Barclays Share News (BARC)

* Shareholders want high single-digit returns by end-2018

* Structure of Barclays International causes concern

* Costs, misconduct continue to weigh on investment bank

By Sinead Cruise

LONDON, March 14 (Reuters) - From BZW to BarCap, Barclaysbosses have spent more than three decades trying tomake the British bank a profitable investment banking force,often frustrating its investors.

Now Barclays Chief Executive Jes Staley is being given onemore year to deliver on a promise to turn its investment bankinto a profit engine able to weather downturns or face demandsfor a review of the business, shareholders told Reuters.

Staley, feted for his achievements at U.S. powerhouseJPMorgan, pledged to revive Barclays' tired investmentbanking franchise as soon as he joined the bank in 2015, endingyears of under-investment in the wake of the financial crisis.

A slew of ex-JPMorgan high-fliers including rainmaker TimThrosby and 40 newly-recruited managing directors, have sincejoined to help revitalise a business that in 2007 delivered 2.3billion pounds, almost a third of the group's, pre-tax profits.

But returns from investment banking continue to underwhelm,despite a recent turnaround in market conditions, leading someshareholders to set Staley a deadline for an improvement.

"Assuming market conditions remain favourable, then we wouldreally be looking to see high single digit returns on equity forthis business by the next year-end, or questions will need to beanswered," Steve Davies, manager of the Jupiter UK Growth Fund,and a top 40 Barclays investor, told Reuters.

EARN A RETURN

Barclays, which declined to comment on its investment bank,cheered investors last month by restoring its dividend, wrappingup a restructuring programme involving the disposal of billionsof pounds in unwanted assets.

However, investors now want to see if Barclays' beefed-upinvestment bank can make a sustainable, cost effective andgrowing contribution to future dividends.

Barclays International - which comprises the Consumer, Cardsand Payments business and the corporate and investment (CIB)bank - delivered a return on tangible equity (ROTE) of 3.4percent in 2017, or 6.6 percent excluding the impact of U.S. taxreforms.

But a fourth quarter ROTE of minus 20.2 percent at the CIBhighlights the scale of Staley's challenge, with two key factors- regulation and market conditions - largely out of his control.

Regulations aimed at protecting retail banks from riskierinvestment banking activities have forced Barclays to tie itshigh-earning payments and credit cards business to itsinvestment bank on a separate balance sheet.

A former senior Barclays executive who still holds itsstock, told Reuters he worried about capital allocation betweenthe businesses and questioned whether the bank should own aninvestment bank at all.

"The whole unit is neither fish nor fowl and the reality isthey are no longer the best owner of that (investment banking)business," the source said.

A third investor, who declined to be named, also flaggedconcerns about how regulation could undermine efforts byBarclays management to win market share.

"Regulatory reform in the U.S. could make life even tougheras U.S peers are able to deploy more balance sheet into the IBbusiness as leverage restrictions are eased somewhat."

CHEAP BUT RISKY?

Although CIB's pre-tax profit in 2017 fell 22 percent to2.06 billion pounds, Barclays says a bounce in trading revenuesand market share in its Banking and M&A franchises so far thisyear are cause for optimism.

It also said it would redeploy capital from its corporateloans book to higher-returning opportunities within itsinvestment bank, in a bid to improve its overall profitability.

"Does investment banking perform a useful function? I thinkin the round it does. It acts as the intermediary betweenproviders and consumers of capital. If that assertion is correctthen it should be able to earn a return," said Rob James of OldMutual Global Investors, another top 40 Barclays shareholder.

Barclays also cut an additional 2.4 billion pounds of riskweighted assets from the CIB in the final quarter of 2017 aspart of a plan to relieve the drag on its share price, which istrading around 8 percent down on last year.

But investors have been dismayed at the unit's stubbornlyhigh costs, which jumped 4 percent to 2.4 billion pounds overthe final quarter, compounding an 11 percent fall in income.

"Fundamentally, the CIB remains a lower return on equitybusiness relative to Barclays UK and the Consumer, Cards &Payments piece," a fifth shareholder said.

"Barclays can get the right people and systems in place, butif clients aren't trading there is little management can do."

Others are even less optimistic, pointing to a largeoutstanding settlement for the misselling of mortgage-backedsecurities before the 2007 crisis and regulatory scrutiny ofStaley's role in the attempted exposure of a whistleblower.

"(Barclays) shares are cheap, but that reflects the riskcarried by the investment bank and the past misconduct andlitigation issues that refuse to go away," said Paul Mumford,fund manager at Cavendish Asset Management.(Reporting by Sinead Cruise, additional reporting by LawrenceWhite, editing by Alexander Smith)