British bank Barclays is set to miss a key profit target after its investment bank ended last year with its worst quarter for three years.
A slump in bond trading income as a result of the eurozone debt crisis dragged down annual profit, prompting Barklays Chief Executive Bob Diamond to push back a return on equity (ROE) target of 13 percent he set less than a year ago.
“The idea of 13 percent is pie in the sky, and even getting to 10 percent is a long way away,” said Alex Potter, analyst at Berenberg Bank. Return on equity is a measure of profitability.
Rivals including Credit Suisse, UBS and Deutsche Bank all struggled to maintain profitability in their investment banks last year, hit by volatile trading and tougher regulations.
Diamond did not abandon his ROE target, but said: “Thirteen percent remains absolutely the right target and it’s very achievable, but we may not achieve it in 2013 given the impact of the external environment.”
The bank’s ROE of 5.8 percent last year, from 7.2 percent in 2010, was “unacceptable,” he said.
Barclays said it had cut bonuses at investment banking division Barclays Capital (BarCap) by 32 percent from the year before, and incentive awards across the group were down 26 percent.
BarCap’s bonus pool was ￡1.5 billion (US$2.4 billion), or an average of ￡64,000 across its 24,000 staff. Across the group the average bonus was ￡15,200.
Barclays is the first of the big British banks to report results and has come under pressure to rein in pay for bankers, and for Diamond,
Diamond, who became chief executive a year ago after a decade building up BarCap, has for years been one of Europe’s best paid bank executives and has faced calls to forgo his bonus.
Barclays, Britain’s fourth-biggest bank by market value, reported a pretax profit of ￡5.9 billion for last year, down 3 percent on the year and below analysts’ forecasts of 6.1 billion, according to a company poll.
Barclays shares fell in early trading, but bounced back and were up 3 percent at ￡2.40, after hitting their highest level since July.
Dealers said a weak performance in investment banking had been expected and investors were encouraged by decent performance in retail banking and a one-third fall in bad loans to ￡3.8 billion.
The bank also promised a final dividend of ￡0.03, more than expected.
Income at BarCap fell to ￡1.8 billion in the fourth quarter, down 19 percent on the previous quarter and almost half of its level a year ago. Income for the year was ￡10.3 billion, down almost a quarter on 2010.
A slump in bond trading and advisory work hammered all banks late last year, and BarCap fared worse than some US rivals but not as badly as Credit Suisse.
“The fourth quarter was certainly tough and all the second half was difficult, but we see that as an anomaly,” BarCap co-chief executive Rich Ricci said.
Ricci said he was still targeting annual BarCap income of ￡12 billion to ￡14 billion and an ROE for the division of 15 percent. “We’re not backing away from that,” he said.
BarCap’s fixed income, currency and commodities income in the fourth quarter fell 32 percent from the previous quarter, its equities income fell 10 percent and advisory income was up 30 percent.
The bank said it would cap the cash bonus for BarCap staff at ￡65,000 this year.
Total staff costs fell 4 percent to ￡11.4 billion from a year earlier, or an average of ￡73,800 per employee. The bank cut 6,400 jobs during the year.