Chris Blackhurst in yesterday's Evening Standard:
Bank bonuses are only so high because their profits are high — the two are joined at the hip.
Banks earn their corn from acting for companies and institutional investors. Usually, they will charge five to eight per cent on a deal, and the client pays. No questions are asked, they're not challenged to justify that figure.
The reason is twofold. The client is dazzled in the headlights of the bank, which goes to great lengths to impress. No detail is left to chance to leave the company or investment fund feeling they are in the presence of greatness.
It starts in the glorious reception area (paid for by the customers, of course) and continues with the impeccably-dressed banker, the fine dining over lunch, the art on the walls, the deep carpets and antique furniture. It carries on with mention of other clients and deals the bank has completed.
The bank plays upon the client's insecurity and the desire to be part of the herd. It will describe how only it has the muscle and brains, how it can call upon an array of close advisers — themselves with splendid offices, smartly-dressed staff, similar patter — also charging the earth. Hands are shaken, the transaction is the bank's — and the fee.
There is a second aspect as to why the client takes the bill on the chin: it's not their money. A public company chairman agrees to stump up £100 million on a takeover. It may seem a lot, but it's not his £100 million. Likewise, a pension fund trustee may assent to a £50 million charge for a clever bit of financial engineering that improves the strength of the balance sheet. Not difficult, it's not his £50 million.
Whose money is so blithely paid over? In many instances, given the size of the pension industry, it's yours and mine. In the case of the Government paying banks to handle the sales of its bonds, it is also ours.
There's no incentive built into the system for clients to save us money — they're not rewarded for reducing the fees they pay to banks. At the same time, given the clubbable nature of the City, they do not want to be seen as awkward, as troublemakers — particularly if one day, they aspire to gain the better-paid job ... in a bank.
Diamond may be shameless, but he is only in post for a short while. Right now, he is merely a high-profile, highly-paid beneficiary of a machine that is faulty. It needs fixing or else there will be plenty of other Bob Diamonds and we will still be fuming in the years to come.
A grim document
14 hours ago
11 comments:
And this is new knowledge? And of course it hugely helps if you are part of state sanctioned cartel and your businesses can't go bust and you have official sanction to renege on your liabilities.
L, no it is not news, but I liked the way he explained it is all 'other people's money'. He was also referring to investment bankers rather than the usual borrowing/lending crapola (which is indeed a state-protected cartel).
If the bonuses are forgon you would think the money went to good causes, the way the media and politicians comment on it. Actually it would go to the shareholders, where it is actually taxed at a lower rate.
MW - Agreed very much. 'The 'it's our money' thing is mostly ignord by bankers and politco's - and the BBC of course.
Blackhurst is an idiot and this is a terrible way to explain things. Who pays £50 million for some pension fudn advice. Don't be silly.
He is massively over-exaggerating.
The main issue is the sums involved. 1% fee on a billion is a lot, most of us deal with tiny amounts in our jobs, so 1% of say £100k is not much. Bankers get to play with billions so they get the smae cut as everyone else for working hard, its just the cut is 1000x the size because of the money involved.
Of course, there is cause to ask why the percentages don't drop as volume increases, the question here is for the fund managers and so the OPM factor is a problem. but as Blackhurst says but does not logically follow through - the issue is not the bankers here is it? It is the muppets who pay em and fund em.
D, it has nothing to do with good causes, it has to do with OPM. Taking pension funds as an example, more or less the entire value of the tax breaks is soaked up in fees and comissions.
CU: "the issue is not the bankers here is it? It is the muppets who pay em and fund em."
Sure, the 'muppets' are spending OPM and the bankers and middlemen are helping themselves to OOPM, the auditors who audit the investment banks then live off OOOPM, and the people who regulate the auditors live off OOOOPM, and so on ad infinitum.
MW@14:07. Quite, me and you are 'overheads'. But at least we 'add value' and a subject to 'competition' and pay real taxes.
Regulators and nationalised banks(?) are tax consumers.
Hi Mark , my comment could be clearer, I'm not defending the large sums , I just note that the commentators requesting that the payment not be taken do not state where they think the money will go in that case.
D, your comment was perfectly clear.
The whole point is that investors/pensions savers/unit trust unit holders (what CU refers to as 'muppets') etc. allow their money to be creamed off like this.
So it's not a question of whose pockets all the lovely commissions should end up in, those commissions (or massive director's salaries wouldn't be taken in the first place if we had more shareholder activism (or pension fund saver activism etc).
Which gets us back to the MW manifesto - if we scrapped all these tax breaks for collective investment schemes (and cut taxes as well to balance the books), we'd go back to the old culture that real human beings own shares in these plc's (instead of 'institutional investors') and some of these shareholders will turn up at shareholders' AGMs and kick up a right old stink about [whatever].
An opportunity missed here to sign off the article with "Diamonds are forever".
DBC, diamonds are made of pure carbon and thus they burn quite nicely.
Post a Comment