Commerzbank loses banker bonus case - Financial Times - 9 May 2012

Commerzbank loses banker bonus case - Financial Times - 9 May 2012


Financial Times - 9 May 2012

By Jane Croft in London and James Wilson in Frankfurt

Commerzbank has lost a landmark court dispute over bonuses and must pay about €50m to 104 bankers after one of the most significant fights over pay to stem from the financial crisis.

The German bank, which plans to appeal against Wednesday’s decision, was sued in the UK by the investment bankers over their claims to a €400m pool announced in 2008 to help retain staff.

The bankers worked for Dresdner Kleinwort, which was sold to Commerzbank a few months later by Allianz, the insurer. They claimed they were promised bonuses ranging from €15,000 to €2m but received a 10th of the payouts they expected.

Ruling in a case that set public anger at investment bank pay against contractual arguments, Mr Justice Owen, a UK High Court judge, acknowledged that bankers’ bonuses remained “a subject of intense public interest” but said the dispute concerned “the nature of contractual obligations owed to claimants by their employer”.

It “did not concern wider issues” or the “structure of remuneration in the banking industry”, the judge said.

Daniel Naftalin, partner at Mishcon de Reya, which represented 21 of the bankers, said: “Dresdner made repeated promises to employees before its sale to Commerzbank in an attempt to avoid a mass exodus of staff – namely that they would be financially rewarded from a guaranteed retention pool for remaining at the bank and performing well.”

Lawyers said the ruling could mean more bankers suing over promised bonuses which failed to materialise while banks could become more cautious about talking to staff in informal meetings about pay and bonuses.

Paul Quain, partner at GQ Employment Law said: “This will force employers to be more careful about the off-the-cuff comments and it will make it more difficult for managers to persuade people to stay if they make informal assurances.”

Clive Zietman, head of the commercial litigation department at Stewarts Law, who represented most of the bankers, said: “It could have wider ramifications for employers beyond banking, for employers who have made promises even if they are made orally.”

Commerzbank, which yesterday reported a 62 per cent fall in first quarter net income to €369m, needed a government bailout after buying lossmaking Dresdner and remains partly in state hands. Senior managers including Martin Blessing, chief executive, remain under a €500,000 salary cap imposed by Berlin to try to assuage public anger at the bailout.

Commerzbank said: “The bank believes the decision to reduce discretionary bonuses in light of €6.5bn of losses at Dresdner Kleinwort for 2008 was responsible and justified.”

Costs of fighting the case, which are likely to be borne by Commerzbank, are thought to be about £15m.

In his ruling the judge said it was a legitimate inference that pressure from Commerzbank drove Allianz to push for the introduction of a “material adverse change” clause in 2008 to reduce the payment of bonuses.

The judge said it was clear “that the pressure that was successfully brought to bear by Mr Blessing was borne of an understandable sensitivity to the public perception of the payment of bonuses on such a scale in the context of the massive support for Commerzbank by the German government”.

He concluded: “It follows that in my judgment the introduction of the MAC clause by DBAG [Dresdner Bank] was driven by Commerzbank for reasons unrelated to the performance of DKIB [Dresdner Kleinwort Investment Bank]”.

Shares in Commerzbank rose 0.5 per cent after the bank said it surpassed the requirements of the European Banking Authority, an EU regulator, which demanded that the bank plug a €5.3bn capital gap after a stress test exercise last year.

Most of the gap was closed by Commerzbank cutting its balance sheet, highlighting fears that many European banks would respond to the capital test by reining back their businesses rather than by raising fresh equity.

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Commerzbank has lost a landmark court dispute over bonuses and must pay about €50m to 104 bankers after one of the most significant fights over pay to stem from the financial crisis.

The German bank, which plans to appeal against Wednesday’s decision, was sued in the UK by the investment bankers over their claims to a €400m pool announced in 2008 to help retain staff.

The bankers worked for Dresdner Kleinwort, which was sold to Commerzbank a few months later by Allianz, the insurer. They claimed they were promised bonuses ranging from €15,000 to €2m but received a 10th of the payouts they expected.

Ruling in a case that set public anger at investment bank pay against contractual arguments, Mr Justice Owen, a UK High Court judge, acknowledged that bankers’ bonuses remained “a subject of intense public interest” but said the dispute concerned “the nature of contractual obligations owed to claimants by their employer”.

It “did not concern wider issues” or the “structure of remuneration in the banking industry”, the judge said.

Daniel Naftalin, partner at Mishcon de Reya, which represented 21 of the bankers, said: “Dresdner made repeated promises to employees before its sale to Commerzbank in an attempt to avoid a mass exodus of staff – namely that they would be financially rewarded from a guaranteed retention pool for remaining at the bank and performing well.”

Lawyers said the ruling could mean more bankers suing over promised bonuses which failed to materialise while banks could become more cautious about talking to staff in informal meetings about pay and bonuses.

Paul Quain, partner at GQ Employment Law said: “This will force employers to be more careful about the off-the-cuff comments and it will make it more difficult for managers to persuade people to stay if they make informal assurances.”

Clive Zietman, head of the commercial litigation department at Stewarts Law, who represented most of the bankers, said: “It could have wider ramifications for employers beyond banking, for employers who have made promises even if they are made orally.”

Commerzbank, which yesterday reported a 62 per cent fall in first quarter net income to €369m, needed a government bailout after buying lossmaking Dresdner and remains partly in state hands. Senior managers including Martin Blessing, chief executive, remain under a €500,000 salary cap imposed by Berlin to try to assuage public anger at the bailout.

Commerzbank said: “The bank believes the decision to reduce discretionary bonuses in light of €6.5bn of losses at Dresdner Kleinwort for 2008 was responsible and justified.”

Costs of fighting the case, which are likely to be borne by Commerzbank, are thought to be about £15m.

In his ruling the judge said it was a legitimate inference that pressure from Commerzbank drove Allianz to push for the introduction of a “material adverse change” clause in 2008 to reduce the payment of bonuses.

The judge said it was clear “that the pressure that was successfully brought to bear by Mr Blessing was borne of an understandable sensitivity to the public perception of the payment of bonuses on such a scale in the context of the massive support for Commerzbank by the German government”.

He concluded: “It follows that in my judgment the introduction of the MAC clause by DBAG [Dresdner Bank] was driven by Commerzbank for reasons unrelated to the performance of DKIB [Dresdner Kleinwort Investment Bank]”.

Shares in Commerzbank rose 0.5 per cent after the bank said it surpassed the requirements of the European Banking Authority, an EU regulator, which demanded that the bank plug a €5.3bn capital gap after a stress test exercise last year.

Most of the gap was closed by Commerzbank cutting its balance sheet, highlighting fears that many European banks would respond to the capital test by reining back their businesses rather than by raising fresh equity.