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Deutsche Bank’s chief executive has said that Europe should consider lifting a cap on banker bonuses, becoming the latest senior banker to call on Brussels to follow the UK’s lead.
Christian Sewing said EU-based banks were suffering from an “unlevel playing field” in terms of attracting talent, after the UK scrapped the cap last month.
Introduced in 2014 when the UK was still part of the EU, the cap limits bonuses to twice base pay for staff. British politicians characterised its removal as a benefit of Brexit and one that harmonised the UK’s rules with those in New York, Switzerland and financial centres in Asia.
“If [removing the cap] is done in most parts of the world where major financial institutions are sitting, we need to take [that] into account and consider [how] to stay competitive and get these talents,” Sewing said at the Financial Times’ Global Banking Summit on Wednesday.
On Monday, Santander executive chair Ana Botín welcomed the removal of the UK cap and said a similar move in the rest of Europe would help better align bankers’ interests with those of their shareholders.
“It’s a business where you should be compensated in a variable way, so I think it’s good news for our industry, it makes a lot of sense,” Botín told the FT. “I’m sure we will adapt to that. I think that [scrapping the EU cap would allow] a better alignment with shareholders, so it would be positive, of course.”
Bankers — backed by UK regulators — have long argued that the EU-mandated cap is counter-productive and does not result in lower overall levels of pay. Instead, an unintended consequence has been to artificially boost salaries and shrink bonuses, giving lenders less flexibility to cut pay in fallow years or for instances of incompetence or misconduct.
Executives cautioned, however, that the removal of the cap should not encourage an increase in risk-taking.
On Tuesday the UK’s new City minister, Bim Afolami, said regulators needed to be more comfortable with risk-taking by companies. “Animal spirits need to be there, we need to innovate,” said Afolami, who earlier in his career worked at HSBC.
When HSBC chief executive Noel Quinn was asked on Wednesday whether such “spirits” should be released, he said: “I don’t think [they] should.”
“I’m not a fan of just unleashing inappropriate amounts of risk-taking,” Quinn added.
He argued that it was “appropriate to reconsider the bonus cap now we have the ability to do so — but we have to remain sensible”.
Quinn added: “The most important thing about running a financial organisation is retaining the confidence of stakeholders. Once you start losing confidence of your stakeholders . . . that is not a good journey for anyone.”
Deutsche Bank’s Sewing said that any decisions over bonuses should be tied to the impact they have on risk culture, which he argued had improved in the years since the excesses and bailouts of the 2008 financial crisis.
“A potential removal of a bonus cap does not mean for me that we can go into excessive risk-taking, these times are over.”
