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Barclays PLC (NYSE:BCS)

Q2 2011 Earnings Call

August 02, 2011 4:30 am ET

Executives

Robert Le Blanc - Chief Risk Officer, Member of Executive Committee and Member of Disclosure Committee

Jerry del Missier - Co-Chief Executive of the Corporate & Investment Bank, Co-Chief Executive of Barclays Capital, President of Barclays Capital and Member of Executive Committee

Christopher Lucas - Chief Financial Officer, Group Finance Director, Executive Director, Chairman of Disclosure Committee, Member of Executive Committee and Group Finance Director of Barclays Bank PLC

Robert Diamond - Group Chief Executive Officer, President, Chief Executive Officer of Corporate, Investment Banking & Wealth Management, Executive Director, Member of Executive Committee and Executive Director of Barclays Bank PLC

Analysts

Jon Kirk - Redburn Partners LLP

Fiona Swaffield - RBC Capital Markets, LLC

Thomas Rayner - Exane BNP Paribas

Chris Manners - Morgan Stanley

Robert Law - Nomura Securities Co. Ltd.

Jason Napier - Deutsche Bank AG

Ian Gordon - Exane BNP Paribas

Michael Helsby - BofA Merrill Lynch

John-Paul Crutchley - UBS Investment Bank

Ian Smillie - RBS Research

Robert Diamond

Good morning. Thanks for joining us today. In February this year, I set out our targets for 2013. At our Investor Day in June, we gave you more detail about how we intend to reach them. We are now 6 months in, and the results we are reporting today represent the first stage on that journey.

They show that we are making clear progress. Chris will take you through the numbers in detail. But before he does, I would like to discuss the results in the context of the 4 execution priorities I laid out in February.

Capital, returns, income growth and citizenship. Let me start with capital. We increased our Core Tier 1 ratio from 10.8% to 11% during the first half. This is a result of our ability to generate and retain earnings despite making GBP 1 billion provision for Payment Protection Insurance. As you know, we have agreed to settle all PPI claims as quickly as possible. This was the right thing to do for our customers.

We are giving numbers today that exclude that one-off provision, as well as own credit gains. By doing this, we aim to give you a better understanding of the business performance on an underlying and ongoing basis.

Of course, we recognize that there are concerns about Greece, Italy, Spain, Portugal and Ireland. So we have also given you a detailed and transparent breakdown of our assets in these markets. Chris will take you through these later, but it is important to understand these exposures in terms of the businesses they relate to, the nature of the risk and how we manage that risk.

The majority of the assets relate to our retail and corporate banking businesses in Spain, Italy and Portugal. About half of them are mortgages, mainly on first homes, with low loans to value. These are not speculative positions, and we are managing the risks carefully.

Let me move on now to talk about returns. Despite the fact that we are just 6 months into our journey, and we still have a long way to go, there are signs of good progress when you look at the underlying numbers. You will be aware that we are operating in a challenging environment that we continue to run with high levels of capital. Notwithstanding that, our return on equity rose from 6.9% to 9.1%. Our return on tangible equity increased to 10.9%.

I told you at the Investor Day about our 3 world-class businesses. Businesses that operate in the very top tier of their industry. Businesses that have scale, technology, brand, customer depth and customer breadth. Our Retail and Business Bank in the U.K. our Global Cards business and our Investment Banking business all delivered a high return equity. As you know, we apply a Core Tier 1 ratio of 10% to all of our businesses.

U.K. Retail Banking reported a return on equity of 15%. At Barclaycard, it was 16%. And Barclays Capital generated a return of 15% despite a soft trading environment for Fixed Income, Currencies and Commodities.

Taken together, these businesses account for 2/3 of our risk-weighted assets, 2/3 of our capital. Our 2 businesses that have the potential to become top tier are Wealth and Africa. I'll talk later about these under income growth. Both show continued progress.

Then there are 2 businesses where we have some serious work to do. Corporate banking, particularly outside the U.K. and Ireland, and Retail and Business Banking in Europe. Barclays Corporate returned to profitability in the first half. This is a very significant improvement on the negative return last year. Clearly, we still have much further to go.

Europe Retail and Business Banking was loss making due to the cost of restructuring of that business. We are reducing headcount in the size of our branch network in Spain. The business now has strong leadership and is in a much better shape for this environment. We expect it to return to profitability in the second half and to generate positive returns going forward.

Disciplined cost management is also critical to delivering returns, so we held costs flat year-on-year, excluding restructuring costs. We expect to deliver a cost reduction of GBP 250 million this year net of restructuring. We are running Barclays in a more integrated way, so we can deliver both revenue and cost synergies. We have identified up to GBP 2 billion in savings opportunities by 2013. So we believe we can exceed our GBP 1 billion target, a target which underpins delivery of our targeted return on equity.

The third execution priority is income growth. Income growth is an important part of delivering returns, and though the environment has been challenging, those areas where we are investing are beginning to deliver. At Barclays Wealth, we're in the second year of a 5-year investment program. In 2010, the first year, revenues grew 18%. This year, first half income has grown 12% and we're operating ahead of plan.

We launched One Africa at the beginning of July and Maria Ramos is now CEO of the Africa region in addition to Absa. Total income was up 7.5% when we combine revenues from all of our activities across the region. As you know, we have top tier positions in many African markets, and our One Africa strategy will deliver the entire capabilities of Barclays in an integrated way across the continent.

Within Barclays Capital, though overall income was down, there was good growth in the businesses we have targeted to build out globally. Equities and Prime Services grew 5%. Investment Banking was up 11%, market share is growing. Our Equities franchises continue to strengthen. We were #2 in the U.S. IPO market and #8 globally. Our advisory business is also gaining momentum. We ranked #5 in the U.S., #7 in Europe, and we advised on 2 of the 5 largest M&A deals during the first half. For the first time ever, Barclays has been named best global investment bank by Euromoney.

We are also pleased with the very strong performance in U.K. Retail and Business Banking. Income grew 4% as we continue to upgrade the customer experience by investing in our branches, in our technology and in our people. This represents good progress after 6 months.

The fourth pillar of execution is citizenship. Despite a challenging environment, we have done a lot to support job creation and business growth in all of the markets in which we operate. In the U.K. for example, we take our commitments under Project Merlin seriously. We met them in the first half with new lending to U.K. businesses totaling GBP 20 billion, GBP 7 billion of this was to small and medium businesses.

We held over 75,000 meetings with our business clients in the first 6 months of the year. On average, we processed over 14,000 loan applications a month to small and medium businesses, and our approval rate was above 80%. In other words, we approve a new loan to a U.K. SME every 4 minutes. We supported over 50,000 U.K. business startups in the first 6 months of this year. Take One Small Step is an award scheme we run to help entrepreneurs launch new businesses.

Fiona Wood is one of the winners with Naturally Cool Kids, which makes chemical free skincare products for children. She used her GBP 50,000 to launch 6 products at the same time instead of just 1, and as a result, her business landed a contract with John Lewis, which increased turnover by 45%.

This is just one example. I could give you many others, where we advised startups on a whole range of essential skills from developing a business plan, managing cash flow, through the launching of website, complying with legislation or starting to trade internationally.

Operating with integrity lies at the very heart of our focus on citizenship. We know that trust in the industry has been damaged in recent years. We know we do not always get things right for our customers. When we get them wrong, we apologize and we put them right. That is our commitment to our customers. We care about being good citizens, not just because it is the right thing to do but because trust underpins our relationship with customers and clients. Trust underpins our reputation in our brand. Trust underpins our aim of delivering sustainable returns for shareholders.

We continue to focus on 4 execution priorities in order to achieve just that. We remain committed to our targets of a 13% return on equity and a 15% return on tangible equity in 2013. And though we are never satisfied, we have made good progress. We are on track to deliver those targets. Thank you. I'll hand over to Chris now to take you through the numbers in more detail.

Christopher Lucas

Thanks, Bob, and good morning. Barclays has delivered an encouraging performance for the half year in challenging economic conditions, underlying or adjusted profit before tax to 24% to GBP 3.7 billion. And on a statutory basis, profits were GBP 2.6 billion. Adjusted or underlying numbers exclude own credit, gains or losses from acquisitions and disposals and the provision for Payment Protection Insurance taken in the second quarter this year. I'll use adjusted numbers this morning when it gives you a better understanding of the operating trends.

Turning to the other headline numbers. Total income decreased 8% to GBP 15.3 billion. There was a good performance in Retail and Business Banking where income grew 3%. Impairments improved by 41% to GBP 1.8 billion, resulting in net operating income of GBP 13.5 billion, which is 6% up excluding own credit. Operating expenses grew 1% to GBP 9.8 billion, excluding PPI. Taken together, this resulted in adjusted profits of GBP 9.7 billion -- sorry, of GBP 3.7 billion.

On an adjusted basis, return on equity improved to 9.1%, and return on tangible equity increased to 10.9%. Our cost to net operating income ratio improved from 77% to 73% and our dividend policy remains unchanged. We announced the dividend of 1p for the second quarter, bringing the dividend for the first half to 2p.

I'd like to move now to the performance in the individual businesses. In Retail and Business Banking, we had good momentum. Net operating income grew 14% to GBP 6.4 billion, and profits before PPI were up 33% to GBP 1.4 billion. In U.K. Retail and Business Banking, profit before PPI increased 74% to GBP 704 million.

Income grew 4% to GBP 2.3 billion, with volume growth in mortgages and personal savings. Improved margins on both the assets and liabilities side resulted in 7 basis point increase in net interest margin to 146 basis points. Excluding a GBP 400 million provision for PPI and a one-off pension credit for GBP 118 million in 2010, operating expenses were down 11%.

In Europe Retail and Business Banking, we reported a loss of GBP 161 million. Income was stable at GBP 604 million, and we saw some positive trends. There was a small increase in net interest margin to 116 basis points due to better pricing of new business. Impairment improved 13% despite the economic environment. And excluding restructuring, the business made a profit in June.

Expenses increased to GBP 657 million. This included a restructuring charge of GBP 129 million, which was mainly in Spain where we're closing 20% of our branches and reducing our headcount by 16%. Africa now comprises Absa Retail and Business Banking and Barclays Africa. Profits were broadly flat at GBP 379 million, income increased by 5% to GBP 1.9 billion and impairment decreased 19% to GBP 268 million.

As a result, net operating income increased 10% to GBP 1.6 billion. Costs grew from GBP 1.1 billion to GBP 1.2 billion, reflecting a one-off pension credit of GBP 54 million last year, as well as currency movements.

At Barclaycard, profits grew 65% to GBP 524 million, excluding a GBP 600 million provision for PPI. There was a strong improvement in the performance in the international businesses, profits in the U.S. and Absa each grew to over GBP 100 million, largely as a result of reduced impairment. Income grew slightly to GBP 2 billion, including Egg and MBNA. Impairment charges improved 27% to GBP 648 million and costs were held flat at GBP 771 million excluding PPI and the goodwill write-off of GBP 47 million relating to First Plus.

Turning now to Corporate and Investment Banking, where profit excluding own credit increased 7% to GBP 2.3 billion. At Barclays Capital, excluding own credit, total income for the half year was down 11% to GBP 6.3 billion. There was an impairment write-back of GBP 111 million and strong cost management led to a reduction in operating expenses of 3%.

Excluding own credit, profit before tax was down 9% to GBP 2.3 billion. The cost of net operating income ratio for Barclays Capital, excluding own credit, was 64%, within our target range of 60% to 65%. Return on equity was 15% as we reduced legacy assets of prices at or above their marks.

In total, these assets decreased GBP 6 billion to GBP 17.9 billion. I know you're interested in the quarterly income progression. Total income for the second quarter, excluding own credit, was GBP 2.9 billion, which is down 14% on the first quarter. The breakdown by asset class is on the slide. This is a good performance relative to the industry, and we're making good progress in the businesses in which we're investing.

Barclays Corporate delivered operating profit of GBP 17 million compared to a loss of GBP 377 million last year as performance improved across all regions. Profits in the U.K. increased 11% to GBP 413 million. In Europe, losses reduced to GBP 359 million driven by improved impairment in Spain, which was 46% lower at GBP 299 million.

Losses in the rest of the world, more than halved to just over GBP 100 million. We're making good progress on the sale of Barclays Bank Russia, and we've made a provision of GBP 64 million in relation to this. The current return on equity is obviously well short of our 2013 target. But this is a significant improvement on the first half last year. We expect Barclays Corporate to breakeven for the full year.

At Barclays Wealth, there was strong income growth of 12% to GBP 848 million. Profits decreased 7% to GBP 88 million as we've invested GBP 44 million in the Gamma program. Return on equity was stable at 10%, and we're on track to reach our targets of 17% to 18% in 2013.

I'd like to give you now more detail on impairment, eurozone exposures and costs before I turn to capital. Impairment reduced 41% to GBP 1.8 billion and the loan loss rate decreased to 74 basis points on an annualized basis from 118 basis points for 2010. We're pleased at the speed with which impairment has improved and we expect a steady loan loss rate in the second half excluding write backs.

We significantly increased disclosure on our assets in Greece, Ireland, Portugal, Spain and Italy. As you know our exposure to Greece is minimal. About 1/2 of our total assets relate to retail mortgages in Spain, Italy and Portugal. Our lending criteria are conservative and the average loan to current market value in these markets is just over 50%.

Let me remind you that our impairment charges in Europe Retail and Business Banking decreased to GBP 116 million in the first half, the loan loss rate was down to 50 basis points and credit risk loans were 43% covered. Our corporate assets totaled GBP 13.7 billion, over 1/2 our lending was to companies that we rate as strong or satisfactory on our credit grading scale.

We've taken substantial provisions already in the lower-rated corporate portfolio, especially in Barclays Corporate Spain where we acted early. Impairment charges here are now declining, and we expect this trend to continue. Our exposure to sovereigns totaled GBP 11.6 billion. We think of this in 2 parts. Firstly, GBP 8.4 billion of exposures are held as available for sale in order to hedge interest rate risk relating to our local businesses mainly in Spain.

Over 1/2 of this has the remaining life of under 2 years and is being replaced by interest rate swaps. Secondly, our trading and derivative portfolio totaled GBP 3.2 billion at the end of June and is actively managed. This reflects our role as a leading primary dealer, market maker and liquidity provider to our clients.

Finally, our financial institutions exposure of GBP 6.7 billion reflects normal interbank activity. A significant part of this relates to non-Irish banks with administrative centers in Dublin but with little Irish exposure. So all in all, we're comfortable with our assets that we own and the values at which they are held. We continue to manage our risks here carefully.

Turning now to cost, which grew 1% to GBP 9.8 billion, excluding PPI. This roughly matches the increase in the restructuring charges, which were GBP 216 million in the first half compared to GBP 93 million for the same period last year. The restructuring would of course deliver future cost improvements. And at the same time as controlling costs, we continue to invest for growth.

In Retail and Business Banking, expenses grew 9% to GBP 4 billion as a result of restructuring charges of GBP 129 million in Europe, goodwill impairment of GBP 47 million relating to Barclaycard and the one-off pension credits in 2010 of GBP 200 million.

Without these items, RBB costs were slightly down. At Barclays Capital, costs decreased 3% to GBP 4.1 billion, and our investment spend reduced as cost reduction initiatives started to have an impact. Costs in Barclays Corporate were broadly in line with last year, giving an overall reduction for Corporate and Investment Banking of 3% to GBP 4.9 billion.

Excluding the U.K. bank levy and PPI provision, we're on track to keep 2011 nonperformance cost in line with last year and to deliver at least GBP 1 billion of run rate cost reductions for 2013. Our first-half numbers do not include an accrual for the U.K. bank levy, which we expect to be in the range of GBP 350 million to GBP 400 million for the full year.

Moving on to look at the balance sheet. We maintain a strong capital position with adjusted gross leverage stable at 20x, and risk-weighted assets flat at just under GBP 400 billion. Our Core Tier 1 ratio increased to 11% and net asset value per share was up 6p on the year end at 423p. The increase from our retained profits was partially offset by reserved movements, notably currency.

We've continued to generate capital and retained earnings, excluding PPI, contributed 44 basis points to our Core Tier 1 ratio. The PPI provision accounted for an 18 basis points swing in the other direction. The new regulatory requirements for market risk contained in CRD 3 will come into effect at the end of the year.

We calculated that our Core Tier 1 ratio would have been 10% had this been enforced at the 30th of June reflecting additional market risk RWAs of GBP 40 billion. Our liquidity and funding position remains a key strength in volatile market conditions. Our liquidity pool is down slightly from the year end at GBP 145 billion as we've intentionally reduced short-term wholesale deposits. Our Basel III liquidity coverage ratio from increased 80% to 86% and our net stable funding ratio grew from 94% to 96% as we've continued to issue longer term liabilities.

We raised GBP 19 billion of wholesale debt across a variety of products and geographies during the first half, and the term funding we've raised over the last 18 months has already refinanced our 2011 maturities.

So in conclusion, adjusted profit before tax was up 24% to GBP 3.7 billion. Impairment improved by 41% and net operating income was GBP 13.5 billion. Our adjusted return on equity improved to 9.1%, and our Core Tier 1 ratio strengthened to 11%. This represents the encouraging performance in challenging market conditions. Thank you very much, indeed. I'll now hand back to Bob.

Robert Diamond

Thanks, Chris. Before we open it up for questions, I want to end by talking about the market and regulatory environment. There continues to be uncertainties surrounding sovereign debt in Europe and the U.S. And about the prospects for economic growth. All of which are contributing into a lack of market confidence.

We see that most clearly from our customers and our clients. In the U.K., our small business customers have grown their current account credit balances by 41% since the start of the year. These are successful businesses, generating profits and cash but they lack the confidence to invest. Lack of confidence has also impacted the financial markets where volumes are down and investors and issuers are hesitant.

The 2 most important factors moving forward are confidence and certainty. As we continue to work through issues over the debt ceiling in the U.S. and fears of contagion in Europe, we also need to work through the final stages of bank regulation. I have said many times that we are strong supporters of creating a safer and a sounder financial system. A system that fosters job creation and economic growth, strong banks want strong regulation.

It is critical now that we all work together towards achieving certainty as quickly as possible, so that U.K. banks become investable, so that we can support economic growth and so that we can act as a source of stability amidst market volatility. We submitted and published our full written response to the U.K. Independent Commission on Banking in July, and we continue to engage closely with them.

As I have said before, we believe that if banks could be allowed to fail without creating systemic risk, then many of the more emotive issues about those that are seen as too big to fail would be addressed. What is important is that customers can still access their deposits and essential services even if a bank does fail.

Credible resolution and recovery plans are critical. At Barclays, we have invested a lot of time and a lot of energy in developing these, and we expect to have them in place early next year.

There continues to be a lot of discussion about ring fencing, and the final outcome remains unclear. Ring fencing would not be our choice. But we could make it work if we have to, and we would work constructively with regulators to implement it in such a way that U.K. banks and their customers are not unduly disadvantaged.

But what is most important right now is that we achieve certainty. It is time for governments, for banks and for the private sector to work together to achieve that because only then can banks play the key role that they must in helping the private sector pick up the growth mantle from the public sector, in supporting customers and clients to create jobs and to generate economic growth.

This is important around the world, but we have a special responsibility here in the U.K. A responsibility because of the economic challenges we face. A responsibility because of the important role London plays as one of the world's leading financial centers. We have to continue to attract companies to come here, to invest here and to stay here. This is a great place to do business, and if we can work together with a common aim, to regain confidence and certainty, the business environment will recover.

In the meantime, we remain focused on executing against our priorities at Barclays: Capital strength, returns, income growth and citizenship. And our results today demonstrate good progress. Our 3 world-class businesses, which account for 2/3 of our capital, delivered a return on equity of 15% or more. We're investing in the 2 businesses with potential to become top tier, and they are generating strong income growth already. And we have made good progress for those businesses that need work. In short, we are on track to deliver our targeted return on equity of 13% by 2013.

Chris and I are here with the team that you know well to take questions. We have with us Rich Ricci, who is the co-Chief Executive of our Corporate and Investment Bank; Robert LeBlanc, our Chief Risk Officer; Antony Jenkins, Chief Executive of Retail and Business Banking; Jerry del Missier, co-Chief Executive of Corporate and Investment Banking; Tom Kalaris, Chief Executive of Barclays Wealth; Maria Ramos, Chief Executive of our Africa businesses giving the results presentation in Johannesburg for Absa today. Going forward we'll have her here to answer questions as well. So with that, we open up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes through from the line of John-Paul Crutchley from UBS --

John-Paul Crutchley - UBS Investment Bank

I wanted to ask a question on the income cost dynamic. I guess when I look at the broad picture here, it looks like the income was a bit light to my expectations, but you've done well on a group in terms of cost. But if I look at it in terms of first, second quarter dynamic, it looks like revenues down, obviously, Q2 or Q1 but cost up slightly. I know there's a little bit of restructuring there. I when I delve down to the businesses, clearly, you've performed very well on the Retail business in terms of the cost revenue dynamic. But obviously, the Investment Bank has got more of a headwind there. What, I guess, I'm interested in how that plays out over the rest of the year if it does remain a difficult revenue environment in the investment bank. And to what degree are you actually able to bring cost down in line with revenues in Investing Banking, which has clearly not been the case in the outcome of the first half?

Robert Diamond

Thank you, JP. I think there might have been a question in there. I'm going to assume there was 2 parts. One is, what is the cost picture and the income cost picture the group level and I think at the end, you're asking more specifically about Barclays Capital. So Chris, if you want to start, maybe Rich and Jerry can talk more specifically about Barclays Capital.

Christopher Lucas

Let me start JP, and good morning. You actually summarized the situation pretty well. If we look at the income performance, it was down 8%. But if you include impairment, it brings it down to a number that's broadly flat. Against that, expenses went up 1%, which is pretty much the impact of the restructuring cost. I've excluded PPI because I think we'd all agree that's one-off and nonrecurring. I feel that in terms of rather than looking at income and cost separately, we should look at them together. And in particular, look at the returns that we're generating from this. Adjusted return on equity of 9.1%, return on tangible equity of 10.9%, I think is an indication of both reasonable income performance and good cost management.

Rich Ricci

JP, it's Rich. I think in terms of Barclays Capital, as we said at the Investor Day what we're managing on our returns basis, and we do expect the second half of the year to be somewhat challenging probably in line with the first half. And we remain confident on the cost line, on the capital line that we can manage the returns to come up to 15%. And we demonstrated, I think, a very good cost management in the first half quarter-on-quarter from Q2 2010 to Q2 2011, costs were actually down 7%. So I think we've demonstrated that we can manage all those dynamics to deliver the returns that we've committed to.

John-Paul Crutchley - UBS Investment Bank

And this is a follow-up on the Investment Banking cost. I mean, to what degree, I guess, where I'm coming from is have you got actually the accrual obviously based on previous years' compensation which actually gives you a headwind in terms of managing the cost outcome where you want it to be this year?

Rich Ricci

Well, if you look at the comp-to-income ratio in the first half, the accrual is around 45%. About 3% or 4% of that relates to the additional deferral rates. So it's kind of in line with last year and the accruals overall are down in line with the revenue base in the business.

Robert Diamond

JP, here's how I look at it, and I think it's important to have this perspective. It was a tough environment for the revenue line in Investment Banking industry-wide. Our revenues in the 1/2 are down around 9%, and yet there's a 15% return on equity and a 64% cost income ratio. And what we have talked about and Richard and Jerry have talked about is the commitment to manage returns and the cost income ratio. And I think it's good that we show those kinds of results in this kind of an environment.

Operator

The next question comes through from the line of Michael Helsby from Bank of America.

Michael Helsby - BofA Merrill Lynch

I've got a few questions actually, but I just pick a couple out. The restructuring charge that you talked about, Chris, the GBP 216 million, does that include the GBP 47 million of goodwill? And how much was the restructuring charge in U.K. Corporate? That's question one. I was looking at Page 63 of the press release, and I was just looking at the movements in the credit market risk assets, and there's a couple of items which I was wondering if you could explain. Firstly, there's a reduction in the value from -- and what I'm trying to get out here is the P&L impact, so the reduction is down GBP 5.9 billion, there's FX movement of GBP 393 million and that's partially offset by a fair value gain of GBP 322 million. Should I look at the P&L impact as being a net of the GBP 393 million and the GBP 322 million. That's question 2.

Christopher Lucas

Michael, can I try and answer them as 1 and 2 rather than try and write down all the answers. In terms of the restructuring, the GBP 216 million does not include the write-down of goodwill. That GBP 216 million is purely the restructuring charge that we spent. I'm not sure we've given the total within the U.K. Retail bank.

Michael Helsby - BofA Merrill Lynch

U.K. Corporate. You did mention it but you don't give the number.

Christopher Lucas

But I think, there is relatively limited amount in restructuring in the U.K. Corporate banking business so the number would be de minimis. If I could move to Page 63, the best way of looking at what's the P&L impact is the GBP 209 million that goes through top line income and the GBP 113 million that goes through impairment.

Operator

The next question comes through from the line of Fiona Swaffield from RBC.

Fiona Swaffield - RBC Capital Markets, LLC

I don't know if I misheard, but I think that when you were discussing cost you said that you identified GBP 2 billion of potential cost efficiencies relative to your GBP 1 billion. I wondered if you could talk about that in more detail and whether you would be revising that GBP 1 billion at some point? And then the second issue is on risk-weighted assets and where we are in terms of mitigation. I think you say you sold GBP 6 billion of credit market assets. And I just wondered if you could give us an update on where we are relative to the new target given that the Investor Day. I'm sorry, can I just add a third one on the U.K. Retail Bank, because the top line is very good particularly net interest income and margin. So I was just wondering if you could talk a bit what's going on in deposit margin because I'm quite surprised that it has widened.

Robert Diamond

Fiona, let me answer the first and ask Chris to talk about RWAs and then Antony about the U.K. Retail Bank. I think you heard us accurately. We set in February a commitment to take GBP 1 billion in cost out by 2013. That underpins as one of the many things that underpins our confidence and getting returns to 13%. We have identified, which doesn't mean we have acted on, but we have identified more than we had anticipated at GBP 2 billion. So we have a confidence that we'll exceed GBP 1 billion. But having given a target of how much we'll exceed it by, but it gives us great confidence in the GBP 1 billion and that we can exceed that. Chris?

Christopher Lucas

In terms of RWAs, the best way of looking at it is the driving parts of the movement between GBP 398 billion, which was at the 31st of December and GBP 395 billion. And there's really 2 items in there. There's the reduction for this credit market exposures and other business activity, which nets about GBP 4 billion of RWA reduction. There are, however, methodology changes that increases the GBP 4 billion to GBP 6 billion, increases the number by GBP 6 billion and that relates to different regulatory interpretations. It relates to moving from standardized to advanced. And I think it's what we would expect to see as the sort of day-to-day changes in the interpretation predominantly by the regulators. There's FX and other movements but that's how you get to GBP 395 billion. In terms of the guidance we gave at the Investor Day, that remains the same. And since we did that about the middle of June, there's no real update to give you at this point.

Antony Jenkins

Fiona, thank you for the complements on the top line at UKRB. We were pleased also with the performance of the business. Of course, competition for liabilities is intense out there. But really, it's a day-to-day battle around the quality of the products we have in the market. Our marketing and the rates that we offer consumers. And we're constantly managing those variables to deliver a good deal to customers as well as a good margin for us. Specifically, in this half, we had a product out there, which is a savings bond where customers could actually withdraw an element of it early, and that proved very popular. So this is about competing very actively in the market day-to-day and we're able to get a good return on the liabilities that we're raising.

Operator

The next question comes through from the line of Chris Manners from Morgan Stanley.

Chris Manners - Morgan Stanley

I have a question for you on the net interest margins, which you've given on Page 69 and 70 of the release. It looked on a sequential basis, they've actually declined by around 11 basis points on Retail and Business Banking, Corporate and Wealth so more banking divisions. And clearly, it was impacted by a low contribution from your equity structural hedge. I'm just trying to think about how we should think about the net interest income line going forward given, obviously, funding costs are rising and you do seem to have margin decline across a number of the different units there.

Robert Diamond

Chris, I'll ask you to answer, and Antony if you want to add anything, please feel free.

Christopher Lucas

I think it's very much wrapped up in Antony's answer, both the assets and the liability margin have improved. And I think there is a degree of seasonality in those numbers. We tend to see the second half be slightly higher than the first. And I think that's as repricing takes place throughout the year. And that's indeed what you see. So if you look at the first half 2011 versus first half 2010, you will see there's a slight improvement. Although, again, if you look at the asset margin, against the second half, it's down slightly. But I would regard the underlying margin as strengthening, even though the second half is slightly better than the first.

Chris Manners - Morgan Stanley

Okay. So we should actually anticipate a pickup in the margin similar to what we had last year, so that 10 basis point improvement?

Christopher Lucas

I'm not going to give you a forecast, Chris, but directionally, you're right.

Operator

The next question comes through from the line of Ian Gordon from Evolution.

Ian Gordon - Exane BNP Paribas

I just got 3 quick ones, if I may. Firstly on Africa, Bob you referenced 7.5% revenue growth for Africa in its totality, whereas I think Chris noted the 5% top line growth specifically within ARRB. Would I be right in assuming that the difference in those businesses you report elsewhere, i.e., Absa Capital and the Cards business, et cetera. And if so, could you just provide a few comments on those businesses where the rate of growth is clearly higher and is making a useful contribution in the other units. Secondly, on sovereign exposures, and specifically Greece, one of your peers with rather greater exposures in that market was making a virtue of the haircut they have taken within their numbers yesterday. Just for clarity, and I accept that your exposure to Greece sovereign debt is de minimis, about GBP 120 million gross, I think. Just for clarity, have you actually taken a haircut or not? I believe no. And then thirdly, just looking at the roadmap to the 13% ROE by business in 2013, which you give within the appendix slides. Would I be right in understanding that you candidly acknowledge you will have an ongoing drag from Europe and from Barclays Corporate in 2013? Is your expectation that will be a future point in time that both this businesses and more particularly Europe, will reach your new target? Or do you candidly acknowledge that a business like Europe RBB will remain below the group threshold even if we build in your cost initiatives, some normalization of interest rates over time and some normalization of impairments?

Robert Diamond

Let me start with Africa. I'd like to say a few words about Europe and then have Antony pick up on those, and then Chris can address your issue on sovereign exposures. I think you were specifically asking about Greece. But we've given a lot of detail and transparency around our exposures. In Africa, you're absolutely right, Ian. And I am very, very focused on the opportunity that we have in Africa. And it's both about integrating our Retail and Business Banking operations, where we've, in essence, run 11 different businesses in 11 different countries over the years. And that's an integration on the continent. And you'll see those numbers of Retail and Business Banking rolling up into the Africa portion of Antony's business, so he'll have U.K. Retail and Business Banking, he'll have the Global Cards business, he'll have Western Europe Retail and Business Banking and Africa. You'll also hear me speaking about Africa in a different context, which is all of the businesses combined. And Absa Capital and other activities in Africa that are a part of Barclays Capital, Tommy Kalaris got the beginnings of a very successful effort in the Wealth business, and as you mentioned, cards. So we will be showing it on a geographic basis, as well as on a functional basis within U.K. Retail and Business Banking. In terms of Western Europe, we feel more optimistic today than we did 6 months ago. You've all asked us the direct question, did we consider exit. Of course, we did. When we looked at that over the course of our planning cycle. And we're very, very committed to the fact that this can be a good part of our business. We have had historically a very strong presence in Spain, and increasingly, Iberia, with Portugal alongside. We had serious underperformance and so we've made change. We have very strong leadership in place. It's very much a one Barclays operating together with all of our other operations now. We are reducing headcount and the branch system circa 20% type of levels as we've said and that's ongoing. We will be returned to profitability in the second half of the year. And while that business will not be at 13% by 2013 while the group is, it will get to 13%. It's just going to take a little bit longer. We would not be as committed as we are if we didn't believe that we could get the returns on that business to 13% or above.

Antony Jenkins

Thank you, Bob. Just to build on that, we did say at the Investor Day, we expected for retail Business Banking Europe to be in low-single digits by 2013 but that we would expect to get within the target return by 2015. And we still feel confident as Bob has said, of achieving that. And just one thing I'd like to mention about the Retail Business Banking in Africa, it was impacted by the disruption in Egypt in the first quarter around the margin that slightly dampened down the revenue growth. So that would be my comments on those topics.

Christopher Lucas

In terms of Greece, I'm sure you've got to Page 62, it shows you that we've got GBP 14 million of sovereign exposure, that's fair value through equity. There's a small haircut against that but I think it got immaterial for the purpose of the disclosure. You'll see that it is held at amortized cost. We've really got some corporate lending of GBP 139 million, which we're very comfortable with the collectability of. And other retail lending of GBP 33 million against which we have an GBP 11 million impairment provision.

Robert Diamond

I think we didn't hear for a second, is this Tom Rayner?

Thomas Rayner - Exane BNP Paribas

Yes. Sorry, Bob, I wasn't introduced. Tom Rayner of Exane. Just 3, if I may. One just on the sort of the cost flexibility question in Barclays Capital. I mean, I'm assuming that the adjusted cost to net operating income ratio is the targeted measure, the 60% to 65%. You got off to a better start, if you like in Q1 last year. Q2 this year, a little bit better than Q2 last. I'm just trying to get a sense, is there a revenue outcome in the second half that might mean you exceed the 60% to 65% ratio on a temporary basis? Or will you meet that by reducing costs regardless of the revenue outcome? And I have another a couple of quick questions please after that.

Robert Diamond

Do you want to run through them and then we'll take them?

Thomas Rayner - Exane BNP Paribas

Sure. One was just you've given disclosure that less than 1% of the residential mortgage book is subject to forbearance. I just wondered if you could give us the figures on the sort of commercial real estate exposure. And also I just wanted to follow up on your comments on the ICB ring fence proposals, you think you can implement them without unduly disadvantaging -- I think you said customers. Could you clarify also to shareholders, I mean, I'm interested in how the ring fence can be put in place without doing too much damage really?

Robert Diamond

I'll ask Jerry and Rich to talk about the cost flexibility in BarCap. Chris will pick up on, I think, you're saying how does the forbearance translate across into commercial real estate as opposed to residential, and then I'm happy to make a few comments on the independent commission.

Jerry del Missier

Tom, this is Jerry. So you heard Rich earlier talk about the environment. Clearly, the first half was a challenging environment and we recognize that we're very likely to be operating in a challenging environment in the second half as well. Year-over-year, costs down 7%, reflecting the fact that I think we were early in recognizing that the environment had changed in late 2010. Notwithstanding the fact that we were still executing build of our equities and banking franchises in Europe and Asia. At the Investor Day, we declared that by the end of this year, we would be more or less complete with those bills, and we'd move into a really a BAU investment plan. So nothing particularly special about those businesses and rather it would be done very much on a BAU basis. Against that backdrop, and given what we've already done and the commitment to remain vigilant on cost, we remain confident that we will stick with the 60% to 65% backdrop.

Thomas Rayner - Exane BNP Paribas

I guess the point of my question was there's going to be a danger, I suppose, that you could damage the franchise by cutting cost too aggressively just to meet a target in what might end up to be a temporary period of weak revenue?

Jerry del Missier

Sure. And look, we don't take decisions to manage costs lightly. We're very committed to returns. We also have a very strong franchise that we are very committed to protecting as well. So obviously, we take that kind of balancing into account.

Robert Diamond

Chris, the question on forbearance.

Christopher Lucas

We don't have, Tom, as you know, a set forbearance program for wholesale exposures. They are done on a case-by-case basis. And I think, probably, the best way of looking at it is the wholesale credit risk disclosures we give on about Page 45. It sets out the credit risk loans, which was not in forbearance, are those that we have identified is suffering stress. And if you look at it, you will see that it's about GBP 11.4 billion on the total loan book of GBP 271 billion.

Robert Diamond

Tom, you asked about the Independent Commission and how will this impact shareholders. Well, I was very clear and have been very clear, we would not have recommended and did not recommend the ring fence, but we have engaged, we think very thoughtfully and very constructively with the Independent Commission and other members of the regulatory community. We think within the range of outcomes, we can work constructively to support both our customers and our shareholders. There's obviously a lot of uncertainty and we're not going to know a lot of these decisions until September, but I think it's narrowing in on an acceptable range of outcomes.

Thomas Rayner - Exane BNP Paribas

Okay. Because RBS is focused on the defined liquidity group which the FSA already imposed. Is that something that you as Barclays have looked at as well, or is that something you can't comment on at this stage?

Robert Diamond

I wouldn't want to comment on someone else's recommendation. I think you can see pretty clearly from our recommendation what our preferred course is.

Operator

The next question comes through from the line of Jason Napier from Deutsche Bank.

Jason Napier - Deutsche Bank AG

I have 3 questions please. The first was around level of cost in the group and the identified GBP 2 billion is, of course, welcome. I wonder whether you would mind talking about the distribution of additional saving ideas. I'm particularly looking at a very strong outcome in expenses in U.K. RBB in the half. Whether the expense run rate there is sustainable, or can be further improved upon and what restructuring charges might go along with the additional saves. Secondly, some of your peers have spoken about concerns around late cycle loan losses. Your CRLs and PPLs are down pretty much everywhere, and actually on the retail side look, better than I would have expected given the economic condition. They're all much better sequentially, and I wonder whether you could talk a little bit about what concerns you might have around sort of a double dip if you like in arrears rates. And then lastly just to say thank you for the equity allocation disclosures. Those are very helpful and it makes it very clear what kind of profit level the execs are going to have to deliver to hit the numbers. I just had a question on Africa and perhaps the treatment of minorities, perhaps. The equity to RWAs number looks low or perhaps there's something going on in tax equity RWAs of 8% or TNAV to RWAs of about 3%. I just wonder whether there's an allocation wrinkle there that perhaps you could explain just as far as how much capital is in that division.

Robert Diamond

As we work through this, Jason, let me talk about cost and ask Chris and Antony if they want to add to that since you had a lot of questions about Retail Banking within that. I think on the loan loss and the late cycle, I'll turn to Robert. And lastly, Chris if you can answer the question maybe when you do the other about Africa, that would be great. Listen, the metric that we're following most closely, and there's never one metric, is we start with rock solid capital funding and liquidity. And I think we're really, really pleased with how solid, how rock solid all 3 of those are. The next priority is around returns, and we're committed to getting returns on equity to 13% and on tangible equity to 15% by 2013. The cost program, headcount, everything else is a part of getting those returns up. So one of the things that you're seeing is a much more integrated Barclays. We've talked about it internally as one Barclays. So the Executive Committee is very focused on the opportunity we have with higher levels of capital post Basel III to get both revenue and cost synergies out of the business. And we're excited that we've seen more opportunities than just GBP 1 billion. We haven't said anything in terms of how much of those we're going to be able to get, but we are being open the fact that we're seeing more opportunities than we expected, so you should expect us to exceed the GBP 1 billion target. But this is being done in a very positive way in terms of really looking at the opportunities where we're integrating Corporate and Investment Banking that have been run for years as very, very different businesses. I'm going to ask Rich just to say a few words about some of the revenues synergies we're seeing from that business and some of the cost synergies. But that's the context I would put it in. Rich, you want to talk a little bit about what's going on the Corporate and Investment Banking coming together?

Rich Ricci

Sure, thanks Bob. We were really starting to see some traction as the 2 businesses have been run in conjunction with each other. As Bob mentioned, it's very, very exciting because as an example, Capital Market transactions that are being done for Barclay Corporate clients by Barclays Capital have increased fivefold since we started managing the businesses together and revenues in those type of transactions have tripled. Likewise, in terms of Barclays Corporate products that are being sold to Barclay Capital clients, primarily cash management and other operating products have increased by 20%. And we think that's just the tip of the iceberg. As we work further to combine the infrastructures, as we work further to look at the way we cover clients, we think there's really, really a lot of opportunity to better serve our clients but also to generate more revenues.

Robert Diamond

Robert, the issues around loan cycle?

Robert Le Blanc

Sure. The question mentioned the possibility, I think, the phrase was of a possible double-dip in arrears rates and potential concerns around late cycle loan performance. From our point of view, I don't see that as a major threat for us just looking across the statistics of most of the book. The early cycle delinquency and late cycle delinquency in our books have been improving steadily and those trends I don't think are going to reverse. Our CRLs, levels our steady as you mentioned, and you'll see in the papers at our CRL coverage ratio is also steady. So while the economic environment is still a little bit fragile and the recovery is uneven, I think that in the second half of this year, the impairment performance will look similar to what we've seen in the first half, taking into account of course some of the releases that have occurred and that are not recurring. But no, I think it's still a tough time in the credit world, but I don't think we're going to give up ground on the improvements we've seen in the impairment of the credit books.

Robert Diamond

And Chris, there was a question about, something about calculation of equity ratios in Africa.

Christopher Lucas

Yes. And Jason I think the answer is on Page 68, little note 2, which is to do with the treatment of the noncontrolling or minority interest. But rather than use more time now, why don't we give you a ring and just go through it?

Operator

The next question comes through from the line of Robert Law from Nomura.

Robert Law - Nomura Securities Co. Ltd.

I have 2 areas I'd like to explore, please. First of all, simply, what level of cost savings in the GBP 250 million, if any, has been achieved so far in the first half?

Christopher Lucas

About GBP 120 million, something in that sort of order.

Robert Law - Nomura Securities Co. Ltd.

The second area I wanted to explore is bit more detail on BarCap, if I may. Firstly, what was the nature of the credit impairment release in the second quarter?

Robert Diamond

Why don't you tell us the questions you want about BarCap. And then Rich and Jerry can...

Robert Law - Nomura Securities Co. Ltd.

Yes. And then more broadly I was going to explore the area that we touched on earlier. I think in answer to Tom's question, I was looking at the levels of revenue in BarCap. And even with a credit impairment release, it looks like above an 18% pretax return on the risk-weighted assets that you have post-mitigation that you gave on the Analyst Day. And I wondered what your thoughts were about -- how long you continue with the current level of expenses, given your objective to get the return equity up towards the 15% tangible that you've set?

Robert Diamond

I actually think we've been pretty clear and pretty clinical about how we set the priorities. I'm happy to ask Rich and Jerry if they have anything to add. But I think it's been pretty clear, Robert, how we set those priorities. Chris, there was a question I actually didn't understand on what's the nature of the release?

Christopher Lucas

Yes. They would be because we have a reversal of the impairment charge for the loan because we now consolidate the assets and they flow through the collateral fair values, if you see what I mean. So they go through the fair value line. The reversals will be because the value of the collateral has increased either because as we sold it, or more likely as we've revalued it in line with current market values.

Robert Diamond

So it's simply the things we have provided for have turned out to be to have a better outcome than we anticipated.

Robert Law - Nomura Securities Co. Ltd.

Sure. Is that Protium related again, because I thought Protium was in the first quarter?

Christopher Lucas

In total, Protium was about GBP 220 million across the half and the first quarter was about GBP 100 million, I think, and the second was about GBP 130 million.

Robert Law - Nomura Securities Co. Ltd.

I thought it was GBP 180 million?

Christopher Lucas

Well, it's GBP 230 million for the half, Robert. So I can't remember the first quarter but it was GBP 230 million for the half.

Robert Diamond

Rich and Jerry, was there anything else you wanted to add on? I think, we feel like we've answered that question Robert.

Robert Law - Nomura Securities Co. Ltd.

Okay. Well, just a case as to whether the revenues you set have been something like GBP 3.7 billion for a quarter? And the only time you've achieved that is the first quarter of 2010.

Rich Ricci

We said at the Investor Day, we don't expect this environment to continue forever. But we also stated very clearly that while we're committed to those numbers in a normal environment we're managing to returns. And we've got the levers of cost, we've got the levers of capital. As Bob describes and as Jerry described, certainly, it was a very challenging quarter. And I think we've demonstrated that we can honor that commitment of 15% even in a challenging environment. So it's our intention and expectation to deliver that 15% even if we have an environment that is difficult as the first half.

Operator

The next question comes through from the line of Ian Smillie from RBS.

Ian Smillie - RBS Research

Two questions, please. The first one is with reference to the GBP 3.5 billion net transfers into level 3 assets, could you give us a bit more color of what's happening there, please. And what the benefit to the P&L has been for not keeping them in level 2? And secondly, with reference to your comment of the July trading conditions being impacted by the current market conditions, could you give us a bit more color whether you're making that comment being down with reference to the first half clean revenues in BarCap or whether it's with reference to the second quarter clean revenues in BarCap?

Robert Diamond

I think simply stated, Robert, I'll talk about market conditions and expectations first. And then I think it's either Chris or Robert will take the first question. We're expecting the environment, broadly speaking, to be similar in the second half to the first half. It was a sluggish environment, both because of the issues in Europe and in the U.S. clearly impacting volumes in the marketplace, so lack of confidence and certainly still some regulatory uncertainty. It's possible there's a positive scenario that potentially will resolve some of the issues around regulation in September and maybe the markets pick up before the end of the year. But our expectation is clearly that we'll have a market environment or what we're planning on is a market environment in the second half, which is pretty sluggish and very similar to the market environment the first half. Rich?

Rich Ricci

Most of the people on the call work for investment banks. We shouldn't overplay the notion of what we said. It's certainly a challenging environment as we all know, and I think you would have heard something very similar from all the other investment banks. Please don't misinterpret it as a disaster or anything, we're trying to provide color in line with our obligations to the market. But I think as Bob said, we expect it to continue to be challenging and we shouldn't read anymore into it than that.

Robert Diamond

Yes. There was a question I forgot now. I'll let you deal with it.

Christopher Lucas

Yes. On level 3 assets. It feels like a good accounting question, but if I go wrong, Robert will help. The net increase is about GBP 3 billion as you quite rightly point out. Of that GBP 3 billion, about GBP 2.4 billion net is the Protium assets coming back onto the balance sheet and going into the level 3 assets. The P&L impact is the 230-ish that I described earlier for Protium. The balance is net transfers of different bond positions and in particular index-linked bond positions as set out on Page 82. I don't think there's a significant P&L impact as a result as a result of that.

Ian Smillie - RBS Research

What happened in those markets, Chris, for them to be put into level 3? And is the net transfer that I'm particularly looking at, because there wasn't a major impact, I'm not quite sure why the shift in accounting bucket.

Christopher Lucas

I think it's down to the ability or otherwise of finding observable marks for the asset class. I don't think there's anything more significant than that.

Ian Smillie - RBS Research

So we should probably relate to the European sovereign-type exposures where markets have been unduly strained?

Christopher Lucas

I think that's right. But the valuations will flow through the P&L as normal. The fact we have a different valuation doesn't change the basis of P&L treatment.

Operator

The final question today comes through from the line of Jon Kirk from Redburn.

Jon Kirk - Redburn Partners LLP

Just a couple of questions on your eurozone exposures. Firstly, on Italian sovereign exposure, it looks to me like the net exposure there just to the sovereign this is, the net exposure doubled pretty much since the end of last year. So taking the EBA numbers and then comparing with the numbers you put out today, looks like it's doubled. Can you explain what's happening there? And also does that mean we should expect some sort of charge to come through in the third quarter effectively because clearly, since actually pretty much since the end of the first half, Italian sovereign bonds have devalued quite sharply. So any color to that will be very useful. And then secondly, just on again sticking with eurozone, on Spanish mortgages, the total provision you've got there, impairment allowance rather is 54 basis points. Can you give us some comfort as to why that would be enough particularly given the uncertainty surrounding residential property valuations in Spain?

Robert Diamond

Robert, do you want to take those, and Chris if you want to add anything, please do.

Robert Le Blanc

I will only start but Chris, please, jump in as well. On the first part of the question, there's a difference in the way the EBA presented its data, which was on what we call an exposure at default basis. So those numbers were exposure at default. What we presented in the financial results are accounting and balance sheet positions, so it's simply a different measurement. Our positions to Italy didn't really jump and, overall, our structural hedge positions and capital market positions to Spain, Italy, et cetera, have been reducing slightly. They are represented in the accounts on a fair value basis. I won't go any further into the accounting because I would defer that area to Chris. But you can't do a like-for-like comparison of EBA numbers and financial statement numbers. What we have disclosed here is more complete, and I think also very transparent to try to break it out to an even greater level of detail. On the Spain mortgages, we're very comfortable with the position we have there. Let me just take a moment and tell you a bit about our business there. Our mortgages in Spain are mostly primary residences. They are mainly in urban areas, we have very little lending on the coast to holiday properties. We have very few expat mortgages, for example. The LTVs are conservative. There's a current 58%, current market 58% loan-to-value. And even over the last couple of years, our early and late cycle delinquencies in Spanish mortgages have not increased very much. We have a tiny amount of stock in charge-off, it's only about GBP 300 million less than 2% of the book. And we value each of those houses on an individual by individual basis. We don't look at HPI indexes for that. And so we're very comfortable that our CRL coverage ratio of 37% is adequate and the book continues to perform well. I think we would wish to have better margins in that book, but the impairment performance is fine. And by the way, new business ventures [ph] over the last 2 years have been performing even better. So we're happy with the credit performance of the Spanish mortgage book.

Jon Kirk - Redburn Partners LLP

Okay. Just a follow-up on Italy, if I may, because I know your point about the different methods for disclosure that you made. But I think if you look at the Spanish sovereign or the Greek or Portuguese or Irish, the moves there were very small, and I think there were slightly down in most of those countries, sovereign. Italy is markedly different from everything else. So just to confirm what you're telling us is that actually Italian sovereign exposure hasn't fallen, is it just something peculiar that makes it look like it's risen a lot? [indiscernible]

Robert Le Blanc

Sorry, I didn't mean to jump in, apologies there. One thing that's not in here is the maturity of the book and the Italy portfolio is heavily short term, so the price move from the spread widening or yield curve widening is less pronounced. There certainly have been some moves in July but there aren't any large hidden problems in these numbers at all either.

Robert Diamond

Listen, I want to say thank you for taking the time. This is the first time that we've done our results this way. We'd love to get your feedback. We're sorry if we didn't look at the camera a few times because this is all new to us. But hopefully, it went well for you. If you have feedback, please feed it through Stephen. If there's further questions, let Stephen know and we'll try and get back to you promptly. Thank you very much.

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