February 10, 2012, 7:17 AM EST

By Howard Mustoe and Gavin Finch

(Updates with divisional breakdown in eighth paragraph.)

Feb. 10 (Bloomberg) — Barclays Plc, the first of Britain’s biggest banks to report full-year earnings, said it may miss the profitability target Chief Executive Officer Robert Diamond set a year ago as it posted a 16 percent decline in annual profit.

Net income for 2011 fell to 3 billion pounds ($4.74 billion) from 3.56 billion pounds a year earlier, missing the 3.27 billion-pound median estimate of 11 analysts surveyed by Bloomberg. The bank said it may not meet its 13 percent return- on-equity target by 2013 after it fell to 6.6 percent in 2011.

Barclays was the last British consumer bank to have kept its profitability target even as Europe’s debt crisis and tougher regulation eroded investment-banking earnings. The London-based lender today raised its cost-reduction target for next year to 2 billion pounds to bolster profit. It also cut the pool it sets aside for bonuses and will limit cash awards.

“We may not be able to deliver 13 percent returns by 2013,” Chief Executive Officer Robert Diamond said in the statement. It will achieve the returns “over time,” he said.

Pretax profit at Barclays Capital, the investment banking arm led by Rich Ricci and Jerry Del Missier, fell 32 percent to 2.97 billion pounds in 2011. Revenue from fixed-income, currencies and commodities trading, which accounts for more than half the unit’s revenue, slid 52 percent in the fourth quarter.

“Barclays Capital look weaker than expected,” said Gary Greenwood, an analyst at Shore Capital in Liverpool. “The headline profit looks a bit weaker than expected but the balance sheet looks in line.”

Bonuses Cut

The unit reduced its 2011 bonus pool by 32 percent to 1.54 billion pounds and will cap cash bonuses at 65,000 pounds. Barclays Capital set aside 47 percent of income for remuneration in 2011 compared with 43 percent for the previous year.

The division, which employs about 24,000 people, may eliminate about 5 percent of its senior bankers, two people with knowledge of the talks said last week.

Goldman Sachs Group Inc. said last month profit fell 58 percent to $1.01 billion in the fourth quarter, while Deutsche Bank AG, Germany’s largest lender, said last week profit fell 76 percent as Europe’s debt crisis curbed trading and the company wrote down holdings. Credit Suisse Group AG yesterday said it had a loss in the fourth quarter for the first time since 2008, while UBS AG this week posted a 76 percent drop in profit.

Barclays has declined 26 percent in the past year in London trading, compared with a 27 percent drop in the 43-member Bloomberg European Banks and Financial Services index.

Pretax profit from its U.K. consumer division climbed 3 percent to 1.02 billion pounds. Losses as the corporate banking unit shrank by 89 percent to 70 million pounds.

–Editors: Jon Menon, Edward Evans.

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net