Barclays Capital could afford to pay very generously in future

No one appears to be complaining about the level of pay at BarCap for 2009 (if anything, people appear to be quite happy after getting their salary increase backdated to the middle of last year), but it's worth noting that the bank could probably be a lot more generous if it wished.

As credit market losses and impairments slip from the picture, Morgan Stanley analysts are predicting that BarCap could substantially increase profits before tax, even if it substantially increases compensation costs.

The chart below illustrates how. For those who can't see it due to a firewall, it shows that even if staff comp costs rise from a total of 4.4bn in 2009 to 6.6bn in 2012, rising revenues should drive an increase in profit from 4.3bn to 7.3bn.

Source: Morgan Stanley

BarCap has indicated that it plans to hire far fewer people in the future, so assuming that existing staff create the additional revenues predicted, they could each be paid a lot more.

Morgan Stanley analysts appear to think rising BarCap revenues should come from a market rebound rather than additional big hiring. They put out a separate note in March identifying revenue drivers at BarCap such as strong prop trading, resurgent retail demand for equity derivatives, and growth in prime brokerage.

Whether BarCap will actually increase compensation per head significantly remains to be seen. Last September, Marcus Agius said they want to pay as little as possible.