Welcome to the Barclays Half Year 2017 Results Analyst and Investor Conference Call. I will now hand you over to Jes Staley, Group Chief Executive, and Tushar Morzaria, Group Finance Director.

Good morning everyone and thanks for joining the second quarter earnings call. Before I hand over to Tushar to take you through the numbers in-depth, I first want to provide you with some thoughts on what was a very important quarter for us in terms of the execution of our strategy. And second, give you a sense of our priorities for the Group going forward. The last three months saw us complete two key planks of the strategy we set out in March of 2016 and both were achieved ahead of schedule. First off, on the 1st of June, we sold roughly 34% of our shareholding in Barclays Africa, this represented the largest secondary offer ever executed in the continent. Having reduced our stake in the business to effectively just under 15%, we have applied for and expect to achieve four regulatory deconsolidation in respect of Africa by 2018. However, while we await that formal approval, we were pleased to be very recently granted permission to apply proportional consolidation in respect of Africa to a level of just over 23%. This means that our capital has benefitted by 47 basis points from the transaction, which coupled with organic capital generation in the quarter, means we are reporting a 13.1% CET1 capital ratio today, that is of course at our end-state target of around 13%. We will realize a further 26 basis points of CET1 accretion in due course, half of which is expected to come through later in 2017 as we move down to a 15% regulatory ownership level and the rest on formal regulatory deconsolidation. Beyond this capital benefit at a stroke we have radically simplified our business, removing significant complexity and taking a major step towards our future as a balanced and diversified Transatlantic bank. It was a…

Thanks Jes. Our results announcement possess the H1 financial performance on a statutory basis, which is the way Jes and I now manage the businesses. To help you understand the Q2 business performance and trends, I think it will be helpful to highlight material item and other items of interest which I have set out on the next slide. There are two material items in Q2 this year, the charge of £700 million for PPI and £1.6 billion in losses relating to the Africa sell down. It’s worth stressing that these Africa losses don’t change the overall capital ratio accretion expected from the sell down. As a reminder, in Q2 2016 there was a £615 million gain from the sale of our share in Visa Europe, a charge of £400 million to PPI and £292 million of own credit in head office income. The last one now goes to reserves in accordance with IFRS 9. When I run through the underlying performance of our businesses, I’ll exclude these items, although we have shown the statutory numbers in the tables on the flowing slide. The other income and cost items of interest have been listed including gains on the sale of our share in VocaLink and of our Japan JV, to make it easy for you to adjust for them if you wish to do so. Our Group Q2 statutory results were impacted significantly by these two material items. Together with another quarter of significant non-core losses, as we successfully drilled down RWAs to £23 billion, ahead of the unit’s closure on the July 1st. Our sell down of 33.7% of BAGL generated a loss on sale of £1.4 billion. Lastly, the recycling of currency translation reserves to the income statement, and also £206 million from further impairment of the stake.…

[Operator Instructions] Our first question from the telephone line today comes from the line of Claire Kane of Credit Suisse. Claire, Please go ahead..

Hi good morning, my first question is on the CIB return target, I think it’s fair to say that expectations are low for returns going forward and if you could perhaps give us some insights into where you expect to reinvest this £23 billion of RWA from the loan book and how you are measuring the incremental return hurdle rate, is there a revenue to risk-weighted asset bases? And then my second question is on the cost outlook, so I think on Slide 26, you shading implies that 2019 cost base will be lower than 2017, which is broadly in line where consensus is already and consensus does have your cost-income ratio in 2019 below the 60% target, but the returns on [indiscernible] in the around 8%. So just wondered whether you could talk through raising consensus is wrong or whether you think that cost-income ratio is to come in materially below 60%? Thank you.

Thanks Claire. Why don’t I ask Jes to talk about CIB returns and the recycling of risk-weighted assets from parts of the loan book and I’ll cover the cost base and your 2019 question.

So the CIB RoTE was slightly under 10% now as to where we want to get it to is over our cost of capital which is about 10%. So we are going to keep the risk-weighted assets and the corporate and investment banks flat. We are not increasing the capital allocations to the overall business. But as we look at our loan portfolio which is about £90 billion of risk-weighted assets. There is a part of that loan book which is not generating returns that we think we should get by extending credit. With that, there are some parts of the markets business where we do quite well, if you look at the profitability in prime services, you look at the profitability in our credit trading and we have desks around the world that do quite well. We want to reallocate some of that risk-weighted assets to those desks and we think that we, by doing that, we can have a measurable impact on our profitability. The other thing that I mentioned at the opening statement which I think shouldn’t be lost is, over the next two to three years we are going to have a significant improvement in the cost of funding the investment bank. We have got a lot of very expensive debt that was issued during the financial crisis which material that comes off, we’ve got securities that are redeemable. So that will also have a material impact on getting that profitability north of 10%.

Claire, on the cost base, don’t think of this as a cost, which I think you are anyway. But we’re just wanting to layout some of the issue like tailwinds that we have in terms of continuing to structurally reduce our base over the next sort of year or so and you can see that we would expect a lot of the build cost for our ring-fencing programs and some of the costs we are incurring for non-core is compensation, a deferred compensation, just naturally go away. We would continue and just laid out earlier in the call, there is opportunities where we continue to drive further efficiencies, some of which we will reinvest back. That reinvestment will be productive not only in terms of continuing to generate further cost efficiencies but also could be productive in terms of revenues. In terms of commenting on consensus for 2019, I’m probably not going to do that. And you shouldn’t take the 10% returns target as a comment on a particular year, because of course we will be driven by the growth of ordering economic environment that we will be operating in a cyclical industry, this is always difficult to predict that. But I think what we are saying is, we have enough levers here of things that we can control whether it is managing our capital base, managing our risk profile and managing our cost base. But we have a high degree of confidence that all things being equal, we will be able to get the company to deliver that just double-digit return at the Group level.

Next question please, operator.

The next question comes from the line of Michael Helsey [ph] of Bank of America Merrill Lynch. Michael, your line is open.

Thanks, Good morning gents. Tushar, I just want to follow-up on that cost comment, because as Claire says, that Slide 26, it does look like you are reinvesting most of the £1 billion tailwind that you are identifying. So, I was just wondering whether you can tell us at the moment how much of that £1 billion you think you are going to be investing i.e. what’s the investment plan that you’ve got so we can figure out how much of it falls to the bottom line? I think – and I appreciate you don’t want to comment on consensus on 2019, but consensus has got cost falling by £400 million or £0.4 billion from 2017 to 2019, so if you could comment on whether you think that’s in the right ballpark that would be very useful. And I’ve got another question on the investment bank. I was wondering, there is couple of parts to it, so basically same question. I was wondering if you could just comment on what’s going on in macro trading because that is very weak again and it was down on Q1 and clearly you called out Q1 is a very weak quarter because of the US rate loss. The other thing in the IB that’s interesting to me is that you’ve – you really are calling out the strength in leverage finance where you’ve moved that business quite dramatically I think since Jes came into Barclays. So I was just wondering if you could comment on what the risks are in the leverage finance business and whether you are retaining any of the exposures on the deals that you are doing or whether it’s a 100% distributed? And then finally in the markets piece, actually really surprised Jes by your comments about having to or looking to reinvest capital in the markets business because last year I think you in that the 3Q call, to a question, you specifically said that you had enough capital in the IB and given the agency model, you know that was sufficed to grow the business and to deliver the return. So, I was just wondering if you could be more specific on what Claire asked about. Which bits of the markets piece now do you think are, I think you used the word stuff to capital and therefore you’re going to invest in. Thank you very much.

Yes, thanks Michael. Why don’t I cover your question on costs and reinvestment and I’ll ask Jes to talk to you about the investment banking questions that you laid out. Yes, for a longtime, Michael, we’re sort of really trying to get a sense of how much of that, you know £1 billion tailwind would be looking to reinvest. You know I wouldn’t give you a precise number on that that will sort of drive us back towards sort of a hard cost target, which is we’re moving away from and looking to manage more of the efficiency of the company. But I think what you should hear from us is that that £1 billion is if you like capacity by doing nothing, that should sort of fall away through the passage of time. Of course we’ll create further capacity through many of the actions that we have going in, in our service company and we hopefully gave you some color of some of the exciting opportunities we have there. We believe that gives us plenty of capacity to reinvest back into the company while also driving the efficiency of a company closer or below to our 60% ratio target in good time. So think of it that way, just don’t think of it as maybe just £1 billion in terms of overall capacity, it will actually be more than £1 billion just through other efficiencies. How much we reinvest? We’ll sort of update you as we go along; but it’s too early to sort of give precise details around that for the moment.

Sorry, Tushar, just to push you, so do you think downfall £400 million is a reasonable expectation at this stage given everything you know about the – how the franchise is changing, or you’re just not going to comment?

Yes, no, I understand you’d help the modeling. Look, when I look at sort of consensus cost that we published in for 2019, I won’t give a direct comment on that; but I think it’s obviously directionally down and I think, in terms of direction, yes, we are going to have a lower cost base, continuing to have a lower cost over time, somewhat driven by the tailwinds that I talked about. Somewhat driven by further efficiencies, expect us to generate. I know this probably isn’t some sort of helpful to you Michael; but offset somewhat by gross reinvestment backing, but the trend is definitely down.

Thank you.

Yes Michael, so from my side, maybe I’ll take the leverage finance question first. The gain in market share and moving up to second position within the or within the industry, I think it is mostly driven by a breaking through that were to improve our relationships with the sponsors, you know we’ve made terrific progress with Apollo, with Blackstone, with Silverlake; so it’s just a hard work of the leverage benefit. We are not keeping our residual exposure or increasing our risk limits or doing transactions that we don’t think makes sense. So it’s basically blocking and tackling primarily with the sponsors. In terms of the markets business, there are very popular areas in the markets space and we have been doing quite well in places like credit. We very primarily are saying we’re not going to increase the risk-weighted asset allocated to the corporate and investment bank overall. But there is a reallocation possibility from parts of our loan book to the market space where we think there are very solid returns. And I do think, while for the whole industry had a challenge in the macro space in the second quarter driven by the low volatility that everybody has talked about. The trend in IB overall from advisory to underwriting, strictly debt underwriting are I think reasonably encouraging and as you see on Slide 7, for us over the last three year – you know over the last years we have had a steady progression improving the profitability of that business. And so reallocating the capital to places that in the markets which are generally higher than the cost of capital for us is prudent, that makes sense. And that’s combined with significant efficiencies and funding with the CIB over the next couple of years, gives us – give us the confidence that we can get above 10%.

Thanks. So just to be clear, so it’s credit and prime services, are they the two areas that you think you are going to boost that capacity?

Michael, we are not going to get that specific.

Okay. Thank you very much.

Thanks Michael. Could we have our next question please, Operator?

Your next question, gentlemen, comes from the line of Jonathan Pierce of Exane BNP Paribas. Jonathan, please go ahead.

Good morning, thanks let me ask few questions. The first is on the return on tangible equity target, I was just wondering what your thinking is in terms of timeline then, I mean a lots of the targets significant costs for 2019 and over the sub debt material by the end of 2019, is it the sort of exit rate 2019 in the back of your minds and maybe on top of that can you confirm the target is taking account of all change that may come up surrounding IFRS 9, any change in risk weight revolver or these sorts of things?

Yes, is that your only question Jonathan and did you have a couple?

No, the second is on capital and it’s a bit more detailed, I mean I was surprised that the cost is happy for the entire UK retirement funds get into the normal investment bank, I mean that’s a pretty positive development I think. I was wondering if you could confirm as a result talk about the pellet to a charge within a ring-fenced bank shouldn’t end up any higher than what we see at a group level, good day. And if I sort of bring it all together, a bit of a concern for us, many has been whether the combined capital requirement of the ring-fenced and non-ring-fenced bank will end up either higher than the Group target, I mean given what you’ve done on the pension funds and given what S&P has said recently about the non-ring-fenced bank, I mean send the ratings to current rating, do you now proceed much entirely comfortable that the sub consolidated capital requirement issue is no longer there and there is no real threat to the overall Group level CET1 target?

Yes, okay thanks Jonathan. Why don’t I take both of them? Your line was a little out, but let me just make sure I’ve got your question right. On the first one was more about return on tangible equity and sort of the timing of that, are we thinking about a 2019 exit rate and does it include all various things that may happen between now and then, for example IFRS 9? I think the short answer to your question is, we are not going to put a date on it and it really goes back to control what we can control. We are subject to the broader economic environment, life cycles and various things like that. But we do have a degree of confidence that over a – of what we can control and all things being equal you just see the Group returns continue to push on higher and higher. And of course we are very keen on getting to an above 10% as soon as we can, but we won’t [indiscernible]. It does of course – I think most people when you budget on your modeling, you probably have us getting into the mid-to-high single digits just by all things being equal to the various things that take that away and I know many people have talked about benefits that we should be able to crystallize from the liability side of our balance sheet and whatever and that will come through over time. On your question on capital and the sort of the subsidiary level capital, specifically tell us regarding the ring-fenced bank, I can’t comment on that obviously that’s one thing that will be set by the regulators and I haven’t turned to that, so I think it will be – and not appropriate for me to sort of comment in advance of that. But everything we see today does suggest that we think that the overall consolidated capital and at capital levels that will need to be held by the two main subsidiary groups will look reasonably similar. I mean of course it won’t be totally identical because of the capital types that just formulated differently as I know you are very familiar with, but I think in growth terms the three sort of parts of the company and the overall group and the two subsidiary components will be quite similar. And you are right, we have been very encouraged by comments for example that S&P has made around the ratings of the non-ring-fenced banking groups as they have been quite consistent along and that’s very much consistent with our expectations as well.

Okay thank you.

Thanks Jonathan. Could we have the next question please, operator?

The next question comes from the line of Andrew Coombs with Citigroup. Andrew, Please go ahead.

Yes, Good morning. I wanted to come back to cost prospects. More specifically on this theme of cost reduction versus new investment and particularly on your IT budget. You’ve given a couple slides in IT, you talked about innovation, automation driving a structural cost reduction there. And at the same time, for example, if I look at your UK detail that you provided, you talked about cost savings being offset by investment in cyber resilience and technology. So when we think about your overall IT budget, can you give us an idea of how much of your cost base that accounts for? How it splits between run the bank and change the bank and how that’s been changing? That’s the first sort of questions. Second, which is on the UK loan losses, very simple question. But you’ve gone up from £180 million to £220 million, you’ve been running at £180 million for a couple of quarters. The increase seems to be in consumer, yet your arrears rates on cards are going down. Can you just elaborate on the drive of that? Thanks.

Yes. So thanks, Andrew. On the cost reduction, particularly around technology, I’m not going to – as of say, I won’t be able to disclose the detail of sort of run the bank, change and bank and those kind of components. So I’m won’t get into those. We will probably be talking more and more about costs. I mean, you’ve heard Paul Compton, our Chief Operating, has already given a sort of an insight of some of the opportunity sets we have in the service company. And over time, we’ll talk more about that. But generally, the name of the game here is to have a much more efficient technologies bank, which will structurally lower our cost base, and it’s just very significantly structurally lower our cost base and that gives us capacity to reinvest. I mean kind of areas where we’ll be reinvesting back into some will be, just because it’s important that we have the best technology around, for example, cyber resilience and that will require some investment. But also back into products and services, Jes talked about which – probably it doesn’t get a lot of external press, but I can assure you internally and the customers and clients, the switching one of this detailed infrastructure over the weekend is an enormous undertaking that makes a tremendous difference to the quality and efficiency to our merchant acquiring network, which we’re leaders in and that’s going to give us also further enhanced opportunities in terms of efficiencies of that business, but also revenue opportunities as well. And so, I guess, Andrew, maybe that’s a marker for now, but more to come. Loan loss rate, year-on-year, we’re about flat. I think you’re probably looking at sequential when you’re looking at the slight tick up. Now – sort of when I look at it, you’ll get the seasonal effects of sort of sequential quarters because of the counter effects of what we call collection days, which is – how many business days there are in a quarter, and that can sometimes change, I’ll call it, sequential impairments, but sort of underlying this. It’s a relatively stable set of impairment trend that we’re seeing. Delinquency rates are pretty low and stable if anything slightly lower than they were in prior periods, whichever one you want to measure. There’s nothing that I’ll read into that other than just traditional seasonal effects you normally see from the first quarter, second quarter. But in the UK, at least, it does sort of continue to feel very benign. At least for now, I would say that, we’re overall pretty cautious on the outlook. I have said that for a number of quarters and continue to be quite cautious on the UK outlook and position our business appropriately. Jes, is anything else you want to add on that?

On the technology spend side, I mean we’re currently engaged in updating our entire desktop software platform, the Office 365, it’s a big move. We are in a process of moving majority of our data to the cloud, which will help cyber resiliency. The product which I might pan, Andrew, is we’re very focused on the cost income ratio of 60%. And we want to get there as soon as we can. What I would say is, once we get to that 60%, I wouldn’t push it a whole lot further than that, because we do have places that we want to invest in our technology platform and want to get on it.

That’s very helpful. Thank you.

Thanks, Andrew. Could we have the next question please, operator?

The next question comes from the line of Chris Manners of Morgan Stanley. Chris, your line is open. Please go ahead.

Hey, Chris.

Good morning, Jes. Good morning, Tushar. So and two questions for me, if I may. The first one was and just having a – think about the cost income ratio again. And you’re talking to a group cost income ratio of below 50% -- sorry, below 60%, but I think you’re saying Barclays UK should be below 50%, if we look at where Consumer, Cards and Payments is at the moment, that’s below 50. So what sort of cost income ratio that you’re happy to run with in CIB? and will that mix shift from an corporate lending to markets have and the impact on that as well? So just – where can we see CIB cost run at? And the second question, if I may was just on margins in Barclays UK, I guess, your guidance above 360, you’re going to have a negative 20 bps and impact from the actual transfer in the second-half. And maybe you could just run us through a little bit of margin dynamics presumably, asset pricing is still quite tough. You’ve got some deposit repricing. So how should we think about the underlying margin trends, if we ex out the actual portfolio transfer? Thanks.

Yes, Chris, I tackle both of them. On the cost income ratio, you’re right in that we’re targeting about 50% ratio in our UK bank and feel pretty good about getting there. As you can imagine, I don’t want to sort of go around publishing CIR targets of virtually every subcomponent of the group, just the large one. But I know there will be a desire to hear from us on CIB. So but we’re not going to give a target out. I think just you have to make your own inferences from that – from the group target and the UK that we’ve called out. I do – I know this isn’t sort of hugely insightful for you, unfortunately, Chris. But you should expect the CIB cost income ratio to continue to improve. And again, at the beginning of all the scripted comments today, I think, Jes talked about many of the opportunities we have to strive that further downwards. Again, just sort of the rotation between allocating, fine-tuning of capital between some of our lending activities and our markets activities. I don’t think that naturally has any sort of direct cost income ratio sort of drive this. It’s more returns enhancing. So just because the returns have improved, obviously the cost income ratio improves with more of a returns-enhancing objective than cost income ratio for the sake of that. In terms of margins, in terms of asset pricing, yes, I think it’s still continues to be quite a competitive market – mortgage margins continue to be under pressure, and we didn’t see that in our business. Our mortgage business is holding up actually very well. I think we called out on the call applications that are at very high levels, high as it’s been for a number of years, probably since 2008. We haven’t really changed our risk appetite there. And so it’s really just continuing to productize the process to mortgage business. So we continue to like towards the lower risk and the spectrum sort of sub-80% loan-to-value and even a bit lower than that tends to be our sweet spot. But asset margin still continue be under pressure. Therefore, when I gave the sort of the margin guidance earlier, we sort of had margin of about 370 basis points from a like-for-like basis thus far excluding the transfer of these non-core extra assets back into Barclays UK. You would expect NIM to be down from the 370 on a like-for-like basis, but higher than the 360 we guided in the first quarter, because I think we’ve done a reasonable job of obviously continuing to be very disciplined on the liability side of our balance sheet, and on chasing asset margin down too much, where it doesn’t make sense for us.

The mortgage portfolio was another place, Chris, where the technology investment is beginning to play off. We ruled out a whole new technology platform for brokers across United Kingdom to process applications for new mortgages with Barclays UK and that has resulted in record numbers of applications being processed in any given day. So that’s another case where technology is getting the business so…

It’s a very good point.

Thanks. So it sounds pretty encouraging what you’re saying about the application’s rate. I mean I guess in Barclays UK, the loan balance has been flat for the last sort of few halves at…

Yes.

£167 b. Does that mean we could actually see a pickup in loan growth from you guys if you’ve got such good applications, or you’re going to continue to filter strongly the balances sort of flattish, but make sure that you focus on your asset quality?

Yes, I would say very small balance sheet growth, but modest. So I think it will grow, but very small, so wouldn’t sort of put in too bigger sort of growth in your models. Asset quality is very, very important to us. We generally are very cautious as you’d heard us say probably for a few quarters on the UK outlook and returns are already pretty high in that business. So although, we do want to grow that business, we’ll grow that business, we’re cautious about growing it. And so prudent growth on the mortgage book is what you would expect, but relatively small numbers on a net basis.

Okay. Thank you.

Thanks, Chris. So can we have the next question please, operator?

Your next question from the telephone line is from the line of Martin Leitgeb of Goldman Sachs. Martin, please go ahead.

Yes, good morning from my side. I just have two questions, please. And the first one is, whether you have any view on when the Basel IV fine work might be finalized? Do you expect that there’s a chance that this might occur later this year? And the second question is a bit more broader, I think, and it’s just looking at Barclays’ business model and Barclays’ reach now being predominantly a transatlantic bank, obviously, the world is undergoing significant change in terms of Brexit in the UK, the requirement of ring fence in the U.S., the requirement to ring fence in the UK, which obviously affects, particularly Barclays as compared to some of the other international peers and potentially equally the requirement of ring fencing in Europe depending on what the outcome of Brexit is. And I was just wondering what you imagine would be the impact on Barclays’ business model? And if there’s any already any changes you notice on the underground, say, some European clients preferring having a product counterparty, which is – which sits within the eurozone going forward and so forth? Thank you.

Yes. No, Martin, for sure, the impact on how we’ve organized our business, given regulatory reforms in the U.S. and in Europe has been significant. Setting up the IHC, which we did last year was a very major lift. It’s got its own Board of Directors, its own CEO. But it hasn’t changed at all the nature of our business in the U.S., be it in the consumer credit card space or in the Corporate and Investment Bank. The ring fencing in the UK is even greater of a lift. And over the last couple of weekends, we’ve been changing our core technology platforms allowed for ServCo changes. And – but all of that is going to have to be up and running by Easter next year. So that is also an adjustment. But again, it hasn’t changed the type of business that we do across in the UK, whether it’s with small businesses or consumers or institutional clients. The ring fencing back in the UK, the IHC in the U.S., they are all much more significant in many ways than what we need to do with Brexit, which we announced last week in terms of expanding the extent of our bank subsidiary in Ireland. And we don’t see any other things as impeding or ultimately changing the execution of our strategy to deal with clients across Europe. Now we are the largest underwriter of European sovereign debt. You don’t expect that to change. We are the largest underwriter of euro debt raised by a non-European companies. We don’t expect that to change. We have about 1,200 people across the continent. And in Europe, we have the largest credit card business in Germany. So whilst we need to make the investments to make these structural changes in our organization, I think, the regulators have been pretty smart actually and whilst they’ve been asking for new structural changes, they have not impeded the free flow of capital nor have they impeded the free flow of financial advice. So the strategy of being a transatlantic consumer Corporate and Investment Bank stays and we feel there’s no impediment at all to execute that strategy.

And, Martin, on your question on Basel 4, look, I don’t have the insights right from the timing of it. But everything like I can see from my perspective at least at the moment, it’s difficult to see anything been announced before the end of the year. But I would say, I don’t have the inside track, so I just take that as one person’s view rather than anybody would be on the insight here.

Thank you very much.

Can we have our next question please, operator?

The next question comes from the line of Edward Firth of KBW. Edward, the line is now yours.

Yes, good morning, all. Thanks very much. I just had two questions. Firstly, if I look at IB costs, it was – it looks like a very strong performance in Q2, I think they are down almost 10%. So I just wondered, assuming some sort of broadly flat revenue outlook into the second-half. Is that a sort of reasonable run rate, or was there something sort of special in that, that we should think about? So I guess, that’s my first question. Then second one, I’m just trying to get my head around the pensions and the whole concept of a pension deficit rising by £1.9 billion and yet your contribution is going down. And so I guess, my question on that is, is it just – I mean, the fact that you haven’t made an effort to actually start closing that gap isn’t quite a contrast to some of your peers. So is that simply that you don’t have the capital, or is it that you think something in the assumptions might change over the next three or four years, which will mean that when we get to 2022, the deficit actually goes down in some way?

Yes, thanks. On IB costs, there’s nothing particularly one-off in the second quarter that brings the CIB cost base down. So I won’t give forward guidance on another quarter or something, but there’s nothing I’d call out in the same page…

But it is a broadly normal quarter?

Yes, if anything there was – we have these one item we called out which increased cost actually which is the deferred compensation unwind from last year, but there’s nothing from the other way.

Yes, right.

In terms of pension, yes, I mean the way that doesn’t work in the UK at least is that the general guidelines by the pension regulator is that companies need to have a funding or a set of contributions that allows any funding debt to be closed over 10 years. And that’s what we agreed with the trustees as part of that is triennial, if you look at the sort of the 10 years worth of contributions, it actually doesn’t call it the funding gap that existed the last time over the last triennial. If you would measure that funding gap here right now this second, it’s actually quite a bit lower already, none of us will know what it will be in 2019 when we have the next triennial. And we’ll see what it is and we’ll agree the appropriate funding plan that satisfies the trustees and make sure that we continue to meet, provided very strong covenant as an employer and a sponsor of this space. So we’re pleased that we have a very constructive dialogue with the trustees, if you see in the last two triennials actually, the trustees recognized that the most important thing for them is to have a very, very strong covenant with their employer and they’re very constructive when they look at the capital pressures as the company maybe under and to ensure that they act very constructively within that context. And we’ve seen them do that for last two triennials. So we feel very good about that.

Sorry, just to be clear, I think in the past, you said your Pillar 2 buffer is used to cover your pension deficit. So I guess, the £1.9 billion is about 60 basis points. Is that already in the Pillar 2 buffer or would we expect the Pillar 2 buffer to go up next time the Bank of England looks at it?

Yes, so the Pillar 2A component has a pension aspect to it, now the Pillar 2A – there’s no sort of magic sort of calculation that does that. What it’s really trying to measure sort of qualitatively is the volatility around the pension position with regards to our capital ratio. And of course our capital ratios refer to the accounting measure of pension just surplus any essence to actually probably in the surplus. So just be careful that we don’t conceive the sort of the funding actuarial position of the pension scheme and the deficit reduction schedule that we publish versus the IAS 19 accounting measure of the pension surplus or deficit, which is used for capital which happens to be in surplus today and has been in surplus for a little while now.

So there isn’t anything in the Pillar 2 for pension deficits? Sorry, I just to get my – I thought there was, sort of misunderstanding.

No there is, as I mentioned there’s a Pillar 2A component that measures or simplify capital for the potential volatility in the pension surplus or deficit as measured on an IAS 19 measure. I mean Ed, broadening for the schedule –

Yes, that any other front okay.

Yes, feel free to give us a call and we’ll have you spend more time with you on this.

Okay. Thanks.

Thanks Ed. And could we have the next question please, operator.

Your next question, gentlemen, is from the line of Chris Cant of Autonomous. Chris, please go ahead.

Hello there. I had two please, if I could just follow-up the earlier questions on return on tangible and your 10% target. I appreciate you don’t want to get into calling the business cycle or the outcome of Brexit negotiations. But I’m not sure the market is going to give you much credits for the target unless you give us a bit more color. And if I say hypothetically we end up with the long transitional period post 2019, no hard macro shock, provisioning is broadly where consensus have, which is sort of a gentle drift up. You’ve got those RCR maturities in 2019 in that scenario would you hit that 10% RoTE at an exit run rate? And the second, just a point of detail, you’ve said you’re not going to increase the capital allocation to the IB is that the case allowing for any out of your inflation from the fundamental review for trading book? Thanks.

Yes, Chris, I mean I don’t want to get into too many hypotheticals, but I’m trying to be helpful by, you know if we expect the -- if we see the kind of the environment that your sort of laying out are relatively constructive macro backdrop and that sort of keep Brexit stuff going on or impairment shocks or anything like that. I think you’d expect the management team here to do everything we can to get to those kind of returns levels, but that’s not a sort of a target in terms of the specific date or anything like that just to help you with the ambition and the confidence that we have around this. In terms of CIB capital allocation and sort of does it include things like fundamentally the trading forecast. I think it’s fundamentally the trading, just as an example and you may have other sort of points on it if you want to call out as well. I don’t think that’s going to come in coming to sometime. I’ll be sort of speculating a little bit here, but my sense is it will be beyond 2020 and I think the CIB capital allocation as we see it, certainly on a time measure that’s got a medium at least as Jes called out, he had expect to change materially from where we are today if at all.

Yes, I want to add Chris is, and I look forward to us getting away from core and non-core, but over the last number of quarters, our core business has been generating a RoTE of North of 10% and that’s with a capital number that’s been growing quite a bit as we got to associate 0.1, CET1 print. So the core business has been generating that 10% and so one way to think about it is, if we are disciplined in eliminating our non-core expenses, which we – I think we have shown that discipline over the last year and half. And if you have the ability to eliminate the cost that we currently have two enter to set up the ring-fenced the bank in the UK and that process ends in Easter of next year. Those two issues plus as we rework through changing the compensation accrual that we initiate in the fourth quarter of last year, that will eliminate a significant amount of the cost drag that’s been hurting the Group result and hopefully allow for this conversion of core with Group, which gave us the confidence to put out this 10% RoTE target that we’ve got. We don’t want to get connected to a date, because Tushar and I control what’s going to happen with the goal of the economy or with the market etcetera, but to your point, if we have reasonably stable environment from where we have been in the last couple of years and we eliminate the drag that the Group has had and focus just on our core franchise, we should be able to deliver that 10% or better RoTE.

Okay, that’s helpful, thank you.

Thanks Chris. Could we have the next question please, operator, and I think we’ll try and make this the last question.

Gentlemen, your final question today comes from Fahed Kunwar of Redburn. Fahed, please go ahead.

Good morning, thanks for taking the question. Just one question really on the – back on the investment bank and impact of technology we talked about kind of how benefiting or how technology might benefit more mortgage margins, but the impact of technology on the kind of fixed income and the institutional space that you are in the US in particular, it seems quite negative and if I look at the kind of front book industry interest rate swaps and the amount that’s trading on the exchange and that’s three times more. If you look at what happened to the cash equities and it happened in the margins plummeted over the last kind of 20 years. So how do you see the impact of technology affecting that institutional fixed income business and all we are in for the kind of long period of margin decline that is hopefully offset by increase balance sheet deployment and volumes? Thank you

I mean there are clearly parts of the institutional market where technology is extremely important and is defining the economic characteristics. I think the most salient would probably be the cash equities business, [indiscernible] processing and algorithms are all critical both for the costs of that business, as well as the revenue and I mean the old of 8.25 spreads are gone. But in terms of the other parts of the business, particular around credit, I don’t think you are ever going to build a right algorithm given how bespoke and idiosyncratic the credit market is. If you think someone like Barclays we have one stock, we have tens of thousands of uses. So there are other parts of the market that I don’t think you’re going to see technology surpasses how the systems are currently managed. In the end, you sort of mention technology in clearing houses, in many ways that should decrease risk and the revenues to risk return can get better. I – when you talk to most buy-side peoples and what I hear is spreads are widening, the market is less liquid, more money is having to be paid to rebalance portfolios and then I quite frankly think you know you eliminate the impact of the Volker Rule and giving the amount of capital that has had to be put behind investment banks today, the underlying revenue in that space is actually going up in our view, so I don’t think it is structurally impaired as you laid out.

Just to follow that up, my last question. I guess [indiscernible] is improving on areas that require more balance sheet whereas things that don’t require much balance sheet spreads are reducing, so is that why I guess that it kind of change your focus to some extent today towards kind of more balance sheet deployment in things like credit and prime services, does that have an influence in your decision to where the technology is influencing I guess the markets business?

No, I think the rebalancing of RWA is more between the extension of credit and parts of our markets business. The parts of CIB that is very capital, like advisory, like debt underwriting, like equity underwriting, I wouldn’t think that revenues are going down at all, but if you look at market volumes of debt issuance from investment grade to high-yield around the globe, it’s got a very strong growth pass through it. One of the advantages on the fixed income side is debt instruments have the things called maturity date, which generally have to be ruled over, so you can actually predict going forward for the fair amount of accuracy, the growth rates in the underwriting markets, most of the markets that we are in.

That’s great, thank you very much.

Okay.

Okay, I think that was the last question. And thanks everybody, I’m sure we’ll see you around in about over the next few days, but thanks for joining us today.

Thank you ladies and gentlemen, that does now conclude today’s conference call, you can now disconnect your lines.