Barclays has announced a new 750 million pound ($957 million) share buyback and upgraded its long-term earnings outlook, driven by a rise in trading income that
mitigated a 9% profit drop in the first half of 2024.
The British bank now targets a return on tangible equity (ROTE) of over 12% by 2026, up from its previous goal of more than 10% in 2024, and aims to generate an annual income of 30 billion pounds by 2026.
In line with sector trends seen at HSBC and Standard Chartered, Barclays plans to return at least 10 billion pounds to shareholders from 2024 to 2026 through dividends and share buybacks.
Despite a broader market sell-off, Barclays shares, which opened higher on Thursday, were trading 1.5% lower by 0912 GMT. Nonetheless, the share price has surged over 50% this year after CEO C.S. Venkatakrishnan unveiled a major strategy shift in February, focusing on growing the core UK lending business while scaling back its higher-risk investment bank.
Despite significant investments in corporate and retail banking, Barclays’ investment bank performance was notable. A 10% increase in second-quarter income, driven by the equities business, paralleled strong trading returns reported by Wall Street rivals last month.
Second-quarter equities income at Barclays rose 24%, outperforming Morgan Stanley’s 18% increase, Goldman Sachs’ 7% gain, and JPMorgan’s 21% rise.
Richard Marwood, head of income at Royal London Asset Management, praised Barclays' results as "pretty solid," noting it as one of the few major banks still trading below its book value.
The bank’s robust equities performance was partly attributed to market share gains in prime brokerage, according to a recent Reuters report. However, revenues from fixed income, currencies, and commodities (FICC) fell by 3%, while investment banking income from deals surged 44%.
Domestic Challenges
The Bank of England is expected to announce a 0.25% base rate cut later on Thursday, a move anticipated to reduce debt costs for homeowners and borrowers but potentially decrease banks' interest income.
Most banks, including Barclays, have prepared for falling rates with hedging strategies. Barclays raised its 2024 net interest income forecast to 11 billion pounds, up from 10.7 billion.
Despite these measures, returns are under scrutiny. The ROTE at Barclays' UK corporate bank dropped to 16.6% from 27.3% a year ago, with pretax profit falling 36% and expenses rising 15% compared to the first half of 2023. Additionally, revenues in the UK retail bank declined by 4% due to increased lending competition.
"Mortgage margin pressure and adverse deposit dynamics as customers sought higher rates elsewhere were among the culprits for the lower numbers," noted Richard Hunter, Head of Markets at interactive investor.
Barclays is scaling back its European operations where it lacks scale and is in discussions to sell its non-performing and Swiss-Franc linked Italian retail mortgage portfolios. On July 4, the bank announced the sale of its German consumer finance business to an Austrian bank for a small premium to net assets. Photo by GroupEditor, Wikimedia commons.