Barclays Cuts Bonuses at Investment Bank

By Howard Mustoe and Gavin Finch - Feb 10, 2012 6:28 PM GMT+0700
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Pedestrians pass a Barclays Plc bank branch in London. Photographer: Simon Dawson/Bloomberg

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Feb. 10 (Bloomberg) -- Simon Denham, chief financial officer at London Capital Group Holdings Plc, discusses financial industry compensation and Barclays Plc's drop in full-year net income. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

Barclays Plc (BARC), the first of Britain’s biggest banks to report full-year earnings, cut bonuses at its investment banking unit by 32 percent after profit fell.

Net income for 2011 fell 16 percent to 3 billion pounds ($4.74 billion) from a year earlier, missing the 3.27 billion- pound median estimate of 11 analysts surveyed by Bloomberg. The bank raised its full-year dividend by 9 percent and said its investment banking unit made an “encouraging start” to the year. The shares climbed as much as 5.1 percent.

The lender today set a 65,000-pound limit on cash bonuses and cut remuneration for its top executives by almost half. The bank may still miss the 13 percent profitability target Chief Executive Officer Robert Diamond set a year ago. Return on equity fell to an “unacceptable” 6.6 percent in 2011, he said today. Barclays was the last British consumer bank to have kept its profitability target as Europe’s debt crisis and tougher regulation eroded investment-banking earnings.

“Diamond will have to once again lay out a road map on how he can improve returns,” said Christopher Wheeler, a London- based analyst at Mediobanca SpA who has an “outperform” rating on the stock. “Very encouragingly” the bank increased the dividend, he said.

Shares Gain

Barclays gained 3.8 percent at 241.95 pence as of 11:01 a.m. in London trading, for a market value of about 29.5 billion pounds. The bank increased its dividend to 6 pence a share. The company has declined 26 percent in the past year in London trading, compared with a 27 percent drop in the 43-member Bloomberg European Banks and Financial Services index at yesterday’s close.

“People were fearful initially on the suggestion they won’t get to the 13 percent return,” said Colin McLean, who helps manage at SVM Asset Management Ltd who oversees about 700 million pounds of assets. “They will get there eventually.”

The London-based lender today also raised its cost-cutting target for next year to 2 billion pounds to bolster profit.

Lloyds Banking Group Plc (LLOY) said in November it may not meet some of its medium-term financial targets until beyond 2014. HSBC Holdings Plc (HSBA) has said it will meet only the “softer end” of its 12 percent to 15 percent ROE target. Diamond said he isn’t cutting or abandoning his own probability target.

“The target remains 13 percent,” Diamond told reporters on a call today. “Because of some of the external headwinds, we can’t be as convinced that 2013 will be the year.”

Equities Tumbled

Pretax profit at Barclays Capital, the investment banking arm led by Rich Ricci and Jerry Del Missier, fell 32 percent to 2.97 billion pounds in 2011, the lender said in a statement. Revenue from fixed-income, currencies and commodities trading, which accounts for more than half the unit’s income, slid 52 percent in the fourth quarter. Revenue from equities tumbled 51 percent and investment banking declined 30 percent.

Total revenue at Barclays Capital in the fourth quarter declined 48 percent to 1.82 billion pounds. UBS AG, Switzerland’s biggest bank, this month said investment banking revenue dropped 36 percent to 1.8 billion francs ($2 billion). Credit Suisse Group AG yesterday said revenue at its securities unit fell 64 percent.

“Bob’s track record is unrivaled, but today is not his finest hour,” Ian Gordon, an analyst at Investec Bank Plc, said in a note to investors. Barclays Capital’s revenue was “very weak,” he wrote.

Barclays Capital set aside 47 percent of its income for remuneration in 2011, up from 43 percent for the previous year. The unit reduced its 2011 bonus pool by 32 percent to 1.54 billion pounds and capped cash bonuses at 65,000 pounds.

Public Mood

The cash cap was “the right thing to do” because banks need to be “responsive to the public mood,” Diamond, 60, told reporters.

Annual pay for executive directors and the eight highest- paid senior executives will decline by 48 percent on the previous year, Barclays said today

Diamond declined to comment on his bonus this year after receiving a 6.5 million-pound award last year.

Goldman Sachs Group Inc. (GS) said last month profit fell 58 percent to $1.01 billion in the fourth quarter, while Deutsche Bank AG, Germany’s largest lender, said last week profit fell 76 percent as Europe’s debt crisis curbed trading and the company wrote down holdings.

Pretax profit from Barclays’s U.K. consumer division climbed 3 percent to 1.02 billion pounds. Losses as the corporate banking unit shrank by 89 percent to 70 million pounds. The company provided 43.6 billion pounds of gross new lending to British companies and exceeded its so-called Project Merlin lending targets agreed with the government last year.

The bank’s European consumer and business banking unit’s loss widened to 661 million pounds, from 139 million pounds as it took a 427 million-pound goodwill impairment.

“We need to fix Europe,” Diamond said.

Barclays’s credit and bad-loan charges decreased to 3.8 billion pounds, from 5.67 billion pounds. It also wrote down its stake in BlackRock Inc. by 1.8 billion pounds and took a 1 billion-pound charge to compensate customers who were sold payment protection insurance.

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net