Release Date: October 24, 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 of 12.3% for Q3 2024, up from 11% last year.
- The company achieved a profit before tax of GBP2.2 billion, marking an 18% increase from Q3 2023.
- Barclays UK delivered a robust return on tangible equity of 23.4% for the quarter, with continued stabilization in deposit balances.
- The acquisition of Tesco Bank is on track, expected to enhance distribution channels for unsecured lending and deposit businesses.
- Barclays PLC (BCS) achieved GBP300 million in gross cost savings this quarter, contributing to a total of GBP700 million for the first nine months, on track for a GBP1 billion target for 2024.
Negative Points
- The weaker US dollar posed a headwind to income and profits, although it positively impacted cost impairment and RWAs.
- The investment bank's return on tangible equity was relatively low at 8.8% for Q3 2024.
- Barclays PLC (BCS) faces challenges in maintaining net interest income growth amid potential rate cuts.
- The US Consumer Bank's income fell 2% year-on-year due to a weaker US dollar, despite an increase in card balances.
- There is uncertainty regarding the impact of future regulatory changes, including Basel 3.1 and US Cards model migration, on RWAs.
Q & A Highlights
Q: Can you explain the quarter-to-quarter volatility in the structural hedge component of NII and the impact of deposit pricing on product margins?
A: The structural hedge impact was lower this quarter due to a previous higher swap rate and a hedge top-up around business banking. Going forward, we expect continued momentum from the structural hedge. The product margin includes all product margins, with positive momentum from mortgage and card margins offset by deposit pricing. The regulatory lag in deposit pricing will be more meaningful in Q4. - Anna Cross, Group Finance Director
Q: How do you expect the structural hedge notional to trend, and what is your outlook for NIM in 2025?
A: The structural hedge notional is expected to trend in line with deposits. The guidance provided in February was more of a framework than a forecast. For NIM, we expect mid-single-digit growth in NII in the UK, driven by asset growth and stabilization in deposits. We anticipate NII to be higher in 2025 and 2026 than in 2024, with Tesco's acquisition adding to this. - Anna Cross, Group Finance Director
Q: What is the outlook for the head office's underlying group center numbers after the disposal of various mortgage and card books?
A: The head office has been volatile due to housing inorganic activity and hedging. It's too early to provide a specific run rate, but we will offer guidance in time. Currently, there is no inorganic activity affecting the quarter. - Anna Cross, Group Finance Director
Q: Can you elaborate on the BUK interest rate sensitivity and the US consumer bank's margin outlook?
A: The BUK interest rate sensitivity is dominated by a lag effect and the structural hedge's gradual impact. Asset margins are expanding, offsetting liability margin compression. In the US, we target a NIM greater than 12%, with actions like repricing and improving the funding mix underway. - Anna Cross, Group Finance Director
Q: How will the timing changes in regulatory capital requirements affect your capital management strategy?
A: The timing changes are seen as temporary, and we reiterate our distribution expectations of greater than GBP10 billion over three years. We expect to build capital towards Basel and IRB implementation. - Anna Cross, Group Finance Director
Q: What are your plans for improving product margins in Tesco Bank post-acquisition?
A: Our focus will be on integration and customer service in the short term. Over time, we expect the acquisition to be RoTE accretive through efficiency and funding benefits. - Anna Cross, Group Finance Director
Q: Can you provide insights into the investment bank's fee performance and leverage finance marks?
A: The fee performance in Q3 was strong, with no specific large deals to call out. We expect activity to remain firm. Leverage finance marks are assessed quarterly, and any adjustments are based on prevailing market information. - C.S. Venkatakrishnan, Group Chief Executive and Anna Cross, Group Finance Director
Q: How does the scale of the structural hedge affect your sensitivity to long rates, and does it matter if you reinvest or let it roll off?
A: We are not more sensitive to the long end of the curve than others. The structural hedge provides certainty and stability of NII, which is why we reinvest programmatically. The focus is on locking in income for future years. - Anna Cross, Group Finance Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
