PARIS, Aug 7 – President Nicolas Sarkozy issued a stern warning to French banks over lucrative bonus packages on Friday but did little to quell growing anger over traders\’ latest huge incentive schemes.
Sarkozy\’s declaration, issued from his Mediterranean holiday retreat, was quickly undercut by the head of the French central bank, who said BNP Paribas\’ controversial billion-euro package appeared to be within the rules.
A political row erupted this week when Sarkozy\’s left-wing opponents said BNP Paribas\’ plan to pay such huge sums to its staff showed the government had failed to get a grip on the sector in the wake of the credit crunch.
The bank received a 5.1 billion euro loan to see it through the economic crisis, and its plan to pay huge bonuses has fuelled public anger that banks are returning to profit while joblessness continues to rise.
France has championed new guidelines on bankers\’ perks agreed by G20 leaders in April, and Sarkozy instructed Banque de France chief Christian Noyer "to apply the relevant rules with rigour, notably on the question of pay."
But just hours later, after hastily-arranged talks between senior government officials and banking executives, Noyer said the BNP Paribas plan does not breach the rules on incentives agreed at the London G20 summit.
"From what we know so far, yes, in effect, it\’s in line with the G20 rules and we\’ll check this carefully," he told reporters. "Remember that there have been no payments.
"Money has simply been set aside for what could be paid from next year over several years. We shouldn\’t get ahead of ourselves. We\’ll have time to check that the rules have been followed."
In April, the leaders of the world\’s biggest economies agreed to reform the so-called "bonus culture" in banks which is seen as having fuelled a wave of risky derivatives trading in the run-up to the global credit crunch.
Bonuses must no longer be guaranteed over several years and must be closely linked to the bank\’s overall performance, while their payment should be spaced out to take into account the lifetime of the financial instrument traded.
At Friday\’s meeting in Paris, chaired by Prime Minister Francois Fillon\’s deputy chief of staff and attended by Noyer and top bank executives, the French sector reiterated its pledge to abide by these rules.
"French banks have taken steps so that nothing will be as it was before the crisis," said Baudouin Prot, chief executive of BNP Paribas and from next month the chairman of the French banking federation.
"We have decided to apply the G20 rules and it goes without saying that we are totally ready to open our books so that Banque de France can impose its regulation," he added, on leaving Fillon\’s Matignon Palace office.
Such promises are unlikely to quell criticism of the bonus package, as the opposition taunts Sarkozy as a friend of bankers at a time when manufacturing workers are more likely to see redundancy than pay rises.
Socialist economics spokesman Michel Sapin dismissed the meeting.
"Afterwards we\’re still at the exact same point: words, recommendations and promises where we need regulation," he told AFP.
Communist lawmaker Jean-Jacques Chandelier went further, calling for big banks to be nationalised. "After getting five billion in state funds, BNP Paribas is setting aside money for speculators. It\’s indecent," he said.
Sarkozy, who has been urged by doctors to enjoy some "relative rest" after collapsing while jogging, said he would summon the bankers to a second meeting on August 25 when he returns from his wife\’s seafront holiday residence.
His finance minister, Christine Lagarde, tried to deflect anger onto foreign governments and banks, whom she said were ignoring the G20 agreement and giving their own banks an unfair recruitment advantage.
"What I find scandalous is that certain foreign banks are dispensing with the G20 principles and are thus gaining a competitive advantage by, for example, offering guaranteed bonuses," she told Le Monde newspaper.
"These banks should put an end to bonuses which constitute a threat to financial stability," she added, promising "zero tolerance for excess" and vowing to raise the matter at the September Pittsburgh summit.