Friday, February 12, 2010

Germany May Halt Bank Bonuses Under Merkel-Backed Law

By Tony Czuczka

Feb. 9 (Bloomberg) -- German bank regulators can block or limit “inappropriately high” bonus payments under a draft law backed by Chancellor Angela Merkel’s coalition that aligns Germany with guidelines agreed by the Group of 20 nations.

The bill, which also applies to insurance companies, was approved by Merkel’s Cabinet at a meeting in Berlin today, a government spokesman said. Approval is still needed in parliament, where Merkel’s government holds a majority.

Germany’s Bafin financial regulator can forbid variable pay or limit it “to a certain share annual net income” if a company no longer meets “regulatory requirements” or is about to fall short, according to the draft. The Finance Ministry will issue detailed rules on oversight and reporting requirements.

The legislation builds on a plan outlined by Deutsche Bank AG Chief Executive Officer Josef Ackermann in which Germany’s eight largest banks and three top insurers, including Deutsche Bank, agreed to restrain pay. The accord drew on recommendations by the Basel, Switzerland-based Financial Stability Board.

Deutsche Bank, Germany’s biggest bank, and Munich-based Allianz SE, Europe’s largest insurer, have lost at least 9 percent so far this year, placing them among the 10 worst performers of Germany’s 30-member benchmark DAX index.

Deutsche Bank rose 3.6 percent to 44.67 euros, while Allianz added 1.4 percent to 79.20 euros as of 4:44 p.m. in Frankfurt.

G-20 AgreementG-20 leaders agreed in September in Pittsburgh to adopt guidelines on pay practices at banks and other financial companies, aiming to curb risks by aligning rewards with long- term success.

The guidelines discourage guaranteed bonuses of longer than one year, encourage companies to defer bonuses for senior executives and other key employees and allow variable pay to be reclaimed if losses occur later.

Bafin issued guidelines for German financial companies on Dec. 21, including a rule that at least 40 percent of each bonus payment must be stretched over three years. Losses by a division or a company should be reflected in the amount of variable pay.

The draft law takes regulation a step further, allowing the government to halt “bonus payments that are inappropriately high in relation to the economic situation” of a bank or insurance company. LINK TO ARICLE

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