Why bankers' greed needs to be controlled
Other industries haven't threatened civilisation with financial collapse, which is why the conduct of investment bankers needs to be regulated
Bankers felt that I unjustly vilified them alongside Donald Trump in last week's column. They cried that greed exists everywhere and simple-minded critics did not understand that only a small group of rogue bankers instigated the crash and the illegal acts that continue to plague banks. Unfortunately, too few of them seriously realise that as a professional group, their near criminal negligence - blinded by greed - nearly destroyed the global economy. Greed used to be good. Now it has to be controlled.
Other industries haven't threatened civilisation with financial collapse yet. Trillions of dollars were lost and spent on saving the financial system. The intransigence of banking culture is responsible for its inability to evolve a collective, moral compass for conduct risk. Answering the simple question: "Is this the right thing to do?" is at heart of defining ethical conduct and returning banks to behaving more like a social function rather than an exclusive assembly line for personal gain. And policing culture is a daily struggle.
Along with the rest of the seven deadly sins, greed will always plague human nature. You can't change the way people think, but maybe you can change the way they behave in a banking environment. While regulators are trying to strip out as many lucrative, but risky activities out of banks they have found that banking culture is resistant to reform.
The only way ethics will be consistently understood and applied throughout a bank is when complete generational change occurs where all investment bankers have started their careers after the financial crisis and the pre-crisis tales of unfettered profits and flexible morality are consigned to history.
Until that happens, influential regulators such as Mark Carney, governor of the Bank of England and chairman of the Financial Stability Board, are proposing different ways of paying and regulating banker conduct. He recently vowed to end "ethical drift and the age of irresponsibility in the financial sector".
Financial sector pay has become a battleground of fierce and highly politicised recrimination. No one knows if investment bankers will be paid more or less in the future. But, today many people think they are overpaid. "The top 25 hedge fund managers made more than all the kindergarten teachers in the country," declared President Barack Obama during a discussion of poverty where he proposed to hike their taxes after calling them "society's lottery winners".
Delayed bonus payments, bonuses mostly paid in the form of bank stock rather than cash and clawbacks that require bankers to hand back previous bonus payments under certain conditions, are just some of the onerous terms imposed. Trying to impose some sort of long-term partnership risk on bankers to justify their partnership-like remuneration will either change the type of people banks attract or drive away talent.
For the first time, investment banks have to worry if they can attract top talent. Now tech giants are able to pay better and offer a more compelling social and business vision than any bank. There are 30-year-old programmers with a PhD at Google who make an annual salary of about US$370,000 excluding stock options. And Google is doing more exciting things than buying and selling money, which is the essence of every banking job.
Before the financial crisis it was considered heresy to hire non-bankers to run an investment bank firm. Entire groups of bankers and traders would threaten to leave out of disgust. Today, they are welcome to leave and try find other work if they don't agree with the board.
The revolt of Morgan Stanley's bankers against CEO Philip Purcell, a former McKinsey consultant, shows how bankers can gang up on an outsider. He resigned as CEO of Morgan Stanley in June 2005 after a high-profile campaign against him by former Morgan Stanley partners threatened to cripple the firm.
Ironically, they challenged Purcell's refusal to ambitiously increase leverage, increase risk, enter the sub-prime mortgage business and make expensive acquisitions - the same strategy that nearly destroyed the bank in the financial crisis. Today, Morgan Stanley's culture has been resurrected under the leadership of James Gorman, another former McKinsey consultant who has reshaped the formerly premier investment bank into an asset manager.
In a desperate bid to curtail risk taking, bank boards and regulators are today more willing to hire non-bankers to run banks because bankers themselves have lost their willpower to change.
Peter Guy is a financial writer and former international banker