Business | 2010.02.16
Not all bankers are fat cats
Most workers in the financial industry are ordinary people not getting big bonuses, says banker Arnold Philips
It\'s no secret that we bankers are not the best-loved people in Britain just now. Scan the comments on any banking-related article on the internet, and you will find us variously described as "low-life bottom feeders", "fat cats", "banksters" and "self-appointed Masters of the Universe". Calls are rife for banks to be split up, for pay to be cut, for new taxes to be levied, for jail sentences to be handed down and for bankers to be "strung up from lampposts".
Meanwhile, we are in the midst of bonus season. Today, Barclays announced record annual profits of £11.6bn for last year , which translates into a pay and bonus pot of £4.5bn. Despite unprecedented levels of public criticism, enormous corporate losses and a crippling worldwide recession, the banking industry generally is paying out billions of pounds to its employees. Apparently, the public demand for self-flagellation has been met head-on by rampant self-congratulation.
The consensus seems to be that we bankers are all 25 years old, cocky, rich and mostly foreign, and that our job is to haemorrhage money on the stock market, sell a few mortgages to unemployed people, and then fly off in private jets to make our ill-gotten gains more tax efficient. In the public imagination, we are repugnant ambassadors for the "me" generation. How, you might be wondering, do we sleep at night?
Well, the truth is this external perception of our industry is so far removed from reality, it is sometimes hard to take it seriously.
Banks are complex beasts. They employ 450,000 people in the UK alone, performing thousands of functions. Most people who sell mortgages wouldn\'t have the first idea what a mortgage-backed security (MBS) is, and nor would they need to. (If you are interested, though, it\'s just a group of mortgages that have been bundled together and sold off to investors as a package – the theory being that by bundling them up, the downside of any one borrower defaulting is diluted.)
So, the vast majority of people employed by a bank work in support functions they might equally fulfil in any other industry: sales consultants, customer services representatives, IT workers, back-office staff, project managers, admin assistants. In other words, ordinary people getting ordinary salaries for doing ordinary jobs. Most bank workers in this country earn less than £20,000 a year, so if you asked how they felt about the bonus culture in the City, their answer would probably be the same as yours: jealous.
The difference is, our view of banking as an industry is not hideously skewed by the fact that a few people within it – primarily investment bankers – get paid megabucks. We also know that in return for their huge bonuses, those investment bankers have to trade in any semblance of a life outside of work. That\'s not to say we don\'t understand the public\'s anger – indeed, many of us share it. But our anger is more focused.
For instance, we are angry at the Bank of England for continually lowering interest rates every time the property bubble looked like it might run out of steam. We are angry at US credit card and mortgage providers for encouraging predatory lending to individuals who could not repay their loans. We are angry at ratings agencies for allowing packages of these loans to be sold as supposedly low-risk, AAA-rated bonds. And, yes, we are angry at the risk management departments of our investment banking arms, who gave traders excessively cheap loans to buy derivatives of those bonds.
That is to say, we are angry at the very few individuals who are actually responsible for the mess we\'re in. At the banks and insurers that were worst hit by the crisis, this equates to probably no more than 0.1% of the workforce causing 90% of the damage, at least according to one analyst. And most of those individuals have subsequently lost their jobs, as have most of the executives who allowed that tiny minority to bring down the rest. Yet it is the other 99.9% of us who are left to deal with their legacy: open hostility from the public, the media and the government.
Of course, the industry as a whole must take responsibility for its failures, even if those failures resulted from the actions of a few. But the risk is that, in the desire for recrimination, the public and politicians lose sight of all the benefits that the financial industry indisputably provides for this country.
For instance, despite countless reports claiming that banks "robbed" the taxpayer of billions during the credit crisis and subsequent government bailout, we remain a net positive contributor to the UK tax intake. Even last year, a nadir for the industry, the financial services sector contributed 18% of UK corporation tax and 13.1% of income tax. PricewaterhouseCoopers estimates the industry as a whole paid a total tax bill of £61.4bn last year.
Compare that with the figure Alistair Darling put aside in his recent pre-budget report to cover costs relating to the bailout. His latest estimate is that the cost to the taxpayer of propping up the financial services sector will be no more than £10bn. That effectively means the industry can afford to bail itself out from the taxes it pays, and still contribute more than £50bn every year to the public purse. That\'s almost half the annual budget of the NHS.
As other industries such as manufacturing continue their steady decline, the UK financial services sector is becoming increasingly important: as a taxpayer, as an employer, as an exporter of services and an enabler for thousands of businesses operating both here and abroad.
Harsh though it may sound, the question of whether British banks need to pay large bonuses in order to remain globally competitive is actually beside the point; the important thing is to try to retain that competitiveness, whatever the cost. Without it, we risk losing the lifeblood of the British economy.
• Arnold Philips is a pseudonym
For more information, please visit
http://www.guardian.co.uk/business/2010/feb/16/not-all-bankers-fat-cats
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