LONDON (Reuters) - Around 100 British bankers will next week pitch themselves against Commerzbank, the part state-owned German lender, in a four-week London trial over 52 million euros (44 million pounds) in unpaid bonuses.
The row, which returns to court amid increasing public anger over the size of bank payouts, will see Commerzbank Chief Executive Martin Blessing clash with former Dresdner investment bank head Stefan Jentzsch when it starts in earnest next Wednesday.
The legal spat is likely to fan the flames of public anger at a time when high inflation, rising job losses and sharp government spending cuts eat into the livelihoods of Britons asked to bail out the banking sector in the 2008 credit crisis.
The group of 104 London-based former Dresdner bankers launched their legal battle in late 2009 after some were paid only 10 percent of the bonuses they had been promised for 2008 out of a guaranteed minimum bonus pool of 400 million euros.
The case hinges on whether Germany’s second-largest bank, which bought Dresdner in January 2009, was entitled to slash bonus awards for some of its staff by invoking a so-called “MAC” clause -- a material adverse change in economic conditions.
Commerzbank, which had to be bailed out by the German government after buckling in the credit crisis, has long argued that discretionary bonuses were dependent on the bank’s performance -- although an attempt to dismiss the case last year was rejected by the Court of Appeal.
The bankers argue that the financial woes of Commerzbank -- which on Thursday unveiled plans to try to plug a 5.3 billion euro capital shortfall to avoid another government bailout -- have little to do with its legal obligations.
They allege the German bank reneged on contractual promises made to staff in internal meetings in 2008 as well as in letters.
“We regard this as a promise made by Dresdner Kleinwort to our clients, a promise which was unquestionably, in our view, meant to be honoured,” said Clive Zietman, a partner at UK law firm Stewarts Law, which is representing the bulk of the claimants.
Despite a backdrop in which even Conservative Prime Minister David Cameron has decried bank bonuses as being “out of control,” claimants’ lawyers are unlikely to be deflected. At the heart of the case lies an important principle, they say: that of English contract law.
In March 2008 Allianz, the former owner of Dresdner, was considering selling or winding down its investment banking division. Britain’s Financial Services Authority (FSA) was also keen for the bank to avoid a destabilising staff exodus.
So Dresdner’s Jentzsch set up a staff retention plan.
The ensuing guaranteed minimum bonus pool, from which qualifying staff would be paid based on individual performance, was designed to encourage loyalty in uncertain times.
However, in early 2009 Dresdner and its new owner Commerzbank paid out only 25 million euros of the 120.4 million set aside in discretionary bonuses.
It paid out another 152.2 million euros in guaranteed bonuses and kept the remaining 222.8 million.
The bank argued that discretionary bonuses were dependent on bank performance, that bonus letters sent to staff were not contractual offers -- and that there had been an “acute danger to the continued existence of Dresdner as a going concern.”
“During the forthcoming trial, Commerzbank will show that Dresdner Bank was entitled to reduce its employees’ 2008 discretionary bonuses in the light of the dramatic deterioration in the investment bank’s performance in late 2008,” a spokesman for Commerzbank said.
“As the new owner of Dresdner Bank, Commerzbank plans to mount a vigorous defence to all the claims made against it.”
Writing by Kirstin Ridley; Editing by Jon Loades-Carter