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Barclays investment bankers face double-digit cuts to bonus pool – Financial Times

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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.

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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”.

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Pension funds suffer largest investment losses since 2008 financial crisis

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Canadian defined-benefit pension plans collectively suffered their largest losses since the 2008 financial crisis in 2022, recording a median decline in assets of 10.3 per cent despite a partial recovery in the final months of the year, according to a survey from Royal Bank of Canada RY-T.

Pension assets suffered heavy losses in the first two quarters of 2022 before starting to recover in the back half of the year. In the final quarter, pension assets returned 3.8 per cent, as measured by the RBC Investor and Treasury Services All Plan Universe, which serves as a benchmark for performance.

Pension plan investors were battered by unusually volatile markets driven by high inflation and rapidly rising interest rates, as both stocks and bonds returned losses, instead of helping offset each other as has often been the case in past market downturns. And although plans earned positive returns to finish the year, they are facing many of the same pressures in 2023.

“In the next few months, plan sponsors will need to be attentive to risk factors such as the economic impact of the central banks’ actions, ongoing geopolitical tensions and ongoing efforts to contain the COVID virus outbreak in certain emerging markets,” Niki Zaphiratos, managing director for asset owners at RBC I&TS, said in a news release.

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Canadian pension plans’ bond portfolios had median losses of 16.8 per cent in 2022 – the largest annual decline in more than 30 years – and also trailed the benchmark FTSE Canada Bond Index. The losses were driven by the drastic action central banks took to tame inflation by raising interest rates, with longer-duration bonds that are most sensitive to inflation accounting for some of the largest declines.

Yet for pension plans, there was a silver lining to rapid interest-rate increases, which caused future liabilities to fall. As a result, more pension plans finished 2022 in surplus, meaning their assets were greater than their liabilities. And higher yields from fixed-income securities could also give pension plan investment managers more options to reduce risk-taking in their portfolios over the coming year.

Stocks also suffered, rather than acting as a counterweight to falling bond prices. Foreign equities returned 9.7 per cent in the fourth quarter, but closed the year down 11.3 per cent, according to RBC I&TS. And Canadian equities returned 6.3 per cent in the final quarter of the year, bringing their annual loss to a comparatively modest 3.6 per cent. In general, value stocks performed better than higher-risk growth stocks in the quarter.

The last time pension assets declined so sharply was in 2008, when Canadian defined-benefit pension assets posted a median loss of 15.9 per cent.

Defined-benefit pension plans pay fixed benefits for as long as a beneficiary lives based on their contributions and years of service.

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Intel Cuts Pay Across Company to Preserve Cash for Investment

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(Bloomberg) — Intel Corp., struggling with a rapid drop in revenue and earnings, is cutting management pay across the company to cope with a shaky economy and preserve cash for an ambitious turnaround plan.

Chief Executive Officer Pat Gelsinger is taking a 25% cut to his base salary, the chipmaker said Tuesday. His executive leadership team will see their pay packets decreased by 15%. Senior managers will take a 10% reduction, and the compensation for mid-level managers will be cut by 5%.

“As we continue to navigate macroeconomic headwinds and work to reduce costs across the company, we’ve made several adjustments to our 2023 employee compensation and rewards programs,” Intel said in a statement. “These changes are designed to impact our executive population more significantly and will help support the investments and overall workforce needed to accelerate our transformation and achieve our long-term strategy.”

The move follows a gloomy outlook from Intel last week, when the company predicted one of the worst quarters in its more than 50-year history. Stiffer competition and a sharp slowdown in personal-computer demand has wiped out profits and eaten into Intel’s cash reserves. At the same time, Gelsinger wants to invest in the company’s future. He’s two years into a turnaround effort aimed at restoring Intel’s technological leadership in the $580 billion chip industry.

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Gelsinger will keep using cash to reward shareholders, meanwhile. Intel said last week that it remains committed to offering a competitive dividend. Analysts have speculated that the company may lower its payout to cope with the slowdown.

Under Gelsinger’s plan, the company is looking to introduce new production technology at an unprecedented pace. It will also build new plants in Europe and the US and try to win orders from other chipmakers as an outsourced manufacturer. That move will put Intel in direct competition with Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co., two Asian companies that have passed it in the rankings of chipmakers by size and capabilities.

Intel isn’t the only big company trimming executive pay. Apple Inc., one of the few tech giants to forgo major layoffs, is cutting the pay of CEO Tim Cook by more than 40% to $49 million for 2023. Some high-profile finance firms have made similar moves, with Goldman Sachs Group Inc. CEO David Solomon seeing his 2022 compensation trimmed by about 30% to $25 million.

Intel is taking other steps to rein in expenses. That includes headcount reductions and slower spending on new plants — part of an effort to save $3 billion annually. That figure will swell to much as $10 billion a year by the end of 2025, the company has said.

Intel, which informed staff of the latest cutbacks earlier Tuesday, is also reducing the match it offers to pension contributions. The Santa Clara, California-based company thanked employees for their patience and commitment.

Hourly workers and employees below the seventh tier in the company’s system won’t be affected.

(Updates with spending plans and earnings report starting in fourth paragraph.)

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Lithium Americas stock rises on GM’s $650 million equity investment

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Lithium Americas Corp.
LAC,
+13.19%

stock was up 9.2% in premarket trading Tuesday after it said General Motors Co.
GM,
+8.14%

agreed to invest $650 million in the company to help develop Nevada’s Thacker Pass mine, the largest known lithium source in the U.S. Lithium Americas said the project would create 1,000 jobs in construction and 500 in operations. It would produce lithium for up to 1 million electric vehicles (EVs) a year. Lithium from Thacker Pass will be used in GM’s proprietary batteries for its EVs. “Direct sourcing critical EV raw materials and components from suppliers in North America and free-trade-agreement countries helps make our supply chain more secure, helps us manage cell costs, and creates jobs,” GM CEO Mary Barra said. Thacker Pass is scheduled to go into operation in the second half of 2026, the companies said.

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