The boss of Lloyds Banking Group has been handed a £11.5m pay deal as the bank resumed dividend payments to shareholders for the first time since its government bailout in 2008.
António Horta-Osório’s pay deal forms part of £30m worth of bonus payouts for the 11 members of the management team which he installed after taking the helm in 2011.
Following Lloyds’ rescue of HBOS in 2008, the bank has the largest private shareholder base in the UK, totalling 2.7m, and will now pay a dividend of 0.75p a share for 2014, worth £535m.
Profits rose fourfold to £1.8bn and included a further £700m provision for payment protection insurance (PPI), taking its total bill for the mis-selling scandal to more than £12bn, and the £217m fine for rigging Libor imposed last year.
Dividend payments were blocked by the EU under the terms of its bailout and payments will now be handed to its legions of private investors who hold the shares following the rescue of HBOS, which has its roots in the Halifax Building Society.
George Osborne, the chancellor, who is expected to back the bonuses, said: “For the first time since its £20bn bailout in 2008, Lloyds bank has made a profit and will start paying a dividend to its shareholders.
“This is good news not only for taxpayers, who will get at least another £100m from the dividend, but also for millions of savers who hold Lloyds shares or have money invested in Lloyds through their pensions.”
Horta-Osório defended the bonus payouts by saying the value of the bank had tripled since they were awarded in March 2012 and were linked to performance to the end of 2014. Shares were valued at 34.7p each when bonuses were awarded to 800 staff across Lloyds but are now worth 80p.
He acknowledged it was a large sum but said he hoped it would be judged on performance as new bonuses for 2014 were awarded across all employees worth a total of £370m, down 4% on a year ago. Horta-Osório’s bonus is linked to the bank’s share price remaining above 75.5p. He is also awarded £3.6m of shares under a new three-year plan.
But campaigners for a tax on the financial system at the Robin Hood Tax campaign, said: “It’s good news that Lloyds is returning to rude health but that’s tarnished by the need for a part state-owned bank to pay its CEO such lottery-sized awards. It shows a sector that lacks any restraint and as scandals continue to come thick and fast the government must get a grip and bring the sector back in line.”
Lloyds chairman Lord Blackwell said the awards “recognise the tremendous achievements over the last few years to transform the business whilst taking account of past shortfalls in business conduct”.
John Cridland, boss of the employers’ body the CBI, agreed. “The CBI has been clear that rewards for failure are unacceptable but legitimate financial rewards for success should not be vilified.”
Horta-Osório has embarked on the second of his three-year plans for the bank, which includes axing 9,000 jobs and closing 200 branches. Around 15,000 roles were lost under his first strategic plan, undertaken when the eurozone was in deep trouble and when, he said, the bank faced an “uncertain future”.
He said he would not sell any of the shares he was receiving from his bonus until the taxpayers’ stake had been further reduced. The government’s stake in the bank has fallen from 43% to below 24% after a recent £500m share sale.
“Looking ahead, while regulatory and conduct risks remain, we believe that the group’s statutory performance will become significantly less impacted by such issues, resulting in a far greater proportion of our underlying financial performance flowing through to shareholder returns over time,” Horta-Osório said.
The Financial Conduct Authority is investigating the way the bank handled complaints for PPI and as a result bonuses are being withheld from the management team for the 2012 and 2013 financial years while the investigation continues. This is a “responsible, prudent and precautionary” response, the bank said.
Finance director George Culmer said the aim was to have a progressive dividend policy, with payouts starting at a modest level and increasing over the medium term to a dividend payout ratio of at least 50% of sustainable earnings. “Subject to performance, the intention is to pay an interim and final dividend for 2015,” said Culmer.
The dividend was lower than the 1p that some analysts had expected but Gary Greenwood, analyst at Shore Capital, said: “We are not particularly concerned by the fact that this is smaller than we anticipated as management had always said it would be a token effort at first.”
The profits were bolstered by a 60% fall in the bank’s bad debt provisions to £1.2bn.
The pages of legal warnings attached to its results also cover its Swiss banking operations which it sold in 2013. The bank had been participating in the US justice department’s investigation into potential tax avoidance but is no longer doing so.
This article was written by Jill Treanor, for theguardian.com on Friday 27th February 2015 07.43 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010