HARRY Enfield and Paul Whitehouse once produced a parody of the BBC’s Question Time. The first audience contribution was “Yeah, what about the bankers the bonuses, the bankers the bonuses, it’s disgusting”, followed by a thunderous round of applause.
This sort of sentiment, usually as clearly thought through and articulated as Enfield and Whitehouse’s version, is so commonplace that it’s brave to say anything in defence of banks. Even to point out that the financial sector annually contributes about £130 billion, of which the banks pay £20bn, to GDP, and that it employs 2.2 million people is a sure way to make yourself unpopular.
Just as well, then, that practically no one has a good word to say for the Royal Bank of Scotland. And we’re entitled to moan, since we own 73 per cent of it. That’s money we’re unlikely ever to get back, since its share price is down the stank, and things could get even worse: it’s facing a potential £9bn fine from US authorities.
RBS has had to apologise to small businesses that were forced into its Global Restructuring Group (GRG) after 2008 and has set aside £400 million to pay out in compensation.
A report by the Financial Conduct Authority – condemned as a “whitewash” by some of those making claims against the bank – nonetheless concluded that at least some small business customers had been systematically ill-treated.
At issue is whether RBS set out to wreck some firms that might otherwise have been viable in order to maximize its own profits. But, to stop kicking RBS for a moment and without prejudging any particular case, the issue illustrates a problem.
All businesses, including banks, set out to make a profit. It’s also true that commerce can make everyone engaged in it better off.
That, after all, is the point of trade and of lending – otherwise no one would do it.
But it is also true that sometimes a profit is made by competition, by taking a risk, or by determining that something is under or over-valued.
In such cases, someone may lose out. And a bank, like any business, has a duty to its shareholders to try to make a profit, even if RBS doesn’t seem to be very good at it. The reason most of us naturally take the side of the small business against the big banks isn’t just because it’s harder to think of financial services as “real” firms, as opposed to those that, say, actually make something.
It’s the bonus culture. A small business’s bonus is fairly directly linked to the profit it makes and the dividends it doles out to its shareholders.
Banks argue that bonuses are linked to performance and RBS, partly under government pressure, has in fact made big cuts to its bonus pool (from more than £900m in 2010 to £71 million last year for the investment wing).
The question remains, though, why it pays any bonuses at all, given that it has lost more than £52bn since the taxpayer bailed it out.
The other obvious question is whether, with that track record, RBS has any business deciding on the viability of the firms that are its customers.
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