March 29, 2023

Europe Rejects British Bid to Ease Plan to Curb Bank Bonuses

The ministers, taking up rules provisionally approved last week by representatives of the European Parliament and member states, broadly agreed on Tuesday to cap bonuses at no more than the annual salary for bankers working in the 27-nation European Union and for those working for European-based banks worldwide. The ministers left the door open for further concessions that could permit some slightly higher bonuses.

The bonus caps, which are subject to formal approval by a majority of member states, among other steps, are aimed at reining in the risky, but potentially high-reward, behavior that contributed to the financial crisis.

British officials and bankers have warned that the limits could make it harder to keep London, Europe’s main financial hub, competitive with financial centers like New York, Singapore and Hong Kong.

During the ministers’ meeting here on Tuesday, George Osborne, the British chancellor of the Exchequer, told his colleagues that the measures could have the “perverse” effect of raising fixed salaries, making it harder to punish bankers for bad investments or ethical lapses by revoking their bonuses.

But facing almost certain defeat on the issue, Mr. Osborne struck a conciliatory tone, saying he would endorse the rules “if we make progress in the next couple of weeks.”

The rules are drafted to apply to a banker working in New York for a British bank like Barclays, and to a banker in London working for an American bank like Citigroup.

A bonus could not be higher unless the bank’s shareholders approved, and even then it could not exceed twice the salary.

British officials, speaking on condition of anonymity because they were not authorized to discuss the issue publicly, said their government would seek to raise the limits on some types of bonuses given in stocks or bonds that would vest in the future. But the legislation was expected to pass in close to its current form.

“It looks like the key points will hold,” said Philip Davies, a partner in London at Eversheds, an international law firm. He predicted that the bonus caps would put London’s financial district, known as the City, at a competitive disadvantage to banking hubs like Wall Street and Hong Kong.

“The long-term effect on the City remains to be seen.” he said. “But as it now stands, alternative jurisdictions that are able to offer more favorable terms look to have a significant recruitment edge.”

Banks are concerned about how the proposed caps would affect them, said several legal specialists who are advising banks based in the City. Some are even seeking legal advice as to whether the European officials are authorized to limit bonuses.

While no bank appears to be ready to take the issue to court, specialists say that will remain a possibility as long as questions about how the bonus caps will work remain unanswered.

When Michel Barnier, the European commissioner responsible for financial regulation, was asked whether he thought any legal challenge would succeed, he replied, “Good luck.”

Some financial institutions are looking at ways to devise compensation packages around long-term incentives that would allow bankers to receive sizable compensation despite any new controls. Yet advisers acknowledge that it would be difficult for leading banks to defend such moves, because of widespread public anger over the industry’s past excesses.

Mr. Osborne’s foes called the European Union’s rebuke a sign that the Conservative government led by Prime Minister David Cameron, which has called a referendum on Britain’s membership in the bloc, was increasingly unable to influence policy making in Europe.

“This government needs to take a crash course in finding friends and influencing E.U. partners,” said Arlene McCarthy, a member of Britain’s Labour Party in the European Parliament and a senior member of the chamber’s Economic and Monetary Affairs Committee.

Ms. McCarthy said she supported the caps as the only way to rein in bankers. But she complained that the Cameron government had failed to win more favorable terms for the City “because of a kind of arrogance” toward its partners in the European Union.

Ireland, which holds the rotating presidency of the bloc, helped broker talks on the bonus caps last week with legislators of the European Parliament. On Tuesday, Michael Noonan, the Irish finance minister, said, “Now there is very little further we can do for” Britain. “We pushed the negotiations to quite a degree, and we got the best possible compromise,” he said.

Mr. Osborne was in a bind over how forcefully to argue for changes. He was under acute pressure from members of the Conservative Party who favor a tough line against European rules that they consider at odds with British interests.

Adding to that pressure was a growing challenge from the United Kingdom Independence Party, which wants to pull Britain out of the European Union.

But supporting high pay for bankers angers significant sections of British voters, who are struggling in a weak economy. Many of them also resent the banking industry for receiving several giant bailouts paid for by taxpayers.

Mr. Osborne also needed to temper his criticism because the caps are part of a legislative package that included something his government favors: tougher rules about how much capital European banks most hold in reserve to protect against losses.

Mark Scott contributed reporting from London.

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Britain Takes on Brussels in Fight Over Bank Pay

BRUSSELS — The British finance minister, George Osborne, is expected Tuesday to urge his European Union counterparts to water down proposed rules restricting the size of bankers’ bonuses.

The proposal is a sore point for Britain, which is home to Europe’s main financial hub, and where many in government and the financial industry worry that mandated limit to bonuses could make it harder for London to compete in international banking circles.

A failure by Mr. Osborne to win concessions during a monthly meeting here on Tuesday of the European Union’s 27 finance ministers could fuel disenchantment with the Union among restive members of Britain’s ruling Conservative party. Prime Minister David Cameron has already called for a referendum on Britain’s membership in the Union.

Yet if Mr. Osborne pushes too hard against the bonus cap, his government risks criticism at home for succoring bankers. They are unpopular with large swaths of the British electorate for earning lavish salaries even as a prolonged economic downturn forces many households to scrimp. Many voters also resent the banking industry for receiving a series of giant bailouts paid for by taxpayers.

The meeting Tuesday will follow a Monday evening session by 17 of the same finance ministers, representatives of the euro currency union, who discussed but deferred action on a bailout request by Cyprus. That country is seeking about €17 billion, $22 billion, to shore up government finances and its banks, which were badly exposed to a debt write-down in Greece.

But for Britain, which is not a member of the euro zone, the banker bonus proposal is the main issue. The Cameron government considers the bonus cap “misguided and fear it could impact negatively on London without even combating the excessive risk-taking it was meant to address,” said Simon Tilford, chief economist at the Center for European Reform, a research organization based in London.

“But London is caught between a rock and a hard place, as there’s much popular antipathy toward the bankers,” Mr. Tilford said. The issue of banker remuneration “is pretty toxic stuff Britain,” he added.

Further undermining Britain’s position ahead of the meeting is the result of a referendum over the weekend in Switzerland, also known for its business-friendly climate but where voters approved tighter restrictions on executive compensation. That vote will give shareholders of companies listed in Switzerland a binding say on the overall pay packages for executives and directors.

The bonus cap legislation that concerns the British leadership cleared an important hurdle last week when representatives of E.U. governments and the European Parliament agreed that the coveted bonuses many bankers receive would be capped at no more than their annual salaries, starting next year. Only if a bank’s shareholders approved could a bonus be higher — and even then it would be limited to no more than double the salary.

The rules are drafted so that a banker working in New York for a British bank like Barclays would be subject to the rules, as would a banker in London working for a U.S. bank like Citigroup.

Another reason Mr. Osborne may be hesitant to oppose the bonus rules too vociferously is that they are part of a legislative package that includes something his government favors: tougher rules about how much capital European banks most hold in reserve to protect against losses.

Britain and Mr. Osborne have strongly backed the higher capital requirements as essential for preventing another financial crisis.

In any event, European Union diplomats said ministers were unlikely to formally approve the rules on Tuesday because details still needed to be nailed down. That could still give Britain weeks, or even months, to press for concessions.

There are also questions among some European countries about how strictly to apply parts of the legislation requiring banks to publish detailed information on profits, taxes and subsidies on a country-by-country basis across the globe.

In the case of the separate Cyprus bailout discussions Monday evening, euro zone finance ministers were taking up talks that stalled with the country’s previous, Communist-led government. That government was replaced late last month by a center-right administration, a change that has been welcomed in other European capitals.

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DealBook: Tokyo Stock Exchange Completes Tender Offer for Osaka Rival

Atsushi Saito of the Tokyo Stock Exchange, left, and Michio Yoneda of the Osaka Securities Exchange announced the merger plan in 2011.Kim Kyung-Hoon/ReutersAtsushi Saito of the Tokyo Stock Exchange, left, and Michio Yoneda of the Osaka Securities Exchange announced the merger plan in 2011.

TOKYO — The Tokyo Stock Exchange said on Thursday that it had completed a $1.1 billion public tender offer for its smaller rival, the Osaka Securities Exchange, moving closer to a merger that could bolster Japan’s standing as an Asian financial hub.

The Tokyo exchange said it had received tenders totaling 80 percent of the Osaka exchange, above the 67 percent it had sought. The Tokyo exchange had offered to buy each share in its rival for 480,000 yen ($6,100), almost 10 percent above the Osaka exchange’s closing price on Thursday.

The tender offer, which began July 11 and closed Wednesday, values the Osaka exchange at 130 billion yen. The deal seeks to combine the strengths of the Tokyo exchange, which dominates the cash equity market in Japan, with those of Osaka, which focuses on derivatives trading.

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The combined value of domestic stocks listed on the two exchanges came to $3.5 trillion in July, trailing only NYSE Euronext at $13.2 trillion and the Nasdaq OMX Group at $4.5 trillion, according to Reuters.

In a statement, the Tokyo Stock Exchange chief executive, Atsushi Saito, said he hoped to make the combined company “the growth engine of the Japanese economy and the financial hub of Asia.”

Michio Yoneda, chief executive of the Osaka exchange, said that in an age of global competition, fighting Tokyo “in a small glass” was increasingly futile.

Osaka shareholders must still approve the merger at a meeting expected later this year, preceded by a share swap.

The merger won approval from Japan’s Fair Trade Commission last month, clearing an important hurdle. Regulators have scuttled a number of attempted mergers by exchanges around the world in recent years, including the merger deal between Deutsche Börse and NYSE Euronext.

If approved, the combined entity would be named the Japan Exchange Group and could be set up as soon as January, the Tokyo exchange said.

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