The Great Debate UK
from The Great Debate:
Rising pay in the finance sector in the wake of the global financial crisis is no surprise and is driven partly by the government's bailout itself and the underwriting of banks that are too big to fail.
News that some financial firms benefitting from government largesse actually increased the share of revenue they pay their employees sparked a lot of outrage but more heat than light.
The good news is this new bulge in pay may not be sustainable.
The bad news is it will probably only be stopped by further regulation, regulation which may never come.
To understand what is going on you need to understand the economic concept of "rents", essentially the extra money a given individual or industry is able to extract from its clients above what it would be able to if there was perfect competition.
- Peter Dixon is a guest columnist, the views expressed are his own. He is global financial economist at Commerzbank -
In the course of this week, we have received a mixed bag of first half results from all the big UK banks. On balance, earnings were slightly ahead of expectations, even for those banks which still registered big losses.
Banks and insurers are looking for ways to bolster their capital, while having the flexibility to strike if there are acquisitions to be had on the cheap. To achieve these twin goals, Spain's Santander and now British insurer Aviva intend to float minority stakes in subsidiaries.
Aviva's chief executive Andrew Moss, who cut the insurer's dividend with its first-half result on Thursday, argued that it must be ready to take advantage of acquisition opportunities. Moss plans to float 25-30 percent of Delta Lloyd so that Aviva's 92 percent owned Dutch insurance unit can take part in the restructuring of the Benelux insurance market.
- Bob McDowall is research director, Europe, at TowerGroup, a research and advisory services firm focused exclusively on the global financial services industry. The opinions expressed are his own. -
The banking results being published this week are inseparable from the catastrophic financial events of the last two years. It is time to glance back to where we have been and determine where we are now.
- Brendan Wood is Chairman of Brendan Wood International, a global intelligence advisory firm. Recently, BWI published the World’s TopGun CEOs as ranked by 2500 institutional investors, which provides insight into the executives in whom shareholders feel the greatest confidence. The opinions expressed are his own. -
Brendan Wood International tracks the competitive position of investment bankers in global and regional markets. It also compiles the confidence rankings of hundreds of global shareholders in corporate investments, including those in the world’s leading banks. As of mid-2009, the Brendan Wood Investor Panel found a mixture of sharp criticism, but also some occasional strong praise for these “newly refurbished” financial behemoths.
-David Kuo is director at the Motley Fool. The opinions expressed are his own.-
Banks insist on the right to charge customers who go overdrawn on their current accounts. They also say they have a right to set the amount charged.
The Office of Fair Trading (OFT), on the other hand, claims that the fees banks levy on customers who exceed agreed overdraft limits are unfair. This is according to their interpretation of the Unfair Terms in Consumer Contract Regulations.
They’re at it again. No sooner has the financial system begun to stabilise than Big Finance is reverting to its old ways — aggressive hiring, remuneration on steroids, wriggling out of regulation or threatening to decamp to evade tougher supervision.
Three months is a long time in the markets, and particularly for banks. Alongside the rally in bank shares, investors have also bid up bank bonds, especially so-called tier 1 bonds which rank just above the equity in the list of creditors.
When the going got tough, banks were quick to bring down the shutters and cut off loans to European companies, forcing them to seek other sources of funding. The result — a dramatic shift to the bond markets, where corporates borrow directly from investors.
This failure of the banks to be there when borrowers needed them most could spell the end of the European syndicated loan market as the powerhouse of corporate finance activity in the region, marking a longer-term shift in the funding mix for European companies from loans to bonds.
The Bank of England tells us that their 75 billion pound quantitative easing programme will start the banks lending again (despite the banks saying that they are already lending, this is not strictly true). The programme works by the Bank buying securities from the banks and then this money can be loaned to consumers. The question is, does and will this work? Is 75 billion pounds enough?