Bonuses even less likely at Irish banks if FSB gets its way

The Financial Stability Board (FSB) has come up with a new method of limiting bonuses: banks with poor capital reserves should be obliged to limit payouts to staff until their capital cushion has been built up to a satisfactory level. Sadly, the big Irish banks don't fare very well.

The FSB plans to present its suggestion to the G20 leaders in Pittsburgh next week. There's no indication what would constitute capital for the purposes of the definition, or what a satisfactory level of capital would amount to. But using existing data on capital ratios, it's possible to extrapolate which banks would be most affected.

As the chart below from Keefe, Bruyette & Woods shows, the European banks with the lowest ratios of equity tier one capital to risk weighted assets include the Irish banks (Allied Irish and Bank of Ireland) - although this may improve following the Irish bad bank plan , the big French banks (BNP Paribas and Soc Gen), Commerzbank (the worst of the lot) and Unicredito.

While this could be interpreted as another blow for Irish bank employees, the fact is that it would be in the realms of fantasy to expect big bonuses this year anyway.

Both BoI and AIB have said that keeping a close eye on costs is imperative this year, pay has been frozen and bonuses have been all but eliminated.

Add the fact that Bank of Ireland is anticipating profits for the six months to September 2009 to be 'mid-teens percentage point lower' than the comparable period last year, and the prospect of a bonus seems almost ridiculous.

With the exception of the large French banks, whose generosity pales compared to their American peers, none of these are particularly well known for paying enormous bonuses anyway.

Banks like Deutsche, Credit Suisse and BarCap, which have had a good crisis and are known for being better payers, are all well placed on the tier one capital front.

Click the image to enlarge.

Source: KBW