NL
Following the handsome profits made by most banks in the first quarter, and the equally handsome amounts put aside by banks for compensation, a debate is raging over the extent to which profits should be allocated in bonuses.
Evan Davis put the question to Barclays’ John Varley in yesterday’s Today Programme on Radio 4.
To what extent, asked Davis, are banks’ recent profits down to bankers’ skill? And to what extent are they down to help from taxpayers.
Varley opted for the former, stating that taxpayers stabilized the system but that the skill of bankers has allowed some institutions [Barclays] to outperform while others [UBS] have struggled.
Rivals appear to be reaching the same conclusion. Stuart Gulliver at HSBC likened his investment bankers to Hollywood stars.
But with banks making almost universally handsome profits in fixed income trading, where central banks have helped grease the wheels, is this really the case? And if not, is it time for bankers to paid a little less?
All this stuff about banks’ profits being the work of taxpayers is a load of guff invented by populist politicians and underpaid fools who’d love to earn real money but lack the intelligence and drive to do so.
Harsh but true doesn’t understand economics, politics or their underlying philosophical foundations.
What profits are there to be made in a collapsed financial system?
Harsh but true,
This is the kind of gratitude we get for saving your job.
Q2 was a no-brainer profit opportunity. The return to risk rewarded anyone who maintained a net long position in fundamentally undervalued assets (i.e. most). The re-rating simply reflected the stabilisation of the financial system. Banks who took advantage of this and used leverage (provided free by the central banks) should have cleaned up. Q3/Q4 is likely to be much more difficult. The fact that many banks would have imploded without government guarantees/SWF capital suggests that without taxpayer assistance most of them would have been starting from zero again. Still, as a homeowner/saver I’m glad the system hasn’t completely melted down. For sure I would hope that the central banks demand an appropriate discount rate for future bailout funds.
Surely BarcLehs chief skill is owning the remnants of Lehmans which are doing okay on the commissions made from selling US treasuries. Every other business is imploding. AbuDhabi cash in Q4 ’08, BGI sale Q1, bought back their debt below par Q2, what tricks are left in the bag for Q3?
This is quite amusing…the market that lost the money through a determination to win at all costs, required government help to ensure it didn’t break the system, so it can return to being the market that must win at all costs, which requires the gamblers / risk takers who can handle the pressure, who require the bonuses to keep their ego’s and lifestyles propped up but are now concerned that the bonuses may no longer be there…because banks have attracted talent from failing organisations which has now tightened the bonus pool. Now we all need bankers..despite what we might say or think, our lives just wouldn’t work as well with out them….but maybe just maybe, the government could make a few policy changes which could stop the top banks from taking so many risks, slow down all out opportunism and profiteering and actually instruct banks to create products which are beneficial to customers and create some sort of sustainability. People blame banks but in my opinion it is the government who is to blame…they allowed sharks to have a free lunch for a very long time…don’t blame the shark, it’s born to hunt, born to eat, blame the people who are too lazy to control the shark..
Good analysis RM… The man on the street thinks nothing of someone being paid 3 – 5m a year to kick a ball around in their beloved ‘game’.
The fault is with government and regulators. Nothing has been done to protect the consumer, the market or the taxpayer and the next wave down will probably be the end of the failing banks with huge loss to the taxpayer.
BAnks needed government money to keep their doors open. Anyone can make money in the current climate. So both are responsible.