Barclays Cuts 3,000 Jobs as Investment Bank Profit Declines

Barclays Plc (BARC), Britain’s second-largest bank by assets, said it’s eliminating about 3,000 jobs this year as second-quarter investment banking profit fell by more than a quarter.

The bank has already cut 1,400 of the positions this year, Chief Executive Officer Robert Diamond, 60, told reporters after Barclays Capital reported a 27 percent decline in pretax profit to 1.42 billion pounds ($2.31 billion) in the three months to June 30. The total reduction in employee numbers in 2011 will be of the “magnitude” of 3,000, Diamond said. The shares rose.

Bonus restrictions mean bank profits “take the hit when volumes come down, when previously it was the staff -- it’s the law of unintended consequences” said Jane Coffey, head of U.K. Equities at Royal London Asset Management, which manages about $51 billion including Barclays stock. “There are job cuts across the City because most of the numbers have come down. They are having to look at their cost base.”

European banks, including UBS AG (UBSN), Credit Suisse Group AG (CSGN) and HSBC Holdings Plc (HSBA), have cut jobs during the past week after reporting falls in second-quarter investment banking profit as the continent’s sovereign debt crisis hurts trading. HSBC yesterday pledged to eliminate 30,000 jobs by 2013, while Credit Suisse said last week it will remove 2,000 posts. European banks have slashed 230,000 jobs since the start of the financial crisis in 2007, according to Bloomberg Industries.

‘Really Fun’

“One of the key planks of our returns focus is our cost program, and it’s been really fun,” Diamond said. “Not that cutting costs is fun, but what’s been fun is that the executive committee has really come together and we found so many opportunities.”

The bank’s securities unit “significantly outperformed its peers,” said Shailesh Raikundlia, an analyst at MF Global Ltd. in London. “This has come as a bit of a surprise.”

UBS and Credit Suisse last week said that second-quarter earnings at their securities units dropped by 71 percent, while Deutsche Bank AG and Goldman Sachs Group Inc. (GS) last month posted earnings that missed estimates. HSBC yesterday announced pretax profit at its securities unit fell by 12 percent.

“While the overall business environment for investment banking services is not as strong as we would like, Barclays Capital is on track to compete as a global top three player in each of the major categories in which it operates,” Diamond said.

Barclays fell by 0.1 percent to 216.75 pence at the close in London, the third-best performance in the 46-member Bloomberg 500 Banks Index.

‘Hoped for Better’

Barclays Capital’s revenue from trading fixed-income, currencies and commodities was down 24 percent on the year-earlier period, compared with an industry average of 20 percent, according to Alex Potter, a banking analyst at Berenberg Bank in London. Revenue from equities was little changed, even after Barclays “invested significant headcount,” he said.

“We would have hoped for better,” Potter said. “The outlook statement looks pretty weak -- BarCap in July being impacted by current market conditions.”

The bank’s cost-to-income ratio rose to 64 percent in the first-half of 2011, from 62 percent a year-earlier, indicating the bank’s efficiency has declined. HSBC’s cost-to-income ratio was 58 percent from 51 percent, the bank said yesterday.

Return on Equity

Barclays’s net income for the six months to June 30 fell to 1.5 billion pounds, down from 2.43 billion pounds a year earlier, it said in the statement, beating the 1.29 billion-pound median estimate of 11 analysts surveyed by Bloomberg. Pretax profit at the lender’s retail unit fell 63 percent to 446 million pounds, while the corporate and investment banking business posted a 22 percent slide to 2.35 billion pounds.

Barclays posted a return on equity of 9.1 percent in the first half compared with 6.9 percent for the year earlier period. The lender cut its return on equity target in February to 13 percent from an average of 18 percent over the past three decades as higher capital requirements from regulators reduce profitability.

“The figures are okay but the problem that the company faces is not about these numbers,” said Julian Chillingworth, who helps manage about 16 billion pounds, including Barclays stock at Rathbone Brothers Plc in London. “They are much more about how they are going to develop the BarCap franchise, whether growing the investment banking arm is the right thing to do.”

The Unite trade union, which represents some Barclays staff, said it was “astounded” by Diamond’s comments on jobs. “It is not encouraging for his workforce to hear such throwaway comments from their boss about their future job security,” said Andy Case, Unite officer.

Sovereign Debt

Some of the 3,000 job cuts will be in the U.K. if current trends continue as expected, Diamond said at press conference today.

Barclays set aside 1.83 billion pounds for bad loans in the first half, from 3.08 billion pounds in the same period of last year. The bank also set aside 1 billion pounds to compensate clients for the mis-selling of mortgage insurance, Barclays said in the statement. The insurance covers payments on credit cards and mortgages in case of illness or unemployment.

Barclays has reduced its Spanish sovereign debt holdings by about 750 million pounds since June 30, Chief Risk Officer Robert Le Blanc said.

The bank holds government debt worth about 10.9 billion pounds in Greece, Ireland, Italy, Portugal and Spain.

So far this year, Barclays has cut 700 posts at Barclays Capital and 500 at its U.K. consumer unit. The bank said employee costs rose 5 percent to 6.11 billion pounds in the first six months of the year. It employs about 146,100 people globally.

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net. Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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