Barclays - Q3 2023

Transcript

Operator (participant)

Welcome to Barclays Q3 2023 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.

C.S. Venkatakrishnan (Group CEO)

Good morning. Thank you for joining Anna and me on today's third quarter results call. Against a background of mixed market activity and a competitive environment for U.K. retail deposits, the group generated income of GBP 6.3 billion in the quarter, down modestly year-on-year, excluding last year's impact from the overissuance of securities. Our profit before tax was GBP 1.9 billion, with earnings per share of GBP 0.083. We maintained a strong capital position with our CET1 ratio at 14%, up around 20 basis points on the second quarter and at the top of our target range. In this context, we delivered a third quarter return on tangible equity of 11%, taking us to 12.5% for the year-to-date, and we continue to target above 10% for the full year.

We are managing credit well, with year-to-date loan loss rate of 43 basis points, versus our through the cycle guidance of 50-60 basis points. Costs reduced by 4% in Q3 year-on-year, excluding overissuance costs last year, and in Q4, we will continue to drive further efficiencies and greater productivity for the bank. We expect this to continue to contribute to delivering enhanced returns for shareholders. We will update you on these and other actions alongside our full year results in February. Now turning to the business highlights. We continue to grow our U.S. Cards business, with end net receivables up 11% year-on-year at $30 billion, and we announced a new partnership with Microsoft and Mastercard to issue Xbox's first-ever co-branded card in the U.S. The integration of our U.K. Wealth business and our Private Bank is also progressing well.

We grew clients' assets and liabilities to nearly GBP 180 billion and invested assets to around GBP 105 billion, with this business making nearly GBP 900 million of income in the year to date and generating attractive returns. In Investment Banking, we led some prominent transactions in this quarter, including the Arm IPO in the U.S. However, in the mixed market environment, we've had pockets of underperformance relative to U.S. peers. In part, this has reflected our business composition. We performed well in equity capital markets, which is a smaller business for us relative to others. We were also selective on leveraged finance deals as a risk management matter, which has affected our debt capital markets performance. We continue to be cautious about the market backdrop, but are confident in the potential of our business.

As an example, we are acting as sole financial advisor to Capri in their $8.5 billion acquisition by Tapestry, announced in the third quarter and expected to close in 2024. In markets, this was our second highest Q3 income print in a decade, with income off 4% quarter-on-quarter, better than the U.S. peer average. However, income was down 13% against a record Q3 last year on a comparable basis, in which we supported clients through extreme volatility in gilts in our home U.K. market. This quarter, we did not benefit to the same extent as our U.S. peers did from the volatility in U.S. rates. As we have said previously, investment in our combined fixed income and equity financing business delivers stability to our overall markets income.

Over the past four years, our ranking in equity prime brokerage has moved up from 7th rank to joint 5th, complementing our existing strength in fixed income financing, where we ranked jointly 1st globally for the first half of 2023. Turning now to Barclays U.K., we delivered a ROTE in the business above 20% for the quarter. Both income and expenses were broadly stable, generating a cost income ratio of 56%, and we intend to improve this over time as we continue to transform the business digitally. There has been an impact on our deposits and margins from retail customers seeking a higher return on their savings, which Anna will cover in more detail. However, at the group level, deposits were up GBP 7 billion quarter-on-quarter, demonstrating the strength of our diversified deposit and funding base.

Our performance over the past three years compared to the previous five, shows that we have reset and stabilized group returns, providing a solid foundation on which to build even further. Anna and I look forward to providing an investor update in February alongside our full year results, where we will talk more about our plan to deliver further value to our shareholders. This will include setting out our capital allocation priorities, as well as revised financial targets for costs, returns, and shareholder distributions. We have just completed the GBP 750 million buyback announced at the half year, taking total shareholder distributions to around GBP 1.2 billion so far this year, including dividends and buybacks. This is up over 30% on the first half of last year and reflects our commitment to returning capital to shareholders.

Thank you for listening, and I will pass it on to Anna now.

Anna Cross (Group Finance Director)

Thank you, Venkat, and good morning, everyone. Turning now to slide six. Return on tangible equity for the third quarter was 11%, which takes us to 12.5% for the year-to-date. The cost income ratio was 63% in Q3, and 61% for the nine months, in line with our low 60s guidance for the full year. We continue to see limited signs of credit stress, as the loan loss rate for the quarter was 42 basis points and 43 for the nine months. We have maintained strong capital and liquidity positions. As you just heard from Venkat, we will update you with revised financial targets at an investor update alongside our full year results. As part of this update, we are evaluating actions to reduce structural costs, which may result in material additional charges in Q4, impacting this year's statutory performance.

Excluding any such charges, we continue to target a ROTE above 10% for the full year. Focusing now on Q3, starting on slide seven. There was no impact from the overissuance of securities this quarter, but given the largely offsetting impact to income and costs in Q3 last year, I will again use the adjusted numbers for the prior period. Group profit before tax was around GBP 50 million lower at GBP 1.9 billion, with income down 2% and costs down 4% year-on-year. Within total costs, operating costs were stable, and there were no litigation and conduct charges this quarter compared to GBP 164 million in Q3 last year. Impairment charges were up GBP 52 million to GBP 433 million, with a charge and business mix as we expected, largely driven by growth in U.S. Cards.

Guy Stebbings (Executive Director of European Banks Research)

TNAV now increased GBP 0.25 to GBP 3.16, reflecting our profits and positive cash flow hedge reserve movements, broadly offsetting last quarter's downward move. As usual, I will now cover the three key drivers of our return, namely income, costs, and credit risk management. Starting on slide eight. Group income was down 2% at GBP 6.3 billion. The 8% stronger sterling U.S. dollar rate in Q3, year-on-year, reduced our reported income, around 40% of which is in dollars. CIB income fell 6%, with lower activity in the Investment Bank, partially offset by corporate income growth year-on-year. Consumer, Cards and Payments income was up 9%, driven by growth in U.S. card receivables and the U.K. Wealth business transfer from Barclays U.K. in Q2.

Anna Cross (Group Finance Director)

Excluding the transfer, CC&P income was up 5% and Barclays U.K. income was up 1%. Net interest income across the bank grew by GBP 179 million or 6% year-on-year, driving a 13 basis point increase in group NIM to 3.98%. Barclays U.K. contributed around half of group NII this quarter, with approximately 20% from CIB and 30% from CC&P, mostly U.S. Cards and the Private Bank. The U.K. NII was GBP 17 million higher year-on-year, with NIM of 304 basis points below where we anticipated at Q2, which I will come back to when I cover Barclays U.K. CC&P NII increased by GBP 64 million, mainly from U.S. card balance growth, partially offset by private client deposit migration to our higher yielding products.

This generated NIM of circa 8.9% in Q3, which was up from circa 8.3% at Q2, and included a small one-off increase in Private Bank, so we would expect NIM to step back a little in Q4. CIB NII increased GBP 94 million year-on-year, which included an improvement of 9 basis points to 3.65% in NIM, driven by the benefit of rate rises in transaction banking. Moving on to costs on slide 10. We are delivering our operating cost guidance, with costs in Q2 and Q3 of around GBP 4 billion below the Q1 high point. The cost income ratio improved year-on-year to 63%, consistent with Q2. Barclays U.K. cost income ratio was 56%, with total costs flat year-on-year as we progressed our digital transformation and rationalization of the physical footprint and headcount.

Consumer, Cards and Payments operating costs increased by 9%, broadly in line with income as we invested to grow U.S. Cards and our Private Bank. CIB operating costs were stable year-on-year and below the Q1 levels as guided. As we said, we are evaluating actions to reduce structural costs across the group, and we'll give more detail at our investor update. Moving on to credit on slide 11. We are seeing the benefit of our long-standing prudent approach to provisioning, both in terms of credit decisions we have taken in the past, reflected in our balance sheet provision and coverage ratios, as well as the credit protection we have in the CIB. The impairment allowance increased by GBP 0.3 billion to GBP 6.4 billion. This was primarily driven by our U.S. card portfolio, in line with our expectations.

We updated the macroeconomic variables from Q2, resulting in a modest impact on expected credit losses. We maintained robust coverage ratios of 1.4% for the group and 8.6% for our card portfolios in aggregate, which I'll cover in more detail on the next slide, starting with U.K. cards. We continue to see conservative customer behavior across our U.K. portfolios, and credit performance remains benign. Customers are being disciplined about building unsecured balances, with U.K. card repayment rates high across the credit spectrum. Although we have grown balances modestly over the past year, interest earning lending balances have decreased, impacting NIM, but benefiting credit performance. We do expect IELs to grow in 2024, as our more recent customer acquisition activity begins to mature. 30-day arrears rates remain stable and low relative to historic levels. The nature of our U.S. Cards proposition is different.

As a reminder, we are the partner card issuer for around 20 client rewards programs, including some of the biggest brands in the U.S. Given our historic skew to travel and airlines, this is a high credit quality portfolio. Our risk mix has improved since the end of 2019, with 88% of the book above a 660 FICO, compared to 86% at the end of 2019, including the addition of the Gap portfolio in 2022. On the chart, you can see that 30-day arrears rates are now in line with our pre-pandemic experience at 2.7%, as we expected. Our impairment coverage also increased to 9.7%, with stage two now at 35%, reflecting our expectation of higher unemployment from September's low level of 3.8% to a peak of 4.4% by Q3 2024.

This would, of course, result in an increased arrears, which are reflected in our balance sheet provisioning. Moving on to the impairment charge on slide 13. The impairment charge of GBP 433 million was up around GBP 50 million year-on-year, giving a loan loss rate of 42 basis points. Most of the Q3 charge was driven by growth in U.S. card balances, continued seasoning of the Gap book in line with expectations, and the increase in arrears that I mentioned. Our guidance of 50-60 basis points through the cycle is higher than the year-to-date experience. We are mindful that Q4 usually sees a higher charge, in part reflecting seasonality and our expectations of U.S. Cards growth over the holiday season.

This generally leads to higher balances and some build in impairment under IFRS 9, where increased utilization, even by customers who are making timely payments, can trigger stage two migration. The Barclays U.K. charge was GBP 59 million, with a loan loss rate of ten basis points, and this has been below 30 now for nearly three years. Even though our customers are experiencing affordability pressures, this is not translating into credit stress as they manage their finances proactively. The CIB had a small release, and we are seeing no real observed credit deterioration, with our synthetic credit protection also working well. Moving now to the business performance, starting with Barclays U.K. on slide 14. Profits were stable year-over-year, with ROTE of 21% for the quarter. Excluding the U.K. Wealth transfer, income was up 1%.

Costs were broadly stable as our transformation plan progressed, resulting in a cost-to-income ratio of 56% for the quarter. Loan growth remains muted, reflecting customer caution in the current macroeconomic environment and our prudent risk positioning. The reduction in business banking assets was driven primarily by repayment of government-backed loan schemes of GBP 2.7 billion. Mortgage balances were stable in the quarter at GBP 166 billion, with remortgaging still contributing most of the activity. Now looking at the U.K. NIM, which was 304 basis points. As a reminder, the U.K. NII is around 25% of group income, and one basis point of NIM equates to around GBP 20 million of NII annualized or less than 0.1% of group income. At Q2, we said that we expected NIM to step down from Q3 and then to stabilize into Q4.

Most of the moving parts played out as expected in Q3, with structural hedge tailwinds continuing and mortgage margin pressure somewhat easing. The impact of base rates was also in line, given pass-through rates have increased. However, the step down in NIM in Q3 was larger than expected, with deposit balance and mix trends more pronounced. Average balances quarter-on-quarter actually contributed a larger deposit effect than period-end balances we have shown on the slide. When combined with pricing effect, this reduced NIM by a net 21 basis points compared to a net 6 basis points in Q2. You can see that we grew deposits during the pandemic by GBP 53 billion to GBP 258 billion by the end of 2022, as customers built up cash with us in their current and instant access accounts.

We anticipated that these balances would fall as customers managed their finances proactively, paying down debt and locking in high yields on their residual savings. Our current account moves appear in line with the latest Bank of England industry data, but intense competitive pricing meant we did not capture as much of the flow into higher rate products. We emphasized at Q2 how sensitive guidance is to the level and mix of deposits, and this remains the case. We now guide to a range of 305-310 basis points for the full year. To help frame this, if we see similar trends in Q4 as we did in Q3, both in terms of mix and volume, full year NIM would be towards the top end of this range. Turning now to structural hedge income, 2/3 of which accrues to Barclays U.K.

Slide 16 illustrates the importance of the hedge to the level and visibility of our future net interest income. The hedge is designed to reduce volatility in NII, so in an environment where rates are peaking and eventually start to fall, it will help to stabilize NIM. It also provides a high degree of certainty to future NII. The chart shows that 95% of 2023 growth hedge income is already locked in, and the next two years, portions of locked-in NII have increased by GBP 300 million-GBP 400 million per year since H1, as we rolled a further quarter of hedge maturities. Notional hedge balances reduced by GBP 4 billion in Q3 to GBP 252 billion. Given the trends we are seeing in retail deposits, we expect the notional balance to continue to reduce more or less in line with lower hedgeable deposits.

Swap rates, currently at around 4.5%, means reinvestment rates remain well above maturing yields of around 1%-1.5% for the next two years. And with GBP 50-GBP 60 billion of hedges maturing annually over this period, we expect the reinvestment effect to outweigh notional hedge declines. Turning now to Consumer, Cards and Payments on slide 17. Growth in our U.S. card balances and the U.K. Wealth transfer drove a 9% increase in CC&P income, partially offset by FX. We grew U.S. card balances by 11% year-over-year to $30 billion. In the Private Bank, total invested assets were GBP 105 billion, up 27%, excluding U.K. Wealth, as clients moved deposits to money market funds and other investments with us.

Payments income was modestly down year-on-year as customers adjusted their spending to lower value essential items, which have lower margins, offsetting the 9% increase in payments processed. ROTE was 9.6%, reflecting both higher income and operating costs year-on-year as we grow these businesses. Moving on to the CIB. CIB income fell 6% year-on-year in sterling terms, in part reflecting the stronger sterling U.S. dollar rate. The more stable elements of our CIB income performed as we expected. In markets, the relative stability from our combined fixed income and equity financing businesses was visible again, compared to the downward move in intermediation. Corporate delivered strong year-on-year income growth, reflecting higher rates in transaction banking and the non-repeat of leveraged finance marks this time last year in corporate lending.

As you heard from Venkat, markets were down 13% in dollars versus a record third quarter in 2022. FICC fell 19% in dollars, as we benefited less from U.S. rates volatility compared to gilt volatility in the U.K. this time last year. Fixed income financing income reduced due to a normalization of inflation-linked benefits, as we have mentioned previously. And we have smaller and securitized products, which was an area of strength for some of our peers. Equities was up 3% in dollars, as derivatives and cash performance was partially offset by equity financing as client balances continued to grow, albeit as spreads tightened. Banking fees were down 24% year-on-year, with a better performance in ECM, not sufficient to offset weaker DCM and advisory, given the relative scale of those businesses for us.

Combined with stable costs and a small impairment release, ROTE was 9.2%, which even in a mixed quarter like this one, does not reflect the potential of our franchise. CIB RWAs were relatively stable, with the increase to GBP 219 billion on Q2, largely driven by FX. Turning now to capital funding and liquidity, starting on slide 19. We continue to maintain a well-capitalized and liquid balance sheet with diverse sources of funding and a significant excess of deposits over loans. Looking at these metrics in more detail, starting with capital on slide 20. Our CET1 ratio increased around 20 basis points to 14%. Attributable profit generated 37 basis points, totaling 128 basis points over the last three quarters.

As we indicated previously, our MDA hurdle increased to 11.8% from the increase in the U.K. countercyclical buffer, and we continue to operate with ample headroom. While Basel 3.1 remains at proposal stage, we continue to guide to the day one RWA impact to be at the lower end of the 5%-10% range. This reflects what we see from all the proposals across the jurisdictions we operate in, including the U.S. As a reminder, the PRA's rules remain the most relevant on a group consolidated basis. Our total deposit position remains stable as we have a diverse deposit franchise across consumer, U.K., and international corporate customers.

Within that, the decline in the U.K. deposits that we discussed earlier was more than offset this quarter by inflows from global corporates, and this places us in a strong position to manage seasonal fluctuations that we often see around year-end from balances held for financial sector clients. Our LCR of 159% represents a surplus of GBP 116 billion above our minimum regulatory requirements. We continue to be comfortable with our liquidity position, and we have demonstrated its robustness throughout the market disruption earlier this year. So concluding with our outlook, we are evaluating actions to reduce structural costs to help drive future returns, which may result in material additional charges in Q4, impacting this year's statutory performance. Excluding any such structural cost actions, we continue to target ROTE above 10% in 2023, and a cost income ratio in the low 60s.

Our loan loss rate guidance remains 50-60 basis points. This is higher than the year-to-date experience, allowing for some potential seasonality in U.S. Cards in Q4. As of now, we are not seeing anything that concerns us, and we would view the guidance as a through the cycle range. Our CET1 ratio was at the top end of our target range, and strong capital generation in the year-to-date supports our commitment to return capital to shareholders. We will provide more detail at an investor update of our full year results in February, including our capital allocation priorities and revised financial targets. Thank you for listening. We will now take your questions, and as usual, please limit yourself to two per person, so we get around to everybody.

Operator (participant)

If you wish to ask a question, please press star followed by one on your telephone keypad. If you change your mind and wish to remove your question, please press star followed by two. Our first question today comes from Alvaro Serrano from Morgan Stanley. Please go ahead. Your line is now open.

Alvaro Serrano (Managing Director)

Hi, good morning. A couple of questions, please, on... First one, pricing on U.K. NIM. Your guidance, I think I understood the top end of the guidance, the 310 assumes a similar sort of deposit trend as in Q3. I guess your guidance implicitly says that things could get worse in Q4 in terms of mix and volumes. Can you maybe sort of explain what happened during Q3, and why have you given yourself some room for deteriorating trends? I think most of the guidance from your peers and maybe even yourselves was that once the rate sort of hikes were over, you would see much more stable deposits. So interested to see why you've left yourself some room for deterioration.

Second point, second question is on the restructuring charge in Q4. Obviously, your 10% ROTE guidance is now ex this restructuring charge. The question is, how much is that going to interfere with the payout and with buybacks that you may announce at the end of the year? Because I would have thought, given the provisions are going much better than expected, you would have had plenty of room to cover potential restructuring without going into your ROTE guidance, but that doesn't seem to be the case. Maybe how should we think about year-end distribution? Obviously, capital is going better, but more restructuring costs, maybe sizing that restructuring cost would be helpful. Thank you.

Anna Cross (Group Finance Director)

... Alvaro, good morning, and thanks for starting off the questioning. I'll take the first one, and then I'll pass to Venkat for the second half of that. So, let me just talk through U.K. NIM in the third quarter, and just to level set and reiterate what I said on the call, a basis point of NIM is GBP 20 million annualized, less than 0.1% of group income. What we said at Q2 was that we expected NIM to step down in the third quarter and somewhat stabilize into the fourth. There were a few moving parts within that, and much of it is played out as we expected. So we've seen a lessening of the impact of mortgage churn. We've seen a continued tailwind from the structural hedges.

Actually, deposit pricing played out roughly as we expected, and you can see that that's negative in the quarter for the first time, as we indicated it might be. What's really different is the movement in deposits. And what I said on the call earlier was that actually the movement in average deposits is a bit more significant than the quarter end might indicate. And while we saw very similar trends to the overall Bank of England movement in current accounts through the quarter, we captured less of that into fixed-term deposits than we might have expected to, and that related purely to the intensity of competition that we saw during the quarter and, you know, very intense at particular points. And it's really that that's made the difference. So I would say it's depositor behavior that has somewhat intensified in response to pricing.

So previously, we said that we expected that to be more stable in Q4, and that's simply because in Q4, you typically see a deposit stabilization pre-Christmas. We now no longer anticipate that just because of these competitive dynamics, and that's really what's causing us to change that outlook. We're not saying that it will be better or worse in the fourth quarter. I think what we are saying is that this customer deposit behavior has been relatively difficult to predict, and that's why we're giving you a range, but indicating to you that if we saw something similar, that would be towards the top of that range. So that, that's the reason for the change in guidance. Venkat?

C.S. Venkatakrishnan (Group CEO)

Yeah, thanks, Anna. And Alvaro, I'm sure you sort of caught this through the presentation, but just to add on, on the NIM point for one minute. You know, overall group deposits, as Anna said, B.U.K. NIM is part of our overall NIM. Our overall deposits grew about GBP 7 billion quarter-on-quarter, and our NII is up about 6% year-on-year at GBP 3.2 billion, and NIM itself is 3.98% at the group level. Again, 13 basis points higher. So Anna, you know, to think about in the larger context. And also coming back to the restructuring charge, two things I would say. One is you should think of this structural cost action as in part of the investor update, which we will provide in February. So what this is, is we have to announce it now because it's...

You know, as we work through it, we will likely take a charge in Q4. That's why we announce it now. But you should think of it as not something related to a quarter or the last two quarters, but part of the larger restructure, you know, structural improvement of efficiency and productivity for the bank. As for your specific question, what I would say is a few things. Number one is that we very deliberately start this, this quarter at a strong capital position of 14%, and we've got a capital generation of about 130 basis points of CET1 ratio year to date. This underpins our ability to return capital to shareholders.

As far as our desire, you know, we completed a GBP 750 million buyback in the first half, and so total distribution so far this year are GBP 1.2 billion, which is about 30% higher versus the first half of last year. This really reflects our commitment to return capital to shareholders. We spoke about the efficiencies we are driving across the group. Equally, you should know that we are comfortable to operate in the full range of 13%-14%, and we have been there in the past. Obviously, any capital action ultimately is approved by the board and approved by regulators.

But from our point of view, and we'll come back with the details in February, from our point of view, good initial starting position, good capital generation across the bank, understand the importance and the priority to our shareholders of returning capital, willingness to operate through the range.

Alvaro Serrano (Managing Director)

Thank you very much.

Anna Cross (Group Finance Director)

Next question, please.

Operator (participant)

The next question comes from Jason Napier from UBS. Please go ahead, Jason, your line is now open.

Jason Napier (Head of European Banks Research)

Good morning. Thank you for taking my questions. Two for me. The first is coming back to the issue of the flagged restructuring charges. Venkat, as you mentioned, capital really strong, and in fact, the Q3 beat alone is GBP 1 billion relative to consensus. And so, I guess anything that you could say to provide a rough sense of how much you're looking at spending here. I appreciate this is not the venue at which you wanted to give it, but today, conversations with investors are that, you know, there seem to be risks on the payout front with, you know, no sense of how much, you know, cost savings you might be talking about or where in the group you might be looking to be more efficient.

Clearly, we think it's the right thing to be doing, but the GBP 1 billion beat on CET1 is 7% of annual group costs. You could do a lot with that. So anything you can do to be helpful on what the payback would be for the charges that are already in mind and which are triggering these provisions, that'd be the first. And then secondly, linked to that, at your conference in New York last... Well, in September, last month, month before, you said you were happy with the mix of business for the group.

I wonder whether you'd give us a sense as to when you talk about updating investors on capital allocation priorities, whether you're really just talking about, you know, what grows faster in future, or whether we should have in mind a sense that the present mix of capital allocation is, is up for debate. Thank you.

C.S. Venkatakrishnan (Group CEO)

Yeah. Good questions, Jason. Thank you. Let me begin on both of them, and then I'll let Anna add on any details. So on the capital versus the spending, look, this is not the right place to be giving it. I think, you know, as I said in the answer to the previous question from Alvaro, we started a good point on capital. We've been accretive on capital, and view the spending and the restructuring in the larger term context. I'll let Anna add to that in a minute. And on the second thing, what I would say is, I mean, I view the investor update in a simple way. It's obviously complex to analyze and execute, but I view the question in a simple way.

It is: What do you think is the target return that this bank can generate for its shareholders? So what's the ROTE ambition? How is it comprised at the group level and in the individual businesses? How much can it improve in the individual businesses, and therefore, what is it that you wish to fund in that improvement? I also said in New York, it's very, very clear that the market values different businesses differently, right? And we obviously have to take that into account in the way in which we think about our capital allocation. And so, you know, you sort of put it all together and you get the picture of where we think we want to go, but obviously more details on that later.

And then ultimately, once you do that, then to be targeted about saying, what of that growth and return you wish to, you target returning to investors. Because I do absolutely take the point that we don't, you know, we announce the buybacks on a half yearly basis, and we should, we don't have a target out there for that, and that would be something that I think our investors would find desirable. Anna?

Anna Cross (Group Finance Director)

Thanks, Venkat. Jason, we're still going through the process of evaluating those actions, as we said. So we haven't come to a finalized list yet. We have called them material. Let me help you a little. You'll note that from our RA, we have called out the year-to-date restructuring charge is around GBP 120 million. So we've shown that to you and told you that it's largely in the U.K. In any typical year, we run at between GBP 200 million and GBP 300 million. So by calling this out, we're indicating to you that it will be higher than that, but I can't comment on specific levels, simply because we haven't finished the work.

But as Venkat said, as we take those decisions, we're extremely focused on future returns, and we understand and are committed to shareholder returns. So that's very much in our mind. The other point around sort of the strength of the capital position, you know, we've been operating with good cost and capital discipline all year. That's clearly the foundation of where we step out from in February, and we'll tell you more then.

Jason Napier (Head of European Banks Research)

Thanks very much.

Anna Cross (Group Finance Director)

Okay, thank you. Can we have the next question, please?

Operator (participant)

The next question comes from Rohith Chandra-Rajan from Bank of America Merrill Lynch. Please go ahead. Your line is now open.

Rohith Chandra-Rajan (Director of Equity Research)

Hi, good morning. Thank you very much. I just wanted to, sorry, come back on the B.U.K. NIM, and really the trends that you were seeing on deposits through the third quarter and then what you're seeing so far in October. So Anna, you mentioned that the averaging effect was actually worse than the end point position, suggesting that actually things got better in September, perhaps. So I was wondering if that's continued in October. So really how we should think about sort of the trajectory of those deposit flows through the quarter and then into Q4. And then just to clarify that when you say if Q3 trends continue, then you expect to be at the top of the guided range.

Is that essentially taking the margin bridge on slide 15 and excluding the five basis points impact from pricing? Is that how to think about that? Thank you.

Anna Cross (Group Finance Director)

Thanks, Rohith. Why don't I take those? So what we really mean by the averaging point is that, you know, the outflows were probably a bit more evenly spread through the quarter than they were in the second quarter, where, you know, we saw somewhat of an increase in intensity towards the second half. I don't think it was lessened in September at all. There were certainly quite a few headline rates out there that were extremely, extremely competitive. In terms of October, I'd just call out the fact that we haven't yet seen the first month's end. So we're still midway through the first month. There's nothing in what we can see so far that's really, you know, that's sort of beyond our expectations or out with our own forecast.

That's all I can really say at this point in time. But I would just sort of highlight that what we're seeing is the impact of the pricing. In terms of the sort of range of guidance, I mean, what we're really saying, rather than any particular point on the bridge, is that, you know, depending on where those deposit flows go, you could end up with a very different exit rate. So that's what we're really calling out to you. And clearly, if we saw trends similar to what we saw, i.e., the deposit trends continue, similar to what we saw in Q3, we would be towards the top end of that range, and that would give you a particular jumping-off point for 2024.

What I would highlight, though, is that the structural hedge continues to protect the NIM overall. And what you have seen over the last quarter is that we've been able to lock in another large chunk, both of 2023 income, but another GBP 300 million-GBP 400 million of 2024 and 2025 income, just because of the way that hedge is rolling month on month.

Rohith Chandra-Rajan (Director of Equity Research)

Thank you.

Anna Cross (Group Finance Director)

Hopefully, that helps.

Rohith Chandra-Rajan (Director of Equity Research)

Yeah, that, that's very helpful. Thank you. Just a quick follow-up if I could then. So given-

Anna Cross (Group Finance Director)

Yeah.

Rohith Chandra-Rajan (Director of Equity Research)

That you talked about the hedge into the coming years, and you're expecting this deposit stabilization in Q4, I mean, do you have a view going into next year in terms of deposit trajectory, given what you're seeing in terms of competition in the market?

Anna Cross (Group Finance Director)

So it's what this year has taught us is that customer deposit behavior is quite difficult to call. So what I'm not gonna do is give you a 2024 NIM outlook. What I can tell you is that there are three factors that we're looking at. One is positive, one is neutral, and one is more negative. So the positive impact is clearly the impact of the structural hedge. And remember that two-thirds of that goes into the U.K. The more neutral impact is that we do expect, and we are seeing, that the impact quarter-on-quarter of mortgage churn are starting to dissipate. Called that out for some time.

What is more difficult to call is the impact of this ongoing deposit behavior, both the reduction in deposits, because customers are using them in order to manage the broader economic environment, but also them seeking higher rates. Difficult to call out when that would stabilize, Rohit, but all I can say is that there are other factors in the mix, most importantly, the structural hedge.

Rohith Chandra-Rajan (Director of Equity Research)

Okay. Thank you very much for that.

Anna Cross (Group Finance Director)

Okay, thank you. Next question, please.

Operator (participant)

Our next question comes from Chris Cant from Autonomous. Please go ahead, Chris. Your line is now open.

Chris Cant (Head of Banks Strategy)

Good morning. Thanks for taking my questions. Two, please, one on NIM and one on ROTE. So appreciate everything you've said about the difficulty of predicting the positive behavior and the fact that the U.K. NIM is not the be all, end all for your group revenue dynamic. But obviously, we've had some pretty dramatic shifts in your NIM guidance over a few quarters, and there's a huge range of possible for Q exit levels by the range you're now giving us. So a very simple question, please, help us on views on what might happen. What's the average cost of your deposit balances in the U.K. quarterly, and what proportion vary?

Then on ROTE, in terms of the risk to the 10% ROTE target, inclusive of restructuring charges, if I just kind of run the numbers on your disclosures equity for the year to date and weigh forward as Q4. To get to say a 9% ROTE, including restructuring charges, that would imply a sort of a negative bottom line number for the fourth quarter. You've obviously delivered pretty strong ROTE year to date. The fact that you're flagging, potentially not being able to hit the greater than 10% ROTE, inclusive of restructuring charges, implies fourth quarter could be a net loss. Is that the right way for us to be thinking about this?

And within that, when you're flagging the GBP 120 million of restructuring charges year to date, is it the case that when we get to the fourth quarter, the, you know, catch up to the normal 200-300 is going to be excluded from your, your ROTE calculation as well? How, how are you thinking about that? You know, is, is 200-300 in, in the ROTE calculation and then the exceptional charge on top of that excluded, or is the whole amount potentially going to be excluded when you, when you calculate your ROTE at the end of the year to assess delivery on that target? Thank you.

Anna Cross (Group Finance Director)

Okay. Thank you very much, Chris. Why don't I take those two, and I'm sure Venkat will add if he wants to. So you're right, there have been some considerable movement on the U.K. NIM, particularly over the last quarter. As I said, clearly, that's driven by customer deposit behavior. I would highlight for you that, as we look at U.K. NIM, we are actually looking at quite a narrow measure. So in comparison to our peers, remember, they would be including all of the corporate income and asset base within there, and so really, you should be looking as you make comparisons to the rest of the U.K., you should be looking across both the U.K. and the corporate NIM position.

We don't disclose the average rate paid on our deposits, although what we have given you this time to be more helpful is a split of our deposit balances, and indeed, how that has trended over time, and it's showing very clearly that movement into term as you would expect, and as many have commented from Bank of England data. On your second question, so to be clear, what we are not doing is giving any kind of PBT forecast for the fourth quarter here, and it wouldn't be appropriate for us to do so. Not least, we haven't concluded our assessment of the structural actions that we may take. Merely, what we're calling out is a few things. Firstly, we're clearly going into the fourth quarter with good ROTE momentum.

We've delivered 12.5% year to date, somewhat ahead of consensus. However, the fourth quarter does have some seasonal impacts in it, so typically, we see lower CIB income. Typically, we see higher impairment in U.S. Cards in particular, simply because of the seasonality in spending. We also see impacts from the bank levy, and we've just given you an indication that we see a continuation of deposit trends in the U.K. So not saying anything more than that, in that typically you expect ROTE to be lower in the fourth quarter than in the preceding three, and to the extent that we take decisions in that fourth quarter, that may impact the ROTE. Now, as we do so, we are very focused on future returns for the business.

Our overall objective here is to improve the returns of the business through time. Clearly, efficiency and effectiveness are key part of that, so we're just calling out our intention to continue that cost focus for the business.

C.S. Venkatakrishnan (Group CEO)

Yeah, and I cannot emphasize too much that last point which Anna made, which is that, think about this in terms of the investor update in February and the longer-term plan for productivity and efficiency in this bank.

Chris Cant (Head of Banks Strategy)

If I could just follow up on the ROTE point first, please. I mean, the year to date, you've done GBP 4.4 billion of profit. Your average tangible is probably gonna be something like GBP 47 billion for the year. So you're pretty much all the way there to delivering a 10% ROTE on the nine months to date. But to get to a point where you're flagging to us that you might not do greater than 10% for the full year, would seem... I mean, I think unless I'm missing something there, the maths implies potentially very, very material for key restructuring charges. But, am I missing something there?

I mean, it does seem, you know, in the context of a debate where I had some investors asking whether you might be announcing a surprise five. This is obviously kind of top of mind to your investor base, how you're going to be balancing these things. Are we looking at, you know, potentially greater than a bit of restructuring or cost to achieve or whatever we're going to be titling it in the fourth quarter? I mean, that's by the math, even accept the point that it's about seasonality and et cetera.

Anna Cross (Group Finance Director)

So, Chris, I understand the math of what you're putting in front of me. I'm gonna say the same thing, that we have not yet concluded on those plans. To the extent that we do, we will update the market further at full year, both in terms around the costs, but also the ongoing impact that we would expect them to have. You know, just as investors do, you know, distributions on top of our mind, too, as Venkat pointed out. So as we take these decisions, we will be extremely mindful. And as you said previously, we go into the fourth quarter very deliberately at the top end of our capital range.

Chris Cant (Head of Banks Strategy)

On the deposit cost point, if I could just on that as well, please. I mean, how... If I frame it slightly differently, how do you expect investors to be able to take a view on what might happen with the U.K. NIM, unless we're armed with some basic information about what you're currently paying on deposits relative to the types of offers that are out there in the market? You're flagging competitive offers as a key driver for the fact you're re-guiding them lower and seeing deposit attrition, but we don't know how much better those rates are relative to what you're currently paying or have been paying earlier in the year. It's very difficult for us to take a view on what's going to without that.

Anna Cross (Group Finance Director)

... So, Chris, all I would say is that we price competitively but not uncommercially. And if you look at our savings pricing is very, very clearly indicated, both on our website and indeed in any branch, you will see that, you know, we are competitively positioned across our term deposits, across our ISAs, across our instant access, for example, Rainy Day Saver. So we don't genuinely believe that there's something mispriced in our savings franchise. We're happy with it. From quarter to quarter, you will see other competitors operating in a different way.

Chris Cant (Head of Banks Strategy)

Okay, thanks.

Anna Cross (Group Finance Director)

Okay. Next question, please.

Operator (participant)

The next question comes from Guy Stebbings from BNP Paribas. Please go ahead, Guy. Your line is now open.

Guy Stebbings (Executive Director of European Banks Research)

Hi. Morning, everyone. A couple of questions on deposits, firstly, the U.K. and then, and outside the U.K. So first, I'm trying to understand the comment that pricing played out as expected. Are you talking for Barclays or for the industry? As I, I would think about pricing and then movements and deposits for individual institutions is very much linked. I, you know, had you priced up more in line with some peers, then, then, then the balance move wouldn't have been such a, a headwind. So perhaps you could clarify that point. I'm just trying to think about in the context of, of how you might want to react more to protect balances in the future in a, in a competitive marketplace. And then outside the U.K., you know, clearly that was, was much stronger.

Could you just give a bit more color around what you're seeing, what the strategy is there, and sort of are you having to pay up, or, or is this very much profitable deposit growth that you're seeing outside the U.K.? Thank you.

Anna Cross (Group Finance Director)

Okay. Thanks, Guy. I'll take both of those. So what I meant by the pricing was, as we expected, clearly, we knew at Q2 when we reported to you the price changes we were going to make, and therefore, that deposit bucket, that the one that's called Bank Rate, is broadly as we expected it to be. Now, what subsequently happened to both the level and mix of deposits is much more driven by the external competitive environment, and that's what we are calling out. Very similarly to what I just said to Chris, we are happy with the overall level of our savings pricing. Our strategy is to encourage our customers to develop save, you know, healthy savings habits.

We are pricing to, as far as possible, maintain our franchise rather than attract hot money, and we will price competitively, but not uncommercially. So to the extent that we see competitive pricing going in that direction, then obviously we would not follow it. I think the other thing, just to put in the mix, is everybody is looking at the impact of the U.K. NIM. Please do not discount the impact of impairment. So all of this behavior, this conservatism and behavior, is also flowing through into the impairment line. And the U.K. impairment has been lower than consensus for nine successive quarters. So just worth bearing that in mind. Second, second point that you asked about, which is around the deposits elsewhere.

I mean, in a high rate, persistently high inflationary environment, we would expect to see high level, deposits flow from retail customers towards corporate. That's exactly what we see, and given our franchise, that is, what you're observing. So U.K. corporate deposits are very stable. You see some migration, but very stable in totality. And what we've seen in the quarter is a continued inflow, more from global corporates. That's particularly, fairly long tenor term funding, competitively priced, but, you know, good, good for the, the deposit franchise overall. So very much a continuation of what we called out actually in Q2 and indeed, Q1.

C.S. Venkatakrishnan (Group CEO)

If I may just step in and emphasize the point Anna made about the link between deposits and impairment. I think it's... To me, it's one of the interesting things that we've seen, you know, where we've seen people using their deposits to pay down debt in, in, whether it's mortgages or other things. One, it showed that they had the ability to do it, so obviously it's helpful with impairments, but it also gives you an idea of the type of credit quality of customer we have, which I think is a good thing. So as Anna said, you know, nine quarters of continuously positive surprises, meaning lower impairments than consensus in the U.K. and people using deposits to pay down debt. It's all a good thing about credit quality.

Guy Stebbings (Executive Director of European Banks Research)

Okay.

Anna Cross (Group Finance Director)

Thank you, Guy. Next question, please.

Operator (participant)

The next question comes from Benjamin Toms from RBC. Please go ahead. Your line is now open.

Benjamin Toms (Director of Equities)

Morning, both, and thank you for taking my questions. Now, firstly, it's around just some recent press speculation that you're looking to sell a stake in your U.K. merchant acquiring business. I know you won't want to comment on that directly. So perhaps the best way to phrase the question is to ask, what do you think is the best way of Barclays generating value out of its U.K. merchant acquiring business going forward? And then secondly, I noticed your statement around the PRA rules being the most relevant to the expected impact under Basel 3.1. In that context, the regulator gave a Mansion House speech last week. Our interpretation of that speech is that we'll likely see a softening of the rules around Basel 3.1 when they're announced later this year and in May 2024. Would you agree with that assertion?

Thank you.

C.S. Venkatakrishnan (Group CEO)

Right. Let me, Benjamin, let me take both of them. First of all, in the U.K. merchant acquiring business, I think we are, you know, we are fortunate that we've got a business that has both issuances and acceptance. And it is very much a business which is targeted at corporates and SMEs, and it's, and what it does is that it adds another quiver to our arrow. It's a very positive quiver to our arrow when we deal with them. We provide them transaction services, we provide them, obviously, basic banking, foreign exchange services, and then payments, so merchant acquiring. The business itself, overall, is very good. I think there's a broader strategic question for us, which other banks have faced, which is it's a very technology-driven business.

How well do you, you know, what is your comparative advantage in this? Is your comparative advantage in developing the technology or in implementing the technology or building machines which you put with clients? Or is your comparative advantage in helping service them as part of a larger set of banking services? That's the question we're looking at, and then I think the commercial arrangement will come out of the answer to that question. So that's the way we are thinking about that business. As far as Basel 3.1 goes, I would say two things. I also read the Mansion House speech with interest. I think the U.K. rules are solidifying. They will probably, on the market risk side, resemble the U.S. rules.

And it is still too soon to say how much of an impact, you know, what kind of changes going forward there are from what we've seen. So I don't want to sort of comment one way or another. I mean, the only thing I will say on this more broadly is, I think at the end of the day, I know there's some commentary from the U.S. banks that the impacts are greater on them, but, you know, these capital regimes, and we've been under the U.K. capital regime, of course, these capital regimes are very difficult to calculate apples to apples.

And so I think at the end of it, when you look at what the Fed has done and when you look at what the Bank of England has done, what you're probably going to have is roughly comparable capital regimes between the U.S. and the U.K. Roughly comparable.

Anna Cross (Group Finance Director)

So let me just round that off. I think, Ben, we're obviously, you know, we note these speeches with interest, but we're awaiting the final rules, both in the U.S. and in the U.K. and elsewhere. And of course, we don't yet know what the impact of any changes around Pillar 2 might be. So, you know, until we see it in print, still some uncertainty. So we continue to guide to that 5%-10% that we've given you before, erring towards probably the bottom end of that range. But thank you for the question. Next question, please.

Operator (participant)

The next question comes from Jonathan Pierce from Numis. Please go ahead, Jonathan. Your line is now open.

Jonathan Pierce (UK Banks Analyst)

Hello there. Two from me again, please. The first, I just wondered what was in this seven basis points, other drag that's coming through in the U.K., NIM, in the quarter. I think you described it in the email as product mix. But is it just that, or is there some Treasury effect coming through there again, like we saw earlier in the year, and if so, how large? The second question is, to just focus on one of the bright spots of today's numbers, the TNAV, very powerful move in the third quarter, and the cash flow hedge reserve seems to have gone by about 20%, I think, in just three months.

I don't want to preempt anything you're going to say, but for the year on new financial targets and the like, but are you completely comfortable that in the medium term, including next year in 2025, that you can still do this greater than 10% ROTE target as it is today, all in including any additional structural cost actions and make them through next year, against this quite powerful move up in the TNAV? Because there's nothing to suggest the TNAV isn't gonna keep moving up a pace from here. So they're the two questions. Thanks.

Anna Cross (Group Finance Director)

Okay, thanks, Jonathan. I will take both of those. So in the segment, other, it is product. It contains pretty much everything else that isn't to the left. There's nothing significant in there individually. There's a bit of cards, there's a bit of business banking as we see the government-backed lending being paid down. There's also a little bit on Barclays Partner Payments, Barclays Partner Finance, rather. You might recall that we said that we were pausing new business in that space, while we replatformed that business, technology-wise, because that's unsecured. Although it's small, it can have an impact on NIM. So nothing, nothing more than that, nothing specifically in Treasury to call out at all. On TNAV, clearly, that has moved significantly in the quarter.

In part, that is actually a reversal of what you saw from the beginning of the year. So just to sort of unpack this a little bit. Clearly, what drives TNAV over time is attributable profit and us driving good returns as we have done this quarter. So that's 8 basis points. There was also 3 basis points that came from the fact that we'd conducted a large part of the share buyback by the end of the quarter, and this is obviously a per share measure. You're right to call out the cash flow hedge reserve, which was GBP 0.10 in this single quarter.

But if you look at the disclosures, at the back of the results announcement, actually, you can see that, quarter to quarter, these reserve movements can be relatively, material, and the third quarter just unwound the position from the beginning of the year. And what's actually going on here is that as rates fell back a little bit, in the third quarter, the negative drag from that cash flow hedge reserve just lessened a little bit. But that was just unwinding. You might recall in the second quarter, there was a big move in the opposite direction that actually depressed, TNAV. So really, as we think going forward from here, we try and, strip out that kind of quarter-to-quarter volatility.

What we're really focused on is the accretion of profit and driving, you know, robust returns, and that's really what we'll come back to you on in February.

Jonathan Pierce (UK Banks Analyst)

Okay, thank you.

Anna Cross (Group Finance Director)

Okay, thank you, Jonathan. Next question, please.

Operator (participant)

The next question comes from Adam Terelak from Mediobanca. Please go ahead, Adam. Your line is now open.

Adam Terelak (Executive Director)

Morning, all. Thank you for the questions. I want to come back to deposits and competition for deposits again. Clearly, you've been surprised in the quarter by the level of competition out there, but the comments you're giving us back is very much that you're confident in your current pricing. I mean, what needs to change in terms of the level of competition out there for that for your view on that to change? If you look at your savings rates, they're clearly a step below your closest peers, and from what we can see in the data, you're losing deposits that whilst pricing up might be a threat to NIM, at least you're keeping deposits on the platform.

So I just want to kind of understand your approach to competition, short term, but also medium term, if these very competitive rates continue to stay out there. And second, you mentioned on the hedge, that the hedge come down in relation to your hedge, hedgeable deposits. If I look at the disclosures you've given us today, then it looks like you're hedging much, much more of your savings products than your peers. So I'd just like to get a bit more color around how you run that hedge versus your deposits, what your hedge, hedgeable deposits actually are, and how you see those developing over the next couple of quarters. Thank you.

Anna Cross (Group Finance Director)

Okay, thanks, Adam. Why don't I take those, and I'm sure Venkat might add, particularly on pricing. So, as I said on the previous answer, we are pretty comfortable with the way that we are placed on our pricing. Clearly, there is a difference in competitive pricing across the industry between what I would describe as bigger banks and challenger banks, who might have a different need for liquidity, particularly over the next couple of years as TFSME runs off. So we are mindful of that, and, you know, we keep our savings pricing under review. But, you know, as we are making savings decisions, we think about the franchise, and we think about our liquidity and our balance sheet. Those decisions will be different bank by bank and institution by institution. I wouldn't comment further than that.

In terms of the hedge, our hedge strategy has been very, very consistent over the last few years. So, what we do is we identify rate-sensitive balances, we exclude those from the hedge, and then on top of that, we maintain a buffer, and we hedge the remaining balance. We monitor that hedge on a monthly basis, and what you can see year to date is that we have trimmed our corporate hedge thus far. We do that by making the decision to pause all or part of the roll, month by month. And, you know, those are active decisions that we take. So, you know, we've got ample opportunities to adjust that hedge as we see deposits behavior changing. As it compares our hedge strategy versus competitors, I wouldn't comment on it.

Adam Terelak (Executive Director)

Just to follow up then, does that imply you see rate insensitive balances within your savings accounts disclosure today?

Anna Cross (Group Finance Director)

There are some balances within our deposits overall that are rate insensitive. So, much of our current accounts would be rate insensitive simply because they relate to operational deposits. That will be true in the U.K., as it is in the Corporate Bank, as it is in the Private Bank, although you'd expect those constituents to behave differently. So that is certainly true. There is also some rate insensitivity in savings because customers, and indeed corporates, do use some of their savings balances as sort of rainy-day funds, simplistically, and particularly in instant access accounts, we see customers turning over their savings within the period of about a year, for example. So we have demonstrable evidence of that insensitivity, Adam.

Adam Terelak (Executive Director)

... Great. Thank you for the color.

Anna Cross (Group Finance Director)

Okay, thank you. Next question, please.

Operator (participant)

The next question comes from Edward Firth from Stifel. Please go ahead, Edward. Your line is now open.

Edward Firth (Managing Director)

Yes, morning, everybody. Could I just ask you, just trying to get the implications right for, for sort of 2024 and 2025 now? Because, if I look at your, the, the math correctly, and I, I suppose I'm just checking my math here, it looks like you've got an exit margin of somewhere around 290 into next year. And I guess we, we would imagine that that's going to continue to deteriorate because a lot of these deposit trends are, are, you know, long-term trends. You, you know, if you look back to the last time interest rates were at 5%, the structure of the deposit franchise was completely different, and the margins were much smaller than you're getting today.

If that is the case, that looks to me like we're looking at maybe GBP 500 million-GBP 600 million of consensus for next year, just for net interest income. And yet consensus is only looking at a 10% return on tangible equity even now. So I... Where do we get? I mean, I assume you want 10% to be some sort of a base, and you wouldn't want to be delivering lower than that. Is it the cost? Is it the cost program? Is that... Should we be looking at a cost program to offset that? Is that where the difference comes from, or how else can we get ourselves back to 10%, or should we be thinking that actually that is a risk now?

Anna Cross (Group Finance Director)

Okay, let me take that, and I'm sure Venkat will add.

C.S. Venkatakrishnan (Group CEO)

Sure.

Anna Cross (Group Finance Director)

So, what we've done is... So I'm not going to comment on the exit rate from Q4. What we've done is we've given you, we've given you a range, Ed, and we've told you what will happen if we see similar deposit trends.

Edward Firth (Managing Director)

No, but I just checked my math. That was all, that was all. I mean-

Anna Cross (Group Finance Director)

Yeah, yeah.

Edward Firth (Managing Director)

We know what three are. Okay, so it is 290. That's great. Thanks.

Anna Cross (Group Finance Director)

Yeah. So, so your, your math, as I would expect, I, I'm sure is very robust. As, as, as we've said before, it, it, it may or may not deteriorate next year. I mean, we've, we've got a real tailwind from the hedge, so I'm going to go back to that. Secondly, we've got this neutralization of the mortgages month-to-month, and then you have ongoing deposit behavior. So you're right to say that we're in a different place to where we were, sort of, and we're going all the way back to 2006, 2007. I mean, I would remind you that at that point, the liquidity positions of the very large banks was very different.

So all of the large banks were running loan-to-deposit ratios well in excess of 100%, 150%, 160%, 170% in some instances, and therefore, those fixed-term deposits were essentially being used in lieu of wholesale funding to a large part. So it's a different structure of market overall. So I'm not going to comment on where we end, but I would urge you to consider that. In terms of the. So we then make the jump from B.U.K. to group. So a percentage point or a bit of B.U.K. ROTE is GBP 20 million, that is 0.1% of group income. So in all of these considerations, we need to consider the rest of the group.

So yes, the U.K. NIM is stepping back a bit, but we're also in a position where actually the market for markets, and particularly banking, is significantly depressed. So banking is coming off a, you know, a decade low. We've seen pretty low levels of unsecured lending in the U.K., relatively muted demand for wholesale debt, both in SMEs and in corporate. And of course, if you look across into CC&P, the U.S. Cards business continues to grow and the Private Bank continues to grow. So I think... So I take the math point on B.U.K., but it is a relatively small part of the group. You're right to call out efficiency. We're very focused on that.

We see that as a key part of driving our returns, and obviously, we'll come back to you with the whole picture in February.

C.S. Venkatakrishnan (Group CEO)

Yeah, and I'll just add on the efficiency part of the structural cost actions. Think of it as a longer-term approach to increasing the growth of this bank. Right? That's what the efficiency is about. It's not about making the ledger work.

Edward Firth (Managing Director)

Mm-hmm. Can I just come back on that? In terms of efficiency, though, I mean, are we talking CIB efficiency? Because, you know, your retail bank is making over 20% return on equity. I mean, that feels like a really good number on most benchmarks. I don't know why you would want to take costs out of that, particularly. Is it... So is it like head office and CIB, or where would we be seeing that?

C.S. Venkatakrishnan (Group CEO)

So look, we'll give you the details later. I applaud you for recognizing the ROTE of our retail bank. It has not come out yet, but it is. You're absolutely right.

Edward Firth (Managing Director)

Mm-hmm.

C.S. Venkatakrishnan (Group CEO)

It's doing 20%, and it's doing well. But in every part of the bank, there are things which we can do better. Okay? And so that's not to take-

Edward Firth (Managing Director)

Okay.

C.S. Venkatakrishnan (Group CEO)

away from the performance of the retail bank. Anna?

Anna Cross (Group Finance Director)

I would not.

C.S. Venkatakrishnan (Group CEO)

Okay, thanks.

Edward Firth (Managing Director)

Thanks.

Anna Cross (Group Finance Director)

Okay. Next question, please.

Operator (participant)

The next question comes from Joseph Dickerson from Jefferies. Please go ahead, Joseph. Your line is now open.

Joseph Dickerson (Senior Equity Analyst)

Hi, thanks for taking my question. I guess a couple of things. Just going back to this charge that you intend to take in Q4. Could you just talk about what your hurdles are in terms of payback and timing, just to give us a sense of time frame and payback? And then secondly, on the CC&P margin, there was a 63 on my number, 63 basis points pickup quarter-on-quarter in the margin, which was significant. And I guess, how do you think about the trajectory of that, particularly given the growth in U.S. receivables? And I presume that a fair amount of the growth in the U.S. receivables is coming from the Gap, which is a higher-yielding book.

How do we think about the margin trajectory in CC&P?

Anna Cross (Group Finance Director)

Okay. Thank you, Joe. I'll take those. So, I'm not going to go into the Q4 charge in detail at this juncture. We're obviously still evaluating actions, and you might expect that, depending on what those charges relate to, the payback might be slightly different. So you'd expect, for example, property to take longer to pay back, whereas other actions that we might take would be, would be faster. But when we talk to you in February, Joe, we will outline what we've done and what we expect that payback to be. In terms of CC&P, you're correct. The net interest margin has stepped forward in the quarter. There are two real impacts in there. The first is, growing growth in U.S. receivables, so the growth in the cards business.

As we said, you know, balances are up 11% year-on-year, and that clearly has a powerful effect. At the same time, we see deposit migration in the Private Bank, which is no different to what we see in either corporate or in the U.K. So that has an offsetting impact. Although in the Private Bank, what we see is a flow into invested assets, so we retain that income, it just goes on to a different line. There is a one-off in the third quarter. It's not, it's not huge, but I would strip that out ongoing. So that's why we're saying we'd expect Q4 NIM to step back towards Q2 NIM. So don't think of this step up as permanent. I think there is momentum in the number, but this is somewhat exaggerated by that one-off.

Joseph Dickerson (Senior Equity Analyst)

Okay. And then, can I just be cheeky and ask one other question, just given, because I think there's been some confusion?

Anna Cross (Group Finance Director)

If it's a small one.

Joseph Dickerson (Senior Equity Analyst)

It's a very small... It's, it's kind of a yes or no question anyway, but, just the-- do you expect to deliver in line with your, 10% or greater return, in 2024?

Anna Cross (Group Finance Director)

We will come back to you on 2024 guidance when we, when we talk to you at the full year. As Venkat said, that's when we plan to update the market on our expectations for returns, capital allocation, costs, distributions. But you should, you should read that, you know, we, we are very focused on returns ongoing. Okay, thank you. So can we go to the final question, please?

Operator (participant)

Our final question today comes from Andrew Coombs from Citi. Please go ahead. Your line is now open.

Andrew Coombs (Equity Research Analyst)

Good morning. Thank you for squeezing me on. Two questions, one, hopefully very short. First question, you're encouraging us to look at the group NII, including the CIB. So perhaps you could just comment on the transaction banking revenues. Obviously, up a lot year-on-year, but they are down Q on Q, which slightly bucks the trend versus what we've seen at U.S. peers. So perhaps you can elaborate on what drove the Q on Q decline there. And then second, and broader point, on deposits, and pricing, just in relation to the 14-point FCA action plan. I think their fair value assessment was due by the end of August. You had to provide details on communication and evidence, what you are providing to the consumer by end September.

I think the next big thing is this whole debate around on sale versus off sale, which comes in from the first of July 2024. So anything you could say on on sale versus off sale, how big a bucket of off sale products you have, how the pricing compares, et cetera, et cetera. Thank you.

Anna Cross (Group Finance Director)

Okay. So, let me, let me start. So, in terms of transaction banking, this step back, quarter-on-quarter, there was a relatively small impact from deposit migration. And again, I would say within corporate, we're seeing migration from our non-interest-bearing into interest-bearing, but those deposits are remaining within the bank. So, that's certainly not the larger part of it. What we did see is an impact from the returns in our liquidity buffer. There's nothing idiosyncratic going on there. More that, you know, for any liquidity buffer, the returns are in two parts. The first is the carry, and then the second is in any particular quarter, you would see some disposal, some disposal income.

In this environment, that disposal income has been very, very low, and given that much of that buffer income is actually attributed to transaction banking, it's had a disproportionate impact in this quarter. That will obviously move around a little bit. So, you know, we'll see what happens through the fourth. So, on the Consumer Duty piece on FCA, we actually did our mailing through July and August in relation to savings. That was exactly as you point out, designed to ensure that our customers are you know, very much aware of the savings businesses that we have and the rates on offer. And you know, increasingly, we see our customers using digital means to look and observe that anyway.

So, but that, that mailing is behind us. We will do a further mailing in November and December to our current accounts. And for us, off sale is relatively small, so I wouldn't call it out as an impact. Okay. So with that, thank you, Andrew, for the... or Andy, rather, for your final question. Really appreciate you attending the call today. Thank you for your continued interest in Barclays. We look forward to seeing many of you on the road over the next couple of weeks, and of course, the sell-side community at the breakfast. But thanks very much, everyone, and have a great rest of the day.

C.S. Venkatakrishnan (Group CEO)

Thank you very much.