Barclays Plan To Return $12.6 Billion to Shareholders Cheered by Market — 3rd Update

By Elena Vardon and Ian Walker

Barclays outlined a plan to return at least 10 billion pounds ($12.60 billion) to shareholders between 2024 and 2026 and to aggressively cost cuts alongside a reorganization of its business divisions as part of its long-awaited strategy update.

The U.K. bank intends to return capital through dividends and mostly share buybacks and rejig its units to focus on its wealth management bank and U.K. retail operations, as Chief Executive C.S. Venkatakrishnan moves to restore investor confidence and reverse its flagging share price by allocating relatively less capital to its investment bank.

Barclays guided for a return on tangible equity greater than 10% for 2024 and greater than 12% for 2026--after posting a 10.6% ROTE for 2023. Management plans to achieve its targets by growing its total group income to GBP30 billion by 2026 from GBP25.4 billion reported for 2023. For 2024, it guided for group net interest income--the difference between what banks earn on loans and what they pay clients for deposits--, excluding its investment bank and head office, of GBP10.7 billion, with GBP6.1 billion coming from its U.K. business but excluding its recent acquisition of the retail banking arm of grocer Tesco.

The group intends to cut back around GBP2 billion in "gross efficiency savings" by 2026--for when it sees around GBP17.0 billion in operating expenses--and targets a cost-to-income ratio in the high 50s for the year and 63% for 2024.

"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," Venkatakrishnan said. As management dives into the details of its plan, the market will be looking out for their conviction on the targets and confidence in their execution. "Credibility in expected revenue growth and cost cuts are the focus today", UBS analysts said.

The stock, which climbed to the top of London's blue-chip FTSE 100 index, was boosted by the bank's constructive outlook, finally giving the market what it had been waiting for, according to analysts' reaction notes. In early trading, shares gained as much as 7% before paring some of the gains to trade at 155 pence.

"It's not quite a moon shot, but it does require a laser focus on not only the bottom line, but maximizing revenue opportunities, and building a greater institution than what Barclays is today," XTB said.

The London-listed group is reorganizing the business in five operating divisions from three previously and provided targets for each. These are Barclays U.K., Barclays U.K. Corporate Bank, Barclays Private Bank and Wealth Management, Barclays Investment Bank and Barclays U.S. Consumer Bank. The granularity on each of the individual divisions should help convince investors on the new targets, Citi said, while interactive investor noted that the divisions of labor seem to make sound strategic sense. "While this is aimed at better management of the business, it means it is harder to follow the historical evolution of divisional trends," Shore Capital said. It is key that the 2024 targets show no real negative operating leverage from the reshaping, UBS said.

Though laying the groundwork for future profits pleased the market, the ambitious targets overshadowed a mixed fourth-quarter print. For the three months ended Dec. 31, the lender posted a pretax profit of GBP110 million, below expectations of GBP238 million taken from a company-compiled consensus and a drop from GBP1.31 billion a year earlier. The fall is attributed to a GBP927 million charge from previously flagged structural cost actions to streamline its activities--split between infrastructure, people and property-- which was heavier than the GBP825 million hit penciled in by analysts. These costs are expected to be repaid within two years, Barclays said.

A softer-than-expected quarterly result in its corporate and investment bank--which brings in around half of revenue--also contributed to the miss on softer client activity and investment fees due to lower volatility which outweighed the interest rate tailwind.

On top of the announced cash returns over the next three years, Barclays said it intends to launch a fresh GBP1 billion share buyback, while analysts had expected a GBP890 million program to be announced at the quarterly results. The board declared a final dividend of 5.3 pence a share, bringing the 2023 payout to 8.0 pence.

The bank closed the quarter with a common equity Tier 1 ratio--a key measure of balance-sheet strength--of 13.8%, at the higher end of its mid-term target range for a ratio between 13% to 14%, which it reiterated.

"Barclays now becomes even more of a 'show me' story," Citi said.

Write to Elena Vardon at elena.vardon@wsj.com and Ian Walker at ian.walker@wsj.com

(END) Dow Jones Newswires

February 20, 2024 05:44 ET (10:44 GMT)

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