Welcome to the Barclays Q3 IMS Analysts and Investors Conference Call. During the call, Barclays representatives may make forward-looking statements, including within the meaning of the U.S. securities laws. By their nature, forward-looking statements involve risk and uncertainty, and as a result, Barclays Group's actual results and capital and leverage ratios may differ materially from the plans, goals and expectations which they will talk about. Nothing on this call is intended to constitute a profit forecast. [Operator Instructions]

Welcome to the Barclays Q3 IMS Analysts and Investors Conference Call. I will now hand you over to Antony Jenkins, Group Chief Executive.

Good morning, everyone, and thank you for attending today's call. I'm joined here by our new Group Finance Director, Tushar Morzaria; and our Group Financial Controller, Peter Estlin. I'd like to take this opportunity to welcome Tushar formally to Barclays and also to thank Peter for his work as acting CFO since Chris Lucas' retirement in August. Peter will shortly take you through Q3 and the year-to-date performance in detail, then Tushar will give you an update on the Leverage Plan and, in particular, the analysis that we have underway identifying further opportunities to reduce the group's balance sheet and the leverage exposure. But first, I want to take a few minutes to share my thoughts on Barclays today and, in particular, how we're progressing with the key elements of our Transform program. When I unveiled our new strategy on February 12, I talked about how I see banking that's in a period of profound change. Demographics, regulation, technology and economic conditions have shifted markedly and irreversibly. This means that the business models and approaches that we have deployed in the past are simply not fit for purpose. Our goal of becoming the 'Go-To' bank, driving cultural change within Barclays and creating the Transform program, is our response to that new paradigm. And our experience in the 8 months since February has confirmed that we are taking the right course. It is not an easy course, but it is the right one. Now that profound change manifests itself in many ways, but for me, it crystallizes into 2 macro-level challenges that we have focused on since February. The first is balance sheet optimization. The days when the management of the size and character of your balance sheet was the second-order priority for our bank are gone. This is partly due…

Thank you, Antony, and good morning. Today, I'm going to run through the results for the first 9 months of the year. In reviewing our financial performance, our focus has been on both earnings generation and increasing our capital strength. Despite the challenging macroeconomic environment, particularly in the capital market, underlying business performance across the group remains resilient, for example, in our retail and Corporate Banking franchises. And we continue to maintain or strengthen our competitive positions. On earnings generation, adjusted profit before tax is down GBP 1.2 billion to GBP 5 billion. Group income is down by just under GBP 1 billion, driven largely by lower income in Fixed Income, Currencies and Commodities, including GBP 317 million lower income following accelerated reduction at Exit Quadrant assets, and lower income in Head Office. Impairments have continued to improve, albeit with expected increases in loan loss rates in our retail businesses, more than offset by improvements in wholesale. Costs remain on plan. Excluding Transform charges of GBP 741 million, we've reduced operating expenses by 3%. On capital, our financial strengths remains a central focus as we have continued to make progress in building our capital position. We completed our Rights Issue, raising GBP 5.8 billion of equity in October, and we've made good progress in reducing RWAs on both CRD III and CRD IV bases. We have also made initial progress in reducing our CRD IV leverage exposure, which Tushar will discuss shortly. Turning now to our profitability over the first 9 months of the year. As usual, we're using adjusted numbers because they give a better understanding of business performance. And again, we've not adjusted for Transform charges, but we'll call out the effects of these costs on key performance metrics. In general, our comments compare the first 9 months…

Thank you, Peter, and good morning to everyone. I joined group -- Barclays as Group Finance Director just recently, and I look forward to meeting many of you in the coming months. Peter has covered the results, and I thought it might be helpful if I share with you some of my initial thoughts about our capital position and my priorities over the next few months. A key area that Antony has asked me to focus on is the leverage at Barclays, particularly the execution of the Leverage Plan that was initiated during the summer. Those of you that have had a chance to go through our results will have seen that we have reduced our CRD IV leverage exposure by GBP 78 billion since the half year, obviously a good starting point, although about GBP 60 billion of that reduction was driven by market movements such as strengthening of sterling against the dollar and euro. The rest, so about GBP 20 billion, was driven by actions against our GBP 65 billion to GBP 80 billion overall target, so we're about 1/4 of our way through the initial deleveraging actions that we laid out in the summer. Given the impact that factors such as FX have on the leverage calculation, I'd encourage everyone to focus as much on the leverage ratio itself as on the individual component parts. So as I just mentioned, although our CRD IV leverage exposure reduced materially to GBP 1.48 trillion this quarter, our CRD IV leverage ratio improved only slightly, rounding to 2.5%. Post the Rights Issue, this measure would stood -- have stood at 2.9%. Now as you also know, our immediate objective is to reach the PRA's expectation of 3% by the middle of next year on their measure of leverage, which is…

Thanks, Tushar. And it's great to have you on board. To wrap up. It's been an extremely busy quarter for Barclays. A lot has been accomplished, and we are stronger as a result. I remain absolutely confident of our ability to meet the targets we have set out and that we will become the 'Go-To' bank. And with that, I am happy to take your questions.

[Operator Instructions] Your first telephone question today, Mr. Jenkins, is from Raul Sinha of JPMorgan.

Antony, Tushar, can I have a couple of questions, please? Firstly, on your legacy Exit Quadrant assets where you seem to have made better-than-expected progress. Especially in the IB where you're already down to GBP 40 billion and your target is GBP 36 billion over the next couple of years, I'm sort of wondering as to whether or not, alongside the Leverage Plan, you also will look at producing or accelerating this target further. And should we sort of expect that, that is also a further view rather than just purely a leverage lens?

Do want to ask your second question as well?

Yes. My second question is I was wondering if you can update us on litigations. Obviously, on PPI and swaps, you do have significant unutilized provisions. Of this -- clearly, a lot of news flow out there in terms of new and upcoming action from regulators around the world. Is there anything that you believe that we need to be aware of in terms of management actions that might need to be taken? And are there any sort of particular issues that you might want to flag to us?

Okay. On the first question of legacy assets, obviously, we're pleased at the progress of running them off. And as part of the rerun of the business portfolio review that we conducted in February, we will look again at what's in the Exit Quadrant and, if possible, seek to accelerate that. And I think you can expect us to update that at the same time as we update on leverage. In terms of litigation, of course, we've disclosed comprehensively, not only in all of our management statements and half year updates but also in the prospectus, everything that we know about at this point in time and everything that we can comment on. With respect to PPI and interest rate swaps, I'll ask Peter just to give us a short update as to where we are on those projects.

Yes, Raul, on interest rate swaps, firstly, really not a significant movement in the quarter. I mean, we incurred an additional GBP 56 million of costs primarily, so nothing really more to say on that one. We've -- we remain at GBP 1.3 billion on the balance sheet. On PPI, perhaps more substantial movement, really 3 components. In the quarter, we saw about a 9% drop in flows, so a continual full inflow, which is good. Secondly, on the proactive, we've now completed 78% of our proactive redressed. And there, we're seeing response rates coming in slightly lower than anticipated, albeit in some cases, some of the redress is slightly higher. So some good progress there. And then lastly, with claims sitting with the falls [ph], we were -- we took a sort of decision to sort of try and proactively address those, so we sort of agreed 40% of those in the quarter having made about half -- payments on half of those specifically in the quarter. So for us, I think, in that sense, it's getting -- trying to get ahead of the curve.

The next question is from Andrew Coombs of Citigroup.

I have 3 questions, in fact, 1 on costs, 1 on asset reduction and a more of a high-level question for Tushar. On the costs, firstly, I mean, if we take your Q3 cost base and add GBP 513 million to the levy, then you're looking at a Q4 cost base of about GBP 4.8 billion. On that basis, full year will be about GBP 18.2 billion, which will be somewhat below your GBP 18.5 billion target. So I was just wondering, are there any other large cost items in Q4 we should be expecting? That's the first question. Second question, on CRD IV asset reduction, you've seen a GBP 78 billion reduction quarter-on-quarter. As you mentioned, you're about 1/4 of the way through your reduction plan, but it seems there's been a much larger component or a much larger reduction due to settlement balances. So interested in how much of that you think is seasonal versus a structural reduction there. Should I come back to the high-level question, or should I deliver that one as well?

No, it would be good if you could have it -- give us the high-level one too.

Good. So the high-level question is just with regards to the CRD IV asset base. When you look at your peers, the add-on, also the reverse repo book, it does look disproportionately large versus the wholesale peers. And given that Tushar is coming in from one of those peers, I'd be keen to know his thoughts on why he thinks that is. Is it purely because Barclays has historically never had to match to a leverage ratio so there's a proportion of, should we say, lazy assets there? Or is it a case of Barclays is perhaps more balance sheet led in order to drive market share gains within the FICC business?

Let me talk about the cost number, and I will ask Tushar to address both of your points on CRD IV. I took a bold step in February when I announced the half cost target for the group. We did not go the way of some others where we just talk about cost takeout or we sort of make some sort of amorphous reference to a ratio. And the reason why this is was because I believe in this notion of automation and a sort of new era of industrial revolution in financial services and that the competitive advantage in this industry in the next 1 to 2 decades will stem, in large part, from organizations' ability to automate. This, of course, affects the cost base, but it also affects things like operational risk, smoother straight-through processing and less defect brings down your RWA requirement around op risk, for example. So I took that bold decision and I am holding the organization accountable for delivering on it. It is a tough commitment because, of course, things come up that inevitably weren't foreseen, a regulatory change or some other thing that we have to do. And of course, there are a number of businesses that we want to continue to invest in. And if I think about Barclaycard or Africa, we want to continue to fuel those businesses. So what I would take away from my comments on cost is that we are absolutely committed to deliver the targets that we've laid out, and we remain so. And we remain confident in those things and we'll seek to optimize and size the targets with the best possible outcome for our shareholders. Now Tushar will talk about CRD IV.

Yes. Andrew, so your first question, on the GBP 78 billion reduction quarter-on-quarter on our CRD IV leverage exposure. So as I mentioned, GBP 20 billion of that, think of that GBP 20 billion as permanent and structural. And think of the rest as sort of seasonal fluctuation, some of it driven by, as you pointed out, to settle on balances that will ebb and flow and some of it driven just by market rates. So a lot of it is actually from FX. But think of it, GBP 20 billion, as a permanent structural reduction against our plans. Your other question, sort of comparing Barclays CRD IV asset base maybe compared to other peers. Look, it's pretty early days for me, I've been in the company a couple of weeks, so I'm very much getting into the details of the businesses as we speak. You obviously heard me talk about the need to be much more active and granular in our management of the balance sheet, and that's really the discipline we'll put in place. But I think it's a bit early days for me to start commenting about really across from peers.

The next question is from Chintan Joshi of Nomura.

Tushar, welcome to the new job. Can I have 3, please? For how much -- of the legacy RWA number, could you give us the leverage number associated with that legacy RWA number? And vice versa, how RWA intensive is the exposure that you've detailed on Slide 22? That's the first couple. And then the second question is, Tushar, you mentioned about using the leverage lens for capital allocation, how does this translate into decision-making? So does this mean that the traditional bank, where leverage ratio is quite high, that they would focus on -- kind of move away from risk-weighted assets focused on leverage because that has ROE implications for them? And again, on the Investment Bank side, how do you move that decision-making process? Some color around that would be helpful.

I'm going to ask Peter to talk about the first 2 questions around legacy RWA and the point on Slide 22 and I'll ask Tushar to make some comments about process. But I mean, I think the short answer to your question is that we are seeking to optimize legacy, risk weightings and ROE, and that is a complex optimization. But I think it would be useful for Tushar to share his perspective. So if you could take the first 2 points, Peter, and then we'll ask Tushar to take the last 1.

Yes, Chin, I mean, I think looking at the legacy assets that we would dispose, I mean, realistically, they are pretty RWA-intensive assets, and therefore, they tend to have low leverage. We don't spell it out precisely. And turning to your sort of second part of the question in terms of Page 22, again, I mean, Tushar might sort of cover all this as part of the broader review. I mean, clearly, we do see opportunities in each of those areas, we're working through that, and then there will be more opportunities coming through following his review, some may be absolute reductions, some may be looking to reprice business to make that more attractive.

Yes, I think that's right. And so the process that we're going through is really to manage the balance sheet on 2 axes. It's, there, I think, historically has been an intense focus on managing the balance sheet on a risk-weighted axis. We're now going to obviously have a, like, twin frame of managing it through a leverage and risk-weighted asset basis. That work is ongoing. So we will develop a framework where we will look to optimize our returns under both of those axes and work on a capital allocation methodology. That reflects that. And we'll talk about more of that when the work's done. It's very early days yet to give you sort of any more specific details. So we'll definitely share that with you in the months to come.

Just following up on Slide 22, could you give some sense of the risk-weighted asset intensity of those exposures?

Which -- any particular one?

Any particular...

Yes, derivatives, SFTs, undrawn commitments.

Well, undrawn commitments generally have got relatively low RWAs by their nature. And then derivatives, yes, I mean, from a CRD IV perspective, we picked some of that up in terms of both CVA-intense parties. So it then gets absorbed into that. So yes, they are less attractive as a product.

Our next question today comes from the line of Manus Costello from Autonomous.

To ask a question about Slide 41, please, which is your assumptions about your capital calculation. Apologies for moving to the small print of this, but as we all discovered in the summer, the assumptions that go into the capital calculation are quite significant. But it looks like there's 2 changes to this slide versus what you showed previously. Firstly, you say you submitted some models to the PRA for approval. And you comment that changes to our approach may be required as a result of this. And secondly, you talk about the immaterial holding deduction in an EBA paper, which identifies potential changes in the calculation. I just wondered if you could give us some idea of what the risks are to your stated capital position from those 2 caveats you've inserted on that slide.

Yes, Tushar?

Yes. It's Tushar here. So in terms of model approval, I mean, this is just to be very transparent with everybody. This is just a regular process as our models go through the PRA approval process for the new CRD frame -- IV framework that we'll be on for next year, so just to highlight that, that approval process is in process and you should be aware of that. In terms of immaterial holdings, we have plans in place to ensure that our immaterial holdings are below the threshold for which capital reductions would apply. And we'll manage that very closely so that we are in that position before the year closes.

And this EBA consultation paper, that's a point? It sounds like there could be a risk to that. Or am I misreading that other point?

I mean, the reason why we're putting it out here is to be transparent. You can have, form your own view of the risks around any of these things.

The next question is from Michael Helsby of Bank of America Merrill Lynch.

I've got 3 questions, the first 2 are linked. So just focusing on costs, I was wondering if you could give us more color, Antony, on where the GBP 1 billion of clean cost reduction is going to come next year? Maybe as a framework, if I look at Q3 and annualize the 3Q costs by division, I get to GBP 17 billion. Add GBP 0.5 million for levy gets you to the GBP 17.5 billion. I know that's probably too simple because it's obviously seasonality, particularly in the IB, but I was wondering if there's any divisions that stand out, if you like, relative to that quarterly run rate. If you could highlight those, that would be really kind. Secondly, on costs, just focusing on the Investment Bank. I mean, clearly, the revenue pool that you're looking at today is materially different than the one that you'd hoped, I'm guessing, that you were looking at in February. So if that trend continues, just to what extent you can flex or cut more costs in the Investment Bank over and above what you've already communicated? And then finally, on the dividend, and I think this is really important because, clearly, the PRA put out its consultation paper. Actually, your perspective came out way after that. So I noticed that you've reiterated your intention on the dividend again this morning which is, I think, quite significant. So I'm just wondering, if you could give us more color on that, that would be good.

Sure. Let me talk about the sort of micro costs point first. As I said earlier, we are committed to delivering the GBP 17.5 billion next year. It will not be entirely following the profile of the cost base today because some units are further advanced with this work than others. You'll note, for example, that, in Europe, we're well on track to exit the 2,000 people and close the branches that we said, so you should expect to see the benefits of that coming through next year. On the broader cost point with the IB, I think, when we laid out the strategy in February, we were very clear that our expectations for the revenue pools in which we did business were quite conservative. And that was why we put this huge emphasis on automized -- automation and cost reduction because we knew that income was going to be hard to come by. Now unfortunately or fortunately, depending on how you choose to look at it, we were actually pressing on some of that and we've been proved to be right. So the world that's in train is going to help us do that. We have to be careful about generalizing-up 1 quarter, 1 quarter doesn't make a trend. But the general hypothesis on the pincer strategy is that revenue will be harder to come by. That's why we have to manage costs more tightly, and we will seek to do that. But remember that a lot of this work requires structural extraction of costs, not just the sort of slash and burn you have in quarter, buying less paper clips and travel less, that sort of thing. So I do think that we are confident in the downward trajectory of costs. And I think that will allow us to deliver on the ROE and CET1 commitments that we made in February. Regarding the dividend, we do and have reasserted our confidence in the dividend policy. We believe that to be the case. The PRA is fully aware of the commitments that we've made. The PRA has said to me that the document they issued on Pillar 2 is a consultation document. They are genuinely interested in getting views and forming a policy on that. And our expectation is that -- in the period of Transform commitments which is basically '14 and '15, that we'll be able to deliver on the commitments that we made.

Okay. Can I just come back on the Investment Banking point, Antony? Because I appreciate that you had probably a more cautious view on the Investment Banking revenue pool, and you've had that since essentially you took over as chief executive. But if I'm critical of what you just said, I think you -- clearly, you guided to mid-single-digit revenue growth in the IB as part of your Transform plan. And unless we find out that this year was all cyclical in terms of a revenue reduction in fixed income, then that, that's going to be very, very, very hard to deliver. So I'm just pushing you. I think when you first launched your Transform plan, I think one of the things that the investors really liked when you were around and delivered the feedback was that you would -- if revenues disappointed, that you would cut costs again, you wouldn't stop. So I'm just looking for that type of comfort from you that if there is a gap, you'll -- you won't stop.

Well, anybody who knows me on costs will know that I am maniacal about it. So you should absolutely retain that reassurance around if we see that there is a structural shift downward in revenue beyond what we expected in any of our business, not just in Investment Banking, then we will rightsize the cost base to do that. I think it's important to say, though, that we are seeing sort of a 1-quarter dip in performance, driven, I think, by some very specific views that the market had on the comments that the Fed made on tapering. So I want you all to be completely clear about this: a, we are reaffirming the cost commitments that we made previously; b, those cost commitments are difficult to deliver. Remember, we are one of the very few, if only, institutions to have made absolute hard cost commitments. But three, if any of our businesses have a weaker revenues trajectory than we expected, then we will continue to drive the cost base down. Is that comforting to you, Michael...

The next question will is from Tom Rayner from Exane BNP Paribas.

Can I have 3 questions, please? The first 2 on capital and the final 1 on the Investment Bank. Antony, you say that we can take it as certain, the leverage reduction is going to be greater than the current plan. Can we be certain what sort of benchmark you are going to be actually held to? I mean, are we looking at CRD IV minimum leverage, the PRA stressed version of the leverage or perhaps what's in the sort of latest proposals in the Basel sort of consultation? Now that's my sort of first question on leverage. I wonder if you want me to do all 3 before you start to answer.

Yes, give me all 3, Tom.

Okay. Well, the second one is again on capital, this time sort of focusing on sort of Slide 39 where you set out your sort of target capital structure, and you've been fairly consistent on that particular sort of diagram. I noticed you've sort of added on that slide this sort of 10.5% may evolve in light of Pillar 2A and countercyclical buffer, so I guess my question is if Pillar 2A does require an additional equity requirement, what would you do in terms of the sort of the management buffer or the internal buffer? Does that simply move up in line with any additional equity requirement at sort of Pillar 2A or countercyclical level? And then my final question is really for -- possibly for Tushar, on the sort of restructuring of the Investment Bank. Clearly, getting rid of the legacy assets is a big focus and seems to be going quite well, but when you go sort of this review and we look at the core RWAs, I think you were targeting about 180 x the sort of legacy. If the review suggests that it's required, I mean, is that 180 possibly going to be reviewed and bought -- and maybe brought down? Would a material change, do you think, in the 180 be a likely outcome if that's what the review shows up? So that are my 3 questions, please.

Yes, so pardon me, Tushar here. Let me take a couple of those ones. So your first question around leverage and which particular measure of leverage are we managing the place to. I'd say, look, first and foremost, we obviously, at a very minimum, need to hit the PRA's expectation of 3% on their stress measure of leverage. That's -- and so we'll see a slightly more onerous calculation than the present CRD before methodology, so -- and we're very confident that we will hit that in June. There are a bunch of -- while there is a consultation paper out there with a bunch of changes to the current CRD forecast, which I kind of alluded to in my sort of remarks earlier on, we will do what we can to be anticipatory around them and we'll try and manage the business with a degree of future-proofing. But as I say, it won't always be perfect. And it's -- some things, we won't have guessed right the final outcome and we'll have to adapt, and we'll just be smart around that. But we will try and be as anticipatory as we can. But you should sort of -- at this stage, until hear more from us, we're absolutely focused on delivering at a minimum the 3% stressed leverage measure of the PRA. Your third question on whether there will be further actions around risk-weighted assets as part of this review, I'm not going to preempt the outcome of that. That work's really ongoing. You know that I've been here a couple of weeks, so we're really just getting stuck into that. It may or may not, so it's hard for me to give you guidance such early days as to what the outcome of that is. And let me take your second point, which I think is really around Pillar 2A, and Antony may have some further comments on that. The Pillar 2A is a consultation paper. We'll -- I guess we'll hear back in the next few months as to what impact that has on us. We could speculate all day long as to whether that has an impact and what kind of impact and around what time, I'm not sure that's going to be hugely fruitful given that we'll hopefully know the answer over the next few months. Obviously, when we have the answer, we can talk much more specifically about what that means to us and how we'll solve for that one. So you have all those fronts available. So what -- that's my views at the moment on that.

Yes. Thanks, Tushar, I think that's very well said.

Our next question comes from the line of JP Crutchley of UBS.

Two questions, I think, on the Investment Bank, if I can, 1 big picture, 1 on the same point on cost, just trying to understand the flexibility about the cost line. I guess, at one level, when you look at the IB and how it's progressed this year, income down 7%, cost down 7%. You feel like that's a good tick in the box. I guess, when you try to think about it in terms of the quarterly variance, what you saw clearly in Q3 was obviously a very sharp decline in income and not to commit to declining costs. And I guess why that sort of leaps out at me a bit is, obviously, when you look across some of your peers, one of the big cheers [ph] of some other people's Q3 has just been quite clearly to sort of adjust the compensation, the accruals, et cetera, to reflect the sort of heightened abnormalities. And I guess just what I'm trying to get a feel, what that could be about Q4 costs and, in light of what could still be a difficult revenue environment, in terms of your flexibility to actually manage that number in terms of a quarterly basis. I just wonder if we could make some comment on your -- on the actual levers you've got short term to really influence the cost if we do have a fairly challenging Q4 revenue-wise? The second question was actually a pretty slightly bigger picture on the Investment Bank. And I guess, in this quarter, it's quite -- most have been away because, for the first time, the aggregate of Equities and Investment Banking levy have actually overtaken the fixed income business revenues, but probably not, by the way, you'd like to achieve. Obviously, you'd like to grow one more rather than one shrinking in that substantially. But I guess the question is, in terms of the shape of the Investment Bank, the revenue picture in this quarter, do we attribute it wholly to cyclical factors and the difficult environment? Or is there to a degree to which there has been an element of conscious reshaping up a bit, you should stream to a new Investment Bank, which may be starting to influence some the overall business mix in that as well?

Thanks, JP. So let me take the second question first. There has been an attempt over the years to diversify the Investment Bank away from our traditional strength in FICC. And it's good to see that, that activity has been successful. As we referenced in our speeches, not only have we seen the 26% increase in Equities revenue, but also our participation in Investment Banking activity on both sides of the Atlantic, has been very strong. So that is a strategic decision that we took. I think it's also apparent from all of the discussion that we've had, particularly around capital and leverage, that the absolute revenue pool in FICC is likely to contract over the coming years. We still expect to be a sizable player in that business, even after all the work that Tushar described that's been done and executed. But I do think you can expect to see over the years a greater balance between Equities and IBD and the FICC business in the Investment Bank, and I think that's the right way to get the best returns for our shareholders. On costs, I just want to reemphasize that we will adjust the cost base to the strategic view of the size of the revenue pools going forward. What we are not going to do is change that on the basis of 1 quarter. Now having said that, I do expect the FICC revenue pool to shrink over time. So there is an implication in that for us. Regarding your question about short-term leverage on cost base, we in the U.K. have been required to run higher levels of deferral on compensation and than some of our U.S. competitors, and what that means, of course, is that the impact of prior year deferral shows up in this year's P&L. And so we candidly have in the short term less ability to bring the cost base down immediately. That having been said, all of the things that we're talking about in terms of the future of the business, the Basel III and IBD and Equities and FICC, leads to a place where we will continue to push down the cost base within the IB across both compensation and across the operating costs while still -- and this is an important point, while still paying for performance and being competitive so that we can keep and hire the best talents in the business.

The next question is from Fiona Swaffield of RBC.

I have 3 questions, if possible. Should I say them all together?

Yes, please, Fiona.

Firstly, on securitized products, you made some relatively specific comments about it being disappointing. Was there something particular on positioning? Should we assume that, that could have a bit of a rebound in the fourth quarter, or something exceptional? The second area was the discussion of the Basel proposals. You referred in the leverage discussion to potential for inflation on the repo side. Would you be able to give us any kind of indication of magnitude, and there's also quite a lot of other changes potentially on credit derivatives, et cetera, as to what you think that could do on a net basis to your leverage ratio? And the third area is really on costs again. Performance-related costs, I think they're down about 14%. I just wondered if you could comment on that in light of kind of the issue of deferred, because it does look like the accruals are coming down quite significantly.

Yes, so I'll ask Tushar to take the first 2 points. And then perhaps, Peter, you can just talk on compensation costs.

Yes. Fiona, so on securitized products, you're sort of questioning whether there's anything more to Q3 given the relatively weak performance. I think it's, firstly, a very strong comparative quarter, and that's probably the biggest sort of delta that you're taking away from that. And obviously, Q3 generally, for some of those types of products, was weaker than sequential quarters. But really, nothing more than that, I don't think, I'd add to that. Your second question, potential increases due to credit derivatives and any other form of rule changes and as part of the Basel III leverage ratio consultation out there and what impact that has on us. It's one of those things where I'll go back to what I said. We will be smart around trying to future-proof our businesses where we can. We won't always get it right. I mean, some of these -- take for example, repos. I mean, I can come up with at least 3 different outcomes for where repos would be under Basel III, 1 extremely onerous, 1 not so onerous and 1 in the middle of the pack. We just need to be smart around how we anticipate these outcomes and manage ourselves around them. Same in we can talk about credit derivatives, I could also give you different outcomes for PFE calculations. So rather than going into specifics, I think you just expect us to be as smart around trying to be as anticipatory as we can around all of these outcomes. I would say one thing, though: Managing on a -- or targeting a stressed leverage ratio as the PRA defines it will, in of itself, create some buffer to the CRD IV measure at the moment. So obviously, if the CRD IV measure does become a little bit more onerous, that will naturally be absorbed into part of that buffer. Peter, do you want to talk on the costs?

Yes. And Fiona, on compensation costs, I mean, certainly as we look at it, really the -- it's an accrual basis through the year, and then the final decisions are taken on compensation for the full year, reflecting on the overall performance, as Antony was alluding to. So I wouldn't read anything into it specifically in the third quarter, I mean, other than the fact that it's certainly, whether you look at it at the group level, on a comp-to-net income ratio or on the comp-income ratio for IB, I mean, those are both basically held flat. Excluding CTA, that's 38% and 40%. So it's really just a moving piece of that.

Thank you, Fiona.

The next question is from James Alexander of M&G.

Just got a question on Barclays Investment Bank. I remember, in the past few years, it's always been said that Barclays Investment Bank was kind of sound countercyclical versus its peers, that it would do better in down markets versus its peers and do slightly worse in up markets. But this quarter seems to have reversed that trend that Barclays always talked about. So I'm just wondering whether that's it was never really true, or you changed the business models somehow in Barclays Investment Bank from what it was in the past.

Well, James, I think, if you look historically, that absolutely has been true in the up and down quarters. Our FICC income was down 34% if you x out the legacy assets which we disposed of. That's a good thing, of course. And that puts us right about the mean in the industry. And I would say, finally, that this wasn't the sort of down quarter, this was a sort of no quarter where there was a massive move to risk-off and I think it's a bit of an extreme situation. So I don't think that you should infer from this that, a, the previous statements were never true; or b, that they aren't going to be true in the future.

The next question is from Chris Manners of Morgan Stanley.

I guess you've done capital to death, so I had a couple of questions more on sort of operating performance of your retail and commercial business, actually, and so 2 questions. Firstly, net interest margin, actually up in the quarter sequentially. For us, that showed quite encouraging considering previous trends you've had. And just firstly, I think you might be able to give us your thoughts on the crosswinds there and how you see that tracking going forward. I mean, obviously, peers have been reporting rising NIMs in contrast to Barclays. Is that possible to have an inflection on your net interest margin, which could be encouraging? And second question, on the impairment charge, obviously quite a bit better, so better in corporate and better in South Africa in the quarter. How do you see that trending? Because I think, before, sort of Robert had been thinking maybe sort of flattish into next year, but maybe it could be a bit better.

Peter?

Yes, Chris, I've got -- maybe I'll take that one. So I mean, firstly taking the sort of the U.K. businesses, I think what you're rightly observing and we've sort of signaled historically, I mean, we're certainly getting to a flattening of the impact from the structural hedge, so that's good news. And that's certainly flattened off in Q3, having declined on a year-to-date basis. I mean, secondly, yes, as I sort of alluded to, I mean, in particularly in select products, notably mortgages, the sort of the card business, yes, we are seeing opportunity to widen asset margins in particular. And I think, as I look forward, as with really a strong LDR, loan-to-deposit ratio, position, I think we've got good opportunities for income growth really through growth in the asset base. And we're seeing that demand coming through. I mean, most notably -- I mean, certainly, last week or so, we've had our largest set of applications for new mortgages. And so allaying fears, that's not sort of with high LTDs, that's with a good balance of representation. So I mean, I think, as I look at the U.K. businesses, and again there've been some good growth in the corporate side, with income up 6%. So I see reasonably robust but not a -- not sort of a rapid growth in the U.K. And then in South Africa, I mean, I think it's fair to say, obviously from a currency standpoint, we've seen the impact of that, so on a reported basis, seen income coming off. Now on a local currency basis, we've seen an uptick of about 3%. I mean, some of that's been through some good business, particularly on sort of the asset side. The fee businesses, I mean, they are -- there's a lot more competition, and I think we've got a bit more work to do there. But overall, I think, again, positive growth but not a stellar growth that we would look for there. In terms of impairment as we sort of have highlighted, I mean, we did take some fairly large impairment provisions last year. So part of the improvement is that slowing down. And I think, again if we look at where we stand, particularly in the home loans book, I think we're well positioned. And that flattened out. And again, we haven't had any significant one-off names in the corporate side across Africa, so it's been good management of those names over the quarter and over the year.

Our final question this morning, Mr. Jenkins, is from Chira Barua from Sanford Bernstein.

Sorry to keep you waiting. Just 3 quick ones, 1 on wealth management. I mean, that's been a struggling business for a very long time, and I was wondering, Antony, whether you would want to put it up on the block given this old capital debate and that capital can be allocated somewhere else. Which leads me to the second question: Equities has been your biggest shining performance for the last 1.5 years. It'd be great to understand why you're outperforming the market there. What are you doing specific? And how sustainable is that trend? And the third one was on legal reserves. I know you don't declare it, but given the outlook right now, it'd be great to know, how much spare cash do you have on the balance sheet if any of these contingencies actually come up?

So let me just deal with the last one first. As I said earlier, where accounting requires us to, we provide. And we don't disclose the absolute quantum of the reserves on the balance sheet. With regard to wealth, as you know, we ran something called the Gamma plan for a few years. That plan did make us a player in the wealth space. But as part of our strategic review, we have focused that business much more on markets where we have scale and competitive advantage. You'll have heard that we have exited prospecting in a large number of countries for that reason. There is a huge opportunity to streamline that business through automation, and we've got a lot of work there on that space. So I think what you're seeing is us focus and narrow our focus on the wealth business, but we do believe that it's an important part of the franchise going forward and we can get good returns from it. And finally, on the Equities business, we are pleased with the investments we've made in that business. We are beginning to monetize those investments, and we'll continue to, I think, benefit from that going forward. And as I said previously, it's an important part of the rebalancing of the franchise between FICC, where we've been traditionally strong; and now Equities; and of course, in IBD. Well, thanks, everybody. I'd just like to make a couple of concluding comments, firstly, to thank you for your attendance and your questions and engagement. I want to close by reiterating 3 points which I think are core to how you should think about Barclays. The first is the underlying strength of our franchise and the good progress made by several of our businesses in the quarter and year-to-date. We were just talking about Equities an -- as an example. The second is that the execution of the plan to meet the PRA leverage target of 3% by June 2014 is on track. And our additional review of the balance sheet is progressing under Tushar, as he described. And thirdly, there's clear evidence of growing momentum in the delivery of our Transform program, particularly in legacy asset reduction and cost, and this, of course, is our response to the profound change we're seeing in the industry. And taking all these things together, there are lots of good reasons to feel both positive and confident about this business and its prospects. Thank you, all, very much.