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Barclays PLC (NYSE:BCS)

H1 2012 Earnings Call

July 27, 2012 4:00 am ET

Executives

Marcus Agius - Executive Chairman and Chairman of Executive Committee

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

Rich Ricci - Co-Chief Executive and Chief Operating Officer of Investment Banking & Investment Management

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

Antony P. Jenkins - Former Chief Executive officer

Thomas L. Kalaris - Executive Chairman of the Americas, Chief Executive of Barclays Wealth Management - ABSA Wealth and Chief Executive of Barclays Wealth

Analysts

Andrew Coombs - Citigroup Inc, Research Division

Michael Helsby - BofA Merrill Lynch, Research Division

John-Paul Crutchley - UBS Investment Bank, Research Division

Thomas Rayner - Exane BNP Paribas, Research Division

Manus Costello - Autonomous Research LLP

Raul Sinha - JP Morgan Chase & Co, Research Division

Chris Manners - Morgan Stanley, Research Division

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Jon Kirk - Redburn Partners LLP, Research Division

Ian Gordon - Investec Securities (UK), Research Division

Andrew Lim - Espirito Santo Investment Bank, Research Division

Operator

Ladies and gentlemen, welcome to the Barclays Half Year Results Analysts and Investors Conference Call. I will now hand you over to Marcus Agius, Group Chairman.

Marcus Agius

I'm joined here by Chris Lucas and also by our other ExCo colleagues. Before Chris take us through the detail of our good results for the first half and before we take Q&A, I'd like to say a few words about our current situation.

This has been a difficult few weeks for Barclays. A great deal has been said about recent issues. And while we are not going to add to that debate today, we do acknowledge the impact it has had on Barclays' reputation. The board understands clearly the need to address the issues which have been raised and to deal with the current management uncertainty. The Barclays management team, together with our 140,000 employees around the world, is already focused on moving forward. We are committed to serving our customers and our clients and to contributing positively to the many communities in which we operate. We're well positioned to continue to deliver for the bank during this interim period, while the board completes its process to identify a new Chairman and a new Chief Executive.

Despite not having a CEO, we continue to make effective and efficient decisions. As you know, I chair the group executive committee, and this comprises the executive heads of our main businesses and functions. Together, we continue to progress our One Barclays imperative along with a number of other initiatives of which you've heard much over the past 18 months. Importantly, we remain committed to maintaining Barclays' position as a leading global universal bank, underpinned by a strong and diverse set of businesses.

We've also begun the process of repair and recovery, including initiating earlier this week an independent review of our business practices led by Antony Salz.

Our results for the first half of 2012 are good. They demonstrate how the business delivers resilient earnings even in the current difficult macroeconomic environment. You should have every confidence that we will continue to perform through the remainder of the year and beyond. So let me hand over to Chris to take you through the results in detail, and after that, we'll all be happy to take your questions.

Christopher Lucas

Thank you, Marcus, and good morning. We're reporting adjusted profit growth of 13% today with good performances in U.K. Retail and Business Banking, Barclaycard, Corporate Banking and Wealth. There was also a good performance relative to the industry in the investment bank. Operating cost decreased 3% and capital liquidity and funding remained strong, with a Core Tier 1 ratio of 10.9%. We've reduced our exposure to the Eurozone. And though we have further to go, we've made progress towards our 13% return on equity target.

Let me take you through the financial headlines before we talk about the individual businesses. In general, my comments compare the first half this year to the same period last year. Profits increased 13% to GBP 4.2 billion on an adjusted basis, which is much larger than the statutory profits of GBP 759 million. The adjusted numbers exclude the charge on own credit of GBP 2.9 billion, the gain on the sale of our stake in BlackRock of GBP 227 million, the additional GBP 300 million PPI provision that we told you about in April and a provision for redress of interest rate hedging products of GBP 450 million. I'll use adjusted numbers this morning as usual, because they give a better understanding of the operating trends of the business.

Moving on to the other headlines. Total income grew 1% to GBP 15.5 billion. Impairment was flat at GBP 1.8 billion as reductions in many of our businesses were offset by an increase in the Investment Bank. And we've reduced operating costs by 3% to GBP 9.5 billion. Together, these movements resulted in adjusted profits of GBP 4.2 billion. Return on equity grew to 9.9% and return on tangible equity increased to 11.5%.

In our 3 largest businesses which account for 2/3 of Barclays' risk-weighted assets, returns were at or above our targets. U.K. Retail and Business Banking delivered returns of more than 16%. At Barclaycard, they were 22%. And the Investment Bank generated return on equity of almost 15%. Other businesses were below our targeted returns, and we continue to work to improve them.

Our overall cost income ratio improved from 64% to 61%. We've announced a dividend for the second quarter of 1p, bringing the dividend for the first half to 2p.

I'd like to move now to the performance of the individual businesses. In the U.K. Retail and Business Banking, profits grew 6% to GBP 746 million, largely as a result of improved impairment in personal unsecured lending. Total income decreased 2% to GBP 2.2 billion, mainly as a result of lower net fees and commissions. Margins have reduced slightly as expected, reflecting a lower benefit from the structural hedges. Net interest income remained broadly stable as a result of higher volume. Impairment charges reduced by 56% to GBP 122 million, and the annualized loan loss rate was 19 basis points compared to 46 basis points in 2011. Operating expenses increased 5% to GBP 1.3 billion, including costs related to processing PPI claims. Return on equity grew to 16.6%. Customer deposits have grown 2% to GBP 114 billion since the year end. Our total loans and advantage grew 2% to GBP 123 billion, driven by growth in mortgage balances with net new mortgage lending of GBP 2.2 billion.

In Europe Retail and Business Banking, we've worked hard to restructure the business. And this has helped to reduce the loss by 43% to GBP 92 million. Income decreased 20% to GBP 486 million, both as a result of the difficult economic environment and the fact the business is now smaller. We've reduced the number of distribution points and headcount by 14%. Impairment charges increased 35% to GBP 157 million due to increased delinquencies across the mortgage book in Spain, Portugal and Italy, especially in the second quarter. Costs have decreased 35% to GBP 428 million, affecting a restructuring charge of $129 million in the same period in 2011 and the benefits from that restructuring.

In Africa Retail and Business Banking, profits decreased 20% to GBP 274 million as a result of increased impairment on mortgages in the absolute recovery book along with adverse currency movements. We're disappointed by the level of provisions and expect to see this moderate in the second half. Total income was down 8% to GBP 1.6 billion, impairment charges increased 19% to GBP 321 million and cost fell 11% to just over GBP 1 billion. On a local currency basis, profits decreased 8%. We remain committed to our One Africa strategy as this is an attractive market where we have a strong competitive advantage.

There was strong growth in Barclaycard with profits up 32% to GBP 753 million as a result of balanced growth in the U.K. consumer cards, the acquisitions made in 2011, a significant improvement in the U.S. and good growth in business payments due to higher volumes. Income grew 3% to just over GBP 2 billion. Within this, income in the U.K. was up 2% to GBP 1.3 billion and international increased 3% to GBP 745 million. Impairments improved 29% to GBP 460 million as 30-day arrears fell in the U.K., U.S. and South Africa. The annualized loan loss rate was 285 basis points compared with 420 basis points in the first half of 2011. Operating expenses grew 8%, reflecting the enlarged business after 2011's acquisitions, PPI processing costs and the investment in the business. Return was -- on equity was well above last year at 22%.

Turning to the Investment Bank. Total income grew 4% to GBP 6.5 billion compared to the first half last year. Fixed Income in Currency and Commodities grew 11% to GBP 4.4 billion. Equities and Prime Services fell 12% to just below GBP 1 billion. And Investment Banking was down 11%, reflecting lower market volumes. There were impairment charges of GBP 323 million, compared to a release of GBP 111 million in the same period last year. This included a charge related to legacy CDO assets, as well as a corporate default in France. Cost fell 3% to GBP 3.9 billion after absorbing about 2/3 of the settlement related to LIBOR. The remainder is accounted for in head office. Performance cost decreased 19% and nonperformance costs were up 4% as a result of the LIBOR settlement. Taken together, this resulted in profits decreasing 2% to GBP 2.3 billion. The cost to net operating income ratio was within our target range at 64%. And the compensation to income ratio was 39% compared to 45% last year. Return on equity was close to 15%.

Since the year end, we’ve reduced credit market exposures by GBP 2.5 billion to GBP 12.7 billion, mainly driven by the sale of commercial real estate loans and properties. If you compare second quarter performance with that of the second quarter last year, income was up 5%. Despite subdued market volumes, we continue to grow share in many of our business lines, including debt capital markets, where we've retained our #2 position in the global league tables; equity capital markets, where our share grew from 3.6% to 4.8% in the first half; and M&A, where share increased during the first half from 13% to 15.6%.

In Corporate Banking, we've continued to make good progress and improved profits to GBP 346 million. This compares to GBP 54 million in the same period last year. Within this, profits in the U.K. grew 18% to GBP 487 million. The loss in Europe was GBP 180 million, which is an improvement of 50%, and there was a profit in other corporate markets of GBP 39 million compared to breakeven to the same period last year. Impairment reduced 31% to GBP 425 million with a substantial improvement in Spain as result of reduced exposure to the property and construction sector. Costs fell 16% to GBP 754 million due to restructuring in 2011. Return on equity improved from under 1% to 6%.

Wealth and Investment Management profits grew 38% to GBP 121 million. Income grew 5% to GBP 892 million. Costs grew just 1%, despite ongoing investments in the business and clients' assets grew to GBP 176 billion. The return on equity grew to 10%. We expect Wealth to become a significant contributor to the group profits as a result of our investment program.

Moving on now to capital, liquidity and funding. Our Core Tier 1 ratio remained strong at 10.9% with risk-weighted assets stable at GBP 390 billion. Adjusted gross leverage was 20x, and we had a liquidity pool of GBP 170 billion at the end of June. 92% is held in cash, highly liquid government bonds and deposits with central banks. Our wholesale term funding maturities for 2012 are GBP 27 billion. We've already raised GBP 20 billion during the first half.

While our long-term credit rating’s moved down in the second quarter, our short-term ratings remained unchanged. We continue to manage the business to absorb changing regulation. We're pleased that the risk-weighted assets have remained broadly unchanged in the last 12 months despite the implementation of Basel 2.5. Aligned for consensus retained earnings for the second half and assuming no organic RWA growth, we estimate our Core Tier 1 ratio will improve to 11.3% at the end of this year.

I'd like to share our current thinking on Basel III implementation which is scheduled to start from 2013. Based on our current estimates of the RWA impact, we expect our Core Tier 1 ratio to reduce to 9.2%. Taking into account consensus retained earnings in 2013, this improves to 10.3% by the end of next year. These pro forma ratios are indicative as the rules have yet to be published and are clearly subject to change. Further, phased capital deductions under Basel III transition rules are likely to reduce our Core Tier 1 ratio by about 60 basis points in total during 2014 and 2018. If we were to apply all these deductions at the end of 2013, our fully loaded Core Tier 1 ratio would be 9.7%. The equivalent fully loaded figure for the end of June this year would be 7.9%. This takes no account of our planned management actions on future profit generation. For me, these numbers demonstrate the solidity of our capital. There's more detail on the impacts of Basel III in the appendix.

Let me now turn to costs. We've reduced overall costs by 3% to GBP 9.5 billion while income grew 1% to GBP 15.5 billion. As a result, the cost to income ratio decreased from 64% to 61%. Performance costs were down 14% to GBP 1.4 billion despite the income growth and nonperformance costs reduced 1%. We know we have further work to do to create the right balance for all of our stakeholders.

Taking a look at nonperformance costs in more detail, in the first quarter we told you that our cost reduction program would result in a nonperformance cost base of about GBP 15.5 billion in 2013. We've reduced the run rate of nonperformance costs by almost GBP 600 million in the second half of last year through actions such as headcount reduction and infrastructure consolidation. We sustained these savings into the first half this year, and this has allowed us to absorb regulatory and investment costs of about GBP 450 million. Excluding the LIBOR settlement, nonperformance cost in the first half was GBP 7.8 billion. So in these 6 months, we've largely achieved the cost run rate necessary to deliver a GBP 2 billion reduction in nonperformance cost. We aim to maintain this run rate and self-fund any additional investment in the business over the next 18 months.

Before I close, I'd like to take you through our Eurozone exposures. As you would expect, we continue to manage our risk carefully in Europe, focusing especially on redenomination. We've taken a series of actions this year to reduce local net funding mismatches in Spain and Portugal, including drawing down EUR 8.2 billion from the ECB's 3-year LTRO and growing deposits in Spain. Since the year end, net funding of the Spanish balance sheet by the group reduced from GBP 12.1 billion to GBP 2.5 billion. And for Portugal, it fell 46% to GBP 3.7 billion. We have reduced sovereign exposure to Spain, Italy, Portugal, Ireland, Cyprus and Greece by 22% for the last 6 months to GBP 5.6 billion. Managed sovereign exposures decreased to GBP 2.2 billion. Our financial institution exposure also totaled GBP 5.6 billion. A significant part of this relates to non-Irish banks with the ministries centered in Dublin providing little Irish exposure.

The majority of our corporate and retail exposures are in Spain, Italy and Portugal. Our corporate exposures in these markets decreased to GBP 10 billion. As you know, we've already taken substantial provisions in this portfolio, especially in Spain where credit risk loans are 54% covered. Impairment charges in our corporate book at Spain continue to decline. Retail lending in Spain, Italy and Portugal decreased 5% to just under GBP 40 billion. About 3/4 of this relates to residential mortgages in Spain and Italy and have an average loan to value of 63% and 47%, respectively. Credit risk loan coverage ratios were broadly stable.

As far as the outlook is concerned, while it's too early to predict an outcome for the full year, performance in July has continued to be ahead of last year. We continue to remain cautious about the operating environment however, and will maintain our strong capital leverage and liquidity position. So in summary, we're reporting a resilient performance for the first half. Adjusted profits grew 13% with good profits in U.K. Retail and Business Banking, Barclaycard, Corporate Banking and Wealth, as well as good performance relative to the industry in the Investment Bank. Operating cost decreased 3%. Our capital liquidity and funding remains strong with a Core Tier 1 ratio of 10.9%. We've reduced our exposure to the Eurozone. And though we have further to go, we've made progress towards our 13% return on equity target.

Thank you very much indeed. Let me now hand you back to Marcus.

Marcus Agius

Thank you, Chris. Well, I'm sure you all have questions but let me first address the following point, which I know is of interest. The board is focused in its efforts to find a new Chief Executive and to find a replacement for me as Chairman. Both of these processes are already well underway, but our intention is to identify a new Chairman first as it's important for an incoming CEO to know who that will be. Above all, we are conscious of the need to move quickly and assuredly. But it's also vital that our stakeholders are convinced by the rigor of the search and so are confident that we have selected the best candidate. And we will, of course, update you on progress when it's appropriate to do so.

So with that one little extra bit, I’m going to start the Q&A. And because I imagine most of the questions are going to be about numbers, I'll ask Chris to chair this part of the session. Thank you.

Christopher Lucas

Thank you very much. Over to you.

Question-and-Answer Session

Operator

[Operator Instructions] And first question today comes from Andrew Coombs from Citigroup.

Andrew Coombs - Citigroup Inc, Research Division

I have 2 -- actually 3 questions, please. One on the Investment Bank, one on U.K. Retail and then just one on your slides on your European businesses. Firstly, with regards to the Investment Bank, I'd just like to drill down to the fixed income result, down 18% Q-on-Q. Your peers are clearly close to down 40%. So just interested to know what products are driving that. I know you make a reference to rates and commodities but if you could perhaps expand a bit on that. And also how sustainable you think that improvement is relative to the wider peer group in terms of market share gains.

Christopher Lucas

Can I ask Rich to just give you a bit of color on that question?

Rich Ricci

It was a good quarter for us. I think we did mention rates and commodities. I'll cover more detail in a moment. But clearly, it's been volume driven. We continue to take share. We were joint #1 in terms of market share this year again. And it stretched slightly offset by some decrease in structured products, but it's fairly widespread across the spectrum of products. It's really driven by volumes and some renewed investor confidence. I do believe it's sustainable. I think that the way we've built out our fixed business over the years and the fact that it's flow-driven is helping. It's been a good quarter and half.

Christopher Lucas

Andrew, your second part of the question.

Andrew Coombs - Citigroup Inc, Research Division

I’ll put the second and third part together because they're both fairly short. The second question was on the one-off provision release in the U.K. Retail business that you referenced. Perhaps you could quantify that. And then the final question, you talked about a funding mismatch in Spain of GBP 2.5 billion and Portugal of GBP 3.7 billion; perhaps you could quantify the funding mismatch in Italy for us as well, please.

Christopher Lucas

I'm not sure there's a major provision release in the U.K. Retail Bank. There is certainly some improvement on impairment in the unsecured business, and I'll ask Robert just to mention that.

Robert Le Blanc

Let me just quickly look at that. You're right to notice that the U.K. Retail bank impairment in this half is down significantly from last year and from the second half of last year. There's no large sort of single release. There's always adjustments we make when we look at models. So during this half, we looked at LGD or loan severity and made adjustments to that. There's been some operational improvements in some of the processes; that gives us a different impairment outlook. So, listen, bottom line here is that very good impairment for the first half. Impairment will be naturally then higher in the second half for us in the retail bank this year but lower than it was last year in the second half. So the positive trends in retail bank will continue, and it's a stable credit environment basically in the retail bank.

Christopher Lucas

And Robert, can you touch on redenomination risk and the gap in Italy?

Robert Le Blanc

Certainly. I mean, listen, when we look at redenomination risk around Europe in general, remember, before we get into that, that our Western Europe businesses are for the most part a set of conservative mortgage portfolios. And although the credit performance, of course, has been affected by the environment, those mortgage books have good asset quality and good impairment coverage. And there's a bit more information, you'll notice, in the Appendix that describes Italy, Spain and Portugal and the composition in sectors for the mortgage book. I think that's -- I hope that will be somewhat helpful. We do have a commercial lending business. It's much smaller. And as Chris mentioned, we have very good impairment coverage there with declining impairment on commercial property lending in Spain over the past couple of years. For broader Eurozone risk, we've conducted a lot of stress tests since the beginning of 2010, both internal stress tests and regulatory stress tests. And from all of them, we've had satisfactory results from an income point of view, from a balance sheet point of view, from a capital point of view. And as Chris mentioned, in the first half of this year, we've reduced redenomination risk, principally in Spain and Portugal where we focused. And the numbers are in the results, but from about GBP 12 billion to GBP 2.5 billion of net funding into Spain and from about GBP 7 billion to about GBP 3.5 billion or GBP 3.7 billion in Portugal. We achieved that mostly by doing about EUR 8 billion of LTROs through the local central banks as part of the ECB program. But we've also been reducing assets both in terms of what's been originated and through some AFS asset sales. And we've raised more liabilities locally, principally in Spain, where we brought on about 3 billion of additional local wholesale deposits. So overall, I think there's been a pretty substantial reduction in the redenomination risk in Portugal and in Spain, and we've got to focus now on looking at Italy. But we wanted to try to address Spain and Portugal earlier.

Andrew Coombs - Citigroup Inc, Research Division

Okay. I mean, perhaps you could just share what the deposits are in Italy. That would be useful.

Robert Le Blanc

The increased deposits in Italy or in Spain? I'm not sure.

Andrew Coombs - Citigroup Inc, Research Division

So sorry; in Italy, what the deposit figure is, because you provided a very good disclosure on the loan side of the book but perhaps if we could have a deposit figure.

Christopher Lucas

I'm not sure we've disclosed that number. And I'm looking around the room and there's a number of blank looks. Let us take that one away and if we’ve disclosed it, we'll come back to you.

Operator

The next question today comes from Michael Helsby of Merrill Lynch.

Michael Helsby - BofA Merrill Lynch, Research Division

I'm just looking at the cost performance, which is clearly very strong, Chris. And looks like behind it was a reduction in the comp ratio as well the nonperformance cost. So the comp ratio is overall 33% versus 37%. Is that a reflection of you've just not done your bonus accruals properly yet? Or is that a reflection of a bit of a step change that we can think of and carry forward? And I've got a completely unrelated question on the hedge revenues.

Christopher Lucas

Okay, let me answer that and then we'll do -- we'll take revenues. The movement you’ve seen, I think, is not because we haven't done our accruals properly. If anything, we've done our accruals with more rigor than we normally do because we've given you more granular disclosure. What we've seen in terms of where we set the provisions and accruals is the view that there is a step change that's taken place, and the sorts of levels you see are exactly what we say when we say we paid for performance. And we have worked to start to move the allocation of returns from stakeholders to other stakeholders, which is very much what we said we'd do at the AGM. And what you’ve seen in these numbers is that put into practice.

Marcus Agius

If I can come in on that. This was an area of great debate at the time -- around the time of the AGM. And shareholders, quite rightly, have been pressing for a greater share of the cake as compared with employee. And we obviously understand that and have listened to that. But at the same time, we observed then there's a limit as to the rate at which you can do that. What you are seeing here is fair to the program.

Michael Helsby - BofA Merrill Lynch, Research Division

Okay. So I should take it as that this is a, as you say, a step change that we can think about as going forwards; that's good. And just secondly, clearly, the hedge revenue historically has been quite a topic of debate. And I know that it's down again quite a lot in the first half. I was wondering if you could just comment whether there's any gilt gains in that hedge revenue in the first half of GBP 689 million. And if you could just give us an idea on what the amortization rate you would expect for that in the second half. And then, if you can, excluding any more disposals, what it might be for next year.

Christopher Lucas

I can confirm there's no abnormal nonrecurring gilts gain in those numbers. What you see is very much the pure numbers as the gilts -- as the hedges continue to generate about GBP 800 million contribution in the first half. That is going to continue to decay, and you should expect to see falling off as we continue into the second half. But I'm not going to give you a profit forecast in relation to that for the future. What I think you've got in the results is a pretty clean view of the amortization over the first half.

Operator

The next question today is from JP Crutchley from UBS.

John-Paul Crutchley - UBS Investment Bank, Research Division

I've actually got 2 questions, only a few questions, actually, if I can. The first to Rich and then I have 2 follow-ups with Chris. Rich, I guess now weighing in your head as the sole head of BIB, when you look at the BIB performance, I mean, the story we sort of expected to hear over a period of time was one where the group will become more balanced, less dependent on FICC, and the equities, and the Investment Banking business would very much pick up the flat there and you’d end up a more balance stool if you like, a 3-legged stool. And I guess as you look at the performance, I mean, clearly, it's still very dominated by FICC. The surprise to earnings comes from FICC. And the other 2 legs don't really look like they’re stepping up and moving forward. I know it's a difficult market and the rest of it. But I guess now that you've got sole charge, if you like, of that BIB, how are you looking other business going forward? Do you see any need for some magical rethink about implementation or execution of the strategy? Is it right to maybe refocus on the things that you clearly excel at and de-emphasize others where you don't seem to be moving up the pace? I just wondered if you could comment on that, and I've got another question for Chris afterwards.

Rich Ricci

Okay thanks, JP. First of all, I think that you're right about tough markets. But I point to the stats that Chris read out about progress we're making in ECM and in Investment Banking in terms of taking share. But I suppose we'll only see how good we are is when markets come back. But we're very confident that the investment we've made is paying off in that share gain. I also look at things like we're #1 now in the U.K. in M&A. We're #3 in the United States in M&A. Again, difficult markets, but I think that because we chose to build when we did, on the back of a big Lehman franchise, people are willing to listen to a different voice. And I'm very pleased with the development of those franchises. I look at our corporate brokerage mandates here in the U.K. We started at 0 in 2010; we're now at 30. And no one's even close to the net gains we had. So I feel good about it. Do we always look to be as efficient as we can be in terms of how we execute our services and products? Yes, absolutely. But am I planning a big size and scale reduction or any of these big headcount reductions we're seeing in other houses? No. I think we've been in front of that and we're pleased with the investment we're making. We're pleased at the way they're performing.

Christopher Lucas

JP, you had a second question.

John-Paul Crutchley - UBS Investment Bank, Research Division

This 2 easy questions for you, Chris. The first is I think something happened on the pension funds that sort of was a hit to Core Tier 1. I just wondered if you’d just comment around that. And the second one was just on the liquidity portfolio, which is clearly very large now. And obviously, there appears to be an element of a wind of change in terms of regulatory attitudes towards that. I wonder if you could envision that portfolio actually reducing over time as opposed to growing as it has been in this quarter.

Christopher Lucas

Let me try and answer that. The pension is the payment we made for the deficit reduction, which is part of what the agreement was with the trustees at completion of the last triennial valuation. The impact of that is flown through Core Tier 1, and that's part of the reason that the Core Tier 1 growth looks fairly low. I think there's not much more to say than that, JP.

John-Paul Crutchley - UBS Investment Bank, Research Division

What was the actual reduction from that, Chris? It's probably in the statement; I just haven't found it yet. What was the Core Tier 1 impact in pounds?

Christopher Lucas

The Core Tier 1 impact was, I think, about 20 basis points. In terms of the liquidity portfolio, we manage it quite carefully. We think it's at the right sort of level. I'm fairly relaxed that whether it's at GBP 170 billion or GBP 150 billion so it's in the sort of area that we'd like to have it. There's quite a bit of active management of it as we look at what we can do to minimize the cost of it, but the key thing from our perspective is it has to be a liquidity pool rather than a pool that generates a return. So we look at the liquidity of it first, and then look to see how we can minimize the cost of carry. But it's in the sort of region that you would expect or I would expect.

Operator

And the next question today comes from Tom Rayner of Exane BNP Paribas.

Thomas Rayner - Exane BNP Paribas, Research Division

I just have a couple of questions, please. Maybe one -- first one for Marcus, second one for Chris. Marcus, I saw, I think, a quote from you on the news wires about this morning saying Barclays remains committed to being a leading global universal bank. I just wondered if we can infer from those comments that whoever the new Chief Executive might be, he's not going to come in with a mandate to try and split the group up or make it much more domestic-focused operation. And I have a second question on margins, please.

Marcus Agius

To answer the question, and the reason I gave such a definitive announcement is that's what we -- I meant to say. The fact is that in any organization, the strategy is set by the board. Of course, it's promoted and taken to the board through the executive. At the end of the day, it's settled by the Board of Directors. And the Board of Directors remains fixed on its belief that the global universal banking model is the one that is right for Barclays. So that's not to say that any new Chief Executive coming in won't look at what we've got and won't discuss with the board any ideas he may have. But the idea is we’re not looking for someone to come in and change everything.

Christopher Lucas

You had a second question as well.

Thomas Rayner - Exane BNP Paribas, Research Division

Yes, it's just back on the margin. When I look at your sort of margin presentation on Page 35, if I look at first half versus first half, it looks like a fairly comfortable progression. Customer margins sort of a bit of one going sort of -- across the division, some going up, some going down. But it looks fairly comfortable, and the total sort of margin figure over the space of a year looks quite comfortable. When you compare it to the second half of last year, it looks like a much more severe drop. And I suspect it really reflects the sort of the impacts of the gilt sales and how they sort of fed into the numbers. I was wondering if you could maybe help clear it up in terms of what you think the sort of ongoing underlying margin pressures are. Does it reflect the sort of year-on-year comparison? Or is that first half, second half demonstrating that things might have got a bit tougher in the last 6 months?

Christopher Lucas

I think, Tom, you've pretty much answered the question. The second half was benefited from the gilt gains. So if you look at first half 2012 versus first half 2011, you get a better picture of the underlying margin movement. And that, I think, is down from about 197 basis points to 189 basis points. So it gives you the impact of about 8 basis points in the half year-on-half year. And I think we would expect to see the same sort of continuing progression that we saw in first half on first half. The one thing this doesn't take account of, which is important, it's volume growth. And what we're seeing is the decline in margin being offset by the volume growth that helps at the net interest income level.

Operator

The next question this morning is from Manus Costello from Autonomous.

Manus Costello - Autonomous Research LLP

I have a couple of questions on capital, please. One for Chris and one for Marcus. Chris, in your very helpful new slide about the impact of Basel III, I noticed that you've reduced the scale of management actions and mitigation that you're planning. I think you were previously in the high 40s, and you're now talking about GBP 34 billion of mitigation. I wondered if that's come down because you're taking a less aggressive view on tweaking models or why that's changed. And secondly for Marcus, I noted in the letters, which were published by the Treasury Select Committee, that in your statement to Adair Turner, you were pointing out that there was a guideline capital ratio for Barclays of 10.3%, which was demanded at the end of 2011. I wondered, Marcus, how you thought the SPC guidance on capital was evolving for Barclays, whether that 10.3% was likely to be moving up or down in the near term. And as a follow-on from that, how much buffer you would want to maintain on top of FSA guidance please.

Christopher Lucas

Let me answer the first part, and then we’ll see where we go on the second. The reduction in management actions, I think, is largely because the balance has been delivered and is already included in the numbers. And you’ll know that we had quite a successful implementation of Basel 2.5 where we headed 2 of the management actions. I think also, the numbers evolve over time as we become more certain in terms of delivery. So the numbers I've given today are our best estimate of the available management actions that we still have to complete, but I think that's a pretty good summary of where we are. In terms of FSA and ECB guidelines, let me start, the 10.3% was a number that we were working to. The FSA and the European Banking Authority has a 9% number for the stress test and we cleared that comfortably. In terms of where I think we try to operate the group, it's somewhere around about 10%. And we look at that over a period of time. So if it was slightly below that, that will be fine. And it was slightly above it, it would be equally fine. But that's the number we use for planning purposes.

Marcus Agius

Yes, if I can make a general comment on the relationship with that part of the regulatory system generally. It's a statement that's in a state of flux. And we are still regulated by the FSA. That's not going to happen for much longer. The SPC is getting up and running. There's going to be, I think, a new style of regulation and the SPC is probably even more judgmental than the FSA. Certainly, they will focus on capital as they should, and I think if I an articulate what you have probably heard from them at the moment, I think generally they remain concerned, as we all do, about the situation in Europe. And therefore, other things being equal they prefer more capital to less capital.

Manus Costello - Autonomous Research LLP

Sorry, just to interpolate from that, you think the 10.3%, therefore, is likely to move up; not down, obviously?

Christopher Lucas

I think it's around that sort of number. We are running -- we are planning...

Marcus Agius

I don't think they’re that prescriptive.

p id="58528804" name="Christopher Lucas" type="E" />

No, but it’s in the right sort of range.

Operator

And the next question today comes from Raul Sinha from JPMorgan.

Raul Sinha - JP Morgan Chase & Co, Research Division

Could I have 2 areas of questioning, please? Firstly, could I invite some comments on the impairment outlook for the group overall? I just wanted to check that given the recent events in the Eurozone as well as perhaps some of the GDP data, you're still comfortable with your impairment guidance. And I've got 2 other related questions on liquidity, if I may, just after.

Christopher Lucas

Let me ask Robert to respond on impairment.

Robert Le Blanc

I think you raised some interesting components of that, looking at GDP, looking at development in the Euzozone, and we look pretty carefully at our portfolios in all our businesses in all the geographies. I think the trends in the first half were mixed across the different businesses as you could see. And I'd say for the second half, overall, the retail and wholesale trends you've seen will be fairly steady and will continue. And although there will be different changes within individual businesses, overall, the total impairment in the second half will look pretty similar to that in the first half. So we'll see continued difficult times in Western Europe, Spain and Portugal, for example. We'll see continued strong performance in U.S. and U.K. Retail Banking. We'll see more normal conditions in the Investment Bank, et cetera. But overall, I would say second half will look more or less similar to what we've seen in the first half.

Raul Sinha - JP Morgan Chase & Co, Research Division

The second question, sort of 2 subareas, within that is around your liquidity. It does appear that the group is holding liquidity well above what you might expect it to, given the comments that we've had recently from the SPC for your liquidity pool is GBP 170 billion. It looks like it's close to the top end of it. Could I invite you to comment on whether you're consciously holding that while you have the uncertain period ahead of you right now? And then the second part of my question on liquidity was your LCR ratio, that has gone -- come up significantly. It's up to 97% now you say, from 82% the previous time we talked about. That's quite a material improvement, as far as I can see. Could you just talk about what's driving that?

Christopher Lucas

The 2 questions are absolutely connected, as you quite rightly say. At GBP 170 billion, we feel that the liquidity pool is in a good place. It may be a bit higher than we will plan, but bear in mind that this is not a complete precision exercise. You can't land a pool of that size on a pinhead. So some of it gets altered, for example, the level of deposits that you receive on the end of the period, which at lunchtime you didn't expect to come in, but by the evening have. So therefore, whenever you ask me what sort of level I look at, I always have a range in my mind. And whilst the GBP 170 billion is probably at the higher end of the range, that's no problem given the environment in which we operate. And I think if it was slightly lower than that, that would similarly not give me a problem. In terms of the LCR, I think it's very much the numbers as they come out on the system. We report that to you, recognizing that it's not, at this current stage, how we run the group, because it's not yet finalized in form. But I do notice that over 100% or very close to the 100% for net stable funding ratio and the LCR puts us in good place for when they do become funding constraints.

Raul Sinha - JP Morgan Chase & Co, Research Division

If I can just follow up. So we've started to see the other U.K. banks reducing their liquidity buffers and that appears to have a positive impact in various ways on the P&L. Would that be something that we can expect from Barclays as well, going forward?

Christopher Lucas

You could expect that this is at the top end of the range and there may be some downward reduction. But it's in very much where I'd like it to be.

Operator

And the next question comes from Chris Manners of Morgan Stanley.

Chris Manners - Morgan Stanley, Research Division

I had a couple of questions, if possible. The first one was just on U.K. loan growth and how that's evolving. Obviously, you're still able to grow in U.K. Retail, which is good news. And the growth rate has slowed down a bit. I'm just trying to work out, are you going to use the funding for lending scheme? And how do you see your ability take share versus system loan growth? And the second one was on…

Christopher Lucas

Let me just ask you to hold there and ask Anthony to answer that question. And then we'll take your second one.

Rich Ricci

Hi, Chris. Let me say I'm very grateful for you asking me a question. Let me say, firstly, that I am very pleased with the performance of the Retail and Business Bank in the first half of this year. If you look across the private lines between Barclaycard and the retail bank, we've added one million new accounts in the first half of the year in a very difficult environment. In general, we are taking share from our competitors in the market, although the market itself is quite subdued. So you'll see continued growth in mortgages, continued growth in small businesses -- small business lending at a relatively subdued pace given what's gone on in the market. I think you would say the same for corporate lending in the U.K. The trend of corporates being reluctant to borrow and continuing to build cash will continue. So the net of it is we expect the markets to be quite subdued for the foreseeable future in terms of overall growth. But we also expect to continue to grow our share disproportionately quicker than the market because of all the very good things we do with customers. Finally, on the funding for lending program, we are very supportive of the funding for lending program. We expect to be a leading participant within it, just as we've been the leading participant in the national loan guarantee scheme. And it's also important to us that the benefits of those programs, in financial terms, are passed on to customers and we'll be ensuring that, that happens.

Christopher Lucas

Thank you. Chris, you had a second question.

Chris Manners - Morgan Stanley, Research Division

Yes, the second one was just actually on sort of deposit margins and how you see the competition there. I mean, as far as I can understand it’s sort of jacked up a bit as people are trying to rebalance LTROs. And also not only on the competition side, the flattening of the yield curve, how that's impacting those deposit margins.

Antony P. Jenkins

Yes, again, Chris, it's Antony. We've been very pleased with our performance in the savings market this year. Of those 1 million accounts, 400 of them -- 400,000 of them were new savings accounts. And we've been able to do it by putting out products which really work for customers so not these are rates that then fall off a cliff at the end of the intro period. And I think we'll continue to be competitive. We have seen a bit more interest in liabilities in the U.K. market, but we continue to do very well in terms of share, and I expect us to do so in the future.

Operator

And the next question is from Chintan Joshi of Nomura.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

I've got one question on ICB and a couple of quick ones. On ICB, one of your competitors seems to be keen to speed up ringfencing. Would you consider something similar? And related to ICB, the regulators say the cost of it will be GBP 4 billion to GBP 7 billion. UKFI has given some kind of number of GBP 6 billion to GBP 9 billion of impact on their investments. How much do you think this number is for Barclays?

Christopher Lucas

Let me answer the question and then ask maybe Marcus to comment on the, traditionally, the ICB. The GBP 4 billion to GBP 7 billion I think was the total from the U.K. banking sector of the expected impact of the ICB. I think we also said that within that, Barclays would be over GBP 1 billion. And we haven't really reworked the numbers, so those remain appropriate and our best estimate. Items of the ICB…

Marcus Agius

Well, in terms of the ICB, I mean, it's work in progress. And the final shape is not clear. But we are working very hard to -- with the system and as things become clear, we'll keep you informed.

Christopher Lucas

And do I think we're trying to speed up the project, no. But is there plenty of work going on to get prepared? Yes.

Marcus Agius

Yes, absolutely.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

If I could follow up on, Marcus, on some comments that you made, I just want to clarify at what stage are you in the appointment of the new Chairman, CEO process? Have you formally interviewed any candidates or are you still in the process of shortlisting them?

Marcus Agius

I'm not going to get into that much detail except to repeat the sort of general policy which we're following, which is what I call the Goldilocks policy. In other words, not too fast nor too slow. In situations like the ones we're in, it's very tempting to find a quick solution for obvious reasons. Invariably, that's the wrong thing to do because you need to make a very, very careful choice. These are 2 very important positions, and they need to filled by people who have absolute credibility and who can seen by the external world as being the right people for the job. So that's going to take as long as it takes. We have said that, we are moving as fast as we sensibly can. Sorry to be so vague, but when we've got something to tell you, we'll tell you.

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

And Chris, just on the reddresser provisions for interest rate hedges, what is the basis of calculating that and what would change that basis?

Christopher Lucas

Those GBP 450 million that we’ve booked really breaks down into 2 parts. It breaks down into the redress estimate of about GBP 350 million, and that is based on our initial assessment of the cost of responding to the FSA and the banks' agreed work plan. And it is an early estimate so it's our best number, but obviously there's a degree of latitude around it. The balance, the GBP 100 million, is due to an accounting requirement, which in effect values the new loans you put on the book at the current credit spread. That creates an immediate loss as you enter into the transactions, which amortizes over the life of the loan. So the GBP 450 million is best thought of as GBP 350 million redress, GBP 100 million credit spread adjustment that reverses over the life. So we've reported it as GBP 450 million, but you could recognize that the net number is GBP 350 million.

Operator

And the next question today is from John Kirk of Redburn.

Jon Kirk - Redburn Partners LLP, Research Division

I have 2 areas if questioning, actually. The first one is back on currency redenomination risk. Thanks very much for the disclosure that you've given on that. I think they're very useful. Can I just check your attitude, really, to reducing those exposures further? In particular, if you could perhaps sort of explain why you didn't take more LTRO funding, for example, which would have been a quick and easy way, I guess cheap way of cutting that local mismatch? And also if you are planning to cut it further, by what means will that happen? Is it asset reduction or is it issuance of local funding of one sort for another? And then my second question is really a big picture one, which is how do you ensure -- after the loss of the senior management in the firm, how do you ensure that the business continues to motor along? And in particular, we're getting questions coming in about how resilient certain franchises within the bank, particularly within the Investment Bank, will be in the absence of senior management and perhaps therefore clarity of strategy? I wonder if you could just address that as well.

Christopher Lucas

Let me ask Robert to touch on redenomination risk as we look forward. And then I think Marcus is best suited to answer the second of your questions.

Robert Le Blanc

Thanks and good morning. We are going to be looking at all the possible asset and liability combinations to address the redenomination exposure. On the asset side, we're being careful anyway from a sort of conservative risk appetite point of view about the type and rate of asset origination in our mortgage and commercial books in Western Europe. And so that will have some effect and we're also looking at ways and have been successful in ways to sell some of our available-for-sale assets over time into the right market condition. And on the funding side, we will continue to pick up deposits. Some will be wholesale and to some degree, we'll be able to pick up retail, although as you're aware, that's become more expensive and more difficult to do over time. We're also planning to use greater central bank funding against the local assets. In other words, basically using mortgages as collateral for central bank fundings in the different countries, and I think we'll focus on Italy in the second half. You asked the question of how we chose how much to do in LTRO last time. I would say we were comfortable with the GBP 8 billion we did. There were a number of reasons, none of them particularly spectacularly unique, but we think it was a good balance there and left us in a good position. And so I think going forward, you would expect us to see some focus on Italy and using more of our assets in that basis. And just to touch back on the question that came out very early in the call today about deposit base in Italy, I'm not aware that we break out those numbers. But what I would say simply to help answer that question, if I may, is that when you think about how we will be increasing funding locally in those markets, think about us doing more asset-based financing in Western Europe rather than pure retail deposits. It's very difficult to increase retail deposits in this market by substantial volumes in the short period of time. So think of our strategy as more asset based.

Jon Kirk - Redburn Partners LLP, Research Division

Sorry, do you mind if I just follow up? Is it your intention really to take those mismatches down to 0 ultimately?

Robert Le Blanc

We don't have a -- clearly a 0 target. I think we want to manage these things within a risk appetite. When you look at those notional exposure numbers, those are the numbers you've seen, those are not sort of profit-at-risk numbers; those are notional exposure numbers. You would consider some fraction of those to be your risk in the event of a breakup of euro or an exit of the euro. And we have some risk appetite around that given the probability of those events, as you could imagine. So we don't have a clear 0 target. We simply want to manage it on a cost and benefit basis than on a dynamic basis.

Marcus Agius

Okay so on the question of the health of the business. Very important question and we're going to take a little time to answer it because this is so important. In a moment, I am going to ask Rich and Anthony and Tom Kalaris to talk in terms about their own businesses and what they’re seeing. But I'd start by making an absolutely crucial general point, which is typically when you see companies in crisis and particularly when they're looking for a new Chief Executive, a new Chief Executive is coming in to fix the broken business. We are in exactly the opposite situation. You can see from these figures, our business is not only rude with health, it's doing well. And not only is that the case, but the people who have driven those results are sitting around the table with me today. So from that point of view, we feel comfortable. It doesn’t mean to say we're going to drag the search for the new incoming Chief Executive and Chairman; we're not. As I said earlier, we'll do that as fast as it makes sense to get the right quality person. But it is vital to reassure people that this is a great business. And from that point of view, I'm actually looking forward to some of the interviews we're going to have with the potential Chief Executive candidates because any one who hasn't got the wits to realize what a great opportunity this is shouldn't be in that list. Anyway, with those general comments, let me start with you, Rich, and then Tom and Antony just to give some color as to what it feels like.

Rich Ricci

Thank you, Marcus. Hi, Jon. First, let me point out that not all senior management has left the Investment Bank. I'm still here, as well as our Executive Committee in the Investment Bank is still there. I think from a business and franchise perspective, our clients have been incredibly supportive. Our pipeline is at an all-time high. We recognize that there’s been some reputational damage done, and we've got some work to do in helping to repair that. We've announced some initiatives internally around looking at our businesses with a reputational lens, looking at our rewards and evaluation process to make sure that we're incenting the right behaviors. And we're also looking at a business practices review, all dovetailed with the work that the board is leading and Anthony Salz is leading. But the franchise is actually in good health. I think that, as I said, clients have been incredibly resilient. You can see by the performance of the business, it's been very good. As I mentioned, the pipeline is very strong. On the Corporate bank, which has a large majority of our clients here in the U.K., we've touched 92% of our clients; 1% of them have had some issues, whether it be redress or issues with us or on -- or complaints around the LIBOR situation, but again remains very supportive, and we're also taking market share there. So I'm not worried about the overall health of the franchise. I think we've got other things to worry about, regulatory environment, Europe, but I'm not worried about the health of the franchise.

Christopher Lucas

Tom.

Thomas L. Kalaris

I won’t repeat what Rich has said other than to reinforce, reinforce that we have been experienced in Wealth Management. And frankly, as you know, we have a clear and well articulated game plan to reposition the business. You're seeing the results; you seen the results in the asset growth; you’ve seen the results in deposit growth. So from our perspective, the numbers speak for themselves. We are quite pleased about where the franchise is and where it's going.

Rich Ricci

And from RBB perspective, as I mentioned before, we're seeing a very strong financial performance in our 2 big businesses, Barclaycard and the Retail Bank. But also equally gratifying, as a result of the emphasis we've been placing on the customer in the last 2.5 years, we've seen very strong growth in the underlying drivers of the business. In terms of the impact of the recent events on how customers are feeling, it's true to say that a small number of customers have been disappointed and frustrated in Barclays. But we have seen no large-scale movement of accounts, nor have we seen any decline in the rate at which we've been booking new business. So the franchise is very strong. The management team of RBB and the colleagues within it are committed to Barclays and committed to continuing to serve our customers.

Marcus Agius

I think it's worth taking that length of time because it's a very, obviously, important question. I hope you're satisfied with the answer.

Operator

The next question comes from Ian Gordon of Investec.

Ian Gordon - Investec Securities (UK), Research Division

It's just one quick follow-up on Spain, please. You dealt with earlier -- you explained earlier the substantial fall in the incremental impairment within Corporate. Just on the retail side, obviously we can see that the impairment charge is ticked up a little bit. Looking at the additional disclosures, which Robert mentioned earlier, in terms of arrears if I'm reading the data right, there's been no deterioration at all in Italy. In Spain, 0.7% in 90-day-plus arrears is still a very low number. And indeed, even looking at your disclosures for forbearance, the increase in forbearance in the first half, even in Spain, which you have pulled out in your comments, doesn't seem to be material to me. So is the explanation for your differentiated performance just simply the different geographic profile and the different behavior profile coming from your avoidance of the expat community? Or is it something much more fundamental than that?

Antony P. Jenkins

I think it is broadly both things, and I do think those things are actually very fundamental. There are sort of 4 factors I think of when I think about the quality of a mortgage book in a place like Spain. One would be very simply the channel. How much do we originate ourselves through branches versus how much through third parties or brokers; and the business we originate ourselves, which is the vast majority of what we do is always safer and better business. There is of course also the location within Spain, and you'll see from the Appendix. Basically, if you think of Madrid, Barcelona and Valencia, that's more than 50% of our business. It's a very urban business. And the problems there have been, as you know, in second homes, in vacation homes and on the coast a lot. I think the Madrid center, itself, has only seen something like a 10% property price drop all through this crisis. The customer profile is very critical and we've been careful on all of that. But then the mix of segment as whether it's first home, second home and type of home is important as well. Listen, just to give you a quick sense of why I think we do have an indicator here, of why I think we do have a good quality mortgage business there, there is available across the industry statistics for the total number of properties in possession in Spain, and that number is about 380,000 properties in possession. We're about 2% to 3%, call it 2.5% of them, of the market in mortgages in Spain. So you would expect us to have a similar proportion of properties in possession. But we have about 1/10 of the amount of properties in possession we should have. That doesn't prove everything about the whole business but it's a pretty useful indicator. If we're running at 10% of our share of properties in possession, I think that's a reasonable quick thumbnail sketch of the kind of quality of assets we have on our multi book there.

Operator

And the next question this morning comes from Andrew Lim of Espirito Santo.

Andrew Lim - Espirito Santo Investment Bank, Research Division

I've got a few questions, please. On Page 23 of your presentation, I was wondering if you could give a breakdown of the 2.7 capital deductions there.

Christopher Lucas

To the extent we disclose it, why don't we get back to you with that rather than trying to go through it at the moment, if you’ve got a load, Andrew.

Andrew Lim - Espirito Santo Investment Bank, Research Division

Sorry?

Christopher Lucas

Say, why don't we, rather than trying to struggle with the breakdown, if we’ve disclosed it, we'll make sure we give you the reference to it.

Andrew Lim - Espirito Santo Investment Bank, Research Division

Right, okay. Shall I continue with my other questions? On Page 19, you make reference to additional investment in businesses being self-funded through further cost reductions. Are we supposed to infer from that, that the GBP 7.8 billion of cost there, excluding LIBOR of course, that's an ongoing run rate for the current business environment? Are you basically happy with that? And that we shouldn't expect further cost reductions to bring that number lower?

Christopher Lucas

Let me answer that one, Andrew. On Page 19, the GBP 7.7 billion, GBP 7.9 billion is the H1 2002 nonperformance cost level, which also is the amount if you annualize it, GBP 15.5 billion is the number that we gave you last year for the stock of costs that you have to get to, to hit the GBP 2 billion run rate reduction. So what you should expect is it's annualized to be the sort of nonperformance cost number that you should expect to see as we go into 2013. If we want to spend more than that, we’d have to self-fund it with further reductions. So what we’ve in effect done is taken a run rate number of the GBP 2 billion so this translates to an annualized nonperformance cost of GBP 15.8 billion.

Andrew Lim - Espirito Santo Investment Bank, Research Division

Right, I see. And then I've got a question on the Investment Bank provisions there. You've highlighted ABS, CDO super senior positions as one of the reasons for the increase in provisions. I was wondering if you could give more color to whether they're one-off in nature or whether you're sensing a deterioration in provisioning going on there on an underlying basis?

Christopher Lucas

Yes, let me ask Rich to comment but my sort of high-level view would be this is an adjustment you make periodically to reflect the market value of -- the carrying value of those instruments. And do they occur regularly across a portfolio? They do. Individually, these are just big enough to highlight. And I guess what really pleases is when I look at the credit market exposures, the number is demonstrably coming down. [indiscernible] in total, as the transactions we did this year, which are a couple of property transactions, are at marks or valuations above those at which we're carrying the assets in the books. And not only are we reducing our exposure, it's really important as we think to follow through, what we're actually going to be right back to as well.

Rich Ricci

I couldn't answer better myself.

Operator

Ladies and gentlemen, that concludes today's question-and-answer session.

Christopher Lucas

Thank you very much, indeed, for joining us. Charlie and the team will be available to you for any questions we've not been able to answer. But thank you for your time this morning.

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