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Barclays shares fell sharply after it reported a steep drop in third-quarter profit and lowered its UK growth outlook, while warning of major cost cuts to come in a strategic review next year.
Net profit fell 16 per cent to £1.3bn as revenue from investment banking underperformed US peers and profit margins at its British consumer lender narrowed, pushing shares down more than 7 per cent to their lowest level this year.
Chief executive CS Venkatakrishnan also announced an investor update to come alongside its full-year results in February which will reallocate capital within the group, provide new financial targets and result in “material” restructuring charges as he attempts to revive a market valuation among the lowest of any lender in Europe.
“We are trying to create a more efficient organisation, you should expect us to look in all areas” for savings, the chief executive said, declining to comment on the scale and location of any job cuts or business exits. “We owe our investors some kind of an update.”
Venkatakrishnan has hired consultants BCG to work on his strategic review and has already confirmed that the bank wants to sell its £4.3bn German credit cards business.
Attributable profit fell 3 per cent at Barclays’ UK retail lender, as the benefits from the higher interest rate environment started to wane and customers moved their money into better-returning savings products, causing a 6 per cent fall in deposits.
Barclays warned that its net interest margin (NIM) — the difference between the interest received on loans and the rate paid for deposits — is now expected to be in the range of 3.05 per cent to 3.10 per cent in 2023, down from 3.15 per cent to 3.2 per cent previously.
“We expect the lower NIM guidance to be met with significant disappointment today,” said Citigroup analyst Andrew Coombs. He also flagged an uptick in impairments at the credit card business reflecting tougher economic conditions for customers.
The NIM measure will be closely watched as its domestic peers, including NatWest and Lloyds Banking Group, prepare to report their own quarterly results this week. Both fell more than 3 per cent on Tuesday.
Net profit at the investment bank also undershot expectations and US rivals — falling 29 per cent to £721mn — largely due to a steep 26 per cent decline in revenue at its core fixed-income trading business in a period of lower market volatility. Equity trading fell 5 per cent year on year when the effect of a past debt overissuance error was stripped out.
Advisory and capital markets fees also dropped 30 per cent reflecting an 18-month slump in dealmaking amid rising rates and geopolitical uncertainty.
Venkatakrishnan admitted to “pockets of underperformance” at the investment bank, but said it was a tough comparison with record third-quarter earnings last year.
“The [investment bank] I think can do better and there are areas where we want to improve performance,” he said. “But this is a very, very long game and we have been playing it well so far.”
Earlier this month, Barclays’ former chief executive Jes Staley was banned from working in UK financial services after being found to have misled regulators about the extent of his past relationship with Jeffrey Epstein. The bank said in light of the FCA decision, Staley would have to forfeit as much as £17.8mn in deferred bonuses that it had frozen.