guardian.co.uk,
Jill Treanor, city editor, Wednesday 4 January 2012
 |
| Bank bonus season is about to begin in the City. Photograph: Anthony Devlin/PA |
One of the
most controversial annual bonus rounds ever is about to get under way in the
City. The size of payouts at a time of rising unemployment and pay restraint in
the wider economy will spark a fresh wave of protest about high pay in the
financial industry, despite protestations from bankers that bonus pools are
down markedly on 2010.
But
announcements of more than 125,000 job cuts last year mean bankers will find it
harder to use their traditional excuse that they need to pay out big bonuses to
retain top talent.
Expectations
are also mounting that even after the toll on jobs in 2011 – when the crisis in
the eurozone conspired with regulatory changes to make investment banking less
profitable – more bankers will lose their jobs this year as banks such as Royal
Bank of Scotland dramatically scale back their size of the investment banking
operations. French bank Société Générale began to restructure its investment
bank on Wednesday, axing 880 jobs in Paris in a move that could signal losses
are to come in the City.
Even within
the financial industry itself, bonus season sparks anger. David Fleming,
national officer of the Unite union, which represents high street banking
workers, warns of the "disgust" at the multimillion-pound rewards
handed out to City bankers. "Pay imbalances in the finance industry remain
shockingly high," he said. "The bonuses at the tops of these
institutions must be curbed. Instead of paying casino bonuses to investment
bankers, these companies should stop cutting the staff working hard to serve
their customers."
As it
stands, 2011 was a difficult year for investment banks. Global investment
banking fees sunk to their lowest level in three years, according to data
published by Thomson Reuters on Wednesday. Yet banks face the tricky task of
explaining that the proportion of revenue they are using for pay will be higher
– because while revenue has fallen, they argue staff still need to be paid
bonuses deferred from previous years.
Rob
Harbron, the economist who compiles a twice-yearly forecast of job cuts and
bonuses, warns that there will more pressure on City jobs this year. "If
the eurozone crisis gets any worse, we could see downward revisions to our
forecasts and a lot more job cuts in 2012," Harbron said. His latest
forecasts for the Centre for Economics and Business Research are for £4.2bn of
bonus payments in 2011 – roughly a third of the £11.6bn peak paid out just as
the banking crisis took hold in 2008.
Reuters
calculates that 125,000 jobs were earmarked for the axe last year, although the
losses will be phased over the next few years.
Additionally,
apart from the fall-off in business, bankers are also being told by regulators
to curb bonus payments if they are not making enough profits to bolster their
capital cushions.
The key
test of the appetite for confrontation will take place in a fortnight when Wall
Street firms such as JP Morgan and Goldman Sachs publish figures for 2011. Two
years ago, Goldman attempted to demonstrate "restraint" – even though the average pay deal was more than £300,000 per employee – by cutting the
amount of revenue allocated to pay from 48% to 35.8% while its 400 partners
contributed $500m to its charitable foundation, Goldman Sachs Gives. Such a
move was possible during 2009 because the bank's revenues had doubled, but this
year may prove more tricky as the Thomson Reuters data shows that fees
collected by Goldman fell by more 11%.
For UK
banks, the pressure is on. Major investors represented by the Association of
British Insurers have written to top bankers to tell them to"significantly" reduce their bonus pools.
The
government is facing pressure to use its 83% holding in Royal Bank of Scotland
and 40% stake in Lloyds Banking Group to put restrictions on bonuses. Vince
Cable, the business secretary, is preparing to publish proposals on executive
pay later this month.
UK
Financial Investments, which controls the taxpayer stakes in the bailed-out
banks, is expected to again demand that any bonuses of more than £2,000 is not
paid in cash. RBS is thought to be preparing to pay out £500m in bonuses, half
last year's levels.
But, this
may not be enough to deflect public anger. Andrew Simms, fellow of the New
Economics Foundation thinktank, points out that the protesters outside St
Paul's Cathedral in the heart of the financial district illustrate the new
depth of feeling that has erupted since the 2008 crisis. "This must be the
most sensitive bonus round yet," said Simms.
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