Derivatives traders don’t have special talents that justify the bonuses that pay them as much as sporting stars, U.K. Treasury Minister Paul Myners said.
“Derivative traders are not footballers with unique talents, and should not be paid as though they are,” Myners said in London today, according to a text of a speech released by his office. “Bank owners, our pensions and savings, are possibly being shortchanged by ineffective governance and stewardship.”
Prime Minister Gordon Brown yesterday signed up to a pledge by European Union leaders to demand that the Group of 20 nations agree on binding rules backed by national sanctions to curb bank bonuses. Leaders of the top industrial and emerging nations meet next week at a summit in Pittsburgh.
Myners said institutions need to justify to shareholders and voters the rewards given to derivatives traders.
“Do these employees really have unique talents, or are they largely reliant on the banks’ capital and franchise and the banks’ knowledge, from order flow?” Myners said.
Banks risk angering voters by continuing to pay out bonuses as they tap the government for hundreds of billions of pounds in cash and implied guarantees, Myners said. The bonus system showed a clear market failure because it doesn’t reflect the $1.6 trillion lost by the industry since 2007, he said.
Myners, a former chairman of Gartmore Investment Management Ltd., also attacked bonuses as high as 10 million pounds ($16.3 million) paid to merger and acquisition professionals. These had been awarded “not always for advising on transactions which deliver all they promise,” he said.
“Why do M&A bankers get so hugely rewarded?” Myners said. “What skill do the members of this small elite community have which cannot be replicated by others? I suspect a great deal has to do with the authority of the investment bank’s brand -- which begs the question why individual bankers frequently pocket 50 percent or so of the fee charged by the bank to clients.”
Myners added some detail to proposals to prevent failed banks damaging the financial system by making lenders draw up plans for their demise. Banks would have to appoint an in-house “undertaker” to keep constantly updated unwinding plans, he said.
“These are less living wills than examples of pre- structured euthanasia,” Myners said. “Every large institution will have to have an in-house ‘undertaker’ taking custody of the process, keeping it current, fully advised of any proposed action which needs to conform,” he said.
The process may push some banks to “slim down” and “reduce complexity,” Myners said, reiterating that supervision will be “more intrusive” than before the financial crisis began more than two years ago.
He said living wills will become part of the Financial Services Authority’s framework for monitoring the health of institutions and the financial system.
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