Banks under pressure to cut £3bn from bonuses

Pressure was growing today for the Government and big British banks to reach an agreement on what level of bonuses they can pay this year.

Most banks will announce their 2010 bonuses in February or March next year but want to know what the Government's new rules are well before they begin to set them.

Industry sources have estimated that London-based banks will pay out a total of £7 billion in bonuses for this year, down from £10 billion last year.

The British Bankers Association today played down reports that it has been hosting meetings of the major banks about them collectively agreeing to reduce bonuses to £4 billion.

But one senior banker said: "There are plenty of people working on how we can avoid this particular car crash. But it's becoming increasingly hard to see what that answer might be."

Many banks have already moved to pay their staff larger fixed salaries and reduce the cash bonus element of their packages. But those bonuses will still be huge and unpopular with the public.

Barclays has already set aside £1.6 billion for the first nine months of the year for bonuses across the bank.

The BBA said: "It is no secret that the major UK banks who operate in Britain and in many other countries have sought for some time to get an international agreement on bonuses. However, overseas the concern on bonuses is either much more limited or hardly exists at all.

"The way that pay is structured has radically altered following the G20 agreements and the UK now has the toughest regime of all. UK banks are also well aware of the public view and will take this into account when bonuses are decided.

"Right now, speculation about the size and the issue is just that — speculation."

The banking lobby group denied that its chief executive Angela Knight had chaired any meeting discussing a concerted bonus cut. Senior bankers also pointed out that any agreement to cut bonuses could well fall foul of Office of Fair Trading rules on competition.

They also fear that such a move could spark a flight of talent not necessarily abroad but simply down the road to rival banks.

The major high street banks are all members of the BBA, as are some major foreign banks. But foreign-owned investment banks like Goldman Sachs and Credit Suisse are not members and could well refuse to sign up to any bonus-cutting deal.

Bankers also pointed out that any new government rules were likely to be temporary given that its own Independent Banking Commission led by Sir John Vickers will not report until September 2011.

The Treasury today said it will set the level of the bank levy - a tax on banks' riskier assets announced in the emergency Budget - towards the end of the year. The levy is aimed at raising £2.5 billion a year.