Banks face pressure from No 10 and regulators over bonuses

REGULATORS and the government have gone on the warpath against the bonus culture as the banks decide how much they expect to pay to high-flying staff.

Hector Sants, chief executive of City watchdog the Financial Services Authority (FSA), is meeting bank bosses in an effort to pressure them to curb excessive payouts.

Sants is warning them that a dim view will be taken if they fail to store up decent levels of cash while offering hefty rewards.

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Yesterday Prime Minister David Cameron also vowed to restrain “out of whack” pay that did not reflect performance, at both banks and top British companies, adding that government plans for this would be set out shortly.

The message from Sants echoes the recommendations made by Sir Mervyn King in his role as chair of the financial policy committee (FPC) that bonuses and dividends should be curtailed if capital levels are not sufficient to withstand future financial shocks.

Details on bank bonuses that are set to emerge in annual results in February and March are likely to provoke fresh outrage. However, it is expected overall bonus pots will be smaller this year because of poor performance in wholesale banking activities.

An FSA spokesman said: “We are vigorously engaging with the major UK banks to ensure they comply with the FPC’s recommendation to retain capital by reducing distributions such as bonuses.”

But there will still be high rollers. Reports suggest Barclays, which was not bailed out by the government but did tap into Bank of England liquidity facilities, plans to pay £5 billion in pay and bonuses to its investment bankers.

The Royal Bank of Scotland has come under the heaviest pressure on pay as it is 83 per cent owned by government.

A spokeswoman for the bank yesterday insisted that “no decisions have been taken” on bonuses, which are expected to be as much between £400 million and £500m. But this is far less than the £1.3bn paid out in 2009 and £950m in 2010.

Last year, RBS chief Stephen Hester said its global banking and markets division, which pays the biggest bonuses, had not accrued any money in its bonus pot in the third quarter reflecting poor performance.

A spokeswoman for Lloyds Banking Group also said that no decisions had been made over bonus pay-outs. Before Christmas it emerged that the top 1,000 earners at Lloyds – including chief executive Antonio Horta-Osorio – face a pay freeze following a loss of £3.9bn in the first nine months of the year.

The increased pressure from Sants comes as Horta-Osorio is set to return to his office on Monday after a leave of absence because of stress.

It also emerged yesterday that Bank of China and Japan’s Mizuho Financial are among the banks eyeing parts of RBS, which is understood to be seeking buyers for its global cash equities, equity capital markets and mergers and acquisition businesses.

Managing directors in RBS’s corporate broking unit Hoare Govett are also considering teaming up with UK stockbroker Oriel Securities to lead a buyout of the division.

RBS sold its 4.3 per cent stake in Bank of China for $2.3bn (£1.5bn) in 2009.

RBS has hired Richard Kibble to the position of group director of strategy and corporate finance. The former PWC partner will take up his new position in March reporting report to Hester and group finance director, Bruce Van Saun.