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January 30, 2012 4:09 pm
The new owners of Dresdner Bank decided that an earlier promise to ringfence at least €400m for bonuses was not legally binding, the chief executive of Germany’s Commerzbank told a London court.
Financial markets’ deterioration in late 2008 following the collapse of Lehman Brothers, and the weight of political pressure over bonuses meant that Commerzbank decided it could no longer pay discretionary awards pledged to Dresdner employees before its takeover, Martin Blessing said in cross-examination on Monday.
“We broke our promise because given the circumstances it was necessary; it was the right thing to do,” Mr Blessing said, agreeing that he was aware of the bonus-pool pledge before acquiring Dresdner. He accepted that the pool was created to stop defections and to allay fears raised by Britain’s financial regulator that an employee exodus would further destabilise the bank. “The only thing we don’t agree on is whether it was a binding commitment.”
He was giving evidence in a landmark court case in which 104 bankers say they are owed €50m in unpaid bonuses from Dresdner, which Commerzbank acquired in 2009. The case pits public distaste for bonuses against a bank’s legal commitments, particularly at institutions that have been bailed out by governments during the worst financial crisis in a generation. Commerzbank had to look to the German taxpayer twice during the crisis.
“We are conscious of that fact in this country too,” Lord Justice Owen, the presiding judge, quipped.
The Commerzbank case turns on the former Dresdner bankers’ claim that they were told in August 2008, before the acquisition being agreed, that a guaranteed bonus pool had been set aside for staff “to be allocated on a discretionary basis”.
Andrew Hochhauser QC, the barrister representing 21 of the bankers, maintained that the bonus pool was to pay out “come what may” and it could not have been performance-related given that it had been set up after financial losses of €1.37bn by Dresdner’s investment bank in the first half of 2008.
In Mr Blessing’s written arguments he revealed that he believed “a company showing a loss should not distribute any bonuses” and that no discretionary bonuses were paid at Commerzbank in 2008, including to him.
Mr Blessing is one of Germany’s best-known bankers and began his career at Dresdner. Dressed in a dark suit and tie, he did not dispute Mr Hochhauser’s description of him as the “crown prince” who led negotiations to acquire Dresdner with a view to building a bank that could service Germany’s Mittelstand.
Additional reporting by James Wilson in Frankfurt and Jane Croft in London
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