Wednesday February 13, 2013

Gloomy times for top British bankers

Comment by Yap Leng Kuen

IT is ironic that bankers who used to be highly paid for taking risks may now have their salaries cut for risks that have turned sour.

Worse still, in the case of the Libor interest rate rigging scandal, they had taken the wrong bets.

At the Royal Bank of Scotland (RBS), the punishment is that the bank and not UK taxpayers must pick up an estimated £500mil (RM2.43bil) in fines for the Libor rigging.

“Osborne is forcing RBS to cut its bankers' pay to ensure that taxpayers are not left to pick up the cost of the upcoming multi-million-pound fine for the Libor rigging,'' The Guardian reports.

On his concern about how the Libor fine would be paid. George Osborne, the Chancellor of the Exchequer, had insisted that “everyone should exercise restraint and responsibility” over bonuses.

RBS chief executive officer Stephen Hester and Barclays boss Antony Jenkins have already waived their bonuses.

High-profile JP Morgan boss Jamie Dimon had his salary halved in taking responsibilty for the huge “London Whale” trading losses.

Lloyds Banking Group is planning an overhaul of the chief executive's bonus scheme that will see Antonio Horta-Osorio only receive an award once the taxpayer's investment in the bank returns to the black, says The Telegraph.

The repercussions are relentless and measures meted out are meant to bite. They are aimed at the pockets, and in no time, more heads are expected to roll.

Already, former Barclays boss Bob Diamond has lost his job over the bank's involvement in the Libor rigging.

“Those who were doing the supervising must also bear their share of the responsibility,” Osborne has been quoted as saying. “The RBS board and the RBS senior management are well aware of that and decisions are in hand.”

When problems are not nipped in the bud and allowed to fester, this sort of wide casting of the net will occur. It has an “overwhelming'' effect, and in some cases, takes on a Titanic-like dimension.

Will it induce fear among the community such that they would not explore loopholes anymore? That remains to be seen for where there's a will, there's a way.

There's no predicting from where a young, ambitious and ingenious trader will spring.

When times are good and things go red hot, people tend to throw caution to the wind.

Nevertheless, great effort is being poured into reforming the system and the banks' themselves.

At Barclays, CEO Jenkins spoke of a new era of banking, drawing a new “line on the sand'' for new ways of behaviour.

Jenkins has split the bank into 75 business units, each measured on the returns generated and the reputational impact of the specific activities, reports The Telegraph.

In its restructuring, Barclays has taken into serious consideration tax principles and business ethics.

It plans to shut down its controversial tax advisory unit that had purportedly helped companies avoid paying tax through complex structures and off-shoring strategies, says The Telegraph.

In addition, the reports say, the axe may fall on Barclays' Asian equities business and some of its retail operations around Europe.

It will retain businesses with strong returns and a solid reputation such as foreign exchange, fixed income, equity capital markets and debt capital markets.

With such a major effort to clean up its image, one can only say that it means business and is serious about turning over a new leaf.

The message is clear that the train has been set on its new course and anyone who upsets the cart will have to face the music.

Columnist Yap Leng Kuen reckons that for the UK banking sector, it's truly the winter of discontent.'

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