Barclays PLC (BARC) Earnings Call Transcript & Summary

Welcome to Barclays Half Year 2026 Results Fixed Income Conference Call. I will now hand it over to Anna Cross, Group Finance Director; and Dan Faircloth, Group Treasurer.

Good afternoon, and welcome to the Half 12026 Fixed Income Investor Call. I'm joined by Dan Farkas, our Group Treasurer. Let me begin with a brief overview of our financial performance. Q2 was another strong quarter with a group return on tangible equity of 16.1% and -- all 3 U.K. businesses delivered ROE above 20% with consistent volume and revenue growth. Investments we have made allowed us to, again, monetize strong markets and banking wallet in the investment bank, where rate increased nearly 4% versus last year to 16%. And while the U.S. consumer bank delivered 10.5% ROTE, excluding the American Airlines gain on sale. Given the momentum and breadth of our progress, we are upgrading the group income target to circa GBP 31.5 billion in '26, and we remain confident in delivering Group ROCE greater than 12% in 26 having achieved 14.8% in half 1. We are using additional capacity from stronger H1 profitability to structurally improve Barclays returns We, therefore, anticipate taking additional cost actions later in 26 to create greater cost flexibility from '27. These plans increase our confidence in delivering 28 RoTE greater than 14% and accelerate our progress towards an all-weather ROTE beyond '28, these actions will not disrupt the group's distribution plans or financial targets in '26, including the high 50s cost income ratio target. Moving to Slide 4 on credit quality. The Q2 group impairment charge of $571 million equated to a loan loss rate of 51 basis points. Consumer and corporate balance sheets remain robust, and borrowers are behaving rationally. As an accounting meter, consensus unemployment expectations increased as we anticipated, consuming the post-model adjustments that we recognized last quarter in Barclays U.K. and U.S. Consumer Bank. We retained the 68 million P&A in the investment bank, recognizing downside bias due to global macro uncertainty. For '26 we continue to expect a group loan loss rate around the top of the 50 to 60 basis point range. Before handing over to Dan, let me cover the economic trends in the U.K. Whilst Barclays benefits from diversification with 40% of income generated in the U.S., the U.K. is our home market. The U.K. economy has been growing in nominal and real terms and at a faster rate than the Eurozone. This has supported real wage growth, rising house prices and stable employment. Declining investments since the late 2000s meant that U.K. corporate debt to GDP has fallen to a multi-decade low. Corporates have had the capacity to invest but not the confidence. This seems to be changing. The majority of corporates we survey tell us they are confident in their prospects. Firms plan to increase investment in the next 12 months, including in technology, this is broad based across sectors and regions with overall U.K. corporate lending, up 9% and in the past year. As you can see from our results for several quarters, Barclays is helping foster U.K. growth, not just benefiting from it. I'll now hand over to Dan for the balance sheet highlights.

Thanks, Anna. Let me begin first with capital on Slide 7. We ended the quarter with a CET1 ratio of 14.3%, generating 115 basis points of capital from profits year-to-date. Pro forma for the GBP 1 billion buyback, the CET1 ratio was 14% and consistent with our intention to operate around the top of our 13% to 14% CET1 range, pending regulatory clarity. Attributable profit growth should continue to drive strong capital generation and EPS momentum which we amplify through share buybacks. Looking ahead, guidance for regulatory RWA inflation in 2017 remains unchanged at GBP 19 million to GBP 26 billion. This includes Basel III changes on the first of January and implementation of IRB in the U.S. Consumer Bank, which we now expect in H2 '27. Group Pillar 2A requirements are expected to reduce following each of these events, and we will provide further guidance as we get clarity. On the broader regulatory landscape, we note the recent financial stability report but believe more can be done to drive U.K. growth. . Proposed changes would reduce Barclays Tier 1 leverage requirements modestly by 8 basis points, supporting its position as a backstop measure. We continue to work closely with the Bank of England to promote international alignment and competitiveness of the U.K. financial services sector. Moving up the capital stack. On Slide 9, we show our Tier 1 and total capital requirements as a proportion of RWAs. We continue to target a prudent buffer against each of these requirements, which helps us manage any RWA and FX movements as well as our issuance and redemption profiles. Our Tier 1 ratio is 18% and total capital ratio is 20.3%, maintaining healthy headroom above our 14.6% and 17.8%, respective regulatory requirements.

Within these ratios, we had an AT1 component of 3.6%. As stated at the full year results, we had a more limited issuance requirement for AT1 and Tier 2, given our lighter redemption profile.

I'm pleased to report that our planned '26 capital issuance is now complete, following our inaugural AUD 1 billion and GBP 750 million in Tier 2 both price this quarter. Turning now to Slide 10. Credit market conditions have been strong in the first half of the year, and we have completed our GBP 10 billion MREL issuance plan against this supportive backdrop. Looking forward, we may look at some prefunding of '27 volumes subject to market conditions. Finally, at the operating company level, we recently issued our first publicly placed Barclays Bank PLC senior since 2020 and with a EUR 3 billion offering. This was a good example of ensuring our funding sources remain active and diverse. On to the next slide on liquidity. Our average LCR of 158% is GBP 117 billion in excess of our regulatory requirements. Our average net stable funding ratio was 136% and and the loan-to-deposit ratio was 75%, both demonstrating a continued robust liquidity position. On Slide 12, you can see that our deposit base increased by 1% across customer segments. This quarter, we saw continued growth in international corporate bank deposits as we strategically target growth across the U.K. and U.S. Elsewhere, our deposit base continues to demonstrate a high level of stability as a source of funding with diversification between customer segments, geographies and currencies. A significant proportion also benefits from long-standing operational relationships and deposit insurance. Turning to Slide 13. Structural hedge income growth is predictable and benefits all divisions accounting for circa 45% of Q2 group NII. It will drive around half of the planned group income growth from '25 to '28 and remain a meaningful tailwind beyond. As a planning matter, these expectations are based on a 3.5% reinvestment yield. Swap rates were above this level again in Q2 of 4.3%, further supporting NII in future years. Finally, a quick word on credit ratings. Our target remains for Barclays PLC senior to qualify a single A composite across all indices. This would require an upgrade from either movies or S&P. We believe the outcomes of our strategic plan and consistent execution to date support this objective, particularly in terms of increased profitability and greater capital generation. We will continue to engage with all credit rating agencies on this topic. With that, I'll hand back to Anna.

Thank you for your continued support of Barclays and our broader franchise. We will now open the call for questions. Operator, please go ahead.

Our first question for today comes from Lee Street of Citigroup.

I have 3 questions, please. Firstly, just looking at your business mix, you obviously make -- you allocate most capital to the investment bank that make high returns in the other divisions. . So my question is, would it make sense to look for further sort of inorganic growth opportunities in the high-returning business models to grow those further? That would be my first question. Secondly, on the Bank of England proposals in the financial stability report -- what would it take for you to think about changing your common management buffer and potentially bring that lower given the idea of releasable buffers. . And then finally, you mentioned the international alignment of capital requirements and talking to banking about that. Just in your view for Barclays, where do you think the biggest gaps are where Barclays most disadvantage on that level from your perspective? Then my 3 questions. .

Okay. Thank you very much, Lee, for joining the call. Why don't I start and then I will turn to Dan? So look, in terms of the balance of capital across the group and the relative returns, as you can see, we've been really focused on improving the IB returns to stability of capital but also capital and cost discipline. And we're happy with the structural improvement in returns, and we're not done yet. So we expect those to continue to edge upwards. On the sort of second part of your question, which is really around should we pursue inorganic growth elsewhere -- we feel like we are pursuing the right pace of organic growth. So we've deployed $25 billion of uncertainty that we expect to do in RWAs so far in the U.K. businesses. And we're growing at around 5% a year, and we think that's the right rate of growth for organic growth underpinned by the capabilities that we're putting down across both retail and corporate banking. When it comes to inorganic opportunities, the bar is very high for us -- so we would want something that would deliver either additional capability or additional volumes. So Kensington, for example, was capability. Tesco is about volume. When we look at the returns of those businesses, we are considering those or the returns on any acquisition, we would be considering that relative to the returns on the buyback. So we're very focused on the capital hierarchy that we have, which is 1 regulatory compliance at all times. Number two, distribution net investment in the business. So that, again, would be a high bar -- and then thirdly, we would look at the type of business model that we saw in front of us. And specifically, you'll have seen that we are very much leaning towards digital opportunities. all those with a digital basis to them because we feel those business models have the greatest longevity. So of course, we will continue to look at inorganic opportunities but it's an organic plan. So expect us to keep plugging away around 5% a year. And then to sort of hub tuck-ins as and when we see all those factors being satisfied. In terms of your second question, we've been fairly clear that you should expect us to operate around the top end of our range until we get regulatory clarity, and we expect to get that in 2 chunks -- the first, the Pillar 2A clarity around Basel 3.1 implementation, which we should receive at some point at the back end of this year. And then secondly, we would expect to get a bit more Pillar 2 clarity when we land our AIRB model for U.S. cards, which we would expect to be in the second half of next year. So -- those are the points at which we would reexamine the range within which we operate. Obviously, it's 1 input, and we would be considering other factors at the same time.

Dan, do you want to add .

Yes. Just to add a little bit on that second question. I mean there's nothing in the FSR proposals that would change the way that we think about offering Barclays. So the things that Anna referred to are obviously mechanical reductions in the MDA requirements. So there's no change in stance there. Obviously, we'll watch the bite as it unfolds on the concept of a single usable buffer, but that feels like that's got quite a long way to run. And obviously, will be a long international discussion. Third question I think you asked was just sort of what -- how do we think about international competitiveness. So this is an important point for us in terms of our regulatory engagement. -- there were some positives that came out of the Basel or the PRA Basel package on IMA. We felt that they have listened to the industry in a number of areas. And then there are a number of helpful points, particularly around simplification. But more broadly, we think that there is more to be done here, both to promote growth, but also to make sure that there's a level playing field. So A couple of things that we would call out is the approach to models broadly, a specification around the USA models and the rest of the Basel package, the standardized Basel package more broadly, where we feel there's more to be done. Thank you, Lee. Really appreciate the question.

Our next question comes from Daniel David of Autonomous. Your line is now open. Please go ahead. .

I've got 3 questions. The first 2 are kind of related. -- on the leverage changes, which were kind of more targeted at the size, did you feel a bit harshly treated as a GSIB. I guess did you expect any changes to allow UKGI to become more competitive in the global context I guess when I look at what's changed, it's mainly a size, as I say. And then I guess related to that, as QT progresses, -- are you seeing any notable impact on your balance sheet and just what you can extend to certain businesses as kind of leverage maybe becomes a little bit more binding as Central Bank reserves dissipate -- and then the final one, Dan, you just mentioned that kind of FPC vision of a single releasable buffer. I guess what stands out in that is that Pillar 2G could become part of the NDA? Do you think that's where we're headed longer term? And interested to hear your views.

And then just finally, all the best in the new roll down. Thank you. .

All right. Let me start on those. Look, the leverage proposals were obviously a little bit disappointing in terms of the aggregate impact. I don't think it was specifically around the side point. Obviously, the Bank of England was using the flexibility that they have within the Basel Rene, and 1 of those was obviously on the CCyB. So really, the reason why some banks got more benefit than others was because the CCYB where the U.K. obviously is the largest component was a bigger portion of their capital stack. So I think it was more about what room for maneuver did they feel that they had rather than necessarily targeted at OSI versus G-SIFI specifically. Obviously, there's more to come from the Bank of England in overall on this reform package. The second question on Q2 is interesting. So we haven't really noticed any particular change in the way that we manage the balance sheet. But it's obviously interesting that we do seem to be moving closer to the preferred minimum reserve level that the Bank of England have cited I think another kind of interesting observation for the market, it's just the fact that we are seeing a significant uptick in the use of the Bank of England repo reserve scheme. So that does suggest that other banks in particular are positioning around those reserves scarcities, but not impacting us, particularly directly. And then your final question, I think it's hard to say where this is going to go to the ones because I think the debate is really at the beginning. Clearly, the the financial stability report, again, put out a signal that it's a topic with the Bank of England wants to explore, but we still haven't seen any detail on it. So I expect we will get more of that as we move into both on the Bank of England and then potentially internationally.

Okay. Thank you, Don, for that. Can we have the next question, please?