Banking bonuses under the spotlight at HSBC

Mar 2 2010 by Peter McCusker, The Journal

HSBC revealed it paid three bankers more than £9m each last year as bonuses continued to dominate annual results in the sector.

While the banking giant’s chief executive moved to calm public anger by donating his £4m bonus to charity, it emerged that the head of HSBC’s investment banking arm, Stuart Gulliver, was awarded a £9m shares bonus and 50% pay rise in 2009, according to the bank’s annual report.

Two other employees also received hefty pay packages of more than £9m last year, with the bank’s five biggest earners taking home more than £35m in bonuses, albeit in deferred shares.

However, chief executive Michael Geoghegan said he would pass his £4m bonus entitlement to charities around the world over the next three years, while chairman Stephen Green has waived his entitlement to bonus shares.

The news comes after it emerged that Peter Sands, the boss of fellow UK bank Standard Chartered, will also give his 2009 windfall to good causes.

They faced mounting pressure after the two leading executives at Barclays and the chief executives at Royal Bank of Scotland and Lloyds Banking Group decided to forgo their 2009 handouts.

HSBC took its turn in the bonus spotlight as it announced underlying pre-tax profits of US $13.3bn (£8.8bn) in 2009, up 56% on 2008.

On a reported basis, HSBC’s results showed a 24% slide in annual profits to US$7.1bn (£4.7bn) after one-off factors and write-downs on the value of its assets.

Its investment banking business, HSBC Global Banking and Markets, saw a 148% surge in profits thanks to the equities rebound and improved conditions.

Bumper profits at the division saw bonuses handed out to a swathe of investment bankers, with HSBC on the hook for a US$355m (£234m) in tax payments under the Government’s one-off bonus scheme.

But Mr Green pledged less reliance on bonuses and an increase in basic salaries as a proportion of total remuneration under an overhaul of the bank’s pay policies.

“Remuneration must be firmly tied to sustainable performance and must not reward failure,” he said.

“We have witnessed unacceptable distortions – from rewards linked to unsustainable or illusory day one revenues which encouraged risk-taking; to multi-year guaranteed bonuses with no performance criteria,” he added.

HSBC said it “supported customers in the downturn” with £15bn made available in new mortgage lending in the UK.

The bank has weathered the financial crisis well compared with many rivals and avoided direct taxpayer support, although it did tap shareholders for £12.9bn to bolster its balance sheet.

It suffered hefty bad debts as a result of a lending binge during the housing market boom on both sides of the Atlantic.

The group shed more than 23,000 jobs in 2009 in a bid to save costs as bad debts raced higher.

HSBC reported another increase in borrower bad debts and impairments in 2009, up 9% to US$26.5bn (£17.5m).

However, it said its badly hit US consumer finance business saw a 16% fall in bad debts and predicted a further fall in 2010 as unemployment is expected to ease back.

In the UK, underlying earnings fell 37% to US$10bn (£6.6 billion).

The domestic division contributed £988m to group pre-tax profits.

HSBC said it grew its share of the net new UK mortgage market, although its figures suggested there was little relief for cash-strapped borrowers as its average loan-to-value was less than 55%.

There was also confirmation of the struggle faced by borrowers last year as impairment charges in the UK soared by 46%.