Barclays chief executive CS Venkatakrishnan has a tough act to follow. Just days after rival NatWest revealed its biggest profit since the onset of the financial crisis in 2007, the Barclays boss will be delivering much less cheering news: cost cuts, job losses and restructuring plans are all expected to feature in the bank’s first major strategy update in a decade.
Tuesday’s results will also be a lesson in salesmanship: how to promise better times after reporting yet another slip in annual profits.
Analysts are expecting the chief executive – who is known to colleagues as “Venkat” – to reveal a 4.5% fall in pre-tax profits, to £6.7bn. Although UK lenders have benefited from higher charges on loans and mortgages – thanks to the fastest rise in interest rates since the 1970s – at Barclays those earnings will partly be offset by restructuring costs, which are expected to result in a charge of between £700m and £1bn.
Figures from Barclays’s investment bank is also likely to be a drag on profits, following another sluggish year for deals and public listings. The downturn has already taken a toll on US rivals such as Goldman Sachs and Morgan Stanley, both of which reported their lowest annual profit in four years in January.
But that division’s poor performance could serve to show Venkat is on the right track. He wants to scale down the volatile investment bank side, and lean more heavily on income from wealth management and retail banking (this paved the way for Barclays’s £700m buyout of Tesco’s banking business this month).
The rub here is that he is asking shareholders to join him on what is in effect a U-turn. Venkat’s predecessor Jes Staley, now mired in controversy, spent years resisting pressure from an activist investor who also wanted to see a much smaller, if not entirely offloaded, investment bank.
“Barclays fought off calls from Edward Bramson of Sherborne Investors to spin off the unit, and rebutted suggestions that it did not earn a consistently high enough return on equity to justify the amount of group capital allocated to it,” said analysts at AJ Bell. “A bumper first quarter in 2023 helped to support Barclays’s strategy but the investment bank’s performance has ebbed since.”
The questions now are about the scale and costs of the restructuring plans. Though the costs could eat into bankers’ bonus pools, they are unlikely to have a large impact on dividends. Venkat is expected to soften the blow of another drop in profits with a dividend payout that AJ Bell expects could reach 9.5p a share, up from 7.25p in 2022.
At the very least, it will help distract from more controversial matters, including a recent report by Bloomberg which alleges that Staley stayed in touch with Jeffrey Epstein for years after taking over as Barclays chief executive – despite claims that he cut ties with the convicted sex offender in 2015.
The former Barclays boss is challenging the Financial Conduct Authority, after it ruled that he had misled the regulator over his relationship with the disgraced financier. The FCA has since banned Staley from holding any senior role in the City. Neither Staley nor Barclays have commented on the report.
UK bank announcements will continue on Wednesday, with analysts expecting HSBC to double its annual pre-tax profits, to $34bn (£27bn) from $17.5bn in 2022.
The London-headquartered lender will have benefited from rising interest rates in Asia – where it makes the bulk of its profits – and the west.
This is likely to result in another significant payout for chief executive Noel Quinn, who was handed a $5.5m package in 2022, including a $2.2m bonus.
The earnings surge will also provide some comfort for investors worried about the impact of China’s property downturn, which led to the forced liquidation of developer Evergrande last month. “Operationally, there are some concerns investors would like reassurance on,” said Matt Britzman, equity analyst at Hargreaves Lansdown. “HSBC’s exposure to the wavering Chinese real estate sector brings added risk that further impairment charges will be needed.”
Lloyds Banking Group will also publish its annual results on Wednesday, with 2023 profits expected to rise more than 7%, to £7.4bn.
The group, which is the country’s biggest mortgage lender and owns the Halifax brand, will be watched closely for any signs of wobbles in the mortgage market, as millions of customers start to roll off fixed-rate loans and face higher monthly payments.
However, average analyst estimates suggest the money put aside for potential defaults will drop by 35%, to £975m, which could signal optimism about the UK’s economic growth over the coming months.
But some more disappointing news could emerge from its car loans division, after the FCA announced an investigation into unfair charges that some industry experts say could end up costing Lloyds up to £1.8bn.
