October 21, 2008
Germany Loosens Limit on Executive Pay at Banks That Use Its Bailout Fund
BERLIN — The German
cabinet approved conditions on Monday for banks that make use of its rescue
package of 500 billion euros, but loosened a strict pay cap of 500,000 euros
(about $667,000) a year for top managers amid concerns that it would scare
off banks that needed help.
One troubled regional
bank, BayernLB, said it was considering asking for help, but the big
commercial banks — where chief executives make millions a year — are still
reluctant, despite pressure to raise fresh capital.
Angela Merkel, the conservative chancellor, and the finance minister,
Peer Steinbrück, a Social Democrat, hoped to help restore confidence in the
banking sector by meeting before the markets opened.
Deutsche Bank, Germany’s largest, rose 3.1 percent Monday, leading
German financial stocks generally higher.
The conditions placed on
banking executives coincide with the debate that has been under way for
months in Germany, where left-wing parties have demanded that curbs be
placed on salaries earned by top bankers and corporate executives. They
assert that highly paid executives are not held accountable for making poor
Under the terms of the
cabinet decision, banks that decided to accept the bailout were to have the
salaries of their executives capped at 500,000 euros a year as long as the
banks were indebted to the state. They could also be forced to forgo bonuses
and dividend payments, although that is not definite. In addition, dividends
paid out by banks that take up the state package will be paid back into the
state rescue fund.
The version enacted,
however, is more vague, stating that salaries over 500,000 euros a year
would be considered “inappropriate,” according to a copy e-mailed by the
finance ministry. That still is more precise than the British or French
bailouts, which contain more commitments about limiting
“The government is
counting on managers reading the way the wind is blowing and volunteering a
cap on wages to save their bank,” Otto Bernhardt, the parliamentary finance
spokesman for Ms. Merkel’s Christian Democrats and chairman of a joint
committee reviewing manager pay, told Bloomberg News. “There’s enormous ill
feeling among the population about bank pay — 500,000 euros is nearly double
the chancellor’s pay.”
The government will be
allowed to examine the business policies of banks that sign up to the
capital injection package and will be allowed block investment decisions it
regards as too risky.
Germany’s big banks were
not rushing to apply for a capital injection. Deutsche Bank’s chairman,
Josef Ackermann, said his bank did not need additional capital — after
weeks of pushing for a government rescue plan.
“I would be ashamed if we
were to take state money during this crisis,” Mr. Ackermann said. Thomas
Steg, the government spokesman, called Mr. Ackermann’s comments “totally
incomprehensible and objectionable.”
Commentators in Germany
said Mr. Ackermann might be reluctant to seek help because it would mean
opening the bank, and possibly even his contract, to scrutiny.
Mr. Ackermann received
compensation totaling 14 million euros last year, which included benefits
and shares. Martin Blessing, chief executive since May of Commerzbank,
Germany’s second largest, received 2 million euros, not including shares and
other benefits, according to the bank.
Merrill Lynch analysts estimated on Monday that Deutsche Bank would
require a further capital increase of 8.9 billion euros and Commerzbank 6.2
billion euros. Mr. Blessing, the Commerzbank chief, said he would look at
the government’s package and see “whether it comes into question for us.”
Unlike the bailout adopted
by the United States, Germany is not insisting that banks accept the
Bavaria’s state bank,
BayernLB said it wanted money from the package as soon as possible. “It’s
about achieving a fast stabilization,” said Erwin Huber, finance minister of
Bavaria, who is chairman of the administrative board of BayernLB.
Speaking to ZDF public
television, Mr. Huber said it was unclear how much the bank required in
terms of fresh capital. But he said he believed it would have to be
restructured, merged with another bank or partly privatized.
A version of this article
appeared in print on October 21, 2008, on page B10 of the New York edition.