Barclays to reward investors with £9bn

Barclays will give its shareholders up to £9 billion in the next three year as part of its turnaround plan, which its chief executive is set to unveil on Tuesday.

C S Venkatakrishnan (Venkat) is under pressure to increase the share price of Barclays. He is being asked to assuage investor concerns about Barclays’ huge investment banking business, which produces volatile returns, and is too large compared to its high-street and credit card businesses.

Venkatakrishnan will make other promises about returns to investors in a four-and-a half-hour strategic update. He will announce a new return on tangible equity target (Rote), which is a measure of profitability that is closely monitored. It’s likely to go up from 10% to around 11%. This would be the company’s first update to its goals since 2017.

The Indian-American national was promoted to top job when Jes Staley resigned in November 2021 to combat a Financial Conduct Authority report that found he hadn’t been truthful about the late sex offenders Jeffrey Epstein.

Venkat must explain to investors what dividends and buybacks they can expect over a period of three years to increase their confidence in buying the shares. JP Morgan’s analysis shows that Barclays has the financial capacity to spend £9 billion in this time period.

Barclays shares are valued at 147p, or £22 billion. This is less than half of the value of its assets. Investors are worried about the bank’s risky behavior.

Barclays’ strategic update, the first one in a decade, is the start of a series of important announcements from Britain’s largest banks. HSBC is set to report record earnings of $34 billion on Wednesday (£27 billion), boosted by rising interest rates in the global market.

The Barclay family is expected to repay loans in order to regain control over The Daily Telegraph. This will result in a £650 million increase to the profits of Lloyds Banking Group, which are to be announced Thursday. Lloyds still faces questions regarding the financial impact of an FCA investigation on commissions paid to car finance companies.

Barclays is expected to reduce costs , and it has already warned that it will face a restructuring fee, estimated at over £700 million. The bank has cut 5,000 jobs out of 84,000 in the last year.

Ambrose Faulks of Artemis UK Select said that investors want Barclays to show capital discipline and set a target for a capital return over a period of three years in the form dividends and stock buybacks.

The bank must also explain how its acquisition of Tesco Bank’s credit operations, worth £600 million, will help it expand their retail business.

Analysts warn that Barclays will struggle to win back investors’ trust despite these measures. Alastair Ryan of Bank of America said that “we expect some costs cuts and [for the banks] to find capital for a buyback”, but predicted Venkat wouldn’t “change the basic narrative about Barclays”.

NatWest has resolved a long-running legal dispute over a fraud involving VAT that was estimated to cost the bank £45million by a judge.

The bank appealed the case and was due to retrial, but announced alongside its annual report on Friday that they had “entered an agreement to settle the claim” in January. The bank did not specify the amount of settlement, but stated that it was covered by existing provisions.

The government is preparing the bank in which it holds a 35% stake for a public sale. Lexington, a company that boasts its Labour ties, and Teneo were appointed as public relations advisers to manage the sale. Jeremy Hunt is hoping this will help revive a culture of share buying in Britain. He will likely provide an update with next month’s Budget.

Treasury spokesperson said: “No decisions have been finalized yet, but we’re bringing in advisers to help us develop options for any possible offer.” After a thorough and competitive procurement process, a consortium consisting of Lexington and Teneo was selected.