No bonuses for bankers at AIB - why doesn't our country have the balls to do this too???

[granted]

www.ft.com/cms/s/0/e15826ea-06fe-11e0-8c29-00144feabdc0.html#axzz187gGhLWe

The Irish are refusing to pay bonuses to failed Allied Irish Bank. They said, not unreasonably, that the bank could, of course, pay any bonus it wished - but would then forego state aid.

Why the hell couldn't we do that here? Lloys etc - still taking home billions of pounds in bonuses, despite the fact they wouldn't exist at all if it wasn't for the fact that we all bailed them out.

And before anyone tries the old 'but we have to pay them huge bonuses, or all that talent will just flee overseas' bollocks, try this article for size:

www.dailymail.co.uk/money/article-1338328/Bankers-use-blackmail-payouts.html

siasl - I sort of agree with you on 'casino anking' except to say that it was the Mortgage Backed Security' industry that allowed so much of the uncontrolled lending on property and that was what brought the system down as you say.

However, the trading of MBS and related credit default swaps without regard to risk among investment banks was the linking factor that multiplied the risk enormously and took down the shadow banking system and caused money markets to dry unexpectedly.

Retail mortgage lending and commercial mortgage lending on property was ultimately linked to 'casino banking'. The true losses on this have not yet been PROPERLY realised or written off.

'casino banking'

Taxpayers bailed out the entire banking system as well as some individual banks - none of the banks would have survived were it not for the taxpayer guarantee and Bank of England printing money.

In any other industry, your company goes bust, you lose your job. Bankers not only get to keep their jobs, they stuff taxpayers' money into their back pockets while taxpayers also have to take the pain of cuts in their own income and in local and national government services. A triple whammy for Mr and Mrs ordinary citizen but vast rewards for the bankers.

It cannot be beyond the wit of man to correct this and ensure those responsible are held to account.

Government and regulators in both the UK and US encouraged retail banks to give out mortgages on flimsier and flimsier grounds. Retail banks found themselves asked by shareholders why they weren't competing in this lucrative market. So they went off to wholesale markets and investment banks to find ways of getting the business done. House prices could only go up right? Its everybody's right to own a house even those with no stable income and no deposit!

MBS market got totally out of control definately but nobody in the public/govt/regulators cared until it was too late.

I suppose my point is "casino banking" is much more than MBS or CDS. The RBS FX spot and options trading desk, IR swap trading desk etc make a lot of money each year for RBS as franchise businesses. Without them I doubt the taxpayer will get back there money as easily.

Switzerland is SO boring though.

I really like reading beenbeta's opinions on these type of threads - very interesting views (and frightening insight on how banks operate).

haven't got much time but yes, as i understand it the point at which the bankers felt like they were no longer risking their own business was where it went awry.
see i'm alright with gambling, personally, i think it's great to back your own hunches and get rewarded for it, but it HAS to be your money at stake, or at least money with which you strongly identify.

"Switzerland is SO boring though."

The trick is to work for a Swiss Bank in London. Which is an option that the most skilled RBS workers might be considering if their bonus is threatened.

Of course there are structural problems with bank pay (especially were bonus's incite heavy risk taking). But I don't agree slashing UK bank bonus's is the answer.

Anyway - I suspect it'll be difficult to enforce unless the UK banks need further public cash.

GetOrf, I must add to your admiration of Beenbeta's posts.

We had a long running thread about the Irish economy meltdown, Beenbeta was full of information and well considered opinions.

In fact I may have 'channelled' him down the pub.

So thanks BB!

Agreed, thanks BeenBeta - v interesting perspective.

Agree with siasl.

before governments or super-national bodies insist banks keep more collateral against lending, they need to legislate hard as to how to stop banks passing that cost on to the customers. At the moment, it's not going to reduce their profits - Basel III will just become part of increased costs/mandatory costs depending whether the customer is existing or new. The bonuses and dividends won't be affected.

one of my friends works in compliance. She really really really wants to get out of doing compliance for a financial institution and go and work for the regulator because she's sick of the dodgy attitudes - the company just wants to pretend to tick the boxes while actually carrying on in the same old ways.

Very true, edam.
Though I would say most industies are like that, they do the absolute bare minimum.

Yup, but you'd think, given the banks brought the world economy to within an inch of collapsing, the politicians and regulators would be actually addressing the problems rather than just letting everyone pretend they have changed their ways...

(Seriously, we came v. v. v. close to the cash machines literally running out of money and debit/credit card systems just stopping.)

GOML/wukter/granted - thank you. I find your posts interesting and informative too.

sticky - you are right. The banking sector is far too concentrated which means too little competition and allows banks to impose higher costs on customers and hence make excess profits. Yet another regulatory failure.

This whole issue makes me seethe at times.

What really put the boot in for AIB was the information that came to light to show that the bank's management had actually moved the bonus award date forward by 2 months, thus deliberately ensuring bonuses for staff before the state takeover.

So they KNEW their bank was bust, they KNEW the state was going to take them over and they rushed through bonuses to loot the bank before the grown-ups came in and put the sweetie jar up on the high shelf where they couldn't reach it.

Completely venal and vile behaviour but of course one can expect nothing more from bankers. Here is the story from the Guardian business blog:
AIB bosses looted bank ahead of bailout

Cowen tackled this far too late. And he never tackled this issue with Anglo-Irish Bank at all, who were still paying out bonuses even though they had a 30 billion EUR black hole of funding to be filled... which is the main reason why Ireland has such immense national debt problems now. These banks should just be shut down by the government and everyone working there fired. They've demonstrated gross incompetence, probably illegal behaviour and so they are no longer fit for purpose.

agree with everything you say, beenbeta, regarding what should be happening now. why do you think it isn't, though? do you think it might have happened under labour?

Edam, if it was close in the UK, imagine how close it came in Ireland. Last week Bank Of Ireland (in bad shape but not the boogy men of our woes) had a systems failure for about 36 hours. ATM's firstly dispensing nothing, then only a certain amount and then going mad and dispensing anything you asked even if you had no funds to back it. Business and personal online accounts inaccesible. Can you imagine how unsettling that was.

InMyPrime - I didnt know that about the early payment of bonuses at AIB. Interesting. There has also been subsequent deliberate early payment of bonuses at other banks in other countries as well to avoid regulation and taxes on bonuses.

Aitch - the very late publication and I fear still incomplete of the FSA investigation into the collapse of RBS, which has only just been agreed to yesterday, I think is a very good indication of what is wrong with this entire process. The public have been kept in the dark and politicians have not done their job in exposing what went on.

There should have been full disclosure already so I suppose I feel Labour did not do its job at all when in office. I know Brown/Darling says that they took rapid and decisive action to prevent the financal crisis spreading. Yes in those first few days they did but what was needed but after that was just a catastrophic series of mistakes. These mistakes were repeated all over the world.

I dont think it was a conspiracy among politicians but more like a paralysis of thinking.

Also, in today's news, it goes from bad to worse:

www.guardian.co.uk/business/2010/dec/15/banking-royal-bank-of-scotland-loyds

State-controlled banks may need more public funds, warns NAO

The actual NAO report looks interesting. I have just been reading the summary.

Is anyone who understands the banking system prepared to make sense of the main report?

National Audit Office Update on UK Banks Stability Report Schemes.

beenbeta or siasi perhaps?

I have not read the full report yet but the striking thing from the summary is just how much the banking system is still relying on tax payer support despite what politicians are saying and the fact that bankers are paying theselves bonuses.

If that tax payer support were withdrawn today then some UK banks would undoubtedly collapse tomorrow and all the others would face very substantially higher costs of capital. Now that is the most important message which no one ever wants to talk about.

Although only £124bn of cash has been pumped into the banks it is the ongoing £388 bn guarantees that are the key issue here. Without those guarantees no bonuses could be paid at all by some of these banks - they simply would not exist.

As I said earlier, the solution here is remove the guarantees and liquidate or sell off the assets. There will be losses but frankly the bank bondholders should be forced to take the hit as Ireland has belatedly realised. The tax payer needs to be taken out of the equation ASAP.

Beenbeta - I agree that we shouldn't underplay by how much the government is supporting the banks. But much of this is in the form of guarantees (and loans). The report seems to indicate that most of it will be paid back over the medium term. Why would we risk pulling this support, crystallising losses and perhaps falling back into another bank crisis?

jackstar - the big mistake that Govt made was guaranteeing all depositors and bondholders of the banks.

As Ireland has belatedly realised, bank bondholders should have been wiped out along with shareholders and only the retail depositors protected.

In my view, if there were any losses on liquidation of the nationalised banks then those losses should be borne by bondholders - not by tax payers. Ireland has just imposed losses on lower tranches of Irish bank holders and I really think that ultimately has to be the route out of the bank crisis.

Banks are businesses and they should be allowed to go bankrupt and investors made to lose their investments in the bank shares and bonds.

The Govt guarantees have simply transfered billions of pounds of value from tax payers to bondholders. That is absolutely wrong.