As Britain struggles to cope with the worst flooding for years, another deluge has engulfed Barclays, where it emerged this week that bonus and compensation payments have grown even as profits have fallen.
Bankers in Britain are facing freak bonuses, with many institutions unable to resist the deluge of compensation payments in spite of the best efforts of regulators. Once modest bonus pools are now huge reservoirs of cash, bursting their banks and showering money across the financial landscape. At Barclays, shareholders have been cut off by a fast-flowing bonus pool three times larger than the dividend payout.
Parts of the system, most notably in the low-lying investment bank areas, have long been prone to bonus flooding, but the constant downpour of cash has meant rising bonus levels even when profits are down.
As the crisis has grown, ministers who had once kept a low profile have sprung into action. Many leading politicians have donned wellington boots to wade through trading floors awash with remuneration. Ministers had promised rigorous new bonus defences following the great floods of 2007 but their appetite for action waned after a few dry years. David Cameron is now convening daily cabinet emergency committee meetings and has stressed that voters must be left in no doubt how much he cares about the crisis.
Analysts say that years of high bonuses have saturated the ground and are seeping up through the floorboards of many banks. Geologists say the pressure from bonus levels is at its highest since the financial crisis and is now so great that the performance-related bonuses are rising even without the performance to which they are supposed to be related.
The effect on the landscape is visible from the air. Vast chunks of shareholder value are being eroded by the bonus surge and analysts say the commercial coastline is being changed irrevocably.
The freak bonus levels are causing embarrassment especially to the so-called “new breed” of bankers who are fighting to restore the industry’s reputation. Some, such as Antony Jenkins at Barclays, have worked hard to project a new image. He is so alive to the threat he instinctively announced he would forgo his own bonuses. However, levels are so high he is struggling to hold out. Troops from the Royal Engineers are working round the clock installing sandbags in his 30th floor office to protect him from the bonus tide.
Even so, the outlook is not good. He has already been heard talking about the retention benefits of high bonuses, saying that without them he would struggle to keep those staff who played such a key role in lowering profits. Fears are growing that he may soon have to take a large bonus just to stop himself leaving. At least he still has a chance. Over at Lloyds, engineers say it may already be too late to save chief executive António Horta-Osório from claiming his bonus.
On taking up the job, Mr Jenkins had promised to cut the percentage of revenue paid to staff from 39 to 35 per cent but, speaking on Wednesday from inside his cash-spattered office, he admitted that the ratio had in fact risen to 43 per cent. In an effort to bring the level back under control he has now pledged to pump out 12,000 jobs. About 7,000 will be removed by dredging staff from the UK operation.
Mr Jenkins also plans new defences that would defer some of the payouts but these can only hold back the tide for so long. He blamed freak conditions but also accused politicians of abandoning bankers to the floods. “There is only so much we can do by ourselves,” he lamented. “If we don’t get help to shore up our defences, these levels can only keep rising. Last year the rise in bonus payments outstripped the rise in dividend payments. I feel like there is no one we can turn to.”
Barclays is not the only bank affected. Huge swaths of the financial sector are now cut off from the wider public by rivers of unearned cash. Critics say politicians were alerted to the dangers and scale of financial climate change in 2007 but saw the floods as a black swan – a once-in-a-generation deluge.
Having initially promised heavy investment in bonus defences, they have withdrawn funding and support for regulators. Opponents say they are even resisting European moves to cap performance-related rewards. Ministers counter that, if they had not done so, the excessive bonus culture that they deplore might move offshore.