Shareholder Group Backs BOE Call for Restraint on Banker Bonuses
Top Shareholder Group Backs U.K. Call to Freeze Banker Bonuses
(Bloomberg) -- One of Europe’s largest independent shareholder advisers is backing the Bank of England’s call for restraints on top bankers’ pay while the coronavirus roils the economy.
Tim Bush, head of corporate governance at Pensions & Investment Research Consultants, said banks shouldn’t pay any bonuses at all to their senior executives. That echoes the stance taken by the U.K.’s central bank, which had already forced major lenders to cease paying dividends and buying back their shares.
Shares of HSBC Holdings Plc, Barclays Plc and other lenders tumbled Wednesday after they canceled their outstanding dividends and buybacks and said there would be no payments in 2020. British authorities are taking a similar line to counterparts on the Continent, where the European Central Bank has already asked eurozone banks to stop dividend payments for six months.
Banks have been a focus of response to the pandemic as European governments aim to keep credit flowing to the economy, while seeking to avoid some of the perceived wrongs of the way the 2008 financial crisis was handled. Banks have been at the front end of massive government support, including relief on some capital buffers and more time to tackle soured loans.
Given those measures, “we’d say the Bank of England has done the right thing on dividends and expecting significant restraint on variable pay,” said PIRC’s Bush.
None of the British banks have said whether they will change bonus policies. Elsewhere in Europe, Deutsche Bank AG is said to be reviewing bonuses for its senior managers, while Spanish lenders Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA said they will cut remuneration for top executives.
Not everyone is happy with the approach. Some investors say the interventions have been too heavy-handed, weakening the competitive position for European banks compared with their U.S. counterparts, which so far face no such restrictions on dividends or pay. Colin McLean, of SVM Asset Management in Edinburgh, said the restrictions could cause HSBC to renew threats it made in past years to move to Asia.
Eric Moore, a portfolio manager at Miton Group in London, said the Bank of England’s move on dividends “ruined my sleep,” given he assumed his funds were about to receive their payouts from Royal Bank of Scotland Group Plc and Barclays.
“Most funds will have counted that income in,” he said. “I have already counted that in. So this is painful and difficult. They might as well nationalize the banks. What’s the point? They control everything,” he said of the regulators.
Guy de Blonay, global equities director at Jupiter Asset Management, took the middle ground -- backing the dividend suspensions, but not restrictions on bonuses.
“I am quite positive about how things are developing because central banks and governments are being proactive,” de Blonay said. However, “cash bonuses are not as big as they used to be. I don’t think the argument around bonuses is based on the same grounds as it was in 2008.”
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