Dive Brief:
- London-based Barclays pledged Tuesday to return £10 billion ($12.6 billion) to its shareholders over the next two years through buybacks and dividends.
- The announcement came as the bank pushed a three-year plan aimed at improving performance while slashing £2 billion in costs.
- The bank also reported a fourth-quarter net loss of £111 million Tuesday.
Dive Insight:
Key to the bank’s strategy is a reorganization that will split Barclays into five operating divisions: its U.K. retail business, U.K. corporate bank, investment bank, U.S. consumer bank, and its private bank and wealth management. That’s a change from its current three.
“This resegmentation will provide an enhanced and more granular disclosure of the performance of each of these operating divisions, alongside more accountability from an operational and management standpoint,” the company said Tuesday.
Much of the focus is on rebalancing the investment bank.
“For over two decades, investors have been asking questions about the size and importance of the investment bank at Barclays,” CEO C.S. Venkatakrishnan told analysts Tuesday, according to Bloomberg. “Should we have it? Will it be competitive? Is it good for the U.K. to have an investment bank? And more. Let me be very clear: I’m proud of what we’ve achieved. We have built a leading business.”
But in Tuesday’s announced revamp, Venkatakrishnan said he is “looking for the investment bank to grow and to contribute more while consuming less.”
The investment bank is expected to see cost cuts of around £700 million over the next two years. Yet Barclays still wants the segment to grow — though more slowly than retail, which will see a similar £700 million cut.
The investment banking rebalance will be weighted toward equities and advisory. By the numbers, Barclays aims to reduce the risk-weighted assets devoted to its investment bank to about 50% by 2026, compared with 63% now.
The bank also wants to put £30 billion more toward U.K. retail, corporate lending and private banking segments that generate higher returns.
The revamp comes with perhaps a personnel surprise: Paul Compton, the bank’s head of corporate and investment banking — and a man seen by many as a potential successor to Venkatakrishnan — will step back to become chair of the unit.
With the reallocation of capital, Barclays expects its revenue to grow to roughly £30 billion by 2026, up from £25.4 billion last year.
“Our new three-year plan … is designed to further improve Barclays' operational and financial performance, driving higher returns, and predictable, attractive shareholder distributions,” Venkatakrishnan said Tuesday, labeling the strategy “measured ambition.”
The rollout drew marked skepticism from analysts.
“Barclays now becomes even more of a ‘show me’ story, in our view, especially as the new targets come on the back of a quarter where Barclays has missed consensus revenue and profit-before-tax expectations,” Citi’s Andrew Coombs wrote in a note seen by Bloomberg.
Indeed, the bank posted a 6% drop in annual profit Tuesday to £6.6 billion, in part due to higher charges for potential bad loans weighing on earnings. Barclays took £1.9 billion in credit impairment charges in 2023, compared with £1.2 billion a year earlier.
Another area of focus for the bank in coming years is credit cards. Barclays vowed to boost its U.S. credit-card balances to $40 billion by 2026 from $32 billion now. The bank also said it would soon offer unsecured loans to U.K. consumers who aren’t customers of the bank already.
Venkatakrishnan said the bank’s 13.8% common equity ratio enabled it to deliver increased total capital distributions of £3 billion to shareholders last year, up 37% from 2022.
Barclays is also targeting a return on common equity of greater than 10% this year and greater than 12% by 2026. That’s up from 9% in 2023.
Barclays joins Citi and Santander among global banks undergoing a strategic reorganization. Tuesday’s revamp hits little more than a month after Barclays disclosed it had cut roughly 5,000 jobs last year.
