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

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

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…

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…

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…

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

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?

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.

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.

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.

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?

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.

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.

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

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.

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.

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

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.

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

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.

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?

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.

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.

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

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

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.

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

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

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

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?

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.

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.

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.

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

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.

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

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?

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.

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.

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?

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.

Chris, the question on forbearance.

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.

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.

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?

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.

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

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.

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?

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, the issues around loan cycle?

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.

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

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?

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

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?

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

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?

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

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?

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?

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.

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

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

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.

I thought it was GBP 180 million?

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.

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

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.

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.

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

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?

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?

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.

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

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.

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.

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.

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

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.

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

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

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.

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]

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.

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.