The chairman of HSBC, Stephen Green, insisted yesterday that the bank's management were under-paid and defended the multimillion-pound packages handed out as the company reported a 24 per cent fall in full-year profits to $7.1bn (£4.8bn).
The bank handed £9.8m to its investment banking chief, Stuart Gulliver, and £4m to Michael Geoghegan, chief executive, who has pledged to give the money to charity over the next three years. Including them, the bank's top five bankers will share rewards worth £38m.
Mr Green – who has previously criticised excessive pay at banks – insisted that bonuses were still "an effective component" of employee compensation and defended the pay awards to HSBC's senior executives.
He also said that the bank planned a fresh attempt to secure shareholder approval for a big rise for Mr Geoghegan. "Mike did not feel it was appropriate this year," he said. "HSBC's directors have agreed that Mike's remuneration including salary will be brought up to international levels within the next 12 months."
Mr Green said that despite the fact that Mr Geoghegan, whose office was last year moved to Hong Kong, runs one of the world's biggest companies, he is only the fourth best paid out of the top six UK banks. Mr Green said pay had to be "market based".
"If we don't [do this] we risk losing some of our best people," he added. "We are domiciled in the UK but we have over 300,000 employees around the world. We have to think internationally. Such an approach is vital to everyone who cares about London and its long-term future."
Mr Green said it was "no coincidence" that HSBC remained profitable throughout the financial crisis, despite the impact of the company's disastrous acquisition of the now closed US sub-prime lender Household, hailing his management team.
Mr Gulliver, whose Global Banking & Markets operation trebled profits to $10.5bn, would not say whether he planned a similar gesture to Mr Geoghegan, only saying he was "conscious of my social responsibilities". Mr Geoghegan said replacing Mr Gulliver would cost significantly more than what he was paid.
Of his gesture, Mr Geoghegan said that while he had previously waived his bonus, "this year the performance of HSBC is significantly stronger".
He added: "I have therefore accepted an award of deferred stock, releasable over the next three years and subject to certain conditions. Provided that the stock is released I can confirm that between now and 2013 I will give up to £4m to charities around the world."
Mr Green pointed out that HSBC had paid £5bn to the UK exchequer over the last five years, making it one of the biggest taxpayers in the country. He again insisted that the business was committed to its London base, although the bank reviews its domicile every three years and many expect that it will leave eventually.
Shares in the bank – which has also continued paying dividends throughout the financial crisis – tumbled yesterday as the City took a dim view of its figures, finishing down 37p at 682p.
The fall in profit was largely down to a substantial writedown to the value of HSBC's own bonds. Analysts, however, also noted that the profit figure was also below the City's consensus forecasts although there was a wide variation between them. Bad debts increased to $26.5bn, up $1.5bn. Underlying pre-tax profit grew 56 per cent to $13.3bn, after excluding a goodwill write-off of $10.6bn for the US business. There was also a $6.3bn accounting loss on HSBC's debt, more than the $5bn expected.
Mr Green said there would likely be a two-speed recovery, with emerging markets set for a return to rapid growth while developed economies continue to crawl their way out of the pit of the recession. After the Household debacle HSBC pledged to focus on emerging markets. It will pay a fourth-quarter dividend of 10c, bringing the total for the year to 34c.
Ian Gordon, banking analyst at Exane BNP Paribas, said HSBC shares were fairly valued but unexciting in "a world of cheaper, more compelling opportunities".
Charitable bonus: Gift Aid gain?
Whichever charities HSBC boss Michael Geoghegan decides should benefit from his bonus are looking at quite a windfall. If he is able to donate the money through the Gift Aid scheme as much as £5m will go to good causes.
£5m? Yes, because under the scheme charities can reclaim basic rate tax from HM Revenue & Customs. The Gift Aid scheme is available to all UK taxpayers, and can be used for donations to amateur sports clubs as well as charities. With basic rate tax currently at 20 per cent, Mr Geoghegan's £4m bonus grosses up to be worth £5m to good causes.
The waters are muddied somewhat by Mr Geoghegan's tax status. He relocated to Hong Kong before Christmas and now pays tax in the UK only on part of his earnings. He thus may not be eligible for Gift Aid on his entire bonus. though HSBC was unable to clarify this yesterday.
In theory, however, higher-rate taxpayers using the Gift Aid scheme are entitled to claim the difference between higher rate and basic rate tax on the total gross value of their donations. With Mr Geoghegan's donation worth £5m to charities, he may be able to claim back as much £1m, which he can use to reduce his UK tax bill.
Mind you, the Gift Aid scheme is only available for donations to UK charities, so Mr Geoghegan needs to choose wisely if the good causes – and himself – are to pocket their additional bonuses.
Handing over the cash to the UK arm of the charity Education Africa, which supports South African schools, would be one solution. His wife, Jania, is chairman of its UK board of trustees.