By Lars Mucklejohn
Higher interest rates generally raise bank profits, but that is not likely to be the case for Barclays. The bank is expected to report a decline in annual profitability when it publishes its numbers for 2023 next Tuesday due to costly restructuring plans.
A £825m restructuring charge will drag pretax profit down to £6.7bn for 2023, compared to £7bn in 2022, according to company-compiled analyst estimates.
If the group hits these targets, it will be the only one of the Big Four high street banks to report a decline in profits for 2023.
The bank announced its restructuring plan last October as part of a plan to improve profit margins.
However, it has warned of “material additional charges” in the fourth quarter, with analysts predicting £825m of operating costs tied to “structural cost actions”.
Chief executive CS Venkatakrishnan is expected to give investors more details on the restructuring alongside the results.
The bank confirmed last month that it cut 5,000 jobs in a bid to “simplify and reshape the business, improve service and deliver higher returns”.
Benjamin Toms, an analyst at RBC, told City A.M.: “We expect that the bank will announce a cap on the amount of capital that it allocates to its investment bank, and an aspiration to grow its credit cards, wealth and payments businesses.
“Management is also likely to provide more certainty around shareholder returns. An increase in the bank’s return on tangible equity ambition to at least greater than 11 per cent will be required to satisfy investors that progress is being made.”
Britain’s biggest lenders have benefited from a jump in net interest income – the difference between what a bank pays out to savers and receives in interest from loans – since late 2021 as the Bank of England hiked borrowing costs in an effort to slow down inflation.
However, the final quarter of 2023 is expected to show more pressure on banks’ net interest margins (NIM) as rates have likely peaked and lenders come under pressure to offer savers better deals.
Toms said Barclays’ results were “an opportunity for the bank to draw a line under years of lacklustre share price performance typified by low returns, generated by a sprawling bank and a large litigation bill”.
He expected revenue from Barclays’ Corporate and Investment Bank to be “fairly weak” in the fourth quarter but noted that it could “positively surprise” on NIM.
Many investors have urged Barclays to ditch its global investment bank, which is relatively small compared to the dominant Wall Street firms, and focus more on retail operations.
Although Venkatakrishnan has promised to retain the investment arm, Barclays was reported in November to have been exploring a plan to drop thousands of clients.
Venkatakrishnan is under pressure to boost the bank’s share price, which has fallen more than 23 per cent over the last year.
The state-run Qatar Investment Authority (QIA) – Barclays’ second largest shareholder – halved its stake in the bank in December.
Last week, Barclays announced it would buy most of Tesco’s banking arm for £600m and transfer around 2,800 staff.
