Commerzbank AG must pay bonuses promised to more than 100 Dresdner Kleinwort bankers who sued the German lender after it failed to honor awards totaling about 50 million euros ($65 million), a U.K. judge said.
Commerzbank, which took over Dresdner in January 2009, was accused by 104 bankers of breaking a promise by then-Dresdner Chief Executive Officer Stefan Jentzsch the previous year, when he said there would be a guaranteed 400 million euros for bonuses.
Judge Robert Owen in London agreed the bank broke its pledge, meaning the former bankers can now receive the unpaid bonuses, as much as 2 million euros for some individuals.
“This case has unequivocally gone in the bankers’ favor, which means that banks will be held to account and be given very little wriggle room to avoid or reduce guaranteed bonuses,” employment lawyer Jo Keddie at Winckworth Sherwood LLP said in an e-mail. She said the case was the largest group action on bonuses ever brought in the U.K.
Bonuses in the financial-services industry are under attack from lawmakers and shareholders who oppose what they view as unfair rewards for those who derailed the global economy. The European Parliament wants new capital rules to include bonus limits, while Barclays Plc, Citigroup Inc. and Aviva Plc shareholders rebelled against executive pay plans.
Commerzbank said it would appeal today’s verdict.
“The bank believes that the decision to reduce discretionary bonuses in light of 6.5 billion euros of losses at Dresdner Kleinwort for 2008 was responsible and justified,” it said in a statement.
Germany’s second-largest lender said at a January trial that it was entitled to cut bonus payouts by more than 90 percent for bankers including Desmond McNamara, former head of risk management at Dresdner’s capital-markets division, because of the record losses at the investment banking unit.
Judge Owen rejected Frankfurt-based Commerzbank’s argument the guaranteed pool wasn’t valid because it had inserted a clause in bonus letters saying payouts could be adjusted if Dresdner’s performance was significantly worse than expected.
Commerzbank, which took an 18.2 billion-euro bailout from Germany during the credit crunch that followed the collapse of Lehman Brothers Holdings Inc., has been sued in London, Germany and Singapore by other workers who claim they weren’t paid what they were owed after the buyout.
Testifying at the London trial, Commerzbank CEO Martin Blessing criticized the group of bankers for caring more about money than loyalty, and said he didn’t like the guaranteed bonus pool.
The court found that Commerzbank broke its promise “not because of the performance of Dresdner Kleinwort, but because of sensitivity to the public perception of the payment of bonuses,” said Mark Levine, a lawyer representing a group of the bankers.
Dresdner’s performance had “fallen off a cliff” in 2008, which justified cutting bonuses, Thomas Linden, a lawyer for the bank, told the court in February.
McNamara, the former head of risk at Dresdner, testified at trial that he was “only claiming the amount my line manager determined during the year my performance was worth.”
His salary and guaranteed bonus for 2008 totaled around 400,000 pounds ($644,000), while Commerzbank chose not to pay a discretionary bonus he was told was worth another $394,000, McNamara said.
Commerzbank surpassed the European Banking Authority’s target of raising 5.3 billion euros, the biggest assigned to six German lenders, by 1.1 billion euros at the end of March, the lender said today in a statement. The bank beat the EBA’s June 30 deadline by reducing risk-weighted assets, retaining profits and selling assets.
Dresdner’s management set up the bonus pool to ensure “stability” and respond to the concerns of U.K. regulators, Jentzsch told the court in February.
The U.K. Financial Services Authority had put Dresdner on its watch list in 2008 because the regulator was worried key staff would leave while the future of the investment-banking division was being decided by its then-owner Allianz SE.
“It was quite wrong of the bank to renege on its commitment” to the bankers and the FSA, said Clive Zietman, a lawyer representing some of the Dresdner claimants. “Our clients would now very much like to be able to say that these proceedings are closed.”
The London bonus cases include: Mr. Fahmi Anar & Others v. Dresdner Kleinwort Ltd., Commerzbank AG, High Court of Justice, Queen’s Bench Division, HQ09X05230 and Richard Attrill & 71 others v. Dresdner Kleinwort Limited, Commerzbank AG, HQ09X04007