Stocks to watch as Treasury considers scrapping bankers’ bonus cap

Highlights

• The Treasury is contemplating doing away with the cap on bankers' bonuses under a post-Brexit overhaul of City rules.
• It has been quite some time since City bosses have complained about the bonus rules.
• Those against the move have contended that uncapped bonuses may lead to the sort of unwarranted risk taking that set off the global financial crisis of 2008.

As part of a post-Brexit overhaul of City rules, the Treasury is contemplating doing away with the cap on bankers' bonuses. Reportedly, a final decision regarding the same hasn't been made yet. However, sources claim that Chancellor of the Exchequer, Kwasi Kwarteng, believed that scrapping off the cap would turn London into a more appealing site for international banks to conduct business.

It has been quite some time since City bosses have complained about the bonus rules across the EU, restricting bonuses to twice the salary of an employee. They believed that this leads to higher base pay, lifting the fixed costs faced by banks. Adding to it, they claimed that those costs couldn't be adjusted in line with the firm's financial performance, thus turning the UK into a less appealing destination than the US or Asia.

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Those against the move have contended that uncapped bonuses may lead to the sort of unwarranted risk taking that set off the global financial crisis of 2008. However, many claims that other new rules would be able to hold senior managers responsible for any wrongdoings. Scrapping the cap during these rough times when households are dealing with a living crisis would certainly incite anger among them.

However, the government is parallelly considering other initiatives, too, such as easing the rules restricting the amount that insurance and pension funds can invest in assets that are more difficult to sell at short notice. An example of the same would be long-term infrastructure projects. As the new rules come into place, investors may evaluate the performance of some of the biggest UK banking groups. 

HSBC Holdings plc (LON: HSBA)

The market cap of the FTSE 100-listed bank, HSBC Holdings plc, stands at £103,614.15m as of 15 September. The bank's dividend yield offering on an annual basis stands at 4.6%, and it has its P/E ratio holding at 8.83. HSBA shares tumbled by 1.21% and traded at GBX 523.20 at 11:11 AM (GMT+1) on Thursday. The bank's annual and YTD (year-to-date) returns stand at 40.39% and 16.68% as of 15 September, respectively. It has an EPS (earning per share) of 0.62. 

NatWest Group plc (LON: NWG)

The market cap of the FTSE 100-listed bank, NatWest Group plc, stands at £26,060.69m as of 15 September. The bank's dividend yield offering on an annual basis stands at 4.4%, and it has its P/E ratio holding at 10.15. NWG shares surged by 1.22% and traded at GBX 273.00 at 11:15 AM (GMT+1) on Thursday. The bank's returns on an annual and YTD basis stand at 20.01% and 12.28% as of 15 September, respectively. It has an EPS of 0.25. 

Lloyds Banking Group plc (LON: LLOY)

The market cap of the FTSE 100-listed bank, Lloyds Banking Group plc, stands at £31,445.13m as of 15 September. The bank's dividend yield offering on an annual basis stands at 4.6%, and it has its P/E ratio holding at 7.65. LLOY shares rallied by 1.80% and traded at GBX 47.30 at 11:16 AM (GMT+1) on Thursday. The bank's returns on an annual and YTD basis stand at 8.34% and -1.13% as of 15 September, respectively. It has an EPS of 0.08.