Earnings Call Transcript - BCS Q4 2023

C.S. Venkatakrishnan, CEO

Good morning. Thank you all for being here and welcome to our Full Year 2023 Results Presentation and Investor Update. You can see the agenda for today on this slide. We will first discuss the results for 2023 before moving on to the broader investor update. As announced this morning, I will begin with the performance highlights of our results, and then I will hand it over to Anna for the financial details. We have successfully met our guidance, achieving all our targets in 2023. This, combined with our consistently strong capital position throughout the year, has allowed us to provide shareholders with a significant increase in distributions. Excluding the Q4 structural cost actions, our return on tangible equity was 10.6% for 2023, aligning with our target of above 10%. Likewise, our cost-to-income ratio was 63%, consistent with our guidance for the low 60s for the full year. While the structural cost actions have benefited future returns, they did not hinder our ability to achieve a 37% year-on-year increase in total distributions, now amounting to £3 billion. This figure for 2023 includes a total dividend of £0.08 per share, with today's announcement reflecting a full year dividend of £0.053, as well as a full year buyback of £1 billion that we expect to commence shortly, in addition to the £750 million buyback at the half year. Tangible book value per share has risen by £0.36 year-on-year to £0.331. Our CET1 ratio stands at 13.8%, right at the top of our target range of 13% to 14%. Overall, we see this performance as a solid foundation to progress towards our revised financial targets for the next three years, which we announced this morning and will explore in more detail shortly. Now, I'll turn it over to Anna for the financial report on these results.

Anna Cross, CFO

Thank you, Venkat and good morning everyone. Turning now to Slide 5. On a statutory basis, RoTE was 9% for full year 2023. This included the £0.9 billion of structural cost actions taken in Q4. And given the materiality of those Q4 charges over and above normal annual cost actions, I'm going to exclude it from the financial performance metrics today. On this basis, 2023 return on tangible equity was 10.6%. I would note that there was no impact from the over-issuance of securities this year, but given the material impacts to income and costs in 2022, I will also use adjusted numbers as comparators. Group profit before tax was £7.5 billion, down 3% year-on-year, and income increased by £0.7 billion, while costs were £0.2 billion higher, excluding the Q4 cost actions. Within costs, litigation and conduct charges were small this year at £37 million compared to around £0.6 billion in 2022. And operating costs, which include litigation and conduct, were up by £0.8 billion. Impairment charges were £0.7 billion to £1.9 billion, representing a loan loss ratio of 46 basis points, better than our through-the-cycle guidance of 50 to 60. As usual, I'll now cover the three drivers of our returns: income, costs and credit risk management. We saw a continuation of year-to-date income trends through the fourth quarter, resulting in total income up 3% at £25.4 billion for the year. Barclays UK income was up 5%, reflecting growth in net interest income from rate increases outweighing lower card income and the transfer of UK Wealth in Q2. Consumer cards and payments income grew strongly, up 18%, driven by higher margins and balanced growth in both US cards and the Private Bank. Corporate and Investment Bank income was down 4%, as lower volatility in markets and a record low banking wallet impacted the industry. This outweighed the tailwind from interest rates in the Corporate Bank. On the next slide, you can see net interest income across the bank and that it grew by £2.1 billion or 20% year-on-year, driving a 44 basis point increase in group NIM to 3.98%. The biggest contributors to NII growth were CC&P and CIB, together adding £1.3 billion, with around one quarter of the total NII growth coming from Barclays UK. Going forward, while we will still report net interest margin, we will guide to group NII excluding the Investment Bank and head office. This is expected to be around £0.3 billion lower in 2024 at around £10.7 billion. Barclays UK is expected to be approximately £6.1 billion of this excluding the impact of Tesco, which I'll touch on shortly. The benefits from the structural hedge are expected to be offset by continued product market pressures, particularly in the UK. Turning now to the structural hedge in more detail. The structural hedge is designed to reduce volatility in NII and manage interest rate risk. As rates have risen, this has dampened the growth in our NII, but in a falling rate environment we will see the benefit from the protection that it gives us. It generated £3.6 billion in gross hedge income in 2023, up from £2.2 billion in the prior year. It also provides a high degree of confidence in the net interest income growth assumed in our forward plan. To reiterate this, £3.8 billion of gross hedge income is already locked in for 2024 from the hedge investment we did through 2023, and this will continue to build. Given the trends in retail deposits, we do expect the notional balance to reduce in 2024 at a broadly similar rate to Q4 2023 before stabilizing in 2025. We have approximately £170 billion of hedges maturing over the next three years, and we expect to roll around three quarters of them over the period with reinvestment rates remaining well above the average maturing yields of around 1.5% for the next three years. So, we do expect the reinvestment to outweigh notional hedge declines.

C.S. Venkatakrishnan, CEO

As I said that we did an investor update 10 years ago, and Barclays has changed since that time, in fact, changed substantially for the better. We've strengthened the bank financially, improved its capitalization and are now leaner. We have reduced our headcount by about one-third over this period and our footprint more than 50 countries then to 38 today. We've exited non-priority businesses in Africa, in Asia, in European retail banking as well as commodities, and there are two more in advanced stages of discussion. We've reduced our RWAs by about 20% in this period, strengthened our CET1 ratio by 4.5 percentage points to 13.8% at year end, as we just spoke about. And at the same time, unfortunately, we have incurred about £16 billion on litigation and conduct issues and costs. To me, this is a very, very disappointing number. And it is a stark and serious reminder as to why it is so important to run a bank well. And at the heart of running a bank well is what I call running it in a consistently excellent way. It is the surest way we have to preserve our reputation, protect our bank and all our shareholders. Over the same period, we have reset our financial performance, particularly in the last three years, delivering return on tangible equity above 10% since 2021 and distributing £7.7 billion to shareholders in that period, which is 35% higher than the prior seven years put together. And while this has been an improvement, it is not enough. And indeed, our shareholder experience needs to be better. We have listened, we have heard and we will do even better.