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Barclays nets £235m windfall from complex bonus scheme transaction
Investment banking profits pose problem for Barclays' new boss
(about 11 hours later)
Barclays made a £235m windfall gain on its bonus schemes last year, the bank revealed on Wednesday, as boss Antony Jenkins was forced to defend releasing the details of multimillion pound bonuses on the day of the budget.
The new boss of Barclays was on Wednesday forced to defend releasing details of multimillion pound bonuses on the day of the budget as he revealed the bank's continued reliance on investment banking.
As the embattled bank reported profits down 25% in the first quarter of 2013 because of the cost of its Project Transform restructuring programme, it also conceded that in the same period last year it had made £235m from a complex financial transaction it put in place as it awarded bonuses in shares to its 140,000 staff.
The casino banking division made £1.3bn of profits, out of a total of £1.8bn, which analysts said demonstrated the scale of Antony Jenkins' task in attempting to overhaul the culture of the bank in the wake of the Libor scandal.
Jenkins was promoted from running the retail bank following Bob Diamond's departure in July in the wake of the Libor rigging scandal. He said the bank would publish its formal response to the review by City lawyer Anthony Salz on Thursday during the bank's annual meeting, when it is hoping to avoid a re-run of last year's revolt over pay and bonuses. Almost one in three shareholders failed to support the bank's remuneration report last year in a row over bonuses for Diamond.
As he prepared to address shareholders at the bank's annual meeting on Thursday, one analyst said the results for the first quarter were ones of which the previous boss Bob Diamond "would be proud".
Salz made 34 recommendations for change at Barclays in his report earlier this month, which concluded that its bankers were engulfed in a culture of "edginess" and "winning at all costs" that damaged its reputation. Jenkins insisted the bank would respond to all of the points raised by Salz, who was commissioned by the bank for the report, which cost £17m.
Jenkins said the bank had not been intending to "bury bad news" by announcing on the day of the budget that £38.5m of bonuses had been released to nine top bankers. He was handed £5.3m in shares – even after waiving a bonuses for 2012 – while investment banking head Rich Ricci, whose retirement was announced last week, received £17.6m.
Jenkins was forced to insist the bank had not been intending to "bury bad news" by announcing on the day of the budget that £38.5m of bonuses had been released to nine top bankers. He was handed £5.3m in shares – even after waiving a bonuses for 2012 – while investment banking head Rich Ricci, whose retirement was announced last week, received £17.6m.
The £1.8bn of underlying profits was down from £2.4m a year ago, largely caused by the £514m of costs associated with the "transform" programme put in place Jenkins, which included axing 3,700 jobs in a bid to create a "go to" bank. A one-off £235m gain on its bonus schemes last year - achieved by using a complex financial instrument rather than by issuing shares directly to staff to pay bonuses - had flattered revenue a year ago, which were down 5% in the first quarter.
The bank was not trying to "hide or obfuscate" the bonus awards, he said, insisting the date for the release of the awards had been set before the Treasury announced the budget would be on 20 March.
The profits were released ahead of Thursday's annual meeting where the bank will respond to the review of the bank's culture by City lawyer Anthony Salz and aim to avoid a re-run of last year's revolt over pay and bonuses. Almost one in three shareholders failed to support the bank's remuneration report last year in a row over bonuses for Diamond.
In the first quarter of last year, the bank had not issued shares or bought shares in the market when it paid bonuses to staff but instead used a financial instrument that allowed it to make a gain of £235m from what it described as "hedges of employee share awards". This meant that income in the first quarter of 2013 was down 5% as this gain did not reoccur this year.
Salz made 34 recommendations for change at Barclays in his £17m report earlier this month, which concluded that its bankers were engulfed in a culture of "edginess" and "winning at all costs" that damaged its reputation.
Jenkins indicated that his management changes were complete following the departures of Ricci and head of wealth Tom Kalaris – both associated with the previous regime.
After attending a presentation about the results, Sandy Chen, analyst at Cenkos Securities, said there had been "less spin than we've heard roughly in a decade". But he added: "We are frankly sceptical that investment bankers will accept big cuts in their compensation, especially if their top-line revenues remain health...Wethink it would be difficult to convince the rest of group to thin their diets in order to feed the fat cats," said Chen.
The bank did not take additional provisions for mis-selling payment protection insurance or interest rates swaps as it announced a drop in adjusted pre-tax profits to £1.7bn – from £2.4m a year ago. The fall was largely caused by the £514m of costs associated with Jenkins's transformation programme, involving the axing of 3,700 jobs, scaling back the investment bank and overhaul of the culture.
"Ignore the excruciating references to Barclays as the 'Go-To' bank - these are results of which 'Sir' Bob would be proud," said Ian Gordon, analyst at Investec.
On a statutory basis, which includes the swings associated with being required to take account of the cost of buying back its own debt, profits were £1.5bn compared with a loss of £525m a year earlier.
On a statutory basis, which includes the swings associated with being required to take account of the cost of buying back its own debt, the profits were £1.5bn compared with a loss of £525m a year earlier.
The investment bank continued to dominate the results, making £1.3bn of profits – up 11% from a year ago – while losses in the European retail banking business widened to £462m from £72m.
Barclays's finance director, Chris Lucas, who is under investigation by regulators over disclosures of fundraisings from Middle East investors in 2008, said the bank was "well capitalised".
Impairments on bad loans fell by 10% to £706m while the bank is paying a 1p dividend.
Barclays's finance director, Chris Lucas, who is under investigation by regulators over disclosures of fundraisings from Middle East investors in 2008, said there was "close and continuous" dialogue with the regulators over whether the bank needed to take action to raise additional capital. The financial policy committee said last month that banks needed to find £25bn of additional capital, but did not disclose which ones.
