European banks to avoid if the FSB gets its way on bonuses

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.

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.

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