Tight UK election is bad news for bankers
— Peter Thal Larsen is a Reuters Breakingviews columnist. The opinions expressed are his own —
Britain’s bankers were already braced for an uncomfortable election. But the U.S. fraud allegations against Goldman Sachs, combined with the rise of the Liberal Democrats, have given bank-bashing renewed impetus. The popularity of the attacks means they could resonate well beyond the current campaign.
The immediate focus is on Goldman. Though fraud charges against the Wall Street bank were filed in the United States, one of its alleged victims was Royal Bank of Scotland, which lost $841 million on toxic debt securities sold by Goldman shortly before it was bailed out by the British government in the autumn of 2008.
The UK’s Financial Services Authority has launched its own, belated, investigation into the affair, and opposition politicians want the government to ban Goldman as an adviser. The bank’s first-quarter earnings, due to be published on April 20, could also revive the controversy over bonuses. This would be bad news for all investment banks.
The surging LibDems are another concern. So far, the ruling Labour party and opposition Conservatives have been relatively restrained in setting out anti-bank policies. This has allowed the LibDems to seize the populist initiative. They have proposed capping cash bonuses at 2,500 pounds, and naming every banker who takes home more than the 200,000 pounds earned by the Prime Minister. They also want to separate retail and investment banking, and whack an extra 10 percent tax on banks’ profits.
These policies are probably unworkable. It’s hard to see how a government could restrict bankers’ bonuses without limiting payouts in other industries. If implemented, the LibDems’ ideas would risk driving away large parts of the UK’s financial services industry.
The LibDems will only form a government in coalition with one of the other parties, probably Labour. Their policies would undoubtedly be watered down. But arguing over policy detail misses the broader point, which is that the LibDems are riding high in the polls and have made banker-bashing one of the main thrusts of their campaign. The other parties cannot risk being portrayed as defending bankers. They will probably have to respond. The UK climate is set to become even less friendly to bankers — not only during the election campaign, but afterwards.