Commerzbank AG must pay about 50 million euros ($65 million) to 104 bankers at its now-defunct Dresdner unit after a U.K. appeals court refused to overturn a judge’s decision that the German lender should honor bonus promises.
A pledge by Dresdner’s then Chief Executive Officer, Stefan Jentzsch, to set aside 400 million euros for bonuses in 2008, before the investment bank was acquired by Commerzbank, was binding, the court said today. Commerzbank, which reduced Dresdner bonuses by 90 percent, argued a 6.5 billion-euro loss at the unit justified the move.
“There was, in truth, overwhelming evidence justifying the conclusion that this promise was intended to be legally binding,” Justice Patrick Elias said in a ruling in London.
While banks try to combat or avoid European Union proposals for some of the world’s toughest pay curbs, Frankfurt-based Commerzbank has fought legal battles in Germany, Italy and Japan to defend its bonus cuts. At the 2012 trial in London, Chief Executive Officer Martin Blessing said he wanted bankers to be motivated by loyalty not money.
The ruling “is a triumph for common sense and for some very well-established principles of English contract law,” Clive Zietman, the lawyer for 83 of the bankers, said in a statement. “It is a great pity that the bank saw fit to contest so vigorously and for so long, a case that could so easily have been avoided.”
Commerzbank said in an e-mailed statement it hadn’t decided whether to appeal to the U.K. Supreme Court. The ruling is a “regrettable outcome in view of the ongoing regulatory, public and shareholder calls to establish a sound relationship between banks’ performance and variable remuneration.”
The German lender bought Dresdner from Allianz SE in January 2009, the same year it took an 18.2 billion-euro bailout from Germany at the height of the financial crisis.
Shareholders last week criticized Commerzbank’s management at an annual general meeting after shares fell 20 percent in six weeks on capital-raising plans. Since the financial crisis began, losses for the stock are almost double the 48 percent decline of the benchmark Bloomberg 500 European Bank Index.
Dresdner was under pressure from the U.K. finance regulator to prevent an exodus of staff during a 2008 restructuring. Jentzsch’s comments at a town hall meeting in Frankfurt were intended to stabilize the bank, the judge said in the ruling.
“This case is a salutary reminder to employers that it is not always good to talk,” said Sarah Henchoz, a lawyer at Allen & Overy LLP who wasn’t involved in the trial. “Employers need to be careful what they say to employees about bonus or potential bonus entitlements.”