Big Barclays investment profits create a dilemma

Published on Sunday 8 November 2009 19:03

BARCLAYS is set to unveil bumper investment banking profits this week, triggering a tightrope-walk by chief executive John Varley on bonuses.

The bank's board knows that the strong performance will provide ammunition for giving big bonuses to its investment banking "rainmakers".

But in the wake of the government clampdown last week on remuneration at partly state-controlled Royal Bank of Scotland and Lloyds Banking Group, it is thought Barclays will also unveil some bonus conditions that take into account the fevered climate on the issue.

Industry sources say the result is most likely to be a hybrid mixture of reward-and-conservatism on bonuses when the bank's third-quarter management statement comes out on Tuesday.

One source said: "Barclays has always said that bonuses are related to performance. If, as expected, its investment banking arm did well in Q3, then you should deduce that will be reflected in payments.

"But the bank will also be keen to show it is not deaf and blind to the public uproar. Barclays has publicly signed up to what the G20 meeting and the Financial Services Authority have said on the issue."

The government took a hard line on bonuses last week as part of the further bail-out of RBS and Lloyds.

Under the deal, staff paid more than 39,000 at those banks will receive no discretionary cash bonus for 2009, while executive directors will have their bonuses, paid largely in shares, deferred until 2012.

RBS chief executive Stephen Hester said at the Royal's Q3 results last Friday that it was increasingly "walking a tight-rope" between attracting good staff and reforming the bonus system.