Tuesday, 21 October 2008

Lloyds staff will get their bonuses

According to the Guardian today:

"The chief executive of Lloyds TSB, one of the banks participating in the £37bn bank bail-out, has promised staff they will receive bonuses this year despite Gordon Brown's promise of a crackdown on bankers' pay following the investment by taxpayers."

There is something quite amusing about the taxpayers putting in £5.5 billion to keep Lloyds afloat, only to see it disappear a few weeks later in bonuses. However, I am beyond outrage. The world has gone mad and there isn't much we can do about it other than sit back, relax and watch the show.

Today's announcement confirmed one thing. Whatever Lloyds might call their Christmas giveaway, these payments are not performance bonuses. How could they be? Lloyds, like virtually every bank in this country, is on the verge of insolvency. The share price has gone through the floor, asset quality is deteriorating rapidly, and growth prospects are extremely dim. These are failed businesses, and if it wasn't for their essential role in the payments system, should now be in receivership.

These ridiculous bonuses conceal a deeper truth. Banks are not actually profit maximising firms run to maximise shareholder value; they are workers co-operatives. The employees have taken control of the business and rather than pay out profits as dividends, the employees conspired to suck out all the value added as bonus payments.

This credit crisis is just the terminal point in this scam. Shareholders have been the losers all along. Bank share prices have fallen, and now shareholders will see the equity further diluted as the government injects new capital. In some cases - NRK, the Bradford and Bingley, Lehmans, Freddie, Fannie and Washington Mutual - shareholders lost everything.

We shouldn't feel too sorry for these shareholders. They allowed bank employees to take over. When they handed over control, it was inevitable that banks would be run primarily in the interests of the employees, and that means paying out huge unmerited bonuses.

14 comments:

mitch said...

Will be interesting to see how much they pay out in bonuses and how brown reacts to the taxpayers "bailout" used to reward bank employees.

Josh said...

These bonuses are just outrageous.

annabel said...

I don't think Lloyds was one of the worst. I thought they were in good shape.

Anonymous said...

I think the phrase is "lie back and think of England"

Nick von Mises said...

I'd take Brown more seriously if it wasn't for his determination to reward the entire public sector every time they fail too.

MAB said...

Alice,

It's even worse when one considers that around half of bank fees are the result of inflation.

Banks place a toll on inflation, keep a piece for themselves and get out of dodge leaving everyone else holding the bag.

What a sham.

Anonymous said...

Dont' forget the boards of directors who let all of this happen. It's a farce.

Anonymous said...

anyone know if this "bailout" has actually gone ahead? Or is it like the brilliant "rescue" of HBOS by LTSB?

AndyD said...

Interesting thing is this:

If bonuses were really performance related, then you'd expect the total annual bonus bill to be a certain percent of wages or turnover, regardless of the actual direction of the market - after all, a bonus should depend on beating the market. If (to simplify) you make 20% in a market that has risen 20%, you shouldn't recieve a penny in bonus because you haven't done anything to deserve it - but if you make 5% in a market that has dropped 5%, you can at least claim to have out performed the market (either by luck or judgement). The fact that bonuses don't seem to be paid like this shows that they are not really performance related.

The really hilarious thing is the constant carping that 'If you stop the bonuses, the staff will all leave and go overseas'. These would be the same staff that have just traded the banks into insolvency by wildly mispricing credit, amongst other things. Let them go and wreck someone else's economy!

dearieme said...

I agree wholeheartedly, Alice. "..if it wasn't for their essential role in the payments system, [they] should now be in receivership": quite; but if that is the only good reason to "save" them, there must be a cheaper way. Perhaps Mr Wadsworth's?

gantlord said...

100% correct on your two points. Employees robbed the shareholders, shareholders let their greed blind them to the fact.

mitch said...

Perhaps there is room for a bank that takes no risks,just receives peoples wages and makes them available for a small fee to cover their costs no overdraft,no loans or mortgages.No chance of failure 100% safe.

John Pickworth said...

"...it was inevitable that banks would be run primarily in the interests of the employees, and that means paying out huge unmerited bonuses.

Too true.

Northern Rock staff could be in line for bonuses of up to 60% of their annual salary over the next few years

The BBC go on to say... "The Newcastle-based bank confirmed there was a company-wide incentive to reward staff if targets in paying back a £26 billion Government loan were met."

What!!

While its good news that the taxpayer's get their money back; the loan saved the bank and its worker's jobs (well most of them). Surely that is reward enough?

I'm more than a little shocked and who the hell is paying for this?

Anonymous said...

taxpayers paying for multi-million pound bonuses. We deserve everything we get....