Welcome to the Barclays Q1 2016 Results Analyst and Investor Conference Call. I will now hand you over to Jes Staley, Group Chief Executive; and Tushar Morzaria, Group Finance Director.

Good morning, everyone and thank you for joining this 2016 Q1 earnings call. Before I hand over to Tushar to take you through the numbers in depth, I wanted to offer a few brief thoughts on how I see the quarter and in particular, what early progress it represents against our strategy. This morning, we have reported the first set of results as a transatlantic consumer corporate and investment bank operating under our new configuration of Barclays UK and Barclays Corporate & International. What they show is that Barclays' core business is performing well, particularly given the current environment. Our core return on tangible equity is 9.9%. Barclays UK posted an impressive 20.5% return for the first quarter and our businesses, such as consumer, cards & payments and Barclays Corporate International which are exhibiting strong growth. Aggregate performance we're producing today in Barclays core continues to show the potential power of the Group once it is unshackled from the drag of non-core which is what we said on March 1. Our corporate & investment bank did a very good job on the revenue line in the quarter. In fact, I think we had one of the best performances in the industry year on year. But returns are still not where we want them to be and we need to do more on cost in particular to address this which we will. One typical cost lever to use is to adjust variable compensation to reflect weaker revenues and on this point, let me be very clear. While our corporate & investment bank did well on the revenue side relative to the industry, we will adjust bonuses for 2016 appropriately given that our year-over-year revenues were down and mindful of the fact that the industry more widely has made dramatic cuts to…

Thanks, Jes. Before I go through our financial performance, I'd like to remind you of our decision to lead with a statutory view of our Group financial results, as we're now close to the end of our restructuring. You will be able to see the key notable items in each period. However, when I run through the performance of our businesses, I'll talk on an underlying basis. The only notable item this quarter was the negative own credit move of £109 million. The prior year had a number of items which you can see in the results announcement and slide deck. Also, because of our decision to reduce our stake in Barclays Africa Group Limited to a level that achieves accounting and regulatory deconsolidation, we're now presenting that business as a discontinued operation. Tomorrow at our shareholders' general meeting, we'll be seeking approval from our shareholders to sell down to a level that achieves accounting deconsolidation. As Jes mentioned, we're pleased with the progress we have made this quarter in non-core following our one-time top up announced on March 1. Since then, you'll have seen that we have also announced the sale of our Asian wealth business. Following the completion of this exit and together with the completion of the Italian retail business sale and the closure of the Portuguese retail business, we will reduce non-core costs and RWAs by a further estimated £3.4 billion on top of the £3 billion of reductions we achieved this quarter. We will continue to run down the non-core in a capital-accretive manner. In this quarter, our core business delivered an underlying RoTE of 10.7%, with strong performances from Barclays UK at 20.5% and Barclays corporate and international at 9.5%. We're allocating the equity held against our Barclays Africa stake to the head office…

[Operator Instructions]. Your first telephone question is from Michael Helsby of Bank of America Merrill Lynch. Please go ahead.

Just three questions from me, if that's okay. Firstly, if we believe what we read in the press and, Tushar, you touched on it on Africa, but it looks like the stake sale of Africa could go a lot quicker than you envisaged when you announced it at the full-year 2015 results. Without commenting on that, because I appreciate that would be difficult, but if you were to sell it early, can you give us some idea or some indication of how Barclays would look to utilize the capital relief and how you'd prioritize that in -- say if it happened in 2016? Second question relates to the ESHLA write-down in the quarter which looks bigger -- I know you'd flagged that you thought it would be higher, but it looks bigger than what certainly I would have expected. It looks like long-dated asset swaps have improved since the end of the quarter. Can you tell us how much of that £374 million if you'd have been looking at it today you'd have already got back in Q2? And then finally on ring fencing. There's a lot of concern about ring fencing in the market and it's not just about one-off setup costs, but it's about the ongoing impact on funding and capital requirements. You guys consistently have seemed pretty relaxed on this, so I was just wondering if there's any facts you can point to that can provide the market with some comfort; if there's any comment on what you think the new funding spreads. You alluded to it in terms of the TopCo [ph], but from the ring fenced point of view, what the funding spreads might look like, need to look like, versus what they currently are on the blended back book basis at the moment, that would be very helpful. Thank you.

Why don't I touch on these quickly for you? In terms of Africa, you're right. We won't be able to, as you understand, make any comments on the profits of the divesture so I'll put that to one side. But on the hypothetical scenario that we would get regulatory deconsolidation, I think your question was, this year, what will we do with our capital. We do two things with it really. One is we would like to deploy that into our traditional banking businesses where we think we have really good growth opportunities. You saw us acquire the JetBlue card portfolio as a partner brand in the U.S. There may be other opportunities there. We've got to be very disciplined around pricing. We feel very good with actually JetBlue portfolio; I think that will be quite accretive. But that will be an interesting area for us to think about. We will obviously want to expand our traditional UK banking presence in terms of putting to work our corporate assets, as well as consumer products as well. You can see that we have good market positions and good opportunities there. And, of course, separate and distinct from that, we do want to accrete capital to improve our capital ratios as well. But I think the theme I'd leave you with, Michael, is that we will accrete capital. We'll probably do it at a more measured pace than we've done it historically; very deliberately. And as we balance, looking for EPS growth opportunities as well as just improving our capital position which we feel actually pretty good about. Moving on to ESHLA, you're right in the sense that spreads widened out actually in Q4 and widened out again in Q1. They've come back a little bit since. I won't quote a number…

I might just add to that. S&P has done a lot of work, obviously, on what we will look like and they've reaffirmed their rating.

Yes. Can I just ask, Tushar? Is there any way you could tell us what that blended stock cost is? Because it's very hard for us from the outside but, obviously and then we can monitor as new issuance comes through which we're not able to do really at the moment and I think it really is, it's an important point?

Yes. It's a fair question. I won't call it out now, obviously, but it's something we'll think about for maybe the half year. It's a fair question and we have had others ask, so something we'll take on board.

The next question is from Andrew Coombs of Citigroup. Please go ahead.

One follow-up and then two further questions, please. Just repeating Michael's question, but slightly more directly on the deconsolidation of Africa, if it were to happen earlier, would you also review your 3p dividend policy over 2016 and 2017? And then two fresh questions, one on the non-core rundown. We didn't really see evidence of the acceleration of the non-core rundown in the Q1 numbers, but you did provide the number of steps that are underway to reach that £20 billion target. So you flagged the £3.4 billion on the agreed sales of Asian wealth, Portugal and the Italian branches, but perhaps you could just provide more detail on the timing and also the quantitative RWA reduction from some of the other steps; so the French branches, the legacy derivatives agreement with JPMorgan, the exit from the nine countries in CIB? And then the final question would just be on Barclays UK income. You've seen a dip there in personal banking and consumer revenues. You refer to European interchange fee income on the consumer side. And then B question, mortgage margin pressure on personal banking side. Do you think we've now reached a re-based level or is there further to drop out on that line? Thank you.

Maybe I'll just briefly touch on the first one Andrew and then pass it to Tushar. Obviously, the dividend policy is the domain of our Board of Directors and I think beyond that, what we stated on March 1 I'll just reiterate again that we want to give ourselves all the latitude to accelerate the closure of non-core. And we firmly believe that getting non-core closed and converging the Group RoTE with our core RoTE is the best way to enhance shareholder value in the short term.

On non-core Andrew, so, yes, just to reaffirm, we do think we'll get to the £20 billion at the back end of 2017 and look to close non-core or fold it back in I guess more accurately, into core by then. In terms of timing of reductions, our expectation is that many of the announced sales that are out there at the moment should close by the end of the year. We obviously can't guarantee that in all cases. You may have also picked up on the wires this morning we entered into or announced entering into exclusive negotiations with AnaCap on our French retail operations, that's subject to some quite strict approval regime in France. It needs to go through a Works Council and then also through regulators. So we can't always determine when these transactions will complete, but the expectation of them is that we would expect to complete a lot of them this year. And to the extent we don't, they'll probably be in the earlier part of next year and we'll probably be able to update you in a bit more detail in interims as we get through that. Derivatives is sort of a continual march down. We took another £3 billion or so out of derivatives risk-weighted assets this quarter and that's been the steady run rate. Sometimes, it will be a little better; sometimes it'll be a little bit lower. But that sort of scale is what we're marching down. So I think the message I'd leave you with non-core is that a lot of the work will probably get done this year. I'd like to think a lot of the financial effect of that work will, therefore, be very transparent as you get into 2017 and we'll update you as we go through this year as to what to expect. In Barclays UK, personal banking, yes, you called out interchange and mortgage. I think in mortgages, we have seen a little bit of plateauing out in margins. I do think that there will still be quite lot of pressure in some parts of the residential mortgage market. Probably a little bit less relevant to us just because it's not something that is a core part of our lending book. But I think buy to let still feels quite competitive in some of the high LTV or interest-only type products; still feel quite competitive. It's a relatively small part of our new production so probably a little bit less impactful to us, but it's still a competitive market. EU interchange, there will be a rebasing effect over the course of this year. I think in the round, when you look all of that in the aggregate, I still think it's reasonable to assume that revenues in our UK business will be broadly flat year on year. In other words, we should be able to offset any compression in margins or fees by underlying organic growth in those businesses.

Just one more. Core equity allocation looked to be up 10% versus RWAs up 2%. Is that just the way in which you allocate or is there other reserves? What's driving that? Thank you.

Yes. So we've tended to do is to allocate capital out really tracking the Group capital ratio. Last year, we were allocating out at 10.5%. This year, we're allocating out at 11.5%. And as our capital ratios improve you steadily drift that up. That's all that's going on there.

Actually Andrew, which I don't know because just you picked up on the scripts and maybe other people will find helpful as well, in Africa and it's important that people are aware of this, you've seen that we've disclosed Africa as a discontinued operation. The capital associated with that, however, we've retained in Head Office in the core. Now it's not productive capital in the core because it's used to support our Africa investment, but that obviously sits in our core business as well. So it's, if you like, put another word around it, forwarding funding the potential release of RWA from any divestiture of Africa over the timeframe we talked about.

The next question is from Jonathan Pierce with Exane BNP Paribas. Please go ahead.

I've got a couple, actually. The first one is on costs and this is just for clarity. The cost target is still £12.8 billion in core for the year. When you set that out at the full-year stage, that was assuming that £600 million of costs moved from non-core and obviously, in the restatement, we can see that that figure was nearer £900 million. Is the difference just simply that through 2016 the £900 million cost base will be averaging £600 million as you sell things down or is there some underlying change to that core cost target we should be thinking about? That's the first question.

Do want to ask both of them, Jonathan? And then, we'll take in order you give them.

Yes. The second one is one bond sales. We won't see until the interims whether there was any gains on AFS securities in the quarter, but there was a £20 billion reduction in the government bond portfolio in Q1. We can also see that the AFS reserve fell in terms of its value in the first quarter despite the big drop in swap rates. So I'm just wondering if there was any income in the first quarter relating to what we might view as one-off government bond sales.

Okay. On costs, Jonathan, no change to the target. You're absolutely right. We're on target to get to our £12.8 billion. The prior year versus this year, when you look at the restatement, it's nearer £900 million versus the £600 million we said in terms of perimeter switch. The difference is Barclays Wealth America which is about £300 million. Now because we sold that at the point at which we were talking to you, it doesn't really affect the perimeter switch into 2016. So it's a kind of net increase of £600 million coming into 2016, but if you go back, that £600 million plus another £300 million last year from Barclays Wealth America, that's the difference there. On available for sale and exit strategy, we did have some gains in Head Office, not so much through bond sales but actually through liability management exercises, two of which we did last year. We did a senior unsecured earlier in the year and then we also bought back some Tier 2 as well, both out of operating company and issued back out of the holding Company, actually, in senior unsecured form and we bought those bonds back cheaper than we issued them so some gains there. And we'll try and do that wherever we can opportunistically. Ex-that, the movement in the available for sale portfolio, the treasury positions actually in many cases are asset-swapped as well, so they are a function of both dollar asset swap levels and gilt asset swap levels. Most of our treasury portfolio is doing super high-quality government bonds, so we'll track that.

Can I just, sorry, ask one follow-up on revenue? I think you talked earlier about improving the liability margin still further through 2016 to offset some of the asset spread pressure. The full-year report in accounts shows that on the UK balances you were paying 18 basis points, excluding the 0% current account. So just wondering how you're managing to do that or is it literally squeezing the last bit out this year and then any opportunity thereafter is gone?

Yes. You're right in a sense that it's getting a little bit harder and harder. We haven't had to pay up for deposit for liabilities historically so we have less in some ways to grab back. We have been able to successfully do that. We re-priced some of our ISA products and some of our more traditional savings products. We think we can continue to do a little bit more of that to offset mortgage margin pressure, but you're right to point out it will get trickier if margins continue to compress more than we would expect.

The next question is from Manus Costello of Autonomous. Please go ahead, Manus.

I have some questions on CIB capital, please. Thank you for giving us the RWAs within the CIB division. I wondered if you could explain why this quarter RWAs appear to be up in CIB but the allocated -- they're up about 3%, but the allocated equity in CIB is down. And I noted that your PVA deduction went up, so I would have thought that your allocated equity to CIB went up as well. So if you could just explain that movement to me, that would helpful. Thank you. And secondly, more structurally, CIB is about 55% of your core capital RWA allocation. If I think about things going forward, we've got the review of the trading book which you've already said would add about £10 billion of risk-weighted assets and the new proposals out on credit risk suggest that large corporate exposures could well see increased risk weights. So isn't it inevitable that that CIB business is going to grow within the mix of the Group to be more than 55% simply from regulatory change which will leave the Group with a mix even more skewed towards CIB? Thank you.

We took on board your feedback on wanting to see RWAs so, obviously, that's helpful. On the capital versus RWAs, it's really a simple feature of the capital is an average allocation over the three-month period whereas the RWA print is period end. So, obviously, that will fluctuate intra quarter and that's all that's all that's the difference. So otherwise, it's quite--

So that means that we should see the allocated equity, assuming flat RWAs which is the allocated equity pick up then through Q2.

Well, it depends on what the average will be over the Q2. And the other thing is, of course, PVA; I just want to cover that as well. Most of, almost entirely our PVA, not quite entirely but most of our PVA is from non-core. It's actually driven mostly by the ESHLA portfolio. So that moves around with that. In terms of your perhaps more broader question around capital allocation, the way we think about it is it's and there are various different ways people may look at it, but with the lens that we use is when we look at market risk, risk-weighted assets and operational risk risk-weighted assets as a percentage of what's in the Group -- well, let's look at it from just market risk and counterparty credit risk; I think you're at about 20% or 19% if you just add those two up and so you're left with 81% in traditional credit risk and operational risk within the Company. And we feel that we're a bank at the end of the day; you'd expect us to be much more skewed towards credit risk. That's the core nature of what we do for a living. Operational risk is something that's a little bit less variable and a little bit harder for us to move in any short term timeframe. So that feels about right. Now your point on credit risk, how is that split between retail and consumer-related credit versus corporate credit and again, we feel we've got the balance right. We have a very successful commercial bank and commercial lending operation that makes good money for us, as well as consumer credit as well. So that's how we've thought about it and we feel comfortable with that capital allocation and that diversification. I don't know, Jes, if there's anything further you'd like to add on that.

I'll just add there is no strategic intent to increase our relative capital allocation to market risk and counterparty risk.

And on the point about the credit risk changes that have come out of Basel or the proposals that have come out of Basel, do you think those would increase the large corporate risk weights and, therefore, the risks?

Yes. It's a good question, Manus. It remains to be seen and I say that because we've seen quite a few revisions to rule sets. And review of the trading book was probably a good example of that where it was quite difficult to estimate before you get the final rule set because the outcomes tend to be quite different. I think operational risk may be similar. I know some of you have written about that. It will be quite hard, I think, to see where that calibrates. And I think credit risk, I think we have to look at it in the round. At the end of the day, I think for both Jes and I, we want to run an appropriately diversified set of revenue streams and if we do feel we're over-concentrated in any one particular sector, we would look to rebalance. That's not our expectation, but it's something we're not shy of addressing if it's necessary.

We're also very mindful of where we have high returns on tangible equity right now.

So we would know where we would want to put more capital if we had it.

The next question is from Jason Napier of UBS. Please go ahead.

Two questions, please. The first was around income generation in the investment bank. First quarter numbers were well above what certainly we had in our expectations, but there is reference made in your statement to April being somewhat slower than the first quarter. I just wondered whether there was anything to call out in the first quarter performance that you might regard as exceptional or whether we're, at least at this early stage, looking at a second quarter that's down for calendar reasons. Last year, the business was down about 5% quarter on quarter. Is that the quantum that we're guessing at this early stage? And then the second question also on that subdivision. Jes, you've obviously spent more time with the business now. It's been under your custodianship for a longer period now. 7% RoTE in the first quarter, calendar strong, no UK bank levy; it's certainly sub 5%, I guess, on a fully-allocated basis. Would you be willing to share your impressions as to what cost-to-income ratio you think this business ought to run at, given that as a firm you're clearly saying that the restructuring effort and certainly the restructuring costs, are coming towards an end? What cost to income do you think is optimal for the mix of business that you're in charge of now? Thank you.

So first, to the IB income question, Jason. What I would point to is I think we did very well in the first quarter in terms of capturing our market share in the principal activity in DCM, both in New York and in London, as well as in the leveraged finance space. As Tushar pointed out, transactions like the leverage buyout of ADT, etc., helped us to gain, I think, important market share. So it's an income number that we like because it's not based on some trading position that the investment bank took different from other people in the industry and I think it's a function of the work that our bankers did to raise our profile in the primary calendar. I'll let Tushar talk about April and the second quarter, but in terms of the RoTE of the CIB at a little north of 7%, obviously, that's not an acceptable return on tangible equity for us. We clearly want to get that number above our cost of capital and we're going to work actively on a number of fronts on the cost side, whether it's the synergies for merging the corporate and the investment bank to it's the work that we'll be doing on the operations and technology side, particularly with Paul Compton coming on board. And another thing which is very important is, different than our U.S. counterparties because of accounting treatment, we cannot move the cost in a performance cost in 2016. So you should note in the comment that I made at the outset that we recognize that IB revenues year over year were down slightly, but down and we also clearly saw what happened to the accrual of bonuses in the banks that reported last week. And we will adjust our 2016 bonuses accordingly. So we have less ability to show you that on an accounting basis, but we're very mindful of it and we recognize that we've got to get to a double-digit return on tangible equity for the CIB.

Yes. On April -- so Jason, yes slightly down on Q1. You were throwing out whether that feels like 5%. Look. I don't want to make a call on the quarter because we're only three and a bit weeks in, but looking at my lexicon and when I say slightly, it's probably not a bad proxy.

If I could just follow up on the cost income fishing expedition that I embarked on. I appreciate the issue of deferred bonuses and fixed costs and so on, but in the medium term abstract, given the mix of what you've got, there doesn't seem a great sense that in the ongoing bank there is a big drive to change mix. It certainly feels like the firm that you used to work for is a good 10% lower. Do you recognize that order of magnitude in what you're trying to do here?

Well, current cost-to-income ratio is about 83%. Right? And our target is to get it below 60%.

At a Group level?

Yes.

Yes. And our old firm, Jason, it is a slightly different business, but we would want to -- in some ways, we're left beholden by necessarily driving to a specific cost/income ratio in something like a corporate investment bank because we're really after structural reduction in costs that are permanent and ongoing and really after getting to a double-digit return. That should lead to, obviously, a lower cost income ratio than the one we have now, but there's not a specific number we have in mind. We just want to keep driving costs lower and lower as an absolute manner.

The next question is from Chris Manners of Morgan Stanley. Please go ahead.

Two questions. Well, three questions, maybe, if you can be that generous. The first one was on Brexit. Obviously, you're saying you're cautious ahead of the referendum. How should we think about the impact of that on the business? And assuming we do get a remain vote, when you're less cautious, what impact could that have? Second question was on the stress test. Obviously, you've given us the disclosure of your systemic reference point of 8.7%. December, you had 11.4% CET1 ratio so you've got around a 2.7% buffer. You had a 2.9% drawdown in the test last year. They're obviously making it harsher in the U.S. How confident are you on basically not breaching the systemic reference point in the stress test and are you taking any actions on that? And the last point was, yes, it was actually a fantastic result in Q1 on credit there. You seem to be up about 50% on the last seven quarters' trailing average. How sustainable should we think about that? Is that actually a bit of a one-off or is that actually a better run rate and a bit of share you're taking there? Thanks.

Maybe I'll take your last question, Chris and then pass it to Tushar. Obviously, we'd love to maintain that sort of market share but it's definitely a very difficult thing to predict. I think the thing I would underscore is on March 1, we stood up and said that the core franchise with Barclays was to be a transatlantic consumer, corporate and investment bank. And so I think a focus on getting that business right is part of our strategy and I think that may have contributed to some degree to what we saw in the first quarter. The idea is to continue to manage the RWAs, to continue to take low levels of market risk and counterparty risk and try to increase our business, like we saw in the credit line. And hopefully, we can keep that moving forward.

Yes. And, Chris, on Brexit, in terms of a remain -- when we say we're cautious, obviously, with the referendum coming, it's probably more cautious. We're running probably a higher LCR than we would otherwise do. At 129%, we've probably got one of the higher LCRs out there. Our NSFR is actually in pretty good shape as well and we're very much closer to home on various other measures of risk. So I think if it feels less certain, then I think you'll see us being able to deploy some of that liquidity to work more productively at the margin. In terms of the stress testing, you're right to point out the drawdown from last year. Of course, the thing to get aligned at is the draw-downs by year because the pass mark is now, obviously, a multi-year pass mark. It varies as you go further out into the stress test cycle. I actually feel okay with everything that we've seen thus far. It's obviously still early days yet. We've got a lot of modeling to do and a lot of number crunching to get done and exchange that with the regulators. But in terms of the stress test itself, it's not inconsistent with stress tests that we run for ourselves internally as a regular matter. So it's not something that feels that different to anything that we've got internally and that we would run for ourselves. So at this stage, we feel okay with everything; obviously, a lot more work to do over the summer.

The next question is from Joseph Dickerson of Jefferies. Please go ahead.

A few questions, if I may; firstly on ESHLA. This has been a source of below-the-line pressure for you for some time. It's a large part of your PVA deduction. It would seem that it's a relatively attractive asset to someone. Could you list the options that you have for that portfolio? And then the second question I have is just returning to the dividend. Could you list the milestones that you need to reach before you increase the dividend? And then thirdly, in the outlook statement where you talk about the performance in the CIB revenue and April being down on Q1 2016, why did you make that statement given that you don't want to make a call on the quarter? Thanks.

So why I don't I, Joseph, take the first and third and I'll let Jes take the question on dividend? It is an attractive asset, ESHLA and there are national buyers out there in insurance companies or even pension funds; anyone that wants to receive fixed cash flows, long-dated, stable fixed cash flows. It is a large portfolio and we're working through passing pieces of it out where it make sense and we'll continue working on that. In terms of the outlook, it's trying to be helpful really. It's difficult for us to make a call on the quarter when we haven't even finished the first month. But just to help folks think about how the second quarter started off, it's just to give you a sense of what it feels like. None of us will know for sure what May or June feels like, but we can at least tell you what revenue run rates look like at the moment. Jes, do you want -- question?

Again, we moved the dividend to 3p for 2016 and 2017. The goal is to accelerate the closure of non-core. We've walked through a whole series of things that we did in the first quarter and you've got a really good preview of things that we have -- where we have signed purchase and sale agreements but we have yet to close as with Asia Wealth and now -- or other businesses. Let's track how non-core closes and how we converge the core results with the Group results and obviously when we're able to do that, that gives us much more flexibility.

The next question is from Martin Leitgeb of Goldman Sachs. Please go ahead.

Three questions, please and I wanted first of all to follow up on the IB revenue questions touched on earlier. And I was just wondering what in particular drove these trends you had in credit. What sub-segment within credit contributed most? And obviously, the reason for the question is credit yields edged higher during the quarter so inventory should be negatively impacted. And equally, primary issuance volume seemed to be subdued during the quarter and nevertheless, Barclays had an almost 50% increase year on year in that revenue line. So I'm just trying to get a better sense for what happened here. The second question is the upcoming FBO in the U.S. and how you're going to adjust your subsidiary and your capital position there going forward. I was wondering if you could shed a little bit of light on what your current plans are there, obviously in light of the upcoming inclusion in the first non-public CCAR next year. And the third question just to touch on Barclays UK. You mentioned obviously your cost ambitions in particular within the IB. I was just wondering if you shed a little bit of light in how we should think directionally in terms of the absolute level of costs within Barclays UK in light of the ongoing branch reduction; whether we should expect the absolute number of costs there to edge lower from here or whether you think you have now reached a stable level going forward. Thank you.

Maybe before I pass to Tushar, Martin, those questions, just one other quick comment on the dividend which is we fully recognize that a robust dividend is important for the total return to our shareholders. And we fully intend, when we're in a position, to pay a significant portion of our earnings out in dividends. So I just want to make it clear that we do appreciate that and understand that.

IB revenues, so it's really your question was on credit, Martin. We don't carry much inventory. Our business is much more low risk levels and then high velocity, if you like. So to the extent there are significant mark-downs in inventory or indeed mark-ups, we would be less impacted by that. So the good performance this time round was very much providing liquidity and trading bonds and credit instruments on the back of the good market share that we had in debt capital markets. As I say, we improved our relative market share of the declining fee side, but a larger share of that declining fee side was helpful to our secondary business as well. And we feel very happy with the progress that we've made there in repositioning that business. In terms of the FBO rules in the U.S., there's really nothing I'd share with you thus far than you've already got out in the public domain. You're right. We do a private CCAR and a public CCAR the year after. We're well on track to participate in that and I'm sure we'll learn a lot from the private CCAR. And I think we're in pretty good shape in terms of reorganizing. As the legal matter, our business is under a single intermediate holding company, but also ensuring that we're compliant with all the rules and regulations that will be applicable to it. Finally, your question on Barclays UK and the absolute cost level. I would expect costs to continue to come down; the potential integration of our UK card with our UK retail business. You've mentioned branch footprint, the increase in use of digital channels. And Ashok and team with EMEA have got some exciting things that they're working on in the cost front there, so I think that will be a continuing story for us for some time.

And just to follow on your comment on the credit revenue, I was just wondering. Liquidity seemed to be at a very historic low in the first quarter, so how could that have driven revenue? Did you see such a jump in your market share or was it single-trade specific; that you had one or two positions which went very well during the quarter?

No. As I say, we weren't carrying a lot of inventory. It's flow credit that's really our business. We don't play around in perhaps the distressed piece. We're not so significant in securitized products. So areas where there was very little liquidity where perhaps others were carrying more inventory, it's just less impactful to us. Ours is probably a little bit more of a simpler business. So if there's a strong rally in those sub asset classes within credit, that would be less impactful for us, as much as much as it doesn't impact us on the downside.

The next question is from Fiona Swaffield of RBC. Please go ahead.

I just wanted to follow up on your non-core revenue guidance. Just that having had a better Q1 than I would have thought, £132 million positive I think ex-ESHLA, what's driving the implied negative delta ex-ESHLA for the next three quarters? Is it you're taking losses on divestments or is the £196 million business falling very, very quickly? If you could help with the moving parts there. Thank you.

Why don't I take that one quickly? Yes. You've kind of answered the question, actually. It really very much is the potential cost of divestitures as we go through the course of the year. We talked a little bit earlier about France or we'll see what that transmits to ultimately when we do a deal; and we've got a couple of other businesses out there as well. Of course, there is continuing potential costs that we'll incur in terms of derivative exits as well and various other securities and loans, most of which are capital neutral to capital accretive but it's a headline negative on revenue. So really, that's about all that's going on there.

Could I just ask in follow up? Was it just that in Q1 you just didn't see those costs, for example, in derivatives?

Well, we did, but we did better than we thought we would in terms of managing through some of the derivative reductions within the revenue budget that we had for ourselves. That's not always going to be the case, but I think the budget still holds, but sometimes, we'll do a bit better; sometimes we won't do as well.

The next question is from Fahed Kunwar of Redburn. Please go ahead.

Just had a couple of questions on ESHLA really. The first one is just so I'm clear. If the gilt asset swap spread doesn't move, does that £374 million loss in the quarter go away in the second quarter? And the second question was just on what was the capital impact from that ESHLA loss? Is most of that added back so you don't get much of a capital hit apart from the PVA deduction? If you could just split the £374 million up between what actually hits the capital and what's taken out, that will be very helpful. Thanks.

Yes. So the position is marked -- so to step back. What goes on here is we have a portfolio of fixed rate loans that are mark to market using gilts rates, I should say and that are hedged with interest rate swaps. So that package is exposed to movements in the gilt asset swap spread. If rates move, where gilt and swap rates move completely in tandem, then it's well-hedged. But if there's any movement in that basis between gilts and swaps, that will flow into P&L. So if the spread is literally -- doesn't move literally at all over the full nine months -- three months of a quarter -- you'll see virtually no P&L necessarily coming through there. But, of course, it's much more complicated than that because it's a term structure and rates will move even though it looks like the 30-year point may not have moved, the 10-year point probably almost certainly will have and the 25-year point will have moved and what have you. So it's quite hard to distill it out into a sound bite that I think people will look for. I would just try and be helpful; generally say if the curve, term structure of gilt asset swap spreads widens generally, that will cost us money. If it tightens, generally it will make us money. But as I say, it's a little bit more complicated than that because of the ladder of positions that we're running. In terms of capital impact, it's not a straight direct transmission into capital deductions. There is a small amount that goes against our capital, again positive or negative depending on which way it goes and that's included within our PVA deduction. The change in PVA this quarter was actually unrelated or materially unrelated to movement in spread. It was actually a methodology change that we've been working behind the scenes with the PRA for a little while. And when I was talking to you folks at the end of the first quarter, we had in our mind that that would probably be something that would get finalized in the first quarter and hence, I called out that our capital would probably go back a touch in the first quarter which is what's happened.

Just to be, so I understand, the £374 million without the PVA deduction came -- did directly hit capital net of tax this quarter?

Well, a piece of it does; not all of it. A fraction of it does, but certainly not all of it. It's not a direct transmission one for one.

The next question is from Peter Toeman of HSBC. Please go ahead.

A feature of this call, as you referred to on a number of occasions, to the variable compensation in the investment bank. And I recall at the analyst breakfast you talked about the possibility of being able to capitalize some of the prior-year bonuses and treat them as an expense out of capital or at least you hinted on that. So am I right in thinking this is something you're now actively considering?

Look. It's something that we've had in our minds for some time but we've got no plans to do that. There's a lot of stuff to go through first and foremost. So to the extent it becomes anything concrete in our thinking, we'll obviously update you, but don't plan to do it at this stage.

The next question is from Sandy Chen of Cenkos. Please go ahead.

Two questions. One's small. On market risk CVAs, in CIB, it looked like it went up about £1.1 billion in the quarter. Could you just talk a bit about that? And then the second is more an overarching question. If I heard correctly and correct me if I'm wrong, in the IB, I think what you're signaling is that you won't allocate additional RWA or capital capacity to it and that you're exploring options of cost cutting, either on the wage bill or in terms of the back office. And could you give a bit more color on that? And the obvious question is that when I do my math, I still get to about a 3% RoE on a, say, 12% CET1 capital requirement and are there any other options in terms of realizing value in the IB that you might consider? Thanks.

You do the market risk question and I'll do the--

Yes. The market risk question, the market risk CVA, there's nothing I'd call out there. That's just a regular way to start. You can that risk-weighted assets actually in the corporate & investment bank are actually only affected by foreign exchange rates so were flat on a relatively low print from year end.

So that's just the FX.

Yes. Nothing to call out there. I'll hand over to Jes to cover investment bank.

Just we clearly understand in the CIB that there needs to be a correlation between revenue performance and compensation performance. And as I said in the preface to this call, we will accrue the 2016 bonus pool appropriately given that revenues were off slightly year over year and what we saw the street do. So I think everyone in the corporate & investment bank at Barclays recognizes the connectivity between our relative performance and how we pay bankers. The RoTE in CIB is above 7%. That's not where we want it to be. And as we've talked about, we will take cost measures, both the synergies of merging the corporate & investment bank together; re-engineering of the operations and technology from the investment bank which is one of the biggest cost bases that we have and we're focused very hard on that. The correlation of compensation to profitability, we will manage that as well. And then also don't forget that like you've seen in the first quarter, we hope to improve the revenue performance as well. But it is our objective to get return on tangible equity for the corporate & investment bank above our cost of capital and we're going to work very hard on doing that. That said, it is a strategic part of the diversification of our revenue stream as an overall bank and we believe that there is value in having balance between consumer and wholesale banking, so that is part of our strategy.

I think we'll take one more question, please, operator and then we'll close the call.

Your final question is from Tom Rayner of Exane BNP Paribas. Please go ahead.

Just maybe finish with two, if that's all right. Firstly, on the capital, just looking at your slide 15 and your consolidated go-to ratio looks like it's somewhere around 13%. Tushar, can I ask you on your comments about running with very similar levels of capital within the ring fence and the non-ring fence? Clearly, from a bottom-up capital stack approach, you're coming to a similar number. Does that take into account potential views of, say, the rating agencies when giving a credit rating to the non-ring fenced bank in terms of being able to fulfill the functions of derivatives counterparty, that type of thing? Have you taken all of that into account when you made those comments? And I just have a second follow-up question, please, on non-core revenue, if that's okay.

Yes. Do you want to give me that question as well, Tom and then we'll do them in the order you gave them?

Yes. It's just really for clarity going back to Fiona's question, looking at the £196 million in the first quarter. If I understand your guidance correctly, the full year is still going to be around negative £800 million, suggesting the next three quarters will be negative £1 billion. Is that correct? And is that a good proxy for the sort of disposal losses that we're going to be expecting to see this year? Or perhaps even more than that if there's going -- if that £196 million doesn't completely fall to zero, so there's still some underlying revenue being offset? Am I thinking about the guidance in the right way there, please? Thanks.

On the question on capital, you're right. We've thought long and hard, obviously, about how we believe ratings agencies will look at the entities. We have a dialog, as you could imagine, with the ratings agencies, but it's really their judgment and for them to consider. There's a number of measures we think through that we think are relevant for ratings agencies. Capital is one of them, but the type of balance sheet that you're running, the type of assets on the balance sheet that you're running, the amount of leverage, the way it's funded, you're probably as familiar with some of these models as I am, the amount of subordination in those entities. All of that in consideration we get to, we think, that both the operating banks will have similar CET1 levels; not identical but pretty similar. The other thing that is a little bit harder to factor in and may evolve our thinking on that as we go through time, will be how stress testing is applied to each of the entities as well. And that will probably be something that will evolve in the fullness of time. And I'm thinking more as a Prudential matter rather than a ratings agency matter there. In terms of non-core income guidance, yes, I would still say that all in over the course of the year, the guidance that I gave at year end still holds and that should in many ways cover everything or whatever income we generate from the businesses that are operating under our ownership; cost of exits, both derivatives and businesses and related. So I think that's still a reasonable number. We'll obviously try and do everything we can to improve on that, but I think that's probably the right guidance to give you to you guys at the moment. I think that we'll wind the call up there. Why don't I hand back over to Jes who, I think, will make some final comments and then we'll close the call?

Yes. Just very quickly, I just wanted to on the call express how extremely pleased we're with the energy and the values that the employees of Barclays showed in the first quarter. To achieve our roughly double-digit return on tangible equity in our core business is a very important goal for Barclays; at the same time managing down our non-core business at the pace that you saw in the first quarter. And then with all of that, reorganizing the Bank along the two business units of Barclays UK and Barclays Corporate & International, the work that's gone on to re-state all of our financial statements accordingly with that; to set the Bank up to be positioned to comply with all the regulatory requirements that we're getting from the UK and from the U.S., changing our executive committee with some very strong hires from the outside. I think we've accomplished a lot in the first quarter and I just want to express my gratification and thanks to the employees of this Bank.

Thank you. That concludes today's conference call.