At last........the Banks are having to toe the line, just watch them move their business to Hongkong, Singapore etc.
Exclusive: Banks Accuse Governor Over 'Dividend Ambush' Share
February 28, 2012 3:58 PM
Recommend post (0) I have learned that Britain’s bank chiefs have warned the Governor of the Bank of England that intervening in bonus and dividend payouts could unwittingly restrict their ability to lend money into the UK economy.
The warning was made during a meeting last week between senior officials from the Bank of England – including Sir Mervyn King – and the bosses of five of the biggest London-based banks.
At a dinner in the City last week, the bank chiefs said powers granted to the new Financial Policy Committee (FPC) would create potential headaches for bank directors and investors.
Under plans outlined late last year, the FPC could impose a cap on the amount paid out by banks in bonuses and dividends in order to encourage them to build their capital reserves.
But during last week’s discussion, at least one of the bank chief executives is understood to have argued that the uncertainty created among City investors would trigger the opposite effect: by depressing the market value of stock market-listed banks, the new rules could make it harder for them to raise equity and force them to deleverage (or shrink their balance sheets by reducing lending activity).
Last Wednesday’s meeting was attended by a quartet of senior Bank of England officials: Sir Mervyn, Andy Haldane, executive director for financial stability, Andrew Bailey, deputy chief executive of the new Prudential Regulation Authority, and Paul Tucker, a deputy governor.
Bob Diamond, chief executive of Barclays, and his counterparts from HSBC (Stuart Gulliver), Royal Bank of Scotland (Stephen Hester), Santander UK (Ana Botin) and Standard Chartered (Peter Sands), also attended the dinner.
“The Governor made it clear that the FPC is feeling its way as an intellectual beast and that the banking industry should bear with it,” said a person briefed on the discussion. “There was a lot of concern about the extent to which banks could be ambushed over the distribution of capital and what that might mean for investor sentiment towards what are already a pretty unloved group of stocks.”
The dispute over the FPC underlines the scale of unease in the City about the powers expected to be handed to the new committee.
Sir Mervyn has been particularly outspoken in recent months in calling for banks to restrict bonuses and dividends so that they can retain sufficient capital for lending and for bolstering their balance sheets.
Of course, many people will dismiss this debate as special pleading on the part of the banks: after all, they want nothing more than to be able to decide how much cash they hand out to employees and investors.
Last year, Robert Jenkins, one of the members of the interim FPC, said as much, accusing the banks of dishonesty over the impact of the proposed reforms.
“Banks can strengthen their balance sheets without harming the economy. They can do so by cutting bonuses, by curtailing intra-financial risk-taking and by raising term debt and equity,” he said.
None of those who attended last week’s meeting could be reached for comment.
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