It is not news that big banks have been mugging their shareholders to protect the pay and bonuses of their senior staff. Even so, the scale of the heist remains under-appreciated. So well done, Sir John Cunliffe, a deputy governor of the Bank of England, for putting it in stark terms that even the most pusillanimous non-executive director, or fund manager, can understand.
In the decade before the banking crisis, Cunliffe said, shareholders’ profits averaged 60% of banks’ pay costs; in the UK, the profits figure was even higher at 75%. And now? Instead of 60 cents in every dollar of pay for staff, shareholders got 25 cents last year; and in the UK, the figure was just two pence in every pound paid to staff.
Or try it another way: “UK banks’ return on equity would have been nearly six percentage points higher in 2013 if the ratio of staff costs to the sum of staff costs and shareholders’ profit had been at its 2000-07 average.”
Of course, the statistics are skewed by “one-off” fines and compensation (PPI, Libor-rigging, etc) and the presence of loss-making Royal Bank of Scotland. Yet Cunliffe’s core point is unarguable: the adjustment in pay to an era of lower returns in banking has been “sluggish”. Banks may have to cut their pay bills further, he argued, because regulators will not tolerate the high levels of leverage that reigned in the old days.
Fair enough. But Cunliffe is too polite. If he was minded, he could have taken aim at those bank managements which have overseen such an unequal division of the pie. Or he could have repeated the wise words of Robert Pickering, a former head of JP Morgan Cazenove, who wrote to the FT in April in dismay when Barclays boss Antony Jenkins trotted out the “tired old cliché of the death spiral” to justify paying higher bonuses to his investment bankers in a year when profits fell.
“What is needed is an equally tough and experienced manager who is able to see these threats for what they are and face them down, even at the cost of some short-term disruption,” said Pickering.
Yes, that’s still the heart of the problem.
Asia good for Tesco
Dave Lewis, Tesco chief executive, is obliged to listen if somebody wants to offer £9bn for the group’s operations in Korea, Thailand and Malaysia. But he would be within his rights to reply that he’s got enough on his plate right now, thanks very much, and to wait until Tesco’s international strategy becomes clearer, which might take a year.
The Asian operations are the one part of Tesco’s international empire that looks to be worth keeping. There have been troubles in the recent past – the Koreans restricted opening hours, for example. But these businesses are the ones to retain if Tesco still has ambitions to operate overseas in the decades ahead.
There could be only two plausible reasons for selling. First, if somebody makes a whizzy offer: but it would have to be a genuinely knockout price to justify a strategic U-turn, and the buyer would probably have to take Korea, Thailand and Malaysia in their entirety, rather than leave Tesco with stray odds and ends.
Second, to avoid a rights issue. But that argument is superficial. If Tesco needs fresh capital, the best route is to make a case to shareholders based on a level-headed assessment of prospects in the UK. Declaring that you need to flog assets in a hurry is rarely the best way to conduct an auction.
If, on the other hand, somebody wants to tow away Tesco’s stores in central and eastern Europe, Lewis should be all ears. The adventures in the Czech Republic, Hungary, Slovakia and Poland are almost two decades old but returns on capital are still tiny. Fresh funk in the eurozone is not going to help the case of retention. The difficulty, of course, is finding a willing buyer.
But that’s not a reason for selling the superior Asian operations for anything less than a mighty premium.
Too slow, chaps
The Bank of England knew at 6am that its Chaps payment system was knackered. So why did official confirmation only appear at 11.15am?
The line from Threadneedle Street is that banks themselves were informed as soon as the “technical issue” appeared. But not everybody relying on the system is a banker.
Hassle for those completing house purchases was unavoidable, but alternative planning might have been easier if people knew what was happening.
Andrew Tyrie, chairman of the treasury select committee, wants an explanation for why the infrastructure failed. He should also ask why the chaps behind Chaps didn’t speak up at dawn.
