Morning:
8°c
Driving into work the other morning I thought I was hearing things. Sir Fred Goodwin, said the commentator, should keep his job because the £12 billion rights issue is the Royal Bank of Scotland boss keeping his side of the bargain to help out the country.
What? There was no mention of Goodwin having paid way too much for a Dutch bank when the rest of the financial world was getting the heebiejeebies. Oh no, this apparently was Sir Fred asking his shareholders to make a sacrifice as part of the Bank of England's wider rescue effort.
It was total rubbish but, sadly, there are too many people who swallow this stuff, who believe bankers are some superspecies and fail to see what is really occurring. When I got to my desk I was absorbing reports that Goldman Sachs was shorting gilts. This is the same Goldman Sachs that has made untold millions from advising the British Government. So much for loyalty.
But where's the anger? Of course there is none. Look at RBS. Its adviser on the purchase of ABN was Merrill Lynch, which pocketed £150 million in fees for the deal. Who is leading the underwriting on the rights issue and stands to share a large slice of the £200 million-plus fees? The identical Merrill Lynch.
Of course, Goodwin and his chairman-Sir Tom McKillop don't turn round to Merrill and say: "You got us into this mess, now you get us out of it - and you've had enough dosh as it is, so you can't have any more."
Oh no. It doesn't work like that. Instead, Merrill was congratulated on its great work for landing ABN and doubtless there will be mutual backslapping again when the rights issue successfully gets away.
At the Barclays annual meeting last week, a shareholder wanted to know why Bank of England Governor Mervyn King was paid only one twentyfourth of what Barclays Capital head Bob Diamond receives. Barclays chairman Marcus Agius responded that King's pay "is relevant to his own market". He said this in the same week that King had put in place a £50 billion bailout for the banks which, yes, included Barclays.
When all this is over I hope above hope that someone calls a halt. We surely cannot continue with a cosy club of banks calling the shots and hogging the work. Their system of remuneration cannot be allowed to prevail. We now know, thanks to an internal report at UBS into its £18.7 billion subprime losses, what we've always suspected: that bonuses reward quantity not quality. "Essentially, bonuses were measured against gross revenue, with no formal account taken of the quality or sustainability of those earnings," said the report.
Likewise, companies need to examine how they pay the Goodwins of this world. If a company gets bigger, the CEO is paid more. A quicker way of boosting your earnings is to make an acquisition - organic growth takes far too long. This hand-and-glove existence between the banker and CEO has to cease. For that to occur, the nonexecutive directors have to stand up and be counted. But as they're nearly always in the thrall of the chief executive and the bank that's well-nigh impossible.
At the heart of the mess we're in are the banks. We have only ourselves to blame: in a rising market we stood back and watched them earn vast sums and add to their power by being paid basis points on everything they did. Their wealth and with it, their influence, grew far beyond anything else on the planet.
The result is that they have governments and corporations eating out of their hands. They exhibit an arrogance bordering on contempt - and they get away with it. I used to think that King was wrong to harp on about "moral hazard", I thought he made too much of the dangers in rewarding banks for failure. Now, I realise he was right.
The Bank, MPs, FSA, CBI - and yes, over the Atlantic, all the various levers there as well because Britain cannot do this on its own - need to say "enough". The banks will huff and puff and tell us how important they are. But they must be treated with the same indifference they display so readily themselves. They have to put their houses in order, to reform their culture and their pay schemes. It won't be easy but it has to happen.
