While US investment bankers face congressional grillings and “bonus rage”, Britain – somewhat ironically – is looming as a shining centre of bonus redemption for litigious bankers.
Even as the UK attempts to halt a bonus culture that politicians blame for helping to create the credit crisis, imposing a 50 per cent “super tax” on bank bonuses over £25,000, bankers have been on a winning streak in the courts.
As Bloomberg reported on Tuesday, among key banker compensation victories this year, a former Societe Generale managing director, an ex-Seymour Pierce investment banker and a former Rabobank International derivatives trader have all won rulings on unpaid compensation claims in the UK courts.
According to Bloomberg, there have been more than 100 cases brought to UK courts by bankers suing their former employers since the credit crisis began in 2007.
And, like any promising growth industry, the surge in litigation in the financial services field – not just compensation for bankers – has prompted the launch of a number of new companies that finance lawsuits.
As the FT reported in January, hedge funds have also backed lawsuits on an ad-hoc basis and even private equity and institutional investors have got in on the act.
Lawsuits, as the report notes, “are an alternative asset class with sometime double-digit returns that can be delivered in three to four years”.
The litigation funders provide financing to companies embroiled in business disputes that would be unable to meet spiralling legal bills. In return, the litigant hands over a share of any compensation awarded by the courts. The trick, of course, is to choose the right cases.
Judging by bankers’ wins this year, compensation suits might be a promising area, although the cases won this year range from amounts of €1.6m, won by Saleem Khatri, a former Rabobank banker, in a contract dispute over an unpaid bonus after he was dismissed, to nearly €250m that could be at stake in the biggest case of the year: two lawsuits brought by 104 investment bankers against Commerzbank.
As the FT reported last week, the bankers – who were all employed in 2008 by Dresdner Kleinwort’s investment banking division, which was taken over by Commerzbank last year – claim they were entitled to receive millions of pounds in discretionary bonuses from a €400m ($520m) pool, but were paid only 10 per cent of the bonuses what they were owed.
Commerzbank has gone to the High Court to ask that the two separate lawsuits be dismissed. But the German bank’s record of court losses last year doesn’t augur well. In 2009, it lost suits brought by four Dresdner bankers over bonus and severance, and settled at least two others that sought millions of dollars, according to Bloomberg.
One lawyer at London firm told the news agency that Britain’s judges “are showing that they’re not being browbeaten by government pressure”.
Well, what a nice way to demonstrate the independence of the judiciary — especially nice if you’re a banker, that is.
Related links:
Bonus neurosis, revisited: Mine’s bigger than yours – FTAlphaville
Media-fuelled Goldman bonus neurosis – FTAlphaville