RBS board blackmail government into giving bonus

Jason

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On reflection the title of this thread is wrong - there's no blackmail in it. Either RBS pay bonuses or the share value will slide. Investors will perceive that there is a problem - that lower bonuses will lead to less talent - and react on this perception whether or not it is correct.

The bonus proposed for Goodwin was around half of last year's, so a big reduction. Let's imagine for a moment that instead of being halved the board had doubled it, to £4m or thereabouts. I think investors would have seen this as an enormous vote of confidence in RBS and their money would have piled in, pushing up the share price. Maybe the government could have taken the chance to sell part of its stake - even a couple of percent sold could raise a billion.

There's also an issue around where the tipping point comes that attracts other banks to the UK. There are banks looking for a home outside Euroland. One big bank moving would give the UK a real boost. We need to be showing them that we love bankers.

Some sort of "moral outrage" whipped up by the media and Miliband is standing in the way of the prosperity of us all. The good of the nation requires that we all hug a banker. We need to make sure they get big bonuses, and titles, and anything else they want. This is not because they deserve it - they don't - but because WE deserve it.

What the bankers do with their winnings doesn't really bother me. The levels are comparable to some sports and media people, and that doesn't really bother me either. In a nation where 80% of our wealth comes from service industry (and around a quarter from finance and the trickle-down) we hurt ourself if we damage the service sector.
 
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I think stripping Goodwin of his knighthood was the wrong move, and smacks of a witch hunt. I agree that he ballsed up monumentally, however, they decided to hand him a gong at the time based on his previous performance so snatching it back seems petty.

Mebbe he should've been offered a chance to hand it back voluntarily, to come out of it looking a bit better (or maybe he was?).

In terms of bonuses, I'm in favour of capping them at 50% of annual pay. It could still be a huge amount, but Hester would've taken home £600k in shares, instead of £936k. Once bonuses get into the millions, I think that's when it becomes indefensible.
 

RodRingo

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^Gotto agree here. I didn't actually see the point in stripping Goodwin off his knighthood.

Most likely it was the rage people seem to have for wealthy bankers it seems.
 

dandelion

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I think stripping Goodwin of his knighthood was the wrong move, and smacks of a witch hunt. I agree that he ballsed up monumentally, however, they decided to hand him a gong at the time based on his previous performance so snatching it back seems petty.
This morning the news raised the question of the chairman's knighthood and whether it should be removed. I thought the proper response was made to this, that the chairman had in fact got his knighthood in the chemical industry, nothing to do with banking. Whereas, Goodwin had won his for doing so well running RBS....but it finally transpired he had not done a good job at all. The issue is not so much that he did something bad so will be punished by removing his knighthood, but that he never deserved it for the reasons it was given in the first place.

Incidentally, if the chairman used to work in an entirely different industry, doesnt that sound like just about anyone could take some of these jobs?


In terms of bonuses, I'm in favour of capping them at 50% of annual pay.
Icould go with that, though I still see a huge conflict of interest in someone being paid on the basis of how many people they talk into taking out a loan rather than on whether it is a good deal for both parties. But I guess the most outrageous bonuses are those bigger than salary where people are tempted to take risks and really dont care about the future.

Today the question of having a workers representative on remuneration committees was mentioned again. The PM said it could not work. Someone pointed out they already do it in Germany. Ok. Dont want to have industry operating like that in Germany, do we?
 

dandelion

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What the bankers do with their winnings doesn't really bother me.
It doesnt bother me what they do with them but it does bother me they took them out of the pockets of you and I. I dont see how anyone who opposes big government does not also oppose big finance. It was interesting that some psychologists talking about this today were suggesting there has been a shift in the mindset of bankers over the last 20 years which has been the root cause of the world crash.

The levels are comparable to some sports and media people, and that doesn't really bother me either.
But sports people give us a few hours entertainment for their money. We choose whether to watch the match. If i want a house I have no choice but to be fleeced. More subtly, i will pay twice as much for a house because of all the loans the finance industry has given to other people. Half the loans, half the price, half the profits for them. Its a no brainer as far as I can see, cut back on loans for houses, cuts back on the total everyone has to pay. And incidentally robs them of their bonuses. Oh poor them.

In a nation where 80% of our wealth comes from service industry (and around a quarter from finance and the trickle-down) we hurt ourself if we damage the service sector.
So what did we do by hurting the manufacturing sector? And what do you mean by wealth? There is this issue again. If I paint my house the country is in recession. If I pay my neighbour to paint my house and he pays me to paint his, then we have a boom. Meaningless though. The only bit that really matters is that there is a company making paint, and it is a British one or not.

RBS had full support from Labour. Fred-the-Shred worked closely with Brown (as Chancellor) and Balls. Goodwin was appointed by Darling. Labour had been in government for many years - and therefore had a chance to change banking regulation well before RBS got into problems.
ah, but labour had bought into the banking reforms demanded by the city and sponsored by the conservatives, who are the ones who deregulated all these banks and set this ball rolling. What you are saying is that labour was wrong to adopt this conservative idea.

When the Labour government bought up RBS they made the decision to allow the directors to decide on bonuses.
and now they think it was a mistake. the conservatives, however, still believe that labour was correct to allow RBS to award bonuses. So conservatives believe that labour acted correctly when in office? With the benefit of hindsight labour have changed their minds, but conservatives have not. Who does that make to be the idiots?

what else does Cameron do? Yes he could appoint the board and stop bonuses - and watch RBS become a penny share.
The share price has nothing to do with what the board has done. At least, i dont hear the board has done anything all the other banks havent also done. RBS shares have gone up and down exactly with the rest of the banking sector and reflecting they are essentially all teetering on insolvency. Not much basis here for a bonus.
 

dandelion

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The chairman of RBS Sir Philip hampton has been giving interviews, for example as at Bankers' pay too high and needs to be 'corrected', admits RBS chairman Sir Philip Hampton - Telegraph

He said: "Pay has been high for too long, particularly in the investment banks. Shareholders have done pretty badly and employees have done pretty well over the last 10 years. That needs to be corrected. It isn’t a society or fairness issue, it is a straightforward business issue. Too much of the money is not going to the right place and the shareholder rewards have not been sufficient."

It is an interesting take that he isnt simply saying bankers are being paid ridiculously large amounts, but they are ripping off their own shareholders in doing so. And it has been going on for a very long time.

He also said that the board never considered resigning over this issue.

This is interesting, I have no reason to think he is lying, but it conflicts with the governments first explanation of why they granted the bonuses, when the government claimed the board had threatened to resign. Naughty, naughty. What, politicians make up excuses for doing what they wanted to do and no one else did?
 

Jason

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It's a fascinating story.

The age old problem is around the worth of labour. Do we pay everyone the same whatever time they came into the vinyard? Do we link wages to the skills of the labourers? To the danger of the job? To the unpleasantness of the job? Or do we go with the idea of market forces?

My personal take is that we need a lot of senior jobs done by volunteers to get them out of the whole wage issue. The clearest example in the UK is magistrates - judges in lower courts - who are volunteers. We also have school governors and the like, plus many working within churches and charities. I see no reason why we could not have either no or very low remuneration for a host of activities, from football to running banks. This is the philanthropic tradition - you do a job because it needs doing and because you know you can do it well. But we do need a massive cultural shift. Dare I say it (or will Dandelion think it is as bad as my use of "dire"?) - we need the big society.

Banks are the wrong place to start the change. We risk doing very serious damage to the UK economy. You defuse a bomb before you go pulling wires out at random.
 

dandelion

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But we do need a massive cultural shift.
Those psychologists I mentioned were saying that in the last 20 years we have had a massive shift. Away from the kind of risk averse banking which used to exist. So what is needed is a shift back.

But I dont think this is quite what you meant. Old style bankers still expected to be paid. However the difference now is perhaps the same as that at your local betting shop if you compare those on one side of the counter with the other. Bettings companies understand odds and risk and set their terms accordingly so that the house always has a small edge. The punters either do not understand that in the long term they must lose, or they reckon they are even cleverer than the house and can get an edge themselves.

Bankers used to be the company men playing their steady small margin. They have become the clever punters, who reckon they are ahead of the game. They arent. They have a system, but then it all goes horribly wrong. Worse, the people who are supposed to be working for the house now all have side bets on whether they can win or the punters will win. With big returns for them if they gamble with their employers money. There is no down side in that sort of game. If you lose, it wasnt your money. If you win,you keep some of the winnings.

The age old problem is around the worth of labour.
And that is the next problem. Banking is a closed shop monopoly. There is no competition. Banks have been allowed to lend bigger and bigger multiples of their actual assets. There is always more money available to lend. There is no point being careful with it, it just grows in trees. This is simply gambling again, the bigger the total amount being bet, the more money the house must make with its built in edge. But once again there is no reason to be careful with someone elses money. Individual employees are betting with company money, but shareholders are betting with depositors or central bank money. Its not they who stand to make a loss if anything goes bad, and they have everything to gain by encouraging more and more people to borrow and lend.

Meanwhile, that monopoly thing. In an open market others might see this wonderful game and start up their own banks with their own money. Not so easy. The existing banks have a huge edge lending out other peoples money. Difficult to break into this market, and if you do why would you operate your bank at a lower level of profitability? The whole thing works because it is risking other peoples money for your gain.

So what we have is a single organisation making vast amounts of money very easily. Not much pressure to save on staff wages, then. So they just pay each other more and more. Why not?

Or do we go with the idea of market forces?
No, we do not. Market forces say I throw my used engine oil in the ditch, or over the fence on your garden. Market forces say you die because you were born with diabetes and cannot afford medical care. market forces say you send your children to work instead of school because you are poor.Market forces say I eat anything I please because i am a banker because my dad was a banker but you starve because you cannot pay your mortgage. And your neighbour starves because I just lost the money he had invested in my investment trust. Or, market forces say maybe you are the banker and i am the starving guy, and i come into your house, kill you and take the food from your larder. 'Market forces' means no rules, but everyone accepts there must be rules which prevent one person in society exploiting another.

My personal take is that we need a lot of senior jobs done by volunteers
My take is fair return for value given. Those in a position to exploit others must be prevented by law.

Banks are the wrong place to start the change.
The place to start the change is where the problem is greatest.
 

Adrian69702006

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I don't agree with bankers getting large bonuses. However at the same time I think we're between a rock and hard place. Whether as private individuals or the owners of businesses we all rely to some extent on the banking system. Such is the nature of the modern world. Gordon Brown could and, probably should, have been stricter in setting down the conditions when the Treasury bailed the Banks out in 2008/9. It's equally true though that Banks have to pay the going rates for their industry in order to attract and retain the ablest people. It's a hard fact that if they can't do that in the UK they'll go to wherever they can do it, a move not likely to benefit UK plc in the long run.
 

Jason

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Banking does have competition.

In High Street Banking, there's already a lot of different banks out there. Foreign banks can and do enter the market. Major stores are tickling at the edges of banking (store cards for example) and it is quite possible that new High Street Banks will be launched.

Investment Banking - what is sometimes called casino banking - has immense competition. Just about every bank in the world is trading in this area in the UK alone. So are all the big insurance companies. Then there's all the venture capital companies. Unit trusts. Pension companies. Then there's big corporations that have finance as a secondary area - though it might make them bigger profits or losses. There's a real difficulty in defining an investment bank (which is a real problem for any legislation aimed at "bankers"). In the UK the majority of investment banking is carried out by organisations that don't have "bank" in their name. I don't know how anyone could even gather figures. maybe 80%-90% of investment banking? It is huge.

The High Street Banks have a simple business model - the idea was traditionally that they gave interest a percent below base and charged interest a percent above, more for higher risk (but still pretty safe). High Street Bankers are doing a job and they need a salary - and I think this is something we can cope with.

The Investment Banks are based on leverage - they lend a multiple of their assets on the basis that they will not have a call on all their assets at once. Capitalism has been doing this since the Venetians invented double entry book-keeping in the late fifteenth century. Properly used it is an enormously effective tool, but it is like the nuclear power station, horrendous if it goes wrong.

The challenge is to have people who can govern investment banks, along with a proper regulatory framework. The latter comes from the Basel Agreement - the problem is enforcement, particularly in the EZ (where it has been widely ignored). The UK governance could be improved but it isn't all that bad - the problems have mostly come as contagion from elsewhere. The people who can govern these volatile entities are skilled people who live to work, have an espresso to help them sleep and face burn-out - additionally they are often not nice people. This is a solution of a sorts, and for most of the last five centuries it has mostly worked - and yes these individuals name their own salary then put a nought on.

Alternative models are problematic. State running fails - in effect this leads to banking by committee with accountability in detail and there are zero examples of such a bank working long-term. A possible alternative is to find a different sort of nut-case to spend their every waking moment running an investment bank. The drive for such a person would be public service. For some it might be a religious drive (there are Italian examples, perhaps British from a past age), effectively therefore a moral case but with a God-centred drive. For some it might be the adulation - that such bankers are treated like pop stars and footballers, and have their statue set up in the shopping centre.

Right now I would like to see the banking story go to sleep. We are not going to get a quick change, and we risk pretty much unlimited damage to the UK economy. No this isn't the area to start with a fundamental reform. A better starting place might be governance of Universities. The VCs have a healthy salary and there are stories that they act to boost their remuneration and pension - yet there are also very active boards of governors - I think it would be possible to find people with the talent of VCs to do the job without pay, and to do a better job because they are not bosting their income and pension.
 

dandelion

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I don't agree with bankers getting large bonuses. However at the same time I think we're between a rock and hard place. Whether as private individuals or the owners of businesses we all rely to some extent on the banking system. Such is the nature of the modern world.
none of which says why they should be allowed to get away with ridiculous profit levels or destructive lending practices.

Gordon Brown could and, probably should, have been stricter in setting down the conditions when the Treasury bailed the Banks out in 2008/9.
At the time of the crash the important thing was to do something rather than to do nothing. brown was instrumental in getting something done throughout europe. Had he still been PM now, we would have had just the same cuts as under the tories and he would now be in europe taking part in resolving the eurozone problem rather than walking out.

It's equally true though that Banks have to pay the going rates for their industry in order to attract and retain the ablest people.
There is no shortage of people. What there often is, is a shortage of trained people. Many many industries operate by stealing people rather than training them, and the UK government is not good at training people in any industry. But in an industry like banking it benefits bankers that they be in short supply, so why would they train more?

It's a hard fact that if they can't do that in the UK they'll go to wherever they can do it, a move not likely to benefit UK plc in the long run.
No, its propaganda. firstly, the evidence shows that most companies which threaten to leave a country dont. Secondly, if they want to operate here then they have to follow our rules or rules set for the eu area as a whole, which is a huge chunk of world trade. It is not like making clothes using cheap labour. They need us more than we need them.
 

dandelion

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Banking does have competition. In High Street Banking, there's already a lot of different banks out there.
The number of banks is falling all the time. A quick google says RBS is made up of Child & Co, Drummonds Bank, National Westminster Bank, National Westminster Life Assurance, Royal Bank of Scotland, Royal Scottish Assurance, Adam and Company, Coutts & Co., RBS Coutts,
Isle of Man Bank. Halifaxis now part of LLoyds. LLoyds used to be LLoyds TSB? The number of banks has decreased steadily.

Foreign banks can and do enter the market.
HSBC has bought midland. Santander has bought and amalgamated some of the bankrupts.

it is quite possible that new High Street Banks will be launched.
Virgin has bought some of the bankrupts. One or two other new companies are struggling.

Investment Banking - what is sometimes called casino banking - has immense competition. Just about every bank in the world is trading in this area in the UK alone.
because London is where its at. Not because of low taxes, because of the british empire. But real competition? i dont think so.


So are all the big insurance companies.
Nothing wrong with insurance companies, They offer a product to the general public and broadly there is competition. Except...did you notice that many companies will give you cheap insurance for 1 year and then hike the price? because they know it works. because we cant be bothered to swap companies every year. Did you notice many insurance companies used to be mutual organisations, so profits stayed within the company and were paid as dividends. Now they have become shareholder companies, and make profits which go to the shareholders. How has this helped people wanting insurance?

Pension companies.
take your money and use it to buy securities at more than the last person bought one. they take commission. Some of your money goes to pay them. the rest goes to pay someone else for a security which you buy for more than they did. They spend your money. You have some paper. In 50 years everyone tries to sell at once, and the price of that paper crashes. You do not get a pension. Ok, someone has to establish a market and they have to be paid for doing it. But brokers get commission in advance. If anything is left, you get it. The boom years we have seen have all been with more and more people piling into pension plans. Company pension plans are already being disbanded. The market must saturate so that buyers will no longer dominate the market. Those huge commissions were justified on the basis your investment would keep doubling and redoubling. It wont.

The Investment Banks are based on leverage -...Properly used it is an enormously effective tool, but it is like the nuclear power station, horrendous if it goes wrong.
yes. This is the issue. banking has been a boom industry. This is not going to continue. Probably bankers know this. they know damn well they are already well overpaid.


The solution for banking is exactly the same as in any other industry. Let them get on with it, but as soon as you spot them doing something destructive to society, you regulate it. The propaganda is that banks can do no wrong and should be left alone.
 

dandelion

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A sign of the times that even piracy on the high seas has come back into fashion. Yes, bankers are pirates and the only good thing to be said about that is that if they are working from the uk, mostly they are bringing their loot here. But thats like saying we should be encouraging the mafia, columbian drug barons, taliban poppy growers and all others like them to base their operations here too. Didnt we used to run the opium trade? How come we stopped doing that?
 

dandelion

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Today we hear that although the government has declined to vote against the RBS bonuses where it holds a majority of the shares, it plans to vote against bonuses for national rail....where it knows it has only a minority stake and will not affect the result. Hypocrisy eh?
 

Jason

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I don't think this is correct.

Shareholders of any company do NOT vote on bonuses or salaries. That the government owns most of RBS does not give it a vote. What the government could do is call a vote of no-confidence in the directors, sack them and make new appointments of people they trust to carry out their wishes. This would change the bonuses for next year, not this. It would mean that RBS would in effect be directly managed by the government, and as no one would trust the government to be able to run a commercial bank (as opposed to a central bank) it would probably mean that RBS would collapse. The situation is a no-win for the government. They can apply a bit of pressure behind the scenes but that is it. The idea that the government can set RBS bonuses just because it owns it is wrong.

National Rail was set up with a structure that gives the government a single seat on the board of directors, and therefore the government can use this one vote.
 

dandelion

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It would seem there are about 70 people on the board of national rail and the government appoints one. However, there are ten places on the remuneration committee, and the government can appoint one, but has chosen not to. here it would be 1 vote in 10 against bounus, and who knows what others might say. However, apparently the secretary od state also has a veto on any changes to pay, and so has a veto on any new bonus. We await her doing so with baited breath. Since the government spokesman denied they have the power to do this, sounds as though they never bothered reading the regulations before committing themselves to refusing bonuses. How embarassing.
 
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Jason

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The regulations will be complex. I haven't read them. But typically when a government or other organisation holds a veto it is a nuclear option - yes it exists, but it is virtually unusable.

If the government did use a veto in the face of overwhelming opposition from others eligible to vote then it may well be forced by a legal challenge to compensate the others, perhaps by purchase of their shares at full market value. In effect the option the government has is therefore either to not use the veto or nationalise the railways. And the nation doesn't have the billions needed for the latter, nor is there any likelihood that the government could do a better job of running the railways.

I really don't think the government is being hypocritical on this matter. The government's power really is limited - and that surely is how it should be in a democracy. Yes if the government wanted to nationalise RBS or the railways it could stop the bonuses - but the cost would be phenomenal.

Right now the pressure must be to return RBS to private ownership ASAP. If it could be announced within the next 11 months that would take the sting out of next year's bonus season - perhaps a process leading to privatisation 2013 or 2014. I'm inclined to think this is earlier than ideal, but I think the media hysteria is going to force the government's hand. Better accept a loss of £10bn through early privatisation than £40bn+ if the hysteria creates a hate campaign against RBS and the bank's failure. Basically the hysteria has already been incredibly damaging to the UK and has already cost everyone in the country £150 or so (best case scenario) - all to save a penny farthing on Goodwin's bonus. I see the guy's also stepped down from his charity work, another loss to the country. if he has any sense he will emigrate soon.
 

dandelion

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Right now the pressure must be to return RBS to private ownership ASAP. If it could be announced within the next 11 months that would take the sting out of next year's bonus season - perhaps a process leading to privatisation 2013 or 2014. I'm inclined to think this is earlier than ideal, but I think the media hysteria is going to force the government's hand.
On the contrary, the government needs to stand firm and create a bank of the sort we need rather than the kind the private sector wants to be. You seem to be saying that when a bank goes bust we should recapitalise it and give it back to private owners...so they can bankrupt it again and we can pay out and give it back again. Do you think we should make a limit on how many times we will do this?

Better accept a loss of £10bn through early privatisation than £40bn+ if the hysteria creates a hate campaign against RBS
The issue is whether this will become a hate campaign against the government for supporting this kind of antisocial behaviour. Bankers are already themselves speaking out and saying the present situation is absurd. Even they dont think people who lose money should get bonuses.
 
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