BCS - Barclays PLC (BCS) Q4 2023 Earnings Call Transcript
2024-02-20 12:29:06 ET
Barclays PLC (BCS) Q4 2023 Earnings Call Transcript
Q4 2023 Earnings Conference Call
February 20, 2024 03:30 AM ET
Company Participants
C.S. Venkatakrishnan - Chief Executive Officer
Anna Cross - Group Finance Director
Adeel Khan - Co-Head of Global Markets, Trading
Denny Nealon - Chief Executive Officer, US Consumer Bank
Vim Maru - Chief Executive Officer, Barclays UK
Conference Call Participants
Alvaro Serrano - Morgan Stanley
Joe Dickerson - Jefferies
Guy Stebbings - BNP Paribas Exane
Ben Toms - RBC Capital Markets
Rohith Chandra-Rajan - Bank of America
Jason Napier - UBS
Raul Sinha - JPMorgan
Ben Toms - RBC
Andrew Coombs - Citi
Presentation
C.S. Venkatakrishnan
Good morning. Thank you everybody for coming here and welcome to our Full Year 2023 Results Presentation as well as our Investor Update. You could see the agenda for the day on this slide. And so what we will do, we'll just go into the results for 2023 before turning to the broader investor update.
So, as you saw this morning, I'll start with the results announcement with the performance highlights and then I'll hand over to Anna to take us all through the financials.
So, we are delivering against our guidance. So, we achieved -- delivered on all our targets in 2023. And together with our consistently strong capital position throughout this year, what this enabled us to do was to give shareholders a material increase in distributions.
Excluding the Q4 structural cost actions, return on tangible equity was 10.6% for 2023, in line with our target of above 10%. And on the same basis, our cost-to-income ratio who was 63%, in line with our guidance for the low 60s for the full year as well.
As being accretive to future returns, the structural cost actions did not limit our ability to deliver a 37% year-on-year increase in total distributions, which now amounted to £3 billion. This £3 billion number for 2023 included a total dividend of £0.08 per share with the full year amount of the dividend of £0.053 being announced today and as well as a full year buyback of £1 billion, which we expect to start in the coming days, and that's on top of the £750 million at the half year.
Tangible book value per share has increased by £0.36 year-on-year to £0.331. And our CET1 ratio was 13.8%, which is at the top end of our target range, which you will recall is 13% to 14%.
Overall, we view this performance as a strong foundation on which to build towards our revised financial targets over the next three years and which we announced this morning and we'll talk about in greater detail in a few minutes. But before that, the financial report of these results.
Anna, over to you.
Anna Cross
Thank you, Venkat and good morning everyone. Turning now to Slide 5. I think I'm going to need the script. Thank you very much.
On a statutory basis, RoTE was 9% for full year 2023. This included the £0.9 billion of structural cost actions taken in Q4. And given the materiality of those Q4 charge over and above normal annual cost actions, I'm going to exclude it from the financial performance metrics today.
On this basis, 2023 return on tangible equity was 10.6%. I would note that there was no impact from the over-issuance of securities this year, but given the material impacts to income and costs in 2022, I will also use adjusted numbers as comparators.
Group profit before tax was £7.5 billion, down 3% year-on-year, and income increased by £0.7 billion, while costs were £0.2 billion higher, excluding the Q4 cost actions. Within costs, litigation and conduct charges were small this year at £37 million compared to around £0.6 billion in 2022. And operating costs, which include L&C, were up by £0.8 billion. Impairment charges were £0.7 billion to £1.9 billion, representing a loan loss ratio of 46 basis points, better than our through-the-cycle guidance of 50 to 60.
As usual, I'll now cover the three drivers of our returns: income, costs and credit risk management. We saw a continuation of year-to-date income trends through the fourth quarter, resulting in total income up 3% at £25.4 billion for the year. Barclays UK income was up 5%, with growth in net interest income from rate increases outlaying lower card income and the transfer of UK Wealth in Q2.
Consumer cards and payments income grew strongly, up 18%, driven by higher margins and balanced growth in both US cards and the Private Bank. Corporate and Investment Bank income was down 4%, as lower volatility in markets and a record low banking wallet impacted the industry. This outweighed the tailwind from interest rates in the Corporate Bank.
On the next slide, you can see net interest income across the bank and that it grew by £2.1 billion or 20% year-on-year, driving a 44 basis point increase in group NIM to 3.98%. The biggest contributors to NII growth were CC&P and CIB, together adding £1.3 billion with around one quarter of the total NII growth coming from BUK. Going forward, whilst we will still report net interest margin, we will guide to group NII excluding the Investment Bank and head office. This is expected to be around £0.3 billion lower in 2024 at around £10.7 billion.
BUK is expected to be a point -- approximately £6.1 billion of this, excluding the impact of Tesco, which I'll touch on shortly. The benefits from the structural hedge are expected to be offset by continued product market pressures, particularly in the UK.
Turning now to the structural hedge in more detail. The structural hedge is designed to reduce volatility in NII and manage interest rate risk. As rates have risen, this has dampened the growth in our NII, but in a falling rate environment we will see the benefit from the protection that it gives us. It generated £3.6 billion in gross hedge income in 2023, up from £2.2 billion in the prior year. It also provides a high degree of confidence in the net interest income growth assumed in our forward plan.
To reiterate this, £3.8 billion of gross hedge income is already locked in for 2024 from the hedge investment we did through 2023, and this will continue to build.
Given trends in retail deposits, we do expect the notional balance to reduce in 2024 at a broadly similar rate to Q4 2023 before stabilizing in 2025. We have approximately £170 billion of hedges maturing over the next three years, and we expect to roll around three quarters of them over the period and with reinvestment rates remaining well above the average maturing yields of around 1.5% for the next three years. So, we do expect the reinvestment to outweigh notional hedge declines.
Turning now to costs on Slide 9. As guided quarterly costs through the year remained below the Q1 high point. This excluded the Q4 bank levy of £180 million, which was flat year-on-year and the cost-income ratio for the year was 63% and excluding the Q4 structural cost actions. Group costs of £16 billion were up £0.2 billion year-on-year.
Operating costs increased to support business growth and enhance resilience and control. For example, partner focused spend to drive balanced growth in US cards and Kensington mortgages in the UK as well as technology investments to support markets within the CIB. The impact of inflation was more than offset by efficiency savings.
Looking at the £927 million of Q4 structural cost actions in more detail now on the next slide. These were across three main categories; people, property, and infrastructure. Around half was in our head office and relates to our merchant acquiring and German consumer financing businesses as well as a Canary Wharf office lease exit.
A large proportion of this head office charge is goodwill and intangible write-downs and which will have no impact on capital and the other charges are spread across the businesses. We expect the overall payback to be just under two years with around half of the cost savings landing in 2024. You'll hear later how these cost actions are a key pillar in our plans to improve efficiency and drive a more productive cost base going forward.
Moving on to credit on Slide 11. The impairment allowance was broadly stable at £6.3 billion and we maintained our balance sheet coverage at 1.4%. The total impairment charge for 2023 of £1.9 billion was up around £0.7 billion year-on-year, and the full year loan loss rate of 46 basis points was below our through-the-cycle guidance....
Barclays PLC (BCS) Q4 2023 Earnings Call Transcript