Barclays announces job cuts after PPI costs hit bottom line

BARCLAYS became the latest bank to slash jobs yesterday after announcing that compensation payments to customers mis-sold insurance products contributed to a sharp slump in profits.

Despite the setback, the American-born chief executive Bob Diamond claimed it had been an "encouraging performance, given the very difficult environment".

A total of 1,400 staff were axed in the first six months, half of them in its investment banking division, Barcap. Diamond would not break down the redundancies further, but confirmed the UK would take a hit.

The announcement followed rival HSBC announcing 30,000 jobs to go as banks suffer from weak business and consumer lending in much of the developed world.

Diamond cited the fact that small businesses with Barclays, with a typical turnover of about 5 million or less, increased their deposits by 41 per cent in the first six months of 2011, rather than take out loans.

"They are not asking us for loans. They are not investing in their businesses because of a lack of confidence," he said. This lack of confidence was fuelled by the debt problems in America and the eurozone, and uncertainty about the strength of the UK recovery, Diamond added.

"We think it will be 2012 at the earliest until there is any meaningful pick-up in confidence," he said. Despite this, new lending to UK business was 20 billion, with 7bn of that going to small or medium-sized businesses, slightly ahead of Barclays's targets agreed with the government under project Merlin.

Pre-tax profit for the six months to the end of June was 2.6bn, down 33 per cent from a year ago. Group earnings were helped by bad debt charges tumbling 41 per cent to 1.8bn.

The jobs blood-letting is part of the bank's plan to cut 1bn of annual costs as it also targets more than 6bn of extra revenue and a return on equity of 13 per cent by 2013.

Barclays's return on equity in the first half lifted to 9.1 per cent from 6.9 per cent. Stripping out the provision for mis-selling payment protection insurance (PPI), which has also hit all the group's main high street rivals, Barclays would have seen profits increase 24 per cent to 3.7bn.

Diamond said: "PPI (provision] was pretty unusual in terms of size. Hopefully we won't have those sorts of issues again."

UK high street bank profits rose an underlying 74 per cent, but, including the PPI charge, fell 63 per cent to 446m. Similarly, Barclaycard reported adjusted pre-tax profits up two-thirds at 524m, but after a 600m PPI provision made a 76m loss.Barcap's profit slipped 9 per cent to 2.3bn, reflecting lower trading particularly in fixed income and commodities.

Diamond gave a vote of confidence to the euro, despite the continuing volatility surrounding sovereign debt in Cyprus, Greece, Ireland, Portugal and Spain. "I'm very confident the euro is here for the long run and it's a huge advantage to the European countries," Diamond said.

An unchanged dividend of 2p was declared. Shares in Barclays closed up 0.25p at 216.75p.