Credit Suisse defends its bankers’ mid-year bonus

The bank consulted with the Financial Services Authority (FSA) over the September bonuses, although it is not clear if the Government was warned in advance.
Credit Suisse was at pains to point out that the payments are compliant with the FSA’s latest rules and include tough conditions including deferred payment and claw-back provisions.
Even so, the extra payouts, particularly at a time of concerns over a double-dip recession, are likely to reignite the row over City pay.
Politicians and regulators, who have vowed to crack-down on lavish payments by banks in the wake of the financial crisis, will be concerned that the unusual move is a prelude to another controversial bonus season.
Banks, including Credit Suisse, have largely returned to strength on the back of higher trading volumes and an increase in deals.
Last year, 26 London-based financial institutions were forced to comply with a new pay code set out by the FSA. In addition, banks were subjected to a one-off 50pc bonus tax which was introduced by Alistair Darling, the then-Chancellor.
Credit Suisse slashed its reward pool by 5pc and cut UK managing directors’ incentive awards by a further 30pc. The bank said it contributed Sfr447m (£286m) to an overall Treasury windfall of £2bn. In 2008, it paid bonuses with shares in a toxic asset fund.
The response was one of the toughest in the City – most rival banks spread the burden of the tax across the global bonus pool whereas Credit Suisse ensured that only those employees based in London were affected. Although the bank gained plaudits from politicians, the move angered its staff.
Insiders denied that the September bonus round had been planned all along in a bid to avoid paying extra taxes. However they said that key performers have sought relocation out of London while others have demanded proof that they will not be subjected to special measures this year.
The senior management decided the risk of a mass exodus to rivals was worth incurring the anger of politicians.
In a statement the bank said: “Credit Suisse is committed to remaining competitive in the United Kingdom. We are recognising the commitment of our UK leadership team with a discretionary leadership award. The award is long term in nature, deferred over three years, tied to the performance of the Bank and is subject to clawback provisions.”
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Banks can’t claim credit for this year’s profits, says S&P

S&P’s verdict follows the return to profitability earlier this month of the UK’s largest banks, which reported combined first-half profits of more than £15bn.
The report concludes that the future credit ratings of British lenders banks are likely to largely remain out of the hands of their management teams.
Economic and market developments will continue to be the biggest influence on the credit ratings of British lenders, says S&P, which warned that their future profitability remains tied to inextricably tied to the wider financial backdrop.
“We expect that economic and market developments that are largely beyond the control of banks‘ management teams will continue to disproportionately influence UK bank ratings through the remained of 2010,” the report said.
S&P’s concerns centre on UK government economic policy, which it expects to squeeze incomes, and the continued reliance of many institutions on state-guaranteed funding.
It also warned that the Independent Commission on Banking, which will report in September 2011, has “uncertain, but potentially important, implications for banking industry risk”.
Despite widespread criticism of rating agencies for failing to spot the banking system’s problems, maintaining a strong rating is vital to most financial institutions.
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HSBC nears £4bn deal for South Africa’s Nedbank

The shareholding in Nedbank was put up for sale after Old Mutual was forced into selling assets to improve its capital position following the financial crisis. The Anglo-South African insurer owns a 52pc stake in Nedbank.
Nedbank said in a statement on Monday that HSBC was an attractive international banking partner.
As well as being one of South Africa’s largest banks Nedbank also has links with banks across 30 other African countries.
To close the deal, HSBC will have to overcome serious regulatory hurdles. Movement of money and ownership of financial institutions are tightly controlled by the South African government. However, the sale represents a rare opportunity to acquire a mature and expansive presence across the Southern African continent, an area seen as key to the growth of the global financial market.
HSBC, the UK’s largest bank, already has a small presence in the South African market, something that is likely to facilitate any acquisition of a holding in Nedbank in the eyes of the South African authorities.
Nedbank this month posted flat first-half earnings and said it would struggle to meet its medium-term forecasts, hurt by its money-losing retail unit.
Standard Chartered was previously rumoured to have been interested in a deal for the South African bank.
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Lessons from history show self-regulation to be the best kind of control

Every scandal or crisis in financial markets yields a response of more bureaucratic regulation and more boxes to tick. The consequences are increased costs, poorer regulation and reduced competition.
The main focus of policy discussion is further regulation of the banking system. But, instead of binding banks up with red tape, we should encourage them to regulate their own behaviour. At the moment, self-regulation does not work because of the way the state underwrites risk in the banking system. When banks take risks, they gain from the upside but the taxpayer is often left with the costs of bail-outs when things go wrong. The focus must be to make sure banks bear the costs of the risks they underwrite.
A first step should be a risk-based deposit insurance system where banks pay premiums based on the risks they take. There should be much better mechanisms for an orderly winding up of failed banks and complex financial institutions. In addition, banks could issue debt capital which would automatically become equity capital if the institution became insolvent. If these steps were taken there could be a considerable improvement in market discipline without the need for complex regulation.
History provides grounds for optimism that deregulation could work. Before the Government regulated the banking system and underwrote deposits, banks held much more capital. They also had special mechanisms such as “double liability” for shareholders to signal to customers their conservatism. It is incentives that matter, not rules.
The EU agenda of sending regulatory tentacles farther out into the financial system in its moves to regulate hedge funds is mistaken. It is true that those banks that have deposit insurance will need some focused and coherent supervision even if the suggestions above are followed. But those banks, and other financial institutions, that do not have deposit insurance can be left alone by the regulators.
An Institute of Economic Affairs study, Does Britain Need a Financial Regulator? shows state regulation crowds out more effective self-regulation and that state regulation has now become an industry in itself.
The study focuses on investment markets and stock exchanges – but there are lessons for the banking sector too. The historical development of exchanges was remarkable. From the earliest days more than 200 years ago they developed mechanisms of self-regulation to ensure that a member’s word would really be his bond. They also evolved excellent systems for dealing with problems such as conflicts of interest. By the late 20th century there were problems which required some attention. But the advent of statutory regulation in 1986 has done more harm than good. Many of the things that are now dealt with by the EU or the Financial Services Authority can be dealt with by stock exchanges themselves.
Why did the market develop such effective self-regulatory mechanisms? As ever it is our friend “self interest” at work. While it is often said that market-generated regulation will lead to a “race to the bottom” this assertion cannot be justified. Companies want to achieve the lowest cost of capital. A company wishes to have its shares traded on an exchange so that it can raise capital cheaply – the academic evidence on this is clear. An exchange, in turn, needs investors. As such, the exchange that will get most business is not the one that regulates the least but the one that regulates the best.
Across all these fields, the message is the same. There is no point trying to avoid scandals and crises by having bureaucrats writing more and more rules. The key is a financial system where prudent behaviour runs with the grain of self interest. And we must not crowd out the private regulatory bodies that propelled the creation of sophisticated financial systems in the UK. The stock exchanges of the 19th and 20th centuries were all part of the “Big Society”. If the Government really wants the Big Society to flourish again in this sector, it needs to roll back financial regulation, not draft more of it.
Prof Philip Booth is editorial director, Institute of Economic Affairs, and professor of insurance and risk management, Cass Business School
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Cable looks to boost bank lending

26 July 2010 Last updated at 09:52 ET

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Robert Peston talks to Vince Cable about his banking reform plans

Banks are set to come under renewed pressure from the government to increase lending to small firms.
Business Secretary Vince Cable said banks had to lend to “good British companies” and measures may be needed.
He has suggested dividends and bonuses could be a target as part of a “carrot and stick” approach to boost lending.
Mr Cable has unveiled a joint consultation paper with the Treasury containing options to improve cash flow to businesses.

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EU bank stress tests looks at ’sovereign debt shock’ scenario

The results of the EU’s stress tests are due to be published tomorrow. The
authorities in several member countries have dropped heavy hints to the
markets that their banks have been given a clean bill of health.

Analysts have criticised the process, claiming that, despite the upheaval, the
stress tests have not been rigorous enough. In particular there are concerns
that the tests will not reveal the full exposure of individual banks to
Greek, Spanish and other eurozone sovereign debt.

Yesterday, the International Monetary Fund (IMF) called on the EU to make its
stress testing more transparent. The powerful fund also said that the tests
should be extended and applied to a wider range of financial institutions.

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Tripartite financial regulation was Gordon Brown’s folly

He blames the Bank for not raising rates to “lean against the wind”
of asset price inflation and to kill off the financial inbalances which led
to the crisis. He’s now worried that the Government’s proposed regime will
simply replace market failure with policy maker failure.

He’s right that the crisis has exposed policy and regulatory failure but he’s
wrong to lay the blame at the Bank’s door.

Bank rate was high, relative to other countries, for eight and a half of the
10 years prior to the crisis. The MPC’s remit is to control the CPI measure
of inflation which doesn’t include house prices. I’ve said for several years
it’s a flawed measure delivering inappropriate rates of interest for the
economy. But that’s the tool the Bank was given by Gordon Brown.

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Women stay minority in boardrooms

15 July 2010
Last updated at 11:40 ET

Women remain a minority in UK boardrooms, according to research by a recruitment company.
In the top 100 public companies, women made up 12.6% of executive directors, little changed from last year’s 12.2%.
Taking into account all 600 companies quoted on the London stock exchange, the figure falls to just 5%.
The findings, from headhunters Egon Zehnder, come as the US prepares to introduce boardroom quotas for women and ethnic minorities.
The US is finalising the Dodd-Frank Bill, a sweeping range of financial reforms that also contain a provision for firms to meet ratios on gender and race.
Section 342 of the Bill, which, if passed on Thursday, could face its final vote on Saturday, requires federal agencies involved in regulating financial institutions to set up a new Office of Minority and Women Inclusion (OMWI).
Each of those offices must try to promote “racial, ethnic and gender diversity”.
Under-represented
A UK Treasury Committee report earlier this year highlighted the lack of women in senior positions in the financial services sector.
Women make up 44% of employees in the banking, finance and insurance sector, but are significantly under-represented at senior levels throughout the financial services.
It stopped short of saying more women on boards would have lessened the impact of the finance crisis, as some of its witnesses had maintained.
But it concluded that “not wasting a large proportion of talent seems more than sufficient to conclude that increased gender diversity is desirable”.
The government this week responded to the Committee’s findings, pledging to ensure that talented women were not being denied the opportunity to contribute to business and commercial decision-making.
Quotas
The UK has so far not proposed quotas to ensure better female representation at boardroom level.
But Egon Zehnder’s managing partner in London, Andrew Roscoe, said other countries’ insistence on affirmative action could have an impact in the UK.
“There may not be enough senior women in other markets to meet quotas and the risk is that a limited pool of female talent in the UK will be targeted, making it harder to achieve a better balance in Britain’s boardrooms.”
Norway has legislation ensuring women make up at least 40% of company boards.
Egon Zehnder said that with other governments across Europe - notably in Spain, France and Germany - also looking at affirmative action to speed the pace of change.

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G20 SUMMIT: Banks told to hoard cash in case of crisis

By
James Chapman
Last updated at 12:01 PM on 28th June 2010

G20 leaders pledge to slash deficits in half by 2013 But leaders agree to ‘move at their own pace’Banks given time to prepare for new rulesWorld stocks rise on G20 agreementBanks are to be forced to save enough cash - up to £130billion - to prevent another multi-billion pound bailout by taxpayers. A deal hammered out by world leaders at the G20 summit in Canada last night will mean financial institutions being required to hold huge amounts of ‘high quality’ capital to act as a cushion against another financial crisis. The G20 communique agreed that all countries should ensure taxpayers are not stuck with the bill when banks fail - but left it up to individual countries to decide how they want to do that.
New deal: Prime Minister David Cameron with Barack Obama and George Osborne at the G20 Summit where world leaders hammered out a deal where banks will be forced to save enough cash to prevent another financial crisis
In a distinct change of tone from recent summits - and despite U.S. President Barack Obama’s concerns that cutting stimulus spending too quickly could hurt the global recovery - the G20 leaders also used their communique on Saturday to commit rich nations to cutting budget deficits in half by 2013. They also agreed to stabilize deficits by 2016. That was a big win for Britain, which has the largest budget deficit in the G-20.

With the spectre of a Greek-style tragedy hanging over their heads,
most leaders agreed on the necessity of chopping down their debt.
But there remained disagreement on how to do so, with leaders eventually agreeing that each country to move at its own pace.
BUT WILL IT ALL WORK?After spending massive amounts of money to rescue the global economy from the worst downturn in decades, the G20 have reversed course and promised to cut their deficits in half in terms of the global economy in just three years.This pledge would represent a sea change in how the world’s major economies are handling their finances.It could usher in sizeable tax increases and massive cuts in government programs.There is certainly the possibility that the Greek debt crisis has scared many nations with similarly high debt burdens into doing what they can to improve their budget outlook to avoid their own Greek-style tragedy.Greece is facing years of painful austerity measures after it was forced to accept massive bailouts from its neighbours when it could no longer meet its debt obligations.Whether leaders will have the political will to follow through on their G20 pledge remains to be seen. ‘The G-20 goals are very good, but history tells us it is very unlikely that they will be met,’ said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.
World stocks were creeping up again this morning on the news from
the summit - while banks were breathing a sigh of relief at the
flexibility they had gained in building the ‘cushion’ against another
financial crisis.
Banking executives had warned that the move will saddle them with billions more in extra costs. Chancellor George Osborne hailed the agreement to give banks a breathing space to prepare for the new rules, which will not come into force before 2012. They will be phased in in a concession to France and Germany, who fiercely resisted too stringent a measure amid concerns that their banks are more vulnerable. Britain agreed that implementing the new regime too quickly would mean choking off bank lending and risking a ‘double dip’ global recession. A delay is better than diluting the new rules to meet the original deadline, the Financial Stability Board (FSB), the body overseeing reform, said.’We’ll make sure that this new regulation and the pace of implementation is not going to cause either market disruption or hamper the recovery in any way,’ FSB Chairman Mario Draghi told reporters in Toronto.It marks a victory for intense lobbying by banks and countries such as Japan, Germany and France that say the shift to stricter rules by 2012 would have imposed huge capital-raising burdens on banks and jeopardize lending and economic recovery.Full details, including what percentage of balance sheets banks will be made to hold, will be thrashed out at the next G20 meeting in Seoul, South Korea, later this year. But world leaders have already agreed that banks should not be able to load themselves up with more debt to meet the rules. ’NEW KID ON THE BLOCK’ CAMERON’S G20 SUCCESSIt was the new Prime Minister’s first international summit - and most are calling it a victory.   David Cameron won rare public praise from Chinese President Hu Jintao, began a thawing of Britain’s frosty relations with Russia and bolstered the  ’special relationship’ with the United States - swapping beers with President Barack Obama.While some other world leaders have grown weary of the G8 and G20 carousel of meetings around the globe, an energized Mr Cameron came to Canada determined to make his mark.The agreement to commit rich nations to cutting budget deficits in half by 2013 and to stabilize deficits by 2016 was a big win for Britain, which has the largest budget deficit in the G20.Mr Cameron held several one-on-one chats with other leaders at the summit, cramming in as many bilateral meetings as possible.He held his first private meeting with Mr Obama since taking power.Despite their relationship being strained over the BP spill, they focused on similiarities in their world outlooks. he relationship between the U.S. and Britain is arguably more important today than at any other time since World War II, strengthened in recent years by their joint - and difficult - campaigns in Iraq and Afghanistan. Mr Obama and Mr Cameron extended their time together in Canada when Mr Cameron hitched a ride with Mr Obama on his helicopter between summits after his own aircraft was grounded by fog.The warmth extended to Mr Cameron’s meetings with other leaders, too.At a meeting with Russian President Dmitry Medvedev, Mr Cameron raised thorny issues such as the fatal poisoning of former Russian spy Alexander Litvinenko in London in 2006, an incident that has damaged relations between the countries. But that didn’t stop Mr Medvedev from expressing a desire to make bilateral relations ‘more productive and more intense’.Chinese President Hu Jintao, meanwhile, invited Mr Cameron to visit China on his way to the next G-20 meeting in Seoul in November, an offer the British leader readily accepted.
Instead, most of the capital will have to be held in equity  -  meaning shareholders, rather than taxpayers, will bear the brunt if there is a repeat of the banking crisis of 2007 and 2008. The summit communique said: ‘The amount of capital will be significantly higher and the quality of capital significantly improved when the new rules are fully implemented. This will enable banks to withstand, without government support, stresses of the magnitude associated with the recent financial crisis.’ The rules will be enforced by the G20’s Financial Stability Board, though potential sanctions against banks which fail to abide by them have not yet been agreed. Britain failed to persuade all other world leaders to follow its lead on a new banking levy. The coalition introduced a £2billion-a-year supertax on balance sheets in last week’s emergency Budget. France and Germany will follow our example, but other countries  -  including Canada  -  have refused. ‘Some countries are pursuing a financial levy. Other countries are pursuing different approaches,’ the summit’s communique said tersely.Any tax now introduced in Germany, France and Britain will have to be modest or else risk banks shifting operations to more tax-friendly locations. The summit concluded that the financial sector should make a ‘fair and substantial contribution’ towards fixing the economic crisis.Mr Osborne insisted that there would be no ‘flight’ of banks from the UK to other countries not imposing a bank tax as a result. ‘I am confident London remains a good place to come and do financial services,’ he said. ‘I think we have calibrated it correctly. It is not at a level that drives business abroad but it is at a level that correctly prices the support that the Government offers to banks and the implicit guarantee that we now can see exists.’ He added: ‘I think people will have seen a change of tone at the G20, as people have understood the impact of the sovereign debt crisis and the necessity of countries to prove not just to international investors but to their own domestic populations that they have got serious, credible plans to live within their means.’

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Budget 2010: Lloyds, RBS shares rise despite new bank levy

Ian Gordon, a banks analyst at BNP Paribas, in a note titled “UK Bank
Levy: Bark Worse Than Its Bite?,” said the impact would be less than
had been expected and more widely spread.

“As things turned out, for all the pre-election vitriol aimed at the UK
banking system, the impact of today’s measures appears materially lighter
than expected, especially with the burden being broadly spread,” he
argued.

In its first year the levy is forecast to bring in tax revenues of £1.15bn,
based on a 0.04pc tax on the total size of each bank’s assets.

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