FSA Warns Banks On Bonus Culture

The City regulator has warned Britain's biggest banks that they need to demonstrate "a change in culture" when they unveil their bonus pots for 2012 in the new year, paving the way for one of the steepest reductions in payouts on record.

I have learnt that Andrew Bailey, head of the Financial Services Authority's (FSA) supervisory arm, has told the chairs of the major UK banks' remuneration committees that they should take into account the industry's reputation when they decide on bonuses.

He made the demand at a recent meeting with the chairs of the UK banks' remuneration committees at which they were told that overall levels of pay should show a sharp decrease for 2012.

They were also informed that the bonus cuts should go beyond the required evidence of banks clawing back pay awarded to executives and staff involved in mis-selling.

Among the attendees at the meeting, which took place several weeks ago, were Penny Hughes, chair of the remuneration committee at Royal Bank of Scotland; John Thornton, her equivalent at HSBC; Sir John Sunderland at Barclays; and Tony Watson from Lloyds Banking Group.

Major lenders have already begun consulting with shareholders on the shape of their pay pots for 2012, with Barclays' new management in particular signalling that the proportion of revenues paid to its investment bankers will fall sharply.

The warning from Mr Bailey about clawbacks will ultimately result in hundreds of millions of pounds in previously-awarded bonus payments being reclaimed from relevant staff, according to people close to the regulator.

The two taxpayer-backed lenders, Lloyds Banking Group and RBS, have imposed a ceiling on cash payouts of £2,000 for each of the last three bonus rounds, a restriction that is almost certain to be repeated in 2013.

In October, Mr Bailey wrote to the chief executives of major banks with operations in London to inform them that bonuses for 2012 must reflect the mis-selling and market manipulation scandals that have rocked the sector this year.

The FSA's intervention will be welcomed by the major investors in banks, who have argued since the financial crisis that the decline in pay levels has failed to keep pace with the diminishing returns distributed to shareholders.

HSBC is the only one of the major lenders with which City institutions have declared themselves satisfied with the relative distributions between investors and employees. Banks are also under pressure from regulator to retain more capital to strengthen their balance sheets.

The meeting has become a traditional fixture on the FSA's calendar ahead of the annual banking industry pay round.

The FSA declined to comment on specific meetings with banks but said it held discussions with them on a range of issues.

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Bank Staff 'Under Pressure To Sell', Which? Says

Staff at Britain's largest banks remain under pressure to sell products to customers, often regardless of whether they are appropriate, an investigation claims.

Two thirds of bank staff with a sales role said there is now "more pressure than ever" to meet their targets, according to a Which? survey of front line bank employees.

Almost half of the 500 people interviewed said they knew colleagues who had mis-sold products to meet their targets, and 40% reported that they are encouraged to sell even when it is not appropriate.

Which? interviewed branch and call-centre staff from HSBC, Royal Bank of Scotland, Lloyds Banking Group, Barclays and Santander, and found that even when incentives are removed, the practice prevails.

Although over 40% said incentives for sales have decreased, more than 80% said the pressure to meet sales targets has stayed the same or increased.

The research comes despite a string of mis-selling scandals over recent years, knocking customers' trust in UK banks.

The PPI mis-selling scandal has cost the big banks £10bn to date

The most high-profile - the mis-selling of payment protection insurance - has already cost the big banks more than £10bn in compensation claims, with that bill expected to rise.

Of the staff surveyed, over a third said they are not comfortable with the pressure they are under to sell products, and two thirds added that they are sometimes or always ordered to sell more.

Which? chief executive Peter Vicary-Smith called for "big change" across the banking industry, with customers - not sales - put first.

"Our survey reveals the stark realities of the sales culture that still exists at the heart of the banking industry," he said.

"Senior bankers say the culture is changing but this shows it just isn't filtering through to staff on the front line who remain under real pressure to put sales before service, even after incentives are taken away.

"We're calling on the banks to be much more transparent about their sales targets and incentives.

"We also want to see bankers meet professional standards and comply with a fully independent code of conduct."

A spokesman for the British Bankers' Association (BBA) said that any incentives for front line staff are now based on clear criteria related to customer service.

"Selling people products they do not need is not putting the customer's interests first and therefore is ultimately bad for the bank," he said.

"The banks will be looking at the findings of this small survey - along with their own internal research - to understand why any staff might feel otherwise."

Which? said it will provide a collection of evidence on the banking industry to the Parliamentary Commission on Banking Standards, the Government and opposition MPs, and the Financial Standards Authority (FSA).

Barclays and the Co-operative bank have already announced plans to refocus their incentives schemes on customer service.

A spokeswoman for Barclays said: "From this week all Barclays UK front line staff are rewarded solely on customer service.

"This follows our announcement in October which was welcomed by Which?"

An HSBC statement said the bank encourages its employees to act "with integrity in the best interest of our customers".

"No one in the UK retail bank, not just customer facing staff, can earn a bonus without meeting the bank's values and behaviours criteria," it said.

And a spokeswoman for RBS said that its staff are rewarded on the basis of customer service and the performance of their branch overall.

"This is part of our move to make sure that customer service is the top priority for all of our staff," she added.

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Starbucks Tax Row: Protests Planned Across UK

Coffee chain Starbucks is braced for protests over its tax arrangements despite announcing changes to its payments.

The US-owned giant said it expects to pay around £10m in UK corporation tax for each of the next two years, following the revelation that it paid just £8.6m in 14 years of trading in Britain and nothing in the last three years.

Activist group UK Uncut is planning more than 40 demonstrations across the country, "transforming" Starbucks stores into refuges, creches and homeless shelters.

The anti-cuts direct action group said the number of protests planned for today had increased since Starbucks made its announcement.

UK Uncut said it also wanted to highlight the "disproportionate" impact of the Government's spending cuts on women.

Sarah Greene, a UK Uncut activist, said: "It is an outrage that the Government continues to let multinationals like Starbucks dodge millions in tax while cutting vital services like refuges, creches and rape crisis centres.

"It does not have to be this way. The Government could easily bring in billions that could fund vital services by clamping down."

Hannah Pearce, a UK Uncut supporter, said that offering to pay some tax "if and when it suits" does not stop a company being a tax avoider, adding: "This is just a desperate attempt by Starbucks to deflect public pressure - hollow promises on press releases don't fund women's refuges or child benefits."

Union boss Mark Serwotka says Starbucks' tax stance is "scandalous"

She called on the Government to force Starbucks and other tax avoiding firms to "pay their fair share, instead of cutting welfare and tax credits for single mums and disabled women".

A spokesman from Global Women's strike, one of the women's groups supporting Saturday's action, said: "Women - in families, homes, communities and jobs - bear the brunt of austerity.

"At our Women's Centre we see more women cut off benefits, losing their jobs, being made homeless and going hungry.

"Already, 3.5 million children live in poverty, one in five mothers skips a meal to feed her children, and many walk miles to get food handouts because they can't afford the bus fare.

"Women are also expected to pick up the pieces as services disappear or turn people away, saying they are overwhelmed."

Mark Serwotka, general secretary of the Public and Commercial Services union, which is supporting the protests, said: "With hundreds of thousands of public sector workers having their jobs, pay and pensions cut, and people entitled to benefits being demonised and targeted in the most shameful way, it is utterly scandalous that some multinational companies believe they can get away with contributing little or nothing to our economy.

"We fully support this weekend's action which, along with previous campaigns by UK Uncut and others, will highlight the fact that if large companies like Starbucks paid their fair share it would change the debate about public spending overnight."

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Starbucks Tax Row: £10m Climbdown

Starbucks has vowed to pay more corporation tax than it is obliged to as the coffee chain denies hiding profits from the UK taxman.

The company's UK managing director Kris Engskov told Sky News that the decision to "take action" followed anger from its customers in recent weeks.

Starbucks will now pay around £20m in corporation tax over the next two years, after paying nothing last year.

The U-turn comes after the Government pledged to crack down on tax avoidance after public outrage over how little some multinational companies contribute to the UK Exchequer.

Mr Engskov told Sky's Jeff Randall: "We are paying corporate tax and we are going to do that beyond what is required by the law and whether we make a profit in the next two years and I think that is what we should do.

"We have reacted to our customers... We have seen that doing business responsibly is good for the bottom line and this is a good example of that."

In the same interview, he said the US coffee giant had not been profitable in the UK since it brought its brand to Britain 14 years ago.

Kris Engskov runs Starbucks in the UK

And he admitted their 2011 report and accounts may be wrong when they referred to the fact that the UK was making a "significant portion of the net revenue and earnings of our international operations". 

This could mean major penalties for the company.

Since arriving in the UK, Starbucks has paid just £8.6m in corporation tax despite taking billions of pounds in revenue from its shops, which now number more than 750.

The low bill has been explained by the practice of transfer pricing, which involves charges being made by companies in the same group based in different jurisdictions, with the effect of depressing profits in the higher-tax jurisdiction.

In Starbucks' case, that relates to the royalty fee paid to a sister company in the Netherlands for the right to use its brand and coffee recipe.

While the previous tax arrangements were legal, its actions were called into question amid a wider debate about tax avoidance which has also engulfed the likes of Amazon and Google.

The companies were accused of "immorally" minimising UK tax bills in a damning report by the Public Accounts Committee of MPs.

Its chairman, Margaret Hodge MP told Sky News the development was a "step in the right direction" which had been brought about by "people power."

The firm has argued that its UK operations already inject £300m into the UK economy annually.

Mr Engskov, speaking earlier in a speech to business leaders, admitted that the "emotion" surrounding the tax payments had "taken us a bit by surprise".

"Since we started doing business here, we have always organised our tax affairs according to the letter of the law - always," he said.

"We have used existing and agreed-upon measures to pay what is expected of us, but not more - just as most companies do and I am sure many of the people here today run their businesses in similar ways."

But in his remarks to the London Chamber of Commerce he admitted: "With the backdrop of these difficult times, in the area of tax, our customers clearly expect us to do more."

Mike Lewis, tax justice policy adviser for charity ActionAid UK,said: "Starbucks' tax back-down proves that companies do have a choice about where and how they pay taxes."

Other critics suggested the country should wait to see the colour of Starbucks' money.

Hannah Pearce, a UK Uncut spokesperson said: "Offering to pay some tax if and when it suits you doesn't stop you being a tax dodger.

"Starbucks have been avoiding tax for over a decade and continue to deny that it paid too little tax in the past. Today's announcement is just a desperate attempt to deflect public pressure.

"There's no money yet, and hollow promises on press releases don't fund women's refuges or child benefits."

An HMRC spokesman said: "Corporation Tax is not a voluntary tax. The public expects businesses to pay their fair share and we will challenge, through the courts if necessary, any structures or tax payments that do not comply with the UK tax law."

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West Coast Rail Debacle 'Cost Taxpayers £50m'

Taxpayers face a "significant" bill over the botched West Coast rail franchise process, a report from a government spending watchdog has said.

The Department for Transport's running of the West Coast bidding process lacked management oversight, with some staff "confused" by the system, the National Audit Office (NAO) report said.

The Government has already indicated that repaying bidding costs to the companies that competed for the franchise is likely to land taxpayers with a bill of around £40m.

Richard Branson's Virgin Trains has been handed the franchise for the next 23 months after the process that saw the route awarded to its rival FirstGroup was abandoned.

In its report, the NAO said staff and adviser costs, legal costs and money for the two reviews set up by the Government following abandonment of the West Coast bidding amounted to £8.9m.

NAO head Amyas Morse said: "Cancelling a major rail franchise competition at such a late stage is a clear sign of serious problems.

"The result is likely to be a significant cost to the taxpayer."

Margaret Hodge branded the bidding process a "fiasco".

Commenting on the report, House of Commons Public Accounts Committee chairman Margaret Hodge said: "The DfT's handling of the West Coast franchise was a first-class fiasco."

Ms Hodge, Labour MP for Barking, said the DfT had "blundered into this major and complex competition for one of the biggest franchises in the country without even knowing how key parts of its policy were to be implemented".

She went on: "The department's conduct was characterised by haste, confusion and weak internal and external communication.

"However, the ultimate failure of this competition was sealed by a rich mix of the department's feeble and forever changing management and almost non-existent oversight."

Bob Crow, general secretary of the RMT transport union, said the final cost of the West Coast fiasco could be as high as £100m.

He said: "This cost will not be borne by the ministers responsible for this debacle.

Bob Crow says the bid debacle could eventually cost £100m

"It will be carried yet again by the British people and will be paid for through cuts in investment and higher fares, with the train operating companies protected and cushioned in the same way as they have been since privatisation was first unleashed."

Michael Roberts, chief executive of the Association of Train Operating Companies, said: "The Government needs to grip the issues that led to the cancellation of the West Coast franchise competition.

"It must get the programme of franchising back on course and give passengers as well as train companies the confidence that new rail franchises will be awarded through a fair and robust process."

Transport Secretary Patrick McLoughlin said: "The NAO has made a number of recommendations that mirror many of the findings of the Laidlaw Inquiry in terms of the work we need to do to strengthen our organisation and the structures within it.

"I am pleased to say that we are already taking swift action on this front and I believe the plans we are putting in place to ensure future franchise competitions are conducted on the basis of sound planning, the rigorous identification and oversight of risk, and the right quality assurance, will prevent a repeat of these lamentable failures."

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Bank Staff 'Under Pressure To Sell', Which? Says

Staff at Britain's largest banks remain under pressure to sell products to customers, often regardless of whether they are appropriate, an investigation claims.

Two thirds of bank staff with a sales role said there is now "more pressure than ever" to meet their targets, according to a Which? survey of front line bank employees.

Almost half of the 500 people interviewed said they knew colleagues who had mis-sold products to meet their targets, and 40% reported that they are encouraged to sell even when it is not appropriate.

Which? interviewed branch and call-centre staff from HSBC, Royal Bank of Scotland, Lloyds Banking Group, Barclays and Santander, and found that even when incentives are removed, the practice prevails.

Although over 40% said incentives for sales have decreased, more than 80% said the pressure to meet sales targets has stayed the same or increased.

The research comes despite a string of mis-selling scandals over recent years, knocking customers' trust in UK banks.

The PPI mis-selling scandal has cost the big banks £10bn to date

The most high-profile - the mis-selling of payment protection insurance - has already cost the big banks more than £10bn in compensation claims, with that bill expected to rise.

Of the staff surveyed, over a third said they are not comfortable with the pressure they are under to sell products, and two thirds added that they are sometimes or always ordered to sell more.

Which? chief executive Peter Vicary-Smith called for "big change" across the banking industry, with customers - not sales - put first.

"Our survey reveals the stark realities of the sales culture that still exists at the heart of the banking industry," he said.

"Senior bankers say the culture is changing but this shows it just isn't filtering through to staff on the front line who remain under real pressure to put sales before service, even after incentives are taken away.

"We're calling on the banks to be much more transparent about their sales targets and incentives.

"We also want to see bankers meet professional standards and comply with a fully independent code of conduct."

A spokesman for the British Bankers' Association (BBA) said that any incentives for front line staff are now based on clear criteria related to customer service.

"Selling people products they do not need is not putting the customer's interests first and therefore is ultimately bad for the bank," he said.

"The banks will be looking at the findings of this small survey - along with their own internal research - to understand why any staff might feel otherwise."

Which? said it will provide a collection of evidence on the banking industry to the Parliamentary Commission on Banking Standards, the Government and opposition MPs, and the Financial Standards Authority (FSA).

Barclays and the Co-operative bank have already announced plans to refocus their incentives schemes on customer service.

A spokeswoman for Barclays said: "From this week all Barclays UK front line staff are rewarded solely on customer service.

"This follows our announcement in October which was welcomed by Which?"

An HSBC statement said the bank encourages its employees to act "with integrity in the best interest of our customers".

"No one in the UK retail bank, not just customer facing staff, can earn a bonus without meeting the bank's values and behaviours criteria," it said.

And a spokeswoman for RBS said that its staff are rewarded on the basis of customer service and the performance of their branch overall.

"This is part of our move to make sure that customer service is the top priority for all of our staff," she added.

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Virgin Trains Holds On To West Coast Line

Virgin Trains says it has reached an agreement to operate services on the West Coast Main Line for the next 23 months.

It comes after an embarrassing U-turn by the Department for Transport (DfT), which admitted it got its sums wrong after initially awarding the franchise to rival FirstGroup.

Sir Richard Branson, the founder of Virgin, described the bidding process as "insane" and mounted a legal challenge to the decision.

Transport Secretary Patrick McLoughlin said: "We are determined to ensure not only that passengers continue to experience the same levels of service they have in the past, but that services improve.

"There will be a new hourly service linking Glasgow and London and we will also work with Virgin Trains to explore other service improvements."

Virgin said there will be up to 28,000 more seats each day on the line because of the delivery of 106 new Pendolino carriages.

Its temporary deal will run from December 9 until November 9 2014, after which the West Coast line will be let under a long-term franchise.

DfT will be able to cut the 23-month period short "by up to six months if a subsequent franchise can be let on a shorter timescale", the Government added.

Three DfT officials were suspended after the bidding process was scrapped and Virgin was expected to be given the go-ahead to run the line for between nine and 13 months.

The new deal will see Virgin run the line on a temporary basis for far longer but does not involve an interim franchise as all existing bid processes were suspended pending the findings of an independent inquiry into the franchise system ordered by Mr McLoughlin.

The investigation, led by Centrica chief executive Sam Laidlaw, produced damning initial findings which listed a string of failings by the DfT.

The publication of the full report, expected later on Thursday, was delayed after one of the suspended department officials, Kate Mingay, mounted a legal challenge to her suspension.

More follows...

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Rolls-Royce Warns Of Corruption Investigation

Rolls-Royce says it has passed information to the Serious Fraud Office (SFO) relating to concerns about bribery and corruption overseas.

It follows a request for information from the SFO about allegations of malpractice involving intermediaries in Indonesia and China.

The aircraft engine manufacturer said it had "identified matters of concern in these, and in other overseas markets". 

In a statement, the UK-based company said it would cooperate filly with the regulatory authorities.

"It is too early to predict the outcomes, but these could include the prosecution of individuals and of the company," it said.

The chief executive of Rolls-Royce, John Rishton, added: "I want to make it crystal clear that neither I nor the board will tolerate improper business conduct of any sort and will take all necessary action to ensure compliance.

"This is a company with exceptional prospects and I will not accept any behaviour that undermines its future success."

It said it had boosted its compliance procedures in recent years, including a new ethics code and policy for intermediaries.

Rolls-Royce is due to hire an independent manager to lead a review of current procedures and report to the ethics committee of the board.

Shares in the company, which operates in more than 50 countries across the world, fell over 4.5% following the announcement.

More follows...

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Topshop Stake Sale Agreed By Sir Philip Green

Retail tycoon Sir Philip Green has confirmed the sale of a 25% stake in his Topshop and Topman chains for £500m.

The move, which was exclusively revealed by Sky's City Editor Mark Kleinman on Tuesday, values the two high street brands at £2bn.

Kleinman said the sale added credence to Sir Philip's ambition of becoming a global retail magnate as it was aimed at funding an expansion programme.

The buyer of the stake is Leonard Green & Partners, one of the joint owners of the American clothing business J Crew.

More follows...

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Sir Philip Green Sells Topshop Stake

By Mark Kleinman, City Editor

Sir Philip Green, the high street billionaire, is to sell a chunk of his burgeoning Topshop empire to outside investors in a move that will cement his reputation as one of Britain's most successful businessmen.

I can exclusively reveal that Sir Philip is in advanced talks about selling a stake of up to 25% of Topman and Topshop. The deal, which is not yet finalised, is expected to value the two chains at close to £1bn, confirming their status as the most lucrative franchises in British fashion.

If completed, the spectacular move will add credence to Sir Philip's ambition of becoming a global retail magnate and will represent the latest in a string of deals which have transformed him as the most powerful man in the UK fashion business.

The buyer of the stake in Topshop and Topman, which will be ring-fenced from the rest of Sir Philip's fashion businesses as part of the transaction, is understood to be one of the joint owners of J Crew, the American clothing business.

Sources close to the talks said the deal was yet to be finalised but that an agreement could be announced as early as this week.

J Crew is owned by Leonard Green & Partners (LGP) and TPG Capital, two big American private equity firms which between them have backed companies such as Debenhams, the department store chain, and Neiman Marcus, the upmarket American retailer.

People close to the situation said that LGP, which is based in Los Angeles, had been in talks with Sir Philip about making an investment in Topshop for some time.

LGP also owns companies in the banking, consumer products and healthcare industries, and this year announced that it had raised a fund of $6.25bn to invest in the coming years.

TPG and LGP bought J Crew for about $3bn in November 2010. J Crew is run by Millard 'Mickey' Drexler, the former chief executive of Gap, one of the most successful US fashion exports of the past 25 years.

The spectacular deal to sell a stake in Topshop will be Sir Philip's most significant business transaction since he failed with his second attempt to buy Marks & Spencer eight years ago.

Since then, the women's fashion chain has enjoyed a period of soaring growth fuelled by its knack of producing on-trend clothing at affordable prices. Its partnership with the supermodel Kate Moss has also kept Topshop in the tabloid headlines and raised the profile of Sir Philip's business.

Sir Philip's latest deal will also mark a decade since he created the Arcadia fashion business following an £800m takeover that set him on the path to becoming one of Britain's wealthiest people. The Sunday Times Rich List reported this year that Sir Philip and wife Tina, the legal owner of the business, were worth £3.3bn.

Arcadia's six other brands, which include Dorothy Perkins and Miss Selfridge, will not be included in the transaction, according to people close to the discussions.

The funds from the stake sale will be used to accelerate Top Shop's international expansion. Sir Philip has been in talks with a wide range of potential investors and partners for several years as he targeted growth in the US and Asia.

Topshop outlets in the US have performed well since flagship stores opened in Chicago, Las Vegas and New York, fuelling the billionaire's ambition to open shops in a much larger number of markets. Earlier this year, he struck a deal with Nordstrom, the New York-listed department store chain, to sell Topshop and Topman-branded clothing in up to 100 outlets.

Sir Philip is understood to be determined that his staff do not see the sale of a stake in Topshop as undermining his commitment to the rest of his brands.

Arcadia employs 43,000 people and is one of Britain's biggest private sector employers. Sir Philip has defended the company's tax arrangements amid the escalating row over corporate taxes because the business is owned by his Monaco-based wife.

He pointed out last month that Arcadia had paid more than £2bn in tax since he acquired the business, including £591m in corporation tax.

Announcing Arcadia's annual results last month, Sir Philip said pre-tax profit had increased before exceptional items from £133.1m to £166.9m in the year to August 25.

Sir Philip also owns the BhS chain, which has struggled amid tough trading conditions on the high street. He has explored a sale of the chain in the past.

Goldman Sachs, Sir Philip's long-standing City adviser, is understood to have been working on the deal to sell a stake in Topshop for at least six months.

Sir Philip refused to comment on the talks to bring a new investor into Topshop and Topman on Tuesday night. LGP could not be reached for comment.

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