When will bankers ever learn?
VIEWERS of Question Time on Thursday night were offered insights into the lives of ordinary Britons as the audience savaged MPs over salaries of £67,000 a year and second jobs.
There was the tradesman who struggles to take home £1,000 a month. Then the nurse who works all hours that God sends, earns around £20,000 a year and learns that, for her trouble, pay increases will be held to 1pc this year.
Contrast this with another worker, technically i n the employ of the Government, which owns 25pc of the company. Antonio HortaOsorio has done a terrific job at Lloyds Banking Group, which was a hopeless case when he took over from Eric Daniels in 2011.
The bank’s pay report, j ust released, shows that in a period – as Labour likes to remind us – that living standards fell by £1,600 for the average household, HortaOsorio managed to accumulate pay, shares and two pension pots worth an astounding £11.5m.
But the £130m that the Treasury will receive from the dividend is dwarfed by staff bonuses of £370m.
Some investors in Lloyds (that include this writer) might possibly consider Horta-Osorio’s package a price worth paying. After the fallow years, Lloyds is fully back in the land of the living.
Underlying profits are up 26pc at £7.8bn, even after some heavy write-downs, with payment protection insurance (PPI) compensation leading the way. Actual profits came in at £1.8bn. The long legacy of PPI has so far cost shareholders £12bn and is still rising.
Horta- Osorio has done some good stuff making the bank far safer by cleaning up the balance sheet, and is now able to offer a modest dividend. But it would be pitiful if Lloyds –with its enormous 23pc of the mortgage market, scale in current accounts and healthy small business franchise – couldn’t turn a decent profit.
The next frontier for the bank is to ‘digitalise’ the enterprise with relatively modest branch closures. So what happens to the Government stake?
Under the current scheme, Morgan Stanley share sales in the wholesale market continue, with the possible disposal of another 1pc by the end of March raising around £500m for the taxpayer. The Government stake should fall to around 20pc by the end of June.
Depending on the General Election outcome and the new Government, the bank could then potentially do a public offer for part or all of the remaining stake.
A possible hitch in proceedings is Labour’s plans for the banks.
It has talked about a review that caps market shares, a more intrusive bonus tax and perhaps carving up banks into regional entities.
Some City sages see the Ed Miliband approach as an existential threat to the banking system. But there is some wisdom in what the Labour leader says. It is his inter- ventionist solutions, as always, that are wholly wrong. As a result of the Gordon Brown- sponsored Lloyds-HBOS merger, Lloyds does have the power to stifle competition in key sectors of the market.
Horta- Osorio is vowing not to cash in his shares while a substantial taxpayer stake remains in place at Lloyds. A worthy pledge, but it does nothing to address the myth built by bankers that they are special and deserve to make their own rules.
HSBC’s Stuart Gulliver felt it was fine to be paid in Panama and HortaOsorio is accumulating wealth while he can. Nevertheless, one suspects the Lloyds chief will not hesitate to cash-in some of his shares and options should Miliband march up to Downing Street.
Looking back
AT LEAST Lloyds and the other major UK banks do not seek to retrospectively adjust already announced profits.
This week saw investment bankers Morgan Stanley agree to pay a $2.7bn (£1.4bn) penalty for its subprime mortgage sales and then charge it against already declared 2014 earnings.
As a result, the profits for last year were almost halved, and hit- ting growth targets for future years suddenly became easier.
Funny money or what? LIBERAL prime minister Lloyd George was the father of Britain’s state pension system and his ideas were taken to a new l evel by Labour’s ‘from cradle to grave’ 1945 government.
In the decades that have followed, successive governments eased the burden on the state system by offering generous tax breaks for private pension savings.
Gordon Brown and Ed Balls began the process of dismantling that consensus when they took an axe to tax relief on dividends paid to company pension funds in 1997.
The current Labour leadership seems to view the annual tax relief on private pensions savings, which costs £34.8bn, as a pot of money that can be raided for its pet projects.
The latest favourite is to bring down the cost of university tuition fees. That is all fine and dandy, but in the end it is the same students who will suffer when they get to the end of their working lives only to find the savings are not there to support retirement and the burden falls back on the state.
Bonkers.
Raiding pensions