Our media loves to build people up, because the higher they are, the harder they fall. The last few months have been fairly grim for bankers: not only have their jobs become infinitely harder, but they have also been pilloried as greedy fat cats.
The current favourites for banker bashing seem to be Andy Hornby of HBoS and Fred Goodwin of RBS. Both banks look likely to be part nationalised and both bosses have offered to resign without receiving any of the severance packages which their contracts specify. Both have been portrayed as excessive risk takers, whose greed has brought their respective organisations to their knees.
Much has been made of Andy’s £940,000 salary, mostly derogatory. How on earth can anyone be worth that much? While I could not find the precise figures, I would hazard a guess that this would be pretty much the average figure for a FTSE100 CEO salary. HBoS was 45th on the 2008 Fortune 500 Global Company ranking and has about 65,000 employees. So you would expect its boss to be paid a ‘reasonable’ amount. There are plenty of people who earn bigger salaries. Let’s face it, Cristiano Ronaldo and John Terry get paid that much for less than two months work. It is probably slightly above the average salary for a premiership football player, whose only responsibility each week is to kick a ball.
Another criticism of Andy is that he is not a career banker, he was working for Asda when he was headhunted by James Crosby. So how on earth could a ‘retailer’ be expected to run a bank? Little is made of the fact that Andy studied for an MBA at Harvard Business School, which is probably the toughest business school to get in to; the business equivalent of Oxford or Cambridge. Not only did Andy complete his MBA, he was top of his year out of 800 people. Imagine a version of the TV series The Apprentice, where rather than choosing oddballs who make great TV, they choose the 800 cleverest and most ambitious people who applied from around the world. After two years of hard graft, Andy was top out of all of them. I am sure that a large number of Andy’s year are now earning more than him running companies around the world. I remember doing a mortgage for a young Goldman Sachs banker 10 years ago who had a Harvard MBA, and a couple of years ago I saw that he had been made a partner there, so he probably earns 10 times what Andy earned last year. To put Andy’s income into perspective, Dick Fuld, former CEO and Chairman of Lehman Brothers admitted recent to having been paid about $350m since 2008.
The bankers are accused of being reckless and greedy. What their detractors tend to forget is that the banks (like other listed companies) have people called shareholders, who expect their shares to go up and some dividends each year. So the people running the banks need to lend money to people, and this is risky, as some people do not pay this money back. Old fashioned banking, running current accounts, is not profitable on its own, so banks need to earn money in other ways.
The press seem to think that the bank bosses ran the banks in the way which suited their bonuses best rather than their shareholders. CEO bonuses and targets are set by independent remuneration committees, whose job it is make sure the boss’ goals are aligned with the company ones.
One bank is currently held up as a shining beacon of fiscal responsibility: HSBC. It has built a vast global business network, which has helped it diversify away from being dependent on any one particular country or continent. However, only last year, HSBC faced a lot of criticism from an activist shareholder called Knight Vinke. Knight was arguing that HSBC had allegedly delivered poor shareholder returns and failed to build an investment banking division. Well to be honest, compared with the rest of banking, HSBC seems to be doing pretty well now. Our bankers have clearly made some decisions that they will regret for the rest of their lives, but they made those decisions for the right reasons. They built shareholder value over a long period and they were rewarded well for it. No one could have predicted this financial apocalypse and treating our bankers like pariahs seems short-sighted. n
Jonathan Cornell is managing director of Hamptons International Mortgages
