Lloyds' Daniels to receive £2m bonus

BBC business editor Robert Peston on the grilling of the boss of Barclays

Eric Daniels, the outgoing chief executive of Lloyds Banking Group, is set to receive a bonus of around £2m.

According to those close to the bank, it is inconceivable he will turn the bonus down, as he did last year and the year before.

"Why on earth should he?" said a banker. "He has returned Lloyds to profit. And also, he is leaving Lloyds in March, so why should Eric care if the bonus makes him unpopular?".

That said, the payment will be controversial, for two reasons. First, Lloyds is 41% owned by taxpayers - and the government has said it does not wish to see what it calls "unacceptable" bonuses, especially in banks where the state has a stake.

Second, Mr Daniels was chief executive when Lloyds agreed to buy HBOS in the autumn of 2008 - which is a deal that has generated spectacular losses for Lloyds and also meant that Lloyds was forced to receive a far bigger injection of funds from taxpayers than would otherwise have been the case.

That said, Mr Daniels has in the past year returned Lloyds to profit faster than some thought likely. Also he avoided the bank becoming majority controlled by the government by persuading commercial investors to buy £13.5bn of shares in a jumbo rights issue.

Daniels is leaving Lloyds in March, to be replaced at the helm by Antonio Horta-Osario, who recently quit as boss of Santander's substantial UK operations.

The maximum bonus entitlement for Mr Daniels is 225% of his salary of £1.035m.

Those close to Lloyds say that the board is likely to award him around £2m. The announcement will be made in February.

On top of the bonus, Mr Daniels is also expected to receive shares worth more than £2m from a so-called long-term incentive plan.

The disclosure that Mr Daniels will receive a substantial bonus will cause something of a headache for the Treasury and for Royal Bank of Scotland.

Ministers, especially the Lib Dem Business Secretary, Vince Cable, are keen that the chief executive of Royal Bank of Scotland - which is more than 80% owned by taxpayers - should not take the £2.5m bonus to which he may be entitled.

Mr Hester may not wish to be the only prominent banker making a financial sacrifice to alleviate tensions in the coalition government over the remuneration of bankers.

Update 12:14: If you need evidence of the toxicity of bonuses for the coalition, a government source has rushed to tell me that the precise magnitude of Mr Daniel's bonus has not been agreed.

But then I never said it had been. What I said is that Lloyds' board is convinced he has earned his bonus and that it will be of the order of £2m.

Will the government try to block the bonus? My government source is refusing to say that.

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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