Moulton attacks bonuses culture as damaging and 'absolutely wrong'

The outspoken private-equity pioneer Jon Moulton has become the latest high-profile financier to attack the culture of multimillion-pound bonuses for bankers in the City, saying it had "damaged" the UK market.

This came as he told MPs that up to 30 companies bought by private equity in the UK could fail over their inability to service high levels of debt.

Mr Moulton, founder of Alchemy Partners, has added his voice to a growing cadre of critics of the level of investment banking remuneration packages at a Treasury Select Committee meeting yesterday.

"The incentive payments do damage," he told the committee, adding: "If you put people on 1,000 per cent bonuses they'll do extraordinary things. No one would say things haven't gone far too far."

This echoes comments from the Bank of England Governor, Mervyn King, who said the banks were "paying the price" for compensation packages that are not in the long-term interests of the banks. Other critics include Richard Lambert, director-general of the Confederation of British Industry, and Nobel Prize winner Joseph Stiglitz.

Yesterday also marked a softening of the approach of the British Bankers' Association, the industry's lobby group, which had previously warned against "public squabbles" over the issue. BBA head Angela Knight said yesterday it was "legitimate to look at executive pay". She added that no one wanted "incentives that encourage bad behaviour or too much risk".

Despite the disintegrating financial markets, bonuses are expected to top £7bn this year. Mr Moulton said: "Banks made a lot and lost little. It was an extraordinary period of happiness for senior bankers around the world."

The financier called for an overhaul to the way banks structure remuneration packages, saying they should reward employees on a long-term basis, as well as forcing banks that pay higher bonuses to protect themselves by maintaining more risk capital. "Bonuses and payments for failure are at all-time peaks. The method of payment is absolutely wrong," he added.

Mr Moulton called on the Government to intervene. "I urge politicians to intervene to make sure banks are trustworthy. There is no alternative than some central regulation and control." However, he added that the banks should not be protected with government guarantees; rather, the depositors should be baled out "with the banks being put into bankruptcy... If there is always a government guarantee, monstrous abuses can take place."

The weakening financial markets have hit the private-equity industry hard, as the days of cheap debt have vanished. Private equity is having to change its investment structure, but many fear problems over the highly levered deals carried out at the peak of the boom last year.

Mr Moulton warned at a conference in Munich this year that companies will collapse under the debt burden, but yesterday he was more specific. "There will be failures among companies that are heavily burdened with debt. I don't know how many or how big this will be, but it will happen. There are probably 20 to 30 companies in this category in the UK," he said.