Barclays PLC (BARC) Earnings Call Transcript

Welcome to Barclays Q3 2026 Results Analyst and Investor Conference Call. I will now hand over to C.S. Venkatakrishnan, Group Chief Executive, before I hand over to Anna Cross, Group Finance Director.

Good morning, and thank you for joining the Barclays results call for the third quarter of 2026. In this call and in our full year results discussion in February 2027, we will supplement our usual discussion with two features. First, we will explain the benefits of the investments which we have made to date and which are delivering the results that we expected. And second, we will provide greater insight into the components of our cost profile and trajectory. This will illustrate the operational efficiency, which we are driving for, particularly from technology, and it will show our future ambitions. I will commence with a brief review of results, followed by a detailed discussion from Anna and then return to these 2 features. I'm pleased with our year-to-date performance, and I'm confident in achieving our primary financial targets. Our income in the third quarter was GBP 7.4 billion, up 3% year-on-year, and we reduced the cost/income ratio to 62% for the quarter and 57% year-to-date. We grew profit before tax in the quarter by 12% to GBP 2.3 billion, and we delivered an RoTE of 11.7% in the quarter and 13.8% year-to-date. Given our returns and a robust CET1 ratio of 14.2%, we are announcing a GBP 500 million share buyback. This brings year-to-date distributions to GBP 2.8 billion, up 47% from the same period last year. Our earnings per share is up 18% year-on-year for the third quarter and on track for a third consecutive year of 20% growth in EPS. We remain very confident in achieving the group RoTE target of greater than 12% this year, having achieved 12.4% in the last 12 months. Let me share four main reflections on this quarter. First, the investment that we have made in and the repositioning of our U.K. Retail and Corporate franchises is driving above-market growth. All three businesses had an RoTE of greater than 20% in the third quarter. Second, I'm pleased to see the continued results of our investment in the equity franchise in the Investment Bank. Their strong revenues this quarter have helped balance the somewhat disappointing results from fixed income intermediation. Third, increased regulatory clarity is providing us with greater capital flexibility and we will update on our expected CET1 operating level at the full year results. Finally, as I will discuss later, multiyear investments in our businesses are delivering consistent returns and growth. This is the outflow we are creating. Including these investments, we are going to provide you with a clear path for absolute cost and efficiency savings in 2027. I will return to this at the end. First, however, Anna I will take you through the financials in detail. Over to you, Anna.

Thank you, Venkat, and good morning, everyone. With one quarter left in the original 3-year plan, we are confident in delivering all group targets. As I take you through our results, I will focus more than usual on costs. Starting though, with income. Group income grew 3% year-on-year in Q3, on track for the circa [ GBP 31.5 billion ] target in '26. This implies full year circa 8% and versus the more than 5% CAGR target to '28. We are building more consistent returns by growing stable income dreams. These now cover 125% of group costs versus around 100% before '24, having grown for sixth consecutive years. This is underpinned by group NII, which has been around 50% of total income consistently since 2023. We are confident in delivering the '26 group NII targets with 7% year-on-year growth in Q3, and we expect NII growth to continue underpinned by two levers. First, the quality of deposits, particularly in the U.K., these support structural hedge income growth until at least 2030, as I'll discuss later. And second, ongoing lending momentum, starting with U.K. deposits. Around 80% of group deposits on from the U.K. clients, including in Private Bank and Wealth Management and the International Corporate Bank. We bring these together for the first time on the left, with total deposits up 3% year-on-year. Barclays U.K. retail deposits also grew 3%, as shown on the top right. Current account customers hold around 90% of Barclays branded U.K. retail deposits with current account balances stable since '24, as we show on Slide 37 in the appendix. Given our strong funding position, we take a relationship-led approach to savings with Premier accounting for 90% of Barclays [indiscernible] ISA growth year-to-date. But retail deposits are only one part of the story. The bottom right now shows the corresponding spread of the U.K. Corporate deposits. We are the U.K.'s largest core bank with GBP 220 billion of deposits across three divisions: Barclays U.K., U.K. Corporate Bank and RCB in the Investment Bank. These have grown 4% year-on-year. Current accounts are stable to support deep relationships with around 80% of U.K. Corporate Bank clients banking with us for more than 5 years. [indiscernible] Shown on the next slide. The structural hedge provides stable income and predictable growth for all divisions. Average swap rates of 4.2% year-to-date exceeds a 3.5% planning assumption supporting additional NII in future years. Given prevailing and expected swap rates, hedge income is likely to grow until at least 2030, as you can see from the updated maturing yield disclosure on the left. Whilst higher rates undoubtedly helped structural hedge income we are also diversifying NII by growing lending. Total U.K. lending grew by 7%, consistent with a more than 5% target from '25 to '28. One quarter to go, we have deployed GBP 28 billion of U.K. business growth RWAs towards the circa GBP 30 billion target for the three years to '26. Mortgages grew by 7% year-on-year, with GBP 11 billion of gross lending in the quarter. Corporate and Business Banking lending grew 13% year-on-year, excluding the runoff portfolio. Above-market growth in U.K. Corporate Bank reflects investments since '23, helping to attract 1,500 new clients with around 40% borrowing from us. More or less from Venkat later. In summary, our progress in both deposits and lending is driven and sustained by investment in the business in both service and capabilities. Moving on to costs. When we think about costs, we distinguish running the bank from investing in the future. In running the bank, we aim to drive as much operational leverage as possible by delivering gross efficiencies to offset costs from business growth, inflation and BAU investments. We distinguish this from strategic investments to increase returns. Run-the-bank costs have increased by GBP 0.3 billion, of which GBP 0.2 billion relates to the acquisition of [indiscernible]. Put differently, gross efficiencies have meaningfully offset additional costs through business growth, installation and BAU investments. This is despite GBP 0.3 billion of additional performance costs, given 8% year-to-date income growth in the Investment Bank versus the low single-digit target. We also increased investment by GBP 0.2 billion year-on-year to harmonize systems and processes and growing fee businesses. This results in exit rate costs of circa GBP 18 billion for '26. As outlined last quarter, we are also deliberately spending an additional GBP 0.3 billion in half 2 to structurally reduce costs supported by technology deployment. Inclusive of this, the Q1 [indiscernible] division and the change to material risk takers compensation mix, we expect circa GBP 18.5 billion of costs in '26. This is consistent with the high 50s cost income ratio target. We said in February that costs would grow modestly from '25 to '28, and the group would deliver positive operating jaws each year. These expectations are fully intact based on statutory total costs. So what drives this? For the group, we expect run about costs to be flat or lower in 2027 versus '26, a reflecting higher anticipated growth efficiencies. This creates capacity for GBP 0.4 billion of planned additional investment within our modest cost growth guidance. In absolute terms, we expect statutory costs to fall to circa GBP 18.4 billion in '27. Cost/income ratio remains on North Star, so we would expect to flex business growth costs to the extent that income is higher or lower than expectations. As a result, we are confident in making meaningful progress next year towards the low 50s cost income ratio target in 2028 from high 50s ratio this year. Our confidence in delivering these commitments is underpinned by the generation of cost efficiencies. In the past two years, we have delivered around GBP 0.7 billion of gross efficiency savings annually facilitated by GBP 0.3 billion of SCA in the prior year, driving positive operating jaws each year. This was our planning assumption for '26 to '28. Having increased this for '26 alone, we expect more than GBP 1.1 billion of gross efficiency savings in '27. These actions involve an expected reduction of circa 5,000 full-time employees. Around 60% of the group actions relates to support functions, including fewer developers as AI makes our people more productive. Nowhere in the bank, is this more relevant than in Barclays U.K., where we have taken more structural cost actions than planned in '26. Whilst this acceleration means I no longer expect Barclays U.K. cost to fall in '26 versus '25, we are more confident in reducing 2027 and 2028 below the '25 level. This is enabled by improved customer-facing technology, which has reduced call center volumes by 10% in last year. While technology improvements within call centers have increased colleague productivity. Changes to the branch starting model have also reduced employees per branch by around 10% in the past year with colleagues focusing on higher value support. And following the successful integration of Tesco Bank, circa GBP 0.2 billion of cost synergies are flowing through with the majority split broadly evenly between '27 and '28. In '27, we expect a high 40s cost-to-income ratio before falling to mid-40s in '28. Turning to impairment. Consumer and corporate balance sheets remain robust and borrowers are behaving rationally with a year-to-date loan loss rate of 55 basis points. The Barclays U.K. loan loss rate of 20 basis points benefited from a Tesco Bank debt sale and should normalize towards circa 30 basis points in Q4. Whilst in U.S. Consumer Bank, 90-day delinquencies fell further as shown on appendix Slide 45. We expect a seasonally higher reserve build and loan loss rate in Q4 given card spending. Given this, on a 552 basis points year-to-date loan loss rates, we still expect circa 550 basis points for the full year. Turning to Barclays U.K. RoTE was 21.2% in Q3 and income grew by 4%. Costs increased 6%, driven entirely by GBP 110 million of SCA reflecting the accelerated actions I discussed earlier. NII increased 6% year-on-year and 4% versus Q2 to GBP 2.1 billion. Structural hedge momentum was complemented by positive product margin effects as guided Q2. This reflected dissipating mortgage margin headwinds, card seasonality and day count. We still expect full year NII around the middle of the GBP 8.1 billion to GBP 8.3 billion range as guided last quarter. An increase in the structural hedge in early October will lead to a negative Q4 product margin movement, offset by higher hedging with no material less effect. Moving to U.K. Corporate Bank. Q3 RoTE was 23.5% and 21.6% year-to-date. Income and costs both increased 10%. We grew NII by 14%, driven by structural hedge income and volume growth. As outlined earlier, lending grew by 14% and deposits by 1%, supported by improved propositions. And the loan-to-deposit ratio was 38%, up 4 percentage points year-on-year. Moving to Private Bank and Wealth Management. RoTE was 23.8% and 25.4% year-to-date. Client assets and liabilities grew 6% year-on-year and AUM 10%. This included GBP 2.5 billion of net new AUM year-to-date, including GBP 0.6 billion in Q3. The Private Bank has driven most of the client asset and liability growth in the past 3 years. Part of the investment I outlined earlier will drive additional scale in U.K. Wealth, including through adviser recruitment and recently launched marketing. These investments increased costs 7% quarter-on-quarter, and we expect a similar increase into Q4. Moving to the Investment Bank. Q3 RoTE was 9.5% and 13.5% year-to-date. Income was broadly flat year-on-year with higher RWAs reducing income to average RWAs by 20 basis points to 6.1%. With the Investment Banking loan book review now largely complete, we deployed additional RWAs to support deal activity, including in the U.K. This will generate income in future quarters. Costs increased GBP 72 million, driven entirely by GBP 112 million of FCAs and changes to material risk takers compensation mix. We expect Q4 MRT costs to be similar to the Q3 level of GBP 55 million. Including all H2 costs, we remain focused on delivering a 12% RoTE and positive operating jaws in '26, having delivered 2% positive jaws year-to-date. In U.S. dollar terms, markets income increased 4% year-on-year. Benefiting from past investments, equities increased 47% and accounted for half of Q3 markets income. Equity derivatives were particularly strong, and we grew prime, supporting 8% year-on-year financing growth. This offset weaker FICC intermediation with lower line activity in rates and credit in the second half of the quarter and further adversity in September given macro movements. Investment Banking fees increased 2%. Strong activity in advisory and ECM offset lower DCM fees, reflecting deliberate risk and return decisions in a smaller, less in wallet. M&A and ECM pipelines remain strong. Lower ICB income reflected GBP 39 million of less than marks and higher hedging costs in the Corporate Lending line. Transaction Banking income grew 9% year-on-year, reflecting deposit and fee growth, particularly from trade and working capital. Moving to U.S. Consumer Bank. RoTE was 10.9% and 19.9% year-to-date. Income decreased 1% with the Q2 American Airlines portfolio exit broadly offset by Best Egg and business growth. NII increased 3% year-on-year with a lower average balances more than offset by higher NIM. This reflected mix effects and a circa 10 basis points one-off benefit from a change in the recognition of future customer rewards. Higher interest rates do not materially affect NIM as assets typically reprice within the month. Cards and consumer loan volumes were as expected, there were higher benchmark rates continue to weigh on market-wide pricing of consumer loans distributed through Best Egg. This created a circa GBP 20 million non-NII headwind in the quarter. Costs increased 14%, reflecting a full quarter of Best Egg costs and the cost/income ratio was 50%. We still expect a circa 12% RoTE in '26, excluding the AA gain on sale. Let me step back from the quarterly performance. In the past three years, we have been transforming into a multiproduct digital-only, U.S. Consumer Bank with 33 million customers. The partnership cards franchise remains at its core. Balances grew 6% organically in the past year as we rebalance towards retail to improve diversification and risk-adjusted margins. This includes circa 20% growth in General Motors balances since August '25. The fully digital consumer deposit franchise shown in the middle has grown balances by 53% since '23 to $26.6 billion. These deposits are around 50 to 60 basis points cheaper than wholesale funding and now comprise 84% of total funding. Most recently, Best Egg has added consumer lending capabilities with circa $7 billion of annual originations. This allows us to deliver even more value to partnership clients and their customers over time. Bringing these propositions together will drive significant further growth in our most digital division. Our earnings momentum is driving consistently stronger capital generation. We are on track to generate around 200 basis points of capital this year, I expect more than 230 basis points in '28. This supports progressive shareholder distributions, including the GBP 2 billion plan dividend for '26, we have now announced GBP 10.7 billion of distributions since the start of the plan, even before any Q4 buyback. We take a prudent approach to both current and future regulatory requirements regardless of materiality. Noting recent commentary on our TRS exposure on Private Credit Loans, our approach here is no exception. The conditions to classify the treatment as trading book were met and our approach, supported by appropriate governance internally and external review. And this approach is unchanged under Basel III rules. For context, the mark-to-market of this exposure is small, currently around GBP 300 million within the GBP 15 billion Private Credit book and is equivalent to GBP 1.5 billion of notional. Looking ahead, our plan and targets are based on operating around the top of our 13% to 14% CET1 ratio, while fully absorbing RWA headwinds in '27. Put differently, the plan did not assume a reduction in Pillar 2A requirements. As expected, Basel 3.1 will increase RWAs by GBP 8 billion to GBP 15 billion, equivalent to 30 to 55 basis points of CET1. We now have greater clarity on Pillar 2A which will reduce the MDA by 59 basis points, more than offsetting the impact of higher RWAs. This gives greater capital flexibility and we will update on the expected CET1 operating level within the 13% to 14% range at full year results. Bringing this all together, we are delivering consistent revenue growth and amplifying this with positive operating leverage. This has driven the majority of the double-digit EPS growth in '24 and '25 and year-to-date. In doing so, we are driving more consistent shareholder returns. Buybacks of GBP 5.8 billion since 2023 and have reduced the share count by 12%. Further compounding EPS growth and delivering growth in TNAV and dividends of 32%. But the plan does not end here. Before we open for Q&A, let me hand back to Venkat.

Thank you, Anna. Two years ago, we presented a vision anchored and measured ambition and disciplined delivery. And as I told you in February this year and as Anna has tried to show you today, our operational performance and our financial success are two sides of the same coin. With one quarter to go until the end of the original 3-year plan, I'm very pleased to say that we have met or are positioned to achieve all of our primary group objectives. I want to illustrate that with examples across our businesses and then discuss the next stage of our execution ambition. This is to reduce our cost structure and increase operational efficiency. Let me remind you of our U.K. Retail strategy, a journey on which we have been and the opportunity from here. This strategy has two pillars: First, we have repositioned the business into a multi-brand franchise, extending our client reach and the ability to trailer services to different customer needs. We acquired Tesco Bank in 2024 and it now accounts for 20% of card acquisitions and is a key lever in our deposit strategy. We acquired Kensington Mortgages in 2023. The Kensington brand and capabilities enable us to lend to more complex borrowers and balances here have more than tripled since the acquisition, and we are delivering a better client experience by investing in technology. This includes our mortgage Turka platform, where we have reduced application times from 45 minutes to less than 15, meaningfully improving our broker NPS score from minus 51 to plus 70. As a result, our market share is up 30 basis points since 2023 to 10.4%. The second pillar of our retail strategy is to establish Barclays as the premier U.K. Bank. Improved customer service has culminated in Barclays having the highest premier NPS among U.K. peers. As a result, since the end of 2023, we have increased premier mass affluent customers by 27%, driving 23% deposit growth in this segment. In doing so, we have shifted our deposit mix towards customers with larger balances and with the greatest need for long-term investment planning. We have the customers, including circa 400,000 in Barclays U.K. that could benefit from [indiscernible]. And we now have the most compelling, low-priced, high-quality proposition in Private Bank and Wealth Management in the U.K. These provide financial advice with no upfront fee and direct investing our investment platform with no custody fees. When it comes to U.K. Corporates, we are uniquely placed to drive growth and investment. We have built the largest U.K. Corporate Deposit franchise by investing in transaction banking and having complete client coverage. This starts with Business Banking in Barclays U.K. through to FTSE 350 class in the U.K. Corporate Bank. And as the only full-service U.K. Investment Bank, we also serve the very largest FTSE clients in the international corporate bank. The U.K. Corporate franchise has historically been the beating heart of Barclays, but it has lacked specific attention for some time. This changed after we resegmented the business at the end of 2023, gave it capital and started reinvesting in technology. We are driving differentiated growth on both sides of the balance sheet, with lending growing materially faster than the market since 2024, driven by new and existing clients. With a loan-to-deposit ratio of only 38% in the U.K. Corporate Bank versus 50% to 75% of peers, we have much further to go. We are driving growth by delivering a better client experience. Around 45% of our clients now use iPortal, our digital access platform exclusively, replacing five legacy platforms, and we expect this usage to rise to 100% by the end of this year. All of this will drive greater product usage, supporting our fee income and allow us to decommission legacy tech platforms. In the Investment Bank, we are improving the returns footprint by altering the business mix and increasing productivity. Within a broadly stable RWA footprint, we have increased income to average RWAs by 130 basis points since 2023, to now standing at 6.8% in the last 12 months. Ours is a story of discipline, focused on greater client relevance, where we now rank top 5 with 66 of our top 100 market clients, up from 30 in 2021. And to remind you, our target was for 70 out of the top 100 to be top 5 by the end of this year. We have driven structurally stronger, more predictable global markets income in two ways: first, by growing the stable base; and second, by reducing volatility and the seasonality of the intermediation business. We have increased finance income by about GBP 1 billion since 2023, reflecting the investments which we have made in liquid financing where we now rank 5th globally. This creates deeper relationships with 98 of our top 100 market clients choosing Barclays for their financing needs. And we are rebalancing towards equities which now account for 45% of the year-to-date revenues in the markets business versus 32% in 2023. Equity derivatives and Prime have driven about 90% of this growth. The diversification of our revenue supports performance in a broader range of environments, with Q3 being a case in point where we saw a 50-50 split in revenues between equities and fixed income. We are improving performance across our businesses through disciplined delivery and rigorous execution. We have done so by investing in and building a constellation of segment-leading businesses. These include consumer businesses with over 40 million retail customers globally, the largest U.K. Corporate Bank by deposits and a top-tier global investment bank. As we move from the first 3-year plan to the second, we are also transitioning to the next phase of our journey. And this is to accelerate operational improvements and drive even greater cost efficiency, through deep technological transformation, reducing the unit cost of product manufacturing, service and innovation. We are achieving this by standardizing our data, modernizing our infrastructure and harmonizing our processes. And we will employ AI at scale where AI is the icing on the cake, not the cake. Investments underpinning this is within the plan we have outlined in February and is being made possible by our operating leverage. By continuing to execute our strategy with discipline and rigor, we are accelerating our ambition and securing structurally higher and all weather returns beyond 2028. Segment leading businesses, ambitious revenue growth robust cost and operational efficiency, conservative capital and liquidity profiles, rigorous risk management and strong capital generation. These are the principles and goals by which we aim to live and prosper at Barclays. I'm now open to questions and answers.

[Operator Instructions] Our first question for today comes from Jonathan Pierce of Jefferies.

I've got two questions, one on capital, one on costs, please. On capital, the Pillar 2A drop 59 bps in equity terms, things about 105 basis points in total capital turns. It's it's huge, [indiscernible], it's equivalent to about GBP 50 billion of RWAs moving into Pillar 1, not the 8 to 15 that you're flagging for Basel 3.1. So I just think we're a bit after on this. Is there something else going on here? Is this actually part of a much broader review of Pillar 2A and not just Basel 3.1? And maybe as a supplementary to that, if you do land at 11.6%, which is what we're saying in the slides this morning, it's very similar to where Lloyd's and NatWest are at the moment and they're targeting a 13% equity Tier 1 ratio. So I know you're going to tell me we're got to wait for full year, but any insights into how you're thinking about this? Would you need to wait a little bit above or slightly higher buffer than those other two banks, maybe 13.5% would be helpful for some color on that, please. Secondly, on costs, thanks so much for the absolute cost guidance for '27, I think that's really helpful. Afraid that I'm going to ask about 2028, and I'll keep it very simple. Are we still okay to rely on the bridge, the absolute cost bridge that you gave us with full year results 2025? So that's Slide 66 that gave us a cost number in effect for 2028. And if not, how should we think about '28? Is it another year of run the bank costs being broadly flat like in '27? And then the delta is investments? How should we think about '28 costs, please?

Okay, Jonathan, let me take both of those. So let me start with Pillar 2A. What we're saying is that we're expecting a reduction in our NDA of 59 basis points. And essentially where this comes from is we have an annual process around Pillar 2A. That includes Basel, but it will include other things. So you're right to say that the Basel component is part of it, but that is an annual normal process and is an ongoing piece of work. The second thing I would say is that Basel is a big, complex change. And so you have some quite mechanical offsets and then you have some that are sort of a lot more complex than that. So I think it reflects both of those factors, Jonathan. So quite difficult to read from the outside. But as I step back from it, what it tells me is that we are well capitalized now in Pillar 2A for the capital environment that we're going to go into, number one. And number two, it gives us more capital flexibility as we go forward in the plan because we had not anticipated this Pillar 2 reduction. The other thing that I would say in response to your question. I mean, obviously, we will talk about the range within which we expect to operate at the full year but you should expect us to operate an appropriate buffer to the MDA as we do now. So don't expect that to change. To go to your second question, what we said at full year remains intact. Specifically, that you should expect modest cost growth, and you should expect positive jaws. What we're trying to highlight for you today is that in this phase of the plan, there is an increased intensity of investment. But we are also highlighting an increased efficiency so that efficiency is up commensurately so that we can contain costs and make those two things true. So that's how we think about it. Venkat, anything you want to add?

Let me add on both. First of all, on capital. I think as we've made clear, we've been in our planning up to now we had taken into account what we thought would be the increases coming from the Basel process. That's due to us in early January. And that's, as we said, 30 to 55 basis points. We had not in our planning process, as Anna just said, taken into account for this adjustment offset would be negative. So of course, net-net, this is a tailwind, as you point out. And then on the efficiency side, just to add context to Anna's answer, what I would say is, we have been investing in technology, we continue deeply to invest in technology, simplifying our processes, modernizing our infrastructure. And I would expect this to give results over time. And as we have clarity on it, we'll work with you.

Thank you, Jonathan. Can we have the next question, please?

Our next question comes from Alvaro Serrano of Morgan Sanley.

First one is on the Investment Bank. Obviously, you've called out, I think Venkat somewhat disappointing things the word you used. And you've also explained that the intermediation sort of activity was slower in the second half of the quarter. Is there something you could sort of help us when we think about going forward, is there any sort of particularly sort of bad sort of, I don't know, marks in the quarter that should bounce back? Or is it a reasonable run rate obviously, considering seasonality from here, maybe a bit of color on that sort of in particular big number, but maybe broader IB activity. And related to that, Anna, you mentioned that you were -- I can't remember the word you used, that you were leaning a bit more with clients and increasing the other ways to take over -- take advantage of opportunities. Is that going forward, would you be more open to give the division a bit more balance sheet and RWA growth?

Yes. Alvaro, thank you. Look, there's nothing in particular to call out. I think this was one of those quarters where in parts of fixed income in rates -- European rates, particularly and parts of credit, the intermediation was just a little weaker. We still think we've got a very good strong client franchise. We see that in the engagement in the numbers. It was just one of those things were just sort of weaker for a period. So nothing particular to call out. I mean, of course, we are giving this attention to try to understand what -- how to improve it. I would say also -- there are other parts of fixed income [indiscernible] products in which we've been investing a lot, which have done very well. So this is not a general fixed income story. It's parts of it. Our franchise continues to be strong, and we will do better. Anna?

Yes. Let me just add to that before I go into RWAs. So I completely agree with Venkat. The things I would add is what we're really pleased with, Alvaro is the areas that we've been investing in have done really well. So if you look at our performance in equities, if you look at our performance in M&A, if you look at our performance in ECM, they have benched very well with the U.S. peer group. And that would not always have been the case, and it's really reflective of the investments that we've made. And I think that diversification of income, particularly as we look forward into the fourth quarter is important. As to the leaning on clients, I mean, the RWAs in the Investment Bank have been broadly flat since 2022, actually well before the plan that we're about to complete started even. And they've moved between about [ 195 and about 205 ]. The thing that we called out that's perhaps a little bit different is we are nearing the end of the 3-year review of our Investment Banking Loan portfolio. So you are seeing us lean in a little bit more there in terms of U.K. Lending. And whilst outside of our target, that's completely consistent with our view of the U.K. So that's the only thing I would specifically call out are -- but thank you for the question.

Yes. And Alvaro, if I may, just sort of to pick up where and I left off. When you look -- now we're 11 quarters into this 3-year plan and you look at the Investment Bank, it has delivered exactly what we wanted it to deliver, outperforming in some respects. And puts us in a very good position. I mean, go back 11 quarters, we said we do three things. We said we increase the revenues in the Investment Bank. We keep capital flat, which Anna has just said, we've done for 5 years, and we improved profitability. And nobody thought we could do all three. And here we are, profitability approaching group levels at RoTE, revenues have gone up. The areas in which we've invested in, as Anna has said, equity capital markets, M&A and equities generally in financing, the structural improvements in stable revenue streams and in financing return per unit RWA. All of that has worked and we continue to maintain our ranks in spite of others investing more. And the overall thing about RWA or capital in the Investment Bank is we've always said it's a proportional game, right? And that proportion is infected in part by what we do the IB and part by what happens elsewhere. But in the IB, we stuck to our guns, GBP 200 billion of RWAs has been the average over 5 years, and the variation has been minimal, GBP 5 billion this way or that way. So this is playing out as advertised as desired, and it puts us in a good spot continuing forward.

Our next question comes from Chris Cant of Autonomous.

I just wanted to come back on capital, please. Appreciating that the greater than GBP 15 billion capital return guidance you gave at full year '26 was open ended. But I do think that was an area that somewhat disappointed the market in terms of the relative level of ambition on capital return versus the plan for '24 to '26. Given that you've been able to accelerate our investment plans because of the revenue surprises this year. So you're getting done what you hope to get done but more rapidly. And given that you've now got confirmation on Pillar 2, which I think, was foreseeable in terms of quantum, but it's not something you had banked in the plan. Now you can bank that. Will you consider revisiting that greater than GBP 15 billion capital return aspiration? Because I think the reason you left it open ended was you wanted to leave Slack in the plan for either potential M&A or potential accelerations in your investment plans. But in terms of M&A, given performance of the shares year-to-date, your acquisition currency may be a bit softer than you would like, I would assume. And in terms of the investment you've already been able to accelerate that. So is that something you'll consider revisiting alongside reconsidering the 13% to 14% range?

So thanks, Chris, for the question. So let me just recap on what we said at full year '25. The first was that we were planning at the top end of our range. because we had clarity on Pillar 1, but we didn't have clarity on Pillar 2 and other regulatory changes, like, for example, IRB. We are clearly in a different position now. So we do have that Pillar 2 clarity. We're very keen to get through Basel 3.1 implementation at the end of the year before we give further consideration to this point with you. The second thing that we called out was that we were very clear that if you took the capital generation in the plan, and the investments and the distributions in the plan, the capital generation was clearly bigger than the other two. And we said very deliberately that, that gave us flex in order to either return that excess to shareholders or alternatively invest it in the business, but that was a very, very high bar. Those -- that remains exactly the same. And our capital hierarchy is very clear, starts with regulatory follows with shareholder distributions, thirdly, investment in the business. So all of that remains as was the only new piece here is the Pillar 2A. So we will come back at the year-end, Chris, and we will talk about the range within which we operate. And you can see the focus that we have on returning capital to shareholders through the actions that we have taken, in distribution in this plan alone, but specifically in this year. I mean we're at [ 10.7% ] now, including the planned dividend that we have for the full year, and that's before we've done a full year buyback. So I'm not going to be pressed for an answer now, but we are clearly considering these matters, and we will come back to you.

Our next question comes from Guy Stebbings of BNP Paribas.

I want to come back on capital and costs, please. On capital, just in terms of Pillar 2, it's clearly very specific to the start of next year, where the RWA range is still a little bit wide. So I just wondering if you could maybe narrow that range at all or whether the fact that the Pillar 2A benefit is coming in a bit better than most anticipated, where that implies the RWA headwinds might be a little bit towards the upper end of that range at all? And then on the costs, thanks for the new disclosure and guidance. I also want to come back on the 2028 costs. I mean, before Q2 and the extra structural cost actions concerns, I've been assuming a '28 cost number [ sub18.4 billion ]. I mean if we use Slide 9 and the sort of building bottom, 'm just trying to understand whether it's sort of realistic to assume that efficiencies can more than offset the business growth and investments from the GBP 18.4 billion we start from in '27, if you like?

Thank you, Guy. I'll take the first one, and I'll start on the second 1 and then invite Vinkat to add. So, we've given you a Pillar 1 range, if you like, an RWA range just because reflecting on what I said before, Basel 3.1 is a big and complex change. And that range reflects the degree of litigation that we will be able to implement as we go through that transition. It doesn't relate to any specific FRTB point or anything, it's more broadly an implementation range, given its complexity. So we are being cautious at this stage. That's why we're saying we will speak to you at the full year. So I wouldn't narrow that range for you at this point. On your second point, recognizing 2028 costs, but also recognizing that consensus for 2028 is very wide. And what we would reiterate here is we do expect modest cost growth. We do expect the cost income ratio in 2028 to be in the low 50s. All of that remains intact. And what we're trying to help you here with is to understand that the way we are managing our cost is not by constraining investments, but by driving the operational efficiency of the bank in order to bring the run-the-bank cost down and create operating leverage. So that is our focus. You should assume that, that is going to continue into 2028. Venkat?

Yes, absolutely. That is our focus. We think that the promise of technology and our implementation of the technology is being realized. We think more will be realized and we are going to drive hard at that realization. So know that there is a great ambition and focus and discipline to bring to costs and cost efficiency, what you have seen in other parts of this plan in the last three years, which is business growth, customer service, capital discipline, revenue growth.

Our next question comes from Rob Noble of Deutsche Bank.

Another one on capital, I'm afraid. So just the opposite question. The U.S. CB moving to IRB. I think you say there's only going to be a minimal Pillar 2A change there. Is that -- why is that one smaller than the offsetting benefit that you get from from Basel? Or is that something that could come down over time as well? And then the leverage ratio as well. Should I expect the common equity Tier 1 component of the leverage ratio to come down? And could that potentially be binding you from going too low relative to 13%? And then lastly, just on the outlook with rates at the moment. Can you give us any color on what you think the rate curve will do the U.K. business specifically. I presume we shouldn't just reprice our hedges to higher rates. What do you think are the main potential offsets within the U.K. business from a higher rate environment?

Okay. Thanks, Rob. Look, in terms of capital and Pillar 2A with IRB. You might recall that in, I want to say, Q1 2025, the increase associated with this was about 0.1 of NDA. So we do expect it to be more modest or modest. And the reason I say that is this is much more BAU. This is much -- we're used to implementing these models. It's not the kind of big complex change that we see with Basel. So I definitely wouldn't scale them to try and get another Pillar 2A meaningful Pillar 2 offset here. That's certainly not what we are expecting. We might see something modest. To be clear, we've got nothing in the plan. So hopefully, that's clear. So just on the U.K. and the rates curve okay. So I'm going to answer your question by going in a different direction to start with. So bear with me. I think the thing that is most prevalent in the market at the moment is obviously competition around deposits. And we think that, that comes not from the structural hedge directly, but it's actually coming from the fact that there has been strong lending in the sector, you see pay down of TFSME. You also see some deposit takers who are not loan makers in this part of the sector. And what that's doing is putting a bit of funding pressure into this area, and that's manifesting in two ways. One is more covered bond issuance and the second is intense competition around term deposits. So that's what we believe is happening. We would see that as being not transitory given what I've described. So what does it mean for us? Well, we're in a slightly different position because clearly, what we are doing here is we have a different funding reality. This business has a loan-to-deposit ratio of 90%. It has an LCR last time we reported it of about [ 167. ] So it has really good liquidity levels. but we will lean in because we are -- we see the relationship and the ongoing relationship of deposits being really important here. But that means we can be more selective, if you like, more disciplined. And of course, from our perspective, we have a very, very powerful structural hedge. So what you are seeing at the moment is that we're able to balance these things in a few ways. So firstly, our focus on deposits is not just on term deposits. It's actually more broadly across the relationship. And you can see that in the growth in our premier current tickets. That's really important. Secondly, as we approach the fixed-term market, we're approaching it through the lens of relationships. So about 90% of our growth year-to-date in ISIS is from Premier. So we're being able to be very, very disciplined there. And also, that's allowing us to balance the margin impact, if you like, on the business as a whole. And that's why you're seeing a broadly stable NIM, it's moving around a little bit, but we're being able to contain that point. So I wouldn't drop the upside and the structural hedge straight through to the bottom of your calculation, there will be some offsets here and it's coming from increased funding costs, which are prevalent across the industry. But for those banks who have more liquidity and who have that more powerful structural hedge, they will fare better in this environment. Okay. Sorry. On the leverage ratio, I mean, not really is the easy answer to that question. Venkat's just reminding me before I go on to the next question. But, thank you Rob, can we have the next question, please?

Our next question comes from Perlie Mong of Bank of America.

So just picking up a little bit more on the U.K. maybe. So thank you for the color you've given just now. But if I look at Slide 6, it does look like this continued mix shift between the savings accounts and time deposits, and that's consistent with the sector data we have seen. And I think in the last few weeks and months, we have maybe seen more competitors coming in, [indiscernible] and resin and also NS&I may be stepping up a little bit more as well. So what are you seeing in terms of the front-end trend in terms of the deposit market? And I think you said that an increase in hedge in October would reduce the product margin next quarter. So what is the underlying product margin you're expecting excluding that effect? So that's number one. And second question is on the U.S. CB. I think the higher benchmark rate is maybe a GBP 20 million headwind in non-NII. I suppose even if we were to add back, total income is still a little bit low where Q1 was. And I think at the time, you said that it was not wouldn't be a bad guide to use Q1 as a guide for the rest of the year. So what are the moving parts there? And how should we think about that line going forward?

Okay. Perlie, I'll take those. So what you see in Barclays U.K. is that clearly, there is growth in total deposits, but current accounts are absolutely flat and have been for some considerable time. And actually, there's a slide in the back of the deck. It's in the appendix that you can have a look at there. So I think what you're seeing is intense competition, as I've said, but you're also in terms of fixed term deposits, but somewhat churn within fixed-term deposits as opposed to migration out of current accounts. In terms of product margin, we are not guiding to NIM at all. And all we were calling out is that flight path of that chart is actually quite difficult to interpret because to the extent that we increase the size of the structural hedge, that means that, that income is coming out of product margin and going into the structural hedge bucket. That's the only thing we're warning you about net 0 impact on margin. I would remind everybody, though, that particularly given the new disclosure that we've given you today, our deposit story is much broader than U.K., particularly across the U.K., and you can see that in the strength of our corporate deposits. And equally, you can see there the stability that we have in the underlying operational accounts or current accounts, if you like, within corporate. So very, very similar story there. An ongoing increase in deposits, but real stability in the core. Your second question, which is about the roughly GBP 20 million headwind. I mean, what we said at the beginning of the year was we expected to build back by the end of the year to broadly the same sort of level as we saw in Q1. The only difference that we are calling out is in relation to the sold prices on Best Egg, everything else remains the same. So we've got good underlying organic growth in cards. They're growing at about 6%, exactly the same as we're seeing in the U.K., actually. Best Egg originations were GBP 2 billion in the quarter. We said it would be GBP 7 billion over the year. So all of that loan origination, the NIM is at 13.7%. Deposits are up by 15% year-on-year. So all of those factors are playing out exactly as we said.

And impairments are well-behaved.

And impairments are very well behaved, actually. I mean, they're flat despite the fact that AAA has left the platform, and we would have expected that to have about a 30 basis point impact. So the only thing we are calling out that is different, Perlie, is that GBP 20 million. So hopefully, that gives you a good guide.

Our next question comes from Chris Hallam of Goldman Sachs.

Within financing in the -- is it possible to provide the split of growth or of revenues between equities and FICC mentioned on Slide 29, I think it is that 90% of the equities growth year-to-date has come by Prime and derivates. Therefore, it seems as though fixed financing must have been particularly weak in Q3. And I'm wondering how much of that would have been the conditions you've lagged in late September versus a proactive decision, if at all, to reallocate capital between [indiscernible] equities? And then mindful of the group revenue target for this year, would you be able to tell us whether those conditions persisted into November and how we should think about fixed seasonality to trend in Q4 this year versus the typical pattern we can see from prior years? The second question, the small box you have on Slide 10. I think that's probably one; of the clearest call-outs we've had in the sector on the tangible benefits of AI-enabled savings. And it feels like the opportunity set basically shifted higher probably between February and July, which partly explains the additional [indiscernible] so looking ahead, is the annual efficiency opportunity you see now in 2028 also greater than perhaps it was earlier this year?

Okay. Chris, I'm going to start, then I'm going to hand to Venkat and then I'll pick up on Slide 10, and I'm sure he'll have something to say as well. So just -- I mean, I think like most participants in the industry, most of the growth in financing has come from Prime. We've also seen a very a very strong performance in equity. So I wouldn't attribute all of the growth to Prime. This really isn't a capital matter. This is Prime and fixed income financing and leverage heavy not capital heavy. So capital would not be in consideration here. Venkat, do you want to talk about it?

Yes. So Chris, I mean, the way I think about it, just is in to a couple of things. First of all, financing revenues grew because of relationships because that's really, really important. You have to get on somebody's financing platform. As we said, 98 of our top 100 clients have a financial relationship with us. Defining relationship is strong both in equity and in fixed income. We've been one of the top income financial years forever and ever. And we continue to retain that market position. So that's structural. Capability, the relationship with the client and for us, differentiating is we look at it as one. So the client has one offering which they received from us as opposed to different sales people coming in with different offerings. Tax structure. Then cyclically or seasonally, what you get is what's happening in the equity market, what's happening in proportions of the equity market, over time, people have called out what's been happening in semiconductor stocks, what's been happening in Asian equities. And those are things that seasonally come up and down. And in fixed income, it is levels of rates and types of spreads. And therefore, what are people trying to borrow and lend. So what I would expect coming into the fall, it's very hard to say. Equity market volatility can certainly cut both ways in terms of how people want to borrow. And I think in fixed income, what you've got is greater interest because of some greater spread [indiscernible] than you've seen in a long, long time, which should coming off the low basis has had increased interest and rate higher and that should help. But these are very crude way to describe it.

Okay. So let me start on Slide 10. And then I'll ask Venkat to comment. I mean, what you see here is that we've got pretty good cadence, Chris going, where we've been spending typically around GBP 300 million getting about GBP 700 million back. That's because the growth efficiencies that we are targeting relate in part to people actions over the last couple of years, but also sort of more general process improvements, et cetera, which have fewer costs associated with them. I think more specifically to your question, Look, the changes that we are making in the third and fourth quarters of this year are sizable in terms of the impact. They relate both to the simplification of the organization and to some of the impacts that we're starting to see from AI. So I would say that they are very large in comparison to what we've previously sort of undertaken. So I wouldn't necessarily expect that to repeat nor indeed the FDA, as you can see in our cost disclosures. But I think what we are seeing is that the technology opportunities here continue to indicate that there are further things that we can do to make the organization much, much more efficient. And Venkat, you might want to pick.

Yes. I think there's a confluence of a couple of things happening here. One is what Anna has just said, the technology opportunity set has increased and its capability has increased. Second is, what do you have to do to harness. To harness that you have to build the infrastructure to improve your processes, modern technology, framework, simple hypothesis. Now that requires perseverance and investment, which we've been putting in. And given the capital generation which we've had, given the success of the plan so far, that has given us both the capability and the will to make those investments. So what you're seeing is technology being able to deliver more, AI sits on top of this technology. You've seen the capability financially and otherwise to make the investment and will to do it in a sustained way. So we've presented today what we've done for 2026, and we'll continue to persevere [indiscernible] at this over the next few years.