By Ian Fraser
Date: 2 February 2012
Financial commentators are, suddenly, in demand and it’s largely down to the continuing failure of banks to properly reform themselves in the wake of the global financial crisis and public rage about bankers who continue to award themselves massive pay packages even though their institutions are under-performing.
According to a Guardian Review article from January 28 (New masters of the media universe) financial hacks are now being encouraged to break free from the comparative ghetto of the business pages and being asked to try and interpret the arcane world of finance to the layman. In the Guardian article Elizabeth Day wrote: “Where once it was the preserve of financial policy wonks and secretive, high-powered bankers who liked to discuss credit default swaps over breakfast, now it has emerged, blinking, into the mainstream.”
This is a good thing. Over the past few days I’ve been doing my bit for the movement, spending an inordinate amount of time in TV and radio studios — especially those of BBC News and STV News. I have also given phone interviews to BBC Radio 5 Live and a string of BBC regional radio stations across England and Wales. At times it all felt terribly “Drop the dead donkey.”
Initially I was called by BBC News to comment on the controversy surrounding the near £1m bonus being paid to RBS chief executive, Stephen Hester. The board’s remuneration committee had decided he merited the award, even though the bank’s share price crashed by 48% last year, which meant the value of the UK taxpayer’s stake in the bank tumbled by £17 billion. Hester seems to have been genuinely rattled by the abuse to which he was immediately subjected by politicians and the media (there was one particularly nasty piece in the Daily Mail) and, after what must have been an excruciating few days during which he thought he could tough it out, he caved in on Sunday and said he would “waive” the all-share award.
Then three days later on Tuesday January 31, the government of David Cameron decided it was time to strip the “pantomime villain” of the UK banking crisis, Sir Fred Goodwin, of his knighthood. The honour has been given to Goodwin on the recommendation of the Scottish Executive and the government of Gordon Brown for “services to banking” in June 2004.
You could summarize my views on these two topics as follows:
On Hester, I told the BBC News and STV News that since Hester had nothing to do with the collapse of RBS (he only joined after the bank after it had been bailed out in November 2008, with a brief to try and restore it health), it seemed a trifle unfair for him to have been singled out and vilified for greed. I also told BBC News that Andrea Orcel and Matthew Greenburgh, the two investment bankers who concocted the catastrophic three-way €72bn takeover of Dutch bank ABN Amro would have been far more appropriate targets for public opprobrium than Hester.
Orcel and Greenburgh walked off with bonuses estimated at $33 million and $20 million respectively for their part in orchestrating and advising on one of the worst deals in history and their employer, the investment bank Merrill Lynch is reported to have earned total fees of €600 million for advisory services provided to RBS, Fortis and Santander, including underwriting the Belgian bank’s €13.4bn rights issue.
Yet their takeover of ABN Amro meant two of the three banks they were supposed to be advising ended up failing and having to be bailed out by taxpayers! Even though the awards have been roundly criticized by the likes of Paul Volcker, the “captured” FSA decided to gloss over the two investment bankers’ key role in the RBS disaster in its 450-page report , reducing the chances they will ever be held to account, or that their “rewards for failure” will be clawed back.
I also told the BBC that, given that Hester’s contract – which includes a string of very generous performance-related rewards, over and above his “basic” £1.22m salary and “Golden Hello” of 10.4 million RBS shares – was signed off by UKFI and the Labour government in November 2008, it’s rather hypocritical of opposition leader Ed Miliband, who was in Gordon Brown’s cabinet at the time, to argue that Hester should do be relieved of some of his remuneration now, especially given that the Oxford-educated banker has a contractual entitlement.
But my concluding point was that pay and bonuses in the City of London remain excessive and that the “culture of entitlement” among senior bankers and others in the City of London remains astonishingly well entrenched.
As Philip Augar has pointed out, however, excessive pay and the widespread “rent gouging” that goes on are symptoms of the disease, not the disease itself (the disease includes government subsidies worth £100 billion a year to the banking sector; the state’s willingness to rescue banks when they fail and to featherbed the guilty directors; a lack of competition in banking; tolerance of conflicts-of-interest; short-term profit maximisation which leads banks to put their own interests over and above those of their customers; ‘wilful blindness’ among regulators including the Financial Services Authority, Financial Reporting Council, etc, etc)
When it was announced that Fred Goodwin’s knighthood was being revoked Queen Elizabeth II on January 31, I immediately thought it was a cynical gesture. The broadcaster Jon Snow at Channel 4 News, said there was the stench of a witch-hunt and scapegoating about the manoeuvre. I also particularly enjoyed this tweet
— Eddy Ventolera (@atm0spheric) February 1, 2012
My overall take was that taking away Goodwin’s knighthood was a symbolic gesture cooked up in Downing Street in the hope it would placating public fury about “the bankers” – in the vain hope that there could be something like a “return to business as usual” more than three years since the crisis first struck. I added that rather than throwing Goodwin the wolves, what David Cameron and chancellor George Osborne ought to be doing is calling for a:
(1) A no-holds barred, independent, Leveson-style inquiry into all the UK bank failures. That includes RBS, HBOS, Lloyds TSB, Northern Rock, Bradford & Bingley, Dunfermline Building Society, etc. As I have said on numerous occasions, the FSA cannot be relied upon to produce independent reports into the true reasons for their collapses.
(2) Much more thorough reform of the UK’s financial sector than we’ve seen so far. As I’ve said before the Independent Commission on Banking’s proposals do not go far enough.
I also stressed that Fred Goodwin is not the only peer or knight who is culpable for the UK banking crisis. If the government want to take away his knighthood should they not also be revoking and annulling those of Sir Alan Greenspan (ex-chairman of the Fed), Sir Callum McCarthy (ex-chairman of the FSA), Sir Mervyn King (governor of the Bank of England), Lord Dennis Stevenson (ex-chairman of HBOS), Sir James Crosby (ex-chief executive of HBOS), Sir Victor Blank (ex-chairman of Lloyds TSB), Sir Tom McKillop (ex-chairman of RBS) and Sir Steve Robson and Sir Peter Sutherland (both ex-non-executive directors of RBS).
All these people sat on the boards of organisations that made disastrous mistakes, and worse so I suggested to listener’s to Radio 5 Live‘s Your Call with Rachel Burden that was may be needed is veritable “bonfire of the honours” [you can hear me at 50 minutes, 40 seconds].
Writing in the Guardian Simon Jenkins said the best solution would be for the payment of bonuses to be banned. He wrote:
“Ban bonuses. They are mad. Discretionary gifts to top executives from company funds should be considered a malpractice … More alarming is the suggestion that only giant bonuses will motivate staff to rectify the gambling losses of the boom years with new gambling profits. Surely the boards of state banks might consider “public service” a sufficient motive in rescuing their own industry from self-inflicted ruin.””…Past governments banned insider trading in response to blatant abuse. Now the authorities should ban insider bonuses. Let honest salaries take the strain. When I asked one banker how he would react to that, he said he would sigh with relief.”
On the removal of Fred Goodwin’s knighthood, I definitely agree with the Channel 4 News’ Jon Snow. He wrote: “The public is bemused that the criminal law has proved incapable of jailing a single banker for mismanagement of billions of pounds of their money. All the system is capable of is the removal of one greedy individual’s knighthood.”
Hopefully, in the midst of this week’s media frenzy and so-called “mob rule” over failed and greedy bankers, I have managed to enlighten a few viewers and listeners about the broader implications of what’s at stake here. Removing one Glasgow University graduate’s knighthood, or one Oxford graduate’s bonus is a sideshow. And, by the way, I disagree with commentators such as the Wall Street Journal’s Simon Nixon and City A.M.’s Allister Heath who have warned that the current bout of “banker bashing” imperils London’s status as a world leading financial center.
This traditional “exodus” scaremongering story is just that — a scaremongering story.
This article was first published on QFINANCE on February 2nd, 2012