'Big bonuses? It would be wrong to stop paying them'
Barclays' £50m-a-year boss delivers a defiant rebuff to critics who say bankers are overpaid
Bank bosses were adamant yesterday that they would continue to pay seven-figure bonuses to workers, describing them as "essential if we want people to work in our industry".
They also claimed that high-calibre graduates were starting to think twice about working in the financial services industry because of the growing backlash against bankers.
But the comments sparked fury among politicians who said they were "out of step" and renewed calls for City watchdogs to crack down on bankers' pay.
Bob Diamond, the head of Barclays Capital, whose package has topped £50m during the boom, was speaking as Barclays unveiled first-half pre-tax profits of £2.98bn. Mr Diamond, BarCap's president, will net $36m for shares he paid $10m to buy. He admitted that the bank had hired staff on multi-year guaranteed bonuses since November, something the City watchdog has since written to every chief executive to warn them not to do.
But Mr Diamond said it would be wrong for the bank not to pay out "if we had really good performance", and argued that performance-related bonus payments were vital given the bank's "obligation to run a client-first business". He said: "It is pay for performance and it is based on principles we have followed for a while now."
He was backed by his boss, John Varley, Barclays' chief executive, who said: "One of the jobs I have as chief executive is to assemble on behalf of our customers and shareholders the very best team that I can. You have to hire and retain the best people in the industry and there is a market that determines whether you can do that."
He accepted comparisons of his job to that of a Premiership football manager, saying he had "no higher priority" than to ensure Barclays performed strongly and had "the best people".
Mr Diamond said that fewer than 10 per cent of the staff of Barclays Capital were on guaranteed bonuses and "less than a handful" of people had been hired on multi-year guarantees – the most controversial element of the way banks pay stars – since November.
However, the fact that it has been doing so at all will be seen by some as evidence that banks have still not sufficiently reformed themselves and simply "don't get it", following the banking crisis that has rocked the world's economy.
HSBC, Britain's biggest bank, warned that the backlash facing bankers in the wake of the financial crisis was putting off graduates from joining what is still Britain's most important industry. "We clearly see students and graduates thinking twice about financial services and I think we have to be responsible," said the bank's chief executive Michael Geoghegan.
He said HSBC, which made £2.8bn in the first half of the year, did not offer guaranteed bonuses but said banks had to pay to hire the best people.
The comments drew scant sympathy from politicians. Labour MP John McFall, the chairman of the Treasury select committee, said: "The banking industry is out of step with the rest of industry in its compensation arrangements... The public can be forgiven for thinking the banks are making hay while the taxpayer pays."
George Osborne, the Shadow Chancellor, said: "Banks should watch out that they do not misuse taxpayer support – it's designed to facilitate lending, not mega pay deals."
Vince Cable, the Liberal Democrat Treasury spokesman, said: "Without the taxpayer, many bankers would be without a job, let alone a huge bonus. Their greed and excessive risk-taking led to this crisis which is now costing millions their jobs and many their homes." He challenged the Financial Services Authority to "force the banks to publish details of their policies on pay and bonuses and the package details of anyone who earns more than the Prime Minister".
Asked about the prospect of banks paying big bonuses to senior executives, Ian Pearson, the Economic Secretary to the Treasury, said: "We've made it very clear to the banks there can be no return to business as usual.
"We want to see stronger banks, but we also want to see banks that have learned the lessons of the past, and we're determined to see that they do."
- guardian.co.uk, Monday 3 August 2009 21.36 BST
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Barclays and HSBC made a passionate defence of the City's bonus culture yamid a growing public backlash about the return to a big pay bonanza barely a year after the government bailed out the financial system.
As criticism of bonuses crossed the traditional political divide, the banks compared their high-flyers to footballers and Hollywood stars to try to explain the need for the hundreds of thousands of pounds individuals are expected to receive this year. Neither bank gave figures about potential bonuses for investment banking staff, but a jump in profits in both operations led to speculation that huge pay deals will be awarded.
Profits at Barclays Capital, the investment banking arm of the high street bank, doubled to £1bn while at HSBC's investment bank the profits rose 125% to $6.3bn. Each bank reported overall profits of nearly £3bn despite a combined £13bn of bad debts caused by rising unemployment, making it more difficult for households and companies to pay back loans. Bank shares jumped sharply, pushing the FTSE 100 to its highest level this year.
John Varley, chief executive of Barclays, turned to footballers to explain bankers' pay while Stuart Gulliver, who runs the investment bank at HSBC, used Hollywood stars. Varley said: "The football analogy certainly goes some way I think [to explain bonuses] ... There is simply no higher priority that to ensure we field the very best people. That in a sense is exactly the same as a football manager if they are going to win. Our obligation is to ensure we pay appropriately."
Gulliver likened the situation to a Hollywood studio that not only paid stars for pulling in profits, but also many of the extras. "If a foreign exchange trader makes a deal then they know two days later how much they made. If it's a £5m profit, that is something we can count, we can see it, its real. And they are part of a successful team," he said.
But criticism of the banks came from across the political spectrum. George Osborne, the shadow chancellor, said: "Banks should watch out that they do not misuse taxpayer support – it's designed to facilitate lending, not mega pay deals. Without taxpayer support, the whole system faced failure."
Vince Cable, the Liberal Democrat Treasury spokesman, said the Financial Services Authority needed to show "real teeth" in its dealings with bankers. Labour's deputy leader, Harriet Harman, called for more women in the boardrooms of major banks, suggesting they would do a better job than men.
While neither HSBC nor Barclays have taken funds directly from the taxpayer, both are benefiting from the estimated £1.2tn of taxpayer funds helping to prop up the sector, through a number of government schemes. Since the October bailout, the government has demanded that the FSA tackle pay in the City to prevent traders being encouraged to embark on risky strategies in the hope of receiving big bonuses. However, the City regulator is not planning to set caps on pay.
The government also commissioned Sir David Walker, a former banker, to review corporate governance in banks. Walker has suggested that banks disclose the pay of individuals who earn more than boardroom chiefs without identifying them.
Varley refused to disclose how many of his staff would need to be identified if the proposals were adopted and said existing disclosure standards were "very high indeed". He added: "I do not think it is necessary to go a lot further."
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