Barclays PLC

LSE:BARC

Earnings Call Analysis

Company Retains Confidence Amid Market Challenges

Amidst a cautious market climate, the company successfully acted as the sole financial adviser on a significant acquisition, demonstrating confidence in its business capabilities. Quarterly income rose 4% QoQ, indicating a solid market presence, despite a 13% YoY drop as U.K. market volatility eased. With a strategic investment in fixed income and equity financing, it has strengthened market ranking and stabilized income. In its U.K. operations, the company maintained a robust RoTE over 20%, with stable income and expenses leading to a 56% cost-income ratio, while deposits grew by GBP 7 billion QoQ. An impressive share buyback of GBP 750 million completed, part of GBP 1.2 billion in shareholder distributions, up 30% from last year.

Financial Overview and Guidance for the Year

The company generated an income of GBP 6.3 billion in Q3, a modest decrease from the previous year when excluding last year's over-issuance securities impact. Profit before tax reached GBP 1.9 billion, translating to earnings per share of 8.3p. A robust capital position was maintained, with the CET1 ratio at 14%, and a return on tangible equity (RoTE) of 11% for Q3, achieving 12.5% year-to-date. The company continues to project above 10% RoTE for the full year. The loan loss rate stands at 43 basis points, lower than the guided range of 50-60 basis points, demonstrating effective credit management.

Q3 Performance Compared to the Previous Year

Group income saw a 2% decline to GBP 6.3 billion largely due to the stronger sterling curbing dollar-reported income. Profit before tax was about GBP 50 million lower at GBP 1.9 billion, with operating costs reduced by 4% compared to last year, and no litigation and conduct charges in Q3.

Operating Costs and Investments

Consumer, Cards & Payments (CC&P) operating costs increased by 9%, aligning with income growth due to investments in U.S. cards and the Private Bank. Corporate and Investment Banking (CIB) operating costs remained stable and below levels seen in Q1.

Credit Performance and Provisions

The company's long-established prudent approach to provisioning has paid off, with an increase in the impairment allowance to GBP 6.4 billion, mostly driven by the U.S. card portfolio. Coverage ratios remain robust, with 1.4% for the group and 8.6% for card portfolios overall. In particular, UK card arrear rates are stable and low, and customer behavior has been conservative. The U.S. cards portfolio shows a high credit quality, with most of the book having a FICO score above 660. The forecast anticipates unemployment peaking at 4.4% by Q3 2024.

Impairment Charges and Loan Loss Rates

Impairment charges went up by GBP 50 million to GBP 433 million this quarter, primarily from expansion in U.S. card balances and higher arrears. Despite this, the loan loss rate at 42 basis points is still favorable against the full cycle guidance of 50 to 60 basis points. The company remains cautious, anticipating the seasonal increase in charges during Q4, especially with expected growth in U.S. cards over the holiday season.

Changes in Net Interest Margin (NIM) and Profitability

The company saw stable profits with a RoTE of 21% for the quarter within Barclays UK (BUK). The quarter's net interest margin (NIM) was 304 basis points, a decrease largely due to changing deposit balances and competition. Full-year NIM is now guided to 305 to 310 basis points. The group has over 95% of 2023 gross hedge income already locked in, which will add stability to future net interest income (NII) and fortify against potential rate declines.

Business Segment Performance

In the CC&P segment, income rose by 9%, driven by an 11% increase in U.S. card balances and contributions from the Private Bank. TheCC&P segment RoTE was 9.6%. Meanwhile, CIB income decreased by 6% year-on-year in sterling terms. There was a noted stability in fixed income and equity financing business sectors within CIB, offset by a decline in FICC by 19% in dollar terms due to different market conditions compared to the prior year.

Earnings Call Transcript 2023-Q3

[Operator]

Welcome to Barclays Q3 2023 Results - Analyst and Investor Conference Call. I will now hand over to C.S. Venkatakrishnan, Group Chief Executive, before I hand over to Anna Cross, Group Finance Director.

[Coimbatore Venkatakrishnan, executive]

Good morning. Thank you for joining Anna and me on today's third quarter results call. Against the background of mixed market activity and the competitive environment for U.K. retail deposits, the group generated income of GBP 6.3 billion in the quarter, down modestly year-on-year, excluding last year's impact from the over-issuance securities.

Our profit before tax was GBP 1.9 billion, with earnings per share of 8.3p. We maintained a strong capital position with our CET1 ratio at 14%, up around 20 basis points in the second quarter and at the top of our target range. In this context, we delivered a third quarter return on tangible equity of 11%, taking us to 12.5% for the year-to-date, and we continue to target above 10% for the full year.

We are managing credit well with year-to-date loan loss rate of 43 basis points versus our through-the-cycle guidance of 50 to 60 basis points. Costs reduced by 4% in Q3 year-on-year, excluding over-issuance costs last year. And in Q4, we will continue to transfer the efficiencies and greater productivity for the bank.

We expect this to continue to -- to contribute to delivering enhanced returns for shareholders. We will update you on these and other actions alongside our full year results in February.

Now turning to the business highlights. We continue to grow our U.S. cards business with end net receivables up 11% year-on-year at $30 billion. And we announced a new partnership with Microsoft and Mastercard to issue Xbox's first-ever co-branded card in the U.S.

The integration of our U.K. Wealth business and our Private Bank is also progressing well. We grew client assets and liabilities to nearly GBP 180 billion and invested assets to around GBP 105.4 billion. With this, business is making nearly GBP 900 million of income in the year-to-date and generating attractive returns.

In Investment Banking, we led some prominent transactions in this quarter, including the ARM IPO in the U.S. However, in the mid-market environment, we've had pockets of underperformance relative to U.S. peers. In part, this has reflected our business composition. We performed well in equity capital markets, which is a smaller business for us relative to others. We were also selective on leveraged finance deals as a risk management matter, which has affected our debt capital markets performance.

We continue to be cautious about the market backdrop, but are confident in the potential of our business. And as an example, we are acting as sole financial adviser to Capri in their $8.5 billion acquisition by Tapestry announced in the third quarter and expected to close in 2024. In markets, this was our second highest Q3 income print in a decade with income of 4% quarter-on-quarter better than the U.S. peer average.

However, income was down 13% against a record Q3 last year on a comparable basis, in which we supported clients through extreme volatility in gifts in our home U.K. market. This quarter, we did not benefit to the same extent as our U.S. peers did from the volatility in U.S. rates.

As we have said previously, investment in our combined fixed income and equity financing business delivers stability to our overall markets income. Over the past 4 years, our ranking and equity prime brokerage has moved up from 7th rank to joint 5th, complementing our existing strength of fixed income financing where we ranked jointly 1st globally for the first half of 2023.

Turning now to Barclays U.K. We delivered a RoTE in the business above 20% for the quarter. Both income and expenses were broadly stable, generating a cost:income ratio of 56%, and we intend to improve this over time as we continue to transform the business digitally. There has been an impact on our deposits and margins from retail customers seeking a higher return on their savings, which Anna will cover in more detail.

However, at the group level, deposits were up GBP 7 billion quarter-on-quarter, demonstrating the strength of our diversified deposit and funding base. Our performance over the past 3 years compared to the previous slide shows that we have reset and stabilized group returns, providing a solid foundation on which to build even further. And I look forward to providing an investor update in February alongside our full year results, where we will talk more about our plan to deliver further value to our shareholders.

This will include setting out our capital allocation priorities as well as revised financial targets for costs, returns and shareholder distributions. We have just completed the GBP 750 million buyback announced at the half year, taking total shareholder distributions to around GBP 1.2 billion so far this year, including dividends and buybacks. This is up over 30% on the first half of last year and reflects our commitment to returning capital to shareholders.

Thank you for listening, and I will pass it on to Anna now.

[Angela Cross, executive]

Thank you, Venkat, and good morning, everyone. Turning now to Slide 6. We return on tangible equity for the third quarter was 11%, which takes us to 12.5% for the year-to-date. The cost:income ratio was 63% in Q3 and 61% for the 9 months, in line with our low 60s guidance for the full year. We continue to see limited signs of credit stress as the loan loss rate for the quarter was 42 basis points and 43 basis points for the 9 months.

And we have maintained strong capital and liquidity positions. As you just heard from Venkat, we will update you with revised financial targets at an investor update alongside our full year results. As part of this update, we are evaluating actions to reduce structural costs, which may result in material additional charges in Q4 impacting this year's statutory performance. Excluding any such charges, we continue to target a RoTE above 10% for the full year.

Focusing now on Q3, starting on Slide 7. There was no impact from the Over-issuance of Securities this quarter. But given the largely offsetting impact to income and costs in Q3 last year, I will again use the adjusted numbers for the prior period.

Group profit before tax was around GBP 50 million lower at GBP 1.9 billion with income down 2% and costs down 4% year-on-year. Within total costs, operating costs were stable and there were no litigation and conduct charges this quarter compared to GBP 164 million in Q3 last year.

Impairment charges were up GBP 52 million to GBP 433 million with the charge and business mix, as we expected, largely driven by growth in U.S. cards. TNAV increased 25p to 316p, reflecting our profit and positive cash flow hedge reserve movements broadly offsetting last quarter's downward move.

As usual, I will now cover the 3 key drivers of our returns, namely income, costs and credit risk management. Starting on Slide 8. Group income was down 2% at GBP 6.3 billion. The 8% stronger sterling U.S. dollar rate in Q3 year-on-year reduced our reported income around 40% of which is in dollars. CIB income fell 6% with a lower activity in the Investment Bank, partially offset by core income growth year-on-year.

Consumer, Cards & Payments income was up 9%, driven by growth in U.S. cost receivables and the U.K. Wealth business transfer from Barclays U.K. in Q2. Excluding the transfer, CC&P income was up 5% and Barclays U.K. income was up 1%.

Net interest income across the bank grew by GBP 179 million or 6% year-on-year, driving a 13 basis point increase in Group NIM to 3.98%. Barclays U.K. contributed around half of group NII this quarter with approximately 20% from CIB and 30% from CC&P, mostly U.S. cards and the Private Bank.

BUK NII was GBP 17 million higher year-on-year with NIM of 304 basis points, a low where we anticipated at Q2, which I will come back to when I cover Barclays U.K.

CC&P NII increased by GBP 64 million, mainly from U.S. cards balance growth, partially offset by private client deposit migration to our higher yielding products. This generated NIM of circa 8.9% in Q3, which was up from circa 8.3% at Q2 and included a small one-off increase in Private Bank so we would expect NIM to step back a little in Q4.

CIB NII increased GBP 94 million year-on-year, which included an improvement of 9 basis points to 3.65% in NIM, driven by the benefit of rate rises in transaction banking.

Moving on to costs on Slide 10. We are delivering our operating cost guidance with costs in Q2 and Q3 of around GBP 4 billion below the Q1 high points. The cost:income ratio improved year-on-year to 63%, consistent with Q2. Barclays U.K. cost:income ratio was 56%, with total costs swapped year-on-year as we progressed our digital transformation and rationalization of the physical footprint and headcount.

Consumer, Cards & Payments operating costs increased by 9%, broadly in line with income as we invested to grow U.S. cards and our Private Bank. CIB operating costs were stable year-on-year and below the Q1 level as guided. As we said, we are evaluating actions to reduce structural costs across the group and will give more detail at our Investor Update.

Moving on to credit on Slide 11. We are seeing the benefit of our long-standing prudent approach to provisioning both in terms of credit decisions we have taken in the past, reflected in our balance sheet provision and coverage ratios as well as the credit protection we have in the CIB. The impairment allowance increased by GBP 0.3 billion to GBP 6.4 billion. This was primarily driven by our U.S. card portfolio, in line with our expectations. We updated the macroeconomic variables from Q2, resulting in a modest impact on expected credit losses.

We maintained robust coverage ratios of 1.4% for the group and 8.6% for our card portfolios in aggregate, which I'll cover in more detail on the next slide, starting with U.K. cards.

We continue to see conservative customer behavior across our U.K. portfolio and credit performance remains benign. Customers are being disciplined about building unsecured balances with U.K. cards, repayment rates, high across the credit spectrum.

Although we have grown balances modestly over the past year, interest-earning lending balances have decreased, impacting NIM but benefiting credit performance. We do expect IELs to grow in 2024 as our more recent customer acquisition activity begins to mature. 30-day arrear rates remain stable and low relative to historic levels.

The nature of our U.S. cards proposition is different. As a reminder, we are the partner card issuer for around 20 client rewards programs, including some of the biggest brands in the U.S.

Given our historic SKU to travel and airlines, this is a high credit quality portfolio. Our risk mix has improved since the end of 2019 with 88% of the book above 660 FICO compared to 86% at the end of 2019, including the addition of the Gap portfolio in 2022.

On the chart, you can see that 30-day arrears rates are now in line with our pre-pandemic experience at 2.7%, as we expected. Our impairment coverage also increased to 9.7% with Stage 2 now at 35%, reflecting our expectation of higher unemployment from September's low level of 3.8% to a peak of 4.4% by Q3 2024. This would, of course, result in increased arrears, which are reflected in our balance sheet provisioning.

Moving on to the impairment charge on Slide 13. The impairment charge of GBP 433 million was up around GBP 50 million year-on-year, giving a loan loss rate of 42 basis points. Most of the Q3 charge was driven by growth in U.S. card balances, continued seasoning of the Gap book in line with expectations and the increase in arrears that I mentioned.

Our guidance of 50 to 60 basis points through the cycle is higher than the year-to-date experience. We are mindful that Q4 usually sees a higher charge in part reflecting seasonality and our expectations of U.S. cards growth over the holiday season. This generally leads to higher balances and some build and impairment under IFRS 9, where increased utilization, even by customers who are making timely payments, can trigger Stage 2 migration.

The Barclays U.K. charge was GBP 59 million, with a loan loss rate of 10 basis points, and this has been below 30 now for nearly 3 years. Even though our customers are experiencing affordability pressures, this is not translating into credit stress as they manage their finances proactively.

The CIB had a small release, and we are seeing no real observed credit deterioration with our synthetic credit protection also working well. Moving now to the business performance, starting with Barclays U.K. on Slide 14.

Profits were stable year-on-year with RoTE of 21% for the quarter. Excluding the U.K. wealth transfer, income was up 1%. Costs were broadly stable as our transformation plan progressed, resulting in a cost-to-income ratio of 56% for the quarter.

Loan growth remains muted, reflecting customer caution in the current macroeconomic environment and our prudent risk positioning. The reduction in business banking assets was driven primarily by repayment of government-backed loan schemes of GBP 2.7 billion. Mortgage balances were stable in the quarter at GBP 166 billion with remortgaging still contributing most of the activity.

Now looking at the U.K. NIM, which was 304 basis points. As a reminder, BUK NII is around 25% of group income and 1 basis point of NIM equates to around GBP 20 million of NII annualized or less than 0.1% of group income.

At Q2, we said that we expected NIM to step down in Q3 and then to stabilize into Q4. Most of the moving parts played out as expected in Q3, with structural hedge tailwinds continuing and mortgage margin pressure somewhat easing. The impact of base rates was also in line, given pass-through rates have increased. However, the step down in NIM in Q3 was larger than expected with deposit balance and mix trends more pronounced.

Average balances quarter-on-quarter actually contributed a larger deposit effect than period-end balances we have shown on the slide. When combined with pricing effect, this reduced NIM by a net 21 basis points compared to a net 6 basis points in Q2.

You can see that we grew deposits during the pandemic by GBP 53 billion to GBP 258 billion by the end of 2022 as customers built up cash with us in their current and instant access accounts. We anticipated that these balances would fall as customers manage their finances proactively, paying down debt and locking in higher yields on their residual savings.

Our current count moves appear in line with the latest Bank of England industry data, but intense competitive pricing meant we did not capture as much of the flow into higher-rate products.

We emphasize that Q2, how sensitive guidance is to the level and mix of deposits, and this remains the case. We now guide to a range of 305 to 310 basis points for the full year. To help frame this, if we see similar trends in Q4 as we did in Q3, both in terms of mix and volume, full year NIM would be towards the top end of this range.

Turning now structural hedge income, 2/3 of which accrues the Barclays U.K. Slide 16 illustrates the importance of the hedge to the level and visibility of our future net interest income. The hedge is designed to reduce volatility in NII. So in an environment where rates are peaking and eventually start to fall, it will help to stabilize NIM. It also provides a high degree of certainty to future NII.

The chart shows that 95% of 2023 gross hedge income is already locked in. And the next 2 years, portions of locked income in NII have increased by GBP 300 million to GBP 400 million per year since H1 as we rolled a further quarter of hedge maturities.

Notional hedge balances reduced by GBP 4 billion in Q3 to GBP 252 billion. Given the trends we are seeing in retail deposits, we expect the notional balance to continue to reduce more or less in line with lower hedgeable deposits.

Swap rates, currently at around 4.5%, means reinvestment rates remain well above maturing yields of around 1% to 1.5% for the next 2 years and with GBP 50 billion to GBP 60 billion of hedges maturing annually over this period, we expect the reinvestment effect to outweigh notional hedge declines.

Turning now to Consumer, Cards & Payments on Slide 17. Growth in our U.S. card balances and the U.K. Wealth transfer drove a 9% increase in CC&P income, partially offset by FX. We grew U.S. card balances by 11% year-on-year to GBP 30 billion.

In the Private Bank, total invested assets were GBP 105 billion, up 27%, excluding U.K. Wealth, as clients move deposits to money market funds and other investments with us. Payments income was modestly down year-on-year as customers adjusted their spending to lower value essential items, which have lower margins, offsetting the 9% increase in payments processed.

RoTE was 9.6%, reflecting both higher income and operating costs year-on-year as we grow these businesses.

Moving on to the CIB. CIB income fell 6% year-on-year in sterling terms, in part reflecting the stronger sterling U.S. dollar rate. The more stable elements of our CIB income performed as we expected. In markets, the relative stability from our combined fixed income and equity financing businesses was visible again compared to the downward move in intermediation.

And Corporate delivered strong year-on-year income growth, reflecting higher rates in transaction banking and the non-repeat of leveraged finance marks this time last year in Corporate lending.

As you heard from Venkat, market was down 13% in dollars versus a record third quarter in 2022. FICC fell 19% in dollars as we benefited less from the U.S. rate volatility compared to Gilt volatility in the U.K. this time last year. Fixed income financing income reduced due to a normalization of inflation-linked benefits, as we have mentioned previously.

And we have smaller and securitized products, which was an area of strength for some of our peers. Equities was up 3% in dollars as derivatives and cash performance was partially offset by equity financing. Client balances continue to grow, albeit as spreads tightened.

Banking fees were down 24% year-on-year with a better performance in ECM not sufficient to offset weaker DCM and advisory given the relative scale of those businesses for us. Combined with stable costs and a small impairment release, RoTE was 9.2%, which even in a mixed quarter like this one does not reflect the potential of our franchise. CIB RWAs were relatively stable with the increase to GBP 219 billion on Q2, largely driven by FX.

Turning now to capital, funding and liquidity, starting on Slide 19. We continue to maintain a well-capitalized and liquid balance sheet with diverse sources of funding and a significant excess of deposits over loans.

Looking at these metrics in more detail, starting with capital on Slide 20. Our CET1 ratio increased around 20 basis points to 14%. Attributable profit generated 37 basis points, totaling 128 basis points over the last 3 quarters. As we indicated previously, our MDA hurdle increased to 11.8% from the increase in the U.K. countercyclical buffer, and we continue to operate with ample headroom.

Whilst Basel 3.1 remains at proposal stage, we continue to guide to the day 1 RWA impact to be at the lower end of the 5% to 10% range. This reflects what we see from all the proposals across the jurisdictions we operate in, including the U.S.

As a reminder, the PRA's rules remain the most relevant on a brief consolidated basis. Our total deposit position remains stable as we have a diverse deposit franchise across consumer, U.K. and international corporate customers. Within that, the decline in the U.K. deposits that we discussed earlier was more than offset this quarter by inflows from global corporates. And this places us in a strong position to manage seasonal fluctuations that we often see around year-end from balances held for financial sector clients.

Our LCR of 159% represents a surplus of GBP 116 billion above our minimum regulatory requirements. We continue to be comfortable with our liquidity position, and we have demonstrated its robustness throughout the market disruption earlier this year.

So concluding with our outlook. We are evaluating actions to reduce structural costs to help drive future returns, which may result in material additional charges in Q4 impacting this year's statutory performance. Excluding any such structural cost actions, we continue to target RoTE above 10% in 2023 and a cost:income ratio in the low 60s.

Our loan loss rate guidance remains 50 to 60 basis points. This is higher than the year-to-date experience, allowing for some potential seasonality in U.S. cards in Q4. As of now, we are not seeing anything that concerns us and we would view the guidance as of through the cycle range.

Our CET1 ratio was at the top end of our target range and strong capital generation in the year-to-date supports our commitment to return capital to shareholders. We will provide more detail at an investor update of our full year results in February, including our capital allocation priorities and revised financial targets.

Thank you for listening. We will now take your questions. And as usual, please limit yourself to 2 per person so we get around to everybody.

[Operator]

[Operator Instructions] Our first question today comes from Alvaro Serrano from Morgan Stanley.

[Alvaro de Tejada, analyst]

A couple of questions, please. On the first one, on U.K. NIM. Your guidance, I think I understood the top end of the guidance, the 310 assumes a similar sort of deposit trends as in Q3, i.e., I guess your guidance implicitly says that things could get worse in Q4 in terms of mix and volumes. Can you maybe sort of explain what happened during Q3 and why have you given yourself some room for deteriorating trends? I think most of the guidance from your peers and maybe even yourselves was that once the rate sort of hikes were over, you would see much more stable deposits. So interested to see why you've left yourself some room for deterioration.

And second point -- second question is on the restructuring charge in Q4. Obviously, your 10% RoTE guidance is now ex this restructuring charge. The question is how much is that going to interfere with the payout and with buybacks that you may announce at the end of the year? Because I would have thought, given the provisions are going much better than expected, you would have had plenty of room to cover potential restructuring without going into your RoTE guidance, but that doesn't seem to be the case. So maybe how should we think about year-end distribution, obviously, capital doing better, but more restructuring costs, maybe sizing that restructuring costs would be helpful.

[Angela Cross, executive]

Thank you, Alvaro. And thanks for starting off the questioning. I'll take the first one and then I'll pass to Venkat for the second half of that. So let me just talk through U.K. NIM in the third quarter.

And just to level set and reiterate what I said on the call, a basis point of NIM is GBP 20 million annualized, less than 0.1% of group income. What we said at Q2 was that we expected NIM to step down in the third quarter and somewhat stabilize into the fourth. There are a few moving parts within that, and much of it has played out as we expected.

So we've seen a lessening of the impact of mortgage churn. We've seen a continued tailwind from the structural hedges. Actually, deposit pricing played out roughly as we expected, and you can see that, that's negative in the quarter for the first time as we indicated it might be. What's really different is the movement in deposits.

And what I said on the call earlier was that actually, the movement in average deposit is a bit more significant than the quarter end might indicate. And whilst we saw very similar trends to the overall Bank of England movement in current accounts through the quarter, we capture less of that into fixed-term deposits than we might have expected to. And that related purely to the intensity of competition that we saw during the quarter and very intense that particular points.

And it's really that that's made the difference. So I would say it's the positive behavior that has somewhat intensified in response to pricing. So previously, we said that we expected that to be more stable in Q4. And that's simply because in Q4, you typically see a deposit stabilization pre-Christmas. We now no longer anticipate that just because of these competitive dynamics, and that's really what's causing us to change that outlook.

We're not saying that it will be better or worse in the fourth quarter. I think what we are saying is that this customer deposit behavior has been relatively difficult to predict, and that's why we're giving you a range, but indicating to you if we saw something similar, that would be towards the top of that range. So that's the reason for the change in guidance. Venkat?

[Coimbatore Venkatakrishnan, executive]

Yes. Thanks, Anna. And Alvaro, I'm sure you sort of caught this through the presentation. But just to add on the NIM point for 1 minute. Overall group deposits, as Anna said, BUK NIM is part of our overall NIM. Our overall deposits grew by GBP 7 billion quarter-on-quarter, and our NII is up about 6% year-on-year at GBP 3.2 billion and NIM itself at 3.98% at the group level. Again, 13 bps higher.

So -- and to think about in the larger context. And also coming back to the restructuring charge, 2 things I would say. One is you should think of this structural cost action as in part of the investor update, which we will provide in February. So what this is, is we have to announce it now because as we work through it, we will likely take a charge in Q4. That's why we announced it now.

But you should think of it as not something related to a quarter or the last 2 quarters, but part of the larger structural improvement of efficiency and productivity for the bank.

As for your specific question, what I would say is a few things. Number 1 is that we very deliberately start this quarter at strong capital position of 14%. And we've got a capital generation of about 130 basis points of CET1 ratio year-to-date. This underpins our ability to return capital to shareholders.

As far as our desire, you know we completed a GBP 750 million buyback in the first half, and so total distribution so far this year of GBP 1.2 billion, which is about 30% higher versus the first half of last year. And this really reflects our commitment to return capital to shareholders. We spoke about the efficiencies we're driving across the group.

Equally, you should know that we are comfortable to operate in the full range of 13% to 14%, and we have been there in the past. Obviously, any capital action ultimately is approved by the Board and approved by regulators. But from our point of view -- and we'll come back with the details in February. From our point of view, good initial starting position, good capital generation across the bank, understand the importance and the priority to our shareholders of returning capital, willingness to operate through the range.

[Operator]

The next question comes from Jason Napier from UBS.

[Jason Napier, analyst]

Two for me. The first is coming back to the issue of the flagged restructuring charges. Venkat, as you mentioned, capital really strong. And in fact, the Q3 beat alone is GBP 1 billion relative to consensus. And so I guess anything that you could say to provide a rough sense of how much you're looking at spending here. I appreciate this is not the venue at which you wanted to give it. But today, conversations with investors are that there's no -- there seem to be risks on the payout front with no sense of how much cost savings you might be talking about or where in the group you might be looking to be more efficient. Clearly, we think it's the right thing to be doing.

But the GBP 1 billion beat on CET1 is 7% of annual group costs. You could do a lot with that. So anything you can do to be helpful on what the payback would be for the charges that are already in mind and which are triggering these provisions. That would be the first.

And then secondly, linked to that. At your conference in New York last -- in September last month, a month before, you said you were happy with the mix of business for the group. And so I wonder whether you'd give us a sense as to when you talk about updating investors on capital allocation priorities, whether you're really just talking about what grows faster in future or whether we should have in mind a sense that the present mix of capital allocation is up for debate.

[Coimbatore Venkatakrishnan, executive]

Yes. Good questions, Jason. Thank you. Let me begin on both of them, and then I'll let Anna add on any details.

So on the capital versus the spending, look, this is not the right place to be giving it. I think as I said in the answer to the previous question from Alvaro, we started a good point on capital. We've been accretive on capital and view the spending and the restructuring in the larger term context. I'll let Anna add to that in a minute.

And on the second thing, what I would say is, I mean, I view the Investor Update in a simple way. It's obviously complex to analyze and execute. But I view the question in a simple way. It is what do you think is the target return that this bank can generate for its shareholders? So what's the RoTE ambition? How is it comprised at the group level and in the individual businesses? How much can it improve in the individual businesses? And therefore, what is it that you wish to fund in that improvement?

I also said in New York, it's very, very clear that the market values different businesses differently, right? And we obviously have to take that into account in the way in which we think about our capital allocation. And so you sort of put it all together and you use a picture of where we think we want to go.

But obviously, more details on that later. And then ultimately, once you do that, then to be targeted about saying what is that growth and return you wish to -- you target returning to investors. Because I do absolutely take the point that we don't -- we announced that the buybacks on a half yearly basis, and we should -- we don't have a target out there for that, and that would be something that I think our investors would find desirable. Anna?

[Angela Cross, executive]

Thanks, Venkat. And Jason, we're still going through the process of evaluating those actions, as we said. So we haven't come to a finalized list yet. We have called them material. Let me help you a little.

You'll note that from our RA, we have called out the year-to-date restructuring charge is around GBP 120 million. So we've shown that to you and told you that it's largely in the U.K. In any typical year, we run it between GBP 200 million or GBP 300 million. So by calling this out, we're really indicating to you that it will be higher than that, but I can't comment on specific levels simply because we haven't finished the work.

But as Venkat said, as we take those decisions, we're extremely focused on future returns, and we understand and are committed to shareholder returns. So that's very much in our mind. The other point around sort of the strength of the capital position. We've been operating with good cost and capital discipline all year. But clearly, it's a foundation of where we step out from in February, and we'll tell you more than. Okay. Thank you. Can we have the next question, please?

[Operator]

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

[Rohith Chandra-Rajan, analyst]

I just wanted to, sorry, come back on the BUK NIM. And really, the trends that you were seeing on deposits through the third quarter and then what you're seeing so far in October.

So Anna, you mentioned that the averaging effects was actually worse than the endpoint position, suggesting that actually things got better in September, perhaps. So I was wondering if that's continued in October. So it's really how we should think about sort of the trajectory of those deposit flows through the quarter and then into Q4?

And then just to clarify that when you say if current trends can -- if Q3 trends continue, then you expect to be at the top of the guided range. Is that essentially taking the margin bridge on Slide 15 and excluding the 5 basis points impacts from pricing, is that how to think about that?

[Angela Cross, executive]

Thanks, Rohith. Why don't I take those? So what we really mean by the average endpoint is that the outflows were probably a bit more evenly spread through the quarter than they were in the second quarter, where we saw somewhat of an increase in intensity towards the second half.

And I don't think it was lessened in September at all. There were certainly quite a few headline rates out there that were extremely competitive. In terms of October, I'd just call out the fact that we haven't yet seen the first month's end. So we're still midway through the first month. There's nothing in what we can see so far that's really that's sort of beyond our expectations or out with our own forecast. That's all I can really say at this point in time.

But I would just sort of highlight that what we're seeing is the impact of the pricing. In terms of the sort of range of guidance. I mean what we're really saying rather than any particular point on the bridge is that depending on where those deposit flows go, you could end up with a very different exit rates. So that's what we're really calling out to you.

And clearly, if we saw trends similar to what we saw, i.e., the deposit trends continue, similar to what we saw in Q3, we would be towards the top end of that range, and that would give you a particular jumping off point for 2024.

What I would highlight, though, is that the structural hedge continues to protect the NIM overall. And what you have seen over the last quarter is that we've been able to lock in another large chunk, both of 2023 income, but another GBP 300 million to GBP 400 million of '24 and '25 income just because of the way that hedge is rolling month-on-month. So hopefully, that's helpful.

[Rohith Chandra-Rajan, analyst]

Yes, that's very helpful. Just a quick follow-up, if I could then. So given that you talked about the hedge into the coming years and you're expecting this deposit stabilization in Q4. I mean, do you have a view going into next year in terms of deposit trajectory, given what you're seeing in terms of competition in the market?

[Angela Cross, executive]

So it's -- what this year has taught us is that customer deposit behavior is quite difficult to call. So what I'm not going to do is give you a 2024 NIM outlook.

What I can tell you is that there are 3 factors that we're looking at. One is positive, 1 is neutral, and 1 is more negative. So the positive impact is clearly the impact of the structural hedge. I remember that 2/3 of that goes into the U.K. The more neutral impact is that we do expect and we are seeing that the impacts quarter-on-quarter of mortgage churn are starting to dissipate. Called that out for some time. What is more difficult to call is the impact of this ongoing deposit behavior, both the reduction in deposits because customers are using them in order to manage the broader economic environment, but also then seeking higher rate.

Difficult to call out when that would stabilize, Rohith. But all I can say is that there are other factors in the mix, most importantly, the structural hedge.

[Operator]

Our next question comes from Chris Cant from Autonomous.

[Christopher Cant, analyst]

Two please, 1 on NIM and 1 on RoTE. So I appreciate everything you said about the difficulty in predicting the positive behavior and the fact that the U.K. NIM is not [indiscernible] offer, the group revenue dynamic. But obviously, we've had some pretty dramatic shifts in NIM guidance over a few quarters, and there's a huge range possible 4Q exit levels by the range you're now giving us. So a very simple question, please help us hone the or what might happen. What's the average cost of your deposit balance is in the U.K. third quarter and what proportion [indiscernible]?

And then on RoTE, in terms of the risk, the 10% RoTE target inclusive of restructuring charges, if I just kind of run the numbers on your [indiscernible] equity for the year-to-date and way far under 4Q. To get to, say, a 9% RoTE, including restructuring charges, that would imply sort of a negative bottom line number for the fourth quarter. You've obviously delivered pretty strong RoTE year-to-date. The fact that you're flagging potentially not being able to hit the greater than 10% RoTE inclusive of restructuring charges implies fourth quarter could be a net loss. Is that the right way for us to be thinking about this?

And within that, when you're flagging the GBP 120 million of restructuring charges year-to-date, it is the case that when we get to the fourth quarter, the catch-up to the normal GBP 200 million to GBP 300 million is going to be excluded from your RoTE calculation as well? How are you thinking about that?

It's GBP 300 million in the RoTE calculation and then the exceptional charge on top of that excluded, or is the whole amount potentially to be excluded when you calculate your RoTE at the end of the year to assess delivery on that target?

[Angela Cross, executive]

Okay. Thank you very much, Chris. Why don't I take those 2, and I'm sure Venkat will add if he wants to. So you're right, there has been some considerable movement on the U.K. NIM, particularly over the last quarter.

As I said, clearly, that's driven by customer deposit behavior. I would highlight for you that as we look at U.K. NIM, we are actually looking at quite a narrow measure. So in comparison to our peers, remember, they would be including all of the Corporate income an asset base within there. And so really, you should be looking, as you make comparisons to the rest of the U.K., you should be looking across both the U.K. and the Corporate NIM position.

And we don't disclose the average rate paid on our deposits, although what we have given you this time to be more helpful is a split of our deposit balances. And indeed, how that has trended over time, and it's showing very clearly that movement into term as you would expect and as many have commented from Bank of England data.

On your second question. So to be clear, what we are not doing is giving any kind of PBT forecast for the fourth quarter here, and it wouldn't be appropriate for us to do so. Not least we haven't concluded our assessment of the structural actions that we may take. Mainly what we're calling out is a few things.

Firstly, we're clearly going into the fourth quarter with good rating momentum. We've delivered 12.5% year-to-date, somewhat ahead of consensus. However, the fourth quarter does have some seasonal impacts on it. So typically, we see lower CIB income.

Typically, we see higher impairment in U.S. cards, in particular, simply because of the seasonality in spending. We also see impact from the bank levy, and we've just given you an indication that we see a continuation of deposit trends in the U.K.

So not saying anything more than that in that typically, you expect RoTE to be lower in the fourth quarter than in the preceding 3. And to the extent that we take decisions in that fourth quarter, that may impact the RoTE.

Now as we do so, we are very focused on future returns for the business. So our overall objective here is to improve the returns of the business through time. Clearly, efficiency and effectiveness is a key part of that. So we're just calling out our intention to continue that cost focus for the business.

[Coimbatore Venkatakrishnan, executive]

Yes. And I cannot emphasize that last point, Anna. I cannot emphasize too much that last point which Anna made, which is that think about this in terms of the investor update in February and the longer-term plans of productivity and efficiency in the stack.

[Christopher Cant, analyst]

If I could just follow up on the RoTE point, first, please. I mean year-to-date, you've done GBP 4.4 billion in profit. Your average tangible is probably going to be something like GBP 47 billion for the year. So you're pretty much all the way there to delivering a 10% RoTE on the 9 months to date.

So to get to a point where you're flagging to us that you might not do great than 10 for the full year. Would be -- I mean, I think, unless I'm missing something there, the math implies potentially very, very superior for restructuring charges. But am I missing something there? I mean, it doesn't seem -- in the context of a debate where perhaps I had some investors asking whether you might be announcing a surprise by -- this is obviously kind of top of mind to your investor base, how you're going to be balancing these things. Are we looking at potentially greater than a bit of restructuring or cost to achieve or whatever we're going to be titling it in the fourth quarter. I mean, that's the math, even except to the point we made about seasonality, et cetera.

[Angela Cross, executive]

So Chris, I understand the math of what you're putting in front of me. I'm going to say the same thing that we have not yet concluded on those plans to the extent that we do, we will update the market further at full year, both in terms around the cost, but also the ongoing impact that we would expect them to have just as investors do distributions on top of our mind, too, as Venkat pointed out.

So as we take these decisions, we will be extremely mindful. And as you said previously, we go into the fourth quarter very deliberately at the top end of our capital range.

[Christopher Cant, analyst]

And on the deposit cost point, if I could just on that as well, please. I mean how -- if I frame it slightly differently, how do you expect investors to be able to take a view on what might happen with the U.K. NIM unless we're armed with basic information about what you're currently paying on deposits relative to the types of offers that are out there in the market.

You flagged a competitive offer as a key driver for the fact you're reguiding them lower and seeing deposit attrition. But we don't know how much better those rates are relative to what you're currently paying or have been paying earlier in the year. It's very difficult for us to take a view on what's going to [indiscernible] without that?

[Angela Cross, executive]

So Chris, all I would say is that we price competitively, but not on commercially. And if you look at the -- our savings pricing is very, very clearly indicated both on our website and maybe in any branch. You will see that we are competitively positioned across our term deposits, across our ICEs, across our instant access, for example, rainy day saver. So we don't genuinely believe that there's something is priced in our savings franchise. We're happy with it. From quarter-to-quarter, you will see other competitors operating in a different way. Okay. Next question, please.

[Operator]

The next question comes from Guy Stebbings from BNP Paribas.

[Guy Stebbings, analyst]

A couple of questions on deposits, firstly, the U.K. and then outside the U.K. So first, I'm just trying to understand the comment that pricing played out as expected. Are you talking to Barclays or for the industry, as I would think about pricing and then movement in deposits for individual institutions is very much linked, have you priced up more in line with some peers, then the balance wouldn't have been such a headwind. So perhaps you could clarify that one. I'm just trying to think about in the context of how you might want to react more to protect balances in the future in a competitive marketplace.

And then outside the U.K., clearly, that was much stronger. Could you just give a bit more color on what you're seeing, what the strategy is there? And sort of are you having to pay up? Or is this very much profitable deposit growth that you're seeing outside the U.K.?

[Angela Cross, executive]

Okay. Thanks, Guy. I'll take both of those. So what I meant by the pricing was as we expected. Clearly, we knew at Q2, when we reported to you the price changes we were going to make, and therefore, that deposit bucket, the one that's called bank rate is broadly as we expected it to be.

Now what subsequently happened to both the level and mix of deposits is much more driven by the external competitive environment and that's what we are calling out. And very similar to what I just said, Chris, we are happy with the overall level of our savings pricing. Our strategy is to encourage our customers to develop healthy savings habits. We are pricing to, as far as possible, maintain our franchise rather than attract top money, and we will price competitively but not uncommercially. So to the extent that we see competitive pricing going in that direction, then obviously, we would not follow it.

I think the other thing, just to put in the mix as everybody is looking at the impact of the U.K. NIM, please do not discount the impact of impairment. So all of this behavior, this conservatism and behavior, is also flowing through into the impairment line, and the U.K. impairment has been lower than consensus for 9 successive quarters. So it's just worth bearing that in mind.

And second point that you asked about, which is around the deposits elsewhere. I mean, in a high rate, persistently high inflationary environment, we would expect to see a high level deposits flow from retail customers towards Corporates. That's exactly what we see and given our franchise, that is what you're observing. So U.K. Corporate deposits are very stable. You see some migration, but very stable in totality.

And what we've seen in the quarter is a continued inflow more from global corporates, that's particularly a fairly long tenor term funding competitively priced, but good for the deposit franchise overall. So very much a continuation of what we called out actually in Q2 and indeed Q1.

[Coimbatore Venkatakrishnan, executive]

If I may just step in and emphasize the point Anna made about the link between deposits and impairment. I think it's -- to me, it's one of the interesting things that we've seen, where we've seen people using their deposits to pay down debt in -- whether it's mortgages or other things.

One, it showed that they had the ability to do it. So obviously, it's helpful with impairment. It also gives you an idea of the type of credit quality of customer we have, which I think is a good thing. So as Anna said, 9 quarters of continuously of positive surprises, meaning lower impairments than consensus in the U.K. and people using deposits to pay down debt, it's only good thing about credit quality.

[Angela Cross, executive]

Okay. Thank you, Guy. Next question, please.

[Operator]

The next question comes from Benjamin Toms from RBC.

[Benjamin Toms, analyst]

Firstly is around just some recent press speculation that you're looking to sell a stake in your U.K. merchant acquiring business. I know you don't want to comment on that directly. So perhaps the best way to phrase the question is to ask what you think is the best way of Barclays generating value out of this U.K. merchant acquiring business going forward?

And then secondly, I noted your statement around the PRA Rules being the most relevant to the expected impact under Basel 3.1. In that context, the regulator gave a managed house speech last week. Our interpretation about that speech is that we'll likely see a softening of the rules around Basel 3.1 when they're announced later this year and in May 2024. Would you agree with that assertion?

[Coimbatore Venkatakrishnan, executive]

Right. Benjamin, let me take both of them. First of all, on the U.K. merchant acquiring business, I think we are fortunate that we've got a business that has both issuances and acceptance. And it is very much a business which is targeted at Corporates and SMEs. And it's -- and what it does is that it adds another quiver to our arrow, it's a very positive quiver to our arrow when we deal with them. We provide them transaction services. We provide them mortgage-based banking, foreign exchange services and then payments, so merchant acquiring.

The business itself overall is very good. I think there's a broader strategic question for us, which other banks have faced, which is it's a very technology-driven business. How well do you -- what is your competitive advantage in this? Is your competitive advantage in developing the technology or in implementing the technology of building machines which you put with clients? Or is your competitive advantage in helping service them as part of a larger set of banking services? That's the question we are looking at.

And then I think the commercial arrangement will come out of the answer to that question. So that's the way we are thinking about that business.

As far as Basel 3.1 goes, I would say 2 things. I also mentioned our speech with interest. I think the U.K. rules are solidifying. They were probably on the market risk side, resemble the U.S. routes. And it is still too soon to say how much of an impact, what kind of changes going forward there are from what we've seen. So I don't want to sort of comment 1 way or another. I mean, the only thing I would say on this more broadly is, I think at the end of the day, I know there's some commentary from the U.S. banks that the impacts are greater on them.

But these capital regimes, and we've been under the U.K. capital regime, of course, these capital regimes are very difficult to calculate apple-for-apple. And so I think at the end of it, when you look at what the Fed has done and when you look at what the Bank of England has done, what you're probably going to have is roughly comparable capital regimes between the U.S. and the U.K., roughly comparable.

[Angela Cross, executive]

So I will just round that off. I think, Ben, we're obviously -- we note these features with interest. But we're waiting the final rules both from the U.S. and in the Europe, U.K. and elsewhere. And of course, we don't yet know what the impact of any changes around Pillar 2 might be.

So until we see it in print, still some uncertainty. So we continue to guide to that 5% to 10% that we've given you before earning towards probably the bottom end of that range. But thank you for the question. Next question, please.

[Operator]

The next question comes from Jonathan Pierce from Numis.

[Jonathan Richard Pierce, analyst]

Two from me again, please. The first, I just wondered what was in the 7 basis points other, drag that's coming through in the U.K. NIM in the quarter. And I think you described it in with the e-mail as product mix. But is it just that? Or is there some treasury effect coming through there, again, like we saw earlier in the year? And if so, how large?

The second question is, to just focus on one of the bright spots of today's numbers, the TNAV. Very powerful move in the third quarter, and the cash flow hedge reserve seems to buy by about 20%, I'm thinking in just 3 months. I don't want to preempt anything you're going to say for the year on new financial targets and the like. But are you completely comfortable that in the medium term, clearly next year in 2025, that you can still do sort of greater than 10% RoTE target as it is today, all in, including any additional structure cost actions and making through next year against this quite powerful move up in the TNAV because there's nothing to suggest the TNAV isn't going to keep moving up at pace from here. So those are the 2 questions, please.

[Angela Cross, executive]

Okay. Thanks, Jonathan. I will take both of those. So in the 7 bps other, it is product. It contains pretty much everything else that isn't to the left. There's nothing significant in there individually with the bps cards. There's a bps business banking as we see the government-backed lending being paid down. There's also a little bp on Barclays Partner Payments, Barclays Partner Finance rather. And you might recall that we said that we were pausing new business in that space what we replatformed that business technology-wise, because that's unsecured, although it's small, it can have an impact on NIM. So nothing more than that, nothing specifically in treasury to call out at all.

On TNAV, clearly, that has moved significantly in the quarter. In part, that is actually a reversal of what you saw from the beginning of the year. So just to sort of unpack this a little bit. Clearly, what drives TNAV over time is attributable profit and us driving good returns as we have done this quarter. So that's 8 basis points. There was also 3 basis points that came from the fact that we conducted a large part of the share buyback by the end of the quarter, and this is obviously a per share measure.

You're right to call out the cash flow hedge reserve, which was 10p in this single quarter. But if you look at the disclosures at the back of the results announcement, actually, you can see that quarter-to-quarter, these reserve movements can be relatively material. And the third quarter just unwound the position from the beginning of the year. And what's actually going on here is that as rates fell back a little bit in the third quarter, the negative drag from that cash flow hedge reserve, just lessened a little bit. But that was just unwinding.

You might recall in the second quarter, there was a big move in the opposite direction that actually depressed TNAV. So really, as we think going forward from here, we try and strip out that kind of quarter-to-quarter volatility. What we're really focused on is the accretion of profit and driving robust returns, and that's really what we'll come back to you on in February.

Okay. Thank you, Jonathan. Next question, please?

[Operator]

The next question comes from Adam Terelak from Mediobanca.

[Adam Terelak, analyst]

I want to come back to deposits and competition for deposits again. Clearly, you've been surprised in the quarter by the level of competition out there. But the comments you're giving us back is very much that you're confident in your current pricing I mean, what needs to change in terms of the level of competition out there for that, for your view on that to change.

If you look at your savings rates, they're clearly a step below your closest peers. And from what we can see in the data, then you're losing deposits that whilst pricing up might be a threat to NIM, at least you're keeping deposits on the platform. So I just want to kind of understand your approach to competition short term but also medium term, if these very competitive rates continue to stay out there.

And second, you mentioned on the hedge, the hedge comes down in relation to your hedgeable deposits. If I look at the disclosure you've given us today, then it looks like you're hedging much, much more of your savings products than your peers. So I'd just like to get a bit more color around how you run that hedge versus your deposits, what your hedgeable deposits actually are and how you see those developing over the next couple of quarters.

[Angela Cross, executive]

Okay. Thanks, Adam. Why don't I take those, and I'm sure Venkat might add particularly on pricing. So as I said in the previous answer, we are pretty comfortable with the way that we are placed on our pricing. Clearly, there is a difference in competitive pricing across the industry between what we describe as bigger banks and challenger banks. You might have a different need for liquidity particularly over the next couple of years as TFSME runs off. So we are mindful of that.

And we keep our savings pricing under review. But as we are making savings decisions, we think about the franchise and we think about our liquidity and our balance sheet. Those decisions will be different bank-by-bank and institution-by-institution.

I wouldn't comment further than that. In terms of the hedge, our hedge strategy has been very, very consistent over the last few years. So what we do is we identify rates sensitive balances. We exclude those from the hedge. And then on top of that, we maintain a buffer and we hedge the remaining balance. We monitor that hedge on a monthly basis. And what you can see year-to-date is that we have trended our corporate hedge thus far. We do that by making the decision to pause all or part of the role month-by-month. And those are active decisions that we take.

So we've got ample opportunities to adjust that hedge as we see deposits behavior changing. As compared our hedge strategy versus competitors, I wouldn't comment on it.

[Adam Terelak, analyst]

Just a follow-up then, does that imply you see rate insensitive balances within your savings accounts disclosure today?

[Angela Cross, executive]

There are some balances within our deposits overall. They are rate insensitive. So much of our current accounts would be rate insensitive simply because they relate to operational deposits. That will be true in the U.K. as it is in the Corporate Bank, as it is in the Private Bank, although you'd expect those constituents to behave differently.

So that is certainly true. There is also some rate insensitivity and savings because customers and indeed Corporate do use some of the savings balances sort of rainy day fund simplistically. And particularly in the instant access accounts, we see customers turning over their savings within the period of about 1 year, for example. So we have demonstrable evidence of that insensitivity, Adam.

Okay. Thank you. Next question, please?

[Operator]

The next question comes from Edward Firth from Stifel.

[Edward Firth, analyst]

Yes. Can I just ask you, just trying to get the implications right for sort of '24 and '25 now. Because if I look at your -- the math correctly, and I suppose I'm just checking my math here. It looks like you've got an exit margin of somewhere around 290 into next year. And I guess we would imagine that that's going to continue to deteriorate because a lot of these deposit trends are long-term trends. If you look back to the last time, interest rates were 5%. The structure of deposit franchise was completely different, and the margins were much, much smaller than you're getting today. If that is the case, that looks to me like we're looking at maybe GBP 500 million, GBP 600 million of consensus for next year just for net interest income. And yet consensus is only looking at a 10% return on tangible even now.

So where do we get -- I mean, I assume you want 10% to be some sort of a base. You wouldn't want to be delivering lower than that. Is it the cost? Is it the cost program? Is that -- should we be looking at the cost program to offset that? Is that where the difference comes from? Or how else can we get ourselves back to 10%? Or should we be thinking that actually, that is a risk now?

[Angela Cross, executive]

Okay. Let me take that, and I'm sure Venkat will add. So what we've done is -- so I'm not going to comment on the exit rate from Q4. What we've done is we've given you a range as we told you what will happen if we see similar deposit trends.

[Edward Firth, analyst]

Yes. But I just check my math. That was how many. It used to be 310. We know what 3 are, okay, that is [indiscernible] That's great.

[Angela Cross, executive]

Yes. So your math, as I would expect, I'm sure is very robust. As we said before, it may or may not deteriorate next year. I mean we've got a real tailwind from the hedge. So I'm going to go back to that.

Secondly, we've got this neutralization of the mortgages month-to-month. And then you have ongoing deposit behavior. So you're right to say that we're in a different place to where we were sort of -- and we're going all the way back to 2006, 2007. I mean, I want to remind you that at that point, the liquidity positions of the very large banks was very different. So all of the large banks were running loan-to-deposit ratios well in excess of 100%, 150%, 160%, 170%, in some instances. And therefore, those fixed term deposits were essentially being used in lieu of wholesale funding to a large part. So it's a different structural market overall.

So I'm not going to comment on where we end, but I would urge you to consider that. In terms of the -- so we then made a jump from the BUK to Group. So a percentage point or a bit of the U.K. RoTE is GBP 20 million, that is 0.1% of group income. So in all of these considerations, we need to consider the rest of the group.

So yes, the U.K. NIM is stepping back a bit. But we're also in a position where actually, the market-for-market and particularly banking is significantly depressed. So banking is coming off a decade below. We've seen pretty low levels of unsecured lending in the U.K., relatively muted demand for wholesale debt, both in SMEs and in Corporate. And of course, if you look across into CC&P, the U.S. cards business continues to grow and the private bank continues to grow.

So I think -- so I take the math point on the U.K., but it is a relatively small part of the group. You're right to call out efficiency. We're very focused on that. We see that as a key part of driving our returns. And obviously, we'll come back to you with the whole picture in February.

[Coimbatore Venkatakrishnan, executive]

Yes. And I would just add on the efficiency part of the structural cost actions. Think of it as a longer-term approach to increasing the growth of this bank. That's what the efficiency is about. It's not about making ledger work.

[Edward Firth, analyst]

Can I just come back on that? In terms of efficiency, though. I mean are we talking CIB efficiency? Because your retail bank is making over 20% return on equity. I mean, that feels like a really good number on most benchmarks. I don't know why you would want to take cost out of that particularly? Is it -- so is it like head office and CRB? Or where would we be seeing that?

[Coimbatore Venkatakrishnan, executive]

So look, we'll give you the details later. I applaud you for recognizing the RoTE of our retail bank. It has not come up yet. But it is -- you're absolutely right. It's doing 20%, and it's doing well. But in every part of the bank, there are things which we can do better, okay? And so that's not to take away from the performance of the retail bank. Anna?

[Angela Cross, executive]

I would not. Okay. Next question, please?

[Operator]

The next question comes from Joseph Dickerson from Jefferies.

[Joseph Dickerson, analyst]

I guess a couple of things. Just going back to this charge that you intend to take in Q4. Could you just talk about what your hurdles are in terms of payback and timing just to give us a sense of timeframe and payback?

And then secondly, on the CC&P margin. There was a 63 on my numbers, 63 bps pickup quarter-on-quarter in the margin, which was significant. And I guess, how do you think about the trajectory of that particularly given the growth in U.S. receivables, and I presume that a fair amount of the growth in the U.S. receivables is coming from the GAAP, which is a higher yielding book. So how do we think about the margin trajectory in CC&P?

[Angela Cross, executive]

Okay. Thank you, Joe. I'll take those. So I'm not going to go into the Q4 charge in detail at this juncture. We're obviously still evaluating actions. You might expect that depending on what those charges related to the payback might be slightly different. So you'd expect, for example, property to take longer to pay back, whereas other actions that we might take would be faster.

But when we talk to you in February, Joe, we will outline what we've done and what we expect that payback to be. In terms of CC&P, you're correct, the net interest margin has stepped forward in the quarter. There are 2 real impacts in that. The first is growing growth in U.S. receivables. So the growth in the cards business, as we said, balances are up 11% year-on-year, and that clearly has a powerful effect. At the same time, we see deposit migration in the Private Bank, which is no different from what we see in either Corporate or in the U.K. So that has an offsetting impact although in the Private Bank, what we see is a flow into invested assets, so we retain that income, it just goes on to a different line.

There is a one-off in the third quarter. It's not huge, but I would strip that out ongoing. So that's why we're saying we'd expect Q4 NIM to step back towards Q2 NIM. So I don't think of this step up as permanent. I think there is momentum in the NIM, but this is somewhat exaggerated by that one-off.

[Joseph Dickerson, analyst]

Okay. And then can I just be cheeky and ask 1 other question, just given because I think there's been some confusion on the NIM.

[Angela Cross, executive]

Yes, if it's a small one.

[Joseph Dickerson, analyst]

It's a very small -- it's kind of a yes or no question anyway. But just the -- do you expect to deliver in line with your 10% or greater return in 2024?

[Angela Cross, executive]

We will come back to you on 2024 guidance when we talk to you at the full year. As Venkat said, that's when we plan to update the market on our expectations for returns, capital allocation, cost distributions, but you should read that we are very focused on returns ongoing.

Okay. Thank you. So can we go to the final question, please?

[Operator]

Our final question today comes from Andrew Coombs from Citi.

[Andrew Coombs, analyst]

Two questions. One, hopefully, very short. First question, you're encouraging us to look at the group NII, including the CIB. So perhaps you could just comment on the transaction banking revenues. Obviously, up a lot year-on-year, but they are down Q-on-Q, which slightly bucks the trend versus what we've seen at U.S. peers. So perhaps you can elaborate on what drove the Q-on-Q decline there.

And then second one broader point on deposits and pricing just in relation to the 14-point FCA action plan. I think their fair value assessment was due by the end of August. You had to provide details on communication and evidence what you are providing to the consumer by end of September. I think the next big thing is this whole debate around on-sale versus off-sale, which comes in from the 1st of July 2024. So anything you could say on-sale versus off-sale. How big a bucket of off-sale products you have, how the pricing compares, et cetera, et cetera?

[Angela Cross, executive]

Okay. So let me start. So in terms of transaction banking, the step-back quarter-on-quarter, there was a relatively small impact from deposit migration. And again, I would say, within Corporate, we're seeing migration from non-interest-bearing into interest-bearing but those deposits are remaining within the bank. So that's certainly not the larger part of it.

What we did see is an impact from the returns in our liquidity buffer. There's nothing idiosyncratic going on there, more that for any liquidity buffer, the returns are in 2 parts. The first is the carry. And then the second is in any particular quarter, you would see some disposable income. In this environment, that disposable income has been very, very low.

And given that much of that buffer income is actually attributed to transaction banking, it had a disproportionate and it had a disproportionate impact in this quarter. That will obviously move around a little bit. So we'll see what happens through the fourth.

So on the consumer GDPs on FDA, we actually did our mailing through July and August in relation to savings. And that was exactly as you point out, designed to ensure that our customers are very much aware of the savings businesses that we have and the rate on offer. And increasingly, we see our customers using digital means to look and observe that anyway. So but that mailing is behind us. We will do a further mailing in November and December to our current accounts. And for us, off-sale is relatively small, so I wouldn't call it out as an impact.

Okay. So with that, thank you, Andrew, for the -- Andy, rather, for your final question.

Really appreciate you attending the call today. Thank you for your continued interest in Barclays. We look forward to seeing many of you on the road over the next couple of weeks and of course, the sell-side community at the breakfast. But thanks very much, everyone, and have a great rest of the day.

[Coimbatore Venkatakrishnan, executive]

Thank you very much.

[Operator]

Thank you. This concludes today's call.