Barclays shares gain on share buyback and cost-cutting measures

Barclays shares rose on Tuesday after the London-listed bank announced an additional £1bn share buyback and £2bn in cost cuts by 2026.

Barclays shares rose 4% in early trade as investors chose to focus on the buyback and cost-cutting measures and looked past lower total income and revenue that missed estimates.

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The group said it planned to return £10bn to investors by 2026.

Additional share buybacks almost always please investors, but Q4’s total income of £5.6bn compared to expectations of £5.8bn highlights the challenging environment banks are now operating in.

That said, while the announcement of £2bn in cost savings wasn’t a total surprise, the swift and decisive action taken by Barclays to help bolster the bottom line will be welcomed by investors concerned about the prospect of lower net interest margins in the coming periods.

For the full year, Barclay’s net interest margin was 3.98%, reflecting a higher interest rate environment. However, Q4 group net interest margin fell to 3.83% after peaking at 4.06% in Q2. This represents the impact of higher competition for savings deposits and expectations of rate cuts in 2024.

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With net interest margins past their peak for the current hiking cycle, cost-cutting measures are crucial for maintaining profitability.

In terms of non-operating and one-off costs incurred during the period, Barclays has set aside cash for redundancies and bad US debts. These non-recurring costs weighed on profits during Q4 and may explain why investors chose to focus on future cost-cutting instead of recent profitability.

“There’s a shakeup at Barclays. It’ll now report through five distinct operating divisions with accountability as a key focus. Investors will hear more later today when the company dives into details,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“Fourth quarter performance was a little worse than expected, largely because of higher costs associated with the restructure. There was some concern that this could impact the buyback, but Barclays has put that to bed with a £1bn plan, ahead of expectations.”

“Medium-term guidance was positive and points to around 54% of today’s market cap being returned to investors by 2026. But there may be some who question whether it’s a little optimistic, especially relating to growth expected from the investment bank. Barclays’ huge presence in the investment banking world is an attractive proposition. But conditions are still poor and low activity in the capital markets continues to weigh on performance.”

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