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PAY PROTEST GIVES HSBC A PASTING

BONUSES: Green insisted high rewards had to be justified

Saturday May 31,2008

By Andrew Johnson, Associate City Editor

HSBC shareholders gave the bank a bloody nose yesterday when almost one in five failed to back a controversial pay deal.

Nearly 11 per cent voted against the bank’s remuneration report and a further 7.5 per cent withheld their votes.

Executives at yesterday’s annual meeting came under fire for the scheme under which top managers could share £120million in bonuses if they hit all their performance targets.

They were also accused of a strategic miscalculation in buying US lending business Household Financial for £9billion in 2003. It has taken a bad-debt hit of $15billion (£7.6billion) due to the credit crunch.

Household sparked a war of words between the activist investor Knight Vinke, HSBC and the investment bank Goldman Sachs.

Knight Vinke boss Eric Knight claimed Household, now called HSBC Finance Corp, was a “$100billion problem”, claiming Goldman Sachs had placed a “negative value” of $46billion on the business.

He said the deal was “truly catastrophic”.

Finance director Douglas Flint said the figure was an “extraordinary misinterpretation” of Goldman’s research. The view was supported by Goldman.

One private investor, Harry Edwards, said they should follow the example of BA’s Willie Walsh, who gave up his bonus in the wake of the Terminal 5 fiasco. He added the bank’s move into US mortgages was a mistake. “As experienced bankers, you might be expected not to make mistakes,” he said. Another said the directors should pay their bonuses to charity.

HSBC said it was extremely unlikely the full £120million in the deal would be paid. Chairman Stephen Green said mid-table performance would result in only mid-table pay. “High pay, unless justified by high performance, is unjustifiable,” he said, but added the bank needed to pay well to retain high-quality staff.

HSBC warned the US economy might well go into recession, and the European economy was weak. Its shares rose 5dp to 852dp.

The bank said it was alive to opportunities in emerging markets, but prices were still high. It hopes to win control of Korean bank KEB by a July deadline, despite regulatory problems.