Return of the fat cats? Bank bonuses rise as profits rebound
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[August 05, 2021] By
Lawrence White and Iain Withers
LONDON (Reuters) - Europe's banks are
stashing cash to pay bumper bonuses to top performers, amid a deal
frenzy driven by pent up demand from the COVID-19 pandemic and
rebounding bank profits.
Banks have added billions of dollars to bonus pools as they try to
reassure restless staff they will be rewarded in 2021 after a lean 2020.
The planned payouts are more modest than the bonus bonanza on Wall
Street, but European banks nonetheless risk a public backlash at a time
when many businesses and individuals are still struggling in the
pandemic, advocacy groups for fair pay said.
Britain-based Barclays increased its bonus pool by 46% to 1.1 billion
pounds ($1.5 billion), up from 749 million pounds a year earlier, while
HSBC topped up its bonus pool by $900 million in the first half.
Standard Chartered said a "normalisation of performance-related pay"
during the first half drove an 8% jump in costs, to $5.1 billion.
Senior bank executives and recruiters said the market is the most
competitive they have seen in a decade, as rebounding economies
worldwide, pent-up demand and the fad for investing via Special Purpose
Acquisition Companies (SPACs) drives dealmaking activity.
Swiss bank UBS boosted pay for its financial advisers by $242 million in
the second quarter after booking higher revenues, while Deutsche Bank
upped pay and benefits in its investment bank by 6% compared with the
same period a year ago.
Bonuses and pay increases are likely to continue to build in the second
half of the year, said Sophie Scholes, head of the UK financial services
practice at headhunters Heidrick & Struggles.
"Banks are anticipating that the next bonus round will be one where they
need to pay out, driven by two factors," she said.
"One is the sheer competition for talent, and that means retaining good
people, and two is that because of all the market activity people have a
good pipeline and some good wins behind them, and banks are trying to
prepare for that."
The trend is global, Scholes said, with banks in Europe and Asia playing
catch-up to the United States.
Goldman Sachs has increased its compensation by $3.5 billion on the
prior year, while JPMorgan has added $2 billion.
Goldman has also raised base pay for juniors to $110,000 after rivals
such as Morgan Stanley and JPMorgan increased first-year pay.
This is prompting European rivals to follow suit, with HSBC this week
telling staff it would pay newly hired analysts in its U.S. investment
bank $100,000 a year.
"The U.S. is extraordinary in terms of activity, which comes from their
economic recovery being seen as more robust, and it has always been a
highly acquisitive market in terms of talent," Scholes said.
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Protestors wearing costumes pose outside the venue for the HSBC
Annual General Meeting (AGM) in London, Britain April 22, 2016.
REUTERS/Lawrence White/File Photo
'MORALLY DUBIOUS'
While big payouts are back, in Britain rules that cap payouts at twice the level
of base pay and concerns about public perception of banker bonuses during a
global crisis mean lenders are showing some restraint.
"Paying out huge bonuses at a time when businesses and households are struggling
and the economic outlook remains so uncertain is not only morally dubious but
financially irresponsible," said Simon Youel, head of policy and advocacy at
Positive Money.
Youel said much of banks' recent profitability could be traced to state support
measures for the economy. British newspaper reports have suggested UK banks are
lobbying to remove the cap on bonuses of twice base pay, which Youel said the
government should reject.
The volatile nature of investment banks' revenues means they must lower variable
pay to manage profitability in tough times, Barclays Chief Executive Jes Staley
said, and also pay up when business is booming.
"When we have in fact delivered very strong revenue growth, that's reflected in
the compensation... we think we are being prudent in how we manage it," he told
reporters last week on a conference call.
One bank board rejected an executive's rating of their team as too generous and
told them to downgrade it for fear of otherwise having to pay out too much,
Scholes said.
Even traditionally more conservative retail banks are increasing pay.
Lloyds, Britain's bellwether mortgage lender, said it would spend an extra 100
million pounds on bonuses this year, after axing them for all but its lowest
paid staff last year.
Bank executives said they would have to keep paying up despite concerns about
public perception.
"We have to reward people," the Chief Executive of a British bank said, without
wanting to be identified. "People have had a difficult time, and if you've
stayed in a role and you've been locked away and had to go above and beyond, you
expect to be rewarded."
($1 = 0.7189 pounds)
(Reporting by Lawrence White and Iain Withers, additional reporting by Brenna
Hughes Neghaiwi in Zurich and Tom Sims in Frankfurt. Editing by Jane Merriman)
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