Barclays corporate bank needs five years to meet RoE target

Barclays will take another five years to reach its corporate bank's return on equity (RoE) target as bad loans in Spain drag on its performance, according to head of the unit John Winter.

The bank is working to achieve a RoE above its cost of equity, which is 11.5%, by 2015.

However, Winter said the corporate bank is only expected to recover to 8.0% by then and improve by 1.5-2 percentage points a year thereafter.

"No-one's high-fiving each other over 8.0% RoE. But there's a great business here struggling to get out," Winter told Reuters.

Barclays Corporate, which provides services to businesses and financial institutions, has lost £2.1bn on bad loans in Spain in the past three years.

The unit contributes 10% of group revenue but its RoE has been below the bank's cost of equity for years. Last year RoE was just 2.9%.

RoE is a key measure of profitability. It is meant to be at least equal to the cost of equity, the return a bank pays to investors to compensate them for the risk they are taking.

Winter has been trying to turn the unit around since taking charge in 2009 and is shrinking the business in Spain to focus on clients with cross-border needs.

He said the bank had sold two parcels of Spanish loans at a significant discount. But instead of selling further loans at heavily slashed prices, the unit will try to regain value over the longer term, Winter added.

RD