Record growth but Barclays still feels the pressure as shares dip

Its investment banking arm Barclays Capital dominated the results, which saw pre-tax profits rise from 907m to 1.47bn between January and March.

BarCap, which accounts for 80 per cent of group earnings, saw a 62 per cent surge in first quarter profits to 1.5bn. But a slowdown in the pace of improvement for BarCap hit shares which closed 6 per cent lower.

Analysts said the record growth was largely down to a drop in bad debts to 1.5bn, down 19 per cent on the previous quarter and 35 per cent lower than a year earlier.

"The improvement we have seen in impairment reflects the signs of economic recovery evident in many of the markets in which we operate," said chief executive John Varley.

Barclays, which also faced shareholders at its annual general meeting yesterday, revealed it has set aside around 1.4bn in pay and benefits to staff within its investment banking unit from the first quarter – at around 38 per cent to 39 per cent of income, in line with 2009 levels.

The bank, Britain's second-biggest, has been under increasing fire over bonus payments. Shareholder advisory body Pirc warned rewards on offer to Barclays senior bosses were "potentially excessive". The remuneration report was yesterday backed by 94 per cent of

shareholders.

Mr Varley insisted the bank has struck the right balance between

rewarding talent and understanding public concern.

"If the pay of nurses, teachers and public sector staff is frozen

because of the financial crisis, then banks must behave with

sensitivity in the area of pay," he said.

"On the one hand, we must recognise our obligation to society in how, and what, we pay. But on the other hand, we have to make sure that we field the best teams."

Barclays also sought to reassure investors over exposure to debt-laden Greece, saying that it would be "minimal".

The group said exposure to Greek government bonds was less than 200m, while it only has a small exposure to retail and wholesale banking in the country.

The group's retail banking arm saw profits decrease by six per cent to 403m, with impairment growing by one per cent. Profits at its UK high street arm increased by 20 per cent to 238m, with impairments falling. Net mortgage lending was 2.3bn, with gross mortgage lending of 4.3bn.

Pre-tax profits from Barclaycard fell 34 per cent to 118m, which the bank blamed partly on new US regulation, but also impairment charges driven up by unemployment. BarCap's income of 3.8bn fell well short of some analysts expectations of almost 5bn, as the bank failed to

benefit from as much fixed income, currencies and commodities business as rivals.

Analyst Keith Bowman, at Hargreaves Lansdown Stockbrokers, said : "The improvement in the economy is slowing loan impairments, while Barclays' investors aren't contemplating the impact of significant government stake sales which other bank investors are.

"In all, Barclays is making progress, but the update appears to be reminding investors that the road ahead will be bumpy."

Warning over too much regulation

Barclays warned against excessive regulation, amid calls for investment banking to be split from retail operations.

Chairman Marcus Agius told shareholders at the group's annual general meeting: "We fully recognise that changes to regulation need to be made.

"But there are important and difficult trade-offs to be made between improving the stability of the financial system, reducing the risk of a recurrence of a financial crisis and stimulating and supporting economic growth." He said most of the banks that failed during the credit crunch were narrow banks, and insisted investment banks play a central role in economic stabilisation and regeneration.

"There is no correlation between universal banking and the risk of failure," said Mr Agius. "As a large, universal bank, we believe in the benefits of business diversifi-cation. Banks have diversified and globalised because that's what their customers want."