Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Barclays PLC (BCS, Financial) reported a strong Return on Tangible Equity (RoTE) of 11.1% for the first half of 2024, on track to exceed the 10% target for the year.
- The company increased its net interest income guidance for 2024 from GBP10.7 billion to approximately GBP11 billion, reflecting stable deposit trends.
- Barclays UK division achieved a RoTE of 22.3% for the quarter, with stable deposits and positive growth in lending across products.
- The Investment Bank's fee income increased by 45% year-on-year, driven by strong performance in equity capital markets and advisory services.
- Barclays PLC (BCS) announced a GBP1.2 billion shareholder distribution for the first half of 2024, including a 2.9p dividend per share and a GBP750 million buyback, as part of its plan to return at least GBP10 billion to shareholders by 2026.
Negative Points
- The company's RoTE for the second quarter was 9.9%, slightly below the 10% target, partly due to a 50 basis point headwind from the cash flow hedge reserve.
- Total income for the second quarter was impacted by a GBP240 million loss from business disposals.
- The US Consumer Bank's impairment charge increased year-on-year, with a loan loss rate of 438 basis points, reflecting higher write-offs.
- Barclays PLC (BCS) faced challenges in maintaining stable risk-weighted assets (RWAs) in the Investment Bank, with a GBP3 billion increase in RWAs during the quarter.
- The company's cost-to-income ratio was 63% in the second quarter, indicating ongoing pressure to manage costs effectively.
Q & A Highlights
Q: Can you provide clarity on the structural costs in Q2 and the outlook for full-year costs? Also, what's the path to achieving a 12% NIM in US Cards?
A: We had some structural cost actions within the Investment Bank, but they weren't significant. For the full year, we don't expect to exceed our historical GBP200-300 million run rate on structural costs. Our focus is on delivering GBP1 billion in efficiency savings, with GBP0.4 billion already achieved. Regarding US Cards, NII fell slightly due to seasonal factors and customer reward amortization. We remain on track for a 12% NIM through pricing optimization and increasing retail deposits.
Q: Is there potential upside to the GBP2 billion structural hedge income growth target for 2026, given more stable deposits?
A: The stabilization in deposits led us to upgrade our NII guidance for 2024. While the movement in rates could impact the GBP2 billion target, we are not adjusting our 2026 targets quarterly. Our focus remains on disciplined execution of our plan, which includes efficiency improvements and capital allocation.
Q: With RoTE tracking ahead of guidance, is there potential for higher returns or changes in capital distribution plans?
A: We are on track with our plan and do not see a need to change our RoTE guidance or capital distribution plans. Deposit trends have stabilized faster than expected, but we continue to monitor and adjust our structural hedge as needed.
Q: Can you provide more details on the structural hedge and its impact on income?
A: The structural hedge is designed to manage interest rate risk and reduce NII volatility. We have GBP11.7 billion of locked-in income over three years, with a maturing yield of about 1.5%. We expect to reinvest around 75% of this at higher rates, which should increase structural hedge income by GBP2 billion by 2026.
Q: How do you view the competitive positioning of the US Consumer Bank given potential regulatory changes?
A: We focus on what we can control, such as improving capital efficiency and NIM through pricing and deposit growth. We believe regulatory changes should ideally be similar in the UK and US and happen simultaneously. Our strategy remains to manage capital efficiently and adapt to regulatory developments.
Q: How do you balance the goal of reducing Investment Bank RWAs with potential high RoTE opportunities?
A: Our strategic goal is to keep Investment Bank RWAs flat while growing RWAs outside the IB. We would consider high RoTE opportunities if they are short-term and do not affect the broader strategy of reducing the IB's relative proportion.
Q: Can you provide an update on the disposal of the German consumer finance business and the merchant acquiring unit?
A: The German consumer finance business is not a significant PBT contributor, and its sale will primarily release RWAs, adding 10 basis points to CET1. The merchant acquiring unit's sale is complex due to technology and financial arrangements, and the process is ongoing.
Q: How do you view the impact of potential Basel 3.1 delays in the US on your competitive positioning?
A: We focus on improving the US Consumer Bank's capital efficiency and returns through commercial actions and efficiency improvements. We believe regulatory changes should be aligned between the UK and US, but we continue to execute our strategy regardless of timing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
