Britain and US frustrate global deal on bonus cap

[FarCenter]

Opponents of pay policy say attempt to limit bankers' income would be unworkable

By Andrew Grice, Political editor

Saturday, 5 September 2009

Picture -- Chancellor Alistair Darling with US Treasury Secretary Timothy Geithner during their meeting ahead of the G20 finance ministers meeting in London -- (complete with shit-eating grin!)

Attempts to clamp down on bankers' bonuses to prevent another global financial crisis were in disarray last night as Britain and America opposed proposals by other European Union nations.

Alistair Darling, the Chancellor, admitted that G20 finance ministers were so divided that they were unlikely to reach a detailed agreement on bonuses at their meeting in London, which began last night and concludes today. He expected that "further work" would be needed before G20 leaders gather in Pittsburgh on 24 September.

France led calls for a cap on individual bonuses but Britain and America, while backing common rules to prevent excessive bonuses, argued that a "pay policy" would be unworkable. They suspect that bankers would find loopholes such as incorporating bonuses into pay.

Christine Lagarde, the French finance minister, said: "They are active participants in the economy but they are not above the rules and they should have a real interest in making sure that what we went through (the crisis) does not happen again. As far as governments are concerned, their responsibility is not to the City. It is to the public."

Seven EU countries led by Sweden, which holds the EU's rotating presidency, urged the G20 to take tough action on "dangerous, indecent, cynical and unacceptable" rewards for bankers. They want a ban on bonuses guaranteed for more than a year, arguing that bonuses should instead be paid out over a number of years and should "mirror the individual's and the bank's actual performance over time".

The plan was also backed by France, Germany, Italy, Spain, Luxembourg and the Netherlands. Sweden will increase the pressure on Britain to move towards the Europeans' stance by calling a special meeting of EU leaders a week before the Pittsburgh summit.

Hopes of a deal on bonuses appeared to rise on Thursday when Gordon Brown, the French President Nicolas Sarkozy and the German Chancellor Angela Merkel put their names to a joint letter calling for binding rules. But as the finance ministers' talks got underway, it was clear that there was little agreement on the detail – and that Britain would join the US in opposing a cap.
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[Ghost Dog]

1. Link:

http://www.independent.co.uk/news/world/politics/britain-and-us-frustrate-global-deal-on-bonus-cap-1782096.html

Reuters version:

... But behind the scenes, some G20 sources expressed frustration that there was not more progress made in curbing excessive pay packages for bankers—particularly those employed by firms that have received billions of dollars in government support.

“There is broad agreement on what to do. The problem is we need to go beyond agreement. We need to have concrete measures,” said International Monetary Fund chief Dominique Strauss-Kahn. “I’m impressed by the level of consensus but I’m still waiting for strong measures to be decided and also to be implemented at the national level.”

Much of the public pressure before the meeting had centred on excessive bank remuneration.

“It is offensive to the public whose taxpayers’ money in different ways has helped (keep) many banks from collapsing and is now underpinning their recovery,” British Prime Minister Gordon Brown said at the start of Saturday’s meetings...

/... http://www.france24.com/en/20090905-ministers-vow-tackle-bank-pay-but-fail-agree-bonus-limits-g20-finance-cap-stimulus

The Telegraph, on the other hand:

G20 will curb bank bonuses

Bonuses for bankers throughout the Western world will for the first time be subject to limits and checks as soon as next year after the G20 pledged to embark on an international crackdown on financiers' pay.

By Edmund Conway
Published: 8:19PM BST 05 Sep 2009

Banks will have caps imposed on the size of the bonus pot they can award to their staff under new rules set out yesterday by finance ministers from the grouping of the world's leading economies. Those banks that do not comply with the new international rules will be subject to sanctions and possible fines.

However, the summit threw out French and German proposals that each banker's bonus pot should be limited, in a decision which will be welcomed by City banks.

/... http://www.telegraph.co.uk/finance/financetopics/g20-summit/6143695/G20-will-curb-bank-bonuses.html

And the FT:

After two days of meetings in London, the Group of 20 finance ministers and central bankers agreed the broad outlines of a tough new regulatory framework for financial institutions that stops short of setting caps on bankers’ bonuses but leaves open the possibility that regulators will have a say on pay.

...

Members appear to have passed some of the thorniest issues surrounding reform of bank regulation and the matter of payouts to bankers into the arms of the Financial Stability Board, an international group of central bankers and regulators.

The group stopped short of setting caps on bankers’ bonuses as some nations – France particularly – had pressed it to do. Instead, it has asked the FSB to help it draw up guidelines that incorporated the principles of transparency and improved corporate governance of banks including greater independence of remuneration committees.

It also agreed that compensation packages must have an element in which rewards are deferred for some time, clawback of payments is possible in cases where early profits lead to later losses and there are limits on guaranteed bonuses.

Mr Darling said that banking regulators may have a role in limiting bonuses. “We agreed to look at the total amount set aside for the bonus pool,” he said. “A regulator could look at that in light of the strength of the institution,” he added, implying that banks with highly risky strategies or those facing large losses could be forced to scale back total bonus payments.

The most important thing, Mr Darling said, was that any agreement on bonus structure must be embraced by all member states. “Quite clearly, you don’t want to get into a a situation where banks can play one country against another,” he said, adding that banks that do not adhere to the rules “will face sanctions.”

“You have to balance the bonus payment against the health of the firm,” he said. He added that there was unanimity among finance ministers and central bankers that “every single banker has to realise that they would not be here except for actions that were underwritten by taxpayers.”

/... http://www.ft.com/cms/s/0/6a7de19c-9a06-11de-9c09-00144feabdc0.html