Guy Hands hands back £70m bonuses

As 250 former Dresdner Kleinwort staff launch a legal action to keep their full annual bonuses in tact, Guy Hands, the boss of private equity firm Terra Firma, has decided to do the decent thing, announcing that he will return the greatest part of his own and his senior management's bonuses earned over the past four years - some £70 million – to investors.

Hands made his announcement, which has sent shockwaves around the City, while delivering his year end report on Terra Firma’s performance on Monday. He said it was the “absolutely right” thing to do. “Our investors have suffered and therefore our rewards should suffer at the same time," he said.

Hands also took a swipe at the bonus culture that had dominated the City institutions, and called for incentives to now be based on five to ten-year performance and paid under clearer and simpler structures in future. "The short-term bonus culture of most financial groups meant that many senior executives were incentivised to ignore or avoid longer-term risks, whilst enjoying extraordinary short-term gains."

Until he set up Terra Firma, which owns the record label EMI, Hands was one of the country's best rewarded investment bankers, working for the London arm of the Japanese bank Nomura. However, he now argues for the separation of commercial and investment banking.

"We have to return to a banking system where there is a division between commercial lending banks, which take deposits and are effectively back-stopped by Government, and investment banks, which take a variety of significant risks in pursuit of fees and quick gains," he said. "We cannot afford a financial system where, heads, the investment bankers win, and, tails, everybody loses." ·