Executive Summary / Key Takeaways

• Barclays PLC is executing a disciplined three-year plan to achieve a Return on Tangible Equity (RoTE) of over 12% by 2026, driven by a diversified business model and operational efficiencies. The company reported a strong Q2 2025 RoTE of 12.3% and a H1 2025 RoTE of 13.2%, demonstrating significant progress towards its targets.
• The strategy involves rebalancing risk-weighted assets (RWAs) towards higher-returning UK businesses, with £17 billion deployed by Q2 2025 (over half of the £30 billion target by 2026), while maintaining stable RWAs in the Investment Bank to enhance productivity and capital generation.
• Net Interest Income (NII) is a key growth driver, supported by a predictable structural hedge, with 2025 NII guidance for Barclays UK upgraded to exceed £7.6 billion and for the group (ex-IB and head office) to exceed £12.5 billion. The company expects multi-year NII growth beyond 2026.
• Operational leverage and cost discipline are central, with a Q2 2025 cost-to-income ratio of 59% and a target of circa 61% for FY 2025, falling to the high 50s by 2026, underpinned by significant efficiency savings.
• Shareholder distributions are set to increase progressively, with a £1 billion share buyback announced in Q2 2025 and a total of £1.4 billion in distributions for H1 2025, reinforcing management's commitment to shareholder returns.

A Diversified Powerhouse Forging Ahead

Barclays PLC, a venerable institution founded in 1690, has consistently adapted its strategy to remain a prominent global financial services provider. The company's current trajectory is defined by a rigorous three-year plan, initiated in February 2024, aimed at transforming it into a "better run, more strongly performing and higher returning" bank. This strategic pivot is designed to deliver structurally higher and more consistent group returns by 2026 and beyond, leveraging a diversified business model that spans retail banking, credit cards, wholesale banking, investment banking, and wealth management across key geographies.

The core investment thesis for Barclays hinges on its ability to execute this plan, rebalancing its portfolio, enhancing operational efficiency, and capitalizing on its technological advancements to drive sustainable profitability and shareholder value. The company's presence in both the UK and US, complemented by its global reach in investment banking, provides a robust foundation against regional economic fluctuations. This diversification is critical in an environment characterized by evolving market dynamics and regulatory landscapes.

Barclays' competitive positioning is multifaceted. In the UK retail banking sector, it competes intensely with domestic giants like Lloyds Banking Group plc (LLOY), often differentiating through its broader international offerings and digital innovation. Against global investment banking powerhouses such as JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C), Barclays maintains a strong presence in specific niches, particularly in its markets franchise. The company aims to rank top 5 with 70 of its top 100 clients by 2026, a significant increase from 49 in 2023, demonstrating its focus on deepening client relationships.

Technological differentiation is a cornerstone of Barclays' strategy, underpinning its drive for efficiency and enhanced client experience. The company has made substantial investments in technology across its businesses, particularly within its Investment Bank and for streamlining customer journeys. For instance, in its markets business, multi-year investments in technology are now yielding benefits, supporting income generation across various market environments. This technological prowess is evident in the Investment Bank's ability to monetize cyclical market activity and maintain a higher daily income run rate even amidst normalized volatility.

Furthermore, Barclays is actively leveraging technology to enhance its operational resilience and efficiency. Over the past year, the company decommissioned approximately 200 legacy applications as part of a broader plan to exit between 450 and 500 by 2026. In its markets division, actions over the last two years have led to a 20% reduction in trade capture and risk pricing systems, directly contributing to improved efficiency and operational resilience. The company also increased its digitally active customers in Barclays UK by 700,000, underscoring its commitment to digital adoption. This focus on technological simplification and digital engagement is crucial for driving down costs, improving service delivery, and maintaining a competitive edge against both traditional and fintech rivals. The partnership with Ant International on global treasury management, incorporating Ant's proprietary AI-Powered FX Model, exemplifies Barclays' commitment to integrating advanced AI solutions to reduce FX-related costs and risks for businesses.

Strategic Execution and Financial Momentum

Barclays' strategic plan is yielding tangible results, as evidenced by its recent financial performance. In the second quarter of 2025, the company reported a robust 14% year-on-year increase in income to £7.2 billion, with profit before taxes surging 28% to £2.5 billion. Earnings per share saw a significant 41% rise to 11.7p. This strong performance translated into a 12.3% RoTE for the quarter and an impressive 13.2% for the first half of 2025, positioning the company well against its 2025 target of circa 11% and 2026 target of more than 12%. The cost-to-income ratio improved by 4 percentage points year-on-year to 59% in Q2 2025, reflecting effective cost discipline and operational leverage.

The company's capital position remains strong, with a CET1 ratio of 14% in Q2 2025, comfortably within its 13% to 14% target range. This robust capital generation supports increased shareholder distributions, with a £1 billion share buyback announced in Q2 2025 and a total of £1.4 billion in distributions for H1 2025, marking a 21% year-on-year increase. Tangible book value per share has consistently grown for eight consecutive quarters, reaching 384p, a testament to the bank's improving profitability and capital management.

A key pillar of Barclays' strategy is the rebalancing of its risk-weighted assets. The company has deployed £17 billion of business growth RWAs into its UK-focused businesses since 2023, including £10 billion from organic growth. This represents over half of the planned £30 billion deployment by 2026, with organic growth accelerating to approximately £2 billion per quarter in H1 2025. This strategic allocation aims to enhance overall group returns by directing capital to higher-yielding segments. Conversely, Investment Bank RWAs have been intentionally kept stable for 3.5 years, driving efficiency and productivity within the division, which now represents 56% of overall group RWAs, with a target to reduce this to circa 50% by 2026.

Barclays UK, a high-returning segment, delivered a 19.7% RoTE in Q2 2025. Net Interest Income (NII) for Barclays UK reached £1.9 billion in Q2 2025, up 16% year-on-year, supported by sustained lending momentum and the predictable tailwind from the structural hedge. The company has upgraded its 2025 NII guidance for Barclays UK to exceed £7.6 billion, with over £3.9 billion expected in the second half of the year. The acquisition of Tesco Bank (TSCDY), completed in November 2024, is a strategic move to bolster unsecured lending and deposit businesses, expected to contribute circa £500 million of NII in FY 2025.

The Investment Bank's performance in Q2 2025, with a RoTE of 12.2% and H1 2025 RoTE of 14.2%, demonstrates the impact of structural improvements and strategic investments. Markets income, in particular, was strong, up 34% year-on-year in USD terms, driven by FICC (up 35%) and Equities (up 34%). Stable income streams now account for 40% of the Investment Bank's income, up from 29% in 2021, indicating a more resilient revenue profile. The U.S. Consumer Bank also showed improved performance, with a Q2 2025 RoTE of 10.2% and NIM expanding to 10.8%. The business is focused on growing higher-margin retail balances and improving its funding mix, with retail deposits growing 27% year-on-year. The upcoming onboarding of the General Motors (GM) card portfolio in Q3 2025 is expected to further enhance RoTE from Q4 2025.

Outlook, Risks, and Competitive Dynamics

Barclays' outlook is underpinned by clear guidance and strategic assumptions. The company is confident in achieving a group RoTE of circa 11% in 2025 and more than 12% in 2026. This confidence is supported by expected multi-year NII growth from the structural hedge, with £11.1 billion of gross structural hedge income locked in for 2025 and 2026. The company plans to reinvest 90% of maturing hedges at a 3.5% yield, which is more favorable than previous assumptions. Cost discipline will continue, with a target cost-to-income ratio of circa 61% in 2025 and high 50s in 2026, driven by £500 million in gross efficiency savings for the year.

While the macroeconomic environment has shown resilience, particularly in the US and UK, uncertainties persist. The group's loan loss rate is expected to remain within the through-the-cycle guidance of 50 to 60 basis points for FY 2025, although the acquisition of General Motors card balances will introduce a circa £100 million day one charge in Q3 2025 and subsequent stage migration charges. Regulatory changes, such as the U.S. capital leverage rules, could intensify competition in debt markets, where Barclays has a significant presence. However, Barclays does not anticipate output floors to be binding, reflecting its business mix.

The competitive landscape remains dynamic. In the UK, Barclays faces competition from established players like Lloyds and the expanding presence of international banks like Santander (SAN). In investment banking, while Barclays has demonstrated strong performance in markets, particularly in FICC and Equities, and has increased market share in its focus businesses, it acknowledges that banking income can be volatile. The company's strategic hires in Investment Banking, including Alex Ham as Global Chairman and Andrew K. Woeber as Global Head of M&A, underscore its commitment to strengthening its advisory capabilities and capitalizing on anticipated increases in deal activity. Barclays' diversified business model, coupled with its focus on structural improvements and technological investments, positions it to navigate these competitive pressures effectively.

Conclusion

Barclays PLC is demonstrating clear progress in its strategic transformation, moving towards a higher-returning and more balanced business model. The company's strong financial performance in H1 2025, marked by robust income growth, improved profitability, and disciplined capital management, underscores the effectiveness of its three-year plan. By strategically reallocating capital to its high-growth UK businesses, maintaining stability in its Investment Bank, and leveraging technological advancements, Barclays is building a more resilient and efficient enterprise.

The commitment to progressive shareholder distributions, supported by increasing capital generation and a growing tangible book value per share, reinforces the investment thesis. While macroeconomic uncertainties and competitive pressures remain, Barclays' diversified approach, coupled with its focus on operational excellence and technological leadership, positions it to achieve its 2026 targets and drive sustainable value for investors in the years to come. The ongoing structural improvements are enhancing the bank's profit signature, paving the way for higher returns beyond the current planning horizon.