Kathy Sheridan: Why the banking inquiry needs the truth about bankers’ bonuses
‘The Davos summit will welcome back many of the same movers and shakers whose reckless exuberance virtually destroyed lives and economies across the globe’
‘For most people a bonus is the peacetime equivalent of a war medal – a hard-earned reward for striving in exceptionally challenging circumstances.’ Photograph: Bryan O’Brien
At a High Court hearing in June 2008, for the second time that year, Mr Justice Richard Johnson was asking for details of bonuses given to bank and building society officials who had sanctioned loans worth tens of millions to former solicitor Michael Lynn. His curiosity, he said, was “increasing day by day”. Lynn had gone missing along with any proposals to repay about €80 million in mortgages, involving at least 11 financial institutions which had advanced loans on what transpired, embarrassingly, to be double and triple undertakings allegedly from Lynn.
The judge’s third time of asking was in October 2008. He wanted details of the bonuses, he repeated, and he also wanted to know who had authorised the loans to Lynn and disgraced solicitor, Thomas Byrne, who owed about €120 million between them. He asked that the banks should “kindly take note” of his request.
His fourth time of asking was in February 2009.
This time, a bank representative responded, saying the bank believed there were “legal and commercial difficulties” in providing the information. The judge said he hadn’t expected otherwise: “I take it the reasons were that revealing the truth can be very often difficult and embarrassing for bankers.” The bank’s man responded that he thought it had to do with data protection. “The devil can quote scripture for his own purposes,” replied the judge.
He retired in 2009 but at the time of his four requests, Richard Johnson was president of the High Court. If he failed to shake such basic information out of the banks, what chance has the banking inquiry?
Six years on, the banks’ oft-declared humility is being put to the test. The covered banks have been asked for details of bank officials who were paid the highest bank bonuses during the bubble. According to documents seen by the Sunday Business Post, AIB, the State-owned bank, has responded by saying that might include individuals who were outside its terms of reference. It might. So perhaps it’s just a matter of rephrasing the request then? Or perhaps the industry that turned a positive word, “bonus”, into a profanity, still doesn’t get it.
For most people a bonus is the peacetime equivalent of a war medal – a hard-earned reward for striving in exceptionally challenging circumstances. Such as an emergency department nurse or junior doctor, say, might earn. In banking terms, a bonus means doing deals that help to push bank profits beyond normal projections – which, in layman’s terms, means riches beyond the dreams of avarice. In 2006, David Drumm for example, held share options worth €19 million.
How such bonus schemes were constructed and pursued is utterly germane to any anatomy of the crash. The notion that any bank – still less a State-owned one – might even quibble about handing over this information is unconscionable. The committee is already hobbled by myriad terms and conditions. The prospect of legalistic arguments, stonewalling and flounces to the courts on such an issue is unbearable.
In Fiona Muldoon’s famous dressing down of the bankers in October 2012, the then director of the Central Bank told them they lacked humility, behaved like adolescents towards the regulator, and – even still, in 2012 – lacked the culture of leadership that was missing in the credit bubble.
Last May, Christine Lagarde told a London conference that the behaviour of the financial sector hadn’t changed fundamentally since the crisis. “. . .The industry still prizes short-term profit over long-term prudence, today’s bonus over tomorrow’s relationship.”
Today, the Davos summit will welcome back many of the same movers and shakers whose reckless exuberance virtually destroyed lives and economies across the globe, in a week when an Oxfam statistic suggests that 80 people own as much wealth as half the world’s poorest. No doubt, there will be the usual pleas for everyone to move on. It’s four years after all since Jamie Dimon, chief executive of JPMorgan Chase complained, “I just think this constant refrain ‘bankers, bankers, bankers’ – it’s just a really unproductive and unfair way of treating people. And I just think people should just stop doing that”. That’s the same Jamie Dimon whose 2013 salary of $1.5 million was boosted with a bonus of $18.5 million in restricted stock options (up from $10 million the year before) – even as the bank’s profits fell, owing to the small matter of about $18 billion in fines for various transgressions such as mis-selling securities and manipulating key interest rates. The same Dimon who told an interviewer last week : “JPMorgan is the best thing I can do for country and humanity”.
Dimon is a superstar of the financial services industry, a role model for many, to whom this gargantuan ego and scheme of reward make perfect sense.
The “compensation” package for the new chief executive of AIB will make interesting reading.