Barclays PLC (BARC) Earnings Call Transcript & Summary

So good morning, again. This is my second Annual General meeting, and I can tell you that I'm as disappointed as I'm sure you are that we are not able to meet in person. Whereas last year we had rather less time to replan, this year we've been able to set things up so that we can have what's called a hybrid Annual General meeting, with all of the Board in attendance some here in-person and shareholders able to join remotely, submit live questions as well as questions in advance and vote in real-time using the online platform. We obviously hope that the successful medical fight back against COVID continues and that we will be able to meet in person again next year. You will shortly hear from Jes who's going to cover in some detail the Barclays' response to the pandemic. He will talk about how we have sought to help customers and clients respond to the economic situation into which we were all thrown early last year. He will also describe the resilience of the bank, both financially and operationally and the way in which we've navigated the crisis so as to be able to post reasonable results for 2020. We're also starting to look beyond the current crisis, and Jes will talk about the 4 or 5 priority investment areas for the future. We are very pleased to have ended the year with a core capital ratio of over 15% as well as being able to start paying dividends again. We have completed our GBP 700 million buyback. And as you will have seen from last Friday's announcement, 2021 has started well, with every division reporting a return on tangible equity in double digits. Now there is still much uncertainty, but it is heartening to see both good results and the benefits of the group's diversified strategy paying off. I'm not going to duplicate anymore with the comments you will hear from Jes. But I would just like to cover 1 topic, which I know is certainly on his mind too and that is to thank the 85,000 colleagues at Barclays who have stood together and performed so resiliently over the last year. This has been a really, really tough time for many, often personally. And we take off our hats to all of them, whether they've been coming into a branch or into an office or working from home, a huge thank you. Before handing over to Jes, can I just touch on some of the bigger societal matters which concern the bank and its people perhaps more than -- more profoundly than is sometimes understood. The bank has reset its purpose this year to the following: we deploy finance responsibly to support people and businesses, acting with empathy and integrity, championing innovation and sustainability for the common good and the long term. Now purpose statements can come cheap. What is harder to deliver is to make sure that one really thinks about purpose before taking decisions, large or small. And we are now on a very open journey internally to bring that purpose to life. We're going to be helped by the fact that there's a fantastic group of people inside the firm who naturally get our purpose and are with us on this journey. The job of the management and of the Board is to make sure that the organization facilitates and accelerates that journey and that shareholders understand what we are doing, including the relevant short-term challenges and the costs. Over time, we're totally convinced that there is no clash between purpose and taking into account the interests of our wider body of stakeholders on the one hand and the generation of long-term value on the other. Let me take the environment. A year ago, we recognized that this bank was not in a very good place here, and we committed to aligning our financing portfolios to the goals of the Paris Agreement with an ambition to becoming net 0 by 2050, with which I'm sure most of you are familiar and totally supportive. You provided overwhelming support for this when voting in favor of the resolution, which we proposed at last year's Annual General meeting. Now we know that we have to do more and go further in at least 2 respects. First, we have to deliver, extend our approach to other sectors, collect more data and report the outcomes as we reduce the impact of our financing activities on the planet whether measured in total carbon emissions or carbon efficiency. Secondly, we need to lift the bar higher with some regularity. And with that in mind, I can tell you now that we plan to come back to shareholders next year with a so called say-on-climate advisory vote on our approach and progress, including additional targets and sectors and updated policies for important parts of the fossil fuel landscape. We are aware but there are a range of views on the approach to say-on-climate advisory votes. So we will develop our approach on the back of proactive consultation with shareholders and other stakeholders later on this year. We also know that not everybody believes that we are committed to delivering on this. So we need to make sure that our commitments, policies and our reporting data are sufficiently robust to refute that doubt. We will also, as I said in my letter to shareholders in the annual report, be paying more attention to the S in ESG. Like many businesses, we have to do and will do more to embrace diversity and eliminate discrimination. Our retail customer work is, I can assure you, conducted by people who feel passionately about the well-being of those customers, more so if they are in distress, financial or otherwise. Now we don't always get things right, but we do seek to do things ever better. At the heart of our response is a project which we call mindset. The organization revealed a capacity for speed, for efficiency, and we hope empathy in response to the crisis that was truly remarkable. We proved that this capacity is already part of our DNA and that we can make it a part of how we serve customers every day. Finally, please do take these few words a description of where we want to get to. Not as a description of where we think we have already arrived. Perhaps you never completely get there whether on climate or diversity and inclusion. There is always more that can be done. However, I and my Board colleagues are convinced that with this great leadership team and the fantastic colleagues that we have around the world, Barclays will continue to do better for the communities which it serves. And that, that will underpin its successes and its value in the future. Thank you very much for listening, and I will now hand over to Jes.

Thanks, Nigel. Good morning, everyone, and welcome to our Annual General Meeting. I'm sorry, we are once again prevented from meeting in person. I know you will appreciate that the current circumstances mean a physical AGM is impossible. We have nevertheless worked hard to offer up our hybrid format. And regardless of whether you are joining us in person or digitally, you should feel confident you can put forward your views and have them recorded and responded to appropriately. When we met last year, the COVID-19 pandemic was only just beginning. The crisis has caused huge economic harm and uncertainty and brought a lot of hardship and stress for millions of people. It's also brought tragedy to many families, including among friends and colleagues here at Barclays. In common with other companies, it has tested our resilience as a business and our values as a corporate citizen. Hopefully, with vaccination programs advancing globally, we can now start to see the beginnings of the end of this terrible pandemic. During the course of this year, I'm hopeful we can start to return to a more normal way of life. As I reflect on the last year, I remain incredibly proud of the way Barclays stood tall during the crisis, delivering on the priorities we set for ourselves at the start of this pandemic. We have tried to support our customers, clients and communities, particularly those that were most vulnerable to the impacts of the virus. We have supported our employees, recognizing the challenges they faced on both at personal and professional level. And we have preserved our financial integrity as an institution, staying profitable in every quarter in 2020 and carrying that performance into a record first quarter this year. I want to take a moment to recognize the work of our colleagues, in particular from our branches to our trading floors to our call centers, thousands of Barclays' staff continue to go into the office every day. While many more thousands had to adapt quickly to remote working in order to keep Barclays delivering for its stakeholders. For those who are unable to work during the pandemic, I'm pleased we were able to pay people in full as well as offer financial support for things like childcare and self-quarantine. Our colleagues were the driving force that enabled us to play our part in containing the damage that this terrible disease has caused. Thanks to them, Barclays made a real difference in a lot of lives at a time when it was sorely needed. Over the course of the year, we provided over 680,000 payment holidays to our customers. We waived around GBP 100 million in overdraft interest and fees. And we committed a further GBP 100 million to charities, supporting the most vulnerable through our Community Aid Package. That support continues where our help is needed, most recently with a GBP 1 million donation to charity partners in India to buy medical supplies for communities still facing real hardship there. We also helped our clients raise GBP 1.5 trillion in the global capital markets in the last 3 quarters of last year, and we have extended close to GBP 30 billion to British companies through the U.K. government's lending schemes. In many cases, that meant businesses were able to keep working and employing people throughout the crisis. Through a difficult year, I'm pleased at how resilience our performance proved. Our decision is to help vulnerable customers and clients to protect jobs for our employees and to build an exceptionally strong impairment reserve, all meant that our overall profitability in 2020 was lower than we would like. Group profits before tax for the full year was GBP 3.1 billion with a group return on tangible equity of 3.2%, including 9.5% for our Corporate and Investment Bank. We are now starting, however, to see profitability improve significantly. We delivered well beyond our RoTE target of greater than 10% in the first quarter, with a group return on tangible equity of close to 15%. Indeed, as Nigel said, all 3 of our major lines of business delivered a return on tangible equity that was greater than 10%, which is a level of profitability this bank has not had in over a decade. We also remain focused on costs, applying good discipline over the course of the year while still investing in growth. Our 2020 cost-to-income ratio was 64%, and it was 61% in the first quarter of this year. We continue, nevertheless, to target a group cost-to-income ratio of below 60% over time. We also maintain -- we also remain in a very strong capital position, with a CET1 ratio of 14.6% at the end of the first quarter. We anticipate some capital headwinds in 2021, but we nevertheless remain significantly above our CET1 ratio target of between 13% and 14% and well above our minimum regulatory requirement, and we have GBP 8.8 billion of provisions set aside for possible impairments. I am pleased that the strength of our business has allowed us to reestablish capital distributions, with the Board approving a total payout equivalent to 5p per share in February of 2021, comprising a 1p per share 2020 full year dividend and GBP 700 million in a share buyback, which we all completed in April. We will be providing a further update on capital distributions in due course. Over the year, our performance has benefited significantly from our business model as a British universal bank. This gives us balance between consumer Banking and wholesale banking. Our consumer businesses felt the impact of the pandemic most acutely with Barclays U.K. income down 14% last year, and our international consumer cards and payments business down 22%, primarily caused by lower credit card balances in both cases. At the same time, in our wholesale business, the Corporate Investment Bank income was up 22%, driven by markets and banking, which delivered standout income performances, up 45% and 8%, respectively, in 2020. That left Barclays International up 8% overall, stabilizing group income at a time of stress and helping us deliver resilient performance through a difficult macroeconomic cycle. We have carried the benefits of this diversification into the first quarter of this year. The Corporate Investment Bank had another strong quarter, achieving a return on tangible equity of roughly 18%, with the Investment Bank over 20%. Geographically, almost half of our income now comes from outside the U.K. while well over half is noninterest income continuing to position us well in the current low rate environment. This income composition continues to show our British universal banking model working well. As Nigel said, we remain focused on the sustainable impact of our business and on meeting our ambition to be a net 0 bank by 2050. Last month, we were pleased to join other banks in forming the Glasgow Financial Alliance for Net Zero, ahead of the COP26 Climate Summit to be held later this year. As part of our commitment to aligning all of our financing to the goals of the Paris Agreement, we announced in November 2020 that we have started to apply our BlueTrack methodology to energy and power sectors in our financing portfolio. In March, we announced we are extending BlueTrack to include 2 further subsectors, cement and metals. And we will continue to add sectors in this way until our entire portfolio is covered. We are also actively helping clients with the transition to a low carbon economy. For example, we have recently advised a national grid on a series of large transactions that will significantly enhance their central role in the delivery of U.K.'s net 0 targets. As the global economy begins to emerge from the pandemic, I'm optimistic about the trajectory for recovery. We are seeing some positive signs in our spend data, drawn from our U.K. Consumer Cards and from merchant acquiring, which together tracks roughly 40% of all consumer transactions in the United Kingdom. In addition to the improving Q1 trend, we saw a 72% uplift in the number of payments processed by businesses in the first 2 weeks of April compared to the same 2 weeks last year. Encouragingly, spending in some of the hardest-hit sectors, including hospitality and travel, are starting to pick up. As consumer spending increases, we expect there will be growth in unsecured lending balances, though it will take time to rebuild interest earning balances. On other hand mortgage growth also remains robust, with applications continuing to stay at elevated levels throughout first quarter and pricing at attractive margins. We have grown the mortgage book by GBP 3.6 billion in the first quarter, one of the strongest quarters we've ever had. Looking ahead, I'm also optimistic about our prospects to grow our company, strengthen our existing diversification and delivering more to our shareholders. We have clear strategic growth priorities. First, we will continue to invest in our role as a major participant in the global capital markets that drives the world's economic growth. These markets are themselves growing as businesses and institutions increasingly turn to them for funding. Barclays is now the only British global investment bank with a leading presence in both the U.S. and the U.K. competing at scale as many of our European competitors have pulled away. We want to build from this position, increasing our market share in debt and equity underwriting. Second, we want to accelerate the geographic rollout of Barclays commercial banking expertise, adding to our historic strength in the U.K. by targeting expansions in Mainland Europe and the U.S. In doing so, we will help companies around the world manage their core financial needs from liquidity management to payments processing to trade finance. Third, we will invest in the expansion of our wealth management business in the U.K. Central to this is the extension of access to our investment platform and advice services to eligible banking customers. We should be a major provider to hundreds of thousands more U.K. consumers as they plan for their future and invest in more attractive returning assets. And finally, we are investing in our consumer banking and payments businesses. Looking at our business by activity rather than division, Barclays income now comes from 1 of 3 primary sources: lending, transacting and payments. That third leg, payments, now accounts for some 8% of the group's total income or roughly GBP 1.7 billion last year. Taken as a whole, we believe payments can generate an additional GBP 900 million of income over the next 3 years. We also know there are parts of our business that face long-term strategic challenges. Beyond the immediate impacts of the pandemic, U.K. retail banking continues to operate in a near 0 interest rate environment, with lower charges for services and many core banking provisions available for free. The Barclays U.K. has a strong position in the market and returning to its sustainable profitability is a priority. Specifically, we need to deliver a better, more digital bank for consumers and small businesses, and we need to continue to focus on running the business efficiently. And we need to increase our commercial engagement with customers. But we shouldn't forget that Barclays U.K. as a business in the relatively benign circumstances of the decade prior to 2020 regularly produce returns on tangible equity averaging in the high teens. So it remains a very solid business with strong fundamentals, and I expect to see performance improve markedly as the economy returns to normal. So in summary, let me say again how pleased I am with our performance over the past year. With a strong balance sheet and competitive market positions across the group as well as encouraging prospects to grow our business and provide improved returns for shareholders, I believe we are well placed for the future. And at the same time, I'm proud to be able to say that Barclays did the right thing throughout the pandemic. This crisis is not over, but it is my view that we did much to live up to our 330-year heritage in the way we supported our communities throughout the pandemic. Now as the economic recovery takes hold, we have an opportunity to play our full part in supporting the recovery. So thank you.