When the bonus cap is lifted, Deutsche Bank will still be sweet
If you're a senior banker in London, and you've grown partial to your bigger salary and smaller bonus, then today is a bad day. The Prudential Regulation Authority's announcement that the bonus cap is being lifted in the UK means that London banking salaries will probably fall as bonuses probably rise. That is, unless you happen to be at a bank that's regulated by the European Banking Authority (EBA), in which case nothing will change.
Deutsche Bank's London operation will probably not be affected by the lifting of the bonus cap. It's a branch office of Deutsche Bank AG, and is supervised by the ECB and by the German regulator BaFin. Insiders at the bank in London say they're hopeful that this means their salaries will stay the same, even as other banks rebalance compensation towards of variable pay.
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Deutsche Bank declined to comment on the issue. However, Peter Snowden, a senior consultant in the regulatory team at law firm Norton Rose Fulbright said that as a rule of thumb, banks that are registered overseas are authorized by the local regulator. Adrian Crawford, employment lawyer at Kingsley Napley in London said that banks regulated outside the UK will be limited in their ability to scrap the bonus cap and are likely to continue paying high fixed pay in the form of salaries and role-related allowances and smaller bonuses.
Introduced in 2013, the EU bonus cap restricts bonuses for material risk-takers (typically managing directors and highly paid staff, including some risk and compliance professionals) to no more than two times base salaries. In the decade since its introduction, salaries for senior bankers in London have risen from £250k to £600k+. At Deutsche Bank, headhunters say some managing directors are now on salaries of £700k+.
"If you want £1.5m in total compensation, you need a salary of at least £500k," says one headhunter. "That's usually £300k plus a £200k allowance."
As bonuses flex upwards, there are already signs that salaries are falling. HSBC, for example, cut salaries for its newly promoted managing directors by 25% this year.
While many bankers enjoy the certainty of high salaries, some may yet relish the return of bonuses that can be many multiples of salary in good years. The lifting of the bonus cap will free banks registered in the UK to pay very high bonuses all over the world, which sounds like particularly good news for Barclays in New York.
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