Barclays PLC (BCS) Q2 2024 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call presents mixed sentiments. Financial performance shows stability with slight growth, but the cost-to-income ratio has worsened, and impairment charges remain a concern. The shareholder return plan is positive with a significant buyback. However, the Q&A reveals uncertainties in cost management and revenue performance, particularly in the U.S. consumer business. Despite optimistic guidance, regulatory and economic challenges persist. Without a market cap, it's hard to gauge the exact impact, but the mixed signals suggest a neutral stock price movement over the next two weeks.

Key Financial Performance

Return on Tangible Equity (RoTE) 9.9% in Q2, 11.1% in H1; down from 10.4% in Q2 2023 due to a 50 basis point headwind from cash flow hedge reserve.

Total Income GBP6.3 billion in Q2, GBP13.3 billion in H1; up 1% year-on-year, but down 4% when excluding GBP240 million loss from disposals.

Net Interest Income (NII) GBP2.7 billion in Q2; stable year-on-year, with guidance increased to approximately GBP11 billion for 2024, up from GBP10.7 billion.

Cost-to-Income Ratio 63% in Q2, 62% in H1; up from 61% in Q2 2023, reflecting increased costs despite efficiency savings.

CET1 Ratio 13.6%; comfortably within the target range of 13% to 14%.

Shareholder Distribution GBP1.2 billion for H1 2024, including GBP0.029 dividend per share and GBP750 million buyback; first installment of a plan to return at least GBP10 billion by 2026.

Impairment Charges GBP384 million in Q2; improved from previous year, with a loan loss rate of 38 basis points, below the guidance of 50 to 60.

Total Costs GBP4 billion in Q2; up 1% year-on-year, with GBP400 million in efficiency savings achieved in H1.

TNAV per Share GBP0.340 pence; increased by GBP0.05 in the quarter, up GBP0.49 or 17% year-on-year.

Risk-Weighted Assets (RWAs) GBP351 billion; increased by GBP1.8 billion from Q1.

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Operating Highlights

New Product Acquisition: The announced acquisition of Tesco's retail banking business is progressing well, on track for completion in November 2024, representing around GBP8 billion of RWAs.

Market Positioning: Barclays UK delivered a RoTE of 22.3% for the quarter, with positive growth in lending across products and a focus on deepening client relationships in the UK Corporate Bank.

Investment Banking Growth: Investment Banking fee income was up 45% year on year, with a strong performance in ECM driven by a GBP7 billion rights issue for National Grid.

Cost Efficiency: Achieved GBP200 million of gross cost savings in Q2, totaling GBP400 million for H1, on track for GBP1 billion for the full year.

Credit Performance: Impairment charges improved in the U.S. Consumer Bank, with overall strong credit performance, particularly in Barclays UK.

Capital Return Plan: Announced a total payout of GBP1.2 billion for H1 2024, part of a plan to return at least GBP10 billion to shareholders by 2026.

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Risk or Challenges

Competitive Pressures: The company is facing a competitive environment in the mortgage market, which has impacted net lending and necessitated careful management of the mortgage book.

Regulatory Issues: Barclays anticipates regulatory-driven RWA inflation to be at the lower end of 5% to 10% of December 2023 Group RWAs, which includes expected Basel 3.1 and U.S. Consumer Bank IRB impacts.

Supply Chain Challenges: The U.S. Consumer Bank is experiencing higher impairment charges, which are expected to normalize, indicating potential challenges in managing credit risk and customer repayments.

Economic Factors: Interest rates are expected to remain higher for longer, which could impact customer behavior and lending dynamics, particularly in the UK market.

Impairment Charges: The U.S. Consumer Bank's impairment charge increased year-on-year, reflecting a loan loss rate that is above the through-the-cycle guidance, indicating potential credit risk challenges.

Cost Discipline: Barclays is focused on cost discipline, achieving GBP400 million in gross efficiency savings in the first half of the year, but ongoing inflationary pressures may challenge future cost management.

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Guidance & Outlook

Three-Year Plan: Barclays has set a three-year plan to deliver a better run, more strongly performing, and higher returning bank.

Return on Tangible Equity (RoTE) Target: Target RoTE of above 12% by 2026.

Capital Return Plan: Target to return at least GBP10 billion to shareholders between 2024 and 2026.

Reduction of RWAs: Aim to reduce RWAs in the investment bank from 58% of Group RWAs at the end of 2023 to around 50% by 2026.

Cost Discipline: Targeting GBP1 billion in cost savings for 2024.

Acquisition of Tesco's Retail Banking Business: On track for completion in November 2024, contributing GBP8 billion of RWAs.

Net Interest Income (NII) Guidance: Increased NII guidance for 2024 from GBP10.7 billion to approximately GBP11 billion.

CET1 Ratio: CET1 ratio at 13.6%, within the target range of 13% to 14%.

Shareholder Distribution: Announced GBP1.2 billion distribution for H1 2024, including GBP0.029 dividend per share and GBP750 million buyback.

Impairment Charge Expectations: Expect U.S. Consumer Bank impairment charge to improve in the second half of 2024.

Cost-to-Income Ratio: Expect cost-to-income ratio to be around 63% for 2024.

Loan Loss Rate Guidance: Guiding towards a loan loss rate trending towards the long-term average of 400 basis points.

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Shareholder Return Plan

Dividend per share: GBP0.029 for the first half of 2024.

Total payout for first half of 2024: GBP1.2 billion, including GBP750 million buyback.

Total capital return plan: Targeting at least GBP10 billion between 2024 and 2026.

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Key Q&A

Q:What is the underlying run-rate cost ratio for the full year?

A:We don't expect to spend more on SBAs than we have historically, which is a GBP200 million to GBP300 million run rate. Our cost guidance for the year is circa 63%.

Q:Can you provide insight into the revenue performance in U.S. cards and the path to a 12% NIM?

A:NII has fallen a bit due to several factors, including the Blackstone deal and seasonal customer repayments. We're focusing on pricing optimization and increasing retail deposits to achieve the 12% NIM.

Q:Is there any follow-through in 2025 and 2026 from the upgraded UK NII?

A:We see stabilization in our deposit position leading to an upgrade in NII, but we won't upgrade 2026 targets at this time as we focus on disciplined execution.

Q:How do we maintain flat risk-weighted asset (RWA) balances while growing revenue?

A:The increase in RWAs is largely temporary, and our objective is to keep home build RWAs broadly flat while growing elsewhere.

Q:What is the outlook for RoTE and capital distribution plans?

A:We are on track with our RoTE and capital distribution plans, and we do not expect to change our guidance.

Q:Can you provide clarity on the notional attributed to the locked income component?

A:We need to come back to you on that. We expect the maturing yield to be around 1.5%.

Q:What is the status of the German business and its contribution?

A:The German cards business is not a significant PBT contributor, and the meaningful difference will be the release of their RWAs.

Q:What is the competitive positioning of the U.S. consumer business given potential delays in Basel 3.1?

A:We are focused on improving capital efficiency and execution of our plans, regardless of regulatory changes.

Q:Will you consider increasing RWAs in the investment bank if it leads to high RoTE?

A:Our strategic goal is to keep IB RWAs roughly flat while growing RWAs outside of the IB. We would consider high RoTE trades but they must align with our broader strategy.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the breakdown of the 1.5% maturing yield and the notional attributed to the locked income component. Additionally, they did not clarify the exact costs and impairments related to the German business.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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