Its investment arm – Barclays Capital – performed the worst. Earnings fell by 32%, falling to £2.97bn in 2011, compared to £4.34bn in 2010. Income fell by almost a fifth to £1.82bn between the last three months of 2011 and the previous quarter. This dragged overall profits down to £5.88bn in 2011 – a fall of 3% on the year before.
All of which means Barclays will now miss its target next year of 13% return on equity. 'Diamond Geezer' Bob Diamond set the optimistic target for 2013 shortly after becoming chief executive last year. But he admitted today that it would likely fall short after the challenging economic environment heightened by the eurozone crisis and tougher regulation on banking activity squeezed profits. You don't say. Return on equity at Barclays Capital dropped to 10.4% last year from 13.5% the year before.
Following such a drop in earnings, something has to give. The group’s total bonus pool has been diminished by a quarter, falling to £2.2bn, and the investment banking division’s bonus pot has fallen 32% to £1.5bn. This means the average bonus for staff at Barclays Capital is £64,000. But Diamond is remaining tight-lipped about his own bonus, despite speculation that he could receive up to £11m for the year.
Recent events will put Diamond’s bonus even more in the spotlight when it is announced. Lloyds boss Antonio Horta-Osorio waived his own payout last month following a leave of absence. RBS boss Stephen Hester also recently turned down his £963,000 bonus after a wave of criticism from the public and the government, considering the bank is 83%-owned by the UK taxpayer.
On the other hand, although Diamond’s payout may look out of step with the bosses of other banks, Barclays won’t face the same level of controversy. The bank didn’t need a bailout from the UK taxpayer during the financial crisis, unlike RBS and Lloyds. Barclays also says it has exceeded the amount it has lent to small businesses under the Project Merlin agreement. The government maintains it is Barclays’ decision what it pays its staff, although Labour leader Ed Miliband argues that all banks indirectly benefited from the taxpayer. He said taxpayers had underwritten the entire financial system and would now be expected to rescue unstable institutions.
Either way, Diamond’s expected generous pay packet is sure to re-ignite the debate around the bonus culture of banks. Yawn...