‘Well, I’ve got the lads an espresso machine — after all, none of us can afford coke anymore, how else are we going to stay awake?’ It was nice to hear that one City banker was putting his hand in his pocket and looking after his troops — they may not be getting bonuses, but at least his team were guaranteed a decent coffee. But even this little luxury may have to be confiscated. It simply doesn’t blend in with the new puritanical City landscape, where the amount of milk available in the canteen and what it can be used for is heavily restricted.
Inter-dealer brokers — who spend their time schmoozing traders — are distraught. Most have had no restrictions put on their client entertainment budgets, but they no longer have anyone to play with or anything to claim back on expenses. They were once in the habit of sending lunch to their favourite clients: Gaucho Grill’s finest steaks and Nobu’s bento boxes. No more. It’s no longer deemed appropriate for teams of traders at banks to be gorging when the nearby stationary cupboard is empty due to new cost-cutting measures.
My one-time broker colleagues are instead being told to look out for ‘recession specials’ where they can feed ten traders unlimited chicken wings for the price of one tasting menu at the Fat Duck. Well, the fun had to stop sooner or later and now it has. Finally, the champagne has run out; the free opera tickets and heli-skiing trips are a thing of the past. As George Osborne so succinctly put it: the party is over. Welcome to public sector banking.
Meanwhile, as a backdrop for these relatively austere times the Commons Treasury select committee has been playing its own elaborate game of credit crunch Cluedo: who killed the economy? John McFall and his team have worked their way through hedge fund managers, the media, FSA regulators, private equity executives and Bank of England officials, and now finally this week began to grill the big boys: the former and current heads of the UK’s largest banks.
Tuesday’s hearing saw the ghosts of credit crunch past, Sir Fred ‘The Shred’ Goodwin and Sir Tom McKillop, the former RBS terrible twosome, and Andy Hornby and Lord Stevenson of Coddenham — the former chief executive and chairman of HBOS — spout out vague news-friendly apologies, provoking Mr McFall, in the role of frustrated headmaster to ask, ‘Exactly what are you apologising for? Are you expressing sympathy because your PR advisers tell you to?’
The Committee had to be seen to be grilling the evil bankers, and the bankers had to be seen to be apologising, to placate the British public, but unsurprisingly nothing new was established other than that there had been a bit of sacking and gagging.
Still, the Grand Inquisition continues, and we all wait with baited breath to see if it was indeed Fred the Shred with a candlestick in the library. Meanwhile, there is another plan afoot: the Chancellor’s probe into City bonuses and risk management, led by Sir David Walker (not exactly famed for his investigative capabilities). Maybe Alistair Darling is hoping that by the time the results of this costly inquiry are published, the public will have forgotten all about the £1 billion RBS employees will have already been awarded in bonuses. If indeed there is anyone left at RBS by then. Actually, if they have any sense, they will take their fat cheques and run off into the sunset as fast as possible, because, after all, nobody wants to work for the government.
Gordon Brown is hardly an appealing boss. He wants all those bankers who are legally entitled to bonuses on account of their contracts to refuse them for moral reasons. He says that ‘we are leading the world’ in ‘sweeping away the old short-term bonus culture of the past and replacing it with a determination that there are no rewards for failure and rewards only for long-term success’.
He must have missed President Obama’s trailblazing announcement nearly a week earlier (incidentally only two weeks into his presidency) that he would be enforcing a $500,000 limit on executive pay at US firms needing substantial government aid in the future. Come on Gordon, you’re already lagging behind and you’re clearly about as far from leading the world as you are from saving it.
And it’s not just Brown joining the moral crusade. Anyone who does happen to walk away with a bonus, having vetoed our Prime Minister’s polite request, will have to face the wrath of none other than Vince Cable — the nation’s ‘favourite guru for the recession’ according to last Saturday’s Times — who will be lying in wait with a guillotine chanting his latest banker-bashing mantra, ‘They have no shame and take no blame.’
Almost as ridiculous as Vince Cable’s desire to behead all of our bankers is John Prescott’s Facebook grassroots anti-City bonus campaign. Prescott has chosen to channel Obama, with the catchy slogan ‘Together WE CAN stop them.’ How exactly? Prescott believes in the power of the petition, and a web link takes you to a site that states: ‘We believe this is morally and economically outrageous and the bonuses should be stopped.’
And it doesn’t end there. So far this week I have received a dozen emails asking me to sign various different banker-bashing petitions, demanding everything from an end to bonuses to a ban on all over-inflation salary increases, and a call for all bankers to be put on the minimum wage before being finally packed off to Guantanamo when it is vacated.
But fun as it is to watch fat cats whine and grovel and to grandstand about the need for restraint, a call for capping bonuses and salaries is a ridiculous idea that simply won’t work. On 4 February, when Obama announced the $500,000 pay cap, Bank of America, now practically owned by the long-suffering American taxpayer, saw its shares tumble by 11 per cent. On the other side of Wall Street, the shares of Morgan Stanley and Goldman Sachs were up by 5 per cent and 6 per cent. This was no coincidence.
The very best bankers and traders will be snapped up by the few remaining non-nationalised banks who are still willing to pay top dollar for talent. They may not be the hallowed institutions that they once were, but they are preferable to the new breed of public sector banks that will only succeed in deterring talent. It won’t be long before Goldman Sachs, JP Morgan and friends recover, rise out of the ashes, repay their loans and accelerate off into the distance, free of all dead weight. Watch them: their stocks will continue to rise and there will be limitless bonuses. It is just natural selection.
The rest of the City’s bankers who don’t make the cut will, of course, have to settle for no bonuses, a salary limit, and cheapo chicken wings. They will not make any money, but they won’t care — they will turn up, put in the minimum effort, be careful not to use too many paper napkins, receive their basic salary and go home to their families. Or maybe they will disappear off in search of a more rewarding profession like social work. Serves them right, I hear you cry. But be careful not to let your desire to punish City boys get in the way of clear thinking. Institutionalising failure is never the answer. As witnessed in Wall Street last week, it is the new owners of these public sector banks, the taxpayer — yes, you there, about to sign John Prescott’s petition — who will ultimately lose out. Their shares will continue to plummet and ultimately result in costing the government and the taxpayer even more .
Bankers are not difficult creatures to understand. As a former city girl, I can tell you that they care about money and the pursuit of it. If they sat around worrying about the moral implications of their deals, nothing would get done. The sooner Brown stops expecting a tearful bonus amnesty and instead tries to keep hold of the City’s best players and most profitable teams (remember, not everyone lost vast amounts of money) with the best chance of achieving the ‘long-term success’ that he speaks of, the better.
The idea of ‘long-term success’ is in itself at odds with a fundamental philosophy at the heart of the City, and this won’t change. Successful traders are driven by not only greed, but also impatience — making as much money as possible in the shortest amount of time is an inescapable survival instinct. Thus the only way to achieve long-term success is by offering long-term incentives that outweigh any possible short-term gains that could be found elsewhere.
Alternatively, traders need to be put into padded cells where they can do no harm to public money and be as greedy and as impatient as they want — in effect, a return of the Glass-Steagall Act preventing commercial banks from engaging in any of the risky speculative games that were once only played by investment banks.
We all know that there were hefty strings attached to the bail-out, but it is not the banks’ fault that the government has so far failed to be explicit as to exactly what is now required of their new ‘employees’. Bonus season hasn’t just popped up from nowhere. It’s been around for decades. The government should have been better prepared, and not forced to resort to buying itself time with disapproving rhetoric.
It certainly won’t be long before the British public realise that the only people more ill-suited to running banks than the bankers themselves are Gordon Brown and his merry band of men. So perhaps we shouldn’t be so quick to send our City boys off to the guillotine. Perhaps we’d be better off putting their greed to good use, and offering them whatever bonuses we can to turn around our banks.