Events | 2010.02.12
Barclays to reignite bonus row with £2.3bn payout to investment bankers
• Barclays cuts its wage bill to 38% of revenue
• RBS hopes to agree size of its bonus pool next week
Barclays could reignite a row over bankers\' bonuses next week when it reports record profits of more than £11bn and reveals bonuses of at least £2.3bn or more to its 23,000 investment bankers.
The bank will attempt to demonstrate that it is heeding government calls for restraint by stressing it is restricting the size of its pay and bonus pot to a record low of 38% of the revenue generated by its investment banking arm, Barclays Capital. But it will still come in for criticism as the ratio is higher than the 36% paid out by the market leader, Goldman Sachs .
Exact pay deals for the top bosses will not be known until April, but even so the head of the investment banking arm, Bob Diamond, will walk away with at least £20m as the result of the sale of shares in the bank\'s investment management arm, Barclays Global Investors (BGI), in June.
The £6.2bn sale of BGI to Blackrock is the main driver for the £11.2bn of profits the City expects the bank to report, smashing its previous record of £7bn, which was three years ago.
The Barclays bonus numbers will be scrutinised by Royal Bank of Scotland and UK Financial Investments, the body which controls the taxpayer\'s 70% stake in RBS, amid intensifying discussions about the size of its bonus pot for 2009.
RBS must have its overall bonus pool approved by UKFI , which in a worse case scenario can veto proposals. RBS is believed to want to pay the 22,000 bankers in its global banking and markets division a bonus pot of between £1.3bn and £1.4bn and is acutely aware of the scrutiny it will face when it publishes its 2009 figures on 25 February.
RBS is believed to be hoping to convince UKFI – which also needs to reassure Alistair Darling – that its planned bonuses represent a staff cost-to-revenue ratio of less than 30% and will be some of the lowest paid out by a major bank this year.
Once they have pored over the Barclays figures, RBS and UKFI hope to agree the size of the bonus pool by next week.
Banks often use more than 50% of their revenue to pay staff, before working out their profits and any dividends that can be paid to shareholders. But the Bank of England governor Mervyn King is urging bankers to build up their capital cushions before paying bonuses and dividends while the Financial Services Authority has forced some banks to restrain their dividend payments to ensure their capital cushions are not depleted.
The Barclays compensation ratio shot up last year as a result of the acquisition of the Wall Street operations of Lehman Brothers. While it is likely to be cut back this year, the 23,000 bankers at Barclays Capital were handed pay rises in the week before Christmas as the bank adjusted its pay schemes to comply with the G20 principles which require up to 60% of bonuses for senior staff to be deferred and "clawed back" in the event that profits turn to losses.
A high proportion of bankers at Barclays will be able to take 50% of their bonuses in cash with the remainder deferred over three years. Top executives and the senior management will have 100% of their bonuses deferred for up to three years. The next layer of staff – some 2,000 – will have up to 75% of their bonuses deferred for three years.
Barclays, led by chief executive John Varley, does not disclose the size of its bonus pot, but City analysts estimated that a 38% payout ratio suggested a total pay bill of £4.5bn. Around half of that could be needed to pay the discretionary bonuses that are still expected in the City despite the taxpayer bailout of the system.
Varley told the Treasury select committee of MPs this week that he was grateful for the backing of the government in stopping the banking system from collapsing in October 2008.
However, he also is thought to believe that Barclays should be given some freedom as it avoided taking taxpayer funds by raising money from Middle Eastern governments instead.
For more information, please visit
http://www.guardian.co.uk/business/2010/[...]clays-cuts-bonuses-bob-diamond
