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Betting the bonus to scoop the jackpot

Robert Peston | 17:45 UK time, Monday, 31 January 2011

How reconciled is the City, its bankers and traders, to the new world demanded by regulators and politicians - a world in which bonuses are largely paid in shares rather than cash, where these rewards are saved not immediately spent, and where leverage (or indebtedness relative to net worth) is kept to a minimum?

Not very, if an advert that I have been sent captures anything like the mood in the corner offices and trading floors of Canary Wharf and Square Mile.

The ad is by Saxo Bank, the self-proclaimed "specialist in trading and investment", and in big bold letters the ad asks "PAID IN SHARES THIS MONTH?"

Apparently if that's the currency of your remuneration you can "deposit your stock directly into your Saxo Account and use up to 75% of its value for margin trading".

Or to put it another way, you can use three-quarters of the value of any pay or bonuses you have received in shares as security for any bets you wish to place in securities markets.

Now that's what I call leveraging up. You get your bonus, and then you immediately pledge it as your guarantee against losses as you try to multiply the value of that bonus through speculation.

And in case you think I overstate the risky nature of all this, Saxo helpfully adds small print to the effect that "complex derivative products traded on margin carry a high degree of risk and are not suitable for every investor" and "you can lose more than your initial deposit".

Or to put it another way, regulators may impose all the formal conditions they like on how bankers are paid (shares instead of cash, rewards deferred and subject to clawback rather than paid upfront, stock that can't be sold for years).

But while there remains a short-term trading culture in the City, all those restrictions may serve to do is create powerful incentives to find imaginative way around the new rules - so that share-based bonuses, underwritten by taxpayers, can be turned into fat wodges of lovely cash.

Comments

  • Comment number 1.

    As Saxa is a combination of a well known salt brand and a well known stuffing brand I can imagine the brand attributes that can be seen in a bank of that name.

  • Comment number 2.

    Robert,

    There only three worrying words in your article - "underwritten by taxpayers". Otherwise, let them do what they want with their money ...

  • Comment number 3.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 4.

    This just keeps illustrating the point: time for banking reform.

    These silly people are gambling with our futures. They have stumbled once and will do so again.

  • Comment number 5.

    Well, if an employee who generates profit for a financial institution is given a bonus in shares, and the share price subsequently falls even though he/she continues to be successful, they will just move on to a job with no such restrictions. So how is that a good idea for an employer, losing successful staff? Shareholders should resist this. Actually, very many trading/broking establishments are private companies, so the equity reward or long term incentive options are limited.

    If a high revenue earner says "More money or I'm off" then the answer is usually "er, OK then". If they lose money or miss business on a regular basis they get fired.That's how it's always been.

    No, WOTW, I'm not saying that a trader should by right earn many times more than someone doing tangible good. That is a great dilemma, which may well be practically insoluble.

  • Comment number 6.

    Robert,
    If bonuses cause problems by distorting all sorts of markets (housing, employment, etc) why add another market distortion to the list?

    If the guys getting the bonuses are inclined towards 'dodgy trades', then might they not become more-so inclined in order to increase profits in order to further increase the value of the shares they already own?

    What would the effect on behaviour be if the bonus pool was in cash, paid under PAYE, and divided equally between all employees? Would the trader inclined to run fast and loose not think that he/she would want his/her colleagues to behave and not put his/her share at risk? And then behave more appropriately in turn?

  • Comment number 7.

    And I am expected to believe that we operate a tightly regulated system which has responded to the excesses of 2007 ...

    Not a hope!

  • Comment number 8.

    All this adds to the argument that a spanner should be put into the works of the money printing machine which enables bankers to make the profits which they use to pay themselves these bonuses. This could be easily done by making it illegal for banks to re-lend ordinary deposits. These would have to be matched by ring fenced deposits at the BoE.

    A bonus would be that the BoE would be able to control the supply of money and credit, and hence inflation, more easily.

  • Comment number 9.

    well, they do take a risk. they might lose all the bonus. and if the bet pays off do they pay tax?

  • Comment number 10.

    Oh, you're just trying to irritate us all again.

    All mine's in mutuals, co-operatives and stuff I own now.

    Others might follow.



  • Comment number 11.

    Agree with #2 - the ONLY reason this is any of my business is because as a tax payer it is me underwriting banks risks free of charge.

    The free underwriting needs to stop.

  • Comment number 12.

    9. At 18:43pm on 31st Jan 2011, czetkin wrote:
    well, they do take a risk. they might lose all the bonus. and if the bet pays off do they pay tax?
    ===========================

    Are you kidding?

    I read the other day that footballers are paying 2% tax on their multi-million incomes.

    I find it difficult to believe that a semi-literate footballer can manage to dodge tax but a successful spiv in the finance industry can not work out how to do it.

  • Comment number 13.

    R.P. wrote:
    ‘But while there remains a short-term trading culture in the City, all those restrictions may serve to do is create powerful incentives to find imaginative way around the new rules - so that share-based bonuses, underwritten by taxpayers, can be turned into fat wodges of lovely cash’

    Well if there’s one thing likely to wind people up, it’s underwritten taxpayer bonuses to bankers.
    But I feel sure that wasn’t your motivation for writing R.P.

    In any event, for anyone who doesn’t understand banking, a good place to start is BBC 5; access to the following is available:

    Two animated films by Paul Grignon.
    Money as Debt
    http://www.bbc5.tv/eyeplayer/video/money-debt
    Promises unleashed
    http://www.bbc5.tv/eyeplayer/video/money-debt-ii
    And ‘The Secret of OZ’
    http://www.bbc5.tv/eyeplayer/video/secret-oz
    And ‘Collapse’

    In addition if you’re interested in a group wishing to make changes to the system:
    http://www.positivemoney.org.uk/

    All the above is assuming that R.P.’s article hasn’t got you spitting feathers so hard you can’t hit the keyboard.

  • Comment number 14.

    And the bank with the largest management payments in shares and options ever - that would be Lehman Brothers...
    Imagine the pressure to keep the stock price artificially high because management has ten years of work invested in shares...
    And the Govt wants more of it...
    That's what happened, and no one has learned a bloody thing...

  • Comment number 15.

    Maybe another restriction should be that these 'bonus' shares are not usable as collateral either. Might be difficult to work how to impose such a restriction though.

  • Comment number 16.

    Up, up, up, your premium
    Up, up, up, your premium

    Scribble away...
    (and balance the books)

    Scribble away...
    (but balance the books)

    It's fun to charter an accountant
    And sail the wide accountancy
    To find, explore the funds offshore
    And skirt the shoals of bankruptcy
    It can be manly in insurance
    We'll up your premium semi-annually
    It's all tax-deductible
    We're fairly incorruptible*
    We're sailing on the wide accountancy!

    Oh this is fun, Mister Cohen.
    Fetch me another exotic charoot!

    To port!
    Bring a port to sherry! And a medium lie sherry to port!

    Balance the books!






    *I have reason to doubt this bit

  • Comment number 17.

    Perhaps it's anout time shareholders put the boot on the neck of those who exploit thier agency role to extract excess cash from the banks before the shareholders get an adequate return for the risks run on their behalf.

  • Comment number 18.

    At what point are we going to attack the regulators for there failings, or maybe the politicians whom were happy to make hay off tax receipts while the ecomony was booming. How about the obvious overvalued property prices at the top of the bubble that were allowed to grow out of control, with self assessment mortgage approvals?

    It's seems to me that it's very easy to point the finger at those who provided the finance to let it all this boom happen, whilst those that regulate and control walk away scot free.

    I'm not a banker Robert, but you almost seen to be enjoying the continued attack on the industry winding up the general pubic on a witch hunt. I guess in February we will be complaining about the recovery of the banking sector rather than rejoice that all is on the mend.

    A whole bunch of people are to blame for the crash, that includes a ton of the general population buying into the boob with indebtedness. Much of what happened was out of banking industries control. I don't follow the herd, and prepared to look at the much bigger picture. Can't we be happy for change that we are turning a corner to recovery even if we didn't get exactly what we wanted from banking reform.

    I'd like a fat bonus too or even an inflationary salary increase from the last 3 years employment, but if these guys can start turning the country around again, I'm all for the banking recovery.

  • Comment number 19.

    I don't think bankers' bonuses were ever "immediately" spent - not in their entirety anyway. The difference is that they will be invested in their employer rather than in some unconnected fund, and that is good news because it gives the employee a strong incentive to do what is in their company's interest.

    The product advertised above, while possibly a little tasteless, doesn't really change that. Also, those warnings, while true to a degree, are standard lawyer jargon. In practice Saxo would stand to lose if the loss exceeded the bonus on which it was secured, so they would use stop-loss measures that would work in almost all cases.

  • Comment number 20.

    This little article of yours is a huge piece on why I believe investment banks must be split from retail banks.
    I really don't care
    - how investment banks chose to pay (including bonuses),
    - what they bet on, or
    - how nefarious their financial products become.
    In fact, I care about as much as I care about Las Vegas' gambling casinos. What do I care if someone wins a pot and then immediately rolls his/her winnings back into the pot - as long as the game and its rules are disclosed and honest?
    As the ad says: Saxo Bank is the self-proclaimed "specialist in trading and investment"; in big bold letters the ad asks "PAID IN SHARES THIS MONTH?"
    It's not claiming to be anything that it's not. It's nort claiming to protrect depositors, or lend money at reasonable rates. It has no worries about ringed fences.
    If you're fool enough to "deposit your stock directly into your Saxo Account and use up to 75% of its value for margin trading", you go right ahead and have fun!
    Saxo even helps you out: It tells you albeit in small print that products traded on margin carry a high degree of risk and are not suitable for every investor" and "you can lose more than your initial deposit".
    I see no reason why regulators should waste their time with companies like Saxo, except to monitor that it's honest about its product and declares the rules to its customers.
    Save the real regulations for community banks, protected deposits and precious loans at fair rates.

  • Comment number 21.

    This getting to be really embarrassing.

    We put ourselves through the expense and inconvenience of an election, only to find that a central plank of banking policy is being dictated by a bunch of puffed-up spivs.

    Does anyone honestly believe that these leeches possess knowledge and abilities beyond the reach of the average man or woman?

    I don't!

    Yet dumb institutional shareholders mildly agree to shower them with riches as the economy tanks. The only gift these posers have is the ability to promote their brand of fertilizer as an essential ingredient for the rebuilding of an economy.

    It's better flushed away - together with the overfed polluter.

  • Comment number 22.

    They never will understand.

    Tax 'em till they bleed!

  • Comment number 23.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 24.

    Payment in shares.

    1. They are still receiving a massive payment.
    2. Enron.

  • Comment number 25.

    Unfortunately for the politicians the only way to curb bankers pay is to actually do so! The people demand that bankers are paid far less so the politicians must ensure that this takes place - if the politicians do not wish to be objects of ridicule and without a seat at the next election - or if recalled - earlier!

    The only way to ensure that the people are satisfied is to use the tax system to cap everyones' pay.

    David Cameron started out with the right idea nobody should receive more than twenty times the minimum wage from any and all sources of income/capital gain. Do not delay David - introduce the legislation in the next budget - then you have a (slim) chance of being re-elected - don't, and you have next to no chance!

  • Comment number 26.

    so let me get this straight:

    1. Regulators force(?) payment in shares
    2. Enterprising (German?) bank finds a way to utilise these shares to the owner's benefit
    3. This is deemed, by article tone and readers' response, unacceptable

    Personally I do not see a problem. The value is available for trades at Saxo will be, probably, based on the value of the shares so if the value of those shares fall, so does the value of the pot for investment.

    Thinking about it, is it any different to a payday loan? Probably not except the values are higher

  • Comment number 27.

    5. At 18:29pm on 31st Jan 2011, Robin Joy wrote:

    No, WOTW, I'm not saying that a trader should by right earn many times more than someone doing tangible good. That is a great dilemma, which may well be practically insoluble.
    ==============================================================

    Well, I can't speak for WOTW, but your dilemma seems to me to be very easily solved. Just as the State has imposed a national minimum wage, it can impose a National Maximum Wage. Simple, isn't it?

  • Comment number 28.

    All this user's posts have been removed.Why?

  • Comment number 29.

    Can anybody explain why it is right to describe, say, Standard Chartered as being 'underwritten by the (presumably UK) taxpayer'? This is a well run international bank with most of its business overseas that had no liquidity problems, required no taxpayer support, maintained profitability (and UK tax) and paid dividends throughout the crisis. Why do they deserve to be lumped together with the likes of Goodwin and Hornby who (along with their respective chairmen and boards) destroyed previously solid and well run British banks? I think our criticism should be more focused.

    And if overpaid investment bankers, or footballers, or TV celebrities or anybody else chooses to gamble away their personal assets through Saxo, Betfred, Ladbrokes or anywhere else then apart from thinking they are saddo's with an addiction problem it's no concern to me. The stakes might be higher but they are no worse than anybody putting £10 on a horse.

  • Comment number 30.

    Richard Richardson at 18 is right.

    In the 10 years to 2008 only three sectors of the Uk economy grew materially. Financial Services, property & Construction and the Public Sector. And the growth in the third was directly funded by increased tax revenues from the first two, which we all now know was an unsustainable bubble.

    So the 'spend and hope' policy of the Blair/Brown years (rather than traditional labour tax and spend) demanded collusion in the bubble - achieved through very light regulation and a blind eye turned to systemic risks.

    Now we risk not just over-regulation, but regulating things that wouldn't have avoided the problem in the first place - while the real focus should be on low risk, sustainable growth in all sectors.

  • Comment number 31.

    Egypt shut down Al Jazeera.
    How long before comment on Peston's Pick is shut down?
    If it is then we will know that someone is actually reading it.
    Prediction:
    All comments will be shut down due to the moderation being too expensive and not a core activity for the nation's broadcaster. 11 months?

  • Comment number 32.

    And here folks is part of the problem:

    29. At 20:23pm on 31st Jan 2011, Slessac wrote:

    The stakes might be higher but they are no worse than anybody putting £10 on a horse.

    Slessac cannot see orders of magnitude nor as Slessac been made aware of after any action there is a consequence? Poor education, poor upbringing or just plain brain washed to believe that personal utopia is just around the next hedge



  • Comment number 33.

    Capitalism is about freedom of choice. I would like the freedom to choose to put money into a responsible, fully regulated public bank.

    If banks think that this consititutes unfair competition then the can learn how to behave responsibly. Competition - the cure for everything according to some - should lead to a reduction in profits. Firms with reasonable amounts of profitability cannot afford to pay multi million-pound bonuses.

  • Comment number 34.

    30. At 20:30pm on 31st Jan 2011, Slessac wrote:
    Richard Richardson at 18 is right.

    In the 10 years to 2008 only three sectors of the Uk economy grew materially. Financial Services, property & Construction and the Public Sector. And the growth in the third was directly funded by increased tax revenues from the first two, which we all now know was an unsustainable bubble.
    -------------------------------------------------------------------------------
    Did not manufacturing also grow materially but at a lesser rate to the other three, so that as a percentage of total GDP, it shrank by 1 to 2%?

  • Comment number 35.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 36.

    It is entirely normal for any individual of any political persuasion to endeavour to acquire more money and possessions than they are currently encumbered with.

    For in such pursuit, each mortal gain can be counted and recounted and even light amusement derived from the mathematics. But ultimately, nought is gained nor lost in the undoing of it.

    The banking sector, by its own deeds has fallen into infamy.
    It has depreciated in the eyes of the nation, rather like the currency upon which its trade is based.

    Regulation has provided little constraint on banking, and there is little to suppose that further regulation will succeed in curbing its usurious intent.

    A government’s purpose is to exert the will of the people, and all evidence suggests that the will of the people is for government to exert control over the banks.

    And, as far as I can establish, people do want to live in debt slavery to banks.
    So given that we like to believe that democracy exists, perhaps now we’ll find out whether such is so.

  • Comment number 37.

    Dempster

    Finally had time to read positivemoney.org in full. I had a good idea what it was about anyway but wasn't clear about distribution and the working parameters. Reading the site has answered several questions I had and the agenda aligns very much with the thinking of my political colleagues (you probably didn't want to know that) but in a state managed system this has to be the way forward.

  • Comment number 38.

    We know why the establishment are dragging their feet cleaning up the banking sector sleaze ... they're part of it as being ex-bankers, sons and daughters of bankers and hedge fund managers and spivs of every decsription, married to bankers, have political donors who are bankers, are being blackmailed by bankers etc

    What we need is a list of politicians and establishment figures, political and their 'ineterests' with bankers, hedge fund managers ... the 'vested interests'.

    Has anyone got the information and xxxxx to do this?

    Well, if not we'll have to wait for wikileaks to show us all how its done!

    Once we know 'who's who on executive and other banker sleaze' ... the solutions and problem areas should become much clearer.

  • Comment number 39.

    Of course we're not suprised. As many have said here, the bankers are far smarter at bending the law, than the regulators are at enforcing it. Greed is a very powerful motivator.

    To me, the real issue at the heart of this is that the banking business is:

    1) In order for these large bonuses to be paid, somebody is being fleeced. Why aren't (more) banks in competition for the business, so giving better value to their customers?

    2) why do shareholders, who have lost some 90% of their assets/ savings sit meekly by, while these boys get billions of pounds of bonuses. This money belongs to the shareholders, who have risked, not to the operators who have been already rewarded, and risk nothing.

    These factors alone, should worry any capitalist, for it says that capitalism is dead, and some kind of corporate feudalism rules the day (and your money/pension)!

  • Comment number 40.

    To Up2snuff at post 34.

    Hah! Think you can think you can subdue me with personal insults about my childhood and education, eh? Well you might actually but they would have to be better than that.

    Not sure if you understood me correctly. What I was saying is that if Saxo bank allows somebody to lodge shares and use them as security to gamble (or 'margin trading' as they charmingly describe it) then morally that is no worse than a quick flutter on the gee-gees. It's money he investment banker can afford to lose and in this particular transaction nobody else loses.

    Now apart from ranting at me for not understanding 'orders of magnitude' - by which I suspect you mean that big numbers are...er...big - what is wrong with my argument?

  • Comment number 41.

    Well let them get their kicks gambling their own assets rather than ours for a change.

    If it goes wrong they'll have to stump up, not us.

    "Saxo", Latin for a stone or rock, and also first name of the Danish historian Grammaticus, by the way. (Not followed by "borealis" though).

  • Comment number 42.

    So you're now bashing bankers based on an advert for a private company?

    New low Mr Peston.

    What about those CEO's that gamble on stock markets? The house wives who play bingo? The chap down the bookies? How about having a dig at them?

  • Comment number 43.

    5. At 18:29pm on 31st Jan 2011, Robin Joy wrote:

    No, WOTW, I'm not saying that a trader should by right earn many times more than someone doing tangible good. That is a great dilemma, which may well be practically insoluble.

    -------------------------------------------------------------------------

    haha WOTW is now getting replies before he has even posted. I think its about time the BBC gave WOTW his own blog.

  • Comment number 44.

    Robert is this real?

    Yes a significant percentage of my bonus this year was in shares and as a result I wont be paying a builder to work on
    my kitchen as planned (so no help for the UK economy)
    and the tax I would have paid is deferred for 3-4 years (so less help for the treasury). The crucial point is these
    virtual shares are totaly out of my hands for 3 years I cant sell them or pledge
    them and I may never own them. If I make any mistake in the next 3 years (eg scratch the boss's Lambo when wheeling my
    bike through to the bike rack) I would loose my job and the shares are forfit.

    Even if the shares do get delivered I am not allowed to operate a brokerage account with anyone but my current employer
    (so that the compliance dept can watch for any signs of insider dealing). I can trade on margin,
    but shares in my employee cannot be counted as collateral (other shares I hold can be used).

    Similar rules apply in every bank i have worked for in the city. I dont know if different (or any) rules apply to the
    hedgies, but as more of us are driven towards the shadow banking sector maybe i will find out.

    So is your story a realistic scenario or just yet another rallying cry to your regulars to grab their pitchforks?

  • Comment number 45.

    Has anyone considered that a cash bonus actually makes banks less risky? Without a chance of a bonus, staff would be less inclined to perform key controls and tasks to the best of their abilities, causing potential oversights that could lead to huge losses.

  • Comment number 46.

    As I have said before the financial system is populated by addicts - for short term investment read mainline gambling. Like all addicts they will rationalize their behavior whilst pursuing ever more risky bets, with little consideration for negative outcomes because they believe with absolute certainty that they will be the winners.Whilst supported by seemingly endless streams of tax payer money the certainly can't lose.
    Pull the plug now before ultimate disaster strikes and ensure that the players can never re-enter the mainstream world of what must become the new finance. Only through exclusion can we begin to tackle their addiction and protect the mainstream population from their activities.The time to act is absolutely now before they open the floodgates to a tidal wave of new (and hidden old) rogue debt.

  • Comment number 47.

    40. At 21:25pm on 31st Jan 2011, Slessac wrote:

    To Up2snuff at post 34.

    Hah! Think you can think you can subdue me with personal insults about my childhood and education, eh? Well you might actually but they would have to be better than that.

    Not sure if you understood me correctly. What I was saying is that if Saxo bank allows somebody to lodge shares and use them as security to gamble (or 'margin trading' as they charmingly describe it) then morally that is no worse than a quick flutter on the gee-gees. It's money he investment banker can afford to lose and in this particular transaction nobody else loses.

    Now apart from ranting at me for not understanding 'orders of magnitude' - by which I suspect you mean that big numbers are...er...big - what is wrong with my argument?

    XXX

    Sorry you got the ripping off instead of me Up2snuff but that’s life in the fast lane for you!

    Firstly no one insulted your childhood or education, The link word ‘or’ denotes a question – now that was questioning your education!

    The moral issue is: if I have no money and beg another to fund me is it acceptable to keep the funding and have a good time from any money that I make while I still owe the funding? Remembering that the funding party/parties are in hock.

    Order of magnitude meaning relevant to size of each, not just…er…big?

    Does that answer ‘what is wrong with you argument?’

  • Comment number 48.

    #5 Robin Joy: "..If a high revenue earner says "More money or I'm off" then the answer is usually "er, OK then".. .."

    Mmmm .. except you are forgetting the tightening noose is global ... sooner rather than later these banking parasites will have nowhere left to run off to.

  • Comment number 49.

    Nothing is wrong with this. The individual is putting the shares at risk, not the bank and certainly not the taxpayer. The ownership of the shares has passed to the individual. It's no different from a householder taking a second mortgage, and blowing the money on the gee-gees.

  • Comment number 50.

    39. At 21:23pm on 31st Jan 2011, Crookwood wrote:

    "Of course we're not suprised. As many have said here, the bankers are far smarter at bending the law, than the regulators are at enforcing it. Greed is a very powerful motivator."

    When did playing by the rules, but bending them become such a bad thing. It happens in banking, it happens in Formula 1, it happens in football, it happens everywhere.

    That is how we progress, how we evolve, how we survive. So if the rules are not working as the regulators etc wanted them to, write the rules better rather than berate the people who find a way to get round them.

  • Comment number 51.

    To 47.

    No, it doesn't.

  • Comment number 52.

    The jealously on these blogs always makes me laugh.

    If it was that easy and bankers were that stupid you'd all be lining up for your bonuses. Except it isn't.

  • Comment number 53.

    Who would regulate the obvious conflict of interest that would be rife.

    Are we seriously expected to believe that traders would not use their own personal trades to front run their own clients trades.

    They are giving up their long term stake in their own company for short term gain.

    The whole cause of the crisis that started in the US with the CDO's and CDS's, had the personal wealth of Goldman Sachs CEO's as well as the companies money linked to their trades with AIG. Why do you think GS put a gun to AIG's head demanding collateral, knowing full well it would bankrupt AIG and blow the whole financial system up. They had everything to lose so didn't care if they took everyone else down with them.

    They may well be allowed to risk their own bonuses but they control everything else too and will have companies and governments over a barrel if they make another bad bet.

  • Comment number 54.

    To 34 - sorry, got the wrong links. My last post wasn't directed at you.

    You asked about growth in manufacturing suggesting there was some growth in this sector as well as finance and property. Well I'm not an expert in the Blue Book, chain-lnking, or any of the esoteric things they do with numbers, but from 2000 to 2007 gross value added in manufacturing increased from £150bn to £154 bn in constant prices. Over the same period GVA for finance and real estate grew from £188bn to £294bn.

    So you might be right that there was some growth in manufacturing, but I still reckon the bubble that financed increased student numbers, new schools, larger NHS etc was built on the sand of an under-regulated financial sector in which governments and regulators colluded for political expediency.

  • Comment number 55.

    this is very sloppy, just trying to create a story when there isn't one in fact its worse as its trying whip up further the frenzy of anti banking industry sentiment. You want deferred bonuses you get deferred bonuses. Fine. What people do with their shares - which will get taxed at the point of vesting - has got nothing to do with you Robert or anyone else for that matter. It also has no bearing whatsoever on the security of the banking system. If you want to ban bookmakers or speculation please say something to that effect instead of this ridiculous innuendo appealing to the ignorant.

  • Comment number 56.

    50. At 22:06pm on 31st Jan 2011, yam yzf wrote:

    So if the rules are not working as the regulators etc wanted them to, write the rules better rather than berate the people who find a way to get round them.

    *******

    I'm not berating the people per see: history is full of examples of people trying to legislate against human base "sins" (greed in this case). It has proved impossible in the past, and I don't see this changing in the future.

    What I was trying to say is, what has happened to allow the banks themselves to have eroded true competition, and become the dominant species on the planet. This is what needs to be solved, everything else will fall into place when this defect is corrected.


  • Comment number 57.

    What is your point, Robert? If a trader wants to lose his/her bonus, I'm not sure that's any business of ours. Saxo Bank might suffer, but I hardly think it qualifies as 'systemmically important'. The key fact is that the institution paying the bonus has not paid out cash and therefore has a stronger balance sheet with which to counter future losses. Isn't that the whole idea? Isn't it about time we stop having a go at people just because someone thinks they add value to their business?

  • Comment number 58.

    I’m firmly in your corner RP (whether anyone likes it or not) and I urge you to continue. It is however throwing up a big divide and in some respects this concerns me.

    It is said that you cannot make an omelette without first breaking the shell.

    This statement also concerns me and to quote my mother ‘it will end in tears’, and with great sadness it may be true!

    I think the battle lines have well and truly been set and the acts need to be played out to the waiting world because although we may not think it, the world still see us as the standard bearers.

    It is clear that the establishments (banks) do not see that they are, if not directly but indirectly responsible for the riots that have happened and that are happening now and in the future. It would be wrong of me to say that because of their actions they have blood attached to their soles because they didn’t fire the bullet or light the petrol.

    Hopefully Egypt isn’t the catalyst for trouble to start with in the PIIGS or Turkey but I see this as a real possibility and unfortunately once the snowball starts rolling it will only stop at the end.

    I have questioned my own motives and I hope other have done the same. I have taken responsibility for my deeds but then again this is simple because I only have me and mine to think of, it is more difficult for the establishments because they have to take responsibility for humanity but this (should) come with the job.

    So I am imploring the leaders of the establishments to stop take stock and accept the responsibilities of their positions and ensure a better life for all.


  • Comment number 59.

    58. At 00:00am on 1st Feb 2011, common_man_123 wrote:
    I’m firmly in your corner RP (whether anyone likes it or not)

    Me too. Sustain the opposition or accept your lot.
    I heard the phrase once (I think it was in 'The Doors' movie)

    "In times of change, the dividing lines become clear and you must choose your side"

    Its just a shame that its only the students seem angry enough to get off their backsides and demand that change. If Tunisia and Egypt have shown anything it is that spontaneous, mass displays of anger can still be effective. The consumer is still king.

    A planned, legal, well organised demonstration 2 months down the line will not have bankers, politicians or anyone quaking in their boots. Remember Iraq.

  • Comment number 60.

    Which is why, I assume, that there is a huge market in "dark-pool" UNREGULATED ANONYMOUS share trading in the City?

    I guess some might say that used to be called "money laundering"?

    Ahh, good to see that the "bad old times are back"...

  • Comment number 61.



    44. At 21:43pm on 31st Jan 2011, CityITGeek wrote:

    "The crucial point is these
    virtual shares are totaly out of my hands for 3 years I cant sell them or pledge
    them and I may never own them. If I make any mistake in the next 3 years (eg scratch the boss's Lambo when wheeling my
    bike through to the bike rack) I would loose my job and the shares are forfit."

    Mr Peston...is CityITGeek saying something important here ?

    If such bonus shares cannot be pledged as collateral, the ad from Saxo becomes so much advertising spiel . It would then have been remiss to draw from this that all those working in banking receiving such bonus shares are about, indirectly, to 'gamble' with them - I would request you to find out more and tell us, please.

    PS And would it be possible to 'shadow' deposit such shares ?

  • Comment number 62.

    I can't help thinking that if these guys are paying bonuses in shares, then they must see them as incredibly good value/cheap at current prices. How nice to double/triple/pick your multiple the size of your bonus by just sitting on your shares for a couple of years till the markets discount a significant recovery in financial stocks!

  • Comment number 63.

    "#52. At 22:11pm on 31st Jan 2011, Againstthetide wrote:
    The jealously on these blogs always makes me laugh.

    If it was that easy and bankers were that stupid you'd all be lining up for your bonuses. Except it isn't."

    Can't be that hard can it? Falling profits, lower dividends, colossal subsidies direct and indirect to keep an industry going - result - increased executive pay and massive bonuses all round.

    There's plenty of us in the private sector with good educations doing long hours creating actual wealth for the country not skimming it - you know, the suckers who have recently discovered too late that we've been providing the stakes for your insane ill educated bets - and bets on the success or failure of your bets.

    The game is rigged in your favour. You can't lose. The only 'difficulty' you have is dealing with the greater success of one of the immoral ferrets working alongside you.

  • Comment number 64.

    This is such a non-story. Peston saw an ad, that's it. No evidence that people are taking up the offer, just an ad.

    You can't stop people doing stupid things with their assets. If they want to blow it at the bookies, they will. If they want to take a loan and gamble with that, they will. If they want to gamble with unvested shares, guess what, they will.

    As it happens, the majority of people in the city are doing their best to lock away secure assets so they can retire early. Only the idiots blow their bonuses every year.

    What's Peston actually suggesting? That people shouldn't be allowed do anything silly with their bonuses? Pay them all in post office bonds that they're never allowed to sell?

    Scratching around for a story, I'm afraid.

  • Comment number 65.

    62. Shares have been excellent value in the past few years, and paying people in shares is not a new initiative. Gains on share value increases fall into the tax net though, so it's not a free gain. To date, these gains have been taxable on CGT, but I seem to remember a proposal that the CGT rate on these gains be brought in line with income tax rates.

  • Comment number 66.

    63. At 08:27am on 1st Feb 2011, FauxGeordie wrote

    The game is rigged in your favour. You can't lose. The only 'difficulty' you have is dealing with the greater success of one of the immoral ferrets working alongside you.

    ==========================================================

    I Cant lose can i....hmm so i dont have to worry about wether or not im going to get a new contract in 2 years time or wether or not my boss is going to use the clause in my current contract that says that they can get rid of me at any time if he deems it to be in the best interest of the company. well thats a load of my mind. I thought that i could lose my job just like any of you proles but clearly working for an investment bank makes me infallible to the world around me.

    and secondly "immoral ferrets", where do you come up with those comments, have you ever actually met an investment manager. i work in an office with 12 investment managers most of which are multi millionaires and they all seem pretty nice to me. none of them have tried to front run clients on good orders or "skimmed money" out of the economy. we got audited last year and were found to have paid exactly the amount of taxwe should have and yet we are according to you somehow lesser to you.

    explain.

  • Comment number 67.

    58: the world still see us as the standard bearers.

    This is laughable arrogance. We're a bit player on the global stage now. We follow the US in everything they do, but lag behind ... we follow them culturally, politically, financially, you name it.

  • Comment number 68.

    60. At 07:24am on 1st Feb 2011, sanity4all wrote:

    Which is why, I assume, that there is a huge market in "dark-pool" UNREGULATED ANONYMOUS share trading in the City?

    I guess some might say that used to be called "money laundering"?

    Ahh, good to see that the "bad old times are back"...

    ..................

    Dark pools? Ah Yes ... the next ensuing financial scandal ... showing in part, why for many, our personal and private and other pensions have performed so badly in recent years.

  • Comment number 69.

    The problem is clearly illustrated by the phrase "PAID IN SHARES THIS MONTH?"

    We are not talking about PAY. What is being discussed is that bonuses be fulfilled by shares.

    If they want to be paid larger salaries and attracting income tax and NI then pay in cash but if it is bonuses based on performance then pay in part as shares.

  • Comment number 70.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 71.

    "But while there remains a short-term trading culture in the City, all those restrictions may serve to do is create powerful incentives to find imaginative way around the new rules - so that share-based bonuses, underwritten by taxpayers, can be turned into fat wodges of lovely cash."

    Robert

    You are of course absolutely right, and bang on target.

    Deferred payment of bonuses, in forms other than straight cash, has never been anything other than a device to sanitise what is in fact a nefarious system and to deceive the gullible (or to afford those devious characters who desire it the appearance of seeming to be deceived even though they're not - eg ministers, regulators...?). There always were and always will be any number of ways to circumvent and/or neutralise these imagined "restrictions". Why they should ever have been held to somehow make the practice more repectable has always been a mystery to me.

    The nub, as always, is the utter indefensibility, on any rational criterion, for the payment of these huge amounts of money in the first place to individuals who take no risk whatsoever with their own capital. These rewards are paid solely because the employing institutions have become mesmerised by their own propaganda. And because it suits those who run them that they should be so mesmerised - because they themselves are the source of the propaganda myth and are among the chief beneficiaries of the rewards system which the propaganda promotes. (Diamond Bob, are you listening...?)

    None of which gives any of the rest of us any excuse for falling-for their propaganda. Yet, incredibly, many of us do.

    Please keep up the good work; it's more needed than ever.

  • Comment number 72.

    48. At 22:03pm on 31st Jan 2011, TheCynicalSasquatch wrote:

    Mmmm .. except you are forgetting the tightening noose is global ... sooner rather than later these banking parasites will have nowhere left to run off to.

    -----------------------------------------------------------

    Hello Cynical,

    Sure, if you're no good there's nowhere to go. That's exactly how it's always worked. Those of us in the financial services business look that fact in the face daily, are not scared of it, expect (maybe deserve?) no sympathy, and always have the option to pack it in. Also, we all know that it's very rarely a career. More like a series of pay cheques.

  • Comment number 73.

    @18. Richard Richardson:

    "...but if these guys can start turning the country around again, I'm all for the banking recovery."

    In what kind of world does a person live who believes that "these guys" have it in their gift to "turn the country round"?

    Their occupation is gambling, for christ's sake! Not actually producing anything useful. Do you credit our estimable band of on-course bookmakers with the power to "turn the country round"? If not, what do you believe is the difference between them and the ones at Canary Wharf (other than that the bookmakers take a personal risk, and earn a lot less money)?

  • Comment number 74.

    27. At 20:18pm on 31st Jan 2011, haufdeed wrote:

    Well, I can't speak for WOTW, but your dilemma seems to me to be very easily solved. Just as the State has imposed a national minimum wage, it can impose a National Maximum Wage. Simple, isn't it?

    -------------------------------------------------

    That's essentially what happened at RBS. RBS's immediate loss of profit making staff was much to Nomura's benefit and RBS's shareholders detriment. Great management decision.

  • Comment number 75.

    Poor Mr Preston and the poor BBC. At least they will, and ought to be. They've been afloat on the backs of the public without the least accountability - at least the financial sector is regulated. Mercifully, the public supporting communist nonsense which we've read above is coming to an end.

    I wouldn't be looking for a job in the financial sector, Mr Preston, when the BBC makes you redundant.

    ******

    And poor "kit green" - it would seem the comprehensive system and university fees that were far too low have produced someone with an inability to spell. Thankfully, that's about to change too!

  • Comment number 76.

    Get real.

    Short-term betting has been part of finance since the dark ages and has been prevalent since the 1920s (bucket shops in the US). The banks did not get into trouble because of short term directional bets or the bonus culture (which again has been around for decades).

    Rather, so so so many bought houses and goods (with credit) they simply could not afford and when they started defaulting or falling behind on interest payments the bank's loans suffered write downs. Yes, the banks were very wrong to (over) lend to doddgy borrowers (as they do in every cycle peak as greed grows and everyone loses their senses and thinks we have found some new economic miracle of growth forever...recall Gordon Brown proclaiming how he had expunged us from downturns).

    Ironic that I hear from the inane politicians every day (especially Vince Cable)..."banks should lend and lend and lend more". The very cause of why they are suffereing losses and had to be bailed out.

    Saving the banks (so called tax payer underwriting) was a must for every Tom, Dick and Harry as the consequence of them failing (ie hard earned savings going down the toilet) would have been a far far more determinental result.

    Stop complaining about bonuses or short-termism. Rather spend wisely, save some...just a little would do (UK had a -2% savings rate before the crash, whilst Germany +7%) and don't buy houses and goods you can't afford.

    Yes, bankers get paid too much...but so do footballers, equally a shame that nurses/policemen/fireman etc are paid a pitance and yes if we could balance this somehow it would be great (though I doubt it in a western capitalist society which u all love to be part of)...but don't kid yourself that bonuses/trading got us into this mess. Rather it was the basic human trait of spending too much, and politicians and central bankers (note: "central", ie the FED and BOE) liked the party too much so they did not prick the bubble (by raising interest rates and demanding less dodgy lending) when the party was in full swing...but then again who wants to be the party pooper and throw out the revellers at 10pm when everyone wants to carry on till 3am until they are legless.

  • Comment number 77.

    76. At 10:25am on 1st Feb 2011, FruitTrader wrote:
    Get real.
    Yes, bankers get paid too much...but so do footballers


    I'm fed up of this argument. Its been answered many times. Once more the answer is DAMAGE, direct and collateral.

    You get real you melon

  • Comment number 78.

    This is a great blog entry Robert. Absolutely dripping with barely concealed anger and disgust at The City culture. You seem to be getting more outspoken in your views, no doubt knowing that you will likely get a sympathetic hearing from the mainly banker-hostile crowd that hangs around here. Keep it coming.

  • Comment number 79.

    78: I disagree. The basis for Peston's article is that he saw an ad. That's all. As you (inadvertently?) suggest, he's playing to the galleries, giving the banker-bashers another bone to chew on. The usual suspects will lap it up and spout the same stuff they do on every thread.

  • Comment number 80.

    Lots of `not me guv' on this blog. Not bad for an industry which is being subsidised by the taxpayer, parts of which have had to be purchased by the taxpayer and which continues to reward itself generously whilst the taxpayer loses his or her job as a consequence of the failure of that industry in the first place.

    Try cause and effect, guys. It is useful in understanding human behaviour. It allows you to roll with the punch.

    I agree wholeheartedly that regulation failed and that almost the entire political class were complicit in the incompetence that went on, but what about the little guy in the street who is now bank-rolling an almost bankrupt state and a crippled finance industry all at the same time as dealing with growing inflation, an excessively poor return on savings and diminishing income?

    I expect you share some of those troubles as well. I expect you share some of the same attitudes of the trade unionists who think this should not apply to them. I can sit here and say that I have never taken an income from the state. All that I have comes from selling the sweat from my own brow; so why should I have all this anguish dumped onto me? I too have to be audited by HMRC and by the usual statutory audits. I too have to accord to regulations in what I sell and some of those are tough but I know that those severe standards allow me to sell with confidence. A good strategy with regulation is to turn the problem around and use it yourself.

    But was is the point in me feeling bitter about it? What I do feel about the City is being let down by an institution I once respected and which figures strongly in my own family background. I do feel that the City could be more considerate of the position of ordinary people who did not want any of this but now have to deal with it and work their way through the consequences.

    What I can assure those who work in the City that for as long as they object to expressions of unhappiness from the ordinary man or woman in the street then this issue will not go away. I suggest some emolience, some meeting of the minds. At the moment the end-game will be the enforced reform of all financial institutions by a government that will refuse to listen to complaints. The choice is yours: so stop moaning about how others feel and deal with the issues your industry has caused others.

  • Comment number 81.

    21. At 19:34pm on 31st Jan 2011, TonyH wrote:

    Does anyone honestly believe that these leeches possess knowledge and abilities beyond the reach of the average man or woman?

    ----------------

    I read an interesting story in Monday's Evenign Standard (although there doesn't seem to be a link to it online). Some guy managed to get a top executive job with an investment bank on a £150K salary, plus bonuses, by faking his CV and blagging his way through the interview.

    As if that isn't damning enough for the bank, he then managed to hold down the job for almost 2 months and no-one suspected that he didn't have any banking experience or qualifications whatsover. He only got found out when someone routinely did a background check and discovered he had lied on his CV - but up to that point he had managed to keep the scam going despite not actually being anything like the financial genius that they thought they were hiring.

    Just goes to show how much of that world is about blagging and bravado and how little about knowledge, skills and qualifications.

  • Comment number 82.

    EconomicsStudent...if u study real real real hard maybe u could become one of those bankers...off u go...back to your little books.

  • Comment number 83.

    77. At 11:11am on 1st Feb 2011, EconomicsStudent wrote:

    You get real you melon

    ------------------------------------------

    I don't think FruitTrader is a melon. Or bananas. It's just sour grapes. He should blow you a raspberry.

  • Comment number 84.

    79. At 11:45am on 1st Feb 2011, jimmy wrote:
    78: I disagree. The basis for Peston's article is that he saw an ad. That's all. As you (inadvertently?) suggest, he's playing to the galleries, giving the banker-bashers another bone to chew on. The usual suspects will lap it up and spout the same stuff they do on every thread.

    ------------

    Nothing inadvertent about it - this blog is clearly designed to get the "usual suspects" posting. But just because someone is playing to the galleries, it doesn't necessarily mean that what they're saying isn't valid.

  • Comment number 85.

    I'm fairly relaxed about this one.

    If the bankers want to take their bonus and immediately 'bet it on the horses' like any normal guy taking his brown envelope to the bookies on payday, then thats their business. Its their money, their risk and potentially their reward.

    So long as they're not doing it on work time... and we know how long and intensively these guys claim to work...

    And if they loose their gambles, its a total personal liability and not of any concern for their employer.

  • Comment number 86.

    82. At 11:56am on 1st Feb 2011, FruitTrader wrote:
    EconomicsStudent...if u study real real real hard maybe u could become one of those bankers...off u go...back to your little books.


    Fair enough. I deserved that.

  • Comment number 87.

    Just a quick, off topic, observation.

    Are spellcheckers responsible for the 'loose' instead if 'lose' typos or do I need to brush up on my english as well as my economics?

  • Comment number 88.

    > But while there remains a short-term trading culture in the City, all those restrictions
    > may serve to do is create powerful incentives to find imaginative way around the
    > new rules

    More evidence (as if we needed it) that size taxes are the right remedy.


  • Comment number 89.

    88: Pardon my ignorance, but what are size taxes, and how do they guarantee an end to the short-termist trading culture in the City?

  • Comment number 90.

    64. At 08:39am on 1st Feb 2011, jimmy wrote:
    As it happens, the majority of people in the city are doing their best to lock away secure assets so they can retire early. Only the idiots blow their bonuses every year.

    Hit the nail on the head there, they are happy to gamble with other peoples money.

    They aren't interested if they wreck the economy as long as they get massive bonuses to retire early. Even if that means blowing up everyone else's retirement plans, by then they will be on their yachts in Monte Carlo.

  • Comment number 91.

    67. At 08:53am on 1st Feb 2011, jimmy wrote:
    58: the world still see us as the standard bearers.

    This is laughable arrogance. We're a bit player on the global stage now. We follow the US in everything they do, but lag behind ... we follow them culturally, politically, financially, you name it.

    Hit the nail on the head again. Like lemmings we will follow them over the cliff.

  • Comment number 92.

    The absolute vast majority of bank losses were incurred in CDO/MBS securities, many of which were only in the “warehousing” stage (ie collecting underlying assets) and many in the equity tranches. These securities were in almost all cases held by banks for months and months, even years…which is an extremely long time in “trading”. So, it is a complete fallacy to say that short-termism created the economic down turn.

    The real reason for the collapse was that all these securitisations had UNDERLYING garbage mortgage loans which went south as dodgy homeowners started to default on loans they should never have taken out in the first place, but there was very little “short-term” trading involved.

    MORTGAGE LENDING IS COMPLETELY DIFFERENT TO TRADING! Politicians (and some simpleton media analyst) blame trading (ie short-termism) but the rot was with mortgage lending…which in many many cases was done by non-investment banks (ie retail banks but these are not the so called “bankers” that most blame).

    There was no sudden shift to gambling…rather it was an economic cycle that burst and the burst hurt much more this time as so many had borrowed money that could not afford and frivolously spent it on goods and expensive houses, creating a stock market/housing bubble which when it corrected the excess created huge price collapses in securities that were exposed to the underlying garbage, ie mortgages.

  • Comment number 93.

    Perhaps one answer to bankers' bonus issue in the nationalised banks would be that the CEO should recieve the lesser of two bonuses figures. One would be dependent on the percentage increase in profitability, the other on the percentage decrease in total bonus/renumeration payments.

 

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