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.

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?

Because it pays very well, it has had a public image of glamour and cache for decades, because maths and economics often go hand in hand, because it pays well, and because it pays well.

'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?

My point is why are you taking a pop at Barclays and banks, when they aren’t ones creating most of the evil millionaires you dislike, nor are they the ones siphoning off pension fund money to pay these bonuses.
Presumably you know about carried interest and therefore have a bigger axe to grind against that than bankers comp, especially in the context of what that money would be achieving if it was gifted to pension funds instead of fund managers

@GappyValley,

'Because it pays very well, it has had a public image of glamour and cache for decades, because maths and economics often go hand in hand, because it pays well, and because it pays well.'

We are going in circles here. Jobs that pay well but produce little of real value to the economy cause our precious intellectual resources to be misallocated.

'My point is why are you taking a pop at Barclays and banks, when they aren’t ones creating most of the evil millionaires you dislike, nor are they the ones siphoning off pension fund money to pay these bonuses.
Presumably you know about carried interest and therefore have a bigger axe to grind against that than bankers comp, especially in the context of what that money would be achieving if it was gifted to pension funds instead of fund managers'

I am 'taking a pop' at banks because they are public companies owned by shareholders and it is unacceptable to pay yourself a lot of money and stiff your shareholders, saying that there is no money in the pot to pay them. They also have an implicit government guarantee when things go wrong, which became very explicit in 2008.

If you read my previous posts, I have no problem rewarding performance. Carried interest is normally given to private equity employees. Private equity holders know the deal and tend to invest directly (rather than people and their pensions). The companies are also private and carried interest is normally only paid when certain thresholds are met over a meaningful period of time.

Are you saying that Barclays shareholders have been taken by surprise that they are expected to pay bonuses..? Plus post-2008, there is a massive LTIP element to bank bonuses, especially at the 7-figure end

And the vast vast majority of investors in private equity funds are pension funds (and many of the private equity firms are listed - 3i, ICG, plus companies like Schroders have massive PE arms)

But what’s the difference between a PE fund manager getting carry because they’ve hit the return hurdle for their fund, but a Barclays manager getting a bonus for hitting theirs?

They didn’t pay dividends, because they were directed by the Bank of England not to, not because they didn’t want to.

@GappyValley,

Your average shareholder is either a pension fund or a tracker fund. In the public market, end shareholders are kept very remote from the companies that they invest in, which is why such mismanagement of shareholder fundsis allowed to continue, with the banks just being the most egregious examples.

We don’t have capitalism where companies are managed for the benefit of their normal shareholders. We have crony capitalism where they are managed very short term for the benefit of high earning managers.

Not financial advice, But perhaps buy bitcoin, hold it forever and start eating their lunch. Don’t do it as an investment, do it as a protest against our money system.

I’m not sure I follow your point?

I would guess that >75% of the free float of Barclays has been bought by certified sophisticated investors of some sort, even if they are holding them for retail investors.

It is laughable that they are surprised that bonuses are necessary and are paid.

I’m not sure if you have an intellectual issue with the concept of FS levels of comp, or a real world issue with bonuses being paid this year specifically, due to a suspension of divi payments

@GappyValley,

I have an issue with FS compensation relative to FS performance. This year is just another example of where large bonuses were paid when a company has not performed well.

What would a Barclays share I bought in 2001 be worth now? What would be my annual return over 20 years? And how many millionaires has Barclays created in the same period? (I am just using Barclays as an example. The same can be said of virtually every other bank).

And as for the ‘sophisticated’ investors, they are not going to bite the hand that feeds them. The pension fund manager’s next job will probably be on the sales side in a bank.

I don’t know if you are old enough to remember the RBS takeover of ABN deep into the credit crisis. Everyone and their dog knew ABN was fucked. At the RBS EGM to confirm the takeover 70+% of the ‘unsophisticated’ small investors voted against. The sophisticated investors? 90% + nodded it through with nary a word of protest. And the rest is history ...

I can’t think of anyone who would go from running money to a sell side job
I’m sure there are a few examples but it certainly isn’t any sort of career path

The share price in Barclays has tanked since 2001, although I’m sorry but I can’t be arsed to work out the yield over that time - ask me on a day that’s not a Sunday..!
But I don’t think any fund manager will have held it as a growth stock
Yes that makes the lack of divi problematic for managers but I would be surprised if anyone has had it marked as a hold in the last decade

Came here to say exactly the same as @edwinbear their regulator required all dividend payments to be halted in March, and only allowed them to be reinstated in December, so it would likely have been too political for them to pay dividends in Jan - here’s an article if you would like to read more OP

www.google.co.uk/amp/s/www.bbc.co.uk/news/amp/business-55265809

@GappyValley,

I now think you are really just obfuscating.

Fundamentally, any company exists to make money. It is one of the HMRC’s tests to see if a company is real: is it operating in order to make a profit. Banks have, over 20 years or so, failed to pass this test. They are not operating to make money for their shareholders, they are operating to enrich a small cabal of relatively senior employees. That is management’s goal.

And, as for the rest of their stakeholders, banks have an appalling record for customer service at the retail level and SMEs have been treated horribly. I guess, on the whole, they treat their staff well, though I am not sure a teller or payments clerk really feels the love.

The problem is that banks need a leadership and culture that means that they become moral actors again. I am not suggesting poverty, merely taking pride in their actual role and paying themselves appropriately and after they have done well by their other stakeholders (long term).

The culture that allowed Merrill Lynch to move their bonuses forward in 2008 and pay themselves $4bio out of a non existent pot has not really changed. For those that don’t know the story or have ‘forgotten’ there is a link below:

www.google.co.uk/amp/s/abcnews.go.com/amp/Blotter/WallStreet/story%3fid=6959962&page=1

it is the same culture that made the pension funds nod through the ABN takeover, even though they knew it was wealth destructive.

And, I would argue, the same culture that pays big bonuses to employees (not owners, employees) during a pandemic rather than just deferring them until the mood music improved and they were paying decent dividends to their shareholders.

Banks were not always thus. Bankers used to have a reputation as honourable professionals. The old investment bank partnerships (Goldman’s and Salomons inter alia, pre listing) knew that in a bad year the partners cut a cheque. That kept them honest. The problem is the second rank leaders from 2008 are now leading banks. There is little incentive for anything to change.

I've read your reply to me several times now, and still haven't got the first clue at what point you're trying to make.

Your posts are getting less coherent with each one, so I'm tapping out now.

I'm sure there is a some sense in there somewhere but your primary focus is flowery language rather than getting your point across.

Good luck with your campaign for wholesale banking reform dressed up as literary references

@GappyValley,

Lack of comprehension is not equal to incoherence.

I don’t think I am alone here given the voting ratio of over 2:1 in my favour...