Of Barclays and Bank Bonuses

Barclays (BCS) CEO Bob Diamond told a parliamentary committee and a packed audience on Tuesday, “There was a period of remorse and apology; that period needs to be over. We need our banks willing to take risks, to be confident and to work with the private sector in the UK to create jobs and improve economic growth,” and encouragement of risk-taking involves handing out hefty performance bonuses.

He reiterated his firm’s commitment to the UK as “the place we want to succeed” but warned, “The other option is that you don’t have investment banks located in the UK.”

Tuesday’s Lex column agreed:

The will to pay remains strong: the banks are setting aside a higher share of falling revenues. For Goldman Sachs, Barclays Capital and Credit Suisse, pay is expected to amount to 40-50 percent of net revenue, up from 36-42 percent. The bankers feel they are in a no-win situation. Politicians and taxpayers will rant at bankers even if bonuses are reduced.

[Forcing bonus limits could just] encourage banks to increase fixed salaries, so increasing the risk that they stiff themselves in the next downturn. Outside the EU, Switzerland and the US still allow their rivals to offer key employees better terms. Thus, the move might prompt HSBC and Standard Chartered, whose business is mostly outside the EU, to move their headquarters from London to somewhere less anti-bonus.

Depoliticizing the issue of outsized bonuses and compensation will be tough. The Treasury Committee hearing made that much clear. To see what I mean, follow the exchange at 1:05:50 between John Mann and Bob Diamond:

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