Banks paid millions in bonuses weeks before ban on cash rewards

Majority of payouts already in executives’ accounts before UK dividend axe, say sources

Millions of pounds of bank bonuses were paid out weeks before the Bank of England banned British lenders from offering cash rewards to their most senior executives as the coronavirus crisis escalates.

In an intervention that sent banking shares tumbling on Wednesday amid renewed turbulence in financial markets, Threadneedle Street ordered Britain’s biggest high street banks late on Tuesday to cancel almost £8bn of dividend payments due to be made to investors this year, and told firms to scrap cash bonuses for top staff, or “material risk takers”.

However, banking industry sources said the bulk of cash bonuses will have already landed in executives’ accounts, including as recently as last week at some of the biggest banks.

According to a Guardian analysis of the bonus plans for employee performance at five of the UK’s biggest banks in 2019, which are payable this year, more than half a billion pounds of cash payouts had been earmarked for top executives.

Insiders said bonuses are usually paid alongside bankers’ March pay cheques, including at the British firms with the biggest investment banking bonus pots – Barclays, HSBC and Standard Chartered.

RBS and Lloyds, as banks bailed out in the 2008 financial crisis, and with smaller investment banking units, limit annual cash bonuses to £2,000 per senior employee.

Barclays had allocated £320m for its senior managers and material risk takers – staff who perform the most highly regulated jobs in finance – to be paid in cash rewards, with about half that amount deferred until next year. Sources said the bank, like others, paid bonuses in March.

HSBC had set aside $300m (£242m) and Standard Chartered $147m, with both banks deferring about half of those amounts to pay to staff in future. They are also understood to have paid bonus payments in the past four weeks.

Britain’s biggest banks have almost 5,000 material risk takers between them, with more than 1,000 of these senior bankers paid more than £1m each year. Bankers receive a large portion of their bonuses in shares, which are not affected by the Threadneedle Street move.

The intervention by the Bank’s Prudential Regulation Authority (PRA), which is responsible for finance industry stability, is the latest step to cushion the economic blow from the coronavirus crisis, which aims to help high street banks keep lending.

Stopping cash bonus payments before they were made could only have happened if Covid-19 had struck earlier, it is understood, with officials racing to respond to the fallout.

However, industry sources said they believed regulators were putting the banks on notice that bonus payouts for 2020 would need to be significantly scaled back from previous years’ levels given the extent of the Covid-19 crisis.

In a warning to bank chiefs, the head of the PRA , Sam Woods, said the regulator 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”.

Threadneedle Street’s ultimatum for banks to scrap almost £8bn of dividends sent shock waves through the industry on Wednesday, triggering a sharp sell-off in bank shares and causing anger among executives.

According to the Financial Times, a debate among senior management at HSBC over whether the bank should relocate its headquarters to Hong Kong has been reignited after it was forced to cancel its dividend for the first time in 74 years.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

However, a spokesperson for HSBC said: “There are no discussions to review HSBC’s global headquarters and no plans to reopen the issue.”

Bank shares were among the biggest fallers on the FTSE 100 on Wednesday amid investor concern over the scrapping of dividends. Lloyds and Barclays slumped by almost 12%, while HSBC fell by almost 10%.

The index of leading UK company shares closed down more than 200 points, or 3.8%. The slide comes after share prices had steadied in recent days, after the worst quarter for losses on the FTSE 100 since the aftermath of Black Monday in 1987.


Richard Partington Economics correspondent

The GuardianTramp

Related Content

Article image
Banks must cut executive pay, warns shareholders group
Association of British Insurers joins clamour against bumper bonuses with stiff letter to five biggest banks

Jill Treanor, City editor

05, Dec, 2011 @10:01 PM

Article image
FSA to set out proposals for new banks to challenge high street 'big four'
Proposals to be unveiled as Bank of England announces its estimate of the size of capital shortfalls at the UK's major lenders

Jill Treanor, City editor

25, Mar, 2013 @12:04 AM

Article image
Britain's biggest lenders await Bank of England's verdict on health checks
Bank’s stress test results will determine whether seven institutions should be forced to hold capital in order to rein in risky lending

Jill Treanor

29, Nov, 2015 @6:36 PM

Article image
UK high street banks prepare to reveal bonuses

HSBC, RBS, Lloyds, Barclays and Standard Chartered finalise bonus pots, with Lloyds expected to restore dividends to shareholders

Jill Treanor

19, Feb, 2015 @7:53 PM

Article image
Results will reveal the good, the bad and the ugly of UK banks
Boardroom pay, litigation and losses to come under spotlight as Britain’s top lenders post financial results this week

Jill Treanor

19, Feb, 2017 @3:37 PM

Article image
UK banks receive first report cards from Banking Standards Board
Assessments sent to Barclays, HSBC, Lloyds, RBS, Santander, Standard Chartered, Nationwide, Metro, Citi and Morgan Stanley

Jill Treanor and Larry Elliott

29, Dec, 2015 @7:00 AM

Article image
Major UK lenders all pass Bank of England stress tests
Banks warned they would have to cut bonuses and dividends to weather a financial crisis

Kalyeena Makortoff Banking correspondent

16, Dec, 2019 @5:36 PM

Article image
Britain's biggest banks to face tougher stress tests
Annual financial health assessment will focus only on seven biggest lenders and could require them to hold more capital in order to pass

Jill Treanor

21, Oct, 2015 @11:07 AM

Article image
Accountants to devise standards to increase confidence in banks’ capital assessments
ICAEW plans come as banking industry awaits first annual Bank of England health check

Jill Treanor

14, Dec, 2014 @4:28 PM

Article image
RBS takes biggest knock of UK banks in EU-wide financial stress test
Royal Bank of Scotland was third-most affected of 51 banks tested, while Barclays also fared poorly under stress scenario

Jill Treanor

29, Jul, 2016 @9:16 PM