Barclays PLC (BCS) Q4 2025 Earnings Call Transcript

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Overview

The earnings call summary and Q&A session highlight positive financial performance with upgraded guidance, strong capital distribution plans, and continued growth in key areas like U.K. lending and U.S. Consumer Bank. The focus on efficiency savings and stable margins further supports a positive outlook. However, some concerns about rising loan loss ratios and competitive pressures exist, but overall sentiment remains positive due to strategic investments and shareholder return plans.

Key Financial Performance

Return on Tangible Equity (RoTE) Increased from 10.5% to 11.3% year-on-year, in line with guidance. This improvement reflects operational progress and income growth.

Top Line Revenue Grew by 9% year-on-year to GBP 29.1 billion. This growth was supported by stable income streams, 8% growth in retail and corporate businesses, and 17% growth in financing within markets.

Cost/Income Ratio Improved year-on-year to 61%. This was achieved despite cost headwinds, including discretionary investments and one-off costs.

Loan Loss Rate Remained at 52 basis points, within the 50-60 basis points through-the-cycle guidance. This reflects a benign credit environment and stable consumer delinquencies.

Shareholder Distributions Increased to GBP 3.7 billion in 2025 from GBP 3 billion in 2024. This includes GBP 1.2 billion in dividends and GBP 2.5 billion in share buybacks, supported by strong capital generation.

Gross Efficiency Savings Achieved GBP 700 million in 2025, exceeding the GBP 500 million target. This was driven by operational improvements and simplification of the bank.

Investment Bank RoTE Increased by 2.1 percentage points to 10.6% in 2025. This improvement was driven by greater capital productivity and cost efficiency.

U.S. Consumer Bank RoTE Increased by 1.9 percentage points to 11% in 2025. This reflects additional scale, operational progress, and improved business mix, pricing, and efficiency.

Group Net Interest Income (NII) Increased by 13% year-on-year to GBP 12.8 billion. This was driven by stable deposits, lending growth, and operational progress in the U.S. Consumer Bank.

Structural Hedge Income Increased by GBP 1.2 billion to GBP 5.9 billion in 2025. This was due to full reinvestment of maturing hedges at higher rates and an increase in average hedge duration.

Profit Before Tax Increased by 13% to GBP 9.1 billion year-on-year. This was supported by income growth and efficiency actions.

Earnings Per Share (EPS) Increased by 22% to 43.8p year-on-year. This reflects strong operational performance and income growth.

U.K. Lending Growth Achieved GBP 20 billion of business growth RWAs, including GBP 13 billion of organic growth. This was supported by strong momentum in mortgage balances and credit card customer acquisition.

U.K. Corporate Bank Lending Grew by 18% year-on-year, with market share increasing by 100 basis points to 9.6%. This was driven by improvements in the lending process.

Private Bank and Wealth Management RoTE Achieved 26.3% for the year, on track for the greater than 25% target for 2026. This was supported by 9% growth in client assets and liabilities and 11% growth in assets under management.

Markets Income Grew year-on-year for 7 consecutive quarters, with a 17% increase in Q4 2025. This was driven by strength in securitized products, prime balances, and equity derivatives.

U.S. Consumer Bank Income Increased by 28% year-on-year in Q4 2025. This was supported by 19% growth in net interest income and operational progress.

CET1 Ratio Ended the year at 14.3%, at the top end of the 13%-14% target range. This reflects strong capital generation and prudent balance sheet management.

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Operating Highlights

AI and Digital Tools: Barclays is embedding AI at scale across the group to deliver better products and services. Examples include an AI chatbot for FX trading and a conversational AI tool in the U.S. Consumer Bank app.

New Acquisitions: Barclays acquired Best Egg in the U.S. to expand digital lending capabilities and Tesco Bank in the U.K. to enhance unsecured and personal loan offerings.

U.K. Market Expansion: Barclays is focusing on growing its U.K. businesses, including expanding its mortgage and credit card offerings. It has also increased its market share in U.K. Corporate Bank lending by 100 basis points to 9.6%.

International Corporate Bank Growth: Barclays plans to expand its International Corporate Bank's reach from 9 to 15 countries in Europe and grow its U.S. dollar deposits, which have already increased by 140% since 2023.

Efficiency Savings: Barclays achieved GBP 700 million in gross efficiency savings in 2025, exceeding its GBP 500 million target. It plans to achieve GBP 2 billion in savings by 2028.

Cost-to-Income Ratio: The group reduced its cost-to-income ratio to 61% in 2025 and aims for a low 50s ratio by 2028.

Capital Allocation: Barclays is reallocating capital to its highest-returning U.K. businesses and plans to reduce the Investment Bank's share of group RWAs to about 50% by 2028.

Technology Investment: Barclays is doubling its investment in technology, including cloud computing, data platforms, and AI, to modernize operations and improve customer service.

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Risk or Challenges

Regulatory RWA Inflation: Barclays expects between GBP 19 billion and GBP 26 billion of regulatory RWA inflation, with a significant portion related to IRB migration in the U.S. Consumer Bank. This could impact capital requirements and operational flexibility.

U.S. Consumer Bank Loan Loss Rate: The U.S. Consumer Bank loan loss rate is expected to rise to 550 basis points in 2026 due to post-acquisition stage migration of the General Motors portfolio and retention of non-performing American Airlines balances. This could strain profitability.

Cost Pressures: Barclays faces cost headwinds, including integration costs from acquisitions like Tesco Bank and Best Egg, as well as inflationary pressures. These could challenge the achievement of cost-efficiency targets.

Investment Banking Fee Growth: Progress in increasing fee share in Investment Banking has been slower than expected, which could limit revenue growth in this segment.

Economic Environment: The plan assumes no significant tailwinds from rates or Investment Banking wallet growth, which could limit income growth if economic conditions worsen.

AI and Technology Risks: While AI adoption is a key focus, it presents risks related to data standardization, infrastructure modernization, and process harmonization, which could impact operational resilience and security.

Structural Hedge Income Growth: The pace of structural hedge income growth is expected to slow due to an increase in hedge duration, potentially impacting income stability.

U.K. Lending Growth: Barclays plans to grow U.K. lending by more than 5% annually, but this is dependent on favorable economic conditions and could be impacted by market volatility.

Operational Risks: Barclays' reliance on manual processes in areas like wholesale credit risk systems could hinder efficiency and decision-making.

Capital Allocation: The bank's plan to operate at the top of its 13%-14% CET1 range could limit flexibility for additional investments or shareholder distributions.

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Guidance & Outlook

Group Income: Upgraded expected group income to circa GBP 31 billion in 2026, versus circa GBP 30 billion previously.

Net Interest Income (NII): Group NII is expected to increase to at least GBP 13.5 billion in 2026, up from GBP 12.8 billion in 2025. Barclays UK NII is expected to increase to between GBP 8.1 billion and GBP 8.3 billion in 2026.

Return on Tangible Equity (RoTE): Targeting greater than 12% RoTE in 2026 and greater than 14% by 2028.

Cost-to-Income Ratio: Targeting a low 50s cost-to-income ratio by 2028, improving from 61% in 2025.

Structural Hedge Income: Expected to grow by circa GBP 1 billion in 2026, with a prolonged positive effect until at least 2029.

Investment Bank Returns: Targeting circa 12% RoTE in 2026 and more than 13% by 2028, with a focus on improving RWA productivity and stable income growth.

U.K. Lending Growth: Planned annual growth of more than 5% in the next three years, above nominal GDP growth.

U.S. Consumer Bank Returns: Targeting mid-teens RoTE by 2028, with a focus on operational progress and portfolio optimization.

Capital Distributions: Greater than GBP 15 billion in shareholder distributions planned between 2026 and 2028, with a progressive increase in total payout in 2026.

Technology and AI Investments: Doubling annual investment by 2027 to drive digital transformation, including embedding AI at scale across the group.

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Shareholder Return Plan

Dividends for 2025: GBP 1.2 billion

Increase in Dividends for 2026: Planned increase to GBP 2 billion from GBP 1.2 billion in recent years

Share Buybacks for 2025: GBP 2.5 billion, including a GBP 1 billion tranche announced today

Quarterly Buybacks for 2026: Move to quarterly buybacks announced in Q3 2025

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Key Q&A

Q:What is the context of the capital return of over GBP 15 billion and its capacity to support investment and growth?

A:The plan includes a significant level of capital generation, with an improving profit signature leading to 230 basis points. The distribution has been increased to over GBP 15 billion, and investment levels have doubled. The capital generation surpasses these increases, creating capacity for further investment if deemed necessary. The capital hierarchy prioritizes shareholder returns, and excess capital will either be distributed or invested to enhance business momentum.

Q:What is the focus of the investment phase, which has stepped up significantly from GBP 1.1 billion to GBP 2.3 billion?

A:The focus is on making investments that yield quick revenue realization, such as in prime and financing businesses, mortgage broker applications, and acquisitions like Kensington Mortgages and Tesco. The aim is to harmonize processes and standardize approaches, especially in data platforms and technology, to reduce complexity and leverage new technologies like AI and cloud computing.

Q:How will the number of employees in support functions change by 2028, and what are the cost efficiency plans?

A:There is no explicit target for reducing the number of employees in support functions. The focus is on achieving productivity benefits through technology efficiency, platform modernization, and faster product delivery. Cost efficiencies will be driven by these changes, and the most digitally enabled parts of the bank, like the U.S. Consumer Bank, already have the lowest cost/income ratio.

Q:What are the plans for maintaining flat RWAs in the Investment Bank, and what efficiencies are expected?

A:RWAs in the Investment Bank have been flat for four years, and this trend is expected to continue. Efficiencies include reviewing the loan book, deploying RWAs more nimbly, and focusing on growth areas like M&A, ECM, and the International Corporate Bank. The emphasis is on fee businesses and leveraging technology to drive growth.

Q:What is the outlook for capital targets and the impact of regulatory changes on distributions and RoTE targets?

A:The plan assumes operating at the top end of the 13%-14% capital target range due to regulatory uncertainties. Once clarity is achieved, the position within the range will be reviewed. The plan is designed to be resilient to regulatory changes, and potential tailwinds from new capital rules are not factored into the current assumptions.

Q:What is the definition of the headwind in the U.K. mortgage book, and how will it impact performance?

A:The headwind refers to mortgages written at the end of 2020 and early 2021 at wide spreads of 160 basis points, which will refinance at lower spreads, causing short-term pressure. This impact is expected to subside by the end of the first half of the year, with progress in net interest income driven by new lending and the Kensington broker platform.

Q:What products are missing from the Private Bank and Wealth Management proposition, and how is loan growth exceeding GDP?

A:The Private Bank is adding products like SIPPs and junior ISAs but focuses on scaling existing offerings. Loan growth exceeding GDP is driven by increased capabilities, broader product architecture, and technology improvements, particularly in corporate banking and personal loans. Growth is not driven by price or risk changes.

Q:What changes have been made to the hedge book duration, and what is the rationale?

A:The hedge book duration was extended from 3 years to 3.5 years, making the 7-year swap rate more relevant. This change reflects observed customer behavior, with deposit lives lengthening and providing more confidence in extending the hedge.

Q:Why have Investment Bank targets for 2026 been adjusted, and what are the competitive dynamics?

A:Targets were adjusted due to FX changes, with the dollar rate moving from 1.27 to 1.35. Revenue growth assumptions have shifted from market share gains to a flat wallet, with progress in focus areas like prime businesses and client relationships. Competitive dynamics include investments in technology and people to maintain market position.

Q:What are the moving parts in the U.S. Consumer Bank's NIM and loan loss ratio projections?

A:The NIM is expected to rise to 14% in the second half of 2026 after the American Airlines portfolio exit and Best Egg acquisition. The loan loss ratio will increase to 500 basis points due to portfolio changes but will be offset by higher NIM. Temporary effects like stage migration and nonperforming loans from the AA portfolio will elevate impairments in 2026.

Q:What is the income growth outlook for the group, and how does it relate to margins and costs?

A:Income growth is expected to exceed 5% CAGR, with contributions from volume growth and structural hedge tailwinds. Product margins are assumed to remain stable, with lending growth offsetting margin pressure. Investment Bank RWAs will remain flat, and cost growth will be modest, focusing on technology and efficiency improvements.

Q:What is the approach to AI implementation, and what challenges are being addressed?

A:AI implementation requires infrastructure, model capability, and process reengineering. The bank is focusing on end-to-end projects with significant impact, such as BARXBot, credit risk, and customer service in U.S. cards. Challenges include human adoption and integrating AI into systems.

Q:What is the strategy for capital allocation if income exceeds plan assumptions?

A:Excess income will be balanced between shareholder returns and investments to enhance long-term profitability. The capital hierarchy prioritizes being well-capitalized, delivering shareholder returns, and investing to improve group returns. Investments will be evaluated for their returns relative to buybacks.

Q:What are the expectations for deposit volumes and spreads in Barclays U.K., and how do they impact NII?

A:Deposit volumes increased by GBP 3 billion quarter-on-quarter, with competitive pressure leading to a shift towards fixed deposits. The multi-brand strategy, including Tesco, supports deposit growth. Structural hedge tailwinds will continue to underpin NII, with no significant easing in the deposit environment assumed.

Q:What is the rationale for maintaining Investment Bank RWAs at 50% of the group, and how is investment prioritized?

A:The 50% RWA target balances investment in technology, people, and capital. The focus is on capital-light, fee-generating businesses like corporate banking and electronic trading. Investments aim to enhance stable income and intermediation capabilities.

Q:What are the assumptions behind the greater than GBP 15 billion distribution target and TNAV growth?

A:The distribution target reflects strong capital generation, with flexibility for additional investments or shareholder returns. TNAV growth is expected to align with consensus, with potential tailwinds from own credit unwind, pension surplus, and cash flow hedge reserve improvements.

Q:What is the plan for BUK profitability targets, and how does impairment normalization affect them?

A:BUK targets greater than 20% RoTE, with mid-40s cost/income ratio improvements. Impairment normalization to around 30 basis points will slightly offset profitability gains, but the greater than target reflects potential upside.

Q:What is the outlook for Investment Banking fees and market share gains?

A:Fee growth depends on progress in equity capital markets and M&A, with investments in bankers and products. Market share gains are expected over the long term, with structural progress in client relationships and focus businesses.

Q:How does the bank plan to adapt to U.S. capital regulation changes and maintain competitiveness?

A:The bank will leverage its synergies, client relationships, and investments in technology and people to adapt to regulatory changes. The focus is on managing through different market cycles and capital regimes while maintaining competitiveness.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on certain topics, such as the exact number of employees to be reduced in support functions, the precise impact of regulatory changes on capital targets, and the specific timeline for achieving market share gains in Investment Banking fees. Responses often emphasized flexibility and long-term planning without committing to concrete figures or timelines.

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