Tushar Morzaria - Group Finance Director

Michael Helsby - Bank of America/Merrill Lynch Jonathan Pierce - Exane BNP Paribas Manus Costello - Autonomous Research Chris Manners - Morgan Stanley Andrew Coombs - Citigroup Martin Leitgeb - Goldman Sachs Chintan Joshi - Nomura Securities Joseph Dickerson - Jefferies Fiona Swaffield - RBC Capital Markets Edward Firth - Macquarie Research Peter Toeman - HSBC Global Research

Good morning and thanks for joining our Q3 call. As you heard yesterday, Jes Staley will be joining us in a month’s time as our new Group Chief Executive. He is had a distinguished career to date, with hands on experience across a number of business lines. And we’re very lucky to have Jes on board, and I’m looking forward to working with him again. For now though, I’ll use this call to take you through our recent performance and our immediate financial objectives. Let me first take you through the highlights of the year to date. I’m pleased to report further progress on our strategy and good performances from all our operating businesses, with standout Q3 results from Barclaycard and PCB. In the first nine months of 2015, we increased Group adjusted profit before tax by 4% to £5.2 billion and Core PBT improved 7% to £6.0 billion. All our Core operating businesses increased profits and improved ROE’s, and again we achieved positive jaws at both the Group and Core level. We delivered a double-digit adjusted Core ROE of 10.5%, and this was on an average equity base that was £6 billion higher at £47 billion. We continued to run down Non-Core successfully. RWAs are down by £20 billion since the start of the year with £2.5 billion of further capital released to the Core. Capital strengthened again in Q3, even after taking legal provisions of £560 million, as we made progress with legacy litigation and conduct issues. With the increase in RWAs, mainly in PCB and the Investment Bank, our fully loaded CET1 ratio stayed steady at 11.1%, while the leverage ratio increased to 4.2%. Our ongoing strategic cost program reduced total operating expenses by 5% to £12.5 billion year-to-date. Now let me take you through our Summary Financials for the first nine months for 2015 and then I’ll focus more on the third quarter in the Core businesses and Non-Core. The 4% increase in adjusted profit equates to a 7% increase in statutory profit before tax, after taking account of adjusting items. Income decreased 3% year-over-year largely due to the active run-down of Non-Core and the resulting sale of income generating businesses and assets. Core income grew 2%. Impairment improved by 8%, as our loan loss rate reduced 3 basis points to 40. The 5% reduction in costs, with income down 3%, again gave us positive jaws. I’ll now take you through the main Q3 adjusting items. We took a provision of £290 million for UK customer redress, relating to rates provided to certain customers on foreign exchange transactions. We made no additional PPI provision for Q3, but have noted the recent FCA statement and proposed consultation, and will continue to monitor claims volumes as this consultation progresses and the results are implemented. We took legal provisions of £270 million, including CDS and RMBS related civil litigation settlements in Q3, adding to the FX settlements earlier in the year. We have adjusted for a £201 million loss on sale, mainly relating to the Portuguese retail business in Non-Core, which is expected to complete in the first quarter of 2016. We achieved an adjusted attributable profit of £2.9 billion, generating an ROE of 7.1% and an adjusted EPS of 17.9 pence. Turning now to our capital position. We have built significant capital since 2013, accreting 200 basis points and that’s after absorbing significant conduct and litigation provisions, which have had an aggregate impact of around 100 basis points on our CET1 ratio during that time. In the third quarter, CET1 capital increased by £413 million to £42.4 billion, despite increased capital deductions, notably PVA while RWAs increased by £5 billion to £382 billion as we grew our corporate business in particular leaving our CET1 ratio at 11.1%. We expect the CET1 ratio to remain at around the current level through year-end. Our current end-state capital ratio is just over 12%, based on a management buffer of around 150 basis points above our regulatory minimum. As we have said previously, progress towards this target will not always be linear, but we currently expect to achieve the target ahead of the 2019 timeline. We increased our leverage ratio again this quarter to 4.2%, with Tier 1 capital up £1.4 billion to £47.9 billion, including the issuance of further £1 billion of AT1 securities in the quarter. TNAV increased 10 pence this quarter to 289 pence from profit generation and favorable reserve movements. I’ll now turn to our Core performance. In Q3, our Core businesses generated an adjusted PBT of £1.8 billion and an 11% improvement in attributable profit. PBT was up 1% on Q3 2014, with growth coming from our operating businesses, offset in Head Office by negative income and increased costs from Structural Reform, which I will expand on shortly. Core ROE for Q3 was 9.5%, the same as last year, but on a materially higher average equity base. Excluding CTA the Core ROE was 10.7%. Core income increased by 2% to 6.1 billion and we saw lower impairment charges which fell by 4% to 470 million. I’ve been asked in recent months about exposures to the oil & gas and metals & mining sectors. These together represent just 3% of our total and our exposure is well balanced, with a large proportion to oil majors, diversified mining majors, and other investment grade. Minimal impairment has been charged in these sectors over the year to date. Operating expenses increased 3% to 3.9 billion due to business growth and one-offs in Barclaycard, and Structural Reform costs in Head Office, as well as increased conduct and litigation charges and CTA. The Core EPS was 6.8 pence. Focusing now on each Core business in turn first PCB which recorded its highest quarterly ROE since 2012 of 14.4%. PBT for the quarter was up 8% year-on-year at 855 million. Corporate in particular performed well, with income up 4% and pleasing loan growth of 9% year-on-year, mainly due to larger corporate clients. We saw growth in corporate lending and cash management, and on the liability side deposit margins also improved. Income from Personal banking was down by 4% as a result of some mortgage margin pressure and lower fee income, partially offset by improved deposit income. Customer balances grew, with both loans and deposits up by 1%, the latter driven by product simplification and pricing initiatives. And wealth income reduced by 17% as a result of the impact of the U.S. business sale, which we announced in Q2 and expect to complete in Q4. Although NIM was down 8 basis points year-on-year to 2.97%, year-to-date it was in line at 2.99%, and we’ve guided to a broadly flat PCB margin to the end of 2015. Impairment reduced by 36%, reflecting the improving UK economic environment, resulting in lower default rates and charges. And with total operating costs down by 5% to 1.3 billion, we delivered another quarter of positive jaws, resulting in a quarterly cost income ratio of 58%, which we will continue to drive down. What we call the Digital Branch is increasing in importance as we migrate customers to online and mobile products and solutions. We are seeing high rates of digital adoption particularly among our retail customers, but we are also rolling out some of these products to Corporates as well. We’ve also seen continued growth in digital origination where customers have a loan which we offer them online. We have originated 1.2 billion of unsecured lending digitally through to the end of September, already well in excess of the 2014 total, and recently exceeding the amount originated via the branch network year-to-date. The cost benefit from digital can be seen in online lending’s cost income ratio of low-20s. Turning now to Barclaycard, this was another impressive performance for this business, continuing many of the trends seen in the first half. We delivered another record profit for the quarter and year-to-date and continued strong growth in Q3. Income grew by 15% to 1.3 billion, mainly driven by the U.S. business, with U.S. cards now representing over a third of total income. Impairment was flat and the LLR decreased 38 basis points to 271 basis points, but it’s likely to increase to around 300 basis points for the full year, as we implement methodology updates in Q4, with Q4 impairment expected to be at a broadly similar level to last year. Net operating income for the quarter was over 1 billion for the first time. Costs increased 5% to 507 million, still generating significant positive jaws. That reflected business growth as well as some strengthening of the U.S. Dollar against Sterling, but we also incurred a one-off cost of 55 million from the intangible write-off in relation to the exit from our Digital Marketplace rewards offering, which you may know as Bespoke. This action is a good example of the more rigorous approach we are taking to improving returns that John has talked about. Overall Barclaycard PBT increased 40% to 508 million, resulting in an improved ROE of 22.5%. Now let me turn to Africa Banking. On a constant currency basis PBT grew by 4% to 251 million, while attributable profit increased by 15%. The 12% depreciation in the Rand versus Sterling year-on-year led to an 8% reduction in reported PBT. So looking at the results in Rand, income grew by 4%, driven by continued good momentum in Retail and Business Banking both inside and outside of South Africa. Costs also increased by 4%, reflecting inflationary pressures, partially offset by the benefits of the strategic cost programs. Impairment increased marginally to 69 million. We continue to monitor the challenging macro environment in Africa, but given our region we feel well positioned to continue to build returns. ROE and ROTE increased modestly to 9.7% and 13.3% respectively. Turning now to the Investment Bank. The Investment Bank delivered good progress this quarter. Total income increased 9% to £1.8 billion, and with positive jaws this drove a 12% increase in PBT. Income grew despite RWAs being down around £7 billion on the same period last year at a £121 billion. When combined with a lower allocated equity of £14.6 billion, ROE increased to 5.2% for the quarter, and by 370 basis points to 8.6% for the year-to-date. On an ex-CTA basis, year-to-date ROE was 9.6%. Breaking down the income line, Banking performed well, up 20%, driven by higher advisory fees where we had our best quarter since 2011. Our banking team continues to execute on key transactions, for example we acted as Financial Advisor to The Williams Companies on their announced combination with Energy Transfer Equity, for a total transaction value of $55 billion. This is the largest announced U.S. Oil & Gas deal this year. DCM also performed well, as we moved into the top three globally for acquisition finance, up from 5th last year. Following significant restructuring over the last year, our Macro business again delivered a solid performance in Q3, with a 3% increase in income year-on-year. This was driven mainly by Rates, reflecting increased the client activity, helped by higher market volatility. Credit income was down 11% at £228 million, as securitized products and distressed credit made up a smaller proportion of our business compared to last year. However, our flow focused business did well on the back of strong client activity in a volatile market. Lastly, equities income was up 12% against Q3 last year, which was affected by Dark Pools, with an increase in both cash and equities and particularly derivatives, which saw a very good performance, driven by increased volatility. Total operating expenses for the IB increased 6% to £1.5 billion driven mostly by higher litigation and CTA as we took action to manage headcount. Costs excluding litigation and CTA were up 1% due to continued investment in our infrastructure with a strong focus on improving controls, conduct and efficiency. So we have made progress in Q3. However, we still have further work to do as we continue to reduce the cost base and optimize capital to generate attractive and sustainable returns. I would note that the Investment Bank has seen weak markets in October, compared to October of last year. Turning now to Non-Core, we made further progress this quarter on business sales, derivatives unwinds and sales of securities and loans. We completed the sale of the UK Secured Lending business, and as you know we announced the sale of our Portuguese retail business, which we expect to reduce RWAs by £1.7 billion in Q1. Income reduced to £6 million as the income generated from businesses was offset by negative income of £138 million for Securities & Loans and £55 million for derivatives, resulting from the active rundown of these portfolios and associated funding costs. Securities & Loans included a fair value loss of £28 million in Q3 on the ESHLA portfolio. We also had an increase in PVA relating to the ESHLA portfolio, as our model was updated to reflect market data points. I’ve emphasized in the past that as we dispose of assets and businesses from non-core, we lose income as well as costs. For example, the Portugal business is now broadly breakeven and, once completed, the sale will result in an annualized reduction in the non-core cost base of £70 million and a roughly equal income reduction. Costs for Q3, excluding litigation and conduct charges and CTA, were down £105 million year-on-year at £216 million at similar level to the previous two quarters. The attributable loss for the quarter increased to £328 million. The next slide shows the good progress we have made on reducing RWAs, leverage and cost, while also reminding you about the associated income impact I mentioned previously. Taking RWAs first, businesses and securities & loans were lower by a total of £3 billion, offset by a marginal net increase to derivative RWAs of £1 billion. On an underlying basis, reduced derivatives by £2 billion through unwinding and restructuring trades, but this was masked by a £3 billion increase from counterparty credit risk model updates and adverse movements in rates and currencies. We have a good pipeline of transactions to deliver RWA reductions over the next few quarters. It is worth noting that RWAs have halved since the start of 2014 to £55 billion, reflecting the impressive work the Non-Core team has done, and giving us confidence in our revised guidance of around £20 billion of RWAs in non-core by the end of 2017, as we continue our program of asset reductions across all non-core portfolios. Leverage exposure was reduced by further £14 billion representing a 60% reduction since June 2014. Cost savings from our ongoing cost programs and the sale of the Spanish and UAE businesses drove the 105 million reduction in costs since Q3 2014. We expect further significant cost reductions to be driven by Business disposals. We have concrete plans to bring down the cost base to a quarterly run rate of around 125 million from Q4 2016, excluding Bank Levy, litigation and CTA and will target further cost cuts in 2017. And finally, the chart on the bottom right demonstrates the drop in income I called out earlier, and the different income dynamics of the three non-core asset groupings. Turning now to some overall comments on income and costs, before I conclude. While a lot of our focus remains on cost efficiency as we drive down the group cost income ratio, we are also pursuing income growth opportunities, and we achieved core income growth of 2%, with notable growth of 15% in Barclaycard, and 9% in the Investment Bank. Across PCB, Barclaycard and Africa Banking, NIM was 417 basis points for the quarter, broadly flat year-on-year. Barclaycard NIM improved 42 basis points to 9.26% but we would not expect this to remain above 900 basis points as we continue to expand the business. Turning now to progress on our cost program. I’ve mentioned that our adjusted cost base is down 5% to 12.5 billion year-to-date excluding CTA that’s 11.9 billion. You can see on the next slide the tremendous progress we have made in reducing Group costs over the last couple of years. As you know, we have been targeting a cost base of 16.3 billion ex-CTA for the group this year, a reduction of 2.4 billion compared to 2013. It’s worth noting that included in this target are substantial components from Bank Levy, we had a 40% increase in the levy rate, higher than expected conduct and litigation, and increasing costs of implementing Structural Reform, as we’ve highlighted on this slide. While these components are inflationary, I am pleased that we have been able to reduce underlying costs to create the capacity to absorb them. In addition, we have taken unanticipated costs as we have exited underperforming businesses and written off intangible assets, as part of our focus on accelerating delivery of improved returns. For example, we are planning to exit our U.S. Wealth business in Q4 and as I mentioned earlier, we wrote off intangible assets relating to Bespoke in Barclaycard. These two actions alone have increased core costs by almost 100 million, but they are ROE accretive and we will not hesitate to execute similar actions again where we can, despite potential cost impacts. Of course these actions put pressure on the cost target for this year, particularly as we implement them late in the year. But, as I have said, they are the right things to do and will be ROE accretive and our cost targets will not prevent us from taking such actions. Going into more detail on Structural Reform, the first phase of the costs of implementation are around 100 million this year, and we now have more visibility on the costs and phasing of our Structural Reform implementation program. We have decided to take these costs above the line within our ex-CTA cost base, but will identify them separately, along with the Bank Levy and conduct & litigation, so you can track our progress on reducing our underlying costs. Next year these Structural Reform implementation costs are expected to rise to around 400 million, as we ramp up in both the UK and the U.S.. The final costs of implementation are hard to estimate precisely but our best estimate is around a further 500 million across 2017 and 2018, making a total of around 1 billion. We are now guiding to 14.5 billion core operating costs plus around 400 million of Structural Reform costs for 2016. Achieving further cost reductions beyond 2016, in core and non-core remains a key priority for us. In the non-Core we have clear plans to take the cost base to a quarterly run rate of around 125 million from Q4 2016. The direction of travel on costs is very clear. The over-riding objective is to drive towards a group cost income ratio of mid-50s, which John talked about at H1 The significant increase in UK corporation tax announced earlier this year, and those cost headwinds have implications for our core ROE. We have been targeting over 12% for 2016 excluding CTA. We have now had to incorporate the increase in corporation tax and the structural reform costs in a moderated 2016 core ROE target of 11%, and we show you here how these factors have contributed to the reduction from the previous target. So to summarize where that leaves us on targets, we hit our 2016 milestones 18 months early for CET1 and leverage ratios of greater than 11% and 4% respectively. We achieved our 2014 cost guidance, and I’ve just been through our 2015 cost progression. The rundown of non-core we accelerated our run-down plans with a £20 billion target for 2017. This would leave just over £3 billion of equity tied up in Non-Core. With the greater clarity on Structural Reform costs and a full year of the higher levy rate, our 2016 core cost guidance is £14.5 billion plus Structural Reform costs. And we have moderated at core ROE target to 11% in 2016. On non-core, we are aiming to exit 2016 with a cost run rate of around £125 million per quarter. The right way to achieve this and reduce the non-core capital requirement is to execute the accelerated run-down. Focusing on reaching a target ROE drag of below 3% in 2016 could lead to sub-optimal decisions on the pace of rundown. Of course as we do so we will track the Group’s capital ratio progression very carefully. We will also continue to resolve legacy litigation and conduct issue as quickly as possible. As John said at the half year, we want to get ourselves into a position where the core ROE drives the Group’s statutory ROE. So, in summary, I’m pleased to report further progress this quarter on our strategy and good performances from all our operating businesses. Now I’m very happy to take your questions.

[Operator Instructions] The next question is from Michael Helsby of Bank of America Merrill Lynch. Please go ahead.

I've got two questions, if that's all right, Tushar? First on your Slide 17 and then one on costs, so on Slide 17, I think when you originally used disclosed your 2016 targets you had an average equity of £48 billion to £50 billion in your ROE target, and clearly your slide looks like it's gone up today. You're already at £47 billion, and non-core is running off quicker. Can you just tell us what the new range is embedded in your 11% ROE? That will be question one. And then secondly, just on IB costs, as you mentioned in your remarks they're up, ex-CTA and conduct, by 1%. I mean you have not flexed them at all quarter-on-quarter when I'd have hoped that you would have done. Can you just tell us how much cost, ex-CTA, you expect to take out next year in your IB to drive towards that underlying £14.5 billion of core costs? And of that reduction, how much is coming from either mechanical lower deferrals and legal costs that you've talked about previously? And then, actually, you've got a significant amount of conduct still in your above the line costs, so of your £14.5 billion for next year underlying, can you give us an idea of how much conduct you're including in that as well? Thank you.

And I’ll take the questions in the order you asked them. And your first question around the equity base on which we’re striking out ROE guidance, I mean you are right to point out that we’ve been I guess releasing capital out of non-core ahead of what we thought we would be and that's been pleasing progress, we are not going to give you precise guidance on what the equity base will be I mean part of this Michael as you will probably no doubt get from our guidance is we’re trying to take you through to an exit rate of 2016 and to give up though the flexibility to accelerate where we can so, to put it bluntly, if we can release more capital quicker, we would absolutely do that but not to give precise guidance because it does make it a little bit more difficult for our non-core unit then to transact when they will use that information advantage. I’d say though the ability to recycle capital into productives, have been pretty good, we’ve managed to keep our ROE in the core business at reasonable levels and grow places like our corporate bank and Barclays card business very nicely without additional capital so I think we’re still confident and able to do that into next year, and in terms of IB cost, yes you are right, point out that they have been broadly flat quarter-on-quarter, and I’m looking here at the core OpEx line at about 1.3 billion. We do continue to see that reduce, you can see that we are still spending a CTA of further 94 million in this quarter and you will see the benefits of that come through in subsequent quarters as you are probably familiar by now that there is obviously a slight delay effect in the way those costs come through those are the CTA charge gets incurred earlier in the cost reduction a little bit later. There is a little bit of an effects going on here the cost gets inflated a little bit. But obviously we get that benefit on the income line as well, so we’re quite comfortable with that. Into next year, we’re not going to call out specifically the roll off of deferrals. You could probably actually, Michael work that out and you probably have already for yourself just using our disclosures from the full year. And obviously, once we assign the bonus pool for this year, we’ll give you the disclosures again so you can see the roll off into 2016 and beyond. Conduct and litigation is at an elevated level, it’s a little bit, obviously it’s very hard for us to predict, as it is for anyone else. We’re quite conservative in our estimates, and we’re not really assuming much of a drop off at all, and I am assuming that it will carry on at the kind of elevated levels that we’ve seen. So I won’t give you a precise number, Michael, but suffice to assume we’re not assuming much of a decline there.

Okay. Sorry, just the one thing you missed out there, are you able to give us an idea of, in your IB for next year, how much of the cost reduction to get to your 14.5 billion run rate is coming from that division?

Yes, again we’re not calling out specifically. We haven’t in the past and won’t do so for next year. You would expect though that the IB cost journey will continue and unlike may be put it maybe help frame you a little bit more, if you look at someone like Barclaycard, we’d expect cost to probably increase in Barclaycard. And so as that goes obviously the other divisions need to pick up that slack and the IB will be a very important part of that.

And you’re still confident and you can do that?

Yes.

Good. Okay, thank you.

Thanks Michael. Can we have the next question -- and just to remind everybody, we have a tonne of questions on the call. If you could just limit it to two each, then we’ll try and get around to everybody. So with that can we have the next question please operator.

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

I’ve got two the first is on RWAs, and the second is on non-core income. On the RWAs, so I was hoping you might be able to give us a bit more granularity about what you see coming in the future from the various regulatory proposals that are out there. Some of your peers are starting to give a bit more detail on this, Deutsche Bank more notably again today. Are you thinking that these various proposals that are in the pipeline at the moment are still absorbable in the context of ongoing management of RWA, so the 400 billion Group RWA number you’ve talked about, 120 billion in the investment bank? A bit of an update on that would be the first question, please.

Okay. So I am going to answer -- go ahead ask the second one and I will just take it in one shot.

Sure, yes. The second one is really on non-core income. I mean accepting that the income statement for non-core in 2017 will be affected by, I suppose, rundowns, disposals, so on and so forth. Can you give us a feel for what the ongoing income level at that period of time will be? You’ve obviously broken down again the income for Q3 on Slide 13, I think there’s about 193 negative on securities and derivatives, 199 positive on businesses. What of those three blocks will be left as we go into 2017 on an ongoing basis, please?

So, on your first question on risk-weighted asset inflation, we kind of think we see on the horizon that there is a little bit further out, but we’re hoping to get -- move that very soon. I’d sort of wrap them up into probably euphemistically Basel IV. So the review of the trading book, whether it relates to standardized credit risk-weight for the particular calibration point, and moving to standardized operational risk, various other, maybe even mortgage flows or something like that. And our objective is to absolutely absorb that within the guidance of RWA that we have provided. Now we don’t have the full rule sets yet, so I can’t give you a precise estimate of for example what the review of the trading book will do for us we are hoping to get it all set perhaps before the end of this year, and then we’ll allow us to calculate that properly and share that with you and our plans around that. Something like standardized credit risk-weight is obviously much easier calculate speaking on the calibration point is and actually even operational risk as well to be straight forward once and once we know what the prime work is. But we feel everything that we have seen so far. We will strive I am still confident we can do that, to absorb that within our existing RWA guidance and even in the investment bank we’ve guided to the investment banking utilizing more than £120 billion of RWA circa there's obviously some FX growth that will bounce it around a bit. More importantly no more than 30% of group RWA and that’s why we’re running the roughly speaking investment bank, naturally intend to continue to run it. In non-core income like we won’t give precise guidance, but you would expect the business income to drop off as obviously we sell the businesses and we are attending to sell those businesses as quickly as we can, obviously paying due regard to our capital position. What is then left would be the mark-to-market volatility if you like on derivatives and associated funding costs and likewise the securities and loans portfolio. My guess is that it will be a net negative but we will try and manage that to reasonable levels and of course what we really have to do is shrink that portfolio as quickly as possible and sort of the revised guidance gives us more if you like capacity to do acceleration where we see it is a sensible thing to do given our capital levels.

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

I just wanted to follow on, on non-core actually please I have two questions this is the first one. On the cost line, Jonathan was asking about revenues, but you've obviously given guidance today on costs, I just want to get to grips with whether your exit rate guidance should be extrapolated into 2015 -- 2017 sorry. Because if so, then it looks like consensus is too low on costs for 2017, and I just this worry around stranded costs in non-core seems to be increasing with this guidance. I wonder if you could calm my fears over that. My second question is about the ESHLA portfolio. How much capital are you now holding against that portfolio, because you've obviously got a very big PVA deduction now, and I assume there's RWAs associated with it as well. It must be sucking up a lot of capital and it must be close to the point where you could think about selling it, no?

I’ll do my best to manage to allay your fears. On cost and non-core beyond 2016, absolutely you would expect us to continue to drive that down, we’re just giving you if you like, the weight point of an exit rate, if you like as we close 2016 and go into 2017 that won’t be where we expect to be as you go further into 2017 and our objective point here is to move the drag that non-core would exhibit, both through how much capital is tied up in there and how much sort of a residual cost is there at minimal level as possible and get those as we get closer to the end point of non-core, we’ll give you more specific guidance around that.

To be clear, there's no additional non-core -- this doesn't account for anything additional going into non-core? If you were to decide to put additional stuff into non-core it would be a whole revised set of income?

Yes, yes possibly, yes absolutely this is kind of we feel like, like for like.

Okay. Thank you.

In terms of your ESHLA question, yes it’s actually a very high quality credit book, so you don't get so it is a very low risk-weighted asset entity, so most of the capital is coming from the PVA deduction and impairments are literally zero on that book, now your question about -- of these level, where we can just can exit a portfolio and you’d expect me not on to that directly that will put our non-core team in a significant information disadvantage, when they are discussing this with potential counterparties, so I won’t answer but suffice to say, it is a super high quality book of the credit matter it’s really a PVA issue and we’re obviously very apt to wind it down as sensibly as we can.

Just so that we can understand, what actually drove the increased deduction, because it's pretty material? You said the model changed, but what was it?

So, what PVA is it is a measure it is a regulatory measure of the uncertainty around the potential value of the book. As oppose from an accounting reserve that we would otherwise take and spread wide and quite considerably during the summer as a general matter and particularly in some of the related markets there, so we’re just reflecting that in PVA.

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

So, I've two questions for you. The first one was on capital and you're targeting it 12.1% CET1 ratio, just over 12%. I know some of the banks are targeting higher numbers; as mentioned, Deutsche this morning 12.5%. And assuming that that 12% is the right number and you're confident about that, and you're going to get to that 12% really pretty soon, sitting at 11.1%, what do you do with anything you have above 12? Is that actually a surplus capital question that you're talking, doing specials and buybacks like Lloyds if you get to that level? Or would you feel more comfortable getting to 13-plus before we start talking about special dividends? And the second question was just on PCB. Obviously, the margins been flat or down sequentially for the last four or five quarters in a row. It would be interesting just to hear a little bit more from you about and the competitive environment in the UK retail and commercial space? Thank you.

And yes on capital we’ve always talked 150 basis points above our end state fully phased in minimum sort of MBA restriction requirements if you like, at the moment that calibrates to over 12% and it may vary overtime, so I wouldn’t lock into just 12% been a permanent end-state point of the capital Pillar 2A may go up or down G-SIFI surcharges charges may move. I think the other thing that's really important is also stress testing we have a potential to get -- and as that develops further through the PRA consultation paper and beyond I think we’ll pay obviously more and more attention to how that affects our calibration for end-state capital requirement, so we’ll continue to talk about how we see that play out, but for now, sort of 150 basis points above our fully phased in and so it feels about right but it of course may change in the future, countercyclical buffers of course is another thing that may or may not arise in the future. So that is what I think Chris if you are looking for is there a magic pass marking them and beyond that we’re going to buying back for special to what have you we are not really at that point, I think we’ll just continue to guide, firstly to what we think our capital objectives are at the moment we are targeting getting over 12% overtime and at that point, and as we go through that and at that point we can talk to you more about the dividend philosophy of the group. We’re moving away from a formulaic dividend as you saw over the summer. In PCB, yes you are right margins have been reasonably flattish. Now there’s a few things going on there. You have seen NIM compression in mortgages, which a lot of people have talked about. It’s a pretty competitive market. I would point out that mortgage is an important business for us. But we have a large commercial bank and a large sort of personal retail bank that’s away from mortgages as well. So although it’s important, it’s not the significant dominant component of our NIM. It’s a minor component as such, so while it has an effect it’s not overwhelming. In other parts of the business, deposit margin has been healthy. We’ve re-priced deposits I mentioned on the scripted comments improvements in deposit margin in corporate, and that corporate business is holding up actually extremely well. So it’s a competitive marketplace particularly in mortgages but our business generally is holding up well and may be things like current account balances, corporate assets, corporate deposits. We’re growing quite nicely, so we feel pretty good with that.

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

So there was in my line job is always asking a question. But perhaps a couple from me, please. Firstly, on the ring-fencing, can you just clarify what are the major items within the 1 billion of costs that you flagged today? And then also on the revenue side, are you assuming anything at this stage relating to the cost of funding and the credit rating with the non-ring-fenced back? And then my second question which on loan growth. Very good loan growth, but in the corporate bank and in the investment bank. So 3 billion in corporate bank, 6 billion in the investment bank. Just on that point, I need S&P the lumpy positions, but to what we’ll be thinking about going forward in terms of the growth two businesses. Could you just entertain on the tax a bit again that? Thank you.

On ring-fencing costs at 1 billion, it covers both the United States and the United Kingdom, we consider it is probably frontloaded in the United States and the United States if the construction costs of creating our intermediate holding company and moving our businesses to underneath that intermediate holding company and ensuring them we’re in a sufficient position to conduct CCAR stress testing requirements. That is quite a large operational lift and obviously a lot of PPNR models and various other things that we need to get done validated and operational in-time. In the UK, essentially for us, we’ll be creating a new bank, a ring-fenced bank, so it’s getting a banking license and it is moving our business that need to be held in the ring-fence across into there and porting all of that over, making sure it’s capitalized and have sufficient liquidity, et cetera. So if you like, the construction costs of ring-fencing our operations. In terms of the revenue effects of doing that it is too early to call that yet, I will share that with you as we get near the time. We’re seeing a lot of refinancing already from our main banking to the holding company and you’ve seen a few that’s aggressively quarter-by-quarter. So you are probably getting a sense of where a holding company spreads versus bank spreads are. Now it is obviously that will change again, overtime, as more of our issue and it is actually it’s out of the holding company it will naturally reset. So we’ll give you more guidance as we go through that. In terms of the loan growth, we’re really pleased with the corporate bank. Quite happy to see loans grow there at a nice pace, and we’re trying to create as much capacity as we can within our capital position to do that the corporate bank generates very attractive ROEs with very good risk characteristics. So we do like that business a lot. In the investment bank, it’s a little bit more lumpy I wouldn’t say we’ve turned on the taps, though we’ve been quite disciplined around the capital allocation for the investment bank and the investment bank has been incredibly disciplined around how to utilize that and Tom King in the past talked about essential balance sheet management utility that we've had in place for some time now that Russians financial resources within the various parts of the investment bank and that has been essentially a really good an operational improvement for us. So I wouldn’t sort of quite characterize that as turning on the taps, more being opportunistic where we see good underwriting opportunities where we can use our loan books appropriately.

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

Two questions from my side. The first question is on core costs and I appreciate the guidance for 2016. I was just wondering if you could give us a sense on the trajectory of the core costs from end 2016 onwards. In particular, I’m trying to get a sense on to what degree you can offset higher costs you incur now, setting up the ring-fenced entity by, say, further cuts within the retail franchise? And the second question, just quickly, just to clarify what your thoughts are with regards to Barclaycard and where it sits within the ring-fence or partially within the ring-fence or completely outside? Thank you.

In terms of core costs look the direction of travel is down. You heard John talk at the half year that the company really should be targeting a mid-50s cost income ratio. Now the costs are going to be a very significant component of how we achieve that, so as you would expect cost to continue to go down. And to put that into context, we’ve reduced, if you think of CTA and core operational expenses, we’ve reduced almost £3 billion in two years. So the momentum behind the program and we continue to see that come through so I guess in one word summary, Martin, lower would be the things keep in mind, Barclaycard you are asking really, how that's going to feature in terms of which Barclaycard is going to which part of the ring-fence, I’m going to call that out now for the simple reason that we’re in discussions with the regulatory authorities on our incentive plans and it’s not appropriate for us to be having that conversation before the regulators have completed their dialogue with us and are happy with where we’re going. The only thing that is obvious, Martin, though is the U.S. cards business of course will be under the intermediate holding company and just for your benefit it’s already subsidiarized in a Delaware bank with its own entity, it already has its own Board, its independent directors and its FDIC regulated so relatively sort of negligible affect for that, but the UK we will talk to you about that once those plans finalize with the regulators.

The next question is from Chintan Joshi of Nomura. Please go ahead.

Two questions, please. First one, a press report suggested that you applied for a transition period on ring-fencing; can you elaborate a little on this, why this application was made and what is the plan B or in case you don't get that approval? And the second question was on ongoing costs from structural reform. So you've given us £1 billion guidance; it sounds like a one-time setup cost. I'm trying to think more about ongoing cost to maintain the new structure, which will be kind of part core costs, but I'm guessing you're not including that in the £14.5 billion. So I just want to think about what that number could be?

You obviously believe everything you read in the papers, I guess so good luck with that.

Not really.

It is sort of the same question Martin asked, so I’m not going to elaborate on our ring-fencing plans while we are in dialogue with a PRA it is not respectful for us to be having those conversations, and while we are discussing with the regulators, so I’m not going to talk about that all, or comment on anything you read in the papers, your ring-fencing question around £1 billion costs, yes those are implementation costs, they are not run rate costs, and I talked about targeting a mid 50s cost income ratio that will mean that we have lower OpEx than we have today that will also include absorbing the run rate costs of administering the ring-fence, so I think you should think about it like that of course, we’ll continue to give guidance on how we expect our expense base to evolve beyond the immediate guidance we have given as go through those timeframes.

Can I just quickly follow-up Manus’ question. Did I understand correctly, so what you are saying on the non-core cost guidance of £125 million per quarter, or that is just a weight point and that 2017 will be lower under the current construct?

Yes, you are expect us to continue to drive it down.

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

I just have one question. You lay out your plans for structural reform on slide 35 of the slide deck, and you say on the right-hand side there that there's the potential for some external issuance of capital and term unsecured debt by OpCos. I'm wondering if, with CCAR, etc., that more common or prof equity might be needed in that US IHC and was wondering if you could provide some further color on that comment that you put in the slide? Thanks so much.

Yes, I mean the key word there Joseph is really potential so I am not going to give you specific plans on whether we’re going to be issuing anything out of OpCo or everything out of HoldCo. And you see the vast majority of stock would be issued out of HoldCo and downstream, for single point of entry perspective and obviously to comply with TLAC requirements which we’ll learn about in the next few weeks. But we do have the flexibility should we choose to do so to issue prefs out of the IHC or similar, I think we will just be opportunistic around that and see what the most optimized form of capital for us so we will have the ability to do it but no guidance on that but the key word is potential rather than anything else.

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

I just have questions on Barclaycard, just trying to understand the significant jump in non-interest income third quarter, second quarter and whether now what's driving this and whether it's sustainable. And just generally on Barclaycard's revenues in Q3, what has driven it sequentially year-on-year, it seems such a step change relative to balances? Thank you.

Yes, the increase is really being in the U.S. now it’s being principally the business in the U.S. has been is mostly in the affinity business where we’ve got partnerships and essentially what you think is about full year effect of some partnerships that we incorporated towards the latter part of last year and then in affinity business you have a slight bias towards fees rather than net interest income, so it’s really showing that come through and when we announced -- it was announced yesterday actually by our partner Jet Airways that we know we signed them as a partner and just an example that's another sort of premier brand for us and we are delighted to have won that business and look forward to a very long partnership with them, which is a good example of how we can continue to grow that affinity business into next year and beyond.

The next question is from Edward Firth of Macquarie. Please go ahead.

I just wondered if I could bring you back to the investment bank performance, because I hear what you say when you compare nine months on nine months. But if you look at Q3 performance against Q2, you’ve got revenue down 16% and costs up 2%, and yet it seems to me, from what you’re saying, that your cost targets next year, a big part of that is going to come out of the IB. So I guess my key question is, what gives you the confidence that you can get costs down when, even if revenue is falling quite substantially, there doesn’t seem to be any reflection in the cost base? So I guess that’s the first question. And related to that question, I guess, you also saw quite an increase in risk-weighted asset allocation to the investment bank in Q3, and I hear that you’ve got the 120 billion. Can we take that as an absolute fixed target now, or would you expect, from time-to-time, the investment bank will go above that and that that’s a mean average through the course of the year that we should look at? So that’s on capital. And then I guess the final question is just, I struck when you look at page 19 of your release where you show the quarterly performance data. I mean the investment bank’s made a negative return on equity now in Q4 for both of the last two years, and you’re telling us that October is below October last year, so should we really be assuming we’re going to get another negative Q4 for this year? Is that in your thinking? Thanks very much.

Let’s take the questions in the order you gave them. So on Q2, Q3, I really look at the sort of as a sensible comparison at least on the revenues Q2 to Q3. So the drop off in revenues would probably happen in every single year, just given seasonal effect, so I’m not at all concerned that Q3 revenues are below Q2, you’re going to find it interesting to find a year when that probably wasn’t the case.

It’s just that, in earlier years, we have seen the costs come down as well, but this year.

No. That’s a very fair point, so the cost, I think, is a very fair comparison and so that’s a much more a noteworthy point. I would say, if you look at our cost base when you see a decline in revenues on a sort of total quarterly seasonal basis, we have less flex in our performance costs because of the we’re 100% deferred. So it’s really a delayed effect on reducing our bonus pool for this year, to the extent we chose to do that by the end of the year, you’ll see that come through in subsequent years rather than the accrual dropped immediately. But you would expect the trajectory of costs to continue to go down and it has been steadily declining. Another comparison you can take is revenues in the third quarter last year were 1.67 billion and revenues are much higher this time, but on broadly speaking, the same core OpEx basis. So you can see the improvements coming through that, we’ll continue to do that. In terms of RWA allocation, yes, I mean there will be more flex overtime and you should expect us not to go above 120 in any consistent fashion. You do get some odd things like foreign exchange rates will bubble up or down and we were lower in the second quarter a little bit more in the third quarter some of that was FX rates and not much else. So you should take 120 as pretty firm containment there in terms of capital allocation. The fourth quarter performance in the investment bank, I mean the negative ROEs is as much driven by the bank levy which we booked as a single event in the fourth quarter, but looking through this favors your point, the fourth quarter is it going to be weaker than this time last year and you have got the bank levy? I think it’s a reasonable line of questioning. I can’t comment on the full quarter, of course, it’s an uncertain next eight weeks to go, but I would tell that has been weaker than this time last year, and you’re correct to point out the levy will get booked in the fourth quarter.

Your final question Tushar is from Peter Toeman of HSBC. Please go ahead.

I obviously listen to your calls avidly and note slight changes in nuance. And I noted that in the Q2 call, you seemed to refer to the drag from the non-core businesses being almost inconsequential, and today we learn that maybe the cost base in non-core might be 0.5 billion in 2016. So it sounds like it might be more of a drag than you were hinting at a few months ago, and I wondered whether there’s been a change in your attitude or the ability to sell assets that explains that. And then again on the regulated capital on RWAs, previously you’ve said yes, we can absorb all these increases. And today you said, well, we can absorb them and actually you gave the impression that you actually had an idea about how significant those increases might be and, therefore how absorbable they really might be. And I wondered, in fact am I reading too much into this, are there subtle changes in nuance that you’re trying to convey to us?

No, not really, I try not to be like the central bank or something like that where you’ve got t o pick up on every single adjective and it’s got some deep meaning behind it. So in terms of was I subliminally trying to tell you we’re going to have more costs left in non-core or the difficulty in terms of absorbing RWA inflation, no. My view is consistent from the half year to this year the objective is to have minimal costs left in non-core and we have hold it back we’ll never ultimately close non-core, because it becomes steak an adjective to -- when it become such a small unit we just hold it back in and we think, we should be all do that at around end of 2017 with a minimal impact on the core return. And in terms of our WA inflation it is uncertain, it is as uncertain now as perhaps it was for me at least in the half year, until we get final rule sets, and I always have to caveat that and everything I understand at the moment, it is something we will be able to absorb, but it is subject to the final rules being made available to us.

So I think that is it I probably just wrap-up with a few comments, I mean I characterize this quarter has a pretty decent performance in our core bank with very good underlying divisional performance across all of our divisions standout performances in Barclaycard and PCB, and healthy performances in both the investor bank well and in Africa where profits were up. We continue to make progress on dealing with legacy conduct and litigation items and preserve that capital position while doing so and continue to make progress on non-core a lots more work to do. Obviously Jes will be joining us in December, and we look forward to hear the impact on this and then work with him on making even more progress. So with that hopefully, I’ll get to see some of you over the course of the next few days. But thank you for joining me this morning.