Friday, 14 January 2011

Banks

David Cameron in his "town-hall meeting" at Greggs The Bakers this afternoon was ambiguous as to the government's plans on bank executive's bonuses. He deprecated the paying of large bonuses and reminded his audience that we taxpayers are the majority shareholders in two of the big four banks, but he did not say that the government would be prepared to use that shareholding to call the bluff of the RBS and Lloyds boards and cancel bonuses for this year. It seems to me that as a result of the shakeout among financial houses since the Lehman crash that there is actually a buyers' market at present and any exec. denied his (or, rarely, her) bonus is not going to walk into a similar job quickly.

Different considerations apply to HSBC and Barclays who, for different reasons, avoided government takeover. It would be wrong for the government to dictate to an independent company how it was going to pay its employees and contractors.

Bob Diamond, in his evidence to the Treasury Select Committee (link to a video) earlier in the week, opined that banks should be allowed to fail, not be baled out by the taxpayer. Of course, the chief executive of Barclays has the luxury of being able to fall back on Arabian oil billions if his bank gets into trouble, but he is surely right. When Lloyds and RBS are returned to the private sector (at a tidy profit, one trusts) the same should go for them, too.

That fast return to profitability, in some cases repaying billions to the state, and building up reserves to meet revised international banking standards, appear to be the reasons for the major complaint against the banks at present - that they are not lending enough. This article by David Prosser identifies Barclays, RBS and HSBC as providers of mortgages, but does not address the matter of loans to small and medium businesses. Lloyds net lending is contracting.

Later in that article, ("Let's at least get the bonus numbers right"), Prosser castigates Cameron for creative use of figures in putting down Ed Miliband at PMQs last Wednesday, a point that was also made by BBC's "More or less" statistics programme today. Our criticism of Gordon Brown's dodgy estimates and projections is tarnished if the prime minister resorts to using the same shoddy tricks. There is a perfectly sound argument in favour of the coalition's continuing banking levy as opposed to the one-off Labour bonus windfall tax which, former chancellor Darling admitted, would not raise anything like £3.5bn again. Cameron could also have pointed out that the government is keen to introduce a banking transaction tax, which awaits international agreement.

Finally, bonuses from now on are not going to be all in the form of straight cash as they could be in the past. As Sharon Bowles MEP points out on her blog, new rules mean that 40% - 60% of bonuses will be in contingent capital (a form of debt which turns into equity if there is a crisis) or shares deferred for at least 3 - 5 years, meaning that, if the bank suffers heavy losses, bankers' bonuses will take the first hit. One can appreciate that the Prime Minister, already under pressure from the large Europhobe component of his party, does not wish to give any credit to the EU, but surely the Liberal Democrats should be trumpeting this success in clipping the wings of the reviled banking high-fliers.

1 comment:

Frank H Little said...

My attention has been drawn to an item in the FT to the effect that there has been an 18% rise over the year in City job vacancies. Mind you, the source is a recruitment company.