Monday, October 19, 2009

Boris vs Botin

The bank debate went all Old Testament this week. From the responses to Boris Johnson’s “cockroach” broadside in the Telegraph, it looks like there’s a growing desire to see bonus recipients receive a mighty smiting, or at least a windfall tax.

Johnson, who recently positioned himself as champion of “that leper colony in the City”, has now let rip with some highly entertaining banker bashing, likening them and MPs to cockroaches scuttling through the nuclear blast of public disapproval. His article triggered more than 160 comments of support and indignation.

Perhaps this desire for punishment is linked to the Archbishop of Canterbury’s unexpected contribution to the banker debate: “There hasn't been a feeling of closure about what happened last year. There hasn't been what I would, as a Christian, call repentance," he said.

No one really expects to see hair shirts, not even Gucci ones, but without some public apology there will be more wrath to come (follow this link for more angry editorial).

Oddly, not much anger has been directed at the homeowners who signed up for hopelessly large mortgages in the hope the bubble would see them through.

A more measured commentary to emerge from the wailing and gnashing is that of Emilio Botin, chairman of Banco Santander. Botin avoided fancy derivates and leverage to concentrate on the traditional business of lending and deposits. In the boom years it was one of the most boring banks in Europe but emerged from the crisis one of the most respected.

That gives him a right to instruct his peers in good banking practise, which he says includes a simple focus on capital allocation and good ethics. “Banks must recruit the most talented and ethical people from society. You are safekeeping people’s savings. Young people entering banks must understand this, and not enter because it offers the potential for large financial reward,” he wrote in Monday’s FT supplement, The Future of Finance.

For Botin, any banking activity needs to be undertaken with stakeholders in mind. This means undertaking transactions because they help clients, not to generate fees for next quarter's earnings target.

Botin’s ideal bank employees have “ethics in character, in culture and in training.” I assume they are trained in-house, as a quick word search for the word "ethics" on the websites of three banking training companies produced no results at all.

This fits with the stereotype of the modern banking graduate recruit, as portrayed by David Hare in his play about the crisis, The Power of Yes. One of his characters, Simon Loftus, is a 24 year old Oxford maths graduate turned bond trader, who appears to be based on a real person.

“If I’m not going to be paid a lot of money I’ll leave,” he says. Loftus then complains that older traders had more fat bonus years: “I feel betrayed, you guys got amazing bonuses”, and ends by saying he’ll take himself to Hong Kong because the tax is lower.

Let’s hope he doesn’t apply for a job at Santander or City Hall.

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