Barclays shares under pressure despite profits leap

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Barclays today reported a leap in first quarter profits to £1.82 billion, but shares came under pressure amid fears of a slowdown at its star investment banking arm.

The banking giant said a marked decline in bad debts and improving financial markets helped it notch up the first quarter haul - which was 47% ahead of a year earlier and up 90% on an underlying basis.

However, worries over a lower-than-expected performance at the Barclays Capital investment banking business overshadowed the profits news.

While BarCap - headed by Barclays president Bob Diamond - saw profits rise by nearly two thirds, income was down year-on-year as it came up against tough comparatives from early 2009 when markets began to recover sharply.

The division accounted for about 80% of first quarter profits, and concerns of a slowdown sent shares down by 6%.

Barclays was also under fire over pay and bonuses at its annual shareholder meeting in London.

The bank disclosed it has set aside about £1.4 billion in pay and benefits to staff within its investment banking unit in the first quarter - at about 38% to 39% of income, in line with 2009 levels.

Pay packages for top bosses at Barclays have likewise come under scrutiny, with shareholder advisory body Pirc recently warning that rewards on offer to senior executives were "potentially excessive".

Investor Robert Muriel criticised Barclays at today's AGM, saying the bank had only acted on pay since the public furore over bank salaries erupted.

He said: "We finished up with Mr Diamond getting £27 million in 2007. He may not be getting the same sort of pay now, but he's hardly suffering."

Barclays stressed that money set aside for its investment banking team would only be confirmed after the year-end.

Barclays chairman Marcus Agius added that pay should be "competitive, but no more", adding: "We must as an industry admit our mistakes and show contrition."

Today's first quarter profits followed a 35% year-on-year fall in bad debts at the bank to £1.51 billion thanks to more stable markets and with borrowers struggling less.

Pre-tax profits at its UK retail arm rose 20% to £238 million, although this included a £71 million boost from its acquisition of Standard Life Bank, completed earlier this year.

Retail banking income continues to be hit, down 3% as margins suffer due to continuing record low interest rates in the UK.

But it said charges for debts turned sour decreased year-on-year in the UK, with the number of borrowers also falling behind on their mortgage repayments stabilising further.

John Varley, chief executive of Barclays, said: "The improvement that we have seen in impairment reflects the signs of economic recovery now evident in many of the markets in which we operate."

Its performance was driven higher once again by its Barclays Capital business, which reported a 62% surge in profits to £1.5 billion.

Bad debt charges plunged by 75% in BarCap thanks to better equity market conditions.

But banking analyst Nic Clarke at Charles Stanley said he had "always been worried that BarCap would disappoint" after last year's much-heralded performance.

"The investment banking division is so key to the performance of the group that despite growing profits by 62%, the fact that more was expected from BarCap will put downward pressure on the share price," he added.

The bank has likewise faced pressure over its exposure to debt-laden Greece as analysts have feared fall-out in the banking sector. But Barclays sought to assure exposure would be "minimal".

It said it only had a small retail and wholesale banking operation in the country, while exposure to government bonds was less than £200 million.

Shareholders were largely supportive of Barclays at its AGM today and gave the board a round of applause for its performance through the credit crunch and recession.

Investor Philip Matthews asked how the board was going to fend off the "threat" posed by Vince Cable, the Liberal Democrat Treasury spokesman, who is pushing for a break up of big banks.

Mr Agius refused to be drawn on specific party commitments, but said there was "a great deal of electioneering going on".

"We think there is a great deal of strength in our business model," he added.

The bank defended Mr Diamond's controversial pay package, which has attracted increasing criticism after it emerged he could bag another £6 million if the bank hits targets over the next three years.

Pirc recently highlighted concerns over his long-term incentive targets in particular, saying the performance measures for elements of the scheme were "insufficiently stretching".

Sir Richard Broadbent, deputy chairman and head of the bank's remuneration committee, said: "This is a forward looking incentive scheme and the value of any payout will be wholly dependent on meeting stringent performance targets. No performance, no pay."

Barclays also took the opportunity to stress that planned regulatory changes must not damage the industry.

Mr Agius said it was vital for reforms to be "carefully managed in order to avoid damaging economic recovery and generating other unintended consequences that could threaten future stability".

Barclays added later that investors representing 93.7% of shares voted at the meeting - 6.98 billion - had supported its remuneration report.

The bank added that 6.4% or 467 million votes were opposed, with investors representing a further 128 million shares abstaining.