Barclays PLC (BARC) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome for joining us here in person and on webcast for our deep dive into the Private Banking and Wealth Management business at Barclays. For those here in the room, I apologize for the Scottish weather, which our CFO has created, but we're going to try to make it a little warmer. This is our third and final deep dive for the year following our Investor Update in February. And I mentioned then that top of my mind, the day I became CEO of this bank, was an ambition to realize the great opportunity that the Private Banking and Wealth business provides for Barclays. It's a very important client franchise where the depth of our relationships and the strength of our product all combine and come together. It's also our highest RoTE business. It's capital-light and is one of the three which we started reporting as a separate division at the start of this year. So we are pleased with its performance in recent years and excited about the significant opportunity which we have to serve the financial needs of U.K. customers in our retail business, together with high net worth and ultra-high net worth customers, both domestically in the U.K. and internationally. So in that context, it's my great pleasure to introduce Sasha Wiggins, a long-serving colleague and friend and the CEO of our Private Banking and Wealth business. Sasha has been at the bank at Barclays for over 20 years, including 13 years in Wealth and -- Barclays Wealth and Investment Management at the start of her career. She has also been the CEO of Barclays Bank in Ireland, and most recently was a member of the Group Executive Committee, where she still, of course, is a member as the Head of Public Policy and Corporate Responsibility, as well as Chief of Staff to me. So with that, Sasha, welcome, and over to you. Let me get you the correct page.

Thank you. Good afternoon, everyone, and woops, Venkat has just fallen off the stage. Good job that wasn't me. Good afternoon, everyone, and thank you Venkat for the introduction. Private Bank and Wealth Management is an integral part of Barclays' growth ambitions, a strong and long-standing franchise that has supported clients and customers in the U.K. and internationally throughout Barclays' history. We serve our clients well, and we have the opportunity to build on this while continuing to deliver attractive returns to shareholders. And I'm confident we can do so, and I'm delighted to have the opportunity to lead this business. Let me begin with a brief introduction to Private Bank and Wealth Management. This is a business with GBP 183 billion of client assets and liabilities as at the end of 2023, and with income of GBP 1.3 billion. As a result of decisions made during ringfencing, the business was split, with Digital Investing and Wealth Management reported and managed in Barclays U.K., our ringfenced bank. And the Private Bank was managed in our old Consumer, Cards and Payments division. The two became very different in terms of size and proposition, with our Digital Investing and Wealth Management segments, in particular, becoming subscale when compared to the size of the retail business we had in the U.K. and relative to the opportunity, resulting in losses for a number of years. In addition, by running them as two separate businesses, the infrastructure which supported them was duplicated, two investment management teams, two compliance teams and so on. This resulted in a suboptimal cost structure, and it presents us with an opportunity, which I'll cover later in the presentation. Following Venkat's appointment as Group CEO, as he just said, one of the first decisions he made was to put the two businesses back together. He did this to firstly improve the proposition for our clients with a unified approach to market; and secondly, to deliver a better result for our shareholders, partly through realizing cost synergies in order to reinvest. As one managed entity from May 2023, we're now able to better serve our clients across the full wealth continuum, from those taking their very first steps into investing, right through to our most sophisticated ultra-high net worth clients. The business is diverse in terms of its assets and its liabilities and in terms of exposure to different markets, with about half of the income generated in the U.K. and half internationally. There are significant synergies within the wider group, and which are referenced throughout the presentation with a handshake logo. Let me start by focusing on the strengths of the business. As a group, we have one of the most recognized brands in the U.K., given our long-standing history. Our brand also resonates across many international markets given our Investment Banking and Corporate Banking presence. We have a full service offering for our clients, including all the core capabilities that one would expect from a Private Bank. A sophisticated Banking service; lending, with a focus on securities-backed lending; and investments. In fact, our investments offering is particularly strong and has a proven top quartile performance track record over 5 and 10 years versus our peer group, which you can see on the right-hand side of the page. So we have the brand, the breadth of product and a proven investment capability for our clients. And these form a strong foundation on which to grow our client balances, which I'll cover on Slide 4. Client Assets and Liabilities comprise the sum of deposits, loans and investments, arising from advised and non-advised client activity. The business has performed well over the last few years with Client Assets and Liabilities at GBP 202 billion, up 25% at the end of Q3 '24 as compared to 2021. Our growth in recent years has predominantly been driven by lower-margin assets under supervision or AUS, which are up 39%. This reflects strong client inflows, as well as custodian services to support client relationships across the Group. Assets under management, or AUM have grown 20% over the same period. These assets provide high recurring income and they're integral to the future growth strategy, which I'll talk about later. Deposit balances have also grown substantially over the last few years due to high client demand as the rate environment improved and also reflecting our reputation as a safe home for our clients' money. Our deposit proposition is valuable to our clients, as it forms an important part of their overall long-term asset allocation requirements. And the deposit franchise provides significant value to the business, not least because of its high-quality net interest income. These deposits are also long term in nature and provide a stable and cost-effective source of funding to the wider Group. The Client asset and liability growth has led to strong income appreciation since 2021, which you can see on Slide 5. This has contributed to a meaningful RoTE expansion from mid-teens to high 20s and to low 30s more recently. We're focused on continuing to grow all of our income streams, and in particular the non-net interest income line, which I'll refer to as fees going forward. These are largely recurring in nature and deliver sustainable high returns for the business, even in a lower rate environment. The next slide shows a quick snapshot of the financial profile of this division. And as I've said, this business is high returning, and we've made good progress in the 3 quarters of this year. So what is the opportunity from here? Let me start with the U.K. The U.K. is a large market, with client investable assets totaling some GBP 3.5 trillion, split across Digital Investing, Affluent and Private Banking segments. We expect the market to grow -- to modestly outpace GDP over the next 4 years. But for Barclays, one of the biggest longer-term opportunities lies in the Affluent segment, which we define as consumers with investable assets of between GBP 250,000 and GBP 3 million. Many of these people may benefit from financial advice and are not currently receiving it. And this is an area of the government and regulators focus, and they refer to it as the advice gap. Our Strategic Policy Group recently undertook some research published back in September, which identified the scale of this advice gap, and it's a significant opportunity, both for the individual but also for the economy. And what is needed is an advice proposition which is digitally enabled so that it is both accessible and scalable, one that is fairly priced, transparently constructed and clearly disclosed. We've developed such a proposition for the Affluent segment, which I will cover later in the presentation. And we've identified that there are roughly 4 million customers in Barclays U.K. today that have sufficient liquidity and/or investment appetite that could benefit from the services of PBWM. The majority of these are eligible for our Digital Investing Service, and a proportion of them for the new Affluent proposition. And today, only a small number of Barclays U.K. customers are existing PBWM clients. This is an opportunity for us in the U.K. If we can capture even a fraction of these potential customers, we will scale our U.K. business and support the strong returns of the division. And we also see opportunities to continue to expand our U.K. Private Bank proposition and client base. Turning to the international opportunity. Our clients choose to hold assets and liabilities in multiple jurisdictions across the world, dependent on their personal circumstances. And as you can see from the map, we can meet the needs of our clients via our booking centers in key global locations, and we're now working on launching in Singapore in 2026. In many of these locations, we also have an investment presence -- Investment Bank presence. Our Singapore booking center, when it's launched, we will be able to fully serve our international clients who want to do business across the key wealth corridors between the U.K., Europe, Middle East and Asia. And importantly, investable client assets in Asia and the Middle East are expected to grow significantly over the coming years as more wealth is created in those regions, and as more money flows from west to east. Before I move on to how we plan to capture these opportunities, let me address areas where we can and will be better. In the U.K., we're organized into the three segment areas of Digital Investing, Affluent and Private Banking. Our Digital Investing proposition is subscale. This is because it does not yet have the full breadth of products required for this type of business, in particular, a digitally integrated Self-Invested Pension (sic) [ Self-Invested Personal Pension ] or SIPP and a junior ISA. These products are longer term in nature, resulting in stickier client relationships, and we need them to achieve our ambitions in scaling the business. In the Affluent segment, our existing proposition is overly complex and not scalable, as it's not been a key focus of ours for a number of years. As a consequence, assets under management have not grown and are subscale relative to the size of our retail bank. In the U.K. Private Bank, our services are well-regarded by our clients. But our digital experience is not as seamless as it should be, and we're working to improve it. We also have some specific product gaps. For example, we need to make it easier to extend credit to clients holding investments with us, and we also need to have a wider investment universe in alternatives. This is an asset class which has been fast growing and where our clients are underweight relative to the industry. And this is something our clients expect us to address. Internationally, we will focus on the same digital and product gaps, but our biggest opportunity and challenge is that we're subscale in Asia and the Middle East, driven by our exit of the Asian market in 2016, and underinvestment in both regions since. Finally, across all segments, we need to be more consistent with the way we collaborate with clients of the wider firm. With Barclays U.K., we need to be better at engaging with the 4 million customers I mentioned earlier. And with the Corporate Bank, and the Investment Bank, there are a significant number of business owners, family offices and executives of large corporations who would benefit from our Private Bank services. And so let me explain how we're addressing these challenges through the lens of simpler, better and more balanced. We're going to be simpler by putting in place a new organizational structure from February 2025 and by driving cost efficiencies to create capacity for investment. We're going to be better by strengthening our U.K. and international propositions. And we're going to be more balanced by growing our assets under management. We're already on this journey. I'm now 10 months into my new role, and we've made progress, but we still have more to do. Let me take you through each one of the initiatives in turn. So first, a simpler business with a new organizational structure, as shown on Slide 11. In October this year, I announced that we would run the business with a simpler structure aligned to how our clients expect to be served in their respective markets, rather than by segment and product as we had previously. From February 2025, we will be organized in two areas. On the left, you will see PBWM U.K., with a full-service U.K. proposition, serving first-time investors from just GBP 1, all the way up to ultra-high net worth individuals and family offices. This continuum will lead to greater consistency in our client offering and experience and ensures that we start our client relationships early. Importantly, it means that we offer a lifetime proposition such that clients can choose to stay with us as they move up the wealth spectrum. And on the right, PBWM International, serving the wealth corridors between the U.K., Europe, Middle East and Asia for clients with more than GBP 5 million of investable assets. Here, we're able to put the client needs at the center and organize our global resources across locations to best meet their needs, irrespective of jurisdiction and booking center. This new structure will also simplify the way we operate with clearer coverage of our clients and greater efficiency in our operations. Turning to Slide 12. We need to invest in this business to deliver more for our clients. And as you can see on the left-hand side, we're increasing our annual technology spend in the business by over 75% from 2021 to '22 levels. And we're investing in client advisers with a 50% increase planned through to 2026. We're also strengthening the risk and controls of the business given the high inherent risks in Private Banking. This includes improving risk management standards and processes for identifying our clients and their sources of wealth as well as credit risk management. As the chart on the right indicates, the combination of investment and business growth will increase our cost base in absolute terms, partly financed by cost synergies from bringing the Private Bank and Wealth Management businesses together, including removing duplication, automating processes and digitizing client services. Overall, in 2026, our target is for the cost/income ratio to be in the high 60s, broadly at the level it was in 2023. That said, as we increase investment in the business, in the short term, the cost/income ratio will be higher. Beyond 2026, we will continue to invest to position us on the very best footing for the longer term, whilst maintaining our strong profitability. Turning now to better, where I want to spend some time outlining how we're investing to improve the proposition across our businesses. Our Digital Investing service has been offered for many years. It's called Smart Investor, and it's suitable for self-directed investors starting from just GBP 1. Our proposition is embedded within the Barclays mobile banking app and as of September this year had 323,000 active customers, providing them access to 8,500 different securities and funds, including Barclays ready-made investments. Earlier this year, we made some improvements to Smart Investor. We optimized pricing, we simplified customer access to investments, and we also improved marketing into the Barclays U.K. client base that I mentioned earlier. We've had success this year as a consequence of those improvements, onboarding 45,000 new clients in the first 9 months of this year, a greater than 100% increase versus the same period in 2023, and we've improved our Net Promoter Score. We're just at the beginning. We need to continue to use data to identify customers who are interested in receiving relevant educational content through the app, who can then seamlessly click through to our proposition. We're also looking to address the proposition gaps, which I mentioned earlier by launching a SIPP and a junior ISA product. And finally, we will continue to further improve the overall customer experience. Turning to the next slide, our Affluent proposition. As I said earlier, we've built a new Affluent proposition in order to provide advice to our customers and clients at each stage of their personal financial journey. This will offer robust financial management tools, which are digitally enabled so that they're both accessible and scalable. And it will also be fairly priced, transparently constructed and clearly disclosed. We will pilot this new service, initially focusing on customers with less than GBP 1 million in investable assets in early 2025, and we plan a full launch later in the year. The Affluent proposition will be fully integrated into the Barclays mobile banking app, making it seamless for our customers to access the advice they need alongside their day-to-day banking requirements and mortgages, all in one app. Vim Maru, the CEO of Barclays U.K. and I are working in partnership. We're aligned on the right cohort of customers to focus on, we have an integrated marketing approach to optimize the success rate of referrals, and we want to provide the best possible customer experience. The key to our success is to ensure that our advice is scalable, something which the industry has struggled with for many years. We believe that offering this service digitally will enable us to scale. And we've included the hiring of up to 100 new wealth managers in our cost guidance, all of which are embedded in the full year 2026 targets, and we will continue to expand the team beyond the life of the plan. We believe this will lead to further growth in assets under management, driving stable income for the bank. Turning to Private Bank across the U.K. and internationally. To become better, we are enhancing our products such as securities-backed lending, enabling us to do more investment business. We're also broadening our alternatives offering and simplifying the investment range. We've already made progress this year in a number of areas outlined on the slide. I'm not going to cover all of these points, but I want to highlight that we have expanded our private markets offering, and launched a new unitized discretionary product, leveraging our existing multi-asset-class investment proposition, which will enable us to deliver the strong performance I mentioned earlier to a larger set of clients. And we have more to do. We plan to improve the automation of our advisory and lending processes, creating capacity for our bankers and advisers to spend more time with clients. And we will also continue to enhance our banking offering across payments, overdrafts and cards. Internationally, we've developed our strategy for Asia, which included the decision to build out our booking center in Singapore. We're also strategically hiring new bankers across the region in Singapore, in India and the Middle East. The Middle East is a significant opportunity for us, and we're defining our strategy in collaboration with the Investment Bank. And more broadly, we will be more systematic and disciplined in our approach to collaboration with our Investment Bank and Corporate Bank colleagues across all regions. We've also started to improve the client experience in our Private Bank through having coordinated global coverage. This means our clients will be able to seamlessly use the breadth of our global platform. In addition, we're improving the way our clients can engage with us digitally, not only in terms of their day-to-day banking, but also enabling them to view their total assets across all jurisdictions in one user interface, something which is not possible today. We have more to do. And by 2026, clients will need only one log-in to our digital service down from up to five today. Turning now to Slide 17. We want to be more balanced in terms of our product profile and income streams. As I said earlier, our client balances have grown strongly in recent years, but the majority has been through growth in assets under supervision. Our focus now will be on assets under management, and the initiatives that I set out in the prior slides will contribute to this from launching our Affluent proposition in the U.K. to building our booking platform in Singapore. Additionally, it's about having the right resources and focus to drive growth in AUM. We will invest in talent by increasing the number of client advisers and upskilling colleagues across all segments. And in particular, we will continue to grow the number of investment specialists so that we can deepen our investment conversations with our clients. We will also make better use of automation and data. And finally, we will continue to strengthen our investment capabilities. These initiatives are already yielding some early successes. This year alone, we've grown our net new assets under management by GBP 3 billion, around double the growth we saw for the equivalent period last year. This is a metric that we will actively track and report externally going forward. We're committed to growing AUM as it will deliver value for our clients and margin improvement over time. Moving on to the next slide. Let me be really clear. Whilst, of course, we're focused on growing assets under management, we do want to continue growing all of our client assets and liabilities as part of our plan to achieve double-digit compound annual growth to 2026. We will grow our lending book by focusing on the needs of our clients. This will include security-backed lending, which supports clients with their investment ambitions and is capital efficient for the business, as well as extending mortgages to high and ultra-high net worth individuals in key locations such as Prime Central London, Geneva and Monaco. We will continue to grow our deposit balances by providing banking services to new and existing clients across the Private Bank. We also believe clients will benefit from taking a longer-term view by investing. And as previously mentioned, we have a strong investment track record from which they can benefit. Therefore, we're focused on growing assets under management, which will drive a more balanced income profile across net interest income and fees, with the ambition for the fees to be a higher proportion than it is today. This is how we will grow PBWM's income, focused on client needs and on a sustainable basis through different interest rate cycles. We've already seen progress in the first 3 quarters of 2024. I should note that, whilst the majority of income growth from now to 2026 will be driven by Private Banking, the investments we're making in Digital Investing and Affluent will begin contributing to growth thereafter. To conclude, our business is strong. It's strong in terms of our brand, it's strong in terms of our full service proposition and client base, and it's strong in terms of its financials. We have work to do to improve the business, both in terms of being simpler, and also providing better products and capabilities, and a better customer experience, and our opportunity is compelling. We will look to grow overall income and increase the contribution of recurring fee income. We have confidence in our ability to do this, therefore, delivering the commitments we set out in February of this year of greater than 25% RoTE, high 60s cost/income ratio and double-digit client asset and liability growth by 2026. Thank you for listening.