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Barclays will cut investment bank again if performance doesn't improve

Tuesday, March 3, 2015 - 23:58

[LONDON] Barclays Plc chief Antony Jenkins has threatened more cuts to its underperforming investment bank after a 750 million pounds (US$1.2 billion) charge by the British bank provided fresh evidence of the costs of past misdemeanors by its traders.

Barclays last year cut costs, improved its capital strength and shed unwanted assets, which Jenkins said justified his decision to accept his first bonus since taking charge three years ago - helping his pay for last year to more than treble to 5.5 million pounds.

But it continues to be dogged by past conduct problems and lacklustre returns in investment banking and Jenkins said on Tuesday he would take a knife once again to the investment bank arm if it does not improve its profitability.

"I'm not a very patient person and every business within the group has to deliver the RoE (return on equity) that we require of it," Mr Jenkins told reporters. "We won't hesitate to continue to optimise capital allocated to the investment bank, the cost base and revenues to generate those returns."

Barclays took a higher-than-expected 750 million pound charge in the fourth quarter as it prepares to settle allegations its traders manipulated foreign exchange markets.

For the year as a whole it reported an adjusted pretax profit of 5.5 billion pounds, up from a restated 4.9 billion in 2013 and above the average forecast of 5.3 billion.

Including charges, provisions and restructuring costs of 1.2 billion pounds, pretax profit fell 21 per cent to 2.3 billion.

Shares were down almost 3 per cent by 1420 GMT, the top fallers in a slightly weaker European banking sector.

Barclays increased its provision for potential forex fines and settlements to 1.25 billion pounds and Jenkins said behaviour had been "wholly unacceptable" and continued to cast a shadow on the bank.

Barclays pulled out of settling allegations its traders tried to rig foreign exchange benchmarks in a deal between US and UK authorities and six rival banks in November because it had not reached a deal with New York's regulator.

It said it wanted to settle the allegations with as many agencies as possible, as quickly as possible, but gave no further guidance on likely timing.

In addition to probes by Britain's Financial Services Authority, the US Commodity Futures Trading Commission and New York's Department of Financial Services, the US Department of Justice (DoJ) is in the final stages of its own inquiry.

The bank said the outcome of the FX probes could violate a non-prosecution agreement (NPA) it has with the DoJ, which started in 2012 when it was fined for rigging Libor rates and runs until the end of June. It means if the DoJ finds wrongdoing in FX activities it could come down harder on the bank.

Barclays is also being investigated by US and UK authorities on the circumstances around its 2008 fundraisings with investors in Qatar and the bank said another unidentified regulator is also looking at a third-party relationship related to that event.

Barclays also set aside an extra 200 million pounds in the fourth quarter to compensate British customers who were mis-sold insurance products.

Under Jenkins, Barclays has abandoned its ambition of being a Wall Street powerhouse, shrinking its investment bank in favour of a return to its retail roots.

The arrival of John McFarlane as chairman in April had raised expectations the downsizing of the investment bank could accelerate, after he sold dozens of units in a revamp at insurer Aviva.

"The big issue for me is the new chairman's agenda," said one top-15 shareholder. "These results are less significant than any change to long-term strategy, especially a decision on whether the company remains a universal bank."

Barclays said its investment bank had a good start to 2015 but 2014 was a year to forget, with pretax profit sliding a third. It cut 2,600 jobs from the business out of 7,000 it has said it will axe, or about a quarter of the unit's staff.

Returns in the investment bank were just 2.7 per cent last year, well short of its target of 12 per cent, although the bank said that was artificially low due to the impact of deferred pay from past years, conduct and legal costs and restructuring charges.

The bank's bonus pool dropped 22 per cent to 1.86 billion pounds last year.

Profit at Barclays' personal and corporate banking division, its main profit driver, rose 29 per cent, boosted by a drop in impairment charges.

REUTERS