Star Letter: Privileged bailed-out banks’ bonuses are harder to swallow than the FSA’s awards
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In the January 18 issue of Mortgage Strategy Michael White, managing director of Email Mortgages, makes a valid point in his criticism of the obscene 15% bonuses to staff at the Financial Services Authority.
But I fear White has missed the wider industry picture.
Only the most rabid socialist would begrudge someone a bonus they’ve really earned. But bonuses paid in the banking industry are harder to accept.
This is for two reasons. The first is that so many banks have been the recipients of state aid. There can be few industries that have been bailed out to this extent in the past 100 years - and have any of these gone on to reward themselves?
Picking up the bonus tab so soon after having to write a huge bailout cheque seems like adding insult to injury.
But this criticism is somewhat unfair. Banking is a global industry that requires a global response, which is unlikely to be forthcoming, leaving the banks to move their operations and people around.
The government should not disadvantage state-backed banks operating in global markets by forcing employment practices on them that reduce the worth and profitability of our investment.
The string of exceptional bank profits we can expect to see is funded by both borrowers and depositors and made possible by taxpayers’ money
The second reason banking bonuses are so hard to swallow is that many lenders are earning high margins on some of their products - high margins that are funding those bonuses.
The difficulty borrowers are having in securing funding has allowed high margins to develop.
Lending margins may have also been driven up to compensate for the fact that there is no longer room for deposit takers to earn a profitable margin.
But this is not necessarily the case as two years ago it was easy to get base rate or above for deposited money thus creating minimal margins for banks, although this was not the case for current accounts or call deposits.
So borrowers are not the only people paying for the bonuses of the bankers. The string of exceptional bank profits we can expect to see in the near future is funded by borrowers and depositors alike, and has only been made possible because of the government support of the financial sector using taxpayers’ money.
Moving rates and financial uncertainty are great for business in the finance world. The big banks do not appear to have grasped their privileged position.
PAUL HUNT
MANAGING DIRECTOR
PHOEBUS SOFTWARE
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