(Updates with shares at close in fifth paragraph.)
Feb. 11 (Bloomberg) -- Barclays Plc, the U.K.’s second- biggest bank by assets, will eliminate as many as 12,000 jobs this year, including more than 800 senior bankers, after fourth- quarter profit tumbled.
About 7,000 of the cuts will be in Britain, Chief Executive Officer Antony Jenkins told reporters on a conference call today. Adjusted pretax profit fell to 191 million pounds ($314 million) in the fourth quarter from 1.4 billion pounds in the year-earlier period, Barclays said.
The shares fell as Jenkins drew criticism for boosting the bonus pool amid a decline in investment-banking profit, which the CEO attributed to weak fixed-income markets across the industry. The pay plan overshadowed job cuts that are aimed at helping remove 1.7 billion pounds of costs by 2015 as the bank faces litigation, regulatory penalties and tougher rules on capital. Barclays is setting aside 2.4 billion pounds for 2013 bonuses, up from 2.17 billion pounds a year earlier.
“The big question for Barclays is whether its investment bank can earn a return on equity above its cost of capital,” said Christopher Wheeler, a London-based analyst with Mediobanca SpA who has an outperform rating on the stock. “Letting the compensation ratio run up was a bit of a howler, and the market has jumped on that. The costs were just so much higher than we were expecting.”
Barclays dropped 3.8 percent to 264.7 pence in London trading today. The bank has fallen 5 percent in the past 12 months, compared with a 8.6 percent gain by the FTSE 350 Banks Index.
Jenkins said today he’s confident of achieving his cost target even as expenses as a proportion of revenue rose to 71 percent in 2013 from 63 percent in the year-earlier period.
Incentive awards at the investment bank rose to 1.57 billion pounds, or about 60,100 pounds for each employee, from 1.39 billion pounds, or 54,500 pounds a person, Barclays said. Jenkins, who isn’t planning to take a bonus for last year, said in a second conference call that he had no control over market- led compensation and expects shareholders to support the banker pay plans.
The investment bank posted a pretax loss of 329 million pounds in the last three months of the year, compared with a profit of 760 million pounds in the year-earlier period.
Barclays will cut 220 managing directors and 600 director- level employees, Jenkins said. The reductions come after the lender eliminated 7,650 positions in 2013. The bank employed a total of 139,600 people at the end of last year.
The lender may need to shrink more quickly to compete with investment banks in the U.S., said Chirantan Barua, an analyst at Sanford C. Bernstein Ltd. in London.
“They structurally need to cut 15 to 20 percent of managing directors, straight off,” said Barua, who has a market perform rating on the stock. “The cost-cutting story from Barclays will get even more painful given the recovery of the U.S. broker-dealers.”
Jenkins is also under pressure to demonstrate the lender has changed its culture after the company was fined for manipulating benchmark interest rates. Barclays said today that managing directors’ performance has been assessed against whether they showed “the right values and behaviors.”
The company paid 859 million pounds in dividends to investors, or 6.5 pence a share.
“It cannot be right in any business for the executive bonus pool to be nearly three times bigger than the total dividend payout to the company’s owners,” Roger Barker, director of corporate governance at the Institute of Directors, said in an e-mailed statement, referring to awards across the bank. “The question must be asked –- for whom is this institution being run?”
Costs as a proportion of revenue “rose in 2013 mainly as a consequence of reduced income, but we remain committed to achieving a ratio in the mid-50s by 2015,” Barclays said.
Fixed-income, currencies and commodities revenue, or FICC, the single biggest source of income for Barclays’s investment bank, fell by 16 percent in the fourth quarter from the year- earlier period, while income from investment banking, which includes underwriting and mergers advisory, shrank 5 percent.
The five biggest U.S. investment banks saw their total FICC revenue fall 4.2 percent to $10.2 billion in the fourth quarter, data compiled by Bloomberg Industries show. Deutsche Bank AG’s investment banking and trading unit saw revenue slide 27 percent to 2.46 billion euros ($3.4 billion) in the fourth quarter.
Full-year pretax profit at Barclays’s investment bank slid 37 percent to 2.52 billion pounds from a year earlier. That missed the 2.99 billion-pound average analyst estimate compiled by the bank. Revenue fell 9 percent to 10.7 billion pounds.
Barclays yesterday reported a 26 percent drop in annual adjusted pretax profit to 5.2 billion pounds, missing the 5.4 billion-pound consensus analyst estimate compiled by the bank. Net income was 540 million pounds, compared with a loss of 624 million pounds the year earlier, as impairments shrank. Adjusted return on average shareholders’ equity, a measure of profitability, declined to 4.5 percent from 9 percent.
The bank said last month that it would take a 330 million- pound charge relating to penalties and lawsuits in the fourth quarter.
Barclays has separately said it’s in talks with regulators about a possible criminal leak of client account information. As many as 27,000 customer files containing personal and financial information were taken, the Mail on Sunday reported on Feb. 9, citing an unidentified whistle-blower. It’s unclear how the files were stolen, the newspaper said, adding data was sold to brokers to be used for “investment scams.”
Barclays’s core Tier 1 equity ratio under the latest rules set by the Basel Committee on Banking Supervision fell 30 basis points in the quarter to 9.3 percent. That was 30 basis points below the estimate of Jason Napier, an analyst at Deutsche Bank.
The lender’s capital as a percentage of assets, or leverage ratio, was 3 percent, ahead of its plan to reach the figure by June. The bank raised 5.8 billion pounds from shareholders in a rights offering in October.
The lender’s wealth and investment management business posted a 73 million-pound loss for the quarter, compared with a 105 million-pound adjusted pretax profit in the year-earlier period.
--Editors: Jon Menon, Keith Campbell