call the expensive dollar preferred shares dating back to 2008. This will drive an annual reduction of financing costs of around GBP 165 million beginning in 2019. But importantly, the redemption, which equates to a use of some GBP 700 million of excess capital, combined with the GBP 1.1 billion of dividends for 2018, means we are deploying GBP 1.8 billion of capital this year, which demonstrates confidence both in the strength of our capital position today as well as our capital generation capacity going forward. So in summary then, the third quarter of 2018, another clean quarter for Barclays, shows continued positive progress in the execution of our strategy. Though the fourth quarter contains headwinds such as the bank levy, and therefore we can expect some moderation, it is gratifying and encouraging that our group return on tangible equity has tracked above our 2019 and our 2020 targets for the first 9 months of this year. I am pleased by the consistent ability of all parts of our business to generate good returns within a prudent approach to risk. And now that we have removed the drag of noncore and largely resolved major outstanding legacy issues, we will be able to distribute more excess capital to our shareholders over time by way of dividend and stock buybacks. Restoring the dividend and the buyback of the preferred shares are a start, and if we remain on our current course, I am optimistic that we will be able to do even more in 2019. Now let me hand it over to Tushar to take you through today's results.

[Tushar Morzaria, Group Finance Director & Executive Director]

Thanks, Jes. I'll begin with a few words on the 9 months results, and then I'll focus on the quarterly results as usual. As Jes mentioned, our RoTE for the first 9 months was 11.1% excluding conduct and litigation, a good result with both BUK and BI delivering double-digit returns. This does reflect the lower impairment charge that we would expect going forward, and Q4 will also reflect the usual seasonal effects, notably the bank levy. But I'm encouraged by our progress towards our group returns target, and the result demonstrates that we are out of our restructuring phase. We generated EPS of 21.6p, excluding litigation and conduct. With the CET1 ratio now at 13.2%, we're comfortable with our regulatory capital position, and we've received regulatory approval to retain the outstanding $2.6 billion retail preference shares, as Jes mentioned, and to call the 8.25% AT1, both on the 15th of December. Looking now at Q3. We also reported a double-digit RoTE of 10.2% for Q3, excluding litigation and conduct. As in Q2, there were no material one-off items in the quarter to bring to your attention. There were, however, a couple of items in Q3 last year that we set out in an Appendix slide, notably GBP 168 million impairment in relation to the asset sale in U.S. cards, and just over GBP 100 million in structural reform cost. In my comments, I'll exclude litigation and conduct from the income statement metrics in line with our financial targets framework but would note that the charge for this quarter was GBP 105 million. I'd also note that the sterling-dollar rate is almost flat year-on-year. Attributable profit was just over GBP 1 billion, generating earnings per share of 6.6p. Income was down 1% overall, while costs were up 2% as we continued to invest despite income seasonality. We again reported significantly lower impairment, down GBP 455 million year-on-year. This was partly nonrecurrent because of the U.S. card's one-off, but the charge also reflects improved economic inputs affecting both BUK and U.S. cards. I would expect Q4 impairment to be higher, but in terms of the underlying credit conditions, delinquency measures were reassuring in all key areas. Effective tax rate for Q3, allowing for litigation and conduct, was 17%, in line with our comments at half year. I would expect the Q4 number to be higher, including the effect of the bank levy, which is not a deductible expense. So we are still guiding for a full year rate in the mid-20s.Looking at the individual business now, starting with Barclays U.K. BUK reported an RoTE of 22% for Q3. Income was up 2%, with costs up 1%, delivering positive jaws despite our continued investment in digital transformation. We continued to grow our mortgage book focusing on prudent LTVs and have added a further GBP 1.5 billion of net balances this quarter. These were at margins which still earn an attractive RoTE despite continuing tough competition, but we'll be keeping a close watch on pricing levels and may choose to sacrifice some volume growth to maintain pricing discipline. On the liability side, customer deposits continue to grow, up GBP 1.5 billion in the quarter, even though we passed on less of the August rate rise than we did last time. The benefit of this was partially offset by margin pressure, but NIM for the quarter was flat on Q2 at 322 basis points. We still expect NIM for the full year to be in the 320s, in line with guidance and down year-on-year reflecting the inclusion in BUK of the ESHLA loans. But we may exit the year at or below the lower end of the range given our focus on growing secured lending and the competitive environment in this space. Impairment was down significantly both year-on-year and on Q2 at GBP 115 million. This was largely the result of favorable updates to macroeconomic input, notably unemployment forecasts. Absent further economic updates or deterioration -- or a deterioration in credit conditions, I'd expect quarterly charge to move back into the low 200. We remain cautious on unsecured while growing secured lending, but credit conditions remain pretty stable across the U.K. portfolios, with 30- and 90-day arrears for cards broadly flat. As we've stressed before, we are very focused on the digital evolution in Banking. We've put the usual slide in the Appendix on digital engagement among our customers, which continues to hit record levels. For example, we now have 4.8 million digital-only customers. It remains a key strategic initiative for BUK to reinvest cost efficiencies in digital transformation and our Open Banking offerings. One example Jes mentioned is the aggregation facility within the Barclays Mobile Banking app, which has started rolling out at the end of the quarter. And so far, we're the only major U.K. High Street bank to have done this within the main retail app. Another example is our investment in digital check imaging designed to improve customer convenience and reduce the cost of check processing. Overall, BUK continues to have strong market position, and we're able to maintain our prudent risk appetite and invest in the future while delivering attractive returns. Turning now to Barclays International. BI delivered a Q3 RoTE of 9.2%, up from 5% last year -- up from 5.5% last year. This quarter, the dollar-sterling rate was roughly flat year-on-year, making comparisons relatively straightforward. But as you know, BI has over 50% of its income in dollars, so would benefit from a stronger dollar. As in the first half of the year, impairment decreased significantly, down GBP 352 million, principally in U.S. cards. PBT increased 34% to GBP 882 million. Looking now in more detail at the BI businesses. Total income for the CIB was down 2% to GBP 2.2 billion, but within that, Markets was again the standout performer. Markets reported 19% growth in income over last year, as we continue to take share from competitors. We've also shown the dollar reporter comparison as usual. This reflected another quarter of very strong performance in Equities, up 35% on Q3 '17; and a solid performance in FICC, which was up 10%. As in recent quarters, the Equities performance reflected strong execution in both derivative and in equity financing, which continues to benefit from the additional leverage capacity allocated over the last year or so, with client balances up 11% year-on-year. Within FICC, both macro and credit produced steady performances in a quarter of mixed market conditions with lower volatility than in Q1 and Q2, particularly in macro. Banking overall was down 13%, within which Banking fees were down 14%. But our fee share ranking remains fixed across our U.S. and U.K. home market for the year-to-date, and I feel comfortable about the franchise progression. Corporate lending was down 29%, but Transaction banking was broadly flat. The reduction in Corporate lending reflected both the reduction in average balances of GBP 7 billion as we reallocated capital from low-returning lending to high-returning areas and the effect of risk management hedges. The latter accounted for a large proportion of the decline, but are an integral part of our conservative risk management. We continue to focus on improving returns from Corporate clients through improving the returns we make on the commercial lending book; adding incremental transactional banking services, which are less capital-intensive and build more sticky, annuity-like income; and reducing exposure or exiting relationships where we are not able to improve returns. This naturally takes time to flow through to returns, but I am pleased with progress. Impairment was a release once again of GBP 3 million after a couple of quarters of net credit. Costs were up 3% as we reinvest cost savings in order to drive sustainable double-digit returns. Areas of reinvestment include electronic trading platforms and euro clearing for Corporate clients. And we're also absorbing the costs of preparing for Brexit within the cost print. RoTE for Q3 was 7%, seasonally lower than the first half of the year as you would expect. But RoTE for the year-to-date was 9.7%., and I'm happy with the progress we're making to improve cost efficiency and reinvest for future growth. We're also improving capital efficiency, with RWAs down over GBP 9 billion year-on-year. Moving on to CCP. CCP had a strong quarter, reporting an RoTE of 19.9%. The continuing low level of impairment and underlying growth in U.S. cards are the most significant elements of these results. Net receivables in U.S. Cards grew year-on-year by 4% underlying in dollar terms, and the underlying dynamics across the portfolios reinforce our belief in the growth opportunities for the business. Our U.S. card portfolios performed well, notably American Airlines and JetBlue, which continued to achieve double-digit balanced growth. As we mentioned at Q2, we exited one of the U.S. card partnerships, which reduced the overall size of the book by $1.5 billion. We do expect to take on new partnerships and exit others over time as part of our business model. But I would stress that around 70% of the partnership book is now covered by agreements that last through to 2022. Deposits continued to grow, reaching GBP 62.7 billion, in which GBP 15.3 million are in the international cards business. Overall, CCP income was up 2% despite GBP 41 million negative from revaluing Visa preference shares. Costs increased 7%, excluding litigation and conduct, reflecting the investment across CCP and growth initiatives in U.S. cards, of course, but also in our payments business where the new merchant acquiring platform is an important development for future growth. Impairment is down by GBP 313 million year-on-year at GBP 146 million. Last year included a one-off of GBP 168 million, and there was a further reduction of GBP 145 million. The level of charge reflects the improvements in U.S. macroeconomic forecasts. I wouldn't expect the charge to continue at this low level in the absence of further economic improvements. And I would remind you that the charge is sensitive to seasonal increases in balances that we typically experience through the Thanksgiving and Christmas periods. But we remain comfortable with underlying credit trends. Focusing again on U.S. card trends which drive these numbers, the slide showed the 30- and 90-day delinquencies up modestly on Q2, in line with industry trends. Turning now to Head Office. Head Office continues to reflect some idiosyncratic items but is becoming more predictable, and the drag on group return is expected to reduce over time. The loss before tax for the quarter was GBP 110 million compared to GBP 141 million last year and GBP 27 million in Q2. Q2 reflected the Lehman gain of GBP 155 million. We didn't have any items of that magnitude in Q3, but the result reflected 2 negative income factors we highlighted in the last couple of quarters: those legacy funding costs, which are running at GBP 90 million a quarter, and that would reduce by over 2/3 were we to call the GBP 3 billion RCI in June next year; secondly, the hedge accounting charge, which is tracking to around GBP 200 million for the full year but is expected to be lower next year. Below the PBT line, the preference share redemption will reduce the noncontrolling interest charge in Q1. Before I finish with capital, I just want to reiterate our cost trajectory. This slide reminds you of our cost guidance, with a reduction from GBP 14.2 billion last year to around GBP 13.9 billion this year, and a guidance range of GBP 13.6 billion to GBP 13.9 billion for next year, all excluding litigation and conduct. As we've stressed in recent quarters, with the implementation of the service company model, we've been implementing cost-efficiency programs across the group to create capacity to reinvest in growth and digitization. We remain focused on delivering cost efficiencies, such as standardizing front-to-back processes across the bank and rightsizing our infrastructure. These cost efficiency programs mean we are self-funding investments in growth areas and also in cybersecurity and resilience, which we believe will become key attributes in the future. So we have cost investment programs running in Q4 and through 2019 and beyond. Moving on to our capital position. It was a strong quarter for capital with profits contributing 37 basis points towards the CET1 ratio. This more than offset the regular headwinds, dividend and AT1 coupons of 14 basis points, plus the pension contribution of 6 basis points. As I've mentioned, there was limited litigation and conduct this quarter. Overall, the ratio increased from 13% to 13.2% in Q3. In terms of capital flightpath, we've said many times that we are comfortable with a capital ratio of around 13%. We have seen profits contributing around 130 basis points to CET1 ratio this year so far, which more than offset the significant legacy litigation and conduct in Q1. And since then, we have increased the capital ratio in successive quarters to reach 13.2%. Both the redemption of the $2.6 billion preference shares, which had an 8.125% coupon, and the dollar AT1 required advance permission from the PRA. And they are negative for the Q4 CET1 ratio and for TNAV, around 33 basis points and 6p, respectively. We can't guide on the outcome of the forthcoming stress test, but this increases our confidence in improving return of capital to shareholders given the capital-generation capacity of the group. Of course, we're reiterated our intention to pay a 2018 dividend of 6.5p, and the board will review the capital returns policy beyond that with the full year results. Our spot U.K. leverage ratio ended the quarter at 4.9%, well above our regulatory required level. Finally, a quick word on TNAV. Again, we have shown successive quarters of TNAV accretion after the Q1 headwind. In Q3, there was a contribution of 6p from profit, less the interim dividend of 2.5p. We saw some adverse reserve movements, including the fair value of the residual stake in Absa, but nevertheless reported TNAV accretion of 1p. The EPS of 21.6p year-to-date gives us confidence that, going forward, we can pay attractive returns to shareholders while still investing in key growth areas. So to recap, although group RoTE for Q3, excluding litigation and conduct, was seasonally weaker than Q1 and Q2, we still reported a double-digit RoTE of 10.2% and 11.1% for the year-to-date. I mentioned that Q4 is expected to be seasonally weaker, including the effect of the bank levy, and I've also mentioned the likelihood that the impairment will rise from the current run rate. However, results for the quarter and year-to-date reinforce our confidence in delivering our 2019 and 2020 RoTE targets of greater than 9% and 10%, respectively, based on a CET1 ratio of around 13% and excluding litigation and conduct. We saw accretion in both of TNAV and the capital ratio in Q3 and have announced a forthcoming redemption of the outstanding dollar retail preference share and a dollar AT1. This reinforces our confidence in our capacity to deliver attractive returns of capital to shareholders over time. Thank you. Now we're happy to answer your questions [Operator Instructions].

[Operator]

[Operator Instructions] Your first telephone question today, gentlemen, is from Joe Dickerson of Jefferies.

[Joseph Dickerson, Head of European Banks Research & Equity Analyst]

Gentlemen, just a couple of things. So first of all, it seems to me like there's some -- the regulatory approval to redeem the USD pref is actually quite a significant development particularly ahead of the stress test, and God only knows what will happen around Brexit. So that seems quite positive; would you agree with that? And then secondly, in terms of reiterating the 9% RoTE guidance for next year, given that you can redeem this instrument, given that for the first 9 months of this year I think we're at something like 11% RoTE, should we see any prospect of upside to that target? Any color you have there would be appreciated.

[James Edward Staley, Group CEO & Executive Director]

Thanks, Joe. I'll do the first question and pass the second one to Tushar. Yes, it is significant that we got the PRA approval in front of the stress test and in front of issues that may arise from Brexit. So you're right with that.

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes. Look, I totally agree with Jes. It's -- and just to add a little bit to it, it's quite a significant quantum of capital as well. If you add the AT1 and the dollar prefs together, it's almost GBP 1 billion or 33 basis points of capital. And we're very pleased that, obviously, we think we've got a very strong capital position, and more importantly, a strong capital trajectory. It's important that our regulators obviously share that view as well to allow us to take these earnings-accretive actions in advance of both the ECB and, indeed, the PRA stress test results. Your second question around upside to RoTE target, I think, Joe, look, we've been asked this question several times, I guess, in the past. There's things that go in our favor and things that don't go...

[Joseph Dickerson, Head of European Banks Research & Equity Analyst]

The RoTE is getting better, which is why I asked the question.

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes -- no, and I take it in the spirit of -- obviously, we've had above-trend performance, if you like, or above-target performance for some time now. I think the difficulty when you put yourself in sort of management's position when you look at a year like next year is it's a little bit harder to know what the wider economy will look like next year. I think we feel very confident with the diversified business model that we should be able to cope with most eventualities and feel very comfortable with our targets. I would say that we did say it was greater than 9%, so we haven't capped how good it will get, but I think it's -- let's see how next year turns out. And if we're doing better than those targets, obviously, will be apparent early on in the year.

[James Edward Staley, Group CEO & Executive Director]

I'd just add, Joe, this time last year, the gap between our then performance and that target of 9% was about 350 basis points, and the question was how do you bridge that gap. We're in the fortunate position now that there is no gap. In fact, we're running higher than 9%. And the question is how do we sustain the performance that we've managed in the last 9 months. And that's obviously a much more comfortable place to be. So -- but as Tushar said, we've given ourselves room to the upside.

[Operator]

The next question on the line comes from Claire Kane of Crédit Suisse.

[Claire Kane, Research Analyst]

Two questions from me. Firstly, on the U.K. margin performance, I guess, good NII progression quarter-on-quarter, good mortgage growth. Do you think the NIM is progressing slightly better than you previously thought? I think you said now you might exit the year at the lower end of the range, 320, rather than maybe below. So just could just talk us through how that's progressed given the rate hike you had in the quarter? And then my second question is around the comment, just a bit of technical one, just on the GBP 165 million of lower legacy funding. Should we assume GBP 100 million of that is in the NCI line and then GBP 65 million in Head Office income? So the GBP 65 million is already in your kind of GBP 360 million annualized legacy funding cost.

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes. Thanks, Claire. Let me take the second one first and I'll come back to margins. The second one, quite straightforward, it's all in the NCI line, and it's really the after-tax effect of not having to pay the preference share coupons from the first quarter next year on an annualized basis, and it's all in the NCI line. But obviously, we'd sort of getting the job fairly right in our models. Back into U.K. margin. Yes, look, I think it's an interesting space. We're pleased that we kept margins broadly flat in the third quarter. I think when you look at what's going on at Barclays there, we are prioritizing secured lending relative to unsecured lending, so you would expect a natural sort of dilution around margin as we prioritize lower margin but lower riskier business on that firm position that we've taken for the last couple of years. Also going on, the mortgage market is very competitive. And we have seen pricing respond to that competition, so I would say there's this downward pressure on asset margin. And then on the flip side, of course, there was a rate rise in August and we passed on less of that rate rise than we did previously. And you put all that together and we're sort of pleased we held margin flat. I think when we look prospectively, we are keen on prioritizing secured lending relative to unsecured lending. So I think, if nothing else, you would expect to see that sort of dilution of reported NIM. But we feel good without it. It's a good, risk-adjusted business, we pay real careful attention to ensuring that even though there's downward pressure on asset margin, it's a competitive business, that we do it at returns levels that are sensible for us, and we certainly won't be doing business where returns levels aren't justified on a returns basis. And the other thing, I guess, that we are beginning to see a little bit of is some more competition on the liability side. Obviously, you've seen one of our U.S. competitors enter the market in the U.K. That's got a lot of potential. That in and of itself is not so much of a big deal; our liability balances were up GBP 1.5 billion in the quarter. But I think away from that, you're seeing some of the larger lenders pricing up liabilities. That's an interesting space for us because our loan-to-deposit ratio is below 100%, so we're probably less geared towards having to lock up that funding in the same way that other competitors may be, but we'll see how that plays out. I hope that gives you a bit more color, Claire, on what's going on behind the scenes.

[James Edward Staley, Group CEO & Executive Director]

And Claire, hopefully, the shareholders recognize that looking at the profitability of Barclays U.K. that the shareholders appreciate that we're being prudent around credit in the U.K., and we've been that way, really, since the referendum vote.

[Operator]

The next question on the line, gentlemen, is from Andy Coombs of Citibank.

[Andrew Philip Coombs, Director]

Two questions from me, please. Firstly, I just want to look at the loan-loss provision, the IFRS 9 adjustments you've taken on revised macroeconomic forecasts. I think it's the second adjustment you've made to your model in 3 quarters. There was a U.S. model adjustment in Q1 as well. I just want to get a feel -- it's very difficult for us from outside in looking at the IFRS 9 adjustment. Your res in the U.K. are flat and your res in U.S. are actually up. So just a feel for -- are there any other hidden gems that you can pull out using IFRS 9 accounting? Or do you think the benefit from this are now largely complete? And my second question would be around AT1s. I think the redemption of the retail prefs have been well flagged. I'm more interested in the $2 billion AT1 redemption that banks do in Q4. Now that comes after 2.5 billion of issuance in Q3, so I just want to think how you think about the AT1 bucket going forward. And I think you've got almost GBP 11 billion, so you're running at quite a big excess versus an RWA base. However, I'd argue your binding restraint is your leverage ratio under stress whereas you pointed out, you're running at 4.9 spot versus a 3.8 hurdle. Is that how you think about the AT1 to a greater extent?

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes, thanks, Andy. I think these are probably both one for me, and Jes may want to add some comments in -- afterwards. Let me start with the loan-loss provision. You're correct in identifying we have had 2 revisions, if you like, to our economic sort of environmental forecast, and there's a second one in the third quarter we put that through. That's really just a function of where publishing economists see the environment. And that we -- in the first revision that we made earlier on in the year, that was mostly around house prices in the U.S. And in the second one, it's really more around unemployment levels. To help you guys sort of think through what the effect of these would be, if I look at the third quarter -- and I thought I had this in some of my scripted notes, so I'll just sort of call them out again to help you pinpoint them. I think in the U.K., absent any improvement or, indeed, deterioration in underlying credit conditions, I'd expect the impairment charge to be on the low 200s. But I don't have a call on what the economy will be forecasted to be, so that's absent any improvement there. In the Corporate and Investment Bank in the fourth quarter, that's usually a sort of a seasonally high impairment quarter, principally driven by single name actions. What tends to happen is that when companies get into difficulties, they tend to end up reaching their covenants and various other measures usually around the end of their calendar years. But that's not a forecast to say we expect to see a lot of single name delinquencies. But were we to, they usually manifest themselves in the fourth quarter of the year, and you probably saw that certainly last year and maybe in years before as well. In CCP, it's a little bit more complicated because in the third quarter last year, we also had a one-off charge of GBP 168 million from the sale of the low-risk quality portion of the book that we exited last year. If you ignore that, the charge this year is about GBP 145 million less year-on-year. That probably gives you a good sense of the effect of revising these economic forecasts. So I think when you look at the fourth quarter, that's probably a good sort of jumping off point to work back that GBP 145 million, and then think about, of course, the book has grown since this time last year. So you can make your own sort of views on what the sort of both group growth of the book is worth, and then plus or minus your own view on the economy as you see in the fourth quarter. And you talk about delinquencies ticking up in the U.S. -- I mean, that's flat in the U.K., as you pointed out. It's not something that concerns us too much. I mean, these are small increases on relatively small levels. And certainly, for our cards business, we saw that very consistent with the rest of the U.S. cards industry. So hopefully, for you and some others, that's some helpful color. Your second question, Andy, on AT1, yes, we're certainly not -- just that your question is are we issuing AT1 simply to solve our leverage ratio requirement, that's not correct. We look at the stack of capital from CET1 all the way through to Tier 1 and MREL and look to the most optimal ways of filling that stack up. We obviously have a minimum requirement of AT1, where we're reasonably above that. AT1, it's a little bit more complicated as well because you don't want to be caught out if you're running too tight to not participate in ability to refinance or call those AT1s as they come to you for call date. So I think you'd expect us to run a little bit above our minimum requirements, and that's what we are doing. But essentially, we're just driven by economics, where we see how best we can optimize the full capital stack and staying above minimum requirements where that's appropriate. So nothing more to it than that, really. I mean, your point on -- yes, sorry. Go on, Andy.

[Andrew Philip Coombs, Director]

So I guess my broader question would be that you've issued $2.5 billion, you're redeeming $2 billion. Is that kind of the trend we should expect going forward, that you're managing the AT1 around the current level? It's not that we should expect a number of redemptions for the absolute balance?

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes. Look, I don't want to guide too much on that because they will be somewhat driven by pricing. Let me give you a good example. If you look at our most recent issue of AT1 versus the deals we're retiring, it's a 200 basis point to mid-swaps improvement. So it's very economically rational for us to call these ones. It may well be, when we get to this time next year with another block of quarter available, I don't know what those refinancing spreads will be and I don't know where the market is. I don't know the foreign exchange rate. So I'd like to have that optionality. So I don't want to guide too much, but it'll sort of be driven by the facts and circumstances at the time. Thank you for your questions.

[Operator]

The next question comes from Robin Down of HSBC.

[Robin Down, Co]

Just a couple of quick ones for me. Firstly, I think Jes mentioned earlier on the media call the idea of doing buybacks in 2019. I just wondered if you could give us a bit more color around what you were saying and what were the sort of intentions are there? And then the second, you kind of give us some guidance on the Head Office revenue numbers, but we got sort of, kind of minus GBP 90 million a quarter coming from legacy instruments. But I'm guessing that the bulk of that is coming from the RCI. So when we look at 2019, should we think about it as being kind of minus GBP 90 million for the first couple of quarters and then dropping in Q3 and Q4? And I just wondered if you could also give us a bit more color around where you think the hedge number might be in 2019 as well.

[James Edward Staley, Group CEO & Executive Director]

Yes, Robin, I'll take the first question and then give Tushar the Head Office question. The -- vis-à-vis buyback, I'd just say, as we look back on '18 thus far, the first quarter was marked by a GBP 2 billion payment to the U.S. Justice Department and to PPI claims. Since that time, we've continued with a more than doubling of our dividend versus last year. We'll essentially pay roughly GBP 1.1 billion in dividends for 2018. And as Tushar mentioned, the capital equivalent of calling the preferred shares is about GBP 700 million. So we return to shareholders, in one form or another, roughly GBP 1.8 billion this year. As we look to '19, where we have clear air or we don't see any significant litigation issue in front of us, we should have the ability to return even more capital to shareholders. And clearly, with the stock at this level, what we would discuss with our board and our regulators is a stock buyback program at the appropriate time. We're not going to give any more guidance on that until the year-end results, where we will talk about our capital plan as approved by our board and discussed with our regulators.

[Tushar Morzaria, Group Finance Director & Executive Director]

And Robin, why don't I just cover the couple of questions on Head Office? In terms of legacy funding costs, you're right, a decent slug of that is coming from the reserve capital instrument, the RCIs. Now obviously, we'll see what the facts and circumstances are, but they do come available for a call in the middle of next year. I guess you'd expect us to behave economically, rationally. So were we to call them, I think it's a fair assumption that you expect. I actually called it out in my scripted comments, about 2/3 of that GBP 90 million will drop out if we were to call the RCIs. The hedge accounting unwind, it's tracking to about GBP 200 million this year. I haven't given specific guidance for next year, but it will be smaller. And then beyond that, it really sort of falls away as an immaterial item. We probably won't even be talking about it in 2 years' time, I imagine. So probably next year is the only time you'll see it smaller than GBP 200 million, but I can't give any more guidance on that at this stage. I may give sort of more as we get to the full year when we have greater visibility on it.

[Operator]

The next question from the line comes from Guy Stebbings of Exane BNP Paribas.

[Guy Stebbings, Analyst of Banks]

Firstly, can I just briefly come back to U.S. cards asset quality and the pickup in arrears. I mean, I appreciate the pickup is still fairly small and sort of off a low base, and the industry itself has seen a slight pickup. But directionally at least, are you becoming at all concerned by this trend given, obviously, it's a key growth area for you? Or are we still a long way from NPL formation levels that would lead you to question your strategy here? I mean, are you surprised at all the trends appear to be worse in your U.S. book than your U.K. book, for instance?

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes -- have you got another question or just that one?

[Guy Stebbings, Analyst of Banks]

Yes. The second question was just on structural hedge. I see the NII contributions, I think GBP 600 million year-to-date. I was just wondering if you're able to give us the notional balance? Because I don't think we've had that for a while, and that would just be helpful in terms of thinking about the contribution going forward.

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes, sure. So on the U.S. card arrears, it's not something we're that concerned about. In fact, if anything, we've taken some actions over the last sort of 12, 18 months to reposition, if you like, the risk mix of that business by selling sort of a low-rated tranche of risk, GBP 1.6 billion or so of our receivables last year, which will be renewed. And then this year, I mean, the airlines portfolio's growth is outstripping the rest of the sort of portfolio. So over time, you'll definitely see the risk mix change. Of course, there's a seasoning effect in cards, so you won't see that benefit come through yet. Probably in a year or so's time, usually about 18 months or so. We feel kind of happy with the growth in the business as well. Receivables are up 4% on a dollar basis underlying. We think we have the ambition to grow even a bit better than that. But we want to pay due care and attention to credit control and where we are in the cycle. But at the moment, it actually feels pretty good, and certainly doesn't -- anywhere near thinking that we need to sort of put the brakes on in growth in that business from a credit control perspective. Structural hedges, yes, we haven't given the balances. I have a funny feeling we may never have given those balances, but you might remember this better than I will. We haven't made much change to the structural hedge profile in recent times, Guy. 10-year rates are now, last time I looked, about 1.5%. You've probably seen the bottoming out of the sort of the grinding down, if you like, into lower rates from a structural hedge. We are reasonably rate sensitive. If hedges -- if rates do back up and stabilize, it takes a little bit of time to grind back up into higher rates. But in sort of the outyears, that can become quite a powerful effect to net interest income. But I take your point that you'd like to know more about that, and we'll have to think about what we can show you in future quarters. Jes?

[James Edward Staley, Group CEO & Executive Director]

Let me give you just some more insight into how we think about this. There are 2 economic realities that we face today as a bank. One is almost record historic low unemployment in the U.K. and in the U.S. And that is the most attractive time for an unsecured consumer credit portfolio like we have in the U.S. and the U.K. The other part of the economic environment is we're at almost record historical lows in financial asset volatility. And I'm sure as you read every bank commenting on earnings, there is a really high correlation between volatility and performance in one's markets business or one's wholesale business. So as we think about the overall risk profile and overall return profile of the bank, we do believe in economic cycles and we do believe that there will be another economic cycle. So remaining balance as a bank strategy matter, I think it's important given where we are in the cycle right now.

[Guy Stebbings, Analyst of Banks]

Perfect. Very clear. Can I just come back on the structural hedge very quickly? It would be helpful to get the notional balance because when I look at it, it appears to me like you might be earning sort of less on that in terms of yield relative to some of your peers. But I don't have all the numbers to work out the exact math, so that would be very useful help to give it to us at some point.

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes, noted, Guy. And I understand where you're coming from. Hopefully, the -- and I know it doesn't quite answer your question, but there's the sensitivities that we've put out historically, hopefully, gives you at least a sense of at least our gearing towards the rate. But I take your point, you wanted to compare absolute sort of net interest income at today's levels; it's a bit tricky to do and we'll have to think about how best to help you on that in further disclosures.

[Operator]

The next question on the line comes from Chris Cant of Autonomous Research.

[Christopher Cant, Partner, United Kingdom and Irish Banks]

I had just one, really, but it's got 2 parts. The first is very straightforward. If I think about your headline return in the CIB for the 9 months, the 9.7%, obviously, in the first half, you were calling out a particularly chunky write-back you had in the third quarter. And I understand that you haven't adjusted for that in that 9.7%. If I just adjust back the provision write-back that you've had during the year, essentially 0 in the provision line, which is obviously quite generous especially in light of your comments on potential pickup in the fourth quarter or timing effect around the fourth quarter, that would imply an 8.8% 9-month RoTE for the CIB on my math. And the CIB doesn't tend to generate any profit in the fourth quarter. I think the average for the last 4 years has been about minus GBP 100 million. So if I just annualize that 8.8%, that would imply 6.6% as a run rate for the year at this point. So the first question is, do you agree with that assessment of your current run rate? And following on from that, obviously, you're quite pleased with the performance of the business in terms of market share, lead table positioning. But I guess the questions around adequacy if CIB returns are going to persist. It's been a pretty good year for the CIB overall, it seems, in terms of your commentary. So do you expect to deliver a meaningfully better rate of return than that 6.6% in 2019? And if not, will you accept calls from the activists to scale down parts of that business?

[Tushar Morzaria, Group Finance Director & Executive Director]

Well, why don't I cover sort of just the way you've thought about it. I think, firstly, sort of the not adjusting, if you like, the credit line, I mean, it -- hopefully, you've gotten used to us trying not to adjust. But we'll just give you the information; you can include and exclude as you see fit. The way we think about it is that, that impairment number is as much a function of good credit control as it is just whatever -- accounting effects or whatever. And if there's one place where we have seen a little bit of stress in the U.K., it is in corporate credit. And through really our risk team firstly coating that exposure and be avoiding lending to some of the very troubled parts of that sector, the ones that people would be familiar with. We've avoided some of the more significant credit issues. So I would put that down to good risk management control, and we'll see where we go. But obviously, risk management control has a cost to it. It's not costless. So we may avoid impairment but, obviously, there's a cost to avoiding that impairment as well. So I think you've got to look at it on a balanced basis.

[Christopher Cant, Partner, United Kingdom and Irish Banks]

You did adjust for that in the third quarter. I mean, you specifically called it out and said, "Our typical quarterly impairment rate for CIB is something like GBP 50 million a quarter." The bit of math I just presented was assuming 0 per quarter. I presume that your returns target heading into next year don't assume ongoing write-backs in any of your businesses.

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes, look, Chris, I don't have the crystal ball on the economy. But if impairments are lower, it's because we're making very deliberate decisions to either lend less or hedge more, and there's a cost associated with that. If we feel the economy is strong and we'd want to lend, then we wouldn't hedge as much. So I think you've got to look at it in the aggregate. And I think it's fair to judge the business -- in my view; you should take your own view on it -- without adjusting for corporate impairment, which is as much driven by single-name credits as it is by any sort of portfolio effects.

[Christopher Cant, Partner, United Kingdom and Irish Banks]

If I just annualize your 9.7% headline, that's still around 7% return. It's not -- let's put aside the debate about provision write-back. If I just annualize your 9.7%, accepting the fact that you don't intend to make any money in the CIB in the fourth quarter because of the levy, that will be a 7%-ish-type run rate. So do you accept that that's the current run rate for the CIB?

[James Edward Staley, Group CEO & Executive Director]

Chris, we're not going to prejudge the fourth quarter. The CIB RoTE was 9.7% for the first 9 months. It's 130 basis points higher than it was last year. The issue that the activist is focused on, that we understand, only it hasn't been articulated to us yet, is in the markets business. And we've been very clear, the markets business is higher than that 9.7%. It's comfortably in double digits. I would also add, the CIB is running lower RWAs this year than it was last year, and despite that, generating 130 basis points of improved profitability. We are gaining market share across the entire markets business. We've done that now for 4 quarters in a row. You can make -- we deliver numbers that aren't with adjustments sort of Non-Core or whatnot, and I think those numbers speak for themselves.

[Christopher Cant, Partner, United Kingdom and Irish Banks]

Okay. And on the second part of my question in terms of if -- do you expect to deliver meaningfully better rates of return in 2019 in the CIB? And if not, what's your response to the activist calls to scale down part of that business likely to be?

[James Edward Staley, Group CEO & Executive Director]

We've gone through a 2.5-year restructuring of this bank where we dropped the RWAs in the Investment Bank by over GBP 100 billion. We've completely remanaged the cost profile of this bank. This bank is generating a double-digit return. We don't believe the time is now to reconsider a new restructuring.

[Operator]

The next question, gentlemen, comes from Martin Leitgeb of Goldman Sachs.

[Martin Leitgeb, Analyst]

Firstly, on the IB. I was wondering if you could provide a bit more color on what the source of market share gains was this quarter and what precisely within Equities and FICC you have experienced those gains? And I'm essentially trying to understand if we should expect you to continue to gain share in those segments going forward or by when you would expect to start to perform more broadly in line with industry trends going forward? And the second question is more broadly on Brexit. So if we were to assume there would be an orderly withdrawal agreement, transition period and so forth, where would you see most upside here for Barclays going forward? If that were to happen, would your risk appetite, for example, in the U.K. change that you would again start growing card balances as an example? Or how do you think in terms of upside potential here for your franchise would you benefit if there would be kind of an orderly withdrawal with a longer transition period?

[James Edward Staley, Group CEO & Executive Director]

Yes, Martin, I'll take the first question. I would sort of -- and thanks for noting the uptick in market share and the margins. I would lay it at 3 issues. One is people. We've had a pretty significant change in the management of our markets business over the last 2 years since Tim came onboard. And we are very confident that we've got very talented people in that side of our business today. The second one is we have increased the use of our balance sheet and that is resulting in increased activity from the buy side to -- through Barclays. For instance, in the third quarter, our equity prime brokerage balances were up 11%. So by giving a balance sheet with very low RWAs to our investing clients or institutional clients, that's where we're gaining the market share in basically our flow agency business. And then thirdly, tech. We started 1.5 years ago an entirely new investment program to overhaul our electronic trading capabilities. So we've now completed that for rates in our interest rate swaps business. And we've seen a 10x increase in the electronic trading that we're getting on that side of the business. We just recently rolled out a whole new electronic trading platform for our Equities business with all new routers. And the feedback we've gotten from our major equity and institutional investors has been very positive, and our volumes are up significantly. So it's a combination of getting the right people there, giving them the support of senior management. We have increased our balance sheet. And we're generating very attractive marginal turns where we've done that. And then finally, we are overhauling our tech platform. And we're almost done there and that's generating additional volumes for us as well. And the Brexit question, Tushar?

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes. Thanks, Jes. So Martin, I think the stance we've taken certainly in our U.K. consumer business going into where we are is a somewhat cautious stance. We've talked about that for a couple of years. We have been running our unsecured lending book for over 2 years now and have prioritized very modest growth in mortgages. I think if there's an orderly exit and, if you like, the economy, the conviction around the strong economy in the U.K. continues, and as importantly, if the U.S. and Europe continue to be strong, I think the U.K. will benefit from that. There may be an opportunity to reposition our staff there. That could be very beneficial because we have terrific franchises across the whole waterfront of retail small business and Corporate Banking. We are quite diversified. So if it doesn't turn out to be like that, that it's a bit more of a less orderly exit, shall we say, we've called out that half our revenues in our international bank arrives from the U.S. -- or are based in U.S. dollars. So we have a currency hedge there. We also -- of course, many of those dollar revenues are in consumer businesses in the United States as well, so we don't see that necessarily being linked to anything that's insular into the -- into the U.K. I think the other thing that feels quite interesting to us, though, is regardless kind of whether it's orderly or less orderly. By having an operational bank on Mainland Europe, through our bank in Dublin, one of the most exciting opportunities for us is for Corporate Banking to participate in a euro-gearing-type activity. So the ability for a U.K.-domiciled bank to provide Corporate Banking services with a relatively light footprint on Mainland Europe, but to participate in euro banking services as well as being a sterling clearer; and of course, we're already a bank focus in the U.S. So I think that sort of feels like quite an interesting proposition given our geographic mix. But the way we think about this is which way this will go, I think we're reasonably well positioned for most outcomes.

[James Edward Staley, Group CEO & Executive Director]

Yes. As I've sort of referred to in my comments about the electronic payment system that we rolled out in the corporate bank and the impact it's had into the drop in manual processing, that also has extended our functionality in terms of taking the Corporate Banking network to Europe, irrespective of what happens with Brexit.

[Operator]

The next question on the line comes from Fahed Kunwar of Redburn.

[Fahed Irshad Kunwar, Research Analyst]

On -- actually, a couple of questions. The first is on Barclays U.K. Performance was very strong in Q3. It looks like if I annualize it, it's up 4.5% half-on-half. I think you talked about being up 3% half-on-half in Barclays U.K. revenues. Does that mean, i.e. we should expect a slowdown in 4Q? It's certainly what consensus is expecting. Or should we expect kind of some benefit from the rate hike to start coming through in 4Q? Actually, revenues can be stable or up even on a good Q3. So is 3% still right? Or is it going to be better than that on the U.K.? And then on your point about U.K. liabilities and all. Sorry to add to that question. You talked about upward pressure on time deposits but obviously, the big banks are still seeing large shifts into current account because the rate environment, while increasing, is still very low. So how much is the increase in time deposits on your funding cost offset by the increased generation of current accounts, which obviously is all free? So that's on the U.K. On the capital side of things, how should we think about risk-weighted growth and actual core Tier 1 build? Because if I do the math, and I won't go through it, we've got pensions, IFRS 9; dividends, and consensus have come up with 40% payout; a little bit of litigation on PPI, you only generate probably 30, 35 bps, I think, a year even with the current generation. So do you think that actually you can pay all the way down to 13% going forward? Or do you think actually risk weights won't grow from here? What am I missing in terms of where you think the buyback is coming from in terms of the capital levels you currently hold? Because 13% as it stands is very low versus the other U.K. banks at the moment. So if I can get an answer to those 2, that would be great.

[Tushar Morzaria, Group Finance Director & Executive Director]

Thanks, Fahed. Let me have a go at both of them and Jes may want to add stuff. I'm not going to give sort of a, yes, a revenue forecast for Barclays U.K. Think of the U.K. business as we've obviously got a decent market share, one of the largest small business banks, 10% of mortgage market share, largest card market share, et cetera, et cetera. So you wouldn't expect us, I think, to necessarily grow our top line well above the way the U.K. is growing. I think the way you should think about the U.K. business is if the U.K. economy grows, that should be good for us. If the rate environment improves, that should be good for us but index it to the, really, the U.K. beta. And in operational improvements, you've seen us deliver positive jaws in this quarter and that's something that we're very focused on showing some operational improvements over the year. In terms of the churn, if I got the gist of your question right, you're really sort of asking about if there's a migration out of current accounts into sort of time deposits, what does that do? We haven't really begun to see that much yet. It's something that we are, of course, quite focused on and looking for signs where that rotation may happen. But we haven't seen it yet. And we've had 2 rate rises, and it still seems quite sticky in current accounts at the moment. In terms of capital build, look, again, I won't go through the maths as you suggested, but I'd just maybe think about it in a slightly different way. If you look at, just this year, in 2018, if we receive regulatory approval, then we'll pay 6.5p in dividends over 2018. We've talked this morning about retiring the U.S. dollar preference shares as well as some dollar AT1s. That's, what, about 6p as well? In addition, we paid about 8p to deal with the DOJ fine. I'm not even including PPI in that. We don't expect to be paying a DOJ fine of that quantum next year, of course. And we don't have any dollar preference shares, of course, for next year. So that sort of gives you a sense of the capital generation capacity of the bank. And it is an objective of, I think, the board and management to improve returns of capital to shareholders. And I think we'll probably talk more about that once the board has come to a decision around that, around the full year results. Jes, anything more you want to add to that?

[James Edward Staley, Group CEO & Executive Director]

I think so. Paying out 20.5p and landing CET1 ratio at 13.2% underscores, I think, the capital generation ability of Barclays.

[Fahed Irshad Kunwar, Research Analyst]

Sorry, Tushar, can I just -- on the -- I know you don't want to give guidance on the U.K., but you did give 3% half-on-half. Is that still -- has that guidance been taken away now? Or how should we think about that guidance because that's what's in consensus?

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes, I don't remember giving -- I'll have a look at that. I'll get our quotes for that. I don't remember giving that guidance, unless I'm just going nuts here. We'll get back to you.

[Operator]

The next question comes from Rohith Chandra-Rajan of Bank of America Merrill Lynch.

[Rohith Chandra-Rajan]

Just a quick one from me, really. Just on CIB, obviously, a very good revenue performance. But then looking at the cost line, you've kind of flagged investment spend led to cost growth in the quarter. So I'm just wondering how you think about that balance between investment and efficiency going forward? And I think, Jes, in answer to a previous question, you sort of suggested that we're coming to the end of the tech build-out in the IB. So really just thinking about the cost trajectory in CIB, please.

[James Edward Staley, Group CEO & Executive Director]

Yes. No -- obviously, our objective is to deliver a double-digit return to CIB through the first 3 quarters. We're close. But we did fall behind, I think, in spending on our technology platform. And we needed to address that. So we have done that. We did fall behind, we think, in the scale and sophistication of our corporate transactional platform, particularly around payments. And we want to extend that to Europe, so we've been spending money on that. We are going to manage to a lower cost-income ratio overall for the group to get it below 60%. And we're comfortable that we can do that. But also given the profitability of the bank, we need to start spending for growth. And the growth, whether it's in the Barclays U.K. numbers, whether it's in the U.S. credit card numbers, whether it's in our small business banking, that growth takes investment. And today, we have the ability, as we freed up cost from things like setting up the ring-fenced bank and setting up the IC and dealing with conduct litigation issues, we have the ability to invest in our platform to stay in front of basically the digitization of bank.

[Rohith Chandra-Rajan]

And does the CIB -- will the CIB cost-to-income ratio reflect the overall group trajectory?

[James Edward Staley, Group CEO & Executive Director]

Yes.

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes. So we expect to improve it, yes.

[Operator]

The next question comes from Ed Firth of KBW.

[Edward Hugo Anson Firth, Analyst]

Can I just bring you back to the question about profitability? I get what you're saying, you've obviously had a pretty busy 2.5 years in terms of restructuring. But if I look back at your 2015 numbers, you were quoting a core return on tangible at a 10.9%. We're now at 11.1%. And I guess the bulk of that difference is you now don't include litigation cost. So it's probably pretty much flat if you had them the same. And your targets are arguably some way below now, really, for the next 2 years even current levels. So I guess you'll be frustrated by the share price, I get as much in terms of your comments around buybacks. But what could you point to over the next 2 years that you think is actually going to change investor sentiment or views on the performance? It seems to me to be pretty steady in terms of, really, for some consistent period now.

[James Edward Staley, Group CEO & Executive Director]

Ed, so -- and I'll pass it to Tushar for his comments. But what your analysis fails to take into consideration is we had significantly recapitalized this bank since 2015. We're running on a much stronger capital base and a CET1 ratio of 13%. And back in 2015, I think you're somewhere around 9%. So you need to adjust for a 400 basis point improvement in capital strength of the bank. And you also should add to that, that the calculation of risk weight for assets is much more rigorous today than it was 3, 4 years ago. And so I think when you take an adjustment for the calculation of risk and an adjustment for the higher capital base that we are properly running on today, that has a pretty big impact in making an apples-to-apples comparison of 2015 versus 2018.

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes, I think that's right, Jes. So I think the only thing I'd add to that is at some point, the share price will be for others to determine. What management can do is focus on the things that we can control, and that's trying to deliver an acceptable level of profitability on the capital invested in the company with a degree of sustainability and volatility that's appropriate, and that's what we're most focused on. But there'll be others -- where the share price, sure, will be popular...

[Edward Hugo Anson Firth, Analyst]

Okay. It was actually 11.4%, but okay.

[Operator]

The next question, gentlemen, comes from James Invine of SocGen.

[James Frederick Alexander Invine, Equity Analyst]

I've got 2, please. The first is just on the U.S. cards portfolio. Just wondering if you've got any new partnerships there in the pipeline? Or if we're just relying on the existing partnerships to supply the growth looking forwards? And then the second is on Brexit. So you've talked about what you're doing in Ireland and so on. I was just wondering how much effort is required from your clients to make that switch as well, i.e. how disruptive is it going to be for them? And I was just wondering, when you're thinking about the targets, have you factored in any client losses who use that switch as an opportunity just to maybe look around at some other banks?

[James Edward Staley, Group CEO & Executive Director]

In terms of cards, we can't disclose names but obviously we continue to talk to potential co-brand card players in the U.S. We are one of the more active co-brand participants there. We've got a couple of programs that are relatively new. American Airlines, which is less than 2 years old, showing great growth. JetBlue, which we won from American Express, is showing great growth as well. Obviously, the big contract we got late last year was Uber. And a lot of work is done -- is being done to maximize their 60 million consumers in the U.S. that have an Uber app on their cellphone with an embedded credit card. So the opportunity for growth on that Uber platform is significant. So it'll be both the current programs that we've got and -- another point that we can point out is almost all of our programs are locked in to 2022. So it's a very secure book of business. Vis-à-vis Brexit, we are very focused on the impact, particularly in the supply chain in the U.K. and what may happen in that supply chain, all the way down to -- we're a major player in the agricultural industry across the U.K. $1 in every $4 lent to farmers in the United Kingdom come from Barclays. And the agriculture sector may be one of the most impacted sectors in Brexit. Every farmer in this country gets a subsidy from the European Union today. So we are focused on it. But we've been very prudent in our underwriting standards across the credit platform, as we've talked about. And really, what we need to do is to work with our clients to make sure Barclays does everything it can to help them deal with any eventuality in Brexit.

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes. And I think on the other part of that question, counterparties, do we expect any counterparties either rotating away or towards us? We certainly don't expect any one -- or any meaningful amount to rotate away from us. We've been very focused on being ready for Brexit for some time now. So it may be an opportunity for others that may not be as prepared as we are for them to rotate to us. But that's for clients to decide rather than us.

[James Frederick Alexander Invine, Equity Analyst]

Okay. And I mean, if you've already kind of been through this process with all of your clients, you got commitments that they will just make the switch from London to Dublin?

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes, there was an active dialogue. The entity is up and ready. It's licensed. It's rated. So absolutely. So, so far, so good.

[Operator]

Our final question this morning, gentlemen, is from John Cronin of Goodbody.

[John Cronin, Financials Analyst]

Just picking up on your PPI provision comment in the report. So you see that as appropriate, but you closely monitor complaints trends. Just curious as to what complaint trends have looked like recently, particularly in light of the FCA's update this morning? Second question then...

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes, why don't you ask both questions, and we'll take them in that order?

[John Cronin, Financials Analyst]

Sure. The second question is on the CIB. So clearly, very strong performance in recent quarters. Do you see that as putting paid to any longer-term concerns in terms of your ability to effectively compete given the balance sheet size and very strong capitalization of your U.S. competitors in that market? Or do you have some lack of confidence in terms of the long-term trajectory of that business?

[Tushar Morzaria, Group Finance Director & Executive Director]

Yes, let me cover PPI and I'll ask Jes to talk about the competitive nature of CIB. Our PPIs in place have been reasonably stable. So, so far, it's sort of within our projections. I think there's 2 more marketing campaigns before the August deadline. So you normally get a bit of flurry of activity around those marketing campaigns. But as we stand here today, we feel reasonably well provided. But it's something that we'll have to stay focused on. Deadline is getting closer and closer, which is a relief for all of us.

[James Edward Staley, Group CEO & Executive Director]

And on the CIB, no, I think we have all the balance sheet that we need to successfully compete against U.S. regulators. But you also need to recognize our largest footprint in investment-making is the U.S., regulated by U.S. regulators exactly as if we were a U.S. bank. And then whether it's the top 3 underwriter of debt globally or what we're doing in our prime business with financing fixed income to credit, we think we have all of the capabilities necessary to compete. And the bank's balance sheet overall, if you look at the total balance sheet compared to the U.S. players, particularly people like Morgan Stanley and Goldman, we have plenty of balance sheet capacity to compete.

[Tushar Morzaria, Group Finance Director & Executive Director]

Thanks, everyone. I think we'll wrap up the call there. I appreciate your time this morning, and we might meet some of you on the road after this call. Thanks again.