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April 24, 2019

Activist investors hit out at private banking pay and appointments

By Oliver Williams

Activist investors are putting the pressure on British bank Schroders to reverse a director appointment and cut bonus pay. But this will not be the only high profile rebellion of shareholders as private banks commence their AGM season.

Proxy advisory firm Glass Lewis has urged shareholders of Schroders to vote against the election of Leonie Schroder to its board of directors.

Schroders announced the appointment of Leonie Schroder to the board last month following the death of her father, and long-serving board member, Bruno Schroder. Leonie Schroder would fill his vacant position, the bank said, representing her family who owns 35% of the business.

However, Glass Lewis has urged shareholders to vote against Schroder’s appointment at its annual meeting on 2nd May, voicing concern over her lack of experience.

“We do not believe a sufficiently robust rationale has been presented for the election of nominee [Leonie] Schroder, and question whether, in representing her family interests, she has sufficient core industry or sector experience to effectively challenge management,” Glass Lewis said in its analysis of the bank.

Activist investors put pressure on banks bonuses

Glass Lewis’s analysis also calls into question the size of the bonus plan at Schroders, which it calls “unnecessarily high”. The proxy advisor said that shareholders should not support the remuneration proposal.

Schroders is not the only bank facing down activist investors over bonuses. On Tuesday, Barclays bowed to pressure from Edward Bramson, its third-largest shareholder, who demanded the bank pay levels.

Swiss bankers pay under pressure

There seems to be particular ire over the pay at Swiss banks and asset managers.

GAM, the crises stricken Swiss asset manager, is likely to face a shareholder revolt over its pay to senior executives. Proxy advisers ISS and PIRC have recommended shareholders vote against its remuneration report.

Problems at GAM started after an internal probe revealed breaches in star fund manager Tim Haywood’s risk management and record keeping processes. Haywood was eventually sacked and his absolute return bond funds (ABRF) liquidated.

It is a similar story at the world’s largest wealth manager. UBS wants to pay its CEO, Sergio Ermotti, CHF 13.8m ($13.5m), excluding benefits and contributions to his retirement benefit plan.

UBS dedicates three full pages of its 2018 annual report to justify Ermotti’s pay.

However, this is not enough to convince some proxy advisories, including ISS and Glass Lewis. The latter said it was “troubled by the significant fines the company is facing in Europe, particularly in France, as a result of money laundering litigations”

Earlier this year, a French court ordered UBS to pay a total of €4.5bn for aiding tax evasion. The fine was the largest in the Swiss bank’s history and was equivalent to its entire 2018 profits.

The decision over Ermotti’s – and other UBS directors’ – pay package will be finalised at UBS’s annual meeting on 2nd May.

With the start of AGM season at private banks, there are likely to be many other grumbles about executive pay.

First up is Credit Suisse which wants shareholders to approve its CEO Tidjane Thiam’s 30% pay increase on Friday. In his favour are a positive set of results and the Swiss bank’s first profit since 2014.

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