Capitulation has City investors scenting blood

Nick Goodway
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The Independent Online

UK banks will come under increasing pressure from City investors to cut or even waive their top executives' bonuses in the next few weeks as they

prepare their final results for 2011.

Royal Bank of Scotland's chairman Sir Philip Hampton and chief executive Stephen Hester's decision over the weekend to forgo bonuses of £1.4m and £963,000 respectively has pushed the public and political focus on to their City of London rivals Barclays and HSBC.

Despite the fact that neither bank was bailed out in the financial crisis, investors are understood to be keen they at least show restraint this bonus season. One top institutional shareholder said: "We've met the chairmen and remuneration committees of all the main banks recently.

"We focused on what has been paid in the past, particularly to investment bankers, versus what the returns have been to shareholders.

"We also highlighted that now so many jobs have gone in the banking industry, it may not be so imperative to pay such high salaries.

"We were listened to and the mood was undoubtedly very different to last year. Some of the banks are definitely moving in the right direction."

Barclays announces its results at the end of next week but presently has no plans to reveal its executive pay and bonus packages until it publishes its annual report in March. Bob Diamond, chief executive, is on a basic salary of £1.35m.

He could get up to two-and-a-half times that amount as an annual bonus and up to five times the amount under the bank's long-term incentive plan.

But with Barclays expected to report a slight dip on last year's profit of £6bn, Mr Diamond is unlikely to receive anything like his maximum pay-out.

Its investment banking division, Barclays Capital, is expected to have made much lower profits in 2011 than it did the year before. That means its co-heads Jerry del Missier and Rich Ricci – who took over from Mr Diamond – will not pick up the £14m pay and bonus packages each received for 2010.

The remuneration committee, chaired by former investment banker Alison Carnwath, will make its recommendations to a full board meeting shortly before next week's results announcement.

At HSBC, the spotlight is on the chief executive Stuart Gulliver who collected £6.1m last year. He is on a basic salary of £1.25m and could receive up to a maximum of four times that in an annual bonus and three times in long-term incentives.

Given that HSBC makes 90 per cent of its profits overseas, it is under much less political pressure than either RBS or Lloyds which are 82 per cent and 41 per cent taxpayer owned respectively.