Societe Generale SA (GLE), France’s second-largest lender by market value, became the first among Europe’s leading investment banks to formally seek shareholder permission to pay bonuses amounting to twice bankers’ salaries.
The Paris-based bank will seek a two-thirds majority at its May 20 annual shareholders meeting, according to a motion published on its website yesterday. Under European Union rules, banks won’t be able to pay executives who meet certain criteria bonuses that exceed their annual fixed pay, unless shareholders approve a doubling of the cap.
The EU imposed curbs on variable compensation to prevent a recurrence of risky behavior blamed for triggering the 2008 financial crisis. Michel Barnier, the EU’s financial-services chief, will be quizzed by lawmakers today on the bloc’s enforcement of bonus curbs, amid warnings that lenders may have too much scope to sidestep the measures. At stake is European banks’ ability to retain staff in some of their most profitable businesses without resorting to higher fixed costs.
“SocGen needs to defend its key franchises,” said Simon Maughan, head of product specialists at research company OTAS Technologies in London. It’s a “leader in equity derivatives; it’s the heart and soul of its investment banking. Paying top dollar to top people in the derivatives business is essential.”
Societe Generale was little changed at 44.37 euros by 11:31 a.m. in Paris trading, valuing the company at 35.4 billion euros ($49.2 billion) and leaving this year’s gain at 5.1 percent.
The European Commission, of which Barnier is a member, earlier this month published draft technical standards to flesh out the restriction on awards. The technical measures will determine which bank staff should be considered “material risk takers,” and so face the bonus limit.
Banks that are headquartered in the EU must apply the compensation limits to their executives globally, while non-EU lenders aren’t subject to the limits beyond the EU. What’s more, competitors that operate in the EU through subsidiaries can double caps to two-to-one with parent-company approval.
SocGen, which posted sales of about $9 billion from investment banking last year, competes with larger U.S. and Swiss peers including JPMorgan Chase & Co., Goldman Sachs Group Inc., Credit Suisse Group AG and UBS AG. (UBSN) Its biggest EU rivals include BNP Paribas SA (BNP), Barclays Plc (BARC), Deutsche Bank AG and HSBC Holdings (HSBA) Plc.
The pay rules took effect on Jan. 1, meaning that the limits will apply for the first time to bonuses awarded in 2015 based on 2014 performance.
HSBC last month became the first U.K. lender to reveal its plans to sidestep EU caps on bonus payments in part by hiking base pay. A total of 665 HSBC employees will receive a fixed-pay allowance that is neither salary nor bonus to bypass the rules, Chief Executive Officer Stuart Gulliver said on a conference call with reporters on Feb. 24.
“If the appropriate risk-return is taken into account, and certain people generated a profit, they should get paid for it,” said Paul Vrouwes, who helps oversee about 6 billion euros of financial stocks at ING Investment Management in The Hague, Netherlands. “In some departments, such as trading, there may be huge disadvantages” if you’re unable to pay like the competition.
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