Big pay ‘made Barclays bosses feel above rules’

BARCLAYS, the UK’s second-largest lender by assets, paid investment bankers bonuses “incapable of justification” as employees focused on revenue at the expense of clients, according to an internal report.

In the report commissioned by the bank after it was fined £290m for manipulating Libor in June, Rothschild vice-chairman Anthony Salz criticised the lender for failings in its culture and urged it to improve its openness and transparency.

In parts of the company, there was “a sense that senior management did not want to hear bad news”, which had “contributed to a reluctance to escalate issues of concern”, according to the 236-page report published yesterday.

“Pay contributed significantly to a sense among a few that they were somehow unaffected by the ordinary rules,” Mr Salz wrote. “A few investment bankers seemed to lose a sense of proportion and humility.”

Antony Jenkins, who replaced Robert Diamond as CEO in August, is seeking to rein in pay and boost profits to shareholders to help restore investor confidence in the wake of the Libor scandal.

The London-based bank plans to eliminate about 3,700 jobs this year after posting an annual loss of £1.7bn. Barclays fell as much as 1.7% and was 1.4% lower at 293.25p in London trading yesterday. The stock has increased 12% this year, making it the best performer among Britain’s five biggest lenders.

“We concluded that the reputational problems for Barclays stem in part from the perception that, at least in the UK, some bankers have appeared oblivious to reality,” the report said. “Despite billions of pounds of liquidity support from taxpayers, many senior bankers seemed

Despite billions of pounds of support from taxpayers, many senior bankers seemed to argue they deserved pre-crisis pay levels

still to be arguing that they deserved their pre-crisis levels of pay.”

Barclays paid its top 70 executives “consistently and significantly above” the industry norm, the report said. MDs at Barclays’s investment bank received base pay of about £150,000 to £300,000, as well as an average bonus of about 70% of their salary last year. Some senior employees received bonuses equivalent to more than double their base pay, it showed.

“They have singled out the top 70 managers for being paid too much,” said Ian Gordon, an analyst at Investec plc in London with a buy rating on the bank.

“Most people would agree with that. The good news for Barclays shareholders is this doesn’t appear to change anything.”

The bank’s consumer unit in October said it would stop awarding bonuses to employees based on sales and instead focus on customer satisfaction. The number of employees earning more than £1m last year dropped to 428 from 473 in the previous year, according to the annual report published on March 8, with Mr Jenkins saying he would not take a bonus.

“The report makes for uncomfortable reading in parts,” Barclays chairman David Walker said in a statement. “Our initial review of the report’s recommendations is that they are substantially aligned with work already progressing.”

Mr Jenkins and Mr Walker both declined to be interviewed about the report, John McGuinness, a Londonbased spokesman for the lender, said by telephone.

Focusing pay on revenues encouraged mis-selling of products such as the wrongly sold loans insurance, the report said. Barclays’s revenues from so-called paymentprotection insurance, net of claims and provisions for alleged mis-selling, was about £940m in the ten years to the end of last year.

Barclays paid £70.8m in fines to the Financial Services Authority in the three years to last year, according to the report. It set aside £2.6bn to compensate clients who were wrongly sold payment-protection insurance.

“Financial contribution was paramount,” Mr Salz wrote. “In both the retail bank and the investment bank, the success stories were largely attached to strong personalities, successful sellers and revenue earners and individuals who demonstrated cleverness and an ability to win.”

He also criticised the bank’s dealings with regulators as being focused on the letter rather than the spirit of the law.

That “institutional cleverness”, he wrote, “stretched relationships with regulators and resulted in them and the market questioning some of Barclays’ financial information, especially its valuations of illiquid assets, and its control systems”.

Barclays was “adrift in its standards through failing to embed a consistent set of values and clear common purpose across the group”, Mr Salz said yesterday.

The report did not cover current investigations because “we were never going to do enough to be useful”, he said.

The review cost £13.7m, including £1.5m paid to Rothschild for Mr Salz’s time. Mr Salz was not paid directly. Bloomberg