Barclays' CEO Hosts Barclays Corporate Bank Presentation Conference (Transcript)

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Barclays PLC (NYSE:BCS)

Barclays Corporate Bank Presentation

May 01, 2013 12:30 pm ET


Antony P. Jenkins - Group Chief Executive Officer, Executive Director, Chairman of Executive Committee, Member of Regulatory Investigations Committee, Group Chief Executive Officer of Barclays Bank PLC and Director of Barclays Bank PLC

John Winter - Head of Investment Banking - EMEA

Mark Merson - Co-Head of Finance and Financial Controller

Keith Ho - Chairperson Emeritus

Ian Stuart - Sales Director of Asset and Sales Finance Division


Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

Michael Helsby - BofA Merrill Lynch, Research Division

Thomas Rayner - Exane BNP Paribas, Research Division

Christopher Wheeler - Mediobanca Securities, Research Division

Andrew P. Coombs - Citigroup Inc, Research Division

Peter Toeman - HSBC, Research Division

Jason Napier - Deutsche Bank AG, Research Division

James Alexander

Chris Manners - Morgan Stanley, Research Division


Welcome to the Barclays Corporate Banking presentation. During the call, Barclays representatives may make present forward-looking statements within the meaning of the U.S. securities laws. By their nature [ph], forward-looking statements involve risks and uncertainty and other results. Barclays Group's actual results may differ materially from the plans, goals and expectations which they will talk about. [Operator Instructions]

Ladies and gentlemen, welcome to the Corporate Banking Presentation [ph] in Barclays HQ in London. [Operator Instructions]

Antony P. Jenkins

Good evening, everybody, and welcome. Many of you will know that I've talked about cost as being the strategic battleground for our industry, and you'll note that we've applied that to the catering, so I apologize. But as either investors or people who talk to our investors, I'm sure you'll appreciate the low cost of the event.

This is the first of a series of seminars that we're going to run on our individual businesses. We took a decision after the Investor Day on February 12 that we didn't want to immediately roll into business-by-business presentations because I think it's important that you have enough time with the management teams to be able to have good interaction and ask questions.

And this is really about how we lay out the action plans to become the "Go-To" bank for all of our stakeholders. And what I'd like to do now is just talk about the progress that we've made in the first part of this year. So last week, we published our Q1 Interim Management Statement. This is the first set of results that we've launched since we published our purpose and values, and announced the Transform program. And I'm pleased to say that we've made a strong start to the year.

Overall, we've built good momentum across the business and are also making very good progress on embedding our values and in delivering our Transform plans. For the first quarter of 2013, adjusted profit before tax was down 25% to GBP 1.8 billion when compared to the same period last year. This reflects nonrecurring costs, such as those associated with executing the first stage of Transform. Excluding these costs, adjusted profits would have been up 6%. We are on track to execute the GBP 1 billion program of restructuring and investment for 2013, which we announced in February, and 1/2 of the cost was taken in the first quarter.

Total costs were down 4%, excluding this cost to achieve, as we reduced nonperformance cost by 2% and performance cost by 10%. We are making good progress towards achieving our absolute 2015 cost target of GBP 16.8 billion, excluding the GBP 700 million of cost to achieve the mid cost -- the mid-50s cost-to-income ratio at the group and the mid-30s comp-to-income ratio within the Investment Bank. We've strengthened our capital position with our Core Tier 1 ratio up to 11% and our Basel III fully loaded Core Tier 1 ratio higher by 20 basis points at 8.4%.

I also announced a number of organizational changes in our Corporate and Investment Banking, Wealth and Americas businesses. These changes will accelerate our delivery of our plans and ensure that we have the senior team in place to build the "Go-To" bank.

When we presented our results on -- our strategy on 12th of February, we also committed to increase transparency. And to this end, we published a significant amount of new details, part of our annual report, especially on funding and remuneration. We'll provide full updates on our progress against our Transform commitments beginning at the half year. And crucially, this was something that many investors said to me was important to them, we reallocated more elements of the head office cost to the businesses, so that the aggregates of those businesses' results is more closely aligned to those of the group, including the group return on equity.

We plan to ensure that each of our businesses delivers a seminar before the end of the year, and the Investment Bank will be the next one on June 28. These are all important parts of our commitment to increase transparency, and we'll give you more detail on how each business will contribute to Barclays becoming the "Go-To" bank and how we'll achieve our 2015 financial commitments at the business unit level.

They will also give you an opportunity to meet our senior management teams, the people accountable for delivering against the commitments. Of course, these seminars will be an evolving process, and we're very keen to get your feedback on them, so we can keep improving the format and content.

So we're here today to talk about the Corporate Bank, and the Chief Executive, John Winter, will take you through the detail of that business in a moment. But I'd like to quickly highlight 3 points about Barclays Corporate. This is a very strong turnaround story, from a loss of GBP 255 million in adjusted PBT in 2010 to a profit of GBP 460 million in 2012.

I like to think of the U.K. Corporate Bank as a hidden gem, masked by some of the legacy issues that we've experienced in Europe and the rest of the world. But underneath it, there is a very important core business for Barclays, a business that has very attractive annuity characteristics to it and return characteristics. And finally, we have a highly experienced and proven management team who have consistently delivered what they said they would do, and I'm very confident that they're going to deliver on their Transform commitments.

So I'm now going to hand over to John and the team, and I hope you enjoy the evening and the presentation. Thank you very much, indeed.

John Winter

Thank you, Antony. Good evening, everybody, and thank you for being here and joining me tonight, and also, thank you for your interest in Corporate Banking. I'm very excited about the business. It's been quite a journey we've been on the last several years, and I'm really pleased to have the opportunity to explain to you a bit about what's going on and take you through where we were, where we are now and where we're headed.

Before I dive into the story, let me just tell you briefly about -- a bit about myself. Before moving across to run the Corporate Bank 4 years ago, 3.5 years ago, I spent 25 years in Investment Banking. I started with Merrill Lynch in 1985 in New York, came to London in 1992. I was supposed to be here for 2 years. 21 years later, I'm still -- actually I'm no longer looking for that return plane ticket. Joined Barclays in 2001, spent the first 9 years in the Investment Bank, running Investment Banking in EMEA. And at the end of 2009, I was asked to move across to run the Corporate Bank.

So what is the Corporate Bank at Barclays? As Antony said, we're several years now into a transformation process. So let me just tell you a bit about where the business is now and begin the story. So at Barclays, when we segmented the business back in 2010, we said clients that have turnover above GBP 5 million, we'll call those Corporate Banking clients; below that, stay in Retail. So we've got about 40,000 clients and about 13,000 staff in 27 countries.

But interestingly enough, those 27 countries are primarily in the developing markets. There's several in Africa, places like India, UAE and so forth. So it's not just a U.K. European story. We have a much more mixed geographic footprint. The business is meaningful in the context of the group. Roughly 10% of the group's income, over GBP 3 billion of revenues. And as Antony said, GBP 460 million of adjusted PBT in 2012. So that's where we are now.

But to really understand the story of what's going on in this business and where we're headed, it's helpful just to have a bit of context about where we started. So this is a slide virtually identical to the one that I used at the board in my first presentation in April of 2010. And I said, "What is the Corporate Banking business that we've got?" We've taken the legacy commercial banking bits out of what used to be called GRCB, Global Retail and Commercial Banking, and we've combined those with what has historically been the U.K. Commercial Bank, called the U.K. Commercial Bank, put those businesses together globally and called it the Corporate Bank.

And what we found is we had a solid but neglected franchise in the U.K. And outside the U.K., we largely had subscale money-losing businesses. In addition, the product capabilities we had were large -- outside the U.K. in particular, were underdeveloped and primarily debt-led. We were basically lending money with very little other product mix all over the world.

The clients we had were primarily SMEs. It was the exact opposite base of what the Investment Bank was focused on. It was very small companies. In Russia, for example, it was restaurants and news agents and so forth, very tiny SMEs. And to a large extent, they were focused in the riskiest sectors. We had a huge percentage of our loan book in Iberia, for example, concentrated on property and construction.

And finally, the infrastructure we had was outdated, almost prehistoric in some cases, dial-up modems and so forth. The control environment was fragmented and our servicing capabilities were inconsistent. So I quickly said, "What did I sign up for?" This is not -- this is a bit more challenging than I think I thought when I first took the job.

Anyway, so what did we do? We came up with a strategy to turn the business around, and the strategy we came up with is working. We went from a big loss in 2010, adjusted PBT of GBP 460 million last year, GBP 750 million -- GBP 715 million of PBT turnaround. All in all, a decent performance. Clearly, though, as we'll see in a moment, the ROE is not acceptable. It's getting better, but it's not acceptable yet. But we did manage to do this turnaround without piling on risk. We've actually taken a lot of capital out of the business; a lot of risk-weighted assets are out, GBP 77 billion back then to GBP 71 billion in 2012.

The first quarter of 2013 is very encouraging, GBP 183 million of PBT. If you take out the cost to achieve and fair value adjustments, that's actually up 51% in Q1 2012. It's 3x what we made in PBT in the fourth quarter of 2012, so a solid performance in the first quarter.

So what is the strategy? What is it we've actually been doing? We came up with 6 principles back then that we've stuck to religiously and continue to -- and these are what continue to drive the business forward. I'm going to go into more of these in detail. But just to recap briefly, the #1 priority we had was to strengthen the core franchise we had in the U.K., but neglected too long. In effect it had been -- looked to me like it had been a bit of a cash cow, really used to fund some activities outside the U.K.

We really needed to rationalize the geographic footprint we had, just wasn't clear why we were in some of the countries we were operating in. The product and servicing capabilities we had, we needed to strengthen considerably. There were very little synergies with the Corporate Banking business and other parts of the group. We had to find ways to exploit those.

The balance sheet had a large funding gap, had what I would call some lazy RWAs in it, GBP 1.7 billion of impairment in 2010, lots of issues on the balance sheet we had to clean up. And we had to create a cohesive culture globally, everything from retail bankers in the Middle East to trade finance experts in Spain to lots of folks all over the U.K., different cultures, never really worked together before. There was no real coherent culture, no real team spirit among the group.

So the strategy we came up with, we challenged hard in the last few months during Transform. Said, "Do we have the right strategy? Should we be doing something else?" What we decided was, we're on the right path, we're doing the right things. But Transform also gave us a new way to look at the business.

So in the invest and grow cell, global corporate, FIs and the U.K. franchise, GBP 59 billion of risk-weighted assets, over GBP 900 million of PBT in that business, when you look at it through that client lens. The 2, 3 and 4, those quadrants, about GBP 12 billion of RWAs of the GBP 71 billion we have in the business last year, and nearly GBP 500 million PBT of losses. So this really is the tension in a sense at the heart of the Corporate business. How quickly can we grow the businesses that we're focused on and unwind and reposition, run down and so forth the legacy businesses that we're trying to exit? And as you'll see, that as we continue to get those businesses pulling in the opposite direction, the performance has been improving significantly.

So let's look at more detail at what these principles that we're following, what the strategy actually translates to in practice. So in the U.K., what does it mean? So if you look at the first box on the left, we've taken our market share in deposits in the U.K. up by over 3% as of Q1 2013, we're at a record, according to Bank of England data, for Barclays; we're at 19.4%, which is a record level of lending for us in the U.K. Our deposits market share have also grown.

The middle box is interesting. So if you look at the blue line, back in 2010, that shows that we ranked fourth out of 4 of our major competitors in customer satisfaction. We got to the #1 spot in the third quarter of 2011, and we've managed to hang on to the #1 spot ever since. I am a bit alarmed by the trend or a little worried about the trend that we see where it's tapering off more recently. I do think some of the issues that the group has faced, some of the negative pressure on Barclays hasn't helped us, but I'm still very proud of the fact that we've managed to hang on to that despite all the challenges. And what I see today is a lot of happy clients who are continuing to be pleased with the level of service they're getting from us.

Looking at our impairment. I debated whether I should show this or not because GBP 30 million in Q1 2013 is too good to be true. It's such a -- there were some writebacks that quarter and so forth, so please don't multiply that number times 4 to project what the impairment in the U.K. will be. But I think it's also, in fairness, a testament to the workout teams we have, the restructuring groups and the efforts across risk, portfolio, product and coverage and so forth to produce a result like that. It starts to get a sense of what the potential in this business is when it really starts to fire on all cylinders.

And the progress we're making is based on a platform which can drive sustainable growth. So 24% of all U.K. corporates ranked Barclays as their main bank. We have over 25,000 relationships in the U.K., added 1,300 new ones last year. One of the things that I like the most, and I think it's one of our real competitive advantages, is over 1/2 of our clients have been banking with us for over 10 years. There is tremendous depth to the quality of the client franchise we have.

And the platforms that we're using to service these clients are much more resilient and much more effective than they've ever been. We process 8 million transactions a day, not just for Corporate clients, across the group, but we're responsible for it in Corporate. GBP 300 billion of sterling payments alone in addition to what we do in dollars and other currencies, it's another GBP 150 billion if you add those.

The network we have, we're in 66 offices around the U.K., 550 relationship directors, and the products we're rolling out are winning awards and getting us a lot of kudos. So the franchise in the U.K. is rock solid. And that shows in the numbers. When you see the profitability in the business, it's very, very encouraging.

So a lot of data on this slide. So the cost-to-income ratio at the top, down from 52% to 48% in 2011. 2010, there were a number of one-off items, which we don't need to go into detail unless you're interested later. Adjusted PBT, GBP 269 million in the first quarter of 2013. Again, please don't multiply the number times 4, there's some one-off items in there. But again, a very solid performance. And encouragingly, return on equity, over 13%. And again, I'm not saying we're going to finish the year at 13% in the U.K. business. But you just get a sense of what this -- what the potential in this business is when we get it right. It's a very, very good business. It's what Antony referred to.

So let's move on to the second principle, rationalizing our geographic footprint. We went through a very rigid process to assess whether we should or should not be in a number of the countries that we were in. And we came up with 5 criteria to assess whether it made sense to be in these countries.

So we said, "Does Barclays have risk appetite for the country? Do we actually want to be a bank? Do we want to lend money? Do we want to deploy balance sheet? Does the Investment Bank have an established client base that we can begin to go [ph] market? Or do we have to hire our own origination folks and our own marketing team and build those relationships? Can we self-fund our lending activities?"

What I found was that the countries where we had the biggest impairment were also the countries where we had the biggest funding gap, most notably Iberia, particularly Spain. And do we have competitive products? If all we can do is show up and lend and not be able to self-fund it and anything else, we need to have some competitive products. What else can we have there?

And do we have licenses to operate? Or can we get easily licenses to operate? So you look at Indonesia; we bought Bank Akita in Indonesia. It turns out, we couldn't get an FX license to operate. We closed the business. GBP 100 million.

We looked at our franchise in Europe and said, "Why are we competing with Cajas in Spain, Popolares in Italy and so forth, for tiny little -- what are we doing?" This is not -- clients aren't telling us this is what they want Barclays to be focused on. They want to tap into our global capabilities, not just be another domestic bank.

Russia, largely a retail franchise with 35 branches. Why go pick a fight with Sberbank in Russia? So we sold that business. The Iveco JV, we had a 51% ownership of a leasing -- truck leasing business with Fiat, made no sense, losing money, a lot of impairments, lousy use of capital.

And the Retail business in India. Very tough to get licenses to run retail in India. State Bank of India sits there with thousands of branches, we had 9, it made no sense for us to be in that business. We can't -- what are we doing? So we've repositioned that, we exited those businesses.

So taking all that out, rationalizing that took over GBP 200 million of income out of the business, but over GBP 1 billion of costs and impairment, several thousand staff and GBP 7 billion of RWAs. So that rationalization process continues.

Our situation in Europe is different, and Iberia is different. We have a lot of clients that we're exiting, but there's a lot of clients that we have great relationships with that are terrific clients and we'll continue to focus on. But as we rationalize this, you see the number of loans we have, down nearly 50%; impairment, close to 50%; clients, we've taken 5,000 clients out of the business. That's going to become a much, much lower number over the next few years. My guess is we end up below 1,000 in terms of the clients that really can benefit from the cross-border capabilities that we're building.

So the Iberia business, I'm convinced the worst is behind us. It's a much more positive story going forward. I spent a lot of time traveling to Spain in particular, and I can tell you, what I hear from clients is they're very happy. The ones that we're sticking with are very pleased to have Barclays there, and we're doing a lot of good business despite what one might think from all the press.

So the story outside the U.K., though, isn't just one of shrink, reduce, exit and so forth. We've come up with a very clear footprint and a very clear strategy for servicing the clients of the group globally. So where are we now? We have relationships with 58% of the -- corporate banking relationships with 58% of the largest -- the 500 largest corporates in the world. We have an international network, that I talked about earlier, of corporate banking capabilities in 27 countries, many of which are some of the fastest-growing countries in the world.

We have a very good business in Africa. We're viewed as a major clearing bank. For financial institutions, in particular, they view Barclays as a preferred provider of clearing services, had been a very fast-growing business for us. Our cross-border capabilities are starting to win much more recognition and awards for what it can do outside the U.K. And we have growing synergies with the Investment Bank, which I'll talk more about in a minute.

So when you look at this map, what we're doing is, we're saying, clients in the U.S., clients in Asia, we have a light-touch model where we cover those clients and deliver the capabilities we have in the U.K., Europe and Africa, to that client base.

So this is an important slide. So what is it that these clients actually want? When you're in the corporate banking business, you can't just show up and say, "I want to do your payments." You actually have to have the infrastructure in place to do it. If you're in the payments business, you can't fail on payments. Clients want reliably and so forth. So what is it we're building?

So we said we have to have -- if you think of technology as modules, we have to have scalability in this. We build it once in the U.K., we do it right, and we lift and drop that into other countries and we roll it out globally. So we're 3 years into the build and rollout of state-of-the-art products in the Corporate Banking business in the U.K.

Last year, we got responsibility for South Africa, and we started rolling out the products into South Africa that we have in the U.K. A lot of our clients here, they want to have U.K. be part of the European proposition, a pan-European ability to provide corporate banking needs, so we're doing that too. We're saying, from the U.K. into Europe is something we can provide, and from South Africa into the rest of Africa is the plan in Africa.

So one of the things we've got for you today when I'm done, at the end, is we have some of the technology on display, and I'd be delighted if you want to take a look at it. But one example of that on iPad is what we call the iPortal. So what you can do is access all of our corporate banking capabilities and services on an iPad. It's great.

We also have something called Pingit for corporates, which is also very exciting. You can see why clients like it so much. If you take a utility company client, for example, rather than their customers mailing checks back to them, paying their utility bills the traditional way, they can do it using our Pingit technology. So a lot of very exciting things happening there, and you'll be hearing more and more about Barclays and the technological innovation we're introducing into the corporate banking space in the next year or so.

One of the other things you see from a product perspective is customers tell me all the time that they view regions as products. So the first question will be -- if I'm in the U.S. visiting a client, as I was recently, the client's half-asleep. When I start talking about Africa, he starts taking notes. So what can you do for me in Africa? The idea that Barclays can be a leading provider of corporate banking services in Africa is exciting. So quickly it's then, "What is it you're capable of doing?"

And our situation in Africa is much, much different than what we had in India, Russia, Indonesia and so forth. The franchises we have, in the countries they're in, tend to be top 3. In most of these countries, Barclays has been there for over 100 years. They're a big deal in these economies. What we haven't done is take that footprint and create a corporate banking proposition from it and really make it state-of-the-art for what our corporate clients need.

As of the most recent restatement, I'm now responsible for the Corporate Banking business in all of Africa. You'll see in the numbers headcount of over 3,000 and so forth, so there's a lot to do in this space. And I have yet to meet a client anywhere in the world that is not interested in the -- that has interest in Africa, that is not willing to talk to us about how we can help them. It's very -- it's a very, very exciting opportunity for us, too. Meanwhile, the business is a meaningful business in its own right, nearly GBP 350 million of revenues and GBP 95 million of PBT from the outset.

Moving on to the next point. How do we exploit synergies across the group? I think most of us are a bit cynical about -- whether it's banks or other companies who talk about how they're going to find synergies within their own organization. Words like cross-sell get bandied about and so forth, and most of us find that never works.

So the strategy we have isn't a pie-in-the-sky idea, it's happening right now. In December, Tom King and I, the -- now the co-CEO of CIB, put out a note and announced an organizational structure which has Global Corporates as a coverage group across the Corporate and Investment Bank. And the specific strategy is to do more corporate banking business with the top 1,000 corporates in the Investment Bank.

So what does that mean in practice? So for example, a large European oil company. 3 years ago, we were doing very little business with them, a little bit in their home market. Today, we're banking them in 9 countries. Revenues have gone from de minimis to over GBP 5 million per annum. Beverage company, gone from 3 countries to 6, same story, tripling the revenues. So each one of these clients, there's a significant number of subsidiaries that we can provide corporate banking services to. So when you -- not surprisingly, therefore, when you look at the revenues, 3/4 of the revenues we make from this client base come from their subs.

And I can tell you, in my 25 years in investment banking, we spent almost none of it talking about the subsidiaries of the clients. We're just focused on the head office, focused on senior management, but there are customers all over the place that are desperate to do business with us.

On a recent trip to the Middle East, I sat down with the CFO of one of our European -- our core European clients. He got out a map of the Middle East and Africa, I got out a map, and we compared where were his operations and his banking needs, and where does Barclays have operations that we could service those needs. The idea that Barclays can be a bank and help these companies in, in some cases, what are some fairly challenging parts of the world, the clients love it, they think it's fantastic. This is -- it's not a question of we're giving you a piece of business and therefore, we have to give another bank a different piece of business. It feels to me like -- it's like we're doing them a favor by helping them in a number of these areas. So it's really exciting the potential here.

And the investment bankers are all over it. The enthusiasm and energy that's behind this initiative cannot be underestimated. It is really exciting. And you see how we can do more business with our existing clients. It strengthens the relationship and increases the probability we will do more investment banking business because we become more institutionally important to these clients. So I would urge you to try hard to swallow some of your skepticism around people talking about synergies. In this case, it's very exciting and it's working.

We talked about the importance of actively managing our balance sheet. It's the fifth principle. We have all kinds of issues. We had a GBP 20 billion funding gap 3.5 years ago. We've closed that. We now have a funding surplus in the business. And capital, we've taken GBP 16 billion of RWAs out of the business. I mentioned the GBP 7 billion from exits. We also have taken another GBP 9 billion out through management actions, all sorts of things going on. GBP 10 billion has come back, due to regulatory changes, that don't affect just Barclays, typically, it's across the industry, but it's a very encouraging story.

We think there is going to be another significant amount of capital applied to the Corporate Bank this year. And again, these are -- due to things like slotting for the real estate business. The -- what's called the loss given default, the LGD rating you have to apply against sovereign exposures, may get raised. But those are across the industry, not just Barclays. These are -- and frankly, for -- in the Corporate Bank, the biggest issue was slotting in real estate and for us, that is not anywhere near as big a position as it is for some of our other competitors. So it's annoying, but it's not, by any means, a critical factor for us.

We also talked about impairment. But just to drill into this a bit more. We have, in Iberia, 260 people focused on reducing impairment. It's loan by loan, client by client, and we are all over this. We have a workout team in the U.K. who tries very hard to restore the companies to health, rather than -- giving them the tough love medicine they need to survive, rather than liquidating and foreclosing on some of these companies.

So impairment is down dramatically in the last 3 years, from GBP 1.7 billion down nearly 50%. Very good performance in the first quarter this year, GBP 130 billion. And again, don't multiply these first quarter numbers by 4. But again, we really feel like we've cracked the back of the impairments. And I'm skeptical of -- can we keep it going in Europe? I go to Spain with my Chief Risk Officer. We sit down and find, yes, we really believe we can continue to get our impairment down. We were -- we were out early on this and we've done a lot, have a lot of good people working on getting that down, so I'm encouraged.

The cautionary note is in the box on the right. Our loss -- our loan loss rate in the U.K. is at a 10 -- is well below the 10-year average. So we are doing a good job, we're getting some writebacks and so forth as well. But at some point, I'm sure we'll have some impairment this year. But it looks very, very positive, as I say, at this point.

So moving on to the final principle. I mentioned this challenge we had around establishing around a strong culture. And as a manager, it feels to me like the culture is improving. When I look at the business, morale is up, my folks in the U.K. tell me they've never been busier, client satisfaction is improving and so forth.

But what else can we do to demonstrate, to measure, is culture improving? Are we doing a good job? So one of the things we do is we look at what the customer is telling us. If the customer is having a better experience, hopefully that's an indication that something's improving in the business. So customer complaints, down over 55%.

How do customers assess the quality of the relationship director they have? How do our relationship directors compare to other banks? 2 years ago, we were third; last couple of years, we've been first. If you look at things like service outages, how often does the client's service from the corporate bank get interrupted? Down dramatically in the last few years.

So it's a number of nonfinancial metrics we try to assess. And we hear about things like balance score card, this is some of the stuff we're driving at. These are other ways we can look at our performance and judge performance, not just on the basis of financial performance. So it's a good sign.

But on the umbrella of culture, it's also appropriate to talk about one of the big challenges Barclays and other banks in the U.K. are facing. This is the issue of mis-selling of interest rate hedging products to unsophisticated clients in the U.K. So we took an GBP 850 million charge last year. We reviewed that in Q1, see no reason to change that.

But it's just important everybody understands how complex this process is. I have 600 -- over 600 full-time employees focused on this. Each one of these customers, and we think we'll end up with about 3,000 customers that have -- that are viewed as unsophisticated and potentially eligible for redress. Each one of those cases generates, on average, 3,000 pages of documentation.

We have skilled persons involved. It is a very, very cumbersome process, and we're working hard. We've gotten some nice comments from groups involved, lobbying groups involved like Bully-Banks about the way Barclays has approached it. But this is difficult and it's something that we're focused on, we're taking seriously and we're dealing with. But it's going to be, I think, at least a year, in my humble opinion, before we can see the end of the process realistically.

I talked earlier about Transform, how it validated the strategy, gave us this client lens to look at what we're doing and a fresh way to think about how we're approaching the business. But there's also a lot that is unlocked via Transform on the cost side. So I mentioned we took GBP 350 million of costs out through some of the exits, GBP 250 million net roughly, a little bit less as we've invested a lot in some of the strategic initiatives I talked about, some of the product builds and so forth. But there's a lot more going on here.

And one way to think about it is that the majority of the costs that we have in the Corporate Bank are for our portion of services that are shared with other parts of the group. So we need to collaborate with other parts of the group to come up with ways to get the cost down. There's no point in just shoving cost back and forth between the different clusters.

So in Retail, for example, we've come up with a number of ways to reduce the amount of time our Corporate customers spend using branches. That frees up a lot of resources in Retail. So just one simple example is cash being delivered to and from our clients used a branch. Now we outsource it. Armored cars go to the client, deliver the cash, pick it up and so forth. It's much more efficient, everybody's happier, we save money, Retail saves money, the client's happier, everybody wins.

So there's -- I could talk for an hour about the endless number of initiatives we have to find ways to simply reengineer the business to get costs out, and the whole Transform initiatives have just expedited that. They've kind of energized that debate and really created a framework for all of us to collaborate much more around these various initiatives.

This is a slide that Antony used on his February 12 presentation, and it's now been updated given the restatements we've had in the business. So we used to say GBP 3 billion to GBP 3.5 billion of income, now it's GBP 3.2 billion, GBP 3.7 billion; GBP 70 billion to GBP 80 billion of RWAs, now GBP 73 billion to GBP 83 billion; over 10% ROE in 2015, 8% is more realistic as all the cost and capital have been allocated out of the group center.

So looking at the final slide, how realistic is it for us to get to that 8% by 2015? All the things I've talked about hopefully give you some confidence we can do that. If you look at the legacy rundown that we're continuing to focus on, the opportunities in the corporate and FI space, the growth opportunities we still have in the U.K. domestic market, I'm convinced we can do this. The first quarter is an indication we can do this.

But let's be clear, this is hardly victory. No one's going to be -- we're not going to be patting ourselves on the back saying yippity-doo, we got to 8% ROE. We need to keep growing. We need to keep improving at 1.5% to 2% every year, at least, hopefully more, but at least that. If you just do the simple math, that would get us to cover the group's current cost of equity within 5 years. But as I've hopefully alluded to, there is upside in this business when we get it right. So I'm confident we can do that.

So where does that leave us? So what is -- and to try to sum up the Corporate Bank, what have we got? We've got an excellent franchise in the U.K., it's a growing franchise, it's a resilient franchise, it's awesome. We have a unique proposition in Africa, it's untested, it's new. I and my team have been responsible only for it for a few weeks, but we're very excited about it, and we're very excited about the reaction from clients.

We are rolling out today, now, leading product and servicing capabilities. You see that in customer satisfaction, you see that in the 800 clients we've onboarded in recent months onto our new cash management platform The investment is real -- it's multiyear. We're more than halfway through it, it's very exciting.

There's many, many aspects of this business which I think are fantastic, not least of which is, it's almost a relief to most of us in the Corporate Bank, is the strategy we're following is consistent with what we've been doing for several years, it's been endorsed under Antony and his leadership, and we're on the right path, he's helped us expedite the strategy and we really feel confident about where we're taking the business.

I can tell you from my perspective on a personal note, I am extremely energized and excited about this business. I think there's fantastic potential in it, and I really feel privileged and excited to be given the opportunity to take it forward.

Thank you. I'd like to start now with some Q&A, and I'd like to be joined on stage by my colleague, Mark Merson. Mark is the Chief Financial Officer of Corporate and Investment Banking for Barclays. So feel free.

Question-and-Answer Session

Chirantan Barua - Sanford C. Bernstein & Co., LLC., Research Division

This is Chiran here from Bernstein. I have 2 quick questions for you. First is in terms of the product view, where do you make your money and through the presentation when you talked transaction, you talked trade finance, you talked [indiscernible] to investment banks. It would be great if you could give us some color on that. And the second thing is in terms of your competitive positioning, just to make it a little more clear, it would be great if you can give us some views around where do you stand against, say HSBC, on one side and someone like say Standard Bank in Africa and South Africa who also has the kind of network in Africa. So how do you position yourself, so what's distinctive as compared to a global and a local player or a regional player?

John Winter

Sure. In terms of where we make money, about 60% of our revenues today come from cash and trade. Given the initiatives that I've outlined, we think that can get up over 2/3 over the planning period. So a lot of the growth we're talking about is a cash and trade story. And obviously, that's lower capital-intensive as well. In terms of our competitive positioning, it's -- I probably shouldn't talk about name by name competitors, but it's just -- the U.K., I think, is an exciting market from a competitive perspective. A couple of our competitors, I think, are struggling with legacy issues that are pretty severe. We don't have a -- a bad book, a legacy loan book in the U.K. that we're trying to unwind and exit and work out. The situation I'm dealing with in Iberia, I think, is a small example of what some others are dealing with in places like the U.K. and some other countries. Other U.K. -- other large banks in the U.K. aren't necessarily focused on the U.K. Their interests seem to be elsewhere. So I think for Barclays, we've got a great opportunity to grow here. In Africa, it's really a story on potential, right? We have not yet got -- with the exception of some capabilities in South Africa, we don't have a world-class top-tier Corporate Banking proposition in much of Africa. But nobody else does either. It really is, in that sense, it's fairly wide open. The competitors you've mentioned have got some strengths, but we've all got some similar challenges. And our -- with the exception of Ghana, we're mostly concentrated in East Africa and South Africa and have a legacy business there, a historic franchise and relationships that I think have never -- we just haven't really tapped into. So Africa is fairly wide open. What I do find is the large local players in South Africa can't provide the global reach that Barclays can. We have a relationship with the parent of a lot of the subs that we deal with. My last trip to Africa -- I was in Zambia and Botswana in South Africa. One of the clients I met -- I met the same client in Germany, in New York, in Asia and in South Africa. And we just were able to talk about the company in a way that I'm not sure a lot of our competitors really have that kind of access globally to some of these clients.

Michael Helsby - BofA Merrill Lynch, Research Division

It's Michael Helsby from Merrill Lynch. Just 2 questions, I wonder if you could share with us what your share of cost savings are in the context of the GBP 1.7 billion that have been outlined from the group. And just talk -- you touched on it a little bit in terms of the cost savings, but just touch a little bit more and give us a little bit more color of where you see those coming from? And secondly, before you restated the numbers, there was GBP 371 million of revenue in the new market space. You not really talked about the other countries apart from Africa. So I was wondering if you could talk a little bit about that because it doesn't really make any money on a pre-provisioned basis and what's actually happening there, what you're doing about the restructuring there and what the outlook is because, obviously, that's bigger than Africa at the moment.

John Winter

Mark, do you want to take cost?

Mark Merson

Sure, I'll take the cost story. So our share of the overall GBP 1.7 billion, we see as being about GBP 100 million to GBP 150 million, and the cost to achieve there we think will be in the region of GBP 150 million to GBP 200 million. And there are 2 types of investment and saving that we expect to reap. One, you saw us take a GBP 37 million restructuring charge in the first quarter this year in relation to our business in Iberia where we see opportunity to rationalize the footprint, as John talked about, reducing the client size, or numbers of clients dramatically from where we are today. That's an example of the type of activity that we still see there being substantial cost reduction opportunity for us. And the second type of opportunity is more in terms of transforming the capabilities of Barclays Group from a technological perspective. So we do see ourselves taking advantage of the streamlining of group-wide functions and operations. We do see ourselves taking advantage of some of the right shoring activities that we have, as well as the investment in technology, which as John has talked about from a client service perspective, which not only helps our clients to do more business with us, but enables us to do that business much more cost effectively.

John Winter

So in terms of the revenue mix outside of Africa and the U.K. and Europe, new markets consist of quite a mixed bag of countries. The most notable is the UAE. In the UAE, I still have the retail numbers in my P&L, which is over GBP 80 million, it's a significant number. Last year, we also had -- we still had most of the India retail businesses up until the end of the year. That was a meaningful number. It also includes Pakistan. It includes -- with just about GBP 20 million it's pretty small. It includes some other -- we have some bits in -- that we book locally in Singapore and so forth. So it's a -- part of it is, the biggest chunk -- the biggest moving in that -- movement in that, our rest of world number, is the continued rundown of retail.

Thomas Rayner - Exane BNP Paribas, Research Division

It's Tom Rayner from Exane BNP. Just looking on Slide 22, the progression from sort of 3% ROE to 8%. The biggest driver of that is the sort of legacy wind-down. Clearly by '15, if you look at what the domestic business is making, you're still expecting there to be some losses coming through from the nondomestic businesses. And I just wonder when you talk about the 1.5% to 2% per annum improvement in the ROE beyond '15, how much of that is just those residual losses dropping out? And how much is maybe improving profitability of the sort of core ongoing businesses?

John Winter

Yes, I think that the legacy drag from Europe will be -- we'll still have an ROE drag, but we should -- I'm reasonably confident we'll have positive PVT in that in 2015. So the negative drag from the ROE there should be under 1%. If -- so meanwhile, the rate of growth we're seeing in the invest and grow box, particularly the global FIs and global corporate business today, even with not yet a complete product development, not yet complete build-out of Africa and so forth, right now, we're growing at double digits in that business. Very, very -- and the feeling in the business and of the teams is there is just significant -- we're just beginning to scratch the surface of that. So when you come to 2015, I think much of the legacy losses are behind us. And the growth that we see coming in the corporate and FI space really starts to kick in. And I'm still confident -- I personally I'm actually quite optimistic about the U.K. business. I think the economy here is more resilient than one might be led to believe. I was just visiting a customer yesterday up in crew [ph] and they're having record earnings, record results in the food business. It's just -- there are so many success stories out there in the U.K., and as we continue to grow market share and continue to capture business from disaffected customers and others, I still think there's plenty of upside for us in the U.K. as well.

Christopher Wheeler - Mediobanca Securities, Research Division

Yes, Chris Wheeler from Mediobanca. A statement, first of all, followed by a couple of questions. I mean, the 8%, you obviously sort of paused as you said that because obviously, it doesn't match where cost of capital is, as you know. And I guess it makes the business a loss leader, which actually, I think in the last 30 years, it's always been that kind of [indiscernible] within the group. I suppose what you must be thinking about, what are the things, the other things you can do to change that and push it on beyond the cost of capital. So I suppose the 3 things I'm asking you about is, first of all, the links with Investment Banking. There seems a bit of reluctance to actually merge the businesses and you've seen that most recently with JPMorgan. Many have done that before. So the first question, is that something that's on your mind that could benefit from greater synergies? Certainly Jamie Diamond thinks so in his case. Second thing, I suppose, is on products. Obviously, the focus on cash management [indiscernible] nice businesses. Is there any way you think you can move up the value chain? I suppose, finally, the issue that's always faced this this business is the amount of capital you have tied up in it. And can you actually play to business where the capital is more dynamic? I know that was always [indiscernible] -- the question is, is that something you think is possible or is it something which is [indiscernible] serve the customers the way you wish to?

John Winter

In terms of merging the business with IBD, what I would say is, I and others approach this where there's no sacred cows in the room. And if there's anything we can do to change the way we run the business, we will consider it, whether it's exiting businesses, repositioning businesses and so forth. So what we found is that there is a slice of the business where there are synergies with the Investment Bank. And we talk about global corporates and the joint coverage and initiatives we have. That's designed to exploit that. The bulk of the U.K. business -- the bulk of the Corporate Banking business for Barclays is in the U.K. And so when I ran the Investment Banking business in the U.K. and Europe, we had, for example, about 150 corporate clients. Here we've got over 25,000. And it's a much different work force. It's a much different -- it's just a different business and it really -- and Tom King and I talk about this quite a lot, his experience at Citibank was similar. When you merge it, one dies and it's usually the corporate bank, because in all my years in Investment Banking, no matter what you said, you just don't care about anything other than Investment Banking. You just want to do those deals. And it's just not that exciting to be doing cash management for the Irish sub of a big company or whatever. And so there really is -- there's some synergies, but to merge them doesn't work. The other practical constraint when I look at my cost line is I don't want to pollute my comp income ratio either, right? I mean, we have a much different cost base in the Corporate Bank than in the Investment Bank. And so there's quite a lot of where we have the synergies we want to exploit them, but where they don't exist, let's just stop looking for them. And they really are different businesses, different people, different clients and so forth. In terms of products, the way this business should work is you should be able to fund your loan book through the same set of clients you're lending money to. But to do that, you've got to have some innovative products. You can't just take -- pay for deposits and make loans and try to make a living. You've actually got to go out here and provide this full suite of services. And I'm with you. I think moving up the value chain is exactly the right idea. And I would characterize it this way. When I think back to my previous experience in Investment Banking, it was -- there was a lot of intellectual capital being deployed at fairly arcane issues that clients may have. When I come to corporate banking, and see these GBP 300 billion of payments a day and all these things that are going on and the desire clients have for advice around how to manage the basic operational needs they have in their bank, and there's been very little intellectual capital and to some extent financial capital deployed in that. So I think there's huge opportunity for us to add value. I mean, as just 1 brief example. One of the things we do is we've created an advisory team in our debt finance -- so when we provide loans, we don't just -- the client rings up and we give him a loan. We have an advisory team now that we can deploy and say, "Okay, let's actually talk about your financing options. Let's really provide a different quality of service and a different level of ideas and so forth." And clients love that. They just think it's fantastic. So there's a lot we can do and are doing to upgrade the business. That said, Corporate Banking will remain a basic business. We lend money, we take in deposits, we make payments, we want to do it in a very transparent, clear, profitable way. In terms of capital, it's -- some of its legacy we're stuck with for a long time, some of it we're exiting, but more velocity than capital is absolutely part of this story. So you look at trade. Trade finance business does have high velocity capital and most of the other things that we're focused on around payments and so forth are very capital light. I guess whoever gets the microphone near the quickest gets the question.

Andrew P. Coombs - Citigroup Inc, Research Division

It's Andrew Coombs from Citi. I just wanted to clarify one of the points you made earlier. I think you said that the European corporate business should be less than 1% drag on the ROE by 2015, is that correct? Bearing that in mind, given that you're already doing 10% ROE in U.K. corporate, you're talking about less than 1% drag from Europe by 2015 and you're talking 8% for corporate as a whole, does that mean that the global corporates in FI or the rest of the world business as it were is also expected to be about a 1% drag on the ROE?

Mark Merson

The total sum is not quite correctly there because we have other parts of our business. If you look at the quadrant slide on Page 6 of the deck, you can see we have our African businesses and our U.K. ESHLA business, all of which we need to deal with effectively. I think John is right in terms of the aspiration for the 1% drag. We've got a long way to go to get there. We've got a business as of today in 2012, which took in GBP 542 million of impairment and was substantially lossmaking, so I think it's the right aspiration to have, but it's a big reach from where we are today as well.

John Winter

Yes. And in terms of the other sales that you mentioned, I think the Slides 2 and 3 essentially cancel each other out today, with very low -- there's not a lot of capital, obviously, in the Retail business, about GBP 500 million. And then we've got the domestic business in Africa, which we've got, which we're starting to wrestle with. So there's a lot of work to do, but it's hard to build into the planning period how quickly we can -- excuse me, how quickly we can run down some of the legacy assets we have there. It's fairly long dated.

Andrew P. Coombs - Citigroup Inc, Research Division

And just on the U.K. book, looking at the, ESHLA portfolio, I mean, you have it under that reposition bucket, think it's about GBP 5 billion in RWAs, so it's almost 1/5 of the U.K. RWAs. I mean, presuming that's a very long dated book, so I was interested to know what exactly you mean by repositioning that book, presuming that's quite a significant drag on the U.K. return profile.

John Winter

Yes. So we have -- so there's 3 client segments that are in this book. This is the book that is fair value. So we have the education sector, local authorities and social housing. So a lot of what we're doing -- because you're right, the loans are long-dated -- is approaching them and saying, "You're a normal client who has normal transactional banking needs, normal banking needs. We need to start servicing you for more of those needs." What we discovered in looking at that book in detail is a number of those clients were what we call debt-only clients; they were only borrowing money from us. So part of it is repositioning it from clients we don't know very well and have only lent money years ago, they're now sitting there with these loans, and saying, "Let's actually, let's refocus on these clients and try to generate a broader relationship from them."

Peter Toeman - HSBC, Research Division

Peter Toeman from HSBC. You talked about the mis-selling -- the swap mis-selling issue, but I wondered, will it have a sort of permanent effect on the ability to cross-sell products between Investment Bank and the Commercial Corporate Bank?

John Winter

To that client base, yes. I mean we're -- so just to be clear, the redress option is available to clients that are deemed unsophisticated. And the criteria for establishing whether a client is sophisticated or not is formulaic and basically handed down by the regulator. So for example, GBP 6.5 million of turnover or less is one possibility. GBP 10 million or less of total hedging is likely to mean you're unsophisticated. So there's a few -- so for that client base, we simply do not market and have not for a long time now, these types of interest rate hedging products to them. But for sophisticated clients that are -- that's not just me saying sophisticated, that from a regulatory perspective, clients deemed as sophisticated, we are able to execute hedging transactions with. And it's important to note that no one in this whole process, the FSA -- no the FCA, has not said clients should not be allowed to hedge. That's not -- but we're very, very rigorous now about the process we go through to execute hedges for them. Even basic products like fixed-rate loans where there's a fairly exhaustive discussion internally around where we should position that product, should we even be offering fixed-rate loans and how do we -- should that even be an option for certain types of clients that are deemed as unsophisticated.

Unknown Analyst

[indiscernible] I would stay on the same topic please. So how do you treat the revenue that the ancillary hedging activity generates? So you talked about lending, deposits and cash management as your 3 main products. But obviously, a large part of your client base would still need FX and interest rate hedging. Is that booked in the Investment Bank? What portion of revenues does the Corporate Bank throw off to the Investment Bank and how do you remunerate the Corporate Bank for that?

John Winter

The single biggest product in the Investment Bank that we use in the Corporate Bank is FX and, again, growing nicely. Several years ago, the amount of revenues that we share between the Investment Bank and the Corporate Bank on interest rate swaps was higher than FX. But not surprisingly, the interest rate swap revenues have declined precipitously, but there's a lot of FX. And a lot of it is FX just that comes out of the back of payments. It's not necessarily salesperson calling client, executing trade. It's basically an output of some of the other business we're doing. So in terms of how we've shared revenues, there's what we call economic transfer agreement, an ETA in place, for several years between the Corporate Bank and the Investment Bank, and more or less, the percentages vary depending on the product. But in FX for example, 75% typically stays with us and 25% goes to the Investment Bank.

Unknown Analyst

Could you give us some indication of the size of those revenues or is that something...

John Winter

Do we disclose that?

Mark Merson

We haven't disclosed that and I haven't got it on top of my head, so we're in no danger of disclosing it just at the moment.

Jason Napier - Deutsche Bank AG, Research Division

It's Jason Napier from Deutsche. Two, please. The Slide 14 has an Africa PBT of GBP 95 million and sort of non-Europe non-U.K. PBT last year for the division was a GBP 33 million profit. So I just wonder the implied loss of GBP 62 million. How much of that is sort of fixed already in the exits in India and so it naturally flows through to this year? That was the first one. And then secondly, you highlighted in Transform the restructuring charge taken so far. There's a lot of talk about investment in systems and product and so on. I just wonder what the budget is for investment that is capitalized in the balance sheet [indiscernible].

John Winter

So on the -- we exited most of our -- virtually all of our retail asset portfolios in India before the end of last year. So that was -- I am going to look to Keith -- maybe you -- I don't know you remember that -- my colleague Keith Ho who oversees our disposals. I don't know if you remember what we had -- what the net loss was on that -- on those exits. It was about GBP 65 million or GBP 70 million. I can't remember the exact number.

Keith Ho

[indiscernible] sorry, the total loss around the disposal effort was I think around [indiscernible] Sorry, I'm wrong. That was the recent one. GBP 47 million. GBP 47 million was the hit last year from disposal of the Retail business in India.

John Winter

The reason -- these exit processes, they usually take about a year -- I mean, it's a very long, drawn-out process, so there's income coming in from the portfolio while you're exiting and prices being negotiated and so forth, so they're relatively complicated.

Mark Merson

And then the Africa corporate line here on this page, we've got both new business that's transferred and an existing business that we had to start with, so we already were looking after the Absa corporates within this line. And you'll have seen, if you look carefully at your restatement, virtually all of the line, which is not head office reallocations, the restatement line is the Africa non-Absa businesses coming into corporate so you can look quite carefully and work out the profitability -- the marginal profitability that's provided by those businesses.

Jason Napier - Deutsche Bank AG, Research Division

Based on capitalized costs?

Mark Merson

So on capitalized costs, we do capitalize some of the costs. I haven't got a specific budget out of the total Transform costs. And actually, we look pretty skeptically at the fact we're capitalizing, particularly internal software, that's an allowed accounting treatment, and that's one that we do adopt in relevant places. But we certainly don't set out with a budget that we can capitalize X or Y. But we can share that with you as we go. That's clearly something that is disclosable and visible to you.

Jason Napier - Deutsche Bank AG, Research Division

So to the extent that you're going to write those things off, is that within the number you shared on your Transform budget, the GBP 150 million to GBP 250 million?

Mark Merson


James Alexander

James Alexander, M&G. I don't know how much you look at your competitors, but I was just looking at the RBS U.K. Corporate Banking business numbers, and it's about twice the size of your U.K. Corporate Banking business and I'm -- you say you've got 20% market share of loans and deposits, you've got 25% of U.K. corporates say that you're first bank. But I'm struggling a bit to understand why they are twice your size then?

John Winter

RBS is bigger. Their market share, if I remember, is about 30% or 31%. Off the top of my head, I don't know whether they slice the client base the same way we do. If they -- because if you go between GBP 5 million turnover companies and GBP 1 million turnover companies, you add close to 1 million clients and a significant -- and below that, significant number of revenues and so forth. Ian Stuart, who is co-head of our U.K. business.

Ian Stuart

From memory, it's GBP 2.5 million [indiscernible] bank starts at in RBS, the business bank will have got about 1.4 million accounts at the sub-2.5 million level and it goes into the commercial bank and into the corporate bank. So it's a slightly different mix of business. But they have got about a 31% market share versus our 24% of total corporates in the U.K.

John Winter

And in the investment banking as well, is there -- do they have this separate -- do they split out the Investment Bank at the high end or is that part of it as well? I can't remember.

Ian Stuart

From memory I think it's still split [indiscernible]

Chris Manners - Morgan Stanley, Research Division

It's Chris Manners from Morgan Stanley. Sort of couple of questions for you. The first one was on what you think the outlook for loan growth is just in your -- in domestic U.K. and then your rest of world business? Obviously it looks like you're putting on quite a chunky amount of extra risk-weight assets despite the rundown areas? And secondly was about -- what you think about the outlook for net interest margins, just if we stay in the low rate environment, do you think you're going to be able to keep it stable, grow them, shrink, what's sort of the outlook there?

John Winter

In terms of loan growth, so we're seeing in the last 3 years in the corporate sector in the U.K., you've had about -- we've had an over GBP 80 billion decline in the size of the market. U.K. corporates today are sitting with GBP 750 billion of cash in their balance sheet. So huge deposit increase, deposit market growing, the asset market is shrinking. We've managed to increase slightly our loan book, and that's had a significant impact on our market share in the U.K. as a result. Outside the U.K., we are not trying to grow our loan book as a general statement. We're deploying it around trade and some other more strategic issues. But by and large, we're not into a "let's go sort of pile on risk on the balance sheet." In terms of net interest margin, we've seen -- if you look at it on liability -- if you just look at -- the way we attribute part of the net interest margin to the liabilities and part of it to the asset side -- we've seen an increase over the course of last year in terms of the value of the liabilities. But we've also seen, as we run down some of the relatively ugly underwater legacy assets, we've seen a slight increase in our asset margins as well. So -- but I'm pretty cautious about it, though. I don't know, Mark, if you want to comment. I'm very cautious about the prospects for NIM particularly in the near term just given the environment we're in.

Mark Merson

So in the near term the funding for lending schemes do compress margins available to the industry, and there's some impact of that to roll forward into the averages, which is just sort of evident in the spot numbers at the moment. Thereafter, actually, I feel a bit more sanguine about margins, not least because of the extent of the deposit placement by corporates, particularly in the U.K., driving all banks to have a much stronger funding position and therefore the pricing relative to liabilities I suspect will be -- will have less pressure on it in the future.

Unknown Attendee


Mark Merson

Some compression in the short term due to the funding for lending impact and then thereafter stable to potentially slightly rising.

Chris Manners - Morgan Stanley, Research Division

How then if you got sort of stable-ish U.K. bounces, not fast growth in -- overseas bounces down and then hopefully picking up margin, you get so much revenue growth.

John Winter

One of the things that you see in the U.K., the fastest-growing client base for us in the U.K. is doing business with the U.K. subs at non-U.K. companies. And most of that is operational banking, that's not necessarily assets. So we have -- for our U.K. -- for that client base, we have a large multiple of deposits in transactional banking as we do assets deployed. So there are -- when you look at this global corporate space, it isn't quite a NIM game. There's -- you're providing all sorts of different services, and the revenue growth we see just in the transactions business and the payments business, for example, is significant.

Mark Merson

And in terms of all the loan growth, in 2012, sorry, loan growth -- all the income growth you referenced in 2012, we had something of GBP 3 billion of revenues, just shy of GBP 3.1 billion. Our target in 2015 is GBP 3.2 billion to GBP 3.7 billion. It gives us a fairly wide target to hit, you have noticed, and it's not necessarily conditioned on a lot of growth in revenue between now and then.

Michael Helsby - BofA Merrill Lynch, Research Division

It's Michael Helsby from Merrill Lynch again. Just listening to your comments and I was just wondering, we obviously sat through a Lloyds Investor Day on commercial banking just the other week. And they went through quite a lot in terms of how they saw their franchise, what they could offer and what they kind of -- what their selling point was to the customers. I've not heard that much of that from you today because you've not really shown off your -- the next tier of management. But I wonder if you could just talk a little bit about what you think Barclays do differently, given that it's such a concentrated space in the U.K., about what you do differently and how you're going to take market share from those big incumbents?

John Winter

So what clients tell me over and over in the U.K. and elsewhere is the thing they want most is technology and software that's reliable. But they want service. They want a relationship with somebody who understands them and knows them and is responsive and empowered to act. So I feel that a technological advantage in this business tends to be temporary, like in most, but it really is the quality of the service we provide and the experience the customer has that differentiates us. And when you look at the stability of our franchise in the U.K., the number of clients that are coming to us, the growth in market share that we've got and just the energy in the business, it's -- that relationship, that service, that focus is a differentiating feature. And as we roll out the new technology now, we've got that as well. And then for the clients that are at the larger end, that have cross-border needs, we're in a completely different space. The ability to sit down with a company and talk credibly about how we can service them all over the world is a big deal. An example last week, I had lunch at the home of a very wealthy entrepreneur who controls 122 companies and we bank 3 of them. And he said, talk about how we can do more, he's interested in Europe and Africa and so forth. But interestingly enough, his #1 concern before doing more business with us was, what is the account opening procedure going to be like? If one of my 122 companies wants to do business with you in France, tell me you're not going to ask me for my utility bill or -- and these are -- and this is a billionaire, so I mean, it's nontrivial to have quality, sensible service where people feel like you're talking to individuals and not something else. So I find over and over, that is one of the main ways we differentiate it. That said, if you see some of our technology, that also is helping at the moment.

I think we promised we'd be done by 7, it's 5 till. Maybe we have -- if there's maybe one more and then we can wrap up and maybe have a chance to chat with -- informally. Please stay and look at some of the technology if you have time. I'd be delighted for you to meet some more of my management as well.

Okay, no more questions? Thank you very much. Appreciate your interest today. Thank you.

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