The Treasury last night urged restraint by investment banks over bonuses as four US financial groups prepare to reveal pay awards, which could top $100bn (£61.5bn). A spokesman for the Treasury said: "We would prefer that they didn't pay these large bonuses. We'd like to see a behavioural change at the banks," adding: "This year, the only reason for their profits is from state support of the banking sector,"
Chancellor Alistair Darling instituted a bonus tax in the pre-Budget report in December in a bid to encourage banks to curb payments. However recent forecasts over pay awards among the banks suggest the tax has not discouraged significant pay packets. The Treasury initially estimated the tax would bring in £550m, but now thinks "the yield is likely to be much more than that".
Bank of America Merrill Lynch, Citigroup, Goldman Sachs and Morgan Stanley, which all have sizeable London operations, are expected to announce total pay awards of almost $100bn this week. This comes just days after JP Morgan announced it had doubled its profits to $11.7bn. The group, run by Jamie Dimon, is to pay $9.3bn in bonuses up from $7.7bn in 2008.
Mr Dimon said more of the bonuses would be paid in shares rather than cash, and equity-based pay would be just "a little higher". He added that pay had fallen as a proportion of income, because of the "UK tax" on bonuses.
Goldman is expected to be the best performer when it reports results on Thursday with group profits estimated to hit $11bn. Pay and bonuses are expected to hit about $20bn, although senior managers are to donate money to charity in an attempt to head off some of the criticism over pay.
In the UK, the board of Royal Bank of Scotland is preparing to meet to finalise the size of its bonus payouts. The embattled group, which is 84 per cent-owned by the taxpayer, received support from City minister Paul Myners last week. He said the pay should not be too heavily restricted as "the effect would be significant erosion in the competitiveness of the bank, the loss of its ability to provide credit, a loss of employment – particularly in Scotland – and a decline in the stature of the bank".
There had been fears that the Government would veto the group's pay demands, which could have pushed the entire board to walk out. RBS has since denied that the claim, and ministers said there would be no discrimination against the bank.
It comes just days after US President Barack Obama slammed the "obscene bonuses" handed out in the banking sector, announcing a $117bn tax on the finance industry. "My commitment is to recover every single dime the American people are owed," Mr Obama declared. "And my determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at the very firms who owe their continued existence to the American people." Mr Darling has so far ruled out plans for a similar style "financial crisis responsibility fee".
However the bonus tax and the 50 per cent levy on income over £150,000 from April has raised fears that financiers will quit London. Mayor Boris Johnson claimed there could be "long-term damage" to the capital.Reuse content