The pay deals handed to the bosses of Britain’s biggest banks will be in focus this week when they report their results for 2015, at a time when bank shares have been hit by fears of renewed financial crisis.
Investors will be scrutinising the bonuses handed out staff – it has already been calculated the major high street banks could hand out £5bn between them – and the dividends paid out to shareholders.
The results are being published at a time when bank shares have been under pressure over fears that a slowdown in China could have severe knock-on effects for global growth, while sustained low or negative interest rates are harming banks’ long-term profitability. Scandals such as the payment protection insurance mis-selling and the subprime mortgages in the US continue to weigh on the sector.
Bailed out Royal Bank of Scotland will report the full extent of an eighth successive year of annual losses and is expected to disclose higher pay for its chief executive, Ross McEwan, of around £3m.
HSBC, which last week confirmed it would keep its headquarters in the UK, kicks off the reporting season on Monday, followed by Standard Chartered, Lloyds Banking Group and RBS, with Barclays the week after.
António Horta-Osório, chief executive of Lloyds Banking Group, is in line for a maximum payment of around £7.5m if all the performance criteria attached to a long-term scheme he was handed three years ago are met. This includes a £1m salary and other payments. He received £11.5m the previous year when the bank reintroduced its dividend for shareholders for the first time since the banking crisis.
The Lloyds results might have been used to signal a sale of shares to the public which was promised in the run-up to last year’s general election but Chancellor George Osborne said last month this would be postponed because of the volatility in global stock markets.
Any news of dividends could help bolster the shares – trading at 61p, below the 73p price paid by the taxpayer – amid reports that a special dividend could be planned.
RBS is expected to confirm that it is continuing to make payments to its former chief executive Stephen Hester, who under the terms of his departure in June 2013 was allowed to keep some of his performance-related shares. Now chief executive at insurer RSA, Hester could receive up to £500,000.
Hester’s bonuses were flash point during his tenure at the bank, and prompted McEwan to ditch annual bonuses for himself and his senior executives.
However, a a three-year performance plan put in place for McEwan is due to mature although is unlikely to reach the maximum £1.7m once all the criteria are assessed.
McEwan also receives a £1m salary, £350,000 for his pension, a relocation allowance which in 2014 reached £100,0000 and a £1m “role-based allowance” – which last year he gave to charity. These so-called allowances were introduced by the banks after the EU capped bankers’ bonuses to a maximum of double their salary. In last year’s annual report, the bank disclosed his total pay at £1.8m.
Such allowances mean that Stuart Gulliver, the chief executive of HSBC, will have received £2.7m a year before any bonuses because his £1m salary comes alongside a £1.7m a year fixed allowance. His total pay for the previous year was £7.6m. Last week he discussed the prospect of boardroom change at the bank, amid expectations chairman Douglas Flint will be first of the two to step aside.
Standard Chartered, which analysts warn could struggle to report any profits for 2015, will publish details of pay for Peter Sands, who resigned as chief executive a year ago, and his deputy Mike Rees, who will leave later this year. Before the latest details are announced, calculations by Bloomberg show that Rees had been paid £50m in the six years since the financial crisis.
Analysts will be looking for signs of distress inside the banks, given the current volatility in the market. Some argue that the recent concern about the state of the sector is overdone. “We doubt that another credit crunch is on its way unless the economy takes a significant turn for the worse,” said Vicky Redwood at Capital Economics.
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