Good morning. It is great to see so many familiar faces. For those I have not met, I am Jason Goldberg, and I cover the U.S. large cap bank stocks here at Barclays. On behalf of my financial services equity research colleagues from around the world, welcome to Barclays 24th Annual Global Financial Services Conference. With approximately 220 participating companies, we believe this is the largest sell-side financial services conference ever. I cannot think of a better way to kick off the conference than with the home team, as Barclays combines U.K. retail and corporate investment banking franchises with a top-tier global investment bank. In addition, Venkat, Barclays Group chief executive officer over the past five years, and Anna, its group finance director for almost 4.5 years, are big supporters of our research franchise as well as this conference.
Venkat and Anna, thank you for joining both of us this morning. Maybe let us begin. It has now been 2.5 years since you first set your strategy and vision for Barclays. Clearly, we have made progress, and are on track for greater than 14% RoTE for 2028, and the market believes that. But returns are still below many of the banks that I cover. Are you still confident in delivering the strategy you set out, and given the gap to peers, is your ambition high enough?
Well, first of all, Jason, thank you very much for having us. Thank you for taking the risk of putting the home team on first. Congratulations to you and your colleagues for 24 years of this conference. You are running the Premier financial services conference, if I may say so myself. And thanks to all of you for attending. We really appreciate your partnership with Barclays. There are hundreds of companies presenting and many hundreds of investors here, and we appreciate your time and engaging with us and with all the companies that are here over the next two days. We are really grateful, and we appreciate it a lot. So thank you. And thank you also for starting without a softball question. The answer is, we have laid out our plans. We are very happy with the progress we have made in the last 2.5 years.
In our mid-year results in July, what we said is for the first three-year plan, which began in 2024 going to 2027, we have substantially met or are well on the path to meeting all the goals we have set. Then we have laid out more ambitious goals going out for the next two years, which we are very confident in meeting, including 2026. But let me look beyond that. First, a couple of things. We have laid out goals as financial planning targets to 2028. Obviously, the horizon stretches beyond 2028, and that longer-term horizon is very much in our minds. And it is driven very deeply by ambition and growth. We are looking to create an all-weather RoTE beyond 2028, which means something that produces high returns over an economic cycle. How are we going to do that? And there are two fundamental ambitions to that.
One is to build a constellation of segment-leading businesses. This constellation of segment-leading businesses comes at the core, our Investment Bank, which is a leading global Investment Bank. There is no greater sign of that than all of you here in this room and this conference which you run. The second is our U.K. businesses in retail, in wealth, in corporate banking, which cover the entire country, cover the smallest clients to the largest clients into the Investment Bank, and provide a connective tissue into the U.K. economy. Then the third, which I am sure we are going to talk about, is our disruptive consumer bank here in the United States. Our ambition is first based on this constellation of segment-leading businesses, and second is based on a deep ambition and plans, which are underway progress, to reduce the structural cost footprint of the group.
We are looking to do it in three ways. The cost of production, unit cost of production, the unit cost of service, and the unit cost of innovation. So how cheaply can we produce a loan, onboard an account, do a mortgage? How cheaply can we service a customer? Then how quickly can we build new products? We will come later and talk about one recent example in Samsung and the US Consumer Bank. These things are at the core of our ambition, a constellation of segment-leading businesses and reducing this unit structural cost footprint of the group. That is what is going to lead to all-weather RoTE beyond 2028.
Jason, if I can just add, Venkat is outlining here quite a significant amount of change. What the plan does is it balances that change with increasingly higher returns, increasing distributions. We have gone from 9% in 2023 to being well on the way to deliver more than 12% this year and well on the way to deliver more than 14% in 2028. Our 12-month run rate to the half year was 12.2%. So we have got some real momentum in the business. We are not compromising on distributions as we make these investments. So it is not one or the other, it is both. It is a balance. If you look at our distributions for the half year, and just recalling that we said we would distribute at least GBP 10 billion over the first three years.
We are at GBP 9 billion by the half year, with GBP 1.2 billion of dividends still to go, and two quarters of buyback still to go. There is a lot going on here. Then the last thing I just want you to, I think, understand and for everyone here to understand is that don't take precision and execution and that focus that we have for a lack of ambition. We take target setting extremely seriously, and we are never going to put out targets that are not fully grounded in the momentum that we see in the business. You can see that now. Our lending is running at 5% CAGR. Our IB is generating good returns, stepping up every single quarter. The assumptions that we are baking into the plan are very realistic. I have talked about that 5% CAGR. I have talked about the IB.
Remember, we were planning on a flat wallet. We have said that we will deliver GBP 2 billion of cost savings across three years. In the first 2. 5 years of the plan, we have delivered more than GBP 2 billion. Finally, remember that structural hedge, we are assuming it is a 3.5% reinvestment rate, and that is half of our income growth between now and 2028. This is really underpinned by some very, very clear executable actions that allow us to invest in the businesses.
I guess maybe to follow up something we were talking about on the walk up, but clearly AI is a big theme in the market. Maybe just give us some color on the journey that Barclays is on as an organization and the opportunities that you see as you deploy the new technology.
Yeah. Well, AI is a very critical part of that second ambition, which I said, which was reducing the unit costs of production, service, and innovation. Having said that, it is not just AI alone. The way I like to think about it is AI is the icing on the cake. It is not the cake. The cake comes from three other things or four other things. One is, of course, to have a workforce that has the tools available and that can adopt them. The second is building the infrastructure that allows you to take advantage of AI, which is simpler, cleaner processes, better data, high-quality compute platforms, and to make that consistent across the bank.
The third is because deploying AI at scale is not easy, you have got to learn how to do it, and you have got to focus on the highest value use cases for the bank or for any company, the things that give you the most value, the most bang for buck. So picking those and doggedly sticking to them and getting the value out of them. The fourth is, as corporate leaders, we must all recognize that once this really takes root, it is going to change the size and the shape of our workforce. We should make it easy for that to happen for ourselves and for our employees through reskilling programs and other things. So AI comprises in my mind all four of them.
I think it is a deep part of reducing our unit cost of production, service, innovation. I think we are already seeing very promising signs in customer service, in financial controls, in ways in which we manage workflows within the Investment Bank. It is at the start of that journey, and we are spending a lot of time on the infrastructure as well as on the AI, and we are seeing it actually in the reducing the cost of innovation in the US Consumer Bank , and I am sure we will come to that. I think this is tremendous promise, and it forces you to run a cleaner, tighter ship in terms of technology.
I think from a financial perspective, if you just put a CFO lens on this for a minute, AI we should expect or this reduced cost to serve is best for the client. It makes our earnings much, much more resilient because it will reduce that cost to serve. Then finally, it gives us this optionality to be able to invest while continuing to balance the returns and the distributions to our shareholders. So it is super important, but it does come after this optimization of the organizational structure and around process. We are seeing benefits even now. We are seeing about 6,000 hours savings in our contact centers. We are seeing a 20% reduction in our inbound fraud calls. So it is really starting to make meaningful differences, and we should expect it to make more.
Also we have to have a lens on the cost of implementing this technology. As Venkat said, learning is really important here. As we are deploying this, we have to look at the net cost and the net benefit. You can call it tokenomics, you can call it a number of things, but that is really super important, and we need to be careful that we are deploying agentic AI where it is appropriate, and machine learning where it is appropriate, to really manage that net cost.
In kind of answers to both of the last questions, you both mentioned efficiencies and cost saves. I guess with that theme, with second quarter results, you announced GBP 450 million or $600 million of additional costs in the second half of the year. What drove this cost inflation, and what does this mean for kind of cost shape beyond 2026?
Yeah. Let me start and then Anna can add. I think first of all, what is very important about that cost announcement is that it is a recognition of the efficiencies that we are beginning to achieve, right? In both people and in cost to implement. Therefore, these cost actions which we have taken are things that are going to have a very quick payback. They are of a moment. They allow us, based on the income which we have generated so far this year, to accelerate the realization of these benefits. We are extremely confident, even after all of this, that we will hit the returns targets which we have laid out. Right? We have got better income. We are able to recognize and realize the benefits, and we are doing so with a quick payback, and we are maintaining all our targets. Anna?
Yeah. When we talked at the half year, we actually talked about two separate things, so let me just remind you of both. The first was a smaller number, so between GBP 100 million and GBP 150 million, and we are taking the opportunity to rebalance the way we recompense our most material earners in the firm, so the material risk takers, as they are called. Essentially reduce the fixed payments and increase the variable proportion, bringing us much more into alignment with our U.S. peers and the pay structures here. That is really, really important because it gives us greater flexibility, greater operational leverage from 2027 and beyond. It does accelerate some costs into 2026, but they are one time. The second thing that Venkat talked about, we talked about taking additional GBP 300 million of cost actions in the second half.
Now, just to ground you, we normally take between GBP 200 million and GBP 300 million in any year. It is a bit like sort of mowing the lawn or doing the gardening. We just have to do that to keep the organization efficient. We have taken GBP 100 million in the first half, so with this extra GBP 300 million, that means we are pushing through GBP 500 million worth of change in the second half of the year. Expect that to be broadly split between Q3 and Q4. Actually, in the third quarter, I am expecting about half of the cost to accrue into Barclays UK. What is this about? Well, it is really organizational simplification. It is largely about personnel. It is largely therefore going to give us a pretty quick payback. Really, this is about us delivering a simpler operational model.
This is about us getting to a point where the organization can move faster, react faster.
Of course, financial efficiency will be part of it, but it is not the only thing. Beyond 2026, and I just want to remind you that when we report costs or when we report RoTE or CIR, it is all in. We said we would deliver a high fifties cost income ratio this year. That is still what we are going to deliver, despite taking the GBP 150 million in respect of the changes to comp, despite taking an extra GBP 300 million. Remember about the GBP 100 million that we took in Motor Finance in Q2. So we have got GBP 500 million of additional costs in the current year, which we do not expect to be repeated. We do not expect GBP 600 million to be the new norm in SDAs.
I just reiterate that we expect to be in the low 50s CIR for 2028, and I expect 2027 to be a meaningful step towards that. We continue to expect positive operating jaws in every single year of the plan.
Sounds good. I guess maybe moving to the business, one I pay a lot of attention to, the U.S. consumer business. There was a number of moving parts last quarter. American Airlines moving out. New relationships, capabilities coming in, including Best Egg. You mentioned Samsung. Maybe just walk through how this business is evolving and just more fundamentally, does Barclays have sufficient scale to compete?
Yeah.
Good question, Jason. Let me begin. Last year when I was here, I said about our private banking and wealth business, watch this space. I am sure you are going to ask me a question. We can come back to that space. I will say about the US Consumer Bank now, watch this space as well. First of all, this is, I said, a constellation of segment leading businesses. The US Consumer Bank is one star in that constellation. What is this star about? This is a disruptive digital bank in the United States. We have got GBP 30 billion odd of assets. We have just bought Best Egg, which is a direct to consumer, again, app-based, internet-based lending platform. Direct to consumer lending platform. It is about the fourth or fifth biggest in the country, around $10 billion of origination.
We have got a deposit capability, and we do not have a single bank branch in the country, right? We have got over 20 million customers, and we work with some of the biggest companies in the country. This digital consumer bank is our disruptive bank. The interesting thing to me coming from a large bank is that if I were saying all this and I were a fintech, people would not ask me about scale because they would assume two things. They would assume, A, of course, I had the ambition, we had the ambition to generate that scale. B, that we would have the objective to actually get those economics to work. That is true for us here. We have the ambition, and we have the objective.
In that context, and we will talk about financials in a second, the first preview trailer in this Watch This Space is our onboarding of Samsung. We did this using very modern, advanced agentic AI programming techniques in about half the time we would have done otherwise, working with one of the most strict and demanding counterparties you can find in the technology world. Think of this as the beginnings of developing a wallet and a card capability that is an Android version of what is the other one, right, which many of you have in your pockets. We are very hopeful about this. It is hopeful not just about the commercial process, but it is hopeful about the way in which we are doing it, right? Which is this digital disruption. That is what the Watch This Space is about.
I think also, we forget where this business has come from. In 2023, when we went to our new segmentation, this business had a 4% RoTE. Over the last 12 months, it is just short of 15%. It has made tremendous progress. The NIM is up by 250 basis points since the beginning of the strategy. That is now because our retail cards are now 24% of the business. We have grown our deposits, our retail deposits really, really meaningfully in this business. That is a much cheaper source of funds for us, 50 basis points- 60 basis points lower than we would see from a wholesale or a broker deposit. We are targeting a low 40s cost income ratio for this business. It is, in many ways, our most digital business, and it is our most efficient business.
Those two things are very, very strongly linked. We have made huge progress here.
I think, do not underestimate how much ability to connect between USCB, Barclays Bank UK, and learn between the two. That is really, really important to us. Running a digital disruptor in not your home market is an extremely interesting thing for us to do. As we look to this year, we are still confident that we are going to deliver around 12%. We talked about interest rate pressures on the top line. They are intensifying, but through these many levers that we have, we continue to push.
Maybe let us move to the U.K. from both a macro and business performance perspective. I know Barclays has a target to grow lending greater than 5% CAGR from 2025 to 2028. You exit 2025 at 5%, and have been consistently growing at this level so far this year. Maybe just tell us how you have been doing it, what extent the U.K. macro environment is helping or hindering your growth, and how you think about the broader policy backdrop, including the potential proposals around bank taxation.
You are provoking me, are not you?
It was in the Financial Times.
First of all, about the U.K., it is never as bad as you read it in the newspapers. Real growth is about 1.2%, nominal growth is around 4%. It is higher than any other country in the Eurozone. Now, it is not the United States, but it is pretty good. There is good formation of capital inside smaller companies. They are borrowing, they are investing. We are playing a big part of that and, as you mentioned, our lending growth is increasing. I think it is very important for us, and we said this in our strategy three years ago, to continue to compete very strongly in the U.K., everywhere.
At the heart of that is our retail bank and the deposit gathering capability within that, and what we call our Premier client base, which is somewhat affluent customers with whom we have not just retail deposits and retail services, but wealth management and so on, and the linkage with business banking and corporate banking. That is the core of our retail franchise. Now, we continue to meet the commitments which we laid out in terms of growth. We said GBP 30 billion in RWAs increase, over this three-year period. We are well on target to meet that. Our returns remain strong. We are actually increasing not just the digital capabilities, but the human capabilities in that by growing our branch network and services. I am very confident in the U.K.
I would also say as somebody leading a global bank, your global bank is as strong as your home market, as you are in your home market. It's very hard to be a very successful global bank without having a deep hold in your home market, and that's an important thing for us in the U.K. As for bank taxes, look, I've spoken enough about this. The U.K. is, among the major countries, the most highly taxed jurisdiction at 46%-ish taxes versus 30%s - 40%s in the Eurozone and 28% here in the U.S. As our profitability increases, we pay more taxes, right? That's just how the math works. I think this constant talk not just over banks, but other businesses in the U.K., trying to hang this Damocles' sword over business profitability is not conducive to the economic growth that the country needs and wants.
That's what I'll say.
The thing I would add, Jason, is that with all parts of our plan, we try to put as much of it in our hands as possible. So, our lending growth is largely self-help. We are not reliant on the market to grow. Again, just reminding you where we were and where we are now. So in the last 2. 5 years, we've gone from being a single brand to having a multi-brand strategy in Barclays Bank UK. So you can see that coming through now in our mortgage business where we've, I think our application share and completion share is higher than our stock share for about the last nine quarters, because we're putting Kensington Mortgages to work. The same is true for Tesco Bank now in terms of the cards business.
That allows us to approach the market in a much more sophisticated way in terms of the product architecture and the pricing architecture that we approach the market with. Some technology in there as well with our broker platform. The same is true in corporate, from the smallest business banking clients all the way through to the very largest. We've changed the way that we lend. We've got more than 1,400 new clients. They are bringing both deposits and lending to us. Our loan-to-deposit ratio has gone from 31% in corporate to 35%. Our peers are well over 50%, and in many instances, closer to 70%. We have so much way to go in terms of lending to the clients we already have within the firm, that actually, it gives us great confidence in the business.
Particularly in corporate, this is a business which had been under-invested in for many years. We are now taking all of our corporate clients on a journey to migrate them onto contemporary technology called iPortal. That will replace five legacy platforms. You are going to see them shut down from 2027 onwards. More importantly, it can allow us to integrate new products really quickly. I was speaking to the team the other day, [Kahol] is just here, he and I were talking about our trade capabilities, which have grown meaningfully. Our income from trade across the corporate bank and the international corporate bank has grown meaningfully in the last 12 months. Why? Because we have implemented a new platform. That allows our colleagues to go out and deliver that to clients. When they can do that, then the revenue follows.
We are confident, Jason, because of the actions that we are taking. Just the last thing on tax, just so that everybody has got the numbers in their head. There is so much newsprint at the moment about the surcharge in the U.K. That 3% surcharge delivers a GBP 1 billion tax take to the Exchequer. GBP 1 billion. It is not a large-scale change for the government. Just so you have the numbers for us, any 1% change in that is about GBP 35 million. I think the important thing here is the focus on growth. Actually, the numbers involved for us are relatively small as an earnings matter.
Yeah. If I can just add, the numbers are small, it is the principle.
Yeah.
The second thing is the reduced cost of innovation you are already seeing in our US consumer bank. The reduced cost to produce and to serve, we expect to see in our U.K. retail business first.
I guess, while you are diversifying net interest income towards lending, deposits remain a key driver of NII growth, and I suspect will be a theme of the conference. In an increasing competitive U.K. deposit market, how are you winning and retaining deposits while protecting profitability?
Yeah. Let me start. I think three things, and this is a bank analyst conference, so I shouldn't have. You know more than I do. But deposits are the core of banking. Banks make money in three simple ways. We have the deposits, and that and God willing, an upward-sloping yield curve gives you some return. Then you make money from lending and the spreads from lending. The third is you make money from fees. At any point in time, one of these things is more profitable than it might be in other parts of time. But the entire franchise depends on your having both the ability to gather deposits and maintain deposits, the ability to lend, and the ability to do fees.
You have to run all three at the same time, even though momentarily, one may make more money than the other because the yield curve is flat or downward sloping or whatever. We take our deposit growth very seriously. We continue to expand across the U.K. We just bought a small company called GoHenry, which is about giving kids spending with the hope of getting them onto your deposit base, catching them young and keeping them forever. We take that, whether it is in the retail part, in the business bank, or the corporate part. It is a very important part of the franchise. I have a through-the-cycle view of it, not just momentary profitability.
Yeah. Thanks, Venkat. I think the other thing, Jason, is as people look at our deposit base, they overly focus on the U.K. Of course, it is really important, but you have to look at the breadth of deposits across the franchise for Barclays. Our US Consumer Bank deposits are up by more than 50% since 2023. Our international corporate bank deposits are up by nearly 40% since 2023. For a mature bank like Barclays, with its global reach, to have grown its deposit franchise by 10% since 2023, should show you the quality and the depth of our deposit franchise, not just in BUK, but all the way across the businesses. Sometimes, particularly when we talk about the structural hedge, people talk about it as a piece of financial engineering that is somehow disconnected to the rest of the bank.
We've got a great structural hedge that will drive 50% of our income growth between now and 2028 because of the quality of the deposit franchise. It's a complete underpin. They are not disconnected. Those deposits are crucially important to the relationship and to the financial progress we're making.
Anna makes a good point. What we do outside just the retail side is really important. Corporate bank has been an area of both great focus, growth, and success. In fact, just very recently, as a result of another investment banking transaction, we had the highest single deposit we've had in our international corporate bank in the high billions from one client, and that's very gratifying to see.
We have eight minutes left, and I have four questions I really want to get through.
That's rapid fire.
Okay.
February, we talked about the strategy for 2028 and beyond and ambition to grow fee income. Just remind us what part of the bank you are referring to and the progress so far.
Go for it, Anna.
We talked about Barclays UK and private banking and wealth management. This is really important. Again, if you do not spend much time in the U.K., integrating financial advice into a bank is not something that has been done since 2014, since the regulation changed. So all of the changes that we are making here about relaunching the retail app, really keenly replumbing across to private banking and wealth, and launching our wealth proposition in the second quarter, where actually it is digitally provisioned, but your first meeting is with an advisor, fee-free, a real human. Thereafter, really good digital proposition. That is unique in the U.K., and we are really excited about what that.
Watch that space.
Watch that space, definitely. Premier, really important. Reducing custody fees to zero. This is going to be a price-leading disruptor. This is another disruptor that we are talking about here. Secondly, we talked about the U.S. cards business. Best Egg is a big fee proposition for us in that market. Capital efficient growth. Then finally, for corporates, we talked about trade. Everything that we are doing about our transaction bank, it is one of our biggest engines for growth within the investment bank. Do not forget IB fees.
On IB fees. A very important business to me. Obviously, results have been strong. Can we maybe just talk to how investors should think about the cyclical versus structural drivers of the recent performance and just the sustainability of returns?
Yeah. Look, I am very pleased with our performance in the investment banking area, both in markets and in banking. Obviously, the underlying fundamentals have been strong on both sides. Wallet growth has been good. We were in nine of the top 10 IPOs in the first half of the year. We have got a strong book coming in the second half of the year. The banking team is very busy. On the market side, volatility continued apace through the first half of the year. It took a small breath in August. Or maybe the traders took a small breath in August. I think, we are back in Fed week. We are back looking at various things in the bond market. I am expecting markets to continue to show volatility through the fall. I think those are cyclically very important.
Structurally, we continue to have stable income streams dominate the returns in our banking franchise. To the point, financing revenues are now about 40% of total revenues in the investment bank, so that structural improvement is really important. Anything to add?
Nope.
Oh, wow. Watch that.
I know it's something we've discussed, but what about Barclays Investment Bank competitive position today, relative to U.S. peers, and maybe talk to that, and is there regulatory divergence between the U.K. and the U.S. an issue?
Yeah. Look, let me begin at the beginning, which is that we've been dealing with this for decades. And we still, with all of that, managed to have an Investment Bank that is extremely competitive and that's profitable. Now, is there a real difference in capital rules between the U.S. and the U.K. and Europe? There absolutely is. And I was part of a letter that a bunch of European and U.K. and Swiss banks signed last week. And we think it's really important to have harmonization in capital rules for competitiveness sake. So I think there's more to be done, but we know the rules we have, and we'll run a business that's profitable in spite of them. I wish for a tailwind, but if we don't get it, we'll still do well.
I think the other thing, Jason, clients come to the Investment Bank in Barclays because of the capabilities that we bring. That is the most important thing, and we continue to structurally change the business, drive its returns higher, and we'll deal with any capital divergence.
Makes sense. I guess maybe to wrap up, as we look towards 2028 and beyond, what do you think investors underestimate about Barclays? What would you like investors to understand about the earnings power, strategic positioning, and durability of the franchise?
Yeah. Let me start quickly. First of all, that earnings power. I learned very early in finance, that the most important rule is compounding. When you look at the compounding effect, our earnings per share growth has been in double digits. Our tangible net asset value, TNAV per share growth, including dividends, is also in double digits, I think 13%. So what you're seeing is a compounding in the underlying value of the stock, and also in the earnings power of the stock. Where does that come from and where will that continue to come from? The two things I mentioned. A constellation of segment leading businesses, including two disruptors, and a relentless drive to reduce the cost of production, the cost of service, unit cost of production, unit cost of service, and the unit cost of innovation.
We expect all of those things to fall through to the bottom line. Those things are what I think will power the stock. And good risk management.
Okay. Can't forget that. Anything else?
I would say, at the moment, I think the ambition that we have for the business beyond 2028 is underestimated.
Great. That's perfect. On that note, please join me in thanking Venkat and Anna for their time this morning.
Thank you.