Say no to bank bonuses!

Should Britain's failed bankers be able to reward themselves with bonuses in the billions? M Institute's co-founder Jyoti Banerjee thinks that would be a travesty.

Let me say this as plainly as I can: Britain’s bailed-out bankers should not get a bonus. 

It must be a morally-corrosive atmosphere in Britain’s banks if their senior management are prepared to pay out bonuses in the billions of pounds a few short weeks after these banks have been bailed out by the public purse.  Their argument is two-fold – they need to reward those who did a good job, and they need to hang on to the talent needed to rebuild Britain’s banks.

Their PR message seems to be getting across to some quarters since even Chancellor Alastair Darling, arguably the closest thing we have to an owner of the near-nationalised banks, is parroting the same worn spiel. 

Both arguments are a nonsense. 

Let’s deal with the first one – that those who did a good job need to be rewarded. I don’t doubt that there are those in the banking system who did their job well, and who did so without risk to the entire financial system of the Western world. It is even possible, I grant you, that these people are in the majority in every institution. Equally, I have no doubt that there were those in Woolworth’s and Wedgwood and K&S Travel (the list goes on and on...) who did their jobs honourably and fully deserved their daily wage, and more.  Yet, those employees aren’t in line for any performance bonus right now. The only line they are likely standing in right now is the dole queue. 

If it were not for the intervention of the government, those banks preparing to pay out bonuses right now would be dead, and all their staff would be joining the dole queues as well. No bonuses, no salaries, no expense accounts. No nothing. 

The only difference between a Woolworth’s employee and an RBS employee is that the government stepped in to save the bank – otherwise neither qualifies to have a job right now. 

In 2001, a company that I was a director of went to the wall, and much of the blame for the company’s demise can be laid at my doorstep. What of all those employees of the company who did such a fine job for the company and for the company’s customers? Well, they lost their jobs as well, as the whole company paid for the strategic mistakes of its leadership. 

Right now, I cannot see how it is any different for the employees of RBS, Northern Rock and Lloyds. If they are even allowed to ponder such a move as rewarding themselves large bonuses, I would question the quality of governance that is in place, or the motives of the stand-in owner, the government. 

The second argument is that the talent in these banks will disappear, probably abroad, and will leave the British banking system in an even bigger mess. I love this argument because it smells of the kind of stink that IT companies have often disseminated when losing an argument: FUD, or fear, uncertainty and doubt.  

But look at this little shibboleth straight in the eyes. Are these bankers really going to go off and get highly paid jobs somewhere else? Really? Not in Obama-land, for one, where the government has sensibly laid down a compensation maximum of $500,000 annually for executives in bailed-out banks. And what about the legion of unemployed bankers from Bear Sterns and Lehman Brothers who will take any job right now, whether paying a bonus or not? And is it going to be so easy to sell yourself abroad if your CV shows you to be a failed British banker? 

Apart from disposing off the arguments from the banks, we should also be asking ourselves if this is how we saw the bail-out money being used. I don’t think so. The money was handed out to the banks to help them recapitalise. For RBS to propose handing over 5% of its recapitalisation to its employees as bonuses is reckless in the extreme. 

All this points to the fact that the government was not strict enough in laying out the conditions governing how the banks could use the bail-out money. 

Let me be clear on this: I am not against bonuses. By all means, hand out share options so that once the banks are back on their feet, the employees who do the rebuilding can benefit from their work. But don’t hand out cash – the one thing that is at a premium for British banks right now. 

While the banks fret about the size of bonus they can spirit away under the noses of the taxpayer, the real work of banking is left undone. Right now, owners of medium enterprises tell me that they cannot get the money their (legitimate) businesses need for financing cashflow, capital investments, or vehicle purchases. This is nothing new. In the past, banks failed medium enterprises because they always had better things to put their money into: buying property, or buying their own inflated shares – check out an earlier post from 18 months ago on this blog site for more details on what banks want to put their money into.  But in the present climate, this lack of financing is a travesty, an absolute shame.

If I were a banker right now, I would have been thinking that my goose was truly cooked. And then along comes the opportunity for just one more heist – billions of pounds of bonuses. And the only loser would be the whole of the British public. And the government will be able to guarantee the whole lot even if my bank subsequently goes down.  What an opportunity! 

Brown and Darling – this is happening during your watch. We are all waiting to see you act as responsible leaders, prepared to stand up to these pin-striped conmen.

Comments

[Tom Macpherson]

I am outraged and disgusted that these leeches, having been given a lifesaving handout of our money, are prepared to continue to line their already grubby pockets with our cash.

Bank staff still have a salary, unlike the 000's who are now out of work as a result of their avarice and incompetence. The directors and executives should be fired and prosecuted for theft, not receive bonuses. Talk about blood money.

[Marianne Duncan]

I an outraged that these bankers have the bare face to expect bonuses for themselves from the money received from mostly hard-pressed tax payers to bail them out. But say that they are unable to lend funds to small businesses. What sort of strings did our Government attach to these loans?
M Duncan

[Paul Druckman]

Whilst I am in agreement with the posting and have empathy with the comments there is the argument that if one nation takes a stand then it will lose out on global financial services market competitiveness. Of course this is a reason for perservering with the upward cycle of greed but we should understand the cons!