Sell the foreign and investment banks taxpayers own

There is considerable anger about the pay and bonuses being paid by the state owned banks, especially where they remain in loss overall. Labour say they believe in fairness and justice. Where is the justice in high pay and bonuses for senior employees in state aided concerns, when that aid has to be paid for by people with far less income than these executives?

I believe in good pay and bonuses for success. I would have no issue with bonuses accruing to good performers within state aided banks, if they were only to be paid these bonuses in cash if and when we the taxpayers have got all our money back with a profit.

The current bank defence to high pay is that most of this relates to investment banking divisions which are profitable. In that case, sell them off, so they flourish in the private sector. There they can pay what they like, as long as they do not come back to the taxpayer for any support. If these state owned banks sold their investment banking divisions it would produce a good capital receipt, which would then allow these banks to pay a special dividend to taxpayers, or return capital to taxpayers.

Whilst they are about it they should do the same with overseas banks in their groups. Why on earth did British taxpayers have to bail out investment and foreign banks in the first place, instead of lending them money short term as lender of last resort if needed and helping them find a market solution? Why do we go on owning them, when we need our money back and they are profitable?

The state aided banks are behaving like typical old nationalised industries. They get taxpayer support, they make large losses overall, and they put up their costs and pay because they do not have to take the tough action any private sector business would have to take in their loss making position. That’s why so many people are angry about what is going on.

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17 Comments

  1. Norman
    Posted February 26, 2010 at 9:15 am | Permalink

    Agree with everything you post above.

    In light of the fact that state controlled RBS is divesting itself of non-core elements of it's business should we expect to see the investment division going as part of the slimming down process or does the government view investment banking as a core function of the future RBS?

  2. Javelin
    Posted February 26, 2010 at 9:18 am | Permalink

    RBS Investment Bank – used to be Natwest Capital / County.

    It survived independently in its BishopsGate HQ. I have worked there on and off for over 20 years asa contractor.

    Unlike HSBC the Investment Bank, RBS Investment Bank is a physically seperate entity, with a seperate culture. The Head Office of RBS in Scotland is seen as a distant monolith by the Investment Bankers at RBS in London. RBS has the concept of a "campus" – they talk about their Scottish campus and London campus. The London campus is the Investment Bank.

    Anybody reading this should know that separating the Investment Bank from the Retail Bank would not involve a lot of change to either bank. I doubt 95% of staff in the Investment Bank would even notice.

  3. Ian Jones
    Posted February 26, 2010 at 9:18 am | Permalink

    All the banks have a Govt guarantee which effectively means they pay less for capital than they should……

    Off topic but has anyone else noticed the subtle increase in articles arguing for the inflation target to go up to 4%? Not far to go before inflation is already there and then 50% of the debts can be inflated away in just 10 years………

    • StevenL
      Posted February 26, 2010 at 2:46 pm | Permalink

      This only works if wage inflation keeps up really doesn't it? If commodities price inflation surges and wage inflation doesn't keep up it just lowers our standard of living.

      I'm not convinced that changing sterling interest rates has all that much effect on the price of oil, metal, foodstuffs etc.

      Our monetary policy is a bit of a joke really. Personally I think what they are doing is more driven by what is coming out of Basel 3 – i.e. banks have to have more capital so they are printing it.

  4. Michael
    Posted February 26, 2010 at 9:23 am | Permalink

    If the investment banks are profitable it is because of conditions (such as quantitative easing) paid for by the taxpayer.

  5. THE ESSEX BOYS
    Posted February 26, 2010 at 9:50 am | Permalink

    "The state aided banks are behaving like typical old nationalised industries. They get taxpayer support, they make large losses overall, and they put up their costs and pay because they do not have to take the tough action any private sector business would have to take in their loss making position. That’s why so many people are angry about what is going on."

    SUCH A GOOD POINT WE COULDN'T HELP REPEATING IT IN FULL!

    A good vote-winning proposition too for those of us who recall the worst aspects of nationalisation.
    Isn't it the same with all the vast bureaucratic waste that the government generates…'If it were their own money they wouldn't squander it so blatantly!

  6. oldrightie
    Posted February 26, 2010 at 10:28 am | Permalink

    "The state aided banks are behaving like typical old nationalised industries."

    Now there's a surprise!

  7. alan jutson
    Posted February 26, 2010 at 10:57 am | Permalink

    Simple fact is they should not have been given a blank bail out cheque in the first place.

    All employees should have been given a new contract of employment, with the appropriate new terms and conditions. If they did not like it, then they could then have left with the minimum amount of State designated redundancy, like many others whose Employers have gone bust.

    I am not against bonuses if they are earned for above a sensible performance level, (not for mearly doing a job within expectations) as you do have to encourage people to succeed.

    We are where we are now, due to initial panic and then poor foresight by the Governments Politicians and negotiators.

  8. waramess
    Posted February 26, 2010 at 11:01 am | Permalink

    Terrible mess but a bit late now to be thinking such thoughts.

    Taking away or diluting banks ability to pay bonuses will simply impair our investment over time, ensuring we never recover our initial outlay.

    The Government know that if the Clearing Banks were to now lose their investment bank income they would be seen to be basket cases which might prove too big a problem for any government to sort out.

    Why not call in our support and have an orderly liquidation of RBS and Lloyds, selling off the bits that can be sold and leaving the rest with the liquidator to manage over time.

  9. Frugal Dougal
    Posted February 26, 2010 at 11:30 am | Permalink

    It's another step, and a very large one, to the situation that brought the USSR to its knees, the situation that George Orwell (a prescient left-winger) described in the last two paragraphs of Animal Farm:

    "But they had not gone twenty yards when they stopped short. An uproar of voices was coming from the farmhouse. They rushed back and looked through the window again. Yes, a violent quarrel was in progress. There were shoutings, bangings on the table, sharp suspicious glances, furious denials. The source of the trouble appeared to be that Napoleon and Mr. Pilkington had each played an ace of spades simultaneously.

    "Twelve voices were shouting in anger, and they were all alike. No question, now, what had happened to the faces of the pigs. The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which."

  10. Chris
    Posted February 26, 2010 at 1:28 pm | Permalink

    Excellent article. Your suggestions seem just and make sense. Why is this sort of message not coming loud and clear from Cons.HQ?

  11. Lindsay McDougall
    Posted February 26, 2010 at 1:43 pm | Permalink

    Agreed, and sell off the insurance divisions too, most of which are separately branded.

    Meanwhile, Lord Mandelson wants the UK to create a state owned bank along the lines of KfW, the German government-owned development bank. This is the bank that transferred €300 million to Lehman brothers on the very day it collapsed, (words left out-ed) It was also rated the world's safest bank in 2009 (well, as it backed by German taxpayers, it would be).

    KfW has a wide range of activities, ranging from commercial lending through soft loans to development aid. Recently, it has tied up up with the Industrial Development Bank of India to help Indian companies identify projects and help earn carbon credits. So Germany can carry on building heavy trains and heavy motor cars, and still be holier than thou.

    Here is another example of KfW activity. I worked in Zimbabwe in the late nineties. At that time KfW were coming to the end of a 20 year programme of supporting the construction and maintenance of gravel roads and training up the local people. That was a very worthy idea and a good organisation was in place. The problem was that they didn't do it through the ministry that was the highway authority but another ministry. I would be curious to know how much of that inheritance remains.

    A UK equivalent of KfW would be pure joy for someone like Lord Mandelson. And he would pick winners, wouldn't he?

  12. David Burch
    Posted February 26, 2010 at 2:31 pm | Permalink

    I agree with the message and maybe the approach you say should have been taken. My view though would be that the banks requiring help should have been support short term until the profitable elements could be sold. The unprofitable elements could then be gently liquidatated which is a much softer approach than most companies in the UK that become insolvent and fall into liquidation. This would give the banks the market measaage of what happens when they make a poor series of decisions. The crazy situation is that now they will continue to act like the nationalised dinosaurs of the 1970's.

  13. Michael Lewis
    Posted February 26, 2010 at 3:59 pm | Permalink

    "RBS Investment Bank – used to be Natwest Capital / County.

    It survived independently in its BishopsGate HQ."

    Err… wasn't Natwest/Greenwich a train wreck? Natwest having the anti-midas touch. RBS was/is the UK equivalent of Citibank in ramping up, after the event , its investment banking division. At least Citi had a well regarded core – Salomon Brothers, RBS didn't even have that.

  14. Kevin Peat
    Posted February 26, 2010 at 5:02 pm | Permalink

    "I believe in good pay and bonuses for success."

    So do I but for most people it simply does not happen – take our military personnel for example.

    For far too many 'professional' people in Britain the remuneration is related directly to the size of the monies being shifted around – estate agents raking off a percentage are a good example. The rewards bear no relation to the amount of effort, talent or education involved.

    Bankers aren't necessarily so hot either (though I'm not denying that some are.) After all it is they who got it all so woefully wrong leading to the credit crunch.

  15. Mike Fowle
    Posted February 26, 2010 at 5:07 pm | Permalink

    Cogently argued as always and I am sure correct. It is time Gordon Brown was challenged on the horlicks he has made of the banking system, but about which he keeps boasting.

  16. Mike Stallard
    Posted February 26, 2010 at 9:10 pm | Permalink

    An I am angry too – but not half as angry as I shall be if just one of the banks drags my poor little country into bankruptcy!

    PS Well said in the Commons about the future power cuts. I remember under Mr Heath being quite convinced that it was all his fault! No doubt in a couple of years, it will all be Mr Cameron's fault – unless, of course, we really stupid, lazy, greedy, gluttonous electors make the same mistake again and elect Labour for a fourth term…..

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    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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