Barclays experiences an 8.6% increase following the announcement of a significant strategic transformation.

• On Tuesday, Barclays reported a net loss of £111 million ($139.8 million) in the fourth quarter, while also announcing a comprehensive strategic overhaul.
• The bank announced a significant operational restructuring on Tuesday, which involved substantial cost cuts, asset sales, and a reorganization of its business divisions.
• The company pledged to distribute £10 billion to its shareholders through dividends and share buybacks by 2026.

On Tuesday, reported a fourth-quarter net loss of £111 million ($139.8 million) and announced an extensive strategic overhaul, resulting in a more than 8.6% increase in its shares through the day.

According to LSEG data, analysts polled by Reuters predicted that Barclays would have a net profit attributable to shareholders of £60.95 million for the quarter. The bank is currently undergoing a major restructuring program in an attempt to reverse its declining profits.

In 2023, the company's net attributable profit was £4.27 billion, lower than the previous year's £5.023 billion and below the forecasted £4.59 billion.

C.S. Venkatakrishnan, CEO of the bank, announced an additional £1 billion share buyback and a new three-year plan to enhance operational and financial performance, according to a statement.

In the fourth quarter, Barclays suffered a £900 million loss due to structural cost-cutting measures, which are projected to yield gross cost savings of approximately £500 million this year, with a payback period of less than two years.

Here are some other highlights:

• The revenue for the fourth quarter was £5.6 billion, which is a 3% decrease from the previous year.
• In the fourth quarter of 2022, credit impairment charges were £498 million, but increased to £552 million in the following quarter.
• The bank's financial strength, as measured by the common equity tier one (CET1) capital ratio, decreased from 14% to 13.8% in the latest quarter.
• The full-year return on tangible equity (RoTE) was 10.6% without considering fourth-quarter restructuring expenses. In contrast, the fourth-quarter RoTE was 5.1%, which was lower than the 8.9% recorded in the last quarter of 2022.
• Quarterly total operating expenses were roughly unchanged year-on-year at £4 billion.

In 2023, the momentum in Barclays' traditionally strong corporate and investment bank (CIB), particularly in its fixed income, currency and commodities trading division, decreased as market volatility decreased.

The bank declared a major operational restructuring on Tuesday, which entails significant cost reductions, asset disposals, and a restructuring of its business units, with a commitment to repay £10 billion to shareholders through dividends and share buybacks between 2024 and 2026.

The business will now be divided into five operating divisions, separating the corporate and investment bank to form: Barclays U.K., Barclays U.K. Corporate Bank, Barclays Private Bank and Wealth Management, Barclays Investment Bank and Barclays U.S. Consumer Bank.

The bank's report stated that the resegmentation would result in a more detailed and precise disclosure of the performance of each operating division, as well as increased accountability from an operational and management perspective.

By 2026, Barclays aims to achieve a total gross cost savings of £2 billion and a return on tangible equity (RoTE) of more than 12%.

Ambitious targets

DBRS Morningstar's vice president of global financial institution ratings, Mariva Rivas, stated on CNBC that the strategic update on Tuesday was not a "game changer," but rather a continuation of the existing model with some refinements.

She stated in an email that the 2026 ROTE target of more than 12% is at the lower end of peers' ROTE, although higher than the 9% in 2023 (10.6% excluding the cost restructuring impact).

The ROTE target for each business line will be driven by strong although weaker than in 2023 ROTE on UK business, while improving materially in US cards and IB. In the US card business, the 2026 ROTE improvement will be driven by higher operational efficiency and lower impairments, which would also depend on no changes to their macroeconomic assumptions.

Barclays plans to decrease its risk-weighted assets in the investment bank to approximately 50% from 58% in 2023, and to reduce the IB cost: income ratio to the high 50s in percentage terms, from 69% in the previous year.

In our view, these targets appear ambitious as IB typically requires ongoing investments in IT and the majority of the improvement is expected to be achieved through IB revenue growth of approximately GBP 1.8 billion by 2026, which seems optimistic given that revenues have been relatively flat since 2021 and the nature of IB revenues, which tend to have some volatility.