Home
 
Choose Your City
Change City

Bonus squeeze as Europe's investment banks feel investor ire

By Anjuli Davies and Jamie McGeever

LONDON (Reuters) - Most European investment bankers received smaller bonuses in 2016 as their employers cut costs and sought to meet shareholder demands for a greater share of profits.

But while bankers' pay has been the target of political and public anger, the financial services industry is still where the big bucks are, with the average salary about 30 percent higher than the average wage in Britain, government statistics show.

Barclays <BARC.L> followed other banks in Europe on Thursday by saying it had cut its bonus pool, in the case of the British bank for the third year running, despite rising profits at its investment bank. Barclays said it was paying 1.5 billion pounds ($1.87 billion), down 56 pct from 3.5 billion pounds in 2010.

RelatedArticles

Such bonuses were blamed for encouraging risk-taking and contributing to the 2007-2009 financial crisis, causing European regulators to cap them at 100 percent of a fixed salary, or twice that with shareholder approval.

Banks tried to get round this by upping fixed pay and awarding allowances on a monthly or quarterly basis to bump up basic pay to senior staff. But that was met with calls for more restraint by shareholders, angry at European banks paying large salaries when most were struggling to turn a profit.

This appears to have begun to have an impact, with a fall of around 8 percent in bankers' total pay globally in 2016, and bonuses down by more than 10 pct, research firm Coalition estimated. European banks, who have most of their investment bankers based in London, were worst hit on aggregate.

"The bonus pool is down and performance is up. So that should be a good thing for our shareholders," Jes Staley, CEO of Barclays said after posting results.

HSBC <HSBA.L> said on Tuesday it had cut its bonus pool by 12 percent to $3 billion in 2016.

EXTREME DIFFERENCES

As the pressure on their business from regulation has mounted, banks have taken a tougher line on staff performance, rewarding more to those who generated the most returns in a bid to retain talent.

"This year differences in bonus pay at HSBC are extreme," one source familiar with the matter said.

"The overall bonus pool has gone down but distribution varies a lot. The high-performers will get paid way more, whereas average bankers will get much less."

The five highest paid employees at HSBC earned a combined $45 million, with the top earner taking home over $12.9 million.

Meanwhile, more than 360 of the bank's employees earned over 1 million euros ($1.05 million) in the year, according to HSBC's annual report.

At Barclays, 11 employees were paid more than 5 million pounds in 2016, versus nine in 2015. Of the 364 bankers paid over 1 million pounds, 62 percent were based in the U.S. and 32 percent in Britain, according to its annual report.

George Kuznetzov, head of research at Coalition, said banks are also able to pay out less by employing fewer senior bankers and hiring junior, less expensive, staff instead.

"One of the main drivers is the ‘juniorisation’ of the trading floor and some headcount reductions early in the year," Kuznetzov said.

An entry-level banker earned around 50,000 pounds, before taxes, in 2015, research from Emolument showed.

This compares with a starting salary at London’s Metropolitan Police of 29,331 pounds, for a newly qualified teacher 27,819 pounds and for a foundation year trainee doctor 36,063 pounds, data from the Met Police, Department of Education and National Health Service websites shows.

Germany's biggest lender Deutsche Bank has told employees with the titles of vice president, director and managing director that they will get no 2016 bonus at all, though they will be offered a 'retention package'.

Some bankers hope that with several banks nearing the end of major restructurings and cost cutting, combined with a bumper start for European dealmaking and market activity, 2017 could see pay pick up.

"2017 should be a better year than 2016 in terms of bonuses," a senior investment banking source said.

($1 = 0.8015 pounds)

(Additional reporting by Pamela Barbaglia, Clara Denina, Andrew Macaskill and Maya Nikolaeva; Editing by Alexander Smith)