Banks score own goal with bonus culture defence

August 4, 2009

In the blink of an eye it look as if the City is “booming” again after Barclays and HSBC announced buoyant investment banking earnings on Monday.

Both banks were hit by a surge in bad debts as the recession took its toll on borrowers, but analysts said that resurgent debt and foreign exchange trading and market share grabbed from troubled rivals fuelled the largely positive results.

Barclays announced an eight percent rise in profits for the first six months of the year to almost three billion pounds, while HSBC reported profits of the same amount, though this was half what they made during the same period in 2008.

The results have led to speculation that some City workers will once again receive bumper bonus packages just months after the banking sector was bailed out by the taxpayer.

Barclays’ Chief Executive John Varley defended the system of bonus payments by comparing his staff to highly-paid footballers.

“The football analogy certainly goes some way to I think [to explain bonuses]….There is simply no higher priority that to ensure we filed the very best people,” said Varley. “That in a sense is exactly the same as a football manager if they are going to win. Our obligation is to ensure we pay appropriately.”

Which begs the question of whether you would rather watch Steven Gerrard scoring a goal or pay a visit to your local Barclays branch manager.

While Varley juggled his football metaphors, Stuart Gulliver, who runs the investment bank at HSBC, used a different analogy, comparing the bank bonus culture to the Hollywood studio salary system.

“If a foreign exchange trader makes a deal then they know two days later how much they made,” said Gulliver. “If it’s a £5m profit, that is something we can count, we can see it, it’s real. And they are part of a successful team.”

Barclays and HSBC did not receive government handouts but all the banks benefited from state intervention that used £1.2bln of taxpayer funds to prop up the banking system.

Do you think it is right that big bonuses reappear so soon after the height of the banking crisis and while homeowners, savers and small businesses are still struggling?

9 comments

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They just don’t get it, do they?
The banks – all of them – caused the problem and they think they can go back to their bad old ways because they are now doing well.
Well, they have to think about the businesses and individuals still struggling because of their irresponsibility.
Unless and until the economy recovers – no bonuses

yes, of course it’s right. there’s only one reason people go into banking, and only one reason banks exist… to make money. if banks do make profits, where else is the money going to go but to the staff and the shareholders?? plenty ends up back in the tax take anyway so everyone is a winner.

Posted by mm | Report as abusive

So, a big salary and bonuses assure the very best people working for you? And what happened with the bonuses before the credit collapse? I take it staff didn’t get bonuses then – after all they didn’t do a very good job? So basically the banks are admitting to employing people that were/are rubbish at their jobs, yet pay them huge bonuses?

Posted by Clive Sinclair | Report as abusive

If UK companies do not pay the bonuses then non-UK institutions will and that is where the business will go. I think making shareholders act as owners is cloud cuckoo land as the investors will lack the management expertise.

I believe Banks should return to totally safe businessses like clearing. Investment/Capital/Venture/Hedge activities should not be permitted, they should be done by companies the do not have Bank in their title and they will not be able to carry out Bank activities. Then if they get it wrong they go bust without interferring with paying bills and wages etc. which the Banks will do

There appear to be two possible explanations for the size of the profits:

1) the journalists and bloggers were guilty of over-egging the pudding when predicting the imminent demise of capitalism. Since the hostility towards large bonuses was always predicated on this analysis being correct, there clearly isn’t (and never was) a problem with the way in which bonuses are calculated;

2) the journalists and bloggers were quite correct. In this case the bankers must have done a superlative job of preserving their businesses and are in addition returning money to the wider economy through shareholder dividends. I’d say in this situation they’d certainly have earned their bonuses.

Posted by Ian Kemmish | Report as abusive

This business of attracting banking ‘talent’ seems to be universally accepted by journalists, but seems to have no basis in fact. If Fred Goodwin had been more talented could he have lost £400bn instead? What would a star goalkeeper who threw the ball in the back of his own goal 200bn times be worth?

When Mr Gulliver says that if a foreign exchange trader makes a £5m profit then they know two days later how much they made, he is avoiding the uncomfortable fact that as the banks are betting against each other, more than half of them are losing each year (allowing for costs). They get to massage their own figures to show they’re all in the top quartile, but who is still being fooled by this?

Posted by Steve Marshall | Report as abusive

Higher earnings means less redunancies, the government getting its money back more quickly and…… more tax paid by the bank, and those receiving bonuses. Exactly what the government wants (but more importantly what it desperately needs) which is why it is coming up with empty rhetoric and smokescreen bluster.

If you want to blame anyone, blame the fat Scottish bloke who was CHANCELLOR for 10 years before he became PRIME MINISTER and happily presided over this mess before hastily blaming someone else.

Posted by nick | Report as abusive

I blame the CHAV’s if they hadnt been given mortgages in the first place that they couldnt repay we would all be ok. Down with the lazy CHAV’s that’s what I say.

Posted by Paul | Report as abusive

The banking sectors inability to communicate with the public to justify their bonus culture speaks volumes – they simply don’t feel obliged to. They operate in a parallel world with limited ethical component. And by virtue of their inflated salaries, their own lives are wholly insulated from the outcomes their personal and professional ‘motives’ reeks on everyday people. It is never their own money they lose. And without this sense of personal risk how can they even begin to connect with the public, yet we are asked, and more often obliged, to trust them with our savings.