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LONDON (Reuters) - Barclays (BARC.L) is set to cut about 3,000 jobs this year to reduce costs and expects financial markets to stay tough after a drop in bond trading and an insurance mis-selling charge cut first-half profit by a third.
The British bank's performance was more resilient than rivals, however, as bad debts tumbled and it kept costs steady.
"It's better on costs and impairments, and within the revenue line BarCap had a relatively strong quarter compared to its peer group," said Mike Trippitt, analyst at Oriel Securities. "It has been a savage market out there."
Chief Executive Bob Diamond, the American who built investment banking unit BarCap into a debt market powerhouse over the previous decade, said Barclays had cut 1,400 jobs during the first half and the tally was likely to rise to about 3,000 by the end of the year.
"We haven't set specific headcount numbers, but I would expect the trend in the first half to continue and I think it would be likely to increase," Diamond said.
The staff cuts amount to about 2 percent of Barclays' total workforce of 146,100.
Half the cuts so far in 2011 were at BarCap, which shed the same number in the second half of last year. The lay-offs reverse an aggressive build-up that included its 2008 takeover of the U.S. arm of Lehman Brothers and equities and advisory expansion. BarCap has 24,100 staff.
Pretax profit for the six months to the end of June was 2.6 billion pounds ($4.3 billion), down 33 percent from a year ago but above the average forecast of 2.4 billion pounds among analysts polled by the company.
Shares in Barclays were up 2.8 percent at 223 pence at 1350 GMT, outperforming a 1 percent fall by the European bank index .SX7P, as worries the euro zone crisis will spread rattled banks in Italy in particular.
Diamond is aiming to cut 1 billion pounds of annual costs and reckons he could even double that goal, as well as generate more than 6 billion pounds per year of extra revenue by 2013 under a revamp plan.
The bank's return on equity improved to 9.1 percent in the first half from 6.9 percent a year ago. Diamond is targeting a level of 13 percent by 2013.
Problems around peripheral euro zone countries were likely to continue in the second half, before a recovery in market confidence late this year or early 2012, he said.
"There's a loss of confidence that's pretty deep in terms of economic growth, contagion in Europe and the issues with the U.S. debt ceiling, and they are not going to be removed all at once," Diamond said.
As well as risk-averse investors, businesses are also pulling in their horns. Barclays said current account balances of its UK small business customers jumped 41 percent in the first half as they retain cash rather than invest.
Weakness at investment bank arm BarCap had continued into July. "We are planning on a market environment in the second half that is pretty sluggish and similar to the first half," Diamond told analysts on a conference call.
BarCap's income fell to 2.9 billion in the second quarter, down 14 percent on the first quarter, but BarCap's co-CEO Rich Ricci said he remained confident it can hit its targeted 3.5-3.6 billion pounds of quarterly income in normal market conditions.
Fixed income trading plunged across the industry in the second quarter as the euro zone debt crisis curtailed activity. BarCap's fixed income, currencies and commodities (FICC) income in the second quarter fell 22 percent from Q1, although most rivals had shown a drop of a quarter to a third.
Income from advisory business fell, which analysts said was disappointing given its investment in this area, but equities income rose in the second quarter.
BarCap accounted for 63 percent of group underlying profit -- which rose 24 percent from a year ago to 3.7 billion pounds.
Group earnings were helped by a 41 percent tumble in bad debt charges during the first half to 1.8 billion pounds.
But Barclays took a 1 billion pound charge to cover compensation for the mis-selling of insurance policies in Britain, which had been signaled previously.
French rival BNP Paribas (BNPP.PA) also reported results on Tuesday, falling short of expectations due to a hit from its Greek exposure and sluggish retail growth.
($1 = 0.615 British Pounds)
Additional reporting by Sudip Kar-Gupta; Writing by Paul Hoskins; Editing by David Cowell