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Barclays’ management aims to reduce expenses to 63% in 2024 on a cost-to-income basis / Image source: Adobe
  • Bank to return £10 billion over next three years
  • Lender launches cost-cutting drive
  • Fresh divisional reorganisation

Shares in Barclays (BARC) topped the FTSE 100 on Tuesday, rallying 4.5% to 156p after the lender announced a strategic overhaul and plans to return ‘at least’ £10 billion to shareholders over the next three years via buybacks and dividends.

The new plan, which includes a substantial efficiency drive and a refreshed divisional reporting line-up, was announced as Barclays reported a 6% decline in annual pre-tax profit to £6.6 billion after absorbing a restructuring hit and a rise in bad loans.

MAN WITH A PLAN

Led by CEO C. S. Venkatakrishnan, known as ‘Venkat’, Barclays posted a slump in fourth quarter pre-tax profit from £1.3 billion to £1 billion as restructuring costs weighed on the bottom line.

For the 2023 calendar year, total income ticked up 1.7% to £25.4 billion although pre-tax profit fell 6% to £6.6 billion.

Venkat’s new plan places heavy emphasis on cost-cutting with management aiming to reduce expenses to 63% in 2024 on a cost-to-income basis and drive this down to the high 50s by 2026, when Barclays expects its RoTE (return on tangible equity) to rise from last year’s 9% to more than 12%.

Results for the fourth quarter revealed a 3% drop in revenue to £5.6 billion, although NIM (net interest income) of £3.14 billion, which was ahead of the £3 billion City scribes were looking for.

WHAT DID THE CEO SAY?

Barclays, which has agreed a £600 million deal with Tesco (TSCO) to acquire the latter’s retail banking business, also set out plans to manage and report via five ‘focused’ divisions; Barclays UK, its ring-fenced UK retail banking division, the business-focused Barclays UK Corporate Bank, as well as Barclays Private Bank & Wealth Management, Barclays Investment Bank and Barclays US Consumer Bank.

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The bank upped the total dividend for 2023 by 10% to 8p and said it plans to return £10 billion to investors through dividends and share repurchases, ‘with a continued preference for buybacks’, over 2024 to 2026.

Venkat commented: ‘Our new three-year plan, which we will be announcing at the Investor Update today, is designed to further improve Barclays’ operational and financial performance, driving higher returns, and predictable, attractive shareholder distributions.’

THE EXPERT’S VIEW

Russ Mould, investment director at AJ Bell, explained: ‘There is a common theme among companies: increase dividends and cut costs to keep shareholders happy.

‘Barclays is the latest to follow this path as it announces yet another business reorganisation, a lower cost-to-income ratio target and a goal to return £10 billion to shareholders via share buybacks and dividends over the next three years.’

Mould added: ‘The news has gone down well with the market and has helped Barclays’ share price burst back to life after a long period in the doldrums. But will it be enough to protect C. S. Venkatakrishnan’s job? Having a plan is one thing, executing on it is another and so far, the jury is still out on whether he’s capable of turning Barclays around.’

He continued: ‘Today’s announcement doesn’t instil confidence as it’s tinkering at the edges, not making radical changes. Like many of its peers, Barclays is a big juggernaut of a company where it is very hard to make changes quickly. The investment banking arm continues to stick out like a sore thumb as it isn’t a natural fit to the rest of the business.

‘Appointing four people to lead that division suggests the CEO doesn’t know what to do with it. Too many cooks spoil the broth and the head chef is focused too much on sweet talking and not enough action.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.

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Issue Date: 20 Feb 2024