Anna Cross: Okay. Thank you, Omar. Okay. So let me start with BUK NIM. So within that 33 basis points, there are 2 things, and they are broadly equal in the current quarter. The first is product dynamics, and I’ll talk you through those. And the second is treasury impact. The product dynamics are predominantly relating to mortgage margin compression. It’s not just a front book absolute. It’s actually the impact of churn and the nature of the market and how that is accelerating churn, and I’m sure we’ll come on to that in subsequent questions. But that is significant. In addition to — we did expect that, but maybe slightly more intense than we anticipated. The second thing within there is whilst U.K. card balances have grown, we are seeing prudent, conservative behavior from our customers.
And we’ve actually seen a fall in interest earning lending. Of course, that’s somewhat offset in impairment, so those 2 asset impacts are fairly significant. What we have not yet seen is a significant NIM effect from liability switching, but I think that’s more important going forward. The second impact is treasury dynamics. I would expect this to dissipate over time. And the reason I say that is it relates to assets in the liquidity pool. We have some fixed rate bonds, and the rates rose extremely sharply in Q4, and that essentially raised the cost of carry of those investments. But given what I see on the maturity program and our ongoing disposal program, I would expect to see that dissipate over time. It won’t be 0 in Q1, but it is going to fade.
I would remind you that we report an all-in NIM. So we’re not reporting a banking and other NIM here. It’s one number, which is why that treasury dynamic is there. As I look forward, here are the things I’m thinking about. I have pretty good line of sight into the structural hedge and the momentum behind that hedge. I have pretty good line of sight actually into the treasury effects that I’ve just talked about and the fact I would expect those to fade over time. What is more difficult to call is the product dynamics. We would expect that the asset pressure will remain. And actually in the guidance that we are giving today, we are expecting to see an intensification of switching within liabilities, and therefore, I am thoughtfully reflecting that in the guidance that I am giving you.
So all of those factors are included in the greater than 3.2% for the year. What that looks like over time is you would expect the more certain factors of treasury and structural hedge to actually build as a tailwind through the year. The product dynamics and the exact timing of those are a little more difficult to call. So I hope that’s helpful. In relation to Basel 3.1, actually, it’s difficult to call out the impact of mitigation. It’s a bit early. The full suite of rules are not yet clear. It’s clear that they are a bit more positive than we expected them to be. And as we’ve had a chance to work through the detail, we will continue to update you.
Omar Keenan: Could I just ask a quick follow-up question on the Barclays UK NIM guidance. Thank you for that extremely helpful color. So it sounds like the key uncertainty within the moving parts that you talked about for 2023 is really the level of deposit migration in the context of the NIM guidance being set at a Bank of England base rate of 4.25. Can I ask you what level of deposit migration that you said you’re thoughtful about is baked into 2023 to ensure that floor of 320 is met, i.e., what sort of share of movement from site to time deposits can occur and that 320 still be met?
Anna Cross: So I’m not going to call out those specific assumptions, Omar. But what I would tell you is that we feel we are being thoughtful and conservative in those. Not least, we have a deliberate strategy of encouraging our customers to form good savings habits. We think that’s really important for the health of the franchise and ultimately the continued success of the U.K.
Operator: Our next question comes from Alvaro Serrano from Morgan Stanley.
Alvaro Serrano: A couple of questions from me. One on CIB revenues and the other, a follow up on the U.K. NIM. I mean we’ve discussed several times over the past that sort of the idea of your balance sort of CIB revenues that when volatility comes down, fees will pick up the slack, and you were confident about the outlook. What is coming down that fees clearly are not picking up yet? And there’s a gap clearly in equities more. But even in DCM, it’s more investment grade that’s coming through. So could you maybe comment on where you see things, how do you think — how you see things sort of — give a bit more color on how you see things playing out this year in the current environment, a bit of sort of steering there if you can.
And on the NIM progression, I take your points and some of the sort of the unit and you don’t have a crystal ball, but maybe on that NIM progression during the year, do you — are you — that over 320 is — are we expecting a peak margin at some point during the year and then flatten in the second half? Or should we expect a steady sort of quarter-on-quarter progression? I’m just trying to get a bit of feeling of how you see that deposit mix unfolding. And is there a step-up at some point that we should bear in mind?
Anna Cross: Okay. Thank you, Alvaro. So if I just think about fees in the IB, clearly, it’s been a difficult market for Investment Banking, and we’re broadly in line with our peers. And we have a strong pipeline. For that pipeline to be monetized, what we need to see is a period of economic stability. We haven’t yet seen it, and I wouldn’t call when that is exactly likely to happen. There are some small green shoots in Q1 from investment-grade debt, I would say, but it’s certainly not meaningful at this stage. That — we would expect that to be somewhat offsetting markets that we’ve seen over the last 3 years. This is a business that has delivered strong revenues and strong results in 3 very, very different macroeconomic environments.
This time last year, we were talking about fabulous banking revenues and actually CRE being relatively poor and equities being brilliant. There are different macro environment, and our objective has been to put together a business that can perform in all of those. There’s a couple of other things I would say. The first is don’t forget the corporate bank within that. The transaction bank, we talked a lot about NIM so far this morning. The increase in transaction banking income is GBP 800 million year-on-year. It is bigger than the increase in the whole of the U.K. So that is a sustainable, annuity-like element of CIB revenue that we frequently overlook. The second point is our financing business. Clearly, it’s not that it’s completely stable.
However, it is considerably more stable than the intermediation side of markets. And again, we’ve shown you some new disclosure today that will show you that, that business has grown by GBP 700 million year-on-year, again, the same size as BUK. So we have confidence in what we are building within the CIB. If I go then on to your NIM progression question. Greater than 320, I mean, if I go back and just reflect on the things I said before, the tailwinds, if you like, are going to build. That would suggest that you would see sequential progression over time. It’s a little bit more difficult to call out the product dynamics. If you ask me for an opinion, I would say, I might expect them to be more intense in the short term than the longer term.
And the reason I say that is it’s typically prompted by absolute movements in base rates. But let’s see. The things that I’m certain of — or more certain of will certainly build as the year progresses.
Operator: Our next question comes from Jonathan Pierce from Numis.
Jonathan Pierce: I’m sorry, it’s back on Barclays NIM in the fourth quarter of last year, in the U.K. So based on what we’ve heard, you’re saying that circa 16, 17 basis points of this other negative is the mortgage refinancing headwinds, the interest-earning assets, components of the card book and some fairly modest deposit migration so far, which I think is fully understandable. This one a bit. Can I just press you a bit more on what this is? Because it sounded like you have got fixed rate assets in the liquidity pool that haven’t been swapped back to floating rate. And so as base rate has gone up, the cost of carry has gone up. That’s called the NIM squeeze. Is that right? And if so, why have you got that position? I mean, obviously, if you’ve got more liquid assets, that drags down on the NIM itself but not the net interest income.
But this sounds like the absolute net interest income has been hit by this dynamic. I’d expect you to have fixed rate assets as part of the structural hedge but not outside of that. So what is this position in Barclays UK that’s causing 16, 17 bps of NIM squeeze in the fourth quarter? The second question is a simpler one. You related to the structural hedge maturity of GBP 50-odd billion put this year. And you said most of that, I think, would be reinvested. Give us a sense as to how much. I mean, I guess you’re assuming the overall quantum and hedge will drop a bit this year again because of deposit migration. But if you can give us a sense of how much of the GBP 50 billion you expect to be reinvested, that would be helpful.
Anna Cross: Okay. So just taking the first one, yes, you are correct in the way you characterize them. They are a relatively small proportion of the overall liquidity pool, however. So we’ve got 80% plus of that liquidity pool actually in various central banks, so I don’t think it’s not a big outright number. In relation to the structural hedge, the way we manage this, Jonathan, is we clearly have built it very carefully over time. In doing so, we try to identify the proportion of our liabilities, which we expect to migrate in a rising rate environment. That’s clearly excluded from the hedge. But as I said before, we feel like we have prudently anticipated those levels, and that’s included not only in our NIM guidance but also the way we think about our hedge.
The second thing I would say is we maintain buffers to the actual hedgeable amount. So if I’ve got a hedgeable amount of x, I don’t hedge to that level, I maintain a buffer. So what you see us doing is conservatively managing those buffers so that we are able to preserve the role of the hedge. So in part, this goes back to the same point as we spoke about with NIM. It’s about deposit migration. We feel we have called that on the prudent side, but that is the extent of that migration that we determine how much that we roll.
Jonathan Pierce: Okay, that’s helpful on the hedge. But sorry to labor this point. Why have you got fixed rate liquid assets within Barclays UK but then, of course, this NIM squeeze? I mean we can see from historic disclosure that movements in the yield curve have an impact on the AFS reserve, and we’ve seen that historically. This is the first quarter. I remember where we’ve had a material impact on margin because of these fixed rate assets that are not swapped back to floating rate. Why are they there?
Anna Cross: So the — in our NIM, we include the overall buffer return. It’s important that we balance the investments within that liquidity buffer to have a range of assets. This is a small proportion of that range of assets.
Operator: Our next question comes from Rohith Chandra-Rajan from Bank of America.
Rohith Chandra-Rajan: I had a couple as well, please. The first one was just coming back to how you balance investing for growth and with capital distributions. I’m particularly looking at RWA progression. So CIB RWAs were down GBP 15 billion in the fourth quarter on a smaller nominal balance sheet. So if that were to reverse in Q1, then the pro forma CET1 ratio would fall from the 13.5% that you flagged to below 13%. There’d obviously be some capital generation, too, but I was just trying to understand what gives you the confidence that you’ve got enough capital to support CIB market shares and revenues and also to generate capital for distribution. That was the first question. And then the second on the CIB, just on the financing stuff.
So firstly, thanks very much for the additional disclosure. But as you know, when you give us a bit, we always want a bit more. So I was wondering if you could give us some insight on the degree to which the growth in financing revenues has been driven by volumes versus spreads or rates related.
Anna Cross: Okay. Thanks, Rohith. I mean we’re very focused on RWA efficiency across the bank as a whole. And you can see that we are trying to grow the CIB very thoughtfully in terms of where we place our risk. You can see, in the fourth quarter, there is an FX impact in terms of the RWA movement. And so I’d just be thoughtful about that. And obviously, as we said, we have managed our leverage finance pipeline and commitment given the environment as well. So there are things that have specifically happened in the fourth quarter. From here, we’re confident that we’ve got the right level of capital to support the growth in the CIB. We’ve done that pretty successfully over the last year. That will be different quarter-by-quarter.
And it’s one of the reasons that we’ve settled ourselves at that midpoint because we want to be able to lean in, in the way that you described, but the quantum of what you’re describing is somewhat too high just because of some of the effects that I’ve just mentioned. So hopefully, that’s helpful. You have a second question?
