Thanks very much.
William Chalmers: Yeah. Thanks, Jonathan. Three questions there. I think, one, the structural hedge, one on pension re-measurement and relationship to TNAV and then one on the sources of the RoTE improvement. In terms of structural hedge, a couple of comments to make. One is I said, modest reduction means single digits. We have around GBP20 billion of maturities in the second half of this year, around GBP40 billion of maturities next year. So as you can see, maturity is very significantly outweighing whatever adjustment around the edges that we might make to the overall hedge balance. I think that’s one point. The second point to the topic that you were raising there, Jonathan, it depends upon what happens to deposits that we take out of the structural hedge and on the assumption of those deposits stay with us.
Then as you say, we’re going to be putting them, let’s say, a bank base rate for the sake of argument, which is currently around 5%, which, as you know, is actually ahead of the five-year rate right now, which is more like 4.8%. So there’s a marginal earnings improvement from putting those funds into the base rate as opposed to a five-year swap. Now having said that, if we put it — if it goes into a fixed term deposit, we’re clearly going to be swapping against that fixed term exposure. And therefore, while we will make a margin on the fixed term deposit for sure, we are making the margin of the difference between the customer pay rate versus the swap in which we invest the fixed term. So we should be clear about that. It depends upon where the money goes.
The many sits on the balance sheet and just adds to the buffer, which has been the pattern to a degree so far, it earns a base rate. It’s a net neutral, in fact, almost net positive change. If the money goes into a fixed term deposit, that’s determined by the margin on the fixed or deposit. Second point, on the pension re-measurement and how that plays into TNAV. As you know, we saw a TNAV reduction of 3.9 pence per share over the course of the first, sorry, second quarter of this year, a marginal reduction over the course of the first half, a number of factors played into that TNAV adjustment, a significant part of which was the rate. So if I just focus on the 3.9 pence per share in Q2, for example, about half of that was the cash flow hedge reserve adjustment to rates.
And then you’ve got other effects, including the dividend being paid out, for example, but including the one that you mentioned, which is around the pension re-measurement. And to come back to your question there, Jonathan, the rate impact is the primary mover of the pension re-measurement. There are other pieces at play. Gilt is clearly one of them. Obviously, that relates to rates, but also credit spreads likewise. These factors will go into the pension re-measurement in any given quarter, but rates is, I would say, probably the most important and maybe the most consistent mover of the pension re-measurement in any given quarter. Your third question on TNAV and the relationship of that to RoTE improvement. In short, we have seen some reasonably significant income additions and indeed earnings improvements to the business over the course of H1 and projecting into H2 versus what we might have expected at the beginning of the year.
