John Ward banking exposure

Bank error in your favour?

I think not.

Earlier in the week, I posted about bankers doing a runner from US Treasury bills. As the week goes on, everything seems to be more and more about banks – past mistakes, current truculence and future plans. But then, it’s all been about banks really for at least twenty years. (In case you hadn’t spotted it, this is where it all went wrong – but not for them: bank error is never in your favour).

George Osborne is going to tell his Mansion House audience this evening that investment banks will never again be assessed for street repairs: he wants the retail arms to be ‘ringfenced’. I know you may find this far-fetched, but I’m told by a reliable witness that he has no idea how to do that. Neither do I, and even if I did – it won’t work, because bankers will find a way round it. Just like Murdoch has with the news/entertainment Newscorp split scam. Bankers will always find a way round regulation.

Northern Rock, it seems, is to be privatised. Well it’s not, actually: the greedy folks will get to invest in the safe bit where all the savings of innocent customers are. We the taxpayers will still get to keep the bad bits where all the isotopic loans lurk, humming away nicely in the dark. Further down the road, somebody will buy Northern Rock, the shareholders will all Pass Go, and we will watch as our bit goes from costing £90 billion to rather a lot more.

Europe’s central bankers, meanwhile, are terrified by Merkel’s €20bn Get out of Jail Free card for Greece. They’re terrified because Greece is going to default anyway – the equivalent for them of landing on Mayfair with two hotels. I’m terrified because I’ve no idea how this is going to work when Ireland, Portugal and Spain need the same thing. Two credit managers I spoke to late yesterday simply sighed a lot. They’ve known for months this was going to happen.

Bank chiefs’ average pay in the US and Europe soared by 36% during 2010. According to the FT, two of the industry’s biggest names – Jamie Dimon at JP Morgan Chase, and Lloyd Blankfein at Goldman Sachs – were paid more than 15 times their 2009 earnings.
In his Mansion House address, Osborne will suggest that banks should hold more capital to protect themselves against future losses than the new international minimum of 7%. He’s thinking maybe, oh you know, 10%. It’s nowhere near enough, but again – it doesn’t matter: the banks will simply say ‘no’, there’ll be another U-turn and….probably around that time Crash2 will be upon us anyway, so all it’ll all be irrelevant anyway.
Just for interest’s sake, I’ll tell you briefly what I’d do. I’d force the banks to sell their retail arms, mutualise those arms, and then tell the Bob Diamonds of this world, “You’re on your own, junior: no more money, come what may”.
I’d let the ClubMeds leave the EU and readopt their own currencies. These would immediately fall in value, and they could both default and rebuild.
I’d remutualise Northern Rock as a building society and small business loans niche specialist. And tell its creditors, “50% on the Dollar, take it or leave it”.
And I’d say to Mr Bankfine and his chums, “Pay yourselves what the Hell you like – I don’t care, just so long as you realise there’s going to be 50% straight tax on M&A business you handle, and a 100% tax on everything you do until we see at least 40% of your loan monies supporting smaller, growing businesses. And a 25% liquidity rule, starting next week.”
This would sort of be the equivalent of “Go to Jail, go directly to Jail, do not pass Go, do not collect £200”.
That’s what I’d do. But then, I’m a radical realist. Aren’t you glad I don’t have any power?