Fool.co.uk Press Releases
21 February 2012

Shareholder return should come before bankers’ bonuses

Standard Chartered and HSBC stand out from the rest says The Motley Fool

Only two of the UK’s quoted banks have delivered a positive return for shareholders over the last 11 years according to new analysis by one of the UK’s popular online investing communities - The Motley Fool at Fool.co.uk.

The shocking performances of banks since 2000 tell a sorry tale as bankers have been quick to accept bonuses, but slow at delivering acceptable returns for shareholders.

It seems that million pound payouts for top executives are now the norm rather than the exception. Yet only two of the UK’s banks should even consider paying bonuses to executives given the appalling long-term track records of some banks.

Standard Chartered stands out as Britain’s best performing bank for shareholders. A £10,000 investment in Standard Chartered in 2000 would be worth around £27,400 today with dividends re-invested. A similar investment in HSBC would be worth £11,900, which, although below the rate of inflation, is still positive.

BankTotal ReturnTotal Annual Return since 1/1/2000
Standard Chartered+174%+9%
HSBC+19%+1.4%
Barclays-24%-2%
Lloyds Banking Group-85%-15%
Royal Bank of Scotland-91%-16%

Source: Bloomberg

However, investors in Barclays, Lloyds Banking Group and Royal Bank of Scotland have lost out. Barclays shareholders will have seen a £10,000 investment in 2000 shrink to £7,610. Meanwhile, investors in Lloyds Banking Group and Royal Bank of Scotland have seen their £10,000 investments vaporise. They would only be worth £1,500 and £900 respectively today.

David Kuo, Director at The Motley Fool, comments: “Bankers need to recognise that shareholders are their paymasters. Investors rely on a combination of increasing share price and dividends to generate a total return on their investment.

Only two banks have succeeded in delivering a positive return over more than a decade. Therefore only two banks should even consider paying a bonus at the moment.

Bonuses can be a good way to incentivise both staff and managers to deliver outstanding performance. However, the payment of bonuses needs to be aligned with the interests of shareholders if they are to be meaningful.

Paying a bonus before shareholders have enjoyed a return is no better than rewarding a seal before it has performed its trick.

-ENDS-

For further information and/or to arrange an interview with David Kuo, please contact: Sonia Rehill on 020 7462 4308 or soniar@fool.co.uk

About The Motley Fool (UK)

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