Published on
the Independent/UK

US Banks Veto 'Socialist Pay' in Secret Talks

Margareta Pagano

America's top bankers quashed attempts by their British counterparts to persuade the industry to bring down salaries in response to public outrage after the world's governments spent billions rescuing the system.

Chief executives from the world's banks discussed the plans at a secret dinner held at Claridge's, the London hotel, last October, at which several leading British bankers are said to have suggested that the sector should take greater responsibility for its part in the crash, and do more to reduce the vast bonuses paid to staff.

But the recommendations were met by stiff opposition from the US banks JP Morgan, Morgan Stanley and Goldman Sachs, according to one source. "Some of the US bankers were furious about attempts to reduce pay throughout the industry, arguing that any such move smacked of socialism and would be fiercely resisted," the source said on Friday. "It's not the way the Americans like to go about their business."

The bankers meet twice a year for industry talks. But following the public's growing anger at high-level bonuses despite government bail-outs, salaries were at the top of the agenda at the meeting. The source said: "There were several bankers present who believe that if the industry worked together to agree that pay levels - and bonuses - should come down it would work in the interests of all, because it would cut back overall costs at such a sensitive time. Oddly enough, even the top bankers don't like paying out so much.

"The situation is made worse by the constant merry-go-round of banks poaching staff from each other, pushing up the costs for all. This was not just about trying to respond to the public anger but a genuine attempt to reform how the industry rewards itself."

Until the crash, most investment banks typically paid out more than half of revenues in pay but pressure from shareholders and the public has forced most of them to bring down these ratios to between 30 per cent and 40 per cent. They are also paying more in shares rather than cash under pressure from the new guidelines being set by the G20 and the Financial Stability Forum.

Barclays' chairman, Marcus Agius, and its chief executive, John Varley, plus executives from Royal Bank of Scotland, Lloyds and HSBC, attended the dinner and are understood to have supported the move to reduce pay. Barclays has been particularly quick to respond to the public mood over bankers' pay, arguing that the industry must face up the "political brick-bats". It did not receive direct state-aid during the 2008 rescue operation but it did benefit from the quantitative easing program which pumped billions of liquidity into the system.

Mr Varley and Bob Diamond, the president of Barclays Capital, refused bonuses last year. Details of the secret talks follow another week of bonus anger after the news that RBS is paying out £1.3bn in bonuses to 16,000 staff - including £1m each to 100 bankers - even though it lost £3.6bn last year.


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