Non-EU Banks Slip Through Bonus Cap Loophole

By Mark Kleinman, City Editor in Davos

Major global banks such as Morgan Stanley and Nomura are benefiting from a loophole in new European pay rules that could leave British rivals at a big disadvantage.

Sky News understands that banks based outside the European Union (EU) are able to approve bigger bonuses for employees of their subsidiaries in the trading bloc without recourse to external shareholders.

That means Wall Street and Asian banks can instantly consent to variable pay for senior staff worth double the level of their salaries, the maximum permissible under the new EU cap.

However, Barclays, HSBC and other British banks will have to put the same measure to their annual investor meetings. Without approval, they will not be able to award bonuses worth more than 100% of salaries in any one year.

UK banks such as Barclays may be left at a disadvantage over bonuses

Sources said that banks including Bank of America Merrill Lynch and Goldman Sachs had formally discussed the issue at their group remuneration committees "to ensure appropriate corporate governance". Both had already given approval for the 200% cap, they added.

In practice, the UK banks will not be disadvantaged if shareholders back motions at this year's AGMs allowing them to pay bonuses at the higher level.

However, the fact that international rivals have already been able to give staff certainty about their pay from this year onwards was proving to be a valuable recruitment tool, bankers say.

Sky News has revealed in recent weeks the details of plans by Barclays, Goldman, HSBC and Morgan Stanley to raise base salaries through monthly or quarterly allowances for senior staff.

George Osborne, the Chancellor, is aware of the loophole benefiting non-EU banks, aides said on Friday.

Mr Osborne is fighting the ratio cap in the courts, and one senior Treasury official said that while the Government is confident that it has "a decent legal case", recent defeats to Brussels had left it only mildly optimistic about emerging victorious.

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