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Monday, October 26, 2009

Banking Bonuses

The Conservative Shadow Chancellor, George Osborne, is calling on the government and the Financial Services Authority to ban large cash bonuses for retail bankers; he wants cash bonuses capped at £2K, with the rest of the bonus paid in the form of shares.

The theory being that the £20BN saved could be lent to consumers and businesses.

Fat chance!

Osborne laid out his views at a Reuters, in Canary Wharf.

The cap would only apply to High Street retail banks, and the investment arms of banks that also lend to consumers.

All very well.

However, the dilution of shareholdings (as a result of the issuance of new shares in lieu of bonuses) will not necessarily please the shareholders.

I would also remind the Tories that one of the route causes of well publicised spectacular frauds, such as Enron, was rewarding executives with shares in the company. This provided them with a massive incentive to talk/manipulate the performance of the company up, in order to increase the value of their shares.

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