Welcome to the Barclays Q3 2020 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. As the COVID-19 pandemic grew and the global economy began to contract, Barclays focused on three things. First, to preserve the financial integrity of the bank. If we're to maximize our support for the economy and society in this time of challenge, Barclays must first be a strong, profitable business. Second, we wanted to be there for our customers and clients. So we did things like waiving charges and interest payments to help people cope during a very difficult period, and And we worked with governments, particularly the U.K. government, to deliver programs to help businesses, big and small, to weather the storm. And third, Barclays needs to embrace and support our colleagues within the bank, recognizing the challenges that we all face on a personal level and on a professional level. To the first point, Barclays generated a pretax profit in the third quarter of £1.1 billion, which means we've earned £2.4 billion of profit before tax in the first 3 quarters of this year. In the face of extreme stress for the U.K. and U.S. economies, for Barclays to maintain its profitability through the first 9 months of the year, clearly supports the basis of our strategy as a diversified, developed markets universal bank. With tangible equity of some £48 billion, we closed the quarter with a CET1 ratio of 14.6%, representing the highest level of capitalization in the bank's history. Distribution of excess capital to shareholders remains a priority for this management team. And the Board will decide on full year dividend and capital returns policies in February. Our liquidity coverage ratio stands at 181%, and we have impairment reserves today of some £9.6 billion. Barclays is today highly capitalized, liquid, well reserved for impairments, diversified in its business and profitable. In the third quarter,…

Thanks, Jes. As usual, I'll make some brief comments on the first 9 months and then focus on the third quarter performance for the rest of the call. As Jes mentioned, the results for the first 9 months continued to show the benefits of our diversified business model. Despite the impairment charge of £4.3 billion, 3x the previous year, we reported a statutory profit before tax of £2.4 billion, generating 7.6p of earnings per share. Litigation and conduct was just £0.1 billion in the 9 months. We had a large PPI charge in Q3 last year, so I'll reference the numbers excluding litigation and conduct as I go through the results. Profits for the year-to-date were down on last year, driven by the increase in the impairment charge, but income growth of 3% against a 1% decrease in cost delivered positive jaws of 4% and an improved cost/income ratio of 59%. The income growth reflected a 24% increase in CIB, more than offsetting income headwinds in the consumer businesses. Overall, we reported an RoTE of 3.8% for the 9 months. Our capital position strengthened further to reach a CET1 ratio of 14.6% at the end of September with RWAs down £8.3 billion in Q3. TNAV increased from 262p to 275p over the 9 months. Moving on to the Q3 performance. Group income decreased 6% in Q3. CIB again reported a year-on-year increase, driven by the performance in markets, offset by the expected income headwinds in the BUK and CC&P. While CIB income for Q3 was down on the levels of H1, the consumer businesses reported increases on Q2 as we had guided. Cost increased slightly, delivering a cost:income ratio of 65%. The impairment charge of £608 million was well down on the Q1 and Q2 numbers, and we saw limited…

[Operator Instructions] The first question comes from Jonathan Pierce of Numis.

I've got two questions, please. The first is just a broad one on impairments, just trying to get a better sense as to what you are thinking into next year, accepting still considerable uncertainties. I mean is your thinking at the moment, the way this will work next year, we'll continue to have a sort of normal underlying charge of some £600 million to £800 million that we've been seeing in the last few quarters, but any increase over and above that as things genuinely deteriorate will be covered in the reserve -- by the reserve releases that you've built in the first half of this year, assuming the models are correct, of course? So therefore, I don't know, you're kind of thinking that next year, the impairment charge, all else equal, probably will be something in the order of £3 billion. Just trying to get a better handle on what you're thinking about next year in terms of impairments. The second question is away from these results actually. It's more about these two 10% bonds that you've got maturing in the middle of next year and the loss of some £3 billion credit across the two, I think. So it's quite a significant interest expense that is not, as I understand it, being taken in the Head Office. Those were issued 12 -- maybe 12 years ago now. Are they still hedged from a rate perspective? Or are we actually talking about a gross £300 million drop in interest expense in the middle of next year when those bonds get redeemed?

Yes. Thanks, Jonathan. Why don't I take both of them? In terms of -- is my line clear? Yes, sorry. In terms of the impairment, the way I think about it is the sort of the building blocks that you're very familiar with, you'll have your own views on the sort of economic environment that we find ourselves in next year. If it's consistent with our current forecast, then we wouldn't expect any sort of material change in terms of book-up or release necessarily. So that's one thing, and you'll have your own views on that. But second thing is just -- so assuming that the economic forecast plays out as we've got forecast, you're right to sort of say that the book-up that we have ought to be digested over the course of next year. The slight complexity is that this is an expected loss that we've taken, so there will be some names that both on the consumer side and the wholesale side that will default and some names that will cure. If that all happens at exactly the same time, they need to have a very smooth sort of impairment profile back, in the words you described, sort of your typical underlying level. Chances are though that it probably won't be quite that smooth. You'll probably have defaults happening at a quicker pace than you normally have cures, and that's just us probably being conservative in holding on to credits rather than curing them so quickly. Having said that, if you look over a sort of a multi-quarter period, maybe 4 quarters or something like that, then I think the book-up ought to be digested and there have been sort of no net effect over the year. But during the course of the year, it may be…

The next question comes from Joseph Dickerson of Jefferies.

Very solid quarter there. I just have a question on the CET1 glide path into next year. Could you kind of quantify a range that you have in your mind that you're budgeting for some of the regulatory headwind in terms of basis points? And then could you also opine upon the buffer to MDA, so we've had this CP17/20 out on this Tuesday, looking into the usability of buffers and also the point of holding excessive management buffers, and you're currently 330 basis points over your MDA. So, I guess some view on how that plays in as well to the capital that you'll want to hold versus distribute.

Yes. Thanks, Joe. Why don’t I take both of them? Our sort of flight path into next year, look it’s hard to give you a sort of a basis point number on headwinds. But there are some sort of things that everyone ought to be aware of. And hopefully, we’ve called them well but just call a couple of them out again. We had a PVA benefit, a technical benefit that was introduced this year under the rule book. That will go away in Q1 next year, so you probably want to see that as a headwind into Q1. I would remind folks on IFRS 9. You’ve really got sort of 2 things going on in IFRS 9. You’ve got the original transition relief. We’re going to step into sort of the next year, so we’ll step down in that sort of first portion of transition relief. And then the second portion of transition relief as names, as we talked about on the earlier question from Jonathan, migrate from stage 2 into stage 3, there’ll be a capital effect then. The other, I think the gist of your question is also on the credit side, particularly. We probably haven’t had quite as much a pro-cyclicality as we anticipated. We saw another sort of £3-odd billion or so in Q3, and we’ve taken a bunch of management actions in anticipation of that, which has been more than offsetting that. I still think there’s probably more headwinds to come. These will be sort of default grade downward sort of shifts and similar-type items on the counterparty credit side and on the traditional credit side, but sort of pretty hard to give a number on. We’ve had some natural kind of tailwinds against that, for example, the flowback of revolving credit facility. I…

The next question on the line comes from Alvaro Serrano of Morgan Stanley.

Two for me. One, on the -- you mentioned still revenue headwinds in BUK. Can you help us with sort of the headwinds you see, obviously, still from the structural hedge? Help us quantify that versus presumably the tailwinds that come from mortgage volumes and mortgage pricing, how that's at play and help us quantify maybe what the headwind will -- or get a head around what the headwind might be there. And the second question on costs. Again, you said you're evaluating cost initiatives. I'm thinking, excluding the investment bank, which is for me at least, it's easier to get my head around. But if I think about BUK or the U.S. business, CC&P, can you help us -- talk us through how much would be infrastructure or give some color versus headcount reduction because you now don't need the distribution network you might need pre COVID? So maybe, I don't know if you can quantify at this stage, but at least headcount versus structural sort of network and things like that. Can you comment on that, please?

Yes. Thanks, Alvaro. Why don't I take the first one and Jes can talk about how we're thinking about costs? On the revenue sort of headwinds, tailwinds for the U.K. business, yes, I mean, in terms of on the headwind side, I would remind people that the structural hedges, this is -- people have their own view on what the rate environment is. But if it's -- as we have it at the moment, our sort of fixed receipt swaps will grind into lower fixed levels. That's a headwind. And you can see how sort of swap rates have come down over the course of, say, the last 12 months or something like that. And we've sort of called out some numbers on the slide, where I think you've already got there, Alvaro. So I think that is one headwind. That also has a sort of an effect for NIM as well, sort of be a dilutive effect as the fixed receipts earn less. I think another thing in terms of headwind, I think the NIM, but as an income matter as well on a year-on-year comparison as well, we haven't really seen our unsecured balances. We've seen them stabilize, but we haven't seen them grow. I think it's going to take some time for them to grow. I think, first and foremost, on a very positive side, we've seen consumers deleverage quite well. So they're anticipating tough times and that's really positive. And hopefully, you'll see that come through impairment. On the second thing, you can see our deposit levels are super strong as well. I mean at Barclays, it's a striking number. We have almost £0.5 trillion of deposits now at Barclays, which just shows how powerful savings sort of rates have been across consumers and corporations. So that will lessen, you would expect, the need for revolving credit. So that will be a headwind into next year as well. Now on the flip side, you did point out mortgages. I think that is a bright spot. Application levels are running at pretty robust levels and somewhat probably fueled by the stamp duty relief. And pricing has stayed pretty competitive. I guess the only challenge though with mortgages, it's sort of you will get the net interest income benefit, but it comes through a little bit later. So I'd say for NIM as well, of course, if you're growing your secured book relative to the size of your unsecured book, then that's a headwind for reported NIM. So just on the math of all of this, you can see that there's downward pressure on NIM going into next year. But mortgage looks like a pretty decent bright spot. Jes, you want to talk about costs?

Yes. Let me -- thanks for the question. Let me start by saying we, as a management team, we put restructuring this bank behind us over a year ago. And when we think about taking the bank forward, what we want to look for is growth. And I think in the midst of this terrible pandemic that we're generating profits every quarter, hitting the highest levels of capital, being very liquid, significant impairment reserves, this is when you look to invest in the business and that's what we're doing. If you look at the IB, we have one of the lowest cost:income ratios in the industry. And given that we've taken our market share in the markets business from 3.5% to 5%, we want to continue to invest there. So I wouldn't look at performance in the IB around reducing costs because I think costs are quite low versus our revenues. But can we continue to drive revenue growth there? To the CC&P, I know we flipped back in the third quarter to roughly a 15% return on tangible equity in that business. The payment volumes were up some 30% versus the second quarter. In our U.S. card business, we've announced 2 really good co-brand partnerships, 1 with AARP, which for those elderly people who live in the United States, it's quite a program; and then the Emirates airlines, one of the biggest international carriers, when people start flying again, that should hopefully be a good co-brand card for us as well. So we've got a good level of profitability there in some business that we want to invest in. The challenge isn't BUK. And we have the headwinds of close to 0 interest rates in the U.K. We have the fact that a lot of banking services are delivered…

The next question comes from Rohith Chandra-Rajan of Bank of America.

I was wondering if I could just follow up on the revenue outlook for the consumer businesses. So firstly, just in terms of that mortgage repricing, is it sort of reasonable to think, given that we've had already a couple of quarters of much better new mortgage spreads, that it's probably the middle of next year by the time the proportion of the book on those better spreads starts to support the margin in BUK? And then secondly, I guess, just differentiating, I suppose, between the credit card evolution in the U.S. and the U.K., particularly the -- so number one on that, can you talk a little bit about the trends that you saw through Q3 and the first month of Q4, first 3 weeks of Q4, and then see -- how you compare the outlook between the 2? So Jes just mentioned the co-branding deals that you've done in the U.S. So when do they come online? And how would you compare the outlook for the U.S. and the U.K. cards businesses, please?

Yes. Thanks, Rohith. Why don't I cover them? In terms of mortgages and sort of how that flows into net interest in sort of margin upward pressure, so on the positive side, the churn rate is actually positive now. So we've been in the past where we've been sort of cannibalizing our margin as the back book sort of materials into front book. It's actually positive now. And it's actually meaningfully positive. It's about as wide as I've seen in recent times. So that's positive. The only reason I would sort of just caution people to not get a bit too sort of ahead of themselves on this is if we originate in any typical year, and I'll give you really broad numbers, somewhere £5 billion to £10 billion of net mortgages in a typical year, we've got a mortgage book of about £140 billion. So it takes a bit of time for that sort of churn, that grind to sort of really have upward pressure on NIM. At the same time, if the card book actually declines, let alone sort of flatlines, and of course, you've got some quite significant downward pressure because that's so much a higher margin. So I think the spirit of your point is right, Rohith, but it does take a bit of time. I think in terms of your timeline, will it sort of have net positive pressure on NIM the back end of next year? Maybe. It feels a bit early to me. I think it takes quite a bit of time for it to churn through, just the law of numbers there really.

Could I ask on that, Tushar? So you talked about a net number that's £5 billion to £10 billion a year. But actually, there's a lot of the book that we'll be refinancing. It's not a net number, it's just a refinancing, it all balances. Is that more positive than sort of the picture you just painted?

Yes, it is. But again, you've got to just look at the relative size. So when I'm talking about the churn margin being wide, you've got to remember how much are we making on a card business, and it's a fraction of that. And secondly, so there's that sort of the massive downward pressure from the card business and the [indiscernible]. And again, the size, I think if you're sort of printing net somewhere like £5 billion to £10 billion, maybe you've got £20 billion of gross, and I'm giving very, very round numbers, it will vary year-on-year. So yes, you're right, it's a very good point. It's going to be a little bit more sort of powerful because gross numbers are larger. But still given the churn margin is positive, but it's nothing like as wide as the credit card margin is saying the other way. So it just takes a bit of time. Sorry. Let's go down to credit cards and the evolution there, a similar story in many ways. We saw card balances decline a lot and then plateau. We're still seeing that plateauing effect. I think it will take some time for both balances to recover. I think in the U.K., we haven't really hit peak unemployment yet. So we've probably got to go through that. We've got a lot of cash on our balance sheet and still government support schemes going on. So I think the desire for revolving credit is going to take a little bit of time to come through. On the U.S., we're probably through peak unemployment, we think. We've got the Thanksgiving and Christmas period, which is a little bit more constructive. The challenge for us is, of course, our partnership cards are probably overweight in the travel, leisure, entertainment sort of sector. So we're working very hard to ensure that spending on that card is something that is desirable for those cardholders. AARP, the one that Jes mentioned, will close next year. And Emirates will be a book that will take a bit of time to grow that, of course, given travel at the moment is relatively muted. But I think we feel constructive but in the medium term rather than sort of very near-term place, how I'd characterize it.

And one thing I would just add, staying there for a second, is something that we are investing in quite heavily on the technology front is point-of-sale financing and I think the growth that installment lending is going to have relative to the credit card portfolio. So for instance, we've launched a new app in our German business, where we're the largest credit card underwriter there, where when you make a purchase with your Barclays credit card in Germany, you get the option of using your revolving line of credit or you can pay over 6, 10, 12 months at fixed installment numbers. And the truth is, Germans tend to borrow in installments more than from credit cards. And I think you'll see over time, an evolution of point-of-sale financing as partner to what we do in the credit card business across our platform.

Your next question comes from Jason Napier of UBS.

Can you hear me okay?

Yes. You're fine.

Super. So the first question, this is to come back on the questions we've heard already around the outlook for restructuring and costs. Just one of the things, I guess, we've seen in previous crises is businesses find it quite difficult to invest as much as they would like during downturns. And I guess with distributed working as it is, there might be a risk that you come into 2021 with some catch-up. Consensus currently has costs down year-on-year next year, presumably linked to softer expectations around revenues in the CIB. Are you comfortable with expenses in aggregate in 2021 will decline? That would be the first question. And then secondly, noting some of the questions we've already had around what looked like very good margins in mortgages compared with where they've been, I guess, if we look at the overall returns in BUK, I guess, the issue is not that liability spreads are low. It's that once you take into account all the cost of gathering those liabilities, the $0.5 trillion in deposits that you have, that they might be nonexistent and that actually credit spreads might need to be even wider if you're going to return to above cost of equity returns there. I wonder whether you'd talk about where you see product level returns on the credit side, please? Are you comfortable that flow pricing is adequate in the main to get you to that above 10% RoTE that you've re-endorsed today?

Yes, thanks. Why don't you go ahead, Jes?

I'll start, then I'll pass it to Tushar for the tougher part of the question. Again, one of the advantages, I hope, where the bank finds itself today versus where it's been in previous situations is in the face of the COVID-19 pandemic and a very tough economic environment, that we grow our capital base the way we've done, that we build the liquidity buffer for the way that we've done, that we generate the profitability that we've levered our managers. We don't have to sit back as a management team and say, "Hey, do we need to do a major restructuring?" We don't. Now obviously, you always want to be running as efficiently as you can. To your specific question about the CIB, something that we've been saying and we've demonstrated amply, I think, last year, one of the characteristics of an investment bank is you know you have variable revenues, but you also have variable compensation, which about -- which allows you to calibrate your cost to your revenues. And I think you've seen us do that over the last 3 to 4 years. So -- and then you do have to appreciate that a lot of the costs we have this year are to make sure this bank is functioning properly, given the pandemic. We've had to go into 35,000 homes and install routers and broadband connections and get people computer screens and telephone hookups to get -- to make this bank work. We're going into over 700 branches almost every day with full sanitizing and solutions to make sure that our employees in those branches are safe and the customers walking in those branches are safe. Flip side, we're saving money because not everyone is flying on jets all the time. So I think there's some room to always invest our money more prudently. But I think it's more investing wisely as opposed to looking at any sort of big cost overhaul.

Yes. I think -- yes, exactly, it's very much as Jes said. I think to follow on from Jes' point on costs to help sort of as you think through sort of next year's costs, now our exit rate this year is probably not where we would have preferred to have it. We were quite public in putting a moratorium on headcount reductions over the course of the last 6 months or so. And we've got no grandiose plans to announce anything around there either, given that we may be going into further lockdowns and what have you. So our headcount numbers are probably higher than we would have expected it to be. We're incurring, as Jes mentioned, a whole bunch of operational costs just to keep our businesses functioning in difficult times. So we probably do have a sort of an elevated, if you like, exit rate than we would ideally have. And as Jes mentioned, the restructuring that we sort of highlight, it's really just kind of -- we've learned a lot through the pandemic as well. As Jes mentioned, there's different ways of working that we didn't think were possible. We're examining them, evaluating them as I'm sure every company and financial institution is. I think that ultimately will result in a much more efficient cost base for ourselves. But we want to be sort of careful and deliberate around any decisions we make around the utilization of, say, for example, real estate, et cetera. So we'll keep you posted as we make those decisions. On BUK product-level margin, certainly mortgages at the moment, for example, pretty healthy returns. Even with the changes in risk weights that are coming down the pipes from the PRA, I think returns on front book mortgage is very healthy. Cards, you know about, mostly it's a very healthy returning business as well. So I'm not as concerned on, if you like, asset side margin. One thing is just can we generate enough assets just given the liquidity that we've got? You can see our loan-to-deposit ratio is continuing to decline in Barclays U.K. It's almost at 90% now. So probably it's going to be sort of hard yards until the balance sheet starts sort of growing meaningfully again. But I'd say the margin on our balance sheet, certainly for front book business, is definitely looking attractive, if that helps, Jason.

We have a question from Guy Stebbings of Exane BNP Paribas.

Firstly, can I just come back to BUK cost specifically and check if there's anything in the third quarter that was particularly lumpy that should disappear. I know you referenced the principal finance transfer and the elevated servicing costs. But these are presumably here to stay somewhat. And it's clearly a division we're seeing quite a lot of top line pressure but also quite a lot of pressure to the cost base. And I'm conscious that consensus for next year, excluding the levy, is below £4 billion versus a run rate this year of £4.2 billion. So I'm just wondering if it's reasonable to think you can take necessary actions to bridge that gap or if the elevated exit rate you referenced might make that quite challenging. And then the second question is just on your disclosure on rate sensitivity on Slide 36, which I'm struggling a little bit conceptually with. I would have assumed that as we go to negative rates, the impact of the reduction in base rate becomes proportionately more impactful, if you like. But if I'm reading the slide correctly, it looks like, at least by year 2, year 3, that actually the next 15 basis points as you go negative to capture a negative 25 is proportionately slightly less painful than the first 10 basis points. So I'm just wondering if I'm interpreting that slide correctly and if that is in you would expect it to work through in practice.

Yes. No, thanks, Guy. Let me start with BUK costs, just take the questions in the order in which you gave them. Yes, I mean, a lot of the exit rate sort of pressures that I've mentioned are -- some of them are definitely in BUK. So that's something we will have to deal with and digest as we go through next year. In terms of any one-off items in the third quarter, not really, not that we'd call out, we've called out the partner finance. That's probably, I think, for where our costs were slightly above most expectations, half of that was probably driven by the partner finance sort of geography shift, if you like. And there was a little bit of sort of restructuring that's constantly going on in those businesses that can be a little bit episodic. We don't call that out because it's -- it will ebb and flow quarter-by-quarter. But there's a little bit of that in there. And that's probably why most people's estimates will be a touch lower than we were. So look, I won't comment on next year's consensus for BUK cost. But hopefully, you've got some of the building blocks there at least to sort of do your own modeling on that. The rate sensitivity, this one is a slightly more tricky one. We put it out there because, obviously, it's of interest and many banks do put it out there. The challenge is, of course, it's a minus 25 basis point parallel shift. Unfortunately, it's almost precisely won't happen. I mean who knows what curve shape will happen. But it will have a different effect if short rates are negative and long rates are positive. It will have a different effect if short rates are negative and long rates are…

The next question comes from Chris Cant of Autonomous.

Two, please. First, a quick one on tax. The effective tax rate this year is 18% so far. Could you just remind us what your current guidance is on the group effective tax rate? And also, how that might change if Joe Biden wins the U.S. election and brings in a 28% U.S. tax rate? And then on cost, I'm a little bit confused about the sort of tension between the RNS flagging potential restructuring charges above and beyond your cost guidance, on the one hand, and on the other, saying you wouldn't expect any grand statement on cost and no big cost overhaul. Jes, you remarked that the CIB is running with an industry-low cost:income ratio. I don't know whether I'm misinterpreting that. But it seems to indicate upwards pressure on costs next year, and you talked about the need to try to grow around that. Is that correct? Should we be expecting CIB costs to rise next year? Obviously, you've had a stellar year this year in terms of the cost:income.

Let me take the last question. Because I think the cost:income ratio for the CIB shouldn't really move that much. I mean obviously, they've had a very strong year. And like other banks have said, we don't really see a linear correlation between variable compensation and variable revenues. It's more nuanced than that. So unless there was a significant change in revenue forecast, I wouldn't expect any significant change on the cost side. Tushar?

Yes. And the tension about -- we just want to -- we're doing a lot of thinking, a lot of examining on things that we can do to make ourselves more efficient. But we want to be very deliberate and careful before we come to any sort of final decisions around this. The kind of -- the danger is you sort of extrapolate from today into sort of way out in the future and start changing your -- the way you work until you fully really understand on the other side of this particular sort of medical situation what's the right way to be running the company. But it is something that I think will lead to efficiencies and will lead to benefits. And really, that's all we're alluding to. But we haven't completed that work. And when we do that, we'll certainly update you. Just on the other question, Chris, we're guiding to 20% effective tax rate. That's excluding litigation and conduct, as we've done in the past, for this year. In terms of U.S. tax rises, yes, look, we'll see. I mean that's speculating on elections and all that. It's way beyond my skill set. But if tax rises do happen in the U.S. or anywhere else for that matter, that will have a fairly straightforward effect on us. The only thing I would say is that you have this sort of slightly peculiar effect where it will have a beneficial effect on the value of our deferred tax assets. So you'd have a balance sheet sort of asset that you'd create. And as you know, accounting-wise, that will go through your tax line at the point in which that happens. But then you'd have a negative, if you're having a higher effective tax rate along the back of it, so yes.

The next question comes from Ed Firth of KBW.

I guess two detailed questions. Number one, on the restructuring charges, can we just be clear then? So if you have restructuring charges at the full year, are you saying you'll absorb that within your cost target? Because I guess that's a message I'm getting from you.

No. Just to be very clear, we will be broadly flat year-on-year on cost. Where we could do any specific restructuring, we would call that out separately away from the £13.6 billion broad guidance that we've given.

Okay. Great. And then the second one was in terms of just the NIM, overdraft fees, I can't remember, did you have them in the NII? I thought you did. So shouldn't we see those come back in Q4? That was just one point. And then...

Yes. Go on, keep going.

And then I guess, yes, the other point was whatever the interest rate sensitivity works out, whenever you've shown it to us in the past, it's always been around sort of 2/3 is in year 1 and then it sort of grows up to the full amount by year 3 or so. For the 65 basis point cut we had in the first half, is that all the sort of projection we would expect, so sort of this year, about 2/3 of the impact and then we should expect that to grind on over the next 2 years? Or is it -- has it worked differently in reality this time? So just how that works through.

Yes. On the overdraft in net interest income, yes, I mean, it will come back. Of course, a little bit like revolving credit balances. We've had less utilization of overdrafts, all for the same reasons as people are less using credit cards, more cash in their balance sheet and a lot of sort of government schemes that have been very supportive. So yes, it will come back, but it won't come back at anything like the same level we had previously. In terms of the grinding effect of lower rates, yes, I mean this -- I think that's reasonable. The thing that takes sort of the effects you've got is you've got assets that reprice relatively quickly, if not instantaneously. This time around, there's a delay effect in repricing liabilities, which you know about because of the FCA rules on having to notify deposit holders before we change their rate. And then you've got the grinding-down effect of the structural hedges. And that grinding-down effect is -- it really depends on kind of where swap rates are at the point at which they refinance. So if you sort of have the kind of what we've seen at the moment, a relatively sharp decline in long rates and short rates together, so pretty much both at the [0 bound], you'll have continuously have that grinding effect in your structural hedges over the next 2 or 3 years. In effect, if curve starts steepening partway through that, then obviously you'll be sort of -- or stop having that grinding effect at some point, so -- but yes, those are the dynamics.

So it's a structural hedge rolling off rather than anything to do with price in the balance sheet?

Yes, that’s right. Yes. And someone asked a question earlier on, if you’ve got gross mortgage refinancing, there’s some tailwinds that we’re seeing at the moment. But yes, it’s so difficult to predict because it’s so much driven by long-term outlook for mortgage pricing and also long-term outlook for swap rates. So it’s really hard to give precise guidance. You’ll have your own views on that.

The next question comes from Martin Leitgeb of Goldman Sachs.

Yes. Could I follow up on the question on negative rates? I believe the Bank of England recently asked banks whether they're prepared for negative rates. I just wanted to ask you, is Barclays as of now prepared to implement such negative rates? Or would it still take some time? And do you think the broader market is prepared? Or would that also take some time to be ready? And are there any other levers you would have outside of gearing and outside what the central bank might offer to offset a negative impact from negative rates? Could there be a scenario where we could see actually mortgage pricing going up in order to try to offset some of the impact of the higher asset yields? And my second question, just in terms of Brexit and the implication for Barclays' ambition in a post-Brexit world, and I think after the 2016 referendum, we have seen Barclays losing market share in U.K. cards. Could there be a scenario that you would try again to increase that market share in cards? Or the other way around, could there be a scenario where Barclays would see a larger pan-European base, a large pan-European business as [indiscernible]?

Yes. Thanks, Martin. I'll ask Jes to cover sort of your questions related to Brexit. On negative rates and operational readiness, so we've had some experience in this already obviously with European rates already negative in our commercial banking business, that's something sort of we're used to. So operationally, we are ready. Whether the rest of the industry is, I mean, I don't think I should be the person commenting on that. I'm sure everybody is doing what they need to do. But we're ready if necessary. Only thing that was really -- the -- in terms of pricing, maybe. I think, look, one of the bright spots has been mortgage margin has been very disciplined across the large lenders even though there's an abundance of liquidity out there. But I do think once you've got virtually no lever left on the liability side, I think most lenders will look at the asset side margin very closely to try and manage their NIM. So it's a fair point. Will it mean that lenders will be able to literally widen margins as rates go more negative? I think that's very hard to say. I mean these are all untested. And I think it really boils down to the precise situation you find yourself in. But Jes, do you want to comment on Brexit?

Yes. Maybe before I get to Brexit, I think there's a real question as to the impact ultimately of negative interest rates. I mean we're all close to 0. And I think we have we have put the pedal down almost as hard as we can in terms of monetary policy to generate economic growth. And there are so many consequences that are sort of really -- not really known if you go into the negative rate territory. But it cannot be seen as a real sign of confidence, I don't think, in an economy, if you're running with negative interest rates. So let's see, I think it's an instrument that they need to consider. But I think the Bank of England has shown the right degree of questions about whether you want to go there. Vis-à-vis Brexit, the cost to revenue impact of Brexit has really been something that we've been -- that we've borne over the last 3 years, I mean, from increasing our staff all across Europe to remanaging all of our risk models, all of our systems to take care of greater flow relicensing, every branch across Europe to be a branch of our bank in Ireland as opposed to London. That's been a fairly significant expense to be able to run this bank in Europe 3 months from now as we were doing 3 months past from now. We are very committed to Europe. It's a very important market for us. Being awarded with one of the lead managers on this eurobond issued by the European Union, which is part of €100 billion program, very successfully priced €17 billion on Monday, to all the corporate relationships we have across Europe, the corporate bank is a very important market for us. We are clearer in euros. That business is very important and providing that opportunity to our corporate clients. So we are very much committed to our European franchise and we'll stay there. I've talked earlier on about our card business in Germany, which is very profitable and expanding the range of what we'll be doing there. So we've had to deal with the reregulation of the banking industry over the last 10 years. And setting up a ring-fenced bank in the U.K. was extremely costly to do. Dealing with our U.S. business and the IHC and having to operate that was very costly. But I think what we've demonstrated is we will spend the money to maintain our business footprint in the areas which are strategic for us. And clearly, Europe is a very important, strategic priority for the bank.

The next question comes from Rob Noble of Deutsche Bank.

I just wanted to round off the kind of loan book discussion. Business banking and corporate loan growth has kind of [indiscernible] in Q3 but slower. How much of it is on the government guarantee schemes? And then at the end, does that bit start running backwards? Or will it run backwards but also a higher yield because there's no more government guarantees? And then secondly, just on the structural hedge. So it's only increased £7 billion, but you obviously had massive deposit inflows and you're very highly liquid. I just wonder if the strategy had changed there, are you not -- you're not hedging all of the balances that are coming into you that you would normally hedge?

Yes. No, thanks, Rob. On the loan book business banking, the numbers here are really quite stark. We've had -- I think for our numbers, it's getting -- approaching £10 billion now of Bounce Back Loans in our small business bank. That is a few years of lending in terms of sort of overall production. So I don't think you'll have this, if you like, refinancing because they're quite long term though. The government has extended the term as well. So I don't think you'll have the refinancing of loans into higher rates. So yes, I'm not sure I'd sort of think about some sort of refinancing uptick. Your second question, you're a little bit hard to hear, Rob, could you just mind repeating that?

Sorry. Just the structural hedge balances increased to £7 billion in the quarter, but you've taken massive deposits. I was just wondering if you're hedging all of the balances that you would normally -- and obviously, your interest rate sensitivity has increased in the quarter. So I'm just wondering if there's any change in strategy in there.

Yes. I mean, yes, the line is not great. But I think I've got the gist of the question, Rob. We do look at the stickiness of the deposits coming in. And we've definitely had a dramatic inflow of deposits. We haven't sort of substantially resized the size of the structural hedge accordingly yet. But we will continue to reevaluate the stickiness and recalibrate as appropriate. It feels a bit early at the moment, I think. The deposit sort of inflow has been quite, in recent times, only a couple of quarters worth. So I think it's something we'll keep under review.

The last question we have time for today comes from Fahed Kunwar of Redburn.

Just a follow-up on BUK, I appreciate there's a lot of questions on it. But if I look at your 3Q exit rate and versus 2021 consensus, it implies a 5% uptick. And if I put it under context of business banking, which is basically back at pre-COVID income levels, which feels unsustainable, but also your structural hedge, which is now annualizing at £1.2 billion net of floating rate, which is on the average [indiscernible] kind of £200 million drag a year, how should we think of the 2021 BUK number versus this 3Q exit rate? And then on the payment holidays, there's been a massive drop in payment holidays. I think it's down 70%. And you only give the consumer balance this time of around £17 billion down to £4.5 billion. Last half, you did £21.9 billion, so there's £5 billion of nonconsumer balances on payment holidays. [Indiscernible] has the drop in those £5 billion of nonconsumer payment holidays been of the same magnitude of the consumer balance drops and have the payoffs on those businesses, when customers will come back on, have they paid as frequently as well as the consumer ones have, which you gave in the presentation?

Yes. Fahed, let me do them in the reverse order. In terms of payment holidays, it's been a pretty decent experience on both the consumer side and away from the consumer side. I think you're probably referencing one of our slides that has the full roll-down, Slide 19 there, so have a look at that. But I think probably this may be [indiscernible] and all the usual caveats, maybe the last time we talk about payment holidays. It's not really a credit issue for us, I think, at this stage, unless that will change, of course, but I think that's broadly behind us. In terms of top line for BUK, I won't give you a sort of direct comment on sort of consensus or how to think about your modeling. But I think you've got the right building blocks there. You've got decent sort of business banking performance. Some of that, of course, is very much driven by Bounce Back Loans and what have you. Mortgage growth is good. I don't think you'll see card balances recover much. Having said that, I don't think you'll see them decline either. I think it's just a waiting time. And hopefully, they do start recovering. But I think it will take a little bit of time. I do think you'll have the sort of grinding effect of structural hedges if the curve steepens. And it's sort of interesting how volatile the sterling curve has been in recent times. We've had some quite steepness and then it flattens off again. So that's a little bit hard one to know. But if it stays very, very low, there'll be sort of a headwind sort of grinding down into that on mortgages, I think we've talked about with positive churn and net growth. I think that's probably -- Jes, anything else you want to add?

I just want to say, Fahed, it's good to hear that you're working successfully from home. So it uplifts all of our spirits.

Okay. With that, thank you all very much, look forward to speaking probably over the next week or so. I hope everyone stays well, but I'll end the call there. Thanks again.