By Sarah White and Raji Menon
LONDON Nov 12 Bonuses for 2012 in London's
financial sector will more than halve to 1.6 billion pounds
($2.5 billion) in total, a study found, and some shareholders
are urging banks to cut pay even more.
The handouts will keep falling until 2015, the Centre for
Economics and Business Research (CEBR) said on Monday,
reflecting the impact of tougher financial market conditions and
public disquiet over the size of banker payouts.
Yet the impact of the squeeze on the sector goes further
than bonus payments and the researchers also said employment in
London's banks, brokerages and other financial sector firms -
collectively known as the City - will keep shrinking.
They said this would allow rival centre Hong Kong to
overtake London by size in the next three years.
Banking job cuts have hit London hard in the past three
years as euro zone woes and regulation eat into firms' income,
and a further slowdown in stock trading and mergers and
acquisitions is expected to affect pay levels for 2012.
Payouts have also fallen after a public backlash over big
bonuses, blamed for helping create the climate which led to the
financial crisis which started in 2008. Shareholders upset about
poor returns are becoming more demanding too.
Shareholder activist group Hermes Equity Ownership Services
(EOS) on Monday called on the industry to base bonus payouts on
a performance period of three to five years, rather than annual
performance, echoing earlier proposals on how payouts should be
Hermes EOS, which is owned by the BT Pension Scheme,
Britain's biggest private sector pension fund, also recommended
banks pay only up to a quarter of their revenue to staff, rather
than the current 40 to 50 percent.
Earlier this year several banks including Barclays
were hit by a bigger than usual backlash from shareholders over
pay when they sought approval for payout plans.
"The money that governments intend the banks to use to
rebuild their balance sheets has been in large part siphoned off
into individuals' pockets," Hermes EOS said in a report.
Hermes EOS, which has over $120 billion of assets under
advice, said pay changes were one of the overhauls needed to
make banks investible again.
THE TAXMAN LOSES
London financial sector bonuses for 2012 - likely to be paid
in January or February next year - will be more than 86 percent
down on the 11.5 billion pounds worth of payouts in 2 0 07-2008,
when dealmaking was booming just before the financial crisis,
the CEBR data showed.
Base salaries have risen since then, partly in response to
controversy over incentive-related bonuses, meaning overall
levels of pay have not dropped by quite so much.
The CEBR, which had originally forecast bonuses of 2.3
billion pounds for 2012, predicted they would hit a low of 1.2
billion in 2015 before gently creeping upwards again.
Last year's bonuses totalled 4.4 billion pounds, it said.
"The biggest loser from this is the taxman, who typically
earns more from City bonuses than the employees," CEBR Chief
Executive Douglas McWilliams said in a statement.
McWilliams said government revenue from the City - including
from corporation tax and other levies - would likely be around
40 billion pounds for 2012, down almost by half from the 70
billion banked in 2007/08.
In a separate study, the CEBR also forecast that Hong Kong
would overtake London as the world's biggest international
financial centre in 2015, as Asian markets grow.
Hong Kong employed less than half as many people in
financial services than London in 2005, but job numbers in the
Asian hub will have grown by almost 100,000 in the next three
Meanwhile the City will continue to shed jobs, with another
13,000 set to go next year.
Technically, London is already behind New York by finance
employment levels, but the CEBR said many of the New York jobs
were focused on servicing the domestic U.S. economy, meaning
that for now London retains its crown as the top international
Hong Kong has gained ground primarily because of more
dynamic growth in Asian economies, the CEBR said, while the
growing use of China's renminbi as a currency worldwide will
also boost it as a centre.