As 2013 winds down, top banking executives in London are anticipating bonus checks 44 percent larger than last year’s.
Managing directors at British banks expect to see bonuses of about $272,000 on average, according to the financial services recruitment firm Astbury Marsden, which published its survey of banker expectations over the weekend. That figure is a significant jump from the $188,000 average bonuses paid to those executives in 2012. It also means that the finance executives are expecting their year-end payouts to be roughly double the average annual salary for managing directors, setting up a possible clash between banker expectations and European Union (EU) law.
The EU capped banker bonuses at twice the level of annual pay earlier this year. U.K. officials challenged that law in court in a case that’s still pending.
The increased bonus expectations owe to improved profits and performance in the banking sector, Astbury Marsden told Bloomberg. But while the industry has done a good job of making itself money in 2013, it’s also piled up a full roster of scandals that harmed consumers in recent years. Two of the most prominent British banks — Barclays and HSBC — have had particularly high-profile failures. Barclays paid a $453 million fine for rigging consumer electricity prices in the western U.S. earlier this year, and in 2012 HSBC was found to have laundered money for terrorist groups and drug cartels. The American bank JP Morgan had its own high-profile British debacle in 2013 with the so-called “London Whale” trading loss that violated banking rules and cost the company billions. And the biggest and most far-reaching financial scandal of the past two years involved rigging an interest rate called the London Interbank Offer Rate (LIBOR), a key rate for millions of financial transactions worldwide that was manipulated by bank insiders to boost profits at the expense of both governments and consumers around the globe.
British bankers’ bonus expectations in the face of that track record make their American counterparts look reasonable by contrast. Wall Street employees are expecting a mere 5 to 10 percent bonus bump — 15 percent for investment bankers, financial advisers, and asset managers — in 2013. Overall, the pool of money that U.S. banks set aside for bonuses has quintupled since 1985 even after adjusting for inflation. As regulators try to crack down on runaway executive pay in an industry where the connection between pay and performance has frayed, some Wall Street officials remain indignant about any effort to curb bonuses.