Barclays guidance disappoints as bank cuts bonus pool

Barclays shares fell sharply after the bank reported a decline in fourth-quarter earnings, driven by a plunge in fee income at its investment bank and a less-than-expected windfall at its retail lender from rising interest rates.

The bank also revealed it had cut its bonus pool by half a billion pounds after a series of regulatory and compliance scandals in 2022.

Net profit decreased 4 per cent to £1.04bn from £1.08bn in the same period a year earlier, beating analysts’ expectations of £919mn largely due to a tax credit, the British bank said on Wednesday. Revenue rose 12 per cent to £5.8bn, but this was below the average £6.1bn estimate.

The shares fell 9 per cent as investors were disappointed by what analysts called unambitious targets and guidance for performance in 2023, in particular its net interest margin (Nim), the difference between the interest it receives on its loans and the rate it pays for deposits.

Analysts had expected a larger rise in the metric after a series of rate rises by the Bank of England, which this month hit a 15-year high of 4 per cent. This would have allowed Barclays to generate more cash to return to investors in the form of dividends and buybacks.

“Barclays’ numbers raise a lot of questions . . . Arguably most concerning is the UK with Nim at 3.1 per cent, just 9 basis points higher than in the third quarter,” said Jonathan Pierce, an analyst at Numis. The bank forecast it would only rise slightly to more than 3.2 per cent in 2023.

“The shares are likely to suffer on the back of this”, he added, and could be used as a negative leading indicator for peers NatWest and Lloyds, which report their full-year results in the coming days.

The guidance overshadowed a 13 per cent increase in fourth-quarter profit at Barclays UK, its ringfenced consumer lender, and a 46 per cent jump in its consumer, cards and payments business, where revenue hit £1.3bn. The bank added £500mn of credit impairment charges in the quarter, which it said reflected “the deteriorating macroeconomic forecast”.

The investment bank also undershot expectations. A 79 per cent surge in fixed-income trading failed to offset a 12 per cent decline in equities trading and a 50 per cent plunge in advisory and capital markets fees as dealmaking ground to a halt.

This matched trends on Wall Street, but was worse than analysts had expected and drove down revenue at the division by 2 per cent to £2.6bn.

While the bank claims to have taken significant trading market share from rivals since 2019, “the sustainability of current fixed-income revenues will remain a key question,” said Citigroup analyst Andrew Coombs.

Barclays also wrote down the value of its leveraged loan portfolio by £335mn last year and said it had reduced lending commitments by 50 per cent since July. Banks have been caught with billions of dollars’ worth of debt tied to risky private equity takeovers on their books after market conditions soured and buyers deserted the asset class.

Overall 2022 was a messy year for the British lender. On a full-year basis, net income fell 19 per cent to £5bn, even though revenue rose 14 per cent to £24.9bn.

The decline reflected an embarrassing trading error that led to the bank accidentally selling $17.7bn of structured financial products it did not have authorisation for. It had to pay $361mn to settle with the US Securities and Exchange Commission and set aside £450mn to compensate investors.

The bank also set aside $200mn to settle a US regulatory probe into its employees’ unauthorised use of encrypted messaging apps WhatsApp and Signal.

As punishment for those and other scandals, the bonus pool was cut by about £500mn last year, falling 8 per cent to £1.79bn.

The pay of top executives was reduced by a combined £1mn. Chief executive CS Venkatakrishnan’s bonus was cut by £403,000 and finance director Anna Cross by £166,000.

“While our performance in 2022 was very gratifying, overall it was marred by the overissuance of securities in the US,” Venkatakrishnan said in a message that was pre-recorded because he is undergoing treatment for blood cancer in the US. “I’m determined that incidents like this should not happen again.”

The bank made a return on tangible equity (Rote) — a key profitability metric — of 10.4 per cent for the year, down from 13.1 per cent in 2021.

It maintained its “medium-term” target for Rote at 10 per cent or more, which was also negatively received by investors who had hoped the goal would be increased.

The bank said it would pay a dividend of 5p a share, bringing the total for 2022 to 7.25p, and buy back another £500mn of shares, raising the total repurchased to £1bn.