* One-of-a-kind ceiling on bonuses likely to affect London most
* To cap bonus at 100% of salary, or 200% if shareholders agree
* Curbs to affect non-EU banks and EU bank staff globally
* Measures part of new EU 'rulebook' on how banks should operate
By John O'Donnell and Claire Davenport
BRUSSELS, Feb 28 A new cap on bankers' bonuses agreed overnight
in Brussels was hailed by its supporters as a breakthrough to rein in the
financial sector, but attacked by critics as a reckless move that would drive
bankers abroad or force up base pay.
Bankers in Europe could be barred from getting bonuses bigger than their
base salaries as soon as next year, following the agreement on Thursday. If
shareholders vote in favour, the cap can be increased to twice base pay, but no
The ceiling has been somewhat softened by allowing banks to discount the
future value of share options, bonds or other non-cash payments paid out over a
number of years, but nevertheless amounts to the toughest limit of its kind in
The rules would apply to Europe-based employees of any bank, as well as to
staff of European banks wherever they are based. That means a Deutsche Bank
trader working in New York or Tokyo would be subject to the limits, as would a
Goldman Sachs banker posted to London, though that provision may later be
"There will be no exceptions," said Othmar Karas, the Austrian lawmaker who
helped negotiate the deal. "It goes for all banks inside and outside the
European Union and for all foreign banks inside the European Union."
Hedge funds and private equity firms will be excluded from the curbs,
although they face restrictions on pay later this year under another EU law.
The cap addresses public anger at what many European politicians describe as
rampant greed in the financial sector. Many people on the continent blame huge
bonuses for encouraging bankers to take the risks that caused the 2008 financial
crisis, when banks had to be bailed out with public funds.
Banks argue that without big bonuses they will be forced to increase base
pay to keep staff, raising their fixed costs.
"It could result in significantly more complex pay structures within banks
as they try to fall outside the restrictions to remain competitive globally,"
said Alex Beidas, a pay specialist at law firm Linklaters.
The cap could also deepen the rift between Britain - home to the EU's
financial capital - and the EU at a time when Prime Minister David Cameron has
accused Brussels of having too much influence over domestic affairs and promised
a referendum on Britain's membership of the 27-member bloc.
The bonus cap is a setback for the British government, which had argued
against such absolute limits and their impact on the City of London, which has
144,000 banking staff and 700,000 people in total working in financial and
"The United Kingdom is not happy," one European Parliament lawmaker said
privately. Britain again expressed reservations about the bonus deal at a
meeting of EU ambassadors on Thursday, according to one official who attended.
The backing of a majority of EU states is needed for the deal to be
finalised, so Britain would not be able to block it alone. Still, one member of
the European Parliament privately signalled that the agreement could yet change,
pointing to the "reservations" of some EU countries.
The limit on bankers' pay, which would enter EU law as part of a wider
overhaul of capital rules aimed at making banks more stable, will be popular on
a continent struggling to emerge from the ruins of the financial crisis.
But in London's Canary Wharf, where many of the globe's biggest banks have
offices, professionals were sceptical.
"It's anti-capitalist," said Colin Ellis, who works in the technology
division of a bank. "If you have a grocer and he sells loads of fruit, he gets
to keep it (the money). When a guy on a trading desk makes loads of money, he
deserves to have it."
The Association for Financial Markets in Europe, which lobbies on behalf of
some of the globe's biggest banks including Goldman Sachs and Deutsche Bank,
criticised the rules on pay, saying they would increase fixed costs.
The European Banking Federation and the German banking lobby expressed
Speaking at a Reuters Summit on the future of the euro zone, Michel Barnier,
the European commissioner in charge of regulation, dismissed the idea that the
new rules would prompt banks to quit Europe.
But in the United States, some saw it as an opportunity to draw away talent.
"I might be seeing a lot of resumes," said one U.S.-based investment banker
at a firm outside the EU, and thus not affected by the proposal. "They will up
the salaries, they will try to figure out a way to work within the system, but
at the end of the day people who believe they can be better compensated are
going to find other places to take their talent."
Ireland, which holds the rotating EU presidency and helped negotiate the
deal, will now present it to EU countries. Irish Finance Minister Michael Noonan
said he would ask his peers to back it at an EU ministers' meeting on March 5 in
Thursday's agreement will also require banks to outline profits and other
details of their operations on a country-by-country basis, and they face a 2019
deadline to raise their core capital levels.
The change in the law is set to be introduced as part of a wider body of
legislation, known as Basel III, which demands that banks set aside roughly
three times more capital and build up cash buffers to cover the risk of unpaid
A ceiling on bonuses, the only one of its kind globally, is perhaps the most
radical aspect of the new rules, and runs the risk of establishing an uneven
global playing field that could put European banks at a disadvantage in
"If you're the mayor of Mumbai or Hong Kong, today was a good day," said
Alan Johnson, managing director of compensation consultants Johnson Associates.
"If you're the mayor of London or Paris you may not admit it, but today was a
really terrible day. Employment in Europe may go down and taxes (revenues) will
go down because the jobs will just go somewhere else."
Many think the reforms, which would be enforced by national and pan-European
regulators, will do little to lower pay in finance, where headhunters say some
annual packages in London approach 5 million pounds ($7.6 million).
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.
But supporters of the latest measure say it would be harder for banks to
raise base pay this time because of the higher capital standards that increase
their costs and limit how much of their revenue they can pay out to staff.
It could also mean an end to the annual bonus frenzy in London, when
newspapers are full of stories of bankers splurging their cash, and it could
affect the wider British economy.
About 27 billion pounds of bonuses have been spent over the past decade on
real estate in the British capital, according to data compiled by property firm
Having peaked in 2008 at 11.5 billion pounds ($17.4 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.