Barclays CEO CS “Venkat” Venkatakrishnan has announced in a much-anticipated update on his restructuring plans that the bank will become “simpler, better and more balanced”.
As announced this morning, the new strategy aims to cut costs by £2 billion and return at least £10 billion to shareholders by 2026.
In a four-and-a-half-hour strategy update, the FTSE 100 bank confirmed that it expects to implement half of the cost savings this year.
The update is the first of its kind in a decade. Looking back, Venkat was critical of parts of the bank’s performance during this period.
He said the spending of around £16 billion on litigation and conduct rules was “a very, very disappointing figure” and “a stark reminder of why it is important to run a bank well”.
Venkat added that the bank needed to “improve customer experience and outcomes” as Barclays had faced a large number of official complaints in recent years.
“We are creating a simpler, better and more balanced bank,” Venkat told investors. “We have listened, we have heard and we will do even better.”
Cost-cutting measures
The new strategy has already cost the bank £927 million in “structural cost measures”, including £340 million on staff, £227 million on office space and £360 million on infrastructure.
The cuts will be concentrated in Barclays’ UK retail banking and global investment bank, both of which are expected to see cost reductions of £700 million. Barclays’ UK corporate banking is set to see cuts of £100 million.
Barclays aims to increase its total income from £25.4 billion in 2023 to around £30 billion by 2026, with a focus on creating “more stable revenue streams” in its retail and commercial banking businesses.
The company plans to achieve a cost-income ratio of 63 percent by 2024, a decrease of four percent from the previous year. By 2026, this figure is expected to be over 50 percent.
The bank aims to achieve a return on equity (RoTE) of over 10 percent in 2024, with a target of over 12 percent by 2026. Its RoTE was 10.6 percent in 2023, excluding the restructuring charge.
Corporate structure
Barclays’ new corporate structure will consist of five new business units: Barclays UK, Barclays UK Corporate Bank, Barclays Private Bank and Wealth Management, Barclays Investment Bank and Barclays US Consumer Bank.
Vim Maru, currently global head of retail banking, has been appointed CEO of Barclays UK, while Matt Hammerstein will lead the UK Corporate Bank and become head of public policy and corporate responsibility.
Sasha Wiggins has been named CEO of the private banking and wealth management arm, while Denny Nealon will continue as CEO of the US Consumer Bank.
Venkat said the plan to simplify and restructure the business “will provide greater accountability and transparency in reporting to investors.”
He added that Barclays was in “advanced discussions” about selling its German credit card business and its Italian mortgage book in order to completely withdraw from European retail banking outside the UK.
Paul Compton will step down from his position as global head of Barclays’ Corporate and Investment Bank and president of Barclays Bank Plc to become chairman of the new investment banking division.
Investment bank
Venkat is under pressure from shareholders to boost the bank’s share price, which has lagged behind its rivals, and to diversify Barclays’ business model and move away from its global investment banking business – often seen as a volatile source of revenue.
Some investors urged him to divest from the division entirely because it is relatively small compared to the dominant Wall Street firms and has seen declining revenue due to a slump in dealmaking and capital markets activity.
However, the new strategy has doubled the business. Venkat said the investment bank is “at the right scale today” and is “delivering results at a time when many competitors are pulling back.”
He added: “Our investment bank needs to deliver higher returns and become a relatively smaller part of Barclays.”
Vankat noted that Barclays’ investment business is “at an earlier stage of maturity” than its markets business and that while it is volatile “to some extent”, the bank plans to diversify the unit and deliver revenue growth of around £700 million by 2026.
He plans to bring the investment bank’s RoTE, which will be around seven percent in 2023, to the group’s target of over twelve percent by 2026.
Barclays will also introduce a cap on risk-weighted assets in investment banking, which will be reduced from 63 percent to around 50 percent by 2026.
Private banking and asset management
Venkat is trying to increase the bank’s revenues from retail banking and wealth management to reduce Barclays’ reliance on its investment banking business.
Barclays highlighted its focus on the UK, announcing that the bank will allocate an additional £30 billion in risk-weighted assets to its UK retail business by 2026.
As part of its expansion into retail banking, the bank announced earlier this month that it had signed a deal with Tesco to acquire most of the supermarket’s retail business for £600 million and retain around 2,800 staff.
Meanwhile, it was reported last week that Barclays is exploring a bid for Société Générale’s UK private bank as part of its efforts to expand its position in the wealth management sector.
Venkat said today that Barclays’ private banking and wealth management units “need to continue to grow”. He added that Barclays has three million customers in the UK with investable assets.
Job cuts
The bank first announced its cost-cutting measures in October, but has so far provided few details about its strategy.
In January, the company announced that it had cut 5,000 of its 84,000-strong global workforce last year as part of a “simplification and restructuring of the business.”
Venkat announced today that the bank’s workforce has fallen by about a third over the past decade.
Cost-cutting measures include shifting around 30% of back-office roles at Barclays Execution Services to frontline units, decommissioning up to 500 legacy IT applications and introducing digital assistants with artificial intelligence.
He added that Barclays is in the process of repositioning around 20,000 back-office staff – about 30 percent of the jobs in its execution services division.
Barclays is retiring up to 500 legacy IT applications. 75 percent of the workload has been moved to the cloud. The goal is to increase this figure to 85 to 90 percent.
