Fri, February 9, 2024
A Barclays bank building is seen at Canary Wharf in London
By Simon Jessop and Sinead Cruise
LONDON (Reuters) -Barclays, Britain's biggest lender to the oil and gas industry, told Reuters it will stop direct financing of new oil and gas fields and restrict lending more broadly to energy companies expanding fossil fuel production.
The move, part of its Transition Finance Framework (TFF), published on Friday, follows intense pressure from campaigners over its energy policy amid an increase in climate damaging emissions from the burning of fossil fuels.
In addition, from 2025, the bank will curb broader financing to non-diversified companies such as pure-play exploration companies if more than 10% of their expenditure goes toward expanding production over the longer term.
Barclays group head of sustainability Laura Barlow said the new policy was part of its commitment to reduce emissions linked to the bank's lending and bolster finance to greener alternatives.
"It's about strengthening our focus on the energy transition," Barlow said.
Barlow said existing upstream energy clients that breach the 10% threshold would go through an enhanced oversight process that also looked at the client's investment in decarbonisation.
"It wouldn't be a red line but ... would inform our risk appetite," Barlow said.
Barclays joins banks such as HSBC and BNP Paribas that are tightening oil and gas lending while pledging to increase funding to areas such as renewable energy that can help cap global warming, targeting $1 trillion in such lending by 2030.
Non-profit ShareAction, that had pressured Barclays to do more to help tackle climate change, said that in response to the new curbs it had withdrawn a proposed shareholder resolution calling for the bank to stop funding new expansion projects.
The project finance curbs are not expected to have a major impact on its business given its limited market share. The bank is not in the top 15 of major project finance banks globally, and most have yet to adopt similar restrictions.
Jeanne Martin, its head of banking standards, said the move to limit finance to expansion projects and set climate tests for all clients was good to see, although it still had concerns, including around the bank's funding of fracking.
"We have outstanding concerns ... so have made clear to the bank that we will be scrutinising the way it implements its fossil fuel policy and will not hesitate to escalate our engagement again should we be dissatisfied with ... progress," she said.
Danish investor Sparinvest, which had backed the resolution, said Barclays' policy "introduces significant new commitments" but urged "further steps, for example on short-lead time assets", Senior Portfolio Manager David Orr said in a statement.
Katharina Lindmeier, senior responsible investment manager at UK pension investor Nest, called it a "strong step forward" but said the bank "could and should" go further", including on fracking.
The bank was the biggest funder of fossil fuels in Europe between 2016 and 2022 and the second-biggest in 2022, a report by the non-profit Rainforest Action Network showed, though most of it came from corporate lending rather than project finance.
Barlow said the bank's oil and gas on-balance sheet financing as a percentage of its total lending activities was less than 2%, with capital markets financing for the sector less than 3% of total activity.
Emissions linked to Barclays' lending to the energy sector dropped 32% between 2020 and 2022, beating a target reduction of 15%, the bank said in its 2022 annual report.
Additional restrictions introduced by Barclays include no financing for exploration and production in the Amazon, and, from June 2024, no financing to firms that get more than 20% of their production from unconventional sources such as oil sands.
All Barclays corporate clients in the energy sector will be expected to present transition plans or decarbonisation strategies by January 2025, alongside 2030 methane reduction targets, and a commitment to end all non-essential venting and flaring by 2030.
The clients would also need to have near-term net-zero aligned targets for Scope 1 and 2 emissions - those linked to their own operations and energy usage - by January 2026.
Barclays' head of sustainable finance, corporate and investment bank Daniel Hanna said the bank looked at over 80 variables when assessing clients' decarbonisation plans and had committed to review 750 client entities at the last AGM.
In January, Barclays announced the formation of a new energy transition group to provide strategic advice to clients on everything from renewables to nature-based solutions and carbon capture.
(Reporting by Simon Jessop and Sinead Cruise in London; Editing by Stephen Coates)
Barclays to Acquire Tesco’s Retail Bank, Grocer Vows Buyback
Jenny Surane and Jan-Henrik Förster
Fri, February 9, 2024
(Bloomberg) -- Barclays Plc said it will acquire much of Tesco Plc’s banking business as the lender seeks to establish a greater foothold in retail banking in the UK.
Barclays expects to pay about £600 million ($758 million), according to a statement on Friday. Tesco separately said it expects to receive around £1 billion in cash from the sale — which includes the release of regulatory capital and an earlier dividend paid by Tesco Bank — and it will use the majority of that for a share buyback.
The move comes just weeks after Barclays Chief Executive Officer C.S. Venkatakrishnan said the firm will likely have to grow in areas like retail banking in order to shrink the investment banking unit’s share of the bank’s overall business as part of his bid to boost the lender’s share price. The company is planning to unveil a series of new financial targets at an investor event later this month.
The transaction includes £4.2 billion of credit-card receivables, £4.1 billion of unsecured personal loans and £6.7 billion in customer deposits. The two companies will also enter into a 10-year deal that allows Barclays to use the Tesco brand to market and distribute credit cards, unsecured personal loans and deposits, according to the statement.
“This strategic relationship with the UK’s largest retailer will help create new distribution channels for our unsecured lending and deposit businesses,” Venkatakrishnan said in the statement.
What Bloomberg Intelligence Says:
Barclays’ planned acquisition of Tesco’s UK retail banking business, £8.3 billion of unsecured loans, is small at 2% of total loans, but is a big statement on the lender’s direction. Along with plans to sell its German consumer finance business and restructuring at its investment bank (which we expect to be detailed at its Feb. 20 investor day), UK retail banking and corporate banking is the new growth focus as Barclays looks to revive its sector-low 0.3-0.4x book valuation.
— Philip Richards and Uzair Kundi, BI banking analysts
Shares of Barclays were little changed in early London trading on Friday and Tesco jumped as much as 2.4%.
Tesco’s rival J Sainsbury Plc has also been looking at disposing of its banking business for quite some time. Last month, it said it’s planning a “phased withdrawal” from the division as part of its wider aim to focus on its core food business. In 2023, British lender Co-operative Bank agreed to buy Sainsbury’s Bank’s £500 million mortgage portfolio.
The 10-year deal with Tesco will require Barclays to pay the retailer £50 million per year in royalty, new account and Clubcard participation fees.
About 2,800 Tesco bank employees, including the unit’s senior managers, will transfer to Barclays. The grocer will still operate ATMs and offer insurance, travel money and gift cards, according to the statement.
Barclays said it will finance the deal with existing resources and doesn’t expect it to materially impact financial returns or shareholder distributions. While the Tesco transaction is expected to reduce Barclays’ common equity tier 1 ratio by 0.3%, a proposed sale of its German consumer-finance business will be accretive, according to the statement.
The transaction, subject to regulatory approvals, is expected to complete in the second half of 2024.
Barclays investors crave simpler bank as CEO Venkat prepares revamp
Thu, February 8, 2024
By Sinead Cruise and Lawrence White
LONDON (Reuters) -Barclays' CEO C.S. Venkatakrishnan is under pressure to deliver a plan this month to win over restless shareholders clamouring for a streamlined business model and higher, more sustainable returns for a fraction of the risk.
The British bank has one of the lowest valuations among peers, with shares down by around 24% in the last year, driven in part by a hefty disposal of stock by a top investor, Qatar Holding, on Dec. 4.
It has also underperformed UK and eurozone banking indexes, data shows.
Eight shareholders who spoke to Reuters -- including four among the top 20 -- favour shrinking its investment bank, offloading stakes in sub-scale businesses or exiting non-core assets entirely, and putting billions back into their pockets.
Barclays' CEO, known as Venkat, has been listening. Speaking at the World Economic Forum at Davos last month, he acknowledged the outsized contribution Barclays' investment bank had made to group profits, and pledged to restore balance and clarity on the make-up of the bank.
In a bid to bolster its British retail bank, Barclays said on Friday it had agreed to buy supermarket Tesco's banking operations.
But with the global economy in flux, buyers of businesses Barclays aims to sell appear to be running shy.
The bank's struggle to secure backers for its UK payment business, reported by Reuters on Feb 1, risks complicating Venkat's aims and shareholder hopes of a swift turnaround.
Barclays, one of Britain's oldest banking brands, lacks focus, according to fund managers who say they are underwhelmed by its risk-adjusted returns.
"The basic problem is this bank isn't boring enough for the majority of its investors," said Sajeer Ahmed, portfolio manager at Aegon Asset Management, which manages Barclays shares.
"It is an investment bank with a retail bank attached. Management has tried to spell out the benefits of diversification but this just isn't supporting the bottom line right now," he said.
Many banks streamlined their riskiest activities after the 2008-9 financial crisis, but Barclays set its sights on growing a top-tier transatlantic investment bank from the embers of Lehman Brothers.
The regulation which followed the crisis has made making money from investment banking much tougher, pushing investors to question whether it is time to scale back those ambitions.
Barclays declined to comment.
The bank, which drafted in Boston Consulting Group to help with its revival plan, is due to present it on Feb. 20.
HIGH RISKS, UNEVEN RETURNS
The investment bank has long been central to Barclays' universal banking business model, which also spans consumer and corporate lending.
But six shareholders said the group's depressed valuation reflected the investment bank's high costs and unpredictable returns.
In nine months through September, Barclays' Corporate & Investment Bank reported quarterly income ranging between 4 billion and 3.1 billion pounds, with quarterly costs of around 2 billion.
Returns on tangible equity (ROTE), a key profitability measure, ranged between 15.2% and 9.2% across these quarters.
The division consumes 63% of group capital reserves, and delivers returns below industry peers, UBS analyst Jason Napier said in a Jan. 11 note.
By contrast, BNP Paribas commits less than a third of group capital to its investment bank, while UBS has said it will allocate no more than 25% of risk-weighted assets to its investment banking operations.
Investment banking as an industry also tends to be accident-prone. In 2022, a U.S. securities sales blunder saw the bank's litigation and conduct costs that year surge to 1.6 billion pounds from 400 million pounds the year before.
"Execution is key," said Benjamin Toms, analyst at RBC. "This means no mishaps and a conduct and litigation expense that is closer to 100 million pounds rather than a billion."
INVESTORS LOSE FAITH
Barclays' forward price to book ratio, a measure of its market valuation relative to assets, is at 0.34 -- compared with 0.34 for Deutsche Bank, 0.56 at BNP Paribas, 0.82 at HSBC and 0.95 at UBS, based on LSEG data on Feb. 8.
Investors said this reflects doubts about Barclays' mix of businesses, and a growing consensus that a leaner, simpler bank could deliver stronger returns.
Barclays has sub-scale businesses which could fetch respectable price-tags if they were sold, five of the investors said, pointing out that several of these units were unlikely to be more than number three or four in their respective markets.
Disposals from Barclays' Consumer, Cards & Payments (CCP) unit would be welcomed, four of the shareholders said, with one suggesting the international credit cards business applied a "complexity discount" to the bank's overall valuation.
Reuters earlier reported the bank's wider study of its global payments activities.
Capital unlocked by asset sales could support a more generous dividend or buyback programme or be reinvested in fee-earning businesses like wealth management, three investors said.
"In my opinion the only way the shares re-rate is a meaningful reduction in the size of the corporate and investment bank, and re-focus of the business on forecastable franchise based revenue streams," said Ed Firth, analyst at KBW.
Jefferies analysts expect Barclays to propose a sharp rise in capital redistribution, rising to around 7 billion pounds by end-2025, to help boost flagging shares.
There are signs short-sellers are retreating ahead of any potential move. Barclays has not featured in the top 10 of EMEA's most heavily shorted large-cap banks since October, research from data firm Hazeltree showed.
Investors who spoke to Reuters expect the bank to upgrade its annual 10% ROTE target to between 11% and 13%. In 2023, U.S. bank JP Morgan achieved 21%.
"I think people are struggling to believe that higher returns are deliverable and sustainable," said Ben Ritchie, head of developed market equities at Abrdn.
"But once companies get the credit for consistent delivery, it is a game-changer," he said.
($1 = 0.7920 pounds)
(Editing by Jane Merriman)
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