Weekly international investment round up to 8 September 2009
• Bank bosses bashed over bonuses
• Lehman’s administrators announce record year in fees
On the 15 September 2008 one of the oldest and largest investment banks died causing widespread mayhem. Almost a year later the aftershock of the Lehman Brothers collapse and near-meltdown of the entire banking system is still being felt with bankers’ huge bonuses now firmly in the firing line. At their meeting last weekend the G20 finance ministers intentionally singled out those bad bankers’ and the way they pay themselves as a primary cause for the crisis and unanimously stated something must be done about it.
While no doubt this collective statement is welcomed, particularly among the growing number of families who are now being directly affected by the worryingly high unemployment statistics, it is somewhat of a smokescreen to hide the tension and divisions which exist between different governments who, after feeling they have successfully completed ‘stage 1- crisis-control’, now need to move on and tackle the very issues which caused the problems, and that isn’t easy.
‘Banker Bashing’ is however the logical first step as we enter the ‘reform and recovery - stage 2’ era as it lets out some much needed steam and is an issue which unites rather than divides during these tough times. And let’s face it; with so many chickens coming home to roost some deserve to be roasted! A good proportion of these Arch-Capitalists seemed more then happy to run cap-in-hand to their respective governments to save their organisations with socialist style intervention when the banking balloon was about to burst safe in the knowledge that their huge bonuses were safely stashed away! That something needs to be done to curb their greed is agreed but how to implement measures which make a difference is difficult.
France’s President Sarkozy is among those calling for the toughest measures with high penalties for those traders who lose money and strict earnings caps on bonuses for bankers while the UK and America, with among the largest financial centres to protect, favour a different approach as they believe much of what is being proposed is unworkable as bankers will simply find other ways to remunerate themselves. Clearly, whatever controls are eventually implemented they must be applied evenly else its failure is guaranteed and will have done nothing to tackle the real underlying problems of the international banking system.
Interestingly, economists Andrea Beltratti and Rene Stulz recently compared banks in 20 different countries for their stock price performance before and during the financial crisis. In short, their findings where that while those banks with tougher capital standards during the good days of the housing boom experienced a more modest rate of growth in their share price they did not see their share price drop through the floor like their less restrained competitors when the crisis eventually hit. In summary, those banks which were more conservative and didn’t pander to shareholders fared best. Could such future restraint in bank shareholder dividends, stricter capital standards and lower bonuses be the eventual outcome of real reform? As Lehman’s administrator, PwC, announce a record fee year it is truly an ill wind that blows no good.