EU agrees new rules on limiting bankers' bonuses

BANKERS will be able to get only part of their annual bonuses in cash up front under new European Union rules.

A deal announced yesterday between EU governments and lawmakers will require banks to limit cash bonus payouts, with most executives only getting 30 per cent straight away and the rest paid out later if the company performs well.

Draft rules go to the European Parliament next week, where they are almost certain to win approval after the agreement was reached late on Tuesday.

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The discussion on caps was launched after a European outcry over payments to executives of banks that had received state bailouts to avoid collapse during the financial crisis. Some say big bonuses skew incentives in favour of excessive risk-taking.

Starting next January, cash bonuses will be capped at 30 per cent of the total bonus and 20 per cent for "particularly large" bonuses. The measure leaves it to individual governments to determine what "particularly large" means in their economies.

While some European countries, including Britain, have already imposed limits on banker bonuses, the new rules set minimum caps for all 27 members of the EU. French and German governments have also effectively set caps by pressing banks to agree to limit executive pay.

A large part of the bonus must be deferred, though it is up to governments to determine for how long. The money will be held as "contingent capital" for banks to call on first if they urgently need funding.

The measure also limits "exceptional pension payments" to avoid the kind of bloated severance packages for disgraced departing executives that have caused public uproar. Banks will also be required to hold a minimum amount of capital to ensure they are covering risk from their trading book and complex securitised investments - such as mortgage-backed securities - to avoid a repeat of risk-related losses like those seen during the financial meltdown. The capital requirements take effect in 2012.

Global banking regulators are also separately drafting tighter capital requirements that European banks complain could force them to put aside far more money to counter risks. They say this could hit their profits and even force them to curb lending to companies and households.

lLloyds Banking Group yesterday announced a further 650 job cuts in the UK, bringing total losses close to 16,000 since the start of the financial crisis. Up to 1,850 jobs will be eligible for redundancy, but 1,200 will be relocated or redeployed elsewhere.

Up to 100 posts will be affected in Edinburgh, although a similar number of jobs are to be created in Rosyth and Livingston. Most of the jobs affected will be in Nottingham, where Lloyds will close its general insurance call centre, and Chester.

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Lloyds also announced the closure of 265 Halifax-branded independent agency counters based in firms such as solicitors and estate agencies. Such staff are not employed by Lloyds, but it will look to take on those affected and pay redundancy "if necessary".

Meanwhile, Lloyds has struck a deal with the Post Office to allow Halifax customers to pay in cash and cheques at 12,000 branches.

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