Few people would have taken a greater sense of schadenfreude out of watching four top bankers squirm in front of today’s Treasury select committee than me.
I have, in my fledgling career, been rendered frequently aghast at some of these so-called ‘masters of the universe’ and their overpowering scent of manly hubris.
Sir Fred ‘The Shred’ Goodwin, Sir Tom McKillop (RBS), Andy Hornby and Lord Stevenson had combined annual salaries of £7.5m yet their apparent mismanagement and aggressive expansionism cost the British taxpayer £37bn in the same time.
Goodwin, who many blamed for the spectacular fall in RBS shares after his pig-headed takeover of Dutch bank ABN AMRO, got £2.9m in bonuses in 2007. No wonder this is emotive stuff and I would forgive anyone who watched today’s proceedings with clenched teeth.
But being hot headed and following emotions, hunches and gut feelings is what got us into this mess. So let us think for a moment, free from bloodthirstiness.
Bankers need their bonuses. They do for several reasons.
We as taxpayers have lent huge amounts of capital to our stricken institutions, and we’d like it back, thank you very much. So it’s in all of our interests for the banks to be profitable. Given that a bank’s raison d’etre is to balance its assets and liabilities, anything that comes in as a yearly surplus should be rendered in dividends for shareholders and bonuses for employees.
Please note: balance sheets need to be fully, even pessimistically accurate to avoid vast write-downs and losses – as we have seen this year.
Banks need capital to continue trading, and lending. We’d all rather they raise it privately, wouldn’t we? Share and rights issues are offered on the basis of projected profits; they are priced to a market that expects a return on investment. So if we start limiting bonuses – or scrapping them all together – we run the risk of no one wanting their shares, leading to, well – you get the point.
This is not to say that bonuses are entirely deserved. I agree completely with Brown and Cameron’s anger, real or supposed, at the way investment banking has been operated. The problems were not essentially the exorbitant bonuses received by bankers, but the fact that the money paid out in them wasn’t really there. They were eating into working capital bases, not profit.
Bankers should get their bonuses, but only as a reward for a bank being truly profitable. Oh, and when they get them, they might want to keep quiet about it.
Tagged: bankers, banks, bonuses, HBOS, RBS, select commitee
