Osborne Attacks Banks, Only Somewhat Coherently
Previous news of mid-recession banker bonuses was met with house-vandalising, incoherent street marching outrage and shock, presumably because most people hadn’t realised just how much money these guys make year in year out. But now the next wave of bonuses are coming round, predicted to total £6bn, and the shock has become dulled into a mirthless lack of surprise. And anyone who’s been following the snail that is progress on this issue will also probably feel grudging acceptance towards the news.
Not George Osborne though, who has seen the pretty obvious vote-securing mileage in the bonus debate, and is going in guns blazing. He called yesterday for retail bankers’ cash bonuses to be ditched in favour of shares, which would be deferred for three years. The cash would then be funnelled back towards new lending.
The reaction from the banking sector has been somewhat frosty – everyone’s coming out with the usual jive about having to keep the City competitive and that not being possible without a bag of gold being plonked on everyone’s desk once a year. Meanwhile, Goldman Sachs’s vice chairman Lord Griffiths hasn’t helped rehabilitate the sector’s image by grumpily saying that people should “tolerate the inequality” – OK, it’s the elephant in the capitalist room that the system is geared towards making certain people richer than others, but you really shouldn’t mention it during a recession when everyone already hates you. But while it’s unequivocally clear that reform is needed fast, you can see the point in some of the beefs the bankers have with Osborne.
It’s true that his arguments are a little simplistic and mechanical, and certainly geared for maximum leverage among the electorate. The banks aren’t being held back from further lending by the cash earmarked for bonuses, and yet those are the terms Osborne has defined the situation in. And banks couldn’t possibly provide share-only bonuses without issuing more shares, thus diluting the value of the taxpayer stake and tying us to the banks over a longer term. Meanwhile he’s gone after the big high street banks which we all recognise and who have our taxpayer money, but not after the other companies who are instantly feeding their cash back to their workers instead of paying it out in a more stable and sophisticated way – the investment banks, the FTSE 100s.
But his attack on the apparent reluctance of banks to extend lending was given extra weight this week by the scrutiny on Lloyds, after their private equity arm has made a sixth of all buyout deals this year, plus a £400m deal currently being negotiated. The arm isn’t a free-standing unit with Lloyds’ branding, but uses the retail bank’s balance sheet to conduct its deals – the charge likely to be levelled at them is that they should be funding more small businesses rather than milking it off big established ones.
It’s good to have the likely future Chancellor pressing away at the issue of remuneration, but he has to do it on relevant terms – it’s in the interests of the banks to co-operate, given their image needs a major collective fillip, but aggressive and illogical attacks will only serve to prolong the already interminable progress of change, as a battleground rather than a round table is formed.
Which is what we have at the moment. Even if the regulators had cracked down instantly on bank bonuses, the resulting legislation would probably not have come into force by now anyway. But with the global discussions making their way through a very slowly yielding network of red tape, and the lobbying power of the banks still apparently very influential on the FSA, we can expect this same story next year.
Photo: Alan Dean
Posted by Ben Beaumont-Thomas in Hot Money | October 27, 2009 1:09PM |