Barclays Announces £750M Share Buyback Amid Profit Dip

Barclays upgrades earnings guidance and reveals a £750M share buyback, driven by increased trading income despite a 9% profit decline.

Barclays (BARC.L) has recently unveiled a substantial share buyback program amounting to £750 million (approximately $957 million), alongside an optimistic revision of its long-term earnings forecast. This announcement, made on Thursday, comes in the wake of a notable increase in trading income, which has somewhat mitigated a 9% decline in profits for the first half of 2024. The British banking giant now anticipates achieving a return on tangible equity (ROTE) exceeding 12% by 2026, a significant improvement from its previous target of over 10% for 2024. Furthermore, Barclays aims to generate an annual income of £30 billion by 2026.

In a move that aligns with a broader trend observed across the banking sector, including at HSBC (HSBA.L) and Standard Chartered (STAN.L), Barclays has committed to returning at least £10 billion to its shareholders through dividends and share buybacks between 2024 and 2026. While Barclays shares initially opened higher on Thursday, they experienced a 1.5% decline by 0912 GMT, reflecting a wider stock market downturn. Nevertheless, the bank's share price has soared more than 50% this year, following CEO C.S. Venkatakrishnan's strategic overhaul in February, which prioritized the growth of its core UK lending operations over its more volatile investment banking activities.

Despite significant investments in both corporate and retail banking, Barclays' investment banking division has demonstrated remarkable resilience. A 10% increase in income during the second quarter, largely driven by the equities sector, allowed Barclays to mirror the impressive trading returns reported by its Wall Street counterparts last month. Notably, second-quarter equities income surged by 24%, outpacing the 18% growth at Morgan Stanley (MS.N), the 7% increase at Goldman Sachs (GS.N), and JPMorgan's (JPM.N) 21% rise.

The bank's robust performance in equities can be attributed, in part, to its expanding market share in the lucrative prime brokerage arena. However, it is worth noting that revenues from fixed income, currencies, and commodities (FICC) experienced a 3% decline, while investment banking income from deals saw a remarkable 44% increase.

As the Bank of England is widely expected to announce a 0.25% cut to the base rate—a move that many beleaguered homeowners and borrowers hope will alleviate their financial burdens—there are concerns that this could adversely affect banks' interest income. In anticipation of falling rates, most banks, including Barclays, have implemented strategic hedging measures to cushion the potential impact. Interestingly, Barclays has raised its forecast for 2024 net interest income to £11 billion, up from £10.7 billion.

However, scrutiny remains on the bank's returns, particularly as the ROTE for its UK corporate banking division plummeted to 16.6%, down from 27.3% a year prior. The unit's pretax profit fell by 36%, and expenses surged by 15% compared to the first half of 2023. Additionally, Barclays reported a 4% decline in revenues within its UK retail banking sector, as competition for lending intensified.

In a strategic pivot, Barclays is divesting from European markets where it lacks sufficient scale and is currently in negotiations to offload its remaining non-performing and Swiss-Franc linked Italian retail mortgage portfolios. On July 4, the bank announced its decision to sell its German consumer finance business to an Austrian bank for a modest premium over net assets.