Two banks poised to defy the Chancellor's call to curb bonuses

Published on Sunday 22 February 2009 20:31

HSBC and Barclays banks are believed to be set to defy government guidelines over restraint on bonuses as they prepare to shell out up to £2 billion in payments to their staff.

Michael Geoghegan, the chief executive of HSBC, is thought to be in line for a 1 million pay-out, while Barclays is believed to be planning to pay out 1bn to its staff – in a mixture of cash and shares.

Barclays has already said that its bonus pool will be 48 per cent lower, but it might be restricted further if it joins the Treasury's insurance scheme, details of which are expected to be unveiled this week.

Although HSBC and Barclays are not state owned, Chancellor Alistair Darling's comments last week telling banking bosses that bonuses should be the "absolute legal minimum" at Royal Bank of Scotland and declaring he wanted a "cultural change" across banks, was believed to be likely to curb deals at other institutions.

Bonuses at RBS are to be 90 per cent lower at 175m this year compared with 2.5bn last year after a public outcry over its plans to reward staff at the same time as being expected to record the biggest loss in British history.

The bonus debate comes at a time when City rumours have claimed that HSBC could be planning a 1bn rights issue – although Britain's biggest bank has denied that it plans to tap investors. It said last month in a statement that it "cannot envisage circumstances" where asking for government or investor help would be necessary.

It is also expected that the bank will unveil write-downs of up to $10bn (6.9bn), analysts have warned, but could still report profits of 14bn. HSBC chairman Stephen Green, last year received 3m, including a 1.75m share bonus, while Geoghegan last year earned a total of 3.9m, including a 1.9m bonus in cash.

The news comes as HSBC faces increased pressure from activist investor Eric Knight, who is to renew calls for the bank to dump its struggling US loans business, Household.

Geoghegan's pay-out will be significantly lower this year, but could still anger investors if bonuses are announced alongside a cash call.

Knight, who owns a stake in HSBC through his Monaco- headquartered Knight Vinke Asset Management, is planning a new campaign, which he is expected to launch next Monday – the day of HSBC's full-year results.

He is thought to want HSBC to put Household into Chapter 11 bankruptcy. Chapter 11, which does not exist in the UK and is more akin to administration in this country, protects businesses from creditors while they restructure to become profitable.

"It is getting worse every quarter," Knight was reported as saying. He added: "There is a time to be quiet and a time to be active and this is a time to be active."

Knight last made moves for a shake-up of HSBC in 2007, when he wrote to the bank calling for a fundamental review of its strategy, including the closure of Household and also the removal of its top executives, including Green.

He is expected to finish his latest proposals for the bank – so far one of the few global institutions to have not tapped either investors or the government for help during this economic downturn – by the end of this week.

Duo seek to insure 500bn of assets

LLOYDS Banking Group and Royal Bank of Scotland, both substantially owned by the taxpayer, have submitted plans to insure almost 500 billion of assets as part of the Treasury's controversial asset protection scheme designed to kick-start lending.

RBS chief executive Stephen Hester and his counterpart at Lloyds, Eric Daniels, are expected to meet with Treasury officials today to hammer out details of the scheme – including the pivotal point of pricing.

The aim of the scheme is to effectively ring-fence 500bn of "toxic" assets with a taxpayers' guarantee. A key debate is how much of the scale of any losses found out later on would be borne by the banks.

Barclays is also expected to take part in the scheme, which is expected to involve the creation of a new class of non-voting shares to allow the banks to fund their participation.

Plans were also being finalised over the weekend to turn Northern Rock back into a "good bank" by injecting up to 10bn into the lender.