Barclays Chief Executive Officer Antony Jenkins and Group Finance Director Tushar Morzaria today updated investors on the results of the Group Strategy Review.
This outlined the path to deliver the Transform objective of a sustainable return on equity above the cost of equity in a changed regulatory and economic environment. As a result of these changes, our determination to become the ‘Go-To’ bank for our clients and customers remains, but how we achieve that goal has to take account of the new environment.
Barclays will be repositioned, simplified and rebalanced to improve returns significantly.
Barclays will be a focused international bank, with four core businesses:
Personal and Corporate Banking: a combination of most of our leading UK Retail, Corporate and Wealth businesses to take advantage of infrastructure cost synergies to deliver good returns
Barclaycard: a high returning business with strong and diversified international growth potential
Africa Banking: a longer term growth business with distinct competitive advantages
Investment Bank: an origination led and returns focused business, delivering Banking, Equities, Credit and certain Macro products to our clients in a more capital efficient way
Barclays today also announces the creation of Barclays Non–Core. This unit groups together those assets which do not fit the strategic objectives or returns criteria underlying the Strategy Review. Barclays will look to exit or run down these assets over time. Barclays Non-Core consists of c.£115bn of RWAs (including £59bn of Transform Exit Quadrant Assets held at year end 2013) with associated leverage exposure of c.£400bn, comprising:
c.£90bn of Investment Bank RWAs, including non-standard FICC derivatives, non-core commodities and specific emerging markets products
c.£16bn of Europe retail RWAs, representing the entirety of the business, reflecting its non-strategic nature to Barclays
c.£9bn of certain Corporate, Barclaycard and Wealth RWAs
Barclays is targeting a reduction in non-core RWAs to c.£50bn, and leverage exposure to c.£180bn, by the end of 2016, with the drag on Group Return on Equity reduced to <3% (of which c.50 bps represents Europe retail), down from c.6% in 2013. Preservation of net tangible asset value will be a priority as Barclays seeks to reduce the return on equity drag from the non-core unit. Barclays also expects to be able to accrete capital at the Group level over the period to 2016.
As a consequence of these changes, Barclays will become significantly more balanced and in turn able to deliver higher, more sustainable returns through the cycle. The core businesses account for c.£320bn of 2013 RWAs, with the core Investment Bank expected to represent no more than 30% of the Group total by 2016, compared to just over 50% now. Personal and Corporate Banking, Barclaycard and Africa Banking account for the majority of the Group’s RWAs in core Barclays. Plans for the Investment Bank will result in gross headcount reductions of around 7,000 by 2016 across core and non-core. The overall 2014 Group gross headcount reduction has been increased to 14,000.
Antony Jenkins said: 'This is a bold simplification of Barclays. We will be a focused international bank, operating only in areas where we have capability, scale and competitive advantage.
In the future, Barclays will be leaner, stronger, much better balanced and well positioned to deliver lower volatility, higher returns, and growth.
My goal is unchanged: to create a Barclays that does business in the right way, with the right values, and delivers the returns that our shareholders deserve. However, the way in which we will achieve this is different.
Today we are setting out how we will reach that goal and create the „Go-To‟ bank for our customers and clients, our colleagues and our shareholders'.
Due to these changes, it is appropriate to update the key financial objectives of the Group. The new set of financial targets for 2016 is:
Fully Loaded CRD IV CET1 Ratio >11.0%
Leverage Ratio >4.0%
Dividend Payout 40-50%
Return on average Equity >12%
Adjusted Operating Expenses <£14.5bn Barclays Non-Core:
Drag on Group Return on Equity <3%
As a result of these planned actions, we expect to incur a further £800m of costs to achieve Transform (CTA), in addition to the original £2.7bn announced in February 2013. As we transition to the 2016 cost target of <£14.5bn for the core business (£16.2bn in 2013), we have also updated our Group cost guidance to c.£17bn in 2014 and c.£16.3bn in 2015 (plus associated CTA of c.£1.6bn in 2014 and c.£0.5bn in 2015).
Dividend guidance remains as previously communicated, namely an expected payout of 40% of the Group’s adjusted earnings until the CET1 ratio is above 10.5% as we transition to the 2016 targets.
The presentation and webcast will be available from 10:00 BST:
Restated financial information for the Group and individual businesses under the new management structure will be available in advance of the Interim Results Announcement on 30 July 2014.