Fat Cats Under Fire for Inflated Salaries – How to Prevent Future Abuses?

Six-figure bonuses for bankers helped cause the global financial crisis and continue to harm the economy, according to thirty-six-year old Geraint Anderson. And he should know. Anderson spent 12 years working as an investment banker in London. During that time he worked for Commerzbank and Dresdner Kleinwort among others. The onetime banker and his colleagues frequently received bonuses that far outstripped their regular salaries. Shortly before the onset of the financial crisis he quit his job and wrote a book about his experiences. The headquarters of the investment bank Dresdner Kleinwort is based in Germany’s commercial capital Frankfurt. It is currently undergoing a merger with the Commerzbank. Christian Pricelius visits the bank and asks how it intends to tackle the controversial issue of managers’ bonuses in the future. ___________________________________________ Geraint Anderson is a former investment banker who lives in the district of West Kensington in London. He spent 12 years in the financial industry before retiring a millioniare last spring, only months before the crash. He now lives from his investments. For 22 months before his retirement, Anderson was 'Cityboy', the anonymous author of a popular newspaper column that broke the code of silence about the financial industry. "It was similar to be given a lot of money from someone else, told to gamble with it, told that the casino might close at any moment and told that if you loose all that money, you are not going to be taken the money off you but if you make money for the bank, you can keep 10 per cent of it, let´s say. If you lose money, nothing happens, you may lose your job. So what you do in that scenario? You just bet, ridiculously, recklessly and that of course is what happened." Last year, Anderson wrote a book-length insider's expose of the banking industry. He was still earning millions in bonus payments until shortly before the crash. Anderson says that there was little oversight whether the stocks that his colleagues were trading were actually worth the money. Geraint Anderson last worked for the Dresdner Kleinwort Investment Bank in London. Before that, he worked for Commerzbank. In 2008, Dresdner Kleinwort posted losses of 6.2 billion Euros. Dresdner Kleinwort has a second headquarter in Frankfurt, Germany. The investment bank was meanwhile acquired by Commerzbank, which then had to cope with the unexpectedly large loss posted by the subsidiary bank. Now Commerzbank has taken 18 billion Euros in state aid to stay afloat. But Commerzbank still owes several hundred million Euros in bonuses that it had agreed to pay to Dresdner Kleinwort's employees in the takeover. Commerzbank was reluctant to go on record about the bonuses, stating only that its entire bonus system was under review. But now the bank has issued a press statement. Beate Schlosser, Commerzbank Press Officer: "In the case of Dresdner Kleinwort, we will only pay bonuses promised by an individual legally-binding guarantee. There will be no other payments. The total will be significantly lower than in current press reports." Christian Strenger is director of DWS Investments, part of Deutsche Bank's Asset Managements division. He is also a member of a commission working to draw up a governance code for German corporations. Since the financial crash, he's gone public with criticism of the finance industry. "The starting point of my criticism is that boards of directors and managers didn't inspect their purchases beforehand using accepted business standards. And the governing bodies made it too easy on them by not requiring the boards of directors to adequately explain the risks." Thus far voluntary self-regulation has been ineffective. Now the German government has proposed a voluntary manager account with a system of bonuses and penalty points. The goverment also wants a law that will permit bonus payments only after several years of employment. Christian Strenger, Commission of the German Corporate Governance Code: "When someone does very well in one year, but then very poorly in the subsequent year, this would make it possible to offset the losses. It would be a very simple accounting, where the final balance would be calculated at the end in order to see what's actually left over for the company." Even though he's now left the world of investment banking behind, Geraint Anderson believes that the financial industry will survive. But he doesn't believe that the mixture of voluntary self-regulation and legal limitations will be enough. "You need international cooperation so that we don´t have something like the crunch happen again. In reality that´s never gonna happen. Because there is always somewhere like Zurich or Dubai, no come over here investment bankers." Geraint Anderson is already at work writing his second book. Still about banking, but this time it's a fictional account - again drawing on his years as a financial insider.

DW-World | March 17, 2009

Tags:. .schlosser. .geraint. .commerzbank. .outstripped. .onset