* Some may reward staff with recovering toxic assets
* Overall bonuses may be down as much as 30 percent
* Bankers to stay put due to job cuts
By Sarah White and Anjuli Davies
LONDON, Dec 31 Many European banks are likely to
limit the cash portion of this year's staff bonuses as rocky
markets, tighter capital rules and costly scandals take their
Under pressure from politicians, regulators and
shareholders, firms are shifting further away from the big
upfront handouts of the boom years. Some are expected to opt for
a mixture of shares and risky assets - the kind which provoked
the global financial crisis in 2008 but in some cases are now
Britain's Barclays already capped cash awards at
65,000 pounds ($105,000) for 2011 payouts, and those types of
limits will feature again at several firms, bankers and
In total, 2012 bonuses could be down by as much as 30
percent on 2011 levels, senior managers believe, and the
structure of awards is changing as regulators press the banks to
clamp down on short term rewards.
"I'm sure there will be lots of different structures this
year with different products, and attempts to cap the cash
element. Either way bonuses will be down," said Stephane
Rambosson, managing partner of executive search firm Veni
In the past year the industry has been caught up in a series
of scandals ranging from mis-selling of financial products and a
failure to prevent money laundering to the rigging of the Libor
interest rate. Regulators have slapped heavy fines on a number
of banks and disgruntled customers are following up with civil
All this is affecting the size and shape of bonuses.
"It's a mix of politicians and regulators wanting (pay) to
be down and wanting to see an impact in the media, and also
banks' new business models, which will mean that people will get
paid less in future," Rambosson said.
During the crisis, many assets such as sub-prime mortgages
became essentially worthless as no one would buy them, fearing
that the borrowers would default. But as the crisis eased, some
have begun to regain value - albeit from near zero levels - and
banks are now using these assets and other risky type of bonds
to reward their staff.
Credit Suisse is examining yet more ways to
include different types of products as part of its 2012 bonus
round, according to two sources familiar with the matter. The
bank declined to comment.
As long as four years ago, the Swiss bank paid a group of
employees with some of the riskiest assets on its balance sheet
as their bonus, and unveiled a similar programme for 2011
awards. Know as PAF2, the plan linked bonuses for 5,500 senior
bankers to about $5 billion in illiquid assets that fell in
value in the crisis.
This form of payout can be attractive, and the value of some
of the assets has grown again, netting paper gains for the
bankers - some of whom even jumped at a chance to buy more of
the risky assets in the past year.
But this programme and others like it, where bankers are
paid in shares, make it harder to cash in straight away, with
stock rewards for instance deferred for several years, or in
some cases such as at HSBC, until certain employees
leave or retire.
European Union rules force banks to defer at least 40
percent of a bonus for at least three years, though many firms
are now going further than this, partly trying to counter the
public outcry over big bonuses after the crisis.
NO EXCITEMENT THIS YEAR
Expectations over bonuses are already low as banks put the
final touches to bonus pots and decide how they will be
allocated in the first quarter.
Only at a handful of firms are some bankers hopeful of doing
slightly better. Goldman Sachs, for instance, put aside
more money for pay in the first nine months of 2012 than in the
year before. Staff there are due to find out about rewards at
the end of January.
But most top investment banks have been cutting back
drastically this year to cope with stricter capital rules and
weak revenues, leading to mass layoffs this year and prompting
some such as UBS and Royal Bank of Scotland to
ditch entire businesses.
That will force pay levels down too, as well as bring more
changes to bonus structures, while many banks will also be
concerned about appeasing shareholders who rebelled against
reward plans for 2011.
"No one is very excited this year," said one banker in
London, who wished to remain anonymous. "Bankers still do a lot
better than most people but pay is very different today than it
was five years go. It is not as attractive career as it was."
Germany's Deutsche Bank decided earlier this year
to defer any part of an employee's bonus above 200,000 euros,
and further restricted how much of that payout would be in cash.
Since then, its new chief executives Anshu Jain and Juergen
Fitschen have warned that pay will drop as they crack down on a
risk-taking culture driven by short-term gain - possibly
signalling further tweaks to pay structures.
Others like Barclays, fined in the Libor rate rigging
scandal this year which forced the departure of boss Bob
Diamond, will also be keen to show a fresh attitude to pay.
Few bankers are likely to collect their 2012 rewards and
jump ship as they might have in fatter years, however, or quit
if they don't get what they had hoped for as more job cuts loom.
"We are just expecting zeroes," said another investment
banker in London. "But this doesn't make me rethink my career as
there is nowhere else to go right now."