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.
Today some very naughty bank bosses have been receiving a royal roasting from a group of MPs.
Disgraced bosses of RBS and HBOS have finally been brought publicly to book and yes, they did manage to muster S-word. Here’s how it’s been reported:
The Guardian’s Dan Roberts takes more than a little pleasure in seeing Andy Hornby squirm.
Hornby really looks like he might starting crying. This is quite painful to watch.
Sam Coates in the Times saw little sincerity in the bosses’ eerily well-prepared spiel. He reckons they’re just after the sound byte on the evening news.
So the sorries were fulsome, well-rehearsed and gave the appearance of being unconditional. It wasn’t their first apology, they all added casually, because they had already apologised (in private) to shareholders.
The Telegraph’s Tracy Corrigan disagrees, arguing that the apologies themselves seemed genuine, but that they fail to be truly representative of the failures of other bankers. There is a consensus of scapegoating here.
Saying sorry doesn’t make it all OK, of course. But neither should we assume that only those who have apologised have anything to be sorry for.
Danny Brierley, in The Mail, writes how a set of senior bankers are threatening legal action should new rules limiting the amount of bonuses big banks give out be implemented. As you can imagine, they love that.
Legal experts today warned that plans to stop bonuses may be a breach of bankers’ human rights.
The FT focuses on RBS’ outrageous acquisition of Dutch Bank ABM AMRO for a £10bn layout just as the credit crunch was biting last year.
Sir Tom said: “Anything we paid… we overpaid. Everything we paid has not been worth it… we are sorry we bought ABN.”
Nicholas Paler on Citywire agrees that Hornby was getting rather more attention than his partners in crime. Or at least he looked like he was.
Hornby next, who is looking increasingly under the cosh. Questioned about the decision to merge HBOS with Lloyds TSB, Hornby says it was the best option available.
The BBC’s Robert Peston used to work in the city. So guess how he feels about bonuses… He makes a very good point about the importance of bonuses in managing share expectations and employee performance.
John Varley, Barclays’ chief executive, told me it was right and proper that he shouldn’t receive a mega-bonus – but that surely it would be wrong for him to deprive mortgage advisers and branch staff of a few thousand pounds if they hit their targets.
Bradford and Bingley’s shareholders would have breathed a collective sigh when the governement rushed through its takeover by Santander last month. The board had decemated the bank’s £50bn mortgage book and acted with irresponsibility with heavy exposure in the now destroyed buy-to-let mortgages.
Shareholders chose on Friday to give the current board the boot. Good riddance to bad practice. But who chose them in the first place? Oh, yeah: the shareholders.
The demutualisation of building societies (answerable by their customers) into commercial banks (answerable to shareholders) during ‘Blair’s Bloody Britain‘ has had a profound affect on the way banks borrow and lend.
Every single building society that essentially bribed its customers into accepting shares as it floated on the stock market has come into profound difficulty. Even Nationwide – the self-proclaimed paragons of virtuous lending – has recently applied for government funding.
Company priorities alter when they are operated by shareholders. They are interested in the company simply for profits – the safe and sustainable growth of their money pales into insignificance against the potential of exorbitant dividends.
A shareholder who wants profits will exert pressure on the board and employees to generate them, no matter what. As long as you get a fat payout twice a year, you’re not bothered if your neighbour’s defaulted on a repayment.
Any deregulation (or democratisation) of management structures may seem like fun when the potential rewards are astronomical. But what when things go wrong? I’d like to say that shareholders vote for a steady, prudent and frugal few years as balance sheets are gawped at and readdressed.
I don’t think they will. After all, where’s the profit in that?
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