Barclays unveils massive overhaul as profits fall 6%

Barclays Bank unveiled a swathe of changes on Tuesday, including a structural overhaul of operations, £2bn in cost cuts and a massive increase in shareholder payouts as annual earnings fell by 6%.

Pre-tax profit for the 12 months to December 31, 2023 came in at £6.55bn, down 6%. Fourth-quarter earnings were £110m compared with £1.3bn a year ago.

Barclays said it was aiming for £1bn of gross efficiency savings in 2024 and total gross efficiency savings of £2bn by 2026. The cuts will be focused on Barclays' UK consumer and transatlantic investment banks, with both having £700m axed from their budgets.

It added that it planned to return at least £10bn of capital to shareholders between 2024 and 2026, through dividends and share buybacks, “with a continued preference for buybacks”. The bank will buy back a further £1bn in stock this year.

Credit impairment charges were £1.8bn, up from £1.2bn a year earlier driven by higher delinquencies on credit card accounts in the US.

Net interest margin – the difference between loan and savings rates - rose to 3.13% from 2.86%, as higher interest rates and associated structural hedge benefit outweighed mortgage margin pressure and weaker deposits as savers searched for better rates after years of paltry returns.

Income at the corporate and investment bank fell 4% to £12.6bn, driven by lower client activity in both global markets and investment banking.

Chief executive CS Venkatakrishnan - known within the bank as Venkat - said Barclays would be reorganised into five new divisions: Barclays UK; Barclays UK Corporate Bank; Barclays Private Bank and Wealth Management; Barclays Investment Bank; and Barclays US Consumer Bank.

AJ Bell investment director Russ Mould said staff "might not appreciate" the cost-cutting plan "as it means they may have to do additional work for the same pay, but running a leaner machine is the playbook for corporates when there is an uncertain economic outlook".

“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 CS Venkatakrishnan’s job? Today’s announcement doesn’t instil confidence as it’s tinkering at the edges, not making radical changes.

“The banking sector got an initial boost from the rising interest rate environment as that created an opportunity to make more money on loans. Yet the sector has lost momentum of late as the market starts to price in interest rate cuts."

“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.”

Reporting by Frank Prenesti for Sharecast.com