September 10, 2009
Top bankers defended their culture of bonuses yesterday against an onslaught of regulation that aims to put them on a tighter leash.
"We're against absolute caps on compensation levels," Morgan Stanley Co-President Walid Chammah told the annual Banks in Transition conference in Germany's financial capital, a two-day meeting of the banking world's elite.
Deutsche Bank AG Chief Executive Josef Ackermann chimed in that banks could not let star staff slip through their fingers by being tight fisted.
"The war for talent is in full swing," he said. "The question of whether we have learned something focuses too much on the question of bonuses and leaves out other aspects."
Their comments mark the investment bank industry's defence against those keen to crimp eye-popping payouts that critics say led to excessive risk-taking and pushed the financial system to the edge of the abyss.
The Frankfurt event comes on the eve of the anniversary of investment bank Lehman Brothers' collapse, a watershed in the financial crisis as investors realised with horror, and at times panic, that even leading institutions were not too big to fail.
Banks are feeling the heat as regulators, central banks and national governments take measures to try to ensure freewheeling banks do not again become loose cannons in the economy.
Central bankers on Sunday proposed a new regulatory framework that would force banks to set aside more profits as a cushion against hard times.
Some finance ministers from the Group of 20 countries also want to explore ways to rein in bonuses.
Superstar bonuses
Although regulators and politicians broadly agree that risk-hungry behaviour by highly paid bankers was one of the main causes of the financial crisis, they have struggled to agree on how to regulate or cap bonuses.
"Superstars are going to get superstar bonuses. That is not going to change," one London-based banker said, citing the multi-million-dollar guaranteed bonuses that banks still dangle to keep top dealmakers or lure them away from rivals.
Assurances about cutting bonuses have followed separate moves by banks such as Morgan Stanley, UBS AG and Citigroup Inc to hike basic salaries as a way to keep remuneration high, even at banks which accepted bailout money.
Top bankers in Frankfurt pleaded for a prudent approach to rule-making. Asked whether he felt pressure to change his bank's business model, Morgan Stanley's Chammah said: "Not really ... We'll continue to do what we do well."
Chammah and others opposed efforts to scale back sprawling global banks.
HSBC Holdings Plc Chairman Stephen Green said the term "too big to fail" was unhelpful because small banks also went under.
He said the lesson from Lehman's demise was instead that corporate structures need to be simpler so regulators can understand better which parts they need to monitor.
Deutsche Bank's Ackermann said there was no clear link or pattern between a good or bad bank based on their business model or the size of bonuses they awarded.
Lloyds Banking Group Plc and Banco Santander SA were both retail banks but enjoyed somewhat different fortunes, while investment bank Goldman Sachs Group Inc thrived even as Lehman folded its tent, he noted.
The Swiss executive atop Germany's flagship lender warned that regulators could choke off an economic rebound if they made overly restrictive rules.
"It is important that, before we take a detailed look (at capital requirements), we do a cost-benefit analysis for the economy. The consequences for credit availability and the price of credit need to be considered," he said.
But he acknowledged the banking industry did not have enough capital. "And I deem it right that this has to be corrected."