George Kerevan: Is a £1 bonus for every £2 earned a good deal?

By GEORGE KEREVAN
Published on Saturday 11 February 2012 00:00

WHAT is the answer to the £64,000 question? Correct: be an investment banker at Barclays. The entire 24,000 staff at Barclays Capital, the bank’s investment unit, are to receive a bonus averaging £64,000.

Barclays is the first big UK bank to report its 2011 results. The good news is it registered only a modest 3 per cent fall in profits (to £5.9 billion) despite the euro crisis.

The bad news is that City expectations had been higher and the bank will miss its 13 per cent target for return on equity.

Which may explain why Barclays increased its dividend to 6p rather than use the money to build its capital base ahead of Basel III. Nothing like getting your retaliation in early.

What went wrong? Income at Barclays Capital fell to £1.8bn in Q4, down a fifth on the third quarter. Clearly that was the result of the crisis in the eurozone. Other banks also suffered and some, such as Credit Suisse, fared worse. But Barclays can’t blame the euro entirely.

First, its cost-cutting programme is generally deemed to be weak, despite culling 6,000 staff roles last year. As a result, the bank’s new chief executive, Bob Diamond, is doubling the projected savings, to £2bn by next year.

And bad debts, while down, remain troubling at £3.8bn.

Barclays escaped having to ask the Treasury for a bail-out in the bad old days of 2008.

This has made the bank a trifle complacent.

But it only escaped disaster because rival Royal Bank of Scotland won the race to buy the poison pill (as it turned out) of ABN Ambro.

Diamond, who was promoted a year ago, will doubtless argue that Barclays had a particularly bad last quarter – its worst for three years – but that this is likely to prove a one-off. Indeed, he paints a very positive picture for 2012, though he is talking down his target for equity return.

There is evidence the economic outlook is brightening. UK manufacturing output rose in December and service output was up sharply in January, suggesting we may avoid a double-dip recession. Thursday’s announcement by the Bank of England of a £50bn addition to its quantitative easing programme (aka printing money) was actually less than expected, another indication things are – just – on the turn. If so, it might buy Diamond the time he needs to complete his overhaul of the bank.

Shares edged up after Barclays reported, probably more out of relief than excitement. Diamond has been very careful to cut the bonus package for his investment arm. But the annual profits at Barclays Capital are down to £2.96bn while the total bonus pool is still £1.54bn.

I can’t understand why shareholders would think that giving traders a £1 bonus for every £2 profit they earn is a good deal.

Greece could be a tale of two currencies

THE game of who blinks first over the Greek budget got more exciting this week. On Thursday, eurozone finance ministers not only rejected Athens’ latest offer of cuts required to secure a bail-out, but demanded a Greek parliamentary vote tomorrow before signing the cheque.

The EU thinks Greek politicians will say anything to get the cash, but not deliver on the cuts. As pithily summed up by Jean-Claude Juncker, Luxembourg’s prime minister: “No disbursement before implementation.”

That’s difficult to deliver when you are facing a general strike this week and an election in April in which angry voters will kick out anyone supporting more austerity. Little wonder that Fitch yesterday reiterated its view that Greece will default.

The country is caught in a vicious circle of cuts begetting recession, begetting further borrowing, making the need for austerity even greater. The new government of technocrats is offering cuts and tax rises worth €13bn (£11bn), double the previous figure.

As a quid pro quo, Athens wants the European Central Bank (ECB) to forego returns on its Greek eurobond holdings. To do so would effectively mean the ECB providing cash to a eurozone member, which Germany opposes.

Both sides need to blink otherwise Greece will have to quit the euro. My halfway house: Greece reintroduces the drachma as a non-convertible domestic currency to cut wage costs and boost growth, but keeps the euro for trade and debt management.

Logged in as:

Comment here. Start typing your comment here:

Post comment

Please adhere to our Community guidelines

Your view

Please sign in to be able to comment on this story.