Earnings Call Transcript
BARCLAYS PLC (BCS)
Earnings Call Transcript - BCS Q1 2020
Operator, Operator
Welcome to the Barclays First Quarter 2020 Analyst and Investor Conference Call. I will now hand you over to Jes Staley, Group Chief Executive and Tushar Morzaria, Group Finance Director.
Jes Staley, Group Chief Executive
Good morning, everyone, and thank you for joining us today. First of all, let me say that I hope you and your loved ones have been keeping safe and well. It feels like the last time we did one of these calls was a long time ago, and in a very different world. Obviously, an event like the COVID-19 pandemic changes priorities, and inevitably makes individuals and companies like ours focus on what’s really important right now. For us, that means running the bank safely and profitably, helping our customers and clients with the difficulties they face, supporting the UK economy and the communities where we live and work, and taking care of our colleagues around the world. We’ve been able to do that because of the underlying strength of our business and the resilience of our diversified model. And I’ve been especially proud of the way my colleagues across Barclays have risen to the challenges of this extraordinary time. So, I want to start today by taking a few minutes to set out how we’ve been responding to the crisis. Our business touches half of the households in the United Kingdom. We know that some of our customers are facing very real and very daunting financial challenges. And this is a worrying time for the vast majority, regardless of their circumstances. We’ve moved quickly to give them the reassurance and support they need. To give you just a couple of examples. So far, we’ve granted repayment holidays on 94,000 mortgages and over 57,000 personal loans. We’re providing an interest-free buffer on overdrafts for 5.4 million customers and beyond that, we’ve reduced and capped charges until at least July. We’ve waived late payment fees and cash advance fees for 8 million Barclaycard customers and granted some 87,000 payment holidays. 655 branches remain open across the United Kingdom, providing vital banking services. Our teams are fielding around 260,000 calls a week, that’s 44% higher than the typical volume. And I’m really pleased that we’ve been able to proactively identify NHS and key workers among our customer base and move them to the front of call queues as their time is especially precious at this moment. Getting businesses through this period is crucial to give the best chance for rapid and sustainable economic recovery, and is also in our shareholders’ interest. The UK government has put huge resources into supporting that vision. And it’s the central topic of every conversation I had with ministers. It is an unprecedented effort by them and the Bank of England, and we’re committed to playing our full part to help get that support to the businesses that needed. We have now approved some 3,760 CBIL loans for a total value of GBP 737 million. And we expect those numbers to increase rapidly in the coming weeks. Behind those numbers are stories of businesses and jobs surviving this crisis. Take the Titanic Brewery in Staffordshire, a local favorite selling 3 million pints in a normal year to its chain of pubs and beyond. We helped them secure a 1 million CBIL loan and put in place a 12-month payment holiday on an existing loan with us, which has allowed the business to keep producing and selling beers online, protecting jobs and allowing them to pay their furloughed workers full wages. Well, the Queensberry Hotel & Olive Tree Restaurant in Bath that I’ve been to, is a family-run four-star hotel that had to shut its doors due to the coronavirus. But with our help, they were able to get a 450,000 CBIL loan quickly. That loan means that they can cover running costs while staff are able to be furloughed, rather than laid off, and they'll be able to retain their hard-earned Michelin star which would have been forfeited on closure. Make no mistake, interventions like these are making the difference between survival and failure for businesses. And we’re pleased to be playing our part in keeping them going. We’ve also been central in helping larger businesses access the Bank of England and Treasury CCFF program, arranging billions in commercial paper for UK corporates over the past few weeks. In addition to our backing for those government schemes, we’ve also been able to provide significant help of our own to our business clients. For example, we’ve waived the everyday banking fees and overdraft interest charges until June for 650,000 of our small business customers. And we put in place a 12-month capital repayment holiday for most SMEs with loans of over GBP 25,000. And we’re continuing to extend credit to companies. There are GBP 50 billion of lending limits available to our UK clients. We’re not stopping here though, and we’ll continue to evolve our approach and offering to clients, big and small to help them through this crisis because it is crucial that we preserve as many businesses and jobs as we can to aid the recovery when it comes. Barclays has deep roots in the communities where we live and work, and I’m proud of everything our colleagues do year-round to support their local areas, and never more so than now. That includes going above and beyond for our customers to help them in any way we can. Whether that’s our colleague, Glynis Wilson who’s in a contact center in Sunderland, helping a customer in dire straits to access charitable support to see that customer to a tight spot. Or our colleague who brought in vulnerable customers to see how they’re doing and then getting an ambulance for a gentleman who was obviously having difficulty breathing. Or our colleague, Caroline Pearson, in the Harrow and Edgware branch, helping an 80-year old customer keep a special promise to her grandson by guiding her through buying a pair of trainers online on his birthday. These are just three small stories among hundreds up and down the country, where our people are working beyond their professional obligations to support customers. We are carrying on delivering our core citizenship programs such as life skills and connect with work, with a particular focus on helping mitigate the impact of COVID-19. But we’re trying to do even more. For example, where we can, we’re now offering colleagues four weeks paid leave to volunteer to support health and social care work, helping those impacted. As you saw, we launched a GBP 100 million Community Aid Package, made up of GBP 50 million in grants for charity partners in the UK and our international markets and GBP 50 million to match colleague donations. That equates to up to GBP 150 million from Barclays and our colleagues deployed to help the communities and people hardest hit by the crisis, from providing food to vulnerable families, to purchasing protective equipment for NHS staff. We understand that our fortunes are intertwined with the communities and economies we serve. And at times like these more than ever, our obligation is to support them. And we’re going to continue to do that and prioritize that effort throughout this crisis. In recent weeks, we’ve also taken a huge step towards ensuring our broader sustainability as we laid out in addition to being a net zero bank by the middle of the century. That means reaching net zero in terms of direct and indirect emissions by 2030 and for the business activities we finance across the world by 2050. We’re going to align our entire portfolio to the Paris Agreement, starting with the power and energy sectors. We’ve also committed to increase our green financing to GBP 100 billion by 2030. This represents a comprehensive and bold package of measures which we are putting forward at the Annual General Meeting on the 7th of May. Finally, and before I hand over to Tushar to take you through the numbers in detail, I want to briefly set out some overall thoughts on our performance in Q1. The impact of COVID-19 came late and what was until that point a very good quarter. That said, the performance of the business since then has clearly demonstrated the resilience of our universal banking model, rooted in diversification by business line, geography, and currency. So while, as you’d expect, returns were down in Barclays UK and in consumer card and payments, the corporate and investment bank performed well, producing an RoTE of 12.1%, in particular, via support for clients in a period of extreme volatility in the capital markets, where our FICC revenues in dollars grew 98%. The same cost discipline and positive jaws in our CIB delivered a Group cost income ratio of 52%. That’s better than our target of less than 60% and our lowest quarterly Group cost income ratio since 2011. Overall, the Group return on tangible equity for the quarter was 5.1%. Given the uncertainty around the developing economic downturn and the low interest rate environment, 2020 is expected to be challenging for our business. That said, we continue to believe that a sustainable group RoTE above 10% is the right target for Barclays and attainable over time. We’ve taken in the first quarter a GBP 2.1 billion credit impairment charge, of which GBP 1.4 billion is the result of applying a very challenging forecast to our credit models, but we think this is prudent. Even after this, Barclays generated GBP 913 million profit before tax in the quarter, GBP 0.35 of earnings per share, and attributable profit of GBP 605 million. The Group remains well capitalized with a CET1 ratio of 13.1%, and we will manage our capital position through this crisis in a way which enables us to support customers and clients while maintaining an appropriate headroom above our maximum distributable amount, which is currently at 11.5%. In response to a request by the PRA, we can’t submit 2019 full-year dividend payment. The board will make a decision about future dividends and capital return policies at the end of 2020 when the full impact of COVID-19 on our bank is clear. So to conclude in summary, my colleagues and I are today primarily focused on what matters right now, which is supporting our customers and clients, our communities, and the wider economy to navigate the pandemic. The strength of our business and the resilience of our model means we can run this bank safely and profitably and provide that support until this crisis passes. I believe that we will emerge on the other side in a strong position to support the recovery and generate attractive returns for our shareholders. Now, I’m going to hand over to Tushar to take you through the performance for the quarter in detail.
Tushar Morzaria, Group Finance Director
Thanks, Jes. I’ll summarize the results for the first quarter which, as Jes mentioned, demonstrate the benefits of our diversified business model. We’re facing a period of great uncertainty which makes it particularly difficult to get forward-looking guidance, but where possible, I will try to give pointers for the coming quarters. We reported a statutory profit before tax of GBP 0.9 billion, generating GBP 0.35 of earnings per share. Litigation and conduct were immaterial this quarter, but as usual, I’ll reference the numbers excluding litigation and conduct for consistency with prior periods. Profits were down on last year, reflecting a material increase in the impairment charge resulting from the estimated effects of the COVID-19 pandemic, but the RoTE of 5.1% is underpinned by a strong income performance which demonstrates our diversification. However, given the uncertainty around the economic downturn and low interest rate environment, we expect 2020 to be challenging. We continue to believe that above 10% RoTE is the right target for Barclays over time, but we need to see how the downturn plays out before giving any medium-term guidance. We grew income 20%, reflecting strong performance in CIB and resilience in the BUK and CCP going into the downturn. Costs are stable year-on-year delivering strong positive jaws. As a result, pre-provision profit increased by GBP 1 billion to GBP 3 billion, however, the impairment charge increased by GBP 1.7 billion to GBP 2.1 billion. This increase comprised GBP 0.4 billion single name charges and GBP 1.35 billion net of IFRS 9 model driven increases, reflecting the effect of running a revised COVID-19 scenario as a basic case estimate, and an oil price overlay which I’ll come back to later. The forward-looking nature of IFRS 9 requires that we estimate the expected credit losses. So we have taken a significant additional impairment above that implied by current credit metrics, many of which do not yet reflect the effect of the pandemic. The CET1 ratio was down from the yearend level of 13.8% to 13.1%. This reflects strong pre-provision profitability and the cancellation of the full year ‘19 dividend payment, more than offset by higher RWAs as a result of market volatility and increased client activity and the effect of impairment. There’s a strong quarter for TNAV which increased to GBP 2.84, reflecting GBP 0.35 of statutory EPS, and net positive reserve movements of GBP 0.19. Before I go into the performance by business, a few words on income impairment and costs overall. The quarter showed the benefit of the diversification of our income across consumer and wholesale businesses. The increase in Group income reflected 44% growth in CIB, driven by a particularly strong quarter for markets, which was up 77%, while our consumer business showed resilience in Q1 with income declines of just 4% in both CCP and BUK. We expect those businesses to experience further material pressure on income as the effects of the pandemic feed into consumer behavior. On the next slide, I’ll go through some of the income headwinds we have seen across these consumer businesses. You’ve seen interest rate reductions in Q1 in response to the COVID-19 pandemic, which are affecting both BUK and our US consumer businesses. This will result in margin compression and a level of contributions from our structural hedges. On spending, as you see on the right-hand chart, we have started to see significant reductions in spend on credit cards and across payments more generally in March. We’ve seen a continued reduction in interest earning lending in UK cards and now also in US card balances, which will feed into lower income, although this may also be expected to mitigate being the risk of increased impairment on extended balances. To all customers in BUK we’ve taken specific actions that will reduce income, notably from overdrafts and support for SMEs, as well as starting to feel the effects of the lower spending on customer balances. Looking now at costs, with a 20% increase in income and stable costs, the Group delivered strong positive jaws and the cost income ratio improved from 62% to 53%. Given the income headwinds I’ve referred to, we don’t expect the cost income ratio to remain at this level through the rest of the year. There are also additional costs relating to the crisis, including the GBP 100 million Community Aid Package, suspension of future redundancy programs, and incremental operating costs. On the other hand, travel expenses and marketing, for example, will be lower. We have relatively limited short-term flexibility in costs outside the CIB, particularly in the current circumstances. We will be in a position to implement additional cost plans, if appropriate, as you get a clearer picture of the length and depth of the downturn. Cost efficiency certainly remains very important to us, whatever the environment and we continue to target a Group CIR of below 60% over time. I’ve mentioned the significant increase in impairment, resulting from implementing the COVID-19 scenario and from single name losses. As you can see, the increase was most pronounced in CIB as a result of the single name corporate losses and estimated effects of a sustained period of low oil prices. And CCP for the US unemployment assumptions have a significant effect on the ACL build. The modeling is subject to inherent uncertainty with respect to forecasting incremental credit losses that are likely to be further elevated impairment charges in the coming quarters, depending on how the economic downturn translates into cash losses. We’ll provide an updated Q2, but it’s difficult to give more precise guidance at this stage due to the level of uncertainty. However, I did want to highlight how the increased impairment provisioning has increased our coverage ratios.
Operator, Operator
The next question on the line comes from Alvaro Serrano of Morgan Stanley. Please go ahead.
Alvaro Serrano, Analyst
Good morning. Thanks for taking my questions. I've got one on provisions and another one on capital. Obviously, the provision taken in the quarter is a very credible and sizeable provision. But I was just asking if for some help about how could we think about the next few quarters about the total provisions we might see this year? I don’t know from here if you can give us a bit of color of how the payment holidays are evolving, and is this a metric we should look at in terms of as a leading indicator of what provision might look like? Or should we look at unemployment? And also one there on the oil price overlay provision, what oil price are you assuming? And the second question on capital. Obviously, you’ve said that you’re going to dip below 30% in Q2. During the quarter, we’ve had quite a lot of exceptions given by the PRA in markets, RWAs on wild breaches. There’s also the IFRS 9 transitional sort of benefit. Can you help us quantify what the benefit was and when I think about this – the RWAs going forward, is there a risk that some of this mitigation comes back? And is 13.5% still your – would you want to build a buffer and get close to 13.5% before you distribute capital? Thank you.
Tushar Morzaria, Group Finance Director
Yeah. Thanks, Alvaro. It’s a two-shot here. Why don’t I take both of those questions? So, on provision first and then I’ll come on to capital. I mean, obviously it’s a very uncertain situation; we’re only about a month or so into this crisis, so these are difficult to forecast paths. But I think, if our assumptions are correct around the economy, as you’ve seen on one of our slides, I think Slide 15, if that holds to be true, I think in terms of where we should go from here. I’d first of all start with our current sort of pre-crisis run rate of impairments, and that was running at about GBP 400 million to GBP 500 million a quarter and think of that as cash losses in any one quarter. You know, we feel sort of IFRS 9 provisions, up sort of a BUK of GBP 1.4 billion. I think that’s probably a reasonable proxy of additional cash losses that we would expect to have for the remainder of the year if our forecasts are right. So what does that mean? That means our run rate in provisions would be somewhere, I don’t know, GBP 800 million to GBP 1 billion something in that sort of zip code. Now, I’d caveat that quite heavily. One is, you know, none of us know whether we’ve called the economic forecast correctly. The governments here are acting to provide all sorts of measures of support. And we don’t know sort of the effect of them and how they’ll play out. And of course, there are different programs in the United States and in the UK and across individuals and businesses. So, lots and lots of caveats, but you know, if we’ve miraculously forecast this all correctly, that hopefully gives you a sense of the run rate from this point on. In terms of metrics to look at, I think unemployment is probably the most important metric for us, again, complicated because of the government support and furlough schemes here. Payment holidays are important and payment holidays in our unsecured books, which is probably where it’s most relevant, are about 3% so far. So we’ll see where that goes. I would say that actually in our unsecured books, spending is down significantly; you see that in the GDP numbers, but alongside that, card balances are actually down. That trend seems to be quite prevalent in April. Not that greater income, but obviously helpful in terms of impairment, and that may or may not change as consumer behavior changes over time. And the final thing, Alvaro, you mentioned oil. We’ve assumed a 50% chance of $20 oil remaining for the rest of the year. We took that assumption based on where we look at futures contracts probably around mid-April or something where the future strip was comfortably above that level. Obviously, that’ll fluctuate as the quarter goes forward. In terms of capital, yeah, in some ways you know, we’ve got to be pleased that our capital ratio was above 13%. Obviously, there’s a lot that went through our capital ratio; the impairment build itself was 69 basis points, a lot of the RWA inflation revolving credit facilities and so forth. I think as you said, we will expect to go below 13; I think you’ve seen the bulk of the pro-cyclical impact happened in Q1; there will be some follow through, but it’ll be much more modest. And whether that’s the low point in terms of our capital ratio again, it’s somewhat driven by the economic path that we may be following down. But you know, we’ll see where we go from there. I think if things go back to normal, then 13.5% sort of probably feels like the right level again, because based on that countercyclical buffers and so forth that sort of reset back to where they are. I mean, there’ll be a natural sort of flow back in RWA. I guess the countercyclical buffer that fades back in some of the RWA inflation that we’ve experienced and we’ll naturally have a way as well, so there’ll be a sort of a calibrating effect back there. But at all times, I think that remains in very appropriate levels well above our MDA levels and to see ourselves going anywhere near that at this stage.
Alvaro Serrano, Analyst
Very clear, thank you.
Tushar Morzaria, Group Finance Director
The next question, please, operator.
Operator, Operator
The next question comes from Jonathan Pierce of Numis. Please go ahead.
Jonathan Pierce, Analyst
Good morning. I have two questions as well. And actually, they’re again on provisions and then risk-weighted assets. On provisions, I just want to understand this transitional relief or absence of transitional relief in the first quarter. I think the stock at stage 1 and 2 having fallen below the IFRS 9 add back, and then there was a true-up as you went through Q1 and that’s why you didn’t get any substantive relief. What’s the additional true-up that’s needed before we start seeing any transitional relief coming through whether to be to the stage 1 and 2 builds in the coming quarters? And that’s question one. Question two on risk-weighted assets. I guess the equity tier 1 dropping below 13% in the second quarter is probably pointing to, I don’t know, maybe another 4% to 5% increase in risk-weighted assets over the next three months or so. You sort of alluded to this in an answer to the previous question, but is that the right sort of ballpark we should be thinking about? So maybe you can talk a bit more about the quantum of credit risk pro-cyclicality, specifically within that? Thanks very much.
Tushar Morzaria, Group Finance Director
Yeah. Thanks, Jonathan. Why don’t I take both of them? The transitional relief for IFRS 9, as you’re probably previously familiar with most, Jonathan. This is a devilishly complicated calculation. There’s a few things going on here. You know, in some ways, we got very little, as you rightly pointed out, transition relief in Q1. I set the way to calculation sort of falls for us, and obviously stage 3 as you know, get no transition relief. And then stage 1 and 2, you had two effects going on there. You had the stock of stage 1, 2 provisions, transitional relief falling from 85% to 70%, and then as you pointed out, there are various thresholds in there. We’re not called out sort of how that may play out in Q2 because you know, there’s such an interplay between the various stages. And actually, it’s more than one threshold, as you’re familiar with your FPGA and various other things like that playing around this. So, I don’t think I can give you sort of just a single number that will be helpful, Jonathan. But I don’t think we’ll, you know, it sort of depends on the part, but you know, I wouldn’t be expecting a whole load of transitional relief going forward, if that does any help. And in terms of RWA inflation. Again, very, very tricky to glide on this one for the second quarter, simply because it’s such an uncertain path that we’re going through. All I would say though is, we will definitely have some pro-cyclicality flow through into the second quarter. I would say it will be much more modest than we’ve experienced thus far. And of course, the other thing that I think we should also point out is, our MDA levels are probably likely to go lower as well, even though our capital ratio is going to dip below 13% over the course of this year, I think you’d expect to see another step down in our MDA. And that’s just as you’ve seen in the Bank of England’s stress testing framework, the MDA levels get recalibrated in times of stress, and I’d expect the same again over the course of this year. So I can’t give you unfortunately, Jonathan, a precise quantification into Q2, but hopefully it gives you a sense of qualitatively where we should be going.
Jonathan Pierce, Analyst
Yeah, that’s helpful. Thanks, Tushar. Sorry, can I just come back on the first question, or the answer too is, you’re saying this, even if there was a further sizable increase in the stock of stage 1 to provisioning, maybe, I don’t know, GBP 1 billion plus, let’s say, over the course of the rest of the year. I mean that’s not your assumption, but were that to happen, we wouldn’t get any transition or related size on that either?
Tushar Morzaria, Group Finance Director
No, that wouldn’t go. No, that definitely wouldn’t be as black and white as that. It’s very much dependent on the scale of 1, 2 provision builds, stage 1, 2 provision build as well as the interplay of various thresholds. So, I – it’s not a straight, but if it was a reasonable build, then I do think we would get some transition relief, if that modestly builds, probably not so much.
Jonathan Pierce, Analyst
Okay, great. Thanks a lot, Tushar.
Tushar Morzaria, Group Finance Director
Okay. Thanks, Jonathan. We’ll take the next question, please.
Operator, Operator
The next question is from Joseph Dickerson of Jefferies. Your line is now open.
Joseph Dickerson, Analyst
Good morning. It’s Joe. Just a quick question on costs. So you’re analyzing at GBP 13 billion of costs pre-levy in Q1. I guess what are the moving parts around that as we go through the rest of the year? Just trying to dimension where we think you could be at the full year? I mean, you’ve said some limited flexibility outside of variable comp, so just trying to dimension that, but then a very good performance from the card piece. And then just on the regulatory capital ratio, I mean, I suppose given the commentary that you plan to dip below 13% in Q2, that is – should we assume that has troughs in Q2, given you know, you’ve called out in the several areas that you expect the maximum pressure economically to occur in Q2?
Tushar Morzaria, Group Finance Director
Yeah, okay. Thanks. So, why don't I start with the question on capital, then I'll say a little bit on cost. And I think Jes to let him comment on costs as well. On the capital ratio, Joe, it is – you know, it is difficult to forecast simply, because of the uncertainty around the economic path that we may or may not be embarking on, and also sort of, you know, the way in which impairments will play through as well. But anyway, on the assumption that we’ve sort of called it absolutely correctly, then I think it’s a reasonable assumption to assume that, you know, the – once we get to whatever capital ratio we get to in Q2, you know, we should be hovering around about those levels and perhaps even building up again over the rest of the year. But I’ve put lots of caveats around that. It really does depend on so many factors. On costs, there are various sort of puts and takes. Look, I think, first and foremost, you’d expect us to be as responsible as we can in terms of helping everybody get through very difficult circumstances. So, you know, to the extent we were going to make future redundancies and sort of workforce changes, we will obviously delay that. We would expect ourselves to have lower attrition levels. I think some operating costs will increase, I’m sure Jes will talk about this. But you know, you guys will be very familiar with this. But keeping a sophisticated financial institution running and virtually everybody’s working at home from consumer-facing customer outreach to, you know, just even capital markets activity when we’re trying to do capital market raises and actually sales forces, traders, and investors all over them. It’s incredibly complicated. So that probably has a degree of cost associated with it. Now on the flip side, we’re not travelling obviously; we’re not going to be marketing as much. So, I think there’s various puts and takes. So at the moment look, I don’t think there’s anything new to sort of say on cost from perhaps where we are. But Jes is there any more comments you want to add on to that?
Jes Staley, Group Chief Executive
Just you know, obviously in the first quarter we landed the cost income ratio of 52%. So that should underscore a certain degree of prudence well below where we were last year. But I think that the one thing I would repeat is, we took a decision not to reduce our headcount, even though we had the opportunity to do that. I just don’t think at this stage in the current environment, we should be running down, putting people out of work just to drive your cost down. So I think you should look at a roughly flattish number for the year.
Joseph Dickerson, Analyst
Thanks, Jes.
Jes Staley, Group Chief Executive
Thank you. So we have the next question, please operator.
Operator, Operator
We have a question from Rohith Chandra-Rajan of Bank of America. Please go ahead.
Rohith Chandra-Rajan, Analyst
Hi, good morning. I wondered if I could ask a couple around the cards and payments business, and particularly in relation to the travel industry. So I guess firstly, US cards. A lot of the co-branding is with airlines, which you talked about in the past. I was wondering if you could remind us how much of the US cards business balances with airlines? And also a comment on what you’re seeing in terms of volumes in the volume outlook and credit quality there? And then the second was really on the acquiring side. So a lot of travel firms and airlines are now for cancellations are now offering re-bookings or vouchers rather than refunds. And anecdotally, customers are now looking to get chargebacks on their credit cards as a result to recoup the cash rather than taking the voucher. So just wondering what you’re seeing there in terms of that sort of anecdotal evidence? And what the impact is, I guess particularly from an acquiring perspective?
Jes Staley, Group Chief Executive
Yeah. So on the travel side in our US card, you’re right; we’ve got very strong co-brand relationships with American Airlines and JetBlue and Hawaiian Air and whatnot. So clearly, you’ve got the issue of the consumers spending dramatically less money, our receivables going down, and we are connected to the airline industry. It does, however, these programs continue to be extremely important for the airlines. On that side, you know, we are as a partner elevated. Also, you may have seen, you know, it's because of the race with the airline industry that we did a GBP 1 billion equity raise for United last week. We're also very involved in the delta financing as well. But to your point, I think the US card is in a struggle. The flip side, because we had that concentration in the airline industry, that gave us one of the highest average FICO scores of any credit card company in the US. So I think the sort of balance, I think we will be less hurt on the impairment side but probably more hurt on the revenue side.
Tushar Morzaria, Group Finance Director
Yeah. I’d just add to that, Rohith just to spot on that and see the FICO scores or the book, you know, we saw that I think the standard definition of prime in the US is 660 and, you know, 84% of our book is greater than a 665 code. So although it’s going to be really tough times in the economy, that scores compelled to remain robust. The other thing I’ll say is, you know, credit metrics, of course, are evolving all the time as we go through the crisis. And we have seen a pickup in delinquencies, both in UK and US cards, quite modest, about 10 basis points in UK card delinquencies and 20 basis points in US cards, but towards the back end of April, we’ve seen that level off. So again, remains to be seen, but although it’s ticked off and it’s leveled off already. Again, I don’t want to sort of say that that’s what’s going to be the case for the rest of the quarter, we just don't know, but hopefully that’s at least some additional color.
Jes Staley, Group Chief Executive
Maybe a 70% unemployment rate through three quarters, you know, that’s can’t get much more conservative than that and taking that provision in the first quarter, we shouldn’t lose sight of that.
Rohith Chandra-Rajan, Analyst
Thank you. And on the, sorry, on the acquiring side, the chance of the risk from chargebacks.
Tushar Morzaria, Group Finance Director
Yeah, on the acquiring side, I don’t think there’s anything specifically to call out on chargebacks. There’s nothing sort of coming through in our metrics that that stands out as anything particularly unusual. Obviously, current volumes are dramatically down; the GDP numbers sort of give you a good sense for that. But in terms of other risks outside just lower volumes, this is nothing that I call out.
Rohith Chandra-Rajan, Analyst
Okay, thank you.
Tushar Morzaria, Group Finance Director
Thanks, Rohith. We have the next question, please then, operator.
Operator, Operator
Of course. The next question comes from Guy Stebbings of Exane BNP Paribas. Please go ahead.
Guy Stebbings, Analyst
Thanks for taking my questions. The first one was just on thoughts about UK and the new NIM guidance. You’ve obviously given a lot of color on the different headwinds to get there. But could you give us a sense of the phasing? I mean, it sounds like quite a lot will be coming in Q2 given the actions taken to support consumers and obviously the timing of the base rate move, rather than a steady decline. Is that fair? And I don’t know if you could give us a sense of how much that decline is coming from those consumer actions which hopefully should reverse next year, perhaps? That’s the first question. And then secondly, I just want to ask on the COVID business interruption scheme and some of the economics, in particular, the sort of risk rates on average you might have against those loans on either the 80% guaranteed or the 100% guaranteed loan scheme. And from a leverage standpoint, presumably, you have to recognize all the exposure, but if you could just kind of find that’d be great? Thanks.
Tushar Morzaria, Group Finance Director
Yeah, thanks Guy. Yeah, in the UK, I would say you’ll start seeing the full effect of all sort of, I guess, three possibly four components of revenue headwinds come through in the second quarter. We’ve got obviously, the impact of rates coming through. So what happens there is, our assets reprice pretty much immediately, the deposits weren’t repriced until I think from memory July and just the standard protocols we have in the UK of writing to customers and giving them advanced notice. So in actual fact, you’ll probably see NIM hit most in Q2 and the recovery again in Q3 and Q4, everything else being equal. We are spending, if you like, discretionary amounts for ourselves, just to help customers through difficult periods. We think that’s about GBP 100 million for this year, and then over and above that, as along with many other banks waiving various fees and charges, we think that’s about another GBP 150 million. I think in terms of next year, again it remains to be seen as a sort of a brief call on how the world will look next year, which is difficult to forecast when you’re amounting this one. But, there is a, I guess, a view you could take which is the temporary suspension of fees and charges will not apply next year as well as some of the more discretionary things that we’ll do.
Guy Stebbings, Analyst
Okay, thank you.
Tushar Morzaria, Group Finance Director
On CBILS, I’ll hand over to Jes.
Jes Staley, Group Chief Executive
You know, on the COVID-19, whether it’s the 80% guarantee program or 100% guarantee program, there’s a lot of discussion going back and forth and I must say that the British Government I think is really trying; you know, they’re doing virtually everything they can to make these two programs successful as are we. And I think everyone realizes that you know that guarantee is real and therefore the calculation of risk against that component of these loans are extended, sort of in the PRA is looking at that, but I think you should consider that it’ll have a very, very low risk weighted assets to it.
Guy Stebbings, Analyst
Could you clarify from a leverage point of view, as generally following up would you still have an offset for leverage?
Tushar Morzaria, Group Finance Director
Yeah, I mean the numbers here are quite modest if I say. If you think about how much we’ve extended through the CBILS program, I think Jes will probably have literally the real-time number, but it’s something like around GBP 737 million.
Jes Staley, Group Chief Executive
Around GBP 737 million.
Tushar Morzaria, Group Finance Director
So GBP 737 million. So it’s pretty modest in terms of scale on the balance sheet. I mean, these are obviously relatively small individual loans. I think it’s like 4,000 SMEs that these have gone out to. And for the larger corporate, where numbers can get much bigger, we’ve been very active in getting people to the commercial paper program run by both the UK and US government. And I don’t think we’re allowed to give precise stats, but you know, we’re comfortably the largest participant in that program. And I don’t know what the latest government published stats are, but you know, we’re going to be the largest.
Jes Staley, Group Chief Executive
I think we were very active in opening the investment grade capital markets from the $19 billion bond issued for the T-Mobile-Sprint merger to 8 billion for the World Bank, et cetera, et cetera. All these big capital market trades are also decreasing because it’s much cheaper borrowing than going to your revolver. So one of the issues that you would want to look at in terms of our leverage, et cetera, is how much are revolvers being used and with the opening of the capital markets as robustly, we saw last month some of the most highest levels of issuance that we’ve seen in decades, if not ever, that’s taken a lot of pressure off to draw on our revolvers which has pretty much been flat-lined and so that will also take pressure off our risk-weighted assets.
Guy Stebbings, Analyst
Okay, very helpful. Thank you.
Tushar Morzaria, Group Finance Director
Thanks, Guy. Could we have the next question please operator.
Operator, Operator
The next question comes from Edward Firth of KBW. Your line is now open.
Edward Firth, Analyst
Good morning, everybody. I just had two questions. The first one was just bringing you back to the CIB performance and in particular, the FICC revenue. I guess, just tried to compare and contrast the revenue and the cost performance. And I know you said in the call, you felt it adequately accrued compensation related to that revenue. But the revenue was absolutely startling. I mean, even if you compare it against peers, nobody produced anything like that in terms of revenue performance. So I just wondered if you could talk a little bit more about what was driving that? And perhaps, you know, others one-offs in there? Is there a reason that you don’t have to pay the people who delivered this revenue? And perhaps how we can imagine that might be going forward? And then I had a second question, so I’ll go straight ahead with that.
Tushar Morzaria, Group Finance Director
Yeah. Do you want to ask both of them? And we’ll –
Edward Firth, Analyst
Yeah, sure. Just back on the CBIL question, but you know, not just that you know, both programs and the micro one. If I compare what’s happening in the UK with, say, or particularly the US, but also in Europe, that the take up has just been incredibly low, and incredibly slow. And I can’t imagine it’s because our small businesses or our business communities finding that any easier say than the US or anywhere else. And obviously, you guys have been taking it, but you know not you personally, but the fact has been a little bit of incoming about delayed approvals and being difficult. Well what’s your steer on how that’s going now? And perhaps, you know, the GBP 330 billion total is the sort of top-line number? I mean, are you imagining that over time we will get to something like that? Or are we really going to be talking about something where the scheme is going to be GBP 10 billion and most for the sector we could broadly ignore it?
Tushar Morzaria, Group Finance Director
I guess I said, why don’t I quickly say something on CBILS and then I think Jes can add some more comments on that and talk about FICC performance. And I think we’ll have to correct your statement about, we don’t intend to pay the people that we’re generating that performance, and I’d like to go through that. On CBILS, I – the only comment I’d make is, you know, first and foremost, I’d say, you know, the banks that speak for themselves, I’m sure I’m speaking for the banks though, are 100% committed to make these programs work. We are doing everything we can to help extend credit, even in advance or sort of sometimes going through the full plethora of checks and balances and consumers’ credit act provisions and context, you know, these are very complicated programs to administer. And it will feel a lot of pressure on the government to once we’ve approved an application for them to turn it around as well. So first of all, I’d really stress that we are over a 100% committed. We have people processing these things non-stop talking to clients. And remember, you know, we’re not in our headquarter building anymore, everybody’s doing this in a distributed way, in different parts of the country with compliance officers removed away from bankers that are doing the underwriting from risk management that are approving the loans, et cetera, et cetera. No doubt there’s been, you know, some glitches in the operational efficiency of getting these done, but I think you’re seeing the pace of program really picks up and it’s getting quicker and quicker and quicker. Final thing I’ll say, then I’ll hand over to Jes, is the GBP 330 billion sort of headline number, I don’t think is just because I understand it’s just people’s I mean, it’s a full sort of suite of what with the commercial paper program we’re building and you know, furlough schemes and various other things like that. And, you know, one thing that we’re very instrumental as in terms of making those payments on behalf of HMT for furloughed workers and all that, actually that the Barclays we’re the bank for HMT on that. So that’s actually working remarkably well in terms of administering those payments. But why don’t I hand over to Jes to finish that and talk about FICC.
Jes Staley, Group Chief Executive
Yeah. There’s a tremendous amount of dialogue you know, between myself and the chancellor and Head of the Bank of England that are going through. How do we evolve these programs to make them more and more effective and more and more efficient and this is a very new frontier? So it takes us a while to get there. GBP 330 billion and I don’t think – a first stated indicative number, but I think it’s pretty clear if you read what the British Government is up to, they’re willing to go well beyond that. So that Tushar is right, you know, we’re all in this together and we shouldn’t underestimate the economic commitment that the government is making and we need to partner with that. These will be –
Edward Firth, Analyst
There just – sorry, just to clarify that on the CBILS, say, in the context of the UK economy, you would expect that those sort of three guarantee programs to end up being material in the context of the total UK economy?
Jes Staley, Group Chief Executive
Yeah, but I don’t ignore that commercial paper program as well, which will be sizable and you know, that’s not to give that number out, but you know, we’re going to be the largest. I think that’s something we saw very active in opening the investment grade capital markets from the $19 billion bond issued for the T-Mobile-Sprint merger to 8 billion for the World Bank, et cetera, et cetera. And all these big capital market trades are also decreasing because it’s much cheaper borrowing than going to your revolver. So, and one of the issues that you would want to look at in terms of our leverage, et cetera, is how much are revolvers being used and with the opening of the capital markets as robustly and we saw last month some of the most highest levels of issuance that we’ve seen in decades, if not ever, that’s taken a lot of pressure off to draw on our revolvers which was pretty much been flat lined and so that will also take pressure off our risk weighted assets.
Tushar Morzaria, Group Finance Director
We have the next question, please, operator.
Operator, Operator
The next question comes from Robin Down of HSBC. Please go ahead.
Robin Down, Analyst
Good morning. I think it’s still good to get around. Two questions please. Can I come back to the RWA question? I think you said this more pro-cyclicality in Q2. But I guess just looking further out to the second half, I’ve seen that we’re not anticipating greatly on loan – greatly loan books might even shrink. And I assume that the market volatility which bring the ease in the second half of the year. So are you kind of anticipating that risk-weighted assets might peak in Q2 for this year? That we could sort of finish at lower levels at the end of the year? And then the second question, just apologies if I’ve missed this somewhere in the statement but I couldn’t obviously see it. From the oil perspective if I think back to your disclosures in your ESG report, you have a relatively modest drawn exposure for the fairly substantial undrawn exposure to oil, and until you’ve had some quite big drawdowns at the end of March. So I just wondered if you could give us the kind of updated picture as to what the actual drawn oil exposure was at the end of the quarter? And if I could – sneak in the third one. Likewise, the leverage loan positions, I think you said you took a GBP 320 million have marked there. Could you just give us the size of the leverage loan positions?
Tushar Morzaria, Group Finance Director
Yeah. And so why don’t I answer those ones, Robin. In terms of pro-cyclicality of RWAs, and yeah, we will see some follow through into Q2, many of the models are based on a rolling average. So as much as you’ll see some follow through from Q1 into Q2, it doesn’t necessarily sort of reverse back very quickly as well. It will vary much depend on, you know where markets go in the second half of the year. So I don’t think I would sort of say there’ll be an immediate sort of deflation of RWAs in the back half of the year. But I don’t think you’ll also see, if you like, in inverted commas, the excessive pro-cyclicality that we picked up in Q1, I think would be much, much more modest into Q1. And, you know, we’ll see where we go in the back half of the year, but I don’t expect –
Robin Down, Analyst
But I was speaking more in terms – of it might start to shrink.
Tushar Morzaria, Group Finance Director
Yeah, I think – it’s very hard to guide on that, Robin. I know the temptation is to think you know, everything will go back to normal and the averaging will sort of you know, start unwinding. It’s quite hard to go just you know, so far away from that, and because it’s – there’s so many different components to this and the averaging sometimes is actually not just on a sort of rolling three months, some of these are 12 month averages and what have you. So it’s quite hard to guide on that. But what I would say is that, the amount of pro-cyclicality you’ve seen in Q1, I can’t – I’d be surprised if you see anything like that coming through, certainly not in Q2, I’m not expecting or even beyond that. So I think we’ve seen that the bulk of it because it flows back maybe, but I think it’s a bit too early to guide to that. The one thing I would say though, actually, is the, you know – we’ve seen it on our bridge, revolving credit facilities did build up quite rapidly about 33 basis points, if anything, we’re seeing sort of net – negative revolving credit, we’ve seen then in marginal pay downs actually in April. So, you know, I think that gives you some comfort that at least that component won’t be there. In terms of oil, we actually have something in the appendix; we have a slide on our drawn and undrawn oil exposures were GBP 3 billion drawn, and we’ve got some commentary as to where that’s coming from. And most of that’s with oil majors investment grade, and of course, some of the and such a decent amount of the drawn exposure is also secured against various assets as well. And of course, we’ve taken, you know, an overlay in our IFRS 9 provisions assuming a likelihood of a $20 oil price. We feel reasonably well provided for that. Leverage loans, we haven’t given a slide on that, but you know, that we took, you know, GBP 300 odd million of marks and almost entirely offset by hedges that performed well. So again, if anything, when I look at April, and Jes you may want to comment on this, the leveraged loan market has probably calmed down quite a bit and capital markets are certainly much more functional than they were when we were closing the books at the end of March. So I’d say the risks are probably subsiding rather than increasing there and, in our books, well contained.
Jes Staley, Group Chief Executive
And you see the high yield market has reopened quite comfortably and the equity markets have reopened. And so I think the risk of the leverage loan markets that we may have seen about a month ago that has definitely subsided, and we feel very comfortable with the book that we have.
Tushar Morzaria, Group Finance Director
We have the next question, please.
Operator, Operator
The next question comes from Martin Leitgeb of Goldman Sachs. Please go ahead.
Martin Leitgeb, Analyst
Yes, yes. Good morning. I was just wondering one broader question; if you could comment how severe a credit cycle you would expect to unfold from here, just looking at your assumptions in terms of the COVID overlay of GDP contraction that seems more severe compared to prior cycles we had. On the other hand, the recovery seems to be faster and the holidays, government guarantees, and the schemes in place and support schemes in place. If you take all of this into consideration, how severe a credit cycle would you expect?
Tushar Morzaria, Group Finance Director
Martin, that’s a difficult one to answer. I mean we’ve tried to give you our, you know, what we’ve used to our own forecast in terms of GDP and unemployment and what have you. You know, that’s what we’ve assumed. It’s out there on one of our slides. You know, whether that’s what it turns out to be, you know, it’s only one month into this. So we’ll see. I would say that reason why, but it’s so hard to sort of really accurately forecast this as Jes mentioned, we’ve seen an enormous amount of government actions stepping into do everything they can to backstop what they can, you know, we’ll see how successful they are. I think you’ve got to believe that if there’s a will, there’s a way when governments are involved, so, you know, we’ll see if that plays out. But it’s not much more I think we can add then other than say the data that we’re basing our assumptions off. And so thanks for your question, Martin. Operator can we take one more question, and I think we’ll wrap up the call then. And so it’s the final question, please, operator.
Operator, Operator
The last question we have time for today comes from Fahad Kumar of Red Bank. Please go ahead.
Unidentified Analyst, Analyst
Hi, Tushar. Hi, Jes, thanks for taking the question. Just a couple of points of clarifications question. And on clarification, Tushar you said you’re looking at kind of GBP 800 million to GBP 1 billion run rate for impairment so important I know how extremely hard that to forecast but so is that kind of on that number a GBP 5 billion impairment number based on all the uncertainties that are around right now is that how to read that? And the second question of clarification was on costs. I think Jes you made a point saying costs were flat. And is that flat on the Q1 run rate or if that’s 13 billion been extra levy? Is that an okay number we should be thinking about? Or was it more in Q1 run rate? So I think it’s kind of low 30s. And then the question I had was on the US credit cards, I think everything you said on the UK credit card. On the UK credit cards facility and are they being used substantially? And should we be quite optimistic that all you’ve said in the corporate side and the credit card books are being used that much, I thought we’ll use a lot more or is it too early to be in a particularly optimistic on this, because of the level of government support we have right now? Thank you.
Jes Staley, Group Chief Executive
It’s on the costs number. What I say is, I would look – well I was speaking to as flattish more towards 19, but make sure you take the FX adjustment to it.
Unidentified Analyst, Analyst
What is the FX adjustment that of interest, sorry?
Jes Staley, Group Chief Executive
Well – you know, but those are just where to retranslate on a constant currency basis, but you know brought into the last year, you know, and we’ll update guidance as we go along. But you know, it’s still early on. And, you know, we’ll see how this plays out. We’ll keep you posted. And on the impairments. Yeah, look, I mean, it’s so hard to forecast. But, you know, I think, you know, if you add on the GBP 2 billion plus what I guided to, you’re getting into that sort of GBP 5 billion zip code. You know, we’ll keep you posted, but that arithmetic sort of works. And in UK cards, yeah, it’s the same thing. We have seen a meaningful drop off in spend. I mean, that’s no real big secret that you’ve seen in payments data or around payment data, but also in sort of GDP type revisions. What’s more interesting is, we have seen a drop off in card balances that is adding further down and down, you know, but in income good for our impairment and that’s sort of somewhere in the income guidance that I gave earlier. But obviously good for impairment does that rebound? In some ways, we sort of hope it does rebound, but we hope it does rebound as the economy recovers, because then sort of gets back to more of a normal environment. But I think it’s very early to forecast that, and you know, we haven’t even come out of this particular lockdown and how consumers behave. And you know, how everybody gets back to work, I think is very unclear at the moment. Thanks for everybody for joining us. Appreciate it. And there’s a lot going on. And although we won’t be able to meet in person over the next few days and weeks, hopefully, we’ll have a chance to speak again. But I’ll close the call now. Thanks again.
Operator, Operator
Ladies and gentlemen, this does conclude today’s call. Thank you for joining. You may now disconnect your lines.