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German Rescued-Bank Pay to Be Capped, Kauder Says

Compensation for staff at all German banks that receive state aid will be capped from 2011, said Volker Kauder, the parliamentary leader of Germany’s ruling Christian Democratic bloc.

Pay for all staff at Hypo Real Estate Holding AG, the Munich-based bank taken over by the government last year, will be capped at 500,000 euros ($694,600) with no bonuses payable, Kauder told reporters in Berlin today. Bonuses that were accumulated before the bank was taken over will be “collected” and paid out once the bank is completely independent, he said.

“There can be no bonuses for Hypo Real Estate workers as long as the government has a stake in the bank,” said Kauder, a member of Chancellor Angela Merkel’s CDU party. That will also apply to any bank in which the state takes a 75 percent stake or more, he said.

Merkel’s coalition, which trails the opposition in polls, is stepping up efforts to target bankers’ pay amid public outrage over a perceived widening gap between rich and poor. Hypo Real Estate said last month that it had awarded bonuses in 2009 worth 25 million euros, just as the government announced that long-term welfare recipients will get an extra monthly allowance of 5 euros.

Banks Reach ‘Limit’

The BDB banking lobby said yesterday that financial institutions have “reached their limit” in terms of adhering to government regulations and that Germany as a financial center is at risk.

“We, the undersigned, have the utmost concern that German banks can no longer be internationally competitive as a result of the measures which are often being decided by German politicians unilaterally,” the BDB said in a statement signed by Deutsche Bank AG Chief Executive Officer Josef Ackermann and Commerzbank AG Chief Executive Officer Martin Blessing.

For banks such as Commerzbank and WestLB AG, where the government’s stake is 75 percent or less, bonuses will be possible as long as total annual pay doesn’t exceed 500,000 euros, Kauder said.

If banks pay the agreed interest on government aid or if they have repaid 50 percent of the total aid amount, bonuses will be possible again, Kauder said. The regulations were agreed by Merkel’s coalition and have been implemented by parliament’s finance committee, he said.

Soffin Funds

The Soffin bank rescue fund, set up in 2008 to keep Germany’s financial system afloat during the crisis, guaranteed 174.5 billion euros in liabilities and injected 29.3 billion euros in cash into Commerzbank, Hypo Real Estate, Aareal Bank AG and WestLB as of Sept. 30, Soffin said on its Web site.

Germany has already enacted caps on bonuses of 500,000 euros for executive-board members at institutions that receive government funds. A clause in the law governing the Soffin bank-rescue fund obliges those banks to pay managers an amount that’s “adequate” to their performance.

The Finance Ministry on Oct. 4 said it’s examining ways to cap variable compensation for the highest-paid managers below executive-board level. Sixty-eight managers at the four banks earn more than 500,000 euros per year, Der Spiegel magazine reported earlier this month, citing an internal Soffin document.

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