Barclays signals new assault on costs as profit hits record high

Barclays reported record profits yesterday of £3.85bn for 2003, a 20 per cent rise on the previous year, as it signalled it would slash costs across the group to meet tough new targets for the next four years.

The high street bank hit its goal of top quartile shareholder returns between 2000 and 2003. Matt Barrett, the chief executive, said the bank would embark on a similar plan up to 2007. "These are stretching targets, but stretching targets have served us well," Mr Barrett said. To fulfil the plan, Barclays wants each part of its business to achieve top quartile productivity - a move which Mr Barratt said would take two years to attain.

Barclays believes it is running with £300m of extra costs which will either need to be stripped out, or revenues will need to be increased. "It will be a case of having one foot on the brake and one on the accelerator," Mr Barrett said.

John Varley, who became deputy chief executive on 1 January, will have to manage the balance between the two, when he steps into Mr Barrett's shoes at the end of this year. In contravention of the Higgs code of corporate governance, Mr Barrett will replace Sir Peter Middleton as chairman.

Mr Varley will oversee cost cutting which is expected to be concentrated in the retail bank. It is likely that the bank, which has already outsourced 550 processing jobs to India, will move more roles to the subcontinent in order to reduce its wage bill. Barclays' shares, which have climbed strongly in the part few months, fell 4 per cent to 495p.

Mr Barrett was upbeat about the global economic outlook but repeated his warning that some financial institutions had pursued an overly risky lending policy. He said "perhaps 10 per cent of the population" would struggle to repay their debts.

Barclays Capital, the investment banking arm, made the biggest contribution to the profit rise, with operating profit up 35 per cent to £782m in the 12 months to 31 December.

Barclaycard contributed operating profits of £722m, a 17 per cent increase on 2002. As the hefty credit card profits were unveiled, MPs on the Treasury Select Committee warned that banks needed to do more to spell out the costs to consumers.

John McFall, the chairman of the committee, wrote to the head of Apacs, the banks' trade body, saying some moves towards transparency had been made, but in key areas such as spelling out different borrowing scenarios, progress had been "slow".

Barclays refused to comment on rumours it is in talks about buying the US credit cards business Providian Financial. But, Mr Barrett said he was "absolutely" interested in possible opportunities in Europe.