The Great Debate UK
from Funds Hub:
Not the words ringing in my ears as I leave for work every morning, but City of London Investment CEO Barry Olliff's take on the UK financial sector.
Olliff is taking his company from AIM and onto the main market next month and the new governance guidelines which will apply to the firm as a result have sparked a frank assessment. Take it away, Barry:
"From my experience of the City, when I consider remuneration and remuneration packages, I'm taken in the direction of instability, greed and selfishness..."
"...the City is made up of many selfish people who are encouraged by management, and management's approach to remuneration, to develop egotistical tendencies. This culture of greed, in my opinion, manifests itself often via a lack of risk awareness, poor team spirit and significant key man risk..."
– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –
By Peter Thal Larsen
Investment banks have reined in their worst pay excesses. But inconsistent enforcement of bonus rules in the United States and Europe means some are still getting away with bad behaviour. If banks and regulators can’t agree common standards, they risk another political backlash.
By Hugo Dixon and George Hay
What's a bonus really worth? Under new European rules, bankers will see part of their bonuses retained, another chunk deferred and some may also be clawed back. The present value of a $1 million bonus could be cut to less than $800,000, according to Reuters Breakingviews calculations.
The starting point is how much the banker gets immediately in cash. The new rules specify that 40-60 percent of the bonus must be deferred for three to five years and at least half of the non-deferred portion must be non-cash. That means there's a maximum of 30 percent upfront cash. But for bankers on big bonuses -- and $1 million would presumably be in that category -- at least 60 percent must be deferred. The cap on upfront cash, therefore, is 20 percent, or $200,000.
– 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.
from The Great Debate:
The effort to rein in banking bonuses, outrageous as they may be, is akin to banning glue sniffing because you are worried about the effects of intoxication.
There are, as the kids in the alley behind the high school can tell you, other ways of getting high.
So the watchdog can bark after all. Adair Turner, chairman of Britain's Financial Services Authority, says the financial sector has "swollen beyond its socially useful size". That is a striking statement for any financial regulator, particularly one that counts promoting London's financial centre as one of its goals. Identifying the problem, however, is the easy bit. Reversing decades of financial expansion will require global agreement on tough new rules, and the determination to make sure they are consistently enforced.
Turner's comments, in a debate hosted by Prospect magazine, underscore the extent to which the crisis has upended the received wisdom among policymakers. For years they assumed markets were self-correcting, that financial innovation brought lasting economic benefits, and that regulators should think twice before getting in the way.
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.
- 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.
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.
from The Great Debate:
The argument about bank bonus payments is as sterile as it is backward looking; compensation at government insured institutions is going nowhere but down.
The real action will be at those places like hedge funds, private equity houses and boutiques, which will try and trade less insurance for more autonomy and which will capture more market share, take on more risk and offer more reward. The question is how will they be regulated, how will they fund themselves and how will the rest of us be protected from the systemic risk they could easily represent.