HSBC under pressure over share rewards

British banking giant HSBC was today accused by a rebel shareholder of misleading investors over share rewards for senior directors.

Knight Vinke, the investment group calling for a strategic overhaul of HSBC, said the bank’s information to shareholders over its 2005 share plan “gave the impression that performance targets were significantly more demanding than they are in reality”.

The bank’s top five directors are expected to net shares worth £5m (€6.9m) under the scheme early next year.

The bank denied Knight Vinke’s claims. A spokesman said HSBC had consulted on the scheme with its top 50 shareholders – which own up to 50% of the company - as well as the Association of British Insurers.

Shareholders voted 97% in favour of the scheme in May 2005, and the rules of the share plan had not changed, the spokesman added.

In a series of newspaper advertisements today Knight Vinke attacked the terms of the payout, which it claims were not fully explained to shareholders.

The firm's legal opinion is that “insufficient” information was given.

Knight Vinke, owner of less than 1% of HSBC, added: “As a consequence, HSBC’s most senior executives stand to receive substantial performance-related pay in March 2008, despite more than 20 billion US dollars of provisions for credit and trading related losses in the past two years.”

HSBC became the first major bank to signal the crisis in the US mortgage market back in February when the company issued its first ever profits warning. Last week the group revealed an extra $1.4bn (€946m) hit in its American mortgage business.

The share controversy centres on the scheme’s earnings per share targets, where progress over the three years is measured against the base year.

If earnings had increased by 52% in the first two years of the plan, the scheme would pay out 100%, even if the measure sank back to the level of the base year in the final year of the scheme.

Knight Vinke has been campaigning for wholesale changes at the UK’s biggest bank, including the removal of chairman Stephen Green.

The activist shareholder, which has offices in New York and Monaco, claims HSBC has “perennially underperformed” its peers, lacks scale in key markets and has a poor board structure.