City minister Lord Myners will tomorrow urge investment bankers to demonstrate restraint on bonuses as the major US banks with big operations in London prepare to report thumping third quarter profits.
At a meeting with 11 of the highest profile and biggest payers in the City, Myners will demand they adopt the G20 principles which require payouts to be spread over three years and "clawed back" if performance turns sour in subsequent years.
The meeting coincides with scheduled profits announcements from JP Morgan, Citi, Goldman Sachs and Bank of America Merrill Lynch this week. The results are expected to lead the banks to pour billions of pounds into bonus pools that will pay out at the end of the year.
The atmosphere at the Treasury is expected to be robust as some of the banks attending the meeting are not regulated by the Financial Services Authority, which has a new code on pay in the City, and Myners is unlikely to secure immediate compliance with his demands.
Most attention on bonuses this week will be focused on Goldman, which reports on Thursday. Banking analysts believe Goldman will report pre-tax profits of $3.5bn (£2.2bn) for the three months to the end of September – which would indicate the bank is on track for a bumper year, barely 12 months after the US Treasury put $10bn of taxpayers' funds into Goldman through the troubled asset relief programme (Tarp).
According to some estimates, the bonus pool for Goldman could reach $22bn by the end of the year. The bonuses are not allocated until January but there is already speculation that Goldman will attempt to avert a huge political row by channelling some money into charitable causes. While Goldman has repaid the $10bn it was handed by the US government, the entire financial system is still being supported behind the scenes through cash injections by central banks.
The City is accustomed to rows over telephone number sized pay deals for bankers but the use of billions of pounds of taxpayers' money in the past year to save the banking system from collapse has intensified the controversy.
While the FSA's code on pay, which is similar to the G20 principles, must be adopted by biggest players in the City such as Goldman Sachs and JP Morgan, leading European banks such as BNP Paribas, Société Générale and Deutsche fall outside the FSA's auspices as they operate branches rather than subsidiaries in London.
Myners has asked the three European banks to attend the Treasury meeting in an attempt to avoid rows over the competitive status of banks if some comply with codes on pay and others do not. Spanish bank Santander, which owns Abbey, Alliance & Leicester and parts of Bradford & Bingley, will be tackled separately.
Myners has already urged bankers to consider the "perceived fairness" of their bonuses and argued that bankers do not have unique talents like footballers while Lord Turner, chairman of the Financial Services Authority, has called on banks to "moderate" annual bonuses.
Turner was at a meeting last month where the Chancellor, Alistair Darling, clinched an agreement with the five biggest UK banks – Barclays, HSBC, Royal Bank of Scotland, Lloyds Banking Group and Standard Chartered – to accept the G20 principles.
The chief executive of Goldman, Lloyd Blankfein, has been trying to head off stricter regulations by admitting that the anger over pay was "understandable and appropriate" and urging the financial sector to stop paying out guaranteed bonuses which are not linked to performance.
The banking crisis has led to calls for the "casino" investment banking operations to be spun off from high street banks holding customer deposits. Alun Michael and John McFall, members of the Christian Socialist Movement, tabled an early day motion in parliament urging the government to separate the two. Michael said: "There must be no return to business as usual. It's not just an economic issue but a moral one, too. We want a similar approach taken worldwide and for the UK to lead by example."
