Hell hath no fury like a banker gypped of his bonus, or so it seems by the latest moves from Dresdner Kleinwort.
In an escalating row that has been brewing since Commerzbank bought the London-based investment bank as part of its purchase of Dresdner late last year, Dresdner Kleinwort bankers are planning to sue Commerzbank over unpaid bonuses, accusing their new owner of breaking a commitment to pay out tens of millions of pounds this year.
As the FT reports on Thursday, the mainly London-based employees have hired the formidable Mishcon de Reya law firm, while 130 others have hired Manches law firm to represent them. Although the cases have not yet been filed, partners at Mishcon de Reya confirmed to the FT the firm is acting for “a large number of Dresdner Kleinwort employees.”
The Evening Standard reported Wednesday that about 250 DK bankers may seek a payout of as much as £50m. What their prospects are is anybody’s guess. The case, not surprisingly, is complicated.
Shortly after Commerzbank took over Dresdner Bank, staff say they were given verbal commitments by the chief executive in a video link-up to DK’s overseas offices that their bonuses would be paid. That commitment, they say, was followed up by letters in December confirming the commitment but containing a “material adverse change” clause that is now emerging as the crux of the case.
The trigger came two weeks ago when Commerzbank said it would scrap all but a few bonuses after a German public outcry over plans to honour a €400m compensation pot set aside last summer by Allianz, Dresdner’s previous owner. It also came after Commerzbank received a German government bailout last year and indicated it is expecting a second consecutive annual loss this year on the back of rising loan loss provisions and some €2bn ($2.5bn) in costs for the integration of Dresdner Bank.
Also last month, Commerzbank’s CFO Eric Strutz last month called on DK bankers to voluntarily give up bonuses guaranteed by their contracts, saying he was counting on their “goodwill”. And just to rub some of DK’s senior bankers’ noses in it, he added in a conference call with journalists: “I call on those who generated losses to live up to their responsibility”. The bank was also keen to let it be known that former Dresdner CEO Herbert Walter and Dresdner Kleinwort’s ex- chief Stefan Jentzsch had both given up their bonuses.
Adding insult to injury, Commerzbank recently said that certain employees - including some working for DK and corporates and markets - would receive “individual extra payments.” These payments are understood to be equal to one month’s salary and are to be paid to top-performing staff.
Bloomberg reports the payments were still subject to DK’s financial performance targets, citing to an internal memo dated Feb. 18. Dresdner investment banking operations lost €6.3bn ($7.9bn) in 2008.
The arguments are likely to boil down to the nature of the verbal and written bonus commitments from DK and Commerzbank. But as the FT notes:
Employees have historically faced an uphill struggle in big-money bonus disputes, with UK courts backing the principle that the hefty payments are generally awarded at the discretion of financial institutions. In 2006, the Court of Appeal threw out an €8m claim brought by former Commerzbank trader James Keen on the grounds that he had no case.
However, given the new - and increasingly domestic German - direction of Dresdner Kleinwort under its new owners, we’d think that much of the non-Germany based staff may not want to stay. In a notice entitled “Termination of equity research coverage“ on Thursday, DK announced the decision to change Dresdner Kleinwort’s business model in cash equities including research from a “Pan-European approach to a primarily Germany focused broker concept”… As a consequence, Dresdner Kleinwort will discontinue research coverage from an Equities perspective of a significant number of companies with immediate effect.
Related links:
Dresdner bankers to sue Commerzbank - FT
Dresdner Kleinwort bankers may sue to recoup reduced bonuses - Bloomberg
Dresdner bankers suing for £50m in City bonuses - Evening Standard
