Earnings Call Transcript
BARCLAYS PLC (BCS)
Earnings Call Transcript - BCS Q4 2025
Coimbatore Venkatakrishnan, CEO
Good morning. Thank you for joining us today. So thank you. We have today the Barclays Full year 2025 results, our progress and our target update. Today, we will outline targets for the next 3 years to deliver an even better run more strongly performing and a higher returning Barclays. This builds on the improvements which we have delivered in the last 2 years of our plan and which we shared with you in February of 2024. But first, let us take stock of the progress so far, starting with our 2025 results. There will be an opportunity for those in the room to ask questions at the very end of our presentation. So turning now to Slide 4. Barclays achieved all financial targets and guidance in 2025. We generated a return on tangible equity of 11.3%. Our top line grew by 9% year-on-year to GBP 29.1 billion, and we achieved our NII guidance for the group and for Barclays U.K. Our cost/income ratio once again improved year-on-year to 61%. And the group loan loss rate of 52 basis points was comfortably within the 50 basis points to 60 basis points through the cycle guidance. We have also announced today GBP 3.7 billion of shareholder distributions for 2025. This is up from GBP 3 billion in 2024. This includes dividends of GBP 1.2 billion and share buybacks of GBP 2.5 billion, and that includes a GBP 1 billion tranche, which we announced today. And importantly, we remain well capitalized, ending the year at the top end of our 13% to 14% CET1 range after accounting for today's buyback. We are delivering these improvements as we said we would. In 2025, we simplified the bank further, achieving GBP 700 million of gross efficiency savings versus the GBP 500 million target, which we had for the year. We divested the remaining nonstrategic businesses, and we announced a long-term partnership for payment acceptance. Operational improvements across the group are creating a better Barclays, driving stronger financial performance. All our divisions generated double-digit RoTE in 2025, and this was an improvement on the prior year. In the Investment Bank, greater capital productivity and cost efficiency contributed to a 2.1 percentage point increase in RoTE to 10.6%. And the U.S. Consumer Bank RoTE increased 1.9 percentage points to 11%. This reflects additional scale and operational progress to improve the business mix to improve pricing and improve efficiency. Finally, we are continuing to rebalance the group towards the 3 highest returning U.K. businesses. We have now delivered GBP 20 billion of the GBP 30 billion RWA growth, which we targeted for the end of 2026, and this includes GBP 7 billion in 2025. So we see good momentum with 6 consecutive quarters of organic loan growth in Barclays U.K. and 5 such quarters in the U.K. Corporate Bank. Progress in each of these 3 areas is delivering structurally higher and more consistent group returns. It has also increased my confidence in and my expectations for the group. Stronger and more consistent returns mean that we are better equipped to serve our clients and that we have more capacity to invest in the business. All of this is providing a solid foundation to create more value for our shareholders in the next phase of our plan through to 2028 and beyond. We will return to this later. Our progress in the last 2 years reflects the consistently excellent work of our colleagues, over 90,000 of them. They implement our strategy every day and are core to our success. So I'm therefore pleased to announce today a grant of approximately GBP 500 of shares to the vast majority of our colleagues, essentially all full-time employees outside of managing directors. This is the second year of such a reward, and it is more than just a reward for past effort. We are aligning the actions of our colleagues with the ultimate outcome of their efforts, which is the change in our share price. And I believe this equity ownership is really important for all our colleagues. With that, over to you, Anna.
Angela Cross, CFO
Thank you, Venkat, and good morning, everyone. Slide 6 summarizes our financial highlights for the fourth quarter and the full year. I want to point out that a weaker U.S. dollar impacted our reported income, costs, and impairments. Our return on tangible equity improved from 10.5% to 11.3% year-on-year, aligning with our guidance. Pre-provision profit rose by 13%, driven by income growth and efficiency measures that supported a 3% positive jaws effect. Profit before tax grew 13% to GBP 9.1 billion, while earnings per share increased by 22% to 43.8p. My ongoing focus is on operational progress, which strengthened throughout the year. We saw a 9% year-on-year income increase, reaching GBP 29.1 billion. Our stable income streams also grew by 9%, bolstered by 8% growth in retail and corporate divisions and a 17% increase in market financing. This robust and predictable growth has led us to upgrade our expected group income to approximately GBP 31 billion in 2026, up from our previous estimate of around GBP 30 billion. In the Investment Bank, intermediation revenues increased by 13% as we assisted clients in a volatile market, while our IB fees remained stable. Our group net interest income rose for the fourth consecutive year, reaching GBP 12.8 billion, a year-on-year increase of 13%, influenced by three factors: stable deposits across the group supporting significant growth in structural hedge income, lending expansion in all divisions resulting in strong momentum as we closed the year, and operational advancements in the U.S. Consumer Bank that drove improved NII and NIM. Regarding the structural hedge, it aims to mitigate income volatility and manage interest rate risk. Initially, we planned to reinvest 90% of maturing hedges, but we fully reinvested assets through 2025 at higher rates than originally expected. Consequently, hedge income surged by GBP 1.2 billion to GBP 5.9 billion, constituting 46% of the group NII, excluding the Investment Bank and head office. The extension of our average hedge duration from 3 to 3.5 years enhances the predictability of hedge income. Now, turning to costs, we achieved GBP 700 million in gross efficiency savings in 2025 and a cumulative total of GBP 1.7 billion towards our GBP 2 billion target by 2026. These savings contributed to a 10% positive jaws effect since 2023. The group cost-to-income ratio decreased again to 61%, in line with guidance, even amidst various cost headwinds during the year. Total costs rose by GBP 1 billion to GBP 17.7 billion, with nearly half attributed to the inclusion of Tesco Bank. We also chose to expedite certain discretionary investments, resulting in structural cost actions nearing the top of the guided range of GBP 200 million to GBP 300 million. The 2025 group cost base included non-recurring items we do not expect to repeat, such as the GBP 235 million finance provision in Q3, which would have kept us at a 60% ratio without it, and approximately GBP 50 million in one-off costs in Q4, including a VAT expense in Barclays UK. Regarding impairments, the total impairment charge for the full year reached GBP 2.3 billion, representing a loan loss rate of 52 basis points, in line with our through-the-cycle guidance of 50 to 60 basis points. The credit landscape remains healthy, with low and stable consumer delinquencies and wholesale loan loss rates below the expected range. The Q4 loan loss rate decreased to 48 basis points compared to Q3, due to reduced single name charges in the Investment Bank. Adjustments to our impairment models to better reflect consumer behavior have also led to lower loan losses in Barclays UK throughout 2025, including in Q4. As these adjustments are now largely complete, we anticipate the Barclays UK loan loss rate to be closer to 30 basis points starting Q1. The U.S. Consumer Bank’s loan loss rate was higher this quarter, as anticipated, and we’ve observed seasonally increased 30- and 90-day delinquencies compared to Q3, remaining generally stable year-on-year, with U.S. consumer behavior continuing to show resilience. The Q4 impairment charge rose by GBP 52 million from the previous quarter, driven by higher balances, and as a reminder, the Q1 loan loss rate typically remains elevated due to holiday-related spending in Q4. With respect to UK lending, we deployed GBP 20 billion of business growth RWAs in the UK, which included GBP 13 billion of organic growth, as we exited 2025 with strong momentum. Mortgage balances have increased for six consecutive quarters, delivering GBP 3.1 billion in net lending during Q4. Applications for mortgages in 2025 surpassed those in any prior year, aided by Kensington and enhanced broker engagement following platform improvements in Q3. We also welcomed 1.4 million new credit card customers during the year, an increase from 1.1 million in 2024, which included 300,000 new customers from Tesco Bank. Consequently, credit card balances have risen to their highest level since 2017. Core business banking lending has experienced growth for four successive quarters, and we expect overall balances to grow in the second half as pressures from the runoff portfolio decrease. UK Corporate Bank lending climbed by 18% year-on-year, with market share growing by 100 basis points to 9.6%. There remains significant potential for growth as we aim to deploy GBP 30 billion of RWAs by 2026 and beyond. Delving into Barclays UK in more detail, the financial highlights can be found on Slide 15, but I will focus on Slide 16. RoTE stood at 23.8% for the quarter and 20.7% for the year. NII of GBP 2 billion reflected an 11% year-on-year increase and a 3% quarter-on-quarter increase. Full-year NII stood at GBP 7.7 billion, aligning with our guidance, and we anticipate an increase to between GBP 8.1 billion and GBP 8.3 billion in 2026. The hedge is expected to contribute approximately GBP 550 million in additional NII. However, as I will elaborate later, this represents a smaller portion of the total hedge income growth compared to 2025, with more growth now being directed elsewhere in the group. We foresee around GBP 100 million in product margin impact in our mortgage book due to the maturation of higher-margin loans issued during the stamp duty holiday in early 2021, predominantly occurring in the first half of the year. We also expect lending growth to persist throughout the year. As part of our planning, we anticipate this benefit to be balanced by ongoing but moderate deposit margin compression. These factors will lead to a quarter-on-quarter decline in NII for Q1, with stability and growth expected in Q2 and Q3, and year-on-year NII growth forecasted for each quarter of 2026. Non-NII of GBP 247 million remained relatively stable on a year-on-year basis, with the full-year amount just over GBP 1 billion. We expect a similar level in 2026, albeit with some seasonal fluctuations. The previously mentioned one-off items accounted for roughly half of the year-on-year increase in operating costs in Q4, and we do not anticipate these to repeat in Q1 2026. Now, onto the Barclays UK balance sheet. Deposit balances rose by GBP 3.1 billion compared to Q3 and showed stability year-on-year. Customers continue to seek higher-yielding products, including time deposits, which both recorded quarter-on-quarter growth. Lending has increased for the sixth consecutive quarter, up 4% year-on-year, driven primarily by mortgages and credit cards. Shifting focus to the UK Corporate Bank, RoTE was 19.1% for the quarter and 18.9% for the year. Income for Q4 grew by 18%, while costs increased by 8% due to heightened discretionary investments. These investments will support achieving a cost/income ratio in the high 40s by 2026, following a 4% improvement in 2025, bringing it down to 51%. Q4 NII growth of 22% was attributed to increased volumes across both sides of the balance sheet. Lending grew 18% year-on-year, enabled by enhancements in our lending processes. Deposit growth was recorded at 7%, leading to a loan-to-deposit ratio of 34%, an increase of 3 percentage points. Now, regarding the Private Bank and Wealth Management division, RoTE was 26.3% for the year, on track to surpass the greater than 25% target for 2026. Q4 was affected by higher costs from accelerated investments and a historical litigation charge. Though small in the context of the group, this charge significantly lowered the division's Q4 RoTE to 12.6%. We also saw a 9% year-on-year increase in client assets and liabilities, while assets under management grew by 11%. More than half of this growth in AUM was fueled by net new assets under management of GBP 3.3 billion, which included GBP 0.6 billion in Q4. This development led to a 4% quarter-on-quarter increase in income, and we expect this trend of volume and income growth to continue into 2026. Moving to the Investment Bank, our goal remains to generate higher structural returns by enhancing productivity, mix, and efficiency within the business. Risk-weighted assets have remained stable for four years, and income relative to average RWAs has risen by 110 basis points since 2023 to 6.6%. On the top right, we observe more consistent income from financing, as well as a 14% increase from the International Corporate Bank, which now comprises 42% of Investment Bank income, up from 32% in 2022. Lower left, Markets income has shown year-on-year growth for seven consecutive quarters, aided by deepening client relationships, while investment banking income has risen in five of the past seven quarters. This sustained performance and seven consecutive quarters of positive operating jaws have positively influenced the division's financial outcomes. The Investment Bank concluded the year with a RoTE of 10.6%, marking an increase of 210 basis points, although Q4 RoTE was seasonally low at 4%, slightly improving year-on-year. Total income rose by 7%, as indicated in further detail on Slide 25, with costs remaining flat. In USD terms, markets income surged by 17% year-on-year, representing about two-thirds of the Investment Bank's income in this quarter. Fixed Income, Currency, and Commodities (FICC) and equities experienced growth of 14% and 21%, respectively, with notable strength in securitized products within FICC and prime along with equity derivatives in equities. Financing income grew by 20% year-on-year for the sixth consecutive quarter, with prime balances increasing by 30% year-on-year, particularly with robust growth in Asia. Investment banking income remained relatively stable, although activities were impacted by the U.S. government shutdown which delayed the majority of Q4 IPOs into the first half of 2026. However, this was balanced by a 7% rise in DCM fees and an 18% boost in advisory fees. The M&A pipeline remains strong, as we have seen an uptick in our share of announced fees and volumes expected to close in 2026. International Corporate Bank income was stable, supported by 5% growth in transaction banking income. Turning to the U.S. Consumer Bank, we have continued to make operational strides. Net receivables increased by 5% quarter-on-quarter and 10% year-on-year, approximately half of which came from adding General Motors balances at the end of Q3. Our partnership card business has outpaced the overall market growth in 16 out of the last 20 quarters. NIM slightly improved from Q3 to 11.6%, aided by the repricing undertaken in 2024 and adjustments in our portfolio mix. Retail deposits grew by 5% quarter-on-quarter and 20% year-on-year, enhancing our funding mix. We have also boosted digital interactions, leading to a 41% cost/income ratio this quarter. We expect to maintain this progress, which reflects sustainable improvements in returns. The Q4 RoTE of 15.8% included a one-off benefit, which I will discuss shortly; adjusting for this benefit resulted in a RoTE of 12.5%. The full year RoTE rose by 190 basis points to 11%. In USD, Q4 income grew by 28% year-on-year, while costs increased by 4%. NII rose by 19%, driven by stronger volumes and margins. Following a review of customer behavior, we've revised our assumptions to better reflect more customer transactions versus revolving balances and longer customer relationships. This has allowed us to more accurately allocate partner rewards, which has two accounting implications. First, a one-time benefit primarily reflected in non-NII of approximately GBP 45 million in Q4; second, an ongoing shift in income mix, leading to a reduction in non-NII by around GBP 50 million starting in Q1, countered by an equivalent increase in NII. We expect Q1 NIM to be approximately 12.5% with total income around GBP 950 million. Significant inorganic changes are on the horizon in 2026. To assist with modeling, we've provided additional details on Slide 96 in the appendix. Following the sale of the AA portfolio in Q2, we anticipate NIM to approach nearly 14% in the second half, positioning us for an estimated 12% RoTE in 2026 before accounting for the AA gain on sale. As of the end of the quarter, we reported a CET1 ratio of 14.3%. This included 33 basis points of capital generation from profits. With this robust capital position, we are initiating a GBP 1 billion share buyback and a GBP 0.8 billion final dividend, equating to 5.6p per share. Looking ahead, we expect regulatory RWA inflation to range between GBP 19 billion and GBP 26 billion. This includes our best estimate of the circa GBP 16 billion impact from IRB migration in the U.S. Consumer Bank. We now estimate that around GBP 5 billion of this will occur with the implementation of Basel 3.1 on January 1, 2027, with the remainder anticipated within that year. We expect a reduction in the group Pillar 2A requirement following these adjustments. We've been operating towards the high end of our targeted CET1 range of 13% to 14%, with the returns and distributions outlined in today's plan based on this level. Following the implementation, we will reassess our operational position within this range. More broadly, we appreciate the constructive insights from the recent FPC review of capital requirements and plan to continue engaging closely with the Bank of England. Now, regarding the RWA walk, Investment Bank RWAs decreased due to seasonality, accounting for 55% of group RWAs at year-end. The decrease in Barclays UK was the result of a securitization in Q4 to better manage balance sheet risk. As usual, I’ll touch on our overall liquidity and funding. We maintain a strong and well-diversified funding base, with a loan-to-deposit ratio of 73% and a Net Stable Funding Ratio of 135%. Our liquidity is robust across currencies, demonstrated by a Liquidity Coverage Ratio of 170%. These metrics signify our intentional and prudent balance sheet management, ensuring resilience and the ability to support customers across varying economic conditions. Our TNAV per share saw a 17p increase in the quarter and a 52p increase year-on-year, reaching 409p. Attributable profit contributed 9p and 43p per share for the respective periods. Adjustments in the cash flow hedge reserve added 5p per share this quarter, and we expect this to largely unwind by the end of 2026, inflating TNAV by around 9p. In summary, we are satisfied with the group's performance in the second year of our three-year plan, having successfully met all our targets and guidance. We now anticipate group income to reach GBP 31 billion in 2026, exceeding our original expectations by GBP 1 billion. Ongoing operational advancements give us greater confidence in achieving a target RoTE of over 12% in 2026. Venkat will now discuss the next three years of our plan before I provide a detailed overview of our financial targets for 2028. Venkat, over to you.
Coimbatore Venkatakrishnan, CEO
Thank you, Anna, and welcome back. Barclays is on a path to achieve sustainably higher financial returns, which I envision as taking place in four stages. The first stage, from 2021 to 2023, involved stabilizing the bank’s financial profile while being disciplined with capital in the Investment Bank and starting to develop our strengths. In the second stage, we launched a straightforward and balanced strategy in February 2024, positioning the bank for income growth and enhancing returns. We streamlined our procedures for efficiency and exited non-core businesses, investing in digital capabilities to improve customer experience while focusing on growing our profitable U.K. operations for a more stable Barclays. Today, we outline the third stage of our plan leading to the fourth stage. In this third stage, we will leverage the groundwork we have laid to boost returns and ensure resilience across various environments. Year by year, we are enhancing the bank's profitability. Stronger financial results will provide the capacity to secure sustainably higher returns, which is our fourth stage extending beyond 2028. Two years ago, I shared a vision rooted in realistic ambition and disciplined execution, indicating we were building robust and mutually supportive businesses. Our current vision reflects accelerated ambition, supported by disciplined delivery. We aim to develop operationally superior businesses that promote growth and cultivate deeper client relationships by interconnecting these divisions. Our capacity to invest has increased, and we are building on our solid delivery track record. We intend to double our investments to drive significant technological transformation and modernization of the bank, which includes widespread AI integration for improved offerings. Importantly, we plan to pursue our goals while achieving higher returns over the next three years. By 2028, we aim for a return on tangible equity exceeding 14%, up from over 12% in 2026. Stronger capital generation will allow for over GBP 15 billion in distributions from 2026 to 2028, enabling further investments and growth beyond today's outlined plan. As always, we will maintain strict discipline regarding investments due to the importance we place on shareholder distributions. In 2026, we expect the Investment Bank to account for a mid-50s percentage of group risk-weighted assets. This exceeds our original target due to delays in anticipated regulatory changes, and we forecast this proportion to decrease to about 50% by 2028 as we maintain relatively stable risk-weighted assets in the Investment Bank while allocating more capital to consumer and corporate sectors. We will focus on three main objectives: simplifying Barclays, managing it effectively, and achieving better balance. Our journey started with establishing a simpler business framework and has progressed to simplifying processes and customer pathways to enhance service quality and efficiency. Over the next three years, we will deploy digital capabilities and AI to further our advancements. Successfully leveraging these technologies necessitates standardizing our data, modernizing approaches, and harmonizing systems and processes, thereby boosting productivity as well as operational resilience, reliability, and security. Most critically, this effort will foster a positive work environment for our teams. For a considerable period, technology has centered around our businesses; now, our businesses will revolve around technology. The U.S. Consumer Bank's customer interactions are predominantly digital. Additionally, we have made noteworthy strides in creating user-friendly customer-facing platforms and will continue that trajectory. By 2028, we plan to offer a streamlined yet advanced array of products and AI-enabled services. Our transformation is upheld by three key elements: cloud computing, data platforms, and AI adoption. We have made substantial progress with cloud computing, now having 89% of applications on the cloud compared to 75% two years ago, which fosters greater stability and quicker product deployment. We are also standardizing our core data, which enhances our ability to provide personalized services and rapidly implement models. With cloud infrastructure and data platforms established, we can now deploy AI at scale. We have more than 250 AI tools and models in operation across the group. By 2028, we believe over half of our customer journeys at the U.S. Consumer Bank will be digitally personalized. Technology is enriching our colleagues' work environment, who are at the core of these advancements. Over the last two years, we have held numerous AI hackathons where employees devise quick solutions to existing challenges. Each time I attend a hackathon, including one just two weeks ago, I am inspired by our colleagues' limitless creativity and ambition. Their winning concepts result in actual projects and products, such as a recently launched AI chatbot for foreign exchange trading, which we call Box Bot, providing FX quotes 75% faster than the previous method. This enhances execution for our traders and quickens service for our clients. In the U.S. Consumer Bank, we are introducing a conversational AI tool in our app to expedite customer query responses by 95% and foster personalized service. We have also built the infrastructure and furnished our colleagues with tools to elevate efficiency and productivity, allowing them to thrive in the forthcoming economy. The roll-out of GitLab to 19,000 developers has improved our code implementation speed by 15%, and we are among the largest adopters of Microsoft Copilot in financial services, with around 90% of our team utilizing it, saving over a million hours of work in 2025 alone. So far, I have discussed enhancements in our client engagement. I want Barclays to be distinguished for our operational performance, as I believe operational excellence corresponds directly to financial success. Simplified operations can significantly boost efficiency since three-quarters of our colleagues are engaged in running the bank. Let me highlight a couple of examples to illustrate this point. In finance, we are consolidating our accounting platforms from 11 to 3 subledgers within the trading book, resulting in fewer manual reconciliations, faster reporting, and improved data analysis. On the risk side, our wholesale credit risk systems are overly manual, prompting us to rebuild the architecture and incorporate AI to aggregate, analyze data, and generate reports, thereby facilitating swift and accurate credit decisions. To summarize, a simpler Barclays is well organized and effectively managed for our colleagues and customers. At its core is a standardized infrastructure that supports harmonized processes and enables modern product development and delivery, powered by our skilled and innovative workforce. Transitioning to improvement, a simpler structure enables us to focus on providing superior service for our customers, which, in turn, leads to enhanced returns for our shareholders. We are building a better bank by establishing leading segment businesses and nurturing client relationships. I believe segment leadership rests on two main foundations: offering best-in-class solutions and forging deep client ties. We start from a solid position as the largest non-U.S. investment bank with expertise in fixed income and financing markets. We also hold a prominent position as a U.K. retail bank, supported by a growing private banking and wealth management operation. Our U.S. Consumer Bank serves as a sought-after partner for both individual and corporate customers. The second aspect of segment leadership is integrating our product strengths within each sector along with capabilities across businesses to form deeper client connections. There is significant potential to strengthen ties between Barclays U.K. and the Private Bank and Wealth Management through our premier proposition. The Best Egg acquisition in the U.S. allows us to provide market-leading digital lending services to our credit card partners, enhancing our capabilities. Regarding the Investment Bank, Barclays stands as the leading non-U.S. investment bank. Though based in the U.K., we resemble more of an American firm, with 50% to 60% of our revenues sourced from the U.S. The Investment Bank boasts a diverse and stable revenue mix. Two years ago, I mentioned that enhancing the investment bank would be the most challenging aspect of our plan, and we have made progress: we targeted four key objectives. First, we aimed to further capitalize on our traditional strengths, primarily in fixed income, including trading, debt capital markets, and financing. We recognized three focused businesses—European rates, equity derivatives, and securitized products—where we aimed to grow market share. We've successfully increased our share by approximately 150 basis points from 2023 to the first half of 2025. We also utilized our historical strength in fixed income financing to expand our prime offerings. The second objective was to improve capital productivity, and the business has consistently enhanced return on risk-weighted assets. We intend to build upon those gains. The third aim was to boost fee share, and the bankers we hired in 2023 and 2024 have begun to show higher productivity; early results are promising, though further work is needed. We will continue to invest and harness the full benefits of this investment over time. Finally, we sought to deepen relationships within the International Corporate Bank, and we have made substantial progress implementing our treasury coverage model beyond the bank's top 1,500 clients. Over the next three years, we will leverage strong transaction banking capabilities from the U.K. Corporate Bank, complementing our existing debt capital market strengths to provide comprehensive services to global corporations. Consequently, we expect the International Corporate Bank's share within the Investment Bank to grow by 2028, maintaining its significance as a source of fee growth after 2028. Switching focus to Barclays U.K., our goal is to become the premier bank for all U.K. customers. We have a robust customer base with around 1.1 million mass affluent customers in Barclays U.K.; however, only 50% of eligible customers hold a premier account, presenting a substantial opportunity to boost engagement. Improving our service through investment has raised Net Promoter Scores among premier customers, and we plan to further enhance our offerings by diversifying the product range and benefits. We are also prepared to more completely address this segment's investment needs by fostering stronger ties between Barclays U.K. and the Private Bank and Wealth Management. We've identified 400,000 customers within Barclays U.K. who could greatly benefit from financial advice. In 2025, we onboarded 65,000 customers to Barclays Direct Investing, our digital self-investment platform, and in 2026, we will launch premier Wealth Management to provide this premier clientele with planning and advice, which will have a human touch but be digitally enabled, transparently priced, and clearly disclosed. Now, regarding the U.S. Consumer Bank, we are witnessing robust growth and engagement. Our focal partnership business has been one of the top four fastest-growing credit card operations in 16 of the last 20 quarters, achieving an organic 12% growth in receivables since 2023. By driving growth and engagement, we are retaining existing card partners while attracting new ones. Last year, we renewed partnerships with Upromise, Carnival, and Wyndham Hotels, while successfully integrating General Motors. Operational advancements within the U.S. Consumer Bank are also yielding better returns for Barclays. We will continue utilizing digital deposit capabilities, with our tiered savings product launch in 2024 promoting a 34% growth in retail deposits at a cost approximately 50 basis points lower than the previous funding. This also extends to addressing our card customers' wider banking needs. The Best Egg acquisition in the second quarter of 2026 will enhance our digital capabilities, with around 90% of its consumer loan origins occurring through digital channels, including online aggregators, allowing for flexible product design to cater to diverse customer needs. Thus, the U.S. Consumer Bank embodies more than merely a cards business. We believe satisfied customers are foundational for any enterprise, and we aim to enhance customer service by investing significantly and making it a core priority. Operational excellence directly correlates with financial success for us. At Barclays U.K. last year, we introduced a platform that significantly sped up applications for over 26,000 mortgage brokers. Digital adoption within the U.S. Consumer Bank is already outpacing that of our other divisions. As mentioned, we are applying AI tools to improve personalization and ease of use further. We also strive to streamline customers' experiences with Barclays, including in the Private Bank and Wealth Management division, as our digital platforms play a pivotal role in delivering excellent experiences that cultivate deeper engagement. This year, we will revamp the Barclays app to provide enhanced personalized support through digital channels. Even while prioritizing digital interaction, we recognize that customers sometimes prefer the quality of in-person engagement, particularly for complex matters and critical life events, prompting us to enhance our branch footprint to align services with evolving customer preferences. In the U.S. Consumer Bank, we leverage our capabilities across cards, deposits, and loans to increase customer engagement. The Investment Bank's strength lies in its synergies, allowing us to deepen client connections. We can offer multiple sophisticated products to our clients while remaining agile and driven to customize our offerings. We are currently in the top 5 with 62 of our top 100 market clients, up from 30 in 2021, and 49 in 2023, while progressing toward our target of 70 in 2026. Our leading fixed income and prime equity financing products operate on a single platform, providing a holistic view of risk for both clients and Barclays. Notably, 97 of our top 100 market clients are also financing clients. This integrated financing platform facilitates stable income while fostering deeper relationships and engagement throughout the investment bank. Over the next three years, we plan to unify our investment and transaction banking strengths to accelerate growth within the International Corporate Bank. As the top sterling clearing bank, we offer a comprehensive suite of products and differentiated payment capabilities. By replicating some of these strengths within the U.S., we've seen approximately 140% growth in dollar deposits since 2023. We aim to extend this competency across additional products through seamless digital channels. In Europe, we will broaden coverage from 9 to 15 countries to offer more complete client services. We are enhancing the client experience to support this growth. By the end of Q1 this year, all U.K. corporate clients will be enabled on an improved platform known as iPortal, merging five previously separate corporate banking platforms into a unified interface, simplifying access to a wider array of products. The evolving banking landscape is significantly impacting how we conduct business and the types of business we pursue. We are actively investigating how digital assets may meet our clients' future needs, exploring our own tokenized deposits for quicker and simpler transactions, and testing both retail and wholesale use cases, including for corporate bond issuance and investment. We are structurally enhancing the profitability profile of Barclays through two main avenues: first, by altering the group's mix to expand our U.K. businesses with the highest returns. I am pleased to report that we have increased these businesses from representing 30% of group risk-weighted assets to 34% over the last two years. We now anticipate improved returns within Barclays UK. Our plan includes annual lending growth of over 5% while achieving a return on tangible equity exceeding 20% across our three U.K. operations. Secondly, we are committed to enhancing returns in the lower-yielding divisions. The return on tangible equity for the U.S. Consumer Bank has climbed from 4% in 2023 to 11% in 2025, with expectations to rise to the mid-teens despite regulatory pressures on risk-weighted assets. When I spoke to you two years ago, I committed to enhancing returns in the Investment Bank through productivity improvements on a steady risk-weighted asset base, and I am pleased to share that we have improved this return from 7% to 11% over two years, though we still have work ahead of us. With a clearer outlook for 2026, we estimate the Investment Bank will generate approximately 12% return on tangible equity this year, rising to over 13% by 2028. I want to emphasize our ambitious outlook for this segment, which must be pursued sustainably. Broadly speaking, the ongoing evolution in our group's risk-weighted asset mix signifies reduced reliance on the Investment Bank for driving group return on tangible equity improvements. This is as it should be. In summary, a better Barclays will continue to deliver improved returns, structured around leading segment businesses that provide exceptional client services. Our third objective is to achieve a more balanced Barclays by maintaining capital discipline in the Investment Bank while expanding our retail and corporate sectors. However, achieving greater balance also means cultivating new sources of fee income beyond 2028. Two years ago, I stated that every global bank must establish a robust home market. Having been a U.K.-centered institution for over three centuries, we recognize it remains a fantastic place to do business and operate from. The economy's resilience and the sound legal and regulatory environment only strengthen our commitment to investing and growing within our home market. Our focus will be on diversifying net interest income sources beyond deposits, aiming to increase U.K. lending in two principal ways: first, by utilizing multi-brand strategies to tap into new customer segments. For instance, our acquisition of Kensington in 2023 allowed us to assist more complex borrowers with mortgages, while the Tesco Bank acquisition scaled up our capabilities in unsecured and open market personal loans. Second, we are investing in the business to bolster growth by simplifying customer experiences, as described earlier. We are optimistic about the progress in the U.K. Corporate Bank and foresee building momentum in our core Business Banking lending by 2026, expecting annual U.K. lending growth of more than 5% over the next three years, outpacing nominal GDP expansion. We will achieve this by continuing to expand in areas where we previously underrepresented and by leveraging our broadened product range and abilities. We will invest to support this growth. Over the next three years, we aim to more than double our investment to enhance growth and efficiency compared to the previous three years, accelerating digital technology and AI adoption throughout the group. Our upcoming investments will be significantly redirected toward nurturing new fee income sources beyond 2028. Through these commitments, we will continuously develop best-in-class offerings, the initial pillar of segment leadership. As previously mentioned, we will also create connections across our operations, which constitute the second pillar of segment leadership. In the U.K., our new capabilities will provide support for customers across the wealth spectrum while leveraging transaction banking advantages in our International Corporate Bank. The Best Egg acquisition will allow us to source assets directly for investors in our leading U.S. asset-backed securities business within the Investment Bank. As we venture beyond 2028, we anticipate a shift towards a greater proportion of growth originating from fee income as opposed to net interest income. By diversifying revenue streams in this way, we bolster our returns' resilience and position ourselves more effectively to face various environments. Changes in the global operating environment present both risks and opportunities for large banks like Barclays, and we plan to manage this through three strategies. First, we will build strong customer businesses with diverse geography, product, and income types. Second, we will deepen client relationships across products and where applicable, across different business sectors. Lastly, we will diligently manage economic, financial, operational, and technological risks. AI, for instance, presents a transformative opportunity along with inherent risks that require careful management. Thus, to successfully harness this technology, we are standardizing our data, modernizing our infrastructure, and harmonizing our business processes. By addressing risks and opportunities in this manner, we aim to consistently deliver robust operational performance for our customers, which will likewise yield resilient financial outcomes across a variety of environments for our shareholders. Bringing all this together, our achievements over the last two years provide a solid platform for the next phase of our journey, and we are confident in our pathway to 2028. We are transitioning from a phase of measured ambition to one characterized by accelerating ambition. Now, I will pass it to Anna to walk you through the financial specifics of our plan. Anna?
Angela Cross, CFO
Our confidence in the plan that Venkat has outlined reflects three factors. First, we plan on realistic assumptions that put delivery in our control. Second, the plan includes a significant increase in discretionary investment to support our future growth. And in doing so, we are intentionally prioritizing sustainably higher, longer-term returns over stronger shorter-term RoTE. And third, that delivery is grounded in existing momentum. For example, target income CAGR of more than 5% compares to 7% delivered since '23, as you can see on the top row. Planned U.K. lending of more than 5% is in line with the momentum we've seen in '25. And we expect Investment Banking income to RWAs to increase by more than 40 basis points to greater than 7%, having increased 110 basis points in the last 2 years. Our planning assumption is for a low single-digit IB income CAGR, '25 to '28 versus 9% achieved so far, and I'll come back to this in more detail. The low 50s target cost-income ratio in '28 represents more of a step change. But we are confident in delivering this, underpinned by circa GBP 2 billion of gross cost efficiency savings over the next 3 years. This compares to GBP 1.7 billion achieved in the last 2. And I will also come back to this topic in more detail later. Stable income streams in the retail and corporate businesses will materially drive income growth in RoTE in the next 3 years. We expect modest cost growth, supported by planned efficiency savings and normalization of the elevated cost base in '25. This combination will deliver positive cost jaws in every year of the plan, yielding a low 50s group cost/income ratio by '28. So what drives income from here? As I said, in the past two years the group has delivered a 7% income CAGR. This mainly reflected management actions, but the environment has also been favorable, reflected in upgraded 2026 income guidance of circa GBP 31 billion. As a planning matter to '28, we do not assume similar tailwinds in rates or in Investment Banking wallet growth. So we expect income CAGR to moderate to more than 5% in the next 3 years. Most growth comes from group NII, excluding the IB and Head Office, which has grown 8% annually since '23. This reflects the U.K. lending CAGR target of greater than 5% and the stability of our deposit franchises, which underpins the structural hedge, but it also reflects progress outside of the U.K. in USCB, where balanced growth and NIM expansion supported 11% year-on-year NII growth in '25. In '26, we expect group NII to increase at least to at least GBP 13.5 billion, up from GBP 12.8 billion in '25 and for Barclays UK NII to increase to between GBP 8.1 billion and GBP 8.3 billion. Relative to our previous plan, the Investment Bank contributes relatively less against the flat wallet assumption. Over time, we do expect the mix of our income growth to pivot more towards asset-based NII and fees versus deposit income. That's why we remain very focused on diversifying sources of NII beyond deposit income by continuing to grow lending. But for the next 3 years, the structural hedge alone will deliver 50% of planned income growth. We have already locked in GBP 6.4 billion of gross structural hedge income in '26, and GBP 17 billion over the next 3 years. We plan to fully reinvest maturing hedges as we did throughout '25, and to assume a reinvestment rate of around 3.5%. This is below the current 7-year swap rate of 3.9%, which has become the most relevant proxy given the hedge duration. The average yield of maturing hedges remains below this level in '26, '27 and '28 at circa 1.5%, 2.1%, and 2.7%, respectively. This will result in continued structural hedge income growth, including circa GBP 1 billion in '26. The increase in the average hedge duration to 3.5 years during '25 will reduce the quantum of maturing hedges to circa GBP 35 billion per year, from around GBP 50 billion in recent years. This slows the pace of structural hedge income growth, but therefore, prolongs the expected positive effect until at least '29. Also note, the higher proportion of equity hedge and longer duration of product hedges outside of BUK means it will attract circa 55% of growth in '26 versus 75% in '25. This change in mix is equivalent to circa GBP 200 million less income in Barclays UK in '26, which instead will occur in other businesses, including the Investment Bank. Two years ago, we set out a plan to increase the Investment Bank returns by improving RWA productivity and modestly growing costs. Since then, income to average RWAs has increased by 110 basis points to 6.6%, driven by a 9% income CAGR against flat RWAs. In Global Markets, we increased RWA productivity by 60 basis points and grew RWAs to take advantage of the environment. And in Investment Banking, we increased productivity by 150 basis points and released RWAs. Further capital productivity remains central to the Investment Bank's journey to higher returns with a target of greater than 7% RWA productivity by 2028, having absorbed the impact of Basel 3.1. In part, this will come from a continued review of the loan book, which is around 60% complete. Of the GBP 2.1 billion increase in income since '23, 2/3s came from Global Markets where we have built capacity. Financing income grew by GBP 0.6 billion in a strong industry wallet, and we achieved the '26 target 1 year early. This is particularly important, given our focus on stable sources of revenue within the Investment Bank. In our three focus businesses in Markets, we grew share by 150 basis points between '23 and half 1 '25, and income grew by GBP 0.4 billion. In Investment Banking, we have meaningfully improved RWA productivity, which was our main objective. Progress towards our secondary objective to add scale through fee share has been slower, although Banking fees grew in a market 30% larger than we had planned. Our objective now is to consolidate these gains. We will further deepen our relationships with our top 100 clients and markets and our three focused businesses and financing. And we will continue to build banker productivity, including in ECM and M&A, which are capital-light. In financial terms, given a flat wallet assumption, our plan does not, therefore, include material benefits from wallet growth to 2028. We expect proportionately more growth from the ICB, as we leverage the Treasury coverage model and the transaction banking investments outlined by Venkat. This builds on the circa 140% growth in deposits achieved in 2 years. And as a result, we expect the International Corporate Bank to be a larger part of the IB, leading to more stable income overall. Moving on to costs on Slide 66. We delivered positive cost jaws in each of the past 3 years and expect positive jaws in each of the next 3 years. This is a result of the income growth we've just discussed and modest cost growth to 2028. So what underpins this cost pathway? First, we don't expect around GBP 0.3 billion of one-off costs in '25 to repeat, being Motor Finance and around GBP 50 million of unrelated one-offs in Q4. Second, we expect circa GBP 2 billion of gross efficiency savings by '28 split roughly evenly across the years. This includes around GBP 0.2 billion of reduced Tesco Bank costs. We will deliver this by modernizing processes and platforms to increase efficiency as Venkat outlined. These savings will more than offset the effects of inflation and business growth over the next 3 years. We expect annual investment costs to increase by around GBP 0.8 billion by '28, including circa GBP 0.6 billion from the acquisition of Best Egg in Q2 '26. This will result in modest overall cost growth and a high 50s cost/income ratio in '26 with broadly stable costs thereafter to '28, supporting a low 50s cost/income ratio. The Barclays UK cost profile is an important part of this overall shape, so let me briefly cover the dynamics here. Barclays UK has been on a transformational journey for several years, reducing the cost-income ratio from high 60s in 2021. Dual running of Tesco Bank added circa GBP 400 million to costs in '25, including GBP 100 million integration costs. Other costs increased by circa GBP 200 million, net of efficiency savings. This was due to increased investment as well as the GBP 50 million one-off items I mentioned earlier. In '26, we expect a modest reduction in costs versus '25 and a low 50s cost-income ratio as we continue to integrate Tesco Bank and invest in the business. By '28, we expect larger gross and net efficiency savings, in line with the group. And for Tesco Bank costs to fall by circa GBP 200 million. As a result, we expect Barclays UK cost to fall in each of the next 3 years, contributing to a mid-40s cost/income ratio in '28. Our investments to date, organic and inorganic are delivering revenue growth across the group. Investment in the financing platform from '23 to '25 has, for example, supported 60% growth in Prime balances. And our investment in the mortgage broker platform has supported more than GBP 14 billion of mortgage applications since its launch. We have also realized GBP 100 million of funding synergies on Tesco and significant margin benefits through Kensington as both acquisitions support U.K. lending growth. We plan to double annual organic investment by '27, focused on technology change and fee growth. In addition, we expect operational costs of Best Egg of circa GBP 0.3 billion in '26 and GBP 0.4 billion in '28. This highlights the increased intensity of investment at this stage to support stronger fee growth and returns beyond '28. Cost discipline remains a key focus of our plan and is the lever that we have most control of. During '26, we expect a high 50s group cost income ratio improving again from 61% in '25. This reflects strong progress in the U.K. businesses in particular. And looking ahead, we expect further improvements to deliver a low 50s percent group cost/income ratio by '28. Turning now to impairment. The group has operated around the through-the-cycle target loan loss range of 50 to 60 basis points for the past decade, and this guidance remains appropriate. It reflects two offsetting factors. First, in Barclays UK, lower arrears and high credit card repayment rates have contributed to our loan loss rate consistently below the through-the-cycle expectations. Strong mortgage affordability criteria and credit card quality supports structurally lower impairment in the U.K. market. As a result, we now expect a lower through-the-cycle loan loss rate in Barclays UK of circa 30 basis points versus 35 basis points previously. Second, we expect a circa 500 basis points through-the-cycle loan loss rate in USCB. This is up from circa 400 basis points previously due to the changing portfolio mix. It will be higher in '26, at circa 550 basis points, reflecting post-acquisition stage migration of the General Motors portfolio and retention of some non-performing American Airlines balances. Both effects will diminish in '27 and will be more than offset by higher NIM. During the past 2 years, we have structurally improved Barclays profit signature. The Investment Bank and USCB now deliver double-digit returns, and we plan to drive these higher whilst continuing to allocate additional capital to our highest returning U.K. businesses. By '28, we expect capital generation to exceed 230 basis points, an improvement of more than 30% over the next 3 years. We continue to exercise disciplined capital allocation. First, by holding a prudent level of regulatory capital. As you have seen, we've been operating around the top of the 13% to 14% target range ahead of the expected regulatory developments that I discussed earlier. Second, we will distribute greater than GBP 15 billion to shareholders by '28, subject to regulatory and Board approval. And third, we will maintain capacity for selective investments to support structurally higher returns beyond '28. Given the strength of capital generation, this capacity does exceed the level of investment set out in the plan today. As we have done, we will exert considerable discipline over any investment, given the importance we place on shareholder distributions. We expect a progressive increase in our total payout in 2026. We are also evolving the mix of distribution to reflect the growing consistency of capital generation and to recognize feedback from shareholders. In addition to the move to quarterly buybacks announced in Q3, we plan to increase the dividend to GBP 2 billion in '26, from GBP 1.2 billion in recent years. While we continue to prefer share buybacks, we will review the mix of distributions periodically to reflect the level of our returns and the preferences of our shareholders. Bringing this together on the next slide. Operational progress during the past 2 years means we are confident in achieving our '26 targets and guidance. But momentum across the group also underpins our confidence in delivering the '28 targets outlined today. We are focused as ever on driving greater efficiency and operating leverage, protecting returns in a range of environments. And we will drive structurally higher and more sustainable returns beyond '28 by investing to support more diverse sources of income and fee growth. Over to Venkat for final remarks.
Coimbatore Venkatakrishnan, CEO
All right. Thank you, Anna. So 2 years on since our Investor Update in February 2024. As we've discussed, we remain on track to deliver our goals. We are moving from a period of measured ambition to one of accelerating ambition. We aim for sustainably stronger returns, greater shareholder distributions and operational excellence. The targets which we have shared today are underpinned by structural improvements to the profit signature of the bank, which we have made in the last 2 years. And our drive to become a simpler, better and more balanced bank. We plan to continue this progress in the coming 3 years. And of course, our journey does not end in 2028. Our ultimate aim is to secure structurally higher and more resilient returns beyond 2028. So now I'll pause for 15 minutes for a break before Anna and I open for Q&A. What shall I say, 10:40 U.K. 10:40 London, please be back in the room. There's refreshments outside, restrooms outside, and we'll be back.