British bank Barclays warned it may miss its medium-term profitability target after it ended 2011 with its worst quarter for three years as the euro zone debt crisis hit bond trading, dragging its annual profit down on the year before.

Chief Executive Bob Diamond set the return on equity target as part of a strategic review just last year.

Thirteen percent remains absolutely the right target and its very achievable, but we may not achieve it in 2013 given the impact of the external environment, he said on Friday.

The bank's shares fell 1.8 percent in early trading.

Barclays said it had cut bonuses at investment banking division Barclays Capital (BarCap) by 32 percent from the year before, and incentive awards across the group were down 26 percent.

It is the first of the big British banks to report results and has come under pressure to rein in pay for bankers, and for Diamond, after a bad year for the industry and as jobs continue to be cut and the economy wobbles.

Diamond, who became chief executive a year ago after a decade building up BarCap, has for years been one of Europe's best paid bank executives and has faced calls to forgo his bonus.

He refused to comment on whether he would be awarded a bonus or what he planned to do.

The average bonus for BarCap's 24,000 staff was 64,000 pounds ($101,400), and across the group the average bonus was 15,200 pounds. The cash bonus for BarCap staff will be capped at 65,000 pounds this year.

Barclays, Britain's fourth-biggest bank by market value, reported a pretax profit of 5.9 billion pounds for 2011, down 3 percent on the year and below analysts' forecast of 6.1 billion, according to a company poll.

Income at BarCap fell to 1.8 billion pounds in the fourth quarter, down 19 percent on the previous three months and down almost half from a year ago.

A slump in bond trading and advisory work hammered all banks late last year, and BarCap fared worse than some U.S. rivals but not as badly as Credit Suisse .

Its return on equity slumped to 5.8 percent for the year, from 7.2 percent in 2010 and less than half its target of 13 percent.

We are not satisfied with the return on equity we delivered in 2011 and are committed to delivering steady improvement moving forwards, Diamond said.

We expect the economic and regulatory environment to continue to be challenging in 2012, he added.

Barclays said losses on bad loans fell by a third from 2010 to 3.8 billion pounds.

($1 = 0.6312 British pounds)

(Additional reporting by Sarah White and Sudip Kar-Gupta, Editing by Jane Merriman and Mark Potter)