Barclays Chairman Defends Bonuses as Profit Is Seen Declining

Apr 24, 2014 7:28 am ET

April 24 (Bloomberg) -- Barclays Plc Chairman David Walker defended bonuses paid to investment bankers, saying the U.K.’s second-largest lender by assets needed to retain talent last year as U.S. competitors stepped up pay.

“We saw significantly higher numbers of high quality people we wanted to recruit turning down our offers,” Walker said at the bank’s annual general meeting today in London. “We were losing people who were crucial to the future of the investment bank in an extremely competitive environment.”

The bank said earlier today that it will post a “small reduction” in first-quarter pretax profit as revenue at its investment bank’s fixed-income unit declines. Barclays, which is based in London, drew criticism from investors when it simultaneously announced a larger bonus pool and tumbling fourth-quarter profit in February.

“Bonuses up, profits down. Not a headline we would have chosen,” Walker said. He said penalties related to fines the bank paid for rigging benchmark interest rates two years ago “distorted” the comparison between 2012 and 2013 bonus levels.

Barclays, which will outline a review of its securities unit next month, said this week that it was withdrawing from most commodities activities as Chief Executive Officer Antony Jenkins tries to restore investor confidence.

Cost Cuts

“Capital and our investment will be deployed where we want to grow,” Jenkins, 52, who replaced Robert Diamond as CEO in 2012, said at the AGM. Cost-cutting plans are “starting to provide a material benefit across all businesses.”

The shares rose 1.1 percent to 251.7 pence at 11:57 a.m. in London, reducing their decline this year to 7.5 percent.

“Our fixed income, credit and commodities business continued to face many of the challenges seen in the second half of 2013 with a significant year-on-year reduction in FICC income, reflecting difficult market conditions,” Jenkins said in a statement. Barclays said its equities and investment- banking business, which houses its advisory arm, performed broadly in line with last year.

“No news is good news, and we do not expect any meaningful incremental charges for litigation or conduct issues,” Ian Gordon, an analyst at Investec Plc who has a buy rating on Barclays, said in an e-mailed note. “Today’s trading update is more detailed than expected and appears to be a shade ahead of our expectations.”

‘Franchise Protection’

The bank could eliminate 7,500 jobs at its investment bank to improve returns, according to a report by Sanford C. Bernstein analysts on April 22. The European FICC unit may be the hardest hit, with about 5,000 job losses, analysts led by Chirantan Barua said in the note. Cuts of 6,500 to 7,500 equate to between 25 percent and 30 percent of the unit’s employees, the report estimated.

Barclays has been encouraged to shut some investment-bank activities after FICC revenue fell 17 percent to 5.54 billion pounds ($9.3 billion) in 2013. FICC is traditionally the largest portion of revenue for the investment bank.

The bank had moved to appease investor anger over pay levels by replacing John Sunderland as director responsible for employee compensation this month before the AGM. Crawford Gillies, a director of Standard Life Plc, joins the bank’s compensation committee on May 1 and becomes chairman to oversee pay at a date to be agreed, Barclays has said.

Walker said today that Sunderland had “overwhelming support” from investors, citing proxy votes lodged so far.

On bonuses, “the challenge was the need for damage limitation and franchise protection,” Walker said, citing pay increases of 15 percent or more at parts of the major U.S. investment banks.

Shareholders voting against the bank’s pay report today included Standard Life Investments, which holds about 1.9 percent of Barclays’s shares.

“We are unconvinced that the amount of the 2013 bonus pool was in the best interests of shareholders,” Alison Kennedy, governance and stewardship director at Standard Life, said in a statement. “This decision has had negative repercussions on the bank’s reputation.”