Financial News

  • 12 February 2014, 18:25

Lloyds And UKFI Reach Deal On 395m Bonuses

The taxpayer-backed Lloyds Banking Group is to pay bonuses of around 395m for last year, including an award of more than 1.5m to its chief executive.

Sky News can reveal that an agreement was reached on Tuesday between Lloyds and UK Financial Investments (UKFI), which manages taxpayers' 33% stake in the bank, about the payouts.

Under the deal, to be announced alongside Lloyds' full-year results on Thursday, the bank will pay a total of just under 400m in bonuses, up approximately 10% on last year's 360m pool.

Antonio Horta-Osorio, Lloyds' boss, will receive an award of just under 2m in shares, deferred for five years.

The bonus will only vest if Lloyds' share price remains above the average 73.6p price at which taxpayers bailed out the bank in 2008 for a continuous period of six months, or if the Government sells at least half of its remaining stake at a profit.

The conditions are key because George Osborne, the Chancellor, will be able to argue publicly that Mr Horta-Osorio will only benefit when taxpayers also make money from their investment.

Such a structure echoes an arrangement devised last year, which saw Mr Horta-Osorio's bonus for 2012 vest if Lloyds' share price traded above the average price at which taxpayers invested in the bank during the 2008 financial crisis.

Under the terms of his contract, Mr Horta-Osorio is eligible for a maximum annual award of 2.387m, equivalent to 225% of his 1.061m basic salary.

A separate equity plan granted to Mr Horta-Osorio in 2011 and which could be worth up to 5.8m at the bank's current share price will pay out next month, although it is unlikely to do so in full.

The news of Lloyds' plans comes on the day that Barclays confirmed it was paying 2.4bn in bonuses despite seeing profits slump, a decision that prompted anger from politicians and elsewhere in the business community.

Lloyds has historically been the lowest payer of bonuses among the major UK lenders because it does not own an investment banking operation on the scale of Barclays, HSBC or Royal Bank of Scotland (RBS).

However, the gap between the bonus pools at Lloyds and RBS in 2013 will be the smallest since the two banks were rescued by British taxpayers in 2008.

Despite Lloyds' improved performance during 2013 a rise in bonuses may prove contentious after it last week added a further 1.8bn to its bill for payment protection insurance compensation. Its liability from the scandal now stands at close to 10bn.

RBS is expected to award bonuses totalling roughly 500m, while making a loss of about 8bn. Lloyds, meanwhile, will record a statutory profit expected to total several hundred million pounds.

Last Monday, the bank said it anticipated reporting an underlying profit for 2013 of 6.2bn and a small statutory pre-tax profit once mis-selling provisions had been accounted for.

"Subject to a return to sustainable profitability and there being no major unexpected changes in the Group's business outlook or regulatory requirements, the Board expects that it will apply to the PRA [Prudential Regulation Authority] in the second half of 2014 to restart dividend payments," Lloyds said.

:: Watch Sky News live on television, on Sky channel 501, Virgin Media channel 602, Freeview channel 82 and Freesat channel 202.