HSBC's Michael Geoghegan donates £4m bonus to charity

HSBC made $7bn profit last year, and took no state cash. So why is CEO Geoghegan giving his bonus away?

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Last Updated: 31 Aug 2010

HSBC CEO Michael Geoghegan has become the latest banking boss not to bank his bonus; in fact, he’s decided to give the whole £4m to charity. Geoghegan’s following in the footsteps of his counterparts at RBS, Lloyds and Barclays – but unlike some of them, he’s presiding over a bank that’s been consistently profitable throughout the financial crisis and hasn’t tapped the Government for financial support. HSBC is also paying out more in dividends than bonuses this year, while its capital and market position looks strong. So whatever you think of bankers, this has to count as a pretty generous gesture...

HSBC said today that it made a pre-tax profit of just over $7bn in 2009; that’s 24% less than last year, thanks largely to whopping write-offs of $26.5bn on bad loans (slightly more than last year). Nonetheless, the 5% dive in its share price this morning feels like an over-reaction. Losses seem to have peaked at its troublesome US consumer finance arm; and if you strip these out, HSBC’s underlying profit was actually 56% up on the previous year, at $13.3bn.

After its £12.5bn rights issue last April, HSBC has also been able to boost its capital ratio to a pretty healthy 10.8%, without any help from the Government – indeed, chairman Stephen Green said it had contributed nearly £5bn to the UK’s tax coffers in the last five years. And given that it expects a ‘two-speed recovery’ in 2010, with emerging markets ploughing ahead, the strength of its Far East business leaves it well positioned for the year ahead.

All in all, it’s a strong showing – and shareholders are being well rewarded, chalking up almost $6bn in dividends for the year. That’s less than its bonus pool for its 300,000 staff – although with a £38m pot for its top five bankers, it hasn’t been able to escape the bonus row. Hence why Geoghegan (who’s just moved out to Hong Kong to reflect the bank’s focus on the region) ‘reluctantly’ put out a statement today saying that he would give his £4m to various charities around the world over the next four years (as and when his shares vest).

Politically, it’s probably a wise move, since bankers’ bonuses are still the focus of much public ire. It’s also true that HSBC has benefited from implicit state backing; it wouldn’t have been able to make so much money last year had it not been for the intervention of governments around the world. And you could argue that if HSBC can afford to be paying its bankers this much, it should be charging lower fees.

Nonetheless, there’s an important distinction to be made here. Paying out huge bonuses to the top brass of loss-making, publicly-owned banks is hard to justify – but Geoghegan’s running a strong, highly profitable, privately-owned bank. There’s no reward for failure here. So we can't help feeling it's a bit unfair that he’s being tarred with the same brush.


In today's bulletin:

Prudential bets the house on $35bn Asia deal
HSBC's Michael Geoghegan donates £4m bonus to charity
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