Tuesday, February 21, 2012

To pay its bankers' bonuses, HSBC to sell new shares

A Telegraph article discusses how HSBC is going to pay it bankers' bonuses by issuing new shares.

This confirms yet another element of the Wall Street rescues Main Street blueprint.  Specifically, it confirms that it is acceptable to the banking industry to pay bonuses in shares.

This is important, because it speeds up the pace of rebuilding bank book capital after a bank recognizes all the losses hidden on and off its balance sheet.

Under a new pay structure designed in consultation with the British authorities, HSBC will sell new shares to pay the non-deferred component of bonuses worth more than £50,000. 
The pay deal has been agreed with the Financial Services Authority, which likes the structure as it views it as a way for banks to bolster their capital base at the same time as continuing to pay staff bonuses. 
The amount of new shares issued will cause a "miniscule" amount of dilution, according to one source with knowledge of the pay deal, who said it would equal less than 0.1pc of the bank's outstanding share capital. 
Under the arrangement, an executive director HSBC employee earning worth £1m will receive 60pc of the payout in the form of share deferred over three years. The £400,000 non-deferred component will be paid for by HSBC selling shares worth an equivalent amount with the proceeds handed on to the employee. 
Staff bonuses worth less than £50,000 will be paid entirely in cash. 
While other British banks such as Barclays and Royal Bank of Scotland have put in place cash bonus caps of £65,000 and £2,000 respectively, they are also understood to be using similar share proceeds arrangements to pay their staff....

In the wake of the financial crisis UK authorities have been pushing banks to come up with new ways to pay their staff after widespread criticism of industry practices in the lead up to the downturn.
Caps on cash bonuses have become routine at many major banks since the crisis. However, several large Wall Street banks, including Citigroup, JP Morgan and Goldman Sachs, have continued to pay a large proportion of staff bonuses in cash.

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