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Weekend reading: The world’s bargain banker

Weekend reading

Every Saturday! Weekend thoughts, and money and investing articles from around the web.

The UK Government stands to raise £1.5 billion from the one-off banker’s bonus tax. The Treasury only counted on getting £500 million.

If you recall, this bank tax was meant to persuade the banks to build up their capital reserves by retaining 2009’s windfall profits (which at investment banks were gained trading the broken markets and Government special measures that the banks themselves caused).

Policymakers – who work partly out of a sense of civic good – underestimated bankers, who are driven entirely by money. Bankers paid the bonuses anyway. It’s shareholders who’ve lost out.

Time for a new approach: Hiring Chinese bankers.

The idea came to me in an article about HSBC’s chairman Michael Geoghagen, who is being paid £800,000 a year in extra benefits and expenses just for living in Hong Kong.

(I know! How can Michael be expected to make ends meet on the almost £4 million minimum he’ll earn next year? Chop suey doesn’t come cheap, and it’s hard to get by when local taxes are – ahem – 15%.)

Buried away at the bottom of the article was this gem:

The bosses of Barclays, Royal Bank of Scotland and Santander all earn larger salaries [than Mr Geoghagen]. Those three banks are included in HSBC’s remuneration peer review group.

However, it excludes Industrial and Commercial Bank of China, the world’s biggest bank, whose executive chairman Jiang Jianqing earned just 800,000 yuan (£80,000) in salary in 2008 and 1.61m yuan (£155,000) including bonus.

£80,000 a year to run the biggest bank in the world? I smell a bargain.

As a shareholder in HSBC and Standard Chartered – two banks with a massive Asian presence – I’m considered writing to the boards to see if we can pick up some Chinese super-bankers for a song.

We could start with Mr Jianquing. Hell, let’s raise his pay to £85,000 a year!

Okay, I’m half joking. For a start I’m in danger of falling in love with Standard Chartered, which after a near-60% rise in a little over a year is now my largest individual stock holding. Just keep doing what you’re doing, STAN.

Also, I suspect Chinese bankers get ahead by navigating Beijing politics as much as balance sheets.

Finally, according to the Chinese government the average salary in urban China is £3,798 – so the China’s bargain banker is still earning 20x average local income.

Still, Jiang Jianqing comes at 2% of the cost of JP Morgan’s Jamie Dimon. According to the spurious logic of Western bankers, that means he’s delivering 2% of the value. I doubt that’s true.

I’ll conclude with this classic quote on Chinese bankers versus our greedy bank CEOs:

China, for example, boasts three of the world’s four biggest banks, yet the leaders of those banks are among the lowest paid of those surveyed by Reuters. The chairman and the president of each of the banks are paid roughly $230,000 per year.

“That’s basically nothing for the leaders of these huge Chinese financial institutions,” said Laura Thatcher, who leads law firm Alston & Bird’s executive compensation practice in Atlanta. “I can’t imagine why they would work for nothing.”

A world where $230,000 is nothing is not going to give in without a fight.

Paging Jiang Jianqing!

From the personal finance and investing blogs

Money and investing articles from the big boys

  • Peter Lynch thinks it’s a great time to buying stocks – Globes
  • The top 50 most admired companies in the world – Fortune
  • Central London property prices buck trend – FT
  • Using B shares to minimize income tax – FT
  • Greece a harbinger of austerity for us all – The Telegraph
  • Small shareholders are treated disgracefully – The Independent
  • The reason we don’t have hyper-inflation – Business Insider
  • U.S. investors are still worry-wart savers – Business Insider

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{ 9 comments… add one }
  • 1 Adam March 6, 2010, 3:30 pm

    Thanks for including me in this roundup.
    BTW I’m finding your new site (http://stocktickle.com/) hilarious -I’m sure you can guess the post I’m talking about 🙂
    .-= Adam on: Consumption Smoothing =-.

  • 2 Money Reasons March 6, 2010, 4:57 pm

    Thank for the mention…

    But more importantly, THANKS for bring me into your world, via your blog. Previously, I had little exposure to your country, but now I feel like I get to see an occasional glimpse of some of the underpinnings that are happening in your backyard! It’s very delightful!!!

    Thanks from a very personal level!

    Cheers!

  • 3 Financial Samurai March 6, 2010, 5:43 pm

    Oh how I love this wraps, and your diatribes against bankers! lol.

    How’s the $1.5 billion treating you and your people? Building a Disney Land perhaps, or technology to create more blue skies? 🙂
    .-= Financial Samurai on: Sometimes Saving Money Is About Principle =-.

  • 4 Baxter Basics March 7, 2010, 12:06 am

    To be fair, isn’t it worth remembering that China is still a communist (at least nominally) country? Maybe a real revolution in banker’s remuneration will only be delivered by the business end of a cheap imitation Kalashnikov…

  • 5 LeanLifeCoach March 7, 2010, 2:17 pm

    Better late than never… thanks for the recognition!

    I’ve been working on a presentation about incentives and motivation for work so I find this fascinating. The science say tasks requiring cognitive skills are often negatively impacted when paired with financial incentives. Seems the science may hold true here. China pays less but has more…. hmmm
    .-= LeanLifeCoach on: Lean – Life – Learn =-.

  • 6 @SMSFs March 8, 2010, 9:52 am

    Re Standard Chartered … you don’t think it’s worth “taking some off the table” as Mr Cramer (now there’s someone I don’t go round quoting frequently!).

    I assume that STAN is a China story. And the China story looks a bit like universal truth at the moment. (-:
    .-= @SMSFs on: The volatile world of the video games investor =-.

  • 7 The Investor March 8, 2010, 2:28 pm

    @SMSFs – To be honest I aspire to be a Buffett-style buy-the-business investor. I waited years for Standard Chartered to get cheap, then swooped in the crisis, so I won’t sell out lightly on price movements. I might if I feel my holding has become to heavy relative to my net worth, which won’t happen for a while.

    I think it’s business is growing brilliantly, and the whole crisis (which it largely sidestepped) has proven its model. It’s exposed to much more than in China, though there’s no doubt a big correction there would hurt it.

    It’s a good play on the whole emerging market story, but with UK corporate governance and even a dividend! 🙂

  • 8 The Investor March 8, 2010, 2:33 pm

    @Sam – Hah, well we’ve not yet got the billions. They’ll just be thrown into the black hole of Government spending and our deficit, alas. Glad you’re enjoying my ongoing campaign against bankers’ ridiculously unjustified salaries.

    Don’t worry though, when the revolution comes and half the bankers have to retrain as soya bean farmers, I’ll find a nice local bank for you to manage. 😉

  • 9 The Investor March 8, 2010, 2:33 pm

    @Adam @Money Reasons – Thanks for your thoughts. Glad the focus on the UK isn’t putting you off MR!

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