Barclays PLC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: Return on tangible equity (RoTE) was 12.3% in Q3 and 11.5% year-to-date; tangible book value grew 0.35p per share year-on-year to 3.51p; total income was £6.5 billion in Q3 and £19.8 billion year-to-date, with focus on income mix quality.
• Cost Control: Cost-to-income ratio was 61% both in Q3 and year-to-date, with continued benefit from cost actions taken in Q4 2023.
• Credit Performance: Impairment charges improved, with U.S. consumer bank impairment in line with expectations; group loan loss rate was 42 basis points year-to-date and 37 basis points in Q3.
• Capital Position: Ended Q3 with a 13.8% CET1 ratio, well within target range of 13% to 14%.
• Divisional Highlights: Barclays U.K. on track to acquire Tesco Bank by 1 Nov 2024; Investment Bank focused on RWA and operational productivity; U.S. Consumer Bank growing business and improving operations.

Segment Performance

• Barclays U.K.: Q3 return on tangible equity (RoTE) was 23.4%, year-to-date over 20%; total income was £1.9 billion, up 4%; net interest income (NII) was £1.7 billion, up 69 million with net interest margin (NIM) increasing to 3.34%; cost-to-income ratio improved to 52%.
• Investment Bank: Q3 RoTE was 8.8%; total income was $2.9 billion, up 6% year-on-year; cost-to-income improved; risk-weighted assets (RWA) productivity was 5.7% in Q3.
• U.S. Consumer Bank: Q3 RoTE was 10.9%; income fell 2% year-on-year but excluding foreign exchange (FX) was up 2%; net interest margin was stable at 10.4%; cost-to-income ratio was 50%.
• U.K. Corporate Bank: Q3 RoTE was 18.8%; income grew 1% year-on-year to £445 million; lending balances decreased in the quarter.
• Private Banking and Wealth Management: Q3 RoTE was 29%; income reduced 3% year-on-year due to lower NII from a timing-related one-off, but client assets and liabilities were up ~£23 billion year-on-year; costs were up 3% year-on-year.

Guidance

• NII Targets: Upgraded Barclays U.K. and group net interest income (NII) targets; full-year group NII expected to be greater than £11 billion, with Barclays U.K. NII circa £6.5 billion (excluding Tesco Bank impact).
• Cost Efficiency: On track to deliver £1 billion of gross cost savings in 2024, with further £1 billion expected in 2025-2026.
• Tesco Bank Acquisition: Expected to complete 1 Nov 2024, with estimated financial impact including a circa £0.3 billion net positive profit before tax on day 1.

Risks

• Interest Rate Sensitivity: Potential quarter-to-quarter volatility in NII from structural hedge maturities, but confident in income profile stability in a falling rate environment due to structural hedge protection.
• Regulatory Changes: Impact of Basel 3.1 and U.S. cards model migration on RWAs, with timing changes affecting the expected RWA impact.
• Market Volatility: Impact on fair value of leveraged finance lending and other balance sheet items, with episodic fair value losses reported in corporate lending.

Question and Answer

Q: Two questions on Slide 16, Barclays U.K. margin and NII walk, including quarter-to-quarter volatility in structural hedge tailwind and product margin including deposit pricing.

A: Discussed that structural hedge tailwind had quarter-to-quarter volatility but remains a net tailwind, and product margin includes asset and liability impacts with some deposit pricing lag offset by asset margin expansion.

Q: On capital and timing of regulatory changes, including impact on capital distribution and Pillar 2A.

A: Reiterated expectation of capital distributions in line with plan, with regulatory movements timing-only and Pillar 2A impact modest and to be offset by Basel guidance.

Q: On IB fee performance sustainability and leveraged finance marks.

A: Stated fee performance was firm with no undue lumpy deals, and leveraged finance mark impact was episodic and part of normal balance sheet fair value assessment.

Q: On U.K. interest rate sensitivity and hedge notional stability.

A: Explained low rate sensitivity in year 1 due to hedge programmatically locking in income, and notional stability from structural hedge securing income certainty.