Katie Murray: A lot of moving parts within it. But if you think you kind of lift up a little bit to kind of the income story. So if I think of 2024 income, so full-year this year we’ve guided you to £14.3 billion, which is implying that £3.4 billion in the fourth quarter. So that is the expectation that NIM will be above 3% for the full-year. And Ed, I do mean above when I’ve said above. So I’m not trying to guide you there, but I think you’ve kind of clicked on that. We do not expect the fallen NIM in the fourth quarter to be as severe as it has been in the third quarter. So I do expect to see NIM stabilizing as we go through 2024. I think there’s a couple of things that will impact the timing of that stabilization. So I don’t think it will be instant.
We’ve talked about the headwinds of deposit migration and mortgages. They do moderate over the coming quarters, but they do not end at the end of 2023. The hedge tailwind, which I talked about already, it does become stronger as we move through 2024, and that will eventually set off — offset the headwinds of that deposit by greater than the timing on stabilization. So this gives us confidence on the medium-term income. I would urge you not to annualize the fourth quarter for those various reasons around the stabilization.
Ed Firth: Okay. That’s very helpful. Thanks a lot.
Katie Murray: Thanks, Ed, as ever.
Operator: Next we’ll be going to Alvaro Serrano of Morgan Stanley. Alvaro, if you’d like to unmute and ask your question.
Paul Thwaite: Hey, Alvaro.
Katie Murray: Good morning, Alvaro.
Paul Thwaite: Are you there, Alvaro?
Operator: Alvaro, if you’d like to unmute and go ahead and ask your question.
Alvaro Serrano: Sorry, I’m here just struggling with the technology. Sorry to ask more questions about deposits and NIM. You’ve given a very precise number for the end of the year on the 17%, 34%, which is given this two months ago and the turmoil we’ve seen the last three months I think is very good. But — and I know you’ve said that the last few weeks give you a bit of confidence that things have slowed down and become more predictable. But maybe I don’t know if you can share any more precise numbers around the last sort of what you’ve seen in October that could help us gain conviction on that number and also relate to that deposit balance is the absolute number, you’ve gained market share. I know you’ve explained why you’ve decided to gain market share and balance there up, but would you — would we be willing to let those balances slip a bit to protect the margin? What’s the overall balance of deposit outlook you think for Q4 and as we think about 2024. Thank you.
Katie Murray: Yes. Sure, Alvaro. Let me kind of pick those apart. So first of all, I think, and as I look at why the kind of conviction, I think there’s a few different industry comparators we can look at. What we know is that the U.S. is generally a little bit ahead of us. So we’ve had a look at where they are. We’ve also looked within our own book. And what we saw in our own book is that private moved faster than retail. And what I’ve seen very consistently over the last number of weeks is that kind of level of stabilization. Clearly, they’re much smaller numbers and far fewer people. But that kind of that that stabilization is clear. When we’ve then looked and we’ll see the September data, I guess, will come out as well. What we’re expecting is well after the kind of peak of July, the slightly slower August, and then in our own numbers, what we saw coming into September within the retail world, that kind of level of stabilization.
Now that doesn’t mean that its — there’s not going to be movements and there definitely will be movements as we move into that piece. But I’m comfortable as we kind of see what we’ve seen in our data and what we’ve seen elsewhere logically that stabilization would kind of start to come through. If I then kind of look at your deposit numbers, Paul, do you want to jump in on that one?
Paul Thwaite: Yes. Alvaro, I think important to clarify one point, the share gains have been on the term side rather than the overall stock side. So that’s what we referred to there. So you’ve seen an increase in market share overall. You’ll see it from the Bank of England data. Our share has kind of remained relatively flat I would say that’s the way to think about it. It’s not that we’re taking outsized market share gains. In terms of how we’re thinking about that moving forward, my view is, we’re comfortable with our current position in terms of would we compete more. We’ll do that very much through a value lens and do the trade-off between the value from — the P&L value from the deposit and the margin impact versus retaining the relationships and the liquidity value that that gives us. So that’s how we think about it. Thanks, Alvaro.
Alvaro Serrano: Thank you.
Operator: Our next questions will come from Joseph Dickerson from Jefferies. Joseph, if you’d like to unmute and go ahead.
Katie Murray: Good morning, Joseph.
Paul Thwaite: Good morning, Joseph.
Joseph Dickerson: Can you hear me?
Katie Murray: Hi, Joe, we can’t hear you.
Paul Thwaite: We move on to the next question.
Operator: Unfortunately we are struggling to hear you, Joseph, if you’d like to rejoin the call and then we’ll come back to you for more questions. Our next question will come from Guy Stebbings of BNP Paribas Exane. If you’d like to go ahead, Guy, and ask your question.
Paul Thwaite: Hey, Guy.
Katie Murray: Hi, Guy.
Operator: Guy, if you’d like to unmute and ask your question.
Guy Stebbings: Hopefully, you can hear me now. Apologies for that.
Paul Thwaite: Yes, we’ve got you.
Guy Stebbings: Brilliant. And so the first question was back to the medium-term royalty guidance. I’m just trying to understand why you’re not changing that guidance at this stage. On the face of it, you’re now expecting quite a meaningfully lower net interest income performance than previously and in very round numbers, we could be talking close to £1 billion lower. And your expectations for risk weighted assets and by association required tangible equities is also higher. So just trying to gauge where are the positive offsets that help to mean that you still can deliver a 14% to 16% range or that’s still sort of the same range as previously, but it does sound like perhaps some incremental work on cost, but presumably not enough to fully offset some of those headwinds.
So I’m just trying to understand, is there an element of timing here as well? And really medium-term royalty guidance is something that’s really for discussion at the full-year, especially given the challenges in judging exactly how deposits evolve. And then just a quick follow-up on the 2025 RWA guidance. Could you elaborate on what assumptions you’re making there in terms of how the PRA may tweak the final rules? Some of the commentary recently sounds constructive on the face of it. So just interested in any color you’re giving and how you think those rules land. Thank you.
Paul Thwaite: Good. Thanks, Guy. When I say a little bit on the royalty piece and then Katie maybe you can talk about some of the building blocks, so crystal clear that royalty is the North Star. We know how important that is for capital generation and distribution capacity. You’re right. We do believe from a medium-term perspective, we’re not changing the 14% to 16%. We expect to operate in that range. The stress on the medium-term we know as you allude to, it’s difficult to be precise because there’s a number of moving parts, but I do think there’s a number of building blocks. We want to kind of be helpful there and help you with some of those building blocks. So Katie, do you want to talk a little bit about how we’re thinking about it?
