Earnings Call Transcript - BCS Q3 2025

C.S. Venkatakrishnan, Group Chief Executive

Good morning, everyone. Thank you for joining Barclays' Third Quarter 2025 Results Call. We are well into the second half of the 3-year plan, which we shared with you in February 2024. I'm very pleased with the momentum and consistency of progress, which we have shown in the last 7 quarters. This quarter, our top line income increased by 11% to GBP 7.2 billion from GBP 6.5 billion in the same quarter last year. Our income growth has allowed our tangible net asset value per share, TNAV, to rise to 392p compared to 384p per share in the previous quarter. And we have delivered a third quarter RoTE of 10.6%, which equates to 12.3% for the year-to-date 2025. We are, therefore, upgrading our 2025 RoTE guidance to greater than 11%, and we are reaffirming our 2026 target of more than 12%. Our returns are supported by a stronger outlook for stable income. We now expect group NII for 2025 to be more than GBP 12.6 billion, up from more than GBP 12.5 billion, and this has been supported by U.K. lending momentum, positive stability, and operational progress in the U.S. Consumer Bank. Further, we are pleased to bring forward a portion of our full year distribution plan with a GBP 500 million share buyback. This is the result of a strong capital generation of a CET1 ratio of 14.1% and disciplined execution of our capital priorities. This buyback will commence as soon as the current one is completed. Looking ahead, we plan to announce buybacks quarterly, reflecting the consistency of our capital generation, and this is subject, as usual, to regulatory and board approvals. And we reiterate our guidance to return at least GBP 10 billion of capital over our 3-year plan with a progressive increase in the total payout for 2025 versus 2024. Over the past 7 quarters, we have simplified our businesses, rebalanced our footprint, and are generating higher returns. Our progress has raised our expectations, and we see how much more potential there is to be realized in Barclays. Hence, alongside our full year results for 2025, Anna and I aim to share with you new targets for Barclays through to 2028. The group is delivering strong top line momentum, efficiency savings that are earlier than planned and loan losses within our planning range. We are well positioned to achieve the circa 61% cost income target for 2025 despite an additional provision for motor finance, and this reflects the strong delivery of planned efficiency savings. And we are managing credit within our range with a 57 basis point loan loss rate, and this is despite a well-publicized single name charge in the investment bank. Our plan is delivering operational improvements across each of our divisions and is driving structurally higher and more consistent returns. In the third quarter, we achieved our circa GBP 500 million gross efficiency savings target for 2025, and this was 1 quarter earlier than planned. And we remain focused on delivering the circa GBP 2 billion gross efficiency target by the end of 2026, having achieved GBP 1.5 billion so far. All divisions generated a double-digit RoTE again this quarter. This included a 1.3 percentage point year-on-year improvement in the investment bank's RoTE to 10.1% and a 2.6 percentage point improvement in the U.S. consumer bank to 13.5%, reflecting continued operational progress in the business. And we are driving stronger and more consistent group returns through active and disciplined capital management. We are rebalancing the group by growing RWAs in the three highest returning U.K. businesses, where we continue to see good momentum. We are simplifying the group. And in August, we announced the sale of our stake in Entercard to Swedbank. And we are demonstrating our commitment to shareholder distributions with today's buyback announcement. In summary, the momentum of our operational progress has increased our confidence and expectations for the group. Improvements in the consistency of our returns also mean that we are more strongly equipped to help clients navigate the still uncertain environment and to provide a foundation for our plan and targets through to 2028, which we look forward to discussing with you in February. Anna, over to you now to take us through the third quarter financials.

Angela Cross, Group Finance Director

Thank you, Venkat, and good morning, everyone. Slide 4 summarizes the financial highlights for the third quarter. Before going into detail, I would remind you that the year-on-year performance in Q3 was impacted by a weaker U.S. dollar, which reduced our reported income, costs, and impairments. Return on tangible equity was 10.6%, including double-digit returns in all 5 divisions. This was lower than last year, reflecting 8% growth in tangible book value and a GBP 235 million motor finance provision, which also reduced our profit before tax and earnings per share. Notwithstanding this provision, I remain focused as ever on the operational performance of the business, which has continued to strengthen, and the signs of momentum that I described to you last quarter are visible across the businesses in today's results. Income in Q3 increased 9% year-on-year to GBP 7.2 billion. This was driven by growth in stable income streams, now accounting for 76% of group income from retail and corporate financing within markets. Group net interest income increased 16% year-on-year to GBP 3.3 billion. We now expect group NII excluding IB and head office to be more than GBP 12.6 billion for FY '25, up from more than GBP 12.5 billion previously, driven by 3 developments. First, the signs of U.K. lending momentum that I called out last quarter have continued and in place have strengthened. Second, operational progress in the U.S. consumer bank is translating into stronger NII growth of 12% year-on-year this quarter. And third, stable deposits for the group have supported full reinvestment of the structural hedge at yields that exceeded our planning assumption. We have now locked in GBP 11.8 billion of gross structural hedge income in 2025 and 2026, up from GBP 11.1 billion last quarter. Whilst our plan assumes that we reinvest 90% of maturing hedges at 3.5%, Q3 was more favorable on both yield and notional. We have locked in hedges at a higher rate than planned at circa 3.8%. The stability of hedgeable customer balances throughout 2025 also underpinned two developments. First, we have fully reinvested in maturing balances for the past 4 quarters, with the notional standing at GBP 233 billion in Q3. We now expect the hedge notional to remain broadly stable. And second, our decision this quarter to increase the average hedge duration from 3 years to 3.5 years. This increase reflects the stability of hedgeable balances and further supports the predictability of structural hedge income. As we said previously, the structural hedge is expected to drive multi-year NII growth beyond 2026. For 2027, specifically, the yield on maturing hedges is around 2.1%, which remains significantly below the expected reinvestment rate. Moving on to costs. The group cost-to-income ratio was 63% in Q3. Total costs increased by around GBP 500 million year-on-year or 14%, which included a GBP 235 million motor finance provision within head office. Following the FCA's proposal for an industry-wide redress scheme, our charge reflects the increased likelihood of a greater number of cases being eligible for redress. Specifically, the provision has been calculated using a scenario-based approach with probability weightings being applied to them. As Venkat mentioned, we have already delivered circa GBP 500 million of gross efficiency savings in 2025, showing further progress towards the circa GBP 2 billion target by the end of 2026. Around half of the increase in investment costs related to the addition of Tesco Bank. The remainder relates to structural cost actions in the quarter with around GBP 190 million recognized so far this year. And looking ahead, we expect structural cost actions to be around the top of the GBP 200 million to GBP 300 million normal annual range during 2025. Inclusive of the motor finance provision, we remain well positioned to deliver a circa 61% cost-to-income ratio in 2025, in line with guidance and the high 50s target in 2026. Turning now to impairment. The Q3 group impairment charge of GBP 632 million equated to a loan loss rate of 57 basis points. This includes a lower-than-expected day 1 charge following the acquisition of General Motors card balances due to lower-than-forecast delinquency rates on the book. Excluding this effect, the group loan loss rate was 52 basis points. This included the circa GBP 110 million single name charge in the investment bank. More broadly, the U.K. and U.S. credit picture remains benign with low and stable delinquencies in our consumer books and wholesale loan loss rates below our through-the-cycle expectations. And we continue to expect a group loan loss rate within the through-the-cycle guidance of 50 to 60 basis points for FY 2025. Focusing on the U.S. consumer bank, 90-day delinquencies are stable with a seasonal 10 basis point increase in 30-day delinquencies in the quarter to 2.9%. Consumer behavior remains resilient as can be seen on Slide 39 in the appendix. Excluding the day 1 charge for GM, the loan loss rate of 436 basis points was broadly stable year-on-year. As a reminder, Q4 impairments tend to be seasonally higher, and we continue to expect a post-acquisition stage migration charge for the GM portfolio of circa GBP 50 million for the next few quarters. Turning now to our U.K. lending momentum. We have now shown the slide for a few quarters, and I'm pleased to say that momentum continues. Let me call out some highlights rather than talking through each area in detail. In mortgages, we have grown balances for the past 5 quarters, and Q3 net lending of GBP 3.1 billion was higher than in any quarter since 2021. We are achieving this in 2 ways. First, by expanding the product range with full utilization of the Kensington brand, increasing the mix of higher LTV lending to levels more in line with the market. Second, we are improving processes. This year, we launched a new platform to more than 26,000 mortgage brokers, which has reduced application processing times from around 45 to around 15 minutes on average. This has significantly improved broker net promoter scores and has increased the capacity and efficiency of the mortgage business. In the U.K. Corporate Bank, lending grew for the fourth consecutive quarter and by 17% year-on-year as we continue to increase market share. More than half of this growth came from new clients acquired since 2024, a key strategic focus for the business. And we continue to simplify the borrowing process for new and existing clients. In both cases, we have further to go, supporting our plan to deploy GBP 30 billion of U.K. business growth RWAs by 2026. Turning to Barclays U.K. in more detail. You can see financial highlights on Slide 13, but I will talk to Slide 14. RoTE was 21.8% in the quarter, NII of GBP 1.96 billion increased 18% year-on-year and 6% quarter-on-quarter with NIM up 13 basis points versus Q2. Around half of this increase came from the reinvestment of the structural hedge. Consistent with the guidance we gave you, product margin increased NII by GBP 50 million in the quarter. A large part of this move was due to the phasing of historic swaps income, which, as we called out last quarter, suppressed product margin in half 1. We expect a broadly neutral product margin contribution in Q4 and remain confident in our guidance for NII to exceed GBP 7.6 billion in 2025. Non-NII of GBP 292 million rose versus Q2, reflecting seasonally higher holiday spend and some one-off effects, and we would expect this to be lower in Q4. Costs were stable versus Q2 but increased by 19% year-on-year, mainly reflecting Tesco Bank and structural cost actions in Q3. As we told you previously, we expect the cost-to-income ratio for Barclays U.K. to increase this year from 52% in 2024 before falling to circa 50% in 2026. Moving on to the Barclays U.K. balance sheet. Deposits remained broadly stable versus Q2, though competition for higher-rate deposits continued in Q3 and is likely to persist. Lending grew for the fifth consecutive quarter and by 7% year-on-year, driven by mortgages. As a broader market trend, mortgage refinance activity remained elevated, and we expect this to continue into the middle of next year as 5-year fixed rate mortgages written during the stamp duty holiday in 2020 and 2021 mature. Our retention experience remained strong in the quarter, and the capability improvements that I called out earlier are supporting lending momentum. Moving to the U.K. Corporate Bank on Slide 17. Q3 RoTE was 22.8%. Income growth of 17% exceeded cost growth of 5%, leading to an improved cost-to-income ratio of 45%. NII growth of 24% reflected stronger volumes. Lending increased 17% year-on-year, supporting a 70 basis point increase in market share to 9.3%. Deposit market share of more than 20% also increased and balances grew by 5% year-on-year. Together, this growth supported a 3 percentage point increase in the loan-to-deposit ratio to 33%. Turning now to Private Bank and Wealth Management. Q3 RoTE was 26.4%, client assets and liabilities grew 10% year-on-year and assets under management grew by 12%, supported by GBP 0.7 billion of net new assets under management in the quarter. Strong client engagement supported deposit growth versus last quarter and last year with a continued change in mix towards lower-margin products as clients rebalance assets. Income grew by 3% year-on-year, though fell modestly versus Q2 as a result of this mix effect, and we expect Q4 income to be broadly stable versus Q3. Costs increased by 10% year-on-year, and the cost-to-income ratio rose to 73%, reflecting investment in the business. We expect to continue this investment to support growth and the high 60s cost-to-income ratio in 2026. Turning now to the Investment Bank. Before getting into the detail of the quarter, let me remind you that our focus in the IB is to drive consistently higher and more stable returns. Q3 RoTE of 10.1% increased 1.3% year-on-year despite the single name impairment charge, and year-to-date RoTE was 12.9%. This performance reflects operational improvements in the business, which are evident in the quarter. Stable income streams, financing in Markets and International Corporate Bank in Investment Banking have accounted for nearly half of the IB's income this quarter. Income over average RWAs has improved in every one of the last 6 quarters as a year-on-year matter and by 60 basis points in Q3. We also remain disciplined on costs with a sixth consecutive quarter of positive jaws. These improvements support the Investment Bank's income and returns in a wide range of environments. Turning now to look at income by business on Slide 22. Using the U.S. dollar figures, markets income was up 6% year-on-year, whilst investment banking fee income was up 11%. Let me highlight some areas of strength and some areas where we need to do better. First, on strength. Financing income has now grown year-on-year for 5 consecutive quarters, including by 21% in Q3. In Prime, we ranked joint fifth globally and client balances have grown circa 30% year-on-year. In the International Corporate Bank, stable income growth has been supported by the rollout of the treasury coverage model now to 1,500 top clients versus 800 at the end of 2024. This has also helped to drive circa 20% year-to-date growth in U.S. deposits and strong growth in corporate FX and risk solutions revenues in the Investment Bank. And we have made good progress in M&A with sponsors, a key focus area where our year-to-date market share increased by circa 140 basis points year-on-year. In other areas, we need to do better. This includes corporate M&A, where we were less able to capture stronger activity in the quarter and in equity derivatives, where our performance was impacted by lower volatility. We also have more to do to sustainably increase market share in ECM, where we did not participate in some larger deals, and others were pushed into Q4. Turning now to the U.S. Consumer Bank. Before I get into the numbers, let me first cover operational performance of USCB. Starting with volumes, net receivables grew by 10% year-on-year, of which around half related to GM coming on board at the end of August. As a reminder, we expect this acquisition to enhance RoTE from Q4. NIM continued to progress towards the greater than 12% target by 2026, rising circa 110 basis points year-on-year to 11.5%, driven by 3 actions. First, repricing that we undertook in 2024 continued to support margins as customers repay and rebuild balances on new terms and conditions. This accounted for around half of the year-on-year increase in NIM in Q3. Second, we continue to optimize the lending book mix. Following the acquisition of GM card balances at the end of August, retail partners account for 19% of end net receivables versus the circa 20% target by 2026, up from circa 15% at the start of the plan. Third, we continue to see strong core retail deposit growth, though as expected, the increase in wholesale funding to support GM temporarily reduced core deposit funding to 68% of the total. These improvements in the income profile were complemented by ongoing progress to improve efficiency, supporting a 43% cost-income ratio in the quarter, on track for the mid-40s target. All of these actions have contributed to the strong financial performance in the quarter, which you can see on the next slide. RoTE was 13.5%, up 2.6% year-on-year and 9.4% year-to-date. Using the U.S. dollar figures, income was up 21% year-on-year and costs up 6%. Stronger noninterest income accounted for around half of the income growth year-on-year, reflecting higher interchange and account fees. NII, which grew by 14% year-on-year and 12% quarter-on-quarter, was supported by stronger volumes and margins. The broad range of factors supporting higher returns in the U.S. Consumer Bank reflect the operational progress that I outlined, underpinning our confidence in the sustainability of this progress. We ended the quarter with a CET1 capital ratio of 14.1%. This included circa 40 basis points of capital generation from profits. Given the consistency of our capital generation, a CET1 ratio of 14.1% and disciplined execution of our capital priorities, we have announced a GBP 500 million share buyback. This brings forward our full year distribution plans rather than increasing total distributions for the year. The CET1 ratio pro forma for this buyback is 13.9%. RWAs increased GBP 4.3 billion quarter-on-quarter, driven largely by FX and the acquisition of the GM portfolio. Excluding FX, Investment Bank RWAs remained broadly stable and accounted for 56% of the group RWAs. As usual, a word on our overall liquidity and funding on Slide 28. We have strong and diverse funding, including a 74% LDR and an NSFR of 135%, and we are highly liquid across currencies with an LCR of 175%. These measures reflect purposeful and prudent management of our balance sheet, delivering resilience and capacity to support customers in a range of economic environments. TNAV per share increased 8p in the quarter and 41p year-on-year to 392p. Attributable profit added 10p per share during Q3, partially offset by dividends paid in the quarter and movements in the cash flow hedge reserve. The cash flow hedge reserve is expected to unwind by the end of 2026, adding to TNAV per share as it has in recent quarters. The more significant effects of earnings growth and buybacks give us confidence that TNAV will continue to grow consistently as it has done for the last 9 consecutive quarters. So to summarize, we are pleased with the group's strong performance in Q3. This positions us well to deliver on all our 2025 guidance and 2026 targets and provides a strong foundation to build from as we look to update the market on the second leg of our transformation journey. Over to you, Venkat, for concluding remarks.

C.S. Venkatakrishnan, Group Chief Executive

We are 7 quarters into our 12-quarter plan and remain on track to deliver our goals. We are working hard to deliver sustainable operational and financial improvement across our businesses. And this, in turn, will generate higher group returns and drive shareholder distributions. I will now open for questions and answers. As ever, please limit yourself to 2 questions per person so we can get around as many of you as possible and please also introduce yourself as you ask your questions.

Guy Stebbings, Analyst

The first one is on the U.S. consumer top line. Clearly very strong, up sort of 20% year-over-year, both noninterest income and the NIM moving up to 11.5%. Just help us to understand if there's anything particularly lumpy in there? So I guess, first is to confirm that we should be thinking about growth of that 11.5% NIM base given the sort of ongoing lending mix actions you talked to and growth in retail deposit base? And then within that GBP 250 million of noninterest income in Q3, anything lumpy in there you would point to tempt us away from annualizing north of GBP 800 million before thinking about things like gains on sales of portfolios next year? And then the second question was just on U.K. mortgages. From a volume perspective, very strong, both net and gross lending, I think nearly GBP 10 billion in gross lending is certainly above typical run rate. I'm just interested if that's the level you think you will continue to write out. And then from a sort of competitive perspective, what you're seeing in the market? I know the actions you're taking and the Kensington offers quite a bit of insulation, but are you seeing any competitive pressures on new lending spreads when you look at like-for-like lending?

Angela Cross, Group Finance Director

Thanks, Guy. I'll take both of those, and thanks for opening the call for us. Just on the U.S. consumer top line, I think what you're seeing coming together now is a real combination of all of the operational actions that we've been undertaking over the last few quarters, and you can see that on a new slide on Slide 24. Because it's drawn from those operational actions, we do have confidence in its sustainability. Really what's driving the NIM is the things that we've talked about before. So it's the repricing, which remember, it takes some time to work its way through into the NIM because customers need to draw down on those new terms and conditions. It's also the increase in the level of retail deposits, and retail deposits are about 50 to 60 basis points cheaper than the other sources of funding we've had previously. And then thirdly, there is this increasing proportion of retail balances, which are higher NIM. So I expect over the next couple of quarters, Q4 and Q1 to be broadly at the level of NIM that we're currently running at, around 11.5%. I'm not going to guide you to Q2 and beyond because, obviously, once we exit the AA portfolio, that NIM is going to jump up again. So I will guide you to that a little nearer the time. In terms of noninterest income, there's a couple of things going on in there. The first is obviously the increase in volume that we're seeing, not just from GM, but also the organic growth in this business. So if you go back to the equivalent quarter just before the start of the plan, we've grown 13% since then. So you're seeing that coming through in non-NII, and you're also seeing some improvement in partner sharing agreements just reflected in that number. So we do have confidence in the momentum in the income line. I'd just remind you that this is a seasonal business, and you get that seasonality in NII because of balances, but you also get it in noninterest income. But yes, we're pleased with that progress. In U.K. mortgages, the U.K. mortgage market is robust, and we see that across the piece. We see it in house purchase. First-time buyers are up 11% year-on-year. We're seeing strong levels of refinancing. And the margins in Barclays, if you like, in the more vanilla book have been broadly stable over the last few quarters. Obviously, we're seeing a margin benefit coming through from Kensington, which is 3 to 4 times higher. And really, what you're seeing here is our capabilities reaching the marketplace. And by that, what I mean is both the product breadth because we know what Kensington in play, but also the operational capabilities because we launched a new broker platform, which is working extremely well. The only thing I'd call out for you is, we're about to enter a period market-wide, it's not a Barclays thing, where we've got coming to maturity the 5-year business that was written during the stamp duty holiday in FY '20 and FY '21. That's at relatively wide margins. So you're going to see a little bit of sort of churn compression, if you like, come through on that. But of course, we captured that in the guidance that we've already given you around NII progression for the U.K. Thank you. Next question, please.

Jason Napier, Analyst

The first one, just looking at competitive conditions in U.S. investment banking. We've had some of the peers talk about potentially very significant levels of additional capital that's available for deployment following some of the deregulation and stress test changes. And prime appears to be one of the places that they may be looking to allocate additional capacity. So given it's a focus for the bank, could you just talk about whether you think you have additional capital to deploy, given the changes in things like stress tests and what you're seeing on product margins and that sort of thing? And then secondly, on the nonbank financial intermediary space, thank you for the additional disclosures, those are really welcome, and it's good to see the impairment charge at a group level below consensus today. Venkat, I wonder whether you could talk a little bit about risks in that industry, how mature the exposures are, whether there are any vintages we should be bothered about? We could observe that the cases we've seen so far all involve fraud, but we have seen very strong growth in the industry writ large. And so I wonder with your risk management hat on, whether you could just talk about whether this is an industry that is yet to grind into fully mature loss run rates and how you think about that sort of thing?

C.S. Venkatakrishnan, Group Chief Executive

Thank you, Jason. Those are good questions. Regarding the potential differences in capital regulation between Europe, the U.K., and the U.S., I believe this is a significant factor in the industry. We have yet to see the final changes in the U.S. and how consistent the U.K.—our primary regulatory jurisdiction—will be. On the matter of our prime business, we have a solid market share and work closely with several key clients. This business relies heavily on both balance sheets and capital. Given our current market position, product capability, and client engagement, we are equipped to compete effectively. However, this will depend on the capital rules, and we will need to assess their development. I am confident about the strength of our business and our adaptability within the investment bank. Addressing private credit and non-bank financial institutions, I view all credit as essentially the same, regardless of its origin. Private credit is typically associated with financing that comes from sources outside of banks or public debt markets. However, lending is lending, and we must be cautious about various aspects, including client selection, sector and name concentrations, terms, and ongoing monitoring throughout the lending process. I was disappointed by our experience with Tricolor, which is not an excuse. We have evaluated the lessons learned and applied them across our portfolio. Regarding first brands, we were approached several times but declined because our credit officers determined there wasn't sufficient information to back the financial projections. This is how credit selection should operate. At this moment, the discussion is less about the vintages and more about whether circumstances such as inflation, tariffs, or shifts in economic conditions are stressing credit performance. We need to consider whether companies are under financial strain. Fraud can arise from individual bad actors or from economic conditions that make it more likely. If we are concerned about this, it's essential to carefully evaluate the independence and robustness of the financial controls in place within companies. We take all these factors into account over time. I believe these instances indicate that we will likely be keeping a closer watch on our portfolios, especially in understanding the effects of changing economic conditions and examining the strength and independence of financial controls. I hope this addresses your question.

Christopher Cant, Analyst

I just wanted to follow up on the U.S. consumer business and then another one around sort of risks that investors are worrying about of late. So on U.S. consumer, we've had this target for a while for the business to get to a greater than 12% RoTE for next year. I appreciate that quite a few things have changed over the last 18 months, 2 years since you gave that guidance in terms of the AA book, now expecting to move off and so on. Given where we've got to with 3Q in terms of the returns, could you give us a bit more color as to what return you expect that segment to be delivering in '26? Obviously, greater than 12% is open-ended. That would be helpful, I think, to sort of realign consensus expectations on that division a little bit. And then the other topic I wanted to throw out there beyond private credit was stablecoins. There's been some nervousness over the summer months from some investors around what threat stablecoin issuance creates for the banking system, I guess, more so on the other side of the pond, given that's where most of these innovations are being deployed first. So I just wanted to invite you to comment, Venkat, in terms of how you think that potentially shapes up for the business longer term?

Angela Cross, Group Finance Director

Thanks, Chris. I'll start on U.S. consumer and then I'll hand to Venkat. In terms of U.S. consumer, it's exactly where we expected it would be, and we continue to target that RoTE of greater than 12%. Clearly, 2026 statutory rate will be impacted by the gain on sale of AA. It's a bit too early to guide you on that. Chris, we will do nearer the time. But think on an underlying basis that we are aiming to achieve the kind of progress that we set out for you in the targets that we set. Beyond '26, we remain committed to pushing this business further, and you can see that with the momentum that's coming through now, and we'd expect to continue around income and around operational costs also. So we've got many levers that we can continue to pull. And we really think this should be a mid-teens business. Venkat?

C.S. Venkatakrishnan, Group Chief Executive

Stablecoin is a broad and interesting topic. Thank you for the question. I'll keep my response focused. There are a few aspects to consider. One is its impact on deposits. Another is its potential as an alternative payment method. Lastly, we need to explore whether it's an alternative payment method on a different network. For major banks, the deposit issue is something they will need to discuss with regulators. The key question is whether stablecoin operates outside the deposit system or is integrated within it, which is crucial for monetary policy transmission. Regarding its value as a store of value and as a deposit form, initial use cases appear more promising in developing countries, where individuals might use it as a substitute for local currencies. However, the situation is less clear in regions like the U.S., U.K., or Europe. Additionally, we need to consider if there's a separate network that stablecoins could utilize. At Barclays, we see all these possibilities as promising and significant technology. Whether it will ultimately succeed is uncertain, but we must explore and engage with it. You might have noticed that we are collaborating with other banks in various consortia. No single bank can navigate this alone. We are studying the technology, and it will take time to clearly understand the potential use cases and their value. It is important enough that we need to examine it thoroughly.

Robert Noble, Analyst

Could you explain the economics of the private credit business? What spread are you achieving, and what are the associated risk weights? I assume this sector has been expanding rapidly. Are you concerned that scrutiny from the Bank of England might hinder your growth in this area, regardless of how low-risk your portfolio is? Additionally, I see you've doubled your book in Kensington, U.K., which should now total around GBP 4 billion. Are there plans to explore other areas of specialized lending in the U.K.?

C.S. Venkatakrishnan, Group Chief Executive

Let me address the first question, Rob, and then Anna will discuss Kensington. Regarding private credit, we have a disclosure slide that indicates our exposure is growing at a relatively stable rate, and this trend has been ongoing for us. While I won't delve into risk-weighted assets and spreads, we have consistently emphasized the strong credit controls we implement and the caliber of individuals we collaborate with. To reiterate, we partner with the most experienced and highly regarded leaders in the industry. Our financing typically pertains to pools of secured loans and credits that they originate, and these portfolios are well diversified. We impose limits on borrower and sector concentrations, leaning towards large-cap corporates. We require lower relative ease to secure better first-loss protection. Additionally, we maintain certain statistics and have retained revaluation rights, which allow us mark-to-market rights on the portfolio. We also enforce maintenance of loan-to-value ratios, with collateral additions requiring our individual approval. This reflects our risk management process and practice. I believe it's crucial for regulators to scrutinize all aspects of the financial system, and we welcome the Bank of England's review. We are confident in our strong risk management practices.

Angela Cross, Group Finance Director

Thanks, Venkat. Rob, on your question on Kensington, the balances are around GBP 4 billion in Kensington. Just to sort of highlight how we think about this business. I mean, it's no difference actually in risk management terms to the way Venkat has just described private credit or indeed any kind of credit. So we're very focused on the choice of customers. So Kensington has 30 years of experience of really focused client and product level and affordability assessment. And then once the balances are on our balance sheet, then we do manage them actively, and that was one of the capabilities that we drew from Kensington. So you might have noticed that in Q3, we actually did a Stage 3 securitization from there. So it is quite a sophisticated risk capability, and it is contributing not only to breadth of mortgage offering but also to the blended margin. But thank you for the question. Next question, please.

Nicolas Payen, Analyst

I have two, please. The first would be on your U.K. RWA deployment. I think you have deployed circa GBP 1 billion of RWA during Q3. And it seems to me that the run rate was actually closer to GBP 2 billion per quarter, so especially in the context where you had a good lending performance in Q3. So I just wanted to discuss how we should think about it and whether or not we should have a catch-up in U.K. RWA deployment a bit later? And then the second one is just a follow-up on the mortgage headwinds coming from the maturity of the mortgage underwritten during COVID. So what kind of headwinds are you expecting, and for how long should we expect this?

Angela Cross, Group Finance Director

Thank you very much. So we've got a GBP 30 billion RWA target. We deployed GBP 18 billion so far, GBP 11 billion of that is organic. It's interesting because when we set out these targets, the RWA growth in the U.K. is really a shorthand for our desire to lend into the U.K. And actually, what you find is that in some quarters, RWAs grow faster than lending, and that's what we saw earlier in the year. And actually, in this quarter, lending grew faster than RWAs. It's actually the lending that we're really focused on internally. It's lending, not the RWAs that we generate income from, and we're really pleased with the progress. It's our highest quarter of net lending in mortgages since 2021. And we've now got 4 consecutive quarters of lending in our corporate book. So we're happy with the progress, nothing really to call out. It's just timing differences between RWAs and loans. In terms of mortgage headwinds, look, our churn effects on our book have been broadly stable, neutral for some time. All we're calling out here is there will be a period of pressure. Actually, overall, we expect the product margin impact on the U.K., as a whole, taking all products into account, will be broadly neutral into Q4. So expect that number to be broadly zero in the NIM walk. But it's really towards the end of '20 and the first quarter of 2021, there was a stamp duty holiday in the U.K., and a lot of business was written. That's going to mature. It will compress margins a little as that business flips over onto front book. I'm not going to call out a particular spread, that will be different by lender and different by products. But it's just something for you to consider. And as I say, we've already taken it into account in the guidance that we've given you. But thank you for the questions. Next question, please.

Jonathan Pierce, Analyst

I have two questions. First, could you provide details on what we can expect for the full year regarding the 2027 and 2028 targets? I'm not asking for specific numbers unless you wish to share them, but it would be helpful to understand the qualitative aspects. I assume it won't be another extensive presentation like we had last February, but any targets for RoTE distribution amounts, mix, or even equity tier 1 would be useful. Second, I’d like to touch on the structural hedge. The weighted average life has now increased to 3.5 years. Considering the upcoming maturities in 2027 and 2028, should we expect the recent figure of GBP 35 billion a year to continue, or will it remain at GBP 50 billion for a while longer? Additionally, if possible, could you provide the maturity yield for 2028?

Angela Cross, Group Finance Director

Okay, Jonathan, I will take both of those. So we have said that we will give you updated targets in FY '25. So in February, we've also said that Venkat and I will do that together. So you should hopefully read from that, that it won't be quite such a long update as it was last time. But we will be focused on '26, '27, '28. So what should you expect? We were really clear at the time that greater than 12% rate was not an endpoint, and that was true of every target that we gave you. That remains true. So you should expect us to come back with details on how we expect to push rates higher not just as a group, but specifically in some business areas also. And you know, there's a pattern of delivery that you should be seeing that you should continue to expect, which is higher levels of revenue, but particularly focused on the stability and predictability of that revenue. Secondly, that we'll continue to push gross efficiency savings to create capacity and cost for investments. And thirdly, that we will continue to be very disciplined in capital. So more on the February 10th, but that's the trailer, if you like. In terms of the structural hedge, just back to this point around predictability, the reason that we extended the duration is because we see greater stability in deposits. So it's a response to that. What that will naturally do is slightly lower the level of maturities as you go out a little bit further. We haven't yet given a maturing yield for '28. We will do that in February. We have given you 2027. That is 2.1%. So you've got 1.5% in '25 and '26, then 2.1% in '27. And really, what's happening here is because we are extending that, clearly, we have a mix of maturities within that maturing yield or a mix of tenors within that maturing yield. And there is a portion of 7-year in there that is really holding down that maturing yield as we go a little bit further out. So hopefully, that gives you some things to work on, and we'll come back to it in February.

Amit Goel, Analyst

So 2 follow-up questions actually. One, just coming back in terms of the strategy update or new targets for '28 that we get with full year. I'm just kind of curious how you're going through that process? And are you thinking about kind of things like revising capital allocation to the businesses, things like that? Or is it more about efficiency and driving more out of the business with the kind of path already set? And then secondly, just on the U.S. CB. I think your remarks earlier that for the next couple of quarters, so Q4, Q1, you'd anticipate kind of a flattish NIM on what we've just seen the 11.5%. I'm just kind of curious, given the factors that you outlined before in terms of improvement, why that would be flat and why that wouldn't continue to show a bit of growth in the coming periods?

C.S. Venkatakrishnan, Group Chief Executive

Amit, those are good questions. I will address the first one, and Anna will respond to the second. Our strategy aligns with the latter part of your statement, which highlights our satisfaction with our business footprint and the need for intensification in areas Anna mentioned, such as top line revenue, efficiency, and expanding our product reach. Essentially, we aim to maximize the potential of each of our businesses and enhance our overall collective performance. We expect to see a continuation and intensification of our current efforts.

Angela Cross, Group Finance Director

And Amit, on your second question, I mean, I wouldn't really add anything. There is a degree of seasonality to the business. But no, I mean NIM, we do see as many of those effects having flowed through largely already. Typically, we see slightly lower levels of retail funding as we go into the full year just because balances grow, and we tend to use a bit more of the brokered deposits. So that does have a little bit of an impact on NIM. But nothing really to call out. Just assume it's broadly flat really over the next couple of quarters. And as I say, it's going to pop up again from Q2 onwards, but we'll tell you a little bit more about that.

Pui Mong, Analyst

Just a couple of questions. First on distribution. So I think it's very welcome to see a buyback this quarter and moving to quarterly distribution. Can you just tell us how you thought about it, why did you decide to go to quarterly cadence? And in terms of going forward, is there like a sort of monthly rolling number that you are thinking about? And within the wider distribution context, now that it's closer to price-to-book, are you thinking about maybe doing more distribution? So that's number one. Number two is on cost. You highlighted that you've achieved your efficiency savings one quarter earlier than expected. But also for next quarter, you would expect to run towards the top end of the GBP 200 million to GBP 300 million cost to achieve, or CTAs, if you like. So is that something that you would expect to run at that level in 2026? And as part of the strategy update, I think last time we did it, I think there was maybe GBP 900 million or GBP 1 billion cost to achieve upfront as well. Is that something that you are thinking about as well?

Angela Cross, Group Finance Director

Thanks, Perlie. Let me take both of those. So the buyback decision, really what that reflects is our confidence in the consistency of generation of capital. And it's just a clear articulation of the capital priorities that we gave you at the outset of the plan which were, number one, you should expect us to be well capitalized as a regulatory matter; number two, returning capital to shareholders; and number three, investing in the businesses. So as we reflected really over the last few quarters, actually, and we've seen the strength and quality and resilience of that capital generation, this is something that we've been thinking about. So what we've done is, we've accelerated a portion that we would otherwise have paid at the full year, and that's really our desire to put it in the hands of shareholders. So nothing more significant than that. In terms of the go-forward plan, in terms of balance, cadence, etc., we will cover that with you in February when we give you those target updates. In terms of costs, so our primary objective here is to continue to drive efficiencies. That's what we're doing. And our structural cost actions play a really key role in driving that forward. But there's no real change here at all. And in fact, given the delivery of that sort of gross efficiencies a quarter early, and given we've got such momentum in our NII, had it not been for motor finance, I would have been expecting today to upgrade the cost-to-income ratio to around 60. As it is, given that progress we've been able to absorb motor finance and reiterate our 61% guidance to you. I still expect next year to be in the high 50s. Typically, in any year, we spend between GBP 200 million and GBP 300 million. That's what we're guiding you to this year. We're just calling out, it might be towards the top end of that. But again, that is all encapsulated within the guidance that we've given you of circa 61 for this year. So there's no real change to anything that we are seeing in terms of costs. But thank you for the question. Perhaps we could go to the next question, please?

Alvaro Serrano, Analyst

I have two follow-up questions. First, regarding Tricolor, after reviewing the rest of the portfolio, are you confident in the integrity of the collateral? Can you provide some reassurance on that? Looking ahead, financing has driven growth for some time. Venkat may have touched on this, but should we anticipate a slowdown from the 20% growth rate you've maintained? The second question is about U.S. cards. To achieve that 15% RoTE that Anna has mentioned, do you believe you have the necessary scale, especially after the changes with American Airlines? Should we expect more joint ventures and contract wins, and how does the pipeline look for further opportunities? I haven’t noticed any significant new wins recently aside from GM, which was announced quite some time ago. Any thoughts on the pipeline would be appreciated.

C.S. Venkatakrishnan, Group Chief Executive

Alvaro, let me start with the first one. So about the review that we took, it's along the 3 dimensions, which I said to you. One is, are companies being financially stretched? Second, the second part is the strength of financial controls in the company and independence of financial controls. I also want to be very clear, there's sort of broad financing and there's private credit. The slide we've given you is on private credit. And on our pattern of growth, it's been relatively stable, growing a little, but growing slowly. And I would always say on these things on lending, it is a case-by-case decision. We will look at loans, and we will decide. We tend not to grow these books that aggressively. And as you also know, I think that we tend to employ, over the cycle, risk transfer transactions, and we've been doing so for a decade. So that's been our broad approach to both risk management, to credit risk management, and to the overall portfolio. And then the second part of your question on private credit was basically for Anna. So I'll pass it over.

Angela Cross, Group Finance Director

Yes, sure. So your question references the mid-teens sort of aspiration we have for this business. I mean, a large part of that is in our hands now, and you can see the progress that we're making around efficiency. We targeted mid-40s cost-to-income ratio; we're already at 43. So expect us to push on. You can see the progress in the NIM. So all of those things are within our control. We do want to grow the book. We will never do so at the expense of RoTE, and we have seen opportunities to do organically, as I said, and inorganically. So for example, through GM. As you can imagine, we look at portfolios all the time, and we assess those as to whether or not they are RoTE generative, both for USCB and in the context of the group. The nature of this business is that it is always a balance of those two things. It's always a balance of leaning into the partners that we've already got and expanding those, which we've got good experience of, but also acquiring new capabilities and partners as we go. So I'll hand to Venkat.

Chris Hallam, Analyst

A couple of just follow-ups left over. Venkat, back on NBFI, sorry, Venkat, you mentioned the importance of initial qualification and continuous monitoring. And I guess, in light of recent events, that review that you're running through in that book and just triple checking everything, how far through that review are you? Or have you fully completed that review? Maybe I missed that in your earlier comments? Sorry if I did. And then second, on the IB, and it's a bit of a follow-up to Jason's question earlier on the call. I guess this is a pretty difficult regulatory backdrop against which to set a 3-year plan. You mentioned that we're yet to see what the U.S. will do and the degree of alignment that the U.K. will settle at. So should we think that the 2020 IB business plan is going to be sort of caveated that it's reg dependent? Or do you think that the balance of outcomes on dereg and your earlier point on capital versus balance sheet headroom means that you have and will sustain a plan for all seasons?

C.S. Venkatakrishnan, Group Chief Executive

Thanks, Chris. I'll let Anna take the second question. On the first one, the review is completed. As I said, I'm satisfied with what we saw, but we're going to have to continue to be vigilant, and that's always been the case.

Angela Cross, Group Finance Director

Chris, just on your second question, I mean, you're right. There is a degree of regulatory uncertainty out there. And clearly, what we would want to have is consistency of regulation, both in its approach and its implementation date across all 3 jurisdictions, so Europe, U.K., and U.S. So that is difficult from a timing perspective in terms of planning. But sort of more holistically than that, the plans and the strategy that we have for the investment bank. Venkat referred to it before as running our own race. And we remain extremely focused on doing that, obviously mindful of the competitive environment also. But our objective here is and will remain to drive higher returns in the investment bank, more consistent returns, and that's really about focusing on the stability of income, both stable sources of income, like the international corporate bank, like financing, but also stabilizing the intermediation and fees parts of the business. There's a really important piece here around cost and efficiency and technology-led efficiency. And so what you've seen over the last few quarters, we've had 6 quarters of consecutive positive jaws in this business. And then the third piece is just this continued driving capital efficiency. We think we've got a ways to go. You've seen, again, 6 consecutive quarters of year-over-year improvement, but there's more there for us to do. So I think it's really important that we focus on the things that we can control and then navigate the regulatory environment as it emerges, and we are well used to doing that. We've seen divergences before; we continue to see them, and we'll deal with it when we have the facts in front of us. Thank you for the questions. Next question, please?

Andrew Coombs, Analyst

Two questions, please. Firstly, if I could just follow up on the Investment Bank. Obviously, you had a very strong first half of the year. Q3 is slightly lagged the growth seen at the U.S. peers. Can you just explain how much you think that's just a mix effect? Is it a mix effect by business segment, by region, across equities and across primary? Or are there any gaps that you're still looking to infill there? And then the second question, broader question on the U.K. You've obviously seen strong mortgage and corporate loan growth in Q3. But can you perhaps touch upon customer behavior and activity going into the November budget?

C.S. Venkatakrishnan, Group Chief Executive

Andy, thanks. Let me begin with the IB, and then I will pass over to Anna on the U.K. As I've told you, I take a long view of this. We are running our own race. We set out targets. We put in an RWA target for the Investment Bank, which was to keep it flat, and we've kept flat. We also instituted our discipline, which Anna just spoke about. And then we had both revenue targets, cost efficiency targets, and overall return targets, profitability targets, all of which we've been meeting. We also put in within that certain areas of focus within markets and banking. In markets, it was European risk, it was securitized products. It was equities, particularly equity derivatives. In banking, it was certain sectors, healthcare and tech, and then it was M&A and ECM. Now over this long period, we have shown strong progress in all these dimensions. Even if you look at something like equity derivatives, we've been growing a couple of percent over this year, less than what the U.S. peers had this quarter. Quarter-to-quarter, there will be variations. Some of that variation is about the amount of capital and balance sheet some of the competitors allocate over time. Some of that variation is geographical concentration. So Asia has been strong. We've always been very clear that we have a solid Asian presence, but it's not as deep and broad as others have. There are times when commodities play a role. There's times when credit plays a role, and that's generally good for us. So I would view what you've seen in this quarter's results as that kind of normal Q-on-Q variation. I don't think when I look at the plans of the Investment Bank, what we've had, what we intend to do, that there are sort of gaps or holes we need to fill. I think we continue to build on technology, continue to build on product sophistication, continue to build on client reach, and we will show the returns that we've set out to and we've displayed over the last 7 quarters.

Angela Cross, Group Finance Director

Andy, here's how I think about the U.K. landscape. So I think about it first on how our consumer is spending? What does the demand for credit look like? And then thirdly, how is that credit performing? And if you look through these lenses, then you get a pretty good view. So, I mean, U.K. consumer behavior is slightly cautious, but we continue to see signs of improvement, so credit spend is higher than debit spend. We've seen a slight increase in nonessential spending, and confidence metrics have grown slightly. So, so far, so good. And we also see that flowing into, for example, the demand for credit. And you can see that in terms of our U.K. momentum, the demand for mortgage credit is good. And as I said, that's not just refinancing. So in a very cautious environment, you see less house purchase. But what we see is house purchase growth, first-time buyer growth, and also refinancing demand. There's good demand from cards, as you can see. And actually, the thing we talk about less is demand from corporates. And you can see really good lending in our corporate book. That is coming broadly half and half from existing clients and new clients. We've originated more than 400 new clients this year. That's on top of the 550 that we did last year, and our lending market share is up 70 bps. So we don't see a lack of demand for credit at a macro level. If we're looking for points that were slightly more hesitant, we would say we see a little bit of hesitancy in mid-corp, but generally speaking, good demand for credit. And then finally, credit performance is good. We see that in mortgages; we see it in cards. I mean U.K. cards' delinquencies are extremely low. And I would say across all of the portfolios are low and stable and exactly as we would have expected them to be. And the same is true of corporates. There are no significant single names in our corporate book. So the U.K. landscape remains pretty robust. But thank you, Andy, for your questions. Can we have the next question, please?

Benjamin Toms, Analyst

The first is in relation to European Bank peer share suffered this week in relation to losing a U.S. litigation case. It was underpinned by the fact that the bank has provided finance to a sanctioned nation. I think that Barclays settled with the U.S. regulators in 2010 in respect to providing finance to a sanctioned nation. Can you provide any comfort for us why we shouldn't add this to a potential litigation risk for Barclays in the future? And then secondly, in your Private Banking and Wealth Management, the AUM and AUS grew pretty quickly in the quarter. To what extent do you expect this organic growth trend to continue over the next 12 months?

Angela Cross, Group Finance Director

In terms of the first point, there's nothing of which I would call out, Ben. We can follow up with you with a bit more detail about the historic cases, but nothing I would call out. On your second point, we continue to make good progress with the private bank, another GBP 0.7 billion of net new money in the quarter. So we're pleased with its progress. And obviously, its RoTE remains above its target level, which was greater than 25%, so pretty robust. Obviously, the opportunity for that business, we believe, really comes in the future as we start to access the sort of mass affluent and wealth markets. So probably more to come on that, I wouldn't call out anything specific now. But again, thank you for the questions. And then operator, perhaps we could have the next question, which I believe is our last question.

Edward Firth, Analyst

I have a question regarding your 2026 targets. It appears that you are achieving most of them, often exceeding expectations. However, the Investment Banking Risk-Weighted Assets target stands out to me. You mentioned a target of 50%, which seems quite distant from your current position. In terms of returns, this segment is performing significantly lower than your other divisions, and I suspect the cost of equity might be higher as well. This could explain your current trading levels. Therefore, I consider the 50% target to be quite crucial, especially as a statement of intent for future direction. However, I'm struggling to understand how you plan to reach this target. Can you provide any insights? Are you planning on significantly reducing investment banking RWAs? Is there a risk transfer strategy in place, or should we anticipate substantial growth in areas I'm not currently considering? Achieving this target would require more than a 10% improvement.

Angela Cross, Group Finance Director

Okay. Why don't I start and then I'll hand to Venkat. So just in terms of the 50%, remember, when we wrote that we were in a very different environment in terms of regulatory timing, so there are 2 things that are under our control and one that isn't. The first is holding the IB RWA flat. We've actually done that for more than 3.5 years now. It's not just part of this strategy. It was there before. Secondly, continuing to grow in the U.K., and you can see the progress. The thing that I can't control is the implementation date of the IRB model. That's very difficult to say, particularly on the call, or indeed some of the Basel implementation effects. But the strategic intent that sits underneath that 50% remains the same, Ed, but there's regulatory timing that I can't control. As to your point on returns, I mean we were really clear that the returns of the IB were not where they needed to be, but you can see that we're making progress. Just to call it out, it's 12.9% year-to-date, much more in line with the group versus 10.1% last year. So we are making good progress, but I'll hand to Venkat for more comments.

C.S. Venkatakrishnan, Group Chief Executive

Look, I'll say exactly that. We were very, very clear at the start of our strategy that we were going to hold the IB RWAs flat. And the reasoning behind that was we felt and we feel we've got a very strong, capable full IB. And at those levels of RWA, with greater RWA efficiency, which we've demonstrated, it can be very competitive, and we've shown our competitiveness over the long term over this period. What we said also was that the percentage is an outcome, as Anna just described, which is based on not just holding it flat but growing in the U.K. and then assumptions about capital calculations for the rest of our book, particularly U.S. cards. The first two, we control, holding the IB RWAs flat, and then what we've been doing in the U.K. where we've been showing the growth which we said we would, right? The third part we cannot control, and that affects the percentage. And if you go beyond that strategically...

Angela Cross, Group Finance Director

Yes, the flat is exactly the important point. And as Anna said, on RoTE, it's again been behaving exactly the way we would want. It's a returns-focused business, and it is approaching and in some instances, if you look at the time periods in the past, the group average. So exactly what was outlined, exactly what has been delivered, promises kept. Thank you very much, everybody.

C.S. Venkatakrishnan, Group Chief Executive

Thank you, everybody. We will see you on the road from tomorrow, and we are looking forward to an analyst lunch as opposed to an analyst breakfast next Tuesday. So hope to see you all soon and thank you for your continued interest in Barclays. Thank you.