Bankers fiddle while the City burns

Lost billions on sub-prime misadventure? Undermined the global financial system? Sent us all into recession? Congratulations - have a bigger bonus!

by
Last Updated: 31 Aug 2010

Or at least, that seems to be the message at some of the world’s biggest investment banks. A third of City staff actually got a higher bonus this year than they did last time round, according to headhunter Morgan McKinley, while 70% said their bonus figure either matched or exceeded their expectations.

And this isn’t just because bankers have been so browbeaten by their recent travails that they’ve adjusted their expectations downwards. Apparently, 71% of employers surveyed said their bonus pots were similar or even larger than last year.

This all seems a bit odd, given that we’ve spent the last six months hearing how these banks have been plunged into record losses after squandering billions and billions on dodgy debt vehicles. Only this morning, red-faced Swiss bank UBS revealed that it had been forced to write down a whopping £7bn on its sub-prime investments in the last three months of 2007, leaving it £5.7bn in the red for the fourth quarter. This is the worst result ever recorded by an investment bank, and is likely to see more than 1,500 people lose their jobs (including CEO Marcel Rohner, if you believe the reports). Morgan Stanley is also planning to cull 1,000 jobs, it said today.

So what’s going on? Well, presumably all these job cuts will mean there are fewer bankers left to share the bonus pool. But it’s also worth remembering that most of the banks spent the first half of the year making money hand over fist – even at UBS, a disastrous second half came after the most profitable six months in its history. And according to Morgan McKinley, there are signs of a skills shortage at senior levels, which will also keep bonuses high.

The big problem with these huge bonuses is that they seem to be a one-way bet – these bankers get a massive upside when things go well, but not much of a downside if things go wrong. This had led to calls for some kind of claw-back structure – presumably allowing banks to repossess their traders’ Ferraris when they realise that their fancy new derivative isn’t worth the paper it’s written on.

Not everyone agrees – the FT’s John Gapper argues today that regulation of bankers bonuses would be pointless, and suggests we should be pointing the finger at unscrupulous mortgage brokers instead.

But one thing’s for sure – as the rest of us prepare to tighten our belts, it really sticks in the craw to see the bankers who helped get us into this mess wander off with pockets full of cash…

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