Osborne bonus call backfires
It’s taken a long time to get a policy statement from shadow chancellor George Osborne, but now it has come, his call for curbs on bankers’ bonuses risks generating sympathy for the villains.
Osborne wants the current government to impose emergency curbs on retail lenders’ pay, allowing only small (probably under £2,000) cash bonuses with the rest in shares.
Perhaps he wrote his speech after reading headlines about Goldman Sachs billion-dollar bonus pool, but Goldman is an investment bank and would not be covered by the Tory’s curbs. Indeed, retail banks are not the problem: Northern Rock was not a bonus-led lender, unlike Lehman Brothers that was.
If Osborne is trying to echo the “czar” appointed by the US president to curb top pay he should note that it applies only to institutions bailed out by the taxpayer: that includes car companies but the banks affected are Wall Street casinos, not main street deposit-takers.
And if Osborne had read his newspapers he would have noticed that this government and others have already agreed controls on pay at the recent G20 meeting. UK chancellor Alistair Darling hauled the heads of retail and investment banks – including foreign banks like Goldman - into the Treasury to get them to subscribe to a plan to pay most of their bonuses on a deferred basis, just as the Conservative shadow chancellor is now demanding. The FSA set a deadline of the end of October for banks to submit their bonus plans for approval or rejection.
But even deferred bonuses have dangers. If the bank buys shares and holds them for future distribution they will not be able to lend that cash; if they issue new equity then the bankers could profit even more if share prices soar. A Barclays banker who accepted £1m of shares a year ago instead of cash now has shares worth £6m.
Anyway, despite Osborne’c call to lend the cash saved, it is not a shortage of money that is stopping banks from lending – they have been stuffed with liquidity and capital. It is a shortage of projects they regard as safe to lend on and borrowers prepared to pay.
And Barclays and HSBC, which accepted no direct government money in the bail out, would be the banks hit hardest because they have both retail a and investment banking divisions. But if they could offer their investment bankers no cash bonus this year when rivals can, why would staff stay?
That banks and bankers think little of Osborne’s plan is not surprising. But even their corporate customers can see how ill-thought out this pay plan is. FSA staff were not impressed when he tried to explain his policies to them the previous week: now business’s opinion of their future chancellor has been undermined too. For his own sake, Osborne really must do some thinking before he expounds any further policy.
