Jes Staley - Group Chief Executive Officer Tushar Morzaria - Barclays Group Finance Director

Claire Kane - Credit Suisse Jonathan Pierce - Exane BNP Paribas Andrew Coombs - Citigroup Chris Manners - Morgan Stanley Martin Leitgeb - Goldman Sachs Edward Firth - Keefe, Bruyette & Woods, Inc. Chris Cant - Autonomous Research Fahed Kunwar - Redburn

Welcome to the Barclays Half Year 2017 Results Analyst and Investor Conference Call. I will now hand you over to Jes Staley, Group Chief Executive, and Tushar Morzaria, Group Finance Director.

Good morning everyone and thanks for joining the second quarter earnings call. Before I hand over to Tushar to take you through the numbers in-depth, I first want to provide you with some thoughts on what was a very important quarter for us in terms of the execution of our strategy. And second, give you a sense of our priorities for the Group going forward. The last three months saw us complete two key planks of the strategy we set out in March of 2016 and both were achieved ahead of schedule. First off, on the 1st of June, we sold roughly 34% of our shareholding in Barclays Africa, this represented the largest secondary offer ever executed in the continent. Having reduced our stake in the business to effectively just under 15%, we have applied for and expect to achieve four regulatory deconsolidation in respect of Africa by 2018. However, while we await that formal approval, we were pleased to be very recently granted permission to apply proportional consolidation in respect of Africa to a level of just over 23%. This means that our capital has benefitted by 47 basis points from the transaction, which coupled with organic capital generation in the quarter, means we are reporting a 13.1% CET1 capital ratio today, that is of course at our end-state target of around 13%. We will realize a further 26 basis points of CET1 accretion in due course, half of which is expected to come through later in 2017 as we move down to a 15% regulatory ownership level and the rest on formal regulatory deconsolidation. Beyond this capital benefit at a stroke we have radically simplified our business, removing significant complexity and taking a major step towards our future as a balanced and diversified Transatlantic bank. It was a very difficult decision to exit the African franchise, given our long association with the continent, but it was the right call for the Group. And I’m pleased that we were able to achieve our objective well within the 2 to 3 years we had allowed the sale. I’m also glad that Barclays will retain an interest in the business through our minority shareholding and we wish Maria Ramos and all of her colleagues every success for the future. The second major milestone delivered in the quarter was the completion of the accelerated rundown of Barclays non-core unit as of June 30th. Looking back, in just three years we have eliminated £95 billion of risk-weighted assets. We sold more than 20 businesses. We’ve exited literally hundreds of thousands of derivative trades. We’ve closed operations in a dozen countries and we returned about £6.5 billion of equity to the core and we’ve primarily reduced Barclays cost base by over £2 billion per annum. Accelerating the rundown of non-core has required hard choice and consumed a significant amount of management energy and focus. But be in no doubt that in doing so we have enhanced shoulder value in the Group by bringing forward the date when we can all benefit from the full earning power of Barclays. Now at just £23 billion of risk-weighted assets, the residual non-core assets no longer require a dedicated unit to manage the continued rundown. So we will fold them back into the core of the Group. Tushar will give you more detail on that exercise, including the distribution of risk-weighted assets and their impact on business unit performance. As I have flagged before however this is the last quarter in which we will report non-core numbers. In the future, there will only be one statement of our financial performance and that will be on a statutory basis covering the Group and our business units of Barclays UK and Barclays International, so that investors can see with absolute clarity what we are delivering. That move is an important step in the normalization of Barclays. And it is made possible because the completion of the ASCA [ph] exit and the accelerated rundown of the non-core assets collectively marked the end of the restructuring of the Barclays Group. This restructuring has been a tremendous undertaking, but as a result, what you see today is the reshaped business, a simplified and diversified Transatlantic consumer, corporate and investment bank. Two strong business units in Barclays UK and Barclays International, underpinned by an efficient, effective and innovative service company. What we have now is our geographic footprint for the future. What we have now are the business line that we will be in going forward. With outperformance driven by some 81,000 people rather than 141,000 as it was when I started here in 2015. The completion of our restructuring and the strength of our capital base today with our CET1 ratio standing at 13.1% means that we can now turn our full attention in all of our organizational energy towards what matters most to our shareholders, improving Group return. That goal, driving our returns up to an acceptable and sustainable levels is the number one priority for this management. Looking through the charges associated with the African disposal and PPIs, we produced a Group RoTE in the first half of 2017 of 8.1%. While that is more than twice the returns posted last year, on a comparable basis it is still below our cost of capital and therefore we’ve got more to do. Our current returns target is to converge Group returns with core returns, as we have now closed the non-core unit, it is appropriate to move on from that and establish a new goal for the Group. So today we are formally setting a target of achieving a greater than 10% Group return on tangible equity over time. We have three principle levers which underpin our confidence in delivering that target. The first lever and perhaps the most obvious is that many of the costs of our restructuring will fall away over the next two years. Costs from our non-core businesses and assets will reduce. Then costs associated with the setup of the UK ring-fenced bank will disappear by the end of next year. And there will be an end, the restructuring costs associated with the broader reshaping of the company, including the headwind from the compensation change we implemented late last year. Collectively, these savings will amount to roughly £1 billion by 2019. The work to achieve these savings is largely done or in flight. We need now to maintain discipline and focus to ensure that our returns benefit fully from these reductions in cost. The second lever is our plans to improve the returns in the corporate and investment bank. We have done a lot of work over the past few years, repositioning that business to a much better balanced low volatility model focused on client intermediation is on building strength in origination. You could see the fruits of that effort in the performance reported this morning. With strong numbers from credit on the market side and impressive performance in underwriting in particular driving a 3% increase in income in the first half. I’m also pleased that we continue to make significant share gains in the investment bank. In banking, we finished the quarter at the highest global fee share in four years at 4.7% ranking sixth. In debt capital markets we rank forth globally, up 110 basis points from the end of 2016, our higher share for three years now. This was helped by the strongest performance in over three years and leverage finance where we finished second with a 7.4% share. And in our home market here in the UK, we finished June, we ranked number one in banking fees with a 10.3% share. But today the CIB is delivering a return on tangible equity once the impact of non-core reabsorption and the bank levy are accounted for which is still below the cost of capital and a drag therefore to group returns given its relative equity consumption. So we need to get that number to double digits over time and we will do this in two principal ways. The first is through the redeployment within the corporate and the investment bank and improvements in wholesale funding costs. Since combining the loan books of the businesses in March 2016, we have worked hard to evaluate returns on our overall client relationships. What we found is that while the majority of the £90 billion loan book support client relationships, which earn a return greater than our cost of capital, a sizable proportion of the book currently does not. So our intention is that by 2019 we will have proactively reallocated the lion’s share of risk-weighted assets of these lowest returning parts to the portfolio, the higher returning CIB clients and products. In particular, we will look to reallocate a significant proportion of those risk-weighted assets to high returning parts of the markets business, which are currently capital constrained. I want state clearly at this point of the work undertaken between 2014 and 2016 to reshape, resize and reposition the corporate and investment bank at Barclays was necessary and net positive for the business. We have seen significant improvement in those parts of the business which are capital like such as M&A and underwriting over the past couple of years, but it is a fact that we’ve seen some weaker performance as others have in the parts of our business which are more capital intensive. It’s becomes clear that part of the reason for that past year performance is because in aggregate we have pulled back a little too far in terms of risk-weighted assets in our markets business. Our conclusion is that we have enough capital overall in the CIB today, but that is not currently deployed optimally. The reallocation program we have instituted is intended to address that. Allied to that effort is a confidence that wholesale funding cost for the CIB are expected to fall incrementally over the next three years, driven very much by revised issuance assumptions and improvement in funding spreads. For example, over the next few years there are expensive legacy debt instruments that either mature or subject to regulatory consent are redeemable. These represent opportunities to reduce wholesale funding cost and we also now aim to issue less embroil in the median term, driven by lower Group risk-weighted assets after the successful Barclays Africa sell down. Second, we are going to stay focused on improving the cost efficiency of our corporate investment banks to create capacity for strategic investments, particularly in technology. We’ve already seen some of this cost discipline in the London real-estate exit we announced last year. I will say more on this when I do with Group expenses shortly. The returns benefits from the combination of these elements, capital reallocate within the CIB, reduce wholesale funding cost and an optimized expense line has the capacity to drive corporate and investment bank returns to double digits based on where we are today. CIB management are wholly focused on excluding on these priorities and at pace. The third lever of our overall plan to get Group returns to greater than 10% is a continued focus on cost efficiency and operational effectiveness. We are committing to achieving a Group cost income ratio of less than 60% over time. In the second quarter, that ratio stood at 67% excluding the PPI charge. The £1 billion of savings I referred to earlier will take a very long way towards our sub 60% target, but beyond that we have multiple major initiatives already underway across Barclays which will help us to get there, as well as to create headroom for more investment. The foundation of the efforts is in our service company. This is the hub within which we deliver group-wide operations, technology and functional services in a unified approach that is massively simplifying and standardizing our processes and creating synergies in shared services. One example of that among many is how we have integrated no fewer than 10 separate fraud handling departments, each with different approaches and resources into just one. This has reduced duplication of effort and cost while at the same time delivering a consistent and improved experience for our customers and clients. The Group also continues to invest in innovation to ensure we are at the forefront of next-generation product and services in banking. Our mobile banking app continues to be recognized as the UK market leader and we’re excited to be the first UK bank to enable voice payments for our customers with a lots of CRE payments next month. I think that our iMessage payments are now live, allowing iOS 10 users to send and receive money between friends easily via iMessage. And the recent deployment of a contactless cash featured on Android phone allows the customer to withdraw up to £100 simply by tapping their android device on an assisted service counter at a Barclays branch. This innovation agenda enhances the customer and client experience, making it simpler, faster and more cost effective to do business with Barclays. We are also working hard to modernize our technology architecture and I have talked repeatedly about why I regard has a crucial competitive advantage for any the bank hoping to prosper today. That does mean some upfront investment as we increase automation, ramp up the use of the cloud, simplify the platforms for data, improve resilience and security for customers and clients and deploy innovative technologies. What it leads to our structurally reduced costs over time and permanent efficiency gains across all businesses and functions. A great example of this will be implemented from next month when we begin the migration of 90,000 small and medium enterprise customers to our new acquiring platform which weeds out bPaid. bPaid delivers a new single billing and settlement platform in new merchant onboarding solution and a new case management and agent servicing desktops to our Barclay card business solutions customers around the world. It is more resilient and can integrate directly with the client’s own systems. The rollout of bPaid will see us replace about 80% of the back-office domain in our merchant acquiring business and we will retire 14 separate legacy systems in the second half of 2018, some of which have been around for 30 years. The efficiency and effectiveness gains from a program like this which has been three years in development are obvious. As we drive to a logical modernization, we are then able to optimize the workforce to align to standard processes and simpler ways of working. In particular, we see a Barclays Group with far fewer expense of third-party consultants and contracts. Finally, we have embarked on a major initiative to reshape our real-estate footprint as a company. We are currently spread across too many sites and in too many locations for the size and strategy of our business today. Over time, we will concentrate our people and equipment in a small number of strategic locations which will lead to fewer real-estate IT equipment data center and management costs. One good example of where we are delivering on this approach is in our recent acquisition of a campus in Whippany, New Jersey, where we will bring together the majority of our back office operations and function currently located across multiple sites in Manhattan and we’ll do this by the end of 2019. We expect all of this to not only drive savings, which in turn will help to improve returns, but also to create headroom for reinvestment at attractive growth rates for the Bank, because we do have strong opportunities for growth in Barclays. Take US cards for example, where we’re now the ninth largest issuer by balances and one of the fastest growing businesses amongst the top 10. We have 24 very profitable partnerships with leading brand like American Airlines, Apple and the NFL. And today, I’m proud to announce that we have signed a deal with Uber to provide an innovative cobranded credit card to their customers later this year. The cards and payments business has very exciting potential and we want to get after that. In Barclays UK we also see opportunities for top line growth. We have 24 million customers in the UK and most of them currently have just one or two products with us. Our strategy for growth is to deepen relationships with as many of these clients as possible and Ashok and his team have exciting plans to do just that. When I took over as Group CEO of Barclays, the things that needed to be done to get the bank to the right place to realize its potential were fairly clear. First was to reset the bank’s strategy which we did in March of 2016. Alongside that we needed to recruit and organize the best possible management team for the business, both at the executive level and the next year below and we did that through the winter, spring and summer of last year. Next, we needed to execute a strategy which we have done successfully, culminating and our exit from Africa and the closure of the non-core unit in this quarter. We had to get our capital position to a much stronger place. The 150 basis points to 200 basis points above the regulatory minimum and we’ve met that target with our 13.1% CET1 ratio print today. And we needed to continue to prioritize strengthening our culture and controls which we’ve attended to. With all of that accomplished and while still working to put our remaining conduct issues behind us, our single-minded focus now as a management team is on improving Group returns. At the full year results announcement early next year we will provide an updated capital management policy for the Group. And I very much look forward to sharing that plan with you. With that, let me thank you for your time and hand it over to Tushar.

Thanks Jes. Our results announcement possess the H1 financial performance on a statutory basis, which is the way Jes and I now manage the businesses. To help you understand the Q2 business performance and trends, I think it will be helpful to highlight material item and other items of interest which I have set out on the next slide. There are two material items in Q2 this year, the charge of £700 million for PPI and £1.6 billion in losses relating to the Africa sell down. It’s worth stressing that these Africa losses don’t change the overall capital ratio accretion expected from the sell down. As a reminder, in Q2 2016 there was a £615 million gain from the sale of our share in Visa Europe, a charge of £400 million to PPI and £292 million of own credit in head office income. The last one now goes to reserves in accordance with IFRS 9. When I run through the underlying performance of our businesses, I’ll exclude these items, although we have shown the statutory numbers in the tables on the flowing slide. The other income and cost items of interest have been listed including gains on the sale of our share in VocaLink and of our Japan JV, to make it easy for you to adjust for them if you wish to do so. Our Group Q2 statutory results were impacted significantly by these two material items. Together with another quarter of significant non-core losses, as we successfully drilled down RWAs to £23 billion, ahead of the unit’s closure on the July 1st. Our sell down of 33.7% of BAGL generated a loss on sale of £1.4 billion. Lastly, the recycling of currency translation reserves to the income statement, and also £206 million from further impairment of the stake. We still estimate about 73 basis points of capital ratio accretion from the Africa sell down, with 47 basis points accretion in this quarter and a further 26 basis points of ratio accretion expected in the future. Group RoTE excluding these material items was 7.2% which represents good progress towards the target Jes referred to, a Group returns in excess of 10% over time. Of course we got some benefit from currency moves year-on-year, particularly the 10% decline in sterling against the dollar, which is a tailwind to income, but a headwind on the cost line. Underlying income was flat year-on-year with increases in BUK and BI, offset by higher negative income in non-core as we accelerated the derivatives rundown ahead of closure. Other net income was £241 million, driven by the £109 million gain from VocaLink and the £76 million from our Japan JV. Impairments increased 8% to £527 million, largely in consumer cards and payment. Although you will see that current delinquency trends in both our US and UK credit card businesses are stable. Underlying cost excluding the charges of PPI fell 2% to £3.4 billion as the reduction in non-core costs outweighed the currency and other headwinds. This resulted in a Group cost-income ratio of 67% on this basis. The £700 million charge for PPI primarily reflects higher than expected compliance flow over recent months. This results in a residual provision on June 30th of £2.1 billion and that’s our best estimate of future expected redress, tracking in the latest data that we have. In addition to the PPI charge, there are number of items in Group cost this year which we expect to fall away over the next two years. As we heard from Jes, hoping us to get close to our Group cost-income ratio target of less than 60%. We generated significant capital ratio accretion of 60 basis points in the quarter with 47 basis points from the burn of BAGL sell down and 13 basis points from other sources, that’s profits and other actions more than offset the headwinds from the PPI charge and pension contributions to deliver a ratio of 13.1% which is at our stated target of around 13%. RWAs reduced to £327 billion, primarily reflecting proportional regulatory consolidation of BAGL and the non-core rundown ahead of closure. TNAV fell by 8p in the quarter to 284p due to reserve movements. The core business delivered close to double-digit underlying returns. On an average tangible equity base was over £4 billion high year-on-year. Core income increased 2% excluding the Visa gain and own credit from last year’s number with 2% growth in Barclays UK and 1% growth in Barclays International, helped by currency moves. Impairment increased £38 million to £500 million. Q2 delinquency trends are reassuring, while we are keeping a close watch on all credit metrics. Underlying costs excluding the PPI charges increased 7%, reflecting currency headwinds, the follow-on effects of the compensation award changes introduced in Q4 and investment in business growth. Turning now to a slide that will be familiar to you highlighting core returns for the last time. You can see again our track record of maintaining around double-digit returns, excluding the bank levy and material items, while increasing the equity allocated to the core from £36 billion to almost £45 billion over the last couple of years. Now that the non-core is being closed, our ambition is for the Group to deliver an RoTE of greater than 10% over time. Looking now at Barclays UK. The underlying RoTE for Barclays UK for the quarter was 19.1%, with profits broadly flat year-on-year, excluding the Visa gain of £151 million prior year from prior year income and charges for PPI in both years. Underlying income increased 2% year-on-year, with an improved NIM of 370 basis points driving an NII increase of 4%. We previously guided to NIM for the full year of around 360 basis points. We do still expect some decline in NIM in the second half of the year, but now expect NIM for the year to be above 360 basis points, for the June 30th perimeter. The absorption into BUK of close to £20 billion of loans from our ESHLA portfolios in H2 will dilute the full year NIM by around 20 basis points. We have been encouraged by the strong growth in deposits. As part of our ring-fencing plans in Q1, we moved some deposits into BI from BUK. Excluding this shift, deposits were up 3% year-on-year, with strong current account retention, consistent with the trend we’ve seen over the last two years. In mortgages we have had another strong quarter of applications, the highest since 2008, up on what was a strong Q1. This positions us well to grow our flow share going forward. There continues to be pressure on mortgage margins but this business still generates attractive returns for us. Impairment has remained stable at £220 million with improved delinquency rates in the UK cards portfolio versus Q2 2016. We remain comfortable about our risk appetite and impairment trends, and the Results Announcement and Appendix to these slides contain more information on impairment trends across our key portfolios. Underlying costs increased by 3%, with efficiency savings offset by investment in technology and cyber resilience, and the cost to set up the UK ring-fenced bank. This resulted in a cost-income ratio of 53%, which we plan to take to below 50%. Our strategic focus on innovation and automation, and our market leading position in digital banking, we have seen an increase of around a third in digital payments and transfers over two years, should create further opportunities for structural cost reductions in Barclays UK. A key strategic priority for us is to leverage our digital capability and data analytics, to drive down structural costs, as well as opportunities to grow both NII and fee income. Contactless transactions reached an all-time high in June with a total of 91 million transactions completed, with a value of £847 million, which was a 133% increase compared with last year. As you may know, we recently launched digital unsecured lending to our business customers, building on the success with personal customers. We continue to add functionality to our Mobile Banking App which has seen a 19% year-on-year growth in active users, now at just under 6 million customers. Turning now to Barclays International. Barclays International has delivered a resilient performance this quarter, with an RoTE of 12.4% and profits flat at £1.3 billion, excluding the prior year Visa gain, with an encouraging performance from our Banking operations in CIB, and continued investment in growth in US cards. Underlying Income increased 1% which reflected the strengthening of the US dollar and Euro versus Sterling, growth across a number of business lines, but a weaker performance from Markets in CIB. Costs increased by 9%, including currency headwinds, which delivered a cost-income ratio of 63%. Looking now in more detail at the corporate and investment bank, where Jes has already described how we see the franchise today, and how we are planning to drive returns. The CIB delivered an RoTE of 11.1% for the quarter. Income was down 2%, with good performances in banking, up 2%, and credit, up 10%, and a significant improvement in equities, up 12%, offset by lower income in Macro. Within banking, fees were up 8%, corporate lending was down by 11% year-on-year, while transactional banking increased by 4%, due to higher deposit balances. Other net income was £116 million, principally the £109 million VocaLink gain. Costs rose by 5%, primarily due to currency headwinds and the change in compensation awards which I mentioned earlier. Our conservative wholesale risk positioning is demonstrated in the Q2 impairment release of £1 million, with no repeat of the oil and gas charges taken in the prior year. The RoTE of 11.1% is encouraging, but that would have been 9.3% excluding the VocaLink gain, and the reabsorption of non-core assets will of course dilute H2 returns. So we still have work to do to get to double digits, but are pleased with our market share developments and are confident of getting there over time, using the levers Jes outlined earlier. Moving on to consumer, cards and payments. Consumer, cards and payments delivered returns of 19.4% in Q2, with continued business growth but profits down by 5%, excluding last year’s Visa gain. Excluding the profit on sale of the Japan JV, RoTE would have been 15.0%. US loans and advances grew by 7%, with the benefit from currency moves, and this drove a 9% increase in underlying income. Costs increased by 23% with the impact of currency headwinds and investment in business growth, notably the relaunch of the American Airlines rewards program, which we expect to generate income growth going forwards. Impairments are up year on year, reflecting business growth and the portfolio mix, plus currency headwinds. Following the Q1 asset sale and the new volumes coming through on the high-quality American Airlines deal, we expect the portfolio mix to continue to shift lower on the risk spectrum over time. As you can see on the slide in the Appendix that delinquency trends are stable from Q1 to Q2. However, we are keeping a close watch on all credit metrics for signs of any deterioration, particularly in recent vintages. Payments processed in merchant acquiring are up 9% year-on-year to more than £61 billion. As Jes mentioned, we are very excited about the growth potential in payments and in US cards. I want to briefly cover head office given some of the one-time moves in the quarter and the significant own credit income last year. Loss before tax was £122 million, reflecting the recycling of a currency translation reserve loss of £180 million relating to Egypt, through other net income. This compared to a profit of £257 million last year, which included £292 million benefit from own credit. As I’ve mentioned, since the start of the year, own credit is now taken through reserves, consistent with IFRS 9. Turning now to non-core. We closed the Non-Core unit on July 1st, with £23 billion of RWAs, which was comfortably ahead of our guidance of £25 billion. The loss before tax in the quarter was £406 million, significantly down year-on-year, but up on the prior quarter, as we pushed through actions to reduce RWAs ahead of closure. The loss before tax of £647 million for the first half was consistent with the guidance we gave at Q1. Income for the quarter reduced to an expense of £456 million, driven by exit costs in derivatives where we reduced RWAs by a further £3 billion. We were also pleased with the sale of Egypt which delivered a gain of £189 million included in Other Net income. Although that was offset at the Group level by the currency loss recycled in head office, the sale delivered a £1 billion RWA reduction and 10 basis points of CET1 ratio accretion. Operating costs reduced to £127 million driven by business sales and lower restructuring costs. Looking now in more detail as to what happens after closure, and in particular where the remaining RWAs are being allocated, and the P&L trajectory. We are still on track for our previous guidance for a loss before tax in the region of £1 billion for the full year. This implies a loss for the second half in the range £300 million to £400 million from the operations absorbed into the core businesses. Losses are expected to reduce over time and I will cover how we see the cost reduction fitting into the overall Group cost trajectory shortly. This slide shows where we expect the RWAs to be absorbed by BI and specifically the CIB, by BUK and by head office, which takes the assets and RWAs for which there is no natural home, and also where that H2 loss is expected to arise. You can see more detail on the slide in the Appendix, including the incremental equity allocations as at 30 June, and a rough estimate of the returns drag on BUK and BI H2 results. The precise effect depends to some extent on the H2 outturn for the current business perimeters, but I hope these numbers will help you model the effects of Non-Core closure going forward. Turning now to costs. Over the past three years, Barclays has taken out approximately £1.5 billion on average each year from its cost base. As you know, last year we switched to a Group cost-income ratio target of below 60% towards which we are making good progress, with the Group cost-income ratio of 67% for Q2, excluding the PPI charge. Our cost program encompasses two key parts; costs that are expected to fall out of the cost base naturally; and strategic cost savings, driven by our ServCo, to create capacity for reinvestment in our technology, digital, and business growth. We anticipate around £1 billion of the first type of costs to be eliminated by the end of 2019, as Jes mentioned. These cover around £700 million of items such as structural reform costs, and the headwinds from the change in deferred compensation implemented in Q4 2016, plus a significant reduction in the non-core cost base from the £500 million or so expected this year. At June 30 we reached a key milestone, our CET1 ratio of 13.1% is at our end-state target of around 13%. That’s 60 basis points of accretion in the quarter, despite headwinds totaling 27 basis points from the PPI charge and pension contributions. The BAGL sell-down delivered 47 basis points of ratio accretion in the quarter, while the Egypt sale added a further 10 bps. Profits excluding impacts of the BAGL sell-down and PPI added around 30 basis points in the quarter. So over the first six months of 2017 we generated around 65 basis points of capital ratio accretion from underlying profits, demonstrating the capital generative nature of our businesses. In terms of the capital flight path from here, we see capacity in the future for capital returns to shareholders, and will be in a position to say more on this at the full year results, when we will outline an updated capital management framework, including our dividend policy beyond the 3p, which we intend to pay for 2017. Looking at the main tailwinds and headwinds going forward, I’ve mentioned the strong capital generation expected from our businesses. We expect a further 26 basis points from Africa with part coming by year end when we expect to apply proportional regulatory consolidation at the 14.9% ownership level, and the remainder when we achieve full regulatory deconsolidation, which we expect by the end of 2018. Pensions are a headwind overall, but following the recent agreement with the pension trustees set out in today’s results announcement, a lesser headwind over the next four years than under the previous deficit reduction schedule. So I’ve highlighted that reduction of around 25 basis points through 2020, so in effect that’s a tailwind versus previous expectations. Over subsequent years of course we have increased deficit reduction contributions, but these are subject to another triennial valuation in 2019. Regarding IFRS 9, there is still a lot of work to do ahead of implementation, but we expect to be in a position to give you an estimate of the effect on our CET1 ratio later in the year. Our expectation is that the CET1 impact will be transitioned in over the next five years, and if the dynamic transitional proposals are adopted, the effect on CET1 in 2018 will be immaterial, and we expect the fully-loaded impact to be very manageable within our capital plan. Overall we expect to be able to meet our end-state capital ratio target of around 13%, including the effect of remaining conduct and litigation items, which we are working to put behind us, and that target level does assume the introduction of a UK counter-cyclical buffer. There has been a lot of discussion of the capital requirements for the Group’s subsidiaries, following implementation of structural reform. While there are a number of details still to be resolved, we continue to expect the capital ratios of Barclays UK and Barclays Bank PLC post ring-fencing to be broadly similar to each other, and to the Group based on what we know today. With our strengthened capital position, we are now able to devote increased management focus to driving Group returns higher. So, to re-cap. The benefits of our diversification by customer, product and geography continue to show through. Non-Core has been closed at July 1st, with RWAs of £23 billion, ahead of guidance, and this will result in a reduced drag on Group returns from these activities going forward. We completed the sell-down of Africa, delivering 47 basis points of capital ratio accretion, contributing to a CET1 ratio of 13.1% up 60 basis points in the quarter despite the significant PPI charge. We are on track to deliver our Group cost-income ratio target of below 60% and this is not just through cost-cutting. We have the capacity to invest in growth opportunities where returns are attractive, to drive group returns forwards. Our Group returns reached 7.2% in the quarter, excluding the UK PPI and Africa sell-down effects, reinforcing our confidence in reaching our new Group returns target of over 10%. Thank you. Now Jes and I will take your questions, and I would ask you as usual to limit yourselves to two questions each.

[Operator Instructions] Our first question from the telephone line today comes from the line of Claire Kane of Credit Suisse. Claire, Please go ahead..

Hi good morning, my first question is on the CIB return target, I think it’s fair to say that expectations are low for returns going forward and if you could perhaps give us some insights into where you expect to reinvest this £23 billion of RWA from the loan book and how you are measuring the incremental return hurdle rate, is there a revenue to risk-weighted asset bases? And then my second question is on the cost outlook, so I think on Slide 26, you shading implies that 2019 cost base will be lower than 2017, which is broadly in line where consensus is already and consensus does have your cost-income ratio in 2019 below the 60% target, but the returns on [indiscernible] in the around 8%. So just wondered whether you could talk through raising consensus is wrong or whether you think that cost-income ratio is to come in materially below 60%? Thank you.

Thanks Claire. Why don’t I ask Jes to talk about CIB returns and the recycling of risk-weighted assets from parts of the loan book and I’ll cover the cost base and your 2019 question.

So the CIB RoTE was slightly under 10% now as to where we want to get it to is over our cost of capital which is about 10%. So we are going to keep the risk-weighted assets and the corporate and investment banks flat. We are not increasing the capital allocations to the overall business. But as we look at our loan portfolio which is about £90 billion of risk-weighted assets. There is a part of that loan book which is not generating returns that we think we should get by extending credit. With that, there are some parts of the markets business where we do quite well, if you look at the profitability in prime services, you look at the profitability in our credit trading and we have desks around the world that do quite well. We want to reallocate some of that risk-weighted assets to those desks and we think that we, by doing that, we can have a measurable impact on our profitability. The other thing that I mentioned at the opening statement which I think shouldn’t be lost is, over the next two to three years we are going to have a significant improvement in the cost of funding the investment bank. We have got a lot of very expensive debt that was issued during the financial crisis which material that comes off, we’ve got securities that are redeemable. So that will also have a material impact on getting that profitability north of 10%.

Claire, on the cost base, don’t think of this as a cost, which I think you are anyway. But we’re just wanting to layout some of the issue like tailwinds that we have in terms of continuing to structurally reduce our base over the next sort of year or so and you can see that we would expect a lot of the build cost for our ring-fencing programs and some of the costs we are incurring for non-core is compensation, a deferred compensation, just naturally go away. We would continue and just laid out earlier in the call, there is opportunities where we continue to drive further efficiencies, some of which we will reinvest back. That reinvestment will be productive not only in terms of continuing to generate further cost efficiencies but also could be productive in terms of revenues. In terms of commenting on consensus for 2019, I’m probably not going to do that. And you shouldn’t take the 10% returns target as a comment on a particular year, because of course we will be driven by the growth of ordering economic environment that we will be operating in a cyclical industry, this is always difficult to predict that. But I think what we are saying is, we have enough levers here of things that we can control whether it is managing our capital base, managing our risk profile and managing our cost base. But we have a high degree of confidence that all things being equal, we will be able to get the company to deliver that just double-digit return at the Group level.

Next question please, operator.

The next question comes from the line of Michael Helsey [ph] of Bank of America Merrill Lynch. Michael, your line is open.

Thanks, Good morning gents. Tushar, I just want to follow-up on that cost comment, because as Claire says, that Slide 26, it does look like you are reinvesting most of the £1 billion tailwind that you are identifying. So, I was just wondering whether you can tell us at the moment how much of that £1 billion you think you are going to be investing i.e. what’s the investment plan that you’ve got so we can figure out how much of it falls to the bottom line? I think – and I appreciate you don’t want to comment on consensus on 2019, but consensus has got cost falling by £400 million or £0.4 billion from 2017 to 2019, so if you could comment on whether you think that’s in the right ballpark that would be very useful. And I’ve got another question on the investment bank. I was wondering, there is couple of parts to it, so basically same question. I was wondering if you could just comment on what’s going on in macro trading because that is very weak again and it was down on Q1 and clearly you called out Q1 is a very weak quarter because of the US rate loss. The other thing in the IB that’s interesting to me is that you’ve – you really are calling out the strength in leverage finance where you’ve moved that business quite dramatically I think since Jes came into Barclays. So I was just wondering if you could comment on what the risks are in the leverage finance business and whether you are retaining any of the exposures on the deals that you are doing or whether it’s a 100% distributed? And then finally in the markets piece, actually really surprised Jes by your comments about having to or looking to reinvest capital in the markets business because last year I think you in that the 3Q call, to a question, you specifically said that you had enough capital in the IB and given the agency model, you know that was sufficed to grow the business and to deliver the return. So, I was just wondering if you could be more specific on what Claire asked about. Which bits of the markets piece now do you think are, I think you used the word stuff to capital and therefore you’re going to invest in. Thank you very much.

Yes, thanks Michael. Why don’t I cover your question on costs and reinvestment and I’ll ask Jes to talk to you about the investment banking questions that you laid out. Yes, for a longtime, Michael, we’re sort of really trying to get a sense of how much of that, you know £1 billion tailwind would be looking to reinvest. You know I wouldn’t give you a precise number on that that will sort of drive us back towards sort of a hard cost target, which is we’re moving away from and looking to manage more of the efficiency of the company. But I think what you should hear from us is that that £1 billion is if you like capacity by doing nothing, that should sort of fall away through the passage of time. Of course we’ll create further capacity through many of the actions that we have going in, in our service company and we hopefully gave you some color of some of the exciting opportunities we have there. We believe that gives us plenty of capacity to reinvest back into the company while also driving the efficiency of a company closer or below to our 60% ratio target in good time. So think of it that way, just don’t think of it as maybe just £1 billion in terms of overall capacity, it will actually be more than £1 billion just through other efficiencies. How much we reinvest? We’ll sort of update you as we go along; but it’s too early to sort of give precise details around that for the moment.

Sorry, Tushar, just to push you, so do you think downfall £400 million is a reasonable expectation at this stage given everything you know about the – how the franchise is changing, or you’re just not going to comment?

Yes, no, I understand you’d help the modeling. Look, when I look at sort of consensus cost that we published in for 2019, I won’t give a direct comment on that; but I think it’s obviously directionally down and I think, in terms of direction, yes, we are going to have a lower cost base, continuing to have a lower cost over time, somewhat driven by the tailwinds that I talked about. Somewhat driven by further efficiencies, expect us to generate. I know this probably isn’t some sort of helpful to you Michael; but offset somewhat by gross reinvestment backing, but the trend is definitely down.

Thank you.

Yes Michael, so from my side, maybe I’ll take the leverage finance question first. The gain in market share and moving up to second position within the or within the industry, I think it is mostly driven by a breaking through that were to improve our relationships with the sponsors, you know we’ve made terrific progress with Apollo, with Blackstone, with Silverlake; so it’s just a hard work of the leverage benefit. We are not keeping our residual exposure or increasing our risk limits or doing transactions that we don’t think makes sense. So it’s basically blocking and tackling primarily with the sponsors. In terms of the markets business, there are very popular areas in the markets space and we have been doing quite well in places like credit. We very primarily are saying we’re not going to increase the risk-weighted asset allocated to the corporate and investment bank overall. But there is a reallocation possibility from parts of our loan book to the market space where we think there are very solid returns. And I do think, while for the whole industry had a challenge in the macro space in the second quarter driven by the low volatility that everybody has talked about. The trend in IB overall from advisory to underwriting, strictly debt underwriting are I think reasonably encouraging and as you see on Slide 7, for us over the last three year – you know over the last years we have had a steady progression improving the profitability of that business. And so reallocating the capital to places that in the markets which are generally higher than the cost of capital for us is prudent, that makes sense. And that’s combined with significant efficiencies and funding with the CIB over the next couple of years, gives us – give us the confidence that we can get above 10%.

Thanks. So just to be clear, so it’s credit and prime services, are they the two areas that you think you are going to boost that capacity?

Michael, we are not going to get that specific.

Okay. Thank you very much.

Thanks Michael. Could we have our next question please, Operator?

Your next question, gentlemen, comes from the line of Jonathan Pierce of Exane BNP Paribas. Jonathan, please go ahead.

Good morning, thanks let me ask few questions. The first is on the return on tangible equity target, I was just wondering what your thinking is in terms of timeline then, I mean a lots of the targets significant costs for 2019 and over the sub debt material by the end of 2019, is it the sort of exit rate 2019 in the back of your minds and maybe on top of that can you confirm the target is taking account of all change that may come up surrounding IFRS 9, any change in risk weight revolver or these sorts of things?

Yes, is that your only question Jonathan and did you have a couple?

No, the second is on capital and it’s a bit more detailed, I mean I was surprised that the cost is happy for the entire UK retirement funds get into the normal investment bank, I mean that’s a pretty positive development I think. I was wondering if you could confirm as a result talk about the pellet to a charge within a ring-fenced bank shouldn’t end up any higher than what we see at a group level, good day. And if I sort of bring it all together, a bit of a concern for us, many has been whether the combined capital requirement of the ring-fenced and non-ring-fenced bank will end up either higher than the Group target, I mean given what you’ve done on the pension funds and given what S&P has said recently about the non-ring-fenced bank, I mean send the ratings to current rating, do you now proceed much entirely comfortable that the sub consolidated capital requirement issue is no longer there and there is no real threat to the overall Group level CET1 target?

Yes, okay thanks Jonathan. Why don’t I take both of them? Your line was a little out, but let me just make sure I’ve got your question right. On the first one was more about return on tangible equity and sort of the timing of that, are we thinking about a 2019 exit rate and does it include all various things that may happen between now and then, for example IFRS 9? I think the short answer to your question is, we are not going to put a date on it and it really goes back to control what we can control. We are subject to the broader economic environment, life cycles and various things like that. But we do have a degree of confidence that over a – of what we can control and all things being equal you just see the Group returns continue to push on higher and higher. And of course we are very keen on getting to an above 10% as soon as we can, but we won’t [indiscernible]. It does of course – I think most people when you budget on your modeling, you probably have us getting into the mid-to-high single digits just by all things being equal to the various things that take that away and I know many people have talked about benefits that we should be able to crystallize from the liability side of our balance sheet and whatever and that will come through over time. On your question on capital and the sort of the subsidiary level capital, specifically tell us regarding the ring-fenced bank, I can’t comment on that obviously that’s one thing that will be set by the regulators and I haven’t turned to that, so I think it will be – and not appropriate for me to sort of comment in advance of that. But everything we see today does suggest that we think that the overall consolidated capital and at capital levels that will need to be held by the two main subsidiary groups will look reasonably similar. I mean of course it won’t be totally identical because of the capital types that just formulated differently as I know you are very familiar with, but I think in growth terms the three sort of parts of the company and the overall group and the two subsidiary components will be quite similar. And you are right, we have been very encouraged by comments for example that S&P has made around the ratings of the non-ring-fenced banking groups as they have been quite consistent along and that’s very much consistent with our expectations as well.

Okay thank you.

Thanks Jonathan. Could we have the next question please, operator?

The next question comes from the line of Andrew Coombs with Citigroup. Andrew, Please go ahead.

Yes, Good morning. I wanted to come back to cost prospects. More specifically on this theme of cost reduction versus new investment and particularly on your IT budget. You’ve given a couple slides in IT, you talked about innovation, automation driving a structural cost reduction there. And at the same time, for example, if I look at your UK detail that you provided, you talked about cost savings being offset by investment in cyber resilience and technology. So when we think about your overall IT budget, can you give us an idea of how much of your cost base that accounts for? How it splits between run the bank and change the bank and how that’s been changing? That’s the first sort of questions. Second, which is on the UK loan losses, very simple question. But you’ve gone up from £180 million to £220 million, you’ve been running at £180 million for a couple of quarters. The increase seems to be in consumer, yet your arrears rates on cards are going down. Can you just elaborate on the drive of that? Thanks.

Yes. So thanks, Andrew. On the cost reduction, particularly around technology, I’m not going to – as of say, I won’t be able to disclose the detail of sort of run the bank, change and bank and those kind of components. So I’m won’t get into those. We will probably be talking more and more about costs. I mean, you’ve heard Paul Compton, our Chief Operating, has already given a sort of an insight of some of the opportunity sets we have in the service company. And over time, we’ll talk more about that. But generally, the name of the game here is to have a much more efficient technologies bank, which will structurally lower our cost base, and it’s just very significantly structurally lower our cost base and that gives us capacity to reinvest. I mean kind of areas where we’ll be reinvesting back into some will be, just because it’s important that we have the best technology around, for example, cyber resilience and that will require some investment. But also back into products and services, Jes talked about which – probably it doesn’t get a lot of external press, but I can assure you internally and the customers and clients, the switching one of this detailed infrastructure over the weekend is an enormous undertaking that makes a tremendous difference to the quality and efficiency to our merchant acquiring network, which we’re leaders in and that’s going to give us also further enhanced opportunities in terms of efficiencies of that business, but also revenue opportunities as well. And so, I guess, Andrew, maybe that’s a marker for now, but more to come. Loan loss rate, year-on-year, we’re about flat. I think you’re probably looking at sequential when you’re looking at the slight tick up. Now – sort of when I look at it, you’ll get the seasonal effects of sort of sequential quarters because of the counter effects of what we call collection days, which is – how many business days there are in a quarter, and that can sometimes change, I’ll call it, sequential impairments, but sort of underlying this. It’s a relatively stable set of impairment trend that we’re seeing. Delinquency rates are pretty low and stable if anything slightly lower than they were in prior periods, whichever one you want to measure. There’s nothing that I’ll read into that other than just traditional seasonal effects you normally see from the first quarter, second quarter. But in the UK, at least, it does sort of continue to feel very benign. At least for now, I would say that, we’re overall pretty cautious on the outlook. I have said that for a number of quarters and continue to be quite cautious on the UK outlook and position our business appropriately. Jes, is anything else you want to add on that?

On the technology spend side, I mean we’re currently engaged in updating our entire desktop software platform, the Office 365, it’s a big move. We are in a process of moving majority of our data to the cloud, which will help cyber resiliency. The product which I might pan, Andrew, is we’re very focused on the cost income ratio of 60%. And we want to get there as soon as we can. What I would say is, once we get to that 60%, I wouldn’t push it a whole lot further than that, because we do have places that we want to invest in our technology platform and want to get on it.

That’s very helpful. Thank you.

Thanks, Andrew. Could we have the next question please, operator?

The next question comes from the line of Chris Manners of Morgan Stanley. Chris, your line is open. Please go ahead.

Hey, Chris.

Good morning, Jes. Good morning, Tushar. So and two questions for me, if I may. The first one was and just having a – think about the cost income ratio again. And you’re talking to a group cost income ratio of below 50% -- sorry, below 60%, but I think you’re saying Barclays UK should be below 50%, if we look at where Consumer, Cards and Payments is at the moment, that’s below 50. So what sort of cost income ratio that you’re happy to run with in CIB? and will that mix shift from an corporate lending to markets have and the impact on that as well? So just – where can we see CIB cost run at? And the second question, if I may was just on margins in Barclays UK, I guess, your guidance above 360, you’re going to have a negative 20 bps and impact from the actual transfer in the second-half. And maybe you could just run us through a little bit of margin dynamics presumably, asset pricing is still quite tough. You’ve got some deposit repricing. So how should we think about the underlying margin trends, if we ex out the actual portfolio transfer? Thanks.

Yes, Chris, I tackle both of them. On the cost income ratio, you’re right in that we’re targeting about 50% ratio in our UK bank and feel pretty good about getting there. As you can imagine, I don’t want to sort of go around publishing CIR targets of virtually every subcomponent of the group, just the large one. But I know there will be a desire to hear from us on CIB. So but we’re not going to give a target out. I think just you have to make your own inferences from that – from the group target and the UK that we’ve called out. I do – I know this isn’t sort of hugely insightful for you, unfortunately, Chris. But you should expect the CIB cost income ratio to continue to improve. And again, at the beginning of all the scripted comments today, I think, Jes talked about many of the opportunities we have to strive that further downwards. Again, just sort of the rotation between allocating, fine-tuning of capital between some of our lending activities and our markets activities. I don’t think that naturally has any sort of direct cost income ratio sort of drive this. It’s more returns enhancing. So just because the returns have improved, obviously the cost income ratio improves with more of a returns-enhancing objective than cost income ratio for the sake of that. In terms of margins, in terms of asset pricing, yes, I think it’s still continues to be quite a competitive market – mortgage margins continue to be under pressure, and we didn’t see that in our business. Our mortgage business is holding up actually very well. I think we called out on the call applications that are at very high levels, high as it’s been for a number of years, probably since 2008. We haven’t really changed our risk appetite there. And so it’s really just continuing to productize the process to mortgage business. So we continue to like towards the lower risk and the spectrum sort of sub-80% loan-to-value and even a bit lower than that tends to be our sweet spot. But asset margin still continue be under pressure. Therefore, when I gave the sort of the margin guidance earlier, we sort of had margin of about 370 basis points from a like-for-like basis thus far excluding the transfer of these non-core extra assets back into Barclays UK. You would expect NIM to be down from the 370 on a like-for-like basis, but higher than the 360 we guided in the first quarter, because I think we’ve done a reasonable job of obviously continuing to be very disciplined on the liability side of our balance sheet, and on chasing asset margin down too much, where it doesn’t make sense for us.

The mortgage portfolio was another place, Chris, where the technology investment is beginning to play off. We ruled out a whole new technology platform for brokers across United Kingdom to process applications for new mortgages with Barclays UK and that has resulted in record numbers of applications being processed in any given day. So that’s another case where technology is getting the business so…

It’s a very good point.

Thanks. So it sounds pretty encouraging what you’re saying about the application’s rate. I mean I guess in Barclays UK, the loan balance has been flat for the last sort of few halves at…

Yes.

£167 b. Does that mean we could actually see a pickup in loan growth from you guys if you’ve got such good applications, or you’re going to continue to filter strongly the balances sort of flattish, but make sure that you focus on your asset quality?

Yes, I would say very small balance sheet growth, but modest. So I think it will grow, but very small, so wouldn’t sort of put in too bigger sort of growth in your models. Asset quality is very, very important to us. We generally are very cautious as you’d heard us say probably for a few quarters on the UK outlook and returns are already pretty high in that business. So although, we do want to grow that business, we’ll grow that business, we’re cautious about growing it. And so prudent growth on the mortgage book is what you would expect, but relatively small numbers on a net basis.

Okay. Thank you.

Thanks, Chris. So can we have the next question please, operator?

Your next question from the telephone line is from the line of Martin Leitgeb of Goldman Sachs. Martin, please go ahead.

Yes, good morning from my side. I just have two questions, please. And the first one is, whether you have any view on when the Basel IV fine work might be finalized? Do you expect that there’s a chance that this might occur later this year? And the second question is a bit more broader, I think, and it’s just looking at Barclays’ business model and Barclays’ reach now being predominantly a transatlantic bank, obviously, the world is undergoing significant change in terms of Brexit in the UK, the requirement of ring fence in the U.S., the requirement to ring fence in the UK, which obviously affects, particularly Barclays as compared to some of the other international peers and potentially equally the requirement of ring fencing in Europe depending on what the outcome of Brexit is. And I was just wondering what you imagine would be the impact on Barclays’ business model? And if there’s any already any changes you notice on the underground, say, some European clients preferring having a product counterparty, which is – which sits within the eurozone going forward and so forth? Thank you.

Yes. No, Martin, for sure, the impact on how we’ve organized our business, given regulatory reforms in the U.S. and in Europe has been significant. Setting up the IHC, which we did last year was a very major lift. It’s got its own Board of Directors, its own CEO. But it hasn’t changed at all the nature of our business in the U.S., be it in the consumer credit card space or in the Corporate and Investment Bank. The ring fencing in the UK is even greater of a lift. And over the last couple of weekends, we’ve been changing our core technology platforms allowed for ServCo changes. And – but all of that is going to have to be up and running by Easter next year. So that is also an adjustment. But again, it hasn’t changed the type of business that we do across in the UK, whether it’s with small businesses or consumers or institutional clients. The ring fencing back in the UK, the IHC in the U.S., they are all much more significant in many ways than what we need to do with Brexit, which we announced last week in terms of expanding the extent of our bank subsidiary in Ireland. And we don’t see any other things as impeding or ultimately changing the execution of our strategy to deal with clients across Europe. Now we are the largest underwriter of European sovereign debt. You don’t expect that to change. We are the largest underwriter of euro debt raised by a non-European companies. We don’t expect that to change. We have about 1,200 people across the continent. And in Europe, we have the largest credit card business in Germany. So whilst we need to make the investments to make these structural changes in our organization, I think, the regulators have been pretty smart actually and whilst they’ve been asking for new structural changes, they have not impeded the free flow of capital nor have they impeded the free flow of financial advice. So the strategy of being a transatlantic consumer Corporate and Investment Bank stays and we feel there’s no impediment at all to execute that strategy.

And, Martin, on your question on Basel 4, look, I don’t have the insights right from the timing of it. But everything like I can see from my perspective at least at the moment, it’s difficult to see anything been announced before the end of the year. But I would say, I don’t have the inside track, so I just take that as one person’s view rather than anybody would be on the insight here.

Thank you very much.

Can we have our next question please, operator?

The next question comes from the line of Edward Firth of KBW. Edward, the line is now yours.

Yes, good morning, all. Thanks very much. I just had two questions. Firstly, if I look at IB costs, it was – it looks like a very strong performance in Q2, I think they are down almost 10%. So I just wondered, assuming some sort of broadly flat revenue outlook into the second-half. Is that a sort of reasonable run rate, or was there something sort of special in that, that we should think about? So I guess, that’s my first question. Then second one, I’m just trying to get my head around the pensions and the whole concept of a pension deficit rising by £1.9 billion and yet your contribution is going down. And so I guess, my question on that is, is it just – I mean, the fact that you haven’t made an effort to actually start closing that gap isn’t quite a contrast to some of your peers. So is that simply that you don’t have the capital, or is it that you think something in the assumptions might change over the next three or four years, which will mean that when we get to 2022, the deficit actually goes down in some way?

Yes, thanks. On IB costs, there’s nothing particularly one-off in the second quarter that brings the CIB cost base down. So I won’t give forward guidance on another quarter or something, but there’s nothing I’d call out in the same page…

But it is a broadly normal quarter?

Yes, if anything there was – we have these one item we called out which increased cost actually which is the deferred compensation unwind from last year, but there’s nothing from the other way.

Yes, right.

In terms of pension, yes, I mean the way that doesn’t work in the UK at least is that the general guidelines by the pension regulator is that companies need to have a funding or a set of contributions that allows any funding debt to be closed over 10 years. And that’s what we agreed with the trustees as part of that is triennial, if you look at the sort of the 10 years worth of contributions, it actually doesn’t call it the funding gap that existed the last time over the last triennial. If you would measure that funding gap here right now this second, it’s actually quite a bit lower already, none of us will know what it will be in 2019 when we have the next triennial. And we’ll see what it is and we’ll agree the appropriate funding plan that satisfies the trustees and make sure that we continue to meet, provided very strong covenant as an employer and a sponsor of this space. So we’re pleased that we have a very constructive dialogue with the trustees, if you see in the last two triennials actually, the trustees recognized that the most important thing for them is to have a very, very strong covenant with their employer and they’re very constructive when they look at the capital pressures as the company maybe under and to ensure that they act very constructively within that context. And we’ve seen them do that for last two triennials. So we feel very good about that.

Sorry, just to be clear, I think in the past, you said your Pillar 2 buffer is used to cover your pension deficit. So I guess, the £1.9 billion is about 60 basis points. Is that already in the Pillar 2 buffer or would we expect the Pillar 2 buffer to go up next time the Bank of England looks at it?

Yes, so the Pillar 2A component has a pension aspect to it, now the Pillar 2A – there’s no sort of magic sort of calculation that does that. What it’s really trying to measure sort of qualitatively is the volatility around the pension position with regards to our capital ratio. And of course our capital ratios refer to the accounting measure of pension just surplus any essence to actually probably in the surplus. So just be careful that we don’t conceive the sort of the funding actuarial position of the pension scheme and the deficit reduction schedule that we publish versus the IAS 19 accounting measure of the pension surplus or deficit, which is used for capital which happens to be in surplus today and has been in surplus for a little while now.

So there isn’t anything in the Pillar 2 for pension deficits? Sorry, I just to get my – I thought there was, sort of misunderstanding.

No there is, as I mentioned there’s a Pillar 2A component that measures or simplify capital for the potential volatility in the pension surplus or deficit as measured on an IAS 19 measure. I mean Ed, broadening for the schedule –

Yes, that any other front okay.

Yes, feel free to give us a call and we’ll have you spend more time with you on this.

Okay. Thanks.

Thanks Ed. And could we have the next question please, operator.

Your next question, gentlemen, is from the line of Chris Cant of Autonomous. Chris, please go ahead.

Hello there. I had two please, if I could just follow-up the earlier questions on return on tangible and your 10% target. I appreciate you don’t want to get into calling the business cycle or the outcome of Brexit negotiations. But I’m not sure the market is going to give you much credits for the target unless you give us a bit more color. And if I say hypothetically we end up with the long transitional period post 2019, no hard macro shock, provisioning is broadly where consensus have, which is sort of a gentle drift up. You’ve got those RCR maturities in 2019 in that scenario would you hit that 10% RoTE at an exit run rate? And the second, just a point of detail, you’ve said you’re not going to increase the capital allocation to the IB is that the case allowing for any out of your inflation from the fundamental review for trading book? Thanks.

Yes, Chris, I mean I don’t want to get into too many hypotheticals, but I’m trying to be helpful by, you know if we expect the -- if we see the kind of the environment that your sort of laying out are relatively constructive macro backdrop and that sort of keep Brexit stuff going on or impairment shocks or anything like that. I think you’d expect the management team here to do everything we can to get to those kind of returns levels, but that’s not a sort of a target in terms of the specific date or anything like that just to help you with the ambition and the confidence that we have around this. In terms of CIB capital allocation and sort of does it include things like fundamentally the trading forecast. I think it’s fundamentally the trading, just as an example and you may have other sort of points on it if you want to call out as well. I don’t think that’s going to come in coming to sometime. I’ll be sort of speculating a little bit here, but my sense is it will be beyond 2020 and I think the CIB capital allocation as we see it, certainly on a time measure that’s got a medium at least as Jes called out, he had expect to change materially from where we are today if at all.

Yes, I want to add Chris is, and I look forward to us getting away from core and non-core, but over the last number of quarters, our core business has been generating a RoTE of North of 10% and that’s with a capital number that’s been growing quite a bit as we got to associate 0.1, CET1 print. So the core business has been generating that 10% and so one way to think about it is, if we are disciplined in eliminating our non-core expenses, which we – I think we have shown that discipline over the last year and half. And if you have the ability to eliminate the cost that we currently have two enter to set up the ring-fenced the bank in the UK and that process ends in Easter of next year. Those two issues plus as we rework through changing the compensation accrual that we initiate in the fourth quarter of last year, that will eliminate a significant amount of the cost drag that’s been hurting the Group result and hopefully allow for this conversion of core with Group, which gave us the confidence to put out this 10% RoTE target that we’ve got. We don’t want to get connected to a date, because Tushar and I control what’s going to happen with the goal of the economy or with the market etcetera, but to your point, if we have reasonably stable environment from where we have been in the last couple of years and we eliminate the drag that the Group has had and focus just on our core franchise, we should be able to deliver that 10% or better RoTE.

Okay, that’s helpful, thank you.

Thanks Chris. Could we have the next question please, operator, and I think we’ll try and make this the last question.

Gentlemen, your final question today comes from Fahed Kunwar of Redburn. Fahed, please go ahead.

Good morning, thanks for taking the question. Just one question really on the – back on the investment bank and impact of technology we talked about kind of how benefiting or how technology might benefit more mortgage margins, but the impact of technology on the kind of fixed income and the institutional space that you are in the US in particular, it seems quite negative and if I look at the kind of front book industry interest rate swaps and the amount that’s trading on the exchange and that’s three times more. If you look at what happened to the cash equities and it happened in the margins plummeted over the last kind of 20 years. So how do you see the impact of technology affecting that institutional fixed income business and all we are in for the kind of long period of margin decline that is hopefully offset by increase balance sheet deployment and volumes? Thank you

I mean there are clearly parts of the institutional market where technology is extremely important and is defining the economic characteristics. I think the most salient would probably be the cash equities business, [indiscernible] processing and algorithms are all critical both for the costs of that business, as well as the revenue and I mean the old of 8.25 spreads are gone. But in terms of the other parts of the business, particular around credit, I don’t think you are ever going to build a right algorithm given how bespoke and idiosyncratic the credit market is. If you think someone like Barclays we have one stock, we have tens of thousands of uses. So there are other parts of the market that I don’t think you’re going to see technology surpasses how the systems are currently managed. In the end, you sort of mention technology in clearing houses, in many ways that should decrease risk and the revenues to risk return can get better. I – when you talk to most buy-side peoples and what I hear is spreads are widening, the market is less liquid, more money is having to be paid to rebalance portfolios and then I quite frankly think you know you eliminate the impact of the Volker Rule and giving the amount of capital that has had to be put behind investment banks today, the underlying revenue in that space is actually going up in our view, so I don’t think it is structurally impaired as you laid out.

Just to follow that up, my last question. I guess [indiscernible] is improving on areas that require more balance sheet whereas things that don’t require much balance sheet spreads are reducing, so is that why I guess that it kind of change your focus to some extent today towards kind of more balance sheet deployment in things like credit and prime services, does that have an influence in your decision to where the technology is influencing I guess the markets business?

No, I think the rebalancing of RWA is more between the extension of credit and parts of our markets business. The parts of CIB that is very capital, like advisory, like debt underwriting, like equity underwriting, I wouldn’t think that revenues are going down at all, but if you look at market volumes of debt issuance from investment grade to high-yield around the globe, it’s got a very strong growth pass through it. One of the advantages on the fixed income side is debt instruments have the things called maturity date, which generally have to be ruled over, so you can actually predict going forward for the fair amount of accuracy, the growth rates in the underwriting markets, most of the markets that we are in.

That’s great, thank you very much.

Okay.

Okay, I think that was the last question. And thanks everybody, I’m sure we’ll see you around in about over the next few days, but thanks for joining us today.

Thank you ladies and gentlemen, that does now conclude today’s conference call, you can now disconnect your lines.