Barclays prepares to cut £1bn in costs and sell underperforming businesses

Barclays wants to slice £1bn off costs and sell underperforming businesses, as it prepares for stringent new regulations that will eat into profits.

The bank, which kicked off the banking season with better-than-expected profits for 2010 at £6.1bn, said it will now target a return on equity of 13pc  -  down from the long-term average of 18pc but well ahead of last year's 'unacceptable' 7.2pc.

New chief executive Bob Diamond, who lavished praise on his predecessor John Varley, said jobs may go in areas such as IT and HR, as the bank sharpens up its act.

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He said there are 'no sacred cows' and has already earmarked the Russian retail banking business and the group's Indonesian operations for sale.

Investors don't seem too worried, marking Barclays shares up by 6pc, adding more than £2bn to its stock market value. The shares, up 18p to 318.4p, are at a five-month high.

Group profits were up by a third for last year, buoyed by a near doubling of earnings at the Barclays Capital investment banking arm.

This was due to a sharp drop in impairment charges and fall in writedowns against the value of its investments, which more than compensated for a 25pc decline in underlying income.

Lower bad debt charges also boosted profits in the UK retail bank, which was up by 39pc to £989m, while Barclaycard profits rose 9pc to £791m.

There were some black spots. As well as a £532m charge against its Protium loan, the bank hiked provisions against its Spanish property loans by £630m to £898m.

Dividends for last year were increased to 5.5p from 2.5p, ahead of forecasts. But less than £700m will be handed out to shareholders, a tiny fraction of the £3.5bn the bank paid out in bonuses.

Diamond said that when deferred awards were excluded, the overall group bonus pot was down 7pc at £3.4bn, while the BarCap payouts were down 12pc at £2.6bn.

That said, investment banking pay as a percentage of the division's income rose to 43pc from 33pc in 2009.

Diamond said the bank needed to do a better job of communicating the benefits that it brings to the UK economy, through job creation and the tax it pays.

The bank said it paid £2.8bn to the Exchequer for last year, though £1.3bn of this was payroll tax paid by staff.

It estimates that the new government levy on bank balance sheets will cost the bank £400m from 2011 onwards.

And it revealed that last year's one-off bonus tax cost the bank a total of £437m, including the £225m in paid out in 2009.