Tim Wise of JP Morgan is made of stout moral stuff. When advising the Co-op Group on its ill-fated transaction with Britannia Building Society in 2009, his judgments were not swayed one iota by the knowledge that a £5m fee for his employer would only be paid if the deal actually happened.
"I have complete confidence in my own integrity and impartiality of advice," Wise told MPs on Tuesday.
Jolly good. And – to be clear – there is no reason to doubt Wise's assertion. The deal turned out appallingly for the Co-op after huge impairments appeared in Britannia's corporate loan book, but the Treasury select committee struggled to unearth any holes in the thoroughness of JP Morgan's analysis at the time. Wise gave a reasonable account of the stress-testing work.
All the same, such a lopsided deal structure – £2m at the time of announcement, then £5m at completion – looks plain bizarre. Yes, investment banking advisers have always operated that way. But why? And is it sensible?
Wise suggested most clients, although not all, choose to incorporate completion fees. And, while he hesitated to say the structure was perfect in all respects, he thought a model that gave advisers "some participation in longer-term outcomes" could end up paying people "ridiculously large amounts for things that had nothing to do with them".
Well, OK. But appearances matter here, and shareholders and stakeholders outside boardrooms may not be persuaded that all investment bankers are as pure in heart as Wise and his colleagues when £5m is up for grabs.
As the committee chairman, Andrew Tyrie, put it dryly: "A fee structure for the provision of independent advice that heavily incentivises one outcome over others strikes me as inherently problematic." Quite.
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