Barclays reveals £2bn cost-cutting overhaul as profits fall

Barclays has revealed plans to strip out another £2 billion in costs in the coming years, after efforts to overhaul the bank have weighed on profits in recent months.

Shares in the the bank jumped by about 5% on Tuesday morning after it announced a structural shake-up to improve its financial performance, simplify the business, and return more money to investors.

It said it was targeting efficiency savings totalling £2 billion by 2026, as the global bank focuses on five key divisions going forward.

The cuts are designed to reduce its cost-to-income ratio – meaning the amount it spends on running the business as a percentage of the amount it generates in income.

It comes on top of about £1 billion already spent over 2023 on restructuring costs, which involved its offices and branches, infrastructure, and staff.

About £300 million of that was spent on “rightsizing” its headcount, it said. Barclays previously revealed it cut about 5,000 full-time jobs across the global business over 2023, largely affecting back office and support roles.

It did not specify how many jobs are expected to go as part of the sweeping cost-cutting drive in the coming years.

Max Georgiou, an analyst at Third Bridge, said he thinks a 20% reduction in headcount in the bank’s corporate and investment bank is needed to achieve the savings target, an amount which he said “would not impact day-to-day operations”.

Kathleen Brooks, a research director at XTB, said Barclays’ new financial targets “set a high bar” and involve “building a greater institution than what Barclays is today”, but added that will mean job cuts.

The update was shared alongside the bank’s full-year financial results which showed declining profits.

It made a pre-tax profit of £6.6 billion over 2023, 6% lower than the previous year and a slightly bigger drop than analysts were expecting.

Our new three-year plan is designed to further improve Barclays' operational and financial performance, driving higher returns, and predictable, attractive shareholder distributions

Over the final three months of the year, profits plunged by 92% to £110 million, from £1.3 billion the previous year, as the restructuring efforts weighed.

The bank’s chief executive, CS Venkatakrishnan, who is also known as Venkat, said: “Our new three-year plan, which we will be announcing at the investor update today, is designed to further improve Barclays’ operational and financial performance, driving higher returns, and predictable, attractive shareholder distributions.”

It marks the first major strategy update for several years for the banking giant and has been much anticipated by investors.

Barclays also announced plans to return at least £10 billion to shareholders over the next two years, through dividends and share buybacks.

Venkat was awarded £4.6 million in pay and bonuses for 2023, including a £1.4 million annual bonus, according to the bank’s annual report published on Tuesday. His total pay package was down from £5.2 million in 2022.

Barclays strategic review was punchy, and it essentially boils down to two things: cut costs aggressively and boost profits and continue to return capital to shareholders, to the tune of £10 billion by 2026

Bankers across the group shared a £1.75 billion bonus pool for 2023, down 3% on the previous year, although 2022’s payouts included a reduction of about £500 million for “risk and control issues”.

Barclays also said it did not apply the recent scrapping of the bankers bonus cap to the latest payouts because the new rules were put in place towards the end of 2023.

Axing the cap – which previously limited bonuses to 100% of the salary for bankers, or double with shareholder approval – is expected to impact “a relatively small number of our employees”, Barclays said.

Ms Brooks, from XTB, added: “Barclays strategic review was punchy, and it essentially boils down to two things: cut costs aggressively and boost profits and continue to return capital to shareholders, to the tune of £10 billion by 2026.

“This is exactly the type of message that shareholders love at the moment, and it is why the market has reacted with glee on Tuesday morning.”