Sunday, 24 January 2010

British Banker Bonus Bonanza? BOGUS!!!

See? I'm so indignant about the whole thing that I had to express it with B's! I mean - after you read the title of this post didn't you feel like saying 'Bahhhhhhhhhhhhhhhhhhhhhhh'.

It all started with this article... OK, I lie, IT all started with capitalistic banking desks betting that the value of property could never go down (I'm exaggerating of course) and mortgage brokers stopped doing due diligence when assessing the credit risks potentially presented by new customers... yada yada yada. We all know the story.

The Credit and Collateralised Debt desks across the Investment Banking universe virtually imploded, banks (retail and investment) were crippled by the blast, others were brought to their knees before coughing their last, spluttering amidst the dust and fumes of the rubble and fading into the ether (cos you and I know there is no banking heaven...).

Jobs were shed as quickly as a fur coat at a PETA conference.  There was a 'weeping and a-wailing and a-gnashing of teeth'. The good years were over, belts were tightened, heads kept down. Whomever raised their necks above the parapet was handed his/her redundancy cheque. Things generally sucked... and the maelstrom that hit the Financial Services industry was so severe that it threatened to bring down the entire financial system.  Imagine that - a global recession triggered by what started as a few missed mortgage payments. This is how interdependent we have become on a global scale.

The other 'B' word was bandied about: "BILLION-DOLLAR BAIL-OUT!"  As companies failed (mostly banks and insurance companies followed by tremours in the Motor Industry as credit lines became increasingly illiquid tempers flared and the underlying anger felt by the masses rose....

That tax payers' dollars (and pounds) were being used to 'bail out' these companies angered many.  Probably rightly so, although some argue that since corporation tax is at 50% and the richer members of society also pay close to 50% tax then really the money the banks were being bailed out with was largely supplied by the banks anyway.

I'm not gonna get into that, although I did recently hear the statistic that the richest 15% of the UK population is responsible for 50% of the UK's revenue from taxes... if this is true there must be some superbly 'rich b**tards' living in the UK!

Anyway - we were talking about what made me descend into a string of B words.  It was this article (and the millions like it)

Bank Slashes Bonus as Tax Hits Home  
(I should mention that any UK bonus greater than £25k is now subject to 50% tax. Bear in mind that most Investment Bank employees already pay tax at the higher rate of 40% anyway...)

And this article:
Goldman Sachs Bonus Cut - the following sentence in particular...

"Goldman's 32,500 staff, including 5,500 people in London, had been expected to receive more than $600,000 US (£300k) each from a "compensation pool" usually amounting to about half of the bank's revenue.”
This is such poor reporting and yet I have been hearing this and similar stories all week. I mean honestly now, do you really believe that EVERY employee in this Investment bank will receive an average bonus of £300k? Really?

And will Joe Bloggs in the street really read that article or hear that report on the news and think: 'oh that's just the average some will get more, some will get less"? Or will it just sink in as

"there are 32,500 staff and they were each going to get over £300k but the government stepped in and stopped it."?
Cos that's just plan wrong... and irritatingly misleading... and this is what is annoying me!

I don't work for Goldman Sachs, but I have worked for 3 top tier Investment Banks and a good portion of my employed friends work for IBs too. Sure you have highflying traders and sales people along with other Front Office personnel who earn massive commissions and generate millions of dollars in revenues for the company. Yes. But you also have the other 3/4 of Bank staff who support these guys and perform all the Middle Office and Back Office functions to keep the bank going - accountants, controllers, compliance officers, legal teams, HR & Administrative Staff, Technology and Operations - just to name a few. 80% of these people do not take home £100k a year, many of them will get an average bonus of what? £5-10k? £15-20k (or higher) if you're more senior and it's been a good year? The highfliers at the top (and/or in Front Office) skew the average calculation.

So it feels like the 'public' - no let's call it the media - the media are stirring such discontent amongst the public that they're ultimately making Joe from Ops and Judy from Product Control (as well as Dennis for Equity Trading) pay for the problems/mistakes of Magnus from the Credit Desk… and I don't really like that at all.

If Judy got £10k as her bonus (after expecting none) I think she sure has a right to go hop skipping down the lane as happy as a lark cos someone noticed she did a good job (while the rest of her colleagues were getting laid off).

However, that's not the world we live in - if the media catch Judy rejoicing to her husband on her mobile phone on the way home simply because she's happy to have received any bonus at all this year - they will assume she is one of 'those Bankers'  and crucify her even though the woman probably only got £7k!

Listen Judy, girl, don't hop and skip... you'll get fired and that's not on.

Anyway - I just wanted to get that off my chest. Phew.
Rant over.

ps. before you get me wrong - I don't think that any of the teams on the desks responsible for the deep pile of toxic debt that brought down banks like Lehman Brothers etc should receive whopping bonuses either. In reality many of the senior members of those teams were fired, followed by a 'restructuring' exercise resulting in a downsized desk (fuelled by many redundancies) - so the people who are left, on the desk and elsewhere in the Bank are people who have been working their butts off a) to keep their jobs so they can pay their own mortgages and b) to save the Banks from going under (so they can keep their jobs and pay their own mortages). And remember these people have been working in unsavoury environments, with little job security, watching members of their teams/departments disappear and listening to news reports of public outrage at potential bonus payments. Maybe the guys at the top - like the CEOs etc who are likely to receive millions of dollars in bonuses should forgo theirs this year so that Judy etc can have her £7k in peace.

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Anonymous said...

Bar humbug Lily!
The Ballers & High Rollers need not get those types of bonuses (even though I do accept that they skew the perception...).
They are teef!

Anonymous said...

Bajan, you have said what has been on my mind for quite some time.

When I listen to the news and they talk about all of the IB bonuses I think to myself... I hope people realize that only the bankers in the front office that get commission and senior managers get those type of bonuses and that the people that work for the bank in support roles are just hoping for something at the end of the day.

And I agree that these day when Judy gets her 6k (after taxes even 7k is a bit on the high side), she better keep it to herself or she may offend the public, because, as she works for a bank she must have contributed somehow to the financial crises. LOL.:)"

Bajan Lily said...

£6k? If she's in the 40% tax bracket - she'll be lucky to see £4k of it.
Tax & National Insurance are killers!

Miss Elliot said...

Lily, I love you. But what about the public sector workers who have lost their jobs and won't be getting any wage, let alone bonus.

I can't feel anything much for the 'lowly' 80k a year worker getting a 15 k bonus when my fireman friend is now on nothing and fires still happen and people still die (whereas mortgages aren't really happening anymore and people are losing their homes, really ;)

You work for an investment bank, and those banks have little to no social value at all and that is just the way it goes.

Kisses x

Bajan Lily said...

@ Miss Elliott:
In my example - there's no way Judy is earning 80k, but she IS likely to be earning say 45-55k; I think for a Fireman is £27-50k depending on grade. So comparatively yes, but if the fire dept was a profit making enterprise, and they made a profit, shouldnt the fireman be allowed to have his extra 5k or whatever at xmas?

That aside - I know you love me and I love and respect you and your opinions so I aint taking offence at nuttin you write - you raise valid points. Society is skewed in that the most essential people (key workers) are not the most highly rewarded in monetary terms. I can't argue with you there.

GrenadianGurl said...

I believe that at least there must be at least an APPEARANCE of contrition and propriety, why is it imperative this year- that Judy gets a bonus? That's the point.

After I am still paying taxes and receiving no bonus (even though I did a good job) what makes Judy, whose company is responsible, more entitled than any one else? Its this sense of entitlement I do not get or share.

In the real world, most people don't get a bonus; its not a must. Bonuses are for bonanza times (another B), not for six months after the big bust.

Bajan Lily said...

Ok GG, lol re: the b words (smile); as a lawyer, I'm glad you commented.

From your post, I gather that the root of this 'dissent' then is related to 'Judy' getting a bonus in 'Bad' times.

Thing is that a lot of the IBs have actually made profits during these BAD times and so those who are responsible for that think they should be entitled to their bonus.

When I refer to the 'root' then, I'm guessing that it is 'the principle?' i.e. that the companies who were responsible should for example repay their bailouts before they pay bonuses to ANYONE - be it Judy (whose dept made a profit this year) or Magnus (whose dept helped triggered the mess in the first place). Am I getting you right?

Bajan Lily said...

Some IBs have repaid their interim loans, plus any profits would be subject to 50% corporate tax, so the govt IS getting paid (just as they were when the IBs started making profit from those 'questionable practices' in the first place. aah yes, the watchdogs were sleeping).

I also agree that RBS who's only 'alive' today due to tax payers dollars should probably not give bonuses BUT if they don't pay bonuses how will they retain the workers they need to help them generate the revenue they need to repay their debt to society? I think they're definitely between a rock and a hard place though - don't you think?

And yes, some of the reported/proposed bonuses have been obscene. Which really doesn't help.

Miss Elliot said...

I still can't feel bad for Judy making a small bonus, or 55k since that is more than twice the average UK wage if I am correct. AND, though she is not front office, and was not directly involved in erroneous valuation practices, in her supporting function she still helped facilitate it, so dem's da breaks.

The next govt will cut public sector pay and employee numbers because our public debt is so high, when at the same time, the banks make the weak excuse that they must pay bonuses because otherwise their employees will flee to other competitors. Do they say that with a straight face? Everyone can't go to Barclays and HSBC!

All big earners pay a lot in taxes, not just bankers. In fact bankers have exposure to some of the most savvy tax efficient practices, I'd argue. And the point is that these banks have recently been (and some still are being) supported by the public purse, so it's just as well they were taxed (corporation and individuals), because left to their own devices, it would be in the tills of Hakkasan and on the shores of Marbella right now, not in their tier 1 capital reserves! That's not even touching on the ludicrous idea that taxes should be an emergency piggy bank for private investment banks or high street banks trying to play with the big boys and failing pitifully. So Goldmans has paid it back now. So what, it's too late for thousands of people, far far too late. Such short memories the rich have.

Bottom line, bankers (front or back office, doesn't matter) are making a bonus when my teacher friend is literally losing her house because she can no longer afford the mortgage regardless of whether she was paid enough or not in the first place. That's another question. I use public sectors examples because these are precisely the positions that should be guaranteed by govt, not private sector bonuses.

When I was young the elders always said 'who can't hear must feel' and I am sorry, that is not happening to the bankers right now.

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