Welcome to Barclays half year 2023 results, analyst and investor conference call. I will now hand over to C.S. Venkatakrishnan, Group Chief Executive, and Anna Cross, Group Finance Director.
Good morning. Thank you for joining Anna and me on today's call. Let me start by saying we continue to deliver a consistent strong performance quarter-on-quarter. In particular, our second quarter results show resilience against a mixed macroeconomic backdrop and against subdued market activity. This performance again demonstrates the stability and strength of the franchise, which we have built over many years. We generated GBP 6.3 billion in income in the second quarter of 2023, up 6% year-on-year, excluding last year's impact from the over-issurance of securities. This growth reflects the diverse sources of income which we have built across the group. Our focus on cost discipline delivered a cost-to-income ratio of 63% for this quarter, putting us on track to meet our guidance of low 60s in 2023.
Our deliberate and prudent approach to risk management over many years is providing protection against macroeconomic uncertainty. Our credit performance continues to be in line with our expectations. Together, these foundations have generated a profit before tax for the bank of GBP 2 billion in the second quarter, earnings per share of GBP 0.086 , and a return on tangible equity of 11.4%. This second quarter performance means that we have delivered for the first half of 2023 an income which is up 9% year-on-year, again, excluding the over-issurance, and a return on tangible equity for the first half of 13.2%, again, in line with our target of above 10% for the year.
Despite the mixed macroeconomic backdrop, we continue to invest thoughtfully where we see opportunities to build competitive advantage and to service our customers and clients more effectively. In investment banking, building on our strength in the U.S., we are growing our market share in the U.K. and in Europe, and we have risen to number one ranking in fee share in the U.K., and a number two position in Germany for the second quarter of 2023, as well as our sixth position globally. While announced volumes have been muted, client consideration of M&A alternatives remains active in anticipation of improved market conditions, and we have been deeply engaged in a full range of risk transfer activity. For example, Barclays was exclusive provider of financing for Ares' $3.6 billion deal with PacWest Bancorp in the last quarter.
We're also seeing continued momentum in financing income within our markets business and maintain our top-tier rankings in businesses such as credit trading. Despite lower client activity in markets and banking across the street, I'm particularly pleased with the growing strength of our client franchise. For several years, our client-centric markets business has targeted a greater share of flow revenue from our top 100 clients. As a result, our income from these clients is up over 10% for the first half of 2023. In the consumer bank in the U.S., we have built upon the succession of our partnership with Gap and announced a new long-term collaboration with Breeze Airways, an airline startup from a co-founder of JetBlue. We also continue to make good progress in financing the transition to a low-carbon economy.
We recently provided approximately GBP 100 million in loans to support Moray West offshore wind farm, a development that is expected to supply up to half of the electricity for Scotland. Recently, we extended our popular Greener Home Reward scheme in the U.K. to help support more of our mortgage customers with financing energy efficiency improvements to their houses. As I have said in the past, shareholder distributions are a key focus for the bank. Our reported CET1 ratio at the 30th of June was 13.8%, up 20 basis points from the 1st quarter, and solidly within our target of 13%-14% for the bank. Core to this is our consistently strong balance sheet and the capital generation capacity of our franchise.
We are therefore announcing an increased capital return to shareholders with a 20% growth in our half year dividend to GBP 0.027 per share. We are also pleased to announce a share buyback of GBP 750 million, which is an increase on the GBP 500 million we announced at year-end and completed in the first half. Over the past 12 months, our combined dividends and buybacks, including those announced today, represent a yield of about 10% at current share price levels. Our buyback programs have in aggregate reduced our share count of shares and issue by over 10% since 2020. To reiterate, capital and shareholder distributions are a key focus for us going forward.
As we have described for more than 18 months now, inflation and higher interest rates in developed economies have changed both client and customer behavior. We have continued to position Barclays accordingly. That is driving the consistency and stability in our results. I will briefly describe our approach. Anna will elaborate on these points shortly. First, we have taken a prudent approach to credit risk management and to our balance sheet, maintaining strong capital and liquidity metrics over the long term. In particular, we continue to balance carefully our credit exposure with the provision of lending and liquidity. Our customers are cautious. They remain resilient. We have provided incremental and tailored support, while also ensuring that it is simple and convenient for them to access the right product to meet their needs.
We understand the impact of inflation and high interest rates on our customers, and we want to help them. For our U.K. mortgage customers, we are providing options to switch to interest-only mortgages for six months, or extensions of their mortgage term where appropriate. We are also enabling customers approaching the end of a fixed-rate mortgage deal to lock in a new rate up to six months in advance. Of those customers who have made their mortgage rate switch application directly to us, over a third have done so using the Barclays app. On the savings side, we provide a range of instant access and fixed savings products, which allow our customers to select the right rates for their savings goals. For those customers who rely on instant access to savings, we recently increased the rate on our Everyday Saver by 50 basis points.
Since its launch in September last year, our Rainy Day Saver, which pays 5% up to GBP 5,000, has proven popular with customers. Over 435,000 accounts have been opened as of the end of June this year, of which 95% were opened digitally. We also regularly conduct outreach to highlight where a better savings product might be available to customers, and we have seen some significant shifts in behavior as a consequence. As interest rates rise, our customers become increasingly sensitive to their impact. As a result, we have issued further guidance on our Barclays UK net interest margin, which Anna will address shortly. Finally, we have also continued to exercise cost discipline against this backdrop by capturing efficiency savings to manage inflation and by being thoughtful and careful about how we invest in our businesses.
Anna will cover costs in more detail, suffice to say that we have delivered on our cost guidance this quarter and remain committed to driving a lower cost-to-income ratio over time. In summary, we remain very confident of meeting our targets for the full year. Our targets are anchored on a greater than 10% return on tangible equity. I reiterate that this remains a floor and not the extent of our ambition. We are managing the bank well and generating a consistently strong statutory performance across the range of different economic scenarios and market scenarios, which we have been experiencing. This quarter represents another important step towards demonstrating value for our shareholders. We have increased shareholder distributions and remain committed to doing so going forward, and we do this while continuing to support our customers and our clients. With that, thank you for listening.
I'll hand over now to Anna to take you through the financials in more detail.
Thank you, Venkat. Good morning, everyone. Starting with performance highlights on Slide 7. Our return on tangible equity for the quarter was 11.4%, broadly in line with Q2 last year, resulting in a 13.2% return for the first half. This is in line with our expectations. We are very confident of achieving our RoTE target of above 10% for the year. This takes into account business trends in income and our latest view on impairment. I'll come back to each of these. We guided the costs in Q2 being lower than Q1 and have delivered. The cost-to-income ratio was 63% for the quarter and 60% for the half, and we continue to guide to low 60s for the full year.
Although we are still guiding to a loan loss rate of 50-60 bps for the full year, we continue to see limited signs of stress across our portfolios, and this quarter, the loan loss rate was 37 bps. This reflects the prudent positioning of our balance sheet, as Venkat mentioned, and we believe our risk management discipline will limit credit risk downside for us if the global economy slows. Our liquid and stable balance sheet positions us well to pursue our returns objectives and return capital to shareholders. Accordingly, we are paying a half year dividend of GBP 0.027 and have announced a further buyback of GBP 750 million to start immediately, which is a total return of GBP 0.075 per share for the first half.
There was no effect this quarter from the over-issurance of securities, which did impact litigation and conduct costs and income for Q2 last year. To provide a more meaningful comparison, we have excluded these impacts from the comparators in this presentation. On this basis, income was up 6% on a strong Q2 last year, whilst operating costs, which exclude litigation and conduct, were also up 6%. Litigation and conduct was GBP 33 million this quarter, and profit before impairment was up 12%. The impairment charge increased to GBP 372 million against a low comparator and in line with our expectations, resulting in profit before tax, increasing to GBP 2 billion and earnings per share to GBP 0.086.
The tangible net asset value accretion from earnings was more than offset by negative reserve movements, mainly reflecting further rate rises, reducing TNAV by GBP 0.10 in the quarter to GBP 2.91 per share. I'm now going to cover the key drivers of our returns, income, costs, and risk management, starting with income on Slide 9. Total income increased 6% or around GBP 335 million year-on-year, reflecting our diverse sources of income. Barclays UK income grew 14%, with tailwinds from higher rates year-on-year, and from the structural hedge, partially offset by lower product margins. Consumer, Cards and Payments increased 18%, driven mainly by U.S. card balances. CIB was down 3% year-on-year, at GBP 3.2 billion.
The strength in corporate lending and transaction banking income and stability in financing income in markets, partially offset the impact of market conditions, which were less favorable for intermediation income and for deal flow in banking. We benefited again from our diverse business model within the CIB. Looking at the group as a whole, if you compare our revenue in this quarter with four years ago, you can see that we have grown income by around GBP 400 million in both the CIB and across our consumer businesses. Turning now to costs on Slide 10. Total costs were GBP 4 billion, up 2% year-on-year. Our cost-to-income ratio improved from 65% in Q2 last year to 63%, an increase on 57% at Q1 as we expected, and this is factored into our unchanged low 60s guidance for the full year.
We delivered lower operating costs in Q2 versus Q1 at both the group level and in CIB, in line with our guidance. We continue to expect Q1 to be the high point for quarterly operating costs this year, again, for group and CIB. We are focused on capturing cost efficiencies across the group. For example, in Barclays UK, we are investing in transformation to improve service for our customers by automating, digitizing, and simplifying our offerings, whilst also driving a lower cost-to-income ratio over time. CCP operating costs were up $96 million year-over-year, reflecting growth in our U.S. card portfolio, including the acquisition of Gap towards the end of Q2 last year, and the UK Wealth transfer from BUK during the quarter.
CIB operating costs were up GBP 114 million year-on-year, as we continue to invest selectively in our client franchise through technology enhancements, in talent, and in improved resilience and controls. Moving on to credit on Slide 11. We have maintained our long-standing prudent approach to provisioning and continue to hold strong coverage levels. Our impairment allowance at the quarter end was GBP 6.1 billion, a slight decrease from GBP 6.3 billion at Q1. We updated the baseline macroeconomic variables for modeled impairment from the full year, notably with some reduction in forecast unemployment in the U.K. and U.S. These remain more severe than the forecast used at Q2 last year, and at the end of the quarter, we retained post-model adjustments for economic uncertainty of GBP 0.3 billion.
Our guidance for a loan loss rate in the 50-60 bps range allows for some potential credit deterioration and seasonal effects. The GBP 372 million charge translated into a loan loss rate of 37 bps. Looking in more detail by business on Slide 12, the Barclays UK charge of GBP 95 million reflects both lower balances and a lower risk book of unsecured lending compared to before the pandemic, as well as our prudent positioning in mortgage lending. There is some increase in the provision against mortgages, I'll come back to why we remain comfortable with our credit risk here, despite the significant rise in interest rates. As expected, the majority of the charge is again in Consumer, Cards and Payments, U.S. cards in particular.
It reflects the normalization of delinquencies with a seasoning effect as balances grow. This includes the Gap acquisition, which is performing as we expected. The next three slides illustrate why we are confident in our provisioning and our prudent approach to risk. On Slide 13, we've shown key coverage and delinquency metrics for our two largest unsecured books, U.K. and U.S. cards. Repayment rates in U.K. cards remain high across the credit spectrum. Arrears rates remain stable and very low by historical standards. Overall, we are confident that the credit quality of our U.K. card book has improved since 2019. We've continued to grow U.S. cards in an appropriate and controlled way that is consistent with the opportunities we see there.
Delinquencies at all FICO levels have been increasing. Our risk mix has improved, with our average FICO for the book strengthening slightly since the end of 2019 to over 750, and this includes Gap. In addition, the proportion of the book better than a FICO of 660 is now 89%, compared to 86% at the end of 2019. We maintain strong coverage levels across both U.K. and U.S. cards, notably Stage 2 coverage of around 18% and 33% respectively. Moving on to the mortgage book on Slide 14, there are a number of factors that contribute to our comfort in the higher rate environment. First, we have applied strict affordability tests since 2013, using rates above current levels.
Looking at the profile for refinancing, the proportion of the book on five-year and over initial fixed rates has increased materially since 2019, from 33% to 51%. This shift delays a potential increase in rates for many borrowers, allowing them more time to mitigate the impact. Fixed rate maturities in half two total GBP 17 billion. As you can see from the chart, a significant proportion of these borrowers have locked in rates ahead of the end of their fixed rate term. Our mortgage customers are taking thoughtful and appropriate action. As a credit backstop, the book is conservatively positioned from a collateral point of view, with balance weighted loan-to-value of 52.8%. Only 2% of mortgages, which are refinancing over the next two years, have LTVs in excess of 85%.
Given the market-wide focus on commercial real estate, we also wanted to share more detail on the portfolio to highlight our position. As we have followed a prudent lending policy here for over 30 years, this is not an area of concern for Barclays. As you can see on Slide 15, commercial real estate as a proportion of our customer loan book, is around GBP 17 billion, or just under 5%, which is below the industry average. It is diversified across segments, and the weighted loan-to-value of 49% provides significant headroom for a potential stress in prices. No individual segment has an LTV of higher than 58%. We know the office component has received particular attention, and this is just GBP 1.9 billion. Turning now to the performance of each business in the quarter, beginning with Barclays UK on Slide 16.
Profit before tax increased 25%, and the return on tangible equity was just over 20%. Income grew 14% to GBP 2 billion, with costs down 1%, improving the cost-to-income ratio by 9 percentage points year-over-year to 55%. We expect to improve this further as the benefits from our transformation program feeds through. The net interest margin was 322 bps, up 4 bps on Q1, in line with our expectations, and this would have been 2 bps higher without the transfer of UK Wealth to Consumer, Cards and Payments. The moving parts are set out in the bridge on the slide. We benefited from the steady roll of the structural hedge, which again added 13 bps, as in each of the last few quarters, and from some lagged effect from previous bank rate rises.
There was also a 6 bps increase from the reversal of some of the treasury headwinds, which we called out at full year. These positive impacts were moderated by both mortgage margins and the developing deposit dynamics. On the next slide, I'll cover how we see NIM evolving from here. Our customers are cautious and resilient, and we see benefits in our credit performance, but this also affects our income outlook. Three recent macroeconomic developments have prompted customers to change their behavior and us to revise product pricing. First, inflation is expected to be more persistent. Second, base rates are forecast to peak at higher levels. Third, swap rates increased further during Q2, increasing mortgage pricing. In this environment, our customers are behaving rationally and have started to use surplus deposit balances to manage their finances more actively.
For instance, business banking customers are drawing down on deposit balances for use in their businesses and to pay down debt. In personal banking, over a quarter of our customers with mortgages have been making excess repayments, reducing their loans ahead of potential remortgaging. Throughout the book, customers are seeking higher yields for their savings, and we have changed our pricing in response. Accordingly, we now expect the BUK NIM to be below 320 basis points for full year 2023. Our current view is around 315 basis points, which reflects our expectation for customers to hold lower deposit balances, changes in deposit pricing, and the 2 basis points impact from the transfer of UK Wealth. The precise outcome will be sensitive to a number of inputs, notably the level and mix of deposits and other macroeconomic factors, including inflation and rates.
At the same time, the high swap rates are providing a tailwind to future years from the structural hedge as we lock in fixed receipts at meaningfully higher rates, which I'll cover on the next slide. Slide 18 illustrates the importance of the hedge to the level and visibility of our future net interest income. Swap rates increased sharply during Q2 to around 5%, and reinvestment rates are materially above the yield of 1% on hedges maturing this year. As a result, gross hedge income is increasing, and over 90% of the GBP 3.6 billion expected for this year was already locked in by the half year. We have a further GBP 50 billion-GBP 60 billion maturing in each of 2024 and 2025, at yields between 1% and 2%.
The precise level of reinvestment will depend to an extent on customer behavior. The building effect of the hedge roll gives us confidence that gross income from the hedge will grow strongly in 2024 and 2025. I would remind you that around two-thirds of the benefit is in the U.K., where the hedge has contributed 13 bps of incremental NIM in each of the last few quarters. Looking next at Consumer, Cards and Payments on Slide 19. The return on tangible equity was 11.8%. Income increased GBP 195 million or 18%, reflecting growth mainly in international cards and the transfer of UK Wealth. Period end, U.S. card balances grew organically by 12% to $29.5 billion, and average balances were up 27% year-on-year, as the Gap acquisition was completed late in Q2 last year.
We delivered positive operating jaws despite operating costs, which exclude L&C being up 14%, reflecting continuing growth across the businesses. Both income and costs included around GBP 35 million from the transfer of UK Wealth. As I discussed earlier, the increase in impairment was in line with our expectations. We've included a summary in the appendix on the wealth transfer. The combination with the private bank creates a top five UK wealth management business. We believe we can develop the business more effectively as a single entity. Looking next at the CIB on Slide 20. Return on tangible equity was 10%, whilst income was down 3%, a resilient performance against a very strong prior year comparator, reflecting our diversification within the CIB. Corporate lending and transaction banking increased strongly year-on-year to over GBP 900 million.
Markets, which was down 20%, reflected lower market volatility impacting intermediation income, but there was some offset from financing income, which grew 9%. As I mentioned last quarter, we are benefiting from the effects of higher inflation and financing. Investment banking fees were down 15%, reflecting a lower industry fee pool. Costs decreased 2%, but operating costs, which exclude all L&C, increased 6%. As I mentioned earlier, this reflected selective investment in our client franchise. Turning now to capital and liquidity. As you can see on Slide 21, we continue to maintain strong capital funding and liquidity. Looking in more detail, beginning with capital. Our capital generation from profits was again strong, contributing 39 bps in the quarter, of which 8 bps was applied to the increased dividend accrual.
Taking into account the GBP 750 million buyback we have announced, our CET1 ratio would be 13.6% in our target range of 13%-14%. Our MDA has increased in July from 11.4%-11.8%, and we remain comfortable with our target range. Looking forward, we expect strong organic capital generation, supporting attractive returns to shareholders. We have grown deposits substantially ahead of loan volumes for many years and have a low loan-to-deposit ratio of 72%. As shown on Slide 23, we have seen a stable level of deposits overall this quarter at GBP 555 billion. This reflects an increase in international deposits and treasury, offset by some decline in retail and business banking deposits, in line with the market trends we discussed earlier.
We are comfortable with the stability of the group's overall deposit funding base and our diversified sources of deposit funding. Our franchise deposit strategy means we remain highly liquid, based on both our internal stress framework and a liquidity coverage ratio well ahead of the regulatory requirements. The liquidity pool of GBP 331 billion is held 80% in cash, with the risk in the residual debt securities tightly managed. To recap and summarize the outlook on Slide 25, we delivered earnings of GBP 0.086 per share in Q2, and generated an 11.4% return on tangible equity, and are very confident of achieving our target of above 10% for the year, underpinned by our diversified sources of earnings.
The cost income ratio for the quarter was 63%. We expect to deliver a statutory ratio in the low 60s this year. We remain focused on risk management. While we expect an increase in impairment year-on-year as we grow U.S. cards in particular, we are confident of delivering a loan loss rate within our guidance range of 50- 60 bps for the full year. Our capital ratio remains strong at 13.8%. We expect to deliver attractive capital returns to shareholders, balanced with selective investments to drive profitability. Thank you. We will now take your questions. As usual, I would ask that you limit yourself to two per person, so we get a chance to get around 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 your 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 a question. Thank you. Our first question today comes from Joseph Dickerson from Jefferies. Please go ahead, Joseph. Your line is now open.
Hi, good morning. Thank you for taking my question. I just have a question, firstly on rate sensitivity, because I can't find any tables or disclosure in today's releases. I guess, are you now approaching, as regards base rates, a position whereby the bank is liability sensitive? How should we think about rates, rate sensitivity going forward? Then secondly, can you discuss your strategy with some of the European consumer businesses, such as the German consumer business? I think there have been some press headlines about a disposal of that business. That would not... That would actually have a relatively significant contribution to capital, presuming you get a gain on it.
Not game changing, but certainly would free up another, call it, you know, GBP 750 million or GBP 1 billion of capital if you were to dispose of it. I guess, how are you thinking about those peripheral consumer businesses that you still have? Many thanks.
Good morning, Joe. Thank you for your questions. I'll cover the first one and then hand across to Venkat. You're exactly right. What we are saying is that given where base rates have now got to, we expect further rate rises from here would have no impact on our net interest margin. In fact, might be even slightly negative. That's simply because, as we've said for some time, the higher rates go, the higher the pass-through will be. Don't forget, though, that this higher rate environment also impacts the yield curve, and we are seeing that benefit come through and get locked into on our structural hedge. Venkat, do you want to take the second question?
Yep. Thank you, Anna. Joe, yes, we are looking to sell the German credit card business. It's a nice business, but it's not really core to our overall consumer footprint. There will be a modest RWA release when that happens, you know, it is small in the context of the bank. I mean, it's something, but it's small. Yeah.
Thank you. Thank you, Joe. Next question, please?
Thanks, guys.
The next question is from Jason Napier from UBS. Please go ahead, Jason, your line is now open.
Hi, good morning. Thank you for taking my questions. Just to start off with, I guess. First one, a lot of the investors that I talk to would like to see Barclays be clearer about the sort of risk-weighted asset growth that it envisages for the CIB. Many of them would like to see no growth in that division at all, or perhaps some kind of constraint around the share it represents in the group. I just wanted your views on that desire. Secondly, just looking at Barclays UK, the division has a better income to loans tally than, you know, almost anyone else in the sector, but its cost-to-income ratio is 10% above Lloyds and 13% above NatWest. You must have done loads of.... sort of internal work in the past.
Can you talk about what it is about the cost structure of that business that makes it so much less efficient than the major peers that we look at? Thank you.
Yeah. Hey, Jason. I'll take the first one, and I'll pass the second one on Barclays UK to Anna. On the first one, I think I have been pretty clear that when we look strategically at the investment bank, it's been a great success. It has been, you know, five years ago, the question that was asked of us was: should you have one? If you had one, would it be any good? I think we've shown that it's important for us to have one. It's a great diversified business, and we're pretty good at it. We are the top-ranked European investment bank, so in markets and in trading. However, I also recognize that at approximately 60%-70% of the bank, it is much more important now to grow the bank that's outside of the investment bank, that is...
To get a better balance overall in due course. Having said that, within the investment bank, there are some relatively attractive RoTE businesses such as financing and prime, and we have been within the investment bank, investing a lot in those. The real, you know, when you get to the heart of your question, it's something, of course, we would agree with, which is to increase RoTE and to increase the proportion that fee-based and relatively capital-light businesses play in our entire product mix.
Thanks, Venkat, and thank you, Jason, for your question. Yes, we've thought a lot about this. I'd put it down to a couple of factors. The first, risk appetite does play a role here. That is both around liquidity and credit risk appetite. You'll know that Barclays UK has a lower loan-to-deposit ratio than some of its peers. We manage our credit extremely carefully within Barclays UK, as we do, obviously, across the group, and it's part of the group risk appetite that we focus on. Obviously, we've got global opportunities to place risk and, you know, many varieties of it. I think risk is a large part in the way we manage that risk.
Of course, it's also about the cost base, which is what the transformation in Barclays UK is about. We're extremely focused on cost and efficiency, and we are working extremely hard on our physical and digital footprint and the benefits that that gives to our customers. What you see at the moment is us reinvesting the benefits of that transformation to make it go faster. Over time, we would expect to see the cost-to-income ratio of the business to trend downwards. Hopefully, that gives you some clarity about how we think about it. Next question, please?
Thank you. The next question comes from Jonathan Pierce from Numis. Please go ahead, Jonathan. Your line is now open.
Yeah, good morning. Thanks for my question, taking my questions. I've got two. The first is on the hedge. Thanks for the extra disclosure on the hedge maturities in 2024, 2025, particularly the scale of them. I wondered if you could be a bit more precise on the yields that these things are coming off, because, you know, you've got GBP 100 billion-GBP 120 billion in maturities over those two years. Makes a big difference if the average yield on the maturities is 1% versus 2%. You know, the range could be as wide as GBP 1 billion or so. I'm also just supplementary to that, wondering where all the hedges that were written in 2020, when the five-year swap rate was close to zero, well, where are those?
When are those coming off? I thought there'd be a bunch of those in 2025. The second question is a more broader one on distributions. In particular, going forward, the sort of split of the free capital generation that goes towards dividends versus buybacks. I mean, we can all understand you want to do a lot of buybacks over the next few years at this rating. Consensus dividend payout ratio is about 27%, I think, over the next two or three years. There's an argument, I suppose, the payout ratio could be a bit higher than that. I mean, ultimately, cash in pocket today is just as important as enhanced cash in pocket in a few years' time. Thoughts around the distribution split between dividends and buybacks moving forward would be great as well. Thanks.
Okay. Thank you, Jonathan. Just picking up the first one, I'm glad you like the slide. We're talking about Slide 18 here. What that shows is that we've seen a strong pick up in yield from FY 2022 to 2023. Our income's gone from GBP 2.2 billion to an expected GBP 3.6 billion this year, and your question is really how that flows from here. Difficult to be completely precise about the maturing yield because it does impact on how much we roll into your, into your calculation. What I would say is that it's probably at the lower end of the range for 2024 and in the range for 2025. Typically, these are about five-year swaps.
You know, you're gonna see the benefits coming through of your 2020 vintage, sort of from 2025. On your broader question, the way we think about it is we want a progressive dividend, which is why you've seen us grow the dividend at the half year-on-year. That's up by 20% year-on-year, and that's really, that should demonstrate to you our confidence in our ability to distribute capital consistently from here. We want to be able to supplement that from time to time with a buyback, as you say, particularly given where the valuation of the bank is right now.
You know, at this point in time, we've together those two, around GBP 1.2 billion of distribution at the half year, which is 5% of our current market cap. Hopefully that will underline to you our commitment to return, capital to shareholders, in dividend and in buyback.
Okay, that's helpful. Thanks. Sorry, just quickly come back on the hedge point. In 2025, it sounds like you're saying the average yields are, you know, maybe around the midpoint in that 1%-2% range. If you've been, bar the stuff that was put on during the pandemic, which was obviously fair, but if you've been putting a hedge on typically at five years rolling, why is the yield on the stuff coming off in 2025 at that level when the five-year swap rate was pretty close to zero in 2025? In 2020, sorry.
There is a blend in there, Jonathan. We can take you through it in a bit more detail. There'll be a large part of the 2020 vintage, but, you know, they're not all five year. We can take it through it with you in a bit more detail outside of here.
Okay, thanks a lot.
Okay, thank you. Next question, please?
Our next question comes from Guy Stebbings, from Exane BNP Paribas. Please go ahead, Guy. Your line is now open.
Hi. Morning. Thanks for taking the questions. The first one was just on deposits. In BUK, I think they fell about GBP 4 billion or GBP 5 billion in the quarter, presumably that includes some outflows in current accounts and interest-bearing site accounts, and inflows into time deposits. Perhaps you could help us understand those moves in terms of the mix of deposits, either at Barclays UK or at group level. Then as we look forward, it sounds like you expect that headwind to persist at maybe current levels, whereas one of your peers noted the experience thus far in Q3 was maybe a little bit better than May or June, and thought that less base rate moves meant less prompts for customers to move money. I just wondered if you, if you shared those sort of views or not.
It sounds like maybe you're embedding slightly more conservatism there. Then, on the CIB, I guess we've become quite accustomed to top line beats and market share gains with Barclays for quite a while. This quarter was a little bit softer. I just wondered if you read anything into that, any need to change or pivot, mindful you've got a strategy review in the background, or do you just largely put it down to one quarter, and there will always be a degree of volatility, and perhaps you're even seeing some green shoots from here? Okay. Thank you.
Thanks, Guy. We don't disclose the split of our deposits. When we look at our peers who've reported thus far, the trends that we've experienced don't look markedly different. Actually, what we're saying at this point in time is, the migration behavior is broadly as we expected it to be. What we're seeing is that customers are holding a lower level of deposits, and they're doing that for very positive and proactive reasons. We think that the prompt for that behavior is three things. Firstly, rates have risen beyond the level that any of us expected. Secondly, inflation is much higher and more persistent than we expected. Thirdly, mortgage rates are obviously higher than they have been at any point other than a brief period in the third quarter of last year.
Our customers are sensitive to these higher levels of interest rates, but not actually in the way that consensus is assuming. It's manifesting itself in them using their deposits proactively to manage their financial position, and we're seeing the benefit of that in our impairment. We said in the scripted comments that over a quarter of our customers are using their excess deposits to pay down their mortgages in advance of a fixed rate change. We think that's the right thing for them to do, and whilst it will impact our income, it's also going to impact our impairment. Those three factors of rates, inflation, and indeed mortgage rates we expect to persist, we also expect this deposit behavior to persist into the third quarter.
Really, that underpins much of the guidance that we've given you around the forward path for the U.K. NIM from here. Hopefully, that gives you some clarity in how we're thinking about it. Venkat, do you want to pick up the second part?
I think, Guy, thank you for the question. On the CIB, I would very much view this as, I'll explain to you how, you know, it's just a quarter. You know, in the quarter, both in fixed income equities and in banking, we've been in the middle of the pack, right? Our performance is consistent with that of the U.S. peers. We are very much in the middle of the pack, there's a little bit of a stylistic story in it. If you look at fixed income, where we're off just a little more, we had an excellent quarter in the second quarter of 2022. This was a quarter in which securitized products, which is an area of growth for us, has done very well. Banks with big securitized products businesses did better than those without.
Equities, volatility was a little bit more muted, and we have a very derivatives-heavy business. Banking has been fine. You know, as I said in my, in my words, remarks a few minutes ago, ranking share increase in the U.K. and in Germany continue to maintain our global ranking. I think if I take a slightly longer-term view, we continue to gain market share with our biggest clients, which is a specific objective of ours. We continue to do well within markets and in banking. The last thing I want to point out in terms of the diversification of the business and referring to the question that was asked earlier, I think from Jason, about the CIB. If you look our transaction banking numbers and our corporate banking overall, has been doing extremely well.
That part of the business, which is, you know, in part related to transaction volume, in part related to interest rates, but it's also in part related to just plain old, good old fee income, has been doing very well. Net-net, you put it all together, that's what leads to a CIB with a double-digit RoTE and, you know, a continued accumulation and holding of market share.
Very clear. Thank you.
Thank you, Guy. Can we have the next question, please?
Thank you. The next question comes from Alvaro Serrano from Morgan Stanley. Please go ahead. Your line is now open.
Good morning. I guess I've got a couple of really a follow-up questions. Anna, you mentioned, I think just now, around the... It's really the deposit balances that are driving the structural hedge down and the margin guidance down in the U.K., you've reduced around GBP 4 billion, is that the run rate of reduction deposits we That you might expect for the next few quarters, that we should expect for the next few quarters? I guess more than related to the level of rates is, obviously, it's rates, the level of rates, but I guess clients are focusing on their rollover mortgages, so it could last a bit longer than just with rate movements when base rate moves.
Is that a fair observation, the GBP 4 billion run rate and it's more to do with the level of rates than the movement of rates? The second question, also follow up on the strategic review and cut some of the points you've made during the call, of growing, sort of balancing the business a bit more outside the investment bank. Obviously, the obvious part of the business to grow is U.S. cards. Given I'm not sure there's a lot of room in the U.K. When I think about it, that's quite a capital-intensive business, and there are some global periods that are pulling back, actually, from growing cards and payments.
Is that the idea to deploy more capital, make it become bigger in the U.S., or is it also an option of taking capital outside the investment bank to distribute? Is that another way of balancing the business? Thank you.
Thank you, Alvaro. The disclosure that we've given you on the structural hedge is actually for the group as a whole. We've included it in that Barclays UK section just because of the impact and the link it has to Barclays UK NIM. That reduction in the hedge that you're seeing quarter -on- quarter actually relates to our corporate business as it has done in prior quarters. Really, what we're doing there is I think we've described before the way we build the hedge. We identify the rate and sensitive balances, and then we maintain a buffer. It's the, you know, that we maintain a buffer when we put the hedge together. What we're doing in corporate is we are very conservatively maintaining that buffer in the current environment.
Again, I think we've spoken before about the fact that our corporate businesses or our corporate clients were really very proactive in moving their deposits, and really, it's a continuation of that previous story. To date, we haven't actually changed the role of our hedge within the retail book. Of course, we are very focused on that every single month. I'd just remind you that because of the way that we roll this hedge very mechanically, we have the opportunity every month to reassess it and pause or reduce the size of the roll. We've got plenty of room and plenty of time to adjust it. To date, in retail, we have not had the need to do that.
Secondly, you know, the pickup in this hedge in 2024 and 2025, we would expect to be pretty strong, simply given the amount that we got maturing and indeed the yield on that maturing level. That will impact the U.K. It will also impact the broader bank, but that's what you should read from Page 18, as opposed to any specific concern about the level of the U.K. deposits. Venkat, do you want to pick up the second point?
Alvaro, thanks for the question. I think one way to look at it is CIB, non-CIB. The way I prefer to look at it is to continue to improve increase the amount we have of fee-paying, relatively capitalized businesses. There are a couple that exist within the CIB. As I've mentioned to you, transaction banking is one of them. Our financing business is one of them, but there are many outside the CIB. As far as... You should therefore look for us to continue to put an emphasis on fee-paying, relatively capitalized businesses. I think we would like to grow cards, but I would actually also like to increase the capital efficiency in our cards business, and that's something we're spending some time on.
It's not just growing at current RWA densities, but growing in a more efficient way, and that's an important feature. You know, net, net, look for us to be increasing more fee-paying businesses and relatively capitalized.
Thank you very much.
Thank you, Alvaro. Next question, please.
The next question comes from Chris Cant from Autonomous. Please go ahead, Chris. Your line is now open.
Good morning. Thank you for taking my questions. You talked quite a lot about investment J-curves in the CC&P segment over the last couple of years, but it feels like the revenue engine stalled a little bit there in the second quarter. Could you talk a bit more about what's going on, why the revenues came under some pressure there? I guess echoing an earlier question in terms of some of the investor sentiments around some of the strategic headlines we've seen in the last couple of months. If you are wanting to invest outside of the CIB in, for instance, some of those CC&P segments, would you consider providing a bit more visibility? It's a slightly odd division.
There's quite a lot in there, and we don't really see the economics of the different bps of that business. I know you give us the revenues, but obviously, we don't see the rest of the P&L. Is that something you would consider to make investors a bit more comfortable with some of the growth aspirations? I had one follow-up, please, to Guy's question. In terms of deposit trends, obviously, you've given us this revised NIM guidance. Have you seen an acceleration in terming out behavior in June, July, please, specifically, just in response to the lurch higher in swap rates?
You've referenced various drivers of the change in the NIM guide, but I'm particularly keen to understand what you're seeing with respect to terming out, and I guess that feeds then into the quantum of hedge maturities you will be able to reinvest looking into 2024, 2025. Thank you.
Thanks, Chris. Let me start with your first question, which was about the quarter-on-quarter movement in CCP. This is largely about U.S. cards. I wouldn't link it directly to J-curves or anything specific around the momentum in that business. There are some small FX impacts. There's also a little bit of seasonality in there. We typically expect slightly higher income in Q1 and Q4, just because of the patterns of holiday spending in the U.S. I think the other point, though, just to note, is that we have seen an improvement in risk performance, I would say real risk performance, quarter-on-quarter. That's coming from a couple of things. It's from the stabilization of the delinquency trends.
It's also from the fact that Gap is now fully embedded and is seasoning out and performing well in line with our expectations. We're seeing that in the impairment line, as you can see, but we also see it in the income line because it impacts these. Overall, very happy with it. It's going in the right long-term direction. This is a business that we want to grow, as Venkat said, so I wouldn't read too much into the quarter-on-quarter movement. On your particular point, around presentation, we hear you. Actually, there are two important businesses within CC&P, and we are quite reflective about how we might think about and present those in the future. U.S. cards is obviously one of them. We'd also call out wealth and private banking, which we've now brought together into a single division.
We'll reflect on that and update you in subsequent quarters, but we are very thoughtful about it. Then to your second question, we're not seeing any real difference in deposit trends following the exit of Q2. It's been fairly consistent, actually, through Q2 and into Q3 so far. As I say, the trends that we're observing, we don't believe are different to those of the industry. The one that's a bit different from our expectations is this use of sort of more current account deposits, I would say, simply customers proactively managing their financial situation. I wouldn't call out any specific impact on the hedge.
If I may just step in for a second, Chris, you know, you and some of the previous questions have focused, you know, rightly on sort of where we want to grow, what the balance is, what the investment. Equally, I hope, you know, it's clear that not just are we thinking about avenues of growth, but we really value doing it in such a way that creates returns for our shareholders. We want to prioritize that. That's, you know, a big part behind continuing with the dividend program and the buyback program at GBP 750. It is a balancing act, and I just didn't want you to miss the other side of the balance, which is what we've been returning to shareholders.
Got it. Thank you, both.
Okay, thank you. Chris, next question, please?
The next question comes from Benjamin Toms from RBC. Please go ahead, Benjamin. Your line is now open.
Morning, both. Thank you for taking my questions. Firstly, on mortgage spread compression, it's a fairly significant headwind to NIM this quarter, but if you look at sector data, it looks like the headwind fades as we go through half two, as the spread of mortgages rolling off the book comes down, and then the pressure looks like it comes back again in 2024, albeit to a lesser extent than we're seeing currently. Is that the right way to think about the shape of the headwinds, is the first question. Secondly, back on the structural hedge, I'm afraid, but in terms of the extra disclosure you've given, that's really helpful. Thank you. I guess the key question is the quantum of the total gross income in 2024 and 2025. That's not disclosed, but you've described as being strong.
We look at latest market pricing, it looks like the tailwind could be something like an additional GBP 1 billion of revenues in 2024 and another GBP 1 billion of revenues on top of that in 2025. Can you give some kind of sense about whether that's the right kind of ballpark way to think about it? Thank you.
Thank you, Ben. You're right about mortgage margins at the moment. The mortgage market is very competitive, very focused on refinancing. That means that spreads remain, you know, attractive, but relatively thin. We don't see that changing much through 2023. Remember, we know exactly who is maturing this year and what rate they're on. In fact, in the disclosure that we've given you, is that many of them have already refixed already. We've got a very good view about what the forward impact of that is. We would expect it to be much less, probably largely neutral, actually, in 2024, because what we're really seeing at the moment is the vintage written in 2021, which was on much wider margins and on two-year fixes, it starts rolling off, really.
By the time we get into 2024, we'd expect the impact of mortgage compression to be much more neutral. In many respects, the margin story for 2024 is much simpler. Which leads me to your second question. It's a wee bit early to give very precise guidance around 2024. What I would say, though, is the following: Given the scale of maturities that we have and the yield on those maturities, we would expect a strong pickup. Clearly, we would expect that to mitigate any continued depositor behavior that we see through 2024. I would expect it to provide a stabilizing effect as we go into 2024, noting again that mortgages will be broadly neutral and actually base rates we would expect to be broadly neutral.
It's really a much simpler picture in margin terms in 2024. Okay, thank you, Ben. Can we go to the next question, please?
The next question comes from Adam Terelak from Mediobanca. Please go ahead. Your line is now open.
Morning, all. Thank you for the questions. I wanted to dig into NIM into 2024. I know you just mentioned the hedge. Can you give us a sense of the deposit assumptions in this year's guide and then how much the deposits might be able to move further beyond 2023 and into 24? I'm just trying to think about what the kind of the volume of deposit repricing opposite that hedge benefit you're talking about could be to kind of scale the 2024 NIM from the 3.15 we're expecting this year. A second question, completely different topic. U.S. regulation, we've got a new look on what their Basel III finalization might look like. How does that impact your U.S. IHC? How does that impact your cards growth plans there?
Because I know at the minute, capital ratios between your U.K. business and international franchises are fairly well balanced. Does that change if you're going to see material risk weighted inflation under U.S. regulations, and does that change your growth plans? Thank you.
Thank you, Adam. Let me talk about our deposit assumptions for 2023 first. As I said, in Q2, we've seen that sort of increased proactivity from our customers. We expect that to continue into Q4, into Q3 rather. By the time we get to Q4, normally what happens is we actually see a build of deposits in Q4 because people save up on their way into the holiday period. We're not assuming that this year, but we are assuming that the movements in deposits will somewhat stabilize in the fourth quarter. That's our version of that seasonal effect in this forecast. What we're expecting in NIM terms is that for NIM to step down in Q3 and then be a bit more stable into Q4.
Remember, we've got really good visibility on the hedge. Of the GBP 3.6 billion in growth income this year, we've already locked in GBP 3.3 billion of it. We know who our mortgage customers are and when they're going to refinance. Really, what we're doing here is answering three questions. The first is what happens if and when base rates go up again? We are clearly saying that we expect that to not have a positive impact on NIM. It might actually be slightly negative, and that's because at these rates and beyond, we'd expect pass-through to be high. The second question we have is around deposits, and I've just told you what we think. Step down again in Q3, somewhat stable thereafter into Q4. The third and really important question is: what do we expect to happen to unsecured lending?
Given the proactivity that we see from our customers, we are not assuming that that is going to grow. You're seeing some headline growth, but that's not interest-earning growth. Now, as I say, this is having some downward pressure on our BUK NIM, but it is also impacting the impairment, and we are seeing very strong, low levels of impairment coming through in the U.K. Hopefully, that gives you a bit more clarity. I think, Venkat-
Can you say anything on deposit migration in 2024 and changes in mix beyond 4Q, or is it too crystal ball?
Too early to tell. As I noted before, all I would say is that given the strong pickup in the structural hedge, we would expect those two things to be offsetting.
I just want to emphasize the point Anna made at the end about the relationship between NIM and impairment. You know, having spent a lifetime in credit markets, what I will say to you is the NIM you want is not the highest NIM, but the best kind of NIM, the one that balances your return with risks of credit impairment. We think we increasingly see the evidence that we've got a very good kind of NIM, because what we are seeing is a reduction in it, but a reduction for the right reasons. The reasons are that people are using extra balances to pay off mortgages and reducing the impairment risk on the portfolio.
As you think through these numbers and as you think through our credit portfolio, I would urge you to keep it in mind, because that's the way Anna and I think about it, and that's the way we've been, you know, targeting and developing and shaping the credit profile of this bank.
Absolutely. Thank you, Venkat. On your second question, Adam, which is about Basel 3.1 in the U.S., again, it's a bit early. We're expecting that guidance today, so it will take us a while to work our way through that. We've guided to the overall expected impact from Basel 3.1, and, of course, we'll update you on that as these rules become clearer and more final.
Thank you.
Thank you for the question. Can we have the next question, please?
The next question comes from Rohith Chandra-Rajan from Bank of America. Please go ahead. Your line is now open.
Thank you. Morning, both. I had a couple on CIB, please, if that's all right. The first one was just on transaction banking, where there was clearly a very strong revenue trend last year as rates were rising. That's come down slightly over the past couple of quarters. Is transaction banking now, is that margin piece done, and this is now a kind of volume-driven revenue line? That would be the first one. Then just on cost management in CIB. Costs have been coming down, but they've not kept pace with the revenue trends. I was just wondering how we should think about the cost trajectory there going forward. Is this...
You know, should we expect the investment spend to drop out at some point or efficiency improvements to kick in, or is this more about market share gains and revenue growth and market recovery going forward, so the revenue line more than the cost line? Thank you.
Thank you, Rohith, and thank you for the question, which, of course, is on another very strong NIM story for Barclays. The one we talk about a lot is Barclays UK, which is half of our net interest income. Corporate is a quarter of it, and CCP is the other quarter. Thanks for the question. What's happening in transaction banking is continued stability in deposits. These are very long, sticky relationships with our corporate clients. We've seen earlier migration there, as we would expect. That's a bit more stable now. And really, what you're seeing over the last couple of quarters is they're both slightly odd.... in their day counts. Q1 is relatively small in business days.
Q2's got more calendar days, but fewer business days, because of the bank holidays that we had through May. It's actually a slightly odd quarter. We saw probably fewer fees coming through there because of the fewer business days, but higher deposit income because of the more calendar days, if you can decode all of that. Just stepping back from all of it, given that it's based on corporate relationships, and given that our structural hedge also impacts this business, we see it as being pretty stable, actually, as an income line. Corporate lending is a much cleaner picture this quarter as well, because it doesn't have any leverage loan marks in it. That's a much closer picture to what I would expect that to be a clean quarter.
On CIB costs, we've clearly been investing in our CIB for the reasons that Venkat's gone through. What you're seeing at the moment is that cost trajectory around investments is reaching maturity, really. What you're seeing over time is the income growth. Whilst there might be differences quarter to quarter, that income growth is coming through behind it. You're seeing what were quite strongly negative jaws now alleviating somewhat. I won't talk about specific quarters, Rohith, but, you know, clearly our objective here is for this business to have strong returns, and cost-to-income ratio is a key part of that. We are focused on it. You know, you'll see that it's part of our overall story. We don't think that our CIR is out of line with our peers.
Clearly, we're seeing the benefits of the growth coming through. Very RoTE focused. Just noting, we've had double-digit RoTE in this division now for 10 out of 14 quarters, so we feel like we're investing in the right things.
Thank you.
Hopefully, that helps. Thank you, Rohith. Can we go to the next question, please?
Our next question comes from Edward Firth from KBW. Please go ahead, Edward, your line is now open.
Thanks very much. Good morning, everybody. Venkat, I just wondered if I could bring you back to the strategy question. I think that probably is the key one at the moment. I mean, I heard what you said about the success of the CIB over the last five years, and, you know, for what it's worth, I agree with you. If I look at your share price over that time, it's down between 10% and 20%. I guess although we agree, the wider market clearly disagrees or clearly doesn't see the value in what you've created. I guess in that context, I also heard your comments about the strategic review and perhaps, you know, fee income being a focus.
You know, how sure are you that that is enough to start closing the valuation gap on the peers? At what point, you know, are we not approaching the point now, after perhaps five or 10 years of this strategy, where we start to think, you know, doesn't something more radical need to happen to actually start closing the gap? Because you're now at a huge discount. I mean, Lloyds is on 1x book, NatWest is on 0.8, 0.9. You're, you're down 0.5 or less. I'm just, you know. Is there sort of a sense as to how we can do something to close that? Does that make sense? Sorry.
Yeah. What I want to say to you, is obviously, you know, we, first of all, thank you for your comments on the CIB. I'm glad you agree that we've been making progress on it. It's clearly insufficient, right? That's what the price to book would tell you. I think there are three or four aspects of that. One aspect is the proportion of the bank's revenue, profits, risk-related assets that are sitting in the CIB. It does feel that that is a drag on the overall valuation when it's at 60% to 70%, right? In other words.
Mm-hmm.
-the success of the CIB has been great, but it's now, you know, the rest of the bank has to pull its own weight. That's the part, again, where I say, both within the CIB and the rest of the bank, that we've got to increase the proportion of relatively capitalized, relatively fee-making revenues. You know, we're putting in place the pieces that allow us to think about this in and operate this in a good way. The merger of the private bank and the wealth business from the U.K. is one such piece. The investments we've continued to make in our cards portfolio in the U.S., although I repeat the point I made earlier, not just to make investments in the card portfolios, to be able to make it more capital efficient, are another part of that piece.
I think it's important also that we have. You know, we don't surprise the market in the way we did last year with that securities issuance problem. We're spending a lot of time improving internal end-to-end management and efficiency, so that we don't have negative surprises. Ultimately, you come to the last part, which is to run the businesses at a very high level of operational efficiency, which includes, in some part, scale. That people believe that you can produce these higher returns sustainably and over long periods of time, and guide you to how we might do that. I think, you know, we're spending time thinking about that, and at the right time, we'll share.
Okay.
Thank you, Edward. Did you have another question or?
Well, I guess just a sort of follow-up to that is, I mean, I get what you say about the sort of balance of the business, but sort of growing organically or changing organically, is it's not really going to change that materially in the next five years, I don't imagine. Unless you're going to do something, you know, really material in terms of buying some retail banking or buying a big stable banking part to rebalance it and/or sell or close down a significant part of the CIB, surely the balance is not going to change materially, is it? I mean, it's been pretty much 60/40 for seven, eight years, I would imagine.
Look, I think you've got to approach this in a very thoughtful, careful, deliberate way. That's what we're doing.
Thank you, Ed. Can we go to the next question, please, which will be our last question for this call?
Our final question today comes from Robin Down from HSBC. Please go ahead, Robin. Your line is now open.
Good morning. Just, yeah, a couple of quick ones for me. Firstly, apologies if I missed this earlier, the webcast kept cutting in and out. Can you give us any sense as to where mortgage completion margins were for you in Q2? The second question, perhaps a little bit more kind of slightly philosophical question about the structural hedge. Why are you reinvesting at the moment? If you reinvest in the structural hedge today, five-year swap at kind of 4.8 on you, probably after next week's base rate rise, is going to be around 5.5. There's a negative spread there. It feels like you've gone beyond hedging your current accounts and equity, and you're partially hedging now sort of deposits where you have effectively 100% deposit beta.
Just philosophically, why are you reinvesting in a structural hedge now? Why are you not actively looking to kind of run it down, whether it's a kind of negative to some near-term income? Thanks.
Thank you. Thank you, Robin. On your first point on mortgage completions, I think we've been pretty consistent in not quoting spreads. All I would say to you is that the mortgage market is extremely competitive, largely intermediated, and you wouldn't expect our spreads to be markedly different from the market as a whole. What really matters, though, in mortgages is the current churn impact that we're getting, which, as I said, we'd expect to lessen into 2024. As to your second question on the structural hedge and the philosophy around that. The reason that we have the structural hedge is to smooth the income of our banking book businesses over time. It is not there to be an expression of where we think rates will go, either up or down.
It's there to protect and smooth the income pathways on those really important banking businesses for us, whether they be in corporate or in retail. What it's done is it's, you know, led to a slower income pathway on the way up, and to the extent that we keep reinvesting in it will stabilize our longer-term income. At any point when rates start going back down again, it will protect income on the downside. For us, it's not an expression about how we feel on rates. It's actually an expression about how we manage our income and how we think about our risk, actually, in these critical franchise businesses. Thank you. Thank you for the question.
With that, I'd like to thank you all for your questions this morning and your continued interest on and focus on Barclays, not only for Q2, but you know, the great questions on our longer-term strategy. If you've got further questions, please follow up with the IR team, or I will see many of you the week after next at our analyst breakfast. To everyone, I really hope you have a great summer break, and we will see you soon.
Thank you.