Barclays plans cost cuts, bumper buybacks in bid to boost shares

Barclays (BARC.L) laid out a three-year plan to revive its flagging share price on Tuesday, including axing 2 billion pounds of costs, returning 10 billion pounds ($12.6 billion) to shareholders and investing in its high-returning UK retail bank.

Shares in the British bank rose by as much as 7 per cent after the announcement of the plan by Barclays Chief Executive C.S. Venkatakrishnan, who is known internally as Venkat, which also included a shake-up of its operating divisions.

The bank’s first strategy update in almost a decade marks an inflection point for the CEO as he tries to improve returns after a period of management turmoil and underwhelming results.

The update included plans to cut 1 billion pounds in costs in the near term and to review the future of its payments business, both earlier reported by Reuters.

Details on exactly how Barclays would achieve both the cuts and a modest de-risking of its investment banking business were yet to be disclosed.

“(There’s) no huge change in the shape of the bank but that was always fairly unlikely,” said Richard Marwood, portfolio manager at Royal London Asset Management.

“Retiring equity makes sense when the shares trade at half of their book value,” he said of the plan to return almost half Barclays’ market value to shareholders between 2024-2026.

The strategy update came as Barclays reported a 6 per cent fall in annual profit to 6.6 billion pounds, in line with analyst forecasts, as a higher charge for potential bad loans weighed.

Analysts at JPMorgan said the update could imply upgrades to forecasts for the bank’s performance, but the plans relied on revenue growth and the focus would be on its execution.

Barclays cut 5,000 jobs in 2023, chief financial officer Anna Cross told reporters, with much of the cuts falling across back office roles. Reuters first reported the cuts.

Barclays also said it would review the future of its payments business, as first reported by Reuters, with details to be unveiled later on Tuesday.

The bank said it would return a total of 3 billion pounds to shareholders for 2023 – up 37 per cent on the previous year – including a fresh share buyback of 1 billion pounds and a 5.3 pence per share final dividend.

NEW STRUCTURE

Investors in Barclays, which has one of the lowest valuations among European peers, have grown impatient with its wilting share price and some favour simplifying its investment bank, Reuters reported earlier this month.

The pitch from Barclays to its shareholders resembles that by rival Deutsche Bank (DBKGn.DE), which on Feb. 1 said it would cut 3,500 jobs, buy back shares and splash out dividends in a bid to convince the market its own turnaround was on track.

Germany’s biggest bank has focused on growing its retail bank over its investment bank since 2019, a path which many Barclays investors hoped the British lender would emulate.

Corporate and investment bank income fell 4 per cent to 12 billion pounds in 2023, Barclays said, as client activity fell in both the markets and investment banking advisory businesses.

Barclays said it would reorganise its business into five new operating divisions to provide clearer disclosure on performance and management accountability.

As part of the shake-up, the bank’s head of corporate and investment banking, Paul Compton, long seen by many inside the bank as a potential successor to Venkat, will step back from his current role and become chairman of the unit.

Barclays said it would target a return on tangible equity– a key measure of performance– greater than 10 per cent in 2024, with targets rising to in excess of 12 per cent in 2026.

($1 = 0.7945 pounds)