French Economy Minister Christine Lagarde repeated a pledge today to limit guaranteed bonus payments to bank executives and traders ahead of meetings next week with finance heads and President Nicolas Sarkozy.
The meetings were called after an outcry earlier this month after reports that one of France's biggest banks, BNP Paribas had set aside €1 billion for possible bonus payments.
Authorities on both sides of the Atlantic are stepping up moves to rein in attempts by financial institutions, including recipients of state bailouts, to return to the bonus culture that was blamed for excessive risk-taking ahead of last year's market crisis.
Amid rising public anger in the UK, Finance Minister Alistair Darling told yesterday's Sunday Times his government is prepared to tighten laws on bankers' pay and bonuses if companies continue to reward excessive risk-taking.
Last week a US judge refused to approve a proposed settlement between regulators and Bank of America Corp over bonus payments to Merrill Lynch & Co employees, saying it lacked transparency and he could not determine if it was fair to the public.
Ms Lagarde told France Inter radio on Monday: "We must absolutely go further and put an end to these excesses and these abuses which public opinion will not put up with and which also provide an incentive to risk-taking."
The heads of some of France's largest banks are due to meet Ms Lagarde and economy ministry officials on Monday next week ahead of a second meeting with Mr Sarkozy on the following day.
Ms Lagarde declined to comment on the case of BNP Paribas but she repeated that the principle of guaranteed bonus payments, irrespective of results was "unacceptable".
Earlier this month Mr Sarkozy ordered French banks to reveal their bonus policies.
Public outrage at high bonus payments has been especially high given the billions paid out to support the financial sector during the crisis.
Guaranteed bonuses, payable regardless of results, have faced particularly heavy criticism but there have also been widespread calls for controls to discourage bonuses paid out on short-term profits that can disguise wider subsequent losses.
A Credit Suisse scheme offering bonuses based on returns from troublesome and illiquid assets won approval from commentators earlier this month for aligning employee and shareholders' interests and not rewarding staff simply for changes in market sentiment.
"What's important to me is that all the banks in France and elsewhere as well, stop paying guaranteed bonuses," Ms Lagarde said. "What also seems unacceptable is paying variable bonuses whatever the performance of a trader."
BNP Paribas, France's biggest bank by market capitalisation which reported a 6.6 per cent rise in second quarter profits, has defended its bonus provision, saying it was in line with commitments demanded by G20 leaders at a London summit in April.
Ms Lagarde said she would ask the banks to outline their plans to help finance the French economy and she repeated that she was not in favour of banks repaying government loans paid during the crisis.
"The banks have to be able to finance companies and they have to do it in a responsible and bold manner," she said. "For that, it's useful for the state to act as a partner by taking a stake in their capital."
Reuters