I'm Caroline Mong. I'm the UK banks analyst here at Bank of America. It's my pleasure to welcome Anna Cross, Finance Director of Barclays, on stage with me. Anna, thank you for coming.
Thank you very much.
I know you said last week that you're very confident that you can reach all your 2026 targets that you've set out. You've also said that you'll give new financial targets before the current ones expire, which is very exciting. I won't get ahead of myself just yet. Should we go through your current strategy by divisions, starting with the UK?
Yeah.
You've committed to putting £30 billion RWAs incremental in your UK businesses. You've deployed £17 billion already, including Tesco. What has driven this growth, and where are you seeing the best opportunities from here?
Yeah, thanks, Caroline. We've got a £30 billion RWA target for the UK across 2024 to 2026. At the halfway point of the plan, we are at £17 billion now. A proportion of that, around £8 billion, has come from Tesco. The rest of it is organic. We're running currently at a little over £2 billion per quarter. With six quarters to go, that gives you an idea as to why we're confident that we'll meet that target. We do see clear opportunities to grow in the UK, and we're experiencing that across retail. For example, we've had four consecutive quarters of mortgage growth. Since the start of the plan, we've originated 1.6 million new current credit card customers. We're also now seeing it in SME and in corporate. In SME, we've seen, and for us, business banking is everything below sort of £6.5 million turnover.
That one's been a little slower to start, but we've now seen two consecutive quarters of core loan growth. In our corporate bank, we've now seen three consecutive quarters. Real opportunity there. That has been enhanced by some of these additional capabilities that we have landed. We talked a lot about Kensington. Kensington is the mortgage brand that we bought a couple of years back. That really helps us access the market in a broader way, particularly around being able to lend into more complex risk. That's been very successful for us in accessing higher loan to value and also buy-to-lets. The margins in that business are around four times the scale of what we see in the vanilla business in Barclays UK. There's more going on in mortgages than that. We recently launched a new broker application process to 26,000 brokers in the UK.
Remember, 85% or so of mortgage growth in the UK comes via a broker. The reason that's important is it cuts the application time from about 45 minutes to about 15 minutes now. We've seen our net promoter score go up dramatically with the brokers. It's reducing processing time. You can process more applications. All of that capability is really underpinning the growth. When I get into cards, obviously we're now using multi-brands. We're originating not just in Barclaycard, but in Tesco, in Amazon, and across the Avios platform. I think the thing that is a little bit more embryonic and one that we talk less about is really how we can link the UK businesses together. The one that we're really excited about is how we run really from our private banking and wealth business into the Premier Banking side of Barclays UK.
The opportunities there across our Premier Banking proposition, which again we are improving, investing in, and we're seeing better take-up of products and again net promoter score growing. The real link into our private banking business and the wealth proposition is what really excites us.
You've mentioned the strength in UK corporate lending. I would just like to pick you up on that. Growth was very strong in the first half, up almost 10% in the half. What was driving that, and how do you feel about the growth prospects from here, especially in light of all the macro headlines lately?
Yeah. In order to understand our corporate position, you've got to understand where we started from. When we started the plan, we had 22% deposit share and 9% lending share, so very, very skewed book in corporate. Remember, this is the part of Barclays which is genuinely 330 years old, a really core part of our franchise. Our corporate bank somewhat suffered from being part of a much larger division previously. It was in the corporate and investment bank, and for good strategic reasons, we were skewing capital and investment away from that business, which is why we ended up with the shape that we did. For the last six quarters, we've been trying to undo that and really investing both in terms of capital and cost into this business. It is about digital engagement with those clients.
We're now seeing a 10% increase in the amount of self-serve that those clients are doing because of the digital investment that we're putting down. Again, a six percentage point improvement in client satisfaction. All that investment is really leading to greater client engagement. Of course, what we're really doing here is extending facilities to clients. Now we see RWA growth as a lead indicator for that because we put the facilities out there and then subsequently the clients draw down on them. To give you a bit more color on the second part of your question, we have what we call a business prosperity index, which is where we survey those corporate clients and try and really work out what's going on in their minds. As you say, there's been a lot of headlines not only about tariffs, but around national insurance, etc., minimum wage.
Actually, what we found is that the confidence to invest is increasing amongst that corporate population, and it's up to sort of slightly greater than 5% now versus about 1.7% earlier in the year. Really seeing that come through. Actually, those things are linked. As you see a bit of economic pressure, some of those clients are really keen to invest in their own productivity. I think it's demand and supply and our willingness to lend.
That's fantastic to hear. Much better than the headlines. On margins, maybe going a little bit into the structural hedge. You've recently told us that the maturing yield on the hedge will be about 2.1% in 2027. It sounds like 2027 will be another year with quite substantial NII growth, especially in the context of the loan growth. Is that fair?
Yes, is the answer. Let me give you a tiny bit more color. For those of you less familiar with it, the structural hedge is basically what we do in order to smooth the income profile through the interest rate environment changing. What has happened is as rates have risen, because we've swapped our positions into fixed rates, that held back NII growth and now rates are stabilizing and start to fall. It's actually preserving that NII. We're still continuing to see growth. We've got around £50 billion maturing each year. It's been very, very programmatic, this hedge. This year and next year, the maturing yield is 1.5%. Imagine that's what's rolling off, what it's rolling onto. We plan for it to be about 3.5%. That's what our target is based on. Think of it more like the five-year swap on average if you're trying to model that.
1.5% this year and next year, 2.1% the year after. Our structural hedge is not at its peak. It's got quite a few years to go. If you think about the structural hedge and the benefit that it gives us, it locks in and secures that NII. It gives us considerable certainty about what we see in front of us. The good news about that is we've got about 80% of next year's structural hedge income locked in already. Clearly, that's only one half of the balance sheet. What's really important is that we look beyond even 2027, 2028, all the way into the 2030s. That's how Venkat and I think about the bank, which is why we're very focused on loan growth now.
It's really important that the loan side of the balance sheet is ready to pick up that mantle when eventually the structural hedge starts to dissipate, which is why we're really focused on the things that we discussed before.
Thanks for that. It's really helpful. Shall we move on to the IB?
Yeah.
Again, very strong performance there, beating consensus, six consecutive quarters in markets. The consensus, I think, still looks a little bit cautious. I think market income is expected to grow by about 2% in 2026 and 2027. How much do you think the performance we've seen in the last six quarters is sustainable? Can you give us some more color on market share gain, client wallet share gains, et cetera?
OK, so I'm definitely not going to give you a Q3 trading update. However, what I would say is that we think about the IB and markets in particular in two ways, what's structural and what's cyclical. What's really important about that is our objective in the IB is not just to get it in line with the group next year, but to meaningfully stabilize and create a structural royalty, which is evergreen. That is our general objective in the IB. The structural part really is about raising the base. There are a few things going on there. We've talked a lot about financing, financing grew by more than 20% in Q2. You're really seeing there our prime business maturing alongside the fixed income business and us gaining both balances and managing margin well. In addition to that, we have gained market share across both FIC and equities.
That's really important to us because if you think historically, Barclays was a fixed income house. Lehman was a fixed income house. We're really trying to broaden out this business and stabilize it. What we're very focused on as we do that, and I think one of the key drivers is the way we think about our top 100 clients. We said at the time of our investor update that we had, so with 49 of those top 100 clients, we were top five. We want to get to 70. We're currently at 60. We're making really good progress in broadening out the capability in terms of those really, really large clients. The cyclical piece is around investing in parts of the business that allow you to be more successful in a range of environments.
We talked previously about our focus businesses, equity derivatives, our securitized products business, our European rates business. We're investing in those. That allows us to start increasing our market share, which again is what we've seen. The progress that we observe is that our income CAGR is about 9% across the IB. That then has to be matched with really good cost control and good capital control, really, to drive that structural change.
You've just mentioned cost and RWA control. The other part of the strategy is, of course, keeping risk-weighted assets flat with modest cost growth, which you have also achieved. Can you talk about how you've managed that precisely? Do you feel like that has in any way constrained your ability to capitalize on opportunities when they materialize?
RWAs in the investment bank have been flat for three and a half years. They were flat for two years even before we started the strategy. We did a lot of work prior to announcing that strategy. What we felt, and we still feel, is that we have the waterfront of the investment bank correct. We're in the right businesses and the right geographies. There are still opportunities for us to increase the capital efficiency of that business. We don't see it as a constraint, partly because of that improvement that we expect to see in capital efficiency. You can observe that because we are reporting quarter in, quarter out income over RWAs. That is the measure by which we hold that team accountable and how we hold ourselves accountable to you as shareholders. We're also very focused on being nimble in that capital.
As the wallet changes for the IB, we are moving that capital around. If you look in the first half of this year, you will see our RWAs skewed slightly more towards markets. Market risk RWAs have gone up and away from banking. Credit risk RWAs have gone down. That's us being nimble. The last thing I would say is that we're also very focused on growing parts of the investment bank which are less capital dependent. Treasury coverage within investment banking—what we mean by that is how we really knit together our debt capital markets business and our international corporate bank transaction banking for our very largest FTSE 350 and above clients. How are we growing in equity capital markets and in M&A? Again, capital light. How are we growing in our financing business? Again, capital light. They're all really important.
On costs, just pivoting to that, it's really about two things. One, we've been focused on for many years now, and we talked about in February 2024, which is really streamlining and upgrading our technology and retiring technical debt. Getting rid of that legacy technical burden is important not just for the front office, but if you think about having multiple legacy systems, the impact that then has on the middle and back office for functions like finance, for example. It's also about really how we think about processes from beginning to end, from trade capture all the way through to booking or even putting it in the ledger. Those two things are our real focus. What you can see is that we've had five consecutive quarters of positive draws. You don't necessarily expect that every quarter in this business, but we're very, very focused on it.
In doing that, if you look at 2024, what you can see is that our costs grew by 2%. Our income was up by 7%. If you look at our performance costs, they were up by 13%. We're paying for talent and we're driving cost efficiency elsewhere. We feel like it's a sustainable model.
That's very clear. Thank you. Moving now to the consumer bank, USCB, you've often said that that strategy is a plan of many parts, and you think your returns can go back to the mid-teens. Can you give us more detail on the different parts that you're working on?
Everything is the answer. It is a plan of many parts. It's a business which historically had returns in the mid-teens. Clearly, during COVID, it lost some momentum, which impacted its ROT, which at its lowest point fell to 4%. You can see from more recent results, it's back up around 10%. We're making progress. The start point to this is the net interest margin. Even within that, there are multiple things going on. We repriced the book last year. We really felt that we were out of line with our U.S. peers in the way we positioned that with our customers. That repricing is now flowing through into the net interest margin as customers spend on those new terms and conditions. We're raising more retail deposits. That again reduces the funding costs.
Retail deposits are up meaningfully year on year, delivered digitally, direct to consumer with much more compelling savings products. The third thing is through mix. We said at the time of our strategy, we wanted to rebalance the mix of this business towards retail and have a much more balanced book. Actually, the most meaningful start point of that has been General Motors. We've taken on board the General Motors portfolio this quarter. You're going to start to see that move the mix. Actually, we've been acquiring General Motors for a couple of quarters now. That's in. On costs, really driving digital and digital engagement as we do across all of our retail businesses. You can see that coming through in the cost-to-income ratio, which in the last quarter was 48%. We want to see that more like 45%.
Really being really clear and very disciplined about how we manage our credit. You can see that the credit performance continues to season out. We saw delinquencies fall in the second quarter in line with seasonal trends, but probably a bit more positive than that. All underway.
Now that you've mentioned impairment, notwithstanding the day-one impairment charge for General Motors in Q3, is there anything that you're seeing at the front end that concerns you?
No. Credit quality in the U.S. is stable. In many ways, that shouldn't surprise us because when you look at the fundamentals that the customer is experiencing, they remain robust. Real income growth, still high levels of cash deposits, unsecured exposure significantly lower than historic levels. Actually, what we're experiencing in U.S. cards, very similar to U.K. cards, is that repayment rates remain meaningfully above pre-COVID levels, over 30% in our U.S. cards business. You also have to reflect on the fact that our U.S. cards business is a high FICO business. The average FICO is 757. We have a low FICO, so everything that we sort of define as lower FICO, 660 and below, is around 12% of the book. We're not exposed to the sort of lower credit quality in large part in the U.S. In Q2, we saw our delinquency, 30-day delinquency, fall to 2.8%.
We would have expected that to happen. That's when tax rebates come through in the States. We typically see seasonally delinquencies fall in Q2. What was really interesting to me was the lowest three FICO bands fell year on year. We're really happy with that. With my retail hat on, what I really am concerned about is 90-day delinquencies because that's the one that is the real lead indicator to losses. That is very stable at 1.6%.
Fantastic. That's very reassuring. I think I've covered most revenue-related questions, especially in the context of the divisions. Just a couple of questions on cost at the group level. I know we've touched on IB costs briefly already, but at the group level, can you help us understand the profile and nature of your efficiency savings and the investments needed to enable these and drive growth? Should we expect lower net absolute costs in 2026 versus 2025 as a result?
OK, thank you. Our plan is one about efficiency, and that's really important. What we've been doing is we've been driving efficiency in the plan in order to give us the capacity to invest in the businesses. We gave ourselves a target at the beginning of 2024 of delivering £2 billion of cost efficiency across the three years, and that was phased £1.5 billion, £500 million. We delivered £1 billion last year. We've delivered at the half year this year, £350 million of that £500 million. We're going at the right kind of clip, I would say, in order to reach our efficiency targets. We're guiding to around 61% cost-to-income ratio this year. We're at 58% at the half year, so all so far, so good. What's driving that? In the early part, it was about people, property, infrastructure.
Fundamentally, that is much easier to achieve than what we're now doing, which is why we phased it as we did. Now we're really focused on what we would call customer journeys or client journeys, a bit like what I talked about in relation to the IB. You know, how does a process work straight through? That was a really good example in terms of the mortgage application process that I gave you before. That's the kind of thing that we're doing that takes cost out of the system, but actually, it leads to a better client result, which is really important. AI is part of that, and I would say probably becoming more so over time.
A really good example is that we've launched a Gen AI facility that allows the 16,000 people who are customer-facing in our UK retail businesses to access information very quickly, deal with those customers very robustly and quickly. That's, again, a better customer result and saves those colleagues considerable time. In terms of next year, you have to think about the three big factors in the two years. The first is the inflation. Inflation this year we expect to be higher than next year. That's because it impacts us on a lagged basis. By the time inflation's flown through property costs and technology costs, it can be 12 to 24 months lag. We're really dealing with a peak of inflation now, but we expect that to fall in 2026, relatively speaking. You have to think, my second factor, I'm driving the same level of efficiency in both years.
Actually, the net impact between efficiency and inflation in those two years is more positive in 2026 than it is in 2025. There has been a real step change in investment in 2025 that I wouldn't expect to replicate in 2026. That's partly about Tesco because we're going through the really hard yards of integrating it right now. It's also because we step changed our investment in the other businesses like Corporate and Private Banking and Wealth Management in the second half of 2024. We do expect costs to be at least stable, if not modestly down, in 2026 versus 2025.
That's fantastic. To bring everything together on returns and tangible equity, can we talk a bit about your ambitions there? You've been clear you see momentum beyond 2026. Greater than 12% is clearly not the end point. Can you talk about the drivers that could result in an improved royalty beyond the current plan? I promise I wasn't going to get ahead of myself.
Yeah. When we set out the plan, we gave you three years' worth of targets. It was never supposed to be an end point. 2026 was only ever a step in the road. What you should be seeing now is a pattern of results and a formula, if you like, which is very simple. We're driving income and we're driving stability and quality of income because that sustainability point is really important. We're managing our costs very tightly and driving efficiency so we can invest in the businesses. We're allocating capital more towards our higher returning UK businesses. We will not stop that at the end of 2026. If you're looking for what 2027 and 2028 will look like, it will be more of a continuation of what we are doing now.
I think it's clear to Venkat and I that putting external targets out there and speaking to investors with the sort of specificity that we did has been really helpful, both externally, I hope, but very much internally within the businesses. It's not lost on us. What we've said is that we will give new targets before these ones run out. Expect them sometime in 2026. In terms of the points of momentum, it's not just that formula, but specifics. We talked about the structural hedge. We talked about efficiency. In 2026, the investment bank and Barclays UK in particular will not be where we want them to be. There is still more to go in efficiencies in those two businesses in particular. The last thing I would say is, again, that 50% capital allocated to the IB was again never supposed to be an end point.
Continue to expect us to want to disproportionately invest in the UK.
That's great. While we're on that topic, does that in any shape or form depend on politics and autumn budget, especially with regards to bank taxes? I think Venkat said last week that you have options.
There are always three parts to that sort of 50% target. Two of them are under our control, one less so. What's under our control is holding the IB flat. The second one is investing in the UK businesses. Those are the two strategically really important parts of the plan. We feel like they're under control. We're on target. We expect to continue driving that. The piece which we are somewhat reliant on the external world is how the regulatory environment emerges. We've given some clarity around Basel 3.1 in the UK, which is between £3 billion and £10 billion. That doesn't relate to anything particular around FRTB. It's actually really around us being able to finalize and run those models to see what the real business impacts are. We feel like that number is actually relatively modest and well contained.
The piece that is somewhat reliant on timing is the implementation of the new cards model in the U.S. That could be in 2026 or 2027. Obviously, that will impact that 50% number. What's really important here is the strategic intent around the IB, around the UK business, and don't expect that to stop in 2026.
While we're on that topic, can you comment a little bit more broadly on your expectations around the autumn budget? Clearly, you probably don't have any more information than we do at this point. Is there anything that you're concerned about, things that you're looking out for, bank taxes included in that?
Yeah, we don't have more information than you. All I can bring you back to is, you know, the intent of the UK government is for the UK to grow, to grow in the long term, underpinned by, you know, investment in productivity and in infrastructure. We feel as a banking industry that we play a large role in that. Particularly as the UK's only investment bank, we feel we play a particularly large role in that investment for the future. The UK banks are already large taxpayers. We're amongst the highest taxpayers in the UK generally and have been for many, many years. It's not just about the levy or the surcharge. It's actually around, you know, irrecoverable VAT, et cetera. Our view is that further taxes would be somewhat inconsistent with our growth objectives. It remains the purview of the Chancellor. You know, we need to wait till November.
Of course, let's all wait and see. Maybe one more question before I open the floor up. On M&A, you've said that you are interested in acquisitions that can add capability and/or scale. Where do you think you would benefit most from more scale? What sort of capability would you like to acquire?
My start point would be that it's an organic plan. When we set this plan out, we were really clear that it was Tesco plus organic in terms of our UK growth. That's really where we're focused on in terms of that capital growth as I've outlined. Actually, the two things that we have acquired gave us something slightly different. Kensington was about capability. Tesco was mainly about scale and scale in unsecured lending. Where we look at things, those are the things we would be looking for across our UK businesses. Our bar is very high. It would have to deliver those. It would have to not distract us from our plan. We are extremely execution-focused.
The third thing is that price is really important to us because really what we're doing here is we're running a very strict capital hierarchy that, number one, goes regulatory capital, as you would expect it to. Number two, shareholder distributions. Number three, investment in our higher returning businesses. We're really disciplined about it. To the extent that you see us doing anything in the future, it would have to hit those three things.
That's very clear. I will just take the opportunity to ask if anybody in the room wants to ask Anna a question. If not, I've always got more, as usual. I think the only business we haven't really got into a huge amount of detail is the private bank, wealth management.
Yeah.
It's actually been doing 20% to 30% returns on tangible equities in the last few quarters. How much do you think you can grow that business? Do you see more opportunities given the government's focus on retail investments?
Yeah. We call it one business. It's actually three. There are three within there. If I start with our private bank, we do see some opportunities to grow. Think about what that private bank is. It's UK-based, and then it has a nexus into international areas, which really are corridors into the UK: Geneva, Monaco, Singapore, Dubai, India. We do see opportunities to grow across that, and you'll see that we've now launched a new booking platform in Singapore that will help with that growth. That's a largely mature business. The areas of more significant growth are really when we get into wealth space or digital investing space. We want to see more customers in the UK participate in capital markets.
Even within our own UK business, there are 4 million customers who have, we believe, the propensity, if you like, to want to invest or the requirement to have some kind of investment advice. They are already within the confines of our business, even without going out to attract new customers. We feel that we have them. The advice guidance boundary work that's been undertaken by the government and the regulator, we would very much welcome those 4 million customers in mind. The other staggering statistic is that our wealth team have done some work that would tell you that there's over £600 billion currently sitting in savings in the UK across the market that would be better served within investments.
This work that the government is doing in order to free up advice and make that advice simple and easy to access is super, super important for the UK consumer and ultimately the health of the UK economy. We're very focused on that. We believe the right way to approach that market is digitally, self-serve where possible, with simple products, fairly priced. We're going through a process now of testing that proposition. Too early to give you any results. That's really the opportunity for us to grow. This business is growing really well so far. Private banking wealth has grown by about 11% across its client assets and liabilities. In the first half of the year, £2 billion of net new money. The opportunity to lift that further in future years, probably beyond the life of this plan, we see is really significant.
Thank you. Any last-minute questions for Anna? If not, then I think we can bring the session to a close. Thank you very much. I am very looking forward to the new targets.
OK, thank you. Thanks, Caroline.
Very much.