Earnings Call: Q3 2020

Oct 23, 2020

Welcome to the Barclays Q3 2020 Results Analyst and Investor Conference Call. I will now hand you over to Jeff Staley, Group Chief Executive and Tushar Mazari, Group Finance Director. Good morning. As the COVID-nineteen pandemic grew and the global economy began to contract, Barclays focused on 3 things. 1st, to preserve the financial integrity of the bank. If we're to maximize our support for the economy and society in this time of challenge, Barclays must first be a strong, profitable business. 2nd, we wanted to be there for our customers and clients. So we did things like waiving charges and interest payments to help people cope during a very difficult period. And we worked with governments, particularly the UK government to deliver programs to help businesses, big and small, to weather the storm. And third, Barclays needs to embrace and support our colleagues within the bank, recognizing the challenges that we all face on a personal level and on a professional level. To the first point, Barclays generated a pre tax profit in the Q3 of £1,100,000,000 which means we've earned £2,400,000,000 of profit before tax in the 1st 3 quarters of this year. In the face of extreme stress for the UK and U. S. Economies, for Barclays to maintain its profitability through the 1st 9 months of the year, clearly supports the basis of our strategy as a diversified developed markets universal bank. With tangible equity of some £48,000,000,000 we closed the quarter with a CET1 ratio of 14.6 percent, representing the highest level of capitalization in the bank's history. Distribution of excess capital to shareholders remains a priority for this management team and the board will decide on full year dividend and capital returns policies in February. Our liquidity coverage ratio stands at 181 percent and we have impairment reserves today of some £9,600,000,000 Barclays is today highly capitalized, liquid, well reserved for impairments, diversified in its business and profitable. In the Q3, Barclays UK returned to profitability following its loss in Q2 to generate a modest £196,000,000 of profit before tax. While revenue was still off some 16% versus the same quarter last year, it improved slightly versus the 2nd quarter. With reduced impairment to £233,000,000 Barclays UK produced a return on tangible equity of 4.5% for the quarter. The profitability of Barclays UK will most likely be the principal challenge facing the profitability of Barclays as a group in the near term. Close to 0 interest rates that we provide many core banking services for free, lower charges for overdrafts and the elimination of certain banking fees will all challenge our business. The strategic conundrum for major banks in the UK today is market entrants, but maintaining profitability given the state of the industry in which we operate. That said, we are encouraged by the progress we are making in delivering a digital bank to UK consumers and to small businesses across the country. In our International Consumer Cards and Payment Business or CCP as we refer to it, we returned to solid profitability in the 3rd quarter with a return on tangible equity of 14.7%. Following losses in the 1st and second quarters, the business generated a profit before tax of £165,000,000 in the 3rd quarter. With signs of recovery in the UK economy beginning, revenues from our payments business were up over 30% versus the Q2. And U. S. Card revenues were up 7% also versus the 2nd quarter. The strength of our international consumer business plus our overall payments franchise is evident in its profitability. Importantly, our delinquencies remain broadly stable and we booked an impairment of just £183,000,000 in the Q3. The Corporate and Investment Bank delivered £1,000,000,000 of profit before tax in the 3rd quarter. Over 85% of the bank's profitability in the last 3 months came from the CIB. This performance was led by our markets business with revenues of just under £1,700,000,000 up 38% in dollar terms versus last year. The Corporate and Investment Bank's return on tangible equity was 9.5% in the 3rd quarter. We continue to focus on improving the profitability of the corporate bank and of our coverage bankers as I appreciate there is still more to do. This profitability represents a good performance for the CIB. The second priority was to help consumers and businesses deal with the pandemic. We have dropped fees or waived interest equivalent to some £100,000,000 of revenue since the crisis began. This has directly relieved some of the financial pressures faced by our UK customers and clients. We've also granted over 640,000 payment holidays globally across mortgages, credit cards and personal loans. N Barclays created a community age package of £100,000,000 to make grants to charities helping those most impacted by COVID-nineteen. Tens of 1,000,000 of pounds in support has already been distributed. Alongside these efforts, Barclays has partnered with the UK government to administer programs providing direct financial support from bounce back loans to small businesses to underwriting commercial paper issued by major employers in the United Kingdom, we have helped extend £24,600,000,000 of financing since the pandemic began. We have also been extremely active in supporting businesses institutions to access the global capital markets, including helping raise over £1,000,000,000,000 of new issuance across the 2nd and third quarters. On climate change, we have been working extremely hard since our AGM in May to develop detailed plans for implementing the resolution passed overwhelmingly by our shareholders. We are looking to publish an update on progress with our climate strategy together with defined targets before the end of the year. We understand that now is the time for Barclays to stand behind our customers and clients as they manage their way through this virus. We also know there are still many challenges to be faced. Finally, we are indebted to the 88,000 Barclays employees who have committed themselves to the performance of the bank through the 1st 9 months of an unprecedented year. We have endeavored to support them in every way we can as a company, from giving leave for colleagues to tend to family members in distress to canceling all redundancy measures for the last 6 months. From investing and refurbishing our physical spaces provide a safe environment from which to work, to providing the technology to allow 65,000 people to work from home. Our colleagues have given their all to ensure we can run this bank safely and soundly and we in turn have backed them. This is a trying time for all of us and it will continue to be so. But my hope is that Barclays will live up to its 330 year heritage and emerge from this pandemic with pride in what we have done and how we have helped. Tussar? Thanks, Jeff. As usual, I'll make some brief comments on the 1st 9 months and then focus on the Q3 performance for the rest of the call. As Jeff mentioned, the results of the 1st 9 months continued to show the benefits of our diversified business model. Despite the impairment charge of CHF 4,300,000,000, 3 times the previous year, reported a statutory profit before tax of CHF 2,400,000,000 generating 7.6p of earnings per share. Litigation and conduct was just €100,000,000 in the 9 months, but we had a large PPI charge in Q3 last year. So I'll reference the numbers excluding litigation and conduct as I go through the results. Profits for the year to date were down on last year, driven by the increase in the impairment charge, but income growth of 3% against a 1% decrease in cost delivered positive jaws of 4% and an improved cost income ratio of 59%. The income growth reflected a 24% increase in CIB more than offsetting income headwinds in the consumer businesses. Overall, we reported an RoTE of 3.8% for the 9 months. Our capital position strengthened further to reach a CET1 ratio of 14.6% at the end of September with RWAs down €8,300,000,000 in Q3. TNAV increased from 2.62p to 2.75p over the 9 months. Moving on to the Q3 performance. Group income decreased 6% in Q3. CIB again reported a year on year increase driven by the performance in markets offset by the expected income headwinds in BUK and CCP. While CRB income for Q3 was down on the levels of H1, the consumer businesses reported increases on Q2 as we had guided. Cost increased slightly delivering a costincome ratio of 65%. The impairment charge of CHF608 1,000,000 was well down on the Q1 and Q2 numbers and we saw limited flow into delinquency in the quarter. Net write offs in the quarter, which was €500,000,000 €1,400,000,000 for the 9 months. I'll say more on impairment in a minute, but first a few words on income and costs. The quarter again showed the benefits of diversification of our sources of income with a decline on Q2 with some recovery in the consumer businesses. However, conditions remain challenging for those businesses with reduced balances in a low rate environment as we'll show on the next slide. If highlighted here, the headwinds from balance sheet reductions in UK and U. S. Cards, which continued in Q3, although we saw some stabilization during the quarter. We saw signs of recovery in consumer spending in both the U. K. And U. S. Through the quarter as lockdowns continue to ease. However, uncertainty remains as to the conversion of that spending recovery into interest earning balances and on the effect of further government restrictions through the next few months. Any spending recovery should have a quicker transmission to income levels in the U. S. In U. S. Cards due to the higher interchange income we earn on card spend in the U. S. We put on the slide a reminder of the headwinds in the U. K. That we quantified at Q1. When I come back to the U. K, you'll see that margin compression eased in the quarter following the repricing of deposits in Q3. Looking now at costs. Although costs were up slightly at CHF 3,400,000,000 we remain very focused on cost efficiencies, particularly in the light of the low interest rate environment. The COVID pandemic has resulted in additional costs for the group in the short term, both direct costs and through the suspension of headcount reductions we had planned. I would remind you that costs in Q4 will include the bank levy. Overall, we would currently expect costs for the full year to be broadly flat on 2019. However, the pandemic is also changing some of the ways in which we work and this will open up additional cost opportunities going forward. As a result, we are of course evaluating actions to reduce the structural cost base over time, which would result in additional charges, but the timing and size of these are still to be determined. I've mentioned that the impairment charge in Q3 was well below the Q1 and Q2 levels with lower charges in each of the businesses. The continued reduction in unsecured balances was a major factor feeding into the lower charge. We updated the macroeconomic variables or MEVs used for our IFRS 9 modeling in the quarter. This generated little by way of additional book up in the charge. Assuming no significant change in the MEVs we are using nor in effectiveness of support schemes and absent an increase in single name corporate defaults, a similar impairment charge in Q4 would be a sensible estimate. We continue to see limited effects of the pandemic on arrears rates, partly as a result of support programs. We would expect an increase in delinquencies as we go through 2021, but given the significant book up in provision taken in H1 and the expectation of some economic recovery in 2021, we would expect a lower charge for 2021 than 2020. In CIB, we had some single name charges, but our conservative positioning, including credit protection measures kept the charge below the Q1 and Q2 levels. We've shown on the next slide a breakdown of how we built up the Q3 charge and the mezz underlying the expected loss calculation. We've shown the charge for the last few quarters split into the impact of COVID-nineteen scenarios and weightings, single name wholesale charges and the balance of the charge excluding those impacts. As I mentioned, we have updated the MEV slightly this quarter, notably extending the period of elevated unemployment in the UK, but doesn't have a significant book up this quarter. Taking a step back from the level of the Q3 charge, it's important to look at coverage ratios to see the full extent of our cumulative protections against downside risk. On this slide, we summarize the main loan books, impairment bills and those resulting coverage ratios. Balances have gone down in Q3 for wholesale and secured, but we have broadly maintained coverage compared to the 30th June. You can see that our coverage ratio has increased at the group level from 1.8% to 2.5% over the 9 months and that's flat on the 30th June. The wholesale coverage has almost doubled over the 1st 9 months to 1.5% and a large portion of this is in the selected sectors, which we consider to be more vulnerable to the downturn, which I'll cover shortly. The other major area of focus continues to be the coverage on the unsecured consumer books, but the ratio has increased from 8.1% to 12.2% overall in the year to date. Again, that's broadly flat on the 30th June. Coverage is 23.8% on Stage 2 balances, over 90% of which are not past due. We split out the unsecured portfolios in more detail on the next slide. And I'll just highlight the coverage of the UK cast portfolio at 16.4% and 28.5% on Stage 2 balances. As I said at Q2, we think we are well provided despite the continuing uncertainty for the speed and extent of economic recovery, particularly in the UK. Quick word next on payment holidays. We set out on this slide to continuing roll off. As you can see, a very significant portion of the unsecured balances that were granted payment holidays have now rolled off. And many of these are returning to regular payment schedules as their payments become due. Holiday balances for UK and U. S. Cards were just $120,000,000 $90,000,000 respectively at 30th September. We have 3% of the mortgage book still on payment hozi, but with an average LTV of just 63%. Turning now to wholesale coverage on selected sectors. We've shown here the breakdown of our wholesale exposure by type plus the exposure to these sectors to those sectors, which we feel are particularly vulnerable to the downturn. The balance sheet exposure of the sectors of the selected sectors is $18,600,000,000 down $2,000,000,000 from 30th June and our overall coverage ratio across these sectors has increased from 2.3% to 4.2% over the 1st 9 months. As I highlighted at Q2, we have synthetic protection in place covering circa 25% of our exposure. This protection has been effective in reducing our wholesale impairment charges. For example, the 1st 9 months, it reduced our impairment charge by over CHF 300,000,000. As I've mentioned before, we've been happy to sacrifice some income in order to reduce the downside on credit risk in this way, which is one of the reasons our corporate lending income line remains lower than it otherwise be. Turning now to the performance of the individual businesses. We mentioned in the first half some of the income headwinds the UK is facing and these are still reflected in Q3 performance with income down 16% year on year in line with consensus. Although we saw some recovery in spending in the quarter as I showed earlier, unsecured balances have not increased with interest earning card balances down 19% year on year. Mortgage balances on the other hand were up year on year and up CHF 1,200,000,000 on the 2nd quarter with an improvement in pricing. There was also further increase in BUK Business Banking Lending as bounced back loans and CBILS reached circa €10,000,000,000 in aggregate. Overall loan balances grew by CHF 2,000,000,000 in the quarter to CHF 204,000,000,000 Deposit balances grew further in the quarter, resulting in a loan to deposit ratio of 91 percent. NIM was up slightly at 2 51 basis points and we expect a similar level in Q4 in line with our previous guidance. Costs increased 15% year on year as COVID related costs more than offset efficiency savings. That included circa €30,000,000 of quarterly costs in our partner finance business, which was transferred from Barclays International earlier in the year. Impairment for the quarter was EUR 233,000,000 up year on year, but well below the EUR583,000,000 in Q2. As I noted earlier, arrears rates at 30th September do not yet reflect the economic downturn. Turning now to Barclays International. The BI businesses delivered an RoTE of 10.5% for the quarter, up slightly year on year with income and costs and impairment all broadly flat. I'll go into more detail on the businesses in the next two slides. CIB delivered an RoTE of 9.5% in Q3, up slightly year on year with another strong performance in markets more than offset the increased impairment provision. Income was up 11% at CHF 2,900,000,000 on a flat cost base delivering strong positive jaws. Markets income increased 29% in sterling resulting in the best ever Q3 on a comparable basis and up 38% in dollars. FIC increased 23% with a particularly strong performance in credit reflecting wider spreads. Equities had its best ever quarter in sterling increasing 40% driven by key derivatives with high levels of client activity and volatility. Banking fees decreased 11%. Strong performances in Debt and Equity Capital Markets were more than offset by lower fee income in advisory, which was impacted by reduced fee pull and a strong Q3 2019 comparator. Corporate lending income wasn't affected as significantly as in previous quarters by mark to moves in loan hedges and leverage loan marks. The reported income of €232,000,000 did include some net benefit from these items this quarter. Costs were flat resulting in a cost income ratio of 59%. Impairment increased year on year to €187,000,000 but was below the Q1 and Q2 charges. RWAs reduced by further €5,000,000,000 in the quarter to €193,000,000,000 lower gain than anticipated. I'll come back to that when I talk about capital progression. Turning now to consumer cards and payments. Income in CCP was down 23 addition to In addition to affecting balances, lower consumer spend volumes were also a headwind for interchange in cards and payments income. As mentioned earlier, we have seen some recovery in spending in Q3 benefiting those income lines. The decline in card balances did stabilize towards the end of the quarter, but it's too early to guide on the quantum of potential balance growth over the coming quarter. Costs were down 10%, resulting in a 58% costincome ratio. Impairment was $183,000,000 well down on previous quarters, reflecting lower balances with arrears rates slightly lower in the quarter. Turning now to head office. The head office loss before tax was CHF 191,000,000 up year on year, but down significantly quarter on quarter. The negative income of €127,000,000 reflects the main elements I've referenced before, legacy funding costs, residual negative treasury items and negative income from hedge accounting and those elements are expected to continue in Q4. And in Q2, costs of around €69,000,000 were a little above the usual run rate of around €50,000,000 due to the inclusion of a further portion of the community program of €100,000,000 we announced at Q1. Moving on to capital. We began the quarter at a CET1 ratio of 14.2% and the ratio increased strongly to 14.6%. This reflected capital generation from profits and a further reduction in RWAs. Profits net of impairment contributed 26 basis points to the ratio. IFRS nine transitional relief didn't move significantly this quarter as the bulk of the impairment charge was not eligible first I'll go into more detail on the RWA bridge. But first I'll go into more detail on the RWA bridge. Here we've analyzed the €8,300,000,000 decrease in RWAs. As in Q2, anticipated pro cyclical impacts in the quarter were limited with a €3,300,000,000 increase in credit risk RWAs from asset quality deterioration. This increase was more than offset by the CHF 7,400,000,000 of decreases in credit risk RWAs. This reduction reflected a CHF 3,900,000,000 decrease due to book size, including further net repayments of revolving credit facilities and lower retail lending, of government schemes and also GBP 3,500,000,000 of regulatory tailwinds including the SME support factor. Counterparty and market RWA movements were less material and FX decreased RWAs in sterling terms, but also reduced the CET1 numerator. Our plans for running the businesses assume some procyclical effects on RWA still materialize at some point, although this may come in 2021 rather than Q4. Other headwind I would highlight is the effect on capital the other headwind I would highlight is the effect on the capital numerator of impairment on defaulting balances as the charges are not eligible for the transitional relief introduced in Q2. Looking at the next slide at our capital requirement. We've shown here a reminder of our current capital requirement and how it is reduced to reflect the removal of the countercyclical buffer in Q1 and the reduction in Pillar 2A in Q2. As a result, our MDA has reduced to 11.3% since the start of the year, So our Q3 ratio of 14.6% represents a very comfortable buffer over the MDA level despite the future uncertainties. With regards to headroom, our capital ratio has been strengthened over recent years to put us in a position to absorb precisely the type of stress we are now experiencing. In this uncertain environment, we will manage our capital ratio through this stress to enable us to support customers, while maintaining an appropriate buffer above the MDA. As I emphasized at Q2, the buffer that we consider to be appropriate will evolve over time in regard to the expected flight path of both our ratio and our capital requirement. We believe we are generating surplus capital and both we and our peers will be discussing this with the regulator in the course of Q4 as the PRA has indicated. In summary, we're carrying a significant capital above our regulatory threshold and would be comfortable for our CET1 ratio to reduce over the coming quarters, but it's too early to give definitive guidance on the flight path. Finally, a slide about our liquidity and funding. You can see here some of the key metrics showing we are well positioned to withstand the stresses that are developing and to support our customers. So to recap, we were profitable again in Q3, generating a 5.5% RoTE despite the continuing effects of the COVID pandemic. Although some income headwinds across the consumer businesses are expected to continue in 2021, we are seeing gradual improvement from the Q2 levels. We continue to see the benefits of our diversified business model coming through with income growth in the CIB again in Q3 and our franchise is well positioned for the future. Cost efficiency is a key focus going forward given the low interest rate environment we are facing. The pandemic has increased costs in certain areas, but it's also changing some of the ways we work and we expect this to be we expect this to result in opportunities for further efficiencies in the future. This taken very significant impairment charges in Q1 and Q2, but a much lower charge in Q3. Our funding and liquidity remained strong and put us in a good position to support our customers and clients during this difficult period. Although we may see further headwinds in Q4 and into 2021, our strong CET1 ratio of 14.6% puts us in a good position. While I won't comment further on the timing of future capital distributions at this stage, the Board firmly recognizes the importance of capital returns to shareholders and will decide on dividends and capital returns policy at the end of the year. So we'll update you then. Thank you. And we'll now take your questions. And as usual, I'd ask that you limit yourself to 2 per person, so we get a chance to get around to everyone. The first question comes from Jonathan Pierce of Numis. Please go ahead, Jonathan. Hello, there. Hi, Jonathan. Hi, Jonathan. Hello. I've got two questions, please. The first is just a broad one on impairments. Just trying to get a better sense as to what you are thinking into next year, accepting still considerable uncertainties. I mean, is your thinking at the moment the way this will work next year, we'll continue to have a sort of normal underlying charge of £600,000,000 to £800,000,000 that we've been seeing in the last few quarters. But any increase over and above that, as things genuinely deteriorate, will be covered in the reserve by the reserve releases that you built in the first half of this year, assuming the models are correct, of course. So therefore, I don't know, are you kind of thinking that next year the impairment charge will be something in the order of GBP 3,000,000,000 Just trying to get a better handle on what you're thinking about next year in terms of impairment. The second question is away from these results actually. It's more about these 2 10% bonds that you've got maturing in the middle of next year. The loss of £3,000,000,000 across the 2,000,000,000 I think. So it's quite a significant interest expense that's not, as I understand, it being taken in the head office. Those were issued 12 maybe 12 years ago now. Are they still hedged from a rate perspective? Or are we actually talking about gross £300,000,000 drop in interest expense in the middle of next year when those bonds get redeemed? Thanks very much. Yes. Thanks, Jonathan. Why don't I take both of them? In terms of is my line clear? Is that I mean yes, sorry. In terms of the impairment, the way I think about it is the sort of the building blocks that you're very familiar with. You'll have your own views on the sort of economic environment that we find ourselves in next year. If it's consistent with our current forecast, then we wouldn't expect any sort of material change in terms of book up or release necessarily. So that's one thing, and you'll have your own views on that. The second thing is just so assuming that the economic forecast play out as we've got forecast, you're right to sort of say that the book up that we have ought to be digested over the course of next year. The slight complexity is that this is an expected loss that we've taken. So there'll be some names that both on the consumer side and the wholesale side that will default and some names that will cure. If that all happens at exactly the same time, then you'd have a very smooth sort of impairment profile back in the words you described sort of your typical underlying level. Chances are though that it probably won't be quite that smooth. You'll probably have defaults happening at a quicker pace than you normally have cures. And that's just us probably being conservative in holding on to credits rather than curing them so quickly. Having said that, if you look over a sort of a multi quarter period, maybe 4 quarters or something like that, then I think the book up ought to be digested and there have been sort of no net effect over the year. But during the course of the year, it may be a little bit lumpy. The other thing that, that can sometimes get accentuated is if there's any tall trees on the corporate credit side in wholesale. Those are unlike consumers, where you've got millions and millions of consumers. So the sort of statistics around them work well with corporate credits. There's just a fewer number. You sometimes get the odd timing mismatches as tall trees default, but the large number of corporate credits don't necessarily cure quickly. Away from the results, your second question on the expensive legacy debt. Yes, no, you're right to point that out. They are expected they are expenses, and we're looking forward to no longer having them, sort of remnants of yesteryear. We do hedge the interest rate risk, but some of this will get refinanced. Of course, we've talked about how much MREL we sort of net issue over the course of the year. And in terms of the interest rate hedging, Jonathan, we do tend to manage this on a portfolio basis. So I wouldn't necessarily just sort of just think about it on a security by security basis. I'll just caution in terms of sort of overstating, if you like, the tailwind from necessarily those securities dropping off. But it is of course, it is a tailwind. I just wouldn't want you to overstate it. Okay, great. Thanks very much. Thank you. Could we have the next question please, operator? The next question comes from Joseph Dickerson of Jefferies. Your line is now open. Hi, good morning. Thank you for taking my question. Very solid quarter there. I just have a question on the CET1 glide path into next year. Could you kind of quantify a range that you have in your mind that you're budgeting for some of the regulatory headwind in terms of basis points? And then could you also opine upon the buffer to MDA? So we've had this CP-seventeen twenty out on this Tuesday looking into the usability of buffers and also the point of holding excessive management buffers. And you're currently 3.30 basis points over your MDA. So I guess some view on how that plays in as well to the capital that you'll want to hold versus distribute? Yes. Thanks, Joe. Why don't I take both of them? So the slight path into next year, look, it's hard to give you a sort of a basis point number on headwinds, but there are some sort of things that everyone ought to be aware of. And hopefully, we've trailed them well, but just call a couple of them out again. We had a PVA benefit, a technical benefit that was introduced this year under the rule book that will go away in Q1 next year. So you probably want to see that as a headwind into Q1. I would remind folks on IFRS 9. You've really got sort of 2 things going on in IFRS 9. You've got the original transition relief. We're going to step into sort of the next year, so a step down in that sort of first portion of transition relief and then the second portion of transition relief as names, as we talked about on the earlier question from Jonathan, migrate from Stage 2 into Stage 3. There'll be a capital effect then. The other I think the gist of your question is also on the credit side particularly. We probably haven't had quite as much procyclicality as we anticipated. We saw another sort of €3,000,000,000 or so in Q3. And we've taken a bunch of management actions in anticipation of that, which has been more than offsetting that. I still think there's probably more headwinds to come. These will be sort of default grade downwards sort of shifts and similar type items on the counterparty credit side and on the traditional credit side, but sort of pretty hard to give a number on. We've had some natural kind of tailwinds against that. For example, the flowback of revolving credit facilities. I think we're probably largely done with that actually. Our draws are now sort of back to pre COVID levels or even a touch better. I think the capital markets have been so strong. So that's why I sort of said that we've had a very strong sort of run-in capital. I'll just be a little bit careful people don't over extrapolate that. The other thing I'd say, Joe, is and for everyone else out there, I mean, we do typically go back in capital in Q1. That's something we do most years and are very comfortable doing. That tends to be the most profitable quarter of the year. So we do like for capital to work then. But when I sort of look at that all in the mix, I still think we're going to be a reasonably capital generative institution. Some of those headwinds that we will experience next year, if we really think we're in a recovery year, certainly, most people expect some form of growth and tempering of unemployment, then we ought to be reasonably profitable. And so, of course, that's sort of the balancing act here. You've got some perhaps tailwinds to capital when profitability is hard to come by. You've got some headwinds and they'll be swapped with a better sort of a profit run into next year. So we are confident of our capital generation, but just caution folks not to over extrapolate. In terms of buffer to MDA, yes, I won't give, again, a precise sort of number or what's the sort of buffer to MDA we'd be comfortable with in any one particular quarter. All I would say is that it will vary over time. And you've seen that this year, of course. We would always want to run a comfortable buffer above MDA. We talked about it in our scripted remarks. We do think distributions to shareholders are important and you need to have a sort of a comfortable buffer above MDA to allow you to do that. So that is something that's important to us. The consultation paper you referred to, I think it's a bit too early to comment as to whether that's going to really change our thinking about capital levels. I think, to be honest, we're in the midst of the COVID-nineteen sort of situation at the moment. I think when we get to the other side of that, we have a better sense of where the land lays and probably after Brexit as well. The PRA may make some other sort of comments on what they expect U. K. Banks to do in a sort of post Brexit environment where they're more in charge of the rule book. I think that will be the right time to be talking more directly about that. Understood. Thanks for your question, Joe. Thanks. Can we have the next question please, operator? The next question on the line comes from Alvaro Serrano of Morgan Stanley. Please go ahead, Alvaro. Good morning. Thank you for taking my questions. 2 for me. One on the you mentioned still revenue headwinds in BUK. Can you help us with sort of the headwinds you see, obviously, still from the structural hedge, help us quantify that versus presumably the tailwinds that come from mortgage volumes and mortgage pricing, how that's at play and help us quantify maybe what the headwind or get our head around what the headwind might be there? And the second question on costs. Again, you said you're evaluating cost initiatives. I'm thinking Extremely Investment Bank, which is, for me at least, it's easier to get my head around. But if I think about the U. K. Or the U. S. Business, CC and P, can you help us talk us through how much would be infrastructure or give some color versus headcount reduction because you now don't need the distribution network, you might need pre COVID. So maybe I don't know if you can quantify at this stage, but at least headcount versus structural sort of network and things like that. Can you comment on that, please? Thank you. Yes. Thanks, Alvaro. Why don't I take the first one and Jeff can talk about our how we're thinking about costs. On the revenue sort of headwinds, tailwinds for the U. K. Business, yes, I mean, in terms of on the headwind side, I would remind people that the structural hedges, this is people have their own view on what the rate environment is. But if it's as we have it at the moment, our sort of fixed receipt swaps will grind into lower fixed levels. That's a headwind, and you can see how sort of swap rates have come down over the course of, say, the last 12 months or something like that. And we sort of called out some numbers on the slide where that I think you've already got there, Alvaro. So I think that is one headwind. That also has a sort of an effect for NIM as well. So there'll be a dilutive effect as the fixed receipts earn less. I think another thing in terms of headwind, I'll say for NIM, but as an income matter as well on a year on year comparison as well. We haven't really seen our unsecured balances. We're seeing them stabilize, but we haven't seen them grow. It's going to take some time for them to grow. I think, 1st and foremost, on the very positive side, we've seen consumers deleverage quite well. So they're anticipating tough times and that's really positive and you hopefully see that come through impairment. On the second thing, you can see our deposit levels are super strong as well. I mean, at Barclays, it's a striking number. We have almost £500,000,000,000 of deposits now at Barclays. I mean, it just shows how powerful savings sort of rates have been across consumers and corporations. So that will lessen you would expect the need for revolving credit. So that will be a headwind to into next year as well. Now on the flip side, you did point out mortgages. I think that is a bright spot. Application levels are running at pretty robust levels, somewhat probably fueled by the stamp duty relief. And pricing has stayed pretty competitive. I guess the only challenge though with mortgages, it's sort of you will get the net interest income benefit, but it comes through a little bit later. So I would say for NIM as well, of course, if you're growing your secured book relative to the size of your unsecured book, then that's a headwind for reported NIM. So just on the math of all of this, you can see that there's downward pressure on NIM going into next year, but mortgage looks like a pretty decent bright spot. And, Kees, do you want to talk about costs? Yes. Let me thanks for the question. Let me start by saying, we as a management team, we put restructuring this bank behind us over a year ago. And when we think about taking the bank forward, what we want to look for is growth. And I think in the midst of this terrible pandemic that we're generating profits every quarter, hitting the highest levels of capital, being very liquid, significant impairment reserves. This is when you look to invest in the business and that's what we're doing. If you look at the IB, we have one of the lowest cost income ratios in the industry. And given that we've taken our market share in the markets business from 3.5% to 5%, we want to continue to invest there. So I wouldn't look at performance in the IB around reducing costs because I think costs are quite low versus our revenues, but can we continue to drive revenue growth there? To the CCP, we flipped back in the Q3 to roughly a 15% return on tangible equity in that business. Payment volumes were up some 30% versus the Q2. In our U. S. Card business, we've announced 2 really good co brand partnerships, 1 with AARP, which for those elderly people who live in the United States, it's quite a program. And then the Emirates Airlines, one of the biggest international carriers. And when people start flying again, that should hopefully be a good co brand card for us as well. So we've got a good level of profitability there and it's another business that we'd want to invest in. The challenge is in BUK. We have the headwinds of close to 0 interest rates in the UK. We have the fact that a lot of banking services are delivered for free in the UK. So there will be some pressure. We've been very focused, however, on dealing with our consumers and small business clients in the UK and our employees to deal with all of them in the face of the pandemic. So we announced early on a 6 month break from any redundancies in terms of FTEs. We thought that, that was the appropriate thing to do. We have done some modest branch closings that have been in line with our program set out before COVID-nineteen. It's really reflecting the fact that as you sort of point out, our customers are increasingly going digital and where branches aren't really being used, it doesn't make a lot of sense to maintain them. But it's at a modest pace, and we recognize the importance, particularly when we're the last branch in a town to deal appropriately with that. With 55,000 people working from home, I think every business, and I'm sure yours, is looking at one's future real estate program. But we really don't know, I don't think yet, what all of this means. It's going to take a while to really address the outcome of having 2 thirds of our staff working from their home kitchen tables. There is some tech spend, which I think we can focus on. We've been trying to get much more productivity on our tech spend before. So we'll keep an eye on the costs in the U. K. I think there's not going to be any there's no need for any major restructuring. But given the profitability challenges I think we'll have for a little we will be focusing on that. And but I wouldn't expect any grand statement from us. Thank you. Thanks so far. The next question comes from Rohit Chandrabarzhan of Bank of America. Your line is now open. Hi, thank you. Good morning. I was wondering if I could just follow-up on the revenue outlook for the consumer businesses. So firstly, just in terms of that mortgage repricing, is it sort of reasonable to think, given that we've had already a couple of quarters of much better new mortgage spreads, that it's probably the middle of next year by the time the proportion of the book on those better spreads starts to support the margin in BUK? And then secondly, I guess just differentiating, I suppose, between the credit card evolution in the U. S. And the U. K, particularly the so number 1 on that, could you talk a little bit about the trends that you saw through Q3 and the 1st month of Q4, 1st 3 weeks of Q4? And then how you see how you compare the output between the 2? So Jess just mentioned the co branding deals that you've done in the U. S. So when do they come online? And how would you compare the outlook for the U. S. And the U. K. Cards businesses, please? Yes. Thanks, Roy. Why don't I cover them? In terms of mortgages and sort of how that flows into net interest in sort of margin upward pressure. So on the positive side, the churn rate is actually positive now. So we've been in the past where we've been sort of cannibalizing our margin as the back book sort of matures into front book. It's actually positive now. And it's actually meaningfully positive. It's about as wide as I've seen in recent times. So that's positive. The only reason I would sort of just caution people to not get a bit too sort of ahead of themselves on this is, if we originate in any typical year, and I'll give you really broad numbers, somewhere €5,000,000,000 to €10,000,000,000 of net mortgages in a typical year, We've got a mortgage book of about $140,000,000,000 So it takes a bit of time for that sort of churn, that grind to sort of really have upward pressure on NIM. At the same time, if the card book actually declines, let alone sort of flat lines. And of course, you've got some quite significant downward pressure because that's so much a higher margin. So I think the spirit of your point is right, Rohit, but it does take a bit of time. I think in terms of your time line, will it sort of have net positive pressure on NIM the back end of next year? Maybe, it feels a bit early to me. I think it takes quite a bit of time for it to churn through, just the law of numbers there really. In terms of Just trying to Yes. Can I go ahead and ask on that, Tushar? So you talked about a net number that's €5,000,000,000 to €10,000,000,000 a year. But actually, there's a lot of the book that will be refinancing. It's not a net number. It's just a refinancing of old balances. Is that not more positive than the sort of picture you just painted? Yes, it is. But again, you've got to just look at the relative size. So when I'm talking about the churn margin being wide, you got to remember how much are we making on a card business. I mean, it's a fraction of that. And secondly and second, so there's that sort of the massive downward pressure from the card business and there's some upward pressure. And again, the size, I think if you're sort of printing net somewhere at €5,000,000,000 to €10,000,000,000 maybe you've got €20,000,000,000 of growth and I'm giving you very round numbers. It will vary year on year. So yes, yes, you're right. That's a very good point. It's going to be a little bit more sort of powerful because the gross numbers are larger. But still, given the churn margin is positive, but it's nothing like as wide as the credit card margin of staying the other way. So it just takes a bit of time. Sorry, I was going on to credit cards and the evolution there. A similar story in many ways. We saw card balances decline a lot and then plateau. We're still seeing that plateauing effect. I think it will take some time for both balances to recover. I think in the UK, we haven't really hit peak unemployment yet, so we've probably got to go through that. We've got a lot of cash on our balance sheets and still government support schemes going on. So I think the desire for revolving credit is going to take a little bit of time to come through. On the U. S, we're probably through peak unemployment, we think. We've got the Thanksgiving and Christmas period, which is a little bit more constructive. The challenge for us is, of course, our partnership cards are probably overweight in the travel, leisure, entertainment sort of sector. So we're working very hard to ensure that spending on that card is something that is desirable for those cardholders. AIRP, the one that Jess mentioned, will close next year. And Emirates will be a book that will take a bit of time to grow that, of course, given travel at the moment is relatively muted. But I think we feel constructive, but in the medium term rather than sort of very near term, I'd say, is how I'd characterize it. And one thing I would just add saying that for a second is something that we are investing in quite heavily on the technology front is point of sale financing. And I think the growth that installment lending is going to have relative to the credit card portfolio. So for instance, we've launched a new app in our German business where we're the largest credit card underwriter there, where when you make a purchase with your Barclays credit card in Germany, you get the option of using your revolving line of credit or you can pay over 6, 10, 12 months at fixed installment numbers. And the truth is Germans tend to borrow in installments more than from credit cards. And I think you'll see over time an evolution of point of sale financing as a partner to what we do in the credit card business across our platform. Thanks, Arad. Thank you very much. Yes, could we have the next question please, operator? Your next question comes from Jason Napier of UBS. Your line is now open. Good morning. Thank you for taking my question. Can you hear me okay? Yes, yes, fine. Super. Thank you. So the first question, Des, this is to come back on the questions we've had already around the outlook for restructuring and costs. Just one of the things I guess we've seen in previous crises is businesses find it quite difficult to invest as much as they would like during downturns. And I guess with distributed working as it is, there might be a risk that you come into 2021 with some catch up to do. Consensus currently has costs down year on year next year, presumably linked to softer expectations aggregate in 2021 will decline? That will be the first question. And then secondly, and I think some of the questions we've already had around what looked like very good margins in mortgages compared with where they've been. I guess, if you look at the overall returns in the UK, I guess the issue is not that liability spreads are low. It's that once you take into account all the costs of gathering those liabilities, the $500,000,000,000 in deposits that you have, that they might be non existent and that actually credit spreads might need to be even wider if you're going to return to above cost of equity returns there. I wonder whether you talk about where you see product level returns on the credit side, please? Are you comfortable that flow pricing is adequate in the main to get you to that above 10% RoTE that you've re endorsed today? Thank you. Yes. Thanks. Go ahead. I'll start and I'll pass it to Tushar for the tougher part of the question. Again, one of the advantages, I hope, where the bank finds itself today versus where it's been in previous situations is the face of the COVID-nineteen pandemic and a very tough economic environment that we grow our capital base the way we've done, that we build the equity buffer the way that we've done, that we generate the profitability that we levered our managers. We don't have to sit back as a management team and say, okay, do we need to do a major restructuring? We don't. Now obviously, you always want to be running efficiently as you can. To your specific question about the CIB, something that we've been saying and we demonstrated amply, I think, last year, one of the characteristics of an investment bank is you know you have variable revenues, but you also have variable compensation, which about which allows you to calibrate your cost to your revenues. And I think you've seen us do that over the last 3 to 4 years. So and then you do have to appreciate that a lot of the costs we have this year are to make sure this bank is functioning properly, given the pandemic. We've had to go into 35,000 homes and install routers and broadband connections almost every day with full sanitizing, almost every day with full sanitizing and solutions to make sure that our employees in those branches are safe and the customers walking into those branches are safe. Flipside, we're saving money because not everyone's flying on jets all the time. But so I think there's some room to always invest our money more prudently, but I think it's more investing wisely as opposed to looking at any sort of big cost overhaul. Yes. I think yes, exactly. It's very much as Jeff said. I think to follow on from Jeff's point on costs to help sort of as you think through for the next year's costs. Our exit rate this year is probably not where we would have preferred to have it. We were quite public in putting a moratorium on headcount reductions over the course of the last 6 months or so. And we've got no grandiose plans to announce anything around there either given that we may be going into further lockdowns and what have you. So our headcount numbers are probably higher than we would have expected it to be. We're incurring, as Jess mentioned, a whole bunch of operational costs just to keep our businesses functioning in difficult times. So we probably do have a sort of an elevated, if you like, exit rate than we would ideally have. And as Jes mentioned, the restructuring that we sort of highlight, it's really just kind of we've learned a lot through the pandemic as well. As Jeff mentioned, there's different ways of working that we didn't think were possible. We're examining them, evaluating them as I'm sure every company and financial institution is. I think that ultimately will result in a much more efficient cost base for ourselves. But we want to be sort of careful and deliberate around any decisions we make around the utilization of, say, for example, real estate, etcetera. So we'll keep you posted as we make those decisions. On the UK product level margin, certainly mortgages at the moment, for example, pretty healthy returns even with the changes in risk weights that are coming down the pipes from the PRA, I think returns on front book mortgages, very healthy. COGS, you know about, mostly it's a very healthy returning business as well. So I'm not as concerned on, if you like, asset side margin. One thing is just can we generate enough assets just given the liquidity that we've got. You can see our loan to deposit ratio is continuing to decline in Barclays U. K. It's almost at 90% now. So probably it's going to be sort of hard yards until the balance sheet starts sort of growing meaningfully again. But I'd say the margin on our balance sheet, certainly for front book business, is definitely looking attractive, if that helps, Jason. Thanks very much. Thank you. Can we have the next question please, operator? We have a question from Guy Stebbings of Exane BNP Paribas. Please go ahead. Good morning, everyone. Thanks for taking the questions. Firstly, can I just come back to the U? K. Costs specifically and check if there's anything in the Q3 that was particularly lumpy that should disappear? I know you referenced the principal finance transfer and the elevated servicing costs, but these are presumably here to stay somewhat. I mean, it's clearly a division we're seeing quite a lot of top line pressure, but also quite a lot of pressure to the cost base. And I'm conscious that consensus for next year, excluding the levy, is below €4,000,000,000 versus a run rate this year of €4,200,000,000 So I'm just wondering if it's reasonable to think you can take necessary actions to bridge that gap or if the elevated exit rate you referenced might make that quite challenging? And then the second question is just on your disclosure on rate sensitivity on Slide 36, which I'm struggling a little bit conceptually with. I would have assumed that as we go to negative rates, the impact of the reduction in base rate becomes proportionally more impactful, if you like. But if I'm reading the slide correctly, it looks like at least by year 2, year 3 that actually the next 15 basis points as you go negative to capture a negative 25 basis points is proportionately slightly less painful than the first 10 basis points. So I'm just wondering if I'm interpreting that slide correctly and if that is how you would expect to work through in practice. Yes. No, thanks, Guy. Let me start with the U. K. Costs and just take the questions in the order in which you gave them. Yes, I mean, a lot of the exit rate sort of pressures that I mentioned are some of them are definitely in the UK. So that's something we will have to deal with and digest as we go through NextGen. In terms of any one off items in the Q3, not really, not that we'd call out. We called out the partner finance. That's probably, I think, for where our costs were slightly above most expectations. Half of that was probably driven by the partner finance sort of geography shift, if you like. And there was a little bit of sort of it it will ebb and flow quarter by quarter. But there's a little bit of that in there. That's probably why most people's estimates were at a touch lower than we were. So I won't comment on next year's consensus for BUK costs, but you've got some of the building blocks there at least to sort of do your own modeling on that. The rate sensitivity, this one's slightly more to Q1. We put it out there because obviously it's of interest and many banks do put it out there. The challenge is, of course, it's a minus 25 basis point parallel shift. Unfortunately, it's almost precisely what happened. I mean, who knows what curve shape will happen. But it will have a different effect if short rates are negative and long rates are positive. It will have a different effect if short rates are negative and long rates are further negative, sort of downward sloping, deeply negative curve. And then the other thing, of course, is on the liability side. Our Everyday Saver account, which is our sort of most popular deposit product, I think we pay a basis point of interest at the moment. So we're not assuming a significant capacity to reprice. And so I'd just caution people to not perhaps use that as it gives you some information that it's definitely going to be painful if we go into a negative rate environment when both long rates and short rates are negative. But in terms of just be a little bit careful as it's parallel shifts and we're making some very broad assumptions, none of which we know may or be so it's very hard to know. For example, we don't really know what central bank policies will be around negative rates. Will there be tiering? Will there be other forms of TLTRO and TFS schemes that will be different. So all of that stuff is very much unknown. Final thing I'd say to Sky, which we did have on an earlier slide, I'll just remind people that one of the benefits of diversification is that we're probably less exposed to U. K. NIM than some other of our peers. We've got on a slide of 37% But our top line is net interest income. So you can see that the twothree of the business is away from net interest income. So that gives us a little protection as well. Thanks for your question, Clive. Thank you very much. Could we have the next question please, operator? The next question comes from Chris Can't of Autonomous. Please go ahead, Chris. Good morning. Thank you for taking my questions. 2, please. First, a quick one on tax. The effective tax rate this year is 18% so far. Could you just remind us what your current guidance is on the group effective tax rate? And also how that might change if Joe Biden wins the U. S. Election and brings in a 28% U. S. Tax rate? And then on cost, I'm a little bit confused about the sort of tension between the RNS flagging potential restructuring charges above and beyond your cost guidance on the one hand and on the other saying you wouldn't expect any grand statement on cost and no big cost overhaul. Jez, you remarked that the CIB is running with an industry low costincome ratio. I don't know whether I'm misinterpreting that, but it seems to indicate upwards pressure on costs next year, and you talked about the need to try to grow around that. Is that correct? We'd be expecting CIB costs to rise next year? Obviously, you've had a stellar year this year in terms of the cost income. Let me take the last question. I because I think the cost income ratio for the CIB shouldn't really move that much. I mean, obviously, they've had a very strong year. And like other banks have said, we don't really see a linear correlation between variable compensation and variable revenues. It's more nuanced than that. So unless there was a significant change in revenue forecast, I wouldn't expect any significant change on the cost side. Not too sure. Yes. And the tension about we just want to we're doing a lot of thinking, a lot of examining on things that we can do to make ourselves more efficient, but we want to be very deliberate and careful before we come to any sort of final decisions around this. The kind of the danger is you sort of extrapolate from today into sort of way out in the future and start changing your the way you work until you fully really understand on the other side of this particular sort of medical situation what's the right way to be running the company. But it is something that I think will lead to efficiencies and will lead to benefits. And really, that's all we're alluding to, but we haven't completed that work. And when we do that, we'll certainly update you. Just on the other question, Chris, we're guiding to 20% effective tax rate, that's excluding litigation and conduct as we've done in the past for this year. In terms of U. S. Tax rises, yes, look, we'll see I mean, that's speculating on elections and all that, it's way beyond my skill set. But if tax rises do happen in the U. S. Or anywhere else for that matter, that will have a fairly straightforward effect on us. The only thing I would say is you have this sort of slightly peculiar effect where it will have a beneficial effect on the value of our deferred tax assets. So you'd have a balance sheet sort of asset that you create. As you know, the accounting wise, that will go through your tax line at the point at which that happens. But then you'd have a negative if you're having a higher effective tax rate along the back of it. So yes. The next question comes from Ed Firth of KBW. Please go ahead, Ed. Yes, morning, everybody. Again, just I guess 2 detailed questions. Number 1 on the restructuring charges. Can we just be clear then? So if you have restructuring charges at the full year, are you saying you'll absorb that within your cost target? Because I guess that's a message I'm getting from your No. Just to be very clear, we will be broadly flat year on year on cost. Where we could do any specific restructuring, we would call that out separately away from the 13.6 percent broad guidance that we've given. Okay, great. And then the second one was in terms of just the NIM. It's overdraft fees. I can't remember. Did you have them in the NII? I thought you did. So shouldn't we see those come back in Q4? That was just one detail point. And then Yes. Go on. Keep going. And then so yes, and I guess, yes, the other point was whatever the interest rate sensitivity works out, whenever you've shown it to us in the past, it's always been around sort of 2 thirds is in year 1, and then it sort of grows up to the full amount by year 3 or so. For the 65 basis point cut we had in the first half, is that all the sort of projection we would expect? So sort of this year, about twothree of the impact, and then we should expect that to grind on over the next 2 years? Or is it has it worked differently in reality this time? So just how that works through? Yes. On the overdraft net interest income, yes, I mean, it will come back, of course, a little bit like revolving credit balances. We've had less utilization of overdrafts, all for the same reasons as people are less using credit cards, more cash in their balance sheet and a lot of sort of government schemes that have been very supportive. So yes, I'll come back, but we won't come back at anything like the same level we had previously. In terms of the grinding effect of lower rates, yes, I mean this I think that's reasonable. The thing that takes sort of the effects you've got is you've got assets that reprice relatively quickly, if not instantaneously. This time around, there's a delay effect in re pricing liabilities, which you know about because the FCA rules on having to notify deposit holders before we change their rate. And then you've got the grinding down effect of the structural hedges. And that grinding down effect is it really depends on kind of where swap rates are at the point at which they refinance. So if you sort of have the kind of what we're seeing at the moment, a relatively sharp decline in long rates and short rates together, so pretty much both are at the 0 bound. You'll continue to see how that grinding affecting your structural hedges over the next 2 or 3 years in effect. If curves start steepening partway through that, then obviously, it will be sort of it will stop having that grinding effect at some point. So but yes, those are the dynamics. So it's a structural hedge rolling off rather than anything to do with pricing in the balance sheet? Yes, yes, that's right. Yes. And someone asked a question earlier on, if you've got gross mortgage refinancing, I know there's some tailwinds that we're seeing at the moment. But yes, it's so difficult to predict because it's so much driven by what's the long term outlook for mortgage pricing and what's the long term outlook for swap rates. So it's really hard to give precise guidance. You'll have your own views on that. Okay. Very helpful. Thanks. Thanks, Ed. Could we have the next question please, operator? The next question comes from Martin Leitgeb of Goldman Sachs. Please go ahead. Yes, good morning. Could I follow-up on the question on negative rates? And I believe the Bank of England recently asked banks whether they're prepared for negative rates. I just wanted to ask you, is Barclays as of now prepared to implement such negative rates? Or would it still take some time? Do you think the broader market is prepared? Or would it also take some time to be ready? And are there any other levers you would have outside of steering and outside what the Central Bank might offer to offset the negative impact from negative rates? Could there be a scenario where we could see actually mortgage pricing going up in order to try to offset some of the impact via higher asset yields? And my second question, just in terms of Brexit and the implication for Barclays' core ambition in a post Brexit world. And I think after the 2016 referendum, we're seeing Barclays losing market share in U. K. Cards. Could there be a scenario that you would try again to increase that market share in cars? Or all the way around, could there be a scenario where Barclays would see a larger Pan European base, a larger Pan European business as a beer in? Thank you. Yes. Thanks, Martin. I'll ask Jeff to cover some of your questions related to Brexit. On negative rates and operational readiness, we've had some experience in this already, obviously, with European rates already negative and Commercial Banking business, that's something sort of we used to. So operationally, we are ready where the rest of the industry is. I mean, I don't think that's I should be the person commenting on that. I'm sure everybody's doing what they need to do, but we're ready if necessary. Yes, I think that was really the in terms of pricing, maybe. I think, look, one of the bright spots has been mortgage margin has been very disciplined across the large lenders even if there's an abundance of liquidity out there. But I do think once you've got virtually no lever left on the liability side, I think most lenders will look at the asset side margin very closely to try and manage their NIM. So it's a fair point. Will it mean that lenders will be able to literally widen margins as rates go more negative? I think that's very hard to say. I mean these are all untested, and I think it really boils down to the precise situation you find yourself in. But Jes, do you want to comment on Brexit? Yes. And maybe just before I get to Brexit, I think there's a real question as to the impact ultimately of negative interest rates. I mean, we're already close to 0. And I think we have put the pedal down almost as hard as you can in terms of monetary policy to generate economic growth. And there's so many consequences that are sort of really missed not really known if you go into the negative rate territory. But it cannot be seen as a real sign of confidence in, I don't think, in economy if you're running with negative interest rates. So let's see, I think it's an instrument that they need to consider. But I think the Bank of England has shown the right degree of questions about whether you want to go there. Vis a vis Brexit, the cost revenue impact of Brexit has really been something that we've borne over the last 3 years. I mean, increasing our staff all across Europe to re managing all of our risk models, all of our systems to take care of greater flow, relicensing every branch across Europe to be a branch of our bank in Ireland as opposed to London. That's been a fairly significant expense to be able to run this bank in Europe 3 months from now as we were doing 3 months past from now. We are very committed to Europe. It's a very important market for us. Being awarded as one of the lead managers on this Eurobond issued by the European Union, which is part of a €100,000,000,000 program, very successfully priced €17,000,000,000 on Monday to all the corporate relationships we have across Europe. The corporate bank is very important market for us. We are clearer in euros. That business is very important and providing that opportunity to our corporate clients. So we are very much committed to our European franchise and we'll stay there. I've talked earlier on about our card business in Germany, which is very profitable and expanding the range of what we'll be doing there. So we've had to deal with the reregulation of the banking industry over the last 10 years and setting up a ring fenced bank in the U. K. Was extremely costly to do, dealing with our U. S. Business and the IHC and having to operate that was very costly. But I think what we've demonstrated is we will spend the money to maintain our business footprint in the areas which are strategic for us. And clearly, Europe is a very important strategic priority for the bank. Thanks, Martin. Why don't operator, we take 2 more questioners, and then we'll wrap it up then. So could we have the next question please, operator? The next question comes from Rob Noble of Deutsche Bank. Please go ahead, Rob. Good morning. Thanks for taking my questions. I just wanted to round off the kind of loan book discussion. Business Banking and Corporate Loan Growth has kind of been good in Q3, but slower. How much of it is on the government down to schemes? And when they end, does that bridge start running backwards? Or will it run backwards but onto a higher yield because there's no more government guarantees? And then secondly, just on the structural hedge. So it's only increased €7,000,000,000 but obviously, you have massive deposit inflows and you're very highly liquid. I just want to know what the strategy changed there. Are you not hedging all of the balances into you that you would normally hedge? Yes. Thanks, Rob. On the loan book, Business Banking, the numbers here are really quite stark. We've had, I think for our numbers, so it's getting approaching £10,000,000,000 now of bounce back loans. So in our small business bank, that is a few years of lending in terms of sort of overall production. So I don't think you'll have this, if you like, refinancing because they're quite long term now. Government's extended the term as well. So I don't think you'll have the refinancing of loans into higher rates. So yes, I'm not sure I sort of think about some sort of refinancing uptick. Your second question, you're a little bit hard to hear, Rob. Could you just mind repeating that? Sorry. It's just the structural hedge balance. It's increased almost €70,000,000,000 in the quarter, but you've taken in losses of deposits. I was just wondering if you're hedging all of the balances that you make normally. And obviously, your interest rate opportunities increased in the quarter. So I'm just wondering if there's any change in view of the strategy a little bit. Yes. I mean, yes, the line is not great, but I think I've got the gist of the question, Rob. We do look at the stickiness of the deposits coming in, and we've definitely had a dramatic inflow of deposits. We haven't sort of substantially resized the size of the structural hedge accordingly yet, but we will continue to reevaluate the stickiness and recalibrate as appropriate. It feels a bit early at the moment, I think, the deposit sort of inflow has been quite in recent times, only a couple of quarters' worth. So I think that's something we'll keep under review. Thanks for your question, Rob. Can we have that last question please, operator? Sure. The last question we have time for today comes from Kumar of Redburn. Please go ahead, Farhed. Hi, good morning. Thanks for taking the questions. Just a follow-up on BUK. I appreciate there are a lot of questions on it. But if I look at your 3Q exit rate and versus 2021 consents, it implies a 5% uptick. And if I put that in the context of Business Banking, which is basically back at pre COVID income levels, which feels unsustainable, but also your structural head, which is now annualizing at GBP 1,200,000,000 net of floating leg, which is on the average life would be a kind of GBP 200,000,000 drag a year. How should we think of the 2021 BUK number versus this 3Q exit rate? And then on the payment holidays, there's been a massive drop in Paymark Holdings. I think it's down 70%. And you only did the consumer balance this time of around, I think, dollars 17,000,000,000 down to 4,500,000,000 Last half, you gave €21,900,000,000 So there's €5,000,000,000 of non consumer balances on payment holidays. Glad this half, has the drop in those €5,000,000,000 of non consumer payment holidays been of the same magnitude of the consumer balances drops? And have the payoffs on those businesses? And when customers have come back on, have they paid as frequently and as well as the consumer ones have, which you gave in the presentation? Yes, Bart. Let me do them in the reverse order. In terms of payment holidays, it's been a pretty decent experience on both consumer side and away from the consumer side. I think you're probably referencing one of our slides that has the full roll down Slide 19 there. So have a look at that. But I think probably this may be touch wood, fingers crossed and said all the usual caveats, maybe the last time we talked about payment holidays. It's not really a credit issue for us, I think, at this stage, unless that will change, of course, but I think that's broadly behind us. In terms of top line for BUK, I won't give you a sort of direct comment on sort of consensus or how think about your modeling. But I think you've got the right building blocks there. You've got decent sort of business bank informancy. Some of that, of course, is very much driven by the bounce back loans and what have you. Mortgage growth is good. I don't think you'll see car balances recover much. Having said that, I don't think you'll see them decline either. I think it's just a waiting time. And hopefully, they do start recovering, but I think it will take a little bit of time. I do think you'll have the sort of grinding effect of structural hedges if the curve steepens. And it's sort of interesting how volatile the sterling curve has been in recent times. We've had some quite steepness and then it flattens off again. So that's a little bit hard one to know. But if it stays very, very low, there'll be a sort of a headwind sort of grinding down into that. And mortgages, I think, we've talked about with positive churn and net growth. I think that's probably it. Jeff, anything else you want to add? I just want to say, Fahd, it's good to hear that you're working successfully from home. So it ups and lifts all of our spirits. Okay. With that, thank you all very much. Look forward to speaking probably over the next week or so. Hope everyone stays well, but I'll end the call there. Thanks again.