Financial world’s big names such as RBS prepare to publish 2012 results, which will determine size of staff payouts
It’s bonus time in the City. By the end of this week, some of the biggest names in the financial world – the likes of Goldman Sachs and Citigroup – will have published their 2012 results and begun to tell their staff how big their payouts will be. The controversy has already started with Goldman considering ways to defer bonuses from previous years to pay out in April, after the top rate of income tax has been cut to 45%.
A year ago, Goldman set aside £8bn to pay its staff – an average of £238,000 each – a figure it is expected to beat this year. That average hides the fact some of the bigger hitters will have taken home millions. The bonus season will help decide how many boats are sold at this week’s London Boat Show, luxury homes bought and fine wines glugged.
It is a moment to feel envy or anger that bankers are being rewarded at a time when their industry is at a low ebb in the wake of scandals over Libor-rigging, busting US sanctions and laundering money for drug barons, and when Britain seems to be heading for a triple-dip recession. To the 800 staff sacked at Honda’s car factory in Swindon last week, or workers at retailer Jessops, which closed its doors on Friday, a bonus would be still having a job.
There are those in the City who argue that payouts for 2012 are going to be a fraction of those in the past – although the big US-based banks are expected to defy the trend. While profits are up in many instances, pressure from regulators and shareholders to rein in pay is stronger than ever and some believe this will show up in bonus deals this year, but most clearly at the European banks.
“The US banks are under far less regulatory pressure. But it is totally different in Europe, with bonuses down 50% or more,” said Lee Thacker, a partner at City headhunters Silvermine Partners.
Europe-based banks tend to publish their results and bonuses for staff a few weeks later than their US rivals. The bailed-out Royal Bank of Scotland, always a political firestorm, is not expected to make decisions about its investment bankers’ bonus pot, which stood at £390m a year ago, until its fine for Libor rigging has been settled.
The bank is in the last throes of negotiation with regulators, who are expected to hit the 83% taxpayer-owned bank with a fine bigger than the £290m paid by Barclays last year.
Stephen Hester, the RBS boss who a year ago admitted he nearly quit amid the row over his bonus, has already waived any payment after the bank’s IT meltdown in the summer. António Horta-Osório, his counterpart at Lloyds (39%-owned by the taxpayer) could be in line for at least £2m, however.
Barclays, under the leadership of its new £8m-a-year chief executive, Antony Jenkins, will need to ensure its Libor fine knocks millions off its bonus pool and shows shareholders that in the post Bob Diamond era, pay at the bank will be a less explosive issue.
HSBC and Standard Chartered, two UK-based banks who often manage to avoid the bonus spotlight, will also feel the heat after paying out millions to US regulators for breaches of the rules.
Early indications are that the top-end estate agents are not expecting a big bonus boost this year. Nick Barnes, head of research at upmarket estate agents Chesterton Humberts, said very little bonus money was being pumped into property. “Before the recession, there were people coming in and buying a small flat – say for half a million – with cash or a sizable deposit,” he said.
It is a view echoed by David Adams, managing director of John Taylor, which sells properties above £1m. Bankers first begin making inquiries with Adams every November when employers begin to set their employees’ expectations for the year. “We no longer have bankers knocking down our doors to spend £10m, £12m on trophy houses,” he said.
As enormous as the sum might still seem, these days bankers are more willing to spend just under £2m – which Adams reckons is enough for a two-bedroom residence in London’s upmarket Kensington – and crucially below the price at which the top rate stamp duty of 7% kicks in.
Even if banks show what they believe to be restraint, it may still not to be enough to quell public anger.
A spokesman for the Robin Hood tax campaign, which wants to see a tax on the financial sector, said: “Bonuses have been slightly down on previous years, but they are still massive in terms of what ordinary people view as fair rewards. Ordinary people don’t see why people – especially when they are working at loss-making organisations – should be raking in millions.”