PARIS — As politicians in Europe lash out at big bonuses at financial institutions, European bankers and traders, feeling like scapegoats, are becoming more vocal in pushing back.
There is little argument that previous pay arrangements for the industry encouraged extreme risk taking by many bankers in a dash for short-term gain — a factor in the collapse of banks globally. In the public’s eye, the profits were private, but when things went wrong, the losses were nationalized, with taxpayers picking up the tab.
Yet many banking professionals say they are already cleaning up many of the excesses themselves. The current drive for tighter rules on compensation, they argue, is mostly a tactic by politicians to deflect the blame away from themselves.
They contend that governments were complicit in the explosion of liquidity and lack of regulation that contributed greatly to economic growth — but also to last year’s financial meltdown when it all fell apart.
“A few traders earning high salaries were not to blame for the crisis,” said Mathieu Giuliani, a manager at Palatine Asset Management in Paris. “It’s a pretext, very populist and for public consumption.”
In fact, bankers say, bailed-out banks like Royal Bank of Scotland and Citigroup, which are operating largely as government-owned institutions, are now among the most generous employers in the market, using bonuses to tempt talent from rivals in hopes they can quickly repay government funds.
“This whole bonus storm is a sideshow, a diversion,” said Luc Sitbon, a Frenchman and senior trader who has lived in London for 13 years. “Of course, there have been excesses, but bonuses did not trigger the crisis; the basis for the crisis was low rates.”
Mr. Sitbon, like others in the industry, argues that low borrowing costs enabled consumers, particularly in Britain, the United States, Spain and Ireland, to build up debt and spend more — while supporting housing prices. They also allowed governments to roll over their debts at lower costs. Low rates also encouraged conservative investors like insurers and pension funds to look into riskier assets like structured products to generate returns, .
“A lot of people I know in French banks are very disappointed at the attitude of their own management,” said Mr. Sitbon, who until recently headed an interest rate derivatives team at a major U.S. bank. “No one is standing up to the politicians.”
Paris has been leading the push for the governments of the Group of 20 industrial and emerging nations to set curbs on rewards for bankers. It has said it will take a range of steps to limit bonuses, possibly including caps on payments as a percentage of revenue, even if they are not agreed elsewhere.
Christine Lagarde, the French finance minister, has repeatedly criticized the bonus system, arguing that by rewarding short-term risk taking, it helped bring on the financial crisis that began almost exactly a year ago with the collapse of the U.S. investment house Lehman Brothers.
What’s more, Ms. Lagarde and other European leaders are eager to rein in bonuses because many of the banks that are doling them now are only afloat because of government help they received late last year and early this year. After the G-20 finance ministers meeting in London this past weekend, she declared that “bonuses are quite outrageous, and we can’t let that continue.”
With the financial crisis easing, though, bankers are becoming less shy about defending themselves. At a banking conference Tuesday in Frankfurt, Urs Rohner, the chief operating officer executive at Credit Suisse, noted that his bank has already introduced “claw-back” elements for cash bonuses and increased significantly the equity components, which are locked for a number of years.
Credit Suisse, which avoided a government bailout and arranged a recapitalization through other sources, also requires proprietary traders to reinvest in their own activitiesSource : http://www.nytimes.com/2009/09/09/business/global/09bonus.html?_r=1&ref=global-home
