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Lloyds boss to pocket £1.5m bonus as government prepares to sell off stake Lloyds boss to pocket £1.5m bonus as government prepares to sell off stake
(about 9 hours later)
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. The government could sell off its stakes in the bailed-out banks at prices substantially lower than expected after it linked the payment of a £1.5m bonus to António Horta-Osório, the boss of Lloyds Banking Group, to selling part of the taxpayers' stake.
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. Horta-Osório's bonus is linked to the government selling off a third of its 39% stake in the loss-making bank at share prices above 61p – considerably lower than the average price of 73.6p at which the taxpayer injected nearly £20bn into the bank in 2008.
The additional provision for PPI takes the total mis-selling bill for the industry to £15bn, consumer group Which? calculated, cementing it as the "biggest financial mis-selling scandal of all time". The move reignited speculation that the government was considering a share sale in both Lloyds and Royal Bank of Scotland before the May 2015 general election, although the Treasury insisted there was no timetable for a selloff. RBS said last week that it could be ready to privatise part of the bank next year.
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. The 61p figure has never previously been published in an official document and the equivalent figure for Royal Bank of Scotland is 407p – below the 500p average price at which the taxpayer injected £45bn into the Edinburgh-based bank.
Even so, the bank is not paying a dividend for 2012, regarded by analysts as a prerequisite for any share sale. Ian Gordon, a banks analyst at the City broker Investec, described the 61p target as "a new 'contrived' break-even number for UK government accounting which conveniently ignores its average in-price of 73.6p".
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. Shares in Lloyds fell 2% on Friday to 53p after the bank reported a £570m loss for 2012 – better than the loss in 2011 of £3.5bn – after being hit by another £1.5bn provision for payment protection insurance (PPI) compensation. Its total bill for the mis-selling scandal is now £6.8bn. Lloyds is still paying out a total of £375m in bonuses despite the losses.
Sir Win Bischoff, the Lloyds chairman, said: "Given the trajectory we have, I would have thought it could be likely [that there could] be a share sale within the next two years". Lloyds stressed that Bischoff was not aware of a specific timetable.
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" that this could be achieved.
The government introduced the requirement that the Lloyds boss could not get his bonus in the next five years unless it had sold at least 33% of its stake in the bank above 61p. The alternative stipulation, devised by Lloyds, is for a sale once a share price of 73.6p "has been reached for a given period of time". The shares would not be released to him until 2018.
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."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. The bank said the Treasury had "informed us that 61p is the average price at which the equity support provided to Lloyds Banking Group is recorded in the public finances".
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". UK Financial Investments, which looks after the taxpayers' stakes in the bailed-out banks, has previously disclosed two prices for the Lloyds shares – the average price of 74p, which falls to 63p if the £2.5bn fee Lloyds paid to exit the UK asset protection scheme is included.
"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." A Treasury spokesman said: "The government's strategy remains to see Lloyds continue the progress it has made in reforming itself into a strong and sustainable bank that supports the British economy, which in time can be returned to full private ownership ... [T]here is still work to be done as it continues to deal with the legacy of the past."
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. The 61p is based on the stock market price of the Lloyds shares when the government bought them rather than the actual price that the government paid, and has been in the government's accounts since 2010 when the £65bn ploughed into both banks was valued at £53.8bn.
Ian Gordon, banks analyst at Investec, described the 61p target as "a new 'contrived' break-even number for UK government accounting which conveniently ignores its average in-price of 73.6p". The scale of the PPI provision means that Lloyds is considering clawing back bonuses from 13 or so former and current executives. The former Lloyds boss Eric Daniels, who has already had £580,000 of his 2010 bonus clawed back, is thought to be among them. Daniels had recently said he believed the bank "was on the side of the angels" in handling PPI. Horta-Osório, who took over from him two years ago when he was ]hired from Santander on an £8m-a-year pay package, said: "In that case, I can only imagine what would have happened if we were not on the side of the angels."
"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." In return for the taxpayer bailout, the European commission 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. But it is also working on plans for a stock market flotation of the branches, which will take the centuries-old brand of Trustee Savings Bank and bring a rebranded Lloyds back on the high street.
The average bonus per employee in 2012 is similar to 2011 at £3,900, and cash bonuses are limited to £2,000.
A Treasury spokesman said: "The government's strategy remains to see Lloyds continue the progress it has made in reforming itself into a strong and sustainable bank that supports the British economy, which in time can be returned to full private ownership. Today's results show that it is making strong progress in improving its core underlying performance and strengthening its balance sheet, but that there is still work to be done as it continues to deal with the legacy of the past."
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 Savings 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.