Political row over French bankers' bonus spree

7th August 2009, Comments 0 comments

French President Nicolas Sarkozy has led calls for tighter international regulation of bankers' bonuses, amid mounting public anger at the financial sector.

Paris – A political row erupted on Thursday in France as banks began to hand out huge staff bonuses, just months after their state bail-out and while job losses continued apace in the struggling real economy.

On the international stage, President Nicolas Sarkozy has led calls for tighter regulation of bankers' bonuses and has promised to control them at home, amid mounting public anger at the financial sector.

Nevertheless, on Wednesday banking giant BNP Paribas, which last year was loaned EUR 5.1 billion (USD 7.3 billion) to see it through the global credit crunch, announced plans to pay employees EUR one billion in bonuses.

The bank insists it will abide by rules agreed by the G20 group of countries to reform the bonus culture, which is blamed by some for the cavalier risks taken by greedy traders that set the stage for the eventual crunch.

But, coming amid a recession and at a time when the collapse of numerous manufacturing businesses is driving up unemployment, the sheer scale of the pay-outs is likely to pose a political problem for Sarkozy's government.

Meanwhile, other French banks appear set to celebrate their own return to profit with yet more avalanches of cash for employees.

Leading Socialist lawmaker Jean-Marc Ayrault described BNP's bonus package as "profoundly scandalous", in an interview with Europe 1 radio.

"I demand the government force BNP to halt payment of these bonuses right away. If we return to the same habits we'll run into the same errors, the same problems," said Ayrault.

French Finance Minister Christine Lagarde, who will travel with Sarkozy next month to the G20 summit in Pittsburgh in order to promote tighter financial regulation, called on the central bank to review BNP's plan.

"Several banks are preparing decisions on the issue of remunerating their employees," she said, calling on the Banque de France "to exercise extreme vigilance and ensure the effective imposition of defined rules.

"France was the first marketplace to give itself rules on remuneration policies for these actors in order to halt payments not related to true performance nor responsible risk management," she insisted.

For its part, BNP Paribas said it was happy to open its books to the Banque de France's banking commission in order to demonstrate that the bonuses were justified and in line with the rules outlined by G20 leaders.

"We are one of the first banks in the world to have applied these rules retroactively after the decision at the start of 2009 about variable remuneration for 2008," a spokesman said.

BNP Paribas insists G20 leaders did not suppress bonus payments per se, but agreed to clamp down on guaranteed bonuses over multiple calendar or financial years, or their calculation on net earnings after write-downs on risk.

French bankers are worried that they could lose talented staff to US and British competitors if they are forced to cut back on performance-related bonuses more severely than their international rivals.

Britain is due to introduce its own code of conduct in the near future but the United States has held out against calls for tighter regulation.

"BNP Paribas is not a bank that overpays its people," said BNP board member Jean-Pierre Gianno. "But if the pay gap with other banks becomes too great, the traders won't stay."

With more than 17,000 employees in BNP's investment banking division to receive an average of EUR 59,000 (USD 85,000) each and with French jobless figures up 25 percent on June 2008, this argument is unlikely to impress voters.

The opposition Socialist Party was quick to release a statement arguing that the bank's profit of EUR 1.6 billion in the second quarter was thanks to last year's state bail-out rather than the talent of its traders.

The bank says it is paying above the market rate on its debt to the state.

AFP / Expatica

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