New City same as old City?

City of London

Yesterday I tried - not desperately successfully - to imagine a world outside of the day job, because I was feeling in need of a speedy reboot and re-charge.

This morning I need to break my fast of financial news, temporarily at least, because there were two developments yesterday in sagas that have been woven into the fabric of my recent life.

First was the disclosure that 2011's significant fall in the remuneration of City bankers, and an associated drop in the number of high earning bankers, were temporary phenomena.

According to an authoritative survey by the European Banking Authority, the total number of UK bankers who earned 1m euros (£833,000) or more last year increased 11% to 2,714 and their average pay rose 43% to 2m euros (£1.67m).

Second came the news that the most important hurdle in the rescue of Co-op Bank, a vote by holders of its riskiest debts and preference shares on a conversion of their investments into new bonds, has been surmounted.

Or to put it another way, Co-op Bank has - to all intents and purposes - been saved from collapse, in a voluntary scheme to force huge losses on creditors and convert debts into equity or shares.

Both of these stories matter.

The first confirms that structures right at the centre of the financial earthquake of 2007-08, which triggered the worst recession in living memory, remain in better shape than where most of the rest of the country lives.

If the UK is as lousy as official statistics indicate it may be at growing industries, other than the City's financial services, capable of selling their tangible and intangible wares to the rest of the world, maybe we should be relieved that the banks are still monstrous bonus-generating machines.

However, the rapid recovery in City rewards will be seen as a provocative insult by millions on average earnings struggling to repay their debts and keep the heating on.

This tension, between the City as a source of profound and destabilising social inequality and of economic cataclysms, on the one hand, and the City as world-class exporter, will continue to dominate national discourse, up to and beyond the 2015 general election.

As for the Co-op, in its reborn incarnation it should fit right in to the apparently unreconstructed City of London - now that it will no longer be wholly owned by the battered mutual, the Co-op Group.

As of the beginning of 2014, when the rescue will be completed and the new ownership structure put in place, 70% of Co-op Bank will be owned by investment institutions, led by a group of hedge funds.

Co-op Group insists none of us will notice the difference, that - if anything - it will be seen as an even more conspicuously ethical bank, thanks to a re-writing of the bank's constitutions.

We'll see. And we will also see whether the perception of being "good" is what customers want.

On Thursday Co-op Bank made perhaps the least surprising statement of the year, in the wake of revelations about the extent of its stupendous mismanagement in recent years under the erstwhile chairmanship of a Methodist minister whose expertise in recreational drug use apparently exceeded his knowledge of banking.

"Recent events may have caused some brand and reputational damage, but it is too early to form a definitive view as to the extent of such damage." it said.

Customers have been voting against its recent incompetence, and taking advantage of special offers elsewhere, by switching their current accounts to competitor banks, such as Nationwide, Santander and the reinvented TSB - though not to the point where Co-op Bank is short of vital liquidity or cash.

So the immediate priority for Co-op Bank is probably less to prove that it is good in a moral sense, but that it can be good in a commercial way.

There is however one very good thing to come out of the Co-op Bank debacle - which is that it is the first demonstration, since the mother of all public-sector-funded banking bailouts in 2008, that a medium-sized bank can career to the brink of disaster and be rescued without taxpayers putting in a farthing of investment.

And for those who - perhaps understandably - believe that the source of all financial calamities are investment bankers and hedge fund managers it may be worth noting that it was ethical bankers who wrought havoc at Co-op Bank, and hedgies advised by investment bankers who saved it.

Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 1.

    We need the city to perform well. It's great saying we need to move to manufacturing, but that's easier said than done. Right now, financial services are a big employer and good, stable growth should be encouraged. Bonuses are a part of that - the people who are the best at their job will need to be rewarded or they will move. Some people are just more important. Sorry about that, but its true.

  • rate this

    Comment number 7.

    Everyone complain about City bonuses and say that bankers "caused the recession" but seem to forget that official data shows that it is the City that is "causing the recovery". After all, the UK is just a giant banking country, so if the bankers do bad, the country does bad, and vice versa - and this won't change if the only thing the non-bankers do is to moan about the bankers dominance.

  • rate this

    Comment number 25.

    22 "Yes lets blame those benefit claimants on £72 a week" - £72 per week, plus a free house, free education, free healthcare and £50 or so quid a week per kid they can pop out. Plus whatever freebies the local council will bung 'em.

  • rate this

    Comment number 28.

    @22 - official data shows the benefit fraud took out about £1.2 bn last year of taxpayers money, not ever recovered! frauds from bankers generate lots of money to taxpayers through taxation. the UK profits from these frauds. we complain but our NHS and welfare system is funded by bankers tax. that's why @21, it won't change! who has the guts to close Lloyds and invest in IT enterpreneurs instead?

  • rate this

    Comment number 105.

    What I will follow on with is that why do people envy bankers' bonuses so much? Most banks are owned by shareholders and you should know what rules apply there. People use give them business because of the services they provide. These days, millions still use their services, therefore revenue, profits, free cash flow, bonus!

    The level of petty envy is just ridiculous. Focus on yourself.


Comments 5 of 782



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