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Barclays: The big questions

Robert Peston | 12:09 UK time, Tuesday, 15 February 2011

On this question of which profit number is the correct one for Barclays (see my earlier post), I feel obliged to point out that Barclays' profit after tax is down 46% to £3.5bn and profit attributable to shareholders is 62% lower at £3.6bn.

The difference between these numbers and the pre-tax ones Barclays chooses to highlight is that the one-off gain on the sale of BGI is reinstated as an after-tax item for 2009.

For what it's worth, these after tax numbers are not irrelevant (even if they don't tell you much about the performance of Barclays continuing operations), in that they determine the dividends Barclays can afford to pay and the annual addition to capital resources - which in turn determines how much Barclays can lend.

Now you might think Barclays' senior directors would want to talk to you directly about all this, and explain how they gauge progress.

But the bank has declined our requests to interview the chief executive Bob Diamond or the chairman Marcus Agius.

Some may think it is particularly surprising that Mr Agius chose not to do an interview, in that when he is not chairing Barclays he serves as the senior non-executive director of the BBC.

Had they consented to be interviewed, the questions I would most wish to put to them would be these:

1) Do they agree with the Bank of England that there is a significant implicit taxpayer subsidy for Barclays Capital - which takes the form of Barcap being able to borrow relatively cheaply because its creditors know that if the whole bank were to get into difficulties, it would be rescued by taxpayers?

2) If that taxpayer subsidy (or artificially lowered cost of finance) were eliminated, would Barclays Capital make any kind of a profit at all - in a globally competitive market, would it be able to increase what it charges for its products and services sufficiently?

3) Do they fear that reforms likely to be proposed by the Banking Commission set up by the Treasury will be aimed at eliminating that subsidy, by separating Barcap from Barclays' retail operations - probably by prescribing that Barcap should be re-constituted as a legally separate subsidiary, with a wholly independent balance sheet and capital that is utterly quarantined from the rest of Barclays?

4) If they come to fear that the viability of Barcap were threatened by the Commission's reforms, how would they respond?

Comments

Page 1 of 4

  • Comment number 1.

    And I feel obliged to point out that the "govt influenced" bonuses at 3.5bn is an amount equal to PAT !!!

  • Comment number 2.

    Robert,

    Are you really suprised the don't want to talk to you?

    The answers are:

    1) Ofcourse we are subsidized by the UK tax mug standing behind us!

    2) Yes, removal of this subsidy this would affect our profit (bonus pot)!

    3) Yes without our retail arm, the investment arm will suffer, as the UK taxmug won't stand behing it.

    4) We'll threaten to move to Qatar?

  • Comment number 3.

    Some jolly good questions there. Here's another couple:

    5) Isn't it just a bit cynical that Barclays show little concern or respect for their shareholders, and prefers to pay the lion's share of profits to its own staff?

    6) Many of Barclays shareholders are pension funds. Does it seem fair to you that you are starving them of income now they are facing so many difficulties in meeting their immediate and long-term obligations?

  • Comment number 4.

    Robert, perhaps if you had a record of presenting a more balanced opinion on the Financial Services industry then you would be more successful in obtaining interviews with those concerned, whilst you continue to try to sensationalise and demonise Banks and Bankers in general then you can't be surprised when they have no interest in responding to you, irrespective of whether your arguments are right or wrong!!!

  • Comment number 5.

    Good luck Bob in getting those answered.

    I'm looking forward to your report on the 10 o'clock news.

  • Comment number 6.

    Also I would ask Bob Diamond...

    5) If you had stayed doing teaching at a university how much would have you been paid? Do you believe you are now really worth 100 times more now you are a banker or is the market not working properly?

    6) Why did you lend £8bn to Protium Finance to move assets off-balance sheet? How are shareholders supposed to scrutinise this deal when no information is made available to them?

    See

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8320450/Barclays-toxic-Protium-deal-wont-please-banks-investors.html

    for details

  • Comment number 7.

    I'd love to hear them answer these questions.
    After such bumper figures, I also can't wait to hear Barcaps extensive plans to use the profits to look after their customers by lowering overdraft fees and extending services and loan facilities for small businesses perhaps. They can then divide the small change left amongst the bankers etc.... After all, who would want to be a banker if there wasn't a couple of hundred quid bonus a Xmas?

  • Comment number 8.

    On the face of it the returns relative to turnover together with the bonuses for Barcap appear obscene, sorry very attractive (and am sure that will encourage further competition in the market place), but we should be asking the question how well are the investments performing. Are the investors getting that sort of return? Or are their investors getting the sort of letters I get on my endowments, pensions etc that indicate they are not performing as expected and I really should invest some more money!?

  • Comment number 9.

    Or could ask

    5) Why are you paying a higher proportion of revenue to staff in your investment arm. You said there would be 'no reward for failure' but yet as revenues fall - the cut taken by staff increases to nearly 50% - why are giving a pay rise to investment bankers? Who is your duty to - shareholders or highly paid staff?

  • Comment number 10.

    Interesting - if this is such an unambiguous good news story as some posters on your previous blogs suggest, why won't the Barclay's board talk about it? The perceived (I would say self evident) taxpayer guarantee, the cheap public money flooding into the banks via QE and the indirect benefit derived from the direct bailout are the things that stick in the craw with Barclay's - so -

    if as some posters on here suggest its all a non-issue and the time for remorse is past and hurray for all the taxes we'll get back in the UK - you'd think the Barclay's board would be banging the drum about it? Doesn't sound like the shareholders have much to be pleased about so why the 40% payrises?

    Intersting to hear about Agius and the BBC board - editorial independence specifically yours so in so far as this blog goes - is going to be very important over the coming year, nobody else with this sort of platform is covering this story to this degree. Most posters on here are pretty angry and despite the dismissive nature of a small number of Bollinger Bully rants clearly they can't all be written off as unemployed and unemployable lefties - indeed many of the more overtly Tory posters make lethal and very pertinent points.

    Closure of this forum or toning down of the scrutiny on the financial services industry would be massively worrying given the widespread merging of the state and corporations that is going on around us.

  • Comment number 11.

    can somebody please raise this point?:

    Why is it that banks have been allowed to borrow money from the UK govt at 0.5% interest but then be allowed to loan the govt through bonds at rates of over 3% ?

  • Comment number 12.

    If Barclays knew what questions you had intended to ask this would explain their reticence. I have a question 5: What do you think would happen if the British government told all your savers that under no circumstances would they protect a penny of their savings in Barclays if the bank should fail. What would your P&L account look like if the government took that line?

  • Comment number 13.

    Actually a big question for me is even the commercial (let alone ethical) justification of these bonuses.

    It appears the spiv section of the bank made a profit of £4.78bn but paid out bonuses of £2.6bn (Telegraph)

    This means that these allegedly crucial, can't let them go, high flying staff got bonuses equivalent to more than half of the profits they earned. This is in addition to good basic pay with a substantial un-earned pay rise.

    What other job is picking up 50% of the profits as a bonus on top of basic pay?

    Are these figures right?

    If so, how can they be justified?

  • Comment number 14.

    And suddenly it dawns on me! Maybe it’s just me. Maybe the Big Society is just this one bloke in Bermondsey. Maybe it is up to me to pick up the pieces for the mistakes of the previous government and the disastrous choices of this one, the banker’s bonuses, the bail-out deals, global recession, Thatcher’s privatisation programme, tax cuts, MP expenses, the war we should never have entered. Maybe it is up to this one man to plug the gap that these savage and unwise cuts will leave in front-line services.

    Read the full article Already tired of Cameron's BS here:
    http://sturdyblog.wordpress.com

  • Comment number 15.

    Without the taxpayer subsidy in the UK, USA and Europe all the banks would be in the mire.....all of them.
    But the profits still go into THEIR pockets.....
    Cameron, Cable and Osborne have got a very difficult task.....keeping incentives good in the banks, whilst an angry public is peering over their shoulder, and whilst being held to ransom by the City.
    The same applies in the USA.
    "Beware the court of the money-lenders".....William Shakespeare.
    "...bankers gorging on the carcass of the economy..."...Robert Peston.
    "Western bankers are worse than terrorists"...Max Keiser.
    "Prudence"......(dont laugh)....Gordon Brown.
    "We've saved the world".....(dont laugh).....Gordon Brown.

  • Comment number 16.

    I think we need to give the big banks a real incentive to change. The best form of regulation is surely free competition. Instead of trying to regulate and request the big banks change can't we create a new, successful and safe banking entity? One that is modern, user friendly, transparent. As in all other markets, the existing big banks would then have to self regulate and reform to keep their market share. Some elements of ZOCA perhaps, but on a much bigger scale??http://chazbrooks.blogspot.com/2011/01/innovate-dont-just-regulate-to-resolve.html

  • Comment number 17.

    Heres more detail on the 'Protium' dodgy deal from Barclays that looks set to cost shareholders dearly

    http://ftalphaville.ft.com/blog/2011/02/15/488916/protium-powered-no-longer-at-barclays/

  • Comment number 18.

    Why does it matter so much which profit figure is right? what difference it going to make to the ordinary person looking for a job??

  • Comment number 19.

    4. At 13:01pm on 15th Feb 2011, Lockers wrote:
    Robert, perhaps if you had a record of presenting a more balanced opinion on the Financial Services industry then you would be more successful in obtaining interviews with those concerned, whilst you continue to try to sensationalise and demonise Banks and Bankers in general then you can't be surprised when they have no interest in responding to you, irrespective of whether your arguments are right or wrong!!!
    =====================================

    Perhaps you could address this imbalance?

    Tell us about the benefits of investment banking and the financial system.

  • Comment number 20.

    The thing to remember is that Barclays MADE NO PROFIT. It can't have made 'profit' because it made nothing at all. What it did was accumulate several billion pounds from people and businesses who were otherwise trying to make ends meet.

    BANKS DO NOT MAKE PROFIT THEY ACCUMULATE MONEY THAT BELONGS TO OTHERS!

    This money means more job losses, more overdraft charges, sky high credit charges (barclaycard 20% or more, overdraft 15-19%, they won't even quote numbers for business banking costs!!!!)

  • Comment number 21.

    #4

    Interesting...

    Are they refusing to talk to the media in general, the BBC or just Peston?

  • Comment number 22.

    Spot on Robert.

  • Comment number 23.

    Good observations Robert - and good questions which shareholders should have answered by the Chairman - especially given his cross non-executive roles. A non-exec role is not just a job for the boys.

    Critically all banks need to understand that they have not only an implicit subsidy via access to cheap asset backed finance from the BofE (as well as other central banks in currencies where they operate) but now have an implicit guarantee from the UK (or again other countries where they operate). In some locations it is explicit. This is a massive cost advantage which massively increases the value of "the desk" - and which is nothing to do with the skill of the individual BarCap trader ... and frankly not an "added value" on which a bonus should be paid. It is not even a value which should accrue to the shareholder - this extra income from cheap access to short term money is given by, and owed to, the tax payer who gives the implicit subsidy as a critical part of economic stability for wealth creation. Its return to the taxpayer should be a part of the basic licence for a bank to operate.

  • Comment number 24.

    Robert, please keep on asking these questions. And ask how having access to Bank of England money at a 0.5% interest rate and then charging customers for loans a high multiple of this rate (backed up by cheap customer deposits) could be considered a complicated business.
    Anyway, there are many ways a multinational bank holding with a few others a monopoly in the financial services industry in this country can safely enrich itself.
    In short: banking needs to be restructured and reformed. Banks should serve the people of this country and not exploit or bankrupt them. Nationalising and strictly regulating some of the banks (making them boring and safe) is probably the only way to restrict the irrational exhuberance of human greed.
    A few dozens of reasons for the imperative need for change in the banking world, for those who want to do a bit of research to educate themselves, can be found here:
    http://globalinsights.wordpress.com/

  • Comment number 25.

    Oh dear

    Can we please move on from the "Banker bashing". I think that the global authorities are going to ensure that in future all major Banks will be properly capitalised which of course should ALWAYS have been the case. Barclays largely weathered the storm without Government assistance. What exactly has it done wrong. Please explain.

  • Comment number 26.

    Answer to
    Q1;umm
    Q2;umm
    Q3;umm
    Q4;umm
    Q5;umm

  • Comment number 27.

    In Answer to Lockers view that Robert Preston , has a record of presenting a scewed opinion on the Financial Services industry so should not complain that he gets no responses. To be fair on Robert - his function is to present a rather naive and scewed view. I did, however, sit on the global compensation committee of a large bank for many years until 8 or 9 years ago. I was a regular, minority dissenter on the level of bonuses then and ... now they are substantialy higher ... would be a minority dissenter today. The reason for my dissent was that the value of the "desk" is never seriously considered by bank senior managers nor is the protected and priviliged position banks have - via licence - in the economic system. If you considered merely - what would 10 other random moderatly capable (but not genius) guys make if they had access to the capital of the institution (the value of the shareholder) - risk adjusted for higher risk trading, and a low cost of funds (largely but not excludively the value of the state implicit guarantee and subsidy) the real added value of traders who make "millions" for the bank - is really substantially more modest. This is demonstated often by looking at traders over many years ... Roberts questions off Barclays - and all banks - rightfully asks - (1) what is this split and (2) are the shareholders getting their cut for the capital, and (3) is the state getting its cut for the cheap funds and implicit guarantee - not to mention the restriction on competition via licence

  • Comment number 28.

    Perhaps another question would be:

    Based on this years figures and financial position how much more profit and bonus's will be payable when the new rules on corporation tax come into force.

    http://www.guardian.co.uk/commentisfree/2011/feb/07/tax-city-heist-of-century

    and

    How many years will it be before your bank can announce they have sufficient capital to stand on there own and not require subsidies from the tax payer.

  • Comment number 29.

    Mr Peston, don't you think those questions are better referred to the government and not to Barclays? Barclays - as far as I know - did not ask for those subsidies. Barclays is not the only recipient of those subsidies. Many industries receive direct and indirect subsidies and I do not often read you complaining about them.

    What I do know is that Barclays deliberately avoiding being "bailed out" by the taxpayer in the manner that RBS and HBOS were. Perhaps this is why you dislike Barclays more than the others, because Barclays is a more successful business?

  • Comment number 30.

    7. At 13:10pm on 15th Feb 2011, pg wrote:
    "I'd love to hear them answer these questions.
    After such bumper figures, I also can't wait to hear Barcaps extensive plans to use the profits to look after their customers by lowering overdraft fees and extending services and loan facilities for small businesses perhaps."

    Barcap do not, if memory serves, offer the type of business you are talking about as they are the investment banking arm of the company whereas you are talking retail operations

  • Comment number 31.

    I don't understand how any Banks are posting profits. It's all so clandestine. If you look at our National Debt the Banks must owe masses more than what they are declaring. National Debt is a real taboo subject and no one talks about it. The National Debt is not made up of individuals owing foreign companies hundreds of thousands so it must be the Banks.

  • Comment number 32.

    Robert hers are the answers

    No - Barcap would simply go to the far East to raise cheap finance - as did Barclays. I am surprised thast you failed to know that

    Yes Barcap would remain profitable - see answer to question 1

    I am surprised that you appear to be aware of the Banking Commisions views before their investigation is completed and their report published. Are you part of Wikileaks

    Headquarter in a Country that undersatand finacial services ie any other European Country the USA etc

    Now a question for you Robert "can you explain why the market has taken a positive view of Barclays performance"? Or to put it another way have taken the opposite view to you!

  • Comment number 33.

    They might have cash, or paper cash in hand but you try to get some for a new business.... or even an established and trading one.

    Another question in several ways is how about supporting the rest of the country when we are all supporting the banks?
    There is aways a need for banks but bad publicity lasts a long time, as now

  • Comment number 34.

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

  • Comment number 35.

    Well of course RP's questions are pertinent, timely, and relevant. However a responsible journalist should know that these qualities apply to ALL banks together, and that attempting to pick off one Bank is something the Executive and Non-Executive Directors would refuse - it might be deemed stock price sensitive information. To make RP's questions appear appropriate for Barclay alone is in my view irresponsible and less than professionally appropriate. Let's be clear, the Banks have individually and collectively been underwritten without premium by all tax payers, so far as I can see in all Countries. That's a reason for collective Government action with respect to every Bank everywhere, not for one Journalist to appear to expect one Bank to be answerable to him or her.
    I prefer the somewhat implicitly warning tone and approach of Stephanie Flanders to Mervyn King to RP's towards Barclays.

  • Comment number 36.

    25. At 14:14pm on 15th Feb 2011, pdavvers wrote:
    Oh dear

    Can we please move on from the "Banker bashing". I think that the global authorities are going to ensure that in future all major Banks will be properly capitalised which of course should ALWAYS have been the case. Barclays largely weathered the storm without Government assistance. What exactly has it done wrong. Please explain.
    =====================================
    Oh dear,

    "Global authorities are going to ensure that in future..."

    So that's Basel III you're talking about. Whatever happened to Basel II then? Wasn't that a case of global authorities ensuring.... 2004 style? And the original Basel accord? And what about Glass-Seagull?

    They don't really have a good record at self regulation do they?

    As for Barclays, in 2008 most of their short term lending on deposit (LIBOR) was to the other UK banks. If RBS and HBOS had gone down then bye bye Barclays, HSBC, Lloyds TSB and the rest.
    If the BoE hadn't aggressively cut base rate to the lowest level ever (since 1696), lower than during 2 world wars, Napoleonic wars, Jacobite uprisings, countless depressions, then the correction in property values that would have occurred in 2009 would have brought down Barclays. Why? Because they did not make enough capital provision because a mirage of profits were not retained but paid out in bonuses and dividends.

    Since then, Barclays has had the BoE buy its long gilts through QE and been able to lend the money back to HMG at higher rates of interest. Anything left over has been punted in the resulting equity and commodities boom.

    The BoE has held down the base rate in defiance of higher inflation data. Barclays have been able to relend this money at spreads higher than previously.

    This is what I call subsidy and bail-out.

  • Comment number 37.

    Re: 27. At 14:15pm on 15th Feb 2011, victormildrew wrote:

    " Roberts questions off Barclays - and all banks - rightfully asks - (1) what is this split and (2) are the shareholders getting their cut for the capital, and (3) is the state getting its cut for the cheap funds and implicit guarantee - not to mention the restriction on competition via licence"

    Very good points. Please continue sharing your insights.

  • Comment number 38.

    29. At 14:29pm on 15th Feb 2011, Ed Clarke wrote:


    "What I do know is that Barclays deliberately avoiding being "bailed out" by the taxpayer in the manner that RBS and HBOS were. Perhaps this is why you dislike Barclays more than the others, because Barclays is a more successful business?"

    Barclays went running cap in hand to the Qatar borrowing at a rate of 13% instead of the 12% offered by the UK taxmug.

    Just to avoid any limits on bonuses that were feared at the time.

    Nothing 'successful' about it.

  • Comment number 39.

    Being fair, if we wanted to ask awkward questions Mr Peston

    Re your question 1:
    I think he (Bob Diamond) already answered that when he said banks should be allowed to fail ?
    Why would you confuse people about profitability? I don't see the relevance other than to frame another banking story and the figures quoted already include bonus payments made so aren't relevant to the compensation argument
    In terms of funding, I expect you are more than aware as a business journalist that all banks used to fund at far lower rates than they do now under any implicit goverment guarantee. As such, what point are you trying to make ?
    This just seems to drive confusion amongst huge numbers of your readers (see above) as to the rates at which institutions can fund. Do you not consider it your journalistic responsility to at least explain how they do this and that at the lowest level, that banks do not and cannot fund at base rate (however attractive quoting 0.5% is)
    Re question 3
    I think your describing something like Goldman Sachs ? A standalone investment bank, no retail arm, no commercial banking. If so, clearly such institutions can stand alone. I'm not sure what this would achieve though, as pension funds and the like would buy into them providing capital based on high returns and if they failed, there would still be an implicit need to help them or see things like state pensions go unfunded
    Concerning your last question
    Its a shame that such actions would change little for global banking, as people far wiser comment on here, banks would just move east or back to america. All we would see are tens of thousands of UK staff, few of which ever 'traded' plus their ancilliary support businesses, shops and service providers all lose their jobs.

  • Comment number 40.

    @25. At 14:14pm on 15th Feb 2011, pdavvers wrote:
    Oh dear

    Can we please move on from the "Banker bashing". I think that the global authorities are going to ensure that in future all major Banks will be properly capitalised which of course should ALWAYS have been the case. Barclays largely weathered the storm without Government assistance. What exactly has it done wrong. Please explain.

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

    Oh dear.

    I think you might benefit from watching Robert's recent 1 hour documentary "Too big to save?". Global authorities have tried for some considerable years to gain and enforce agreements regarding capital requirements (Google Basel I, II and III). Any idea of what 'properly capitalised' means? Capital requirements didn't save Lehman (with 11% tier 1 capital) and although regulators differ in the implementation of capital requirements, most banks do not match this level and 'compulsory' capital requirements are even lower. Watch the movie - very little has changed, many of the biggest banks are not adequately capitalised to survive another large scale crisis. Meanwhile, the bonuses, taxpayer underwriting and creative accounting continues. Maybe it will help you appreciate why the 'banker bashing' is continuing. If you can't take the heat......

    Robert, how about a blog induction course that includes "Too big to save?". It really was a useful introduction for me. I'd like to watch it again.

  • Comment number 41.

    31. At 14:50pm on 15th Feb 2011, invisibleDuck wrote:
    I don't understand how any Banks are posting profits. It's all so clandestine. If you look at our National Debt the Banks must owe masses more than what they are declaring. National Debt is a real taboo subject and no one talks about it. The National Debt is not made up of individuals owing foreign companies hundreds of thousands so it must be the Banks.

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

    I think you're getting somewhat confused over what the national debt means. Try reading the below:

    http://www.debtbombshell.com/uk-national-debt.htm

    Then come back and explain how the national debt is somehow lurking on high street bank's balance sheets. Any more than it is on those of Tescos, Sainsburies or any other retailer.

  • Comment number 42.

    To save WOTW time.
    Like the former bank regulator William K. Black always says when asked about the banking system, "Oh, it's worse than that......"

    This cartel includes government.

    http://www.guardian.co.uk/commentisfree/2011/feb/15/condemns-naked-short-selling-not-treasury

    We have to take the means of exchange credits away from the money changers and into the hands of the lenders of last resort, where it rightly belongs.

  • Comment number 43.

    I am coming all over with a feeling that I am getting to sound like Whatsthatonthe wall?

    • 32. At 14:58pm on 15th Feb 2011, Decentjohn wrote:
    Robert hers are the answers

    “No - Barcap would simply go to the far East to raise cheap finance - as did Barclays. I am surprised thast you failed to know that”

    “Yes Barcap would remain profitable - see answer to question 1”
    It’s make your mind up either they need money or they don’t. Take away the gov initiatives and lets see shall we (QE anyone) (and who are they going to sell off next)
    xxxx

    “I am surprised that you appear to be aware of the Banking Commisions views before their investigation is completed and their report published. Are you part of Wikileaks”

    Not as much as I am, they have already said they are looking into this. Poor briefing!

    xxxx

    “Headquarter in a Country that undersatand finacial services ie any other European Country the USA etc”
    Why are they still here? Please oh please go to France, they will not leave because anywhere else they would have been shot before now!
    xxxx

    “Now a question for you Robert "can you explain why the market has taken a positive view of Barclays performance"? Or to put it another way have taken the opposite view to you!”

    AND 80% OF THE COUNTRY. Upsa you seem to be in the minority
    xxxxx
    For the folk would haven’t already moved your money away from these parasites doesn’t reading the likes of this make you want to?

  • Comment number 44.

    Re 25 pdavvers.
    Barclays has done nothing wrong.
    But it is held up by the same piece of string that is holding up the other banks and the entire financial industry, and taxpayer is holding on to the other end.

  • Comment number 45.

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

  • Comment number 46.

    Still can't believe people are still falling for the previous goverments rants re 'its all the banks fault!!' Who encouraged people to take out brodging loans, extra mortgages to buy holidays and televisions - Gordon Brown - he needed to show that the economy was still growing despite his enormous inability to be Chancellor of the Exchequer. He had to encourage banks to loan so that the public spent money they didn't have so he could keep trumpeting that his 'prudent' policies were working. This is the Chancellor who sold gold reserves at its lowest points. This is the Chancellor who took away billions of pounds each year and each subsequent year from all of our pensions by doing away with the tax credit that pension schemes received on dividends received. This in itself put every pension scheme of every company in danger as revenues dropped 25-30%. Look at BT only just starting to haul itself out of the mess Brown left it in. He was a disaster as a Chancellor and a PrimeMinister. The banks need to make a profit, and a profit they do make , I used to work for Barclays, they sell products, mortgages, loans etc, they make money on the interest they loan to people and the money people save with them. Don't blame the banks the financial crisis was caused by a lack of regulation by Governments who had to encourage bad/reckless lending to ensure growth to ensure they were voted back in - see Blair and Brown again! People who borrowed more than they earned and were then surprised when they couldn't pay it back!! Financial stupidity I call it, it is basic finance, only spend what you can afford, if you borrow you pay it back plus interest - try not to borrow, simples.

  • Comment number 47.

    Good set of questions, Robert. Quite excellent.

    It is good to see businesses prospering in modern Britain given the preparedness of the British state to intervene in the markets to support native enterprises.

    But why is it that only banks deemed too important to fail are the only businesses to qualify for this taxpayer support? The rest of us out here in the real economy still have to suffer from the whims of the market-place. Earning ones living is such a burden!

    Mind you it is very bracing out here in the real economy. I recommend it to any banker as it ensures that your life is uncomplicated by wealth and all the multifarious difficulties associated with having more than enough.

  • Comment number 48.

    32. At 14:58pm on 15th Feb 2011, Decentjohn wrote:
    Robert hers are the answers

    No - Barcap would simply go to the far East to raise cheap finance - as did Barclays. I am surprised thast you failed to know that
    ===================================

    I'm afraid you seem unable to tell the differnce between capital and finance. Barclays had a capital injection (if memory serves of about 12 billion) from the Abu Dhabi sovereign wealth fund.

    RP is talking about the hundred odd billion in finance that BarCap borrows in the government subsidised sterling money markets and lends out to various corporations, hedge funds and trading companies at commercial rates.

    Do you honestly believe that the government of Abu Dhabi (or Switzerland or Singapore) would be willing or able to subsidise and underwrite such large scale borrowing (finance) from their own money markets?

  • Comment number 49.

    13. At 13:29pm on 15th Feb 2011, jon112dk wrote:
    Actually a big question for me is even the commercial (let alone ethical) justification of these bonuses.

    It appears the spiv section of the bank made a profit of £4.78bn but paid out bonuses of £2.6bn (Telegraph)


    According to the BBC the average income for Barcap employees will be £250k (salary + bonus). The average salary for an autocue reader - sorry news presenter is £250k. The Banks make a profit. The autocue readers at the BCC are paid for out of the Licence tax. I know which salary you should complain about!

  • Comment number 50.

    Firstly I would agree that the high risk investment "gambling" side of the Barcap should be separated from the high st retail banking side. The hard earned £s in the public current account should be safeguarded from dodgy derivatives. The normal day to day banking with savings and loans will not be as profitable but serves the purpose.

    Secondly are these bonuses paid to the bankers because they have made an actual profit or just a paper profit? i.e. have they actually realised the profit on an investment or is it just because the value of the investment has gone up but not yet been cashed in?
    Afterall the bookmakers do not pay out until the horse has crossed the finishing line and the stewards enquiry is over. He does not pay out just because the horse is winning by 6 lengths!!

  • Comment number 51.

    The season of Bank reporting is under way and we will see the headline Guerrillas are having their day ... they have started already about excessive profits etc etc.

    I would ask any poster before they rant on about taking customers for a ride do they know the average charges paid by customers ? Inspect Barclays UKRB profits per head of their 15 million personal and business UK customers and they might be rather surprised at how low that figure is and hardly out of line with other services. Simply getting a boiler serviced once a year, would more than swallow up that figure. But still the uninformed rant on driven by those headline figures.

    Glad to see one or two posters are beginning to put in print differentials in payments between the high street and investment elements which is the area that really skews the figures and commentators fail to elucidate as they turn after that guirrilla headline to sell their story.

  • Comment number 52.

    "But the bank has declined our requests to interview the chief executive Bob Diamond or the chairman Marcus Agius. "

    Ah but Robert - these bankers don't have to explain themselves to anybody do they? I mean they are in charge after all.

    I wonder if nay bankers, economists, politicians or members of the general public have worked out the direct relationship between investment banks making lots of profits.....and the rising inflation figures.

    I mean god forbid that anyone should go against the 'party line' that this is due to indians demanding more rice or melon wars in mongolia - and suggest that the source of bankers profits is speculation in the essential commodities market (which it so clearly is - mainly because this was coming from the end of 2009)

    Question 5 should be "Where are your profits coming from" - and the correct and honest answer should be "your misery"

    I am tired of these witless wonders running the country - I don't mind living under a fascist Governement - so long as they know what they're doing! Fascism is bearable if the progress is good! However these clowns don't are squarely in charge and they have the intelligence of a collection of prawn salad sandwiches! They are squeezing money out of a flattened system - there is a tunnel of money from the BoE to the banks and back again - without a piece of it being used to stimulate the Economy. It's madness wrapped in insanity.

    They think they are 'making money' when all they are doing is passing the same money round and round and round. They claim there is a recovery, but they're reluctant to lend (ahem) they claim they are back in business, but go cold when the BoE even hints of a rate rise (ahem) they say they need to pay fortunes to keep the talent, but they forgot it was that talent that didn't see this coming (ahem)
    Everyone is playing a 2 sided game - meanwhile the effects on the low end are showing through....if anyone saw the lady on the TV this morning who now has to catch a 2 hour bus to work because the 45 minute train is too expensive.

    The spectre of inflation creeps quietly....it's like the cold hand of financial death wrapping around your warm neck slowly stopping the flow of money to the areas that need it most......

    It's doesn't take a genius to work out what comes next - the bottom rung will start to become disatisfied - some will be forced to quit for financial reasons (which is absurd but true) - then they will start to go hungry....

    I'm sure the capitalists and banking buddies can come up with the most incredible reasons for the rise in inflation being nothing to do with the bankers profits - but each one is founded in the starting belief that "nothing in this crisis is related and no crisis is related to another"

    Quite aptly - capitalists live in bubbles.

  • Comment number 53.

    49. At 16:31pm on 15th Feb 2011, Decentjohn wrote:
    According to the BBC the average income for Barcap employees will be £250k (salary + bonus). The average salary for an autocue reader - sorry news presenter is £250k. The Banks make a profit. The autocue readers at the BCC are paid for out of the Licence tax. I know which salary you should complain about!
    ====================================

    An interesting aside to that is the number of female news "reporters" who are married to some spiv banker, hedge fund trader or property developer. It's a large %.

  • Comment number 54.

    Nice one Robert . . . as they say in the medical profession - "It wasn't the cough that carried him off, but the coffin they carried him off in."

  • Comment number 55.

    46. At 16:24pm on 15th Feb 2011, bothdavis wrote:

    "Still can't believe people are still falling for the previous goverments rants re 'its all the banks fault!!' Who encouraged people to take out brodging loans, extra mortgages to buy holidays and televisions - Gordon Brown - he needed to show that the economy was still growing despite his enormous inability to be Chancellor of the Exchequer. "

    Gordon Brown was a mortgage advisor? - really? - I thought he was prime minister.

    I took out my mortgage and Gordon was nowhere to be seen - and world interest rates were pulled down to (possibly) low levels by Alan Greenspan (I know Green and Brown are both colours - but these are not the same people)

    I do love it when the British people show their intelligence by repeating something they heard down the pub but which they don't actually know is true!

    However having read your previous comments on "what the new Government should focus on" - it's clear your perception off reality is somewhat skewed. "I don't remember things being this bad under Margaret Thatcher, she stood up for Britain in the falklands...."

    I thought attitudes like this died out with the dinosaurs....

  • Comment number 56.

    42. At 15:58pm on 15th Feb 2011, thomas_paine

    I thought they banned any mention of George Monbiot on here!

    Robert - you have a challenger - best step up your game!

  • Comment number 57.

    "Do they agree with the Bank of England that there is a significant implicit taxpayer subsidy for Barclays Capital - which takes the form of Barcap being able to borrow relatively cheaply because its creditors know that if the whole bank were to get into difficulties, it would be rescued by taxpayers? "

    OK Robert can you name a major economy where the mainstream banks do not also get an implicit subsidy because the creditors know no govt would let the big banks fall?

    I cannot.

    So if all countries removed that implicit guarantee/subsidy then all banks would find their cost of funding increased (and of course the increase in cost would depend on how risky the bank was perceived to be). All banks would seek to pass that cost on to customers so everyone would see their borrowing costs rise which would seriously impact on overall economic growth (probably).

    Robert what you have produced is sloppy. Chasing after populist headlines (bit like the red tops) but without thinking through the overall consequences.

    Barclays would probably believe that if implicit state guarantees were abolished across the entire world, it would benefit as being one of the less risky banks and make more profits - whether that is what would happen is of course pure conjecture.

  • Comment number 58.

    #46 Maybe you can inform everyone on here how businesses can grow without borrowing first?

  • Comment number 59.

    36. At 15:23pm on 15th Feb 2011, Reticent_Trader

    It's no good trying to explain the integreation of banking and how they all rely on each others' surivival - you just get a nonsense response.

    Capitalists living in bubbles - they think banks are operating in bubbles too - that's how they can claim that there are 'good banks' and 'bad banks' - whereas they are all 'bad banks' - it's just that some were found out to be bad and others had a near miss.
    As Robert has explained - even Barclays aren't making any money (when you take away the government subsidies)

    I would normally give the comparison of Japan's lost decade and the near identical problems they had - but you already know that and the Capitalist clowns will argue red is blue if it doesn't suit their banks balance!

    Still it's not all bad, I checked my mortgage statement today and thanks to the BoE my mortgage is now £60k lighter (I never reduced my payments as rates fell)

    Still I'm no capitalist living in a bubble so I know my gain is someone else's pain - probably being paid for in the shopping budgets of millions as we speak.

  • Comment number 60.

    28: Barclays didn't require, or take, any "subsidies from the taxpayer", as you put it. If you feel differently, please post details and amounts of the subsidies that Barclays were given.

    Could well have been a very different situation, of course, if they hadn't lost out to RBS on the purchase of ABN. Result of the century for Barclays, losing that bid.

  • Comment number 61.

    It is really quite indecent that people earning these huge salaries / bonus whilst the very great majority are really struggling. Certainly one would be very wise not to flout such wealth, but I suppose they will continue to do so. Take a look around this nation of ours, there are neighbour hoods which have become no-go areas for police / ambulance / fire brigades / social or voluntary services! Like all bubbles this one may very well indeed burst! I'll know where my sympathy will lay......

  • Comment number 62.

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

  • Comment number 63.

    The big question you should ask is how many productive workers are required to support one banker.

    Following on from that you can make the observation that bankers are complicit in the dismantling and destruction of the industry that this country needs.
    Dyson makes the point that the right people are not being attracted to universities. Wrong point. He should realize that universities have never produced productive workers.
    Industry produces productive workers.
    And industry has been sold and shipped out.

  • Comment number 64.

    I quite like the idea of splitting up retail banking from Investment banking. It would achieve its primary objective, of course, protecting the retail banking system from volatility in Investment Banking earnings.

    For me though, it would bring clarity on a few other points. It seems to be commonly accepted that "greedy bankers" have taken massive risks and been paid massive rewards. The fundamental financial problems in the past few years have been with basic lending and credit ... daft mortgages being granted, uncontrolled personal debt levels etc., and these lending practices have been operated by people in retail banking, by people on relatively modest pay packages. The people giving out irresponsible mortgages and daft personal loans are not the guys who are getting paid millions (the traders or M&A guys in Investment Banks). Of course, Investment Bank trading desks got paid lots for wrapping up mortgages and selling them on in the capital markets, but if the underlying mortgages had been sound, those derivatives would have been fine. Splitting retail and Investment banking would put this in clearer focus, showing that the bulk of the credit losses originate in retail banking, on loans given out by modestly paid branch staff.



  • Comment number 65.

    #51 "I would ask any poster before they rant on about taking customers for a ride do they know the average charges paid by customers ? Inspect Barclays UKRB profits per head of their 15 million personal and business UK customers and they might be rather surprised at how low that figure is "

    Why should they charge much if anything to borrow my money? They don't pay me any interest on it!

    If they don't like having my money I will happily remove it from their care. After that they can relocate to Hell or Honolulu for all I care. preferably the former.

  • Comment number 66.

    50: Are the bankers paid on realised profits, or being paid because their portfolios are "in the money"? Bit of both. A lot of banking income is fee-based, so that would fall into the category of "realised". I'm thinking M&A activity, advisory activity, and banking services (custody, processing etc.). As for profits on trading activity, traders are paid on a mixture of locked-in trading profits and unrealised profits on their portfolios. Ironically, the riskiest trading desks, the proprietary tarding desks, are the ones that are least likely to be paid out on unrealised profits. They tend to get into a trading position and sell out, rather than holding long-term strategies, so at any point in time, they won't typically be holding large portfolios of open trading positions. The large unrealised profits tend to sit in the "market-making" books, such as a large swaps or equity derivatives book, where the trader is paid to manage a large, live portfolio, and offer buy/sell prices to the street across his range of traded products. Lower risk than the prop boys, but higher proportion of unrealised profits. Prop boys will be the ones who get the huge payouts in the good years, which is why many traders on the flow books look to move on to prop desks.

  • Comment number 67.

    #59 - on the contrary, it helps!

  • Comment number 68.

    46. At 16:24pm on 15th Feb 2011, bothdavis wrote:

    “Still can't believe people are still falling for the previous goverments rants re 'its all the banks fault!!' Who encouraged people to take out brodging loans, extra mortgages to buy holidays and televisions - Gordon Brown - he needed to show that the economy was still growing despite his enormous inability to be Chancellor of the Exchequer. He had to encourage banks to loan so that the public spent money they didn't have so he could keep trumpeting that his 'prudent' policies were working…”

    I am not a GB lover and agree with you that he was a disaster as chancellor and Prime Minister but he did not invent the ponzi scheme called securitisation. If the UK had not relaxed the regulations then we would have had a recession in 2001/02. This relaxation enabled the banks to securitise even more products and hence increase the cycle of money lending – yes we followed the American’s and failed!

    What I cannot believe is bank protectors naivety!

    I’ve used this on the previous blog and I am going to use it again because I like it:

    Incorrectly we label this system as capitalism: it is not! It is a spawn of capitalism contrived in finance for the benefit of finance and the collaborators ate heartily at their masters table.

  • Comment number 69.

    From the point of maximizing the benefit for the UK economy, it makes no sense for the UK taxpayer to be effectivelly subsidizing (with a state guarantee and low base interest rates) Investment Banks that happen to be part of "too big to (be allowed to) fail" Retail and Comercial Banks.
    While Retail and Commercial Banking have direct effects in the UK economy (essentially by, when they work, helping to move money from unproductive to productive uses), Investment Banking operates in the World Markets and has a minimal impact in the UK economy (in fact, given the recent hotness of emerging markets, they're more likelly to be helping countries like China and Brasil than the UK).

    Separating the Investment Banking arms of Barclays and other UK banks which are currently being propped up by the state (be it directly or indirectly) from their Retail and Commercial Banking arms would go a long way to maximize the utility for the UK economy of the state's unwitting investment into banking, reducing the risks for the UK taxpayer related to banking failures and would eliminate the current political cost that comes with subsidizing Banker bonuses.

    Maybe we should start with the state banks (RBS and Lloyds)?

  • Comment number 70.

    They would answer like this (well they wouldn't but they would like to);

    1. Possibly, but certainly no more than any other uk industry esp the car industry (completely unviable business in the UK only kept alive by bailout and tax breaks). Also if you force us to lend you have to provide us the means to borrow. However, if we had expensive borrowing costs guess who they get passed onto? we are a middle man, we are not going to lend at a lower rate than we borrow. If you remove our invisible gte then i'm assuming you remove them all, so market adjusts higher.
    2. Yes, actually banks are more profitable in high interest rate environments and 50% of business is not capital related.
    3. No, we are a BBB+/-A credit now and we borrow from our commerical bank at an appropriate rate for our credit, but even BBB's borrow at less than 1% in the short term currently so its unlikely to be dramatic change. If the 'implicit gte' alters our credit rating (interesting how the ratings agencies would react) then we move to less capital intensive business (btw our customers would obviously feel the affect of this).
    4. Pointless question because of the reasons stated above. But they will probably do anything in their power to remove the threat. In Barclays case I imagine they would only leave advisors in London and move all capital req busineses to other locations and become a sudo hedge fund. Terrible news for anyone you recieved funds via BarCap recently (and that could be via Barclays off the back of work by BarCap)

    I think the thing people need to understand is that everyone has a gte right now, banks, companies, people. Banks are the first link in a chain break the link the rest of the chain breaks off.

    Anyway lend more money I say and make it cheaper and less stringent, def no crisis down that path.

  • Comment number 71.

    Robert can I ask you a question as you seem all too quick to question the Banks and Bankers around their salary and bonus package, would you be willing to publish your own salary and bonus package on this forum?

    Surely successful Banks are good for all of us in the long run?

  • Comment number 72.

    The bonus pool may be down but it seems to compensate Barclays are handing out large salary increases to a number of staff. A case of heads you win, tails you win.

  • Comment number 73.

    #49

    Finally somebody relates the Bankers pay to the pay of others such as those in the media that are always trying to "sell copies" rather than allow us to move on!

  • Comment number 74.

    50: Without going into too much jargon and adding up to and explaining what jimmy said (on 60):

    The prop desk is the trading desk which invests the bank's money for profit while most other desks are either doing investments for customers or low return activities such as market-making.

    The thing is, the way the prop desk invests is as follows:
    1) Start with some of the bank's money.
    2) Get from the money markets a loan which is several times the bank's money being invested (this is called leveraging). The interest rate at which the money markets are willing to lend money to a bank is inverselly proportional to the riskiness of that bank, so a bank which has a higher change of not being able to repay a loan is charged a high interest rate while a bank whose debts are effectivelly insured by the UK state is charged a low interest rate.
    3) Invest the total amount in something. Note that a bank that has a state guarantee on it's debts can invest in more risky assets without the money markets demanding a higher interest rate on step 2 (since even if the bank is about to go bankrupt, the UK state will step in an pay up).
    4) If everything goes alright, at the end of the investment period get the money back plus profits and repay the loan.
    5) Post the profits as a percentage of the bank's money invested (NOT the total amount, since the money loaned from the money markets is not included). Since the profits where made from investing an amount of money which is several times the bank's money, percentage-wise the profits will look huge.

    Example:
    1) Start with £1,000,000 of the bank's money
    2) Get a loan of £19,000,000 at 1% per annum from the money market (yes, a bank with a state guarantee on it's debts can get absurdly low rates on these loans).
    3) Invest the £20,000,000 in a "safe" instrument (say government bonds from a mid-sized EU country) returning 4% in one year
    4) After 1 year, close the position and receive £20,800,000. Repay the loan plus interest (£19,190,000). Amount left is £1,610,000 of which £1,000,000 is the bank's money so the profit is £610,000.
    5) Post the profit as a percentage of the bank's money invested (thus 61% for a one year investment). Back-pats and bonuses follow.

    Note that:
    - The actual profit versus the TOTAL amount invested was 3.05%
    - Without a state guarantee, at step 2 the bank would have had to pay a much higher interest rate on the money it loaned from the money markets (i.e. the cost of capital). Thus a 3% cost of capital would reduce the posted profit from 61% to 23%, while a cost of capital above about 4.05% would mean a loss.

  • Comment number 75.

    Maybe I'm not remembering this quite right but didn't Barclays go cap 'n hand to the middle east, in an undisclosed deal, rather than use the same option as RBS?

  • Comment number 76.

    71: The point is, they are not really successful (see my explanation on how prop trading works just above).

    If the Investment Banking arms of UK Retail and Comercial banks were forced to go on their own (thus loosing the state guaranteed that gives them a ridiculously low cost of capital), most of them would sink within a year.

    Certainly I can tell your from experience (having worked with them) that at least parts of the investment banking arm of RBS are spectacularly inneficient. I've seen them using, to achieve the same results, 3x the amount of manpower as some of the pure-player investment banks I worked with.

  • Comment number 77.

    59. At 17:32pm on 15th Feb 2011, writingsonthewall
    36. At 15:23pm on 15th Feb 2011, Reticent_Trader
    -------------------------------------------------------------------

    And the truth shall set you free guys.


  • Comment number 78.

    #71. At 18:48pm on 15th Feb 2011, Ash wrote:
    Robert can I ask you a question as you seem all too quick to question the Banks and Bankers around their salary and bonus package, would you be willing to publish your own salary and bonus package on this forum?

    Surely successful Banks are good for all of us in the long run?

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

    Yes they are, let us know when you find one.

  • Comment number 79.

    #75

    The difference I believe is that Barclays has since repaid all of the money that they borrowed and the like of Lloyds and RBS are unlikely to even start repaying the money they borrowed from the UK Tax payer for many years to come.

  • Comment number 80.

    Ask them about exposure Robert, what about exposure?

  • Comment number 81.

    #78

    By successful I mean profitable, benefits pension funds etc as well as generating huge amounts of tax paid by both the Bank and its employees.

  • Comment number 82.

    #81. At 19:33pm on 15th Feb 2011, Ash wrote:
    #78

    By successful I mean profitable, benefits pension funds etc as well as generating huge amounts of tax paid by both the Bank and its employees.

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

    So do I, like I said, let us know when you find one.

    Tell you what wait until the summer then have a proper look for profitable banks, ones that aren't up to their necks in sovereign exposures begging to benefit from ECB bond purchases from their recently increased 500 billion euro bailout fund. Wonder why they've done that?

  • Comment number 83.

    #79. At 19:30pm on 15th Feb 2011, Ash wrote:
    #75

    The difference I believe is that Barclays has since repaid all of the money that they borrowed and the like of Lloyds and RBS are unlikely to even start repaying the money they borrowed from the UK Tax payer for many years to come.

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

    Ever - is the word you're looking for.

  • Comment number 84.

    74: Prop desks investing in Government Bonds for a year and securing a 3% return? That sounds like what Money Market desks do, not what a prop desk does. Prop desk ativity is more likely to be something like taking a massive short-term bet that the USD yield curve will steepen or flatten, ride the position and either lock in profits or cut the losses and close out the position. Either way, position closed and profit/loss is final, so prop trader is typically being paid on actual p&l, not theoretical mark-to-market p&l, which was the point of my post.

  • Comment number 85.

    #74
    close but no cigar, I won't drill into the mkt errors (you can't borrow unsecured at 1%) but the basic problem with your model is that a soveriegn borrowing 1yr money at 4% is not safe so thereore the desk has taken risk so therefore gets paid for the risk. You need banks to do that as a general principle in order to make the world work (unless you want govt to warehouse the risk see WOTW above). If borowing costs go higher guess where that 4% goes? I'll give you a clue not lower.

    You need to think of IR as the price of risk e.g the mortage rate is the price of the risk that the housebuyer defaults (this is too high in my opinion but you could also argue that we have just seen eveidence it was not).

    Market funding is a base the risk premium is added, so if Banks had higher borrowing costs then the base is higher (banks represent the market). Also it focuses money on high return for some very complex reasons thus Inv bank usually make more in a high IR environment.

  • Comment number 86.

    75: Yes, Barclays got the begging bowl out and did a lap of the Middle East (Roger Jenkins as dealmaker). But it wasn't for a loan, it was for direct investment in shares, which the investors subsequently sold at a profit.

    It meant that Barclays was able to avoid seeking state support, and losing control of their organisation, and results have now proven that the investors made a good call ... propped Barclays up, and made themselves a tidy profit.

  • Comment number 87.

    You can be a little tinker when you want, can't you Robbie?

  • Comment number 88.

    From the BBC Business Website

    "The World Bank says escalating food prices have pushed 44 million more people into poverty since last June"

    and

    "Banking group Barclays reports profits of £6.07bn for 2010, slightly higher than analysts were expecting."

    Are we spotting cause and effect here?

  • Comment number 89.

    Yes the profit is so totally predictable. They have such a stranglehold on their outflow of "money" [ie credit ie debt] that anyone who goes there now is being milked dry. Anyone in genuine "need" I mean, not those being eased large quantitatively by the Bank of England. [Hey and shouldn't it be the Bank of Britain, anyway? If not, why not?]

  • Comment number 90.

    I'm seriously wanting some action now. I can't wait for the 26th of March. I think I'm going to have a banner saying "leftie pr*ck from pestons picks!" but more seriously I stand bemused at the level of apologizing for the banks today. If you can't read history and see that all the banks have done over the past 2 millennia is slowly but surely skim capital off ordinary citizens. and The one reason they have had it so rosy over these 2000 years is because some sycophants will brown nose so money and power. sadly these sycophants are called politicians. there is no middle class. there is only the elite (money men) and us. When people realise that, through commodity inflation and energy scarcity, then the banker bashing will really begin.

    But please don't believe what I say. I once heard it said that 99% off what people tell you is wrong. With this in mind I chose to educate myself. Some of you on here should do a little study into the history of banking. Also ponzi schemes would help for background.

  • Comment number 91.

    88. At 19:51pm on 15th Feb 2011, NorthSeaHalibut wrote:
    "...From the BBC Business Website

    "The World Bank says escalating food prices have pushed 44 million more people into poverty since last June"

    and

    "Banking group Barclays reports profits of £6.07bn for 2010, slightly higher than analysts were expecting."

    Are we spotting cause and effect here?..."
    ++++++++++++++++++++++++++++++++++++

    I'm told QE did cause a rise in commodities, including food, owing to speculation. Now why did we have to do QE?

  • Comment number 92.

    #81

    I'd say that some of Preston's questions already addresses part of that. Would it not be better for the pension funds you mention if more of the profits where distributed as dividends to the shareholders instead of going into bonuses?

    As for the tax that the Bank and it's employees pay, don't forget that ALL UK taxpayers are in effect taking in the risk of having to save Barclays if it fails, while a few of the Bank's employees are the ones receiving most of the benefits for any risks being taken.

    As you probably noticed, EVERYBODY is paying an extra 2.5% in VAT and countless people are loosing their jobs in the public sector - this is the cost for all of us of having to save two other banks (RBS and Lloyds). Whatever amount of tax RBS and Lloyds and their bankers paid in the years before they had to be saved, it's a pitifull sum next to the amounts the UK taxpayers are now having to pay as part of saving them.

    We, the UK taxpayers are risking more of the same with Barclays since the UK state will have to intervene if that bank takes on too many risks and gets to the brink of bankrupcy.

    With that in mind and given that BarCap is the bit of the bank that takes the most risks and brings the least value for the UK economy, it makes sense for the UK taxpayer to stop insuring it and thus not run the risk of yet more tax increases and public cuts if BarCap takes too many risks and falls bringing the rest of the bank down with it.

    The way to do this is to split the Investment Banking arm of Barclays (BarCap) away from the rest and let it loose in a level competitive field. If they're so good at what they do, then they should proper, not wither.

  • Comment number 93.

    North sea halibut you always have your finger on the pulse, is their any organizations that are actively looking for change through parliamentary means? I'm marching on the 26th March and support
    www.positivemoney.org.uk
    www.ukuncut.org.uk

    But my feeling is it we need a party supporting MMT, radical political reform, radical educational reform. Etc. Etc to oust the neo-liberals fairly. I'm raring to start as it is all too obvious that many people don't know the difficulties faced.

  • Comment number 94.

    Am I right in thinking the following?

    Last year Barclays paid £1Bn in Tax
    This Year Barclays paid £1.5Bn in Tax

    Ostensibly they seem to be paying more tax but checking worksheet 65 of their spreadsheet download and I'm all confused. So how much corporation tax will Barclays be paying? And bearing in mind they seem to be employing more people (sheet 63) how much are they paying in Employers NI etc? It would be good to know and I'm simply not qualified to review their accounts in any more detail.

  • Comment number 95.

    90: Christian, the only bit of your post that made any sense was the opening line, that you are spoiling for some "action". I think that sums your post up completely.

  • Comment number 96.

    Robert Peston.

    yet another question that ought to be asked:

    ought bonuses not be called 'bribes to encourage continued collusion in amoral and unethical enterprises'?

  • Comment number 97.

    You could also ask how they justify creaming off the profits for themselves, to lead lavish lifestyles, when the whole idea of customers and shareholders investing their hard-earned money is that they expect to get a decent return on it, to provide for our own retirement for instance....!

    Applies to all Banks actually, not just Barclays...

  • Comment number 98.

    92: You are blaming the entire budget defecit, and related cuts, on the bailout of RBS and Lloyds? I'm sorry, but that doesn't even start to stack up. We bought shares in those 2 orgs, and the shares are still pretty much worth what we bought them for.

    As for the loss of jobs in the state sector, the Tories were quite clear on this one when they ran for office ... Labour had added more than a million jobs to the state sector during their time in power, and the Tories said they would cut into that. They haven't even gone half-way toward reversing the million job extension. The cutting of those jobs is primarily a policy/manifesto issue. The hard economic times we're in make it easier for them to push ahead with it, but they would have done it anyway.

  • Comment number 99.

    I fail to see why the proposals of the Banking commission to split the Banks into retail and Capital Markets are considered by many as a possible solution to the problems experienced over the last couple of years. One should not forget that what really brought the Banking world to its knees was the collapse of Lehman Brothers - an investment bank pure and simple - which had the effect of closing down two of the major sources of funding for most banks e.g. the Interbank market and securitisation.
    Going one step farther back, the whole debacle has its roots in straightforward irresponsible lending into the sub-prime market, by granting mortgages to people who could plainly not afford them. All this was done with not inconsiderable support from the politicians in the US.
    I cannot see that even the present proposed doubling of capital levels in the banks - the outcome of Basle 3 - would have made much of a difference .

  • Comment number 100.

    #85
    The model was extremelly simplified and the example values where just examples (for example, the 19-times leveraging is too high to be allowed).

    That said, the core points are valid:
    - The prop desks in investment banks will use leveraging (i.e. loaned money) to boost returns.
    - The cost of the capital used in leveraging for banks which have an implicit state guarantee is much lower than that for banks that do not have the state behind them.

    The likes of BarCap and the investment banking arms of other UK banks are currently in a position where their cost of capital is artificially low due to them being part of large banks which are too big to fail and thus enjoy a state guarantee on their debts.

    If they would be cut loose, this would barelly affect the money markets (since they are tiny players in there) and thus would barelly affect the risk premiums they receive on the risk they take on their investments. It would however force them to play in the same level playing field as pure-player investment banks, so their cost of capital would go up (while everybody else would barelly feel the bump) and thus their returns on investment would go down.

    If in this situation they still made lots of money and payed huge bonuses, that would not be on the back of the UK taxpayer insuring their downsides, so nobody would have anything to complain about.

 

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