Three UK Banks To Award £2.5bn-Plus Bonus Pot

By Mark Kleinman, City Editor

Three of Britain's biggest banks are finalising plans to pay out a combined bonus pot worth more than £2.5bn just weeks before the General Election campaign gets underway.

Sky News has learned that Barclays and two taxpayer-backed lenders - Lloyds Banking Group and Royal Bank of Scotland (RBS) - will separately announce approximately £2.8bn in new awards alongside their annual results during the next 12 days.

The bonus pool at each bank will be lower for 2014 than in the previous year despite the fact that City analysts expect them all to report stronger financial performances for the last 12 months.

Collectively, bonuses at the three banks will be roughly 15% lower than the equivalent numbers for 2013.

Barclays, which is independent of the taxpayer and has by far the largest investment bank of the three institutions, will say that bonuses fell from almost £2.4bn in 2013 to below £2bn last year, according to an insider.

The fall will come amid a retrenchment at Barclays' investment bank, with thousands of jobs being shed under a revamped strategy announced last year by Antony Jenkins, the chief executive.

Analysts are forecasting an uptick in annual profits at Barclays, which is due to report its results on March 2.

The news on pay will mark a contrast with last year's situation at the lender, which provoked a row with some leading shareholders by increasing bonuses despite a fall in profits.

Sir David Walker, Barclays' outgoing chairman, has signalled during recent discussions with investors that a rebalancing of distributions through dividends and bonuses was expected to continue in its 2014 results announcement.

Barclays has also set aside £500m to pay fines related to control failings in its foreign exchange operations, although it has yet to reach a formal settlement with any regulators.

One investor said that if confirmed, the recalibration of profits and bonuses would be "warmly welcomed" by institutional shareholders.

Lloyds and RBS will collectively pay out approximately £875m in bonuses for 2014, sources said on Thursday, compared to an equivalent figure of roughly £975m a year earlier.

Both banks, which report results towards the end of next week, are continuing negotiations over their bonus plans with UK Financial Investments (UKFI), whose directors discussed the issue at a board meeting on Wednesday.

One source close to RBS said its bonus figure was "hovering" around the £500m mark amid ongoing talks about the extent to which hundreds of millions of pounds in fines and mis-selling compensation payments should be reflected in rewards for staff.

Lloyds, meanwhile, will announce that it is paying out in the region of £375m, lower than last year's £395m, despite the fact that it hopes to announce the payment of its first shareholder dividend since the financial crisis.

Lloyds was fined more than £215m last year for its role in the global Libor rate-rigging scandal, and the punishment will be explicitly reflected in last year's bonus payouts, a source said.

Both the Lloyds and RBS bonus numbers remain subject to revision and possible influence from the Treasury, a Whitehall source said.

Despite the fact that the bonus pools across the major banks will be lower than the previous year, they could ignite a renewed political row, with Labour expected to criticise the payments.

Banking sources pointed out that the "vast majority" of the bonuses awarded for 2014 would be subject to long-term deferral and paid in shares rather than cash.

Sky News revealed on Wednesday that the two taxpayer-backed banks would be subject to a £2000 cap on cash bonuses for a sixth consecutive year.

Reforms introduced by the European Banking Authority mean that variable pay is now capped at 100% of salaries, or twice that sum if shareholders have explicitly approved the move.

While Lloyds secured permission last year to pay bonuses at the higher threshold, RBS fought an unsuccessful private battle with the Treasury which culminated with it only being able to pay out bonuses equivalent to an employee's salary.

Almost all major banks operating in Europe have introduced so-called allowances to contend with the European cap.

These count towards fixed pay but can be adjusted on an annual or in some more cases more frequent basis, leading to a review by the EBA which may announce further restrictions on their payment in the coming weeks.

Since being bailed out by taxpayers in 2009, RBS has paid out close to £6.5bn in bonuses to staff, according to research by Sky News.

RBS remains 80%-owned by taxpayers, with little prospect of a sale at a level that would reap a profit for the Treasury.

Lloyds, which has historically had a much smaller investment banking operation than RBS, has paid out an estimated £2bn in bonuses during the same period.

The bank is 24.9%-owned by UK taxpayers.

Barclays, Lloyds, RBS and UKFI all declined to comment.

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