(Rewrites throughout with details)
By James Mackenzie
PARIS Aug 25 French President Nicolas Sarkozy
announced new limits on bonus payments to bank traders on
Tuesday and said he would press partners in the Group of 20
nations to adopt the same standards as Paris.
Amid growing international concern over bank bonus payments
that have been creeping up to levels seen before last year's
financial market meltdown, Sarkozy called in the heads of
France's biggest banks to announce tougher controls.
"I was scandalised to see the lessons of the crisis being
forgotten so quickly by some people at a time when the page has
not even been turned on the crisis," Sarkozy said after the
meeting the Elysee Palace.
Outrage over bonuses in France has been stoked by concern
that banks have been tight-fisted in lending to small companies,
despite the massive injections of public support made available
to the financial sector.
He said banks would henceforth be required to defer two
thirds of bonuses paid to traders over three years and make a
third of the payout in bank stock.
If an operation on which a bonus was paid lost money in the
two years afterwards, the deferred part of the bonus would not
be paid out.
He said compliance would be closely monitored and banks that
did not follow would be shut out of lucrative mandates for state
activities such as share placements and privatisations.
"We will not work with banks that do not apply these rules,"
Sarkozy has been among the loudest international critics of
unrestrained financial market practices and has seized on public
outrage over the huge bonuses widely blamed for encouraging the
excessive risk-taking that contributed to the financial crisis.
The issue was already addressed at a G20 meeting in London
earlier this year and is expected to be among the top issues at
a meeting of G20 finance ministers in London on Sept 4-5 and the
leaders' summit in Pittsburgh on Sept 24-25.
Sarkozy, who meets German Chancellor Angela Merkel next week
to try to build support ahead of next month's meetings, said
Pittsburgh would be a "decisive encounter" and he said he would
be pressing his partners to follow France's lead.
"We will arrive in Pittsburgh with decisions that we have
already taken," Sarkozy said. "We want the G20 to adopt rules on
governance, transparency and responsibility which will be those
already in force in Paris."
He also said the issue of setting upper limits on bonus
payments, either by restricting payouts to a proportion of bank
revenues devoted to investment, setting a global tax on bonus
payments or imposing a ceiling, would have to be discussed.
"These limits, everyone understands, can only be
international. If we just decided to limit them in France
everyone would leave," he said.
There is heavy political pressure in France for action,
particularly given concern that banks have been tight-fisted in
lending to small companies, despite the massive injections of
public support made available to the financial sector.
French banks adopted a code of good conduct based on broad
G20 guidelines in February in exchange for receiving billions of
euros in liquidity support from the government aimed at ending
huge guaranteed bonuses.
But the debate in France was rekindled when it emerged that
BNP Paribas (BNPP.PA), had set aside 1 billion euros ($1.43
billion) for possible bonuses after reporting a 6.6 percent rise
in second quarter profits.
Sarkozy said BNP had agreed to put the new rules in place
immediately meaning only half of this sum would now be needed.
Britain, home to Europe's biggest financial centre, the City
of London, has threatened legislation if bankers do not change
their ways, but all countries have been held back by concerns
that if they crack down too hard, others will draw the benefits.
BNP chief executive Baudouin Prot, who takes over as head of
the French banking federation next month, said French banks
would comply with Sarkozy's directive but he said the measures
would have to be adopted globally to be fully effective.
(Editing by Andy Bruce)