UK banks have denied they are involved in a coordinated effort to slash bankers bonuses by almost half.
Banks are under pressure to trim more than £3bn from the estimated £7bn bonus pot, which is due to be announced in March.
However, the four main UK banks denied rumours they are working with the British Bankers’ Association (BBA) to meet the target.
A BBA spokesman told City A.M.: “We’re not doing anything specific on this. Bonuses inevitably come up whenever we meet but there is no taskforce and there are no targets we are working towards.”
Bankers’ bonuses are already expected to tumble from last year’s £10bn to £7bn after a poor year for investment banking.
Royal Bank of Scotland (RBS) chairman Philip Hampton earlier this month confirmed the amount it will pay will almost certainly drop from last year’s £1.3bn.
He said: “It would be strange if market forces did not play a part in reducing bonuses because this has been a weaker year for investment banking markets than last year and so, if the word bonus means anything, it means payouts should be lower than last year.”
However, a source close to the bank said the government would not have the same influence over it as last year, when UKFI, the body responsible for the public stake in RBS, had the right to veto its bonus pot.
Banks and politicians look set to clash over the issue for the second year running, with many in government said to be baulking at even a £4bn total bonus pot.
A Treasury spokesman said: “The government’s objective is to extract the maximum sustainable tax revenues from financial services. Pay should reward long-term, sustainable wealth creation, not unsustainable short-term performance.”
Bankers will be determined to take home the highest possible sum after new European proposals threaten to give them an initial loss on deferred bonuses.
Thanks to new deferred payment rules, bankers receiving a bonus of more than £1m will get less than £200,000 up front but could face immediate taxes totalling around the same amount.
By David Crow
IT’S impossible to have a rational debate on bankers’ bonuses, especially since politicians became involved. Yesterday’s suggestion that UK banks, under the stewardship of the industry trade body, were planning to cap bonuses to placate public ire was quickly denied. Several industry sources think the story originated in Whitehall.
What the coalition likely wanted to do was to take credit for bonuses that would already be lower than last year’s. This year hasn’t been as strong for investment banks, meaning bonus pots will be naturally smaller.
And new European rules, coupled with regulations from the FSA, force bankers to take big chunks of performance-related awards in deferred shares, will see the cash component fall dramatically. The coalition will claim responsibility, arguing it has succeeded where Labour failed by convincing the banks to put their own houses in order.
George Osborne is also likely to come under fire when he unveils plans for a bank levy, which will be set at a much lower rate than previously thought (although it will still raise £2.5bn). He is hoping that by taking credit for lower bonuses, he can defuse Labour’s attacks on the levy.