Banking fees: a bigger problem than banker's bonuses?
Posted by Guy Strafford on Fri, Feb 03, 2012 @ 10:24 AM
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It is around this time of year that the earnings of individuals in the financial services sector come under close scrutiny and, following the storm whipped up by those of Stephen Hester, CEO of Royal Bank of Scotland, this year promises to be examined more sharply than most.
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As Philip Collins wrote in The Times this morning: “The appetite for banker bashing is limited in this country. We are now close to its limit”. While this doesn’t suggest that the time for unchallenged acceptance of remuneration levels in the City, it does perhaps signal to us at Proxima that the time has come for a different voice to be heard in the assessment of how and where bonus payments are being apportioned.
Who is representing the interests of all of the commercial customers and whether their interests are served by bonuses through inspiring better performance, or whether they merely cosset the long-held belief that the city can rest easy when March comes around. Philip Hampton from RBS talked this morning on the Radio about shareholders, employees and the bank, but where were the customers? The current news agenda gives us, conveniently, two major transactions through which to analyse the factor which underpins these bonus levels – the fees that banks charge for their corporate broking and investment banking services. One in particular is fascinating.
Facebook is embarking on the most significant IPO in a generation and has hired a selection of capital markets heavyweights to run the book and underwrite the transaction. That isn’t to say that any of them could have been sure of getting the job, though. Morgan Stanley’s track record in the technology sector stood them in good stead, as did Goldman Sachs’ experience in brokering secondary market deals in Facebook stock prior to the filing being submitted. But by playing them off, Facebook appears to have been able to significantly reduce the fees to the banks.
We are at a potential point of inflection in the banking market. Customers have a one off opportunity to start to link banking fees to the work done or the value added, as opposed to the size of the deal. This has happened in other industries such as marketing and insurance which moved from being paid a percentage of the deal to more sophisticated metrics.
Time for customers to follow in Facebook's lead and follow this through to the logical conclusion. Lower costs of capital raising will improve the economy, and will leave less for bonus pots.