Good news: the EU bonus cap will not be implemented until July 2014 at the earliest (thereby missing the 2013 bonus round). Better news: it may also be illegal.
The Financial Times reports that the implementation date for the EU's restrictions on bonuses has been pushed back from January 2014 to July 2014 in response to objections from the Netherlands, Luxembourg and Romania, who said they will need 12 months to implement the new rules. Banks usually award bonuses for the previous year in January and February, so bonuses for 2013 will almost certainly not be capped.
Earlier in the day, the FT also pointed to revelations that the EU's proposed caps may be illegal. Stephen Mavroghenis, a partner at Shearman & Sterling in Brussels, pointed out that Article 153(5) of the EU treaties “expressly precludes the EU from regulating pay in the member states”, irrespective of the policy area. Sam Whitaker, a colleague of Mavroghenis's in London, told us it is now up to an individual bank, banker, or trade association within the EU to take this challenge to the European court. In doing so, the implementation date for the new rules could be delayed even further, Whitaker said.
Whitaker said the success of any challenge will depend upon whether capping bonuses as a proportion of overall pay is interpreted as pay regulation. Sharon Bowles, a British MEP and the chairwoman of the EU Parliament's economic and monetary affairs committee told Bloomberg that the committee formulated the cap very carefully so as not to fall foul of Article 153. “The Parliament would have loved to put a cap on overall pay, but we backed off from doing that over doubts about legality,” Bowles said. “In the past something similar has been attempted for footballers and they discovered it exceeds the treaty.”
The EU bonus cap will definitely be applied to the overseas branches of EU banks. (Financial Times)
George Osborne was outnumbered 26:1 on bonus caps. (Telegraph)
For most investment banks, the EU bonus cap will simply be a rounding error. (William Wright)
Bonuses were not supposed to be incentives, they were simply a method of matching costs to volatile revenues. (Stumbling and mumbling)
Pay at US investment banks in China has fallen 60% since 2010. (Bloomberg)
Michael Corbat, CEO at Citi, is obsessed with measurable targets and is implementing a new system of measurable scorecards for managers. (WSJ)
Nomura has been clearing out senior staff. In 2008 it had 105 top managers, now it has 71. (Reuters)
M&A is still 63% below normal levels in Europe. (Alphaville)
The new new thing: collateral transformation. (Financial Times)