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August 18, 2009

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France vows to limit assured bonus payments to bankers

FRANCE pledged to limit guaranteed bonus payments to bankers yesterday as a backlash against seven-figure pay packages in the industry builds on both sides of the Atlantic.

French Economy Minister Christine Lagarde said she would act against policies that encourage excessive risk-taking after Britain said it was prepared to take a tougher stance and a United States "pay czar" steps up his scrutiny on pay deals. A public and political backlash against bonuses has flared across Europe after anecdotal evidence that banks are paying out millions of dollars to lure and retain top staff.

Britain's Barclays is attempting to recruit five JPMorgan investment bankers with a bonus package worth up to 30 million pounds (US$49.2 million), according to media reports, and other banks are offering lucrative deals to woo talent.

French President Nicolas Sarkozy will next week discuss pay in meetings with finance heads, following an outcry earlier this month after reports that BNP Paribas had set aside 1 billion euros (US$1.4 billion) for possible bonus payments.

Authorities in Europe and the US are stepping up moves to curb attempts by financial institutions, including recipients of state bailouts, to return to the bonus culture that was blamed for the excessive risk-taking that underpinned last year's market crisis.

"We must absolutely go further and put an end to these excesses and these abuses which public opinion will not put up with and which also provide an incentive to risk-taking," Lagarde told France Inter radio yesterday.

Important meetings

The heads of some of France's largest banks are due to meet Lagarde and economy ministry officials on Monday next week ahead of a second meeting with Sarkozy on the following day.

The British government said it is prepared to tighten the laws on bankers' pay and bonuses if companies continue to reward excessive risk-taking.

"If we need to change the law and toughen things up, we can do that," Chancellor of the Exchequer, Alistair Darling, told the Sunday Times at the weekend.

Last week a US judge refused to approve a proposed settlement between regulators and Bank of America Corp over bonus payments to Merrill Lynch employees, saying it lacked transparency and he could not determine if it was fair to the public.

Lagarde said the principle of guaranteed bonus payments was "unacceptable," and joined calls for countries to work together for a coordinated response.

Banks can offer guaranteed bonuses, sometimes stretching for a number of years, to woo star performers who stand to lose payments already agreed with their previous employers.


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