FSA warns Bank chiefs about Bank Bonuses

Mark
Kleinman January 06, 2012 10:46 AM

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The City regulator is to warn Britain’s bank chiefs that it will reject their
plans to pay out billions of pounds in bonuses unless they demonstrate that they
are retaining sufficient capital to weather a worsening storm in the financial
system.

I have learned that Hector Sants, chief executive of the Financial Services
Authority (FSA), will meet the bosses of the biggest UK-based lenders during the
next few weeks to reinforce the message that bonus and dividend payments can
only be settled upon once banks have satisfied regulators that their capital
positions are sufficiently robust. A number of the relevant meetings between
Sants and the bank chiefs are understood to have taken place already.

Sants’ warning echoes a statement from the Bank of England’s new Financial
Policy Committee last month that capital preservation should be prioritised over
payments to staff and shareholders.

The FSA told me this morning that it was “vigorously engaging with the major
UK banks to ensure they complied with the FPC’s recommendation to retain capital
by reducing distributions such as bonuses”.

One senior banker said that Sants was taking a harder line on the issue of
bank pay than in any previous year.

Sir Mervyn King, Governor of the Bank of England (into which much of the FSA
will be subsumed next year), said last month that hoarding capital was essential
in what he called “an exceptionally threatening environment”, a reference to
both the Eurozone crisis and the troubled UK economy.

The FSA’s intervention is therefore relatively unsurprising. Nonetheless, it
reinforces the fact that the looming bank pay round promises to be the most
contentious since the industry was rescued by taxpayers in 2008.

That’s despite the fact that pay levels at banks such as Barclays and Royal
Bank of Scotland (RBS) will be depressed by the comparatively poor performance
within their investment banking divisions.

City investors are also turning up the heat on bank boards over the issue
(belatedly, in the eyes of many people). Last month, the Association of British
Insurers wrote to the chairs of the big banks’ boardroom pay committees to urge
them to rebalance the amounts paid to employees and shareholders.

The FPC has also warned that it could intervene to place a cap on the
proportion of bank profits that can be distributed in bonuses and
dividends.


hector_sants banks fsa barclays
royal_bank_of_scotland financial_policy_committee sir_mervyn_king eurozone
association

Panda wrote:


Mark
Kleinman January 06, 2012 10:46 AM

• Recommend post (0)
  

The City regulator is to warn Britain’s bank chiefs that it will reject their
plans to pay out billions of pounds in bonuses unless they demonstrate that they
are retaining sufficient capital to weather a worsening storm in the financial
system.

I have learned that Hector Sants, chief executive of the Financial Services
Authority (FSA), will meet the bosses of the biggest UK-based lenders during the
next few weeks to reinforce the message that bonus and dividend payments can
only be settled upon once banks have satisfied regulators that their capital
positions are sufficiently robust. A number of the relevant meetings between
Sants and the bank chiefs are understood to have taken place already.

Sants’ warning echoes a statement from the Bank of England’s new Financial
Policy Committee last month that capital preservation should be prioritised over
payments to staff and shareholders.

The FSA told me this morning that it was “vigorously engaging with the major
UK banks to ensure they complied with the FPC’s recommendation to retain capital
by reducing distributions such as bonuses”.

One senior banker said that Sants was taking a harder line on the issue of
bank pay than in any previous year.

Sir Mervyn King, Governor of the Bank of England (into which much of the FSA
will be subsumed next year), said last month that hoarding capital was essential
in what he called “an exceptionally threatening environment”, a reference to
both the Eurozone crisis and the troubled UK economy.

The FSA’s intervention is therefore relatively unsurprising. Nonetheless, it
reinforces the fact that the looming bank pay round promises to be the most
contentious since the industry was rescued by taxpayers in 2008.

That’s despite the fact that pay levels at banks such as Barclays and Royal
Bank of Scotland (RBS) will be depressed by the comparatively poor performance
within their investment banking divisions.

City investors are also turning up the heat on bank boards over the issue
(belatedly, in the eyes of many people). Last month, the Association of British
Insurers wrote to the chairs of the big banks’ boardroom pay committees to urge
them to rebalance the amounts paid to employees and shareholders.

The FPC has also warned that it could intervene to place a cap on the
proportion of bank profits that can be distributed in bonuses and
dividends.]

What on earth is wrong with their bonuses being linked to results as in the PBR schemes used in industry? (When we had an industrial base worth remarking on). The usual excuse from these bloated fat cats is that they must pay the correct salary to attract the best people to do the job.... The obvious answer is to ask them to look at the state of the global economy and give their considered opinion of the fiscal ability of the bankers who created the present chaos, and did they really justify the bonuses paid to them.

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FSA Chief: Big Bonuses 'Not Good For Society'

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6:06am UK, Friday January 27, 2012

Tom Rayner, in Davos


The head of the UK's financial watchdog has told Sky News he believes
excessive executive bonuses are "not good for society".


In an interview with Sky's economics editor Ed Conway, Lord Adair Turner,
chairman of the Financial Services Authority, warned that perceived inequality
of multi-million pound cash rewards has created a "real problem" around the
"legitimacy of capitalism".

His comments come as Sky revealed the chief executive of the Royal Bank of Scotland, Stephen
Hester, is to get a bonus of almost £1m.

It also follows an announcement on Monday by business secretary
Vince Cable of government plans to crack down on bonuses and create a clearer
correlation between rewards and performance.

Speaking at the World Economic Forum in Davos, Lord Turner said he understood
the increased scrutiny that had recently been directed at the payouts made,
particularly to those in the banking system that many blame for the current
financial crisis.


RBS chief Stephen Hester received a whopping bonus of
almost £1m



"I completely understand the concern about very high bonuses, not just in
banks but across industry," he said.

"I do think it is a concern that the last 15 years have seen an extraordinary
increase in inequality… we talk about a winner-takes-all society, and it is the
top 0.1% who have done peculiarly well."

While Lord Turner acknowledged that it was rewards and incentives that were
vital to the business world, he said there would be a problem in terms of the
"legitimacy of capitalism if the spread of rewards gets too big".

Lord Turner also suggested the government might consider creating a new
institution, similar to the FSA, which would look specifically at executive pay
and rewards, but he refused to be drawn on whether any such plans are
underway.

Earlier in the week at the WEF meeting in Davos, the US academic Nouriel
Roubini said a 'Tahrir Square' moment was required in corporate boardrooms to
overcome the collapse in public confidence in big business.