Project Merlin: The details
Here are the main details of the long-awaited Project Merlin deal between the government and the Treasury.
1) As expected, the four biggest British banks (RBS, HSBC. Lloyds and Barclays) plus Santander will commit to make available £190bn of credit to business in 2011, up from £179bn in 2010. On the question of whether the funds being made available for business will actually be lent, the Treasury points out that in 2010 RBS and Lloyds lent more than they promised to do - so the Treasury is hopeful that bankers will again exceed the targets.
2) Of this lending commitment, £76bn will be made available for smaller businesses, which represents an increase of £10bn or 15% in credit available to SMEs in 2010. This is probably the most important commitment in Merlin, in that it is small businesses that have been complaining of being starved of vital finance.
3) The Bank of England will monitor whether the funds are being made available to businesses and will publish quarterly assessments.
4) Among the performance targets used to determine bonuses of bank chief executives will be whether they are providing the promised credit to business (this in broad terms is already the case for Stephen Hester at RBS and Antonia Horta Orsorio at Lloyds).
5) The chairmen of banks' remuneration committees are writing to the chairman of the Financial Services Authority warranting that they are cutting the amount provided for bonuses in relation to 2010 performance as a direct consequence of their negotiations with ministers.
6) In their coming results, RBS, HSBC, Lloyds and Barclays (known as the Merlin banks) will publish the pay of their five highest paid executives below board level (but not the pay of traders who don't have management responsibility). The pay of board members already has to be disclosed.
7) The government will legislate so that from 2012 all big banks in the UK will be forced to publish the pay of their board members plus the eight highest paid executives below board level. This new disclosure requirement will apply to the UK operations of overseas banks such as Goldman Sachs and UBS. Goldman is unlikely to like this. On paper at least, the UK will have the most transparent regime for bankers' remuneration in the world.
8) The remuneration committees of big British banks will commit that they will henceforth sign off the pay of the ten highest paid individuals in each business division. This is designed to make it easier for shareholders to hold the banks to account for what they pay.
9) The banks are providing £200m of capital for David Cameron's cherished Big Society Bank, which is supposed to finance community projects.
10) The banks are providing £1bn of equity capital (or risk capital) over three years for small businesses in hard-pressed parts of the UK, on top of the £1.5bn of equity capital they have pledged over ten years (ministers insist this £1bn is additional capital; bankers in recent days have been less clear about that). This is supposed to help fill what is traditionally known as the "equity gap" for smaller growth businesses in the UK (Germany's competitive advantage over the UK has long been seen in terms of how its smaller businesses find it easier to obtain long term finance). And the equity capital will in theory be directed to the private sector in regions most hurt by public spending cuts.
Those are the main points of detail. In addition, we will also learn more about the pay and bonuses being awarded to senior people at the two banks where taxpayers have huge stakes, Lloyds and Royal Bank of Scotland. They will repeat their 2010 commitment that the cash element of any bonus won't exceed £2,000 (bonuses paid in shares will of course run to many millions of pounds in some cases).
Note that Santander has signed up only for the lending. It has not signed up for the other Merlin commitments.
PS. Just to confirm, the provision of credit to businesses big and small will be on commercial terms, and will be subject to demand. So, many small businesses will probably continue to complain that even when credit is offered, it is too expensive.
Update 13:08: George Osborne has formally ruled out imposing a bonus tax - rejecting demand from Labour for the previous government's bonus tax to be imposed again.
Update 14:19: Royal Bank of Scotland has confirmed that its chief executive, Stephen Hester, will receive a "new Share Bank scheme" award (RBS's name for a bonus) of £2.04m for his performance in 2010. It will be paid in shares, and he won't be able to get his hand on all of it for three years.
It means that Hester will receive a fraction of the sum likely to be awarded to his opposite number at Barclays, Bob Diamond (with some of the difference in their respective pay explained by the fact that RBS is more than 80% owned by taxpayers).
RBS also confirms that its investment bankers - employed by its GBM division - will share in bonuses totalling "less than £950m for 2010." That compares with the 2009 bonus pool of £1.3bn. A proportion of that drop in bonuses stems from the fact that GBM had a better year in 2009: not all of the fall represents pay restraint imposed by the board of RBS as a result of the Merlin talks.
As the FT recently pointed out, on the basis of this size of bonus pool, at least 200 RBS bankers are expected to receive bonuses in excess of £1m each.
Update 15:00: Is it a good day for banks to bury bad news? Like RBS, Lloyds has disclosed the bonus of its chief executive, Eric Daniels.
Mr Daniels (who is stepping down as chief executive) is to receive a 2010 bonus of £1.45m - which Lloyds says is "62.3 per cent of his potential opportunity" (ie the board could have awarded him more). I disclosed some weeks ago that Mr Daniels was on course to get a bonus.
Like Mr Hester, Mr Daniels waived his bonus in the previous year.
Mr Daniels' bonus is likely to prove more controversial than Mr Hester's - in that Mr Hester was appointed at RBS at the end of 2008 to clean up the mess created by his predecessors, whereas many would argue that Mr Daniels was to a large extent responsible for the mess at Lloyds, because he was the boss when Lloyds made its disastrous takeover of HBOS (also at the end of 2008).