France - economy

Banks agree to bonuses crackdown

Article published on the 2009-08-26 Latest update 2009-08-26 13:03 TU

Nicolas Sarkozy speaks at a meeting with French Prime Minister François Fillon and former Prime Minister Michel Rocard at the Elysée Palace on Wednesday.
(Photo: Reuters)

French banks will limit the bonuses paid to traders following talks with President Nicolas Sarkozy. Financial executives were told that the government would not tolerate unregulated payouts after it loaned banks billions to see them through the credit crunch.

Sarkozy had summoned the bank executives to the Elysée Palace in response to the public anger triggered by the news that BNP-Paribas, which last year received a 5.1 billion euro state loan, was preparing to pay out one billion to traders.

Following the financial crash, Sarkozy urged stricter regulation of markets and an end to traders' bonus culture. He will call for other countries to emulate French plans at the G20 summit of the world's leading economies in the United States in September.

The head of the French banking federation confirmed that its members had agreed to new restrictions, under which a two-third chunk of traders' bonuses would be suspended to take into account bank results.

Banks will adopt a system of performance-linked pay with both bonuses and penalties. Under the new system, BNP-Paribas will reduce the amount set aside for bonuses in the first half of 2009 by half, to 500 million euros, said BNP and federation chairman Baudoin Prot.

Following the talks, Prot said that the banks had promised "strengthened oversight and transparency" in their remuneration schemes and that bonuses could be replaced by penalties in the event banks lose money. But he warned that it would be difficult "for these restrictions to be put in place in one country alone."

France would not work with banks which refuse to bring in new pay rules for traders, with both bonuses and penalties based on their performance, Sarkozy warned. "I want banks who do not play by the rules to be punished."

Meanwhile France's Economy Minister, Christine Lagarde, said the country’s headline unemployment had risen in July by much less than the 20-30,000 reported in the French media.

Ahead of the ministry releasing the data, Lagarde told RMC radio that the figures leaked were too high – but declined to reveal the state jobless rate. “I have a vague idea but it's a lot less,” she said.