By Lawrence White and Iain Withers

LONDON (Reuters) – Barclays on Tuesday unveiled a three-year plan to boost its flagging share price. The plan includes cutting costs by 2 billion pounds, paying out 10 billion pounds ($12.6 billion) to shareholders and investing in its profitable British bank.

Shares in the British bank rose as much as 7% after Barclays CEO CS Venkatakrishnan, known internally as Venkat, made the announcement, which also included a restructuring of operating businesses. Shares were up 5% at 10:15 GMT.

Venkat’s plans, which he described as “modest ambition”, will see Barclays prioritise its more profitable consumer and commercial lending businesses while reducing the share of costlier investment banking in assets.

The bank’s first strategy update in nearly a decade marks a turning point for Venkat as he seeks to improve earnings after a period of management turmoil and disappointing results.

Among other things, its update said the company plans to cut £1 billion in costs in the near future and review the future of its payments business, both of which Reuters had previously reported on.

The focus of the cuts will be on Barclays’ UK consumer business and transatlantic investment bank, both of which will see a £700 million cut.

Barclays will add an additional £30 billion of risk-weighted assets to its UK retail bank by 2026. The division received a boost this month from its £600 million takeover of supermarket Tesco’s banking arm.

Barclays said it plans to continue to grow its investment banking business over the next three years, albeit at a slower pace than its retail banking business, while repositioning it to gain market share in areas such as equities and advisory.

This would reduce assets attributable to investment banking from 63 percent in 2023 to 50 percent in 2026, Venkatakrishnan said.

“There are no major changes in the structure of the bank, but that was always quite unlikely,” said Richard Marwood, portfolio manager at Royal London Asset Management.

The strategy update came as Barclays reported a 6% fall in annual profit to £6.6 billion, in line with analysts’ forecasts and due to higher charges for possible bad loans.

Analysts at JPMorgan said the update could mean an increase in forecasts for the bank’s performance, but the plans were based on revenue growth and the focus was on its execution.

Barclays will cut 5,000 jobs in 2023, Chief Financial Officer Anna Cross told reporters. Many of these jobs will be in back-office areas. Reuters first reported on the cuts.

The company also announced it would review the future of its UK merchant acquiring business, which processes payments. Reuters first reported on the review of the payments business last year.

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Barclays announced it would pay out a total of £3 billion to shareholders for 2023 – 37 percent more than last year – including a new £1 billion share buyback and a final dividend of 5.3 pence per share.

NEW STRUCTURE

Investors at Barclays, one of Europe’s lowest-rated banks, have grown impatient with its falling share price, with some calling for a simplification of investment banking, Reuters reported earlier this month.

Barclays’ offer to its shareholders is similar to that of Deutsche Bank, which announced on February 1 that it would cut 3,500 jobs, buy back shares and pay generous dividends to convince investors that it was on track to turn the tide.

Since 2019, Germany’s largest bank has been focusing on expanding its retail business over its investment banking.

Barclays said its corporate and investment banking revenue fell 4% to £12 billion in 2023 as client activity fell in both markets and its investment banking advisory business.

The company announced it would reorganize its business into five new business units to provide clearer disclosure of performance and management accountability.

The bank’s head of corporate and investment banking, Paul Compton, who has long been seen by many within the bank as a potential successor to Venkat, will step down from his current role and become chairman of the unit.

Barclays announced that it aims to achieve a return on equity (ROE), a key performance indicator, of over 10 percent in 2024. By 2026, the targets could rise to over 12 percent.

(1 USD = 0.7945 pounds)

(Reporting by Lawrence White and Iain Withers; Editing by Sinead Cruise and Alexander Smith)