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Wall Street banks have warned that their next wave of hiring in France may be stunted without restrictions on dismissal costs for highly paid traders, a flagship measure that has been left out of a reform package intended to bolster Paris as a financial centre.
Paris has emerged as the main winner among European cities vying to become Europe’s top financial centre post Brexit, and the caps were meant to be part of an “attractiveness bill” discussed in parliament this week. However, they have not been included for now as the French government and lawmakers seek legal workarounds for implementation under the country’s protective labour laws.
US investment banks such as JPMorgan, Morgan Stanley, Citi, Goldman Sachs and Bank of America, which have hired or transferred hundreds of people to Paris since Britain left the EU, have led lobbying for the changes in recent months, although French banks would benefit too.
Some said their future expansion partly depended on a further loosening of labour laws, including around traders defined as “key risk takers”.
“We’d only really consider going much further in our hiring if French labour rules became truly adapted to these kinds of cyclical activities,” said one executive at a US bank in Paris.
Redundancy payouts to traders earning more than €1mn a year in Paris can end up being more than five times that of London, although there is less of a difference between France and the rest of Europe.
“This is really a measure mainly driven by the US investment banks and with the idea that it’s really a Paris-London issue,” said Jean-Charles Simon, the chief executive of Paris Europlace, which promotes the French capital as a financial centre.
Even with a broader, existing cap on dismissal payouts brought in by President Emmanuel Macron, “when it applies to people with seven-figure salaries, it creates significant amounts”, Simon added.
Paris’s position as a financial centre has been supported by lifestyle arguments in its favour, as well as a favourable tax regime for new arrivals. Nevertheless, some bankers have argued the rules needed to be made even more flexible so that they could poach people at rival banks in France and not lose the tax benefit.
Wall Street’s biggest banks have moved more than 1,600 people to the French capital and are still building out their operations with dozens of planned hires, with the broader number of moves in the financial sector exceeding the shift to other cities such as Frankfurt or Dublin.
The idea under review would be to put more specific limits on payouts to traders so that they don’t exceed a threshold of about half a million euros. Working such caps into the reform package is legally difficult, however, as it singles out individuals.
One person at a US bank that had to make cuts last year said: “Our critical mass in Paris has increased, but we need to be able to be reactive too.”
Those working on the law are discussing ways it could be written in as an amendment, including in consultation with France’s Council of State, which gives legal advice to the government. The bill would still need to get approval in the French parliament, where Macron’s party does not have a majority.
Alexandre Holroyd, a lawmaker who is leading the reform package, said France’s labour rules were meant to be protective, but had never been designed to overcompensate traders.
“A trading floor is somewhere where there is a lot of volatility and variations in headcount,” Holroyd said. “It’s the flipside of being paid sums of money that are completely disproportionate to more than 99 per cent of people.”
France’s latest “attractiveness” bill comprises far more than the remuneration issue. Like Britain did recently, France aims to improve the digitisation of the trade finance sector. Another measure involves introducing multi-voting rights as part of initial public offerings, so that founders of start-ups do not have to lose control of their companies, a rule meant to help Paris compete with the likes of Amsterdam for listings.
Finance minister Bruno Le Maire headed to Wall Street at the end of last year, partly in a push to get more investment firms to follow US banks to Paris. He is due to do the same in the Gulf in the coming months, a French official said.
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