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04 October 2023

French banks to clamp down on trader bonuses


French banks will present a plan this week to regulate pay and bonuses for traders, in a bid to discourage them from taking excessive risks, a finance ministry official said yesterday.

The French Banking Federation is to unveil the new "code of conduct" after President Nicolas Sarkozy last week assailed the system of trader bonuses as causing "a catastrophe that we are all aware of."

The banking federation's President, Georges Pauget, "will present by mid-week a report to Economy Minister Christine Lagarde that will propose new guidelines" for trader salaries, a ministry official said.

The guidelines were drafted by a working group created by the minister to "reduce excessive risks" taken by traders, said the official. Sarkozy has already persuaded bank bosses to forgo bonus pay for 2008 as a condition for receiving more than €20 billion (Dh95bn) in state-backed loans following the banking meltdown.

One of France's top banks, Société Généralé, was rocked by a mammoth trading scandal last year when 32-year-old trader Jerome Kerviel was blamed for losses of €4.9bn ($7.1bn) in derivatives deals.

Kerviel, who has been charged with breach of trust, has repeatedly maintained that he is being made a scapegoat and accused bank managers of turning a blind eye to his high-risk deals as long as he turned a profit.

The new guidelines are expected to go into force this year and affect bonuses to be paid out in early 2010.

A finance ministry official said a new system for calculating the bonuses will be put in place that will take into account "the net profit made including costs such as risk costs and capital costs". The code of conduct would also do away with guaranteed bonuses designed to attract high-flying traders with a track record and which are not linked to performance.

It would also outline a schedule for paying bonuses to ensure they take into account quarterly results and also provide for more transparency, with information to be relayed to the board of directors.