Welcome to Barclays Q3 2024 Results Analyst and Investor Conference Call. I will now hand over to C.S. Venkatakrishnan, Group Chief Executive before I hand over to Anna Cross, Group Finance Director.

Good morning, everyone, and thank you for joining us for Barclays at Third Quarter 2024 Results Call. As a reminder, at our investor update in February, we set out a 3-year plan to deliver a better run, more strongly performing and higher return in Barclays. I'm encouraged by our progress to you then. We are continuing to execute in a disciplined way against this plan and are on track to achieve our 2024 as well as our 2025 target. Return on tangible equity was 12.3% in the third quarter and 11.5% year-to-date. We achieved this even as we grew tangible book value by 0.35p per share year-on-year to 3.51p at the end of the quarter. This resulted from strong organic capital generation and the meaningful impact of buybacks in reducing our share count. Total income for Q3 was £6.5 billion and is £19.8 billion year-to-date with a continued focus on the quality and stability of our income mix. Given the ongoing healthy support from our structural hedge, we remain confident on the strength of the income profile of our business in its falling rate environment. These factors lead to our upgrading Barclays U.K. as well as group NII targets today. We continue to control costs well and are seeing the benefit of the cost actions, which we took in the fourth quarter of 2023. Our cost-to-income ratio was 61%, both in the third quarter and year-to-date. Impairment charges have improved in the U.S. consumer bank in line with our expectations, and our overall credit performance was strong, particularly in the U.K. with a group loan loss rate of 42 basis points year-to-date and 37 basis points in the quarter. Importantly, we also remain well capitalized, ending the quarter with a 13.8% CET1 ratio comfortably within our target range of 13%…

Thank you, Venkat, and good morning, everyone. On Slide 6, we have laid out Barclays financial highlights for the third quarter as well as year-to-date. Profit before tax was £2.2 billion up 18% from £1.9 billion in Q3 '23. Before going into the detail, I would just note that the quarterly performance was impacted by a weaker U.S. dollar which is a headwind to income and profit, but positively impact costs, impairment and RWAs. I'll call these out where appropriate. Turning to Slide 7. Q3 performance is in line with the plan we laid out in February. We delivered a statutory ROTE of 12.3%, up on last year's 11%. And the year-to-date ROTE of 11.5% leaves us on track for our statutory ROTE target for 2024 of greater than 10%. We continue to target a 2024 ROTE, excluding inorganic activity of circa 10.5%. We now expect that the impact of all inorganic activity in 2024, including Tesco Bank will be broadly neutral. So I don't anticipate a material difference between the 2 measures. As in the first half of the year, I was looking for 4 things in our performance, income stability, cost discipline and progress on efficiency savings, credit performance and a robust capital position. On all 4, we are where we expected to be and I'll cover these in more detail on the subsequent slides. Starting with income on Slide 8. Total income was up 5% year-on-year at £6.5 billion. Excluding FX income was up 7% year-on-year. Since our investor update in February, we have been emphasizing continued stability in our income streams. Revenues from retail and corporate as well as financing in the Investment Bank provided bust to our income profile and together contributed 74% of income in Q3. Turning to net interest income on Slide 9.…

[Operator Instructions] Our first question comes from Jason Napier from UBS.

Two questions on Slide 16, please, which is the Barclays U.K. margin and NII walk. Just first, and I appreciate the reiteration of guidance around hedge tailwinds into next year. But I just noticed that the quarter-on-quarter tailwind there is -- it's down about 1/3, and it looks to us like maturing swaps and incoming stop should have been fairly stable, down about 30 basis points each in the period. And so I just wonder how you think about the sort of quarter-to-quarter volatility around this component of NII trying to avoid a situation where we worry unduly about nearer-term dynamics from that? And then secondly, on the same chart, quite surprising to see the product margin as a net positive. Can I just confirm, please, that includes whatever the leads and lags on depository pricing there are? There's some feedback in the investment community that perhaps Barclays hasn't been able to cut deposit rates as others have done as rate cuts began. I just wonder whether you could talk about what you're seeing on deposit pass-through as rates start to decline. I just confirm that I'm looking at the right block when I look to track that going forward.

Thanks, Jason. Thanks for the questions. I’ll take back those. So just looking at Slide 16, I can see why you’re asking the question. The structural hedge impact is lower than the previous quarter. Last quarter, the product dynamic was negative, now it’s positive. So I’ll pick those up in turn. I mean last quarter, we did have a slightly higher swap rate, as you point out, but we also topped up the hedge a little bit, particularly around business banking. That’s now obviously in a run rate. So it’s no longer causing that sort of quarter-on-quarter impact. Sort of going forward from here, we’re going to continue to see momentum from the structural hedge. You can see that from the other disclosures that we’ve given you, for example, on Page 10. So I still expect it to be a net tailwind overall to this business and really supporting the NII growth that we’re seeing. So nothing more really than that. On the product margin, you’re right, that does include all product margins, so it’s including assets and liabilities. I think important to point out that some of the drags that we’ve seen historically are no longer there. So you’re no longer seeing that really significant deposit drag from migration coming through. Actually, our mortgage position is broadly neutral from a churn perspective now. So you’re no longer seeing that. What Iu are seeing Is some positive momentum from both mortgage and card margins, which is a little bit offset by deposit pricing, as you point out. But actually, I’d expect given the kind of regulatory lag that we have in deposit pricing for that to be more meaningful, that lag impact to be more meaningful in the fourth quarter. So a bit a lot of small numbers here because it is only a quarter-on-quarter movement, and it is only 6%, but that’s the things that I would call out. Okay. Perhaps we could go to the next question, please.

The next question comes from Benjamin Toms from RBC.

The first one, thank you for the new disclosure around the structural hedge income around how that should be allocated to the group like me that's like Christmas came early. One of your peers this week implied they expect the structural hedge notional to be flattish from here. Based on your guidance for February and movements in the notional since year-end, I think you're actually expecting a 13% reduction in the notional from here. do you really expect to see such a big reduction going forward given you mentioned just previously, the stabilization in deposits? Or can we assume that, that assumption is now somewhat stale. And then secondly, just a chance my luck on 2025. One of your peers guided to a gradual increase in NIM in 2025 in the U.K. Should we expect a similar trend at Barclays?

Okay. Thank you, I’ll take both of those. So yes, please put that disclosure in on Page 38, you haven’t seen it. I mean we often talk about the structural hedge and the support that it gives to the U.K. I guess, in absolute percentage terms, that’s where it is most meaningful, but it does provide support elsewhere in the group, particularly through the equity structural hedge. So you’ll see perhaps surprising to many that it’s providing some support into the IB and because we allocate that equity portion by RWAs. So hopefully, that’s helpful. But the structural hedge notional I’m not going to give you specific guidance spend, but what I would say is we’d expect it to sort of trend broadly in line with where the deposits are going. When we spoke in February, that was less guidance, more sort of a framework to help you model it as time goes on. So we talked about I 170 billion of maturing and rolling about ¾ of that. But that was designed really to give you the math that you could that you could then update rather than a forecast itself. So clearly, as we look at the moment, there are some positives in there, but we will continue to update you as we go through. But I wouldn’t call out anything more than we should expect it to move in line with deposits. On your second question, I’m not going to talk about NIM then is going to be quite – it’s going to move around quite a lot over the next few quarters. As you can imagine, we’re about to onboard I 8 billion worth of unsecured lending. That’s going to move the NIM materially. What I would really focus you on is actually the net interest income. So we’ve upgraded our net interest income for the group and for the U.K. in the curre’t year. So now we're expecting circa £6.5 billion for the U.K. And if I take you back to what we said in February, we said we expected mid-single-digit growth in NII in the U.K. We still expect that. And what’s driving that? Well, clearly, we’ve got asset growth coming through what was a drag coming from deposits. We now see a stabilization. And hopefully, as deposits start to grow across the market, we would see the same. And whilst we’ve got some uncertainty coming through from rate changes, I would offset that with the kind of momentum that we've got from the structural hedge. So we are expecting NII to be higher in '25 and in ‘26 than it has been in ‘24. And that’s, obviously, we would be putting Tesco on top of that. Okay. Thanks, Ben. Next question, please.

The next question comes from Chris Cant from Autonomous.

I wanted to talk about the head office, please.

Gosh, Chris, we can't hear you, sorry. Could you start again, please? We picked up head office, but perhaps you could start the question again?

Yes. Can you hear me now?

Yes, we can. Loud and clear. Thank you.

Hello. Okay. Okay. Great. Yes. So head office, I wanted to ask about looking into '25, '26. Could you give us some color on what the sort of underlying group center numbers look like after the various mortgage books have gone and the German card books have gone. I think this is a source of significant dispersion within consensus how people are thinking about sort of the underlying head office, and it has been an area where historically, consensus has got a little bit out of kilt with your own expectations. So any color on once the transactions you've currently got in the pipeline are done what does that group center income cost run rate look like? And I appreciate that there's still the payments business in there, which may or may not go at some point. But sort of what's the sort of go-to run rate, how things stand for the transactions once the transactions you've got in train are done? And then on BUK NII, just a point of clarification. So it's mid-single-digit growth on the 2024 number, excluding Tesco and then we put Tesco on top. So take essentially the 6.5 that you're now guiding mid-single-digit growth on that and then £400 million on top is what you're saying for 2025?

Okay. Thanks, Chris. Let me pick up both of those. So the first one, look, I appreciate head office has been a bit volatile in the current year, both because it's housing or inorganic activity and those businesses before they actually flow out. So just to remind you, there's no inorganic activity in the current quarter. You can also get some volatility in there from educating. So we're seeing a bit of that in the quarter, but year-to-date, that is a 0 number, and we expect it to be timing only. It's a bit early to guide you to what that run rate is, Chris, but we will do that in time. But just to remind you, nothing in the current quarter and just appreciate it's very difficult to model at the moment. But once we get beyond that, we'll give you more guidance. On the BUK NII, let me just clarify for you. So ex Tesco, I expect some increase. the mid-single-digit guidance that we gave you for BUK did include Tesco because that was from '23 to '26. So we include Tesco, obviously, in our RWA bridge to £30 billion, and it's included in the mid-single. So I would say, overall, we're expecting some organic ad test go on top to that. Is that clearer?

Thank you.

Okay. Thank, next question, please.

The next question comes from Edward Firth from KBW.

Thanks for the questions. Sorry. Yes, I have 2 questions. One was just on the U.K. interest rate sensitivity. It's quite striking that you're not highlighting to get at all as an impact this quarter. I think you said it was minimal or marginal. I can't remember your exact words in terms of your sensitivity rates falling going forward. And I'm just trying to understand a commentary you could just help us understand why that is? Is that just like a temporary thing? And as the hedge rolls off, then you would expect some more sensitivity? Or is there something that you sort of structurally changed is obviously on the way up, we saw NII grow very strongly on the back of higher rates. So that's 1 question. And then the other question was on the U.S. the margin there. I get your comments about you're still targeting greater than 12%. And I think you said there was a lot of incentive programs or loyalty programs that you were running at the moment. And just again, any help you could give us to understand from a business perspective, how that works? Because I do obviously the U.S. loyalty program is a huge part of the business. It's a huge part of attracting volumes and customers, et cetera. And I'm just trying to think what is it you're expecting to change in the market more broadly? Or how is your offering going to change that's going to allow you to reduce those loyalty offerings but still maintain momentum in the business.

Okay. Thanks, Ed. I will take both of those. On the first one, we gave you some guidance on the interest rate sensitivity in the previous quarter, and that really shows for a 25 basis point parallel shift, it was Good morning. 50 million in the first year. And then what you saw was that build over time. And that build over time. The way I think about it, Ed, is in the first year, it’s dominated by the lag effect. So the sort of 60-day regulatory lag that we have, particularly in the U.K. And then in the outer years, you see the impact of the h’dge grinding lower in response to that parallel movement. So that’s really what’s going on there. If I go back to what I said in products for that product margin on Page 16, just to clarify, we’ve got 2 offsetting impact in that. There is a negative movement from the delay in pricing or repricing the liabilities. But there is an offset, which is coming through from our asset margins, which are expanding. Now you might expect that in a downward movement. Sort of overall, we would expect that as a liability margin start to compress, you see asset margins widening out. And of course, we’ve got specific actions around things like high loan-to-value mortgages that are perhaps driving that a little bit faster. And so it's not that it's not there. I’'s just that there are some offsets. And actually, I would expect a bit more of that lag just because of the way the months sort of pan out in. On your second question on U.S. margin, yes, the NIM is clearly lower than it was at the beginning of the year and indeed last year. But our expectation is that…

The next question comes from Guy Stebbings from BNP Paribas.

I had one on capital and then 1 back to product margins in U.K. On Captain on Slide 30. Thanks a lot for clarifying the various timings. And clearly, some of the moves being pushed out in the U.S. consumer business. I'm just wondering if that changes how you manage capital in theory, it sort of frees up some capital in the next 12 months to perhaps distribute a little bit more early in the plan? Or should we think that you're more likely to run at the very top end of the 13% to 14% range, maybe even above it, especially if there's a Pillar 2A temporary uptick? Just thinking about how you think about that capital ratio during 2025 now as you have to wait for 26 for some of those come through. And then on the product margins, I just come back to that point in terms of the lag effects and saying it might be more meaningful in Q4 in deposits. I would have thought there'd be some sort of catch-up from the August rate cut, if you like, and you take the day 1 hit on the unhedged deposits and you have to wait to pass some of it back on the rate card. So I just checked that sort of thinking is correct. And your comment around the lag effect been greater in Q4 is maybe reflection of an assumption of 2 rate cuts. And then maybe if it was just 1 rate cut, it wouldn't be as more powerful versus what you saw in Q3.

Okay. Thanks, Guy. I’ll take both of those. I’m hoping Venkat’s going to get a question at some point. But just on the first one, our own capital, Look, these regulatory movements that we set out for you on Page 30 are timing and timing only. And we’d reiterate today our expectation about distributions here. So greater than I 10 billion for the 3 years of the plan. For the current year, we’d expect it to be broadly similar to last year, so around I 3 billion. And we said in February that we would expect it to be progressive thereafter. And I’d just say exactly the same today. Q4 is normally when we talk about distributions, and we’ll do so then. But we see this really around timing and you would expect us to build capital as we head towards both Basel and the IRB implementation. Just on product margins. Really what I was referring to is you’ve got sort of about a month’s worth of that lag in Q3. You’re going to see the remainder of it in Q4, and we are expecting because we use consensus. So consensus has got 3 rate cuts in the current year. We’re expecting a couple of rate cuts in Q4. So you’re going to see impacts in Q4 and actually into Q1 of next year. Okay. Thank you, guy, Next question, please.

The next question comes from Amit Goel from Mediobanca.

So two questions from me. So one, just related to the product margin. But essentially, just on the U.K. business, I kind of see the balance sheet still contracting a little bit in terms of total loan balances and deposit balances versus, I guess, some of your peers showing a little bit of growth now. So just kind of curious the interplay between the kind of the pricing, which goes into that product margin versus balance sheet growth? And when can we start to see a bit more organic growth and capital redeployment into the BUK business? And the second question just relating to the U.S. consumer business. I'm just curious how significant or not to the American Airlines partnership, if there's any color you can give there in terms of the contribution of that piece to the border business.

Okay. Thanks. I'll take the first of those and then hand to Venkat. So it's probably helpful if we start on the sort of leading indicators page that I that we've included this time. It's on Page 14. And if I take you back to February, what we said in February was we didn't expect significant change in the net balance sheet, particularly in the U.K. in the current year. And that was because of our expectation and the known maturities that we have, not just the mortgages, but for example, in business banking. What we did expect was the change in the gross production a comfort that we are driving that gross production. So in mortgages, it's relatively straightforward. It's actually our gross lending. You can see that stepping forward quarter-on-quarter. It's obviously helped by the fact that the mortgage market itself is strong and robust. But also the fact that we are broadening out our range within that market, and we're really putting Kensington to work now, which we've been unable to do over the last few years. The second point is on card acquisitions, and you can see that meaningful step-up in '24, but we've already started that journey in 2023. And actually, what you see over time is that those cars volumes will start to feed into interest-earning lending. And then finally, on U.S., U.K., CB, I know you're not asking about corporate here, but it's a bit more difficult there because clearly, what you do is you put out lines to clients which is shown here in terms of RWAs. And then those clients in time will draw down on them. So in terms of what happening in terms of lead indicators in the balance sheet, I'm happy we're going in the right direction. In BUK, specifically, we saw positive net lending in the businesses that we've got in focus. So we saw positive net lending in mortgages. We're seeing it in cards. What we've got offsetting that is some runoffs in portfolios, which are obviously no longer call is not the right word. But if I use the example of government lending within business banking, I don't think that's different, either in percentage terms or sort of in directional terms from our peers. You're hearing similar things there. So I think we're happy overall. And obviously, as we increase our card lending, you get a mix impact as we've increased the proportion of lending at higher loan to values, you get a mix impact, and that's really what's flowing into the product margin and giving that positive.

Yes. Look, Amit, on cards, obviously, we will not talk about any specific account until there is time to talk about the right time to talk about in the contract, we have something to say. We also do not talk about individual client profitability or financials. We announced a couple of days ago, and so we're speaking about that. And if there's news on any other clients, we'll tell you at the right time.

Okay. Thanks, Amit. Perhaps we can go to the next question.

The next question comes from Chris Hallam from Goldman Sachs.

So two for me as well. First, in the IB, if we think about the gradual rebalancing of that business, clearly, dynamics in the quarter for DCM were very strong, both for you and across the street. But given the organic reduction in RWAs you saw in the quarter in the IB and the improvement in asset productivity, year-over-year. Are you starting to make those selective decisions to deemphasize DCM? And where are you comfortable doing less, I guess. And when we think about reallocating those RWAs into the financing businesses, should we sort of assume £750 million as a floor for market financing revenues, assuming supportive markets? That's the first topic. And then second on Tesco. So thank you for the additional disclosure in the update today. So what steps are you planning to take over the next sort of 12 to 24 months to improve the product margins in Tesco Bank. If I look at asset productivity or NII versus RWAs, it's quite a bit lower in Tesco Bank than the rest of the U.K. business, looking at the £400 million and the £7 billion. So how are you planning to scale NII faster than RWAs to optimize that capital resourcing question?

Right. So Chris, let me take the IB and then Anna will talk about Tesco. On the IB, first of all, big picture, we're looking to keep RWAs in absolute terms, relatively flat to their current number of around 200 billion. The relative reduction in RWAs as a percentage of the group happens because the rest of the group growth. Second, in the Anderson Bank [indiscernible] came down by about £9 billion this quarter compared to the previous one, but about £6 billion of that was due to FX and 3 was actual action. And 1% up and down or 1.5% up and down in the quarter is normal business mix. Third, we are not looking to deal the CCM. What we are looking to do is within the investment bank, be prudent in assigning capital to clients, looking at the totality of their relationship, and that relationship is not just DCM, but it includes M&A and equities and what corporate banking, we do with them. And that's the way to think about it. And lending is a part of it. Lending is not the only part of it, and we don't want lending to be the main part of it. And as far as revenue of £750 million from financing, look, we've been stable at that number. What I would say is while we have been gaining clients and gaining market share in that business, the actual revenue is a function of 2 things. It's a function of what happens in the composition of balances, fixed income and equity and so what the markets do as well as spreads within that. So I can't tell you that is going to stay at this level or not go up or down. It depends on that mix. What we do think we have is a diversified business between fixed income and equities, a competitive business in both but particularly strong fixed income business and a diversified business among the types of clients who use it regionally, product-wise and within fixed income asset class is, meaning spread versus govern. So that's what we think contributes to a good and stable mix, but I'm reluctant to put sort of floors and ceilings on numbers.

Thanks, Chris. The only thing I’d add to that is if I take that £ 9 billion reduction, £ 6 billion was FX as Venkat said, the other £ 3 billion was just the reversal of the client positioning that we saw that we said was temporary. So it just kind of brings us back to where we started at the beginning of the year. On Tesco, for the next year or so, for the next sort of 12 to 18 months, our focus is really on integration and our focus will be on customer service. So that is our primary focus as it would be in any partnership as it was in GAAP in the U.S. So this is just a replication of what we would do with any other partner across the firm. Over time, we would expect this to be rote accretive for a number of reasons, whether that be efficiency, whether that be funding benefits that you might expect to accrue. And obviously, we’ll update you on that in sort of in the course of time. But really, our objective over the short term is going to be to integrate it well and really ensure that, that customer experience is foremost.

The next question comes from Alvaro Serrano from Morgan Stanley.

A couple of questions on the Investment Bank for me, please. First of all, on the fee performance, obviously, very strong in the quarter. But similar to Q2 where you called out a large deal there, is there any lumpy deals that we should bear in mind is the performance sustainable? I'm guessing ultimately, I'm asking about the pipeline from here given the strong performance? And second is on the leveraged finance marks. It feels like it's a bit of a hard quarter to take those marks and with credit spreads actually very tight. So maybe could you give us a bit of color on what's driving that? Is it portfolio? Is it a single sort of ticket or are you looking to sell something in the mark? Or should we expect more of this in the coming quarters? Just a bit of color on this.

I'll take the first question, and then Anna will take the last question. So on fee performance in Q3, nothing special to call out, look, we are part of certain larger deals, but I wouldn't say that unduly if there's anything I would call out. And as I've said elsewhere, we've obviously seen activity pick up over this year compared to the previous year. We expect it to continue to be relatively firm. Obviously, there are a couple of wild cuts out there in terms of what happens with the U.S. elections and economic policy and rent policy in the U.S. on M&A activity after that. But assuming no major surprises or changes, we expect to continue to see it to be firm.

Okay. Thanks, Venkat. So let me pick up that second one, Alvaro. I mean [indiscernible] is a really important part of our business. And you’re right, in the current environment, what we see is that market overall performing really well. Deals are clearing quickly. Occasionally, we find that either some of those don’t. That is episodic. It’s a feature of our business. It’s a feature of the market overall and not something that we would particularly call out. So it’s normal. What we do at the end of every single quarter as we assess our balance sheet and we use prevailing market information in order to assess the fair value of that balance sheet. And where we feel we need to take more than we do, and that’s what we’ve done in the current quarter. So it’s very much BAU and as I say, it occasionally occurs it’s episodic. I wouldn’t comment on clients as we would never do. I would just remind you also that this is a book which have some hedging set against it. The cost of that hedging also flows through corporate lending. So we protect ourselves in that way. And I would say, overall, our exposures are probably, whilst they’re higher than ‘23, they’re lower than they have been historically. So it’s a well risk-managed book. And really, this is sort of the kind of thing we see normally, but on an episodic basis. Thanks, Alvaro. Perhaps we could go to the next question, please.

The next question comes from Jonathan Pierce from Jefferies.

I've got two, please. The first is -- I'm sorry, it's back on rate sensitivity. Thanks for the hedge allocation data, again, by the way, helps us a bit more precise in the tailwinds there in Barclays U.K. The piece that's sort of struggling with a bit is the rate sensitivity. But the £50 million in year 1, I hear what you're saying about a lot of that being related to deposit back. But if this £40 billion of hedge maturities a year as per guidance, you'd have thought a 25 basis point shift in the curve, would be knocking £50 million out of the hedge income in year 1. So I'm not quite sure what's going on here. Are you saying that there is no impact on what we might call managed margin from a 25 basis point rate reduction at all, just simply because the structural hedge is now so large in the context of the deposit book. So it would be helpful just to understand why that is so low. I mean it's the lowest in the sector. quite difficult to triangulate. The second question -- sorry, this is just for the models really assets into year-end, there's 2 bits that like a bit of clarity on Barclays U.K. saw a £4 billion increase in the early part of the year for methodology, policy changes. At the time you said that would partially reverse over the rest of the year. It doesn't seem like it has reversed yet. Is that coming in Q4? And then in the other direction, the year 1, I think, is pointing to about a £2.5 billion of risk increase in the fourth quarter. Is that about the right number to be sticking in the spreadsheet?

Okay, Jonathan. Let me take the first one. So I would say we said £170 billion over 3 years, so I think you're probably closer to around £60 billion of hedge maturing. And really, what's going on here is Remember, you've got that underlying maturing rate at around 1.5%. So even though rates are coming down, you're still getting a pickup from the structural hedge. And it's only really in the outer years when that grinds out that you're seeing that more meaningful difference. So I think it's nothing more than that, but we can talk you through that outside of here, if that's helpful. As it relates to our relative sensitivity, we talked about this quite a bit as rates went up because we were clearly less rate sensitive on the way up. So you'd expect us to be less sensitive on the way down. So that is exactly what's coming through right now. Perhaps we hedge a little bit more. We certainly hedge more proactively, we are looking forward and assessing that on a monthly basis and adjusting those hedges very, very actively as we go to reflect the detail of customer and client behavior. So I think it's a benefit of that approach that we're seeing and the fact that we've just done this very programmatically over a very long period of time. We're not seeking here to have any kind of view as to where rates will go. We're just lifting the hedge roll and we're reacting to we're reacting to customer behavior. And on the second question, I think we'll have to come back to you on that 1 on op risk. So let us do that. Venkat, do you want to [indiscernible]?

I just want to emphasize the final point Anna made on structural hedging. This is programmatic. This is a hedge. We try to understand as best we can positive behavior, deposit balances, customer behavior affecting that and hedge it. And as Anna said, therefore, if it works very well, it should provide you with the protection, meaning you don't see the benefits as rates rise as much as you would otherwise. And you see -- you don't see the losses as rates fall, meaning that your NII remains more stable because of that. And that's what we are trying to do and what Anna said is perfectly right about that.

Yes. And sorry to just follow up on that. I mean, I'm fully behind the idea of hedging. That's not the issue. Just to check, though, Anna, I thought the rate sensitivity table ignored any sort of yield pickup on the hedge. I thought it was purely if the yield curve is 25 basis points lower, this is the impact on us, in which case, if you're reinvesting £40 billion of hedge a year at 25 basis points less that's the entirety of average out over the year, the entirety of the £50 million you're pointing to in year 1, which just implies everything else is nothing. Just checking that's the case.

Yes. It’s just very small in year 1, Jonathan. Let us take it outside with you. We’ll come back to you. All right. Thank you. Next question, please.

The next question comes from Robin Down from HSBC.

And also thank you for the added disclosure on the structural hedge, that's very useful. Apologies, but I'm going to bring you back to the U.K. interest income issue. And I think it is important because it's the main topic of conversation amongst investors this morning. If we look at your £6.5 billion guide for this year. It kind of implies a Q4 run rate ex Tescos of kind of £6.8 billion, £6.9 billion. If we add in kind of £400 million for Tesco is we're at kind of 7.3%, I think you're looking to grow next year. I think especially given the product hedge is in the U.K., but the structural hedge benefit is more than going to outweigh any kind of rate reduction impact. So why are you not going to end up materially above the 7.1% that consensus has penciled in next year. Is there something I'm missing some big kind of negative drag that you're anticipating.

So Robin, I'm not going to comment on consensus income for 2025 at this stage. But I'm just going to reiterate the fundamentals of what we're talking about here, which is U.K., we expect over the plan to have NIR growth of mid-single digit, Tesco is part of that. You can see that there is NII momentum in the business organically. We've called that out. You can see it over the last 2 quarters. It's coming from us at growth. It's coming from the momentum from the structural hedge. Now as I said before, we haven't really seen the full impact of the rate cuts yet, but we would still expect the net of all of that into 2025 to be positive. And then obviously, you're going to have Tesco [indiscernible].

[indiscernible] interest income forecast would be U.K. for this year coming up from what an original kind of 6.1. can I put it slightly differently then? Is there any reason why I can't annualize Q4 at kind of £6.9 million and add £400 million for Tesco's. And so I have a starting base of 7.3 when I look at 2025 numbers?

So Robin, you’re right. We have upgraded our BUK guidance. So we did start at 6.1, and we’re now around 6.5. And really what’s happening here is, clearly, there is a change in our expectation of rates for the current year. We started in a position where – we started in a position where we had 5 rate cuts in February. Now we’re expecting 3. And then the other 3, including the 1 we’ve already had, so a further 2. And then the other thing that’s happening here is clearly we’ve seen a stabilization in that balance sheet earlier than we expected to. The beginning of the year, I said I expected the balance sheet to get smaller before it got bigger. We’ve seen 2 quarters now, nearly 3 quarters of real stabilization in deposits, perhaps a bit earlier than we expected. And we’ve seen the asset momentum turn perhaps a little bit earlier than we expected. I'’ not going to comment on your numbers for 2025. I’m really going to leave that to you, but just bring you back to our expectation that we expect NII for the U.K. to grow. Thank you. Next question, please.

The next question comes from Perlie Mong from Bank of America Merrill Lynch.

So can I -- sorry, can I bring you back to the hedge. So Obviously, the hedge is a very large component of the way you manage the interest rate risk. So with the scale of the hedge, does that mean that your sensitivity to long rates would be higher than perhaps other banks or your peers? Or just all else equal, would you expect more sensitivity to the long rates? Because the reason I'm asking is because there's obviously been a lot of discussion around neutral rates in Europe and in the U.K. So I'm just wondering, is the reason why your sensitivity is a bit lower in a parallel shift to narrows because maybe there's a little bit of difference between a short end and the long end? And so that's the first part of the question. And the second part is that it sounds like the notional is more stable than you -- than we might have expected previously. And you previously assumed a reinvestment of 75% of the maturing hedges. I guess the question is, does it matter whether you reinvest or just simply let it roll off? Because obviously, you're reinvesting into a higher yield is a positive. But equally, if you runoff at a 1.5% hedge and then just sort of let it roll on to the variable rate that is removing negative and removing the drag. So does that matter whether you're reinvesting or not?

Okay. Thanks, Perlie. I will take both of those. The first is a tenor of what we’re hedging is between 2 and 7. So I wouldn’t say we’re any more sensitive to the long end of the curve than others. We really try and reflect what we think the varying behavioral lives of the different pockets of deposits that we have. So I wouldn’t call that out as a key difference. And then on your second point, just to bring everybody back to this, the I 75 million and the I 170 million was indicated to give you some math that you could then update as we go rather than a specific forecast from us. To the extent that the notional is more stable. I mean clearly, we have a choice every single quarter or every single month as it rolls. At the moment, you’re right, we’re getting a pickup from that maturity as it rolls off even if we just left it overnight. The difference that the structural hedge gives you is obviously secures it. So the structural hedge gives you certainty, which is why we do it programmatically, and why we’re really focused on how much income are we locking in ‘25 and ‘26, which we’ve shown you again on Page 10. So that locked-in number is now I 12.4 billion over the 3 years. So for us, it’s really about the certainty and stability of NII rather than the opportunists kind of every month passing. And just to remind you, that equivalent number was 8.6 in February. Okay. Thank you, Perlie. I think we are going to our last question in the queue, please.

Our final question today comes from Andrew Coombs from Citi Group.

Two questions, 1 more precise on board. On the precise question, just Pillar 2 offset. You talked about the per 2 modest increase followed by a part offset of the later RWA inflation, it's probably too early, but anything you can provide in terms of quantum. And does that potentially even change your 13% to 14% core Tier 1 ratio target? So that's the first question. Second question, a much more broad-based question, but budget. Looking into the budget, thinking about both the U.K. business and the investment bank, I assume we don't get a bank tax. Is there anything else you're particularly looking at in terms of when you're thinking about future customer activity, be that CGT and the buy-to-let market be employers national insurance contributions and the SMEs, et cetera, et cetera.

Okay. Thank you, Andy. So really too early to say. What we called out here is that as you can imagine, in advance of implementing this model, -- we actually have been holding some Pillar 2A already. There may be some modest increase in that before we implement the model in full. So that's all we're calling out. It's difficult to give any specific guidance around quantum or exact timing, but you'll note that we said modest. And just reiterating, we are already holding Pillar 2A for this. And then the other point I'd make is that, obviously, we still await some Basel guidance from the PRA. So there is some expectation that we'll get some guidance around Pillar 2 offset where they're really trying to avoid double counting between Pillar 1 and Basel and Pillar 2A that exists currently. And really, we need to see all this put together holistically before we give you firmer guidance.

And on budget, listen, obviously, we're a large U.K. bank, which operates across different sectors of the economy. So whether it's taxation, whether it's borrowing and financing by the government, whether it is private investment and helping with public investment, whether it's individual investment behavior that comes out of whatever the budget says, we would expect to see activity across everything which we do. I can't tell you where and how much and what the net of it is, but expect us to be actively engaged across all the different dimensions of it. With that, thank you, everybody.

Yes. Thank you very much, everybody. I really look forward to seeing some of you on the road, and we will see you at the sell-side breakfast in November. But thank you for your continued interest in Barclays. Have a great day.

Thank you.

Thank you. That concludes today's conference call. You may now disconnect.