09 May 2012
Over 100 UK bankers have won a court battle to secure £42m in unpaid bonuses from their former employer Commerzbank - even though it made huge losses.
A High Court judge ruled that 104 ex-London employees of Dresdner Kleinwort, now owned by Germany's second largest bank Commerzbank, should have the bonus payments promised to them four years ago honoured.
The judge said the bank had breached its legal duties by failing to honour the payouts, which came from a guaranteed annual bonus pool in 2008, calling them "binding and enforceable contractual promises".
Commerzbank, which has twice been bailed out by German taxpayers, had argued that its now integrated Dresdner Kleinwort investment banking subsidiary was both justified and obliged to slash 2008 bonuses because of its huge losses.
But High Court judge Robert Owen said: "I have come to the conclusion that the claimants are entitled to payment of bonuses provisionally awarded to them."
The individual claims brought by the bankers against the company and ranged from £12,000 to £1.6m.
Lawyers for the bankers said the case hinged simply on a brazen attempt by an employer to break promises made to staff, who had been persuaded to remain loyal to the bank in uncertain times with the promise of financial reward.
They said the pool was created in August 2008 in order to retain staff and was formally communicated to them by Dr Stefan Jentzsch, then chief executive of Dresdner Kleinwort Investment Bank, who said the pool would remain "no matter what", irrespective of financial performance.
Speaking on Jeff Randall Live, Clive Zietman, from Stewarts LLP, who represent 83 of the bankers said: "The promise was made not just to the employees, but also to the FSA, which was a critical part of the case."
He added: "The money was allocated and I think the case has much wider implications for employees across the country."
Mr Zietman also explained that the outcome was positive for others, as he told Sky News: "One winner out of today will be HM Revenue here, because my clients are income tax payers and they will be paying some of that money to the Revenue."
At the end of a two-and a half year legal battle, Commerzbank called the decision "disappointing" and said it would appeal against it.
A spokesman added: "The bank believes that the decision to reduce discretionary bonuses in light of 6.5bn euros (£5.2bn) of losses at Dresdner Kleinwort for 2008 was responsible and justified.
"The main argument revolves around whether the announcement on August 18 amounted to a legally binding agreement.
"It is the Bank's submission that there is every prospect that the Court of Appeal would come to a different view on this matter."
The ruling flies in the face of government, investor and public anger at the size of bonuses that have been paid despite disappointing returns and billions spent by taxpayers bailing out banks after the 2008 credit crisis.
Mark Levine, employment partner at Mishcon de Reya, who represented the bankers, said: "This case is likely to have significance whenever employment contracts are varied, particularly on the basis of verbal commitment or actions."
Sky News City editor Mark Kleinman added: "This issue of banker bonuses simply won't disappear."
The ruling came on the same day that Commerzbank posted a 63% drop in quarterly profits.
The Centre for Economics and Business Research has predicted that jobs in London's finance sector will slump to their lowest level for 16 years, with the eurozone crisis set to cause over 25,000 layoffs in 2012.
The think-tank said that would push the number of jobs lost in the City of London since the top of the financial boom in 2007 to 100,000,
The CEBR's analysis shows an average of 255,000 financial services jobs in London in 2012, the lowest level since the first quarter of 1996.
It put the additional staff cuts down to troubles in the eurozone, denting trading revenues, and increased regulations which are squeezing profits.