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What do you think of Osborne’s bank bonus proposal?

October 26, 2009

BRITAIN-OSBORNE/Shadow Chancellor George Osborne says British retail banks should be stopped from paying big cash bonuses and use the money instead to support new lending.

“I am today calling on the Treasury and the FSA to combine forces and stop retail banks — in other words the banks that lend directly to business and families — paying out profits in significant cash bonuses,” Osborne said during a Reuters newsmaker event.

“That includes their investment banking arms.”

As the Conservatives begin to set out their platform for a general election due by June, they are looking to bolster Osborne as the person who can lead Britain out of recession. Bank reform is high on the political agenda.

Despite governments injecting trillions of dollars into distressed banks to prop up the global economy, some banks are preparing to step up bonus payments.

That state of affairs has angered consumers, who face high service charges and receive low interest rates.

What do you think of Osborne’s bank bonus proposal? Does it go far enough?

Comments

Not sure what this tells us about Osborne. Is there any chance he might tell us more about how he plans to turn the economy around?

Posted by Janice | Report as abusive
 

On TV throughout the day he appears to have been suggesting BOTH that the banks’ bonus funds be used to kick-start lending (using the same 10:1 capital reserve ratio that I’m pretty sure he has in the past said is too lax), AND that they be used to buy back shares in order that the bonuses can be paid to bankers in shares rather than cash.

Either he’s a very indecisive man, or he thinks the same money can be spent twice. Neither seems to be a desirable attribute for a Chancellor in tough times.

Posted by Ian Kemmish | Report as abusive
 

Unfortunately, like many politicians in the UK today, Osbourne is appealing to the populist banker bashing sentiment of the public in an attempt to gain votes before an election. Banker bashing is going to get us nowhere and capping bonuses in the UK is only going to lead to top talent leaving London. We need to make sure renumeration practices are consistent with the long term wealth creation of the company. Putting an arbitrary cap on them would have the same effect as capping the salary of Man United footballers at 500,000 pounds per year. To the ordinary public, this may seem like a lot of money; but it would mean that all the top players would leave to Barcelona and Chelsea. Anyone with half a brain should be able to see this.

Posted by Adit | Report as abusive
 

If it takes the capping of their “bonus” to make these jokers disappear and go inflict their stupidity on our competitors, then I for one would be turning cart-wheels round the square mile.
They can`t keep trading taxpayer funds with the Treasury, or running up commodities and the indicies with freshly printed money indefinitely, nor can they dig a hole and bury the toxic junk still on their balance sheets.
The sad truth of the matter being, there is not a single investment banker, trader or speculator worthy of the name amongst them, so good riddance.

Posted by dowebuythedips | Report as abusive
 

George Osborne cannot be serious about this. After all, London is the financial centre for the world and not just United Kingdom. If, say, an Investment Banks makes a lot of money by underwriting European or Indian Companies bonds and equities issuing, it does not make sense to motivate them to make less money by lending to local small business. It does not make sense for them not to motivate staff doing such business. It sounds great politically but when he is in the job, he would find a way out.

Posted by Lee Siu Hoi | Report as abusive
 

Who own the the banks..shareholders it would seem that tne
banks are run like government departments and run for the benifit of the staff and not for the greater good of tax
payers. Like all tax systems the cut off point is too low and more property bands for council tax and the same with cars, bigger the engine more tax you pay.
Any Government today must show a fair tax system and block
loop holes. It would seem appropriate that a tax system for bonus payments is overdue and this should be targeted
at city excesses.Tax on travel should be a percentage of the price not a flat fee it is a unfair tax.
We need a serious re-think of making the tax burden fair and just.

Posted by Paul Hodges | Report as abusive
 

I strongly feel that bankers deserve every penny of the money they earn. They are very hard workers and when they generate millions for our banks, who best to reward for that effort, the banker. Money seriously needs to be pumped back into the economy, with the government encouraging spending; the people making the highest contribution are bankers. They are keeping people in jobs by playing golf, hiring child minders, taking holidays and much of their spending patterns. One cannot pump money back into the economy if they cannot earn it. More importantly bankers are the intellectual cream of the nation and should their bonuses be cut there will be a catastrophic brain drain which in turn will diminish the revenue generating capacity of our banks. If Man united generate high revenue, through ticket sales, TV rights, sponsorship and winning trophies, a sensible management need to realise that it is the players that are the critical success factors of their revenue generating capacity and deserve to be paid accordingly lest the transfer to where else they will get better recognition. On the whole I think bankers deserve every penny they earn.

Posted by Aylwin Yafele | Report as abusive
 

I think this needs to be put into perspective here, george osbourne is calling on the nation for support in the upcoming elections, what better way to do this than to banker bash as the majority of the nation believe that bankers bonuses should be cut,(but can anyone give an intelligent reason as to why, and not what has been pumbed through the media)the big bonsus that are being talked about here are being rewarded for success not failure, why should we punish bankers for thier hard work in developing the economy at a time in which we need it most

Posted by Mark Armstrong | Report as abusive
 

“can anyone give an intelligent reason…?” Yes and here it is; the bonus amounts have been calculated on business generated by these individuals using virtually “free” money supplied courtesy of unsustainably low government engineered interest rates, and also through so called quantative easing – that`s backdoor devaluation of the currency to us laymen – which will eventually have to be paid for by the British taxpayer along with the massive losses still sitting on the balance sheets of most British banking instituitions. Putting it succinctly, the so called profits these miscreants have booked are bogus and a pure ficton.

Posted by justspintowin | Report as abusive
 

In response to the comment above, I’m afraid your ignorance is rather outstanding as is your lack of understanding as to how the economy works. First of all, may I point out to you that the government has only taken stakes in Northern Rock, RBS and Lloyds. Not a single penny of UK taxpayers money has gone into Barclays, HSBC or any UK subsidiary of the main US investment banks ie Goldmans, JPMorgan, Morgan Stanley etc. Even in these institutions where the government has lent money by buying preferred shares, they have negotiated laughable terms such that when they come to sell these shares when the economy recovers in a year’s time, the “taxpayer” will make a MASSIVE profit on these investments due to the warrants on these shares. Secondly, what makes a government investment any different from a private investment. The aim is the same, to make as good as a return as possible. And the only way to do that is for banks to make a lot of money and for them to do that, they need to retain the top talent. Record bonuses paid this year are due to record performance. Does Lloyd Blankfien or Bob Diamond deserve a $50m bonus this year? YES they do, because they have navigated through the financial crisis with excellent results and made a lot of money. Perhaps you dont realise how important the city is to our economy. You may verify these figures if you want, but 26% of UK corporate tax comes from investment banking!!!! Like it or not, it is not small and medium enterprises that drive our economy, it is the big investment banks. One square mile in the city contributes a direct 8% to our GDP. Not mention the amount banks spend in the economy on things like property, charitable donations, lawyers, accountants. If for one second you think we can do without banking, you are deluded. We need to make sure London remains the world’s premier financial centre and to do that we need to encourage the city to retain the top talent, remain entrepreneurial in our banking practices and reward success accordingly. Would you rather live in a world where bankers earn millions, but similarly contribute so much more to the economy, or live in a world where bonuses are capped but the economy doesnt recover and we lose our status as a financial superpower all in an effort to please voters ahead of an election! The choice is yours; satisfy your insecurities or think about the future!

Posted by Adit | Report as abusive
 

To answer yours above; without the massive worldwide financial intervention undertaken by all major central banks last year, none of the financial institutions you mention would be around today, therefore the terms negotiated and accepted by the banks for preferred stock, warrants or other forms of security is irrelevant.
Just suppose, and this is mere conjecture, that the economy does not recover in a year`s time as you have been reliably informed that it will, have you or your compatriots got a plan B, or will you just have to rely yet again on the largesse of the taxpayer?
The total tax contibution to the UK economy from the financial sector over the past two decades has been insignificant when compared to the losses already sustained and those yet to be disclosed as a direct result of the recent over-leveraged derivative and asset bubble blow-outs.
Finance is only the means to an end and not an end in itself, commerce, trade and the efficient use of capital generate the only real and sustainable path to wealth as you will no doubt learn in the not to distant future.

Posted by justspintowin | Report as abusive
 

The critical issue is whether the bonus payment is really tied to the true performance of the company and to the economy as a whole. The key issue is not the absolute size of the bonus payment but the revenue/cost ratio. ie If I give you one dollar, can you make two dollars for me. If you can, I would share a percentage of the profit with you. To be fair, this ratio should be the same for small or large banks. Indeed if we risk-weighted the profit, this ratio should be the same for all listed companies. The trouble we have with the current system is the existence of Special Investment Vehicle or SPVs which in fact is a tool to arbitrage regulators.

Posted by Lee Siu Hoi | Report as abusive
 

The only thing that matters is that the UK banks must remain competitive in all respects with foreign banks. Everything else in the current debate is just a symptom of the malice which has become entrenched in British politics over the past decade.

Probably the best regulatory action to prevent a recurrence of the 2008 collapse is also the simplest. Split the investment operations of the banks away from their retail operations and ring-fence each from the other. Then let them stand or fall like any other business.

Posted by Jason | Report as abusive
 

“The critical issue is whether the bonus payment is really tied to the true performance of the company and to the economy as a whole”; this is correct in my opinion, as there could be no valid argument against pay related to specific medium to longer term performance of the individual and the institution concerned.
Equally, a resolution of what Professor Nouriel Roubini has referred to as, “the privatisation of profit, and the socialisation of loss”, also needs to be urgently addressed.

Posted by justspintowin | Report as abusive
 

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