This article has been adapted from our sister site across the pond, Fool U.K.
20% higher revenues
In a series of presentations on Wednesday, Bob Diamond, CEO of Barclays, said that the bank aims to increase its revenues by between 4.3 billion and 6.4 billion pounds by 2013. Last year, Barclays' income was 31.4 billion pounds, so this would be up to a fifth (20%) ahead of 2010.
Cutting costs by between 1 billion and 2 billion pounds will help the bank to meet this goal.
Despite ongoing worries about the eurozone crisis and the potential breakup of U.K. banks, "Diamond Bob" claims that Barclays can raise its return on equity from a "clearly unacceptable" 7.2% in 2010 to 13% by 2013.
To shrink its bloated balance sheet and reduce its capital requirements, Barclays also aims to dispose of 46 billion pounds of risk-weighted assets. However, there was no explanation of it will achieve these sales.
Diamond also warned investors that he expected U.K. regulators to impose a core tier-one capital ratio of 9% on systemically important banks, including Barclays. However, he expects Barclays to beat this, with core tier-one capital exceeding 11% by 2013.
From where will this substantial revenue boost come?
Barclays reckons that its investment-banking arm, Barclays Capital, will contribute up to 2.4 billion pounds, through expansion into fast-growing developing markets. Up to 2 billion pounds more could come from retail banking, with corporate banking and wealth management contributing up to 1 billion pounds apiece.
By cutting costs and raising revenues, Diamond hopes to boost returns to investors, who are no doubt disappointed by the 17% drop in Barclays' share price over the past 12 months. Shares slipped again this week in a market shaken by the anti-austerity riots in Athens.
Flies in the ointment
It's all very well that Diamond is making big, bold plans, but there are plenty of bumps in the road ahead for banks. For instance, the Vickers Commission has proposed breaking up banks into legally separate retail and investment-banking entities.
A further slump in U.K. house prices could also lead to more loan write-offs, putting Barclays' capital ratios under strain. Likewise, continued economic weakness in the eurozone periphery -- Greece, Ireland, Portugal, and Spain -- could mean larger losses for Barclays' already-troubled European business.
Another problem for British banks is the absolute certainty of rising interest rates. With the Bank of England's base rate stuck at 0.5% since March 2009, the only way is up. Were the base rate to rise to, say, 2.5% over the next two years, this figure would cut into banks' net interest margins, making lending less profitable.
Golden years gone
As for investors, one thing is clear: With higher capital requirements and the end of light-touch regulation, Barclays' owners can only dream about the 18% return on capital it averaged in the 30 years before the financial meltdown of 2007-09!
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