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New York Times, October 21, 2008 article


The New York Times




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.

Shares of 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 investment decisions.

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 executive pay.

“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 support.

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.


Copyright 2008 The New York Times Company




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