Financial Regulatory Forum

EU ministers pledge to end banker bonus party

By Reuters Staff
September 2, 2009

Sweden's Finance Minister Anders Borg addresses a news conference during an European Union finance ministers meeting in Brussels September 2, 2009.     REUTERS/Francois Lenoir By Anna Willard
BRUSSELS, Sept 2 (Reuters) – European finance ministers pledged on Wednesday to clamp down on banker bonuses, raising the prospect of spreading such payouts over years or demanding back money if business turns sour.

Last week, French President Nicolas Sarkozy unveiled rules for his country’s bankers and said he would propose caps and taxes on bonuses at a meeting of the Group of 20 industrialised and emerging nations in Pittsburgh starting on Sept 24.

“The bankers are partying like it’s 1999, and it’s 2009,” Swedish Finance Minister Anders Borg, whose country holds the European Union presidency, told reporters before a meeting of finance ministers from the 16 countries that use the euro.

“The bonus culture must come to an end and it must come to an end in Pittsburgh.”

Sarkozy’s clampdown in France was in part prompted by BNP Paribas’ decision to set aside 1 billion euros ($1.4 billion) for bonuses having received five times that sum in state aid.

His tough line has won widespread support, with an echo of approval in Germany, whose public is deeply sceptical of the Anglo-Saxon bonus culture and whose chancellor, Angela Merkel, is fighting a campaign for re-election this month.

Jean-Claude Juncker, chairman of the Eurogroup of euro zone finance ministers, also gave France a thumbs-up.

“We have to make the rules tougher,” German Deputy Finance Minister Joerg Asmussen told reporters after the ministers’ lunch meeting.

“The EU wants a clear link between bonus and performance — not just bonus but also clawback — and also that these payments are made over years after the banks’ risk position is clear.”

The German government has come under fire after it was forced to bail out lenders such as Commerzbank and a host of smaller lenders shot off the rails.

Critics want to curtail a system of bonuses — typically paid around March after the previous year’s business result is worked out — that incentivised bankers to take big risks for quick gains.

But they are treading carefully, fearing that should European rules be tougher than in the rest of the world, it could suffocate the region’s banking industry.

“There are substantial concerns that the U.S. will not support restrictions on bonuses,” said Ireland’s Finance Minister Brian Lenihan.

FRENCH BLUEPRINT
So far, only Sarkozy has outlined how exactly he intends to keep a lid on bonuses.

He is insisting that bonuses be paid over three years, with half of it, or up to two-thirds for bumper bonuses, deferred over the last two years of this period. A star trader, for example, whose investments subsequently slip into the red would lose his bonus.

French banks which refuse to sign up to the new rules will be bumped off the list for government business such as privatisation.

Sarkozy also hopes to persuade the G20 group of nations to limit and tax bonuses but said this would not apply in France unless others agreed to the proposals.

Britain’s finance minister Alistair Darling did not attend the meeting, while London — home to Europe’s biggest financial centre — remained quiet on the issue.

British Prime Minister Gordon Brown told the Financial Times on Tuesday that he wanted tough action on excessive remuneration, but that he was unenthusiastic about French-led pressure to set a mandatory cap.

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