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LONDON, May 2 (Reuters) - Barclays' corporate bankwill need another five years to hit its return on equity targetas loans in Spain continue to hamper its turnaround, said thehead of the unit, John Winter.
Barclays Chief Executive Antony Jenkins has set a target ofgetting return on equity above its cost of equity - which is 11.5 percent - across the bank by 2015. But the corporate bank,which provides services to businesses and financialinstitutions, is only expected to recover to 8 percent by thenand improve by 1.5-2 percentage points a year thereafter, Wintersaid.
"No-one's high-fiving each other over 8 percent (RoE). Butthere's a great business here struggling to get out," Wintersaid, suggesting the business could provide stable andtransparent long-term returns for the group.
Barclays Corporate has lost 2.1 billion pounds on bad loansin Spain in the last 3 years and Winter, a former investmentbanker who has been attempting to turn the unit around sincetaking charge in 2009, is shrinking the business there to focuson clients with cross-border needs.
Barclays Corporate Bank contributes 10 percent of grouprevenue but its return on equity (RoE) was just 2.9 percent lastyear and has been below the bank's cost of equity for years.
Return on equity is a key measure of profitability, and isexpected to be at least equal to the cost of equity, the returna bank theoretically pays to its investors to compensate themfor the risk they are taking.
McKinsey estimated RoE fell to 7.6 percent for global banksin 2011, well below the cost of equity, estimated at 10-12percent.
Winter said the bank had sold two parcels of Spanish loansat a significant discount. But he added that rather than sellfurther loans at heavily distressed prices it would try torecoup value over the longer term.
Regulatory changes have also hurt the unit, by forcing uprisk weightings on assets. Winter said the corporate arm had cut16 billion pounds in risk-weighted assets (RWA), but a further10 billion had been added due to regulatory changes and another5-7 billion could be added this year due to rule changes.
The corporate bank made an adjusted pretax profit of 460million pounds last year, from a loss of 255 million in 2010.Income was 3 billion pounds, and Winter is targeting that torise to 3.2-3.7 billion by 2015.
