Oct 30, 2013
Unknown Executive
Welcome to the Barclays Q3 IMS Analysts and Investors Conference Call. During the call, Barclays representatives may make forward-looking statements, including within the meaning of the U.S.
securities laws. By their nature, forward-looking statements involve risk and uncertainty, and as a result, Barclays Group's actual results and capital and leverage ratios may differ materially from the plans, goals and expectations which they will talk about.
Nothing on this call is intended to constitute a profit forecast. [Operator Instructions]
Operator
Welcome to the Barclays Q3 IMS Analysts and Investors Conference Call. I will now hand you over to Antony Jenkins, Group Chief Executive.
Antony P. Jenkins
Good morning, everyone, and thank you for attending today's call. I'm joined here by our new Group Finance Director, Tushar Morzaria; and our Group Financial Controller, Peter Estlin.
I'd like to take this opportunity to welcome Tushar formally to Barclays and also to thank Peter for his work as acting CFO since Chris Lucas' retirement in August. Peter will shortly take you through Q3 and the year-to-date performance in detail, then Tushar will give you an update on the Leverage Plan and, in particular, the analysis that we have underway identifying further opportunities to reduce the group's balance sheet and the leverage exposure.
But first, I want to take a few minutes to share my thoughts on Barclays today and, in particular, how we're progressing with the key elements of our Transform program. When I unveiled our new strategy on February 12, I talked about how I see banking that's in a period of profound change.
Demographics, regulation, technology and economic conditions have shifted markedly and irreversibly. This means that the business models and approaches that we have deployed in the past are simply not fit for purpose.
Our goal of becoming the 'Go-To' bank, driving cultural change within Barclays and creating the Transform program, is our response to that new paradigm. And our experience in the 8 months since February has confirmed that we are taking the right course.
It is not an easy course, but it is the right one. Now that profound change manifests itself in many ways, but for me, it crystallizes into 2 macro-level challenges that we have focused on since February.
The first is balance sheet optimization. The days when the management of the size and character of your balance sheet was the second-order priority for our bank are gone.
This is partly due to regulatory change, of course, but far more importantly, it is predominantly driven by a fundamental belief that we need to drive stronger and more sustainable returns for our investors. The root and branch analysis we conducted as part of the Transform program, breaking the bank into 75 lines of business, was a major initiative by Barclays to optimize our balance sheet, but it was just the first phase of our response to this particular macro challenge because the work on balance sheet optimization doesn't stop, it must be ongoing.
As I said in my remarks at the half year, I believe we can do more in terms of further leverage exposure reduction beyond the current targets in the Leverage Plan we have agreed with the PRA. I've asked Tushar to focus as a priority on the review we have commissioned of the original Transform analysis, looking afresh at the returns of all of our businesses considering both risk and leverage.
The experience he has gained working for most of his career in a U.S. investment bank makes him ideally placed to lead this for us.
And he will talk to you in a few moments about how he intends to approach the challenge. I know that many of you will want a number on further balance sheet reductions today, but I do not want to constrain Tushar or his team's thinking by setting a target for them, and it is simply premature to give an indication of what the outturn will be.
However, I can say with certainty that, over time, we will achieve more than the GBP 65 billion to GBP 80 billion reduction we committed to in July. And we will update you around the time of our full year results on the outcome of this work.
As with our commitments in Transform, we will be clear on quantum, clear on the timing for delivery and clear on the actions we intend to take. The second macro challenge, and something that I have described as the strategic battleground for banks over the next 20 years, is cost.
This is not simply a question of becoming more efficient in reducing the cost of doing business. For us, it is about how you capture those savings in a way which improves control, reduces error and enhances the experience of our customers and clients.
My belief is that if you approach the challenge with that outcome in mind, then you create a win-win. But it does mean thinking differently and challenging the orthodoxy, which is exactly what we're doing.
And the key to success is through greater use of technology. That is why a significant proportion of the investment in the cost to achieve Transform is and increasingly will be focused on industrialization and innovation.
We are working on ways to automate systems which have traditionally been performed manually, all but removing the risk of human error and simultaneously driving down cost. Huge waves of activity have the potential to be automated, and we are in the vanguard of driving that in Barclays.
Trading, lending and servicing, for example, are all obvious areas where automation can deliver benefits. Similarly, the rapidly growing use of technology by customers and clients is a trend which clearly indicates how banking services will increasingly be accessed in the future.
By way of illustration, U.K. retail banking today now has over 2 million individuals who regularly use our mobile banking service.
We have already seen this lead to an 8.4% reduction in call center volumes. Almost half of all consumer lending in Barclays last month was transacted by customers without visiting a branch.
Our pioneering payments technology, Pingit, now has over 1 million registered users. The majority are individuals, but we are also seeing significant takeup by small businesses, now totaling over 25,000 users, and the increasing numbers of corporates also using the technology.
At current rates of growth, it won't be long before an average of over GBP 1 million per day is flowing through Pingit. This change in how people want to engage with banks can make a customer's experience quicker, more responsive and more satisfying.
And to be clear, this behavioral shift is not a future trend, it's happening now. The implication of this shift is that the traditional branch model and other points of contact will become less important to customers as part of the service mix over time, and that in turn represents a significant opportunity to better serve customers and save cost.
So this area remains a strategic focus for us, and we are on target to meet our commitment of a cost base, net of CTA, of GBP 18.5 billion this year, GBP 17.5 billion next year and GBP 16.8 billion in 2015. Before I hand to Peter to cover the numbers, let me just say in closing that I feel very positive and confident about the business.
This is for a few reasons. The first is the underlying strength of our franchise and good progress by several of our businesses in the quarter and year-to-date.
I am pleased to see profits grow year-on-year in U.K. RBB, Barclaycard, Africa and Corporate Banking businesses, even after absorbing their portion of cost to achieve the Transform.
In the Equities business of our Investment Bank, we saw income rising markedly more than the peer average in the quarter. And we've also captured market share in global, EMEA and cross-border M&A activity, as well as global IPOs.
This progress helped offset a challenging quarter for FICC. While the resilience of our performance is welcome, I am not complacent.
My executive team know we must push harder in the final quarter and into 2014. Second is that the execution of the plan to meet the PRA leverage target of 3% by June 2014 is on track, and Tushar will say more about that shortly.
But the third and most important for me is the growing momentum in the delivery of our Transform program, our response to the profound change we are seeing in the industry. The progress we are making, particularly in terms of RWA reduction and costs, further cements my conviction in our ability to meet the financial commitments we revised and reconfirmed in July.
With our stronger capital position, progress in derisking the bank for reputational and legacy items and the right leadership team in place, Barclays is primed to seize the opportunities and accommodate any challenges which will arise over the coming months. I'd now like to hand to Peter to review the group's financial performance in more details over the quarter.
Peter?
Peter Estlin
Thank you, Antony, and good morning. Today, I'm going to run through the results for the first 9 months of the year.
In reviewing our financial performance, our focus has been on both earnings generation and increasing our capital strength. Despite the challenging macroeconomic environment, particularly in the capital market, underlying business performance across the group remains resilient, for example, in our retail and Corporate Banking franchises.
And we continue to maintain or strengthen our competitive positions. On earnings generation, adjusted profit before tax is down GBP 1.2 billion to GBP 5 billion.
Group income is down by just under GBP 1 billion, driven largely by lower income in Fixed Income, Currencies and Commodities, including GBP 317 million lower income following accelerated reduction at Exit Quadrant assets, and lower income in Head Office. Impairments have continued to improve, albeit with expected increases in loan loss rates in our retail businesses, more than offset by improvements in wholesale.
Costs remain on plan. Excluding Transform charges of GBP 741 million, we've reduced operating expenses by 3%.
On capital, our financial strengths remains a central focus as we have continued to make progress in building our capital position. We completed our Rights Issue, raising GBP 5.8 billion of equity in October, and we've made good progress in reducing RWAs on both CRD III and CRD IV bases.
We have also made initial progress in reducing our CRD IV leverage exposure, which Tushar will discuss shortly. Turning now to our profitability over the first 9 months of the year.
As usual, we're using adjusted numbers because they give a better understanding of business performance. And again, we've not adjusted for Transform charges, but we'll call out the effects of these costs on key performance metrics.
In general, our comments compare the first 9 months of this year with the same period last year. I've already mentioned the decline in adjusted income, improvement in impairments and lower operating costs, excluding Transform charges.
I would just add that the significant improvement in statutory profit before tax is because of a large favorable move in owned credits, which we adjust out. Own credits is a charge of GBP 125 million this year in contrast to GBP 4 billion last year.
The other adjusting items relate to the conduct provisions we took at the half year. On PPI, unutilized provision at the 30th of September was close to GBP 1.3 billion, and our swaps redressed a similar amount.
Utilization of these provisions in Q3 was GBP 387 million and GBP 56 million, respectively, in line with expectations. The decline in profits resulted in a decrease in our return on equity from 9.7% to 7.1%.
This is partly the result of Transform actions designed to help us achieve our 2015 financial target. Without the Transform charges, return on equity would have been 8.4%.
The group's cost-to-income ratio increased from 62% to 66%, although remained flat at 62% excluding Transform charges. And we remain on track to reaching a mid 50s cost-to-income ratio in 2015.
Adjusted earnings per share decreased to 21.9p, primarily as the result of lower attributable profit. We announced a cash dividend for the third quarter of 1p, making 3p year-to-date.
And we reaffirm our dividend commitment as set out in the Rights Issue prospectus. Turning now to performance by business.
In U.K. RBB, profits improved 3% to GBP 983 million as income growth was partly offset by an increase in impairments from the very low levels of 2012, which included provision releases.
We have had significant volume growth year-on-year in a number of areas, notably in the mortgage book. And in the quarter, interest margins improved 5 basis points.
In Europe RBB, the loss increased by GBP 586 million to GBP 815 million. This included cost to achieve Transform of GBP 357 million as we reduced headcount and closed distribution points.
New business activity was modest, focused only on our mass-affluent target customer base. Profits in Africa RBB increased 59% to GBP 344 million.
This increase was mainly due to lower credits impairment provisions in the South African home loans recovery book. Reported income was down 10%, although constant currency income increased 3%.
Barclaycard grew profits 2% to GBP 1.2 billion, supported by net lending growth across the business, which drove an 11% increase in income. And in the quarter, interest margins improved 15 basis points.
I'll cover the Investment Bank separately in a moment. In the corporate bank, we have made strong progress, with profit up 70% to GBP 678 million, driven by significantly lower impairments across all regions and 6% income growth in the U.K.
Wealth and Investment Management profits decreased to GBP 54 million, largely as a result of Transform charges and higher credits impairment. The loss in Head Office of GBP 292 million reflects the non-recurrence of one-off gains from hedges of employees share awards in 2012 and the residual net interest expense from treasury operations.
Looking at the net interest income and margins across the group. Total interest -- net interest income was down 4% to GBP 8.5 billion, reflecting lower net interest income in Head Office and Investment Banking, and lower contribution from the structural hedge.
Across the group, this was more than offset by higher customer income. As you know, we calculate our net interest margin across our retail, Corporate Banking and wealth businesses.
Average customer assets for these businesses were up 3%, and average customer liabilities were up 14%, as overall volume growth offset an 8 basis point decline in the net interest margin to 177 basis points. Customer margins fell 3 basis points, and there was a 5 basis point decline in the noncustomer margin as a result of lower contribution from the structural hedges.
In comparison to Q2, our Q3 net interest margin has improved 3 basis points, driven by an increase in the customer margin and a broadly stable contribution from our structural hedges. We continued to support the U.K.
economy with a further GBP 24 billion this quarter of eligible lending under the Funding for Lending Scheme. More specifically, our U.K.
mortgage books have grown 8.1% year-on-year to GBP 121.6 billion, although we note more recent increased competition for new business. As you know, we were one of the first banks to launch eligible products earlier this year under the Help to Buy equity scheme.
And more recently, we were pleased to confirm our participation in the Help to Buy guarantee scheme. Given the scale of contribution from the Investment Bank, I'd like to take you through our overall performance in more detail before coming back to group impairments and cost trends.
Total income in the Investment Bank was down GBP 600 million to GBP 8.6 billion. This was largely driven by a decline in FICC income arising mostly in Q3, offset by good income growth in Equities and IBD.
Impairment was flat at GBP 200 million, and we reduced costs by 7% to GBP 5.4 billion. This excludes the Transform restructuring charge of GBP 175 million, as we reduced the size of our Equities and Investment Banking operations in Asia and in Europe in Q1 this year.
Reduction in operating expenses generated by cost savings were partially offset by GBP 257 million of infrastructure improvements. These include investments to meet various regulatory requirements.
Including Transform, the cost-to-income ratio increased from 63% to 65% despite cost reductions as a result of the decline in income. The compensation-to-income ratio rose to 41%.
Excluding Transform charges, this was 40%. With the income environment had been subdued, we have continued to make progress on reducing our risk-weighted assets and capital employed in the Investment Bank.
Our CRD III RWAs have been reduced from GBP 180 billion to GBP 157 billion, and our CRD IV estimates at the 30th of September was down to GBP 234 billion. Taking a more detailed look at our quarterly income progression in the Investment Bank.
Total income of GBP 2.1 billion in Q3 was down 22% on a strong third quarter last year. This appears to be broadly in line with what we are seeing from several competitors following subdued markets in Q3.
Breaking the quarterly income progression down further. FICC income decreased by GBP 735 million year-on-year to GBP 940 million in a tough quarter for the FICC markets, generally, following comments in late June about the cessation of QE program.
We saw the benefits of the greater balance we now have in our Investment Bank as the decline was partially offset by growth in Equities and Prime Services, which was up GBP 122 million to GBP 645 million, reflecting market share gains with volumes decreased year-on-year; and Investment Banking income, which was up GBP 32 million at GBP 525 million. Within FICC, both Macro and Credit Products declined Q3-on-Q3 by 37% and 31%, respectively.
And excluding the income reduction from Exit Quadrant assets, overall fixed income declined 34%, largely reflecting lower market volumes as more broadly observed. Within Macro Products, rates declined, reflecting the effects of central bank comments on tapering of QE program.
Credit was impacted by a disappointing performance in securitized products. Although excluding these, credit was up 6% Q3-on-Q3.
We accelerated Exit Quadrant asset reductions during the year, resulting in GBP 317 million of lower income year-to-date. In the comparative figures for Q3 last year, we had a strong performance from these assets, but the rally in structured credits fed into our income line, particularly with the implementation of IFRS 10.
As opportunity arose this year, we took advantage to accelerate the sell-down of our Exit Quadrant assets, foregoing slightly more income than expected but at prices in line with marks. This has contributed to a 50% reduction in Exit Quadrant CRD IV RWAs to GBP 40 billion as of the 30th of September, substantially towards our 2015 target.
We continued to see the benefits of the investment we have made in our franchise with a strong performance in Equities, with income up 26% following the buildout of this business. In the U.K., we won 3 new corporate broking mandates in the last 2 months alone, and we are now a top 5 corporate broker for FTSE 100 companies with 17 clients.
Our Investment Banking business is making good progress too, with significant highlights in the quarter including the Verizon transaction where we acted as financial advisor, committed our balance sheet on the USD 61 billion bridge facility and book-run the subsequent USD 49 billion bond offering, showing the breadth and strength of our franchise. And we feel encouraged by the strong pipeline we have in Investment Banking as we look ahead.
Returning back to group results and impairment trends. Impairment for the 9 months improved 6% to GBP 2.4 billion, with significantly lower charges in Corporate Banking and Africa RBB, driven by ongoing actions to reduce exposure in Europe, and lower charges in the South African home loans recovery book as a result of initiatives undertaken in the prior year.
This more than offset increases in other retail businesses and wealth. U.K.
RBB impairments increased to GBP 259 million, mainly due to the non-recurrence of 2012 provision releases in unsecured lending and mortgages. In Europe RBB, charges were up 14% to GBP 209 million, partly due to movements in exchange rates but also a deterioration in recoveries, mainly in relation to Exit Quadrant assets, which accounted for GBP 154 million of the charge.
Impairment increases in Barclaycard were as expected and were due to portfolio growth, including acquisitions, as well as the non-recurrence of provision releases in 2012. Loan loss rates in the U.K.
and U.S. were broadly stable.
In South Africa, they increased, partly due to the Edcon acquisition at the start of 2013. The performance of our major credit portfolio continues to be resilient despite the macroeconomic environment.
Turning now to costs, a key element of the Transform program. Overall, costs were on plan, increasing 2% to GBP 14.1 billion.
Excluding Transform charges of GBP 741 million, operating expenses were down 3%. There is some seasonality in our cost base, for example, the bank levy in Q4, which we expect to be in the region of GBP 520 million to GBP 540 million.
We continued to see a downward trend in costs each quarter against the previous year, and we expect to see this decline further in 2014 as more Transform actions kick in. As Antony has said, we're on track to achieve our cost target through the Transform program.
And just to remind you of the flight path for the Transform charges we announced at our interim results: GBP 1.2 billion this year, GBP 1 billion next year, GBP 0.5 billion in 2015, resulting in an underlying cost base of GBP 16.8 billion in 2015. At this point, we still anticipate a further GBP 450 million of costs to achieve this year.
Moving now to capital, liquidity and funding. Our Core Tier 1 ratio has increased to 11.3% on a Basel 2.5 basis, reflecting a significant reduction in RWAs.
Increasingly, our focus is solely on our CRD IV Common Equity Tier 1 measure as implementation on the 1st of January approaches. The estimated fully loaded CET1 ratio at the 30th of September was 8.4%, up from our estimates of 8.1% at the half year, helped by the significant reduction in CRD IV RWAs in Q3.
Pro forma the Rights Issue, the fully loaded CET1 ratio is 9.6%. And as we announced in July, we expect to get to 10.5% on a fully loaded basis early in 2015.
In addition to the reduction in RWAs, leverage exposure has also reduced. Tushar will say more on leverage shortly, and detailed calculations of the ratios are in the Appendix to the slide pack on the website.
On liquidity and funding, our position remains strong, allowing us to reduce our liquidity pool in Q3 to GBP 130 billion, in line with our strategic funding plan. Based on Basel III standards, our leverage -- our Liquidity Coverage Ratio was 107% as of the end of September, down from 111% at the half year.
We aim to fund the -- our retail banking, Corporate Banking and wealth businesses predominantly with customer deposits. The loan-to-deposit ratio for these businesses has improved significantly year-to-date from 102% to 94%, remaining stable during the past quarter.
The group loan-to-deposit ratio was 100%, improved from 102% at the half year. This has reduced our term wholesale funding requirements, and our term issuance year-to-date has largely offset by that.
Following the Rights Issue, we believe we are well capitalized on a risk-weighted ratio basis. And along with our commitment to meet the PRA's leverage ratio, these remain our primary focus in terms of capital parameters as we deliver our strategic plan.
Before closing, a few words on current trading and outlook. As we saw in Q3, markets are still mixed, and consequently, we continue to be cautious about the environment in which we operate.
So in closing, we believe underlying business performance year-to-date has been solid, with good growth in our corporate and retail franchises. We have made significant progress in managing down Exit Quadrant assets.
We've made a successful start on delivering the Leverage Plan, with the Rights Issue completed and some initial reductions in leverage exposure. And perhaps most importantly, we remain acutely focused on costs where we expect to see the impact of the Transform program and the next wave of actions further reduce quarterly run rates as we drive towards our GBP 16.8 billion target in 2015.
And with that, I'll now hand over to Tushar.
Tushar Morzaria
Thank you, Peter, and good morning to everyone. I joined group -- Barclays as Group Finance Director just recently, and I look forward to meeting many of you in the coming months.
Peter has covered the results, and I thought it might be helpful if I share with you some of my initial thoughts about our capital position and my priorities over the next few months. A key area that Antony has asked me to focus on is the leverage at Barclays, particularly the execution of the Leverage Plan that was initiated during the summer.
Those of you that have had a chance to go through our results will have seen that we have reduced our CRD IV leverage exposure by GBP 78 billion since the half year, obviously a good starting point, although about GBP 60 billion of that reduction was driven by market movements such as strengthening of sterling against the dollar and euro. The rest, so about GBP 20 billion, was driven by actions against our GBP 65 billion to GBP 80 billion overall target, so we're about 1/4 of our way through the initial deleveraging actions that we laid out in the summer.
Given the impact that factors such as FX have on the leverage calculation, I'd encourage everyone to focus as much on the leverage ratio itself as on the individual component parts. So as I just mentioned, although our CRD IV leverage exposure reduced materially to GBP 1.48 trillion this quarter, our CRD IV leverage ratio improved only slightly, rounding to 2.5%.
Post the Rights Issue, this measure would stood -- have stood at 2.9%. Now as you also know, our immediate objective is to reach the PRA's expectation of 3% by the middle of next year on their measure of leverage, which is essentially the same as CRD IV but with additional deductions to our capital base, totaling GBP 4.1 billion as of the 30th of June.
Applying the same level of capital deductions and post the Rights Issue, the PRA measure would have been 2.6%. So that leaves another 40 basis points to get to the targeted 3%.
That's the equivalent of generating a further GBP 6 billion of capital. Up to GBP 2 billion will be generated from the forthcoming AT1 issuance, and the remaining through the GBP 45 billion to GBP 50 billion of identified deleveraging actions, some earnings retention and other forms of capital accretion.
So let me now turn to the work that I am leading on this. I mentioned the focus on the ratio, and I don't feel -- like the ratio to move up and leverage exposure to move down materially as quickly and as efficiently as possible.
This would involve making decisions that are, in some cases, tough. However, these decisions will be fully pulled through.
My objective here is straightforward: to reassess the group balance sheet from several angles and determine the best optimization of leverage, capital and risk assets, as well as other measures like revenue, cost and liquidity. For me, this is all about optimization and managing the associated trade-offs.
From what I've seen briefly so far, there will be reductions beyond the GBP 65 billion to GBP 80 billion that we identified in the Leverage Plan, and I will talk about the quantum and cost as the work becomes more definitive and further progressed over the next few months. Regulation remains a critical variable in this work.
And while we have more certainty on some items than we did last year, there are still several moving parts. These are important, and we will anticipate these as best as we can, so it will not always be perfect.
In addition, we must recognize that others will be implementing measures over a longer period. We must be careful to strike a balance between swift action and remaining competitive in the marketplace.
At its simplest, the general direction of travel on regulation is clear. Balance sheet assets need to be smaller, and more capital held against them.
That is the reality, and I am determined that Barclays will get on the front foot of these trends. Looking ahead, this work will not be on a onetime basis.
We need to have a new management process and discipline that more actively manages the balance sheet than in the past. This is, to me, the best way to future-proof against evolving regulation by anticipating regulatory outcomes where we can and dealing with them quickly, ingraining them in our business plans.
Now I've been looking at the plans that were in place when I joined, and started to think about ways in which we can either optimize or accelerate these furthers. I look at this as a forensic review of our balance sheet and businesses, building block by building block.
Although the work had started prior to my arrival and there is more to do, I've been impressed by the granularity and specificity in the plans that were drawn up over the summer. Okay, let me touch on some of the techniques that we can use to manage leverage.
These will be familiar to you, and hopefully, my comments will give you a flavor of some of the areas we are pushing hard on. Firstly, while we believe risk-weighted measures remain a key metric to drive capital allocation, we are refining our internal capital allocation framework to ensure that we are assessing our business units through a CRD IV leverage lens as well, applying capital at a granular level.
This discipline will be ingrained in our business reviews and performance assessments. In my mind, correct capital allocation across these axes ensures we drive the right business outcomes against the finite resources that we operate with.
Having said that, of course, there are actions which we can take which clearly make sense whatever the precise outcome of this review. For example, let's take derivatives.
You well already know that derivative add-ons for leverage or potential future exposures is a material contributor to our leverage exposure, about GBP 300 billion or nearly 20% of our overall leverage exposure. Here, we are looking at better application of netting rules within our internal systems, and compaction and tear-ups across a range of derivative products from, for example, cross-currency swaps, credit derivative exchange traded and, essentially, cleared OTC derivatives.
Some of the actions that we take will have an impact on income. We will make decisions that prioritize capital and leverage over income, where doing so generates a better and more sustainable return for our shareholders.
In repos and secured financing transactions in general, there are also internal operational improvements that can be made to ensure that transactions are adequately captured and we achieve the maximum netting benefit. Repos can generate sizable IFRS or on-balance-sheet assets.
While generally comprising low risk, we need to manage our match-booked activities with the leverage lens in mind as well, and we will set stronger business limits as appropriate to ensure that the book is managed to avoid unnecessary fluctuations and to reduce exposure where appropriate. Acute financing only generates about GBP 100 billion of leverage exposure at the moment, but you are no doubt aware of the consultation paper that Basel put out in summer.
And if that proposal becomes final, wholesale secured financing would become a much larger contributor to our leverage exposure. And as I mentioned, we do need to be anticipatory around these issues as best as we can.
Of course, some rule changes may actually be beneficial. For example, there may be changes to the calculation of PFEs.
We will, however, look at all of our balance sheet assets and other leverage exposures to ensure that the return on these assets is appropriate in a leverage-constrained world and that our Transform financial targets are met or exceeded. Finally, I would expect both our balance sheet size and leverage exposure to continue to decrease over time, so it may not always be linear and will be subject to some seasonal movements.
I hope these remarks give you a flavor of where I'll be focusing my efforts over the next few months. And I look forward to updating you on our plans and actions in due course.
And with that, I'll hand back to Antony to wrap up. Thank you.
Antony P. Jenkins
Thanks, Tushar. And it's great to have you on board.
To wrap up. It's been an extremely busy quarter for Barclays.
A lot has been accomplished, and we are stronger as a result. I remain absolutely confident of our ability to meet the targets we have set out and that we will become the 'Go-To' bank.
And with that, I am happy to take your questions.
Operator
[Operator Instructions] Your first telephone question today, Mr. Jenkins, is from Raul Sinha of JPMorgan.
Raul Sinha
Antony, Tushar, can I have a couple of questions, please? Firstly, on your legacy Exit Quadrant assets where you seem to have made better-than-expected progress.
Especially in the IB where you're already down to GBP 40 billion and your target is GBP 36 billion over the next couple of years, I'm sort of wondering as to whether or not, alongside the Leverage Plan, you also will look at producing or accelerating this target further. And should we sort of expect that, that is also a further view rather than just purely a leverage lens?
Antony P. Jenkins
Do want to ask your second question as well?
Raul Sinha
Yes. My second question is I was wondering if you can update us on litigations.
Obviously, on PPI and swaps, you do have significant unutilized provisions. Of this -- clearly, a lot of news flow out there in terms of new and upcoming action from regulators around the world.
Is there anything that you believe that we need to be aware of in terms of management actions that might need to be taken? And are there any sort of particular issues that you might want to flag to us?
Antony P. Jenkins
Okay. On the first question of legacy assets, obviously, we're pleased at the progress of running them off.
And as part of the rerun of the business portfolio review that we conducted in February, we will look again at what's in the Exit Quadrant and, if possible, seek to accelerate that. And I think you can expect us to update that at the same time as we update on leverage.
In terms of litigation, of course, we've disclosed comprehensively, not only in all of our management statements and half year updates but also in the prospectus, everything that we know about at this point in time and everything that we can comment on. With respect to PPI and interest rate swaps, I'll ask Peter just to give us a short update as to where we are on those projects.
Peter Estlin
Yes, Raul, on interest rate swaps, firstly, really not a significant movement in the quarter. I mean, we incurred an additional GBP 56 million of costs primarily, so nothing really more to say on that one.
We've -- we remain at GBP 1.3 billion on the balance sheet. On PPI, perhaps more substantial movement, really 3 components.
In the quarter, we saw about a 9% drop in flows, so a continual full inflow, which is good. Secondly, on the proactive, we've now completed 78% of our proactive redressed.
And there, we're seeing response rates coming in slightly lower than anticipated, albeit in some cases, some of the redress is slightly higher. So some good progress there.
And then lastly, with claims sitting with the falls [ph], we were -- we took a sort of decision to sort of try and proactively address those, so we sort of agreed 40% of those in the quarter having made about half -- payments on half of those specifically in the quarter. So for us, I think, in that sense, it's getting -- trying to get ahead of the curve.
Operator
The next question is from Andrew Coombs of Citigroup.
Andrew P. Coombs
I have 3 questions, in fact, 1 on costs, 1 on asset reduction and a more of a high-level question for Tushar. On the costs, firstly, I mean, if we take your Q3 cost base and add GBP 513 million to the levy, then you're looking at a Q4 cost base of about GBP 4.8 billion.
On that basis, full year will be about GBP 18.2 billion, which will be somewhat below your GBP 18.5 billion target. So I was just wondering, are there any other large cost items in Q4 we should be expecting?
That's the first question. Second question, on CRD IV asset reduction, you've seen a GBP 78 billion reduction quarter-on-quarter.
As you mentioned, you're about 1/4 of the way through your reduction plan, but it seems there's been a much larger component or a much larger reduction due to settlement balances. So interested in how much of that you think is seasonal versus a structural reduction there.
Should I come back to the high-level question, or should I deliver that one as well?
Antony P. Jenkins
No, it would be good if you could have it -- give us the high-level one too.
Andrew P. Coombs
Good. So the high-level question is just with regards to the CRD IV asset base.
When you look at your peers, the add-on, also the reverse repo book, it does look disproportionately large versus the wholesale peers. And given that Tushar is coming in from one of those peers, I'd be keen to know his thoughts on why he thinks that is.
Is it purely because Barclays has historically never had to match to a leverage ratio so there's a proportion of, should we say, lazy assets there? Or is it a case of Barclays is perhaps more balance sheet led in order to drive market share gains within the FICC business?
Antony P. Jenkins
Let me talk about the cost number, and I will ask Tushar to address both of your points on CRD IV. I took a bold step in February when I announced the half cost target for the group.
We did not go the way of some others where we just talk about cost takeout or we sort of make some sort of amorphous reference to a ratio. And the reason why this is was because I believe in this notion of automation and a sort of new era of industrial revolution in financial services and that the competitive advantage in this industry in the next 1 to 2 decades will stem, in large part, from organizations' ability to automate.
This, of course, affects the cost base, but it also affects things like operational risk, smoother straight-through processing and less defect brings down your RWA requirement around op risk, for example. So I took that bold decision and I am holding the organization accountable for delivering on it.
It is a tough commitment because, of course, things come up that inevitably weren't foreseen, a regulatory change or some other thing that we have to do. And of course, there are a number of businesses that we want to continue to invest in.
And if I think about Barclaycard or Africa, we want to continue to fuel those businesses. So what I would take away from my comments on cost is that we are absolutely committed to deliver the targets that we've laid out, and we remain so.
And we remain confident in those things and we'll seek to optimize and size the targets with the best possible outcome for our shareholders. Now Tushar will talk about CRD IV.
Tushar Morzaria
Yes. Andrew, so your first question, on the GBP 78 billion reduction quarter-on-quarter on our CRD IV leverage exposure.
So as I mentioned, GBP 20 billion of that, think of that GBP 20 billion as permanent and structural. And think of the rest as sort of seasonal fluctuation, some of it driven by, as you pointed out, to settle on balances that will ebb and flow and some of it driven just by market rates.
So a lot of it is actually from FX. But think of it, GBP 20 billion, as a permanent structural reduction against our plans.
Your other question, sort of comparing Barclays CRD IV asset base maybe compared to other peers. Look, it's pretty early days for me, I've been in the company a couple of weeks, so I'm very much getting into the details of the businesses as we speak.
You obviously heard me talk about the need to be much more active and granular in our management of the balance sheet, and that's really the discipline we'll put in place. But I think it's a bit early days for me to start commenting about really across from peers.
Operator
The next question is from Chintan Joshi of Nomura.
Chintan Joshi
Tushar, welcome to the new job. Can I have 3, please?
For how much -- of the legacy RWA number, could you give us the leverage number associated with that legacy RWA number? And vice versa, how RWA intensive is the exposure that you've detailed on Slide 22?
That's the first couple. And then the second question is, Tushar, you mentioned about using the leverage lens for capital allocation, how does this translate into decision-making?
So does this mean that the traditional bank, where leverage ratio is quite high, that they would focus on -- kind of move away from risk-weighted assets focused on leverage because that has ROE implications for them? And again, on the Investment Bank side, how do you move that decision-making process?
Some color around that would be helpful.
Antony P. Jenkins
I'm going to ask Peter to talk about the first 2 questions around legacy RWA and the point on Slide 22 and I'll ask Tushar to make some comments about process. But I mean, I think the short answer to your question is that we are seeking to optimize legacy, risk weightings and ROE, and that is a complex optimization.
But I think it would be useful for Tushar to share his perspective. So if you could take the first 2 points, Peter, and then we'll ask Tushar to take the last 1.
Peter Estlin
Yes, Chin, I mean, I think looking at the legacy assets that we would dispose, I mean, realistically, they are pretty RWA-intensive assets, and therefore, they tend to have low leverage. We don't spell it out precisely.
And turning to your sort of second part of the question in terms of Page 22, again, I mean, Tushar might sort of cover all this as part of the broader review. I mean, clearly, we do see opportunities in each of those areas, we're working through that, and then there will be more opportunities coming through following his review, some may be absolute reductions, some may be looking to reprice business to make that more attractive.
Tushar Morzaria
Yes, I think that's right. And so the process that we're going through is really to manage the balance sheet on 2 axes.
It's, there, I think, historically has been an intense focus on managing the balance sheet on a risk-weighted axis. We're now going to obviously have a, like, twin frame of managing it through a leverage and risk-weighted asset basis.
That work is ongoing. So we will develop a framework where we will look to optimize our returns under both of those axes and work on a capital allocation methodology.
That reflects that. And we'll talk about more of that when the work's done.
It's very early days yet to give you sort of any more specific details. So we'll definitely share that with you in the months to come.
Chintan Joshi
Just following up on Slide 22, could you give some sense of the risk-weighted asset intensity of those exposures?
Tushar Morzaria
Which -- any particular one?
Peter Estlin
Any particular...
Chintan Joshi
Yes, derivatives, SFTs, undrawn commitments.
Peter Estlin
Well, undrawn commitments generally have got relatively low RWAs by their nature. And then derivatives, yes, I mean, from a CRD IV perspective, we picked some of that up in terms of both CVA-intense parties.
So it then gets absorbed into that. So yes, they are less attractive as a product.
Operator
Our next question today comes from the line of Manus Costello from Autonomous.
Manus Costello
To ask a question about Slide 41, please, which is your assumptions about your capital calculation. Apologies for moving to the small print of this, but as we all discovered in the summer, the assumptions that go into the capital calculation are quite significant.
But it looks like there's 2 changes to this slide versus what you showed previously. Firstly, you say you submitted some models to the PRA for approval.
And you comment that changes to our approach may be required as a result of this. And secondly, you talk about the immaterial holding deduction in an EBA paper, which identifies potential changes in the calculation.
I just wondered if you could give us some idea of what the risks are to your stated capital position from those 2 caveats you've inserted on that slide.
Antony P. Jenkins
Yes, Tushar?
Tushar Morzaria
Yes. It's Tushar here.
So in terms of model approval, I mean, this is just to be very transparent with everybody. This is just a regular process as our models go through the PRA approval process for the new CRD frame -- IV framework that we'll be on for next year, so just to highlight that, that approval process is in process and you should be aware of that.
In terms of immaterial holdings, we have plans in place to ensure that our immaterial holdings are below the threshold for which capital reductions would apply. And we'll manage that very closely so that we are in that position before the year closes.
Manus Costello
And this EBA consultation paper, that's a point? It sounds like there could be a risk to that.
Or am I misreading that other point?
Tushar Morzaria
I mean, the reason why we're putting it out here is to be transparent. You can have, form your own view of the risks around any of these things.
Operator
The next question is from Michael Helsby of Bank of America Merrill Lynch.
Michael Helsby
I've got 3 questions, the first 2 are linked. So just focusing on costs, I was wondering if you could give us more color, Antony, on where the GBP 1 billion of clean cost reduction is going to come next year?
Maybe as a framework, if I look at Q3 and annualize the 3Q costs by division, I get to GBP 17 billion. Add GBP 0.5 million for levy gets you to the GBP 17.5 billion.
I know that's probably too simple because it's obviously seasonality, particularly in the IB, but I was wondering if there's any divisions that stand out, if you like, relative to that quarterly run rate. If you could highlight those, that would be really kind.
Secondly, on costs, just focusing on the Investment Bank. I mean, clearly, the revenue pool that you're looking at today is materially different than the one that you'd hoped, I'm guessing, that you were looking at in February.
So if that trend continues, just to what extent you can flex or cut more costs in the Investment Bank over and above what you've already communicated? And then finally, on the dividend, and I think this is really important because, clearly, the PRA put out its consultation paper.
Actually, your perspective came out way after that. So I noticed that you've reiterated your intention on the dividend again this morning which is, I think, quite significant.
So I'm just wondering, if you could give us more color on that, that would be good.
Antony P. Jenkins
Sure. Let me talk about the sort of micro costs point first.
As I said earlier, we are committed to delivering the GBP 17.5 billion next year. It will not be entirely following the profile of the cost base today because some units are further advanced with this work than others.
You'll note, for example, that, in Europe, we're well on track to exit the 2,000 people and close the branches that we said, so you should expect to see the benefits of that coming through next year. On the broader cost point with the IB, I think, when we laid out the strategy in February, we were very clear that our expectations for the revenue pools in which we did business were quite conservative.
And that was why we put this huge emphasis on automized -- automation and cost reduction because we knew that income was going to be hard to come by. Now unfortunately or fortunately, depending on how you choose to look at it, we were actually pressing on some of that and we've been proved to be right.
So the world that's in train is going to help us do that. We have to be careful about generalizing-up 1 quarter, 1 quarter doesn't make a trend.
But the general hypothesis on the pincer strategy is that revenue will be harder to come by. That's why we have to manage costs more tightly, and we will seek to do that.
But remember that a lot of this work requires structural extraction of costs, not just the sort of slash and burn you have in quarter, buying less paper clips and travel less, that sort of thing. So I do think that we are confident in the downward trajectory of costs.
And I think that will allow us to deliver on the ROE and CET1 commitments that we made in February. Regarding the dividend, we do and have reasserted our confidence in the dividend policy.
We believe that to be the case. The PRA is fully aware of the commitments that we've made.
The PRA has said to me that the document they issued on Pillar 2 is a consultation document. They are genuinely interested in getting views and forming a policy on that.
And our expectation is that -- in the period of Transform commitments which is basically '14 and '15, that we'll be able to deliver on the commitments that we made.
Michael Helsby
Okay. Can I just come back on the Investment Banking point, Antony?
Because I appreciate that you had probably a more cautious view on the Investment Banking revenue pool, and you've had that since essentially you took over as chief executive. But if I'm critical of what you just said, I think you -- clearly, you guided to mid-single-digit revenue growth in the IB as part of your Transform plan.
And unless we find out that this year was all cyclical in terms of a revenue reduction in fixed income, then that, that's going to be very, very, very hard to deliver. So I'm just pushing you.
I think when you first launched your Transform plan, I think one of the things that the investors really liked when you were around and delivered the feedback was that you would -- if revenues disappointed, that you would cut costs again, you wouldn't stop. So I'm just looking for that type of comfort from you that if there is a gap, you'll -- you won't stop.
Antony P. Jenkins
Well, anybody who knows me on costs will know that I am maniacal about it. So you should absolutely retain that reassurance around if we see that there is a structural shift downward in revenue beyond what we expected in any of our business, not just in Investment Banking, then we will rightsize the cost base to do that.
I think it's important to say, though, that we are seeing sort of a 1-quarter dip in performance, driven, I think, by some very specific views that the market had on the comments that the Fed made on tapering. So I want you all to be completely clear about this: a, we are reaffirming the cost commitments that we made previously; b, those cost commitments are difficult to deliver.
Remember, we are one of the very few, if only, institutions to have made absolute hard cost commitments. But three, if any of our businesses have a weaker revenues trajectory than we expected, then we will continue to drive the cost base down.
Is that comforting to you, Michael...
Operator
The next question will is from Tom Rayner from Exane BNP Paribas.
Thomas Rayner
Can I have 3 questions, please? The first 2 on capital and the final 1 on the Investment Bank.
Antony, you say that we can take it as certain, the leverage reduction is going to be greater than the current plan. Can we be certain what sort of benchmark you are going to be actually held to?
I mean, are we looking at CRD IV minimum leverage, the PRA stressed version of the leverage or perhaps what's in the sort of latest proposals in the Basel sort of consultation? Now that's my sort of first question on leverage.
I wonder if you want me to do all 3 before you start to answer.
Antony P. Jenkins
Yes, give me all 3, Tom.
Thomas Rayner
Okay. Well, the second one is again on capital, this time sort of focusing on sort of Slide 39 where you set out your sort of target capital structure, and you've been fairly consistent on that particular sort of diagram.
I noticed you've sort of added on that slide this sort of 10.5% may evolve in light of Pillar 2A and countercyclical buffer, so I guess my question is if Pillar 2A does require an additional equity requirement, what would you do in terms of the sort of the management buffer or the internal buffer? Does that simply move up in line with any additional equity requirement at sort of Pillar 2A or countercyclical level?
And then my final question is really for -- possibly for Tushar, on the sort of restructuring of the Investment Bank. Clearly, getting rid of the legacy assets is a big focus and seems to be going quite well, but when you go sort of this review and we look at the core RWAs, I think you were targeting about 180 x the sort of legacy.
If the review suggests that it's required, I mean, is that 180 possibly going to be reviewed and bought -- and maybe brought down? Would a material change, do you think, in the 180 be a likely outcome if that's what the review shows up?
So that are my 3 questions, please.
Tushar Morzaria
Yes, so pardon me, Tushar here. Let me take a couple of those ones.
So your first question around leverage and which particular measure of leverage are we managing the place to. I'd say, look, first and foremost, we obviously, at a very minimum, need to hit the PRA's expectation of 3% on their stress measure of leverage.
That's -- and so we'll see a slightly more onerous calculation than the present CRD before methodology, so -- and we're very confident that we will hit that in June. There are a bunch of -- while there is a consultation paper out there with a bunch of changes to the current CRD forecast, which I kind of alluded to in my sort of remarks earlier on, we will do what we can to be anticipatory around them and we'll try and manage the business with a degree of future-proofing.
But as I say, it won't always be perfect. And it's -- some things, we won't have guessed right the final outcome and we'll have to adapt, and we'll just be smart around that.
But we will try and be as anticipatory as we can. But you should sort of -- at this stage, until hear more from us, we're absolutely focused on delivering at a minimum the 3% stressed leverage measure of the PRA.
Your third question on whether there will be further actions around risk-weighted assets as part of this review, I'm not going to preempt the outcome of that. That work's really ongoing.
You know that I've been here a couple of weeks, so we're really just getting stuck into that. It may or may not, so it's hard for me to give you guidance such early days as to what the outcome of that is.
And let me take your second point, which I think is really around Pillar 2A, and Antony may have some further comments on that. The Pillar 2A is a consultation paper.
We'll -- I guess we'll hear back in the next few months as to what impact that has on us. We could speculate all day long as to whether that has an impact and what kind of impact and around what time, I'm not sure that's going to be hugely fruitful given that we'll hopefully know the answer over the next few months.
Obviously, when we have the answer, we can talk much more specifically about what that means to us and how we'll solve for that one. So you have all those fronts available.
So what -- that's my views at the moment on that.
Antony P. Jenkins
Yes. Thanks, Tushar, I think that's very well said.
Operator
Our next question comes from the line of JP Crutchley of UBS.
John-Paul Crutchley
Two questions, I think, on the Investment Bank, if I can, 1 big picture, 1 on the same point on cost, just trying to understand the flexibility about the cost line. I guess, at one level, when you look at the IB and how it's progressed this year, income down 7%, cost down 7%.
You feel like that's a good tick in the box. I guess, when you try to think about it in terms of the quarterly variance, what you saw clearly in Q3 was obviously a very sharp decline in income and not to commit to declining costs.
And I guess why that sort of leaps out at me a bit is, obviously, when you look across some of your peers, one of the big cheers [ph] of some other people's Q3 has just been quite clearly to sort of adjust the compensation, the accruals, et cetera, to reflect the sort of heightened abnormalities. And I guess just what I'm trying to get a feel, what that could be about Q4 costs and, in light of what could still be a difficult revenue environment, in terms of your flexibility to actually manage that number in terms of a quarterly basis.
I just wonder if we could make some comment on your -- on the actual levers you've got short term to really influence the cost if we do have a fairly challenging Q4 revenue-wise? The second question was actually a pretty slightly bigger picture on the Investment Bank.
And I guess, in this quarter, it's quite -- most have been away because, for the first time, the aggregate of Equities and Investment Banking levy have actually overtaken the fixed income business revenues, but probably not, by the way, you'd like to achieve. Obviously, you'd like to grow one more rather than one shrinking in that substantially.
But I guess the question is, in terms of the shape of the Investment Bank, the revenue picture in this quarter, do we attribute it wholly to cyclical factors and the difficult environment? Or is there to a degree to which there has been an element of conscious reshaping up a bit, you should stream to a new Investment Bank, which may be starting to influence some the overall business mix in that as well?
Antony P. Jenkins
Thanks, JP. So let me take the second question first.
There has been an attempt over the years to diversify the Investment Bank away from our traditional strength in FICC. And it's good to see that, that activity has been successful.
As we referenced in our speeches, not only have we seen the 26% increase in Equities revenue, but also our participation in Investment Banking activity on both sides of the Atlantic, has been very strong. So that is a strategic decision that we took.
I think it's also apparent from all of the discussion that we've had, particularly around capital and leverage, that the absolute revenue pool in FICC is likely to contract over the coming years. We still expect to be a sizable player in that business, even after all the work that Tushar described that's been done and executed.
But I do think you can expect to see over the years a greater balance between Equities and IBD and the FICC business in the Investment Bank, and I think that's the right way to get the best returns for our shareholders. On costs, I just want to reemphasize that we will adjust the cost base to the strategic view of the size of the revenue pools going forward.
What we are not going to do is change that on the basis of 1 quarter. Now having said that, I do expect the FICC revenue pool to shrink over time.
So there is an implication in that for us. Regarding your question about short-term leverage on cost base, we in the U.K.
have been required to run higher levels of deferral on compensation and than some of our U.S. competitors, and what that means, of course, is that the impact of prior year deferral shows up in this year's P&L.
And so we candidly have in the short term less ability to bring the cost base down immediately. That having been said, all of the things that we're talking about in terms of the future of the business, the Basel III and IBD and Equities and FICC, leads to a place where we will continue to push down the cost base within the IB across both compensation and across the operating costs while still -- and this is an important point, while still paying for performance and being competitive so that we can keep and hire the best talents in the business.
Operator
The next question is from Fiona Swaffield of RBC.
Fiona Swaffield
I have 3 questions, if possible. Should I say them all together?
Antony P. Jenkins
Yes, please, Fiona.
Fiona Swaffield
Firstly, on securitized products, you made some relatively specific comments about it being disappointing. Was there something particular on positioning?
Should we assume that, that could have a bit of a rebound in the fourth quarter, or something exceptional? The second area was the discussion of the Basel proposals.
You referred in the leverage discussion to potential for inflation on the repo side. Would you be able to give us any kind of indication of magnitude, and there's also quite a lot of other changes potentially on credit derivatives, et cetera, as to what you think that could do on a net basis to your leverage ratio?
And the third area is really on costs again. Performance-related costs, I think they're down about 14%.
I just wondered if you could comment on that in light of kind of the issue of deferred, because it does look like the accruals are coming down quite significantly.
Antony P. Jenkins
Yes, so I'll ask Tushar to take the first 2 points. And then perhaps, Peter, you can just talk on compensation costs.
Tushar Morzaria
Yes. Fiona, so on securitized products, you're sort of questioning whether there's anything more to Q3 given the relatively weak performance.
I think it's, firstly, a very strong comparative quarter, and that's probably the biggest sort of delta that you're taking away from that. And obviously, Q3 generally, for some of those types of products, was weaker than sequential quarters.
But really, nothing more than that, I don't think, I'd add to that. Your second question, potential increases due to credit derivatives and any other form of rule changes and as part of the Basel III leverage ratio consultation out there and what impact that has on us.
It's one of those things where I'll go back to what I said. We will be smart around trying to future-proof our businesses where we can.
We won't always get it right. I mean, some of these -- take for example, repos.
I mean, I can come up with at least 3 different outcomes for where repos would be under Basel III, 1 extremely onerous, 1 not so onerous and 1 in the middle of the pack. We just need to be smart around how we anticipate these outcomes and manage ourselves around them.
Same in we can talk about credit derivatives, I could also give you different outcomes for PFE calculations. So rather than going into specifics, I think you just expect us to be as smart around trying to be as anticipatory as we can around all of these outcomes.
I would say one thing, though: Managing on a -- or targeting a stressed leverage ratio as the PRA defines it will, in of itself, create some buffer to the CRD IV measure at the moment. So obviously, if the CRD IV measure does become a little bit more onerous, that will naturally be absorbed into part of that buffer.
Peter, do you want to talk on the costs?
Peter Estlin
Yes. And Fiona, on compensation costs, I mean, certainly as we look at it, really the -- it's an accrual basis through the year, and then the final decisions are taken on compensation for the full year, reflecting on the overall performance, as Antony was alluding to.
So I wouldn't read anything into it specifically in the third quarter, I mean, other than the fact that it's certainly, whether you look at it at the group level, on a comp-to-net income ratio or on the comp-income ratio for IB, I mean, those are both basically held flat. Excluding CTA, that's 38% and 40%.
So it's really just a moving piece of that.
Antony P. Jenkins
Thank you, Fiona.
Operator
The next question is from James Alexander of M&G.
James Alexander
Just got a question on Barclays Investment Bank. I remember, in the past few years, it's always been said that Barclays Investment Bank was kind of sound countercyclical versus its peers, that it would do better in down markets versus its peers and do slightly worse in up markets.
But this quarter seems to have reversed that trend that Barclays always talked about. So I'm just wondering whether that's it was never really true, or you changed the business models somehow in Barclays Investment Bank from what it was in the past.
Antony P. Jenkins
Well, James, I think, if you look historically, that absolutely has been true in the up and down quarters. Our FICC income was down 34% if you x out the legacy assets which we disposed of.
That's a good thing, of course. And that puts us right about the mean in the industry.
And I would say, finally, that this wasn't the sort of down quarter, this was a sort of no quarter where there was a massive move to risk-off and I think it's a bit of an extreme situation. So I don't think that you should infer from this that, a, the previous statements were never true; or b, that they aren't going to be true in the future.
Operator
The next question is from Chris Manners of Morgan Stanley.
Chris Manners
I guess you've done capital to death, so I had a couple of questions more on sort of operating performance of your retail and commercial business, actually, and so 2 questions. Firstly, net interest margin, actually up in the quarter sequentially.
For us, that showed quite encouraging considering previous trends you've had. And just firstly, I think you might be able to give us your thoughts on the crosswinds there and how you see that tracking going forward.
I mean, obviously, peers have been reporting rising NIMs in contrast to Barclays. Is that possible to have an inflection on your net interest margin, which could be encouraging?
And second question, on the impairment charge, obviously quite a bit better, so better in corporate and better in South Africa in the quarter. How do you see that trending?
Because I think, before, sort of Robert had been thinking maybe sort of flattish into next year, but maybe it could be a bit better.
Antony P. Jenkins
Peter?
Peter Estlin
Yes, Chris, I've got -- maybe I'll take that one. So I mean, firstly taking the sort of the U.K.
businesses, I think what you're rightly observing and we've sort of signaled historically, I mean, we're certainly getting to a flattening of the impact from the structural hedge, so that's good news. And that's certainly flattened off in Q3, having declined on a year-to-date basis.
I mean, secondly, yes, as I sort of alluded to, I mean, in particularly in select products, notably mortgages, the sort of the card business, yes, we are seeing opportunity to widen asset margins in particular. And I think, as I look forward, as with really a strong LDR, loan-to-deposit ratio, position, I think we've got good opportunities for income growth really through growth in the asset base.
And we're seeing that demand coming through. I mean, most notably -- I mean, certainly, last week or so, we've had our largest set of applications for new mortgages.
And so allaying fears, that's not sort of with high LTDs, that's with a good balance of representation. So I mean, I think, as I look at the U.K.
businesses, and again there've been some good growth in the corporate side, with income up 6%. So I see reasonably robust but not a -- not sort of a rapid growth in the U.K.
And then in South Africa, I mean, I think it's fair to say, obviously from a currency standpoint, we've seen the impact of that, so on a reported basis, seen income coming off. Now on a local currency basis, we've seen an uptick of about 3%.
I mean, some of that's been through some good business, particularly on sort of the asset side. The fee businesses, I mean, they are -- there's a lot more competition, and I think we've got a bit more work to do there.
But overall, I think, again, positive growth but not a stellar growth that we would look for there. In terms of impairment as we sort of have highlighted, I mean, we did take some fairly large impairment provisions last year.
So part of the improvement is that slowing down. And I think, again if we look at where we stand, particularly in the home loans book, I think we're well positioned.
And that flattened out. And again, we haven't had any significant one-off names in the corporate side across Africa, so it's been good management of those names over the quarter and over the year.
Operator
Our final question this morning, Mr. Jenkins, is from Chira Barua from Sanford Bernstein.
Chirantan Barua
Sorry to keep you waiting. Just 3 quick ones, 1 on wealth management.
I mean, that's been a struggling business for a very long time, and I was wondering, Antony, whether you would want to put it up on the block given this old capital debate and that capital can be allocated somewhere else. Which leads me to the second question: Equities has been your biggest shining performance for the last 1.5 years.
It'd be great to understand why you're outperforming the market there. What are you doing specific?
And how sustainable is that trend? And the third one was on legal reserves.
I know you don't declare it, but given the outlook right now, it'd be great to know, how much spare cash do you have on the balance sheet if any of these contingencies actually come up?
Antony P. Jenkins
So let me just deal with the last one first. As I said earlier, where accounting requires us to, we provide.
And we don't disclose the absolute quantum of the reserves on the balance sheet. With regard to wealth, as you know, we ran something called the Gamma plan for a few years.
That plan did make us a player in the wealth space. But as part of our strategic review, we have focused that business much more on markets where we have scale and competitive advantage.
You'll have heard that we have exited prospecting in a large number of countries for that reason. There is a huge opportunity to streamline that business through automation, and we've got a lot of work there on that space.
So I think what you're seeing is us focus and narrow our focus on the wealth business, but we do believe that it's an important part of the franchise going forward and we can get good returns from it. And finally, on the Equities business, we are pleased with the investments we've made in that business.
We are beginning to monetize those investments, and we'll continue to, I think, benefit from that going forward. And as I said previously, it's an important part of the rebalancing of the franchise between FICC, where we've been traditionally strong; and now Equities; and of course, in IBD.
Well, thanks, everybody. I'd just like to make a couple of concluding comments, firstly, to thank you for your attendance and your questions and engagement.
I want to close by reiterating 3 points which I think are core to how you should think about Barclays. The first is the underlying strength of our franchise and the good progress made by several of our businesses in the quarter and year-to-date.
We were just talking about Equities an -- as an example. The second is that the execution of the plan to meet the PRA leverage target of 3% by June 2014 is on track.
And our additional review of the balance sheet is progressing under Tushar, as he described. And thirdly, there's clear evidence of growing momentum in the delivery of our Transform program, particularly in legacy asset reduction and cost, and this, of course, is our response to the profound change we're seeing in the industry.
And taking all these things together, there are lots of good reasons to feel both positive and confident about this business and its prospects. Thank you, all, very much.