Commerzbank loses UK banker bonus appeal

Commerzbank, Germany's second-largest lender, on Friday lost a high-profile appeal against a UK court ruling that forces it to pay 104 London-based bankers around 52 million euros ($68 million) in bonuses, plus costs. Commerzbank had argued that its now-integrated Dresdner Kleinwort subsidiary was justified in slashing 2008 bonuses as losses spiralled to 6.5 billion euros and threatened the survival of the business.
The decision flies in the face of a regulatory clampdown on bonuses, as well as government, public and investor scorn at the size of payouts amid disappointing returns and billions spent on bank bailouts since the 2008 crisis. "It is a regrettable outcome in view of the on-going regulatory, public and shareholder calls to establish a sound relationship between banks' performance and variable remuneration," Commerzbank said.
The Frankfurt-based bank added it was considering its legal options. It has seven days to apply for an appeal to be considered at the Supreme Court. Some lawyers have said the three-and-a-half year legal battle by the largest group action of its kind at the High Court represents a triumph of David over Goliath.
But they have also warned it sets a worrying precedent for banks that have had informal bonus discussions with staff, or those facing liquidity problems or mergers, which might now be required to honour pre-agreed bonus terms. The dispute hinged in part on whether Commerzbank's often informal promises of bonuses constituted a contractual agreement and whether it had been within its rights to introduce a "material adverse change" (MAC) clause in bonus letters after the Dresdner take-over in 2009, which the German bank argued allowed it to cut the payouts.
In a unanimous decision to dismiss Commerzbank's appeal, the Court of Appeal found there was "overwhelming evidence justifying the conclusion that this promise (of bonuses) was intended to be legally binding" and the introduction of the MAC clause amounted to a breach of duty of trust and confidence. High Court Judge Robert Owen enraged Commerzbank last May by suggesting it had sacrificed the contractual rights of its employees "on the altar of public perception" after being forced to seek a government bailout following the Dresdner deal.