Jump to content
House Price Crash Forum
Sign in to follow this  
LuckyOne

Cut Bonuses, Darling Tells Banks ......

Recommended Posts

The "recovery" in the housing market is being driven by London and the South East.

One of the important group of buyers in this market is the banking cohort who can use their bonus money to jump to the head of the queue of people chasing available houses.

If bonus money is reduced in amount and the time for payout is lengthened by both economic conditions and government edict, this cohort will find their competitive position weakened relative to other buyers which should reduce upward pressure on prices.

This is a good thing for buyers but a bad thing for the recovery which relies on asset prices being inflated back up to 2007 levels so that banks can rebuild their shattered balance sheets.

Poor Darling, he is trying to achieve mutually exclusive goals : appease the masses who are outraged about the bonus culture and prop up house prices. I think that house prices and the level of bonuses are highly correlated and that there is little that Darling and friends can do about that.

http://news.bbc.co.uk/1/hi/uk_politics/8277838.stm

Alistair Darling is set to ask bankers to crack down immediately on bonuses in a key speech to Labour's conference.

The chancellor is to bring in new laws in the autumn but will say to bankers that there is no need to wait for legislation and they should act now.

Labour is using its week in Brighton to launch a fight back against the Tories, claiming it is now the "underdog".

But there was controversy on the first day as the prime minister was quizzed on his health on the BBC's Marr show.

Mr Darling is to tell the conference in Brighton that he is acting together with French Finance Minister Christine Lagarde and is hopeful that countries around the world will push the guidelines agreed at last week's G20 conference in Pittsburgh.

He will say: "Within months, the country faces a big choice. A choice not just about who's in government but about values that will shape our country and the opportunities for our people. A choice that will affect every area of our lives, every aspect of our future.

"Let me assure the country - and warn the banks - that there will be no return to the business as usual for them. So in the next few weeks we will introduce legislation to end the reckless culture that puts short-term profits over long-term success."

Share this post


Link to post
Share on other sites

I know I am probably a lone voice here but all this bank and bonus bashing amazes me. I can see us having a steady outflow of businesses to switzerland etc... where they will all with cheers welcome the new taxpayers.

Like it or not finance is our biggest industry , paying more tax pounds into the exchequer than any other enterprise (perhaps other than public service).... if we bash it we will be doing so for short sighted reasons. Its possible to hold onto our position AND put in place the necessary checks and balances... our dear leaders don't seem to get that which will result in wider deficits and higher taxes for all.

Does anyone really the think the swiss are not looking forward to the exodus with glee... of course they are, they will have thought through properly how to limit their national exposure at the same time as allowing the banking industry to do what it does ( take risk and reap the rewards).

Share this post


Link to post
Share on other sites

Thing is, if the bankers can't buy as much property in the future then there is always someone to replace them. Its a step in the right direction in terms of social responsibility and Labour are actually starting to act like a socialist party for once but its all a little too late for my liking.

Share this post


Link to post
Share on other sites
The "recovery" in the housing market is being driven by London and the South East.

One of the important group of buyers in this market is the banking cohort who can use their bonus money to jump to the head of the queue of people chasing available houses.

If bonus money is reduced in amount and the time for payout is lengthened by both economic conditions and government edict, this cohort will find their competitive position weakened relative to other buyers which should reduce upward pressure on prices.

This is a good thing for buyers but a bad thing for the recovery which relies on asset prices being inflated back up to 2007 levels so that banks can rebuild their shattered balance sheets.

Poor Darling, he is trying to achieve mutually exclusive goals : appease the masses who are outraged about the bonus culture and prop up house prices. I think that house prices and the level of bonuses are highly correlated and that there is little that Darling and friends can do about that.

http://news.bbc.co.uk/1/hi/uk_politics/8277838.stm

"The "recovery" in the housing market is being driven by London and the South East."

Do the indices reflect this?

"One of the important group of buyers in this market is the banking cohort who can use their bonus money to jump to the head of the queue of people chasing available houses."

But bonuses aren't paid at this time of year??

Share this post


Link to post
Share on other sites
I know I am probably a lone voice here but all this bank and bonus bashing amazes me. I can see us having a steady outflow of businesses to switzerland etc... where they will all with cheers welcome the new taxpayers.

Like it or not finance is our biggest industry , paying more tax pounds into the exchequer than any other enterprise (perhaps other than public service).... if we bash it we will be doing so for short sighted reasons. Its possible to hold onto our position AND put in place the necessary checks and balances... our dear leaders don't seem to get that which will result in wider deficits and higher taxes for all.

Does anyone really the think the swiss are not looking forward to the exodus with glee... of course they are, they will have thought through properly how to limit their national exposure at the same time as allowing the banking industry to do what it does ( take risk and reap the rewards).

There are a few mistakes that were made in the past that need to be corrected :

- Many people were paid too much money relative to the wealth that they created for shareholders.

- Capital used by the investment banking arms of universal banks was underpriced as the surplus capital used from retail banks was deployed in the business. This low risk capital is cheap but becomes expensive when it is used by riskier parts of a universal bank. This was a clearly undeserved subsidy of investment bankers' income.

I do agree with your general sentiment though. The taxpayer now owns a significant part of the banking universe. It makes little sense to me to demonise all bankers. There are a few who deserve it but there are many who are going to be relied upon to recover some, if not all, of the taxpayers' forced investment.

I find it a bit inconsistent when the people who allowed (or possibly even encouraged) the system to spiral out of control to now try to take the moral high ground. The entire New Labour movement is predicated on easy credit, financial engineering and asset price inflation. This allowed them to create the mirage of wealth that they blythley reallocated to non-productive parts of the economy.

Share this post


Link to post
Share on other sites
"The "recovery" in the housing market is being driven by London and the South East."

Do the indices reflect this?

"One of the important group of buyers in this market is the banking cohort who can use their bonus money to jump to the head of the queue of people chasing available houses."

But bonuses aren't paid at this time of year??

so all genius bankers spend all their money as soon as they get it? that would be telling us something if it were true.

Share this post


Link to post
Share on other sites
"The "recovery" in the housing market is being driven by London and the South East."

Do the indices reflect this?

"One of the important group of buyers in this market is the banking cohort who can use their bonus money to jump to the head of the queue of people chasing available houses."

But bonuses aren't paid at this time of year??

I believe that the indices do reflect this. The thread on to-day's Hometrack data supports the notion.

I am sure that you know as well as I do that people start to negotiate their year end bonuses early and that the feedback loop of "expectations" is already well developed by this time of the year.

I am sure that you also know as well as I do that there are many who are prepared to spend money as soon as they have a pretty good idea of what they are going to make. I call these BANS (bonus anticipation notes). They have always been a bad idea : perhaps more so this year than in others.

Share this post


Link to post
Share on other sites
so all genius bankers spend all their money as soon as they get it? that would be telling us something if it were true.

As a broad rule, I would say that 20% of them spend 125% of what they make, 20% spend 100%, 20% spend 80% to 100%, 20% spend 50% to 80% and 20% spend less than 50%.

I have always thought of bonuses as temporary and fickle and never as part of my permanent income. There are many in the market who don't see it that way.

As an aside, the government seems to have thought of bonuses as permanent income until recently. The reduction in bonuses going forward is going to worsen our fiscal situation as it will result in a transfer of wealth from employees in the UK to shareholders globally who pay lower tax rates on dividends and capital gains than employees pay on income.

Share this post


Link to post
Share on other sites
so all genius bankers spend all their money as soon as they get it? that would be telling us something if it were true.

They spend most of it to impress other bankers mostly

I went to dinner with Mrs Neverland at a rather trendy restaurant on Friday night to be placed next to a table of Eurotrash toasting each other with "Bonuses are back!"....

...joy!

In all seriousness most (investment) bankers are just sales people at the end of the day so to expect them to be much brighter or have different behavoir than a "flash Harry" estate agent or double glazing salesman is a mistake... <_<

Share this post


Link to post
Share on other sites
I call these BANS (bonus anticipation notes). They have always been a bad idea : perhaps more so this year than in others.

Especially if the govt. rushes through legislation to defer most of the bonus for x years until the actions taken to trigger the payments can be shown not to have negative long term consequences for the institution and wider society.

I used to work for an outsourcing company and always argued that any bonuses dependent on winning bids should be deferred until the forecast long term benefits of the arrangement promised to the client had actually been realised.

Apparently this is not a popular idea with the consultants and managers who work on bids.

Share this post


Link to post
Share on other sites
As a broad rule, I would say that 20% of them spend 125% of what they make, 20% spend 100%, 20% spend 80% to 100%, 20% spend 50% to 80% and 20% spend less than 50%. [1]

I have always thought of bonuses as temporary and fickle and never as part of my permanent income. There are many in the market who don't see it that way. [2]

As an aside, the government seems to have thought of bonuses as permanent income until recently. The reduction in bonuses going forward is going to worsen our fiscal situation as it will result in a transfer of wealth from employees in the UK to shareholders globally who pay lower tax rates on dividends and capital gains than employees pay on income. [3]

[1] That wouldn'f point to them being very prudent would it?

[2] I would have hoped that most bankers would have behaved like you, but I fear you are right :(

[3] I think thats only fair enough, the institution is more important than the individual (in almost all cases) and the shareholders own the institution. Also, I own quite alot fo shares <_<

Share this post


Link to post
Share on other sites
They spend most of it to impress other bankers mostly

I went to dinner with Mrs Neverland at a rather trendy restaurant on Friday night to be placed next to a table of Eurotrash toasting each other with "Bonuses are back!"....

...joy!

In all seriousness most (investment) bankers are just sales people at the end of the day so to expect them to be much brighter or have different behavoir than a "flash Harry" estate agent or double glazing salesman is a mistake... <_<

Agreed.

During the bonus bubble of 1997 to 2007.5, everyone started to get very well paid. There was little differentiation between the true high performers and the "hangers on".

During the house price bubble of 1997 to 2007.5, all house prices rose. There was little differentiation between true quality and the rest.

Share this post


Link to post
Share on other sites

I shouldn't think the bankers have got anything to worry about regarding bonuses. The financial industry is so devious and crooked they'll soon find a way round any guidelines or regulations limiting bonuses.

Share this post


Link to post
Share on other sites
I know I am probably a lone voice here but all this bank and bonus bashing amazes me. I can see us having a steady outflow of businesses to switzerland etc... where they will all with cheers welcome the new taxpayers. [1]

Like it or not finance is our biggest industry , paying more tax pounds into the exchequer than any other enterprise (perhaps other than public service).... if we bash it we will be doing so for short sighted reasons. Its possible to hold onto our position AND put in place the necessary checks and balances... our dear leaders don't seem to get that which will result in wider deficits and higher taxes for all. [2]

Does anyone really the think the swiss are not looking forward to the exodus with glee... of course they are, they will have thought through properly how to limit their national exposure at the same time as allowing the banking industry to do what it does ( take risk and reap the rewards). [3]

A few points:

[1] Most of whats taked about moving to SWitzerland is hedge funds and some other asset management organisations. They generally are off shore administered funds, so they dont even pay UK corporation taxes> Its just the regulation and personal taxation of the employees which is at issue

[2] I would be very interested to see the sums on tax revenues (corporate and personal) for the UK banking industry against state support received by the industry for this decade before making the assertion a overlarge banking industry is so great. A more balanced economy with more manufacturing would be better, but I think the low pound will get the UK there anyway

[3] The Swiss haven't got a great history in the current credit crises: UBS required multiple state bail-outs, led the world in credit losses and still looks pretty piss poorly from what i can see reading the FT... <_<

Edited by Neverland

Share this post


Link to post
Share on other sites
I shouldn't think the bankers have got anything to worry about regarding bonuses. The financial industry is so devious and crooked they'll soon find a way round any guidelines or regulations limiting bonuses.

That may be true.

A trend that has evolved in universal banks is that the investment banking division has hidden behind the "high return, high complexity" curtain for over a decade. They have held management and shareholders hostage.

That curtain has been ripped away and they have been exposed. Management (who generally come from less complex parts of the bank) have been itching to reduce compensation for years. They are finally in a position to do so.

The reduction in compensation at universal banks will eventually drive compensation at specialist investment banks lower too. This competitive force will result in a larger share of profits going to shareholders than employees.

Market forces will probably do at least as much as regulation to drive overall compensation levels lower and to lengthen the payout period.

I have always held the slightly naive opinion that the right thing usually happens at banks, just not as quickly as logic should dictate.

Share this post


Link to post
Share on other sites
That may be true.

A trend that has evolved in universal banks is that the investment banking division has hidden behind the "high return, high complexity" curtain for over a decade. They have held management and shareholders hostage.

That curtain has been ripped away and they have been exposed. Management (who generally come from less complex parts of the bank) have been itching to reduce compensation for years. They are finally in a position to do so.

The reduction in compensation at universal banks will eventually drive compensation at specialist investment banks lower too. This competitive force will result in a larger share of profits going to shareholders than employees.

Market forces will probably do at least as much as regulation to drive overall compensation levels lower and to lengthen the payout period.

I have always held the slightly naive opinion that the right thing usually happens at banks, just not as quickly as logic should dictate.

I would like that to be the case but haven't base salaries in universal banks like Citi, UBS and Deutsche increased by 30-50% this year? <_<

(Btw I appreciate that in good times, base salaries represented about 25% of total compensation)

Share this post


Link to post
Share on other sites
A few points:

[1] Most of whats taked about moving to SWitzerland is hedge funds and some other asset management organisations. They generally are off shore administered funds, so they dont even pay UK corporation taxes> Its just the regulation and personal taxation of the employees which is at issue

[2] I would be very interested to see the sums on tax revenues (corporate and personal) for the UK banking industry against state support received by the industry for this decade before making the assertion a overlarge banking industry is so great. A more balanced economy with more manufacturing would be better, but I think the low pound will get the UK there anyway

[3] The Swiss haven't got a great history in the current credit crises: UBS required multiple state bail-outs, led the world in credit losses and still looks pretty piss poorly from what i can see reading the FT... <_<

1/ Which is no small thing.

2/ I'm sure the figures are around if you are that interessted. I wouldn't discount the assertion before you have some evidence if I were you.

3/ No one has a great record apart form the canadians in this current crisis, that doesn't mean there won't be winners and losers if bank bashing comes to a legislative conclusion... the losers are likely to be those who bash hardest, that much is clear.

Share this post


Link to post
Share on other sites
I would like that to be the case but haven't base salaries in universal banks like Citi, UBS and Deutsche increased by 30-50% this year? <_<

(Btw I appreciate that in good times, base salaries represented about 25% of total compensation)

Base salaries have certainly risen. Total compensation levels fell in 2008.

It will be interesting to see what total compensation levels look like relative to net income in 5 to 10 years time when the banking system is "back to normal".

Share this post


Link to post
Share on other sites
1/ Which is no small thing.

2/ I'm sure the figures are around if you are that interessted. I wouldn't discount the assertion before you have some evidence if I were you.

3/ No one has a great record apart form the canadians in this current crisis, that doesn't mean there won't be winners and losers if bank bashing comes to a legislative conclusion... the losers are likely to be those who bash hardest, that much is clear.

Their reasonable record is because of good luck as much as skill and a better regulatory framework. They are slow replicators rather than innovators. Had it taken another two or three years for the crash, they would possibly have been in the same boat as everyone else.

There are also a few structural problems in the market that might be revealed if we have a second sharp leg down this winter.

Share this post


Link to post
Share on other sites
1/ Which is no small thing.

2/ I'm sure the figures are around if you are that interessted. I wouldn't discount the assertion before you have some evidence if I were you.

3/ No one has a great record apart form the canadians in this current crisis, that doesn't mean there won't be winners and losers if bank bashing comes to a legislative conclusion... the losers are likely to be those who bash hardest, that much is clear.

[1] I'm not sure how much tax hedge fund managers and their service industries/hangers on actually pay since they are mostly capital gainsr promisers (so they will be rolling up most of their income)

[2] I wouldnt have made the original assertion before having done my sums in the first place, but then I'm obviously not omnipotent like you

[3] The winners this time seem to have been those who kept their banks on a tight leash in terms of regulation in the past decade, rather than allowed them to enter into implicitly (sp?) state guaranteed adventures with huge amounts of leverage

Share this post


Link to post
Share on other sites
Their reasonable record is because of good luck as much as skill and a better regulatory framework. They are slow replicators rather than innovators. Had it taken another two or three years for the crash, they would possibly have been in the same boat as everyone else.

There are also a few structural problems in the market that might be revealed if we have a second sharp leg down this winter.

I had heard their regulatory framework was stronger ( amusing slow replicators reference)... I haven't heard nearly enough I think about why replicating something of the canadian regulatory model would not be good... any ideas?

Share this post


Link to post
Share on other sites
[1] I'm not sure how much tax hedge fund managers and their service industries/hangers on actually pay since they are mostly capital gainsr promisers (so they will be rolling up most of their income)

[2] I wouldnt have made the original assertion before having done my sums in the first place, but then I'm obviously not omnipotent like you

[3] The winners this time seem to have been those who kept their banks on a tight leash in terms of regulation in the past decade, rather than allowed them to enter into implicitly (sp?) state guaranteed adventures with huge amounts of leverage

More of your usual nonsense, you really can't seem to help yourself with your broad brush assumptions built on little knowledge.... I've got a busy day ahead so I'll leave you to stew until later this week.

Share this post


Link to post
Share on other sites
More of your usual nonsense, you really can't seem to help yourself with your broad brush assumptions built on little knowledge.... I've got a busy day ahead so I'll leave you to stew until later this week.

P-O-M-P-O-U-S <_<

Share this post


Link to post
Share on other sites
The "recovery" in the housing market is being driven by London and the South East.

One of the important group of buyers in this market is the banking cohort who can use their bonus money to jump to the head of the queue of people chasing available houses.

If bonus money is reduced in amount and the time for payout is lengthened by both economic conditions and government edict, this cohort will find their competitive position weakened relative to other buyers which should reduce upward pressure on prices.

This is a good thing for buyers but a bad thing for the recovery which relies on asset prices being inflated back up to 2007 levels so that banks can rebuild their shattered balance sheets.

Poor Darling, he is trying to achieve mutually exclusive goals : appease the masses who are outraged about the bonus culture and prop up house prices. I think that house prices and the level of bonuses are highly correlated and that there is little that Darling and friends can do about that.

http://news.bbc.co.uk/1/hi/uk_politics/8277838.stm

it is not about the bonuses!

it is about how we measure the inflation and super low interest rates between 2000 and 2007, when the house prices were shooting 20% or more per year but magically CPI was under 3% .....

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   288 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.