Barclays investment bankers are bracing for a double-digit fall in their 2019 bonus pool, as chief executive Jes Staley squeezes pay to ensure the UK lender hits its profitability targets amid criticism by an activist investor.
While Barclays has been the best-performing investment bank in Europe recently, its highly paid dealmakers and traders are under pressure from Edward Bramson, who has called for swaths of the previously struggling unit to be closed.
In the first half of 2019, Barclays cut the amount it set aside for bonuses by almost a quarter to the lowest level since 2016. It was part of a push by Mr Staley to stay on track to generate a 9 per cent annual return on tangible equity for the overall group.
Barclays investment bank recorded a strong third quarter — when net profit at the division jumped 41 per cent — and is likely to have experienced an uptick in trading revenues in the final three months of the year, following a robust performance from peers JPMorgan (whose boss Jamie Dimon’s pay rose to $31.5m in 2019) and Morgan Stanley.
As a result, Barclays investment banking division’s bonus pool will end the year only down by around mid-teens percentage points, according to people familiar with the plans.
“We are not asking people to get slaughtered, but it will be noticeable,” one of the people said. “We underpaid in 2017 and made up a lot of that ground in 2018 under Tim Throsby, and now we are obviously asking for some of that back.”
A Barclays spokesman declined to comment on pay.
Mr Throsby, former head of the investment bank, for years resisted attempts to cut bonuses, even in areas where revenues had declined. He was ousted early last year after a row with Mr Staley over “sacrosanct” profitability targets, which Mr Throsby felt were unachievable.
The contretemps occurred as Mr Bramson’s Sherborne vehicle ramped up its campaign against Barclays investment bank. He has described the division as a “black box with too much leverage” that dilutes the returns of the better-performing retail and credit card businesses.
Mr Bramson, who is a top-five shareholder in Barclays, unsuccessfully tried to force his way on to the board last year.
Barclays has benchmarked itself against Wall Street peers to ensure it pays competitively when total compensation, rather than just bonuses, are taken into account, a person briefed on the decision said. Executives also believe the bonus pool will fall less than at European rivals such as Deutsche Bank, which has cut variable pay for its investment bankers by 30 per cent.
Last year, the bonus pool grew for the first time since 2013, rising 9 per cent to £1.65bn.
“There’s a grown-up conversation on pay to be had with our bankers about protecting the credibility of the institution they work for,” said another person involved. “If we don’t take profitability into account at all, just revenue, and the investment bank doesn’t exceed its cost of capital, investors are going to lose patience with us,” the person added, referring to the presence of Bramson on the share register.
In the first nine months of 2019, Barclays investment bank generated a 9.6 per cent ROTE, ahead of the group’s full-year goal and on track to meet the 10 per cent targeted in 2020. Barclays reports fourth-quarter earnings on February 13.
“Jes has made it clear that we are going to hit the 9 per cent target come hell or high water,” said one Barclays managing director. “Costs are the easiest way to do this, so he’s squeezing the lemon.”
Staff based in London and across Europe are likely to suffer more in this bonus round than their New York counterparts, people familiar with the matter said. Mergers and acquisitions and trading have been booming in the US after Donald Trump’s tax cuts and deregulation, compared with anaemic levels of activity on the other side of the Atlantic mired in Brexit and slowing growth.
As in previous years, Barclays will cushion more junior staff from analysts up to the vice-president level from pay cuts for fear of losing them to rival banks, private equity firms or hedge funds, two of the people said. More senior managing directors and directors will therefore feel the brunt of the cut.
Barclays put £456m towards bonuses in the first six months of 2019 versus £593m in 2018, a 23 per cent decline. The lender flagged in its third-quarter presentation it had “flexibility in compensation costs depending on income performance”.