Barclays revealed its strategy on Tuesday to restructure its operations in an effort to streamline costs by £2 billion within the next two years. The goal is to enhance returns to shareholders, with an ambitious plan to distribute £10 billion through share buybacks and dividends by 2026.

Transforming into Five Distinct Segments

As part of its strategic realignment, the British banking giant will organize itself into five new segments over the next three years. These segments include a U.K. bank, a U.S. consumer bank, a U.K. corporate bank, an investment bank, and a private banking and wealth management division.

Emphasis on Increasing Shareholder Distributions

Barclays' CEO C.S. Venkatakrishnan is set to provide further insights into the restructuring plans during an extensive four-hour presentation. The primary objective of this overhaul is to drive greater returns and deliver consistent, appealing shareholder distributions.

Positive Market Response

Following the announcement, shares in Barclays (BARC) experienced a 4% surge on the London Stock Exchange. This gain comes after a challenging period that saw share prices drop by 11% over the past year. The decline was attributed to lackluster performance within the investment banking sector.

Cost Efficiency at the Core

In an effort to achieve significant cost reductions, Barclays aims to trim its annual expenses of £17 billion by £2 billion. This will involve workforce reductions and downsizing its property holdings, with the intention of saving £1 billion in 2024 alone.

Barclays Aims for £30 Billion Total Income by 2026

Barclays is on a mission to increase its yearly total income to £30 billion by 2026, a significant jump from £25.37 billion in the full-year of 2023. Analysts anticipate that Barclays' investment banking division will be the key driver of this income growth, contributing £2.7 billion of the projected £4.6 billion increase. The remaining £1.9 billion is expected to come from its retail and corporate businesses.

Underwhelming Results Spark Ambitious Plans

Following a disappointing performance in the full-year 2023, where Barclays fell short of analysts' expectations, reporting a 6% decrease in pre-tax profits to £6.56 billion ($8.26 billion), the bank is now gearing up for substantial changes. This result missed consensus estimates by 2%.

The decline in profits was mainly attributed to a 5% reduction in revenue from its corporate and investment banking sector, which typically contributes more than half of its total income. At the same time, operating costs saw a notable 12% increase to £16.93 billion, including a £0.9 billion impact related to restructuring efforts.

CEO Venkat Faces Pressure Amid Share Price Decline

Barclays' CEO, Jes Staley, also known as Venkat within the organization, is under increasing pressure to steer the bank back on track following a downward trend that has seen its share price plummet by 19% since he assumed leadership in November 2021.

JP Morgan Cazenove analysts, led by Raul Sinha, commented, "Overall, we think that management's plans could imply double-digit upgrades to consensus forecasts at face value. However, given the reliance on revenue growth, particularly in investment banking, stakeholders will pay close attention to the conviction and specifics behind the targets, as well as the bank's execution capabilities."