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Lloyds Banking Group chief António Horta-Osório gets £1.7m bonus Lloyds Banking Group chief António Horta-Osório gets £1.7m bonus
(about 9 hours later)
Lloyds Banking Group has awarded its boss António Horta-Osório a £1.7m bonus after declaring itself "a normal bank" five years after its taxpayer bailout. Lloyds Banking Group has awarded its boss António Horta-Osório a £1.7m bonus after declaring itself "a normal bank" five years after its bailout.
With preparations under way for a sell-off of part of the 33% remaining taxpayer stake, Horta-Osório played down the impact of Scottish independence on the bailed out bank which owns Bank of Scotland. With preparations under way for a sell-off the remaining 33% taxpayer stake, Horta-Osório played down the impact of Scottish independence on the bailed out bank, which owns Bank of Scotland.
The Portuguese banker – who took the helm in March 2011 – defended his decision to accept the bonus which he stressed was linked to the half of the taxpayer stake being sold off or the share price remaining above the taxpayer break-even point of 73.6p. He was handed £2.3m in shares late last year under the terms imposed which linked his payout to the share price, which has outperformed rivals. The Portuguese banker – who took the helm in March 2011 – was forced to defend his decision to accept the bonus after union leaders called on him to follow rivals at Royal Bank of Scotland and Barclays and waive his payout.
A bonus pool of £395m will be shared between 91,000 staff who on average are to receive £4,500, which the bank insisted had been reduced as a result of the bill for compensating customers for mis-selling payment protection insurance and last year's £28m fine from the Financial Conduct Authority for a "champagne" bonus culture that potentially encouraged mis-selling. Horta-Osório pointed to last year's 70% rise in the share price, which allowed the government to sell off part of its stake last September. There are expectations that a further share sale could begin after the annual report is published on 6 March. "We are ready to proceed," he said. "The market, I think, is ready as well.
The bank reported a statutory profit of £415m – a loss of £802m after tax – after being rocked by a £3bn charge for PPI mis-selling. The bank admitted a week ago that its total bill for PPI mis-selling is now approaching £10bn. Lloyds reported a £606m loss a year ago. "I came to Lloyds three years ago to fix this bank and help taxpayers get their money back," he said.
Union officials reacted angrily to the boss's bonus, when they have been offered a 2% pay rise. Staff numbers have been depleted by more than 35,000 since the 2008 bailout and a cost-cutting programme by Horta-Osório. He said he had stabilised the bank after its "quite precarious" position when he took charge, and declared that Lloyds was now "a normal bank".
"The CEO's £1.7m bonus, on top of shares worth millions awarded at the end of October, are a kick in the teeth to the taxpayer and to hard-working staff who don't know if they will be next in line for the chop from one day to the next," said Unite national officer, Rob Macgregor. But TUC general secretary Frances O'Grady was unimpressed: "With Lloyds still owing billions to the taxpayer and the amount it has had to set aside for PPI mis-selling rising by a whopping £1.8bn, now is not the time for its chief executive to be taking a multimillion-pound bonus."
"Profits have doubled thanks to ordinary workers doing extraordinary work behind the scenes to turn the bank around but they have been rewarded with an insulting 2% pay deal – the lowest pay deal of the big four banks so far," Macgregor said. Unite national officer, Rob Macgregor said the payout to the boss – in a year when staff had been handed 2% pay rises and after 35,000 roles had been axed since the 2008 bailout – was a "kick in the teeth to the taxpayer".
The underlying profit was £6.2bn, double a year ago. Horta-Osorio will receive the £1.7m share bonus only if half of the remaining taxpayer holding is sold or if the share price remains above 73.6p – the breakeven point of the taxpayer bail-out – for six months. He will then be required to hold the shares until 2019.
Horta-Osório said he was taking his bonus after the share price rose 70% last year compared with a performance of rivals of between a 12% rise and a 14% fall. The price allowed the government to sell off part of its stake in September and there are expectations that a further share sale could begin after the annual report is published on 6 March. "I came to Lloyds three years ago to fix this bank and help taxpayers get their money back," he said. "We are a normal bank," he said. His counterparts at Royal Bank of Scotland and Barclays have waived their 2013 bonuses. A bonus pool of £395m will be shared between 91,000 staff and payouts will average £4,500 per worker. The bank insisted the payout pot had been reduced as a result of the bank's vast bill for compensating customers for mis-selling payment protection insurance – which has now reached nearly £10bn – and last year's £28m fine from the Financial Conduct Authority for a "champagne" bonus culture that potentially encouraged mis-selling.
The later £1.7m award of shares will only be handed to the Lloyds chief if the targets are met and then he will be required to hold them until 2019. The bank reported a statutory profit of £415m – and a loss of £802m after tax – after being rocked by a £3bn charge for PPI mis-selling. The bank admitted a week ago that its total bill for PPI mis-selling is now £9.8bn and former boss Eric Daniels is among those facing a potential clawback of bonuses as a result of the bigger than expected compensation claims.
Horta-Osório has now begun work on a new three strategic plan for the bank, which is being forced to spin off its TSB brand under the terms of its bail out, in a move that could signal branch closures in the future. Lloyds reported a £606m loss a year ago while the underlying profit for 2013 was £6.2bn, double a year ago.
A prospectus is already being drawn up as a sales document for prospective buyers of the shares but it is not going to contain any warning about the impact of a potential yes vote to Scottish independence in September. Horta-Osório said: "We will absolutely respect whatever decision the Scottish people will take". The 18-month period before independence for Scotland in the event of a yes vote would be enough time to make decisions on its impact, he said. Horta-Osório's bonus comes on top of his £1m salary, £500,000 pension contribution and a payout from a long-term incentive plan that could amount to around £2.9m – half the potential sum – when it is formally revealed next month.
The shares were down 2% at 82p in early trading. The bank had already warned last week that it would not be able to resume dividends until towards the end of this year, later than some analysts had hoped. He has now begun work on a new three-year strategic plan for the bank, which is being forced to spin off its TSB brand under the terms of its bail out, in a move that could signal branch closures in the future.
Simon Walker, director general of the Institute of Directors, which on Tuesday blasted Barclays for paying higher bonuses when profits were falling, said Lloyds needed to be "sensitive to taxpayer perceptions when making decisions on remuneration and bonuses".
Horta-Osório agreed it was a "bad principle" to pay out higher bonuses when profits were down as Barclays had done. Following calls by Ed Miliband to shake up high street banking by create two new players, Horta-Osório said this would be achieved by TSB – to be floated in the coming months – and the separation of Williams & Glyn's from RBS.
However, the Lloyds boss conceded that competition was more of a concern in the small business banking market, currently being reviewed by the Office of Fair Trading.
The shares closed down 2% at 81.32p. The bank warned last week that it would not be able to resume dividends until towards the end of this year, later than some analysts had hoped.
Ian Gordon, banks analyst at Investec, said: "The statutory losses are heavier than had been assumed and the forward guidance is softer than frothier market expectations".