LONDON, January 15, 2026 2:27 am — City lenders are bracing for heightened scrutiny of their artificial intelligence ambitions as they prepare to report 2025 financial results, with investors looking beyond traditional balance sheets for evidence of digital progress.
AI Scrutiny Looms for City Banks
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Shareholders will be assessing whether banks are truly capitalizing on AI’s potential, particularly regarding efficiency gains and future expense management.
- Banks are under pressure to demonstrate a clear financial return on their AI investments.
- Earnings season, beginning February 10 with Barclays, will be a key test of investor confidence.
- Legacy code modernization is a common theme among financial institutions embracing AI.
- Concerns remain about potential job displacement due to AI implementation.
“This may be the year the market makes up its mind that banks are likely to be significant beneficiaries of AI, particularly as relates to forward efficiency,” analysts at UBS said. They added that banks would be “pressed hard this year” to share a “coherent financial story for AI implementation: what is being spent now and what it means for the future shape of expenses overall and headcount in particular.”
Barclays will kick off earnings season on February 10, followed by Natwest, Lloyds and HSBC.
The FTSE 100 titan has been actively dismantling and revitalizing its core infrastructure through the adoption of new technologies, including a significant overhaul of its legacy code.
Barclays has been transforming decades-old code into modern, cloud-based platforms, enhancing the agility of its previously rigid systems. This move reflects a broader trend among financial services giants seeking to shed outdated infrastructure.
Globant – a technology partner to leading banks – showcased a case study last year where agentic AI was used to transform a 40-year-old system. The AI translated 11,600 lines of rigid code into a more streamlined foundation of 5,000 lines. This process, completed in just 105 hours, slashed development time by over 80 percent compared to manual efforts.
Agentic AI Adoption Gains Momentum
Lloyds is also pushing forward with AI, planning to launch the “UK’s first large-scale, multi-feature agentic AI powered financial assistant” in early 2026. The bank has heavily invested in AI training, even sending its top executives to an AI bootcamp at Cambridge University.
“AI is a game-changer for financial services, and we’re investing to enhance our services with cutting-edge technology,” said Ron van Kemenade, Lloyds’ group chief operating officer.
Natwest, Lloyds, and HSBC all feature among the top 20 companies on the Evident AI index, a global benchmark for AI integration within the banking sector.
Despite the optimism, the rise of AI also presents challenges. The push for modernization could put approximately 27,000 UK banking jobs at risk, representing ten percent of the sector’s workforce, according to Juniper Research.
Banks also face the risk of being caught up in concerns surrounding a potential AI bubble, fueled by a surge in tech partnerships over the past year.
Tech Partnerships on the Rise
Barclays has partnered with Microsoft AI to deploy AI tools to 100,000 bankers, while Natwest has secured an agreement with OpenAI and HSBC has teamed up with French tech firm Mistral.
Concerns about an AI bubble have been voiced by figures like Jamie Dimon, the head of JP Morgan, but AI stocks have largely defied these fears, driving Wall Street to record highs. Last week, the S&P 500 reached a record close of 6,966.28p, led by gains in Broadcom and other chipmakers.
However, this rally faltered when banking stocks declined, with JP Morgan falling four percent and Goldman Sachs dropping one percent amid concerns over potential credit card restrictions.
In London, banking stocks have performed strongly despite broader market headwinds, with the FTSE 350 banks index outperforming the wider blue-chips, delivering a near 50 percent return.
“At this stage investors are unsure as to whether they should invest in the AI leaders or the banks with the most to gain,” UBS analysts said.
Despite the focus on AI equities, London-listed banks outperformed tech darlings in 2025. An exchange-traded fund tracking the Magnificent 7 – Alphabet, Apple, Amazon, Meta, Microsoft, Nvidia, and Tesla – has yielded a year-to-date return of nearly 20 percent, significantly lower than the FTSE 350 banks.
Lloyds, one of the City’s top-performing stocks, surpassed the returns of all Magnificent 7 companies, achieving a gain of over 70 percent. Only Alphabet, with a gain of around 67 percent, exceeded the performance of Barclays, Natwest, and HSBC.
