Jan. 23 (Bloomberg) -- More than 100 bankers claim Commerzbank AG broke a pledge by Dresdner Bank, which it bought in 2009, to set aside about $516 million for bonuses and are asking a U.K. court this week to order that they be paid.
In the trial, scheduled to begin Jan. 25 in London, the former Dresdner bankers seek about 50 million euros ($64.5 million), with individual payouts of as much as 2 million euros. The suit is the largest in the U.K. over bonus cuts resulting from the financial crisis following the bankruptcy of Lehman Brothers Holdings Inc.
After buying the bank, Commerzbank slashed by as much as 90 percent bonuses promised to workers by former Dresdner Chief Executive Officer Stefan Jentzsch, the claimants said in court papers. Germany’s second biggest lender argues it shouldn’t have to make the payments because of record losses at Dresdner after Lehman’s demise.
“Commerzbank will show that Dresdner Bank was entitled to reduce its employees’ 2008 discretionary bonuses in the light of the significant deterioration in the investment bank’s performance in late 2008,” it said in an e-mailed statement.
The trial comes as the European Union weighs whether to toughen bonus rules adopted in 2010 that Michel Barnier, the region’s financial services chief, has said have failed to prevent “unjustifiable” banker pay. U.K. employees of MF Global Holdings Ltd. will have their bonuses subordinated to other creditors’ claims in the failed brokerage’s bankruptcy.
Witnesses at the Dresdner trial will include Jentzsch and current Commerzbank CEO Martin Blessing, along with current and former Dresdner employees. Commerzbank has already faced other lawsuits in London, Germany and Singapore from workers who said they weren’t paid what they were due after the 2009 takeover. It won the German case and has settled others in London.
The dispute could mean that banks are obliged to honor bonus pledges, even if the political or economic situation makes it difficult to do so, said employment lawyer Jo Keddie of London firm Winckworth Sherwood.
“It is the first group action of its kind in the High Court and it will be of key relevance to the interpretation of ever more complex bonus schemes,” she said.
In 2008, Dresdner’s then-owner Allianz SE said it would restructure the bank. To prevent an exodus of bankers, Jentzsch announced at a “town hall” staff meeting that a guaranteed minimum bonus pool of 400 million euros was created, according to court papers for a group of the claimants.
Commerzbank bought Dresdner in January 2009, even though it was forced to seek an 18.2 billion-euro bailout from Germany during the credit crunch. A month after the deal was struck, Blessing had to defend the acquisition when Dresdner posted a full-year loss of $8 billion.
“We have to view the bank as a whole -- and it ended 2008 with significant losses,” he wrote in a letter to staff at the time, which is quoted in court documents. “Bonuses depend primarily on the company’s overall financial performance and only secondarily on personal performance.”
The bankers’ case will focus on whether Jentzsch’s town hall comments in August 2008 were legally binding and whether Commerzbank improperly relied on a clause in the bonus contracts tied to the bank’s poor performance, according to court filings from both sides.
Commerzbank failed to have the case quashed last year when Judge Andrew Morritt said, “I see no reason why a promise of a guaranteed minimum bonus pool cannot be contractually binding.”
The cases include: Mr. Fahmi Anar & Others v. Dresdner Kleinwort Limited, Commerzbank AG, High Court of Justice, Queen’s Bench Division, HQ09X05230 and Richard Attrill & 71 others v. Dresdner Kleinwort Limited, Commerzbank AG, HQ09X04007
--Editors: Christopher Scinta, Anthony Aarons
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