Barclays chief’s UK pivot only raises more questions

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Barclays’ ties to Britain date back more than 330 years. Expect it to become even more UK-focused in future.

Barclays chief executive, CS Venkatakrishnan (Venkat), has recognised he must put more capital towards the bank’s highest-returning businesses. That makes sense — as does promising another £10bn to shareholders by 2026. Barclays UK and the UK corporate bank have generated high teens return on tangible equity (Rote) since 2021, well ahead of the group’s 10 per cent.

Whether this strategy, unveiled on Tuesday, proves worthwhile relies on answering several important questions.

Can a supposedly simplified, UK-focused structure make a difference? Instead of three broader units, Barclays will now have five. Not including the group function, these will be: Barclays UK, private bank and wealth (which since 2021 has averaged 31 per cent Rote), the US consumer bank, the UK corporate bank and an independent investment bank.

Every division, bar the investment bank, will get more capital through 2026. Moving the deck chairs around in this reorganisation does not necessarily improve profitability. However, new divisional bosses could gain more control over their unit’s capital efficiency, which may be good news.

Venkat wants to reduce cost-to-income ratios below 60 per cent (these were 63 per cent in 2023). This lifts Rote towards a new target of more than 12 per cent in 2026 from last year’s adjusted sub-11 per cent. Polite applause. But note that Barclays’ UK retail rival NatWest just brought its own target down to 13 per cent, and frankly should beat that.

How much growth does the UK offer? As one of the cheapest developed markets, equity investors don’t give Britain a big growth rating. Ironically, Venkat talks up the UK but continues to base himself in the US.

The UK is a highly concentrated lending market, with four big institutions. Challenger banks nibble at their heels. But given that Tesco has sold the bulk of its banking business to Barclays — and supermarket rival J Sainsbury could soon also exit — one wonders how much more Barclays can flex its muscles.

Buying Tesco and specialist lender Kensington helps. Their smallish loan books would likely have barely merited a mention at the UK competition watchdog’s morning meetings. Still, devoting more capital to the UK is the right move given the almost 20 per cent of Rote available in recent years, double the investment bank’s out-turn.

But does starving the investment bank of capital really solve its low returns? Almost certainly not. Bankers won’t take kindly to hearing that their consistently mid-table team investment bank will get less attention. Market share could easily wither over time.

Venkat deserves some credit for shaking the tree to find fruit, much low-hanging, for long-suffering shareholders. But a 7 per cent share price jump suggests relief more than anything else.