Mark Carney is right: in the great quest to improve bankers’ behaviour and stop the scandals, large fines for banks are not achieving much. He’s also correct when he says it’s not a case of a few rotten apples. We’ve had PPI, Libor, forex and all the rest. The problem is probably the barrels.
The Bank of England governor’s latest idea to improve matters is borrowed from Bill Dudley, president of the New York Federal Reserve. The proposal is to put a portion of bankers’ salaries, not just their bonuses, at risk. Some staff would receive “performance bonds” in place of part of their salaries. These would pay out over time if all went swimmingly but could be surrendered if misconduct were revealed later. Carney called it “a potentially elegant solution”.
By that, he means it is a logical response to the EU’s inelegant (and financially illiterate) bonus cap, which has made a bad situation worse. Banks, entirely predictably, have responded by cranking up salaries, thereby reducing the scope for cash to be clawed back.
“Performance bonds” would add to the complexity in senior bankers’ pay arrangements. The senior folk already have salaries, bonuses and now “allowances” – and that’s before one counts the long-term share-based carrots. But the principle is sound. If the EU – ridiculously – is shoving up salaries, intelligent regulators should row in the opposite direction by ensuring more pay can be retrieved when scandal strikes.
Carney should ignore the inevitable squeals from banks that seven- and 10-year deferral periods already make it hard to recruit staff. The succession of scandals has demonstrated that it can take that long for regulators to uncover wrongdoing. There is nothing wrong with making a few highly paid bankers wait for their rewards.
Carney is on to something. If the design is robust, “performance bonds” could be a small advance in accountability.
Aim’s silly convention
There goes another 19% from Quindell’s share price. This is the outfit listed on the Alternative Investment Market (Aim), which wants to “revolutionise the insurance industry” but is instead providing a hard lesson in investing for its legion of small shareholders. Since April the stock has crashed from 660p to 55p.
The latest development at least provides an excuse for regulators to take a look. It turns out that Canaccord Genuity, Quindell’s joint broker, gave notice of its resignation on 21 October. Quindell sat on the news until yesterday because the convention on Aim, apparently, is to delay announcement until a resignation is effective.
The convention is silly. Aim is at the less regulated end of the London market, thus the unexplained resignation of a City broker can be a major event. The convention may still be viewed as harmless if nothing of significance happens between the receipt of a broker’s resignation and its announcement. The problem at Quindell is that interesting announcements come thick and fast.
For example, on 5 November – two weeks after Canaccord Genuity’s letter of resignation – Quindell’s chairman, Rob Terry, and two colleagues sold £9m of the company’s shares via a “share and repurchase” deal with an outside financing house called Equities First. Only some of the planned repurchases have been completed and accurate details about the arrangement with Equities First were conveyed by Quindell only at the second attempt.
Were those share deals legitimate given that other shareholders had yet to be told that Canaccord had quit? Answers, please, London Stock Exchange – and quickly.
Serco chief had to go
Alastair Lyons’ resignation as chairman of Serco was inevitable after the company’s confession last week to “strategic and operational mis-steps”. Lyons was chairman from 2010 so, as he says, “ultimate responsibility” lies at his door.
If we’re being generous, Lyons made a decent start in mopping up the mess. Unlike G4S’s bosses, who appeared initially to resent government scrutiny, the board at Serco understood immediately the company didn’t have a future unless it could repair relations with its biggest customer. Lyons dispatched its chief executive, Christopher Hyman, and found a good replacement in Rupert Soames.
Hyman deserves the bulk of the criticism. He was the mastermind behind Serco’s over-expansion and it was his boasts about Serco’s ethical superiority that were shown to be self-satisfied guff. But the first task of a chairman is to save the company from such nonsense. When the share price is down by two-thirds in 18 months, the only way is out.
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