Barclays Management Discuss Q2 2012 (H1 2012) Results - Earnings Call Transcript

Barclays PLC (BCS)

H1 2012 Earnings Call

July 27, 2012 4:00 am ET


Marcus Agius - Executive Chairman and Chairman of Executive Committee

Christopher Lucas - Chief Financial Officer, Group Finance Director, Executive Director, Chairman of Disclosure Committee and Group Finance Director - Barclays Bank Plc

Rich Ricci - Co-Chief Executive and Chief Operating Officer of Investment Banking & Investment Management

Robert Le Blanc - Chief Risk Officer and Member of Disclosure Committee

Antony P. Jenkins - Former Chief Executive officer

Thomas L. Kalaris - Executive Chairman of the Americas, Chief Executive of Barclays Wealth Management - ABSA Wealth and Chief Executive of Barclays Wealth


Andrew Coombs - Citigroup Inc, Research Division

Michael Helsby - BofA Merrill Lynch, Research Division

John-Paul Crutchley - UBS Investment Bank, Research Division

Thomas Rayner - Exane BNP Paribas, Research Division

Manus Costello - Autonomous Research LLP

Raul Sinha - JP Morgan Chase & Co, Research Division

Chris Manners - Morgan Stanley, Research Division

Chintan Joshi - Nomura Securities Co. Ltd., Research Division

Jon Kirk - Redburn Partners LLP, Research Division

Ian Gordon - Investec Securities (UK), Research Division

Andrew Lim - Espirito Santo Investment Bank, Research Division



Ladies and gentlemen, welcome to the Barclays Half Year Results Analysts and Investors Conference Call. I will now hand you over to Marcus Agius, Group Chairman.

Marcus Agius

I'm joined here by Chris Lucas and also by our other ExCo colleagues. Before Chris take us through the detail of our good results for the first half and before we take Q&A, I'd like to say a few words about our current situation.

This has been a difficult few weeks for Barclays. A great deal has been said about recent issues. And while we are not going to add to that debate today, we do acknowledge the impact it has had on Barclays' reputation. The board understands clearly the need to address the issues which have been raised and to deal with the current management uncertainty. The Barclays management team, together with our 140,000 employees around the world, is already focused on moving forward. We are committed to serving our customers and our clients and to contributing positively to the many communities in which we operate. We're well positioned to continue to deliver for the bank during this interim period, while the board completes its process to identify a new Chairman and a new Chief Executive.

Despite not having a CEO, we continue to make effective and efficient decisions. As you know, I chair the group executive committee, and this comprises the executive heads of our main businesses and functions. Together, we continue to progress our One Barclays imperative along with a number of other initiatives of which you've heard much over the past 18 months. Importantly, we remain committed to maintaining Barclays' position as a leading global universal bank, underpinned by a strong and diverse set of businesses.

We've also begun the process of repair and recovery, including initiating earlier this week an independent review of our business practices led by Antony Salz.

Our results for the first half of 2012 are good. They demonstrate how the business delivers resilient earnings even in the current difficult macroeconomic environment. You should have every confidence that we will continue to perform through the remainder of the year and beyond. So let me hand over to Chris to take you through the results in detail, and after that, we'll all be happy to take your questions.

Christopher Lucas

Thank you, Marcus, and good morning. We're reporting adjusted profit growth of 13% today with good performances in U.K. Retail and Business Banking, Barclaycard, Corporate Banking and Wealth. There was also a good performance relative to the industry in the investment bank. Operating cost decreased 3% and capital liquidity and funding remained strong, with a Core Tier 1 ratio of 10.9%. We've reduced our exposure to the Eurozone. And though we have further to go, we've made progress towards our 13% return on equity target.

Let me take you through the financial headlines before we talk about the individual businesses. In general, my comments compare the first half this year to the same period last year. Profits increased 13% to GBP 4.2 billion on an adjusted basis, which is much larger than the statutory profits of GBP 759 million. The adjusted numbers exclude the charge on own credit of GBP 2.9 billion, the gain on the sale of our stake in BlackRock of GBP 227 million, the additional GBP 300 million PPI provision that we told you about in April and a provision for redress of interest rate hedging products of GBP 450 million. I'll use adjusted numbers this morning as usual, because they give a better understanding of the operating trends of the business.

Moving on to the other headlines. Total income grew 1% to GBP 15.5 billion. Impairment was flat at GBP 1.8 billion as reductions in many of our businesses were offset by an increase in the Investment Bank. And we've reduced operating costs by 3% to GBP 9.5 billion. Together, these movements resulted in adjusted profits of GBP 4.2 billion. Return on equity grew to 9.9% and return on tangible equity increased to 11.5%.

In our 3 largest businesses which account for 2/3 of Barclays' risk-weighted assets, returns were at or above our targets. U.K. Retail and Business Banking delivered returns of more than 16%. At Barclaycard, they were 22%. And the Investment Bank generated return on equity of almost 15%. Other businesses were below our targeted returns, and we continue to work to improve them.

Our overall cost income ratio improved from 64% to 61%. We've announced a dividend for the second quarter of 1p, bringing the dividend for the first half to 2p.

I'd like to move now to the performance of the individual businesses. In the U.K. Retail and Business Banking, profits grew 6% to GBP 746 million, largely as a result of improved impairment in personal unsecured lending. Total income decreased 2% to GBP 2.2 billion, mainly as a result of lower net fees and commissions. Margins have reduced slightly as expected, reflecting a lower benefit from the structural hedges. Net interest income remained broadly stable as a result of higher volume. Impairment charges reduced by 56% to GBP 122 million, and the annualized loan loss rate was 19 basis points compared to 46 basis points in 2011. Operating expenses increased 5% to GBP 1.3 billion, including costs related to processing PPI claims. Return on equity grew to 16.6%. Customer deposits have grown 2% to GBP 114 billion since the year end. Our total loans and advantage grew 2% to GBP 123 billion, driven by growth in mortgage balances with net new mortgage lending of GBP 2.2 billion.

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