Good afternoon. I think I know most of you, but for those that I don't, I'm Jason Goldberg, and I cover the U.S. large cap bank stocks here at Barclays. Thank you for attending our 22nd annual Global Financial Services Conference. The feedback so far from the presentations and meetings this morning has been terrific, and I'm sure the rest of the conference will measure up. We have over 190 companies participating. I'm told over 5,000 individual meetings, which is a record. So, we really appreciate your participation with everything. I'm very excited we get to showcase Barclays at lunch this year. Barclays' vision is to be the U.K.- centred leader in global finance. It is a diversified bank with comprehensive U.K. consumer, corporate, and wealth, and private banking franchises, a leading investment bank, and a strong specialist U.S. consumer bank.
Earlier this year, Barclays announced a new three-year plan to create a simpler, better, and more balanced company, aiming for stronger returns, greater shareholder distributions, and operational excellence by having a simpler structure, better operational financial performance, and a more balanced business. Results so far have kept pace with the 2024 and 2026 financial targets relayed to the market, and my wife is taking notice. I'm very pleased to have welcomed Venkat and Anna back to the stage this year. Venkat has been Barclays Group Chief Executive since November 2021. Prior, he was Head of Global Markets and Co-President of Barclays Bank, and was Group Chief Risk Officer before that, while Anna has been Group Finance Director since April 2022. So, a perfect business mix, too perfect resumes should make for a very fruitful discussion. So, Venkat and Anna, thank you for joining us today.
Thank you.
Thank you.
I guess maybe the best place to start, and I alluded to it in my opening remarks, is the three-year plan that you laid out for Barclays back in February. Maybe you could start with a recap of the key elements of that plan, and just how you feel about the progress so far now that we're a few quarters in.
Yeah. Thank you. Thank you, Jason. Thank you, first of all, to all of you for attending. Wearing my hat as the CEO of the bank, we are very, very grateful for the way in which all of you, in your different ways, different capacities, different organizations, interact with Barclays, and we are proud to serve you as our clients and to thank you for your business, so thank you for attending. Jason, there's an English term called spare your blushes, which means I'm gonna embarrass you. But 22 years running this conference is a real achievement. Sending out the morning email for 20-odd years is also a great achievement, and that Bloomberg article is a great achievement, so thank you and to your team for organizing this. So, yeah.
Now, I am blushing.
Yeah , I have learned some English terms since I joined this bank. So, thank you, everybody, again. The elements of our plan of, which we presented in an investor day on the twentieth of February this year, were basically threefold. It was to capitalize on the business footprint that we've been building, the earnings generation power that we've been demonstrating, and the capital returns that we have been sharing. And it was trying to capitalize on it in three ways, three simple measures. One was to target an ROTE of greater than 12% by 2026. We produced roughly 10.3% in 2023, and in the two quarters so far this year, we've been showing at our target of 10 plus for this year.
The second was to return GBP 10 billion plus to shareholders, so greater than GBP 10 billion, but again, by 2026. I'm happy to say so far this year in the midterm, we announced a GBP 750 million buyback, and which, when you add it to our dividends, equaled about a GBP 1.25 billion capital return so far this year. The third, which was, in some ways, perhaps the most significant or notable part of this because it facilitates the other two, is to have the investment bank, which is about 60% of our business as of 2023, shrink to around 50% of our RWAs by 2026. And this was not to come by shrinking the investment bank in an absolute sense or reducing businesses or reducing footprint. It was to come from growing around it.
To grow in our corporate wealth and retail businesses, both in the U.K. and the US. In particular, what we said in February was that we would invest about GBP 30 billion of risk-weighted assets into what are primarily our U.K.-centered businesses. From our capital generation, having returned to shareholders what we said, GBP 30 billion into those businesses. Those are our goals: higher growth, ROTE, capital distributions of greater than GBP 10 billion, and then the rebalancing of the bank. You know, so far in the first two quarters, we've been delivering according to that plan.
I think the other thing that we're trying to do, Jason, is just be very consistent and very clear with the way we explain that to the market. So, hopefully, people will get used to the formats that we're using, keep coming back quarter and quarter out to those targets that, that Venkat's just alluded to. And we're only two quarters into a twelve-quarter plan. I don't know where that leaves us on your marathon analogy, but we're certainly in the early parts of that marathon. But personally, I'm looking for a real increase in the stability of our income and the quality of that income, and in the second quarter, we upgraded our guidance around net interest income, and I'm sure we'll come back to that.
We're seeing very, very good credit performance, and that's a great basis from which we can grow and really put those 30 billion of RWAs to work. The thing, of course, we can control best of all is costs. So, Venkat and I are very focused on delivering the efficiency targets that we've set out. We put all of that together, that puts us right in the middle of our capital range and is really facilitating the kind of distributions that we aspire to.
The market has clearly reacted well to the plan. You know, Barclays shares are up, I think, last I looked, over 40% since you kind of came out with the plan. Maybe you tell us what is different this time in the way you're kind of running the organization, and how have you gotten your colleagues behind the plan?
Yeah. Well, a rising share price helps get colleagues behind the plan. But that's an output, not an input. The most important thing for us is a very disciplined focus on execution. You know, we've laid out these parameters. We've laid out what we want the investment bank to be. We've laid out what we aim to invest in the rest of our businesses. We know what returns we aim to get, both at the group-wide level, the bank-wide level, and at the individual businesses. We have shared with you an organization and a reporting in five major divisions, which we think gives clarity to you and to us on what we are expecting in each of the divisions and how we hold ourselves accountable for it.
And what we aim to do is, in a very disciplined manner, in a steady manner, in a repeatable manner, hopefully with no surprises, produce those numbers. Now, I've been in the business three decades, and I know that this is we're in an industry that suffers from volatility, and so we've got to be agile enough and have enough buffers to adjust to changing circumstances, changing demands, and changing business complexion. But within that, we aim, as I said, to produce these numbers in a sustained way, and Anna and I and our management team, some of whom are here, aim to spend a lot of time just on that.
And there's, I would say, some operational changes that underpin that, Jason. So, Venkat and I have set up a very small transformation office who we meet with weekly. You know, we've changed some of the remuneration structures around the bank, but I think it's just that real clarity and crispness and alignment between the external focus and the internal focus has really helped. And I think for our colleagues, they see that progress. And even so our Q2 reporting day, we ended up reporting into a pretty volatile day, but it was really good to see the, if you like, excitement and the pride around what was a really good result, even though the share price came under some pressure on that day.
So, hopefully, the other thing that folks can see is that we are being very open about what's going well and where we feel we need to lean in a little bit more. We're very focused on running our own race. As a team, we've set out targets, and so we're gonna be tough on ourselves as we go.
Okay, let's start with the U.K. and go a little bit deeper into your growth ambitions there. What gives you comfort that this is the right time to kind of lean into growth in the U.K., and where do you see the biggest opportunity to take share as you deploy that additional GBP 3 billion of RWAs you referenced?
30 billion.
30 billion, yeah.
Yeah.
If it was 3 billion, I would have declared victory by now. So, there's a lot in that question, Jason. First of all, let me tell you, I come from a philosophical place on this, where if you've got to be a strong, relevant, successful global bank, you've got to have a strong home base, and where you are an important part of society, an important part of all the different economic activities, from basically retail banking through businesses, corporates, wealth, and investment banking, and we are that in the U.K.. And so it makes sense to invest further to strengthen on it, strengthen it. Second, at a macro level, it's been eight years since Brexit.
We think on both sides of the continent, you'll still see newspaper headlines, but people have made, A, psychological peace with it, and B, the trading relations are normalizing in a sort of more predictable way. Third, we had, in a way, and I can blame myself first, because I was the chief risk officer at the time of Brexit, reduced our risk appetite towards the U.K. coming out of Brexit. We were concerned about economic activity. We were concerned about trade relations. We were concerned about the consumer situation. All of those things have worked out relatively well and even through COVID. And while the U.K. economy is not growing as strongly as the U.S. is, it's not as weak as certain parts of Europe.
So, all of that, and our brand and our presence for 300 years, gives us the confidence that we can do this. Now, we've made an important down payment towards the 30, which is we acquired a portfolio to close in a couple of months, from Tesco Bank, or we acquired Tesco Bank's credit card portfolio, which is about GBP 8 billion of that GBP 30 billion in RWAs. And but across the board. We've got a fairly strong share in mortgages, but we continue to want to grow it in credit cards, in personal loans, in small business loans, and the corporate and the investment bank. You know, you should expect to see us, both there and in our wealth business, continue to invest and grow our presence in the U.K..
I think it's important to note that when we set out our plan in February, our expectation is that the U.K. balance sheet gets smaller before it gets bigger. Because we've got some big known maturities in 2024 that relate to COVID era lending, whether that be in our personal banking, customers, or indeed, across business or corporate banking. But what's really important, as Venkat says, is that our amount of gross activity has picked up. So, our approvals for mortgages in the second quarter were about 20% higher than they were in the first quarter, and we see a mortgage market in the U.K., which is more stable and more robust than we saw last year.
Credit cards, we've welcomed an extra 500,000 new accounts to Barclaycard in the first half of this year. So, it feels like we're making the right sort of gross progress, and we're gonna see that translate into the balance sheet in time.
And I'm sure you're gonna ask me more about this, but let me just sort of preview it. I think one important consideration for us in February was that we knew the U.K. was going to come into an election year, but we were fairly confident that whether it was Labour or Conservative, they would be pro-growth. And so from an economic outlook, it's sort of aligned with what industry broadly and the banking industry would like to see.
Maybe the next question, could you just walk us through the progress to date against the deployment of the GBP 30 billion RWA so far this year?
Yeah. Do you wanna start?
Yeah. So, as I said, in February, we did expect that the balance sheet would get smaller before we get bigger, but we see good growth activity in mortgages. And one of the things that we're doing here is one of the opportunities that we saw was actually to do a little bit more in higher loan-to-value mortgages. Actually, the market is certainly good for that because we're seeing, as I said, a bigger and more stable market for mortgage lending in the U.K.. And a couple of years ago, we bought a business in the U.K. called Kensington, and we're really able to leverage that risk expertise as we lean into that part of the market.
That's really good for us because it's richer in terms of its margin, and it's also a part of the market which we've been smaller in historically, so really good for our mortgage results overall. In U.K. credit cards, as I said, we've onboarded about 500,000 new customers, and with Tesco, we'll get another sort of increase in terms of both loans and cards. But what's important here is, really our focus on U.K. cards is not just now on lend, but on spend. So, we're leveraging some of the capabilities that we have really fully here in the U.S. around partnerships and bringing that to the U.K., not only for Tesco, but for everything that we're doing around Amazon and also Avios with British Airways. So, all of that is adding to that growth activity in the current year.
So, we feel good about it. I think we'd expect our progress in business banking and corporate to sort of lag that in personal banking, so, good momentum there, too, but you're gonna see it in personal before you see it come on the wholesale side.
Got it. Maybe, one area of focus among investors at the moment is just net interest income, given the shifting interest rate backdrops. Maybe sticking with the U.K., now we've seen the first cut, what are your expectations?
So, one of the really important parts of our financial story, particularly for the U.K. businesses, is our structural hedge. And really, that structural hedge there is there for risk management and to stabilize net interest income, both on the upward part of the rate cycle, but also on the downward part of the rate cycle. So, for the first time in a long time, we published some rate sensitivity as part of our Q2 results, and what you can see in that is that our sensitivity to a downward rate path is significantly mitigated by that structural hedge. And with every passing quarter, what's happening is we're reinvesting the maturing part of that hedge, which is maturing at a yield of around 1.5%.
And that means by the end of the second quarter, we've already locked in GBP 11.7 billion of income from that structural hedge between '24 and '26. At the end of the first quarter, that was GBP 9.3 billion. So, that hedge is there to protect us, and actually, if I take that hedge momentum, combined with what we've seen around the kind of stability in deposits overall. So, in the U.K., what we've seen is a stabilization, both in the level of deposits, but also in the composition of those deposits. That gave us the confidence to upgrade our NII targets for this year, both for Barclays UK and for the group as a whole. So, updating Barclays UK to GBP 6.3 billion and the group to GBP 11 billion, and that doesn't include the Tesco acquisition.
Really, for us, we continue to react to the market environment around us, but we see a real stabilization in deposit behavior, and that structural hedge is really doing its job now.
Maybe turning to the U.S., but staying with consumer, I guess kind of mixed economic signals, unemployment rates kind of ticked up recently. Let me just turn to your outlook for credit charges in the U.S. Consumer Bank, and just the impact on the division's profitability?
Yeah, why don't I start, and I'm sure our previous CRO will add. So, last year, as we looked at the longer-term macroeconomic consensus for the U.S., we knew or we expected an increase in unemployment, so we really got ahead of that, and we did that in a couple of ways. The first is by increasing our reserving. So, even whilst our write-offs were low and stable, we started increasing our reserving for the U.S. cards business. And actually, that's panning out as we expected. So, now we're starting to see an increase in both delinquencies and write-offs, but our overall reserving level is coming down. But it's not just the reserving that we adjusted. We did actually change our view of sort of credit lines, particularly at lower FICOs.
So, we made some adjustments there, and that's definitely protected where we are now. So, as we look now, we still expect for the overall charge this year to be lower than last, and the charge in the second half to be lower than the first half. And really, we see this business on a kind of historic, longer-term trend of around 400 basis points. But one of the things to note about our portfolio is it's a relatively high FICO portfolio. The FICO is about 750 on average. Only 12% of our portfolio is less than 660. So, that means that maybe some of the trends that we're seeing here are perhaps a little different. Thank you.
Look, I completely agree. I think part of it is the modeling, but more importantly, it is that risk management muscle that you've got to flex. And retail portfolios move, let's just say slowly, more slowly. So, what you've got to do is get ahead of it. And so late last year, when we were anticipating the impact of the rate rises and the ultimate softening of the economy, we took some marginal action on credit risk exposures in the U.S. cards business, and that I expect will help us in the coming quarters, and has already helped us, so.
Maybe turning to a business near and dear to my heart, the investment bank. You've said that you plan to grow revenues on a broadly flat capital base over the next three years. How do you plan to do that?
Yeah. So, it's the one question which we get a lot, right? How do you plan to grow revenues? How do you plan to increase market shares, and how do you plan to do it on a broadly flat capital base? So, it basically comes down to two things. One is improved efficiency within the business in how you allocate capital to the higher-returning parts of the business. So, one measure we've used in the banking side of the house is return per unit of RWA, and that has seen a forty basis point improvement in the first two quarters of this year, simply because my colleagues in the investment bank have been allocating capital in a much more disciplined way than a year ago. So, that improvement in efficiency, which we expect to continue, is one important part of it.
The second important part, which we measure much more on the trading side, is how relevant are we to clients? And one simple measure is, of our top 100 clients, for what fraction of them or what number of that 100 are we in your top five? Now, as a global investment bank, we are number six. We're number six in markets, we're number six in banking. So, if we are number five with somebody, then it's slightly higher, right? And so the question is, of the 100, how many are we top five with? We've crossed 50 now, so for over 50 of our top 100 clients, we're in the top five. We aim, we started at 30 a couple of years ago, and we aim that number to be 70.
Given the bank that we are, we can't be everything to everybody, and so we've got to choose, and we are concentrating resources on our biggest clients and aiming to have even greater market share with them, right? And as I said, that number has moved from thirty to above fifty, and we're looking for it to go to seventy. And that is by continuing to do more across the space. The third thing, coming back to banking, and I'll hop back and forth, is the broadening of our business in from more being a DCM house, which we are very strong in, in leverage finance, into equities, ECM, and M&A. And you might have seen some large transactions we're involved with, so it's good. More to go, but that's an important part of the transition.
A similar transition in markets is in three areas: equity derivatives, securitized products, and European rates. On two of the three, the first two, equity derivatives and securitized products, we've shown fairly strong progress so far, and European rates is coming along. What I would say lastly is whether it's in banking or whether it's in markets, it's important to have a financing business to complement your trading business. In prime and fixed income financing, we've been growing our market share in the market side, and then continuing to develop a corporate bank and international corporate bank on the banking side.
So, all of this leads, we think, to better income, more stable income, more capital efficient income, and to get to the results we'd like, which, on the face of it, are very difficult, but I think if you do it well, possible.
I think the other thing I'd say, Jason, is that we were really careful when we put our plans together not to be too reliant on any change in the market wallet. Obviously, 2023 was sort of challenging pretty much across the board, but we've assumed in all of our plans that banking gets back to something like a 10-year average, and markets was flat. So, any tailwind we see from the market will be exactly that. And just a shameless piece of advertising, we are gonna do a deep dive in investment banking on the first of October. So, if you wanna hear from our co-heads of investment banking, Cathal and Taylor, then please sign up for that.
I will, I will. Can you expand on markets performance year to date, and how you're performing against the plan, and maybe what are the key focus areas?
Yeah, why don't I start, and I'll-
Mm-hmm.
I'll hand across. I think we see a strong alignment to the broader market. Actually, our markets business overall in the second quarter was up 6% in US dollar terms, which is how we try and measure ourselves, and that's very much in line with our U.S. peers. Within that, we saw a 24% growth in our equities business, which was really strong. Venkat, do you wanna-
Yeah, I think, look, it's a period, as I said, there are sectors in which we are concentrating: equity derivatives, securitized products, and European rates. The first two, equity derivatives and securitized products, are being helped by both the chase for assets and the case of securitized products that you're seeing, and in equity derivatives by the volatility that you're seeing in the markets. I think we aim to be very strong in the areas in which we focus. One of the things we said in our Investor Day is we are also disciplined about what we do not do. You know, we broadly do not have emerging markets presence across countries. We trade emerging markets, but we trade it largely out of London and New York, a little bit out of Mumbai and Singapore.
We are not in commodities, and we are not in equities in Asia. So, within the footprint which we have, we aim to do very well, and that discipline is really important.
Got it. I have a question on expenses and a question on capital, but then we're going to go to the audience. I'm going to give you guys a heads up to start thinking of questions to ask now. But on the earnings call, you talked about the importance of cost discipline and certainly seeing progress in particular, particularly against your efficiency ratio targets. You know, what are some of the key areas of focus there?
So, cost discipline is really important as part of this plan. You know, it's a thing that is probably in our greatest locus of control, and Venkat and I feel that very deeply. I think important to recognize here, though, that this is a plan about efficiency. Our North Star is ROTE, greater than 12% ROTE, and therefore, our North Star is efficiency and the cost-income ratio. So, we've talked about an income number of GBP 30 billion in 2026 and a cost number of 17, and we would expect to flex those two in alignment with one another. So, that's really important for us to think about. And in the first half of this year, we've delivered 63% cost-income ratio, and that's the sort of broader target we've given for the year.
Really, what we're trying to do here is drive gross efficiency benefits in order to enable investment in our businesses. So, in the first half of this year, we delivered a little over GBP 400 million of those gross efficiency targets, and we've got very, very good line of sight to a full GBP 1 billion for the full year. Really, what that's allowing us to do is to invest behind the growth that we've talked about, both in the U.K. but also in our U.S. business and in the IB. That's really important because we do expect to keep growing our U.S. cards business. We do expect to keep growing our U.K. businesses. This is not an absolute cost-down plan. This is about using our cost very wisely to drive growth.
I think the other thing I just note is, in the second quarter, we actually had, for the first time, positive jaws, for a long time in our IB business. Clearly, over time, our objective is to improve the returns of this business. So, more often than not, you should see us trying to do that, and that's not about not investing. It's about continuing to invest, but really leveraging those opportunities to drive income faster. But in the current year, we're very, very focused on people, property, infrastructure. They're probably the big three streams for this year. And sort of longer term, just taking customer and client journeys one by one and really looking at how we make those extremely efficient, not only for the bank, but for our customers and clients.
All I'll say is the bank has figured out that their CFO is Scottish.
I can't believe you said that.
No comment.
Cost discipline.
I guess in talking with investors, I think one of the things they've been most pleased with is capital returns, and just maybe looking out, how are you balancing the various demands on capital across Barclays, including investments, regulation, and just what can shareholders expect in buybacks and dividends this year?
Yeah.
Should I start?
Yeah, go.
So, I think the important thing for us, which we've been trying to communicate, is there's a waterfall on capital. The first and most important use of capital is for us to be a well-capitalized, well-run bank, right? We've said that we will operate in a 13%-14% CET1 ratio, and the first use of capital is that. The second use of capital after that, and we produced 13.6 at the end of Q2?
Yep.
Okay, so we're well in that target operating range. The second use of capital is the target, which we've said of 10 billion GBP or more to our shareholders. And then after that, the third use is towards investment. Now, we believe, according to our plans, that we can satisfy all three uses and have reasonable investment in our businesses, including the 30 billion GBP in RWA, as we spoke about. But that is the waterfall, right? Be well capitalized, first. Second, use it to meet, what we've said to the market, the guidance we've given, about 10 billion GBP. And third, to use it to grow.
So, if you look at the first half, we delivered about 80 basis points of capital generation. So, that's allowed us to do all of those things and deliver the GBP 1.2 billion that, that Venkat talked about. And the way in which we're doing that. And that's flat year on year, by the way, and our expectation for this year is that we will deliver broadly what we did last year to, to shareholders. The way we're doing that is through a GBP 750 million buyback, which is well progressed, but also through holding the dividend flat in cash terms. But the buyback is clearly flowing through to increase that dividend per share, which is around 7-point-something% growth for the, for the dividend per share.
So, this is a formula that we'll continue to deploy as we go through delivering that greater than 10 billion.
Got it. Maybe questions from the audience. I see one.
Can I follow up on Anna's comment about wanting to grow U.S. credit cards? You've got a good business here. It's focused on retail partnerships. So, a couple of parts of the question. Firstly, if you could give us an update on what you're expecting and seeing in terms of delinquencies and charge-offs in the second half. And then secondly, how you see the environment for potential new partnerships. What's the competitive environment like? Arguably, a big competitor, Capital One, is focused on an acquisition. Thank you.
Shall I start?
Please.
Yeah.
Yeah.
So, we saw a reduction in delinquencies in the second quarter, but in large part, that's seasonal. It feels like, I would say, sort of seasonally adjusted, broadly, a stabilization in delinquencies. I'd expect delinquencies to sort of tick up in the second half, but only in alignment with normal seasonal spend. When you see that holiday spend coming through, particularly in the fourth quarter, we might see a modest increase, but that's all captured in the guidance that we've given you. You know, that feels like it's, as I say, stabilized a little. I think in terms of the write-offs, we had a really good slide, actually, in our second quarter deck, which we can show you, that shows that trend in write-offs.
You see that elevation in write-offs coming through, but just because of that early action we took in terms of reserving last year, the overall charge is coming down in the second half. That's still our expectation. It's just a greater proportion of that's coming from real write-offs as opposed to reserving.
Yeah. As far as the competitive environment, look, it's strong, even though there are types of accounts and types of competitors who are in and out at various points. The important thing is we set out in our Investor Day; we said we started around with $30 billion or $30-odd billion of assets. We expected it to grow to around 40.
Yep
By 2026. We expected some of that to come from the growth in the existing stock, and we also said, over a three-year period, you've got to assume that there may be one or two add-ons and maybe one subtraction in terms of accounts. That's the normal way things are. And so we still feel comfortable about that target. And you try to do this by running a good business, a good business that is responsive to the needs of your partnership clients. An important thing for us in the U.K., in the U.S., is that we don't run our own brand, right?
The important aspect of it is, with 20 million customers, 20 corporate clients, about $30 billion in assets, what we are trying to do is to focus and deepen the engagement with the cardholders have with the corporate clients on whose behalf we run the partnership. And we think we're good at that, and that's what we aim to use as our way of managing the business.
And if I may add, just one really key part of our strategic progress here was, in the first quarter, we did an SRT trade with Blackstone. That's a really important part of the story because it allows us to continue to grow with and on behalf of our partners in a business that's quite capital hungry. So, we can really balance those growth ambitions with being able to manage the overall capital that we deploy into the business. So, that was a really important proof point for us.
Other questions? I see one in the back. Oh, maybe not.
I guess, Venkat, you mentioned Tesco. Anna mentioned Kensington. I guess what role do acquisitions kind of play as you kind of think about the future of Barclays?
Our ambition is largely organic, and this plan has been built on the assumption that we can achieve what we want to do organically. Having said that, particularly in the, where we look to deploy the 30 billion in RWAs, if there are acquisitions that either add to scale or to capability or both, and they're reasonably priced, and they are manageable and digestible and don't deviate us from the execution focus of this plan, we look at them, right? Tesco has added scale, maybe a little capability. Kensington Mortgages added a lot of capability, and we have to make the scale happen. So, absolutely, we are open, but it has to be a very special asset to fit all the things I laid out.
Questions from the audience.
I'm surprised nobody has mentioned the B word yet, Basel. That's a hint.
I guess on that vein, we'll hear from Vice Chair Barr tomorrow.
Yeah.
I guess speculation is we'll get a 400-page document next week, at least in the U.S.
We'll have ChatGPT go through it.
I guess maybe what are your expectations? Clearly, the U.K. has kind of pushed out portions of their capital proposals. The U.S., I suspect, will push out and water down its expectations. I guess first off, I mean, how does that kind of impact Barclays, and then just bigger picture how does this kind of capital arbitrage, do you think, play out?
Yeah. So, what I think we're all hopeful for is that sometime by the end of next year, we know the timing, quantum, and sort of complexion across regimes of capital. The U.K., and our hope, which we've said to regulators on both sides of the Atlantic, is that between the U.K. and the U.S., the U.K. being our home regulator, the U.S., where many of our businesses are regulated, that we have roughly the same amount of capital for a particular type of business, and it happens at roughly the same timing. Right? And so far, we've seen nothing to the contrary, but we're all glued to the telephone to see that we get that.
The obviously, in the U.S., we'll have to see what comes out, and I don't know if it is a complete rewrite or a partial rewrite of the originally proposed rules, but we do hope some of the, if I can call it, the idiosyncrasies of the first formulation get reduced, and on the U.K. side, we hope to see something that's roughly consistent, generally speaking, on the market risk side, because investment banking is an important activity for us, and trading and activity in the U.K. as well as here, and similarity, especially on the credit side. Do you want to add anything?
I'll just add that we expect to hear from the U.K. regulator on Thursday, so that's the date that they've set aside. So, obviously, we'll be digesting that one first before we get to the 400 US pages. You know, as Venkat said, we'll update when we've got all of that. We previously guided to between 5% and 10% of RWA impact. Lower end of that, I think, we'll obviously have the opportunity to update that when we've had the chance to absorb those two mighty tomes that are headed our way.
Yeah. Look, the next month is important.
Yeah.
I see a question over there.
Kind of in the reverse order, after the B, the A. So, what's your view on GenAI and its importance within the industry, and how is Barclays preparing or looking to utilize it?
Yeah. So, this is clearly in the capabilities which it gives people a changing an inflection point in technology. We have been spending a fair amount of time across the organization and at senior levels, trying to identify exactly what that potential is, and we do this in two ways. One is to have a lot of little projects on the ground, mostly chosen by our employees, who have been given the tools to try to find ways to do things that they're currently doing better or identify new things. And we examine them on a periodic basis, meaning every three months, we get a list of projects, every three to six months, and then we try to back what we think are the most promising versions of it.
Equally, at the senior level, every member of the executive committee owns a sort of large project in their area to try to understand the potential, and what we've seen when we've looked at that is also there are commonalities, and look, it goes to efficient production of reports or materials, better customer service, better understanding of common patterns of behavior, where you care about behavior of borrowers, and those things are common across many parts of the business. What I'm not sitting here and telling you is that I expect it will drive an efficiency of X or a cost savings of Y. I think it's early. It's important to target those things, but to run the organization better, and we're trying to get it in a way that's a little more grassroots, but with fair amount of ownership and guidance from the top.
I use it to help write my intro. Other questions?
I see one in the middle.
Could you give more detail on growing the non-investment banking part of the business to more closely match I-Banking? You talked about the 60% contribution of I-Banking today and getting it more towards, like, 50% through growth. What's the biggest driver of the growth there? I mean, is it cards? Is it banking? Is it high street banking? You know, where do you see the most opportunity to accelerate there?
Thanks. So, probably the biggest part, and it reflects actually our existing footprint, is in retail banking, so in high street banking. And really, we sort of called out two big areas within there. The first was not only the mortgage business, because the mortgage business in the U.K. is significantly intermediated, so nearly 80% of the market goes via intermediaries or brokers. So, our ability to grow there is kind of beyond that of our existing footprint, and particularly with a second brand in the shape of Kensington, that really gives us good growth potential there. And there were particular pieces of that market where we were less represented, in part because of our capability, but also because of our risk appetite, so particularly higher loan-to-value mortgages.
And through the acquisition of Kensington, that's really given us that capability to enter that part of the market more meaningfully in a safe way. And the good thing about that, it has a richer margin than the lower loan-to-value mortgages. But, our mortgage book, overall, has a loan-to-value of just over 50%. So, it's a very low risk book with an opportunity, really, for us to sort of expand and have a sort of more fully risk-aware range. So, that's a big opportunity, and something that we've leaned into in the first half. The second is unsecured. So, post-Brexit, but also post-COVID, and as a result of some changes in the conduct regulation in the U.K., we've really reduced our unsecured balances, particularly in cards.
I mean, they are more than 40% below where they were. So, we've got a real opportunity here and a 50-year heritage in Barclaycard, with one of the biggest brands in the U.K., to really take that back. And so we're doing that organically. So, if I look at where we've been in terms of our pricing in the first half of the year, we've typically been in the top three very consistently through that first six months, but also inorganically through the Tesco acquisition. And Tesco in one single transaction, gives us GBP 8 billion worth of unsecured balances, split roughly half and half between loans and cards.
And the really good thing about that is, as customers, they look very much like our existing customer base in terms of risk profile, so it allows us to meaningfully change our share without going up the risk curve. So, that's a big, important part. And of course, once we have that expanded, customer base in the U.K., we then have the opportunity to deepen that relationship with them. So, they're probably the two biggest pieces. The other things that we're very focused on, though, are in our business banking and corporate banking businesses. So, our loan-to-deposit ratios are very low in both of those areas. Almost the reverse of what we see in our investment banking business. But here, you've got a loan-to-deposit ratio, which is around 30% in both of those businesses.
So, we've got the relationships, we've got the cash relationship. In many instances, we've also got the acquiring relationship. So, that gives us the opportunity, because we know those clients, to really sort of lean in. The reason I said before I'd expect that to lag a little bit is just in the U.K., across our corporate sector, from the very smallest to the very biggest, there are very, very high levels of liquidity in the corporate market. And the second thing is, we really need to work here on our digital capability for both sets. So, if you saw the opportunity to see our corporate deep dive in June, very much what they're leaning into is bringing all of the lending opportunities to those corporate banking clients in a digital, very efficient way.
So, one of the things Venkat and I are focused on is: what's the pipeline? How long does it take them to close a transaction, et cetera? Really focused on making it easy for the client to deal with us. So, I'd say primarily high street banking, then into the sort of more wholesale side. But we're confident in our ability to deploy that, and I'd say the signs so far are pretty good.
Yep. Take one more question. Right in the middle.
Thanks. Your new government has put a lot of focus on growth, which I fully understand. One big part of it is trying to rejuvenate the housing construction sector, which question is, one, are the resources there in both the construction management and construction labor to provide a meaningful increase, assuming that the planning issues can be addressed? And given the lead times, is this one that I would look to produce a meaningful change in the outlook for your mortgage business over the next few years?
I'll let Anna answer the second question. On the first question, I think it is a journey that has got to start, right? And one of the biggest constraints in the U.K. about the development of better housing stock or more housing stock have been some of the planning rules, and the ability to actually expand in these so-called green field areas. So, the capital is there. I think the talent is there. Labor is an important question because a lot of that kind of labor came from European countries pre-Brexit, and they've got to find a way to get it back in. But it has to start. I mean, if you look at the composition of the average U.K. person's spend, monthly expenditure on housing plus energy, it is higher than it is in many other developed countries.
By the way, on housing, it's not because mortgage rates are high, it's because house prices are higher than they should be. I think that has got to be what has to be addressed. Now, if that is addressed, and it's addressed well, what you can imagine is that you would see a fair amount of consumption and investment-led growth in the economy. When you look at the longer term in the U.K., having putting a demand that this be addressed, having it be addressed, and then the confidence will really drive a huge amount of our own broader confidence in the U.K.. I'm very hopeful. It's not gonna be easy, but I'm very hopeful.
Yeah. Completely agree with that. I think you're not gonna see an immediate change in the scope for mortgage lending in the U.K. But I think the really good thing is that they're taking a longer term perspective of this and really thinking about this in terms of the infrastructure. So, we would hope to participate in that. And particularly, around much of the house building that we would want to see would definitely be more towards that first-time buyer, sort of, end of the market, which is really what drives a healthy housing market. So , we would look with Kensington to be able to address that in breadth.
Yeah.
I guess maybe I'll take the last question to conclude. No good deed goes unpunished, but we've definitely seen improvement in the valuation of Barclays. Yet kind of look at the banks, the U.S. banks that I cover, and still at a discount to several. While the market's got some of it, I guess, where do you think the market is kind of missing?
I think, with every passing quarter, we have to demonstrate the stability and improvement in the results that we deliver to the market. The way we see it is that the stock price is an output.
Yeah.
And so this is, this is really about credibility, quarter in, quarter out, consistency of what we deliver and report.
So, I'll answer that question in three different ways. The first is, what do we do as a matter of self-help? And that's exactly what Anna said. We've laid out a strategy. We've laid out what we think are reasonable and reasonably ambitious, measured ambition, targets of measured ambition. We need to deliver to that. That's us. The second is, and this is true of the U.K., and it's true broadly of Europe, but I'll begin with the U.K., where we are based, is people have to have faith in the environment. And I think there's a lot of good reason, which we've covered, to have faith in the environment. The government is pro-growth. We think the government is friendly to this industry.
But critically in the U.K., three things: one is to recognize that the financial industry is in the national interest of the U.K., and for people to say that and acknowledge it and behave as if that was the case. The second is that we are going to get stability in the capital regime, which hopefully we will see soon. And third, stability in the consumer regime, which I think it's an earlier journey, but we're going to see it. So, the first one was self-help, the second one was the environment in the U.K.. The third thing, which all of us deal with, is what is happening because of what I would call capital segmentation in the broader world. Obviously, the capital markets in the U.S. have been the most attractive. They've grown the most, and so capital is allocated here.
If you're part of the S&P 500, you get dollar for dollar more lift than if you're a member of the FTSE or the DAX. Now, we are a proud three hundred-year-old U.K. bank trading on the FTSE, but the equity risk culture in the U.K. has to improve, and people have to allocate more, which will also come from growth and will come from better listings in London. We, as a bank, are working towards that third as we're working towards the second. So, self-help, the environment in the U.K., and equity risk culture in the continent to catch up to what it is in the US.
On that note, please join me in thanking Venkat and Anna for their time today.