Barclays PLC (BCS) Earnings

Management highlights

### Overall Financial Performance & Shareholder Returns - Delivered strong year-over-year growth: 16% higher Q2 income (8.3 billion pounds) and 30% higher profit before tax (3.3 billion pounds), with a group CET1 capital ratio of 14.3% indicating robust capitalization. - Announced increased shareholder distributions: a 1 billion pound share buyback and 800 million pound interim dividend, bringing total first half 2026 distributions to 2.3 billion pounds, 61% higher than H1 2025. - Total distributions since 2024 have reached 9 billion pounds, with the group growing ROTE from 9% in 2023 to 12.2% in the past 12 months. ### Strategic Transformation & Operational Efficiency - Core strategic focus is building standardized, modernized, harmonized technology-enabled systems and processes to drive structural improvement in returns and an all-weather ROTE profile from 2026 to 2028. - Achieved 350 million pounds in gross efficiency savings year-to-date 2026, 200 million of which were realized in Q2, with a 54% group cost-income ratio, down 5 percentage points year-over-year. - Additional structural cost actions of up to 500 million pounds will be implemented in H2 2026, funded by stronger than expected H1 profitability, delivering greater cost flexibility from 2027 onward with an expected ~100% ROI within 12 months. - Updated compensation structure for material risk takers and highest paid employees: shifting to higher variable pay, lower fixed pay, and shorter vesting periods starting from 2027 to increase long-term cost flexibility. ### Business Development & Acquisitions - US Consumer Bank (fully digital, 25 million customers, no branches): completed acquisition of Bestag in Q2 to add advanced consumer loan capabilities, and announced a new card product partnership for the Samsung Wallet in the US. - UK Retail & Premier Banking: launched an app refresh and no-upfront-fee Premier Wealth Management; announced the planned acquisition of GoHenry (expected to close Q4 2026) to attract younger customers; eliminated custody charges for Barclays Direct Investing self-directed clients to create a more competitive offering. - UK Corporate Bank: 65% of client interactions are now self-serve via the new iPortal, with full migration of all clients from 5 legacy platforms to the single platform scheduled for 2026; the bank has attracted ~1,400 new corporate clients since 2024, 40% of which are already borrowing, driving ~70% of total loan growth. - Investment Bank: growing the equity and financing businesses, with 80% of recent prime financing growth coming from the IB's top 100 global clients, particularly in Asia; the M&A and H2 2026 IPO pipelines remain strong. ### Market Context (UK Growth) - UK corporate confidence is improving, with most surveyed corporates planning increased investment in the next 12 months, particularly in technology; overall UK corporate lending at Barclays is up 9% year-over-year, with the bank growing faster than the overall UK market for 18 consecutive months.

Guidance

- **2026 Group Income**: Upgraded from the prior target of ~30 billion pounds to ~31.5 billion pounds, marking the ninth consecutive year of income growth. - **2026 Group ROTE**: Reaffirmed confidence in delivering a group ROTE of greater than 12%, following a 14.8% ROTE in H1 2026 and 16.1% in Q2 2026. - **2028 Group ROTE**: Upgraded target to greater than 14%, accelerating the bank's progress toward an all-weather ROTE profile. - **2026 Group NII**: Raised expectation to more than 13.7 billion pounds, with structural hedge income expected to remain a sustained tailwind. - **Barclays UK 2026 NII**: Expected to land around the midpoint of the prior guided 8.1 billion pounds to 8.3 billion pounds range, with neutral to positive product margin expected in Q3 2026 after softer than expected Q2 margins from ISA season competition. - **Barclays UK 2026 Cost-Income Ratio**: Still expected to land in the low 50s, with temporary higher H2 2026 costs from structural cost actions that will drive 2027 efficiency savings. - **Investment Bank 2026**: Reaffirmed guidance of a ~60% cost-income ratio and 12% ROTE target, despite near-term costs from compensation structure changes. - **US Consumer Bank 2026**: Reaffirmed guidance of a ~12% ROTE (excluding the AA gain on sale) and NIM greater than 13%, but noted that persistent compressed originate-to-distribute loan pricing could mean full year 2026 quarterly income does not fully recover to Q1 2026 levels. - **Regulatory RWAs**: 2027 RWA inflation guidance maintained at 19 billion pounds to 26 billion pounds, including Basel 3.1 changes and US Consumer Bank IRB implementation expected in H2 2027.

Segment performance

1. **Barclays UK**: Income grew 7% year-on-year to an annualized ~8 billion pounds, with a return on tangible equity (ROTE) of 20.4%. Net interest income (NII) rose 8% year-on-year to 2 billion pounds, and the cost-income ratio improved 3% year-on-year to 53%. Lending grew 5% year-on-year, driven by strong mortgage volumes. This segment contributed ~24.1% of total Q2 2026 group income. 2. **UK Corporate Bank**: Delivered a Q2 ROTE of 21.3%, with income growing 8% year-on-year. NII was up 15% year-on-year driven by volume growth and structural hedge momentum, and loans increased 12% year-on-year while deposits grew 4%. Lending market share has risen 70 basis points since 2024, with 19% total loan growth over 2.5 years. 3. **Private Bank and Wealth Management (UK)**: Q2 ROTE hit 26.9%, in line with the >25% 2026/2028 target. AUM grew 15% year-on-year driven by favorable valuation effects, with total net new AUM of 1.8 billion pounds for H1 2026. Income grew 5% year-on-year while costs increased 12% due to ongoing growth investments, resulting in an expected 2026 mid-70s cost-income ratio. 4. **Investment Bank**: Q2 ROTE reached 16%, up 3.8% year-on-year. Total income to average RWAs rose 100 basis points year-on-year to 7.7%, with 9 consecutive quarters of positive operating jaws. Markets income grew 17% year-on-year: equities income rose 44% driven by equity derivatives and prime financing, while fixed income, currencies and commodities (FIC) was stable. Investment banking fees grew 30% year-on-year, with advisory up 51% and ECM income up 91%. This segment's income accounted for a larger share of group revenue as the bank rebalances toward more diversified stable income streams, with equities now making up 32% of IB income vs 22% in 2023. 5. **US Consumer Bank**: Excluding the American Airlines (AA) gain on sale, Q2 ROTE was 10.5%, with 11% year-on-year income growth. NIM came in at 13.2% broadly in line with expectations, and the cost-income ratio was 49% excluding the AA gain. After exiting the AA partnership (reducing receivables by ~6.5 billion pounds) and completing the acquisition of Bestag (adding ~11 billion managed balances), organic net receivables grew 2% quarter-on-quarter, and core deposit funding share rose to 82%. This segment contributed ~10.5% of total Q2 2026 group income. Total group Q2 2026 income was 8.3 billion pounds, up 16% year-on-year, with profit before tax up 30% to 3.3 billion pounds and group ROTE of 16.1%.

Risks & headwinds

- Persistent higher interest rates have compressed market-wide pricing for US originate-to-distribute consumer loans, which could pressure non-interest income and mean Q2-QQ4 2026 quarterly income does not fully recover to Q1 2026 levels. - UK deposit competition during ISA season created larger than expected product margin headwinds for Barclays UK in Q2 2026, though management expects this to be transitional. - Global macroeconomic uncertainty remains, with the bank retaining 68 million pounds in post-model adjustments for impairment in the Investment Bank to account for downside macro risks. - The bank is waiting for further regulatory clarity on capital requirements, so it is holding its pro forma CET1 ratio around the top of its 13-14% target range pending updates. - Ongoing investment in wealth management growth in the UK has increased year-over-year costs, pushing the 2026 expected cost-income ratio to the mid-70s vs prior lower guidance.

Analyst Q&A

• Q: Given the planned H2 2026 additional structural cost actions, does consensus 2027 OPEX of 18.2 billion pounds look too high or too low, balancing efficiency tailwinds against higher compensation costs? Also, please explain regional growth trends in equities, and why IB financing was flat quarter-over-quarter despite strong industry-wide prime activity in Q2. /

  A: Management did not provide an absolute 2027 cost target, as the company’s north star is the cost-income ratio, not absolute OPEX. They confirmed additional structural cost actions will deliver commensurate gross efficiency improvements in 2027, moving the group closer to the 2028 low 50s cost-income ratio target from the 2026 expected high 50s. For equities, the strong Q2 growth in equity derivatives and prime financing follows the bank’s stated long-term global strategy, with 80% of prime growth coming from the top 100 global clients, including notable expansion serving client demand in Asia. The IB continues to operate with a stable capital base, improving capital efficiency, and growing returns per RWA while diversifying its income mix toward equities and stable financing income, consistent with prior strategic guidance.\n\nQ: The Q2 Barclays UK product margin was softer than expected due to ISA season and UK deposit competition. Why is this only a temporary effect, and why should investors not expect persistent pressure from deposit competition amid strong loan growth? / A: Management attributes the Q2 softness specifically to seasonal ISA market competition, which was more pronounced than expected. They expect product margin will shift to neutral or positive in Q3 due to card seasonality and calendar day count effects, offsetting ongoing competitive deposit pricing. The structural hedge rebalancing completed last quarter only shifted income from product margin to hedge income, with no material net impact on overall NII, and maturing of higher margin 2021 mortgages was an expected, one-time headwind. Management reaffirmed full year 2026 NII will land near the midpoint of the guided range, and deposit competition pressure is expected to remain transitional rather than persistent.\n\nQ: What is the updated outlook for US Consumer Bank income after compressed originate-to-distribute loan pricing pressured margins in Q2? / A: Management confirmed that while volume momentum remains on track, the compressed pricing environment has persisted longer than expected. It will therefore take longer for US Consumer Bank quarterly income to build back to Q1 2026 levels than originally anticipated, and full year 2026 income may not reach that level. The bank still expects to meet its full year 2026 targets of >13% NII and ~12% ROTE excluding the American Airlines gain on sale. The integration of the recently acquired Bestag is proceeding as planned, with volumes meeting initial expectations.