In this week's Money Week column, I've been looking at the Vickers Report, and how it let the banks off the hook. Here's a taster....
This year, the UK had a Goldilocks moment to get to grips with its over-mighty finance industry. Two years ago, the banks were still too weak. You can’t put a patient in for major heart surgery when they are still recovering from a car crash. In the immediate wake of the credit crunch, the banks could not have survived radical restructuring. And in another two years, the banks will all be making big profits again, paying lots of corporation tax, and paying big donations to political parties. The memory of the credit crunch will have faded, and the political will to break then up will have evaporated.
But right now, the banks are strong enough to take some punishment. And the desire to make sure the events of 2008 are never repeated is still there. As Goldilocks would put it, it is neither too hot nor too cold – but just right.
Despite that, Sir John Vickers and his colleagues on the Independent Banking Commission blew it. Last Monday’s report on the future of the British financial services industry was the dampest possible squib. Its response was so feeble, and so irrelevant, that it now looks the British banks have in effect escaped from the worst series of collapses in a century or more without any meaningful reform to the way they operate.
No one can be in much doubt that Britain’s banking industry is in need of a major structural overhaul. Put simply, this country’s banks have become too big, and too risky, for the size of the economy that ultimately underpins them.
The point was well illustrated in a research note published by UBS last month. Barclays now has a balance sheet worth 100% of GDP. For a comparison, JP Morgan has a balance sheet worth 24% of US GDP. In effect, Britain is host to three very large banks – Barclays, HSBC and Royal Bank of Scotland – each of which has the potential to quite literally bankrupt the country.
We have already seen how Iceland and Ireland were ruined by the recklessness of their financiers. The same could easily happen to this country. It is a threat, and one the Commission had a duty to take seriously.
And yet, probably under the influence of lobbying from the banking industry, it has largely ignored it. The report singles out Lloyds for its main attention – when, in fact, it is the bank that poses the least threat to the stability of the financial system.
Lloyds will be forced to sell off more branches, over and above the 600 the EU is already making it get rid of. It is certainly true that Gordon Brown’s decision to bounced Lloyds into merging with HBOS was one of the former Prime Minister’s many catastrophic mistakes. It ruined a fairly sound bank, and dramatically reduced the competition in the mortgage and savings market. If reducing its size creates some space for new players in the financial services industry that will certainly be a good thing.
Yet, it is crazy to imagine that will make the financial system more stable. There is simply no evidence to suggest that too little competition between the banks is what led up to the credit crunch. Indeed, through 2006 and 2007 there were arguably too many lenders crowding into the British market. They were throwing around self-cert buy-to-let mortgages like confetti. More competition in a market is always a good thing. It creates more choice, and better service, with better prices. But anyone who thinks it is going to make the system safer is simply kidding themselves.
If the Commission was too harsh on Lloyds, it was too soft on RBS, Barclays and HSBC. It proposes stricter capital requirements, and dividing lines between the retail and investment banking units, so that the investment bank can safely be allowed to go bust, whilst the retail arm will be protected.
The trouble is, neither is going to fix the real issues.
The banks didn’t go bust because they had too little capital. A bigger buffer against financial shocks will help, but a reckless bonus system, too many complex products, and mindless expansion into markets they didn’t understand were the underlying causes of the crisis. Would RBS have survived with a couple of percent more capital? Almost certainly not. Neither would any of the other banks.
Nor is ‘ring-fencing’ the banks retails arms going to make a great deal of difference. It is very hard to believe that any kind of structure can be created that will make it certain that a collapse of the investment banking arm won’t bring down the retail bank as well. Bankers are very good at shifting money around a balance sheet. If there is a way of making the retail unit subsidise the rest of the bank, someone will find it and exploit it. For the system to work, you have to believe that the regulators are smarter and more knowledgeable than the people working in the banks – and the chances of that are just about zero.
Vickers had a one-off chance to do something really radical. He should have proposed a complete split between retail and investment banking. The retail banks would be safe, fairly dull institutions, and they could be fully protected by the government from failure. . The investment banks could take all the risks they liked, in much the same way that the hedge funds do, and if they went bust it wouldn’t matter very much to anyone apart from their staff.
Barclays might opt to move to New York. HSBC might decide to go back to Hong Kong, or to Shanghai. But so what? It matters much less than most people suppose whether a bank is domiciled in this country. The Commission had a duty to think seriously about whether it was responsible to host massive banks in the UK. It failed completely. The moment to protect the country from another massive banking collapse has passed – it won’t come again.
Showing posts with label banking. Show all posts
Showing posts with label banking. Show all posts
Sunday, 17 April 2011
Saturday, 2 April 2011
How People Power Can Curb Bonuses
In my Money Week column this week, I'm looking at how people power may be able to curb bonuses. Here's a taster....
Banking bonuses are like cockroaches. Nobody much likes them. They can do a lot of damage. And short of an all-out nuclear war, they appear to be just about indestructible.
The financial collapse of 2008 didn’t do anything to curb the way the financial sector rewards itself. Nor have the attempts at greater regulation made much progress. Even higher taxes don’t work.
But how about people power?
In Holland, ING was forced to abandon a bonus scheme after a Twitter-led campaign against the bank that threaten to turn into a mass boycott. In France, last year, the former footballer Eric Cantona led a campaign for mass withdrawals from the banks. In this country, the UK Uncut campaign, has achieved a lot of impact with its protests against financial institutions.
In the end, banking pay, like just about anything, needs permission from society. Banks can’t operate unless millions of ordinary people are willing to put money into them, and use them to shift funds around. It may be that only direct action from ordinary people can finally bring the banking industry back under control.
There is little question that financial sector pay has got out of hand. The sector routinely pays its staff rewards that are far and above what other people earn, and which bear little realistic relation either to the success of the banks they work for, or to the contribution they make to the economy.
Just take a look at the latest revelations about pay at The Royal Bank of Scotland. Last month, the bank revealed that it paid out around £1 billion in bonuses. More than a hundred of its staff were paid more than £1 million. And this is despite the fact that RBS went spectacularly bust, is still majority-owned by the tax-payer, and is still losing money. It is far from alone. HSBC revealed that it paid 253 of its staff more than £1 million last year, 89 of them in London. Right across the board, bonuses have bounced straight back to 2007 and 2008 levels.
There is nothing wrong, of course, with people earning lots of money. If they are working hard and creating wealth they deserve it. But all the evidence suggests that the banking industry has become a cartel that operates against the public interest. The banks are too big, they take on too much risk, they require too much in the way of hidden subsidies from the taxpayer, and they pay themselves too generously. According to research by Harry Huizinga, an economics professor at the University of Tilburg in the Netherlands, twelve banks have liabilities of more than $1 trillion, and thirty banks have a ratio of liabilities to GDP in excess of 0.5, meaning in effect that if they go bust they may well bring down the country with them. Furthermore, the same banks pay consistently lower returns to shareholders than banks that are smaller, and less systematically important. In short, the mega banks aren’t very useful to anyone, except for their lavishly paid staff. We’d be better off without them.
But how do we bring them under control? There have been plenty of regulatory initiatives but none of them seem to get anywhere. Governments don’t appear very effective – they are too easily brow-beaten by the argument that the banks are vital for the economy.
But maybe people power can make a difference.
In Holland, ING last week agreed to scrap a bonus scheme that would have paid its chief executive Jan Hommen 1.25 million euros. ING was bailed-out by the Dutch government in 2008, and although it has since re-paid five billion euros of the money it received, there is still another five billion euros to pay back. The sober-minded Dutch objected to the sight of bankers who still owed the government billions paying themselves vast rewards. A Twitter-led campaign mobilised public opinion against the bank. People were threatening mass withdrawals from their accounts, creating the potential for a run on the bank. Although by last week only a few hundred people had taken their money out, it was enough to rattle ING. By the end of last week, it had decided to withdraw its bonus scheme, replacing it with something far more modest.
The footballer Eric Cantona tried something similar in France. At the end of last year, he launched the ‘Bankrun 2010’ campaign. The campaign threatened a mass withdrawal of money from the banks. Tens of thousands of people signed up for the Facebook campaign, in France, Britain, the US and elsewhere. The French banking unions warned of an economic catastrophe if it happened. In the end, the event was a bit of a damp squib. Some accounts were closed. But no banks went out of business. And probably those accounts that were closed were opened up somewhere else a few days later.
Still, there are signs that things are stirring.
There is no question that ordinary people feel deeply uneasy about the way that the financial sector rewards itself. They don’t buy into the argument that the banks are engaged in a fierce war for talent that means they have to pay everyone huge salaries. And they suspect, almost certainly correctly, that the way the banks reward themselves makes the system more risky, not less – and that they may have to end up paying for it.
Most of all, they feel powerless to do very much about it. But that, of course, isn’t really true. A bank such as RBS depends on its millions of retail depositors. Without them, it would be sunk. A pure investment bank depends less on ordinary customers, but there are not many of those left – and, in truth, the retail banks are the original source of the money the investment bankers play with.
The Cantona campaign didn’t work. But the ING protest was far more successful. And if the idea of depositors mobilising against banks take off, it could pose the most potent threat yet to the system. After all, for any bank there is nothing scarier than a run. Regulation won’t curb bonuses. It is unlikely that politicians or central bankers will manage to either. But people power might just do the trick.
Banking bonuses are like cockroaches. Nobody much likes them. They can do a lot of damage. And short of an all-out nuclear war, they appear to be just about indestructible.
The financial collapse of 2008 didn’t do anything to curb the way the financial sector rewards itself. Nor have the attempts at greater regulation made much progress. Even higher taxes don’t work.
But how about people power?
In Holland, ING was forced to abandon a bonus scheme after a Twitter-led campaign against the bank that threaten to turn into a mass boycott. In France, last year, the former footballer Eric Cantona led a campaign for mass withdrawals from the banks. In this country, the UK Uncut campaign, has achieved a lot of impact with its protests against financial institutions.
In the end, banking pay, like just about anything, needs permission from society. Banks can’t operate unless millions of ordinary people are willing to put money into them, and use them to shift funds around. It may be that only direct action from ordinary people can finally bring the banking industry back under control.
There is little question that financial sector pay has got out of hand. The sector routinely pays its staff rewards that are far and above what other people earn, and which bear little realistic relation either to the success of the banks they work for, or to the contribution they make to the economy.
Just take a look at the latest revelations about pay at The Royal Bank of Scotland. Last month, the bank revealed that it paid out around £1 billion in bonuses. More than a hundred of its staff were paid more than £1 million. And this is despite the fact that RBS went spectacularly bust, is still majority-owned by the tax-payer, and is still losing money. It is far from alone. HSBC revealed that it paid 253 of its staff more than £1 million last year, 89 of them in London. Right across the board, bonuses have bounced straight back to 2007 and 2008 levels.
There is nothing wrong, of course, with people earning lots of money. If they are working hard and creating wealth they deserve it. But all the evidence suggests that the banking industry has become a cartel that operates against the public interest. The banks are too big, they take on too much risk, they require too much in the way of hidden subsidies from the taxpayer, and they pay themselves too generously. According to research by Harry Huizinga, an economics professor at the University of Tilburg in the Netherlands, twelve banks have liabilities of more than $1 trillion, and thirty banks have a ratio of liabilities to GDP in excess of 0.5, meaning in effect that if they go bust they may well bring down the country with them. Furthermore, the same banks pay consistently lower returns to shareholders than banks that are smaller, and less systematically important. In short, the mega banks aren’t very useful to anyone, except for their lavishly paid staff. We’d be better off without them.
But how do we bring them under control? There have been plenty of regulatory initiatives but none of them seem to get anywhere. Governments don’t appear very effective – they are too easily brow-beaten by the argument that the banks are vital for the economy.
But maybe people power can make a difference.
In Holland, ING last week agreed to scrap a bonus scheme that would have paid its chief executive Jan Hommen 1.25 million euros. ING was bailed-out by the Dutch government in 2008, and although it has since re-paid five billion euros of the money it received, there is still another five billion euros to pay back. The sober-minded Dutch objected to the sight of bankers who still owed the government billions paying themselves vast rewards. A Twitter-led campaign mobilised public opinion against the bank. People were threatening mass withdrawals from their accounts, creating the potential for a run on the bank. Although by last week only a few hundred people had taken their money out, it was enough to rattle ING. By the end of last week, it had decided to withdraw its bonus scheme, replacing it with something far more modest.
The footballer Eric Cantona tried something similar in France. At the end of last year, he launched the ‘Bankrun 2010’ campaign. The campaign threatened a mass withdrawal of money from the banks. Tens of thousands of people signed up for the Facebook campaign, in France, Britain, the US and elsewhere. The French banking unions warned of an economic catastrophe if it happened. In the end, the event was a bit of a damp squib. Some accounts were closed. But no banks went out of business. And probably those accounts that were closed were opened up somewhere else a few days later.
Still, there are signs that things are stirring.
There is no question that ordinary people feel deeply uneasy about the way that the financial sector rewards itself. They don’t buy into the argument that the banks are engaged in a fierce war for talent that means they have to pay everyone huge salaries. And they suspect, almost certainly correctly, that the way the banks reward themselves makes the system more risky, not less – and that they may have to end up paying for it.
Most of all, they feel powerless to do very much about it. But that, of course, isn’t really true. A bank such as RBS depends on its millions of retail depositors. Without them, it would be sunk. A pure investment bank depends less on ordinary customers, but there are not many of those left – and, in truth, the retail banks are the original source of the money the investment bankers play with.
The Cantona campaign didn’t work. But the ING protest was far more successful. And if the idea of depositors mobilising against banks take off, it could pose the most potent threat yet to the system. After all, for any bank there is nothing scarier than a run. Regulation won’t curb bonuses. It is unlikely that politicians or central bankers will manage to either. But people power might just do the trick.
Sunday, 20 February 2011
The End Of Swis Banking
In my Money Week column this week I've been looking at the possible demise of Switzerland's formidable banking industry. Here's a taster.
There are a few things we think we know for sure about Switzerland. It makes nice chocolate and reliable watches. It’s sort of pricy, and a little on the dull side. And it has the most formidable banking industry in the world.
For a hundred years or more, Switzerland and banking have been just about synonymous. Countless thrillers feature a scene where a shady deal gets done at some discreet Zurich or Geneva office where the secrecy of the transaction can be considered absolute. If London has a serious rival within Europe as a banking and finance centre, it is Switzerland rather than Frankfurt or Paris.
But now the country’s finance sector is looking challenged in a way that it hasn’t been for a generation or more. The country’s two giant banks, Credit Suisse and UBS, are struggling to recover from the credit crunch. Smaller banks such as Julius Baer are fighting to maintain client confidentiality as data gets passed onto WikiLeaks. Those may just be blips. Every industry goes through ups and down. But they may also be signals of long-term decline.
In reality, the success of the Swiss finance sector was based on secrecy and access to lots of cheap capital. Both appear to be gone forever. And that may well mean that Switzerland’s competitive advantage is at an end.
Whilst most of the global banking industry is roaring back from the credit crunch in fine fettle, and paying itself bigger bonuses than ever, the big Swiss banks seem to be stuck in the doldrums.
Credit Suisse came through the credit crunch better than most investment banks. It didn’t need a rescue. But it doesn’t appear to have recovered much of its old panache as the global economy grows stronger. It results earlier this month disappointed the market. It cut its 2010 dividend 35% last week and lowered its target for return on equity in the next three to five years to around 15% from more than 18%. It seems to have accepted that it will be permanently less profitable.
UBS doesn’t look any happier. The bank only just scraped its way through the credit crunch. Its fourth-quarter pre-tax profit from investment banking slumped
75% t to 75 million Swiss francs. The bonus pool was cut by 10% to reflect disappointing figures. Its chief executive officer Oswald Gruebel admitted that the results were “clearly not yet satisfactory.”
Meanwhile Julius Baer, one of the oldest names in Swiss banking, has been hit by an embarrassing scandal. A disaffected former staffer has threatened to publish the names of thousands of its clients on WikiLeaks. The whistle-blower has been arrested for breaking Switzerland’s bank secrecy laws, and it remains to be seen whether the data is ever released. Even so, it is not the kind of thing that will make the well-heeled clients of Swiss banks feel very confident.
Of course, every industry goes through bad spell. The problem for the Swiss banking sector is that it faces two huge challenges that may make it less competitive on a permanent basis.
The first is that secrecy is dead.
The European Union has been chipping away at Switzerland’s tradition of confidential, numbered bank accounts for years. Neighbouring countries suspected they were losing billions in taxes on money salted away in Swiss accounts, and they were probably right. German businessmen used to drive over the border at weekends with the boot of their BMW full of deutschemarks to deposit in the country. The Swiss have been forced to end all of that.
Now the internet is finishing the job. In an era of hyper-transparency it is impossible for the Swiss banks to maintain the old traditions of client confidentiality. They may succeed in locking up the latest whistle-blower. But it is simply too easily for a disgruntled employee to post thousands of account details on a website like WikiLeaks. If the US government can’t stop sensitive military data being published on the web, a few Swiss banks can’t hope to.
The trouble is, secrecy is often what people were buying. The banks might blather on about how they offered excellent service, and in-depth, personalised investment advice. But usually what the customers wanted was to keep their money hidden from the taxman, their wives, or their business partners. Secrecy was the main reason people went to Switzerland, and if its banks can’t keep their accounts under wraps you might as well go somewhere else.
Secondly, the giant Swiss banks, like the British ones, have grown too big for their home country. The Swiss central bank knows that both UBS and Credit Suisse have assets worth many times the country’s GDP. If both banks ran into trouble the way that Royal Bank of Scotland did in this country, it would quite literally bankrupt the country. In response, they have introduced the toughest capital rules in the world. The Swiss banks will have to maintain capital ratios at double the levels agreed under the Basel rules. In effect, that means the money the banks use as their raw material will be twice as expensive as it will be for British, American or German banks. In a competitive market, that is a huge handicap.
Swiss banking was a great model. Lots of people deposited tons of money in the country. They didn’t much care about how much interest was paid on it, or what the investment advice was like because what they really minded about was discretion. The banks could use all that cash as essentially free capital, which would bulk up their balance sheets, and allow them to go out and finance deals around the world. It was a fantastic way to make a lot of money.
Now it seems the model is broken. The accounts aren’t secret, and the capital isn’t cheap. Unlikely though it seems, in twenty or thirty years we might not associate Switzerland with the banking industry anymore. Still, there’s always the chocolate and the watch industry.
There are a few things we think we know for sure about Switzerland. It makes nice chocolate and reliable watches. It’s sort of pricy, and a little on the dull side. And it has the most formidable banking industry in the world.
For a hundred years or more, Switzerland and banking have been just about synonymous. Countless thrillers feature a scene where a shady deal gets done at some discreet Zurich or Geneva office where the secrecy of the transaction can be considered absolute. If London has a serious rival within Europe as a banking and finance centre, it is Switzerland rather than Frankfurt or Paris.
But now the country’s finance sector is looking challenged in a way that it hasn’t been for a generation or more. The country’s two giant banks, Credit Suisse and UBS, are struggling to recover from the credit crunch. Smaller banks such as Julius Baer are fighting to maintain client confidentiality as data gets passed onto WikiLeaks. Those may just be blips. Every industry goes through ups and down. But they may also be signals of long-term decline.
In reality, the success of the Swiss finance sector was based on secrecy and access to lots of cheap capital. Both appear to be gone forever. And that may well mean that Switzerland’s competitive advantage is at an end.
Whilst most of the global banking industry is roaring back from the credit crunch in fine fettle, and paying itself bigger bonuses than ever, the big Swiss banks seem to be stuck in the doldrums.
Credit Suisse came through the credit crunch better than most investment banks. It didn’t need a rescue. But it doesn’t appear to have recovered much of its old panache as the global economy grows stronger. It results earlier this month disappointed the market. It cut its 2010 dividend 35% last week and lowered its target for return on equity in the next three to five years to around 15% from more than 18%. It seems to have accepted that it will be permanently less profitable.
UBS doesn’t look any happier. The bank only just scraped its way through the credit crunch. Its fourth-quarter pre-tax profit from investment banking slumped
75% t to 75 million Swiss francs. The bonus pool was cut by 10% to reflect disappointing figures. Its chief executive officer Oswald Gruebel admitted that the results were “clearly not yet satisfactory.”
Meanwhile Julius Baer, one of the oldest names in Swiss banking, has been hit by an embarrassing scandal. A disaffected former staffer has threatened to publish the names of thousands of its clients on WikiLeaks. The whistle-blower has been arrested for breaking Switzerland’s bank secrecy laws, and it remains to be seen whether the data is ever released. Even so, it is not the kind of thing that will make the well-heeled clients of Swiss banks feel very confident.
Of course, every industry goes through bad spell. The problem for the Swiss banking sector is that it faces two huge challenges that may make it less competitive on a permanent basis.
The first is that secrecy is dead.
The European Union has been chipping away at Switzerland’s tradition of confidential, numbered bank accounts for years. Neighbouring countries suspected they were losing billions in taxes on money salted away in Swiss accounts, and they were probably right. German businessmen used to drive over the border at weekends with the boot of their BMW full of deutschemarks to deposit in the country. The Swiss have been forced to end all of that.
Now the internet is finishing the job. In an era of hyper-transparency it is impossible for the Swiss banks to maintain the old traditions of client confidentiality. They may succeed in locking up the latest whistle-blower. But it is simply too easily for a disgruntled employee to post thousands of account details on a website like WikiLeaks. If the US government can’t stop sensitive military data being published on the web, a few Swiss banks can’t hope to.
The trouble is, secrecy is often what people were buying. The banks might blather on about how they offered excellent service, and in-depth, personalised investment advice. But usually what the customers wanted was to keep their money hidden from the taxman, their wives, or their business partners. Secrecy was the main reason people went to Switzerland, and if its banks can’t keep their accounts under wraps you might as well go somewhere else.
Secondly, the giant Swiss banks, like the British ones, have grown too big for their home country. The Swiss central bank knows that both UBS and Credit Suisse have assets worth many times the country’s GDP. If both banks ran into trouble the way that Royal Bank of Scotland did in this country, it would quite literally bankrupt the country. In response, they have introduced the toughest capital rules in the world. The Swiss banks will have to maintain capital ratios at double the levels agreed under the Basel rules. In effect, that means the money the banks use as their raw material will be twice as expensive as it will be for British, American or German banks. In a competitive market, that is a huge handicap.
Swiss banking was a great model. Lots of people deposited tons of money in the country. They didn’t much care about how much interest was paid on it, or what the investment advice was like because what they really minded about was discretion. The banks could use all that cash as essentially free capital, which would bulk up their balance sheets, and allow them to go out and finance deals around the world. It was a fantastic way to make a lot of money.
Now it seems the model is broken. The accounts aren’t secret, and the capital isn’t cheap. Unlikely though it seems, in twenty or thirty years we might not associate Switzerland with the banking industry anymore. Still, there’s always the chocolate and the watch industry.
Tuesday, 26 January 2010
Obama's Banking Reforms...
In my Money Week column this week, I'm arguing that Obama's banking reforms will just tee-up the next crisis. Here's a taster.
Where will the next financial crisis come from?
As the global economy steadily, if slowly, recovers from the credit crunch, plenty of attention is quite rightly being paid to the next shock. Such is the fragility of the financial system, there isn’t any shortage of candidates. Perhaps it will be a sovereign debt crisis, led by countries on the brink of default such as Greece. Maybe an implosion of the Chinese economy, which is increasingly the sole engine of world trade. Or it could well come from central banks withdrawing the stimulus the have been pumping into the system, so provoking a fresh round of bank collapses.
In reality, however, the answer is probably none of the above.
The seeds of the next crisis are being sown in the political and regulatory response to the current one. The new taxes being levied on bankers and their bonuses in the UK, the US, and elsewhere, are going to drive the financial system offshore and push debts off the balance sheet. Risk won’t be abolished, it will simply be driven underground. At some point it will blow up – creating a fresh round of trauma for the world economy.
This month, President Obama has put forward a tough new tax on the banking system. The Financial Crisis Responsibility Levy is craftily constructed, imposing a 0.15% levy on the total liabilities of the 50 largest financial institutions in America. It is estimated that the tax will raise around $9 billion a year, and, over ten years, will re-coup the bulk of the money the government had to spend bailing-out Wall Street during the crisis.
In the UK, the Government has imposed its one-off tax on bankers bonuses, designed to confiscate the bulk of the money London’s bankers might have earned during 2009. Other taxes are being discussed. Lord Myners, the City minister, has said that Britain may well impose a levy on its financial system similar to the American one. Angela Merkel, the German Chancellor, praised the tax, but said she preferred an ‘international levy’ on financial transaction. The chances are that other countries will follow the UK and US leads.
It is impossible not to sympathise with the thinking behind the new taxes. The banks have been bailed out with massive taxpayer support, and have shown few signs of contrition. They appear intent on going straight back to their bad old ways. At the very least the taxes may assuage public anger, and build up funds to deal with the next crisis.
And, in fairness, there are ways the taxes will help. The US levy will discourage what might be called the ‘Fred Goodwin syndrome’ – massively increasing the size of your balance sheet by ramping up leverage and offering more and more credit to everyone who walks through the door. The more liabilities you take on, the more tax you pay. On top of that, it will favour small banks, who will be exempt, over bigger ones. Insofar as it encourages smaller, less risky banks, that will be a good thing.
In the UK, everyone acknowledges that the bonus culture played a role in creating the crash, so it makes sense to impose taxes on what bankers get paid: it won’t fix the problem by itself, but if it brings some sanity back to bankers wages, it will help.
The trouble is, there are big risks as well.
Both taxes may well drive more and more business both offshore and off-balance sheet.
Take a look at the way they work.
Obama’s levy sets up a very clear incentive to use off-balance sheet vehicles. If you can roll-up your liabilities into a new company, and park it somewhere else, so that they don’t appear on the balance sheet, you can avoid the tax. We have to assume that if you give bankers a big incentive to indulge in some fancy financial engineering, they’ll jump at the chance. The result? Liabilities that used to be on the bank’s balance sheet, where everyone could at least see them, will suddenly disappear behind a brass plaque somewhere in the Cayman Islands.
Likewise the bonus tax. There is already plenty of evidence that banks are reviewing whether they should base themselves in London: JP Morgan has already hinted that it may re-think its decision to build a new European headquarters in Canary Wharf because of the tax. Individuals will go to work in hedge funds based in Zug or Malta instead of working for a London-based investment bank. The result: trading and investment will move away from the UK, where it could be regulated, to offshore centres, where it will be largely invisible.
That is hardly an improvement.
In the wake of the credit crunch, it was clear that one of the main problems was the way banks had hidden their loans. It wasn’t that the losses on sub-prime mortgages were that terrible: by historical standards, they were relatively containable within the financial system. It was that they were rolled up into products of such bewildering complexity that nobody could figure who owed what to whom, or how much money might have been lost. As a result, the circuits of the financial system blew out, creating a crash far worse than the losses themselves really justified.
The risk now is of repeating precisely that mistake. Instead of demanding that the financial system becomes more open, and more easily regulated, the new taxes are creating a massive incentive to make it even more secretive, and even harder to monitor or control. It is very hard to imagine the results of that will be pretty.
Roll forward a few years. Imagine there are some nasty losses to deal with. Greece, for example, has defaulted on its debts. It is a bad but manageable crisis, with banks facing heavy but far from crippling losses. Except for one thing. The liabilities have all been hidden offshore. No one knows which bank is taking the hit, or for how much. Meanwhile, half the losses have been traded away to hedge funds. But who they’ve sold them on to, and whether they can survive, no one really knows, because they haven’t the foggiest who owes what or where.
A small problem ramps up quickly into a real crisis. And all because of the taxes introduced to cope with the fall-out from the last crisis. The measures may well be well-intentioned – but they are just sowing the seeds of another crisis.
Where will the next financial crisis come from?
As the global economy steadily, if slowly, recovers from the credit crunch, plenty of attention is quite rightly being paid to the next shock. Such is the fragility of the financial system, there isn’t any shortage of candidates. Perhaps it will be a sovereign debt crisis, led by countries on the brink of default such as Greece. Maybe an implosion of the Chinese economy, which is increasingly the sole engine of world trade. Or it could well come from central banks withdrawing the stimulus the have been pumping into the system, so provoking a fresh round of bank collapses.
In reality, however, the answer is probably none of the above.
The seeds of the next crisis are being sown in the political and regulatory response to the current one. The new taxes being levied on bankers and their bonuses in the UK, the US, and elsewhere, are going to drive the financial system offshore and push debts off the balance sheet. Risk won’t be abolished, it will simply be driven underground. At some point it will blow up – creating a fresh round of trauma for the world economy.
This month, President Obama has put forward a tough new tax on the banking system. The Financial Crisis Responsibility Levy is craftily constructed, imposing a 0.15% levy on the total liabilities of the 50 largest financial institutions in America. It is estimated that the tax will raise around $9 billion a year, and, over ten years, will re-coup the bulk of the money the government had to spend bailing-out Wall Street during the crisis.
In the UK, the Government has imposed its one-off tax on bankers bonuses, designed to confiscate the bulk of the money London’s bankers might have earned during 2009. Other taxes are being discussed. Lord Myners, the City minister, has said that Britain may well impose a levy on its financial system similar to the American one. Angela Merkel, the German Chancellor, praised the tax, but said she preferred an ‘international levy’ on financial transaction. The chances are that other countries will follow the UK and US leads.
It is impossible not to sympathise with the thinking behind the new taxes. The banks have been bailed out with massive taxpayer support, and have shown few signs of contrition. They appear intent on going straight back to their bad old ways. At the very least the taxes may assuage public anger, and build up funds to deal with the next crisis.
And, in fairness, there are ways the taxes will help. The US levy will discourage what might be called the ‘Fred Goodwin syndrome’ – massively increasing the size of your balance sheet by ramping up leverage and offering more and more credit to everyone who walks through the door. The more liabilities you take on, the more tax you pay. On top of that, it will favour small banks, who will be exempt, over bigger ones. Insofar as it encourages smaller, less risky banks, that will be a good thing.
In the UK, everyone acknowledges that the bonus culture played a role in creating the crash, so it makes sense to impose taxes on what bankers get paid: it won’t fix the problem by itself, but if it brings some sanity back to bankers wages, it will help.
The trouble is, there are big risks as well.
Both taxes may well drive more and more business both offshore and off-balance sheet.
Take a look at the way they work.
Obama’s levy sets up a very clear incentive to use off-balance sheet vehicles. If you can roll-up your liabilities into a new company, and park it somewhere else, so that they don’t appear on the balance sheet, you can avoid the tax. We have to assume that if you give bankers a big incentive to indulge in some fancy financial engineering, they’ll jump at the chance. The result? Liabilities that used to be on the bank’s balance sheet, where everyone could at least see them, will suddenly disappear behind a brass plaque somewhere in the Cayman Islands.
Likewise the bonus tax. There is already plenty of evidence that banks are reviewing whether they should base themselves in London: JP Morgan has already hinted that it may re-think its decision to build a new European headquarters in Canary Wharf because of the tax. Individuals will go to work in hedge funds based in Zug or Malta instead of working for a London-based investment bank. The result: trading and investment will move away from the UK, where it could be regulated, to offshore centres, where it will be largely invisible.
That is hardly an improvement.
In the wake of the credit crunch, it was clear that one of the main problems was the way banks had hidden their loans. It wasn’t that the losses on sub-prime mortgages were that terrible: by historical standards, they were relatively containable within the financial system. It was that they were rolled up into products of such bewildering complexity that nobody could figure who owed what to whom, or how much money might have been lost. As a result, the circuits of the financial system blew out, creating a crash far worse than the losses themselves really justified.
The risk now is of repeating precisely that mistake. Instead of demanding that the financial system becomes more open, and more easily regulated, the new taxes are creating a massive incentive to make it even more secretive, and even harder to monitor or control. It is very hard to imagine the results of that will be pretty.
Roll forward a few years. Imagine there are some nasty losses to deal with. Greece, for example, has defaulted on its debts. It is a bad but manageable crisis, with banks facing heavy but far from crippling losses. Except for one thing. The liabilities have all been hidden offshore. No one knows which bank is taking the hit, or for how much. Meanwhile, half the losses have been traded away to hedge funds. But who they’ve sold them on to, and whether they can survive, no one really knows, because they haven’t the foggiest who owes what or where.
A small problem ramps up quickly into a real crisis. And all because of the taxes introduced to cope with the fall-out from the last crisis. The measures may well be well-intentioned – but they are just sowing the seeds of another crisis.
Monday, 21 September 2009
The Banking Rally
In my Money Week column I've been looking at how odd it is to have a rally led by banking stocks. Here's a taster....
What’s the best company in Britain right now?
You could make a case for Tesco, the sleek juggernaut of the retailing sector, now pushing aggressively into financial services. You could make just as persuasive a case for BP, the oil giant holding its dividend steady despite falling oil prices, and making big new finds in the Gulf of Mexico. You could equally well make a case for any one of a dozen retailers, miners, drugs or telecoms giants.
But the market has a different answer: Lloyds Banking Group. The bombed out, debt-laden, strategically muddled combination of Lloyds TSB and the wilfully mis-managed train-crash that was HBOS is rated by the market anyway as the company to back.
Take a look at the performance charts for the stock market rally of the last six months. It has been led by bombed out banking stocks, such as Lloyds, and the equally debt-riddled Royal Bank of Scotland. Much the same is true in the US: the S&P has been driven up by such paragons of financial reliability as Freddie May and Freddie Mac, as well as banks such as Goldman Sachs, which, whilst they may be minting money right now, were on the brink of insolvency only a year ago.
Nothing could better illustrate just how flimsy the rally in global stocks is right now. It has been sold as a rational response to the gradual recovery in the global economy over the pasty six months. But there is, in truth, nothing rational about the way that financial stocks have led the rally. Most of those banks are impossible to put any sensible valuation on right now. And the fact they are leading the upswing perfectly illustrates how the markets have lost touch with reality in the last few weeks.
Nowhere is that clearer than in the companies that have been leading the FTSE-100 index back up to the 5,000 mark.
Take Lloyds for example. Its shares have recovered from slightly less than 25p earlier this year, to more than £1 now, quadrupling in value. Likewise, RBS went all the way down to 10p a share, but is now back above 50p. That matters for the index – the banking sector, even in its much reduced state, still accounts for 16% of the FTSE. The rally has, to a large extent, been about the recovery of the banking stocks.
Much the same is true in the US. The two wholesale mortgage lenders, Freddie Mac and Fannie Mae, probably the two companies most exposed to the whole sub-prime debacle, saw their shares triple in value in the last month. The shares of the big Wall Street players, such as Goldman Sachs, have done just as well. Goldman is up from less than $60 at the start of the year to more than $170 now. Morgan Stanley has recovered from less than $8 to almost $30. Just as in Britain, the rally is largely about the recovery in the value of financial stocks.
And yet, how can we rationally come up with any meaningful valuation of companies that are, in effect, wards of the state?
Let’s focus on the two big British banks. The future of Lloyds and RBS is so cloudy that it is very hard to take any rational view of what the future might now hold for them.
What, for example, will the government do with its stakes?
Will the state-owned shares eventually be sold to the public, in a re-run of the mass-marketed privatisations that marked the last Conservative government? Will the state hold onto its shares indefinitely, gradually turning the banks into utilities, or instruments of social engineering? Will more radical options, such as turning the banks back into mutually-owned societies, be considered?
Right now, no one really has the foggiest idea. Nor will it become clear for quite some time yet. There is the small mater of a general election to be dealt with first.
No one really knows what kind of losses might still be racked up either. The credit-rating agency Moody’s reported this week that the UK banks were only half-way through reporting the losses they were likely to suffer as a result of the recession. They’ve already chewed up £110 billion in losses. But another £130 billion is still to come, it reckons, as the downturn ravages the value of commercial property, to which both Lloyds and RBS are heavily exposed.
Nor does anyone really know what kind of regulatory structure may emerge. It isn’t clear whether the European Union’s competition rules will allow Lloyds to control more than 30% of the British banking market long-term (hopefully it won’t). Or whether rules preventing unfair state-aid will be applied to RBS? Exactly the same doubts surround the American and European banks that have been soaring in value over the past six months.
In reality, the value of these companies is a complete mystery to everyone, including the people in charge of them. It is certainly a mystery to investors.
True, there is a big element of bounce-back. The banks aren’t closing down, and the global economy has averted a re-run of the great depression. The fears of earlier this year have turned out to be exaggerated. That accounts for some of the recovery.
But markets are meant to be forward-looking. And while the future is always to some degree unknowable, most companies can at least have a rough idea what their sales and profits might be in two or three years’ times. The banks have none at all.
In truth, many of the prices being set in this rally are quite literally a shot in the dark -- and one probably made by a blind man aiming at a black cat. And that isn’t much of a basis for continuing strength. The rally may well continue. But so flimsy are its foundations that there is little reason to assume it will.
What’s the best company in Britain right now?
You could make a case for Tesco, the sleek juggernaut of the retailing sector, now pushing aggressively into financial services. You could make just as persuasive a case for BP, the oil giant holding its dividend steady despite falling oil prices, and making big new finds in the Gulf of Mexico. You could equally well make a case for any one of a dozen retailers, miners, drugs or telecoms giants.
But the market has a different answer: Lloyds Banking Group. The bombed out, debt-laden, strategically muddled combination of Lloyds TSB and the wilfully mis-managed train-crash that was HBOS is rated by the market anyway as the company to back.
Take a look at the performance charts for the stock market rally of the last six months. It has been led by bombed out banking stocks, such as Lloyds, and the equally debt-riddled Royal Bank of Scotland. Much the same is true in the US: the S&P has been driven up by such paragons of financial reliability as Freddie May and Freddie Mac, as well as banks such as Goldman Sachs, which, whilst they may be minting money right now, were on the brink of insolvency only a year ago.
Nothing could better illustrate just how flimsy the rally in global stocks is right now. It has been sold as a rational response to the gradual recovery in the global economy over the pasty six months. But there is, in truth, nothing rational about the way that financial stocks have led the rally. Most of those banks are impossible to put any sensible valuation on right now. And the fact they are leading the upswing perfectly illustrates how the markets have lost touch with reality in the last few weeks.
Nowhere is that clearer than in the companies that have been leading the FTSE-100 index back up to the 5,000 mark.
Take Lloyds for example. Its shares have recovered from slightly less than 25p earlier this year, to more than £1 now, quadrupling in value. Likewise, RBS went all the way down to 10p a share, but is now back above 50p. That matters for the index – the banking sector, even in its much reduced state, still accounts for 16% of the FTSE. The rally has, to a large extent, been about the recovery of the banking stocks.
Much the same is true in the US. The two wholesale mortgage lenders, Freddie Mac and Fannie Mae, probably the two companies most exposed to the whole sub-prime debacle, saw their shares triple in value in the last month. The shares of the big Wall Street players, such as Goldman Sachs, have done just as well. Goldman is up from less than $60 at the start of the year to more than $170 now. Morgan Stanley has recovered from less than $8 to almost $30. Just as in Britain, the rally is largely about the recovery in the value of financial stocks.
And yet, how can we rationally come up with any meaningful valuation of companies that are, in effect, wards of the state?
Let’s focus on the two big British banks. The future of Lloyds and RBS is so cloudy that it is very hard to take any rational view of what the future might now hold for them.
What, for example, will the government do with its stakes?
Will the state-owned shares eventually be sold to the public, in a re-run of the mass-marketed privatisations that marked the last Conservative government? Will the state hold onto its shares indefinitely, gradually turning the banks into utilities, or instruments of social engineering? Will more radical options, such as turning the banks back into mutually-owned societies, be considered?
Right now, no one really has the foggiest idea. Nor will it become clear for quite some time yet. There is the small mater of a general election to be dealt with first.
No one really knows what kind of losses might still be racked up either. The credit-rating agency Moody’s reported this week that the UK banks were only half-way through reporting the losses they were likely to suffer as a result of the recession. They’ve already chewed up £110 billion in losses. But another £130 billion is still to come, it reckons, as the downturn ravages the value of commercial property, to which both Lloyds and RBS are heavily exposed.
Nor does anyone really know what kind of regulatory structure may emerge. It isn’t clear whether the European Union’s competition rules will allow Lloyds to control more than 30% of the British banking market long-term (hopefully it won’t). Or whether rules preventing unfair state-aid will be applied to RBS? Exactly the same doubts surround the American and European banks that have been soaring in value over the past six months.
In reality, the value of these companies is a complete mystery to everyone, including the people in charge of them. It is certainly a mystery to investors.
True, there is a big element of bounce-back. The banks aren’t closing down, and the global economy has averted a re-run of the great depression. The fears of earlier this year have turned out to be exaggerated. That accounts for some of the recovery.
But markets are meant to be forward-looking. And while the future is always to some degree unknowable, most companies can at least have a rough idea what their sales and profits might be in two or three years’ times. The banks have none at all.
In truth, many of the prices being set in this rally are quite literally a shot in the dark -- and one probably made by a blind man aiming at a black cat. And that isn’t much of a basis for continuing strength. The rally may well continue. But so flimsy are its foundations that there is little reason to assume it will.
Saturday, 22 August 2009
How To Fix The Bonus Culture
The bonus culture is back, with the bank awarding mega-bucks to their staff again. That seems crazy. But how can you fix it without legislating for top pay. In my Money Week column this week I explain how. Here's a taster.
Any reasonable person listening to the increasingly furious debate over City bonuses probably finds themselves in the odd position of agreeing with both sides of the question, even though they are miles apart.
It is bonkers that only a year after the financial system virtually collapsed, and with many banks still effectively on life support, that big bonuses are back, say the critics. And most of us nod and say, yup, sounds crazy.
Against that, plenty of voices from the City pop up to say that you can’t legislate for pay. That isn’t so much a slippery slope as a one way ticket back to the Soviet Union. And again, most of us will nod and say, yup, that does sound like a bad idea.
We end up agreeing with two contradictory arguments. But actually, there is a way out of this dilemma.
True, it doesn’t make any sense to legislate for pay. But it does make sense to legislate for the structure of financial firms. Indeed, we have done for decades. And if we got the structure right, we could start bringing bonuses back under control again.
It isn’t hard to see why the debate on bonuses has become so heated.
A year ago, following the collapse of Lehman Brothers, the financial system went into meltdown. Banks started collapsing all over the world. Billions had to be poured into the system to keep them afloat. And yet the people who had created the mess had been being paying themselves vast bonuses over many years, usually on top of salaries that were already extravagant by comparison with most other careers. Even worse, it seemed to many people even within the financial system that bonuses – particularly the ‘heads-I-win-tails-you-lose’ bonuses that were rampant in the City – had played a big part in encouraging the excessive risk-taking that had created the collapse in the first place.
Now, less than a year later the bonus culture is back in full swing again. For the left, that is an opportunity to attack high pay in general. The centre-left Compass Group has just launched a campaign for a High Pay Commission that would regulate wages at the very top of the ladder in much the same way that the Low Pay Commission regulates pay at the bottom. Both the Chancellor Alistair Darling and the business secretary Lord Mandelson have said they might legislate to curb bonuses.
But it is not just restricted to the left. The shadow Chancellor George Osborne has said it is wrong that banks with any state support should be paying out huge bonuses. Nor is the argument restricted to this country. Proposals to cap bonuses have been put forward in France, Germany, and even in the United States.
In truth, this isn’t a right/left, free market/regulation argument. The banking sector has just effectively exempted itself from the free market. Plenty of banks are still being effectively proped up by the governments, either through direct shareholdings, or else through schemes to insure toxic assets. Even when the support isn’t explicit, it is still implicit. After all, how many of us would be willing to put our money into a bank any more if it weren’t for the fact the state ultimately guaranteed the deposit? Probably none of us.
Bonuses are, in reality, the one bubble that didn’t burst. No one can explain why they are so huge, nor can they provide any convincing economic rationale for them – there are as much as bubble as dot com stocks in 2000 or house prices in 2007.
So how should we bring them back under control again?
In fact, the answer is very easy.
It doesn’t make any sense to legislate for pay. There is no way any regulator can know what the right level of remuneration might be. You will drive firms offshore. And, for those firms that remain, innovation and competition will be stifled. Salaries are a price, and we know from a hundred years of experience that any form of price control ends up doing more harm than good.
But we can legislate for the structure of the firms that operate in the financial markets. That has always been the case – and if we have the wrong structure then it makes sense to change it.
The problem with bonuses are the way they encourage bankers to take big risks with other people’s money. If you were given a stack of free chips, told to go to a casino, and told you could keep any money you won in the next hour, whilst not having to bear any of the losses, you’d make some pretty wild bets as well. That, in effect, is what the bonus system does.
Two things need to be done to stop that.
First, there needs to be a division between investment banking and retail banking, as there used to be on Wall Street, and in the pre-Big Bang City of London. It is the retail banks that can’t be allowed to fail, since the consequences for the rest of the economy are too severe. It is the investment banks that take the big risky bets and pay the big bonuses. The two should be split up again.
Next, the investment banks should be turned back into partnerships, or, at the very least, companies that were majority owned by their staff. Just take a look at the hedge funds and the private equity houses. Despite all the warnings of instability, they didn’t blow up in the crisis. That is because they operate much more as partnerships. The staff have their own money tied up in the firm, and their long-term wealth is bound up with its future.
Instead of taking short-term bets with other people’s money, they are taking long-term bets with their own. That instantly creates a very different attitude – and a far healthier balance between risk and reward.
What you would end up with, of course, is a City that looked a lot more like the one that existed before the reforms of the mid-1980s. But maybe that would be such a bad thing.
Any reasonable person listening to the increasingly furious debate over City bonuses probably finds themselves in the odd position of agreeing with both sides of the question, even though they are miles apart.
It is bonkers that only a year after the financial system virtually collapsed, and with many banks still effectively on life support, that big bonuses are back, say the critics. And most of us nod and say, yup, sounds crazy.
Against that, plenty of voices from the City pop up to say that you can’t legislate for pay. That isn’t so much a slippery slope as a one way ticket back to the Soviet Union. And again, most of us will nod and say, yup, that does sound like a bad idea.
We end up agreeing with two contradictory arguments. But actually, there is a way out of this dilemma.
True, it doesn’t make any sense to legislate for pay. But it does make sense to legislate for the structure of financial firms. Indeed, we have done for decades. And if we got the structure right, we could start bringing bonuses back under control again.
It isn’t hard to see why the debate on bonuses has become so heated.
A year ago, following the collapse of Lehman Brothers, the financial system went into meltdown. Banks started collapsing all over the world. Billions had to be poured into the system to keep them afloat. And yet the people who had created the mess had been being paying themselves vast bonuses over many years, usually on top of salaries that were already extravagant by comparison with most other careers. Even worse, it seemed to many people even within the financial system that bonuses – particularly the ‘heads-I-win-tails-you-lose’ bonuses that were rampant in the City – had played a big part in encouraging the excessive risk-taking that had created the collapse in the first place.
Now, less than a year later the bonus culture is back in full swing again. For the left, that is an opportunity to attack high pay in general. The centre-left Compass Group has just launched a campaign for a High Pay Commission that would regulate wages at the very top of the ladder in much the same way that the Low Pay Commission regulates pay at the bottom. Both the Chancellor Alistair Darling and the business secretary Lord Mandelson have said they might legislate to curb bonuses.
But it is not just restricted to the left. The shadow Chancellor George Osborne has said it is wrong that banks with any state support should be paying out huge bonuses. Nor is the argument restricted to this country. Proposals to cap bonuses have been put forward in France, Germany, and even in the United States.
In truth, this isn’t a right/left, free market/regulation argument. The banking sector has just effectively exempted itself from the free market. Plenty of banks are still being effectively proped up by the governments, either through direct shareholdings, or else through schemes to insure toxic assets. Even when the support isn’t explicit, it is still implicit. After all, how many of us would be willing to put our money into a bank any more if it weren’t for the fact the state ultimately guaranteed the deposit? Probably none of us.
Bonuses are, in reality, the one bubble that didn’t burst. No one can explain why they are so huge, nor can they provide any convincing economic rationale for them – there are as much as bubble as dot com stocks in 2000 or house prices in 2007.
So how should we bring them back under control again?
In fact, the answer is very easy.
It doesn’t make any sense to legislate for pay. There is no way any regulator can know what the right level of remuneration might be. You will drive firms offshore. And, for those firms that remain, innovation and competition will be stifled. Salaries are a price, and we know from a hundred years of experience that any form of price control ends up doing more harm than good.
But we can legislate for the structure of the firms that operate in the financial markets. That has always been the case – and if we have the wrong structure then it makes sense to change it.
The problem with bonuses are the way they encourage bankers to take big risks with other people’s money. If you were given a stack of free chips, told to go to a casino, and told you could keep any money you won in the next hour, whilst not having to bear any of the losses, you’d make some pretty wild bets as well. That, in effect, is what the bonus system does.
Two things need to be done to stop that.
First, there needs to be a division between investment banking and retail banking, as there used to be on Wall Street, and in the pre-Big Bang City of London. It is the retail banks that can’t be allowed to fail, since the consequences for the rest of the economy are too severe. It is the investment banks that take the big risky bets and pay the big bonuses. The two should be split up again.
Next, the investment banks should be turned back into partnerships, or, at the very least, companies that were majority owned by their staff. Just take a look at the hedge funds and the private equity houses. Despite all the warnings of instability, they didn’t blow up in the crisis. That is because they operate much more as partnerships. The staff have their own money tied up in the firm, and their long-term wealth is bound up with its future.
Instead of taking short-term bets with other people’s money, they are taking long-term bets with their own. That instantly creates a very different attitude – and a far healthier balance between risk and reward.
What you would end up with, of course, is a City that looked a lot more like the one that existed before the reforms of the mid-1980s. But maybe that would be such a bad thing.
Friday, 13 March 2009
Bankers Aand Their Bonuses
On Bloomberg this week, I have been writing about banking bonuses. What strikes me as interesting is how reluctant people are in that world to recognise that the world has changed. I suspect there is going to be a long slow period of adjustment where they realise that in the rest of the world you don't get a huge bonus just for doing your job and that when your company is bust you are lucky to get paid at all.
Thursday, 12 February 2009
Banking Bonuses
I don't think the scale of the contraction in the banking industry has started to sink in yet. In my Bloomberg column this week, I was speculating that pay in financial services is likely to fall around 50% to get back to long-term sustainable levels. It could be further, however. A whole generation as grown up assuming that banking is the place to make money and that isn't going to be true for a long time.
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