Scandal-hit banking giant Barclays has said it was axing at least 3,700 jobs under a strategic overhaul, but revealed it was paying £1.85 billion sterling in bonuses to staff.

Chief executive Antony Jenkins is shutting the bank's controversial Structured Capital Markets tax advisory division.

He said 1,800 jobs would go in corporate and investment banking and another 1,900 across its European retail and business arm as part of a plan to slash costs by £1.7 billion.

Nearly £2.5 billion of cash set aside to cover mis-selling compensation claims contributed to a plunge in pre-tax profits to £246m in 2012 from £5.9 billion the previous year.

The bank's bonus pot will mean each employee gets £13,300 on average, with an average of £54,100 for investment banking staff.

The pool is lower than the £2.2 billion paid out last year, the bank noted.

Barclays said 1,600 jobs have already been cut in the investment banking business since the start of the year.

Mr Jenkins, who was appointed in August after Bob Diamond quit in the wake of the bank's £290m Libor rigging settlement, insisted bonuses had been reduced after last year's string of reputational blows.

He said the bank's compensation ratio - pay as a proportion of revenues - had fallen to 38% from 42% in 2011.

Mr Jenkins announced he was waiving his bonus for 2012 earlier this month, but the overall staff bonus pot for 2012 is likely to stoke further controversy given the recent series of scandals to rock the group.

Barclays said profits rose 26% to £7.05 billion on an underlying basis, with mis-selling provisions stripped out and not including movements in the value of its own debt.

The bank's bottom line profits were heavily impacted by mis-selling provisions, with £1.6 billion put by to cover claims relating to payment protection insurance (PPI) and £850m for interest rate swaps sold to small businesses.

It said the average PPI claim stood at £2,750, while it added the group sold around 4,000 interest rate swaps to small businesses of which around 3,000 were liable to potential mis-selling claims.

Barclays said its investment banking business delivered a 37% rise in pre-tax profits to £4.1 billion in 2012. Its UK retail and business banking division saw profits tumble 71% to £292m after PPI provisions, although it said profits rose 4% to £1.5 billion on an underlying basis.

Retail cuts to be made in Spain, Italy, Portugal and France

All of the 1,900 retail job cuts announced today involve the bank's European arm, with redundancies across Spain, Italy, Portugal and France.

"There is no doubt that 2012 was a difficult year for Barclays and the entire banking sector,'' the bank's chief executive said.

Mr Jenkins said the industry became "too aggressive, too focused on the short-term and too disconnected from the needs of customers and clients, and wider society".

His overhaul - dubbed Project Transform - saw the bank broken down into 75 business units, which were examined for both their potential to generate sustainable profit and their ability to inflict reputational damage.

"Barclays is changing. We intend to change what Barclays does and how we do it,'' Mr Jenkins said.

He is leading a campaign to fix the bank's reputation following the Libor and mis-selling scandals. But Barclays is facing yet more investigations over its fundraising in the Middle East at the height of the financial crisis, which helped it avoid a government bail out.

Four current and former employees - including finance director Chris Lucas - are being probed by the Financial Services Authority and the Serious Fraud Office over the Qatari investments in 2008.

The US Department of Justice and the US Securities and Exchange Commission also launched a separate investigation in October into whether certain business practices comply with the US Foreign Corrupt Practices Act.