Barclays Bank is set for further cost cuts in the coming months to mitigate the effects of margin pressure from competition in the savings market and another lacklustre performance from its investment bank.
The group’s shares in the London-based lender plunged as much as 8% in early trading and were 6% lower at 8.50am GMT, while rivals Lloyds and NatWest each fell about 3%, despite Britain’s second-largest bank reporting a profit that just beat forecasts.
Facing a downbeat outlook in its home market in particular, Barclays said on Tuesday it was “evaluating material structural cost actions” to help improve returns, which could incur hefty charges as soon as the fourth quarter.
“These results are likely to lower market expectations further for UK banks, and we see a negative read-across for Lloyds and NatWest,” banking analysts at JPMorgan said.
CEO CS Venkatakrishnan said on a conference call that Barclays would look for efficiencies in different parts of the bank, without giving details.
Barclays started a strategy review earlier this year aimed at reviving its share price and has already started trimming costs, including cutting hundreds of jobs, and is said to be is exploring options for its payments unit.
A series of Barclays restructurings since the 2008 financial crisis have included cost cuts, asset sales and strategy tweaks.
Income drop
Barclays reported pretax profit of £1.9bn for the three months to end-September, down from £2bn a year ago but above a consensus analyst forecast of £1.77bn
The group also reported a 6% drop in income at its investment bank after similarly poor half-year results in July.
Revenue in its traditionally strong fixed income, currency and commodities division fell 13% as falling market volatility dampened clients’ enthusiasm for trading.
That was worse than the showings for the same business at Wall Street rivals, which reported earnings earlier this month.
Goldman Sachs’ net revenue in the division fell 6% and Morgan Stanley’s slid 11%, while Bank of America and JPMorgan reported 6% and 1% increases respectively.
‘Going shopping’
Venkatakrishnan, known inside Barclays as “Venkat”, said the bank will set out its new capital allocation priorities and revised performance targets with full-year results in February, but that the cost cuts could start sooner.
The bank said its net interest margin, a key measure of profitability, in its British retail bank would now likely be between 3.05% and 3.1%, below previous forecasts of about 3.15%, as political pressure to help savers and sticky inflation curb lending returns.
“Consumers are no longer happy to park their cash in low-rate current accounts and are going shopping for higher yields,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
The bank set aside an extra £433m in the quarter for potentially soured loans, citing updated tougher economic forecasts and a rise in delinquencies in its US cards unit to pre-pandemic levels.
Venkat declined to comment when asked about Jes Staley facing a ban from senior roles in financial services and a £1.8m after the Financial Conduct Authority found the Barclays’ former CEO had misled the regulator about his relationship with sex offender Jeffrey Epstein.
Staley said he was “very disappointed” by the watchdog’s decision earlier this month, which he is appealing.
Reuters
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