Ben Oostdam story # 561

THE WORLD AFTER 2020 -
BANKING ON A BONUS

by Brian Paxton, Managing Director MBendi Information Services


There's been so much in the press lately about reckless bankers being rewarded with
astronomical bonuses for bringing the world economy to its knees that it's been
hard to ignore. To add insult to injury - and contribute to the depletion of the
world's forests - one of the big five banks had the hubris to take a large advert
in a major international newspaper last week to list 164 new "managing directors"
who will no doubt form part of its bonus pool (there was a time when managing
directors ran whole companies and all directors had a whole raft of legal duties
but this seems not to be the case in banking) while another ran a bizarre three
page ad of cartoon characters (not members of the bonus pool, I sincerely hope).
However, what does seem to get overlooked in all of this are the huge profits banks
are making which give rise to the inflated bonus pools in the first place.
Just looking at the ever-rising bank charges on my bank statement each month,
I can see one certain source of the profits. One would have thought that with the
advent of ATMs and the outsourcing of data entry tasks to customers with Internet
access, the costs should be going down, not up, but somehow not.
Of course, the banks are usually able to hide behind the high barriers to entry,
specially legislative ones, for new, low cost competitors.
If you've ever try to escape your local banks' vicegrip by opening a bank account
in another country with lower bank charges, you immediately find yourself
confronted with all manner of bureaucracy and red tape which is meant to prevent
money laundering but is no challenge at all to Africa's kleptocrats, for instance,
whose booty is welcomed with open arms by first world banks. You just have to watch
Nigeria's attempts to claw back the billions looted away by the Abacha family to
see how easy it is if you have the means. And then to see how easy it is if you
have the means. And then there are all those football clubs, prestige properties
and luxury yachts purchased with money - funnelled by the banks for a tidy fee
of course - from dubious sources. But bank charges, though mighty important to us ordinary folk, are small beer
to the banks and they could easily waive them altogether in view of the size
of their other revenue sources.
In my last newsletter, I mentioned my mother-in-law's query about why
her favourite chocolate company was being taken over by a mere mayonnaise maker.
if your memory harks back long enough, you will recall that Cadburys bought Fry
to become Cadbury Fry and then bought Schweppes to become Cadbury Schweppes and
then sold Schweppes to become plain old Cadburys again and now Kraft is selling
a pizza company in order to buy Cadburys.
Meanwhile, in another industry where you could once also get any colour of product
you liked as long as it was black, GM and Ford led the charge in buying up all
those old familiar car manufacturers - Volvo, Saab, Opel, Vauxhall, Rover, Austin,
Morris and a host more - and now they are disgorging them all as fast as they can.
There seems to be a constant cycle in all industries, not just confectionary
and autos, of companies growing by acquisition then suddenly finding they have
too many "non-core" assets which have to be sold immediately.
At their side, advising them as they buy, advising them again as they sell,
is their trusty coterie of banking "advisers" - the fees the banks earn from
this activity make bank charges pale into total insignificance.
Also part of this game are the hedge funds and activist investors,
often Trojan bankers in sheep's clothing, who gain handsomely from each premium
paid for a takeover target. Along with my mother-in-law I just wish that the management of food companies
would concentrate on producing safe, healthy, tasty products at low cost and that
automobile manufacturing executives had focused on producing low-cost, safe,
fuel efficient, non-polluting cars instead of finding ways to funnel disproportionate
amounts of cash to the bankers rather than their supposedly important stakeholders -
customers, employees and shareholders, specially the pension funds trying
desperately to put aside enough to fund our ever-longer lives.
And wouldn't it be nice if bankers were again respected members of the community,
providing an excellent service at minimum cost and earning a normal salary just
like the rest of us? That way too, there would be much less temptation for the
talented brains of this world to be sucked into the banking vortex instead of
making a real contribution to society by researching and teaching, designing and
building the ideal world of the 2000's.
If this editorial stimulates your thinking about where the world is headed,
then you will definitely be interested in our
MBendi Blog - Signposts to 2020 and World Outlook.


Some relevant links:
Our Bosses Got How Much?
Feb.5, 2010: Chase Bonus - Wall Street Bonuses for Haiti - 10 Biggest CEO Paychecks
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