Barclays scraps directors' bonuses

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The Independent Online

Barclays scrapped bonuses for its top directors today and launched a group-wide pay review as it announced a 14 per cent fall in annual profits.

Chief executive John Varley said bank's executive directors would receive no bonuses this year, while payouts across the bank would be "significantly lower" than 2007.

Barclays posted better than expected profits of £6.1 billion for 2008 as the row over payouts by banks propped up by the taxpayer continued to rage.

Although Barclays has not used the Government's recapitalisation scheme - raising funds from the Middle East instead - it is likely to take part in other forms of public support to the struggling sector.

Chancellor Alistair Darling yesterday launched a review of the banking industry which will also look at payment practices.

And the Financial Services Authority added today that there was "widespread concern" that the bonus culture culminated in the current crisis.

Barclays said it was reviewing its compensation arrangements to ensure they "evolve appropriately".

"Our endeavour is to maximise the alignment between these and the interests of our owners, as well as to ensure that our compensation policies and practices are appropriately benchmarked to changing best practice in the industry," Mr Varley said.

Mr Varley said Barclays' overall payouts on salaries and bonuses had actually fallen 10 per cent to £6.27 billion last year despite the number of staff rising 20,000 to 155,000.

He would not be drawn on total bonus payouts paid by the bank, but said "performance-related" costs were down 48 per cent overall - driven by investment banking division Barclays Capital, where profits fell 44 per cent last year.

Mr Varley added there had been instances across the industry "where pay has not been reflective of risk-taking".

His comments came alongside dire predictions for the UK from the bank, which forecasts output will shrink by at least 2 per cent this year as the UK grapples with the "familiar but nonetheless pretty brutal" problems of recession.

"Whilst we are confident in the relative quality of our major books of assets, we also expect the recessionary environments in the UK, Spain, South Africa and the US to increase the loan loss rates on our loans and advances," the bank said.

Collins Stewart analyst Alex Potter said: "The outlook statement makes for grim reading, alluding to downturns and recessions."

Although Barclays expects an overall decrease in the gross £8.1 billion in writedowns it saw in 2008, it anticipates that impairments as a percentage of its loans could rise to between 1.3 per cent and 1.5 per cent.

Based on 2008's loans and advances of £510 billion, this could imply bad debt charges of more than £7 billion this year.

But 2008's overall results were helped by one-off gains such as a £2.3 billion boost on the acquisition of failed investment banking business Lehman Brothers. This pushed overall profits well ahead of the £5.3 billion expected by the market.

Barclays said it had made a good start to 2009 across the business but its shares have seen heavy turbulence as rumours swept the market that the firm could be forced to raise yet more funds.

This prompted it to take the unusual step of bringing forward today's results and publish an open letter from chairman Marcus Agius and Mr Varley in an attempt to reassure investors.

Mr Varley said today that the bank has a strong enough balance sheet to absorb "substantial losses". It is also skipping the final dividend payout to shareholders to conserve cash.

Barclays' shares saw double-digit gains following the results.

The bank revealed that profits at BarCap fell 44 per cent to £1.3 billion due to further punishment from US sub-prime and credit market exposures, which "significantly impacted" the division's performance.

But Barclaycard and the firm's retail banking operations both increased profits, by 31 per cent and 7 per cent respectively.

The retail arm grew loans to customers to £94.4 billion from £82 billion the previous year, although impairment charges were up 8 per cent, or £43 million, to £602 million.

It added 400,000 current accounts to 11.7 million, while savings accounts rose 900,000 to 12 million.

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