Good morning, everyone. This was another resilient quarter of performance for Barclays. We balanced some headwinds in our U.K. consumer business with good performance coming from the corporate and investment bank. For the second quarter in a row, Barclays has generated a profit of over GBP 1 billion, and the bank delivered earnings per share of GBP 0.126 for the first half of 2019. Excluding litigation and conduct, profit before tax was GBP 1.6 billion in the quarter, and GBP 3.1 billion for the first half of the year. Our group return on tangible equity of 9.3% for the quarter is a further step towards meeting our 2019 ROTE target of greater than 9%. It's worth noting that we have now produced a group ROTE of over 9% in five of the last six quarters we have reported.
Turning to capital, our CET1 ratio increased by 40 basis points to 13.4%, demonstrating the strong capital generation achievable by the bank. In point of fact, if our operational Risk-Weighted Assets were accounted for more like our U.K. peers, then our CET1 ratio would have actually stood at roughly 14% today. Tangible Net Asset Value grew to GBP 2.75, representing the fifth quarter in a row of accretion in Barclays' book value. Our cost-to-income ratio rose a touch in the quarter to 63%, reflecting our commitment to invest in the growth of the bank. Management focus on cost control remains a high priority, however, We expect to see positive jaws across the group in the second half of the year and for the full year.
Accordingly, we have this morning affirmed that we now expect to reduce expenses to below GBP 13.6 billion for 2019, which was the bottom end of our guidance range for this year. Barclays UK produced an RoTE of 13.9% in the quarter, despite margin pressure. We continue to grow our mortgage and deposit balances with stable credit metrics. That said, we had a reduction in NIM from increased levels of consumers refinancing mortgages and lower interest earnings from a reduced U.K. card balances. We continue to invest in our digital capability. Online engagement with our U.K. customers is at an all-time high, with just under 8 million consumers now digitally active on the Barclays app. The Corporate & Investment Bank produced a 0.3% RoTE in the quarter.
Excluding the Tradeweb IPO gain, markets income overall was down 9% year on year on a USD basis, which was broadly in line with our U.S. peers. Within that, equities had a challenging quarter compared to a very strong comparable last year. However, we did see market outperformance in Fixed Income, Currencies, and Credit. Banking fees were down a little, reflecting a reduced fee pool in debt underwriting, which was partially offset by strong performance in advisory. Overall, though, in the half, we gained share in investment banking fees, and our global rank also improved, placing Barclays as the sixth highest earner in investment banking fees globally and the fifth highest in the U.S. Our corporate banking franchise had a decent quarter, with income up on the prior period as well as on Q2 of 2018.
We are maintaining a strong focus on improving returns in the Corporate Bank, with focused client-by-client plans to grow profitability. One mark of progress on this front is that the return on Risk-Weighted Assets in our Corporate Bank has improved meaningfully in the first half of 2019, with transaction revenues up some 15% year-over-year. Consumer, Cards & Payments continues to progress well, producing an RoTE of 18% for the quarter and 16.7% for the half year. We're happy with the prospects for this business, and we're pleased that in this quarter, we renewed a key U.S. card partnership with Wyndham Hotels & Resorts. Barclays' performance over the course of this year reinforces the confidence which the board and management feel in the capacity of this bank to generate sustained earnings. A key indicator of that confidence is in our announcement this morning regarding the ordinary dividend.
As you will have seen, we have declared a half-year dividend of GBP 0.03 per share. In normal circumstances, this would account for around a third of what we expect to pay in total in a given year. This represents a significant increase in distributions over last year, which I hope will be welcomed by our shareholders. As I said before, we want to continue to return a greater proportion of the excess capital that we generate to our investors. Barclays' capital returns policy of a progressive dividend and intention to supplement the ordinary dividend with additional cash returns, including share buybacks when appropriate, remains unchanged. Let me hand it over to Tushar, who'll walk you through the numbers in detail.
Thanks, Jes. As usual at half year, I'll begin with a slide on the results for the first six months and then focus my comments on Q2 performance and the half year balance sheet. We reported a profit before tax of GBP 3.1 billion for the first half, generating GBP 0.126 of earnings per share, excluding litigation and conduct. I'll exclude litigation and conduct charges in my commentary as usual, the gap to statutory profitability was limited with a statutory EPS of GBP 0.121. We'll be paying a half year dividend of GBP 0.03 per share in September, and we've indicated that our half year dividends are expected to be around one third of the full year total under normal circumstances. Group RoTE for the half was 9.4%, with double digit returns for both the UK and BI. The drag from head office does take us to below 10%.
As Jes mentioned, we continue to target an RoTE for the full year of over 90%, based on a 13% CET1 ratio. The first half represents a good base for this, but there is work to be done in the second half. The income environment was challenging and reported income down 1% for the half. Costs were up 1% year-on-year, but we expect positive jaws in H2 and for the year as a whole. Given the income environment, cost control will remain a major focus through the second half, and we've reduced our cost guidance based on 30th June exchange rates to below GBP 13.6 billion, which was the lower end of the guidance range we had previously given. I'll comment further on costs as I go through the businesses. Focusing now on the second quarter. Income decreased 1%, reflecting the challenging environment which affected both CIB and the UK.
The cost print of GBP 3.5 billion reflects investment in a number of areas. As you can infer from our guidance, we would expect a lower cost run rate in the second half, excluding the Q4 bank levy. Impairment was GBP 480 million, up GBP 197 million year-on-year, due to the non-reoccurrence of favorable U.S. macroeconomic updates and single name recoveries. However, this was just GBP 32 million higher than Q1. Delinquencies remained stable and the net write-offs in the quarter were just below the impairment charge at GBP 465 million. The effective tax rate was 19.4%, just below our full year guidance of around 20%, and attributable profit was above GBP 1 billion, as in Q1. This delivered an RoTE of 9.3%, excluding litigation and conduct.
TNAV of GBP 2.75 was up GBP 0.09 in the quarter, driven by earnings per share of GBP 0.063 and a tailwind from reserve movements due to currency and interest rate moves, and despite the payment of the full year dividend of GBP 0.04 in the quarter. We reported an increase in the CET1 ratio from 13 to 13.4%. We are now above our target ratio and continue to be confident in our ability to generate capital. We are now in a position to increase our dividend payout, as just mentioned. Looking now at the businesses in more detail, starting with the U.K. The U.K. reported a RoTE of 13.9% for Q2, despite a challenging income environment with income down 4%.
In personal banking, we saw volume growth in mortgage balances of GBP 1.5 billion net, more than offset by margin pressure, including the effect of increased refinancing by customers. In Barclaycard, balances were broadly flat, but interest earning balances reduced, reflecting our reduced risk appetite and customer behavior, including the impact of current economic uncertainty. Margin pressure and the continuing growth in secured lending resulted in a lower net interest margin of 305 basis points for Q2. We're expecting it to stabilize around this level for the second half of the year, despite further growth in secured lending. Costs were up year-on-year as we continued with the first half investment plan to be flagged in Q1. This includes a range of upgrades to our Barclays app and our digital offering more broadly.
We no longer expect to report year-on-year income growth for full year, but we are expecting higher income in H2 compared to H1 and positive jaws for H2 as cost reductions come through. Deposit balances continue to grow strongly to reach GBP 200 billion. With impairment of GBP 230 million, we were just a little above the run rate of around GBP 200 million we've referenced in the past. The U.K. card delinquencies remained stable, and I think this remains a sensible average run rate to think of for the year as a whole. Turning now to Barclays International. BI delivered an RoTE of 10.8% for the quarter, on income of GBP 3.9 billion. The BI cost income ratio was flat at 62%. The main driver of the year-on-year decline in PBT was the increase in impairment from the low charge of GBP 68 million for Q2 last year.
The latter was driven by macroeconomic updates and single name recoveries. Although we are keeping a close eye on the economic outlook in the U.K. and U.S. particularly, we don't see signs for concern in the current credit metrics. As we said before, we have positioned ourselves conservatively for this uncertain macro environment. Looking now in more detail at CIB. CIB reported an RoTE of 9.3% for the quarter, up from 9.1% last year. Overall income was up 8%. This included a gain of GBP 166 million on our stake in Tradeweb in our markets business. Excluding this, income still grew by 2%. We saw a resilient performance, particularly from FICC, which was up 25% or 2% excluding Tradeweb, and that would be down 2% in USD. This compared favorably with peers and reflected strong performance in credit and growth in securitized products.
Equities was down 14% on the record Q2 last year, resulting in overall market revenues up 7% or down 5% excluding Tradeweb. Banking decreased 1% year-on-year or 5% in USD, reflecting a reduced industry fee pool, particularly in debt underwriting. The corporate income line was up 13%, reflecting growth, particularly in treasury and transaction banking. The significant negative mark to market on hedges we highlighted in corporate lending at Q1 did not reoccur. Cost increase by 5% resulted in positive jaws of 3%. We also had positive jaws for the first half overall and expect positive jaws for the second half. We retain significant flexibility on costs, including in performance costs, should the income environment in the second half disappoint. There was an impairment charge of GBP 44 million compared to a net release of GBP 23 million last year, but broadly in line with the average run rate we've discussed before.
The only significant movement in CIB assets in the quarter was a result of flattening of interest rate curves, which led to similar increases in derivative assets and liabilities. RWAs were broadly flat at GBP 175.9 billion and down around GBP 5 billion year-on-year. The franchise is in good shape and remains focused on delivering improved and sustainable returns, despite periodic fluctuations in market conditions. Turning now to consumer cards and payments. We continue to generate attractive returns in CCP while growing the business. RoTE was 18%, down year-on-year due to the unusually low impairment in Q2 last year, but up on the 15.4% reported at Q1. Income decreased by GBP 19 million year-on-year, reflecting the non-recurrent of the gain of GBP 53 million on sale of the L.L.Bean partner portfolio. We grew U.S. card receivables by 6% in dollars.
The airline portfolios, notably JetBlue and American, reported strong balance growth. Costs increased year-over-year as we continue to invest in the growth of international card payments and the private bank, but were down on the Q1 levels. We expect positive jaws in H2. Payment of GBP 203 million was only slightly higher than the GBP 193 million reported for Q1, but we would expect Q3 and Q4 to be higher, as we have said before, reflecting seasonality in portfolio growth. However, credit metrics remain well controlled, with 30 and 90-day arrears down slightly in the quarter. Turning now to head office. As usual, the head office result was driven by the level of income expense, which was GBP 136 million. This compared to last year's positive income of GBP 33 million, which reflected the Lehman gain of GBP 155 million.
As in Q1, there was a GBP 19 million impact from legacy funding costs in Q2, which will reduce to under GBP 30 million from Q3 onwards, following the redemption of the 14% RCIs in June. The hedge accounting expenses and residual treasury charges will continue through Q3 and Q4, while Q3 income will have a positive contribution from the AT1 dividend. Those elements are relatively predictable, while the head office cost base has been tracking at around GBP 50 million a quarter. There will always be a few lumpy items in head office, but over time, I would expect the loss to decrease. I'm including this cost summary again to emphasize our continuing focus on cost efficiency, to fund investment spend, and to deliver absolute cost reductions when the income environment requires it.
As I mentioned earlier, we have taken the current environment into account in moving our guidance to below GBP 13.6 billion. That's based on June FX rates, notably $1.27 to the pound. We are confident we can deliver this while still pursuing key investment opportunities that we believe are in the best interest of the group. Key cost levers we are using as we go through the year include flexibility in compensation costs, particularly in the CIB, which depend on the income performance. We've been prioritizing and adjusting the pace of our investment spend as appropriate. Turning now to head office. As usual, the head office result was driven by the level of income expense, which was GBP 136 million. This compared to last year's positive income of GBP 33 million, which reflected the Lehman gain of GBP 155 million.
As in Q1, there was a GBP 19 million impact from legacy funding costs in Q2, which will reduce to under GBP 30 million from Q3 onwards, following the redemption of the 14% RCIs in June. The hedge accounting expenses and residual treasury charges will continue through Q3 and Q4, while Q3 income will have a positive contribution from the AT1 dividend. Those elements are relatively predictable, while the head office cost base has been tracking at around GBP 50 million a quarter. There will always be a few lumpy items in head office, but over time, I would expect the loss to decrease. I'm including this cost summary again to emphasize our continuing focus on cost efficiency, to fund investment spend, and to deliver absolute cost reductions when the income environment requires it.
As I mentioned earlier, we have taken the current environment into account in moving our guidance to below GBP 13.6 billion. That's based on June FX rates, notably $1.27 to the GBP. We are confident we can deliver this while still pursuing key investment opportunities that we believe are in the best interest of the group. Key cost levers we are using as we go through the year include flexibility in compensation costs, particularly in the CIB, which depend on the income performance, and we've been prioritizing and adjusting the pace of our investment spend as appropriate. The spot leverage ratio was 5.1%, quite comfortably above the minimum U.K. requirement of around 4%. Our funding and liquidity position remains strong. In Q2, we issued GBP 1 billion of AT1 to add to the $2 billion we issued in Q1.
We've announced today that we're calling three outstanding AT1s on the 15th of September, totaling GBP 2.3 billion equivalent. I'd remind you that these calls will result in a headwind for our Q3 capital ratio of around 13 basis points. We've issued GBP 7.1 billion equivalent in the year to date against our current plan to issue GBP 8 billion this year. Our MREL is currently at 30.2%, around our expected end requirement. The liquidity coverage ratio was 156% at the end of the quarter, with a liquidity pool of GBP 238 billion. Our loan-to-deposit ratio was 82%, positioning us conservatively in light of the continuing Brexit uncertainties. To recap, we remain on track in the execution of our strategy.
Reported an RoTE of 9.3%, excluding litigation and conduct, or 9% on a statutory basis, and continue to target an RoTE of greater than 9% and 10% for 2019 and 2020 respectively, based on a CET1 ratio of around 13%. We remain very focused on cost control, and given the challenging income environment, we have reduced our guidance for the year to below GBP 13.6 billion. Reported another quarter of TNAV accretion. We are above our CET1 target of around 13% and are reiterating our capital returns policy to pay an increased half-year dividend of GBP 0.03 per share, indicating our confidence in the future of the group. Thank you. I will now take your questions. As usual, I would ask yourself to limit yourself to two questions a person so we get a chance to get round to everyone.
If you wish to ask a question, please press star followed by one on your telephone keypad. If you change your mind and wish to remove the question, please press star followed by two. When preparing to ask your question, please ensure that your phone is unmuted locally. To confirm, that's star followed by one to ask your question. Our first question today, gentlemen, comes from Alvaro Serrano of Morgan Stanley. Alvaro, your line is now open.
Hi. Good morning. Thanks for taking my questions. Two questions. First of all, there was a press article earlier this month, or earlier last month, talking about Barclays targeting GBP 20 billion of assets from Deutsche. I was just wondering if you can make any comments about how you think the risk sharing there is going to benefit you. What kind of good market share can you take? Is that going to be profitable? Just generally, if there's any change to your RWA commitment to the division or leverage commitment, given the opportunity there. Just commentary on that. The second question is around your capital distribution. You've increased the payout, which has been well received.
As you debate internally, I was just wondering, when you've decided to go for the dividend versus the buyback, is this payout the payout we should think about, the payout ratio we should think about going forward? From a financial perspective, is it not better to do buybacks? It also has obviously a signaling effect. Just wondering about your thoughts and for us what to expect going forward. Thank you.
Alvaro, I'll take the first question, and then Tushar will take the second one. Vis-a-vis prime balances, it is true that we gained some prime balances recently, roughly in that neighborhood. It's very good business for us. Obviously, it's net interest earnings. It's part of the markets business where you earn revenue on Saturdays and Sundays and holidays. It's quite good business. It also reinforces the important relationships you have with principal actors in the capital markets. It is very profitable, and we'll continue to pursue that business. I would say overall, our commitment to the capital markets globally, but principally in New York and London and across Europe, obviously will reflect when capacity is leaving the capital markets in terms of the intermediary. We're committed to the strategy, and the prime brokerage business is an important component to that. Yeah. Thanks, Alvaro.
Just to come back to your question on capital distributions. As we sort of said earlier, our capital distribution policy does remain unchanged. We would expect to have an appropriate mix of ordinary dividends, which we've talked about this morning and at the right time, additional distributions, possibly through buybacks. I think the way we think about it is, it's important to set the ordinary dividend distribution to the right level first. Obviously, as you think about it from both a board matter and a regulator matter, there's a higher hurdle. We think of these as perpetual distributions, not one-time in nature. We would have to have not only conviction in our capital position now, but a conviction in the future capital position of the company, and importantly, earnings both now and in the future.
Looking at sort of, we obviously have slightly more optimistic outlook for this year in terms of earnings than consensus does at the moment, given our returns target. Even on consensus earnings. We think the dividend guidance that we provided will still get you to a pretty comfortable payout ratio. It's important that we get that right. To the extent we generate further excess capital from here, we'll consider what we do with that, but leaving our distribution policy unchanged. I think that's probably it for now. Thanks for your question, Alvaro.
Thank you.
Thanks, Alvaro. Can we have the next question please, operator?
Of course. The next question on the line comes from Jonathan Pierce of Numis. Jonathan, please ask your question.
Morning, gents. Thanks for the questions. I've got two. The first one's on gilt gains and the second one on the U.K. margin, please. On the gilt gains, there's about GBP 216 million booked in the half, which is a big reversal on the GBP 200 million-odd loss that we saw in the second half of last year through the P&L. Just remind us where these get booked. On the assumption that as of today, there's probably a stock of these gains still of sort of GBP 500 million or so order of magnitude. Is there an assumption that we're going to get more of these gilt gains in the second half, and is that a big part of the delta between where consensus is sat on your return for the year and your 9% return target? That's the first question, gilt gains and the outlook for those.
Do you want the second question on the UK margin as well?
Yeah. Do you want to get both, Jonathan, and we'll answer them in one shot.
On the U.K. margin, just trying to interpret this comment on the impact of refinancing. Are you sort of suggesting actually that it's a bit more complicated than it looks in the sense that there's a sort of EIR, one-off EIR assumption change in the half because customers are refinancing away more quickly. Is that what you're trying to tell us here, or is it purely just that there's a lot more new business coming on at lower spreads?
Okay. Yeah. Thanks, Jonathan. Why don't I take both of them? In terms of gilt gains, I'm not sure how far you've got through our disclosures yet, you'll see in the notes that we split out how much of the revaluation of our AFS reserve has been recycled to P&L in the normal course of business as we recycle our liquidity pool positions. It's actually slightly lower H1 2019 than H1 2018 on an after-tax basis. I think a little less than GBP 100 million this half and a little over GBP 100 million last half. I think your question about future looking, of course, as bonds have rallied very substantially. There are a lot of gains there. The way we think about it is we're not really trying to do anything too clever here.
Of course, if we're recycling those gains into income, obviously that will lower net interest income into next year unless yields back up. I'm not sure there's anything that we're doing that's anything beyond we would have normally done. I wouldn't give any sort of different guidance. It'll be regular way disposals as we would have done anyway and recycling of the pool. U.K. NIM. The refinancing activity is essentially translated itself through an EIR adjustment. Essentially what we've been seeing is customers, the behavioral life of those customers has just shortened. I guess it's a function possibly of just the ease in which you can switch products. There's a lot of digitization going on through the industry and probably aided and abetted by some incentives that brokers have as well.
As people come off, for example, a typical two-year fixed rate product, they tend to stay on a follow-on rate for less time than they used to historically and will sort of refinance into a new fixed rate, for example. When you look at the reduction in our NIM sort of in the quarter, about a third of it was probably from that EIR adjustment. A third of it was just on having lower unsecured card balances, which is some sort of very deliberate action that we've taken. About a third of it just from the mix in secured lending versus unsecured lending, but obviously growing our mortgage book. Where we look at it from here, obviously the EIR adjustment is really just an adjustment to the stock.
Doesn't really change the NIM from this point on, assuming we've calibrated customer behavior appropriately, which we believe we have. I think we're done with the specific actions we took in reducing interest earning card balances. That'll be broadly stable from here, and we'd expect our mortgage book to continue to grow. I guess a few things I'd just remind people of. One is we do expect our NIM to be about at these levels for the remainder of the year, and we expect our mortgage book to grow. I guess what does that all mean? It means we'd expect our income in Barclays UK in the second half actually to be higher than the first half. Obviously sitting here in the beginning of August, we have reasonable visibility of that, so comfortable giving that guidance. Hopefully that's helpful, Jonathan.
Okay. That, yeah, it is. Sorry, just to follow up quickly. That one third of the margin drop was the EIR, and that's a one-off adjustment. Presumably that's, I don't know, GBP 25 million-GBP 30 million hit to net interest income in the quarter that won't repeat going forwards.
That's right. Probably a little bit lower than that, but yeah, in that sort of zip code.
Okay, great. Thanks a lot.
All right. Thanks, Jonathan. Can we have the next question please, operator?
The next question on the line, gentlemen, comes from Joseph Dickerson of Jefferies. Joseph, your line is now open.
Hi. Thanks for taking my question, Tushar. You already answered one of them. The other one is just on the liquidity pool. That's a very high LCR ratio, and it looks like you've got GBP 83 billion of surplus, against what's a quite overfunded balance sheet. I guess thinking about this, you mentioned the Brexit uncertainty. Has there been any, either in direct terms or indirect terms, a drag to net interest margin from this? Would you be willing to quantify it? Number 2, certainly there's an opportunity cost here from not lending these funds out. If loan demand picks up, presumably that would provide quite a tailwind. I'm not saying in the second half of this year, but in the future, to your net interest margins, irrespective of what's happening with rates.
Yeah. No, thanks, Joe. A couple of comments on that. You've seen our deposit balances continue to tick up quite nicely, both in commercial banking, corporate banking, as well as in our Barclays UK. In our Barclays UK, for example, I think we hit GBP 200 billion of deposits. That may be the first time in well, it may be the first time. I haven't gone back to check records, certainly it's been quite strong deposit growth. It's good business for us because we're not paying up for those deposits. If you do just a straight comparison, you'll see us with probably one of the lower rates in the U.K. market. Having that sort of liquidity that will just be in our liquidity pool, given recent cash that's arrived, is a profitable activity for us.
Your other point, though, is also fair, which is we do have a relatively conservative loan-to-deposit ratio. The group, it's in the low 80s. In the U.K. bank, for example, it's in the mid-90s. That compares quite favorably with some of our peers. I think that potentially gives us an opportunity into the future when things perhaps have settled down. At the moment, we're seeing a reasonable amount of customer caution. A lot of cash being left with us and less demand, if you like, for borrowing. To the extent that changes as we go through this period of somewhat uncertainty, I think that's a pretty interesting opportunity for us of how we recalibrate our liquidity pool and by inference, our loan-to-deposit ratio.
Great. That's helpful. Thank you.
Thanks, Joe. Can we have the next question please, operator?
The next question on the line today comes from Chris Cant of Autonomous. Chris, your line is now open.
Good morning. Thank you for taking my questions, two, if I may, completely unrelated. The first, you've given us some incremental disclosure around your structural hedge. Thank you for that. I was just going to invite you, if you could, to quantify the potential drag from the structural hedge into 2020 in the same manner that one of your large peers did this week. Also, where does that net income from the hedge get assigned divisionally? Is that primarily in the UK division? That would be the first one. The second, on your 13.6 or sub 13.6 cost guidance, you said that was based on a $1.27 FX rate. We're 4.5% below that level at present. Does that 13.6 still hold on current FX? If this FX rate persists, would you expect to be above that?
Really as a broader point, it would be really helpful if you could give us a sense of how much of your revenues are in $ and how much of your costs are in $ to enable us to better understand how that dynamic might play out through a further hard Brexit hit to sterling rates. Thank you.
Yeah. No, thanks, Chris. I'll talk on the hedge contribution. I'll just make a couple of comments on costs, and then I think Jes will want to add to that. On the hedge contribution, yeah, I know you've been asking for a while, so glad you appreciate the disclosure. Sorry it's taken us a bit of while to get it across to you, Chris. In terms of the direct question, if yield curves stay literally where they are today, and our intention would be just to roll our hedge. We don't actively manage it in the way some others may choose to. It would only really reduce net interest income by about GBP 50 million into next year. Now that's a combination of product hedge and equity structural hedges. Actually it's across the bank as a whole.
Obviously, the equity position is for the whole company, and the product component is just a component of it. I think the gist of your question is how much of that would be in Barclays UK specifically. Obviously, just a proportion of it, by no means the majority of it would go to Barclays UK, but only sort of GBP 50 million there or thereabout. In terms of costs, I think a couple of points I'll make, and then I think Jes will want to add. Firstly, we've taken some meaningful actions, I think, in the second quarter that ought to give us a much lower run rate going into the remainder of the year. We've talked about headcount reductions that happened in the second quarter. We've made other changes to our physical footprint.
We've deferred some investment spend that we don't think really makes a difference in terms of medium to short-term opportunity set. We have good visibility into our costs. Your point around currency sensitivity is a good one, though, of course, a fairly meaningful move, and it looks like it's moved again this morning. With sterling weakening, it is only PBT enhancing for us. As you've probably seen, I think on slide 19, about half our revenues of the group are non-sterling generated. I take your point that we haven't given you the equivalent cost mix. That's something we should think about. We're obviously positively geared towards a weakening sterling. Jes, any other comments you want to make on the cost base?
Just as we saw in the second quarter some of the weaknesses and our decisions to remain conservative in the credit card side, we did take action on the headcount side, and we're now down in headcount by over 3,000 FTEs. That does have an expense to it, which you will feel the benefits of in the second half of the year. Going back, the strategy of being diversified geographically, is to try to minimize the impact of a falling sterling to us. As Tushar said, it has a bigger impact on revenues than costs. Whilst it may challenge us at the below 13.6 in terms of the overall jaws of the bank, it will be quite positive.
Okay. Thank you. Thanks, Chris. Could we have the next question please, operator?
The next question on the line comes from Martin Leitgeb of Goldman Sachs. Martin, your line is now open.
Yes, good morning. I have two questions, please. The first one is just on Brexit and the kind of the broader impact Brexit might have on your franchise and what you're seeing at this stage in your various bits of the business. I'm just particularly interested if you have seen any change in customer behavior, whether that means either in terms of sentiment, loan demand, or either in terms of potential depositors or asset quality within the wider book. The second question is more a general strategic question. Over recent weeks, we have had the announcement of one of your main competitors reassessing its strategy within the equities franchise. Out of memory, revenues in that segment were broadly similar to Barclays revenues and equities over the years.
I was just wondering whether this has led you to reevaluate the strategy of your franchise, or how you see the opportunities for your franchise in that regard. Thank you.
I'll take that, Martin. To the first question on Brexit. First vis-a-vis the bank's position. We began working right after the referendum vote to get the bank structured in such a way that we could deal with any possible outcome of Brexit. What that really meant for us was changing the scope and scale of our bank subsidiary in Dublin. We'll most likely become, by the end of this year, the largest bank in Ireland. Went through the process of every branch of the bank across Europe, from Frankfurt to Madrid to Paris, to relicense those branches as branches of the bank in Ireland. We built all the control systems necessarily. We moved the necessary people.
Over the last couple of months, we've gone through the client migration process and really sort of left it up to clients if they wanted to migrate from one platform to another. That's gone quite well. From a bank operational point of view, even if we had a very hard Brexit at the end of October, the bank's totally prepared for it, and it would be really business as usual. In terms of what we're seeing over the last couple of months vis-a-vis clients and customers, as Tushar alluded to, I think people are modestly being more conservative. Our cash levels are up. Demand for credit on the margin is lighter.
On the institutional side or the major corporate side, it's fair to say that some of the big decisions, whether they're M&A decisions or investment decisions, have been lighter than one might expect. The big thing is as we get closer to October 31st, if there's a possibility of a really no deal hard Brexit, we want to be very mindful. One, we want to be very constructive in terms of helping small businesses, in particular, to think about cash flow levels, et cetera. Want to be obviously committed to being a partner to get in the U.K. economy through that event. We are prepared, and going back to the opening comments that two years ago, we looked at our unsecured credit card portfolio and really tightened our underwriting conditions since then.
I think hopefully that has put the bank in a pretty prudent position as we go into the latter part of this year. Vis-a-vis the equities business. We do believe it's important to look at the profitability of the markets business overall. There'll be some aspects of your markets business which are less profitable than others, but there is a connectivity between the two of them. We are committed to our position in the U.S. and in the European capital markets across the equities platform. We have a very strong business, obviously, in equities prime financing. We have a strong business in equities flow derivatives. We're going to stay committed both on the research side and on the execution side to equities.
Thanks, Martin.
Thank you very much.
Yeah. Could we have the next question please, operator?
The next question on the line today comes from Guy Stebbings of Exane BNP Paribas. Guy, your line is now open.
Morning, Jes. Morning, Tushar. Thanks for taking my question. Most of my question have been asked. Just a couple of points of clarification. Firstly on Risk-Weighted Assets. Thanks for the new guidance on the regulatory changes. Can I just confirm that was low single digits for each rather than in aggregate, I presume? Then to follow up on RWAs. Jes, you mentioned again in the introductory remarks the slightly harsh treatment, at least in Pillar 1 terms, on operational risk. Should we take another reference there as suggesting that you're getting closer to a change, and that being moved more into Pillar 2? If so, when is your next ICAAP when that could perhaps be signed off? Then just a final very quick point of clarification. In head office, I saw quite a big jump in the period-end tangible equity. Could you explain what's going on there?
Thanks.
Yeah. No problem, Guy. Why don't I take the couple of clarifications on RWAs and head office, and Jes can talk about where we are on operational risk-weighted assets. Yeah, single-digit billions for each of those impacts. For single-digit billions for mortgage risk weights and additional single-digit billions for securitization, et cetera, then obviously a benefit on counterparty credit risk as a leverage matter. Head office tangible equity. At the end of the day, we capitalize our businesses at our target 13% ratio. To the extent we've got excess capital at 13.4%, we leave that in head office pending distribution, investment, et cetera. Not much more than that. Jes, you want to talk about office RWA?
On the operational side, we're obviously in dialogue with our regulators. Recognize that in many ways, this is optics, as it would result in a move from Pillar 1 to Pillar 2. Roughly 60 basis points in our CET1 ratio. I think given that there has been optically questions about whether our CET1 ratio was sufficient or not or whether we're sufficiently capitalized, if and when we do gather that 60 basis points, and today it would land at 14%, plus what we're doing on the dividend, hopefully we have finally arrested this question of whether we're sufficiently capitalized.
Okay, thanks. Any sort of timing you're able to give on the operational risk or can't really comment given it's up to the regulator?
Yeah, look, We're in discussions with the PRA. We'll keep you posted, I don't want to give a timeline on it yet.
Okay. Thank you.
Thanks, Guy. Can we have the next question please, operator?
The next question on the line comes from Andrew Coombs from Citi. Andrew, please go ahead.
Good morning. I apologize, I'm going to make you repeat yourself. The line just cut out as Jes was talking there about the benefit. Was it 60 basis points gross or net adjusting for Pillar 2?
We would quote a CET1 ratio today of roughly 14%.
That's before the reg minimum goes up for the adjustment on Pillar 2?
Correct. That's right.
Right. Understood. Sorry about that. My two questions, both on Barclays International. Firstly, I'd be interested in your thoughts on the implication of lower Fed rates on CCP NIMs, obviously most specifically the U.S. cards business. Secondly, the transaction banking number. There's quite a jump Q on Q from GBP 415 to GBP 444. You've said that's due to deposit growth, I'd be interested there because that's quite a big step change in that line. Thank you.
Why don't I take them, Andrew? The Fed cut, that all feeds through into NIM in the U.S. Of course, it's pretty high NIM anyway, so I don't think it will make a huge difference to us in the outlook for that business. I would expect, even with the new Fed rates, income to continue to grow in the second half relative to the first half. Of course, a lot of that's just through the increasing balances that we've been generating over the course of the year. Transaction banking. It's been really good for us. Some of that obviously is as a consequence of the deposit levels that are increasing in our commercial banking business. As Jes mentioned, the general behavior we've seen from customers is slightly more cautionary.
In other words, leaving a lot of cash with us and at the margin, less of a demand for credit. We've seen that in commercial as well as business banking. Whether that continues, those deposit rates continue to go up or not, I guess it remains to be seen. We'd like to be lending out that cash at some point, which would be good. I think what is interesting though for us is though, some of those deposits have been coming in really through more products and services that we're offering to European corporates. That's something we've been working on for some time.
One of the positive byproducts of Brexit for us is that our European bank based in Dublin will be clearing euros, and that makes us quite attractive for European corporates that wish to do business in both the U.K., Europe, and the U.S. to be able to deal with all three of those currencies. We're seeing some benefit come through there, and that's coming through to our results. If you want to talk a bit about that.
Yeah, maybe a little more specificity there. We put a fairly substantial technology spend beginning in the end of 2017 to make sure we had all the payment pipes built across Europe so that we could expand our Corporate Bank platform from the U.K. to across Europe. A lot of the deposit growth has come from, as we turned on Germany and France and Spain, et cetera, a number of corporates, many of them connected obviously to our franchise here in the U.K., are running their transactions and cash management through our pipes. That's been probably the biggest contributor to the growth in deposits, which has driven the transactions revenue in the Corporate Bank. The other thing I would say is we've actually been doing reasonably well in terms of growing our trade financing in the Corporate Bank as well, which has helped there.
On your first question, clearly the risk-free rate would have an impact in the U.S., but I think all the European banks would love to have the same risk-free curve in Europe.
Yeah. We sure would. Thanks for your question, Andrew. Could we have the next question please, operator?
The next question, gentlemen, is from Robin Down from HSBC. Robin, please ask your question.
Good morning, guys. Can I ask you a kind of variation on the question I asked you at 2019 Q1 about the consensus? We are on the 1st of August now, and you're still repeating the 9% plus RoTE target for this year. I think, as Tushar said earlier, even on consensus is obviously much lower than that. When I look at consensus, obviously, it has a very big marked revenue decline, H2 on H1, even though I perceive an
Okay. Robin. Why don't I start and Jes will add some comments. Look, I think the market sort of is closer to an 8% return, and we still have a degree of confidence we'll get to nine and better. I think I have a different shape on income outlook, and I think that's the gist of your question. If the income outlook is closer to your or the market's view relative to our view, what levers do we have? Just to touch on income, I would expect if I look at half on half, I would expect U.K. income to be better. I sort of guided to that. I would expect consumer card payments income to be better. I've guided to that. Of course, we've got the redemption of the 14% Reserve Capital Instruments that you're aware of. That will drop out of head office.
That's a tailwind as well. I also think if you look at the pipeline that we have in our investment banking fee business, capital markets look pretty good at the moment, quite constructive, and we've got a very good pipeline. As Jes mentioned, I think we're in the top five in U.S. in terms of Dealogic fee share. That's a really nice position for us to be in. Our sales and trading business, we've continued to accrete market share steadily over the last sort of half a dozen or so quarters. We probably do have a different income shape to you. The other thing I would say is that, it goes back to the earlier question around sensitivity to currency rates. We're starting to remain weak.
That is not necessarily accretive to return because obviously our capital is held in U.S. dollars, and you can see that in our tangible book value accreting. Certainly earnings per share, that's definitely a positive. It's been quite a reasonable move in cable, and that can only be helpful for us. I think on the cost side, we've taken a bunch of actions already, and you kind of saw that in Q2 numbers because of the headcount reductions Jes has talked about, some changes to our physical footprint, deferral of some investments. Obviously, there's a cost to sort of repositioning the pace of that investment as well. I think we have good control of our ability to glide those costs. I think as you get later on in the year, of course, performance costs, principally in the investment bank, become more and more important.
Of course, that'll be linked to income performance. Jes, do you want to add any more?
I'd just add two things. One, again, to underscore our commitment on the cost side and our focus on it. Part of the cost numbers in the second quarter that you've seen, we as a management team early on in the quarter took decisions to drive down the cost in the second half of this year so we could land below 13.6. A lot of those cost decisions raise your costs in the second quarter. That should underscore our commitment to use cost as much as we can to deliver that 9% return on tangible equity. You can also see in the financials that we published today that our variable cost number year-over-year was down 18% in the first half versus the first half of last year.
We are committed as best we can without putting the franchise at risk anywhere to use the cost number and manage cost to deliver a level of profitability that we've committed to our shareholders.
Great. Thank you.
Thanks, Robin. Could we have one more question, please, operator? I think we'll end the call after this.
The final question today, gentlemen, is from Edward Firth from KBW. Edward, please go ahead.
Thanks very much. Morning, everybody. I just had a quick question on your level 3 disclosures, which you very kindly enhanced I think on page 68. In particular, I just want to check that I understand them correctly. If I look in your income statement, you've got around, what, GBP 700 million of contribution from valuation of level 3 assets. Firstly, is that correct? That's obviously a marked change on what we've seen in the past. Secondly, what is driving that? Then I guess related to that, in the table below, I guess we've talked a lot before about the asymmetry on your valuation of level 3 assets. That seems to be expanding now even further. Again, just trying to get a sense, what are the key drivers in that? It looks like non-asset-backed loans is one part of that.
Is that leverage loans, or what are those in particular? Thanks very much.
Yeah. These disclosures, Ed, as you know, are quite tricky to work through. The reason for that is level 3 assets, of course, are just one sort of aspect of matched positions. You'll have, for example long-dated fixed rate loans, for example. Now, obviously, we've had a big move in interest rates, so those customer positions in of themselves revalue quite meaningfully. Of course, from our perspective, they're hedged through other interest rate products that won't necessarily be level 3. Actually won't be level 3. They wouldn't be able to be hedges that would revalue in the opposite direction. It's really more a function of just the very large movement in interest rates to interest rate sensitive products but are matched. I think that's all I'd say on that. There's nothing else other than that that's going on.
It's not possible to give us some idea of what the matched move is?
The net move, you mean?
Yeah.
Yeah. We don't sort of do things on an instrument by instrument basis. These are portfolio managed positions. That's not how risk management tends to work for us. You have lots and lots of interest rate risks coming from lots of customer-facing positions that are hedged with a portfolio of interest rate hedges.
Okay. Thanks so much.
Okay. Thanks, Ed. Thank you all for your questions. No doubt Jes and I will get a chance to meet some of you soon after over the next few days. Thanks again.