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Bring on the £4bn bonuses: Fat cat bankers rack up massive profits despite bringing economy to its knees

by Open-Publishing - Monday 3 August 2009

Trade-Exchange Rates Economy-budget UK

Bankers are set to pocket a record £4billion in bonuses after surprise profits.

Barclays and HSBC posted pre-tax profits of almost £6billion combined today with Lloyds Banking Group and Royal Bank of Scotland also set to reveal their figures later this week.

Thousands of City executives will again receive mammoth payouts despite the banking sector taking the economy to the brink of collapse last year.

It is a major embarrassment to Alistair Darling and City minister Lord Myners who had promised to slam the brakes on corporate excess.

The news will also enrage millions of credit-starved businesses and families after taxpayers were forced to pick up a £37billion bill to bail out the banks.

Barclays’ profits were up 8 per cent to £2.98billion in the six months to the end of June, buoyed by a fantastic six months for its investment arm.

That division - Barclays Capital - produced an incredible 100 per cent rise in takings to rake in £1.05billion.

Executives in the investment side of the bank are now in line for pay and bonuses worth up to £250,000 for just six months’ work.

It is a huge turnaround from last summer when the recession was taking hold of Britain and the banking industry was on the verge of the worst crisis in decades.

Unlike Lloyds and RBS, Barclays was not part of the £37bn Government bailout.

Neither was HSBC whose profits released today were down 51 per cent on last year to £2.98billion thanks to its bad debt charges soaring by 39 per cent to £8.3billion.

Barclays avoided state help by turning to Middle East investors for funding and also through the £8.2billion sale of its Barclays Global Investors fund management side.

However, its bonus and pay plans will still face criticism after the clamour for an end to the old days of high risk and big rewards in banking.

Chief executive John Varley stressed today that bonuses would not be paid until the end of the year and that the bank would consider recent guidance.

’The subject of compensation is a hot topic and I understand that, and it is very important that we are sensitive to the views of citizens and indeed central bankers like Mervyn King on this subject,’ he said.

’We will make our decisions about variable compensation at the end of the year... We are sensitised to this issue and we will behave responsibly.’

Barclays Capital salvaged its investment banking business from the wreckage of the Lehman Brothers - the Wall Street giant whose collapse sparked the financial crisis.

Although that has made a fortune, the firm’s retail banking side has taken a huge hit with profits down a massive 61 per cent to £268million.

Its overall profits were also despite having £4.5billion in write-downs, up 86 per cent on 2008, due to credit market exposures and charges on the falling quality of loans.

Mr Varley said the economic climate had been ’very difficult’ but predicted the bank would stay in profit for the rest of the year.

’Our strategy has helped us weather the crisis and we want our employees, customers and shareholders alike to continue to benefit from it over time,’ he said.

Barclays’s share price fell as low as 50p at the the start of the year but were today at 310.8p, up 3 per cent, after an hour’s trading.

Respected think-tank the Centre for Economic and Business Research predicts there will be £4billion of bonus payouts this year, up from £3.3billion last year.

MPs from across the political spectrum condemned the ’gut- churning’ scale of the bonuses.

They warned that, while bankers are lining their pockets, ordinary families will suffer for decades from soaring taxes and cuts to public services as governments grapple with the ballooning national debt.

The Royal Bank of Scotland, which is 70 per cent owned by taxpayers, is expected this week to announce a modest profit over the past three months - enabling it to pay around £170million in bonuses.

The Lloyds Banking Group, which received a £17billion bailout from the Government and is 43 per cent owned by taxpayers, is likely to stay in the red. But it will still manage to pay tens of millions in bonuses.

Barclays bankers are set for bonus and salary packages worth an average £250,000 from a total bonus pot of around £5billion. HSBC is also likely to pay out millions.

The worst performer of the week is expected to be Northern Rock, which had to be saved by the taxpayer. It is expected to reveal losses of about £700million.

The bonus figures will cause particular outrage because many banks are still suffering major operating losses.

Many have been forced to sell off parts of their business to boost their balance sheets.
This has enabled them to report massaged profits, even although the overall state of their finances is bleak. Bonuses are linked to the headline profit, however, and not the gloomier picture below.

The banks claim that telephone-number bonuses are crucial to retaining top staff.
Earlier this year it was revealed that London traders with the American investment bank Goldman Sachs, which was rescued by the U.S. government, will each receive £500,000 windfalls this year.

Another bailed out U.S. giant, Citigroup, is increasing basic pay by up to 50 per cent to make up for lost bonuses.

The return of ’business as usual’ makes a mockery of the Government’s claim to have eliminated the culture of greed and reckless risk that has tainted the banking industry.

Shadow Chancellor George Osborne said last night: ’We warned weeks ago that another unacceptable round of bonuses were on their way.

’The banks should watch out they don’t misuse Government support - it’s designed to facilitate lending, not mega pay deals. The Government, who own half the banking system, should realise that actions speak louder than words.’

Liberal Democrat Treasury spokesman Vince Cable said: ’This is appalling - the money should be going to help small businesses, not lining the bankers’ pockets.

’Without the taxpayer, many bankers would be without a job, let alone a huge bonus.
Their greed and excessive risktaking led to this crisis which is costing millions their jobs and many their homes.

’The Financial Services Authority must show some real teeth and 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. Openness and transparency are the only ways to avoid another crisis.’

Bank of England Governor Mervyn King also attacked the culture of banking greed. He said: ’Executives are earning vast sums, beyond the dreams of ordinary people, for a job which it’s very hard to say justifies that kind of bonus. It is a form of compensation which rewards gamblers if they win - but with no loss if they lose.’

Labour MP John McFall, chairman of the Commons Treasury select committee, said: ’Bonuses are back with a bang and bankers are making hay at taxpayers’ expense despite sending the economy into a tailspin.

’The point of the bailout was for banks to repair their balance sheets. The public will be at a loss to understand how banks can pay out record bonuses when they are still on life support.’

Senior Whitehall sources stressed that the CEBR figures were estimates and insisted that banks would face penalties such as stricter regulation if they handed out massive bonuses.

The Treasury said: ’The Government has made it clear to banks that they cannot return to the days of rewards that are based on short-termism and excessive risk-taking.
’We intend to bring forward proposals to ensure boards are more transparent and accountable for executive pay.’

Trade union leaders have seen their pay rise by up to 20 per cent as many of their members endure pay cuts or freezes. Tony Woodley, joint general secretary of Unite, Britain’s largest trade union, was the biggest winner as his pay and benefits package increased by 20 per cent last year, from £88,359 to £105,761.

http://www.dailymail.co.uk/news/article-1203804/Disgraced-fatcat-bankers-pocket-record-4bn-bonuses-despite-bringing-economy-knees.html