Barclays shares surged today as the bank unveiled an ambitious shake-up including plans to return £10 billion to shareholders in the next three years.
That will involve cost cuts of £2 billion and some inevitable job losses, though the bank declined to say how many more would come on top of 5000 cut last year.
The bank has just bought most of Tesco Bank to expand in the UK. Questions about its investment banking arm remain however, with some shareholders thinking it too much of a drain on capital.
The bank said today it aims to return £10 billion to shareholders by 2026 with cost cuts of £2 billion.
CEO C. S. Venkatakrishnan said the investment bank is "focused and competitive and will remain part of the bank, though it should be simpler and slimmed down.
He is "optimistic" about the strength of the UK economy. There is an impairment charge of £1.9 billion however up from £1.2 billion last time, suggesting that some borrowers are struggling to keep up with loans.
Jobs will be cut, though the bank says it does not have a specific target in mind. It cut headcount by 5000 in 2023 and plainly more are to come.
Barclays’ share price has lagged the market for some time. Barclays shares surged 8p, 5%, to 157p as the City digested the shake-up.
Kathleen Brooks, research director at XTB, said: “Barclays strategic review was punchy, and it essentially boils down to two things: cut costs aggressively and boost profits and continue to return capital to shareholders, to the tune of £10bn by 2026. This is exactly the type of message that shareholders love at the moment, and it is why the market has reacted with glee on Tuesday morning.”
A shake up will see the bank re-organised into five divisions. Vim Maru is appointed CEO of Barclays UK. Matt Hammerstein becomes CEO of Barclays UK Corporate Bank. Sasha Wiggins is CEO of Barclays Private Bank and Wealth Management.
Denny Nealon will stay in his role as CEO of Barclays US Consumer Bank.
The bank says all this will mean "more accountability from an operational and management standpoint"
The investment bank will have several co leaders. Adeel Khan, Cathal Deasy, Taylor Wright, and Stephen Dainton will have different responsibilities within the investment bank.
Barclays is still reeling from the Jes Staley affair, which saw the former CEO ousted over his relationship with convicted sex offender Jeffrey Epstein. He was fined by the Financial Conduct Authority and banned from the City.
Staley had driven the expansion in investment banking, leaving Barclays as the last serious UK player on Wall Street, a strategy opposed by some investors.
Neil Shah, Director of Research at Edison Group said: “Barclays’ fall in profits from £7bn in 2022 to £6.6bn – a larger drop than had been forecasted – has prompted a bout of soul-searching at the bank, which has embarked on a root-and-branch reorganisation of the company and its business model. At the heart of the problem has been Barclays’ reliance on its investment banking wing as a source of revenue, which is a risky strategy in this time of uncertainty for equities. This has been a perennial complaint from Barclays’ investors; and the bank now appears to be changing tack.
“The purchase of Tesco’s retail banking arm earlier this month is a sign of this new strategy: a return to bread-and-butter banking for steadier returns.”
Neil Wilson at markets.com said: "The plan places a lot of emphasis on cost cutting with management aiming to reduce expenses to 63% from 67% on a cost-to-income basis. It wants to drive this down to the high 50s by 2026, when it expects its return on tangible equity to have risen to more than 12% from 10% today. It seems to be that people think this is a good plan but the question is one of execution given the reliance on growth."
