James Moore: Why Flint needs to take the hint and put a block on bloated bank salaries
Outlook: HSBC still thinks it needs to pay out stupendous sums to keep its top staff
It’s the age-old cry of the parent to the miscreant child who has done something bad “because Johnny did it”: “So, would you jump off a cliff if Johnny did it?”
You wonder if Douglas Flint’s parents ever said that to him.
Yesterday the bank he chairs issued a rather downbeat set of results, to cap a rather downbeat banking reporting season.
Downbeat in relative terms. It says a lot that I can write that not on the basis that any of the big four are in danger of going pop but merely because City forecasts were largely not met.
In the case of HSBC, margins also declined and the wave of Asian economic optimism and dynamism that it has been surfing for so long has lost at least some of its power.
Still the bank is promising better times to come as it continues to streamline its bloated structure, restore some much-needed controls over its far-flung operations, and take the axe to its cost base.
Except in one key area: The salaries of the boys and the (one or two) girls at the top are poised to rocket.
Mr Flint said this was one possible consequence of the EU’s planned cap on bonuses. To keep its people in the manner to which they have become accustomed, the bank may hike basic pay because it is competing with people like Goldman Sachs and JP Morgan who aren’t affected by the rule. So they’re merrily increasing bonuses.
And because Johnny (and Jamie and Lloyd) are doing it, Douglas has to do it.
Despite the relentless focus the bank has on costs, which includes bearing down on staff salaries in most of its business areas, the need to retain the masters of the universe at the top requires that at least some of those cuts feed through into their pockets as opposed to those of the shareholders who put their money at risk for the bank to conduct its activities. This sort of thinking is endemic in the banking industry. Because banks run by Johnny, and Bob, and Eric and Freddie were flogging payment protection insurance policies at a rate of knots on these shores, HSBC too engaged in the practice (provisions for compensation were increased again yesterday) regardless of the fact that it was a bad, bad business that has cost the bank and its shareholders millions.
Banks seem to find it impossible to look at a business and say no. Even HSBC, which to be fair has been pulling out of, and closing, lots of businesses, still thinks it needs to be in areas of investment banking which (it is claimed) require stupendous salaries to be paid to the people who run them.
No one ever seems to ask whether this really makes sense for shareholders. It is simply taken as an article of faith that ever more dizzying sums have to be paid out to “top talent” to allow banks to “compete”, not for business but for staff.
This is why there will be another banking crisis. It’s a safe bet that somewhere in an office somewhere some employee, let’s call him Johnny, on one of those inflated salaries HSBC is set to hike, or just a fat bonus if he’s not from the EU, will formulate a lunatic idea, sell it to his bosses, and start the ball rolling.
It will (at first) appear to make lots of money. So all the other banks will follow suit. And, in the end, some of them will fall off a cliff.
Because little Johnny jumped first.
Shop around for real story behind retail “boom”
“The best July since 2006,” says the British Retail Consortium, and it isn’t referring to the sweltering summer temperatures some people profess to enjoy.
No, the figures it will publish today will provide further evidence that the pall of gloom that has hovered over almost all parts of the retail sector (except online) is finally lifting.
Brits are buying barbies, and food to put on them, and light, airy clothes that make the uncommonly toasty temperatures we have been experiencing feel a little more bearable.
One of KPMG’s retail gurus has been moved to opine that the summer of sporting success is driving some much-needed optimism among shoppers and that the economy is turning the corner as a result.
There was more evidence to suggest that may indeed be the case from the dominant services sector yesterday. The Markit/CIPS services purchasing managers’ index hit its highest level since December 2006, and was well ahead of where economists thought it would be.
Belatedly it does indeed seem that the British economy is picking up, and not before time. As I reported yesterday, by international standards the UK is a leaden-footed nag, even by comparison to some of its near-neighbours stuck in the supposed hell of the eurozone.
So it would be churlish, in the extreme, to carp, wouldn’t it? Should we not just allow shops to enjoy their “golden summer”?
Here’s where the clouds come from: Britain’s economy may be growing, but for the vast majority of its inhabitants wages are not, at least not in real terms. Living standards face further erosion from benefit cuts and tax rises. There’s unlikely to be much relief on that front from the Treasury any time soon, although don’t bet against some sweeties as we approach an election, particularly if the polls suggest anything other than a Conservative majority.
How, then, is the pick-up in retail sales being financed? It’s true there has been some help from discounting, but overall sales are rising when the amount of money in shoppers’ pockets is shrinking, creating a gap. If the gap is being filled by credit, then Houston, we have a problem.
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