United Kingdom

ALEX BRUMMER: Banks need to recognise the world has changed

As painful as it will be for investors in the banks, it is only right that dividend payouts and share buybacks are suspended in these extraordinary times. 

As the British and global economy teeter on a cliff edge, the last thing needed is for a health catastrophe to become a financial crisis. 

Safety must be paramount. If savers and pension funds are required to make an £8billion sacrifice, so should the bankers. 

Party's over: The Bank of England wants cash bonuses for senior banking staff locked down and wants to see further action over incentive plans

In his message to the lenders, the Bank of England's top regulator Sam Woods makes it clear that bank bosses must also take pain. 

The Bank wants cash bonuses for senior staff locked down and wants to see further action over incentive plans. The current crisis offers an opportunity to reset pay, not just at the banks but across the whole FTSE100 and more broadly. 

Taylor Wimpey has blazed a trail by cancelling its annual bonus in 2020 and cutting base salaries by 30 per cent until June 30. That could be extended should the lockdown continue. 

Bankers will argue they are different because there is a global market for talent. That may have been the case before Covid-19 but is untrue now when the global banking system is being kept afloat on an ocean of newly printed money from the central banks. 

The bankers are now the supplicants of taxpayers and no longer masters of the universe. 

Remuneration in the UK's boardrooms is set by a cabal of pay committees, which are too often headed by weak reeds. 

Together with the pay advisory arms of the audit firms, and in thrall to preening executives, they have been able to fix their own rewards. 

They have created a board welfare system. This consists of layers of long-term incentive schemes and a variety of privileges, ranging from chauffeur-driven cars to allowances for personal financial advice.

It is a self-perpetuating and self-enriching edifice which should be torn down. Admittedly at banks such as Barclays and HSBC there will be star investment bankers who are effectively the Lionel Messis of the trading rooms. 

But like star footballers, they need to recognise the world has changed. NatWest, where the Government controls 62.4 per cent of the shares, has no choice but to conform. 

Lloyds, Barclays and HSBC must wake up and smell the coffee. 

Paper chase 

Among the advantages of being a public company is the ability to self-help. 

During and after the financial crisis of 2008-09, much of the housebuilding industry was brought back to life through rights issues or share placings. 

Issuing paper, if investors can be persuaded to hold it, strengthens the balance sheet. In the current lockdown many quoted companies have chosen to strengthen balance sheets by cancelling, cutting or postponing dividends. 

A handful of firms have chosen to issue new shares, seeing the current economic disruption as an opportunity to improve their competitive position. 

Auto Trader is placing £195million of new equity in the market. As a quid pro quo, the board of directors have offered to forgo half their pay and executives are giving up 2020 bonuses. 

Food service concern SSP, which earns most of its money at train stations and airports, is raising £216million through a share placing at a moment when it is reporting lost income of 80-85 per cent in the UK and Europe. 

Hotel Chocolat wanted to raised £20million and found that the appetite was so strong that it raked in £22million. 

Carnival Corporation (quoted in New York and London), owner of P&O and Cunard, has a mountain to climb as future bookings drift away. 

It wants to raise $6billion to stay afloat through a combination of new bonds, bonds convertible into equity and new shares – secured against its fleet. 

Debt is favoured by finance directors in more normal times because interest rates can be charged against tax. 

In hard times equity finance – accompanied by the right boardroom forfeit – is a better way to go. 

Street smart 

Publishing is being hard hit by the virus. The financial free-sheet CityAM regrettably has abandoned street corners for online. 

So, incidentally, has Playboy in the US. Terrific then to see that grocer Sainsbury's and newsagents McColl's are coming to the rescue of The Big Issue, which is a lifeline for the homeless. 

They are to stock the paper in their stores as vendors are driven off the streets for safety reasons. Capital. 

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