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Executives

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

Thomas King - Co-Chief Executive of Corporate & Investment Banking and Head of Investment Banking

Eric Bommensath - Co-Chief Executive of Corporate & Investment Banking and Head of Markets Business

Keith Ho - Chairperson Emeritus

Mark Merson - Co-Head of Finance and Financial Controller

Philippe El-Asmar - Head of Investor Solutions

Analysts

Andrew P. Coombs - Citigroup Inc, Research Division

Manus Costello - Autonomous Research LLP

Raul Sinha - JP Morgan Chase & Co, Research Division

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Christopher Wheeler - Mediobanca Securities, Research Division

Chris Manners - Morgan Stanley, Research Division

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

Peter Toeman - HSBC, Research Division

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

Vivek Raja - Oriel Securities Ltd., Research Division

Michael Trippitt - Numis Securities Ltd., Research Division

Barclays PLC (BCS) Seminar on Investment Bank June 28, 2013 8:00 AM ET

Antony P. Jenkins

Good afternoon. Thank you for joining us at our second investment seminar and for giving up your Friday afternoon in this wonderful pretty summer that we're having. This seminar is on our largest business, the Investment Bank. And before I talk about the Investment Bank, I know that there will be a couple of topics that are on your minds, specifically leverage and trading performance. And I want to take a few minutes on each of these so that Tom and Eric can focus on the subject matter of this presentation, which is the Investment Bank.

There's been a lot of discussion on capital in recent weeks, particularly the increased focus on leverage ratios, and I know that Barclays has been mentioned frequently in this debate. The introduction by the PRA of a leverage ratio target last week was new, not least because the calculation of the target was not based on CRD IV. As you know, we already have plans around deleveraging that we announced on February 12 under the Transform program. Our plans and actions are ongoing and well progressed. We are exactly where we expected to be on our flight path towards the targets and commitments that we announced in February. As I've said many times, the group is well capitalized for the risks that holds, and we believe in the value of risk weighted ratios as the primary focus for capital management and regulation, with leverage ratios as a supplementary metric. Leverage ratios as a cross-check on risk-weighted measures are sensible, but they are a much prudent tool and need to be interpreted with care to avoid unintended consequences such as credit restriction or asset dilution. We are in the process of submitting our plans for achieving the ratio to the PRA and look forward to discussing those plans with them shortly. We have every expectation that we will reach agreement with the PRA within the next 4 weeks, and we'll update the market as soon as our plans are approved.

We expect to achieve the 3% ratio by 2015 within our existing Transform plans using the PRA calculation basis. We also have a range of contingencies and options embedded in our plans. And given our starting point, we expect the July discussions will center on possible acceleration. We have options to accelerate with minor income effects, but an aggressive acceleration requirement from the PRA would require additional actions, which could restrict our ability to extend balance sheet, availability to customers, including potentially lending to the U.K. and other economies, which is something, of course, that we want to avoid.

Today's session focuses on the plans and targets for the Investment Bank under the Transform plan, and we will not try to preempt any additional deleverage plans. The growth that the Investment Bank has achieved over the last several years has been strong, but leverage is generated across all our businesses, and meeting the leverage target is a groupwide activity. Therefore, I've asked Eric and Tom not to take questions on this at this time, and I ask that you please respect that in the Q&A part of this session. As I've said, we'll update the market on leverage once our plans are agreed.

I also know that many of you would like to hear an update on trading in the second quarter, particularly June. However, as you know, this is the last business day of the quarter, and it wouldn't be appropriate to elaborate any further on what we've said previously. You may recall that at the end of April, I reiterated earlier this month that the good start that we'd seen in the first quarter had continued into the second across our businesses and reflects the usual seasonal trends. We have no further comment to make on trading at this time.

So let me now turn to today's events. These seminars are intended to provide insight into the operation and drivers of each of our businesses and help you understand what makes them tick. They are also a way to see and hear the management team rather than just me and Chris. They're not intended to provide material new information or numbers. At today's seminar, we will be giving some detail on the impact of the larger allocation of Head Office costs that were part of our first quarter restatement, as well as how we expect the business to evolve between now and 2015 and beyond.

At our July 30 results announcements, in addition to Chris's review of performance, I intend to give a comprehensive update on our progress under Transform, something which I will do every 6 months. For now, I can confirm, we are on track with our plans, as shown by financial and nonfinancial metrics.

The Investment Bank has generated over half the group's adjusted profits on average over the last 2 years, and it is one of the drivers of the modest income growth we have in the Transform plan over the coming years.

In this session, Eric and Tom, the new co-CEOs of the Investment Bank, will take you through their plans in more detail for how they will achieve clear income, RWA and comp income goals that they have for 2015 as part of Transform. They are already well on track executing this strategy, taking decisive actions in quarter 1, as you know, with the resizing of parts of the Equities and Investment Banking franchises in Europe and Asia. These steps have not impacted the performance of the business. And in fact, our strong Q1 performance has demonstrated the monetization of Equities and IBD buildout, and the continued strength of our FICC franchise.

As we all know, however, there are several headwinds facing the industry. Eric and Tom will discuss with you today how we will address these and why they and I are confident that the Investment Bank can continue to be one of a small group of successful, full-service, global investment banks.

With that, I am delighted to introduce Tom King and Eric Bommensath. I appointed Tom and Eric as co-CEOs because they have the leadership and expertise to take the Investment Bank of the next stage of its journey under Transform. I am delighted with the start they've made, and I'm pleased that you have the opportunity to hear from them directly so soon after their appointment.

So Tom and Eric, over to you. Thank you.

Thomas King

Good afternoon. So on behalf of Eric and I, welcome and thanks for joining us today. We're really pleased to begin our dialogue with you, and we will be as direct and transparent and as realistic as we can as we go through our presentation.

So Eric and I want to cover 3 things today. First, we want to review our franchise and give you an overview of where we are and why we think we're well positioned in this challenging market, and I'll do that pretty quickly. Second, we want to dig in and give you more detail on the banking and markets franchise. I'll cover banking, and when I use that term, I'm talking about the private side businesses, so M&A, equity capital markets, debt capital markets, which includes leveraged finance and the Risk Solutions Group. Eric will cover off the market, the public side businesses, including FICC, and equity sales and trading. And finally, we'll go through our plans around cost and capital.

Before I start, I'd like to say that Eric and I fully appreciate the challenges that the industry faces right now, and we have to deal with them every day as we run the Banking business and the market business. But this is a very entrepreneurial organization and one that has fantastic talent. We've built a FICC business from scratch, over a 1.5 decades, that's become one of the premier players in the industry. And more recently, we've added to that a Banking franchise and Equities franchise, again, really built from scratch, that's become a leading player. So we know how to execute, and I think we could argue that execution is going to be the difference between those who are just survivors and those who thrive in this environment.

So as you know, Antony made very clear commitments to the market on February 12, and everything that you hear today will be 100% consistent with the goals and vision that Antony outlined when he talked about turning Barclays into the "Go-To" bank. We, as a management team, collectively own those commitments, and we've shown those group-level commitments up on this slide. We also have clear commitments as an Investment Bank for 2015, and we've listed those out on the right-hand side of the slide.

You'll recall that back in February, we highlighted a pre-restatement ROE target for 2015 for the Investment Bank of 14% to 15%. Since then, we've reallocated Head Office costs, including the minority interest and the bank levy, which has reduced our ROE by about 310 basis points. So this gives us a fully loaded ROE target for 2015 of 11% to 12%. Now inclusive in that number is a drag of about 300 basis points for the legacy assets that will remain on the books in 2015, and we're going to spend a lot of time later talking about the legacy positions. I think that this is a realistic view of where we expect to be at this stage, but I think it's also important to stress that 2015 is not the final stage of Transform, and we see this business as having a sustainable ROE in the midteens over time. Our other Investment Banking commitments include a comp income ratio in the mid-30s, an RWA a target of GBP 210 billion to GBP 230 billion and single-digit revenue growth.

So with that, let's talk about our current market position. It's important to state that this is a global business with 2 strong home markets, the U.S. and the U.K., and those happen to be the 2 largest fee pools available to the industry. We also have an industry-leading FICC franchise that's top tier across all regions and all flow products. Now as I said, we successfully added to that a Banking franchise and an Equity franchise, which, of course, got a big boost from the Lehman acquisition. But as I'll talk about in a little bit, we've also built very substantially organically on top of the Lehman build, and we've done that efficiently.

Our franchise is also a client-focused business, and we take a conservative risk approach, and we aim to deliver stable earnings across the cycle. One of the themes you'll hear from Eric and I today is that we're focused on profitability and returns. You'll also hear throughout the presentation references to lead tables and market share, and it's important to say that we're doing that to give you a context of where our business is slot into the industry. Things like lead tables, though, are not a strategy. They're really an output of our strategies.

We also have a track record of mitigating costs, and for the first time, we've put out firm cost commitments and a deadline. And finally, we have a proven track record around RWA management, and we'll give you some details of what we've accomplished and where we're going to take it from here.

So in terms of our position, I want to reiterate, both markets and Banking are global franchises. We seek to compete for global advisory flows, trading flows and financing flows. We have an established presence in over 30 countries, and we're in all the major trading hubs.

Having said that, you can see from the graph on the right that 60%, almost 60% of the fee pool that's available cross all products is in the Americas and in the U.K. And as I said, we are really well positioned in these markets because we have a unique dual home market profile. Our U.K. clients think of us as a British firm, and our U.S. clients think of us as an American firm. No other bank can make that claim.

As you see from the chart on the left-hand side, global fee pools across the industry have been volatile, and they've fallen from their highs of about GBP 227 billion to GBP 174 billion. Now if you cut the fee pool by product, not by geography, as I did on the last slide, you'll see that FICC accounts for 55% of the revenue opportunity. We're a recognized industry leader in our core FICC franchise. This is a business that Eric and many others built over a long time. And when I joined Barclays, I was very impressed with it and still am.

If you look at the table on the left, we're top 3 across key flow products: flow credit, flow rates and G10 FX. This is an area where few other banks have the client franchise and the scale to compete in this business, and we believe we're extremely well positioned to benefit as other players shrink or exit. In these scale flow businesses, success begets success.

We follow the more selective approach in the other non-flow products. As I said before, we're running the business for returns and for profitability. These other products are either more capital intensive like structured credit, relate to markets that are more fragmented like the emerging markets or in more cyclical markets like commodities.

So as far as our Banking franchise is concerned, Barclays made a very bold step 4-plus years ago of seeking to build a full-service global investment bank almost from scratch, and we've made significant progress. Banking is a far less capital-intensive business than FICC. We use about 1/10 of the IB RWAs in the Banking business. So the buildout of this business has been a key strategic focus over the last few years as we got ready for Basel III.

I came to Barclays just after the Lehman acquisition to help drive the buildout. And while it might be somewhat counterintuitive, these subdued market conditions have actually been an excellent environment for building the Banking business. Banking is about getting good talent in place, and it's about building solid client relationships. And the instability faced by the industry and our competitors has actually made access to both talent and clients readily available. And you can see we've increased our fee market share from 3% in 2009 to over 5% at the end of the first quarter.

You can also see from the middle graph that we've achieved this growth in market share by increasing our headcount in a very controlled fashion. Our footprint is actually well below that of our competitors, which means we're taking market share with fewer people, and we're more efficient on a revenue per head basis. The smaller footprint also means, however, that we can't be all things to all people. So focus has been a key part of our Banking strategy.

So we've grown share on the new products in Banking, M&A, ECM and broking, very significantly, as you can see on this slide. On a volume share basis, we've taken Advisory from 13% share to over 21% share today, and in ECM, from 1.5% share to over 5% share. In the U.K., where one measure of both ECM and Advisory success is the corporate broking business, we're leading the pack by a considerable distance. We've added 35 new corporate broking mandates since we opened the business in 2010, and I think that's a number that surprised everybody in the industry.

So while this slide highlights the new products, I do want to say that we have not lost focus on our core debt capital market and high-yield franchise. These are businesses that were core Barclays strength, and certainly, with respect to the high yield business, it was a core Lehman strength. And that's important because there's a long-term disintermediation trend going on in the market where corporates are moving from bank financed balance sheets to capital markets financed balance sheet. And we're very well positioned to capture that business. Last year, we were the #2 underwriter of all fixed income product, as well as in the first quarter of this year. And we're one of the few DCM players that has a strong platform across all the major currencies: dollars, euros and sterling.

It's really a similar story in Equities sales and trading where we've made good progress globally and in each of the 3 regions. You will have seen our first quarter results where equity sales and trading revenues were up 20% versus an average fall for our peers of around 4%. Our mature American franchise is already top 5. And we've successfully taken that content-driven approach, and we've exported it to EMEA and Asia Pac, and we've moved into the top 10 in those regions. We also have a very strong research legacy, and that supports this content-driven approach. Our American equity research team has been ranked in the top 2 in the past 11 years by II.

Another way to assess the strength of the Equities sales and trading platform is to look at our broker vote standing. As you all know, broker votes are a qualitative assessment by clients of our content, product and service relative to our competitors. It really acts as a leading indicator for who clients are going to pay, and we're near top 5 in the Americas, and we've made substantial progress in the other regions. So good progress in the equity product and room to grow.

So having spoken about each of our major businesses, I want to highlight an important aspect of our model that cuts across all the businesses. And that is that our model is geared to delivering stable earnings. You'll see from the graph on the left, it shows revenues in 2012 divided by VaR, or said differently, how much risk we take to generate a unit of revenue. And you'll see that we outperformed our peers in all asset classes.

If you look at the graph on the right, it shows the standard deviation of our PBT versus our competitors over the last 8 quarters. Again, we have a very good record at keeping earnings stable and predictable through the cycle. This probably does mean that we'll make less in up markets, but it also means it would be more stable in down markets. And we think that's an important outcome because instability, we believe, has an impact on cost of equity.

We said in the Investor Seminar in February 12 that cost was a new battleground, and we have a track record of disciplined cost management. Since 2010, we've taken GBP 1.5 billion in gross cost savings out of the business, and we've done this through things like right-shoring. We've moved over 2,000 roles within the infrastructure from higher-cost to lower-cost locations. We've integrated functions like HR and Finance across the Corporate and Investment Bank, and we're now moving to integrate them across the entire group. Technology and process optimization, and of course, a reduction in performance cost. The focus on cost has allowed us to deliver a top quartile cost to net income ratio. That said, we do have goals on cost cutting from here, and we're far from complacent on cost.

The final component in the returns equation, of course, is capital. And as you can see from this slide, we've reduced our risk-weighted assets by GBP 91 billion since December 2008, and we successfully absorbed the cost of Basel 2.5. Now the RWA reduction has come from lots of things, some around the legacy book, for example, unbundling of structured products and selling the underlying at more attractive valuations or reducing the leverage loan portfolio via refinancings in the public market or M&A exits or even optimizing the derivatives portfolio by netting, putting CSAs in place or optimizing existing CSAs. The RWA reduction has also been driven by reduced VaR, and Eric will give you some more quantification around that in his section and also talk about where we're going to take the RWAs from here. Again, as with cost, we're not complacent around RWAs.

So now I'll provide you a little bit more of a dig in on our plans around Banking. From a Banking perspective, the difficult macro environment means that we have to be very focused on optimizing our costs to deliver, particularly in those markets where we don't have a home market advantage as we do in the U.S. and the U.K. Basel III also means that what's been profitable in the past may not be profitable in the future. So we've been very focused on how we've deployed capital.

On the flip side, we are seeing competitors retrench. And probably for the first time, we're seeing some capacity come out of the market in Banking. So it's really against that backdrop that the main components of our Banking strategy are, first, to continue to invest in the U.S. and the U.K. and to build as many go-to relationships with corporates, financial institutions, financial sponsors, governments and government entities as we can. We've already rightsized our business in EMEA x the U.K. and in APAC to reflect the size of the revenue opportunity. But importantly, we've kept top quality teams on the ground to serve both the local corporates and our global client base.

In Banking, we've also chosen to organize ourselves a little bit differently from the competition. So an additional to the traditional banking products of M&A, ECM, DCM and leveraged finance, we have a private side Risk Solutions Group, or RSG as we call it. And RSG is designed to provide hedging strategies and advice to help corporates to manage their nonindustrial risks. We consider this part of the strategic dialogue and a differentiator.

And finally, we're strengthening our integration across other parts of Barclays, including the Corporate Bank, Africa and Wealth. We want to deliver the whole of the group to our clients.

So this slide is intended to level set where we are in Banking and to tell you how we think about the business. And to do that, I probably need to review a little bit of the historic evolution of the Banking franchise.

So starting in the U.S., Barclays was not really a major player in the traditional Investment Banking markets prior to the Lehman acquisition. But with the Lehman acquisition, we got a very high quality, intellectual property or content-driven Banking franchise with great existing client relationships. And we've done an exceptional job keeping that franchise intact, and in fact, growing it. Approximately 80% of the Managing Directors in our Americas business are former Lehman employees. To that, we've added best-in-class bankers from other firms. We've added a balance sheet that's much stronger than what Lehman had. And most importantly, we continued to invest in the business during those difficult years, in '09, '10, second half of '11, when other banks were much more internally focused. So perhaps it's not surprising that we have a very strong franchise and position in the U.S. market. Last year in the U.S., our cash revenues grew at 26% compared to single-digit growth for the industry. And on many fronts, our U.S. franchise has achieved better results than Lehman even did as a stand-alone. For example, at the end of the first quarter, we were #1 in U.S. IPOs. We're top 5 in equity and top 4 in M&A.

In EMEA and Asia Pac, Barclays didn't buy the Lehman assets. Instead, we built M&A, ECM and broking organically. And again, this 2 has been a first-class execution. From the quick build of teams that were available in '09 and '10, we've been able to build already a top 3 fee share position in the U.K. And last year, we finished #1 in U.K. M&A. And I doubt many observers would have believed that Barclays could abate that kind of progress that quickly.

So banking is a GBP 2.1 billion business in terms of the traditional banking products with Advisory at 26% of that, about in line with The Street; ECM at 15% of that, a little bit smaller than The Street at 20%, so room to grow; and DCM and high yield covering about 59%.

As I mentioned, however, we've organized ourselves in a slightly different way, so we also have RSG sitting in Banking. So we devote a significant amount of our coverage effort to helping clients think about their nonindustrial risk. This is a CEO-CFO dialogue about hedging FX, interest rates, inventories, commodity risk, real estate risk, inflation risk, and we think that's part of the strategic dialogue. Last year, our team generated GBP 1.5 billion in revenue. It's largely booked in the FICC business, but it corresponds to 42% of the Banking revenue as we see it internally.

The final point on this slide you will see is we have a very balanced franchise between EMEA and the Americas, again, highlighting our dual home market advantage. So banking is at scale. It's fully built. It's got a nice distribution both geographically and by product.

Going forward, core to our Banking strategy is to continue to build in the U.S. and U.K. Remember, I noted earlier that over half the global industry revenue across all the products was in these 2 markets. In Banking, the split is even more concentrated with 62% of the banking polls sitting in the Americas and the U.K. with evidence suggesting that at least in the near term, it's going to become even more concentrated. These are our home markets, and we made significant progress. In the U.S., our share has gone from 4.9% to 6.4%, and in the U.K., from 6.7% to almost 9%. And that success has been predicated on being very focused, putting our best people against the most significant opportunities. And we still have room to grow as we continue to penetrate the board room and elevate the level of our strategic dialogue with clients.

So to serve our clients globally, we have to be relevant in all the major geographies with best-in-class bankers. A good example of this is the FTSE 100 company that we pursued very intensely. And our first M&A assignment for them was to sell an Australian asset to a Chinese buyer. So it shows that even in those core markets, you have to be global. However, the reduced revenue pools and limited near-term growth expectations have forced us to recognize the need to right-size in EMEA x the U.K. and APAC so that our footprint gets the opportunity. Hence, the graph on the middle shows that we've cut costs and headcount to match the fee opportunity while increasing productivity. We now believe that we're fit for purpose in those regions with the clear strategy of serving the largest local corporations while providing global access to our U.S. and U.K. clients.

The third element of our strategy is to leverage RSG. As I mentioned before, the business model is a little different that RSG sits in Banking and we treat hedging as part of the strategic dialogue. And by doing that, we generate significantly higher revenue by focusing on higher-margin strategic trades, as well as the flow.

Let me give you a few examples. So with RSG embedded in Banking, we pitch in win more hedging coordinator roles on the bank bond issuance. And it also allows us to provide bespoke solutions like M&A deal contingent hedges, inflation hedges around full company securitizations, hedging of real estate exposures, hedging of commodity exposures or inventory exposures.

The final element of our strategy is to strengthen the integration across the group, but particularly, between the Corporate Bank and the Investment Bank. Even though this is already a multi-hundred million pound opportunity, in the past, we haven't optimized the opportunity to cross-sell Corporate Banking treasury products to our largest Investment Banking clients.

As you can see from this slide, 2/3 of our largest clients generate GBP 200,000 or less annually in treasury products. We think there is significant potential because this is really matching up existing clients with existing products. We now have some of our best people in place to make these links much stronger and address the opportunity.

Africa is also an interesting asset in our portfolio. Our global corporates are interested in Africa. And it allows us to add value to our strategic dialogue by introducing our more than 20,000 corporate relationships in Africa to our global corporates. We also only serve a fraction of our global corporates who have business in Africa. So again, there's a substantial market opportunity to cross-sell cash management.

It's clear that the winners and losers in the new environment are going to be those banks that are able to deliver quality advice, quality products, and joined up solutions. You've heard Antony and I talk about our desire to become the "Go-To" bank for our clients, and I want to finish with an example that demonstrates what it means in practice.

This is a FTSE 100 Company operating in 25 countries, and we provide them with an array of banking products and services via an integrated team, half in the U.S., half in the U.K., and we have provided virtually our entire product set from loans to DCM to M&A execution. We have even raised equity capital for them. RSG has also worked closely with senior management to provide tailored solutions around FX, commodity risk and interest rate risk. And finally, the Corporate Bank provides them with transaction management services. One example of a client where we're already "Go-To."

So before I hand over to Eric, I hope the takeaways from the Banking section are: Banking is a high-margin business. The buildout is complete, and it's been done efficiently. We're taking market share, and we're deepening our relationships with the clients. And we're focused on costs, profitability and return.

Now I'm going to hand over to Eric, and I'll see you with the question-and-answer.

Eric Bommensath

Good afternoon, and thank you, Tom. So now that we have spoken about the fundamental strength of our business and our plans in Banking, I want to talk about our specific plans in markets and our commitment for the Investment Bank as a whole. We created the integrated market business at the end of last year based on 3 clear objectives: one, to serve our client more effectively by being better joined up; two, to increase our agility in evolving the business; and three, to increase efficiency.

The integrated franchise we have today is well diversified by both product and geography. Half of our plans are active in more than 3 products, and half are active in more than one region. The model delivers strong client relationship through a single distribution team. And our client focus means that we have 850 clients with more than GBP 1 million in revenue, accounting for around 75% of the total. We have a fairly even split across the 3 main product types and the balance across the globe with a clear center of gravity in our U.K. and U.S. end markets.

I want to share with you today our perspective on some of the changes we are seeing in markets and talk in more detail about the progress we are making in 6 key areas. The changes in the business environment Tom described earlier are even more pronounced on the market side. A subdued macroeconomic increase is the focus on cost and efficiency. New rules are driving the trends towards electronic flow business and central clearing. The competitive landscape is changing, creating opportunities for stronger organization, and stakeholder expectations are changing. We believe that the market business to this stands in a position of strength and that the action we are taking will continue the momentum we have across the franchise.

There is a move in the industry away from complex structured products towards simpler, higher-volume flow business with less inventory and reduced risk. We are already a leading flow house and have, for many years, been delivering simpler flow products at scale with market-leading technology. Scale does not mean we warehouse risk for long periods. For example, we turned our credit book on average weekly. It also means that we are reducing manual processes. For example, 90% of our government bond business is now conducted electronically. And we are decreasing our risk with the VaR [ph] falling 50% from 2009 to 2012. These move towards flow products will continue and accelerate as regulatory change takes effect. Our strength today and strength we got at that time give us confidence that we are well placed to lead the market, not just in FICC but also in Equities.

We have a strong track record in technology, and we believe it is a key differentiator because it allows to improve the client experience while operating at scale and being more efficient. When done well, it is something clients are willing to pay for, and so it is a key driver of returns. Over the last 10 years, we have defined the market standard in electronic trading with the BARX platform. And we are acknowledged as the prime broker with the best technology for the last 5 years in a row, and the scale and power of our research and analytics engine is second to none.

Technology allow us to deliver better for client, and it also give us a more efficient platform, which drives higher return. Building on that strong history, we continue to take the lead. And we have recently added a great new feature in FX trading called BARX Gator. I would like to talk about Gator in more detail now because it really shows how we are using technology as a differentiator.

The context here is that the FX market has multiple execution venues, each with different levels of liquidity. Before Gator, that meant once you got beyond a certain size of trade, there was no way to do it through a single platform, and clients previously had to look across many trading venues to get pricing, each with their own execution approach and comparability agreements. Completing the trade meant a different ticket for each venue and no ability to use efficient algorithm to execute the entire trade. All of that made it inefficient, time-consuming and costly for the client. BARX Gator dramatically improved that experience by aggregating the liquidity from multiple venue in one place with the clear graphical representation of price and volume and just one click execution with their efficient algorithm.

For clients, it is a single content with no license fee of separate brokerage deals to settle, no new technology to install and no new counterparties to set up credit relationship with. it is a noninclusive service where the cost is simply added to the price of each order, giving efficient and transparent execution to something that was not possible before, while at the same time, reducing complexity. That is just one recent example of our commitment to leading the market. And this is something that the industry will have to catch up with because it is technology like this that drives returns in a more commoditized market.

As I said, one of the 3 goals we set for ourselves when we created the integrated market business was to increase efficiency. We are achieving that partly through the investment in technology that I just talked about, which means less human capital. But we are also looking at the opportunities and performance in each part of our business, taking action to reshape businesses where the opportunity has changed or that simply are not performing.

Earlier this year, as part of the Transform program, we exited businesses or segment that were not aligned with our cost strategy and values, adjusted our footprint and improved the alignment within sales and trading teams. The changes resulted in a 9% headcount reduction across market and research with no negative income impact.

Let me talk briefly about how we brought that together in our Commodities business before we look at Equities in more detail. A changing environment and changing client needs led to Commodities business that was not delivering the returns we had in the past. So we reshaped the business, focused on returns over the long term. We exited noncore businesses in area including carbon trading and ship chartering. We have left the open outcry flow on the London Metal Exchange. We have leveraged our expertise in technology by adding precious metal to the BARX electronic platform, and we are currently doing the same for base metals. We are no longer trading food staples for speculative purposes. And including recent headcount reduction, the cost base is now 21% lower than in 2010.

The changes mean that all Commodities business now has a more stable, client-focused revenue stream and is now carrying less risk, with the VaR [ph] reduced over 60% since 2010. That evaluation of our business is not a one-off exercise. It is a continuous process of fine-tuning our model and our operations to ensure that we remain as efficient as possible.

Our Equities franchise is a good example of that. We see Equities as a key driver of growth for the Investment Bank, and we are monetizing the investment of the last 4 years with the clear global strategy to deliver market share growth in a way that is capital efficient. Our historically strong U.S. Equities franchise continues to perform. And we have the scale, momentum and quality in the business to continue taking share.

Our U.K. franchise is well underway to being equally strong with clear momentum across all parts of the business, and we are confident that there are still a lot of opportunities to grow further. Outside of our 2 home markets, we have resized our Equities franchise in EMEA and Asia Pacific better to match the opportunity. That means streamlining our onshore presence and rationalizing of coverage in Europe and Asia Pacific so that we can continue to provide cross-border access for global clients, serve targeted local clients in the region in a way that is profitable over the long term. And we are already seeing the validation of our actions through increased productivity, as you can see in our strong Q1 performance.

The derivative market is going through a fundamental change. A new regulation in this area has 3 clear objectives: better data for regulators to monitor risk, greater systemic stability through clearing for OTC derivatives and sufficient collateral in the system to absorb risk. We are fully supportive of clearing. And it has many advantages both for our clients and for our business, including lower risk, and therefore, lower capital.

If you look at the chart on the left of this slide, you can see that the market is really taking off. We have cleared the first OTC derivative client read [ph] in December 2009, and since then, we have continued to lead the industry. But this is not just about volume. It is also about a better client experience, and clients have recently voted us #1 at this for the third year in a row. In working through the move to centralize clearing with our client, we have deepened our relationship and demonstrated the value of our expertise, which again, translate into something clients are willing to pay for.

As we saw in the swap market when it went electronic 10 years ago, a firm that embraced the change and lead from the front has a great opportunity to become the "Go-To" organization, and as one of our clients recently said about us, there is nowhere to go if you want to learn about the growing world of OTC clearing.

When we think about capital, we think about how we manage our current business and also how we manage legacy assets. So let's look at both. For new business, we have management information tools and ways to go to be more efficient and conscious of capital usage at the granular level of individual trades. For instance, we have been pricing trends on the basis of Basel III for the last few years. We also had the ability to understand and allocate capital by clients, by book and by sectors. That means that all new business can have the right return profile.

In our historical inventory and in the legacy book, our tools let us assess and track capital usage and its underlying drivers. And we are also working with clients to unwind or restructure trades with high RWA requirements. Managing down our legacy asset allows us to free up capital and increase our return. It is something we are really focusing on, so I want to talk about our track record and then go into more details on the number we talked about in February and our plans from now to December 2015.

As you know, this is a complex area, and we are still transitioning to Basel III. But we want to be transparent about it so I'm going to take it in stages. Starting on the left of this slide, you can see that our credit market exposure in December 2008 were GBP 41.7 billion on the balance sheet basis. That includes exposure with material markdown, and of particular interest to the market at the time, like ALTE [ph] or monoline exposures. Since then, we have managed down the exposure by 78% to GBP 9.3 billion in balance sheet terms in December 2012, with the significant majority of disposal at or above marks.

And now moving to the central pane of this slide. If you look at that on the Basel 2.5 risk-weighted asset basis, it is GBP 9.5 billion. To be clear, we are talking about the same exposures just expressed on the RWA basis rather than a balance sheet basis. That was our starting point for the analysis we carried out through Transform. In February, we added 2 things to the GBP 9.5 billion RWA portfolio: first, a further GBP 14.5 billion of legacy asset related to business that are no longer called, including negative basis trends, a structured credit correlation book, and corporate and monoline derivatives; and second, GBP 11 billion of long-dated derivative position written pre-Basel III mainly relating to fixed income rates. That took our portfolio from GBP 9.5 billion to GBP 35 billion at December 12 on the Basel 2.5 basis.

Moving now to the third section of this slide. You can see that on the Basel III basis, it is GBP 79 billion RWA. And we are still in Transition. We have already had good success so far this year in managing down that GBP 79 billion portfolio, taking advantage of market condition to sell a further GBP 7 billion of asset by the end of May and making an additional GBP 4 billion of derivative efficiency, reducing the portfolio to GBP 68 billion. We will continue to sell legacy asset and make efficiency in our derivative portfolio so that we can hit our fully loaded Basel III target for the legacy portfolio of GBP 36 billion RWA by December 2015. Managing down our legacy portfolio is critical to the future written profile, and we'll give you a further update on progress towards our target at the half year.

I could not finish the discussion of market results talking about regulatory change despite the fact that much is not yet finalized and will not be implemented until 2015 onwards. We may not know all the details, but we're not waiting for the final draft before we engage. We have done detailed analysis on the different scenarios to understand what it could mean for our business and what action are available to us.

I want to highlight just one of the proposed change, Section 165 of the Dodd-Frank Act to give you a sense on how we're approaching it. First, what are the facts? The U.S. Federal Reserve has said that it will require foreign banks with large U.S. operations to have their U.S. business in an intermediate holding company. That will be subject to stress testing requirement and incremental capital and equity standards. But for us, it is mainly a question of leverage. The key fact is that any regulation in this area will not come into effect before July 2015. And even then, it may happen in stages after that date. And the proposal are still subject to much debate.

Another important point is that the asset of our U.S. broker dealer are very, very low [ph]. It was around 90% of the $309 billion balance sheet composed of a repo book and government bond. We believe any change to regulation will be best implemented with some adjustment to the calculation to reflect the quality of the balance sheet and bring the approach more into line with global standards. And we have made that point in our response to the consultation.

Second, we have analyzed the fact. We looked at options. They include better allocation of our balance sheet by client, which is something we are really doing, moving element of the balance sheet between entities or issuing non-derivative preferred capital. Until the regulation is final, we cannot be more specific. But there are clear options available even at this early stage, and we will continue to monitor things closely. That fact-based approach is how we treat all regulation. We cannot know everything. But we do not believe at this stage that any of the regulatory change currently mandated will affect our 2015 targets.

That disciplined evolution of our business on strong foundation allow us to make clear commitments about how we will become the "Go-To" bank. When we think about measuring our performance, we use a score card that balances the priorities of all our stakeholders, and all 4 Cs recognize that long-term value is not just about hitting short-term financial metrics.

So before I talk about our company priorities, that is our commitment to our shareholders, I want to talk about how we see the other element of our scorecard. First, becoming the "Go-To" partner for our client is about building strong and deep relationships. We already know that the deeper the connection we have with our clients, the better we are able to meet their needs, and is a clear revenue impact to deeper relationship as well. Client active in more than 7 products generated over 65% of revenue in 2012.

In supporting our colleagues to achieve their ambition, we are creating an environment where great people can do their best work and be fairly rewarded for excellence. We recognize that all impact as a corporate citizen extends beyond just organization, and we must not operate in isolation from society at large. We want to be recognized for the value of our contribution to economic growth, the way we do business and the support we give to the communities in which we work.

Finally, on conduct. We know too well what getting this wrong can cost the business and the damage it can do to the franchise. Strong controls and risk management are competitive advantage. We make sure that we are protecting the franchise for the long term. This is an area where we aspire to lead the industry, and we are making good progress on our journey. We have enhanced supervision processes. We assess all of our people on risk and control criteria. We are also getting good feedback from our clients about the focus we are putting on values, and it is clear that they want to work with a values-driven organization.

Our commitments as a company sit equally alongside the other 4 Cs, and I would like to give you some more detail on the disciplined approach behind our plans. In February, we talked about our belief that cost will be the strategic battleground for the industry over the next 10 years. That approach is reflected in our plans to deliver structural cost reduction in the Investment Bank, so let's start with the numbers, and then I will give you a little bit more color.

The Investment Bank nonperformance cost base was GBP 5.9 billion in 2012, and that includes the settlement in relation to LIBOR of GBP 193 million and the bank levy of GBP 206 million. From that baseline, our plans will deliver a gross cost reduction of GBP 0.9 billion to GBP 1.2 billion. This is offset by around GBP 400 million of expected increases in nonperformance cost, including the higher bank levy that effectively moves charges from the tax line into the operating cost line. The bank levy increases from 8.8 basis point in 2012 to 14.2 basis point in 2014, '15. That increased operating cost and removes any ROE benefit from lower tax rate in the U.K.

Cost of regulation are also increasing, and some aspect of the cost base, including property costs, remain geared to inflation. And so we are targeting an annual nonperforming cost base for 2015 of GBP 5.1 billion to GBP 5.4 billion. The costs to achieve that reduction is about GBP 600 million in Investment Bank, and we'll report our progress on detail, both including and excluding that amount, so that you can see clearly both the underlying cost reduction and the investment required to achieve it.

As Tom said earlier, we have a proven track record of cost discipline and our plans to keep up that momentum front on the 5 broad headings. First, we will complete the implementation of structural changes we outlined in February, focusing on the exit and transition quadrants of the Transform program, which have already seen us exit our private equity business and which will continue to make material reduction in our cost. Second, we are making the front office more productive. As I have said, the creation of the integrated market business has allowed us to remove duplication and flatten the structure, which has increased efficiency and resulted in a clear productivity increase per head. The changes we have made across the Investment Bank in the first quarter to right-size for the opportunity have resulted in a setting of around GBP 300 million, and around half of that is performance cost. Third, Investment Bank will benefit from the functionalization on the way across Barclays, which is bringing together back office function to create [indiscernible] economies of scale, as well as removing over 200 legacy platform and consolidating vendors across the bank. Fourth, we are making our business more efficient, not just using the front office and the back office but also in the processes that tie them together through automation and simplification.

And finally, we have a major ridesharing program, which is bringing us more in line with our peers. We have a greater outsource and offshore presence. We had already moved over 2,000 roles from high cost to lower-cost location by the end of 2012, with an additional target of a further 4,000 roles by the end of 2015, which we expect to result in selling of around GBP 250 million for the Investment Bank. Fewer people in high-cost location will also allow us to rationalize excess office capacity, bringing further savings. We expect to focus hard on cost as co-CEOs. And our cost efficiency is guided by ratio that we have reported to the market for many years, including costs, net income and compensation income. We have in the past looked to manage cost net income within the 60%, 65% range. You will have seen that the impact of absorbing the bank levy and other head office costs affected this and meant that we were above that range in 2011 and 2012.

Excluding the cost to achieve, we expect our plans to bring the cost net income ratio back into the range over the planned period and potentially below in 2015. Our compensation income ratio has varied with income performance, but has been historically around 40%. Again, the head office allocation adversely affected this ratio, but we plan to bring it to the mid-30s by 2015.

I talked earlier about our legacy asset and the good progress we had made in reducing that portfolio. Once the effect of Basel III is applied not just to our legacy position, but to our active trading book as well, we had pro forma Basel III RWA in January 2013 of GBP 257 billion. We are still in transition to Basel III, but we have clear plan to reduce that total, starting with the GBP 43 billion legacy reduction we have already mentioned. We also believe that we can make further efficiencies in our operating book, including increased use of central clearing and improved documentation, to make better use of net income. The quality of our tools and management information allow us to focus on capital efficient trends to keep improving our capital position, as well as delivering returns. This action give us confidence that in 2015, we can deliver RWA of GBP 210 billion to GBP 230 billion. And also that we have the capacity to manage the remaining uncertainty in the ways will be applied and the sensitivity of the Basel III RWA tool in the market, particularly in credit spread.

Now I want to show you how that looks from the perspective of the 4 Transform quadrants. And we talked about in February, but roll forward to 2015.

In quadrant 4, you can see the GBP 36 billion of legacy asset and we will continue to manage that down over time as market conditions allow. We expect to have completed the transition of all activities from quadrant 3. A good example is our SEM business. We have closed the business unit. We have realigned tax planning with a relevant client activity and we are following our new tax principles.

On quadrant 1 and 2, which is the core business of the Investment Bank. We'd expect to have GBP 170 billion to GBP 190 billion of RWA, around 80% of the total RWA in 2015. We will focus our investment on these quadrants to maintain our position in FICC and continue to grow in equities and banking in line with the plans Tom and I have explained.

We expect this business to generate a fully loaded return on equity of over 14%, demonstrating the fundamental strength at the core of our franchise.

And so I want to set out our 2015 financial targets.

The reallocation of head office cost and the bank levy impact investment bank returns by 310 basis points in 2012, and we have the drag from our legacy asset. All in, we expect to deliver a restated return on equity between 11% to 12% in 2015. On the way to a steady-state area in the midteens post 2015, as we continue to reduce legacy asset and get the full advantage of the investment we are making through Transform.

We remain committed to rewarding our people fairly and competitively for excellence, and that sit alongside our commitment to rebalance return for shareholders and reward small employee with the compensation income ratio in the mid-30s. We are also confident that we can deliver fully loaded Basel III RWA of GBP 210 billion to GBP 230 billion with the action we have explained. We believe that the fundamental strength of our platform and the momentum we have will see us deliver single-digit revenue growth. All targets are realistic and we are fully loaded, accounting for all our costs. And without assuming an uplift in revenue from improved market condition despite our belief that our franchise is very well-positioned to benefit should commissions improve.

In conclusion, I want to leave you with 5 key points. First, we are a large-scale player in FICC, and we have clear plans to continue our track record of growth in equities and banking. Two, we have a unique dual hub market presence in the U.K. and the U.S. with strong capabilities to serve our clients in EMEA and Asia-Pacific. Three, we have clear plans to reduce cost. Four, we have a proven track record of adopting to regulatory change. And finally, we have a strong core business with more stable earnings than our peers.

As Antony said at the start, the Investment Bank remains a critical part of Barclays futures. The plans we have outlined to date define a clear path forward to 2015 and a strong trajectory from 2015 onwards. Thank you very much. Tom and I will be very pleased to take your questions.

Antony P. Jenkins

Great. Thank you very much. We're now going to shift over to the Q&A part of the session. Eric and Tom will be joined onstage by Mark Merson, the Chief Financial Officer for the Investment Bank. This part of the session is scheduled to go to about 3:00. We may take a few more questions though beyond that. Instructions for asking a question for those that are dialed in have already been given. For participants here in the room though, I would ask that you raise your hand, wait for the microphone to be brought to you and then if you could, just introduce yourself and the company that you represent. And then also just in the interest of time, if you could limit it to 1 or 2 questions per person, that would be great. So we'll start here in the room.

Question-and-Answer Session

Andrew P. Coombs - Citigroup Inc, Research Division

Andrew Coombs from Citi. If I could just a couple of questions on the revenue break by the short term and midterm. From a short-term basis, perhaps you could just say a few words on the impact of the recent spike in volatility, intensive volumes in rates and effects [indiscernible] spreads and potentials on any inventory positions? Longer-term, I was interested on Slide 17. I think you outlined 5% industry growth in banking industry revenues, now not banking only, but if you use that as a proxy, the market as a whole 5% industry growth is broadly in line within your revenue growth targets for Barclays itself. So should we assume that you're talking about structural growth being the main driver of revenues to add market share gains or whether the case of, you expect to see market share gains in some areas offset by revenue attrition and others? And if so, how much of that revenue attrition and in which areas is it mainly focused?

Keith Ho

We'll start with volatility?

Eric Bommensath

I want to talk about -- I mean I want to talk long-term because you heard Antony, I'm not going to talk about Q2, but I can talk about QE if you want. I mean I think it's not surprising first from a market point of view that at one point, you must have a variation in the way the Fed buys or doesn't buy bonds in the U.S. and it's pretty clear to me that with the Fed buying -- having such a big balance sheet in mortgages and and in government bond, you had such low level of rates in 10 years and 5 years in the U.S., which actually led to risk assets being -- bearing more in going lower in yield than in -- and not too surprised that you have a steeper curve today. And I think, in general, on the long term, it's good environment to have risk again and volatility and steeper curve. So if you have a business, which is not necessarily linked to having big inventory, but focusing on rotating portfolio and having flow businesses and having good risk management, I feel it's -- could be a good environment in general to operate. There's also the sigh of a big massive crash, but I mean you heard now the Fed and some of the commentator in the Fed yesterday, starting to say, look, we never said we will look at the numbers. The numbers become very, very good and rates go higher. It's also good environment and we all wish to see better growth in the economy for like clients, corporates and everybody. So I don't -- that's the way I look at it long term.

Thomas King

Yes. Just adding to that before I get to your banking question. I think than when the markets really slowed down in the second half of '11, you are moving into a more stressed environment. We're really moving through a pivot period, but hopefully, to a more robust economic environment. We do think there's a very fundamental difference. And with respect to the banking growth, the way we think about it is, we're really well positioned in 2 markets that are taking more and more of the share. And within those growing markets, we're taking share almost in every product. So we're not really looking to track just along what the market does. In banking where we made a very substantial investment, our expectation is that we should be able to grow faster than the market, so obviously you can never take more than the market will give you, so we're always going to be constrained by what's happening in the market, but within that, we will expect to take share particularly in our U.S. and our U.K. business as we have been doing.

Andrew P. Coombs - Citigroup Inc, Research Division

Just on the revenue attrition. Because you [indiscernible] that's coming in on the legacy assets in the pre-Basel III rates, and that would be offset by market share gains elsewhere in that case?

Mark Merson

So we talked about the GBP 500 million of revenue attrition in Antony's speech and that was -- now focused very heavily on the quadrant 3 and quadrant 4 assets, so some of it is the transitioning business, including the lower type for restructuring, and some of it elsewhere in the legacy assets that we're exiting.

Antony P. Jenkins

Okay. We go to the next question in the room, please?

Manus Costello - Autonomous Research LLP

Manus Costello at Autonomous. Can I just clarify your cost to net income ratio target of 60% to 65%, the cost base, is that including the levy, but excluding the cost achieve? And as a follow on from that, if the revenue environment doesn't produce the single-digit revenues that you're hoping it will do, should we still hold you to the 60% to 65% or should we assume that we're absolute numbers you've given are what you're managing towards?

Antony P. Jenkins

So to be clear, we haven't reestablished a cost to income target of 60% to 65%. We're just aware that the market has focused on that over time and wanted to give some guidance relative to that because it was a bit confusing for people. You're right, it includes bank levy. It excludes costs to achieve. So when Eric talked about the fact that, including the head office costs, we'll be above 60% to 65% through the transition period, we'd expect to move back within that range. And then in 2015, potentially below that range, we are talking with Head Office cost in, with bank levy in, but excluding cost to achieve.

Antony P. Jenkins

Okay. Could we go over here to this side of the room?

Raul Sinha - JP Morgan Chase & Co, Research Division

It's Raul Sinha from JPMorgan, please. Can I have 2 questions? I won't ask a question on leverage ratio, but I think you would really appreciate if you could give us some understanding of the repo book and the dependence of revenues within your franchise in the U.S. on that repo book, obviously I know it is GBP 280 billion. It does look slightly bigger than your competitors. So if you can tell us how easy it is for Barclays to reduce the size of that without revenue impact, that would be useful.

Eric Bommensath

I mean I talk -- I mean I can quickly answer -- I talked in the slide in the presentation about the fact that we look at management actions in the case of the 165 Section and we look at like different ways. One of them was to go and like be better about how you allocate resources under -- unlike financing, which actually is a way to look on how you basically link, the way you finance clients, that way you do business with clients, and that is something we do, we tend and we -- we're always improving on, we're improving on everything, by the way, we try and that allows you to actually optimize a resource, so that's 1 angle. And so by doing a lot of work, the same as in RWA, you actually can become way better in the way you use resources. And then use less resources without to hit incomes, that's one thing. We also talk about entities and the way you could actually move entities. And then -- so it will be a combination of these things, plus the third frame, which is -- we talked about -- which is non-dilutive capital. But to go back to repo is about having the very good tool in MIS to understand how you allocate resources to your business and balance sheet.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

[indiscernible]

Eric Bommensath

Well, it's not different than looking at how you basically work on improving your business model and when you have the tools and work on the details, you can go very long way to really understand where you actually spend every penny of resources by building the MIS and the tools. And the way you do it, for instance, for RWA, which is another example, is by many ways. It's like selling asset, making the business very, very conscious of way you invest the resource by client of sector, measuring that the revenue compared to the resource. You see that's a very, very hands-on work, and requires a lot of MIS and work with my colleagues in Treasury or -- and between Treasury and the Investment Bank, that's what we're doing.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

A second question was just a point of clarification. Is the impact of ringfencing likely to change your greater than 14% return on equity aspiration?

Mark Merson

No, we anticipated the ringfence will be relatively narrow, call it GBP 130 billion-ish inside the ring-fence. I think there are still some questions structurally as to where the ring-fence entity sits, but we think, we think the information about the size and the issue of ring fencing is already in our financing costs, so we don't think it will affect any of the numbers that we've shared with you today.

Antony P. Jenkins

A question up here at the front.

Christopher Wheeler - Mediobanca Securities, Research Division

Christ Wheeler from Mediobanca. Just a couple of questions on 2 topics. First one, on Slide 33, the legacy assets. Could you just give us a clue, the GBP 36 billion you have left at the moment on your forecast in 2015, how many basis points would that still be acting as a drag on your ROE in your opinion is that? And perhaps the second question is Antony spoke at the very beginning about accelerating some of these process of deleveraging, and what would actually give you the opportunity to do that, both in terms of obviously better markets, but also your willingness to take some capital hits on the juiciness? That's the first question. The second one really is going back to the costs, really on the compensation ratio. Actually, sort of banged the table really hard at our last meeting on corporate banking it keeps about the mid-30s compensation ratio, your competitors certainly in the United States are making great play of that in terms of what difficulty you might have training staff, because that obviously sounds quite draconian compared to your competitors, I mean JP obviously has the Corporate Banking rather to its [indiscernible]. Can you perhaps comment on what you can do to kind of mitigate that competitive issue that you're going to have to face, well yes, we love the 35% ratio, It may not be quite such good years in terms of retaining you talent.

Thomas King

Can I try to summarize because I think there are 3, 3 -- 2 or 3 questions. So the first one you have is, what's the impact on the ROE of the GBP 36 billion, which is maybe we can answer that one.

Mark Merson

That's straightforward, it's about 300 basis points on the total return on equity of the business in 2015.

Christopher Wheeler - Mediobanca Securities, Research Division

The question as asked is, the 300 is on 2015. [indiscernible]

Thomas King

Which is consistent with the 14 plus

Eric Bommensath

The second question was, you want to have more question on legacy or you want to shift to...

Christopher Wheeler - Mediobanca Securities, Research Division

What you can do to accelerate the de-leveraging as Antony touched on at the beginning.

Eric Bommensath

Well, I think it's a -- the first thing I wanted to show on the slide is like the track record, which I think is -- and to have a track record like that, it means a lot of details work, and resource and the full organization to work on it. And like Tom mentioned, we are -- you have to work you have to work on some mortgage CDO which you have to deconstruct to them, extract higher value to sell, you have to work on some monoline commuting, you have to work -- the many, many work that -- so where we have done is a track record is build an organization in a way to really create the focus, not only from our distribution, our banking but also restructuring team to really have a machine that works on this legacy book in a way that protect the shareholder value. So what have we wanted to do is show you what we've done, which is not -- and there's a lot of details in the work that guide you to where we are. And obviously, there are many, many business line behind each of the components of that legacy book. And what I wanted to show you as well, is on the demand business, you also have some of that operating business. We also make sure with all the tools and MIS, you build the right business. And so GBP 36 billion was just a point in 2015 as a guidance point and because it's so complex that we put upon what we believe we can achieve. Does that answer your question?

Christopher Wheeler - Mediobanca Securities, Research Division

I guess I'll just try to get a feel for Antony's view on how can you accelerate that? I know it's tough. I know it's complex.

Thomas King

Let me see if I can add to that answer. So the reason we have things classified legacy, as Eric said, is, one of the things we're not a business we're not doing anymore, but we also want to create transparency and focus on them, and we also want to manage that portfolio for the benefit of the shareholders so we have to balance, reducing capital with P&L effects. And unlocking legacy assets, each one is a very complex situation that has its time so it's not just about market fluctuations. It might be about, how do you get that equity tranche to unlock that piece of structured product or what is it about that hung leveraged loan that creates the impetus for refinancing. It maybe nearing to maturity. So the legacy asset, each one is specific, and it will have its time, and we're trying to stay very focused on each one to unlock it at the right time in the right way to balance capital and economics for shareholders if that makes sense. So you shouldn't take away that the GBP 36 billion is the stuff we couldn't sell by 2015, right? So we're going to work through this as quickly and as economically as we can. And we've had great opportunity in the first several months of this year to unlock some of those things, but they're all very, very specific situation. So when you have a portfolio like that, it's hard to be incredibly predictive out 2, 3, 4 years, but we are very focused on it and it's why it's in the legacy book and why the legacy book is still embedded in the business where all the expertise resides. So we are focused. On the comp income question, let me take a crack at that. I think that it's very dangerous to link comp income ratio to the bonus pool, right? They are 2 different things, there's overlap in it. But an awful lot of the comp that fills up the comp in comp income ratio is salaries and a lot of the nonperformance costs. So to the extent you can retool your business and do business in a different kind of way across the piece, from the front office to the back office, you can actually create quite a lot of flexibility in your cost income ratio for being completely competitive in the front end, and we are committed to being competitive, and compensation still have a falling ratio, so those things are not incompatible, and that's why we're retooling the way we do business, because we think that if we can do business in a different way, costs can actually be a competitive advantage for us.

Antony P. Jenkins

So a question here in the front.

Chris Manners - Morgan Stanley, Research Division

Chris Manners from Morgan Stanley here. So I have a couple of questions with -- on the legacy book again. And firstly, GBP 79 billion of risk-weighted assets, obviously, very large, you're doing job at taking it down so far. How much of the cumulative losses you think we're going to take on this portfolio as you wind it down, if any at all? And also, just trying to understand the baseline drag from -- in the 2012 numbers? I mean what sort of revenue did they generate last year? Also, losses did they generate last year? Because obviously, we've 4 quadrants at the group level, but yes, I wanted to handpick at IV level?

Mark Merson

Yes. Let me help with that. Well, firstly, the vast majority of these assets are fair value assets, so it's not a question of sort of deteriorating value being a drag in the -- they are already marked in our books, therefore, marks. And secondly, in terms of the contributions for the 2012 numbers. When the first 2012 numbers were, there wasn't a very significant contribution. Then we have something called IFRS 10 come upon us, which caused us to move some of the assets, principally CDOs, super senior assets from being accrual accounted assets to fair value asset, and it pushed GBP 300 million of revenue back into 2012 restated numbers, and that was because there was a rally in credit sensitive assets, principally in the third quarter of 2012, so not a lot in 2012. And then in the restated numbers, about GBP 300 million. Over time, there's a balance between some funding drag, relative to the assets, and typically, some gain from unlocking value in the -- particularly in the structured assets, and when we get to 2015 and we look at that 300 basis points of drag, when you do your sums to work out, GBP 36 billion versus GBP 210 billion to GBP 230 billion, you work out that there is some presumed funding drag. I reckon there will be a couple of GBP 100 billion of funding drag left in that asset pool come 2015. And it also attracts slightly more than its weighting of risk-weighted assets in terms of capital because of the nature of the instruments.

Antony P. Jenkins

Next question here in the room, just go right behind please.

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

Fiona Swaffield from RBC. 2 areas, you talked about the RWAs end game in 2015 and your confidence. What about the pending changes on things like trading book review and securitization? Is that baked in that way there's a range? It's the first question. And the second was your slide on the lower volatility of standard deviation. I mean I can see that, but I still can't quite find the data point as to why that is the case. I mean you've mentioned some inventory turnover number, but because we don't have it from other people compare, could you help us on what you think the secret is to the lower volatility?

Mark Merson

Let me help you with a couple of those questions there. So on the lower volatility point, if I could take that one to start with. Firstly, it's a management orientation. So we are seeking to have lower volatility. We're seeking to be less driven by the change in value of securities or other assets on our balance sheet, and more driven by inventory, the technology, the turnover, the drivers that Eric talked about, which doesn't mean that we're immune from markets, because clearly, many are able to do things in order for us to generate revenues, but we're not sort of beholden to rates going up or down or similar. When I'm thinking about something technical on what point, is there a real thing you could hang your hat on. When I observed how we outperform or underperform relative to peer organizations, it's generally adversely correlated with credit spreads. So as credit spreads narrow, I see peers do better than Barclays, and there's sometimes a little bit of maybe disappointment in the market where -- why didn't you capture that in your FICC business? And then similarly when credit spreads widen, we don't get the same pain as peers. And as well as our orientation towards inventory, there was a sort of technical accounting point that our loan inventory to the extent that we carry it and we do, because clients want to us to lend money on them. Our loan inventory is carried as an accrual asset, which is not marked to market, but has impairment against it, and a number of our U.S. peers carry those as fair value assets. We do hedge our exposure to credit spreads in our loan inventory. And the only way you can do that typically is by credit default swaps, and those are mark-to-market. So what you see in times where there's sort of acceleration in markets through credit spread narrowing is that we mark-to-market the credit default swaps, the valuation, we take a hit on that mark-to-market of credit default swaps, which is offset, if you like, but not accounted for by the loan inventory being better and the obvious is true. Unless the only thing that I can point out as a real technical point that might drive that answer other than the orientation of management on the business.

Thomas King

But I think the orientation point is a really important one. In a world where balance sheet is more constrained in the Basel III world, we have a philosophy of we'd rather turn over our inventories quicker and our balance sheet quicker and generate more revenue with the same amount of balance sheet. So if you think about your deleveraged finance book, for example, we'd rather -- we would rather syndicate quickly and give up some fees and just pile up risk. And that's a change in the way we think about business, but it also speaks to managing risk appetite as well.

Antony P. Jenkins

And your first question after Gulf, sorry?

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

You also [indiscernible] range, 210 to 230. How come there are a number of impending changes and the fact you must have had more trading book [indiscernible] and securitization. Is that why there's a range or how do you think about this?

Antony P. Jenkins

Yes. You talked about the 2010 to 2000 -- 210 to 230 being an end game. It's not an end game. It's a waypoint along the way because it includes GBP 36 billion of legacy, so we shouldn't treat this as sort of the long-term end game. And the reason why there's a range is because there's uncertainty in how rules will be applied, because there's uncertainty in business conditions. And also, Basel III itself is more sensitive to markets' indicators, specifically to credit spreads. So I think it's realistic for us to think about a range and for you to think about a range rather than us assuming that there's a specific point we get to. I mean, you mentioned trading book evolution. That's not a -- to the extent that we've gone through, that's not something that particularly worries us within that range. But the fact is, as we learned last Thursday, it will change all the time, and we've got to be realistic about that.

Antony P. Jenkins

Okay, thank you. Next question in the room? Keep going back.

Peter Toeman - HSBC, Research Division

Peter Toeman from HSBC. Two questions, please. Thank you for your slide on OTC clearing. But I wondered if you could say how that might change spreads in derivatives markets that would increase transparency and what your experience of being there? And on Mark's point about the reduced volatility through the impact of, again, CDS to hedge the credit position? So I was just surprised that the VaR for the credit business is so low and the extent which is sort of pooled on in 2010, 2011 given some 2011 superior through widening credit spreads. So I would want to know the reason. But I wondered if there's any reason why the credit VaR that you've shown in Slide 25 is so low?

Eric Bommensath

So there's 2 questions, one around the link of like clearing and spreads. And I mean -- well, it's not necessarily about clearing that makes the link -- it's not between clearing and spread, which I think is like if you go electronically or to a chair, so it's really -- we're not talking about the same thing. When you talk about clearing, you're talking about the ability to really improve your capital position when you do trades, make things simpler for a client, better that on the back end in term of efficiency, in term of like the way you settle trends. When you talk about having a mandated electronic platform or actions, then you talk about spreads. So I don't think the necessary link -- to go back to clearing, the swap market, which indeed has been clearing for a long time with interest rates. It was not even confirmed manually in the CDS in '07 and '08. In '07, you have trillions of CDS in the market which didn't have any recommendation change reaching dealers or clients. It was a big deal. So -- but -- so clearing is very important to really improve the industry, important for the regulators, and it's a very good thing. Now on spreads and what's going to be the consequences, which is the ability potentially to become more electronic, to be more straight through process, I draw the parallel with what happened like trend web in government bonds in end of the '90s where the people that we want to embrace or the firm that want to embrace the change and that we changed our business model, end up having very, very good businesses. And that's what I think will happen. So you have to go and build when you scale a player or you, like we are, the in-house knowledgeability and work with your client in the industry to really change industry to make it better. And I think clearing is something that make you better. The second question would be?

Mark Merson

Yes, it's on -- on the second part of your question, I think the reason why we've had low credit DVaR is because we've had very low credit risk appetite. It's not connected with the question I talked about earlier because you don't carry DVaR against your accrual accounted loan assets. It's just the credit DVaR is specifically linked to our credit business in which we've had a low-risk appetite. And the reason for that is it's very expensive and the markets have been incredibly uncertain. So that's been a very conscious position to take.

Eric Bommensath

I can maybe add one on the business. If you look at the credit business in '05 and '04, you would have a business in investment banks in general where you would have stricter credit correlation whose purpose was to create tranches and sometime very complicated Basel rating agency and yield products, and you had a monoline-type of desk with negative basis. You had a large balancing desk on leverage loan to create more capacity to absorb the issuance in that market. You had a huge CDS market in volume and you had a very tiny underlying cash credit expertise in the market, cash rating of credit papers. And what was relevant at the time to really -- in the business model of a lot of firm to make the revenue was not driving the real like, I raised money for corporate and I have a secondary market and I can create hedge. What was read on the terms is how do I create yield with rating agencies and create leverage. Today, when you walk in that and you look at this business, what matters is like, how good your banking business is, DCM is, and how you're good in secondary and how you're disciplining making a market around that. And CDS is still there but not to the tune of where it was when you had to hedge all these exotic products. So the business totally changed. And it's going back to more, what I call like, common sense, which is like issuing debt, market making, providing good research, having -- as supposed to things which are based on things that people couldn't understand. That's what's going on. That's why you probably lose -- mean to lose -- use less DVaR and less funding and this kind of things. That's the way I look at the change.

Philippe El-Asmar

Question on the front here?

Unknown Analyst

I want to follow up on one question. I'm just following up on the previous discussion about VaR. I mean, does 2008, 2009 dropping out of the VaR model impact the DVaR in any way? How much would that benefit be, just to think about it that way?

Antony P. Jenkins

So what clearly affects the calculation, I don't know what the benefit is, to tell you the truth. I mean, clearly, the large driver here is the orientation of management not to seek to consumers. That's clearly our orientation because risk is capital, and capital is the binding constraint.

Unknown Analyst

And then second question is on ringfencing. You said that you don't think it will -- I mean, the guidance on our ways wouldn't change. So are we talking about -- I guess the game rules changed since this ringfencing coming in. Do you think the business has adapted and then that's why we get to '14? Or do you think that the business [indiscernible] I mean because we don't really know what's going to come in the second banking draft [ph]. Do you have an idea? Fixing the investments, don't really know if you have an idea because it's hard to make -- kind of it feels a little worried to say are [indiscernible] Adaptability is understandable. I just want to see where we are...

Thomas King

So just to be clear. I mean, we have a view that we think is in line with our current -- with the regulation, current expectation around ringfence that will be narrow. There is some uncertainty around structure where the ringfence will sit. But we do believe that list is, as currently outlined, that the cost of ringfencing is already built into our financing spreads. So if the rules change substantially, we'll do what we do. And I think Eric was articulate around it on every regulatory manner. We'll step back, we'll try to understand what the issues are and the alternatives and the levers, and we'll deal with it.

Antony P. Jenkins

We think that no matter what happens to the rules, we'd still hold it to 11% to 12% until something, then we should do the presentation again. Because clearly, we've got to be humble in the face of change and thoughtful about what might change. That has to be management's job.

Eric Bommensath

Maybe just to summarize on my side. We cannot know everything. And what we wanted to tell you is like, look, we do the analysis. We look at like what can happen, what are the scenarios because there are different scenarios in all the things, and we try to see how we can create flexibility and agility. And we're not in denial if market conditions change or something change. We create the condition to be agile. That's what we try to do. I mean, that's -- yes, that's it.

Philippe El-Asmar

Okay. A question back here on this side?

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

This Chira Barua from Bernstein, and I have 2 questions. One, equities in the U.S. Can you give us some color around the market share gain there? We haven't seen that amount of share movement in equities in the U.S. for a long time. So what is behind that 6 to 78 -- 6% to 7.8% rule in equities in the U.S.? And how sustainable is that traction going forward? And I'll ask a next question.

Thomas King

Yes. Well, we make good progress on equities not just in the States but globally. And again, I think that banking is a long-cycle business. And we've invested very substantially in the business over the last 5 years, both through the Lehman acquisition, adding new talent and investing in the execution platforms. So as we've become deeper -- more deeply embedded in client relationships, our ability to drive, for example, the origination piece in equity has gotten stronger and stronger, right? So I mentioned that we had never been #1 in IPOs in the U.S. as Lehman Brothers. And now, at the end of the first quarter, we were #1 in IPO. So it's really the sustained investment in the platform since we got into banking and equities, really, that you're starting to see come through in the share gains. And I would say that's across all the pieces.

Antony P. Jenkins

Also, you can remember that October 2008, Barclays and Lehman Brothers came together, that was a pretty dramatic and big step. And we have -- we've got better assets. We've seen the benefit of integration come through. So I think it's realistic over the 3-year timescale here from the immediacy of integration to success to see that sort of gain.

Thomas King

You have to build a brand and an execution reputation on these things, and it has taken some time. We've made good progress. But in the U.S., Barclays wasn't an IPO brand 5 years ago. It is now.

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

So those are some of your prime brokerage market shares in the U.S. as well?

Eric Bommensath

Well, when we look at like there's different element in prime brokerage. You have like financing, you have fixed income and you have equities. So in the way we look at the business, in equities, we look at the vertical of equity cash, equity derivative, banking and prime brokerage. So we have good traction when we put -- we build the businesses. And now, it is a lot of work done in monetization of what we build to get people to fine tune common strategies, and I think we see penetration in our business and growth in our business simply by the fact that we execute the monetization of what we built over the last 4 years. And equity prime or equity in Europe or equity in Asia are building prime and making link with equity cash is the same story. How do you basically cross-leverage equity cash and equity prime? Because that's the kind of work we do. And I think if you do that work well, you actually cross-benefit from the 2 platforms as opposed to look at them in isolation. And I see traction in both at the same time because they cannot function in an isolated way. That's the way I look at it.

Thomas King

Let me give you an example on prime. So a lot of this -- getting prime balance is about your technology, your platform. It's also about your relationships. And to the extent you're delivering value to a long-short hedge fund to be in your block-trade business or your origination business, you have more of a call on saying we want to hold some balances as well. It's always a challenge when you come later to a product segment because the differentiation that you can drive purely through your technology platform, sometimes it's high, sometimes it's limited, so it's really an ecosystem of things that you provide. And so our business -- the businesses of marketing bank are very, very linked, and the quality of the banking franchise helps drive prime and vice versa.

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

And just another quick one on the clearing opportunity. What do you think is the fee pool up there? What's the clearing and collateral management, how it evolved? Or will it be unbundled?

Eric Bommensath

Yes. Okay. I think -- I don't look it like as a fee-pooling clearing. I look it as like issue. There is a fundamental change in the market, things are going to be cleared. It's happening and we'll be there. It's mandated, it's good, makes sense, it's going to happen. So there's going to be a business compare that we had. I repeat, in '07, '06, it was not clear and not even manually confirmed between dealers in some segment. That's not something we can tolerate, the regulators tolerate. That's something which is inefficient, costs money in the back end, makes no sense. Business forward will be way more simpler but also be very good on the back end in term of clearing and technology. You have to embrace it and you have to change your business and bring your business towards that change. I'm not -- I mean, I'm not doing the clearing because there is x of fee pool to charge necessary client on clearing. I do it because that makes sense. That's going to happen. And if the people who don't embrace it and don't understand it will not have the right business model. That's what drives me. And by the way, regulators, too, and everybody. So that's the way I look at it.

Philippe El-Asmar

Thank you. Just going to pause for a second here, and we do have a few questions on the telephone. If we could just take the first one from the telephone, that would be great.

Operator

Our first question from the phone today comes from the line of Vivek Raja from Oriel Securities.

Vivek Raja - Oriel Securities Ltd., Research Division

Just a question or clarification on Slide 35 (sic) [Slide 33], the legacy assets again. So the GBP 79 billion of Basel III RWAs, can you tell me what that is in terms of gross assets?

Mark Merson

Yes. So from an accounting perspective, it includes -- about half securities-related assets in terms of RWAs, and about half derivative-related assets. The -- so that GBP 38 billion or so within it, which is securities-related assets, is about the same in gross balance sheet terms. In terms of balance sheet from the derivatives portfolio, well, it depends quite how you carve it out and quite at what time you carve it out and whether you're using gross balance sheet, leverage balance sheet, PRA balance sheet or -- and avail of balance sheet measures that's been announced over the course of the last 1.5 weeks. It is potentially substantial and a differential scale and if you like the nominal balance sheet terms because it comprises a large proportion of the derivative balance sheet that we have on the books as of 31 December 2012, the most recent date where we published our April balance sheet.

Vivek Raja - Oriel Securities Ltd., Research Division

Okay. And I have a question. So in the key FICC product markets that you identified as a scale or top 3 market share, I just wonder, can you give us -- so to the extent that you concentrate more on flow vis-à-vis your peers, trying to get a sense of what your transaction market share would be relative to your revenue market share?

Eric Bommensath

Perhaps that exact number. I mean, I think that we -- like I explained, like we have -- that's why I don't know what is a relative transaction to -- I don't know if I have that number. Mark, do you have that number?

Mark Merson

No, we answered that. The only difference now is how to respond. We aspire to be a scale flow player. And in transaction terms, we achieved that. But I just haven't got a percentage, so rather than talk for a long time and pretend I won't.

Vivek Raja - Oriel Securities Ltd., Research Division

So I'm trying to get a sense of how much more volume you're seeing to the same level of revenue?

Eric Bommensath

Volume compared to revenue? Well, I think when you do, when you build -- first of all, we -- I'm talking about simple product and flow business because I think that's what makes sense in the future. The world wants simplification. The world wants transparency. The world wants clearing, regulators, so you cannot go that wrong if you build a business model that makes sense compared to what happened in the past and what happened during the crisis. And I think philosophically, that makes sense. It happened and we, historically, are very strong at that and very strong in technology, but -- and we have good balances of businesses and we have also a very client-driven business around these businesses. So -- but you also cannot sit there and not act, keep improving your businesses because around clearing and the way you do it because the old flow business is not necessary the new flow business. So now, I'm not chasing volume for chasing volume. When you have a flow business, it doesn't mean you want to print every tickets or deal with every client. You have to understand what type of business you do in the details, how do you segment clients, how you deliver a certain type of fruit to a certain client because there is an element of cost depending on which segment client you have and how to deal with you electronically, by VaR. So I don't know. Or how many other type of product they would do with you, okay? You have to understand, you have to go and be segmented and not only chase the volume, okay? That's one important point. The second important point, flow doesn't mean you don't have an intellectual discussion with your client and value added for your client. If you just bring price and flow, it's not enough. You have to drive your content. You have to have the intellectual -- the client will pay you for what you show them, that you can provide them whatever is that: Great research, ability, high-level relationship, trust, long-term relationship. So it's not about just flow and volume. There are many other aspect on how you build a flow business. Maybe I answered your question and the other one.

Philippe El-Asmar

Can we take the next question from the telephone, please?

Operator

Our next question comes from the line of Mike Trippitt from Numis Securities.

Michael Trippitt - Numis Securities Ltd., Research Division

Well, for the point you raised, so rather left it -- the issue hanging, I feel, which is on this intermediate holding company point. Could you -- I mean, can you help us try and sort of calibrate this in terms of either the allocation of assets, so RWAs, in the U.S. or how should we think about the allocation of -- sorry, RWAs, or the allocation of capital in the U.S.? But the -- it seems to me it's quite a risk for the business, and yet, the disclosure around this is not as full as I would like. So I need to try and understand the issue.

Antony P. Jenkins

Well, we can do our best, then, Mike. I mean, actually, our data is publicly available in the U.S. We gave you the point, there's $309 billion also of assets on our U.S. broker-dealer balance sheet. And other than that, I'm not really sure where to go rather than to say that we have choices about how we deploy those balance sheets -- that balance sheet and how we deploy the capital relevant to that balance sheet. I mean, clearly, that's the question at issue here. And it's clear equally that the regulators are interested in the balance of capital and balance sheet in the different locations. So we have choices. The rules are unclear. We will deal with them when they're finalized as they're finalized. We're engaged. We've opted our opinions and you've seen those again, that public and out there for people to see. And we will deal with it as it comes. It's -- if I had a firm data point to give you, then I'd give it to you, Mike. I'm not sort of holding it back from you. It's just there isn't one there that is going to drive a better answer.

Thomas King

You know what the levers are in terms of our flexibility and waiting for the rules to develop, and we'll deal with them as they come.

Philippe El-Asmar

Okay. We're coming up on the top of the hour. I think we have time for 1 or 2 more questions, so we can come back to the room here. A question on my right?

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Kian Aboushossein, JPMorgan. Just coming back to the GBP 79 billion, can you -- I mean, when you describe the book, you gave an indication, part of it -- or let me say I interpreted that way, that it's a long-dated CVA book and part of it is securitization. Can you give me an idea of kind of roughly the split, is it majority CVA or is it majority securitization-related?

Antony P. Jenkins

So out of the GBP 79 billion, I said about 1/2 of it is securities-related, about 1/2 of it is purely derivative-related. Quite a lot of the uptick in derivative is due to CVA, and that's the nature of the Basel III transition. In terms of the element of the securities bid, which is, if you like, securitization-driven versus other assets, because it's not just securitization-related assets that are in there. And actually, the securitization-related element, the bid that came off CDO, super senior and similar is really quite small now. And we continue to give you disclosure of that as we've run down the assets over time. So I haven't got a precise data point in my mind, but it's not a big component of the remaining assets.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Okay. Okay, that's clear. And then on the U.S. side, you mentioned the numbers used, they're public, but it's a legal entity. Do you have a branch in the U.S. as well...

Antony P. Jenkins

We do have a branch in the U.S. as well. I'm sorry?

Kian Abouhossein - JP Morgan Chase & Co, Research Division

And can we hear the numbers?

Antony P. Jenkins

We haven't published the branch numbers, so probably giving us all problems there. That would -- that will be something that I'm not able to do, so we haven't broken down individual branches. We've got a number of legal entities, the Barclays Bank Delaware, which is probably the broker-dealer which is public and out there. I'm not belittling this is an issue. It's clearly an issue of scale, but we try to address as head on in the face of uncertainty as we can. I sense that -- even more certainty, and do you want me to tell you exactly how it's going to land? But we just haven't got it, Kian, so I'm not going to pretend otherwise.

Kian Abouhossein - JP Morgan Chase & Co, Research Division

That's fair enough. And lastly, on set platform, you mentioned the trade, that kind of example. Does that mean on set platform you see no real impact on spreads, bid aspects for the likes of rates and credits?

Eric Bommensath

No, I'm not saying that. I was answering the question around the link between clearing and spread. And clearing doesn't mean you have a link with like the bid offer spread. Now depending on how like the different electronic platform will work and what liquidity would be in the platform and how does it work, they would be probably impacting liquidity but also spread. Not only the spread, there's also an element of like liquidity and how you execute larger block or smaller block. And going into the details of spread, you cannot only talk about spread, you have also to talk about liquidity, as you know very well. So it's a more complex -- more complex details. I don't know yet, but that it would be a different market structure probably, depending on the platform.

Philippe El-Asmar

I think we have time for one more question here in the room. In the front, please.

Chris Manners - Morgan Stanley, Research Division

It's Chris Manners from Morgan Stanley. And I guess one question I have is, if we compare your sort of core ROE aspiration of 14% in 2015 to some of the ROEs that are being promised by the other divisions in Barclays, how do you actually -- when you talk to Antony about it, basically, it demanded the amount of capital that you have and an allocation from the business lines because it looks like you got a lower ROE target than some of the other units? How do you hang on to the capital that you have and he doesn't give to other parts of business?

Thomas King

Well, let me take a crack at that. We think that this is a very good business. If you think about the position we have in FICC, the positions we built in Investment Banking and equities and the primary markets where we're home market and where we face off, this is a very good business. We are -- this is a business that is wrapped in, got some legacy asset issues that we're working through, that will improve returns. We're going through a very fundamental reshaping of the cost environment, which will again help a lot. And we're planning for this business and projecting in a way where we're not counting on the top line to bail us out. So I think -- and I don't want to speak for Antony, but I think when he looks at our business, he says, "This is a very good scale Investment Banking platform across the pieces and we want to invest in it." So remember, when we look at 2015, it's a check-in point along the way in terms of the development of this business. But if you go down into the core and look at the fundamental pieces of what we've got, I like the portfolio. And I think that Antony probably would say the same.

Philippe El-Asmar

Okay, thank you. Tom, take it back over to you.

Thomas King

Well, on behalf of Eric and I and Antony and Mark and the whole team, I really appreciate you all coming and listening to us. And as I said at the beginning, we really do look forward to this being the beginning of a dialogue. So thank you very much for coming, and we'll see you soon. Thank you.

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