Banker Bonus Cap Removal Bursts Fair Pay Bubble

Academics question logic behind higher pay for talent retention, as further pay votes are set for AGMs later this month.

HSBC’s decision to scrap a cap on bankers’ bonuses at last week’s AGM could open the floodgates for rising executive pay, further aggravating investor concerns around fair pay.

The vote to remove the cap received 99.3% shareholder support, allowing the bank to set a new limit for bonus and significantly increase payouts. HSBC paid its top investment bankers an estimated average bonus of US$771,700 last year, while median employee pay at the bank sits at £63,000 (US$79,000).

“It’s reflective of the general direction of travel with senior management pay in the UK,” Lindsey Stewart, Director of Investment Stewardship Research at Morningstar, told ESG Investor. “There’s a conviction, certainly among companies, boards and management, that higher pay has to be part of the equation for talent attraction and retention.”

Before the meeting, Stewart suggested the vote would “likely become a focal point for the UK’s conversation on executive pay”.

Overall trend

Under the previous legal cap, an employee’s bonus could not exceed 100% of their annual pay, or 200% with shareholder approval. These limits were scrapped from 31 October 2023 by then-Chancellor Kwasi Kwarteng’s mini budget.

Similar votes are due to take place at Barclays’ AGM on 9 May and Lloyds’ on 16 May. Beyond the UK, proxy advisor Glass Lewis has urged Morgan Stanley shareholders to vote against an executive pay proposal at its AGM on 23 May.

“The overall trend is going to be preserved,” said Stewart. “With HSBC is having approved this, it’s unlikely that we’ll see a rejection of those decisions at Lloyds or Barclays.”

Last week, Goldman Sachs removed its bonus cap for UK bankers, meaning they can now earn more than the previous limit of double their base pay. The decision was criticised by British trade unions.

The median pay for S&P 500 chief executives rose 9% to US$15.7 million in the year to April 15, increasing the gap between top management salaries in the US and UK. UK executives have complained they are underpaid compared to US peers, with several warning of a talent exodus without more competitive pay.

Last year,

Stocks making the biggest moves midday: Disney, Nvidia, Ferrari, Datadog and more

FCA bans Lars Windhorst’s long-time broker James Lewis

Unlock the Editor’s Digest for free

The UK financial regulator has banned and fined James Lewis, the former chief executive of brokerage Shard Capital, for providing incorrect information about clients’ cash balances.

The penalty relates to activities Lewis carried out in relation to a “corporate group” that was a “key client which generated significant revenue for Shard”.

While the Financial Conduct Authority did not name that corporate group in its findings published on Tuesday, the Financial Times has previously reported on the extent that Lars Windhorst, the controversial German financier, relied on Lewis and Shard to carry out trades in esoteric securities. Windhorst’s own travails have included the collapse of several ventures, personal bankruptcy and a criminal conviction.

Details in the regulator’s final notice match with those of high-profile disputes in which Shard Capital became embroiled relating to Windhorst’s Tennor group of companies.

Deloitte resigned as auditor in May 2017 for an investment vehicle headed by Windhorst — and restated its 2014 and 2015 accounts — after accusing Shard Capital of providing “deliberately false” information about the vehicle’s cash position in its role as custodian. 

The FCA’s notice states that an auditor resigned and restated a company’s accounts for 2014 and 2015, after Lewis informed the firm in May 2017 that no cash was held in a custodian bank account. The company’s cash position was revised down by around €700mn following this disclosure.

The FCA also fined Lewis £120,300, allowing him a 30% reduction after he agreed to settle the matter

Lewis founded Shard Capital in 2010 as a bond brokerage firm. The 59-year-old Englishman, known as Jumbo, stepped down from managing Shard Capital in 2022 but remains a shareholder of the London-based brokerage, company filings show.

“Investors depend on accurate information, and Mr Lewis’s actions put investors at significant risk of losses. It is right that he won’t be allowed to work in regulated financial services again,” said Steve Smart, joint executive director of enforcement and market oversight at the FCA.

The regulator said that it was not in “a position to disclose individuals or firms” referred to in its notice.

Shard Capital, which has not been accused of wrongdoing, said: “We welcome the completion of the investigation into James Lewis, which we have been supporting throughout. As highlighted in the FCA’s final notice, Mr Lewis has not held a senior management function at Shard

WisdomTree faces new battle with largest shareholder

Stay informed with free updates

Latest news on ETFs

Visit our ETF Hub to find out more and to explore our in-depth data and comparison tools

WisdomTree’s largest shareholder has launched a new attempt to oust its chief executive, pressing for a potential sale of the $107bn asset manager and criticising its recent push into decentralised finance.

Graham Tuckwell, chair of ETFS Capital, which owns about 18 per cent of WisdomTree, is urging investors to cast proxy ballots against the reappointment of founder and CEO Jonathan “Jono” Steinberg and two other board members at the company’s upcoming annual meeting. WisdomTree, in response, insists “there is no case for change” and has asked stockholders to “not let Mr Tuckwell derail our progress and hinder our success”.

The missives are the latest salvos in a dispute over the company’s future that has been rumbling on since early 2022. Tuckwell has taken a strong interest in WisdomTree since 2018, when WisdomTree acquired the European arm of ETF Securities, a London-based ETF specialist founded by Tuckwell in 2005.

Tuckwell said in a statement issued on Monday that he believed WisdomTree was currently worth between $2.1bn and $3bn, well above its current market value of $1.4bn — and called on WisdomTree’s board to hire a top investment bank to help consider a sale of all or part of the business.

“The DeFi initiatives have been a massive distraction and utterly unsuccessful in our view,” Tuckwell said in the letter to shareholders, calling on the asset manager to “hire a reputable banker and evaluate all options to unlock value as soon as possible”.

The efforts that have drawn Tuckwell’s ire include the launch of the retail-focused WisdomTree Prime digital wallet service and the relatively weak debut of the manager’s spot bitcoin ETF in January. With about $69mn in assets, WisdomTree’s bitcoin ETF is the second-smallest of the 11 such ETFs on the US market. Tuckwell also has called on WisdomTree to share performance data related to WisdomTree Prime and the bitcoin ETF.

In a statement to shareholders filed with the Securities and Exchange Commission asking for support, also dated May 6, WisdomTree noted it had secured more than $29bn in net inflows since January 2021. The manager insisted it was “laser-focused” on its ETF business, which was the ninth-largest in the US as of April 30, according to

Markets Brief: Is It Really a Surprising Quarter for Earnings?

Insights into key market performance and economic trends from Dan Kemp, Morningstar’s global chief research and investment officer.

As we enter the last quarter of the US earnings season, the management teams at large companies have again managed to create a positive “surprise” by lowering expectations ahead of their reports. According to FactSet, analysts forecast year-on-year profit growth among large US companies to be 3.4% at the start of the quarter, whereas we are on track to witness actual growth of 5.0%. That seems like a win until you consider that at the end of last year, first-quarter earnings were expected to rise by more than 6%.

This gamesmanship reminds us that short-term results are often a distraction, rather than a signpost for future returns.

Apple Pay (Back)

Most notably last week, we saw Apple’s (AAPL) results. While the iPhone maker reported lackluster earnings broadly in line with Morningstar analyst William Kerwin’s expectations, investors reacted strongly to news of a $110 billion buyback program, raising the stock’s price by 5.98% on Friday.

Although the capital discipline implied by this move is welcome, it is also a reminder that large companies have limited opportunities to reinvest their profits to fuel future growth. Firms with fewer such opportunities tend to trade at cheaper valuations, as other “Magnificent Seven” stocks are discovering.

Fed Remains Paused

The Federal Reserve has also managed investor expectations, with its continued lack of movement on interest rates being calmly received by market participants. However, expectations of future declines remain strong, as last week’s economic data was slightly weaker than anticipated. Friday’s US employment report showed an unexpected increase in unemployment to 3.9% from 3.8% the previous month. The market’s positive response to this news reflects a strong jobs market’s impact on inflation.

As the San Francisco Federal Reserve notes, core services are currently the main source of inflation. As employment costs typically represent the bulk of the cost of services, weakening employment growth may reduce inflation pressure and provide more opportunities to cut interest rates.

Are Equities Reflecting a Benign Outlook?

With limited economic data this week, investors will likely pay close attention to comments from various Fed leaders, seeking confirmation of a slowing economy and lower future interest rates. While this represents a benign investing environment, this outlook already appears to be reflected in large US equities, priced near their fair value according to Morningstar analysts.

However, as Morningstar’s chief US market strategist David Sekera notes, there are

The Big Interview: Behind the scenes of launching Fulcrum’s LTAF

Fulcrum Asset Management and its managing partner Joe Davidson fall into the former camp, describing the LTAF as a “revolution” for the fund management industry, and a “sensible” idea from the regulators. “It doesn’t make sense running the property funds how they used to be done,” Davidson says when he sat down with Investment Week to lift the curtain on what it’s like to go through the regulator’s intense LTAF application process. Fulcrum was given the green light for the launch of its WS Fulcrum Diversified Private Markets (H) LTAF in March, making it the fourth group to receive aut…

Vision Ridge Partners apoints Head of Europe

Global sustainable real assets investor Vision Ridge Partners has appointed Ramzi Moubarak, a former Managing Director on Macquarie Capital’s infrastructure and energy capital team in Europe, as a Managing Director and Head of Europe, effective immediately.

Moubarak, who is based in London, will be responsible for sourcing and executing investments principally in Europe, across the energy, transportation and agriculture sectors. His appointment follows the opening of Vision Ridge’s London office in October 2023.

At Macquarie Capital, Moubarak led the value-add infrastructure investing business and co-led the energy transition sector in Europe. Previously, he served as a Partner at European private equity firm Montagu, having earlier served as a Vice President at Morgan Stanley Infrastructure Partners.

Artemis bolsters impact equity team with analyst hire from Columbia Threadneedle

Hau joined Columbia Threadneedle in 2021 from the FAIRR Initiative, where she was a lead analyst. Artemis poaches head of impact equities from Columbia Threadneedle As of July, Hau will be part of the team headed by head of impact equities Sacha El Khoury, who also joined Artemis from Columbia Threadneedle in March.  “I am very pleased Lorraine is joining us as we look to build out our impact capabilities and develop the investment strategies we can offer clients,” El Khoury said.  “Clients are looking for transparent yet credible and impactful real-world outcomes, and Lorraine …

Ironbridge exits Advance Engineered Products

Ironbridge Equity Partners has sold Advance Engineered Products, a manufacturer of tank trucks, trailers and vacuum truck equipment, to an entity controlled by TerraVest Industries.

Financial terms of the transaction have not been disclosed.

Throughout its investment in Advance, Ironbridge said in a statement that it supported management to expand manufacturing capabilities, diversify end-market exposure and implement efficiency improvements across its facilities.

Advance marks the sixth exit from Ironbridge’s second private equity fund, Ironbridge Equity Partners II, a fully committed $154m fund.

Alternative Investment Market hit by sharp liquidity declines as investors turn to the US

According to data from accountancy firm UHY Hacker Young, the average value of the daily trading of shares was just £248,990 for the year ending 28 February 2024, down from £294,300 in the previous period. This decrease in liquidity was driven by UK investors increasingly trading in overseas companies, especially US technology stocks, including Nvidia and other members of the ‘Magnificent Seven’. The year-on-year number was also affected by a broader drop in liquidity that followed the Covid-19 period peak in stock market trading, which impacted market trading volumes globally. Har…