Telegraph 04 Agosto 2009

Telegraph View: the banks' return to good health is precisely what last year's bail-out was designed to achieve.

Yesterday's first-half results from Barclays and HSBC – each posted profits of nearly £3 billion in spite of depressed results in their high street businesses – will be seen by many as a return to business as usual in the get-rich-quick world of investment banking. It is less than a year since the greed and irresponsibility of bankers helped tip the world into recession, forcing the UK taxpayer to stump up £1.2 trillion to save the sector from collapse. News that the banks are bouncing back into profit and that bumper bonuses are once again in the offing will leave a bitter taste in the mouths of millions who have not only seen their savings and pensions pulverised, but also face the prospect of years of higher taxes to pay down our ballooning national debt.

For all the understandable public distaste for the spectacle of bankers once more coining it, in reality the banks' return to good health is precisely what last year's bail-out was designed to achieve. A strong banking sector is required to oil the rest of the economy and fund entrepeneurial ideas and growth. The Exchequer, too, benefits from tax revenues from the financial sector.

What the bail-out did not intend was for the banks to repeat the mistakes of the past, particularly when it comes to rewarding excessive risk. John Varley, the chief executive of Barclays, was clearly mindful of this when he stressed yesterday that no decisions would be taken about bonuses until the end of the year and that he would ensure that his bank was "sensitised" to the issue. We should hold Mr Varley to his word. While the payment of bonuses is a structural part of investment banking, it is evident from the crash that the system had gone badly wrong. It is for Mr Varley and his colleagues to ensure that bonuses reflect long-term wealth creation, rather than reward gimcrack schemes designed to turn a fast buck with little regard for the consequences.

The other worry is the extent to which banks are lending to business. The banks say they are, business say they are not. It is evident that credit is still too tight, though the banks argue that they are under immense pressure from the Government to clean up their balance sheets and not make unsafe loans. Banks must also build new business models. Now that the casino is closed, they must increase margins and take more care in some of their traditional business activities. But the evidence suggests there are many viable firms with cash flow problems that are being caught out in this painful adjustment. In terms of building a sustainable recovery, this is a greater cause of immediate concern than the pay packets of investment bankers.

Source >  Telegraph | Aug 03