Banks are closer to the 'Giant Vampire Squid' than saviours of the UK Economy.

[TheReluctantPhoenix]

AIBU in thinking that The City is far closer to the 'great vampire squid' of 'Rolling Stone' fame than the massive contributor to the UK economy and taxes that they would like to portray themselves as?

What got me thinking this was the Barclays announced bonuses today of £1.58 bio, including 450 executives receiving annual total pay of more than £1mio each. This, in a year when they paid zero bonuses to their shareholders (read: your pension funds). This would have been equivalent to a 5% dividend or 7.5p/share.

Of course bankers pay a lot of tax, but I think a substantial chunk of this is, effectively, money skimmed from others (companies, pension funds etc etc). It is not a net contribution to the economy or the exchequer if the money is just redistributed from others' pockets.

I am well aware that banks are needed to provide liquidity and to enable us all, big and small, to borrow and invest. However, the overbloated sizes of the institutions, pay of the management and use of STEM talent is far in excess of what banks need to perform their function effectively.

So:

IABU: Banks perform a vital function and it is necessary to reward talent to retain it.
IANBU: Banks are far closer to the 'Giant Vampire Squid' and they are merely rewarding themselves by suctioning money out of the rest of the economy.

Well, 100% agreement among 5 posters. Surprised so few are interested in this, though. Shows how easy it is to enrich yourself at the expense of others, as long as you do it at arm’s length...

I think the title might be leading to lower traffic than the subject matter of your post warrants. Perhaps people aren’t familiar with what you mean by banks being giant vampire squid and aren’t clicking through.

Banking is one of those sectors of the economy that has managed to gain access to the corridors of power and get politicians to believe their importance, and also to believe things such as threats to move jobs elsewhere.

Hop,

Yes, it is a 10 year old plus reference. Great polemic in Rolling Stone magazine, though.

Interested to hear from the 3 who think IABU as to why..

@peak2021,

The rules are so well known these days but so easy to play by.

Rip people off to make billions. Pay (some) tax on these billions, employ good PR agencies and give about 1% of your profits to charity, and maybe 0.25% to political parties.

Then you are not rip off merchants but philanthropists..

To be fair, it was only one bank that was called a Great Vampire Squid not the industry as a whole

Banking is the tip of an iceberg that shows how disconnected executive pay has become from actual performance. I mean in what world can it be justified to pay such huge sums in bonuses when you aren't doing well enough as a company to pay a single penny in dividends? What are these bonuses for?

And that is before we get to disaster capitalism.

Modern investment banking is a cancer for this country. We have sacrificed much of the rest of our economy and are far too reliant on it. Successive governments since the 80's are to.blame for this.

I only clicked on this cos of the vampire squid thing don't know much of anything about banks.

@mynameiscalypso,

I know it was. I am asking about the whole sector, though. To be honest, I don’t think that one bank is any worse than Barclays with Jes Staley at the helm, amongst others.

Didnt Dante reserve a special place in hell for them alongside lawyers or was it just the lawyer?

When we consider the havoc they caused (all banks) in 2008 a d yet there they still are, churning away in the background still doing what they do and finding more efficient ways of doing it because they can.
What government is going to address them openly?
I suppose they see themselves as in inviolate u till perhaps there is a revolted from within.

@lolaflores,

If investors (and that includes everyone with a pension) took an interest in the fees they were being charged, the stupid and thoughtless investments being made with their money (bank stocks for instance) etc, it would go a long way to solving the problems.

But government needs to deal with the revolving door between senior government roles and very remunerative part time roles in finance.

As long as any senior politician can walk into a 1 or 2 day a week job in a bank/hedge fund for £500k to £1mio+ a year, politicians have little incentive to address the banking situation.

I’d rather the bonuses went the the call centre and branch staff who’ve worked bloody hard this year as essential workers than to pension funds!

@Marmite27,

I suspect the 27 after your name is your age. At some point in your life, you will want a good pension. That is what pension funds do, invest your money for you (including call centre staff, if they are a member of the pension scheme).

On a broader point, how can a bank paying zero dividend to shareholders justify a bonus payment to already well paid staff?!

I am not against performance pay at all. Where a company has done really well, it is great to reward fantastic performance. The problem is that, over time (especially if you include the disasters such as the Asian Crisis and 2008), banks, and especially investment banks, have net lost money for the people who have invested in them. However, they have created 10s of 1,000s of millionaires among their employees in the same period.

And, with Corona, and no dividend, the latest is just rubbing salt in the wound.

YANBU - in the Brexit debate banks are complaining about not having equivalency with the EU. My thought is wouldn't it be better if the best computer science/maths/engineering/physics students went useful fields around the UK, rather than in financial engineering focused on London.

The irony is that the 2008 bailout is so big that it dwarfs any contribution banks make to the economy.

Let’s put this in perspective. It’s easy to take banks in isolation and say these things. Any sector that an economy is heavily dependent on is like this in every country. I agree with the shareholder dividend point though. I wouldn’t be pleased with Barclays not remuneration me if I was a shareholder.
Ultimately, bashing big business never achieved anything. Much of this country’s wealth is built in financial services. Don’t note the hand that fees you. The comment about 2008 bailout dwarfing banks contribution is so ill informed. That bailout saved the economy, though the reckless execs didn’t face the consequences which is another matter.
Brexit passporting fiasco is a scandal, and this left wing, student rhetoric on bank bashing fails to consider the domino effect of hurting the biggest contributor to your economy.

@tttigress

YANBU - in the Brexit debate banks are complaining about not having equivalency with the EU. My thought is wouldn't it be better if the best computer science/maths/engineering/physics students went useful fields around the UK, rather than in financial engineering focused on London.

The irony is that the 2008 bailout is so big that it dwarfs any contribution banks make to the economy.

Why is it necessary to punish the sector the entire economy rests on, while advocating for STEM. Sounds like cutting your nose off to spite your face

@ssrt,

If you believe that, can you address the point I made in my original post, please?

The money made by banks (a lot of it, anyway) is not really ‘made’, it is merely transferred from other sectors.

If banks charged less and operated more honourably, all pension funds and many corporates would be better off. I know the sector well (too well) and am far from an adolescent and far from left wing.

@sst1234,

It seems a tremendous waste of STEM talent, to me, to have a very bright maths graduate working on the best way to price and hedge a knockout quanto-Ed fx option (for instance) when the same maths could be applied to fundamental research in statistical genetics, quantum computing or even epidemiology.

The former only has application in making more money for the bank at the expense of their clients whereas the latter could fundamentally benefit humanity.

[quote TheReluctantPhoenix]@Marmite27,

I suspect the 27 after your name is your age. At some point in your life, you will want a good pension. That is what pension funds do, invest your money for you (including call centre staff, if they are a member of the pension scheme).

On a broader point, how can a bank paying zero dividend to shareholders justify a bonus payment to already well paid staff?!

I am not against performance pay at all. Where a company has done really well, it is great to reward fantastic performance. The problem is that, over time (especially if you include the disasters such as the Asian Crisis and 2008), banks, and especially investment banks, have net lost money for the people who have invested in them. However, they have created 10s of 1,000s of millionaires among their employees in the same period.

And, with Corona, and no dividend, the latest is just rubbing salt in the wound.[/quote]
Not at all! I’m closer to double that.

And the point still stands. I think pension companies are leaches.

Oh and you’ll find as of a few years ago, the investment and normal side of banking were separated or ring fenced to ensure you couldn’t fund one from the other.

[quote TheReluctantPhoenix]@sst1234,

It seems a tremendous waste of STEM talent, to me, to have a very bright maths graduate working on the best way to price and hedge a knockout quanto-Ed fx option (for instance) when the same maths could be applied to fundamental research in statistical genetics, quantum computing or even epidemiology.

The former only has application in making more money for the bank at the expense of their clients whereas the latter could fundamentally benefit humanity.[/quote]
In the interests of transparency, I’ve spent my career in investment banking and asset management

But you’re assuming that the average maths brain wants to go into research.

The vast, vast majority of people who end up in FS wanted to end up in FS and chose a degree to suit
They didn’t graduate and find themselves days away from starting an academic career when the child catcher of the square mile bundled them in a sack and forced them to practice modelling.

And to your question as to how they could justify bonuses...
Some will be contractual, many will be performance related and to prevent top talent leaving to competitors

For what it’s worth, I deliberately left the world of publicly listed banks years ago specifically to avoid this sort of public debate (and resulting regulation) over comp

Private asset management flies under the public radar and can pay whatever it sees fit to attract, reward and retain talent, and gets it pick of people who are fed up with their pay being dragged through the papers!

The average hedge, VC or Private Equity fund will be making many many more millionaires per year but you’ve never heard of them

2008 was partly caused by central banks worldwide keeping interest rates too low and by successive US governments pushing policies to encourage home ownership even amongst people who couldn't afford it (non-prime/ subprime). It led to a monumental real estate asset bubble in the US. Yes there was absolutely excessive securitisation (CDOs tied to real estate and mortgages) BUT to blame the banking sector 100% is plain wrong. Where was the Fed, the Bank of England, the regulators, the central bankers? They created the environment.

@GappyValley,

'The vast, vast majority of people who end up in FS wanted to end up in FS and chose a degree to suit
They didn’t graduate and find themselves days away from starting an academic career when the child catcher of the square mile bundled them in a sack and forced them to practice modelling.'

Fair point but you are missing an essential question. Why does a business that adds little (in real terms) to the economy end up paying so much and feeling glamorous, as opposed to working in pharmaceuticals or new forms of clean energy? Have these graduates always wanted to be in FS because of the innate fascination with how interest rates stochastically evolve over time?

'And to your question as to how they could justify bonuses...
Some will be contractual, many will be performance related and to prevent top talent leaving to competitors

For what it’s worth, I deliberately left the world of publicly listed banks years ago specifically to avoid this sort of public debate (and resulting regulation) over comp'

Again, from a personal perspective, perfectly reasonable. However, I do think you have been absorbed into the banking culture of it only being sour grapes to question whether these 'masters of the universe' are quite so masterful after all..

'The average hedge, VC or Private Equity fund will be making many many more millionaires per year but you’ve never heard of them'

You are assuming a lot about me but, leaving that aside, your point is?

@PelvicFloorTrauma,

'BUT to blame the banking sector 100% is plain wrong. Where was the Fed, the Bank of England, the regulators, the central bankers? They created the environment.'

That is like saying that if there are not enough policemen around, you cannot blame people for stealing. They are not to blame.

For what it is worth, in 2007, the BOE put out some fairly strongly worded reports and warnings to banks about the overleverage in the system. Beyond that, there was little that they could do. Raising interest rates is a fairly blunt instrument and tends to kill the real economy a long time before it stops bubbles developing.

Yes, they could and should have increased the reserve requirements for banks, although there would have been howls of protest. However, hindsight is a wonderful thing.

Where was the Fed, the Bank of England, the regulators, the central bankers? They created the environment.

When the banks were declaring big profits there was a big push on governments to keep their noses out and allow the sector to self regulate, Once it all collapsed then the cry was you should have been stopping us. There was ample evidence that a lot of the profits were nonsense, banks borrowing from banks, nothing really at the back of them. When it all collapsed the govt had to come along and bail out the banks as after all it was our pension funds they were gambling with and losing. Even though the banks were in the shit and getting big handouts they still used some of the handouts as bonus.

Banking/finance where you gamble other peoples money and still get bonus whether you win or lose.