Bonus rules risk European exodus
BANKERS warned of a talent exodus from Europe yesterday after lawmakers in Strasbourg voted to enforce the world’s toughest regime on bonuses in the wake of the financial crisis.
A ruckus is brewing between institutions, who view the crackdown as a short-term populist manoeuvre, and European politicians, who argue lenders were guilty of “obscene” risk taking in the run-up to 2008 and should be forced to mend their ways.
The European Parliament rubber-stamped a law capping the upfront cash portion of senior bankers’ bonuses at 30 per cent, or 20 per cent for particularly large deals. At least half of a reward will have to be paid in a mix of contingent capital, which can be clawed back if a bank’s performance dips, and shares. Between 40 and 60 per cent of a bonus will have to be deferred over three to five years.
The rules will apply to London’s thriving hedge fund community as well as its banks. To ensure no asset managers escape, the pay clampdown will be replicated in another paper specifically targeting hedge funds, the Alternative Investment Fund Managers Directive.
Referring to the disgraced former Royal Bank of Scotland boss, Liberal Democrat MEP Sharon Bowles said there would be “no more Fred Goodwins” as performance-related segments of pension pots would also have to be handed out in contingent capital and shares.
Bowles risked inflaming tempers in London by telling City A.M.: “Europe has dared and now the US and the rest of the world will dare too. If bankers want to live in our society they have to play by our rules. If they’re so greedy [they decide to leave], we’re better off without them.”
Angela Knight of the British Bankers’ Association described Bowles’ comments as “wholly inappropriate”. “So many jobs hang on these businesses, which can operate out of any country,” she said. “If you get a lot of ordinary people losing their jobs as a result of this I wonder how popular the policy will be then?”
Under the terms sealed yesterday, banks across Europe will additionally be forced to hold up to four times more capital against their proprietary trading positions. Bowles described the step as a “mini-Volcker rule” because it would make trading much more expensive for lenders.
Arlene McCarthy, the Labour MEP, said it would be “obscene” to allow bonus culture to continue unchecked.
Separately, the European Parliament decided three super-watchdogs would all be based in Frankfurt, rather than having one in London as previously agreed.