Daniel David

Daniel David from Autonomous Research asked about the expected timeline for HSBC's CET1 ratio to return to its target range post-Hang Seng privatization, the drivers behind the significant increase in MREL requirements, and a breakdown of Hong Kong CRE ECL charges, distinguishing underlying charges from macro-related upgrades.

Answer

Faisal Yousaf, Group Treasurer, stated that while the Hang Seng privatization caused a 110 basis point drop, HSBC expects to recover its CET1 ratio into the 14%-14.5% operating range fairly quickly due to strong capital generation, with no change to the previously announced suspension of share buybacks. Greg Case, Head of Debt Investor Relations, attributed the MREL requirement increase primarily to growth in leverage assets for certain leverage-constrained entities. Alastair Ryan, Global Head of Investor Relations, clarified that Hong Kong CRE saw modest deterioration in H2, with deleveraging by strong borrowers. He noted that macro-related upgrades, driven by improving market conditions like better retail sales and property transactions, broadly offset single-name charges in the quarter.

Daniel David (Autonomous Research) asked about the expected timeframe for HSBC's CET1 ratio to return to its target operating range (14-14.5%) following the Hang Seng privatization, the drivers behind the 60 basis point increase in MREL requirements, and a breakdown of underlying versus macro-related upgrades impacting Hong Kong Commercial Real Estate (CRE) ECL charges in Q4.

Answer

Group Treasurer Faisal Yousaf stated that while the Hang Seng privatization caused a 110 basis point drop, he expects a quick recovery into the CET1 target range due to strong capital generation, reiterating the suspension of share buybacks for up to three quarters. Head of Debt Investor Relations Greg Case explained the MREL increase was primarily driven by some entities being leverage-constrained, leading to growth in leverage assets. Global Head of Investor Relations Alastair Ryan detailed that Hong Kong CRE saw modest deterioration, with strong borrowers repaying and one material Stage 3 loan in Q4. He noted that revised economic assumptions, reflecting improved market conditions (retail sales, tourism, property transactions), broadly offset single-name charges.

Daniel David from Autonomous inquired about any ceiling on AT1 outstanding for deploying leverage in lucrative businesses, whether a review of the leverage framework is warranted, and if Barclays might become more aggressive with its CET1 ratio, potentially moving to the lower end of its target range.

Answer

Dan Fairclough, Group Treasurer, stated that the AT1 quantum is currently at the right level and no material change is expected. He supported the FPC's focus on reviewing the leverage framework, agreeing that it has become a front-stop measure for UK banks. Anna Cross, Group Finance Director, clarified that operating at 14% CET1 reflects anticipation of regulatory changes (Basel 3.1 and IRB implementation in 2027) and not a shift towards more aggressive capital management. She emphasized that the capital hierarchy remains disciplined, with a decision on where to operate within the 13%-14% range to be made only after regulatory clarity.

Daniel David from Autonomous inquired about Barclays' potential ceiling on AT1 outstanding for deploying capital in lucrative businesses, whether a review and relaxation of the leverage framework is warranted, and what specific events or regulatory changes might lead the bank to operate at the lower end of its CET1 target range.

Answer

Group Treasurer Dan Fairclough stated that the AT1 quantum is at about the right level and supported a review of the leverage framework, noting that leverage has become more of a front-stop measure for UK banks. Group Finance Director Anna Cross clarified that operating at the higher end of the CET1 range is due to anticipated regulatory changes (Basel 3.1, IRB implementation in 2027) and not a shift in discipline, emphasizing the capital hierarchy remains intact.

Daniel David from Autonomous Research inquired about Barclays' target level for Significant Risk Transfer (SRT) trades, their impact on loan pricing, and the potential CET1 impact if they couldn't be rolled over. He also asked for opinions on easing regulatory requirements and the likelihood of operating at the lower end of the CET1 target range.

Answer

Daniel Fairclough, Group Treasurer, stated that the SRT program is at a mature scale and is considered a risk management tool, not a factor in individual loan pricing. He affirmed the bank's intention to operate in the upper half of its 13-14% CET1 target range for a sufficient comfort buffer. Anna Cross, Group Finance Director, added that Barclays advocates for a holistic regulatory view that considers how capital rules, stress testing, and leverage requirements interact.

Daniel David of Autonomous Research questioned Barclays' strategy for Significant Risk Transfer (SRT) trades, including target levels and their impact on loan pricing. He also asked about potential areas for easing capital requirements and the bank's comfort with operating at the lower end of its CET1 target range.

Answer

Daniel Fairclough, Treasurer, clarified that the SRT program is at a mature scale and is used as a risk management tool, not to influence initial loan pricing. He affirmed the bank's intention to operate in the upper half of its 13-14% CET1 target range, viewing it as a sufficient buffer. Anna Cross, Group Finance Director, added that Barclays engages with regulators on how various regulations, including stress testing and leverage, should fit together as a whole.

Daniel David of Autonomous Research asked about NatWest's future issuance plans, focusing on the potential currency for AT1 debt and whether the lack of Euro issuance reflects lower demand. He also inquired about the CET1 target buffer and if it might increase should the UK's countercyclical buffer be reduced.

Answer

Group CFO & Director Katie Murray stated that the CET1 target is reviewed regularly in response to regulatory changes, but the bank has no specific insight into potential changes to the countercyclical buffer. Treasurer Donal Quaid added that issuance currency is driven by pricing, with dollars and sterling currently most attractive for AT1, and that the lack of Euro issuance is a matter of relative cost, not a reflection of reduced European investor demand.

Daniel David of Autonomous Research inquired about NatWest's future issuance plans, focusing on the potential currency for H2 AT1 issuance and whether the scarcity of Euro AT1 from UK banks reflects reduced investor demand. He also asked if the CET1 target buffer might increase if the UK's countercyclical buffer is lowered.

Answer

Group CFO & Director Katie Murray stated that the CET1 target is reviewed regularly in response to regulatory changes and the bank's own risk profile, but offered no specific prediction on the countercyclical buffer's future. Treasurer Donal Quaid addressed issuance, explaining that currency choice is driven by pricing, with dollars and sterling currently most attractive for AT1. He suggested the lack of Euro issuance is a function of relative cost, not a specific decline in European investor demand.

Daniel David from Autonomous Research inquired about the U.S. Commercial Real Estate (CRE) portfolio, asking for current figures on modified loans and cumulative provisions. He also asked whether the bank would need to issue new AT1 capital to call an upcoming security or if it could be called outright.

Answer

CFO James von Moltke stated that the CRE portfolio's cumulative credit loss allowance is now €700 million, with modifications slowing as maturities are addressed. He confirmed the bank is actively managing the portfolio through extensions, refinancings, and selective sales. Group Treasurer Richard Stewart addressed the AT1 question, explaining that market conditions and a positive FX impact make a call likely. He noted a decision on whether to replace the instrument is part of an ongoing planning process and will be communicated later.

Daniel David from Autonomous Research inquired about the U.S. Commercial Real Estate (CRE) portfolio, asking for the current figure for modified loans, the cumulative provisions, and the drivers behind the book's reduction. He also asked about the upcoming AT1 security call, questioning whether the bank could call it outright or if it would need to issue a new AT1 instrument to facilitate the call.

Answer

James von Moltke, President and CFO, addressed the CRE questions, stating the cumulative credit loss allowance is €700 million and that the portfolio is being managed down via paydowns, charge-offs, modifications, and potential loan sales. Richard Stewart, Group Treasurer, handled the AT1 query, explaining that while a decision on replacement is pending, market factors like reset levels and FX impact make a call likely. He confirmed the bank is still assessing its capital needs to determine if a replacement issuance is necessary.