* Early EU reform pushed up pay, hardening resolve for
* Bonus cap could hit top earners among London's 144,000
* Lawmaker McCarthy: European Parliament will not budge on
* Decision not expected before 1800 GMT; might be deferred
By John O'Donnell and Alice Baghdjian
BRUSSELS/LONDON, Feb 27 The European parliament
and EU states could agree on Wednesday to impose caps on
bankers' bonuses, a measure that would channel public fury at
financial sector greed, but which opponents say marks a reckless
overreach by Brussels into private pay deals.
Negotiations to introduce a cap on bankers' bonuses in the
European Union resume on Wednesday, a week after European
lawmakers and ambassadors from countries failed to reach a deal.
A majority of states in the 27-member bloc would have to support
a measure passed by the European parliament to make it law.
Limits to bankers' pay are popular on a continent still
struggling to emerge from the ruins of a 2008 financial crisis.
Lavish pay is blamed for encouraging bankers to take excessive
risks, destabilising banks that then needed to be bailed out.
Banks and industry lobbyists have strongly resisted bonus
caps. They say such limits would only force banks to hike base
pay to keep staff, making wage bills less flexible.
Britain in particular is wary of any measure that might hurt
the City of London, the continent's financial capital, with
144,000 banking staff and many more in related jobs.
But European lawmakers see a cap - possibly limiting bonuses
to double base salary - as the only way to rein in runaway pay,
reduce incentives for risk and make banks safer.
"A cap is the only way we will see bonus restraint," said
Arlene McCarthy, the British member of the European Parliament
who pushed for pay reform. "The parliament is not prepared to
budge. Legislators have got fed up because they don't see any
restraint in the bonus culture."
Talks between EU country ambassadors about the rules broke
up last week amid clashes over how far to go. But tougher rules
"There will definitely be a bonus cap," said one official.
"It's just a question of how much."
A decision is not expected before 1800 GMT and there is a
possibility that it might be deferred for more negotiations.
Britain, anxious to protect a sector that accounts for one
tenth of its economy, is trying to dilute the impact of the cap
with proposals that would allow higher bonuses if they were paid
in share options.
Nearly 700,000 people work in financial and professional
services in London. About 27 billion pounds ($41 billion) of
bonuses have been spent over the last decade on real estate in
the British capital, according to data compiled for Reuters by
property firm Savills.
"If implemented, the new pay restrictions would lead to an
exodus of bankers and traders to Switzerland and the Far East,"
Norman Lamont, a former finance minister from Britain's ruling
Conservative party, wrote in the Daily Telegraph.
"Not to put too fine a point on it, the bonus cap is a piece
of economic lunacy that reflects tellingly on why it was a huge
mistake giving the pointless hybrid parliament in Brussels any
legislative powers at all."
Many in banking argue that such reform will do little to
lower pay in finance, where head-hunters say some annual
packages in London approach five million pounds.
"This will only change the way that pay is structured," said
Andrew Breach, a head-hunter at Michael Page, which recruits
traders and other bankers. "This is not the civil service. This
is a market driven industry. If you want people to make profit,
then you need to reward them."
An earlier attempt to limit bankers' pay with an EU law
forcing financiers to defer bonus payments over up to five years
merely prompted lenders to increase base salaries.
However McCarthy, the European lawmaker, said it will be
harder for banks to raise base pay this time around. The bonus
rules will come as part of wider legislation setting higher
capital standards for banks, increasing their costs and curbing
freedom to hike salaries.
Hedge funds and private equity firms will be excluded from
such curbs although they face restrictions on pay later this
year under another EU law.
Bankers who spoke to Reuters are worried about the law but
reluctant, like many of their employers, to speak openly about
The restrictions planned by Brussels, which could come into
force from the beginning of next year, may, however, be
overtaken by events in an industry where slack activity has
already driven down most bonuses to twice salary or lower.
Having peaked in 2008 at 11.5 billion pounds ($17.40
billion), the bonus pool in London fell to 4.4 billion pounds
last year, according to research by the Centre for Economics and
Business Research. It predicts that pool will be just 1.5
billion pounds this year and fall further in the future.
On Wall Street, by contrast, the securities industry's bonus
pool was expected to total $20 billion last year with the
average cash bonus rising an estimated nine percent to almost
$121,900, New York state's comptroller said this week.
The rosier climate for banking in the United States and Asia
combined with the bonus cap from Brussels could be the final
straw for some bankers.
"We have been talking for years about the economy and the
regulatory environment here potentially moving people abroad and
we haven't really seen it. But this might be enough to push a
lot of people off the ledges," said one London-based headhunter.