Barclays has announced a 32% rise in pre-tax profits to £6.1bn in 2010. It was due to a similar-sized fall in bad loans and a solid performance from its investment banking division, Barclays Capital (BarCap), which accounts for around 80% of profits. Chief executive Bob Diamond said he wanted almost to double the group's return on equity a key gauge of profitability in the next three years by closing underperforming businesses and cutting costs by £1bn. Barclays took a £532m impairment charge related to its Protium fund. That was set up to hive off toxic debt assets.
The results were overshadowed by another row about bonuses. Barclays said its bonus pool for the whole bank fell by 7% in 2010. But average pay per person rose across the group, climbing by a fifth at Barclays Capital (BarCap). This takes into account salaries, pension arrangements and payments deferred from previous years.
What the commentators said
Delve beneath the headline pay figures and a murkier picture emerges. As Megan Murphy noted in the FT, last year Barclays said its bonus pot for BarCap in 2009 was £2.2bn. That figure has been revised upwards to £2.9bn since then. So the 2010 bonus pool of £2.6bn looks smaller by comparison. Throw in deferred payments and higher salaries, and the upshot is the proportion of pay set aside for compensation at BarCap rose from 33% to 43%. Strip away the "smoke and mirrors", said Ruth Sunderland in the Daily Mail, and consider that bonuses should reflect long-term returns to shareholders. But with the shares at 1999 levels, and the dividend nine times smaller now, "clearly, they do no such thing".
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"Never mind the government's calls for restraint, Diamond should be wielding the axe himself," said Nils Pratley. BarCap is just spending too much on pay. Another potential obstacle to Diamond's plan to boost profitability is the totally unpredictable cost of new regulations. A greater separation of retail and investment banking is a key danger.
The surprise charge taken on the Protium fund a deal involving a loan now being unwound because regulators changed capital requirements "reinforces concerns Barclays has delayed recognising losses on other assets", said Simon Nixon in The Wall Street Journal. Diamond is being very ambitious, said Pratley, "but a dose of scepticism is in order".
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