Major foreign investment banks in Britain agree to G20 pay rules

October 14, 2009

 A video grab image shows Britain's City minister Paul Myners speaking at a Treasury Committee in London March 17, 2009.     REUTERS/Parbul TV Via Reuters TV

By Matt Falloon and Steve Slater
LONDON, Oct 14 (Reuters) – Major foreign investment banks operating in London have agreed to obey G20 and Financial Services Authority rules on remuneration, starting with payments for performance this year, the Treasury said on Wednesday.

Morgan Stanley, Bank of America, UBS, Credit Suisse, Citigroup, Goldman Sachs and JP Morgan signed up to the commitment after a meeting with Treasury minister Paul Myners.

European Union banks BNP Paribas, Deutsche Bank and Societe Generale will obey the G20 guidelines in line with their national regulators and seek to follow the FSA rules — which come into force in 2010 — for UK-based staff.

“Banking remuneration must be consistent with effective risk management and there must be national and international consistency on this issue,” the banks said in a joint statement.

“We welcome the global nature of the G20 remuneration reforms and will work with the FSA and regulators in our home countries in adopting the reforms.”

The agreement follows a similar announcement last month involving major British banks as Britain seeks to clamp down on banks’ risky behaviour which many blame for triggering the financial crisis.

“The financial services industry must take a responsible and long-term approach to remuneration if it is to retain its competitiveness and regain public trust,” Myners said.

The meeting took place in the week that top U.S. banks were expected to unveil multi-billion dollar bonuses for staff after strong third quarter earnings.

BUMPER PAY RETURNS
Goldman Sachs is on Thursday expected to stash away $5 billion to $6 billion for bonuses, lifting its year-end bonus pool to more than $16 billion.

Goldman, which has repaid $10 billion it received under the U.S. Treasury bailout program, has been criticized by lawmakers and consumer advocates for setting aside so much for bonuses so soon after the assistance from taxpayers.

The prospect of big payouts by U.S. banks has stoked concerns among some European rivals that an uneven playing field was developing, if overseas firms were able to pay more to staff in London and other financial centres.

Asked earlier this month about the risk that French banks could lose out, French Economy Minister Christine Lagarde said: “That is the risk of being a pioneer and of really accepting the principle of discipline and rules.”

The G20 group of developed and emerging economies agreed in Pittsburgh last month that bankers’ pay should be overseen by internal independent remuneration committees, linked to the bank’s capital base and be subject to clawback, among a raft of controls aimed at shoring up the banking system.

The FSA rules are broadly in line with the G20 standards and will be updated next year to close any gaps. (Editing by David Cowell)
((UK Economics desk, uk.economics@reuters.com))

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