Ceil­ing on bonuses likely to hit Lon­don hard­est

The Pak Banker - - FRONT PAGE -

Bankers in Europe face a cap on bonuses as early as next year, fol­low­ing agree­ment in Brus­sels on Fri­day to in­tro­duce what would be the world’s strictest pay curbs, in a move politi­cians hope will ad­dress pub­lic anger at fi­nan­cial-sec­tor greed.

The pro­vi­sional agree­ment, an­nounced by diplo­mats and of­fi­cials af­ter late-night talks be­tween EU coun­try rep­re­sen­ta­tives and the bloc’s par­lia­ment, means bankers face an au­to­matic bonus cap set at a par with their salaries. That can be raised to twice their pay packet only if a ma­jor­ity of the bank’s share­hold­ers vote in favour. The rules will ap­ply to all banks — Amer­i­can, Asian, Rus­sian or Euro­pean — based in Europe, and to units of Euro­pean banks lo­cated abroad, so a Deutsche Bank em­ployee work­ing in New York or Tokyo would be sub­ject to the same lim­its.

Equally, a Gold­man Sachs banker in Lon­don, Frankfurt or any­where else in the Euro­pean Union would be cov­ered. “There will be no ex­cep­tions,” said Oth­mar Karas, the Aus­trian law­maker who helped ne­go­ti­ate the deal. “It goes for all banks in­side and out­side the Euro­pean Union and for all for­eign banks in­side the Euro­pean Union.”

The cap has been some­what soft- ened by pro­vi­sions for ad­just­ing the value of long-term non-cash pay­ments to bankers, so that more bonuses can be paid out over time with­out break­ing through the new ceil­ing.

The limit on bankers’ pay, which is set to en­ter EU law as part of a wider over­haul of cap­i­tal rules aimed at mak­ing banks more sta­ble, will be pop­u­lar on a con­ti­nent strug­gling to emerge from the ru­ins of the 2008 fi­nan­cial cri­sis.

But it rep­re­sents a set­back for the Bri­tish government, which had long ar­gued against such ab­so­lute lim­its. The City of Lon­don, the re­gion’s fi­nan­cial cap­i­tal with 144,000 bank­ing staff and many more in re­lated jobs, will be hit hard­est.

“The United King­dom is not happy,” said one law­maker, speak­ing pri­vately. Ire­land, which holds the ro­tat­ing EU pres­i­dency and helped ne­go­ti­ate the deal, will now present it to EU coun­tries. Ir­ish Fi­nance Min­is­ter Michael Noo­nan said he would ask his peers to back it at an EU min­is­ters’ meet­ing on March 5 in Brus­sels. The back­ing of a ma­jor­ity of EU states is needed for the deal to be fi­nalised, so Bri­tain would not be able to block it alone. One mem­ber of the Euro­pean Par­lia­ment pri­vately sig­nalled that the deal could yet change, point­ing to the “reser­va­tions” of some EU coun­tries.

Other mea­sures in the package, in­clud­ing moves to force banks to de­clare all core as­sets, re­main un­re­solved. Thurs­day’s agree­ment will also re­quire banks to out­line prof­its and other de­tails of their op­er­a­tions on a coun­try-by-coun­try ba­sis, and they face a 2019 dead­line to raise their core cap­i­tal lev­els. The change in the law is set to be in­tro­duced as part of a wider body of leg­is­la­tion, known as Basel III, which de­mands that banks set aside roughly three times more cap­i­tal and build up cash buf­fers to cover the risk of un­paid loans.

Some ex­perts have crit­i­cised the EU for fail­ing to stick to all the pro­vi­sions set out in the Basel III agree- ment, which was drawn up by reg­u­la­tors af­ter the fi­nan­cial crash. A ceil­ing on bonuses, the only one of its kind glob­ally, is per­haps the most rad­i­cal as­pect of the new rules, and runs the risk of es­tab­lish­ing an un­even global play­ing field that could put Euro­pean banks at a dis­ad­van­tage in at­tract­ing staff. Udo Bull­mann, a Ger­man mem­ber of par­lia­ment in­volved in the ne­go­ti­a­tions, said the deal was “rev­o­lu­tion in a sec­tor that didn’t have rules any more”.

But many think the re­forms will do lit­tle to lower pay in fi­nance, where head­hunters say some an­nual pack­ages in Lon­don ap­proach £5 mil­lion ($7.6 mil­lion).

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.