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News : EU Economy Last Updated: Jul 17, 2013 - 11:10 AM

Battered European banks paid more than €1m each to 3,175 staff in 2011
By Michael Hennigan, Finfacts founder and editor
Jul 16, 2013 - 5:31 AM

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Battered European banks paid more than €1m each to 3,175 staff in 2011 according to data [pdf] issued by the European Banking Authority on Monday. Twenty one bankers working in Ireland for banks including affiliates of European banks, earned an average of  €1.4m. The year 2011 was a disastrous one for the top European banks and return on equity (ROE was 0%.

In other countries where banking woes have doomed economies, 125 bankers in Spain earned an average in 2011 of €2.4m, amounting to more than €300m; 11 Portuguese bankers earned €1.6m each; Cyprus had four bankers who earned an average of €1.6m and Greece had two, earning over €2m on average.

UK-based bankers at 2,436  employees, accounted for more than three-quarters of the total million-euro earners for the entire European Union. Their average pay was €1.44m.

Germany was in second rank with 170 bankers earning more than €1m, at an average of €1.84m - -  followed by France (162), Spain (125), Italy (96) and the Netherlands (36). Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Malta, Romania and Slovenia didn't have any million-euro earners.

The EBA said the data is categorised into different business areas. Several high earners fall into categories that include functions with responsibilities throughout the whole institution, from the executive board, to risk management, internal audit, information technology, communication, auditing, corporate finance, legal and human resources.

The EBA will publish, at the end of the year, a more detailed report on an analysis of remuneration practices in the EU; this will be based on a remuneration benchmarking exercise which will also comprise a more detailed analysis of the data presented

Banks in intensive care despite ECB subsidy

This is from a Finfacts Premium report earlier this year:

Despite benefitting from a subsidy provided by the European Central Bank via cheap loans, Europe's banks remain in intensive care. Meanwhile, in 2012, the US banking industry had the second-best earnings year on record.

Deutsche Bank Research says the largest European banks have now all reported their full-year earnings: they were on aggregate the lowest since the height of the financial crisis in 2008, with net profit only at €19 bn - - down another 34% on a disastrous prior year - - 2011 (which included huge goodwill writedowns at the Italian banks). This yields an industry-wide ROE (return on equity) of 1.9% (compared with 8.9% or $142bn at all US banks!). 7 out of 22 institutions made losses.

DBR said weaknesses abound throughout the numbers. Interest income posted its second - - and accelerating - - annual decline in a row (-1.6% yoy); fee income stagnated and trading income recovered only modestly (+3%) from its slump in 2011. Despite sluggish revenues and tumbling profits, operating expenses (incl. employee remuneration) rose further (+3%), although half of the banks managed to cut them.

One of the few bright spots were capital levels. Banks strengthened Core Tier 1 ratios on average to 11.8% (+1.6 pp yoy) and many also started reporting indicative Basel III figures. Fully-loaded CT1 varies between 7½% and 13%, with more clarity to come once CRD IV has finally been adopted.

Other somewhat encouraging news came from loan loss provisions, which at least did not increase (remaining flat vs 2011) despite the recession in Europe, and from total assets shrinking by 2.4%. The bottom line is that 2012 was dominated by two different sets of problems: i) legacy effects, as the continuing clean-up resulted in many “one-off” charges, and ii) the increasingly pressing challenges of the “new normal”. On the one hand, the banking industry is still preoccupied with the past, on the other it is evidently struggling to restore (revenue) growth and limit costs in a rough macroeconomic and tightening regulatory environment.

Besides, European banks are benefitting from ECB subsidies via its long-term financing scheme.

McKinsey said in a report in late 2012 that ROE of the top European banks in 2011 was 0% compared with 7.65 for the top 300 global banks.

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