Barclays shares drop like a stone after shock news

block10

At Goldman, compensation for 2013 fell by 2.6%. Its difficult to understand why Barclays would be increasing comp to attract/retain a far inferior talent pool.

rpc

Glen_Clark wrote: »

What got me most of all was on the BBC news today a banker saying we have to reward the risk takers:mad: Whose money are they risking!!!!!!!!

And where do they suffer the downside of the risk?

Rewarding risk takers when it pays off, because they get flogged when it doesn't is one thing. Rewarding them just because is... well...umm...

bowlhead99

talexuser wrote: »

Pretty strange to talk of "talent" responsible for decrease in profits.

There are lots of arguments and populist opinions trotted out in the media and down the pub every time a business dares to pay bonuses without growing profits.

The criticism usually goes, well this is outrageous I would happily lose you a billion or so if you'll pay me half a million pound salary and a million quid bonus to do it hahaha.

However if you or I were put in charge of an investment banking division which at the beginning of the year had a particular set of assets and liabilities and strategies and financial contracts and customer and supplier relationships and thousands of staff, we might indeed only lose a billion if we were lucky but perhaps could potentially lose 20 billion and bring our department or our company to its knees.

So, if the staff to whom they paid part contractual, part discretionary bonuses have outperformed the man on the street by 19 billion, there are no doubt some of them you would want to retain. And having failed to lose 20 billion, you would have some money in the budget with which to compensate them.

And being conscious of the current market conditions - equity markets up significantly since last year, and massively since 2008/9 - it can't be a ridiculous notion that an investment bank has increased its bonus pool by 10% this year. Otherwise the egotistical traders and salesmen and consultants hearing that some in the industry are making more than them, are going to walk to the other side. A proportion of them would really not be missed. But some of them would and so the bank ends up overcompensating them for fear of losing the good ones and to attract the good ones from elsewhere.

Aside from the argument about losing money for shareholders while taking bonuses, the other argument you see in the tabloids and spouted by the unions is that they are increasing bonuses by 10% while simultaneously culling thousands of jobs held by honest grafters. The fact is, as in many industries, these thousands of jobs are quite literally, redundant.

The world banks online. With an IT infrastructure and a team of support staff you can get rid of a lot of front line staff. They need fewer people stuffing envelopes with paper because statements are paperless. They need fewer people answering the phone because everyone can check their own accounts and instigate payments electronically in fractions of a second without anyone looking up your paper file and running a signature check. They can electronically read scanned and emailed cheques without you walking in and dropping it into a box and someone riffling through them.

Sure, anyone can play devils advocate and bring up well-publicised security breaches and the fact that their debit card stopped working for a couple of hours one weekend and their mortgage rate and Barclaycard bill somehow went up because the Libor rate was massaged down, however that might work.

But banking was not all better when the skyscrapers were all fields, and the kids could play in the street with jumpers for goalposts. The thousands of people losing their jobs are reflective of a changing world and if you save 10,000 annuity payments to staff you don't need by paying a one time severance, perhaps the shareholders won't begrudge a little bonus here and there

block10 wrote: »

At Goldman, compensation for 2013 fell by 2.6%. Its difficult to understand why Barclays would be increasing comp to attract/retain a far inferior talent pool.

Goldman's financials, in common with most banks and investment houses, are hardly transparent. As a consequence people inside and outside the industry will read whatever into them that they want to read. The 2.6% isn't a median pay figure - they don't publish it. Any simple average is skewed by outliers. And their total compensation and benefits for Q4 2013 might have been a drop from Q3 but it's more than 10% higher than for Q4 2012.

And should you be surprised that Goldman's comp fell given the revenue slowdown in its fixed income (bond/mortgage trading), currency and commodities division? Something like 15% down on prior year, from what I read. So you can construct arguments to say they are overpaying or underpaying because of or in spite of their recent performances and I suspect there is no easy right answer otherwise we would all be chairing GS. And if GS are traditionally a successful bulge bracket bank, of whose successes Barcap seeks to emulate at least some elements - should Barcap not increase its compensation toward the $380k pa notional 'average' they pay at GS?

To be honest I don't have a view on whether BARC shares are fairly priced at the moment, I haven't looked into it closely enough. On the moral argument about whether they should be allowed to pay a lot of cash to staff instead of shareholders,or to some staff over others based on perceptions of short term and long term value-add to the bottom line - that is up to the shareholders who appoint the board and support capital raisings and I am not one.

Without staff there would be nothing for the shareholders to take home; without shareholders' funds to invest and the equity support that allows debt fundraising at competitive rates and the maintenance of sufficient capital to keep the banking license, there would be nothing to pay the staff with. It seems like dividends are currently below the target future payout ratio when looking at core profits, so there is some room to grow realised returns to shareholders in addition to the unrealised ones reinvested into the staff or the capital base or infrastructure generally.

You will always get people who moan that investment bankers create nothing of value and what they do for their millions is not as exciting to watch as Beckham in his heyday hence they should all be cut loose. However, until we all vigourously renounce capitalism it is difficult to argue that credibly - because clearly they have done something (whether it is good talent at aspects of their jobs or merely the good marketing of their mediocre talent) to 'deserve' it.

Sure, some would say society might be more usefully served by us all working honourably for charitable endeavours once we've made our first lifetime cumulative £100k, or by us all making widgets (regardless of cost or demand) in order to improve the physical quantity of visible 'outputs' of the nation. Sounds all very nice but I am not particularly swayed by those views.

So, I don't really have a view on BARC market price and I don't buy the views of some of the posters on this board or that I've seen in the news today. What am I even doing in this thread? I don't know really, but doesn't it feel good to have a bit of a rant once in a while ?:D

talexuser

bowlhead99 wrote: »

bring up well-publicised security breaches and the fact that their debit card stopped working for a couple of hours one weekend and their mortgage rate and Barclaycard bill somehow went up because the Libor rate was massaged down,

And the billions of mis-selling, the fraudulent mortgages in the States, the small business loans that closed them down, the deliberate bankrupting of businesses to get their properties cheap... don't forget all the other aspects of this wonderful industry.

grey_gym_sock

bowlhead99 wrote: »

A proportion of them would really not be missed. But some of them would and so the bank ends up overcompensating them for fear of losing the good ones and to attract the good ones from elsewhere.

er ... if the top management can't tell (not perfectly, but well enough) who are the staff who are worth retaining and who are the staff that would be good riddance, then there is either something wrong with the top management or something wrong with the whole investment banking business.

the problem with the investment banking business is that banks are allocating it huge amounts of capital, treating this capital as very low cost. when it reality it is an extremely high risk business. i have no problem with banks lending money to very high risk businesses, but sound banking would dictate that (a) they charge a very high interest rate when they do so and (b) they limit their maximum exposure to any 1 high-risk business. they are completely failing to do this (presumably because this high-risk business happens to be another part of the bank who provides the capital).

if the banks applied sound banking principles when providing capital to their own investment banking operations, they would provide them with far less capital, at vastly higher cost. and the investment banking operations would have to shrink a lot.

i would have no problem with the bosses of investment banking being paid a lot to carry out this shrinking operation without losing more billions than is avoidable. i do have a problem with their being paid a lot to carry on as before, taking risks which will probably make their shareholders some money in the good years, but then lose the lot in the next disaster.

badger09

bowlhead99 wrote: »

What am I even doing in this thread? I don't know really, but doesn't it feel good to have a bit of a rant once in a while ?:D

Rant away bowlhead99. Always enlightening & entertaining

Glen_Clark

bigadaj wrote: »

It's teh same in any overhyped business with an excess of money.

The very top people are worth the money in any business but the dross manage to get massively overpaid on their coat tails or a misplaced sense of potential.

Football is the obvious analogy, beckham, Ronaldo and messi make real sense as an investment in both financial and success terms but the £1 million quid a year that Sunderland or palace are paying for their reserve centre halves is complete madness.

Mind you at least in football there's only a limited contract and there's a decent chance you can sell them to Newcastle!

I have no problem with footballers getting £1m a week because none of it comes from me. Thats because I have a choice of whether I want to contribute to football. Although they are of no interest to me they must be worth £1m or people would not choose to pay that to watch them.

The problem is we don't have the same choice of whether or not to contribute to bankers salaries. The small shareholder is always outvoted by the likes of pension funds controlled by equally fat cats with their own snout in the trough. I have a Prudential pension, which means the boss of Prudential can effectively use my own shares in the pension fund to vote against people like me. Again the small shareholder usually holds shares in a platform so has no vote.

Eco_Miser

Glen_Clark wrote: »

I have no problem with footballers getting £1m a week because none of it comes from me. Thats because I have a choice of whether I want to contribute to football.

Unless you're a shareholder or customer of Barclays , or any other football sponsor.

BillJones

Glen_Clark wrote: »

Thats because in most other industries - where wealth is created instead of just shifted around, workers are paid far less.
What got me most of all was on the BBC news today a banker saying we have to reward the risk takers:mad: Whose money are they risking!!!!!!!!

Shareholders. I'd not agree that we shoudl reward "risk takers", that's nonsensical, but if my bank believes that I add £50m to their bottom line, then it's hardly unfair for me to get 10% of that in pay.

BillJones

grizzly1911 wrote: »

Then then they sold out, trousered the profit, then started gambling other peoples capital and still demanding the compensation

It's ridiculous mischaracterisations of what we do that mean very few of us can be bothered to try and explain the truth.

If you want to invent fantasies about banking, and get annoyed at your iwn inventions, then that's fine, but it's a bit pointless.

I genuinely can't understand why what I earn makes you have such a paddy.