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Barclays (BCS) Q4 Earnings Down, Strategic Overhaul Announced
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Barclays (BCS - Free Report) reported a fourth-quarter 2023 adjusted net income attributable to ordinary equity holders of £628 million ($779.7 million). This excluded structural cost actions pre-tax charges of £927 million.
Shares of the company jumped almost 7.4% in pre-market trading following the earnings release as investors cheered the business structural overhaul plan and medium-term financial targets.
The company recorded lower revenues, along with a rise in credit impairment charges. Operating expenses increased in the quarter under review.
Revenues Down, Expenses Rise
Total income was £5.6 billion ($6.95 billion), down 3% year over year.
Operating expenses (excluding litigation and conduct costs and charges related to structural cost actions) totaled £3.81 billion ($4.73 billion), up 2% year over year.
Adjusted cost-to-income ratio was 71%, up from 69% a year ago.
In the reported quarter, Barclays recorded credit impairment charges of £552 million ($685.4 million), up 11%.
Pre-tax income was £110 million ($136.6 million), down 92% year over year.
Quarterly Segment Performance Weak
Barclays UK: Profit before tax was £568 million ($705.2 million), down 15% from the year-ago quarter. The fall was due to lower total income and a rise in operating expenses.
Barclays International: Profit before tax was £27 million ($33.5 million), plunging 97%. The decline was mainly due to a drastic rise in operating expenses and higher credit impairment charges.
Head Office: The loss before tax was £485 million ($602.2 million), wider than the loss incurred in the prior-year quarter.
Balance Sheet Solid
Total assets as of Dec 31, 2023, were £1,477.5 billion ($1,880.9 billion), down 2% from the end of December 2022.
Total risk-weighted assets increased 2% from the Dec 31, 2022 level to £342.7 billion ($436.3 billion) as of Dec 31, 2023.
As of Dec 31, 2023, the Common Equity Tier 1 (CET1) ratio was 13.8% compared with 13.9% as of Dec 31, 2022.
Segment Reorganization
As part of the business overhaul, Barclays announced changes to its operating divisions. These changes will be effective from the first quarter of 2024.
In addition to Head Office, BCS will present its financial disclosures through -- Barclays UK, Barclays UK Corporate Bank, Barclays Private Bank and Wealth Management, Barclays Investment Bank and Barclays US Consumer Bank.
Medium-Term Financial Targets & Guidance
Management expects the loan loss rate to be 50-60 basis points through the cycle.
Net interest income or NII (excluding Barclays Investment Bank and Head Office) is expected to be £10.7 billion in 2024. Of this, Barclays UK is projected to generate NII of £6.1 billion (excluding the impact of the Tesco Bank acquisition, which is expected to generate an annualized NII of £400m in the first-year post-closure).
The company is targeting total income of £30 billion in 2026.
For 2024, cost-to-income ratio is expected to be 63%. For 2026, operating expenses are likely to be £17 billion and the cost-to-income ratio in the high 50s in percentage terms. This includes £1 billion of gross efficiency savings in 2024 and total gross efficiency savings of £2 billion by 2026.
Over the medium term, the CET1 ratio is expected to be 13-14%.
Barclays expects to deliver a return on tangible equity of more than 10% or 10.5% (excluding inorganic activity) in 2024 and more than 12% in 2026.
Additionally, BCS plans to return at least £10 billion of capital to shareholders between 2024 and 2026 through dividends and share buybacks, with a continued preference for buybacks.
Our View
Given Barclays’ restructuring and business-simplification efforts, its operating efficiency is expected to improve in the quarters ahead. The company’s cost-saving efforts will likely keep aiding financials. Yet, a challenging operating backdrop is expected to put pressure on revenue growth.
UBS Group AG (UBS - Free Report) reported a fourth-quarter 2023 net loss attributable to shareholders of $279 million. It recorded a net profit of $1.65 billion in the year-ago quarter.
Results were adversely impacted by higher operating expenses, along with a significant rise in credit loss expenses. However, a rise in total revenues, driven in part by the acquisition of Credit Suisse, was a supporting factor for UBS.
Deutsche Bank (DB - Free Report) reported a fourth-quarter 2023 profit attributable to its shareholders of €1.26 billion ($1.37 billion), down 30% year over year. The Germany-based lender reported a profit before tax of €698 million ($759.2 million), down 10% year over year.
DB’s results were largely driven by higher net revenues. However, higher provision for credit losses and rising expenses were the offsetting factors.
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Barclays (BCS) Q4 Earnings Down, Strategic Overhaul Announced
Barclays (BCS - Free Report) reported a fourth-quarter 2023 adjusted net income attributable to ordinary equity holders of £628 million ($779.7 million). This excluded structural cost actions pre-tax charges of £927 million.
Shares of the company jumped almost 7.4% in pre-market trading following the earnings release as investors cheered the business structural overhaul plan and medium-term financial targets.
The company recorded lower revenues, along with a rise in credit impairment charges. Operating expenses increased in the quarter under review.
Revenues Down, Expenses Rise
Total income was £5.6 billion ($6.95 billion), down 3% year over year.
Operating expenses (excluding litigation and conduct costs and charges related to structural cost actions) totaled £3.81 billion ($4.73 billion), up 2% year over year.
Adjusted cost-to-income ratio was 71%, up from 69% a year ago.
In the reported quarter, Barclays recorded credit impairment charges of £552 million ($685.4 million), up 11%.
Pre-tax income was £110 million ($136.6 million), down 92% year over year.
Quarterly Segment Performance Weak
Barclays UK: Profit before tax was £568 million ($705.2 million), down 15% from the year-ago quarter. The fall was due to lower total income and a rise in operating expenses.
Barclays International: Profit before tax was £27 million ($33.5 million), plunging 97%. The decline was mainly due to a drastic rise in operating expenses and higher credit impairment charges.
Head Office: The loss before tax was £485 million ($602.2 million), wider than the loss incurred in the prior-year quarter.
Balance Sheet Solid
Total assets as of Dec 31, 2023, were £1,477.5 billion ($1,880.9 billion), down 2% from the end of December 2022.
Total risk-weighted assets increased 2% from the Dec 31, 2022 level to £342.7 billion ($436.3 billion) as of Dec 31, 2023.
As of Dec 31, 2023, the Common Equity Tier 1 (CET1) ratio was 13.8% compared with 13.9% as of Dec 31, 2022.
Segment Reorganization
As part of the business overhaul, Barclays announced changes to its operating divisions. These changes will be effective from the first quarter of 2024.
In addition to Head Office, BCS will present its financial disclosures through -- Barclays UK, Barclays UK Corporate Bank, Barclays Private Bank and Wealth Management, Barclays Investment Bank and Barclays US Consumer Bank.
Medium-Term Financial Targets & Guidance
Management expects the loan loss rate to be 50-60 basis points through the cycle.
Net interest income or NII (excluding Barclays Investment Bank and Head Office) is expected to be £10.7 billion in 2024. Of this, Barclays UK is projected to generate NII of £6.1 billion (excluding the impact of the Tesco Bank acquisition, which is expected to generate an annualized NII of £400m in the first-year post-closure).
The company is targeting total income of £30 billion in 2026.
For 2024, cost-to-income ratio is expected to be 63%. For 2026, operating expenses are likely to be £17 billion and the cost-to-income ratio in the high 50s in percentage terms. This includes £1 billion of gross efficiency savings in 2024 and total gross efficiency savings of £2 billion by 2026.
Over the medium term, the CET1 ratio is expected to be 13-14%.
Barclays expects to deliver a return on tangible equity of more than 10% or 10.5% (excluding inorganic activity) in 2024 and more than 12% in 2026.
Additionally, BCS plans to return at least £10 billion of capital to shareholders between 2024 and 2026 through dividends and share buybacks, with a continued preference for buybacks.
Our View
Given Barclays’ restructuring and business-simplification efforts, its operating efficiency is expected to improve in the quarters ahead. The company’s cost-saving efforts will likely keep aiding financials. Yet, a challenging operating backdrop is expected to put pressure on revenue growth.
Barclays PLC Price, Consensus and EPS Surprise
Barclays PLC price-consensus-eps-surprise-chart | Barclays PLC Quote
Currently, Barclays carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank stocks here.
Performance of Other Foreign Banks
UBS Group AG (UBS - Free Report) reported a fourth-quarter 2023 net loss attributable to shareholders of $279 million. It recorded a net profit of $1.65 billion in the year-ago quarter.
Results were adversely impacted by higher operating expenses, along with a significant rise in credit loss expenses. However, a rise in total revenues, driven in part by the acquisition of Credit Suisse, was a supporting factor for UBS.
Deutsche Bank (DB - Free Report) reported a fourth-quarter 2023 profit attributable to its shareholders of €1.26 billion ($1.37 billion), down 30% year over year. The Germany-based lender reported a profit before tax of €698 million ($759.2 million), down 10% year over year.
DB’s results were largely driven by higher net revenues. However, higher provision for credit losses and rising expenses were the offsetting factors.