Barclays - Earnings Call - Q4 2020 Fixed Income
February 18, 2021
Transcript
Speaker 0
Welcome to the Barclays Full Year twenty twenty Fixed Income Conference Call. I will now hand you over to Tushar Mazaria, Group Finance Director.
Speaker 1
Good afternoon, everyone, and welcome to the Fixed Income Investor Call for our full year 2020 results. I'm joined today by Catherine, our Group Treasurer and Mirai, our Head of Term Funding. Let me start with Slide three and make a few brief comments before handing over to Catherine. As I said this morning, our priority during the pandemic has been to support the economy, serving our customers and looking after the interests of colleagues and other stakeholders. It's been a very challenging year, but the pandemic has shown very clearly the benefits of our diversified business model.
Despite the effects of the pandemic, we reported a statutory RoTE of 3.2% or 3.4% excluding litigation and conduct. The impairment charge of GBP 4,800,000,000.0, up almost GBP 3,000,000,000 year on year reduced PBT from GBP 6,200,000,000.0 to GBP 3,200,000,000.0, excluding litigation and conduct. With income up 1% overall, we delivered neutral draws and a cost income ratio of 63, slightly in excess of the target of below 60% over time. Our capital position is also strong with a CET1 ratio strengthening further in Q4 to reach 15.1%, up 130 basis points over the year. Under the temporary guardrails, which the regulator announced in December, our statutory profitability allows us to distribute 5p in aggregate by way of dividend and buyback.
We plan to launch a share buyback of up to GBP 700,000,000 by the end of Q1, which is attractive for us from a financial point of view at current share prices and equivalent to 4p per share. In addition, we are paying a dividend of 1p and reaffirming our intention going forward to pay dividends supplemented as appropriate by share buybacks. We'll update the market further on distributions at the appropriate time. Our balance sheet resilience and ability to remain profitable in every 2020 means we're in a strong position to continue capital distributions to shareholders, absorb capital headwinds and operate in our target range of 13% to 14%. More on capital from Catherine in a moment.
Before I hand over, a few words on impairment on Slide four. You're already familiar with the significant increase of almost GBP 3,000,000,000 in the impairment charge year on year. This has been driven by deterioration in economic outlook as a result of the pandemic and has led to significant increases in the charges in each business. However, this book up in provisions in Q1 and Q2 has not been followed by material increases in defaults. You can see much lower charges for Q3 and Q4 in the second chart.
We've shown the charge for each quarter split into Stage one plus two impairment, mostly relating to balances which aren't past due and Stage three impairment on loans in default. As you can see, most of the elevated impairment in Q1 and Q2 was from book ops, while most of the Q3 and Q4 charges were on Stage three balances. On the next slide, we've shown the macroeconomic variables or MEBs we've used in the expected loss calculation. We've updated the MEVs slightly in Q4, as you can see on Slide five. However, I would emphasize that with the reduction in unsecured balances and given the ongoing level of government support, the models on their own would have generated a significant provision right back in Q4.
Whether there is significant uncertainty as to what defaults we will experience as support schemes are wound down through 2021, and we have therefore applied significant post model adjustments, totaling GBP 1,400,000,000.0, as you can see in the table. This takes our reserves to GBP 9,400,000,000.0, which broadly maintains our increased level of coverage. Given our forecast for unemployment levels, we would anticipate an increase flowing to delinquency as we go through 2021. But given our existing level of provisioning, we would expect a material lower charge for 2021. And with that, I'll hand over to Catherine.
Speaker 2
Thanks, Tushar. As you can see on Slide seven, we finished last year with robust balance sheet across all our metrics. Our CET1 ratio was 15.1%. MREL finished ahead of our in state requirement at 32.7% of RWAs or 8% on a CRL leverage basis and our LCR stands at a very strong position of 162%. I'll start with capital on Slide eight.
Over the course of 2020, our CET1 ratio increased by 130 basis points from 13.8% to 15.1%. As you can see on the slide, the largest driver for this was our ability to deliver profits every quarter in 2020 despite the external stress that we and the rest of the sector experienced. Pre provision profits contributed to two zero three basis points of capital accretion in the year. There was meaningful regulatory support in 2020 such as 100% relief to Stage one and Stage two impairments taken since the 2020. And in Q4, we saw further uplift from the risk weighting of software assets.
So we do expect that benefit to be reversed during the course of this year for UK banks. Tushar mentioned the resumption of capital distributions earlier, While the dividend cancellation in 2020 and non accrual throughout the first three quarters of the year helped our capital position, the resumption of distributions is a key part of our capital plan given our strong capital position and resilient financial performance. Turning to Slide nine, you'll see that we've provided color on the various moving parts over the next couple of years. You will see on the chart a rebased CET1 position of 14.7% that takes into account the share buyback and two regulatory items that impact our capital base in Q1 of this year. First is the removal of the PVA relief, which the PRA granted for 2020.
And second is the IFRS nine transitional relief scaler for impairment stock taken in 2018 and 2019, which reduces from 70% to 50% this year. From here, our prudent capital planning takes into account the headwinds and tailwinds we foresee in the coming years. And of course these are reflected in the calibration of our CET1 target range of between 1314% which I'll explain in a moment. As you heard me say, our resilient business model delivered profits in each 2020 despite a very challenging year for the sector. We're confident that our diversified business model and the sustained performance of our CIB in particular will allow us to continue to generate retained earnings and to help offset the headwinds ahead.
Given our strong excess capital position supported by our profitability, we expect to continue to return capital to shareholders, which reflects the soundness of our capital management and of course, as the decisions taken hand in hand with our regulator. As ever, maintaining a strong CET1 ratio is a key tenet of our capital management framework and our capital plans take into account anticipated headwinds, which you will see on the slide, taking these in turn. The first two on the list have been flagged throughout the stress period last year with the potential for credit rating migration to drive a pro cyclical increase in RWA and for impairment stage migration to impact the amount of IFRS nine transition relief. Next, you will have seen the PRA statements about their stance on the risk weighting of software assets and for that benefit to be reversed during the course of the year in full after a consultation that was launched this month. On the previous page, you would have seen that under the CRR, the software benefit contributed around 30 basis points of the accretion in CET1 we saw in Q4 and our prudent plan assumes this to be reversed in due course.
Next, we're flagging that the IFRS nine transitional release schedule will continue to amortize through to the 2024 and there is a slide in the appendix which provides further detail on this. On the 2022 regulatory items, which we've also flagged in the past, the guidance remains of low single digit billion RWA for each of the changes to mortgage risk rating models and SA CCR. And finally, like our peers, we have a pension deficit reduction plan with a CHF 700,000,000 payment this year and CHF 300,000,000 next year. Taking all the headwinds and tailwinds into account, we have today announced a target for our CET1 ratio of between 1314%. And I'll spend a moment on this on the next slide.
You will recall that throughout the stress period last year, we guided to maintaining a capital position with an appropriate headroom above the MDA hurdle, Driven by our strong capital accretion and the regulator taking supportive actions, including taking the MDA hurdle down, we ended the year with a record headroom above the MDA of just under 400 basis points, equivalent to GBP 12,000,000,000. Of course, holding an appropriate headroom to our MDA continues to be part of our capital management framework and is taken into account when we calibrate this target. Going forward, we're aware that the MDA hurdle could change due to the dynamic nature of the Pillar 2A calibration and a potential reintroduction of a UK countercyclical buffer or CCYB in the medium term. Our CET1 ratio target will continue to be assessed, but the target range also reflects the potential fluctuations in the MGA hurdle. With the CCYB, we note that the regulator acted decisively at the beginning of the pandemic to remove the requirement as they also did in 2016 following the outcome of the EU referendum.
So it is clear that the CCYD is a macro stress buffer. So we're pleased to operate with a record headroom to the MDA hurdle during the stress in 2020 and we continue to prudently plan to maintain an appropriate headroom. Turning now to leverage. The leverage ratios at year end of 5.35% on a spot on average basis respectively reflects our continued sound leverage profile. As you can see on the slide, we operate well above minimum requirements and our leverage profile has been running at a consistent level for the last four years.
We note that the SPC is due to report back on its long awaited leverage review this summer with the potential to move to a single leverage framework for UK banks. As you know, as a UK bank, we only have a leverage requirement under The UK basis and our obligation under the CRR basis is currently only one of disclosure. Whilst the CRR basis doesn't have a cash exemption, UK basis does following the PRA's decision in 2016. Given its prior position, it seems a reasonable assumption that the final state UK leverage rules would include a form of cash exemption, noting also that this is permitted under Basel rules. I mentioned this as it could be relevant to the Bank of England's MREL review, which is also due to report back this year.
More on this on the next slide. As you can see, our prudent build of Emerald eligible debt over many years has meant that we are ahead of 2022 requirements on all bases. Given this conservative position, our Emerald issuance plan for the year of around GBP 8,000,000,000 is consistent with recent years. And when comparing like for like with HoldCo and Otco maturities and calls, we expect to be a net negative issuer for the year. You may have seen that the Bank of England published MREL requirements for all UK banks in January, which showed the CRL leverage basis is binding for us alongside a number of other banks.
However, it is possible that our MREL requirement reverts to an RWA basis given the leverage review and the possibility of a cash exemption to be retained in the final rule as I just mentioned. It's also notable that the current balance sheet reflects a surge in cash balances across the banking system caused by central banks response to the pandemic, albeit we do acknowledge that this could persist into the medium term. While we wait for the outcome of the leverage review, we will continue to prudently manage our MREL position and our intended issuance volume reflects this. Turning to the next slide, which illustrates the structure of our total capital position. AT1 and Tier two capital are likely to once again form part of our GBP 8,000,000,000 Emerald issuance plan for the year.
We continue to target a conservative AT1 headroom, albeit this may temporarily be at an elevated level recognizing that AT1 also supports leverage as we see attractive high returning opportunities in our markets business where returns are materially in excess of the cost of AT1. On a long term basis, our principles that underpin our AT1 target remain the same. The hedging serves to manage potential RWA and FX fluctuations and to manage through potential redemptions and any refinancing activity. In the near to medium term, this means managing through the RWA headwinds I mentioned a moment ago and planning for the call dates for outstanding AT1 instruments in 2022 and 2023. We also manage these risks in our Tier two stack and thereby aim to hold an amount in excess of the 3.2% requirement.
With regards to legacy capital instruments, we have received the Bank of England's request for the remediation of the prudential treatment of legacy instruments along with the other UK banks. And of course, we will respond to the Bank of England before the March 31 deadline. As you will have heard from us on prior calls, we have a very modest amount of Barclays Bank plc issued capital instruments of which we believe the majority should continue to count as capital after the end of this year. Turning now to liquidity, which you can see on Slide 14. The liquidity pool of GBP $266,000,000,000 and our LCR Pillar one ratio of 162% represented surplus above 100% Pillar one regulatory requirement of close to GBP 100,000,000,000.
The December LCR position is stable year on year following heightened intra year positions that reflected strong deposit growth and a temporary and prudent increase in cost effective short term funding which has now unwound. Meanwhile, we continue to deploy excess liquidity to our businesses allowing them to capitalize on prevailing market opportunities. Going forward, we intend to maintain a conservative liquidity position underpinned by a prudent funding profile given the persistent macro uncertainty as you can see on the next slide. The significant reduction of the loan to deposit ratio since the 2019 was primarily driven by the unprecedented level of deposit growth observed across the market through the crisis. This is a structural phenomenon driven by government and Central Bank policy that saw sterling money supply up 14% on a year on year basis, whilst credit was only up by 4%.
This money supply expansion contributed to an 11 reduction in the loan to deposit ratio as our own deposit base increased by GBP 65,000,000,000 or 16% driven predominantly by a GBP 43,000,000,000 or 23% growth across the CIB and Business Banking. We've continued to apply very conservative planning assumptions on the evolution of the deposit book to ensure that we are well positioned amidst the ongoing uncertainty. Turning now briefly to our main subsidiaries, which you can see on Slide 16, Both Barclays Bank plc and Barclays Bank UK plc continue to run prudent regulatory metrics. Barclays Bank Ireland plc, which sits beneath BD plc, was built out in response to Brexit with a significant expansion in its capabilities. Following the end of the transition period in December, Barclays is positioned to continue providing services in The EU through this Irish subsidiary.
It also means that we're not dependent on the EU and UK agreeing to financial services equivalent to continue to serve our clients and customers. Turning now to our holding company and subsidiary credit ratings, you can see on Slide 17. Maintaining strong credit ratings for all of our entities with each of the agencies continues to be a strategic priority to the group. Due to the macroeconomic backdrop, a number of our entities have a negative outlook consistent with the rest of the sector. We were very pleased when Fitch removed the rating watch negative in the second half of last year.
We continue to highlight our credit strength to the rating agencies through our ongoing intensive engagement and in particular relative rating levels versus peers. I'd like to take a moment to talk about ESG, which you can see on Slide 18. As Jess mentioned this morning, last year we made particular progress in our commitment towards climate change. We set an ambition to be a net zero bank by 2050 and committed to align all of our financing to the goals of the Paris Agreement. I'm proud of the continuing efforts in this regard within Treasury.
Our green bond holding and our liquidity pool now stands at GBP 3,100,000,000.0, an increase from the prior year position of GBP 2,700,000,000.0. And in November, we issued our second green bond, which made us the first UK bank to issue a certain denominated green bond, the Emerald eligible six Non Core five senior from our holdco. We'll continue to seek opportunities to expand our green offering to the market as we continue to deepen our dialogue with our investors on sustainability. Before I finish, let me make a few remarks on LIBOR form given the impending deadline set by the FDA for the end of this year. For the first time, have a dedicated note to our financial statements in our annual report on interest rate benchmark reform with exposures and maturity profiles to provide color on our progress.
We've been actively engaging with our customers and counterparties to transition or include appropriate fallback provisions. The ISTA LIBOR fallback protocol and the ISTA fallback supplement, went live in the January 25, are a major step forward in the transition plan. And importantly, we've delivered the vast majority of capabilities of account parties and customers nonliable reference products across loans, bonds and derivatives in line with official working group expectations and milestones. In terms of our own English law, LIBOR linked liabilities, we're the first UK bank to offer investors the opportunity to transition away from LIBOR across an extensive range of securities at the same time. These included new and old style capital instruments and we're pleased to have succeeded in amending the terms of five securities including three eighty one and one senior MREL security.
This was an important first step, which demonstrated our desire to fulfill the regulators objective to prepare for a post LIBOR world and to offer investors an opportunity to reduce their own LIBOR exposures. So to conclude, we finished an incredibly turbulent year with a strong balance sheet, a record CET1 ratio and robust liquidity metrics. A diversified business model supported our ability to remain profitable in every quarter. And as we look ahead to 2021, we are in a strong position to be able to support the economy, serve our customers and look after the interests of colleagues and other stakeholders. And with that, I'll hand back to Tushar.
Speaker 1
Thank you, Catherine. We would now like to open up the call to questions, and I hope you have found this call helpful. Operator, please go ahead.
Speaker 0
When preparing to ask your question, please ensure that your phone is unmuted locally. To confirm, that's star followed by one to ask a question. The first question today comes from Lee Street of Citigroup. Please go ahead, Lee.
Speaker 3
Hello. Good afternoon all, and thanks for taking my questions. I've got one broad one and three technical one, shall we say. So firstly, broad one. Stage two loan classification.
So we've seen quite a big increase last year in Stage two loans, now we start to see that decline on the other side. So my question is how are supposed to interpret Stage two loan classification? Is it actually saying that it does really represent a genuine increase in credit risk? Or is it really just the outcome of a model that you're effectively just the taker of and we probably shouldn't be reading too much into? That's the broad one.
And then a couple of quick technical ones. Just you note in the slides Barclays Bank Tier two may qualify or may qualify as Tier two after 2022. Do you think you'll take an increase in your MREL requirement to offset that? Is that your expectation? Secondly, on building towards your 3.2% of target Tier two level, you're currently around 2.5% in the HoldCo.
Am I thinking this is implying about GBP 2,000,000,000 worth of Tier two issuance in 2022? And just finally, you mentioned the LIBOR exchange that you do, the LIBOR consensus station you did as being an important first step. Obviously, there were a couple of securities in there that where the consent didn't pass. Is there a second step
Speaker 4
for those?
Speaker 3
Or will they just revert to effectively what the contractual terms and conditions say? They're my questions. Thank you very much.
Speaker 1
Yes. Thanks, Lee. Thanks for your questions. Why don't I take the one on impairment staging, and I'll ask Catherine to cover the other more sub technical questions that you had. Yes, staging with impairment, it is very much driven by models, particularly
Speaker 4
on the
Speaker 1
consumer side, where quite simply, if there's a meaningful change in the probability of default for any particular credit, then either it sort of gets into Stage two immediately if you originated something with a meaningful probability default or if it's more likely the case where it's on Stage one, it moves into Stage two. So in that sense, it's more of a quantitative output than a sort of a credit officer going through name by name looking for a judgment. On the corporate side, for certainly large corporates, it's much more sort of credit officer involvement. You'll notice that the build that we have in Stage two impairment balances is actually mostly for overwhelming actually for loans that aren't past due yet. So that sort of gets to the point where it's very much forward looking that these credits have exhibited a more riskier profile than they were previously.
And on the current accounting standards, we take an expected loss. And as I said in this morning's call, the models are looking forward expecting these the risk of delinquencies to start to materialize. We're just not seeing that yet. It's remarkably benign, both on the consumer side and on the corporate side, very much a function, I guess, of very much government support schemes at the moment, which has been very helpful. But hopefully, I'll give you a little bit more context.
Speaker 3
Catherine, do I hand over to
Speaker 2
your Yes. Thanks, Tushar. So Lee, I think
Speaker 5
you had three, what you call, technical additional questions. And the first one was how do we think about, the amortizing nature of the Tier two and is that reflected in our MREL issuance plans? And certainly, think it is a modest amount that we would have that would be in that category and it would be reflected in terms of the $8,000,000,000 target, which is the only guidance we've given for this year. As you heard, we said that it is likely to encompass regular senior issuance, AT1 and Tier two. And as you rightly identified, what we have said is that we intend to increase the level of Tier two.
That reflects upcoming calls that we may choose to exercise in redemptions from the OpCo and the HoldCo over the next few years. But I don't think we should be commenting on a particular quantum of Tier two supply for either this year or next year, just that it will be part of our likely be part of our £8,000,000,000 issuance plan for the year. And obviously, we'll be very thoughtful around accessing the market in terms of any potential refinancing activity that we may choose to do.
Speaker 2
And so I guess lastly,
Speaker 5
in terms of the consent solicitation around the twelve secondurities referencing LIBOR that we launched in November and concluded in December, As you said, we were successful in five, which means there are seven left. And we were pleased to have done this, to have done quite a comprehensive liability management exercise that spans both sterling and dollar securities. And it would probably be challenging, but wanted to give investors a chance to exit some of their LIBOR exposures. So at this stage, we don't envisage doing anything else in relation to these securities. And as we said, we obviously are following all external market developments, in this area and everything that the working groups are doing.
So but no plans for us to follow-up on what we concluded in December.
Speaker 3
All right.
Speaker 5
Thank you
Speaker 3
very much. That's very clear.
Speaker 1
Thank you.
Speaker 2
Thanks, Lee.
Speaker 1
Yes. The next question please, operator.
Speaker 0
The next question comes from Robert Smalley of UBS. Please go ahead, Robert.
Speaker 6
Hi, thanks for taking my questions and thanks for joining the call in New York, accessible time as well. Greatly appreciated. The disclosure enhanced disclosure that you're giving in capital, greatly appreciated. Two questions. First on Slide nine, where you've got the green box on organic capital generation.
In general, what do you think this number should be? What should the range be? How much organic capital should Barclays be generating on an annual basis? I ask because it's a real indicator of your ability to earn your way out of the problems as they occur. So if you could give us some detail around that, that would be great.
My second question, similar type of question on the MDA headroom. You refer to appropriate headroom going forward. How do you determine what's appropriate? Do you look at peers? Is there some other internally generated number?
Reason why I ask that is because that's often pointed to as investors as being thinner at Barclays than a lot of other peers. Thanks.
Speaker 1
Yes. Thanks, Robert. Why don't I take the first one, and I'll ask Catherine to cover your question on MDA headroom. In terms of organic capital generation, I won't give out a forecast or sort of specific numbers. Suffice to say that we would expect to be very profitable.
We were profitable in every quarter actually in 2020 and guided to a meaningful improvement in profitability in 2021. And so you should take from there that we expect to be solidly profitable throughout the year. That, of course, is good capital as well. Against that, we've guided to some sort of, if you like, technical headwinds, things that you can see in front of you. I think even when you net all of that in as best as we can forecast and allow some growth for the balance sheet, which we take as a positive, we're able to originate new loans and grow our business, although I mean that's somewhat a function of how strong the recovery is later on in the year.
Even after all of that, we would be expecting to generate reasonable amounts of excess capital that we would like to then think about the most appropriate way to distribute that back to our equity holders and so forth. So Robert, it probably doesn't answer your question with a precise number, but suffice to say that at Barclays, we feel very confident that we'll be generating, after I've still everything in the round, profitability headwinds, reinvesting back into balance sheet growth, meaningful amounts of excess capital. And that allows us to run the bank safely as well as the benefit of its debt and equity holders. And Catherine, do you want to
Speaker 5
add Yes. The Thanks, Tushar. So Robert, in relation to the MDA and how we think about what is an appropriate distance that we'd like to run the capital ratio versus MDA. Obviously, today, we came out with a new capital target, 13% to 14%. And clearly, at the end of the year, as you saw, I think we had an excess of MDA of around GBP 12,000,000,000 of capital.
So it was about a 400 basis points buffer to MDA. And so the new target that we've given out reflects a couple of things. It obviously will reflect the capital generative capacity to bank, as Tushar said, which we obviously demonstrated last year. But also the headwinds that we've communicated that you also highlighted that are coming. And potential movements in RWAs, Pillar 2A and potentially also at some stage, the reintroduction in The UK with the countercyclical buffer, which is very clearly a macro stress buffer as we've seen in 2016 at the beginning of this year, too.
So that would be in a position where that's coming when the bank would also be generating strong profits. So having followed the bank, as I know you have for quite some time, you'll have seen where our targets have been historically over many years, probably six or seven years in terms of how we've developed targets to MDA, a huge amount of thought. And we have certainly have an internal framework that we used to think about distance to MDA. It's incredibly important to us. We do look at it closely.
Obviously, during the crisis of last year, looked at the distance to MDAs. We do consider peers as well, in terms of where they are. The 13% to 14% target today does is very much in line with a lot of the peers that we have. So I would just give you, I guess, some guidance that we think that it does give you confidence of us remaining at a prudent buffer above NDAs when we think about the headwinds and the tailwinds that we have. And that's reflected within the 13% to 14% target that we've given today.
Speaker 1
Thanks for your question, Robert. Could we have the next question please, operator?
Speaker 0
The next question comes from Daniel David of Autonomous. Your line is now open.
Speaker 7
Good afternoon and thanks for taking my questions. Just a couple of questions on infection risk. You noted the March submission deadline to the PRA. Could you provide any guidance of the kind of regulatory timeline after March? And you've previously commented, we've made comments that you could restructure internal AT1s to mitigate infection risk.
Just wondering if you have the approvals to restructure the internals. And also, if you were to restructure, would this be publicly disclosed, I. E, would we be aware of it? And then just stepping back and considering more broadly the situation, how you weigh up the benefit of the positive market sentiment that we generated from a legacy LME or a call versus the capital benefit and specifically thinking about some of the smaller securities you've got outstanding? And just finally, just on LIBOR, noting your previous answers, just thinking about sterling LIBOR and the FCA synthetic LIBOR approach.
Is this something that you'd consider using? And also, if you did, is there kind of a time line with which you think you'd be able to use synthetic label for, I. E, a year after the label deadline? Or is it indefinite? Yes.
Speaker 1
Thanks for your question. I'll probably hand over to Catherine Certainly. For them,
Speaker 5
So in terms of your first question around infection risk, I think here the story is very similar, I'm afraid, that's what you've heard from us before, which is we have quite a modest amount of securities that are now smaller than they were before because of the 7.8 LM we did in December. So about $3,500,000,000 at the end of this year and only $1,500,000,000 at the 2022. And obviously, that is really quite small when you consider the $100,000,000,000 of MREL outstanding. So I do think that we are in a good position when you think about the ability to assess all the impediments resolution. As you know, these legacy securities are just one element that the Bank of England looks at.
So I think our position is pretty good. We've done a lot of work across all of the resolvability assessments that the Bank of England looks at. It's probably and we obviously clearly know what the Bank of England is also looking at in terms of their considerations around flexibility of payments, the level of subordination provisions, U. S. Or non UK law.
At this stage, we are obviously submitting our response to the March 31 deadline. And there's no real guidance from at the moment in terms of where things go in terms of getting feedback and clearly any decisions that the Bank of England may take. So I guess we obviously know the external time line that's been in place for many, many years, and we'll just wait for feedback from the Bank of England on that. So in terms of your second question, can you just repeat it again? And then we'll get on to the synthetic sterling LIBOR.
I just didn't quite catch your second question on regulatory treatment, I think it was.
Speaker 7
Sorry, just on the internal AT1s or on just the benefit of market sentiment?
Speaker 5
No. So should there be any need to restructure or change the terms of internal securities. You would only potentially see them if there are securities issued by in the operating company accounts. So that would be reduced fairly annually. And then on sterling synthetic LIBOR, it wasn't part of our consent solicitation in terms of the securities in December.
Speaker 1
I don't know It wasn't sure, Daniel, whether
Speaker 7
I think is
Speaker 1
that where you were up? Was that your angle, Daniel? Or is there something else on the
Speaker 7
No. So I guess what we've noted in The UK is a helpful approach from the FCA, extending potentially the life of LIBOR to avoid market disruption. And I guess what we're just kind of thinking through is if you flipped or you continue to use LIBOR in the synthetic approach, is there a deadline further down the line where, say, the synthetic LIBOR needs to be switched off? Or is it that sterling LIBOR can continue in perpetuity given that there's a new approach? I'm thinking in relation to how the Europeans have kind of tackled the problem.
Speaker 1
Yes. No, I see it. Murad, do you want
Speaker 4
to Yes. Dan, good question, actually. Obviously, we are hearing the FCA comment on tough legacy. You would have picked that as in schooling letters speech in January referred to a consultation that will come up sometime in the spring around pass legacy. And we actually would expect to hear their thoughts as to how long a synthetic LIBOR might be around.
If I were to guess, probably longer than one year, but perhaps not into perpetuity, but we'll have to see how that plays out.
Speaker 2
And Dan, I think apologies,
Speaker 5
the question I know I didn't answer was just more management in general on some of the smaller securities. And I think, again, we'll constantly look at where there may be opportunities like we did in December with the Tier two seven zero five, it's cocoa, but certainly nothing imminent, but it's something we obviously always do look at.
Speaker 7
Thanks a lot. I really appreciate it.
Speaker 1
Thanks. Thank you very much. Can we have the next question please, operator?
Speaker 0
The next question comes from Neil Shah of Credit Agricole. Please go ahead.
Speaker 8
Hi there. I've got two questions. So firstly, one, I've asked a few times regarding the in November regarding the reference rate changes. So I think, Patrick, you mentioned that five out of the 12 were changed. Was there a public announcement regarding that or was the reason why there wasn't one?
And regarding the remaining seven securities, can you explain what the options that are available to yourselves going forward and discussions you're having with the PRA? And that's question one. And question two, regarding issuing further Tier two, you guided to having a building greater than 3.2%. Is there any positive impact regarding that with the rating agencies in terms of the way they look at your staff of failing the full security? Could there be any outlook changes there?
Yes.
Speaker 1
Thanks, Neil. Moray, why don't you cover the first question and cutting into it further?
Speaker 4
Neil, thanks for that. I mean, obviously, the results of the consensus station were announced both around the ones that passed in the first meeting as well as the ones that passed in the adjourned January. We have released the requisite RNSs at the time. We can sort of get them to you. Of course, in terms of the securities actually becoming mid swap Sonya backed, we need first Sterling LIBOR to be discontinued and that event to happen for it to become effective, if you will.
So if that's what you're referring to, that, of course, is still waiting for the FCA nonrepresentatives or the cessation announcement. But the fact remains that investors consented to us making that change. With regards to those seven that have passed, I think it's important to underline that we feel very strongly about the nature of the exercise that we have proposed to investors. It was a fair and transparently structured exercise with no value transfer from one side to the other. And importantly, I think it followed industry and regulatory guidelines.
At this stage, we don't think there is room or a requirement for trying this again or really changing anything around it. As Dan David asked earlier, if anything is sterling LIBOR linked, I think we will have to look at whether it would count as tough legacy. If something is dollar that is not under U. S. Law, U.
S. Legislative solution will not help us. So we're going to have to see what happens in terms of synthetic dollar LIBOR. And finally, will remind that all of these securities have some form of fallback, inadequate and old style, often reverts to either last fixing or first fixing, but there is something in there. We're going have to watch developments in terms of where that ends up.
Speaker 5
And in terms of your question regarding any additional benefit that we might get in terms of Tier two issuance that we indicated in the call and in the Q and A with rating agencies. Obviously, we do for each of the agencies look at their key metrics, LGS, ALAC and QJD. And so when we do and have all the discussions with the rating agencies, clearly, issuance plans do reflect where we sit on each of these metrics and how we see them evolving. So I suppose they are reflected in the $8,000,000,000 number, which as I said, does include Tier two. But I don't think it's a material driver for us in terms of issuing the Tier two.
And obviously, just in terms of ratings, we do spend a lot of time with the agencies. As we said, we do feel that the ratings for us on a good trajectory, certainly on a relative basis, we feel very good. And as you've heard on both the equity call and the fixed income call, we do feel that we have demonstrated very good financial performance given the diversification of the group, which obviously does deliver several credit positives. So it's an area that we are certainly spending a lot of time in. But in terms of Tier two issuance, that is not really a ratings driver behind it in any material size.
Speaker 8
Thank you very much. That's very helpful.
Speaker 1
Thanks very much, Neil. Operator, do we have any further questions?
Speaker 0
We currently have no further questions, so I'll hand back to Tushar.
Speaker 1
Okay. Well, thank you very much, everybody. I hope you found this call helpful. And I'm sure, Catherine, Mirai and the team will get a chance to, maybe see you over a video, over the next few days. Thank you again.
Speaker 0
Ladies and gentlemen, this does conclude today's call. Thank you for joining. You may now disconnect your lines.