Lloyds Banking Group (LLOY.L) has cancelled all staff bonuses for this year after the coronavirus pandemic ripped into the lender’s profits.
In a memo sent to staff, seen by the Financial Times, Lloyds’ people and property director Matt Sinnott said the bank would not meet the minimum profit threshold to pay any “group performance share” awards.
It will, however, give above-inflation annual pay rises to a majority of staff, focusing on those receiving lower salaries.
“Despite the good news about the vaccine rollout, like most of our peers, our year-to-date business performance continues to be challenging,” Sinnott wrote. “While we have returned to profit, we are not where we expected to be and are short of the commitments we made to ourselves and our shareholders.”
The bank warned last year that bonuses would be cut if underlying profit fell more than 20pc below its initial target. Lloyds returned to profit in the third quarter but is still down 85% on the year.
The bonus pool was worth £310m last year and £465m in 2018.
A Lloyds spokesman said: "This decision on bonuses in no way reflects the hard work and commitment our people have made throughout this extraordinary year to keep our businesses operating strongly and to provide support and help to our consumer and business customers.”
The move comes as yet another example of the challenges lenders are facing if they do not have investment banking operations to offset pressure in the retail banking market.
Britain’s largest high street lender has already cut thousands of jobs since the COVID-19 outbreak, and has had to set aside billions to cover the cost of loans and mortgage that may not be repaid.
Last month it revealed new plans to axe 1,000 roles in a bid to shore up its finances as it also battles low interest rates.
The group, which owns Halifax, Bank of Scotland and Scottish Widows, said decisions over a restructuring drive had been “difficult.”
But the move would result in 330 new jobs, leaving a net loss of around 730 roles. It comes after Lloyds announced in September it would resume cost-cutting measures previously paused amid the pandemic. 865 job cuts from its insurance, wealth, and retail teams were confirmed at the time.
Last week, Britain’s banks were given the green light to restart payouts to shareholders, although the size of dividends and buybacks has been capped for now.
The Bank of England (BoE) said in a statement that it had decided banks could resume dividends and other capital distributions after assessing the strength of the sector. Payouts were banned in March amid concerns that banks could run low of capital as the COVID-19 crisis battered the economy.
The Prudential Regulation Authority — the organisation within the Bank of England responsible for oversight of the sector — said it had undertaken two recent stress tests and concluded banks “remain well capitalised and able to support the economy.”
It said an extension to the dividend ban was therefore “not necessary.” However, payouts will be limited. The PRA is putting in place “guardrails” to prevent excessive payouts, given the ongoing impact of COVID-19 and the uncertainty around Brexit.
The PRA added that should exercise “a high degree of caution and prudence in determining the size of any cash bonuses” but did not set any explicit limits on payouts. The regulator said it would “scrutinise proposed pay-outs closely.”
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