CBI head warns banks over ‘toxic’ bonuses

Jill Treanor,  Tuesday 12 October 2010


• Bonus announcements will coincide with public sector job cuts

• Richard Lambert calls for a ceasefire over poaching staff

• New surveys show bankers expect higher bonuses this year


Banks need to agree to a “global ceasefire” on poaching key staff if they are to deflect public criticism over bonuses, the head of the CBI said today.Richard Lambert warned of a potentially “toxic” mix of big bonuses being paid next year – the payments are normally declared in December and paid in February – at a time when public sector workers are suffering job cuts or pay freezes.


He told a City audience: “This exceptional combination of circumstances will require exceptionally sensitive handling, preferably with the major global institutions acting collectively when it comes to compensation matters, and resisting the temptation to poach disaffected mega-stars.


“This is no easy matter. But the political costs of failing to agree a global ceasefire are likely to be substantial.”He spoke as a survey published by headhunters Morgan McKinley showed that 48% of bankers expected their bonus to be higher this year than last, although only 2% of them said that they would jump jobs if their bonus expectations were not met. Another survey, by eFinancialCareers.com, found that 57% of bankers were expecting higher bonuses after receiving pay rises during the year.


The CBI director general also joined Lord Turner, chairman of the Financial Services Authority, in calling for a ceasefire in politicians’ attacks on bankers. Lambert said the description of investment banking activities as casinos – often used by Vince Cable, the business secretary – was “just irresponsible”. He called for an end to what he described as “Vince Cable v Lombard Street”.


“It’s probably too much to expect the politicians to lay off the banker bashing, especially as the annual bonus season draws closer,” Lambert said. “But they [the politicians] should be doing much more to describe what kind of banking system they want in this country.”The attacks on the industry had already deterred an unnamed global player from buying up some of the high street banking businesses that are for sale, Lambert said, which would hinder competition. It was time for politicians to “stop making matters worse”, he said.


“They have successfully deflected their share of the blame for what’s happened to the bankers. It’s understandable that the public is furious about the excesses of the banks in recent years, and the fact that the levels of pay and bonuses in parts of the City remain as high as they do.”Lambert, in his last speech on banking before he leaves the CBI early next year, urged politicians to avoid taxes on banks as it was the customer who would ultimately carry the burden of any levies. George Osborne is currently working on a levy on banks’ balance sheets that is expected to bring in £2bn a year and has not ruled out another tax on pay and profits.


“Who would actually pay for such a penalty? Those overpaid City dealers? Maybe, a bit. But the main burden would inevitably be carried by the banks’ customers,” Lambert said.”If politicians persist in the argument that it was all the bankers’ fault, they will come up with the wrong responses,” he added.


His speech came as bankers continued to digest new proposals published by European banking regulators on Friday which have infuriated senior industry figures by making it easier for banks based outside the EU to hire staff by paying bigger bonuses.


Industry sources are determined to secure changes to the proposals, which are open to consultation until 8 November, particularly the demand that no more than 10% of a bonus be paid in cash.


Source: The Guardian

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