HSBC yields to shareholders on pay, flags Brexit danger

By Lawrence White and Sinead Cruise

LONDON (Reuters) - HSBC changed its pay policy for executive directors on Friday, bowing to shareholder concerns triggered by a drop in the bank's share price and worries over its dividend.

The overhaul of HSBC's pay, which it said would lower the top amount its executive directors could earn by 7 percent came a year earlier than scheduled and follows investor revolts at BP (NYSE: BP) and Anglo American (NYSE: AA) over remuneration policies.

Europe's biggest bank, which also warned of the potential impact to its operations if Britain leaves the EU, told shareholders at its annual meeting in London that it would cut the amount of cash given to executive directors in lieu of a pension from 50 percent to 30 percent of base salary.

Shareholders peppered Chairman Douglas Flint with questions over senior executives' pay and the fairness of Chief Executive Stuart Gulliver's 2015 payout of 7.3 million pounds ($10.5 million), 169 times the average HSBC worker's salary.

"Our executive team is paid very well but not at the top of the range for similarly large and complex organisations," Flint said.

HSBC also said it will offer long-term incentives subject to a three year forward-looking performance period, in line with other FTSE 100 <.FTSE> companies.

PROTESTS

At the meeting, 96 percent of shareholders who voted approved the measures, which Flint said were prompted by regulatory changes and shareholder feedback.

Outside the meeting, protestors including two individuals dressed as "fat cats" in suits and bowler hats voiced their criticism of senior executive pay at the bank.

On investors' dividend concerns, meanwhile, HSBC introduced a note of caution, with Flint and Group Finance Director Iain Mackay emphasizing that the ability to continue increasing the payout depends on the bank's profitability.

"The sustainability of the dividend is informed by the level of profits, the strength of our distributable reserves and our understanding of the capital regime," Mackay told reporters after the meeting.

Thomson Reuters data shows consensus analyst forecasts for HSBC's dividend to be unchanged at 50 cents at the end of 2016.

HSBC also said it could be forced to restructure its wholesale operations in the UK if Britain voted to leave the European Union in June's referendum.

"Our own economic research is very clear about the advantages of Britain being at the heart of a reformed EU," Flint said. "We believe that the UK would enter a period of great economic uncertainty in the event of a vote to leave."

U.S. LICENSE

Responding to concerns about its position in the United States, Flint said the bank is "doing everything it had promised" to avoid the loss of its U.S. banking license after alleged failures to satisfy a monitor supervising a reboot of its anti-money laundering (AML) compliance program.

In 2012 HSBC was fined $1.9 billion by the U.S. government, which said it had become a "preferred financial institution" for drug cartels and money launderers and had conducted transactions for customers in several countries subject to U.S. sanctions.

"The DOJ (Department of Justice) in its most recent letter would echo that although HSBC has made significant progress, the bank continues to face significant challenges in implementing AML prevention," Flint said in response to an investor's question at the meeting.

"So we have work to do, but at same time, the DOJ said that, overall, HSBC continues to take significant steps."

Shareholder Michael Mason-Mahon, a frequent AGM attendee and critic of Gulliver and Flint, brandished handcuffs as he called for the two men to resign over their handling of the bank's efforts to reform AML controls.

The bank's chairman also sought to play down links to the Panama Papers scandal that exposed the role played by scores of global banks in helping clients to hide wealth in offshore companies.

Flint said that less than 5 percent of 2,000 offshore structures it helped to create still existed.

(Additional reporting by Andrew MacAskill; Editing by Rachel Armstrong, Alexander Smith and David Goodman)

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