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Day: March 12, 2012

Today is Bankers Bonus Day at the Lloyds Banking Group. Are all bankers evil? Discuss…

As some of you may know bankers bonuses has become the most important buzzword in politics. It is tantamount to political suicide to even think about defending the bankers let alone actually say it out loud. Well folks unsurprisingly I’m not one to follow the rules and actually have a brain of my own so lets look at what this actually means and what will happen next.

The Lloyds Banking Group is 41% owned by us – the people. HM Treasury holds that stake in the company which is well known on the British High Street with LLoyds TSB, Halifax and the Bank of Scotland being part of the company. So we have a very real reason to scrutinise what they do.

We have no issues with the bonus culture in other industries but then I suppose we don’t have a financial stake in them so that parallel in unwarranted. So the big question is what do we the public get for in-part paying these people vast sums of money.

Well the bonus culture is here to stay in banking. The UK government cannot stop bonuses in privately held firms and banks based overseas. These companies will still pay top dollar with huge bonuses should they reach set targets so no point fretting over the bonus culture at large. Bonuses are not evil. Many of us have bonuses written into our work related contracts reliant on our good work and/or good profits for the company as a whole. So I think it would be wrong to say that bonuses themselves are an evil product.

The question is whether bankers earn their bonuses. I’m going to tell you a shocking revelation now that neither any politician nor anyone in the media wants you to know. This is a trade secret that is out there but is kept away from the public. Are you ready for it…?

Not all bankers are evil.

I know. Shocking huh but that is actually the truth of the matter. There is another big secret out there. Are you ready for this one…?

Not every banker was involved in bad banking practices that led to the financial difficulties that we are in.

I know. Crazy. We have been led to believe that they all live in their ivory towers using £50 notes as toilet paper laughing at all of us using regular toilet paper but no, that actually isn’t 100% accurate.

Are bankers bonuses too high? Probably but they are dictated by market forces. Is Manchester City offering Robin van Persie a reported £210k per week obscene? Yes but market forces dictate that he is worth that much. Employees are worth whatever an employer is willing to pay them.

Is a new iPhone worth £499? That depends but people are willing to pay them at that price so that is why Apple chooses to market them at that figure. If they believed they would get as many sales at £599 or £699 or £799 then they would sell them at those prices. The whole economy is driven by market forces.

So lets go back to the Lloyds Banking Group. Today I know people will hand in their notice at the group. They will have seen that their pay packets are not brimming half as much as they were. They will move on to pastures new because the UK banking industry – certainly the banks that are part owned by HM Treasury have slashed the bonus pot. It has been obliterated in all honesty. These people will be able to get far more money elsewhere and leave.

Now I know most people will be yelling ‘why should we care?’ but the truth of the matter is really rather simple. If there is success in the UK Banking sector then we all benefit. If these banks are profitable then we make money. Also the more successful they are the higher the share price and the easier they are to sell on and move them out of public ownership again.

For example I have been told of a man whose department made £40million last year for the Treasury. He led the department into a far better place through good management and his good work has meant that we the taxpayer benefit to the tune of £40million. Seems like he’s done a pretty darn good job then for all of us. His reward? To lose 90% of his pay compared to a year ago. So for making us tonnes of money we are penalising him in his pocket. This has nothing to do with a Bankers Bonus Tax but to do with just slashing his money.

As a whole one large section of the group will have more than doubled its profits in the past year. They are in a far better financial situation than they have been for years. They are generating large profits and income for the government and for this the whole bonus pot has been slashed by just over 75%. So for doing a far better job they’ll be getting paid a whole lot less.

That doesn’t seem like a great bit of business to me.

The problem is the most talented individuals who do it right and generate the wealth for HM Treasury will move on to pastures new where they can get paid what they feel they deserve. If yu are making £40million then you’ll feel you are entitled to a £1million bonus for example. Is that better or worse for HM Treasury than generating £20million of income and getting £100k as a bonus Well lets look at the math.

£40million – £1million = £39million revenue for HM Treasury.

£20million – £100k = £19.9million revenue for HM Treasury.

Yes. Just as I thought. It pays to have the best people as they will generate enough income for them to get the top bonuses. The top people will go where the money is. I think we can all agree that is fair and is just like how we all do it. If you or I was offered more money to do the same job somewhere else we’d probably take it. Nothing wrong with that so the bankers will do the same.

The problem with this is by doing so it will mean that the top people will not be working in the UK Banking industry. This means that less money is made by these companies therefore they’ll pay in less tax to HM Treasury. They’ll be employing less qualified staff who’ll be earning less so will be taxed on their income less and in turn spend less in the economy. As for the banks that we hold shares in they’ll be making less profits and be less commercially attractive to potential buyers and investors going forward because I think we can all agree that the best people will make the most money and generate the best profits for a company.

The problem with the banking industry was two-fold. They got too cocky and took their eye off the ball as they were so unregulated that people could take stupid risks and that people were rewarded for doing a bad job. Bonuses should be a reward for doing a good job.

The first point has been fixed as banks around the globe have got their act together. Banks now have far more liquidity than they did before. This is why Lehman Brothers went down. It wasn’t because it was a poorly run business but because all of their assets were tied up in medium and long term ventures. These days banks have those liquid assets to hand. Risks are taken less frequently because they are monitored much more closely and the bad practices of the early part of the last decade have been consigned to the dustbin.

Do we really want to be lazy and tar al bankers with the same brush? Is that what we do nowadays? We get an idea implanted in our minds and use that scapegoat even when it isn’t reasonable to do so?

Yes there is no doubt that some banks and some bankers made some pretty bad decisions that led to a global recession. However not all banks and not all bankers were part of that so why should they be penalised and bad mouthed for the sins of others?

If you had a son or a daughter who was a thief would that in turn made you a thief and should you face the same ridicule? If your son or daughter had to wear an electronic tag and had to abide by a curfew for being a thief should you have to do it as well because you are related to them?

The simple answer is no.

We are all individuals and should be treated as such.

This goes for bankers just as it does you or I. If Banker A gets a bigger bonus than Banker B but generates more profits then that seems fine to me. As long as people aren’t rewarded for doing a bad job then surely we should all be ok with it?

Bashing the bankers is safe political ground at the moment because we love a scapegoat. Sadly the second scapegoat are immigrants which makes my blood boil. Yet again as a whole we like to tar everyone with the same brush and people have turned on these people because they need a scapegoat.

Don’t punish people for the sins of others. To me that is simple basic etiquette and how it should be.

One day I hope we can have an honest debate about everything but sadly in the political world we live in that isn’t possible at this juncture. This is one thing I wish that we could change. For today though I’ll continue to write my thoughts down for the handful of people who’ll get around to reading them.

My dream is to live in a world where we get all the facts and can have an honest debate on how to interpret them and not just think how we are told. That is how I feel sometimes as to the world we live in is not that. Politicians and the media will drive home a story and use it to enhance their own ends and not report it how it is meant to be. This to me is a sad sad situation…

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