Our take on Barclays PLC
Barclays PLC (so the total group) is continuing its process to mitigate the disastrous impact of COVID-19 since the beginning of 2020. Overall, Barclays PLC remained profitable throughout the year, despite significantly increased impairment charges, which, however, decreased in every quarter (peak in 1Q20) and reached pre-level heights in 4Q20: GBP -492 m (Q419: GBP -523 m). Operating leverage has not improved fundamentally: Against a slight increase in income (+1% YoY) stood a decrease in operating expenses by -1% YoY (excl. litigation and conduct).
Nevertheless, and most importantly, pre-tax profits 2020 decreased to GBP 3.2 bn (FY19: GBP 6.2 bn, -48% YoY, excl. litigation and conduct), the groups RoTE is down to 3.4% (FY19: 9.0%) and the loan loss rate increased significantly to 138 bps (FY19: 55 bps). Positive news: the capitalisation is still very good as the CET1 ratio stands at 15.1% (2019: 13.8%) and therefore 3.90%p above the MDA hurdle. LCR ratio is almost back to pre-pandemic levels at 162% (FY19: 160%).
Looking at the key segments, especially strong CIB performance helped to offset income headwinds in the consumer business, as spending was impacted by an extended lockdown. CIB further increased its global market share from 3.6% in 2017 to 4.3% in 2019 and 4.9% in 2020. CIB’s RoTE was 9.5% in FY20 after 7.6% in FY19.
Let’s take a closer look at the segment Barclays UK (share on group revenues: 29%, on profits before tax: 18%).
- Loans increased by 6% YoY, predominantly from continued support for SMEs through BBLS and CBILS lending (support actions by the government), driving an increase in business banking lending and deposit balance growth, as well as a strong mortgage loan growth.
- Even though impairment charges are up 106% YoY, they continued the trend of going towards pre-COVID levels, started in 3Q20. In 4Q20 impairment charges were significantly below the peak in 2Q20 of GBP 583 m, totaling GBP 170 m (4Q19: GBP 190 m).
- As other banks, the Barclays UK was badly hit by the pandemic. UK business started to recover in the second half of 2020 but remained materially below historical performances. Lower unsecured lending balances and UK rates as well as other negative impacts led NII and fees & commissions drop significantly, leading to a decrease in total earnings by 14% YoY.
- Operating costs increased 7% YoY, reflecting higher investment spend including structural cost actions, higher servicing and financial assistance costs, which could only partly be offset by efficiency savings.
- Although loans increased in FY20, the surge in customer deposits (+17% YoY) was even stronger, contributing to a loan-deposit ratio of 89% (FY19: 96%).
- Barclays UK remains the “problem child” of the total group. Profit before tax (excl. litigation and conduct) was GBP 578 m in 2020 after GBP 2,604 m in 2019 (-78% YoY). RoTE stands at 3.4% FY 2020 (FY2019: 17.5%). At least, attributable profit to shareholders remains positive at GBP 343 m (FY19: GBP 1,813 m).
- In the same manner, CIR increased by 13%p YoY excluding litigation and conduct – to 68%.
- In one year, the net interest margin of Barclays UK dropped from 3.09% to 2.61%
- The Business Banking segment was able to keep total income almost stable: -3% YoY, while Barclays UK’s other two divisions, Personal Banking and Barclaycard Consumer UK, saw its income drop by -12% and -24% respectively.
- Barclays UK expects the headwinds to income to persist in 2021 and the medium-term, including the subdued demand for unsecured lending and the low interest rate environment.
- Due to growing interest in society for a more sustainable future, Barclays PLC announced its ambition to be a net zero bank by 2050. Specific goals to help accelerate the transition to a low-carbon economy include significant increases in Green financing (GBP 100 bn by 2030).