Foreign banks pledge pay restraint in Treasury deal

City minister Lord Myners yesterday said he had sealed a deal with the biggest foreign banks operating in the City of London to show pay restraint.

It comes just a day before one of them – Goldman Sachs – prepares to report pre-tax profits of $3.5bn on revenues of $12bn, of which nearly $6bn will go on staff pay. It could see the average package hitting $700,000 – double last year's total.

Alongside Goldman, whose actions during the financial crisis have proved highly controversial, were Bank of America, Merrill Lynch, Citigroup, Morgan Stanley and JP Morgan from the US, Credit Suisse and UBS from Switzerland, and Japanese bank Nomura.

Lord Myners said they had confirmed their commitment to the G20 agreement on pay and to the Financial Services Authority rules and supporting code on remuneration practices.

This means the code will cover the current working year, which the Goldman money will go towards rewarding. The code calls for an end to practices such as awarding guaranteed bonuses to star performers, with substantial proportions of bonuses deferred, paid in shares, and subject to clawback.

Banks with major London branches – BNP Paribas, Deutsche Bank and Société Générale – pledged to implement the G20 agreement in accordance with their home regulators but would "seek to voluntarily comply with the FSA Rule on Remuneration for their UK-based employees".

In a joint statement, the banks said: "In a competitive and global business, banking remuneration must be consistent with effective risk management and there must be national and international consistency on this issue.

"We welcome the global nature of the G20 remuneration reforms and will work with the FSA and regulators in our home countries in adopting the reforms, recognising that all G20 nations have also committed to their implementation to ensure a level playing field."

The meeting was called after a similar agreement was secured with FSA-regulated, UK-listed banks that have their headquarters in London. They too were called in to the Treasury. Part of the reason for yesterday's meeting was that officials were concerned that home banks might become disadvantaged if their overseas competitors in the City failed to followed suit.

Lord Myners said: "They will fully enforce the G20 agreement on remuneration with effect from the current year – it is a major step forward.

"The financial services industry must take a responsible and long-term approach to remuneration if it is to retain its competitiveness and regain public trust.

"I am pleased that the most significant banking institutions operating in the UK have moved quickly and are supporting our implementation of the agreement reached on bank remuneration at the G20."

Lord Myners said he would write to the chairs of the remuneration committees of each bank's parent company to explain the outcome of the meeting to them.

The Government has been desperately seeking to head off public anger over bonuses in the wake of the banking sector bailout, which was funded by the tax-payer. The overseas operators appear to have caved in amid a growing international consensus on a need for action in response to the financial crisis and the subsequent recession, which has thrown millions out of work.

But BGC Partners chief market strategist, David Buik, said: "The summoning of the European and US banks is a show of solidarity between the G20 countries. But unless they are being supported by central banks, this really isn't part of their remit."