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There was growing anger across the City today over plans the Chancellor of the Exchequer, Alistair Darling has to “tear up” bankers' bonus contracts.
Darling's harsh measures are due to be unveiled in the Queen's Speech on Wednesday. But a top City lawyer warned that the new legislation could “destroy” the City
The Chancellor is set to outline tough new rules on bankers' pay and bonuses which in effect will allow the City's regulator — the Financial Services Authority — to cancel any new contract of employment which have been drawn if the FSA believes that the terms of the contract encourage too much risk taking.
“All this is very politically correct and topical,” said Clive Zeitman, head of commercial litigation at Stewarts Law who has recently been at the centre of major legal battles of bankers' bonuses.
“But it would be ludicrous if [the Government] introduced such draconian legislation. If you disincentivise the City you will destroy it and that would be disastrous for everyone.”
The Government is coming under increasing fire after City Minister Lord Myners backed his boss saying that if excessive contracts were created in future “the contracts will be voided under law.”
But legal experts questioned whether this can actually be done. One City lawyer said: “Just how is the FSA going to prove that a particular contract encourages risk taking?”
Others suggested that banks could seek a judicial review if they felt the FSA was behaving unreasonably or forcing them to lose business.
The British Bankers' Association warned that Darling's latest threat was yet another blow to London as a world-beating financial centre and could lead to a massive exodus of banking expertise from the UK. Its chief executive Angela Knight said: “What we need to see is the preservation of high-quality talent and international banks operating here. The Chancellor has to have that competition focus firmly in his sights.”
Zeitman said that just as in probate law “where there's a will there's a loophole” he believed that banks would find a way to continue rewarding their best staff whatever legislation happened to be introduced.
He said: “People will find ways of arranging their affairs to get around the legislation.” Myners said he was confident that the new Financial Services Bill would become law before the General Election but Zeitman said it was “highly debatable” if it could be passed in time.
Zeitman said: “This cannot be rushed through. There has to be something of a balancing act.”
David Buik, market strategist at brokers BGC Partners describing the planned Bill as “massive overkill” said: “There is no way that Barclays' chief executive John Varley and HSBC's Michael Geoghegan are at loggerheads with the Government over its policy on bonuses. Since the Government is an 84% shareholder in RBS and 43% shareholder in Lloyds, it will be able to use its shareholder influence on them to good effect.”
Reader views (17)
Let the bankers get angry. Who actually cares what this bunch of spongers thinks?
- Stephen Mills, London, 16/11/2009 16:44
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scotty
A couple of points- I do understand as I witnessed 4 decades of it.
Secondly very few 'star bankers' that go into private equity or hedge funds use their own capital- they instead over trade 'client' funds and hope to gain from management fees and performance bonuses
You are correct though re FSA..........in my experience both them and major auditing firms had minimal idea of what was going on and 'signed off' for either political or financial reasons.............now there is something to debate!!
regards
'
- Anon, london, 16/11/2009 16:35
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Well done Mr Darling. Let all the mankers tremble, I say
- Keith Price, Luton, Emgland, 16/11/2009 16:24
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Well, I'll agree to this when the MP's expenses 'recommendations' become law and are implemented.
oh yeah...sometime never!
- Hansel, London, 16/11/2009 15:57
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With the greatest respect this cant help any one in the current climate. The bankers need to pay themselves bloated salaries its the law of england.
- Morgan Stanley, London, 16/11/2009 15:53
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what about the massive bonuses that the regulators at the FSA pay themselves? Who will regulate the regulators? There are fairly junior people who will be receiving over £30,000 this year.
- Dave, Dalston, Londond, 16/11/2009 15:50
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@Anon
the irony is here for all to see:
"It is a shame people dont understand what REALLY happens and just exactly how the enormous 'profits' are actually derived.If the star Bankers are that good maybe they should try and set up on their own and risk their own capital?"
firstly, it seems you're one of the people who doesn't understand how these "enormous profits" are derived, so why comment?
secondly, and perhaps worst of all, star bankers *DO* go off on their own - some into private equity, some into hedge funds. maybe in your extensive study of the investment banking industry, you might possibly have come across these terms! ;o)
- Scotty, London, 16/11/2009 15:50
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Mr darling,that would be the most useful thing you have done in your political life.
- Kev, London-UK, 16/11/2009 14:52
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This is pre-election grandstanding at its worst. Darling knows he cannot enact this proposal prior to the coming election and in any case is well aware that banks can find ways round it. Despite all the public money he has poured into the banks, he has not been able to exercise any clout because he is not up to the job. Why would that change now?
- James Elliott, Eastborne UK, 16/11/2009 14:39
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The election campaign starts now.
People should know there are not enough days for Parliament to sit to enact any new legislation. And even if there were, after December 1 Parliament itself becomes as irrelevant as a town council because any new laws will be imposed on us from Brussels.
- Kate, London, 16/11/2009 14:13
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'high quality talent'........well if all the front running,lying,stealing and general client rip-offs in our so called 'Investment Banks' constitues quality then the continued deception of both the authorities and taxpayers will only continue.It is a shame people dont understand what REALLY happens and just exactly how the enormous 'profits' are actually derived.If the star Bankers are that good maybe they should try and set up on their own and risk their own capital?
I somehow doubt that!!!!!
- Anon, london, 16/11/2009 13:18
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Well the British Banker's Association and a 'City lawyer' would fulminate wouldn't they?
I am curious to know what constitutes talent in the context of banking. Did Fred Goodwin have a unique talent? How about Adam Applegarth? Richard Fuld anyone? It seems they can all print money in a benign economy - their profits, but they all come crawling for state aid when the going gets rough - our losses.
Why is it only banking that needs to bid up the price of 'talent' is there any global market for surgeons, university professors, engineers etc. etc.
They were only ever making a pitifully small margin by leveraging other people's money. Stop treating them like rock stars.
- Paul, Kent, 16/11/2009 12:06
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Mr Darling’s comments are what is called electioneering, he is asking you to re-elect him and his party – that is all.
There is not enough time before the next election for this so called threat to be carried out.
Although it has to be recognised any new laws of this nature will now come from the EU who are now in power in the UK, and they are of course keen to see most of the City’s activities moved to elsewhere on the European mainland.
- Ian B, Reading, England, 16/11/2009 11:53
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cheap headline grabbing, token politics.
how on earth do you regulate this, let alone survive the court challenges, on what constitutes excessive risk taking?
half the problem was that the FSA was not sophisticated enough to understand the activities they were regulating and overseeing - how exactly can they be expected to determine what is excessive risk taking?
its like asking Gillian McKeith for her opinion on prospective heart surgery, will grab a headline whilst having no basis in reality.
cheap gesture politics from a tired, and increasingly impotent government.
- Scotty, London, 16/11/2009 11:21
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Good.
- Dave Markham, London, UK, 16/11/2009 10:58
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I think you will find that Mr Zeitman is merely promoting his services - and in fact City workers have barely given a thought to pre-election hot air from Westminster - any legislation on private contracts is futile and useless (much in the same way as this current government is futile and useless)
- Paddy, London, 16/11/2009 10:41
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I use to think that Shareholders where in charge but due to apathy with the large fund and Pension Managers the Bankers are in charge and they are allowed to pay themselves large Bonuses. I would like to see one rule ? No Dividend then No Bonuses.
- Stan White, leeds, 16/11/2009 09:58
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