Top Investors Wade Into Battle Over Bankers' Bonuses

Tuesday, 06 Dec 2011 08:53 AM

 

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Banks across Europe battered by the eurozone crisis face an increasingly bitter battle over bonuses this year as investors add weight to politicians' calls for restraint, rankled by the level of returns they get versus employee payouts.

In Britain, where wranglings over pay have become ever more acrimonious since the bank bailouts of the financial crisis, the Association of British Insurers upped the ante ahead of this year's bonus round, calling for rewards to be slashed.

The ABI, whose members own about a fifth of Britain's publically traded shares, pointed to tumbling bank share prices this year and greater capital demands facing the sector as the backdrop for an overdue change in pay practices.

"It is our members' view that it can no longer be business as usual for this remuneration round," ABI director general Otto Thoresen wrote in a letter to the country's top banks on Monday.

"Any capital retention should not be solely funded by a reduced payment of dividends," Thoresen said.

Shareholders' anger over bankers' pay has usually been vented by voting against remuneration proposals, and this year Britain's HSBC faced a backlash over its reward plans.

The early warning from the ABI comes as banks are already under pressure to slash costs, as return on equity — a key measure of profitability — wilts.

European banks have put less aside overall to pay their staff than they had this time last year as a raging eurozone debt crisis dents income. But most still notched up bonus pots even in a dismal third quarter.

The fall in revenues — down 30 percent in the three months to September at the top 10 investment banks globally, according to research group Coalition — largely outstripped the drop in compensation.

Even at Switzerland's UBS, hit by a rogue trading scandal in September, pay was down 14 percent in the first three quarters, while operating income fell 24 percent.

Much of the pay set aside for 2011 relates to awards handed out in previous years — at UBS, of the 2.875 billion Swiss francs ($3.13 billion) in variable pay expenses so far this year, close to 1.35 billion francs related to deferred pay.

But if banks are reluctant or unable to claw back some of these deferred rewards, then the pressure from investors and politicians for them to come down hard on new bonuses for 2011 will be greater than ever.

CONTINENTAL CONCERN

In France, where even the top banks are not known for paying out the very high individual rewards more common in the City of London, politicians are calling on banks to cut back on bonuses.

Prime Minister Francois Fillon met with top executives at the likes of BNP Paribas and Societe Generale last month to tell them to keep lending to the French economy while keeping a lid on bonuses.

One participant at the meeting said there was no objection from bankers, who were in similar hot water over compensation during the last crisis.

Slumping revenues, meanwhile, could bring British banking bonuses down nearly 40 percent on 2010 levels, according to one economic think-tank.

But this has not been enough to stem fresh calls this week to cut bonuses and dividends further, from Bank of England governor Mervyn King and Deputy Prime Minister Nick Clegg.

Only part nationalized Royal Bank of Scotland did not accumulate any fresh rewards in the third quarter.

Bonuses accrued so far this year stand roughly at 416 million pounds ($653.45 million), based on company reports, down over 56 percent on what it had notched up to hand out to staff for the whole of 2010.

British banks, seen as vulnerable to the eurozone crisis, are among the worst stock market performers this year, with the FTSE All Share Banks index shedding a quarter of its value against a 5.7 percent drop for the FTSE 100.

© 2014 Thomson/Reuters. All rights reserved.

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