Barclays (BARC) Shares Down 6.5% amid Anticipation of Cost-Cutting Charges in Q4 2023

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by Benjamin Godfrey · 3 min read
Barclays (BARC) Shares Down 6.5% amid Anticipation of Cost-Cutting Charges in Q4 2023
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Despite facing challenges, the bank managed to report a net profit of £1.27 billion ($1.56 billion) for the quarter, slightly exceeding expectations of £1.18 billion.

Barclays PLC (LON: BARC), one of the prominent players in the global banking industry, saw its share performance plummet by as much as 6.5% earlier today as it hinted at significant cost-cutting measures that are yet to be officially announced and billed to take effect later in the year.

Barclays Anticipates Cost-Cutting Measures

In its Q3 earnings report, the bank indicated that it is “evaluating actions to reduce structural costs to help drive future returns, which may result in material additional charges in Q4 2023.”

Barclays reported a cost-income ratio of 63%. However, the bank has set a medium-term target of achieving a ratio below 60%. This suggests that the institution is committed to improving efficiency by reducing its operating expenses relative to its income. While this is a prudent financial goal, investors may be concerned about the short-term implications of these actions, particularly the potential changes in the near future.

One of the most significant challenges that Barclays has faced is the pressure on net interest margins, particularly in its UK division. The bank reduced its net interest margin forecast for the United Kingdom to a range of 3.05% to 3.1%, down from 3.15% previously. This significant downward revision was caused by a number of factors.

Barclays had already warned in the second quarter that it expected to earn less interest in its UK division. Because of increased competition for savers’ deposits, net interest margins have been under pressure. Furthermore, the bank is operating in a difficult environment in which household finances in the United Kingdom have been strained. These factors have put a strain on the company’s core revenue.

Barclays Reports Resilient Performance in Challenging Quarter

Despite facing challenges, the bank managed to report a net profit of £1.27 billion ($1.56 billion) for the quarter, slightly exceeding expectations of £1.18 billion. This positive Barclays performance was due, in large part, to the resilience of its consumer and credit card divisions, which compensated for the decline in investment banking revenues.

Additionally, Barclays reported a CET1 ratio of 14%, up from 13.8% in the previous quarter. This metric reflects the bank’s financial strength and capital adequacy. Furthermore, the bank reported a Return on Tangible Equity (RoTE) of 11%, exceeding its target of 10% for 2023.

Efficiency played a significant role in the bank’s performance, as group total operating expenses were down 4% year-on-year to £3.9 billion. The bank attributed this cost reduction to efficiency in savings and lower litigation and conduct charges. Managing expenses effectively is crucial for maintaining profitability in the face of market challenges.

C.S. Venkatakrishnan, CEO of Barclays, stated that the bank “continued to manage credit well, remained disciplined on costs, and maintained a strong capital position” against a “mixed market backdrop”. He added that the bank is set to provide further details on its capital allocation priorities and revised financial targets in an investor update alongside its full-year earnings.

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