British banks are not known for paying Brevan Howard-style bonuses. RBS in particular is better known for paying bonuses the kind of bonuses that are appropriate for a nationalised entity – last year its chief executive opted to receive no bonus at all. This year, however, bonuses at RBS could be worse than ever. And bonuses at Barclays could be redirected to Barclays investment bankers seen to be doing good deeds.
Over the Christmas break, the Telegraph reported that Hector Sants will have a major say in setting bonuses at Barclays. Sants, who is joining the bank as head of compliance later this month, will reportedly set about firstly reducing the overall value of bonuses at Barclays and secondly formulating a new pay strategy under which bonuses will be awarded not just for financial achievements, but for the “social impact” of deals signed and products sold. Depending upon the weighting given to social impact in bonus determination, this could clearly be revolutionary and result in long queues of Barclays bankers eager to refinance care homes or to sell carbon credits.
In a second doom-laden Christmas piece, the Telegraph separately suggested that RBS will be reducing its bonus pool to take account of its anticipated £350m Libor fine. The Telegraph also suggested that RBS will be seeking to claw back Libor-related bonuses where appropriate.
Barclays and RBS declined to comment on both sets of allegations.
With luck, however, the Telegraph’s suggestions will prove mere festive fripperies. Ian Gordon, banking analyst at Investec, tells us that Barclays’ claim to be reorienting bonuses in favour of social value is almost certainly a PR exercise for, “external consumption only” and that it will have no real impact on the bonus pool. Notably, Barclays has been making a big deal about social value for a while: its 2011 annual report contained a range of ‘citizenship KPIs’ such as investing in local communities and appointing more female managers. According to one Barclays banker, such things were merely window-dressing.
Gordon also points out that any claims that banks like RBS are clawing back bonuses related to Libor infractions dating back to pre-2008 are almost certainly spurious. “There wasn’t any provision for clawing back bonuses that long ago,” he says.
The claim that RBS’s bonus pool will be reduced to take account of the coming Libor fine could, unfortunately, have more substance. RBS has yet to make any provisions for its expected Libor fine and could well find it politically apposite to make a big show of cutting investment banking bonuses as a punishment for past wrongdoings.
“Most banks will recognise that they employ tens of thousands of people and that it makes no sense to punish them all for events that took place among a small handful of Libor traders five years’ ago,” says Simon Maughan, head of the sector strategy group at Olivetree Securities. “However, RBS is majority-owned by the government and it could well be bowing to the political winds.”
If RBS does bow to the political winds, it could be disastrous for its bonuses. Last year, RBS’s investment banking bonus pool totaled £390m. A £350m fine would leave RBS’s investment bankers with very little indeed.