Banking bosses had more bad news for the sector yesterday, as Stephen Green, the chairman of HSBC, took a swipe at bankers’ excessive bonuses, and John Thain, the chief executive of Merrill Lynch, warned workers of thousands of job cuts.

Speaking at a conference in London, Mr Green said that banks, regulators and investors needed to consider whether “badly aligned incentives” contributed to the financial crisis.

There is increasing criticism of some banks’ bonus structures, which encouraged bankers to take excessive risks for short-term gains to boost their pay. The Treasury Select Committee has said that it will look at executive remuneration as part of its investigation into the Government’s £400 billion bailout package for banks.

Yet, the chief executive of Lloyds TSB has told employees they will receive bonuses this year despite the bank being one of the financial institutions participating in the Government’s bailout. In a recorded message to staff, Eric Daniels is reported to have told staff that Lloyds will have “very, very few restrictions” on its behaviour and that he saw no reason why bonuses shouldn’t be awarded.

Lord Turner of Ecchinswell, the new chairman of the Financial Services Authority (FSA), said at the weekend that the City regulator would not restrict individual bonuses as long as companies could prove that they had sufficient capital.

Mr Green, who was paid more than £3 million last year, said that existing incentives had “encouraged banks to grow fast and gear up, persuading them to take on higher risk than was sustainable”. Bonus structures had encouraged “excessive risk-taking,” he said.

Executives of HSBC have missed out on share awards from their long-term incentive plan for the past two years and received 50 per cent of their entitlement in 2005, after falling short of targets. The bank recently signed a new pay plan that will reward its top executives with cash bonuses of up to four times their salaries if they hit ambitious targets. However, about 80 per cent of their total potential award will be in shares under the plan.

A survey by eFinancialCareers, a financial website, showed 68 per cent of City workers – including some from Barclays Capital, HSBC, RBS, BNP Paribas, Deutsche Bank, Goldman Sachs, Merrill Lynch, UBS and Credit Suisse – expect a bonus this year, with 32 per cent expect the same or more than last year.

Meanwhile, Mr Thain told a conference in Dubai that thousands of jobs would be cut after Bank of America’s $50 billion (£29 billion) takeover of Merrill Lynch. “We haven’t mapped it out in terms of actual number of people but we’re committed to saving $7 billion across the combined platforms, and that will be a challenge,” Mr Thain said. “Between our two companies, it will be clearly thousands of jobs.” He also said that it would take “multiple years” to repair the damage done to the financial sector by the credit crunch. “This is not going to get better in three to six months,” he said.

Mr Thain forecast more consolidation as pressure mounted on banks to strengthen capital bases. The US Government has unveiled a $700 billion plan to buy toxic assets from the banks to help to clean up their balance sheets.

Mr Thain and Mr Green both expected a recession. “The only question is how deep [it] is and how long,” the Merrill Lynch chief executive said. Mr Green told the conference in London a recession seemed inevitable.

— HSBC bought 89 per cent of Bank Ekonomi, of Indonesia, for $607.5 million (£355 million) yesterday, taking its number of branches in the country to 190.

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