Banks defend bonus culture as profits jump

Barclays and HSBC made a passionate defence of the City's bonus culture yamid a growing public backlash about the return to a big pay bonanza barely a year after the government bailed out the financial system.

As criticism of bonuses crossed the traditional political divide, the banks compared their high-flyers to footballers and Hollywood stars to try to explain the need for the hundreds of thousands of pounds individuals are expected to receive this year. Neither bank gave figures about potential bonuses for investment banking staff, but a jump in profits in both operations led to speculation that huge pay deals will be awarded.

Profits at Barclays Capital, the investment banking arm of the high street bank, doubled to £1bn while at HSBC's investment bank the profits rose 125% to $6.3bn. Each bank reported overall profits of nearly £3bn despite a combined £13bn of bad debts caused by rising unemployment, making it more difficult for households and companies to pay back loans. Bank shares jumped sharply, pushing the FTSE 100 to its highest level this year.

John Varley, chief executive of Barclays, turned to footballers to explain bankers' pay while Stuart Gulliver, who runs the investment bank at HSBC, used Hollywood stars. Varley said: "The football analogy certainly goes some way I think [to explain bonuses] ... There is simply no higher priority that to ensure we field the very best people. That in a sense is exactly the same as a football manager if they are going to win. Our obligation is to ensure we pay appropriately."

Gulliver likened the situation to a Hollywood studio that not only paid stars for pulling in profits, but also many of the extras. "If a foreign exchange trader makes a deal then they know two days later how much they made. If it's a £5m profit, that is something we can count, we can see it, its real. And they are part of a successful team," he said.

But criticism of the banks came from across the political spectrum. George Osborne, the shadow chancellor, said: "Banks should watch out that they do not misuse taxpayer support – it's designed to facilitate lending, not mega pay deals. Without taxpayer support, the whole system faced failure."

Vince Cable, the Liberal Democrat Treasury spokesman, said the Financial Services Authority needed to show "real teeth" in its dealings with bankers. Labour's deputy leader, Harriet Harman, called for more women in the boardrooms of major banks, suggesting they would do a better job than men.

While neither HSBC nor Barclays have taken funds directly from the taxpayer, both are benefiting from the estimated £1.2tn of taxpayer funds helping to prop up the sector, through a number of government schemes. Since the October bailout, the government has demanded that the FSA tackle pay in the City to prevent traders being encouraged to embark on risky strategies in the hope of receiving big bonuses. However, the City regulator is not planning to set caps on pay.

The government also commissioned Sir David Walker, a former banker, to review corporate governance in banks. Walker has suggested that banks disclose the pay of individuals who earn more than boardroom chiefs without identifying them.

Varley refused to disclose how many of his staff would need to be identified if the proposals were adopted and said existing disclosure standards were "very high indeed". He added: "I do not think it is necessary to go a lot further."

Hector Sants, the FSA chief executive, warned banks last month not to guarantee bonuses for more than a year but Bob Diamond, Barclays' president and head of the investment bank, admitted that three staff had been hired on bonuses of more than a year and that 10% of the 2,000 new bankers recruited in the half year had been given promises for a year.