Barclays chief defends bonuses while warning against banks crackdown

Published on Monday 3 August 2009 21:47

BARCLAYS warned yesterday that an over-zealous regulatory crackdown in the wake of the sector's near-collapse could "throttle" bank lending and economic recovery.

Chief executive John Varley, unveiling an 8 per cent rise in half-year pre-tax profits to 2.98 billion (2.75bn), also defended bonus payments as equivalent to football managers buying top talent to help deliver success.

Varley said he understood that in the wake of the "humbling" financial turbulence since 2007 both politicians and regulators felt under pressure to act.

"I willingly acknowledge there were excesses in risk, leverage (borrowing] and remuneration in banks. This industry got many things wrong and there's much to be sorry about."

But Varley added that the danger was of "throttling" economic recovery. "It could be possible to choke off by excessive zeal (on capital requirements] appropriate lending," he said.

Regarding bonuses, the Barclays boss said the industry had to be sensitive to what was being said on the subject, including Sir David Walker's recent report.

But Varley said that the bank had to assemble the best team to deliver returns to shareholders and also help the economy. That included "appropriate levels" of bonuses, he said.

"The football analogy goes some way. We must field the very best people. That's what a football manager has to do if they are going to win," Varley said.

Barclays said it had shown its commitment to supporting the UK by lending 17bn to households and businesses – broadly evenly split – in the six months to the end of June.

This already outstripped the 11bn target it previously set itself for the whole of 2009, and came despite a surge in bad debts as recession engulfed consumers and businesses. "We are not shy of doing business," Varley said.

Bad debts at the bank globally leapt 86 per cent to 4.56bn, with the bank saying City forecasts of between 9bn and 9.6bn impairment charges for the full year were reasonable.

Impairment charges in the UK soared to 1.6bn from 998 million a year ago.

"In some of our loans books, we've seen the rate of deterioration reducing and some signs of stabilisation," Varley said.

Barclays UK retail business, which last year made up a quarter of group earnings, reported a 61 per cent slump in profits to 268m from 690m in the tougher climate. Barclaycard profits rose 1 per cent to 391m.

The group's investment banking profits doubled to 1bn (524m), with about 40 per cent of BarCap's income now coming from the US following the Lehman Brothers acquisition last year.

The business benefited from volatility in the markets, the bank said, with particularly strong performances in areas such as interest rates and equities.

The fund management arm, Barclays Global Investors, in the process of being sold off to BlackRock in the US, but with the British bank retaining a 20 per cent stake, lifted profits 4 per cent to 276m.

Ian Gordon, banking analyst at broker Exane BNP, said the bank had soothed market concerns about its capital strength by reporting a higher than expected core tier one capital ratio of 8.8 per cent.

"The big positive is capital, which was 0.5 per cent above market expectations," Gordon said.

"This is a key issue given the apparent market consensus that Barclays is still weak on capital and I think this fairly powerfully disposes of that argument."