France's Lagarde hits out at bankers’ bonuses
By Ben Hall and Scheherazade Daneshkhu in Paris
Published: July 21 2009 22:06 | Last updated: July 21 2009 22:06
Banks that have started to pay their staff guaranteed bonuses again are an “absolute disgrace” and should be reined in by governments at the G20 summit in September, according to France’s finance minister.
In what she described as a “cri de coeur” against the return of “the old ways”, Christine Lagarde urged other G20 governments to stop “procrastinating” and introduce curbs on pay practices deemed to encourage too much risk-taking.
“I think it is an absolute disgrace that guaranteed bonuses of several years could still be paid, or that some people are thinking of reinstating the old ways of compensating with insufficient relationship between compensation and lasting performance and risk management,” Ms Lagarde said in a Financial Times interview.
Some global banks, including Citigroup, Deutsche Bank and Nomura, have offered multi-year guarantees to recruit and retain key personnel, although they insist that the practice has been limited to top talent.
French banks have agreed to forego such payments, to link bonuses to the profitability of the bank and include claw-back provisions. If they do not they face the possibility of higher capital requirements. The UK’s Financial Services Authority this week warned that banks that have agreed to guarantee executive bonuses for more than a year risked heavy penalties.
Ms Lagarde said that all leading economies should quickly adopt similar principles to those laid out by the Financial Stability Board, an international forum of central bankers, treasury officials and supervisors.
“We have the rules now. It is not a question of reinventing the wheel, or procrastinating about them. It is a question of applying a set of rules that have now been agreed by the Financial Stability Board. The utmost priority should be given to their implementation,” she said.
Christine Lagarde issued a ‘cri de coeur’ against the return of ‘the old ways’
Ms Lagarde acknowledged that it was “tough” imposing higher standards on French banks, in terms of pay, that could put them at a competitive disadvantage in recruitment. “It is not fair that some players are playing by the rules and that some players – especially when they are highly subsidised – are simply ignoring the rules.”
But she said Paris as a financial centre stood to benefit from the enhanced reputation of its universal bank business model – combining investment banking with retail operations, – and of its regulatory system, and from London’s tarnished image.
“I don’t think we have been guilty of the same excess, not to say that we have been paragons of virtue,” she said. Ms Lagarde has made the promotion of Paris as a financial centre one of her priorities since becoming finance minister two years ago. |
