THE Treasury is anxious to get banks to agree to an industry-wide lending commitment under “Project Merlin” before earnings season starts.
But time is running out for the initiative to improve the industry’s image. Barclays will kick off the major UK banks’ full-year results season next Tuesday, with its new chief executive Bob Diamond expected to receive an all-shares bonus to a value of £10m.
The government is keen to include some provisions on bank bonuses in the Merlin plan, although energy secretary Chris Huhne sounded an unexpectedly conciliatory note on bonuses yesterday.
He said: “I am not against, whether they're footballers or bankers, people who have particularly high skills and talents being paid whatever you can get in the marketplace.”
Instead, Huhne said the government would ensure that part of any bonus award was paid in shares, although this is in fact European legislation that has been in effect since 1 January.
Aside from the bonus issue, the centrepiece of the agreement will be a promise by banks to increase lending, with a variable target to be tied to GDP growth plus inflation. Such a target would fall far short of the 10 per cent the Treasury wanted originally.
Project Merlin has been beset by problems, with banks having to negotiate through Pricewaterhouse-Coopers to avoid sharing sensitive data.