HSBC is bracing itself for a political backlash today after details of departing Michael Geoghegan's severance package emerged over the weekend, showing that the bank's chief executive could walk away with more than £20m when he leaves the bank next year.
The Government has urged the banks to show restraint on pay awards as the economic recovery struggles to gain traction and the public sector prepares for thousands of job losses following next month's Spending Review.
Last Friday, the bank confirmed that Mr Geoghegan would leave next March after it broke with 30 years of tradition and passed him over for the chairmanship.
In a statement, the UK's largest company said Mr Geoghegan would be paid £1.42m, "pursuant to the notice provisions of his service contract". He will also be eligible for a bonus, which will be calculated by the remuneration committee later in the year. Last year, Mr Geoghegan gave his £4m bonus to charity.
However, it emerged over the weekend that Mr Geoghegan will receive multiples of the amount announced by the bank on Friday, when longer-term incentive plans are added into the equation. The final value of the incentive plan is unknown and will depend on HSBC's performance in the next few years, but estimates over the weekend ranged from £20m to £36m.
A spokesman for HSBC yesterday described reports that Mr Geoghegan could eventually pocket £36m as "inaccurate and sensationalist".
He said that Mr Geoghegan would receive the contractual £1.42m, a £200,000 "consultancy fee," which will also be donated to charity, and a bonus of as much as £4.28m. He added that it was impossible to predict how much he would receive from the long-term incentive plan but that the figures quoted over the weekend assumed a 100 per cent payout when, in fact, much smaller returns are normal, usually about 25 per cent of the maximum available.
The spokesman declined to comment on whether the settlement was politically embarrassing.
The explanation of the figures did little to quell the political anger, however. Lord Oakeshott, the Liberal Democrat Treasury spokesman, said: "HSBC has come through the banking crisis better than most, but this silk-lined parachute for someone that's leaving the bank early highlights that HSBC has little interest in British public opinion, and shows why the Banking Commission needs to concentrate on getting the banks to lend to British business and homebuyers."
The Banking Commission, headed by Sir John Vickers, has been asked by Government to consider how banks can be wound down in the future without a catastrophic economic effect.
Lord Oakeshott also questioned the wisdom of HSBC's decision to promote Stuart Gulliver, its head of investment banking, to replace Mr Geoghegan. "They are too big to fail and too big to care," he said. Earlier this month, the Secretary of State for Business, Vince Cable, said the appointment of investment banker Bob Diamond to head Barclays illustrated the dangers of mixing traditional retail banking with racier investment arms. "We are worried about this combination of the casinos and the traditional banking," he said.
The bank's confirmation of Mr Geoghegan's departure came last Friday after a week when leaks from inside HSBC revealed cracks in its top team. The bank's board, led by senior non-executive director Sir Simon Robertson, decided to appoint finance director Douglas Flint to the chairmanship after being forced to speed up the succession plans when current chairman Stephen Green agreed to join the new Government as Trade Minister.
Mr Geoghegan had hoped that HSBC would follow its own tradition of promoting the chief executive to the chairmanship. He is understood to have been outraged when Sir Simon mooted the possibility of John Thornton becoming chairman instead. Mr Thornton, already a non-executive director at HSBC, is a former leading banker at Goldman Sachs.
HSBC was forced to deny that Mr Geoghegan had threatened to resign over the matter last week, describing the reports as "nonsense".Reuse content