After the coalition government's promise of “robust action” and the business secretary Vince Cable's tough talking, I thought there would finally be some action to curb the ridiculous levels of pay and bonus that banks pay their executives.
I suspect that most people find this practice obscene and unacceptable, especially as we are just about to start feeling the full force of the cuts and tax increases that the Chancellor George Osborne has had to make following the near crisis caused by Gordon Brown's lack of regulator control with the banks.
However, it seems that the government has just backed down from this idea and so therefore we are not "all in this together" after all, and the only thing the bankers are in is the clover! So why do we only see the newspaper easy headlines bashing the bankers and why don't shareholders or fund managers join in this debate?
Some might argue that it is necessary to pay these bonuses to keep the "high flyers" in the UK for their successful performance; but if we look at Barclays Bank LSE: BARC for example, who's new CEO, Bob Diamond spoke at the treasury select committee this week, their share price and market capitalisation is now lower than in was 5 years ago.
How can this be when they have many "high flyers" working for them? Is it because the banks, public companies responsible to their shareholders, have been paying huge bonuses which leave not enough retained profit at the year end to distribute to their shareholders. The “high flyers” are clearly not adding value to the bank, just lining their pockets and sucking out all the value of the business for themselves with these bonuses.
So who is running who? Are the banks being run to add value to the business for their shareholders or are the executives running the banks to simply pay for their bonuses. Surely the “high flying” executives can’t be doing their jobs properly if this what the most "talented" of them are doing. If they were on a performance related bonus, they clearly would be not be getting a bonus as the results they produce are so poor. I think their employment contracts need a serious review, especial for those banks where the tax payer virtually owners them, such as with Royal Bank of Scotland LSE: RBS and Lloyds Banking group LSE: LLOY
So how have other FTSE 100 companies performed in the same period? Take the five years share price BG group (BG.) Their share price has doubled in 5 years, without the UK tax payer forking out a penny to help them and this is the other point.
Banks are fundamentally a different kind of business to any other, as they underwritten by the British taxpayer and are not allowed to fail, so therefore they should be regulated very differently to other PLC’s.
They are also not doing the job they are supposed to be i.e. lending money. I am sure they would argue that they are lending to businesses, credit cards etc, but their loans are not being taken up because the rates they are quoting are not realistic. The bank base rate is the lowest it has been for many years, but they are charging rates of 9-12%. You really do not have to be that clever to borrow money at 0.5% and then lend it at these rates, with free insurance paid for by the UK tax payer, covering you just in case you can’t make money from this!
Could it even be argued that bankers are actually trying to destroy capitalism? Having helped caused the the credit crunch and the near collapse of the banking system they then go on to provide little return for the shareholders.
If BG group can return that kind of performance for it’s shareholders, it shows there are plenty of really “high flyers” out there and I bet they do not receive the kind of bonus the bankers do. Just a shame they do not work at a bank.
So who then has added the most value for shareholders and is doing the best job, and should receive the biggest bonuses? I'll let you work that one out!
With thanks to digitallook.com for the information.
This is the Blog of David Knight with updates on EnigmaSounds & also some hopefully amusing, informed comments with the occasional rant and rave about this crazy world we all live on. My old archived blog can still be found at - http/david2knight.wordpress.com