HSBC in pay rise threat to beat EU’s bonus cap

New rule could be ‘highly damaging’ and help rival banks, chairman Flint warns

HSBC set the controversy over bankers pay alight again yesterday, warning that it could sharply increase bankers’ basic pay in response to the EU’s controversial plans to put a cap on bonuses.

Chairman Douglas Flint said that the impact of the rule - limiting payouts to 100 per cent of salary - could be “highly damaging” to HSBC, which makes more than 80 per cent of its profits outside the EU where it competes against rivals who aren’t subject to the same rules.

“We are talking to our shareholders and other stakeholders about what actions we could take to protect our returns on capital in those markets outside the EU,” he said.

Mr Flint admitted that one clear option was to increase basic salaries significantly. The bonus cap is fiercely opposed by the UK Government and critics claim it could serve to prevent banks from “clawing back” the pay of bankers whose actions damage their employers, through the withholding of share-based bonuses. But supporters say it could rein in industry excesses which contributed to the financial crisis.

Despite the rule, Mr Flint insisted that moving HSBC’s headquarters away from London and Europe was “not on the agenda.” A regular review has been held in abeyance until regulatory changes in the wake of the financial crisis have bedded down.

He was speaking as the bank unveiled what much of the City perceived as a lacklustre set of first-half results.

Pre-tax profits rose 10 per cent to $14.1bn (£9.2bn) but that was some way short of the average $14.6bn forecast by analysts. They were also disappointed that margins shrank, by contrast to some of the earlier-reporting UK banks, and HSBC shares fell by 33p to close at 721.7p.

Revenues were down 7 per cent at $34.4bn, as the bank continued its programme of closing or selling unprofitable or peripheral businesses.

In the two and a half years since Stuart Gulliver was made chief executive, the bank has shut or offloaded 54 such businesses. It has also sought to strengthen central control of its far-flung regions and has boosted its regulatory and financial crime compliance units by over 1,600 people after US allegations that the bank had become a conduit for dirty money. These led to penalties totalling nearly $2bn.

Mr Gulliver confirmed the bank has stopped doing business with a number of embassies, consulates and high commissions in London. He said this was because they failed “in different ways” the six filters he set for determining which businesses HSBC should keep. Industry sources said it was more likely to reflect HSBC’s tightening of policies following the US fines.

Mr Gulliver characterised the first half as a “solid financial performance” but said the world’s faster-growing economies, notably China, were likely to see “slower growth in the short term”.

Investec analyst Ian Gordon was one of several to to be underwhelmed. He said that despite “a major de-risking of the group and a welcome improvement in cost discipline, weak revenues driven by anaemic loan growth and a declining net interest margin constrain financial progress and returns.”