A Dangerous Follow-Up Post - Obama and Bankers Bonuses

When I started this blog, I was advised that being occasionally controversial was a good idea.
So here's the thing. Today Barack Obama has launched a stinging attack on the US banking system. By the time you read this, you are bound to have heard all about it. You might not quite have managed to wade through the headlines to hear about Goldman Sachs results.

Goldman anounced it will pay $16.19bn in compensation and benefits for the whole year, up 48% from 2008. But its compensation as a percentage of net revenues was 35.8%, the lowest since it went public in 1999.

As I mentioned below, there are very few people intensive businesses which manage a salary bill which equates to that percentage of total income. Certainly not football clubs, and also not quality HR consultancies which offer value for money.

Therein lies the rub for me. I have no issue at all with bankers bonuses. In my mind they are no more controversial than Richard Branson or Anita Roddick using their intellect to build and then sell their businesses for equivalent fortunes. The days of a City job inheritance are long gone - most of our City's bankers are intelligent people with immense talent who have grafted hard to get where they are.

The issue for me is not the P&L of the investment banks, but the balance sheets. If these annual profits are generated via excessive balance sheet risk, the man in the street gets hurt. I imagine less than 1% of this country's bankers have willingly endangered the health of their organisation's balance sheet.

In my view investment bankers should be able to pay their people as much as they like as long as they can manage the downside risk. Obama is absolutely right to push for stronger regulation of the banking sector, but politicians who petition for smaller bankers' bonuses are simply pandering for cheap votes and big headlines.