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HSBC’s Traders Shored Up The Bank, But Their Bonus Pot Shrinks

HSBC’s Traders Shored Up The Bank, But Their Bonus Pot Shrinks

HSBC Holdings Plc’s traders and investment bankers were the breakout stars in an otherwise gloomy first half. But that might not help them as the bank cuts its bonus pool to cushion itself from a surge in bad debts.

The bank shrank its fund for awards by $600 million compared to a year ago, according to its latest corporate filing. If HSBC keeps cutting at the same pace through this year, variable compensation would be roughly a third lower than the $3.4 billion paid in 2019. A spokesman for the bank declined to comment.

Europe’s biggest bank said cutting performance-related pay helped drive a 4% drop in first-half group operating expenses, partly offsetting credit losses that could reach $13 billion this year. The lender is also under pressure from U.K. regulators to show restraint on bonuses while Covid-19 pummels the economy.

HSBC’s global banking and markets division, which houses investment banking units including corporate advisory and fixed income trading, takes one of the biggest shares of the lender’s bonus pool. A filing by HSBC Bank Plc, a London-based subsidiary incorporating much of the investment bank, said GBM expenses had decreased over the first half “mainly due” to the cut in performance-related pay.

Standout Performance

On a call with analysts this week, Chief Financial Officer Ewen Stevenson said GBM had delivered the group’s “standout” showing and praised the fixed income unit for its “excellent performance.” Adjusted revenues in the bank’s fixed income, currencies and commodities business rose 57% in the half compared to the same period in 2019, with foreign exchange revenues up 50% and the credit business reporting an 83% year-on-year rise.

The drop in the bonus accrual rate means that even after traders matched the blockbuster results seen on Wall Street, their success may not be fully reflected in their end-of-year bonuses.

At British rival Barclays Plc, decisions on whether to reward the investment bank’s strong performance with higher compensation will be taken at the end of the year. “We want to compensate our people fairly, but also we have a very uncertain economic environment right now and we need to be mindful of that,” Chief Executive Officer Jes Staley said after last month’s earnings.

“We are accruing, and I’m not worried about being able to keep the very talented people that help us in the wholesale side of our business,” said Staley. Barclays set aside 476 million pounds ($625 million) in the first half to cover bonuses. While this is 20 million pounds higher than a year ago, pay is growing more slowly than revenue and took up 32.2% of income, down from 34.4% a year ago.

The Bank of England has put pressure on lenders to keep a lid on pay and use capital to lend through the global pandemic. The central bank told firms in March to scrap dividends and warned against handing out cash bonuses to senior staff. The BOE said at the time it was “confident that bank boards are already considering and will take any appropriate further actions with regard to the accrual, payment and vesting of variable remuneration over coming months.”

©2020 Bloomberg L.P.