António Horta-Osório, the boss of Lloyds Banking Group, has been awarded a near £1.5m bonus as the government signals it is prepared to fire the starting gun on the sale of its 39% stake in the loss-making bank at a lower price than expected.
He was awarded the bonus of £1.48m in shares despite the bank taking another £1.5bn provision for payment protection insurance (PPI) compensation, raising its total bill for the mis-selling scandal to £6.8bn. This helped drive the bank to a loss of £570m for 2012 – narrower than the loss in 2011 of £3.5bn – but the bank is still paying out a total of £375m in bonuses. The bank is also taking a provision of £400m for mis-selling swaps to small businesses.
The Unite union was angered by the bonus for Horta-Osório who said he had wanted his payout to be linked to taxpayers getting their money back on their 39% stake in the bank. “My main objective is to get taxpayer money back,” he said, adding he was “very confident” this could be achieved.
Even so, the bank is not paying a dividend for 2012, regarded by analysts as a prerequisite for any share sale.
Royal Bank of Scotland signalled on Thursday that it was preparing for the government to begin to sell its 82% stake next year, amid mounting speculation of a pre-election share selloff in the bailed out banks.
Dominic Hook, national officer at Unite, said: “Lloyds is still making a loss and it’s tainted by scandal, there is no justification for António Horta-Osório’s share pot.”
The bonus for the Portuguese-born boss is linked to the government selling off a third of its stake in the bank at share prices above 61p – considerably lower than the average price of 73.6p at which the taxpayer injected nearly £20bn in to the bank in 2008. The shares were among the biggest fallers in the FTSE 100 in early trading, down almost 3% at 53p.
Horta-Osório’s bonus is in shares and deferred until 2018. The bank said his bonus “will only vest if a share price of 73.6p has been reached for a given period of time or the government has sold at least 33% of its shareholding at prices above 61p”.
“The board believes that these additional conditions are in the interests of all shareholders and support our common aim of repaying the taxpayer,” the bank said. “HM Treasury has informed us that 61p is the average price at which the equity support provided to Lloyds Banking Group is recorded in the public finances.”
UK Financial Investments, which looks after the taxpayer stakes in the bailed out banks, has previously disclosed that if the £2.5bn fee Lloyds paid to exit the UK asset protection scheme is included, then the average price at which the taxpayer bought its shares falls to 63p.
Ian Gordon, banks analyst at Investec, described the 61p target as “a new ‘contrived’ breakeven number for UK government accounting which conveniently ignores its average in-price of 73.6p”.
“This award will not be released before the fifth anniversary and will be forfeited if neither of these conditions have been met by that date,” Lloyds said. “Given these conditions, it is estimated that the expected value of this award is around £750,000.”
The average bonus per employee in 2012 is similar to 2011 at £3,900, and cash bonuses are limited to £2,000.
Horta-Osório, who took over from Eric Daniels two years ago when he was hired from Santander on an £8m-a-year pay package, had pledged to cut 15,000 jobs on top of 30,000 facing the axe following the rescue of HBOS in 2008. He said he was “very close” to achieving £10bn of total cost cuts, two years ahead of plan, and was now aiming for further reductions.
In return for the taxpayer bailout, Brussels has required Lloyds to sell off 632 branches. While negotiations are under way with the Co-op, Horta-Osório said the mutual was in discussions with the Financial Services Authority about its capital position. “We continue to make progress with these discussions towards signing a binding sales purchase agreement,” the bank said. But it is also working on plans for a stock market flotation of the branches which will take the centuries-old brand of Trustee Saving Bank.
Lloyds has already clawed back £580,000 of the 2010 bonus paid to Daniels and indicated that further penalties may be imposed on the former boss, who told the parliamentary commission on banking standards the bank had thought it was “on the side of the angels” with regards to PPI.
While Horta-Osório was not at Lloyds when the mis-selling of PPI took place, he was at the helm for the period of a £4.3m fine by the FSA for delaying compensation payments to up to 140,000 customers.
The bank’s finance director, George Culmer, indicated that provisioning for PPI could be coming to an end, but the bank is paying out £160m a month in claims.
Lloyds boss to pocket £1.5m bonus as government prepares to sell off stake – The Guardian
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