Bonus lust isn’t dead yet at banks on the dole

Former executives at what used to be Dresdner Kleinwort either haven’t gotten the message or refuse to abide by it. Here it is again: when you have helped manage a financial firm driven to the public trough for survival, it’s uncool to gulp down huge bonuses at a time of historic losses.

Not caring that their one-time employer now is on Germany’s dole, a trio of former London-based managers of Dresdner Kleinwort have filed suits in the UK to get what they say they deserve: bonuses and severance pay.

All ex-members of the executive committee, their claims total almost $19.6m. That brings to eight the former executives of the investment bank suing in London. Where is Andrew Cuomo when we need him?

That they were granted those bonuses is hard to dispute. In letters beginning in August and dated as recently as January, Dresdner spelled out how much in bonuses and severance it would pay them. In February, after Commerzbank AG took over Dresdner, a different letter arrived.

The bank has decided it is in the best interests of DKIB, Dresdner Bank and Commerzbank AG that no 2008 bonuses, whether contractual or discretionary, will be paid to executive committee members, it said, according to two of the lawsuits.

When some of the bank managers wouldn’t take no for an answer, another letter showed up. Given the scale of the losses, Dresdner wrote, the bank believes that you are required to act in the best interests of DKIB.

OK, so what counts more, the bank’s promise to reward an executive, or the executive’s duty to put the banks welfare above his own?

Morally, the answer is clear.

It’s not justifiable to sue, Wolfgang Gerke, president of the Bavarian Centre of Finance in Munich, said in April about a similar lawsuit filed in Frankfurt by Dresdner Bank’s former capital markets chief, Jens-Peter Neumann. Dresdner Bank executives caused huge losses and deserve a penalty, not a bonus. But is that a legal argument?

There are those letters containing promises of more pay, written even after it was becoming clear that Dresdner Kleinwort and its parent bank were in trouble, even as Commerzbank was preparing to take it over.

And yet it looks like the bank might argue in court that an executive’s fiduciary duty to the bank trumps promises made to him. The bank’s letters and public statements are full of phrases like ‘responsibility’ and ‘fiduciary’ and ‘best interests’.

In backing off bonuses and severance packages, the bank’s letters to the ex-executives keep insisting that their first responsibility is to the bank, not themselves.

Dresdner’s investment banking operations lost $8.7bn last year, which is one reason the German government pumped $25.6bn into Commerzbank.

Not his fault, says one of the plaintiffs, Eduardo Listorti. He ran the fixed income, currencies and commodities department and generated a record $1.5bn in revenue with a lower headcount and less capital than the previous year, his lawsuit says.

He’s going after the $9.15m in bonuses the bank told him he would get by the end of March. And because he lost his job as a result of the merger, the bank wrote to Listorti that he would get another $158,500 in severance by April 7.

Then came the backpedalling. Forget the bonuses. If he even wanted to collect severance, Listorti would have to sign a waiver giving up any claim to the bonuses. When he refused, the bank withheld his severance pay, too, saying he had no contractual or statutory right to it, anyway.

You can see that things are getting rather nasty.

However well Listortis’ unit performed, the same can’t be said for the rest of the firm. And yet, managers who ran the losing departments are suing too.

Commerzbank’s executives were no doubt peeved about taking on Dresdner’s losses, especially given that the Dresdner management board members got more pay than Commerzbank’s.

At least some Dresdner Kleinwort executives got the message loud and clear. Former chief executive officer Stefan Jentzsch said no thanks to his 2008 bonus. So did his counterpart at Dresdner Bank, Herbert Walter.

That is an example the others should have followed. Instead, they’ll be in court demanding reward when they should be offering apologies.

Ann Woolner is a Bloomberg news columnist. The opinions expressed are her own.

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Ill informed comment
Posted by Cityguru on Thursday 23 July 2009 at 17:35 UAE time


Walter who presided over the debacle at Dresdner may have waived his bonus but he did not waive his severance payment of several million euro - enough for most people to retire on and enough to pay the bonuses of several hundred lesser staff who had their promised bonus payout cancelled. Jezinho is right noone is entitled to criticise hard working people who seek to enforce their contractual entitlement.

What's a contract worth?
Posted by Jezinho, Manama, Bahrain on Thursday 2 July 2009 at 11:36 UAE time


Whilst there may be much debate about the 'morality' of such payments, that is not the domain of the law courts whose focus now will be on the validity of such payment 'contracts'. You may well say that just because an executive was formally notified that he would receive X million dollars, it's tough luck that the offer has been rescinded. How would you feel if your contract granting you a USD 5,000 monthly salary is torn up and your employer tells you that your salary is now USD 2,000? The numbers and context may be different but the principle is the same. Whether or not such payments are justifiable is not really relevant.

Banks on the Dole
Posted by Dr. Madichie, Sharjah, UAE on Sunday 28 June 2009 at 19:08 UAE time


I just love this title "Banks on the Dole!".

Its interesting that while the troubled automakers in North America have started paying off their "dole" or bailout money from the common man - i.e. taxpayers money, their European counterparts in the banking sector have the nerve to sue for bonuses - lets leave severance pay out for the time being.

Can we really blame them? That was the promise - "fat cat" salaries and bonuses, so why not? There are a plethora of issues at stake here. One could comfortably look at the matter from an ethical perspective, are you claiming reward for failure? Shouldn't the banks redeem their pledge?

Either way there is no clear right or wrong answer. On the latter note specifically, a pledge is a promise and concomittantly a debt -so pay up you lot! On the former, however, why can't these "purveyors of failure" tow the lines of Stefan Jentzsch and Herbert Walter, his counterpart at Dresdner Bank by saying "no thanks to their 2008 bonuses?"

Lessons abound from our friends on the other side of the Atlantic where Obamanonics has thrown the spotlight on executive pay and that includes bonuses! Need I say more?

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM