Deutsche Bank AG co-Chief Executive Officer Juergen Fitschen clashed with German Finance Minister Wolfgang Schaeuble over whether European draft rules that limit bonuses will hamper banks’ ability to compete in some markets.
“Do you imagine that you can successfully compete in dynamic emerging markets if the German economy minister tells you how much you can pay your top executives in China or Russia?” Fitschen, who sat next to Schaeuble, said at a conference in Berlin today. “You can’t build a leading position with second- and third-tier people.”
Schaeuble took issue with Fitschen’s position.
“The next crisis of this magnitude won’t just cost us our market economy system but our western democracy as well,” said Schaeuble, 70. “Those who know that must take the debate a bit more seriously than to say it’s tough to find employees in emerging markets.”
European leaders are toughening bonus and capital rules for banks to prevent a repeat of the taxpayer-funded bailout of lenders following the 2008 collapse of Lehman Brothers Holdings Inc. While banks should hold more capital to resist financial shocks, the bonus rules mean that lenders will stay out of some markets or act in them at greater risk, said Fitschen, 64.
Schaeuble said that while Fitschen’s statement is correct “in part,” the bonus rules must be implemented to make the finance industry more stable with stricter capital requirements.
European Union parliament lawmakers have insisted that the law, which would apply capital and liquidity rules to the bloc’s 8,000 banks, include binding limits on bonuses. Under a draft deal struck last month, bankers would be banned from receiving discretionary pay worth more than twice their base salary, with a special accounting treatment applied to parts of the bonus that are deferred for at least five years.
Deutsche Bank, which didn’t take direct state aid after the 2007 meltdown of the U.S. housing market, is reducing pay to boost profitability. The Frankfurt-based firm typically pays bonuses in cash and shares over three years and defers the variable compensation of its top 150 executives by five years, according to company documents.
“I trust the creativity of global banks that they won’t go down because of this regulation,” Schaeuble said. “The rules limit the room for maneuver but one can also raise the fixed part of salaries. This can be easily solved in global companies which span several judicial zones.”