Bankers going to get their bonuses anyway

[jujumaman]

here

I don't know what to think about this.

We have a friend who works at another bank that has been bailed out by a foreign govt. He was telling us this weekend that he's planning to sue because he may not get his promised bonus of £2m or so, and will "only" end up with his salary which is prob around 250k

I know bonuses are intrinsic to banks' cultures but how - in these god awful times - can £2m bonuses be justified. My friend says his was the only division of his bank which made money last year, so why should he be penalised for others' faults? My feeling is every taxpayer is being penalised for others' faults and someone who is still earning an excellent salary should graciously accept it and be grateful he still has a well-paid job. But my dh tells me I'm being naive and that bankers will carry on getting these vast bonuses just as before. Not convinced by arguments in article I've linked to. Anyone with more knowledge of the city than me like to defend my friend's position (I v much like him personally.

shouldn't that be tango alert?

hmmm - on reflection Quattro I don't think I was cut out for banking. My favourites were not based on potential return for the investment but simply I liked the colour green! In my defence I haven't played monoploy since I was about 10.

I always loathed playing monopoly with my bro because he always cheated and embezzled from the bank. He was always very money-oriented, but went into computers rather than banking, because he thought he could make more money that way.

"poor industry regulations are no excuse for bad business decisions"

See, I disagree with you there. Banks do many things of course, but just take the example of consumer lending decisions made by retail banks.

If Bank A offers much more in the way of loans, then Bank A will get more customers. Those customers might be slightly higher risk, but Bank A can charge a slightly higher premium in the form of a slightly higher interest rate. It's a boom time, so Bank A makes mucho profit and its share price goes up. All the other banks then have to follow suit or they lose market share.

If you were to have better regulation about informed borrowing, ceilings on what reasonably can be expected etc, then people would (a) know and understand the implications of overgearing and (b) they would be actually prevented from overgearing

Regulation in financial services is key because the market is so quick and fluid and consumers frequently don't understand what they are getting into.

The same argument applies to complex securitisation arrangements incidentally - which is what got us into this mess ... Although there had to be some correction.

oh this threads turned really funny
Bankers with mega bonuses paying tax!
That there is some extra justification to 10% of your salary because you need it for vital things like clearing credit card debts!

PMSL

Two comments

1. If you can't afford it don't buy it

2. The companies are being bailed out by the taxpayer, they havn't got any money to pay your bonus. It's MY money and however hard you've worked your bonus is that you have a job and I and every man, woman and child in this country have been kind enough to pay £4,000 each to allow you to keep it.

Rant over
But what would I know?

Quattrocento

If the banks had said "no, you must regulate us better, we cannot be trusted to act in the interests of our customers, shareholders, or the wider economy" to the government and they had gone ahead and deregulated the financial industry anyway, I might have some sympathy for your point.

But that's not quite how it happened is it?

Dont get me wrong the regulators do have something to answer for too, but not exclusively. How can excessive amounts of high risk / sub prime lending which is then turned into a complex bond that no one really understands traded on the financial markets be good decision making. It is nothing short of poor buiness practice. Another exampl: how many people here have the limits on their credit cards increased, without having requested it, when they were only paying the minimum amount? the markets are fluid and have been volatile for many years now. however, I would expect the banks to be the one place that they would have a good understanding of what their financial position / gearing is at any point in time. What is the point of employing economists and analysts if you are just going to chase the highest £. High return has always been high risk to my knowledge. Those of us in our forties may just have enought time to earn some money to make up for what we may lose through loss of jobs / homes now. but if you are approaching retirement with out a decent pension what are your options. Unless you are a banker receiving a big fat bonus...

clap clap daysoftheweek

It really beggars belief that anyone can think that their effectively insolvent company should be paying them a bonus.

It's no wonder it's all coming if that kind of innumeracy combined with an utter inability to understand the reality of your situation is common within the sector.

Also if I was a banker with a £2m bonus I bet I could afford the best tax advice.. which would shave a tidy amount off my tax bill.

Also if I was a banker with a £2m bonus I bet I could afford the best tax advice.. which would shave a tidy amount off my tax bill.

banker rhymes with wanker!

Dee - I will concede that the financial services industry as a whole has lobbied extensively and well (or badly, depending upon your point of view) for less regulation. But the point is that they were acting within the current regulatory framework.

As for the banks being bailed out - taxes pay for a whole bunch of useless things - war in Iraq, the civil list, etc etc. The banks couldn't not be bailed out, the consequences of a major bank going could have and may yet, cause the situation to snowball into a depression.

By all accounts we are in a depression, not a recession. I am not an expert but do not believe that we have seen the full impact of the economic down turn yet. With exceptions of the Footballers, people are spending less or not at all - you need money to make the economy go round. People are continuing to lose their jobs and their homes. How much does it cost to rehome someone whose home you have repossesed? A bit off on a tangeng - You could argue if the government owns the Bank they own all the houses that are mortgaged by that bank. Therefore, they may as well leave the teh occupants (now tenants) in situ and charge them rent. The Bank would then be able to restock its social housing. Obviously it wont work for all types of housing £2m mansion in Park Lane for example. When and if the market recovers this will hopefully become an appreciating asset or a much smaller loss.

spokette, sorry that isn't actually true . I worked in retail at the time of the last downturn and believe me while many employees were being made redundant, with basic payoffs, senior managers still got their bonusses, pay rises and share options. If we want to be able to regulate banks as we now deem them under state ownership then the employees should have comparable contracts to civil servants, with the associated index linked pensions, career progression on service rather than pure merit, greater job security, union membership etc.

Since deregulation banks have many subsidiary companies covering all facets of financial services industry, many of these are profitable. They could be sold off but where would that leave the remaining business ? Ultimately it would be less of an asset and harder work to turn around.

Liz

Banks being propped up by taxpayers does not make the employees civil servant fgs. When there was tighter regulation, bank employees were still non-civil servants. The govt is also giving money to the car industry - does that mean all the workers should also be made civil servants? The water companies are regulated by Ofwat - employees work for private companies.

It seems to me that some bank employees really believe that they are a special breed who despite the state of the economy, the overall state of their industry etc should still receive their entitlement. It is like they are sticking two fingers up to Joe Public who is having to to pay for their irresponsible behaviour. They really do live in cloud cuckoo land. When the money was rolling in, it was down to their hard work and super intelligence and everybody else was just jealous. Now they are shaking the begging bowl, it still not their fault.

As for the comment that regulators are to blame for the crisis. Err no. The regulators are to blame for not keeping the irresponsible bankers in check. Banks devised their clever products like CDOs, securitisation etc, they invented the NINJA market and chased that market ruthlessly and without any regard to the long term consequences. Now that the whole thing has imploded, they still think that they are blameless and deserve their bonuses. Look at how much money that snake from Northern Rock walked away with. Only in the banking sector can monumental incompetence be rewarded so richly. And to top it all, you just know his accountants will use all the tricks in the book to minimise the amount of tax that he pays, just like many in the banking industry do now.

I was waiting for cote to come back, but, FWIW, if anyone wants to take their chips off their shoulders for just one minute, these articles might just give you a bit more of colour than the rabid headlines of late.

Cause of the credit crunch? This is interesting reading..(note: it is a 5 page article, I have hooked in half way through but the start and end are worth reading too)

The knock-on effect of curbing bonuses? Look here

Another focus which will upset people because it talks about guys who do earn very high numbers, but nonetheless raises the spectre of what happens when you regulate salaries here

Again and again and again you are coming back with "why do we have to fund these people who got us in the mess in the first place?"

Well, the people who got us into the mess are long gone (without bonuses). The people who are left are the ones still making money. If you don't pay them then the richer ones at the top of the chain will leave the country - just as they all did in the 1970's. And whilst you may think 'good riddance' you will not be thinking that when Dubai or Beijing or wherever starts to take even more of the capital's jobs because that is where the banking community have shifted to. And regardless of where they end up, with those people gone, then exactly WHO is going to be left to earn the money to pay back the bank bailout funds? With no-one left then the money the govt has forked out never gets repaid. And if you go lower down the chain to the less wealthy people in banking, they will see the financial difference between them and their friends who do 'normal' jobs evaporating (and in many cases turning negative). And every single person I know in banking is saying to themselves why am I workign 14 hour days in one of the most stresssful white-collar environments there is, when I could go use my Lawyers/Accountants/Tax/HR/Project/MBA/PHD/IT qualification doing something else that is much more family-friendly and less stressful? And though soem of the posters here will say "halleluja! At last they see the light", the reality is that they will coem out looking for your jobs. People I know personally in Banking are currently lined up for Teaching, Public Health Mgmt, a senior role in a govt department, and 2 are at advanced stages of interviewing for very senior roles in industry. They are all very lucky to still have choices, of course, but that is because they are well qualified and have transferrable skills - they will just add pressure to other industries which helps no-one and just leaves the banking inudstry decimated. And when that happens the foreginers move in and buy up our Financial Services (Barclays is the first example of this. Macquarrie will probably be another investor and there is still the possibility of sovereign wealth from Asia and Indian sub-continent to come in and buy out what is left of the Financial Services). Then the 'UK Inc' loses forever the benefit of much of the future profits. Just as manufacturing in this country was sold out to the likes of Alsthom and other foreign conglomorates in the 80's.

A final thought: A I said in my very first post and other posters keep trying to say, the people who are getting the bonuses are the more junior people who have performed to target for whom this 'bonus' is part of their package. If an NHS trust were to overspend (ie go bankrupt, have to get more govt funding to balance the books), then you would expect the guys at the top to get fired, but would you then try to claw back some salaries from the nurses? Because that is effectively what people are doing with all this rabid raging.

The Banking sector for sure is driven by greed (why else would people give up their whole lives, work 18 hour days etc when they have the choice to do otherwise), and for sure it has - as a direct result - an enormous population of utter tossers (I would not share a meal with 80% of the people I work with). But in the current onslaught of rage people forget that there are hundreds of thousands of normal, sometimes even nice, people working their socks off to get their £5k or whatever bonus to keep the wolf from the door. Just normal people who you lot are sticking the knife into. Nice.

I think expecting sympathy when you still have a job and expect to get a tidy bonus is asking a bit much, when there are people have lost their livelihood, through no fault of their own.

I bet it is stressful but if you still have a job (as I do) then you are in a better place than many.

If we aren't in a depression now, we're certainly heading for one.

Yeah, yeah, yeah. The financial crisis is a worldwide crisis and jobs are being lost all over the place. Let them go. Healthy churn is good for any business. The myth that certain people in banks are irreplaceable is laughable. Sorry but they choose to work 18 hours.

"If an NHS trust were to overspend (ie go bankrupt, have to get more govt funding to balance the books), then you would expect the guys at the top to get fired, but would you then try to claw back some salaries from the nurses? Because that is effectively what people are doing with all this rabid raging."

Not paying a bonus does not equal clawing back a salary.

What that first article does not say was that the drive to help low income earners into home ownership did not give license to banks to lend irresponsibly. The banks started lending to people with No incomes No jobs and No assets (NINJA).

Also, banks deliberately lied about the risk ratings on their products. They paid the risk rating agents to asses their products and pressured them to lower the risk ratings therefore other investors were buying products which they believed were not high risk investments when they were.

Sorry Squiffy, the government encouraged banks to help low income earners into home ownership (and if you are interested in why swathes of African-Americans were excluded from ever receiving mortgages then read up about how the government deliberately rated black areas as higher risks than white areas as a way of keeping blacks out home-ownership. It took the civil rights movement to start changing that).

Squiffy, your first link (the Spectator article) echoed Cote's beliefs on the other thread.
I hope she comes back so we can discuss this 'Bill Clinton is to blame' theory together.
I am curious whether she has changed her mind in the meantime.

For those who would like to know how we got into this 'teensy mess'
I would recommend John Lanchester, the Robert Peston of the London Review of Books.

Cityphilia was written in the aftermath of the Northern Rock disaster,
Cityphobia is more recent.
It's particularly good reading for those who don't consider themselves experts in banking.

lol 'experts in banking'
an oxymoron shurely?

DaddyJ

Thanks for those articles. Fascinating reading, especially with regard to Northern Rock and the impact of an unregulated, out of control, gluttonous City on the social fabric of London.

From the Cityphobia article:

"If you are wondering how a total of $8,200,000,000 could be paid in bonuses over two years to the great minds whose company went bankrupt, well, what can I tell you? The bonus question is often seen as a tragicomic footnote to the business of banking, but it may be that it goes close to the heart of the problem of how we got to be in this place. Through history, the great fortunes have been made by people directly taking risks on their own account. Today, great fortunes are made by employees, doing nothing other than their jobs: jobs which, in the case of bankers, involve taking on risks, usually with other people?s borrowed money. To make more money, and earn more bonuses (which are usually 60 per cent of an investment banker?s pay), it?s simple: you just take on more risk. The upside is the upside, and the downside ? well, it increasingly seems that for the bankers themselves, certainly in the case of Lehman New York, there isn?t one. This undermines the whole principle of ?moral hazard?, which was the idea behind letting Lehman go under in the first place ? the need for companies to face the consequences of their decisions. This principle obviously collapses if the individuals involved don?t face any consequences."

As I said in a previous post, investment bankers are gamblers who it appears, can act without impunity.

Some good news on the BBC website. GB is now "talking tough" about these greedy bankers and will "aggressively" pursue them to ensure they can't get up to their tricks again. Sadly, the Liberals have rather rudely called his response "pathetic" but I have every faith in him (not).