Barclays set aside a £1.7bn bonus pool for its staff in the first half of the year as profits surged to £3.9bn. The bonus pool will be benefit 150,000 staff, but the lion's share will go to Bob Diamond's investment bankers at Barclays Capital.
The profit figure was up 44 per cent on the same period last year, although it was flattered by accounting technicalities. And the lion's share of it was generated by Bar Cap, which tripled earnings to £3.4bn.
Even after stripping accounting quirks out, Barclays overall underlying profits were up 22 per cent to £2.9bn. The bank pointed out that this year's bonus pool looks bigger than usual because deferred money from last year is included in it – under new rules formulated by the Financial Services Authority, large parts of bankers' bonuses have to be held back and paid out as shares over several years.
If the bonus figure were compared with last year on a like-for-like basis, it would be £1.4bn. "That's up 18 per cent when underlying profits are up 22 per cent," a spokesman said. However, the compensation ratio – the amount bankers are paid as a percentage of income – grew to 42 per cent when accounting quirks are stripped out, against 38 per cent last time although Barclays Capital has been on a hiring spree as it continues to expand its reach, which distorts that figure.
Critics have, nonetheless, called for banks like Barclays to be split up into retail and investment banks. An independent commission under the former head of the Office of Fair Trading, Sir John Vickers, has been set up by the Government to examine the issue. Some have suggested that Bob Diamond, who has reacted angrily to criticism of his division's remuneration policy in the past, might actually welcome such a move.
John Varley, the chief executive, did not comment on whether Barclays has made contingency plans for such an event. "We want to be a contributor to the debate," he said. However, he defended Barclays' "universal banking" model, which incorporates a corporate, investment and retail bank. "As the needs of our customers and clients have globalised so have we to serve those needs. Are universal banks more subject to failure? The reverse is true. Banks that needed surgery or had to be rescued were narrow banks. By converting broad banks into narrow banks we will make the system less safe." He added: "Those who say there have not been any changes in the industry are ignoring the facts. I've seen some of the recent changes in Basle three [which is reforming banks' capital requirements] described as some sort of victory for the banks. I don't believe that at all."
Barclays' global retail bank made £900m of profits; the African division, Absa, made £440m, and the wealth management business £95m. The corporate banking division actually lost money. Mr Varley said Barclays had lent £18bn to businesses and homeowners in the first half.
The bank's strong performance was helped a great deal by the 32 per cent fall in the charge taken to cover bad loans to £3bn. However, that charge continued to rise in Spain, where the Barclays suffered a £553m loss on the country's struggling commercial property businesses. Barclays, unlike Lloyds and Royal Bank of Scotland, did not receive any direct state aid and so is not banned from paying dividends. A second interim pay out of 1p brings the total for the half to 2p. But despite the strong results the share finished down 15.85p at 324p.
The state-controlled Royal Bank of Scotland will be the last of the big banks to report today. Whatever it does they should collectively beat expectations of £12bn of profit between them.
Barclays sets aside nearly £200m for US sanctions-busting probe
Barclays yesterday set aside £194m to cover a huge potential fine arising from a US investigation into possible sanctions-busting as a result of dealings with restricted countries such as Iran.
The provision relates to a probe by the US Department of Justice on the possible violation of sanctions regulations and follows settlements by Lloyds and Switzerland's Credit Suisse. The US authorities have been investigating the banks' dealings with these countries for some time.
Barclays' chief executive John Varley said that it had made a declaration about possible costs arising from this for the last few years in its accounts. However, he said now was the correct time to make a financial provision. That means that the probe is probably reaching its endgame. The bank said it was in advanced negotiations with the US investigators and that it had set aside the provision "in the possible resolution of this matter".Reuse content