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Lloyds bank claws back £1.5m bonuses from directors

Bailed-out bank partially reclaims bonuses that had been awarded before it lost £3.2bn to settling claims for missold PPI

Lloyds Banking Group is clawing back at least £1.5m from five former and current executives and eight other senior managers, to penalise them for £3.2bn of losses that the bailed-out bank incurred after the bonuses were awarded.

The £1.45m bonus awarded to former chief executive Eric Daniels for his work in 2010 will be reduced by 40% to £580,000. The four members of his executive time at the time – Helen Weir, Truett Tate, Archie Kane and Tim Tookey – will each have a reduction of 25%, which amounts to £900,000 in total.

The remaining eight are receiving 5% cuts to their undisclosed bonuses for 2010. They include members of the executive committee such as Carol Sergeant, who was chief risk officer, and Mark Fisher, group operations director and Angie Risley, group HR director.

The bank was unable to reclaim as much as it had intended, following protracted negotiations with those involved after the bank decided to settle claims for missold payment protection insurance (PPI) last year.

The bank also revealed that the cost of the financial scandal caused by the misselling of PPI – which is intended to keep paying loans in the event of illness or joblessness – will also be reflected in the bonus pool for 2011, which is expected to be announced next month.

In becoming the first bank to reclaim bonuses – a new process implemented by the industry following the 2008 banking crisis – Lloyds insisted that “its decision is based entirely on the principle of ‘accountability’ and in no way on culpability or wrong-doing by the individuals concerned”.

While Lloyds is not alone in having participated in the misselling of PPI, its losses have been larger than its rivals. The decision to take a provision for PPI was taken by António Horta-Osório, who took over as chief executive from Daniels on 1 March last year, immediately sending a shockwave through the industry. Other banks were forced to follow suit when Lloyds decided to stop fighting the process of awarding compensation through the courts.

Just weeks before the PPI provision was announced, Daniels had bowed out of Lloyds by heralding a return to profitability following the controversial takeover of HBOS during the banking crisis.

Among those having their bonus reduced is Helen Weir, who used to run the retail bank and last week was appointed finance director of department store John Lewis, who is to have a £218,000 reduction. Also there is Truett Tate, head of the corporate bank who is leaving in the coming months, who suffers a £262,500 reduction, and Kane, the former head of the insurance arm who is now £191,000 worse off.

Tookey, who is to face the City on Friday when he announces the extent of Lloyds’s losses for 2011, is having a £236,000 reduction. He is due to leave the bank at the end of the month, leaving the bank without a finance director, as a starting date has not be set for George Culmer, who is joining from insurer RSA.

“The board’s decision is based on the fact that, had the outcome of the judicial review into PPI in April 2011 been known, and had the consequential provision made been effected at the time of the award of the 2010 bonus in February 2011, the bonus pool would have been lower and individual bonus awards would also have been lower,” the bank said.

“The bonus pool for 2011 will reflect a further reduction in respect of the above mentioned provision, which will affect all individuals eligible to be considered for a discretionary bonus for that year,” it added.

The Financial Services Authority, which has been encouraging banks to look for ways to claw back bonuses following the PPI losses, has been “kept informed throughout the deliberations leading up to the decision”.

Tackling the clawback had been top of Horta-Osório’s agenda when he returned to work last month, following two months off after he failed to sleep for five consecutive days in October.

The £1.45m bonus for Daniels had been deferred into shares in two equal tranches, which he was to receive March 2013 and March 2014.

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