By Ian Fraser
I was happily reading my Sunday Telegraph business section at the weekend, when a particular quote jumped out at me. A City investment analyst was not only pouring scorn on Bob Diamond's excessive pay and bonuses; but accusing the boards of all UK banks of being wholly detached from reality where pay were concerned.
The piece, by James Quinn, is a hugely refreshing read. The heretical analyst, Bruce Packard, of stockbrokers Seymour Pierce, told the Telegraph:
"Bob Diamond by himself is irrelevant to the impact of the profit and loss account. But the fact that the share price is down 70% in the past 10 years, and bankers still believe they're incredibly talented and need to be rewarded with all sorts of special bonus plans is just laughable."
Packard was also quoted as saying that the arcane way in which Diamond's compensation was presented in the Barclays 2011 annual report, was a further negative. He said there remains a "complete lack of humility" among the management of all UK banks when it comes to how much they pay themselves.
The episode suggests that, more than four years on from the start of the crisis, we are finally witnessing some sort of sea change in City attitudes towards banker compensation (or what Andrew Smithers, founder and chairman of Smithers & Co rightly calls "rent gouging" by bank executives).
I am not sure if it was linked to the generous corporate hospitality or inherent conflicts of interest, but until quite recently it just wasn't done for a City analyst to question a bank chief executive's pay.
Investment analysts tended to subscribe to the absurd fairy tale promulgated by the likes of outgoing BBA chief executive Angela Knight that there is an "international market for talent" - that top bankers will up sticks and go and work for banks abroad unless they're paid multiple millions. (Wall Street analyst Mike Mayo was one of the few who saw through this charade years ago).
Packard may have been emboldened by the shareholder rebellion that is brewing over the 'rewards for failure' at Barclays, which has been gaining traction in the run up to the bank's April 27 annual general meeting. There are near daily reports in the British press about 'rebel' investors such as Standard Life, Fidelity, Aviva and SWIP threatening to vote against the bank's remuneration report at the forthcoming meeting.
Investors' fury with Barclays (NYSE:BCS) intensified when it emerged that the bank last year sneakily paid £5.7m to cover Diamond's tax bill, without consulting them. They are also furious that, far from being a one off, as the London-based bank initially claimed, the "tax equalisation" payment is an ongoing cost (it relates to the relocation of Diamond from the US to the UK and the fact he is a US citizen). The annual cost will reportedly be at least £600,000.
Investors and City watchers are also increasingly concerned about the brazen hypocrisy of Barclays.
Diamond last year took to preaching about "citizenship" - and the bank devoted pages 18-19 of its 2011 annual report to talk about "citizenship" and the bank's positive impact on the UK economy (The buzzword appears no less than 60 times in the annual report).
Yet by its own actions the bank has revealed itself to be an atrocious citizen. For a start, the bank effectively sought to defraud the UK government out of £500m through what H.M. Revenue & Customs described as "highly abusive" tax avoidance schemes. The bank continues to abuse offshore tax vehicles despite the admission that in 2009 it paid just £113m of UK corporation tax and is considered by PIRC to have vastly inflated its report profitability through deceptive accounting.
It had a lead role in the racket that was the payment protection insurance market, and its role in the interest-rate swaps mis-selling scandal, another egregious swindle which is putting thousands of small and medium-sized UK firms out of business is disturbing to say the least.
Together with the fact that the banks' shares have shed 70% of their value in a decade and are currently trade at half their book value, these failures makes one wonder whether Diamond deserves any pay at all.
In a separate article the Telegraph's Nathalie Thomas reported that Barclays' chairman Marcus Agius was "taken aback by the strength of the backlash" against Diamond's unwarranted pay. Crikey, the ex-Lazard investment banker, who is paid £750,000 a year for his non-executive role at Barclays, must lead a cloistered existence!