Hester Waives Bonus

Stephen Hester, CEO of RBS, has bowed to political pressure and has waived his £1M bonus.

This is of course a Pyrrhic victory for those who were baying for Hester to waive it.

Had he taken the bonus, a large chunk would have gone to the taxman; as it is, the decision to waive the bonus has knocked a chunk off the value of RBS shares (which are owned by the taxpayer).

Be careful what you wish for!

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Project Merlin

George Osborne will in the next hour announce details of the agreement reached between him and the banks wrt bonuses, lending, behaviour etc (aka Project Merlin).

It is predicted that the top five banks will increase available loans to businesses by around £190BN.

The banks will also pay lower bonuses in 2010, and disclose the pay of their respective top five executives.

Doubtless the bonuses will be lower, but will there be compensation for lower bonuses in the shape of other incentives eg options?

Reality and politicians promises are often far apart.

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Let The Good Times Role!

As David Cameron sheds tears today for the average British householder, who will face a "difficult and tough" year ahead, it is reassuring to know that the banking sector is booming again.

The Telegraph reports that four HSBC, Barclays, Lloyds and Standard Chartered will announce combined profits of £24.2BN (a rise of over 10% compared with the £21.5BN they reported last year).

To some extent these profits (and associated bonuses) will be recouped by taxes. However, the key to the banks' "reassimilation" into "polite" society will be whether they show that they are willing to lend more to businesses and homebuyers than they have been doing of late.

Seemingly, as discussions between George Osborne and the banks over lending levels (aka project "Merlin") have become deadlocked, it may be a while before banks (by their actions) are "reassimilated".

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RBS Pushes For Bonuses

Despite the fact that it is now a state owned bank (one that almost destroyed the UK financial services sector during its previous existence as a private bank), RBS is trying to push the government to allow it to pay bonuses.

Maybe the government and the hard pressed taxpayer might look upon this request a little more favourably, if the FSA first published a full report into its 18 month "investigation" in to RBS.

However, the FSA is very reluctant to do this and indeed has handed editorial control over to RBS for whatever whitewash is published.

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Clegg Plays To The Gallery

The coalition Deputy PM, Nick Clegg, has used his party's conference as an opportunity on BBC radio to play to the gallery and indulge in "bashing" banks' bonus schemes.

The Independent reports that he warned the banks that the government would not stand idly by if they paid senior staff "gratuitously offensive" bonuses. He has raised the prospect of a new levy on banks, insisting that the government reserved the right to take "serious action" if banks went ahead with "ludicrous, sky-high bonuses".

All very well as a soundbite.

However, in reality were the government to continue down the path of "punishing" the banks and trying to regulate bonuses schemes, the banks will simply "up sticks" and move their offices and staff to other less "hostile" regions. The resultant fall in tax revenues will far outstrip any revenues that a bank levy might hope to raise.

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Bankers' Bonuses

The European Parliament has approved a plan to place limits on bankers' bonuses from as from next year, the rule will be applicable to all 27 EU members.

Bankers will receive no more than 30% of their bonus immediately and in cash, the limit falls to 20% for larger bonuses.

The remaining payments will be deferred, and linked to long-term performance.

There will be no cap on what bankers can be paid.

This will have precious little effect on bankers:

1 The rules will not be enforced until next year. Therefore this year bankers will ensure that bonus payments are front end loaded, to avoid the limit next year.

2 Pay levels will be increased to avoid the limits.

3 Banks will circumvent the rules by paying bonuses offshore.

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The Plans of Bankers and Men

The world's finance ministers from the G7 are meeting in Downing Street today, to discuss how best to avoid a repeat of the 2008 financial crisis.

The meeting has been given added impetus by President Obama's proposals last week to rein in the power and size of the banks.

Lord Myners, the UK's City Minister, wants banks to cover any future bailout costs and favours an insurance levy. A global bank transaction tax is also being considered.

Doubtless every effort will be made to prepare plans against possible future contingencies. However, markets will always rise/fall and economic crises will return no matter what rules and safeguards are in place.

Goldman Sachs, sensing that the political tide is currently not in their favour, have announced that they will cap the pay of their top 100 executives in London to £1M.

That of course leaves their non "top 100" executives free to be paid more than £1M.

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Going For Broke

The Times reports that there is anger and confusion in the world of broking, over the government's "bonus tax".

Brokerages are still unclear as to whether they will be hit by the tax. It seems that one firm is considering not paying it, whilst others are preparing a joint approach to the Government, arguing that they should not be caught by the tax as they did not receive any bailout money.

This confusion is hardly surprising, the heart of government is known to be confused and directionless; therefore any policy announcements made are themselves confused and directionless.

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Overpaid But Currently Worthless

Stephen Hester, the CEO of Royal Bank of Scotland (RBS), has told the Treasury Select Committee today that his parents believed that he was overpaid.

However, in his first year of tenure he has agreed to take no salary and his bonus is linked to the RBS share price (theoretically it might be worth £10M over 3 years). This means, at the moment, his package is technically worth zero.

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Cretins

Were the ordinary voter ever to require proof that we are being governed by cretins, the leaks from the Treasury about the "success" or otherwise of the 50% tax on bonuses makes for interesting reading.

It would seem that the 50% "one off" (if you believe that this is a "one off", then I put you in the same boat as our illustrious government) on bankers' bonuses is not having the effect that the government wanted it to have.

Our "leaders" wanted the tax to discourage banks from paying high bonuses to their staff.

Anyone with the slightest understanding of human nature will understand that when it comes to money, and governments trying to forbid people from making money, human beings can be remarkably stubborn and creative in the methods used to avoid government interference.

Therefore, as predicted, in the short term the banks will be paying out the bonuses (in one form or another) and either absorbing the increased tax themselves or finding ways to avoid it.

Needless to say they are also looking for ways to transfer their operations out of the UK, in order to avoid the unfavourable tax regime being implemented by the government.

Does this matter to you and I?

Of course it does!

The City, like it or not, provides a large chunk of tax revenue for our "illustrious" political masters to spend on their pet projects. Once the government starts hacking away at the money supplied by the City, there is precious little left to do but increase the tax burden on the rest of us.

The fact that the government is disappointed that bonuses have not been curtailed, indicates just how cretinous they are. The higher the bonuses, the greater the tax take.

The Treasury will do very nicely out of this bonus season, raking in around £4BN.

Such a pity that during times of plenty Brown overspent the surplus, and left us with a massive debt to pay off.

As said, we are being governed by cretins!

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Bleed The World

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The Pre Budget Report III

As predicted, Brown's and Darling's plans for a bankers' bonus tax (levied to divert attention from the 1% rise in National Insurance) is rapidly falling apart.

Both HMRC and the Treasury have been forced to admit that that the draft legislation on bank bonuses is poorly written, and will have to be revised in the New Year.

It seems, as ever with Labour's shoddy legislative drafting, that the net for this tax could be drawn very wide indeed (eg more than just "bankers").

HMRC are stressing that asset management firms (including those owned by banks), hedge funds, investment advisers, private equity and family offices would not be hit by the tax.

However, no one believes them!

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The Pre Budget Report II

Alistair Darling has been more than a wee bit canny, wrt his tax on banks paying bankers' bonuses.

Whilst it may or may not raise £500M, it has created such a media stir that the real pain of the tax rises (another 0.5% on National Insurance - over and above the 0.5% rise already coming in) has been "forgotten". This tax will raise several billion.

The fact is that taxes have been pushed up, and we are all going to be paying far more to this government.

Darling's bankers' bonus tax is merely a bit of window dressing to distract the voters' attention.

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Windfall Tax

Governments, much like ravenous dogs, always become very overexcited at the smell of someone else's money. When they find out that there are large sums being paid out, they want a cut of the action as well.

Therefore, it should come as no surprise at all to learn that Alistair Darling is considering imposing a special windfall tax on bankers' bonuses next year.

Taxing the banks themselves would be counterproductive, as it would be taking money back that has only just been pumped in to prop them up.

Will a windfall tax on bonuses achieve very much, in a tangible sense?

That depends on the nature of the tax, and as to whether the recipients of the bonuses find a way to avoid it.

Whilst, as has become the norm with Brown, this may well play "nicely" to the gallery of envy, in the long run it will achieve very little. It will not come close to balancing the books, and will drive away high earners from the UK to other less taxing environs.

Meanwhile the Centre for Economics and Business Research has warned that in a decade, the UK could drop from being number 4, in terms of the economy, in the world to being number 11 by 2015.

heavy taxes and stifling bureaucracy will bring that possibility ever closer.

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£850BN Justified

The National Audit Office (NAO) report that the cost of bailing out the banks has so far cost us £850BN. However, the final true cost will not be known for many years.

The NAO state that the bailout was "justified", as there have been no "disorderly failures". However, the NAO then goes on to qualify the report by noting that:

"There is no single measure of success, but a range of indicators have since stabilised and improved."

So that's alright then!

Meanwhile, kudos to Barclays Capital for showing how ridiculous any government cap on bonuses will be. Barclays Capital intend to award certain staff a backdated payrise of up to 150%, thus mopping up the bonus pool.

Labour governments never seem to learn how powerless and impotent they are, when it comes to trying to impose pay policies.

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The RBS Bonus Row

The row over the proposed bonus payments for RBS executives and management doesn't look like it's going to go away anytime soon.

RBS, the taxpayer owned (70%) wreck of a once fine bank, wants to pay its senior staff £1.5BN in bonuses this year (they are expecting to make £6BN in profits this year).

The government, playing to the gallery, has insisted that it has a say in how much should be paid and have threatened to veto it. The board, not unreasonably, point out that it is for them to make that judgement and have threatened to resign.

As ever with Brown and his lackeys, whatever they touch simply turns to shit. However, this is not the end of this farce.

Lord Mandelson, the Business Secretary, has come out on the side of the board.

He is quoted in The Times:

"I understand the point of view that RBS directors are expressing. They have to remain competitive in the market in recruiting senior executives.

That is why it's important that all the banks are equally restrained and RBS is not singled out, but nobody is suggesting that that will happen."

In other words, don't shoot yourself in the foot just to play to the gallery.

The trouble is, Brown loves to play to the gallery.

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Heads Banks Win, Tails You Lose

The banks have had a rather good week, from their perspective, in addition to winning their case at the Supreme Court over bank charges they have also managed to come out of the Walker Review unscathed.

Banks will only have to disclose the existence of all £1M pay packages. However, the recipients can remain anonymous. Additionally, this new requirement only comes into force for the 2010 calendar year.

The 2009 bonuses will have long since been spent on cars and houses by then.

Champagne all round!

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RBS Slips Deeper Into The Mire IV

Finishing off what has been a truly appalling week for the wreck of the once proud Royal Bank of Scotland (RBS), it announced losses today of £1.5BN for Q3 of this year.

Bad debt write offs (£10.8BN) are over three times that of the same period last year (when they were a "mere" £2.7BN).

RBS "hope" to return to profit in 2011.

Sir Fred "The Shred" Goodwin has certainly left a legacy, I wonder if this is the one he dreamed of?

Quite why some his acolytes still hold senior positions in RBS, and are to receive bonuses (albeit deferred) remains a mystery.

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RBS Slips Deeper Into The Mire II

Hot on the heels of the news that the Royal Bank of Scotland (RBS) will have to conduct a forced sale of some of its well known brands (eg Churchill) and that a further 3700 jobs (on top of the 16000 already lost) will have to go, RBS have also announced that it will be deferring the bonuses of higher paid members of staff (over £39K per annum) and board members until 2012.

RBS and Lloyds will defer bonuses in return for an additional £40BN of our money.

Part of the bonus payments will be deferred, and part will be paid in shares; ie there is no "bonus cut" as such, merely an adjustment as to how and when the bonuses will be paid.

Given that these two banks are in a complete mess, I don't fully "grasp" how it is that any senior manager is entitled to receive a bonus.

I would also note that by paying part of the bonuses in shares, the current shareholders will find their holdings diluted, and the management will be incentivised to talk the value of the shares up in future in order to maximise their personal gains.

Is this really an improvement in the corporate governance of these two failed banks?

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Banking Bonuses

The Conservative Shadow Chancellor, George Osborne, is calling on the government and the Financial Services Authority to ban large cash bonuses for retail bankers; he wants cash bonuses capped at £2K, with the rest of the bonus paid in the form of shares.

The theory being that the £20BN saved could be lent to consumers and businesses.

Fat chance!

Osborne laid out his views at a Reuters, in Canary Wharf.

The cap would only apply to High Street retail banks, and the investment arms of banks that also lend to consumers.

All very well.

However, the dilution of shareholdings (as a result of the issuance of new shares in lieu of bonuses) will not necessarily please the shareholders.

I would also remind the Tories that one of the route causes of well publicised spectacular frauds, such as Enron, was rewarding executives with shares in the company. This provided them with a massive incentive to talk/manipulate the performance of the company up, in order to increase the value of their shares.

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