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LONDON (Alliance News) - Barclays PLC's strategic cost management programme has partially offset challenging first-quarter for the investment bank's fixed income, credit, and commodities (FICC) business, and is expected to result in only a small reduction in adjusted pretax profit for the group, Chief Executive Antony Jenkins told shareholders Thursday.
Jenkins made the comments at the bank's annual general meeting Thursday morning, an event hotly anticipated since the bank came under fire for increasing its 2013 bonus pool despite a fall in adjusted pretax profit.
Chairman Sir David Walker told shareholders that the bank has faced increasingly difficult decisions about its remuneration policy and noted extensive concerns from shareholders as well as media attention on the subject, making pay talks this year "among the hardest to take".
"Bonuses paid in the investment bank appeared to go up, while overall performance was disappointing," said Walker. "Bonuses up, profits down. Not a headline we would have chosen. To a very large extent this was because we did not experience last year the need to impose penalties on the bonus pool that were so major a feature in 2012 in the wake of the unfortunate events around LIBOR. Setting the 2012 experience of very large bonus penalties alongside the very welcome 2013 experience of much smaller penalties inevitably distorted the overall picture."
He also noted that, excluding the effect of the penalties, the gross bonus pot for the group in 2013 fell by 18% rather than rising by the commonly reported 10% increase and that the bonus pool of the investment bank fell by almost a half from 2010 levels during 2011 and 2012.
In defence of Barclays' pay and bonuses, Walker told shareholders that the bank has faced a situation in which "we were losing people who were crucial to the future of the investment bank in an extremely competitive environment in which total pay in some parts of the major US investment banks rose by 15% or more." Barclays resignation rate for senior employees in the US almost doubled in 2013, he said.
The firm also faced a significant number of people it wanted to recruit rejecting its offers, he said, increasing the importance of damage limitation and franchise protection.
"We took our decision on bonuses in the firm belief that it was in the best long-term interests of shareholders to protect key franchises in the bank through this difficult phase of transition," said Walker.
Bonuses dominated proceedings at the AGM at London's Royal Festival Hall, with institutional shareholder Standard Life Investments voting against the directors' remuneration report.
According to Barclays just over three-quarters, some 76%, of votes cast showed approval of resolution 2, to approve the directors' remuneration report. However, the bank was left bruised by a large number of other votes being withheld - on top of those who voted against the resolution - meaning the resolution had just two-thirds backing.
Most of the resolutions, including the one allowing Barclays to pay variable pay of up to 200% of fixed remuneration, were passed with over 90% approval.
Alison Kennedy, a governance and stewardship director at Standard Life Investments, said the institutional shareholder would vote against the report, saying that Standard Life was unconvinced that the 2013 bonus pool was in the interests of shareholders but said the "competitive pressures" facing the bank were appreciated.
The bank's FICC business continued to face many of the challenges seen in the second-half of 2013 with a significant year-on-year reduction in FICC income, said Jenkins, reflecting difficult market conditions and a strong comparative performance for the first-quarter last year.
"A number of actions are being taken to improve the performance of the group, with our strategic cost management program starting to provide a material benefit across all businesses in the first-quarter," said Jenkins.
"This has helped to provide an offset to the income performance in FICC and, compared to the first-quarter of the prior year, is expected to result in a small reduction in adjusted profit before tax for the group. On May 8 we will update the market on further actions we are taking to better position both the group and the investment bank to deliver improved and sustainable returns for our shareholders given the regulatory and operating environment," Jenkins told shareholders.
FICC revenues have come under pressure amidst questions of how much of the decline is cyclical or something more structural and long-term. Low interest rates, increasingly stringent regulation - which means banks must hold more capital to back up their positions - and a push by regulators to force derivatives to be centrally cleared are all factors in the decline of FICC returns.
Barclays has a target of achieving a return on equity above the cost of equity but some shareholders at the AGM were disappointed by the current state of affairs.
"We're paying for Manchester United but we're getting Colchester United," said one shareholder.
Barclays shares closed Thursday at 252.00 pence, up 1.3%.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
Additional reporting by Alice Attwood; aliceattwood@alliancenews.com; @AliceAtAlliance
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