The governor of the Bank of England did more than wiggle his eyebrows at lenders this week. He, or rather his bank regulation deputy, told British banks to hold off paying dividends and cash bonuses to top staff over the next few months.
The banks are complying, at least with the request to cut dividends. They are less forthcoming about how they will adjust bonuses. Contrast that with Taylor Wimpey, which stated on Wednesday that there would be no cash bonuses for executives in 2020.
Well over a dozen publicly listed companies, from Ryanair to Capita, have broadcast cuts to executive pay and rations this year.
Lender Standard Chartered has murmured about updating the market later on remuneration. Its financial sector peers are keeping schtum.
However, most UK banks whose year ended in December notified staff of their bonuses in February. Almost all shelled out what cash they were due to pay — excluding the high proportion of deferred bonuses — in March. The next cash payments are due in 11 months.
Who knows what profits will look like then? A year is a long time in a coronavirus world.
Traders have had a good first quarter. FX teams have been working their white socks off trading the volatility in markets. On the other hand, retail banking is suffering and M&A bankers are twiddling their thumbs. That may change in the second half as companies restructure and refinance.
Since the banking crisis of 2008, regulators in Europe and the US have persistently called for banks to trim and defer variable awards or pay them in shares. Last week Sheila Bair, former chair of the US Federal Deposit Insurance Corporation, opined in the FT that banks should snip discretionary bonuses, as well as dividends and buybacks, to free up the trillions of additional lending capacity and absorb the huge losses on bad debts that are heading the industry’s way.
Are regulators fighting the last war? Banks are far stronger now than they were in 2008 when the taxpayer bailed them out. They have been shoring up their capital buffers for nearly a decade.
Nonetheless, remuneration is a lagoon-sized cost for banks. Variable pay accounted for nearly half of Barclays’ total remuneration costs of £1.3bn in 2019. About half of the bill was in cash. It would be an error for banks to jeopardise the strength by repeating the mistakes of the noughties.
This year will go down as the year of widespread corporate failure and the biggest central bank-taxpayer intervention in the economy since the second world war.
Under this new compact, banks have a societal role as agents of the government, transmitting state aid to the small enterprises and individuals as unemployment rises and recession looms. They must not forfeit the high ground by raining rewards down on staff after other stakeholders have suffered so much.
Even before the coronavirus crisis put thousands out of work, jobs for life were reckoned to be a thing of the past. Which makes it difficult to explain how Mark Barnett, Invesco UK equities fund manager and acolyte of failed fund manager Neil Woodford, manages to keep his.
To be fair to Invesco, he’s only got half of one now. The US fund house promoted Martin Walker to co-head its UK equity business alongside Mr Barnett in November.
And Mr Barnett has less money to manage. Though that’s not really Invesco’s doing. Outflows and then investment performance have ensured his investment pot has been shrinking. The Invesco UK High Income Fund stood at £13.1bn in 2013, the year before Mr Barnett took it over. About £3.4bn is left in the fund now. His Income fund is down to little more than £1.5bn. Soon he’ll shed his portfolio of unquoted investments, which was marked down by 60 per cent this week.
But Invesco’s loyalty to Mr Barnett shows an ill-judged fascination with stars. That obsession has cost the asset manager twice over. Once when Mr Woodford took Invesco clients, as he flounced out to set up his own folly of a fund house. And again because Invesco replaced him with his follower — Mr Barnett — who continued to follow the same Woodford strategy. He copied some of Mr Woodford’s biggest bets and was co-investor with him in countless, tiny biotech hopefuls.
UK shares have fallen so far and so fast Mr Barnett is doubtless right that there is value to be had and money to be made when the rebound arrives — eventually. Whether he does better than the market is open to question.
Fund houses don’t like sacking big names. They worry investors will flee, and downgrades follow. Fellow portfolio managers get twitchy. But Morningstar has already cut its ratings on Mr Barnett’s High Income and Income funds last year. The investors are gone. And acting managers are becoming as popular as winkle-pickers.
Now, in the depths of the downturn, is not the time to change course. But when normality returns, Invesco really must reconsider its star-struck strategy. Jobs for life are so last century.