The Treasury does not need another review of the banks

Please spare us having to pay for another study of the banks. I can tell Treasury Ministers for nothing what it should say.

1. Many of the banks lent too much, and lent too much to peple and companies that will have trouble paying the interest and paying the capital back.
2. Many banks bought too many options, futures and sophisticated pieces of financial paper. Some of these are now worth a lot less than the banks paid for them.
3. The banks hired too many expensive people, and then paid them huge bonuses, in many cases without making the profits to pay them after allowing for changes in values of the loans and instruments they were trading.
4. The regulators allowed all this to happen, and actively encouraged over expansion of the banks by setting capital and cash requirements that were too low and interest rates that were too low. They then did the opposite and depended the crisis upon us. They also allowed mega mergers which overstretched managements and balance sheets.

If the government belatedly wants to know how much they are likely to lose on the banks they have bought, they should ask the expensive managers they are already employing to tell them, and have the figures confirmed by the auditors we are also paying for. If they want to know the positions of the banks they do not own, then read the Accounts they publish or ask the FSA who should know the figures.

There is no point in asking for another review and wasting time and money on it. If they just want to blame the banks again, then make a few more speeches. They won’t cost us anything extra and will not get us any closer to solving the problem. Listening to them in the Commons, the problem seems to be they have not read the Accounts that have already been published, let alone asked for management figures about what is likely to happen next.

The banks are overstudied and under managed. When it comes to bonuses for 2008, the Treasury should say to RBS:

” Bonus payments are inappropriate in a bank which has just lost £28 billion and taken £20 billion of capital from taxpayers. Staff are asked to forgo their bonuses for 2008, even where they are contractually entitled. No discretionary bonus will be paid. They should note if they do not agree to forget the bonus, there will need to be bigger staff losses and bigger remuneration cuts for 2009, as the banks costs are way out of line with its revenues, and it needs to start making profits and generating cash again. Senior staff insisting on their bonus payments will be held responsible for the overall losses of the bank when decisions are made about their future prospects”

In industry without access to public capital many good people are not just losing their bonus but losing their jobs. It is time the public banking sector woke up to the reality.

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25 Comments

  1. Ian Jones
    Posted February 8, 2009 at 8:00 am | Permalink

    I suspect they need a study in order to try to persuade us that it was just a couple of bad eggs who caused all the trouble and we shouldn’t prevent the taxpayers money being shovelled into the mouths of bankers as bonuses…..

    Just a note but I will vote for whichever party stands up and says they will reclaim the last 5 years of bonuses from the bankers (i.e anything above 25K) as well as make sure they dont get anymore!!!

    • APL
      Posted February 8, 2009 at 10:14 am | Permalink

      Ian Jones: “reclaim the last 5 years of bonuses from the bankers ..”

      What legal grounds would there be for doing that?

      But I agree, no bank that has received public money should be permitted to pay a bonus – by the way, for the same reason, neither should the civil service be paying bonuses to its staff.

      We must hear more from politicians about why they were happy to use the big pay & renumeration packages of the *very banks they are now happy to disparage* to lever their own pay scales ever upward. Now the pendulum is starting to swing in the other direction, lets not stop the competitive bidding. Politicians should now be bidding *down* their pay and renumeration too.

      Lets see politicians set a good example tout de suite.

  2. Donna
    Posted February 8, 2009 at 8:55 am | Permalink

    All very true John, but you’re missing the point of the Government calling for another Review. They just want to be seen to be doing something – anything about the banks – it’s just grandstanding to the taxpayer. The fact that it’s going to waste money is nether here nor there: since when has Gordon/Labour ever worried about wasting taxpayer’s money.

    • Acorn
      Posted February 8, 2009 at 10:50 am | Permalink

      It may even be a bit more sleazy than that Donna. When will this enquiry report back to Parliament; assuming it gets published? Will it be timed for just before the next election campaign starts?

      It will no doubt be spun as those nasty Tory capitalist bankers wrecking the country. “Hey look guys, it says, it was nothing to do with Gordon; in fact, it was Gordon who saved the world from Armageddon”.

      It is going to take some clever manipulation to arrange for the economy to “appear” to be picking up just before the election; and, before the inflation kicks in after the election.

      If they pull off this sting, Christ, I may even vote for them. Poker players would call that “drawing to an inside straight”

  3. Brigham
    Posted February 8, 2009 at 9:21 am | Permalink

    I hear reports that RBS are about to dish out large bonuses of our bail out money. Harriett Harman apparently wants to increase this to bring women to parity. Although “one eye” was offensive, the rest of Clarkson’s rant appears to be true, and not just for our leader.

  4. alan jutson
    Posted February 8, 2009 at 9:31 am | Permalink

    Summed up in a clear way other than the fact that the Auditers were also probably hoodwinked as well, so the Accounts are probably not a true reflection of the state of their real finances.

    Off sheet borrowing/trading whatever that is (how can get away with and not show trading in your accounts) also to blame.

    Problem is the more you talk down the Banks, the more the shares drop, so the worse it becomes.

    Fully agree no bonuses.

    The fact is if they were not bailed out by Public Funds these guys would not even have a job with wages, let alone bonuses.

    They need to live in the real World like the rest of us.

  5. molesworth 1
    Posted February 8, 2009 at 9:47 am | Permalink

    This proposed review looks like retro-active ‘due diligence’ & will be seen right through.

  6. John Moss
    Posted February 8, 2009 at 10:10 am | Permalink

    It’s just a smokescreen to divert attention from the fact that the bail-outs and bungs haven’t worked.

  7. A man in the street
    Posted February 8, 2009 at 10:54 am | Permalink

    John,
    The call for another review is a classic Civil Service policy for kicking the matter into the long grass. One the review is underway, Ministers will simply say that they are awaiting the outcome of the review. By the time a review is completed and the results are approved for publication, the General Election will be imminent and the Treasury will follow establsihed practice of delaying publication until after the election.
    IMO this is simply a ruse by Treasury Ministers and Civil Servants to try and stifle debate on what happens next. In the meantime they will of course sit on their hands and allow the bankers to go ahead and collect their 2008 bonuses – throwing more good money after bad!

    • THE ESSEX BOYS
      Posted February 8, 2009 at 8:04 pm | Permalink

      JR’s succinct summary of what to say to the banks is precisely what would be said in a well-run company in the private sector. ‘SIMPLY SAY NO’!
      The key government cards have been covered above – bonuses this year equal more job cuts for you and your colleagues…and sue us if you dare.

      The Chancellor’s interview was the usual Marr cop-out. He was not nailed on whether he would say ‘no’ and seemed to be saying that it’s future years on which he will act. Pathetic! As ever he was full of we ‘should/ought to/have to/must’ rather than we ‘CAN AND WILL’. Who would ever consider employing a bloke like this in a senior position? Ok…RBS or Northern Rock!

      Conversely George Osborne showed a good grip and some metal but why on earth was Hazel Blears – communities and local government – wheeled onto Adam Boulton’s program – to discuss the bankers? She was her normal chirpy but trite self, seemingly oblivious to the fact that her government COULD stop these obscene payments.

      Stop them THIS year we must and simultaneously, as we blogged last week, inspect the criteria set for the payment of all and any bonus in recent times. Surely one of the conditions should have been the financial well-being of the bank itself enabling the legal halt to this nonsense. If not, to what extent was the bonus structure self-serving to the senior management who approved the schemes, thereby entitling THEM too to big payouts? Isn’t that fraudulent in itself?

      Many believe that stopping the payment of the bonuses this year is reason enough to put the banks into administration and letting them all scramble for employment let alone massive unaffordable extra goodies!

      • THE ESSEX BOYS
        Posted February 8, 2009 at 10:00 pm | Permalink

        John – talking of (questionable-ed) behaviour we’d welcome your comments on the latest example of ‘MP snouts in the trough’ as per the front page of today’s Mail on Sunday. This is a (much publicised-ed) example and involves a senior minister.

        Ironically, in this period of the Gaza appeal and Ross & Thatcher misjudgements, the BBC are again guillty of errant censorship! Andrew Marr conspicuously declined to show the front page of the MoS or to allow his guests to raise the issue. I understand that Radio 4’s paper review did the same.

        Those of us with long memories recall Marr’s predecessor, David Frost – another soft server when it came to Labour ‘sleaze’ – acting in exactly the same way on the morning that the M0S broke the ‘Cherigate’ story via banner headlines. As we know they soon had to shift their stance when the story became the issue of the moment for days on end and we wait to see if this is a repeat. Either way the BBC should hang their heads in shame.

        We would appreciate sane comment on the overall issue from you as an insider please.

        Reply: MPs are entitled to claim a housing allowance where they need a second home, either to stay in the constituency where their main home is near Westminster, or to stay in Westminster when their main home is in or near their constituency. Given the hours of work at Westminster, even with this government’s part time Parliament, many MPs do need a second property. Given the price of London property you could not manage a central area home on an MP’s pay and one somewhere else.
        I do not know the details of the Home Secretary’s arrangements. Normally an MP either buys a London flat on a mortgage, or rents one, and charges the mortgage interest or rent. I assume the Home Secretary is paying rent for her London accommodation under a proper agreement, and argues that she spends more time there than in the constituency where she claims her second home housing costs. As a Minister that would be quite normal and she should be in the office in London a lot.
        The new issue seems to be whether there should be a rule related to size or cost of property when deciding which one is the main home, or some rule about number of nights spent in it, or maybe some rule about the ownership of the homes where rented. Of course housing cost is not always related to size of property, as it depends to a large extent on when it was purchased which is one of the main determinants of the size of the mortgage. This is not a case I intend to get involved with. There are some real scandals going on, and some big losses of public money that need exposing instead.

        • THE ESSEX BOYS
          Posted February 9, 2009 at 11:03 am | Permalink

          Thanks. We accept there are far bigger fish to fry but you’ll recognise this is a canker that troubles and influences many ordinary voters, especially when a major paper can drag a senior government minister through the mud seemingly legitimately and without comment on her part.

          The ‘rules’ are demeaning politicians in the eyes of the public and we believe that all MPs should show more urgency in insisting on change for their own good as well as ours. We suspect that an MP spends more nights at his/her family home when holidays and recesses are taken into account and by tortuously making an MP state or imply otherwise insults us and makes us question every statement they may make in representing our interests.

          In this instance – and as London landlords ourselves – we seriously doubt that £400 per week, even including a contribution to the bills, is a realistic rent for the 3-way share of the property in question and we also doubt that the house’s owner receives or declares that sum when the rent a room tax allowance is £80 per week. The overcharge for the accommodation in which this MP chooses to live comes directly from the public purse as, of course, does the additional security expense of not choosing to live in a grace and favour property (which presumably remains empty at a further cost to the taxpayer?)

          You are probably right in concentrating your own attention on your major area of expertise but we – by commenting here on a serious website in a balanced way on behalf of ordinary onlookers – hope you and your colleagues will show greater urgency in getting the system in kilter with what we voters experience in the big wide world! Thank you.

          **************************

          As we’ve said before this website is excellent in content and clarity as well as format – eg our comments immediately visible until authorised, direct replies plus email alerts when requested. Is there room for a ‘Get it off your chest’ section in which the contributor can raise any random issue of the day for other contributors, if not yourself, to add comment if they choose?

          If this is logistically feasible perhaps comments should be confined to say 150 words so we don’t run amok!

          Replies: I agree the House needs to sort out sensible rules for expenses, publish and defend them. I am told this is happening. It also needs to consider the use of grace and favour homes and decide what impact this should have on any additional expenses that MP still wants to claim. Taxpayers should not be expected to pay twice to house the same Minister/MP in London. I believe the relevant House Committee is reassessing all this, and will give us a chance to discuss it and vote on it in due course. The sooner the better.
          I would be happy for people to blog in on other topics under the daily topic. I will respond if I think it a good idea. It does speed up posting if people whilst letting off steam avoid personal abuse or possible libels.

  8. Matt
    Posted February 8, 2009 at 11:31 am | Permalink

    I’m all for payment by results and have no problem with bonus payments. With the demise of manufacturing and other industries, the UK has become increasingly dependent upon the city of London and financial services.

    So it’s imperative that there is not a brain drain from the city. Unlike manufacturing industries financial services could move very quickly and without complication.

    On the other side of the coin I wonder just how endemic the bonus culture has became, where reward is given irrespective of results.

    A few years ago in doing the “Rounds” of fund managers (Mostly you were in and out in half an hour) I was reasonably friendly with one manager who administered a UK smaller companies fund.
    In a five year period he’d collected at least one bonus of over £1m, but the fund’s performance over a five year period fell behind the FTSE index in that time. (Smaller companies funds, because they are more volatile are meant to outperform the larger companies)

    Now a computer could have done a better and cheaper job as a fund manager by putting all the money into a tracker fund and buying and selling on the weighted stocks that make up the index.
    If a worker on “Piece work” only produces the output required in the standard time, then no bonus would be given.

    Most unit trusts underperform the FTSE index, which is not surprising when you take the bid to offer spreads and management fees into account.

    A similar one year bonus to a working man, would be like heaven come early as he may have to work for 40 years (Take discounted cash flow and its probably infinite) in a factory to achieve this sum.

    I realise that I simplifying this but I do think that there is a lot of expense that could be reduced here.

  9. Magelec
    Posted February 8, 2009 at 12:25 pm | Permalink

    All so true John. More delaying tactics.

    The problem GB has got is that he hasn’t got the bottle to state loud and clear that bonuses should not be paid whilst the banks are using taxpayers’ money.

  10. Michael
    Posted February 8, 2009 at 12:43 pm | Permalink

    The BBC news this morning said that the review was going to be independent.

    Who and what is what the review is going to be independent of????

  11. Neil Craig
    Posted February 8, 2009 at 12:48 pm | Permalink

    The great advantage of reviews, Royal Commissions, enquiries etc is that it allows politicians to put off doing something until, hopefully, everybody has forgotten about it – at which point the enquiry can report & it can be announced in a written answer the day before the summer hols. And the taxpayer pays for them.

  12. chris southern
    Posted February 8, 2009 at 12:59 pm | Permalink

    I have given up on this goverment, the ones that aren’t corrupt are inept.
    They won’t call an early election, they will just create more smokescreens and live in denial whilst doing more damage.

    It’s amazing the amount of little committee interviews they have shouted about since the labour lords sleaze.
    Sixth form politics and mafia accounting, that’s a socialist goverment for you.

  13. Simon D
    Posted February 8, 2009 at 2:15 pm | Permalink

    There is a simple solution to the bonus problem – don’t pay them. The bank could make it clear through its in-house rumour factory that anybody who sues the bank for their bonus will have made a career-terminating move.

    Take Banker A on a basic salary of £200,000 with the expectation of a bonus of £400,000.
    If he sues the bank for the bonus and is required to leave it is unlikely that a queue of other banks will be waiting to employ him. The choice would be (1) continued employment on £200,000 a year or (2) the dole queue plus a request for repayment of Banker A’s mortgage (on preferential bank terms) of his flat in Belgravia, the repossession of his Porsche and then end of his bank pension plan. He would face an expensive and problematic law suit to recover the bonus.

    Most bankers would know what was the best choice, especially when contemplating the media-fest that would occur when the “bonus case” came before the relevant tribunal or court.

  14. Matthew Reynolds
    Posted February 8, 2009 at 2:34 pm | Permalink

    Rather than reviewing the banks the Chancellor just needs to pick up the phone and get John Redwood to pop round to HM Treasury ASAP for a glass of port or two. Mr Redwood being a genius could just recite all that he & others have saying about the banks on this blog for quite a while now. Mr Darling could then pass the necessary legislation and we could defrost the credit market fairly quickly.

    To end the recession just slash corporate taxes to one 10% flat rate and get Price-Waterhouse-Cooper to review the state sector with a view to cuts in the Brown created client state that could fund this reform. A surge in productivity & business investment would get a recovery going.

    Smaller government and lower taxes seem to work as the Roaring twenties and 1980’s upswing in the USA seem to prove…

  15. FatBigot
    Posted February 8, 2009 at 2:37 pm | Permalink

    The devil is always in the terms of reference. Require an investigation into internal bank management only and you find fault with the managers and no one else. Require an investigation into regulators only and they are in the firing line. Looking at only part of the picture is both dishonest and pointless, hardly what we’d expect from our whiter-then-white government.

  16. TomTom
    Posted February 8, 2009 at 11:14 pm | Permalink

    RBS should be dismembered and the retail bank split off. It would be easy with 70% held by UKFI. Then next year there will be a cull of all the loss-making units and the staff can be given the division in lieu of pay.

    Lloyds should be told that UKFI shares will be cast at the AGM to remove the Chairman Victor Blank.

    The jobs at Bradford & Bingley corporate operations were only guaranteed for 6 months so those working in Bingley and Crossflatts will soon be redundant whilst the CEO gets a guaranteed bonus.

    Let bankers depart for the green pastures of lucrative rewards – whereever they may be. Ackermann has a crock at Deutsche Bank with huge losses – it is hard to know if Citigroup or Chase is in the market for bankers….maybe Barclays didn’t buy enough at Lehmann.

    The fact is we need a cull of bankers and to set an example by removing swathes of them from their jobs. The payment of bonuses should be followed by wholesale reduction of staffing at HBOS and spinning off its corporate side to create a purely retail bank with slimmed down branch network.

    2009 should be the year of the Banker Cull and Bonuses should be seen as the up-front reward for headcount reduction. Let bankers see that bonuses are paid with job cuts. Shareholders need dividends and cannot feed greedy employees. If they choose to eat the seed corn and loot the suppliers of capital, they must pay the price and be subject to headcount reduction

  17. mike stallard
    Posted February 9, 2009 at 3:42 am | Permalink

    But it isn’t the banks’ fault.
    Out here in Australia/Thailand the position looks far different.
    Why do I keep coming back to Marx? The people who control the means of production will, eventually, inevitably, call the tune. Those people live out here. We in the West – mainly America and England – are the capitalists. We produce little or nothing.
    Our whole economy, under Gordon Brown and Tony Blair, has been built on capitalism (the City of London) now it has crashed. Our credit has run out. The house of cards has collapsed.
    The muscle is with the producers – as always.
    Meanwhile the government runs round like a headless chicken waiting for the election which will throw them out.
    Our problem isn’t bonuses or blaming the banks: it is getting some production together.

  18. Adrian Peirson
    Posted February 9, 2009 at 6:52 am | Permalink

    All the banks should be wound up, they are all corrupt, they lend our fractional reserved thin air, and we have to pay interest on it.
    I mean, If I don’t pay my mortgage and the Bank decides to reposess, what exactly did they lose.
    If they had Lent me Gold to buy my house then fine I would owe them something, but they don’t, they lend out (With Govt Approval) Worthless bits of paper, or ‘Credit’.

    If Money were real, Govt and the International Maoneylenders would not have been able to do this to Western civilisation.

    Govt can simply Print gilts, which are bought by the Banks which Print fiat money and Lend it to Govt AT FULL FACE VALUE.
    We, through taxes are forced to work off this debt completely unnecesarily.
    If Westminster had doen like it should, it could have printed the Money Instead of the Gilts.
    Better yet, if he hadn’t sold off the gold, we could have had real Money, backed by something of real value, the Pound would have been saved.

    50 yrs ago you could have bought a nice suit for an ounce of Gold, today, you can still buy a decent suit for an ounce of Gold, Gold will always have value, for those that think look at how the price of Gold has skyrocketed, IT HAS NOT, what has happened is the value of your worthless, fiat currency has been devalued.
    It has to be devalued because once it has been borrowed into existance, the only way Westminster can pay off the FACE VALUE Loan Plus its interest is to Borrow an even Grreater amount Next time.
    This is the chief source of Inflation, it is this that destroys the value of your savings, had our money been gold, it’s Purchasing power would have remained solid over the past 1000+ yrs.

    Govt and banks can conjure fiat money up out of thin air, Borrow and print what they like for their own agendas.

    By definition this is a Fraud, especially since it is we that have no control over this fraud and have to suffer the consequences.

    Money should have value, it shoud be valuable, you should not just be able to conjure the stuff into existance at YOUR will, this ios what Banks do and what govts do and why they hold dominion over us because they control the supply of what we call money.
    If money were ‘backed’ they could not do this, it woud hold them in check.

    The reason Banks and Govt was precisely for this reason, so they could lend out thin air and precisely so Govt to print Gilts, borrow money and enslave us to their consequences.
    slavery still exists.

    The Credit bubble is precisely that, a bubble based in thin air that they lend out to us.
    As far as I can see, the bank lent you nothing of value, they lost nothing of value.
    Why are we paying interest and losin their homes, it is a 60+ year scam.
    Who has put most into a house, the bank which simply made a book keeping entry when it lent you the thin air or you who has paid tens of thousands of your money/labour paying off this fraudulent debt.
    Push the Reset button,
    Let the Banks fail and restart with an honest money system.

    Abolish the Federal Reserve ( and the Bank of England, because it isn’t )
    http://www.youtube.com/watch?v=rm7d2H7ayPU

  19. nice review
    Posted March 3, 2009 at 2:16 am | Permalink

    is there a beginner article?

  20. George
    Posted March 23, 2009 at 10:33 pm | Permalink

    Hey, is there a section just for latest news

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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