Barclays Plc's (BCS,BARC.L) quarterly profit more than halved, reflecting the impact of difficult market conditions on its investment banking arm, Barclays Capital, and the newly introduced UK bank levy. The company has cut the bonus pool at Barclays Capital by 32 percent in 2011, helping it lift its cost reduction target. The British bank sees improvement in the beleagured division in the new year, but expects economic and regulatory environment to remain challenging.
Fourth-quarter pre-tax profit plunged to 813 million pounds from 1.79 billion pounds in the prior-year quarter.
The latest results included own credit charges and goodwill impairment charges, offset by gains on debt buy-backs. On an adjusted basis, pre-tax profit fell to 528 million pounds from last year's 1.47 billion pounds. The results also were hurt by UK bank levy of 325 million pounds introduced in 2011.
Total income net of insurance claims decreased to 6.21 billion pounds from 8.08 billion pounds last year. Net operating income also fell to 5.26 billion pounds from prior year's 6.71 billion pounds.
The company pointed out that adjusted income in the fourth quarter was 13 percent below the run rate for the full year, principally reflecting the difficult market conditions affecting Barclays Capital and gains on the disposal of hedging instruments mainly taken in the third quarter.
For fiscal 2011, pre-tax profit fell 3 percent and adjusted pre-tax profit dropped 2 percent. Net asset value per share increased 9 percent to 456 pence.
In Barclays Capital, total income plunged 22 percent, but the impact was partially offset by reduced credit impairment charges and 12 percent drop in operating expenses, including compensation costs. The unit's returns fell to 10.4 percent.
The company said it generated momentum by improving the competitive positions of all major businesses and grew income in all other businesses, despite continued low interest rates.
Credit impairment charges decreased 33 percent reflecting significant improvements across all businesses. Sovereign exposure to Spain, Italy, Portugal, Ireland and Greece were reduced to 7.1 billion pounds from 8.2 billion pounds last year.
In 2012, total bonus pool was down 25 percent and Barclays Capital's bonus pool was down 32 percent. The company added that it has reduced adjusted operating expenses, and hence it is increasing cost reduction target to 2 billion pounds by 2013 for non-performance costs, excluding the impact of the UK bank levy.
Further, Barclays said it would pay a final dividend for 2011 of 3 pence per share for the fourth quarter, making 6 pence for the year, an increase of 9 percent.
Regarding the current trading, Barclays noted that retail and corporate banking divisions' performance in January was consistent with the good performance achieved in 2011. "Though it is too soon to suggest a trend, improvement in market conditions resulted in an encouraging start to the year for Barclays Capital," the company added.
Barclays shares are currently trading at 238.50 pence, up 5.40 pence or 2.32 percent in London.
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