Yahoo Finance Morgan Stanley ditches EU banker bonus cap in boost for London
Morgan Stanley is to scrap the bonus cap for its London bankers in a post-Brexit shake-up that paves the way for multimillion-pound payouts to top performers.
The US firm has joined Goldman Sachs and JP Morgan in replacing a European Union-mandated restriction – which limited bonuses for certain employees to two times their fixed pay – with a new “appropriate internal bonus cap”.
Britain scrapped the cap last year in an attempt to revive the City and draw a distinction with Brussels.
It paves the way for star bankers to receive US-style payouts. Wall Street rainmakers typically get 10 or more times their salary in bonuses at top firms.
Morgan Stanley’s decision emerged in regulatory filings that were first reported by the Financial Times. The US bank said: “We continue to pay competitively and reward strong performance.”
Goldman is preparing to cut fixed pay in London while allowing bankers to earn up to 25 times their salary in bonuses. JP Morgan is said to allow bankers to make 10 times their salary. Citigroup is reportedly in the process of making similar changes as well.
The bonus cap was introduced by the EU in 2014 in an attempt to limit risk-taking after the financial crisis.
Britain’s subsequent decision to scrap it – a divergence only possible after Brexit – was taken under former prime minister Liz Truss and is one of the few changes to have survived her disastrous mini-Budget in September, which caused a market rout.
At the time, Ms Truss and her then chancellor, Kwasi Kwarteng, argued that the cap had become arbitrary, with banks finding other ways to remunerate top performers instead.
The new pay rules apply to so-called “material risk-takers”, a special classification of bank staff who can pose a risk to the lender’s financial stability.
Salaries had been increased in the past few years to offset the bonus cap. But some bankers have been wary of giving up higher levels of fixed pay in exchange for variable bonus payments.
This is because there is no guarantee they will receive the same amount per year, meaning mortgage agreements can prove harder to obtain and private school fees more difficult to pay.
Mr Kwarteng argued that abolishing the cap would make London more attractive to banks, helping the City compete with New York for talent.
Wall Street companies have often been wary about moving staff from New York to London, as bankers in the US typically receive less in salary and more in bonuses.
The bonus shake-up could also give London an edge over EU financial capitals such as Paris and Amsterdam, which are vying to win more financial markets business following Britain’s exit from the EU.
Some European bank bosses have already complained that the rule changes will put them at a disadvantage to the UK.
