Barclays rowed back from an ambitious profit target for next year and introduced a cap on the amount of cash it pays its bankers as the U.K. bank grapples with an increasingly difficult economic environment.
Bob Diamond, its chief executive, admitted the bank would not meet its goal of delivering a 13 per cent return on equity - a key measure of profitability - in 2013 as the worsening economy and tougher regulation held back its performance.
He set the target a year ago, shortly after taking over at the head of the bank.
Announcing a 3 per cent drop in pre-tax profits for last year, Barclays said its return on equity was 6.6 per cent in 2011, down from 6.8 per cent a year earlier and half its stated 2013 goal.
“Since setting the target, the worse than expected macroeconomic conditions, in addition to new regulatory constraints, mean that we may not be able to deliver 13 per cent returns by 2013,” said Mr. Diamond on Friday.
He described last year’s number as “unacceptable” and would not specify when the bank would hit the 13 per cent target, merely saying it would aim to do so “over time”.
The sharpest fall in pre-tax profit was at Barclays Capital, where earnings decreased by a third to £2.96-billion, from £4.4-billion in 2010. Return on equity at the investment banking division slipped from 13.5 per cent to 10.4 per cent last year.
Barclays capped cash bonuses at £65,000 for all its Barclays Capital employees and said the overall bonus pool at the division was down by a third to £1.5-billion.
“We need to balance being competitive and being responsive to the public mood,” said Mr. Diamond.
He would not comment about his own bonus, which could be as much as £3.4-million when it is awarded next month. However, Barclays did say that annual incentives for top executive directors were down 48 per cent in 2011 compared with 2010.
Total pay across the bank fell by 15 per cent. However, salaries rose 2 per cent in spite of a 6,000 fall in headcount.
Overall, pre-tax profit fell from £6.06-billion to £5.88-billion even though Barclays said it exceeded its cost saving targets for the year. The bank is now aiming to strip out £2-billion of expenses by 2013, double its previous target.
Analysts highlighted the weak revenues at BarCap as the biggest disappointment but Mr. Diamond identified two other weak spots - the corporate arm and European retail business.
“We are working on fixing corporate banking,” he said. “Returns went from negative to positive and were strong in the U.K. but there is more to fix in Europe.”
Barclays provided £15-billion of loans to small businesses, more than was demanded under the Merlin agreement with the government. However, Mr. Diamond was unable to say whether net lending to small businesses - which takes into account repayments - was up or down.
He expressed concern that business customers were hoarding cash and, more worryingly, funnelling it into longer-term investment products, rather than spending.
Total income at the bank increased 3 per cent to £32.3-billion. The bank’s shares rose 3 per cent to 240 pence in early trading on Friday.