Another bad week for bankers?
Another topsy-turvy week for the financial sector looks set to get worse with Chancellor of the Exchequer Alistair Darling announcing a windfall tax on Christmas bonuses and profits.
It started in the middle of last week with reports claiming RBS directors threatened to resign if they were not allowed to claim a bonus. This was coupled with stories of Barclays increasing wages for 22,000 investment bankers by 150% to get around the government clampdown.]
RBS directors stated they must act in the interests of stakeholders and offer competitive bonuses otherwise talent will leave them and go elsewhere. Although people in the street may argue RBS practically went bankrupt so clearly, they don’t employ any talented bankers. Some, including Liberal Democrat Treasury Spokesman Vincent Cable, said the government should call their bluff and not allow themselves to be pushed around.
RBS were universally criticised for acting like petulant children while Barclays remained unscathed, largely because they are not owned by the tax-payer.
This was only the end of Act 1.
French President Nicholas Sarkozy caused a stir in the city when he claimed the financial crisis was due to the “free-wheeling Anglo-Saxon” model of financial markets. This was met largely by righteous indignation in London and by Darling who argued London was New York’s only true rival in the financial sector. Sarkozy said: “I want the world to see the victory of the European model, which has nothing to do with the excesses of financial capitalism.” and the French Premier was supported by EU commissioner for economic affairs Jaquin Almunia.
Mr Almunia echoed Sarkosy’s remarks saying : “The ‘freewheeling Anglo-Saxons’ proved remarkably impervious to warnings of dire consequences if they persisted in their reckless activities, preferring, in the immortal words of former Citigroup CEO Chuck Prince, to continue dancing while the music kept playing.”
This was not the first time this week the UK had come under fire for its role in the financial crisis. Ben Bernanke, head of the American Federal Reserve who is currently seeking re-election to the role, launched into a scathing attack on Gordon Brown claiming Brown’s decisions as Chancellor had left the UK ill-prepared to deal with the looming crisis. After this he launched into financial regulation arguing the erosion of the Bank of England’s powers as a supervisory authority was also to blame.
These remarks seem to have had little effect across the Atlantic with most claiming he is trying to pass-the-buck and is purely interested in saving his own job as the most powerful banker in the world.
This Shakespearian tragedy then came to a head when Darling went into general election mode on the Sunday talk-shows talking of super-taxes on the uber-wealthy ahead of his pre-budget report. He said one-year windfall taxes on bank bonuses and profits were necessary to slash to budget deficit and those with the broadest shoulders should bear the most weight.
This policy will be unanimously popular outside the financial sector but has already suffered from condemnation by those inside it.
Angela Knight from the British Bankers’ Association has called the policy “populist, political and penal” and it has been argued it will not have much effect on the budget deficit. Knight went on to argue this may force even more companies to abandon London in search on greener pastures abroad where they can pay bonuses as they see fit.
It is true the financial sector has had many worse weeks than this over the past year but with elections looming the hard facts of the case are likely to come to the fore.
Policies similar to Darling’s are likely to be the norm from the major parties as they try to seal up the popular vote by condemning perpetually unpopular bankers. However with such announcements becoming more frequent so the unsympathetic voices from inside the sector are likely to get louder.
Colin Rowe
