Mutiny On The Bounty

It is a year since the investment banking industry reputation committed suicide by paying premiums stickers a few months after the worst financial crisis in living memory. That move helped destroy the credibility of the investment banks "to public policy and many others. Outside of finance, capitalists, including red blood cringed with embarrassment. The bonds were paid from the profits boosted by government subsidies either directly through bailouts or central bank interventions and implicit government guarantees. It also paid the cost of the capital stock of reconstruction. In 2009 the company has typical salary equivalent to between quarter and half of their capital base. The investment banks apparently is not running in the interests of the economy and even owners, but for their staff. The financial riot.
Now the banks are once again to calculate how much to pay people. Surprisingly since 2009 there has been no keel haulings policy, a few lashes of the whip. Before an audience angry, some governments have agreed to tax banks lending to reclaim some of the subsidy they receive. Britain imposed a single tax on the premiums they must raise at least £ 2.5 billion (4000 million dollars), more than £ 550 million originally expected. Restricted America pay at companies that still have rescue TARP funds.
Regulators, meanwhile, have become obsessed with the salary structure of the bankers. In June the U.S. supervisors issued guidelines that said that the leaders should not encourage employees to operate their businesses-a vision worthy of managing nuclear power plant in Springfield. The European Union is finalizing rules that will apply next year.
The banks say they have already changed their habits. A recent report by the Institute of International Finance, a lobby, and Oliver Wyman, a consulting firm, found that three quarters of firms questioned said they now took into account the risk in calculating premiums, and that 39 % premium banks pool was added in the form of deferred compensation, not cash.
How useful is all that remains to be seen. The directors of Bear Stearns Lehman Brothers and lots of stock ownership, as well as corporate governance police said should, however, ran their companies aground. And there is a strong feeling that regulators have responded to the subject matter (how bankers are paid?) Regardless of which matters most to people: how much should I pay?
Politicians certainly expected (again) that banks are holding some of this year. We also have guessed that the new regulations squeeze profits, limiting the amount available for businesses to spend on expensive dessert wines provocatively. It is encouraging that there is some evidence of this has happened. Most observers estimate the sector's revenues could fall by up to fifth in 2010, the exceptional market conditions that followed the rescue have faded. Some banks are reacting. compensation bill for Goldman Sachs in the third quarter was $ 3.8 billion, up 28% over the same period in 2009.
But the overall picture is less convincing. For five leading companies in America and Europe have so far reported results for the third quarter, total compensation dropped by 17% to $ 18 billion, compared with the same quarter of 2009 (see chart).
Some companies that did wrong to be reserved for payment of costs that pushed its investment banking units, especially in red-UBS. Its director was brutally honest financial analysts. "We are a living example of a bank not to pay experienced people and not come out very well in 2008. And as a consequence, we know that we are obliged to pay people to some extent, regardless of the outcome of the bank. "More marginal firms, including Nomura (who bought pieces of Lehman Brothers), it seems that the struggle to declare decent in all conditions.
Huw van Steenis, an analyst at Morgan Stanley, said that since investment banks are relying more on enterprise customers and less on proprietary trading, earnings have become more volatile. Areas such as interest rate swaps and currency trading incurring large fixed costs. The banks with lower market shares may have difficulty producing weak earnings for the quarter, making it more important that you can handle the payments.
The "flow monster" companies with large market shares may be more resistant. However, even the really big companies are paying too much, but the staff profit-taking barely acceptable in its newly expanded capital base of Goldman return on equity (ROE) was 10% in the third quarter. Deutsche Bank, which has the relatively low capital ratios (which should flatter ROE) achieved a 13% on an underlying basis before tax.
Regulators have grounds to intervene in the payment only if the banks can not earn enough money or attract enough new capital to increase its capital ratios at the required level. Comforting, large firms with lowish market shares (and therefore perhaps weaker gains) on fixed income, currencies and commodities trading, Credit Suisse, UBS and Morgan Stanley are reasonably capitalized.
However, the prioritization of staff in industry shareholders suggests that banks are being mismanaged. During the boom, the shareholders of the banks showed all the resistance of a mat on the payment. But now they have a lot of capital invested in a mature market, if declining, industry can not control its expenses properly, it's time to take command.