EDITOR'S TAKE: It's hard not to pay your investment bankers when they're saving your skin
Today's results from the Lloyds Banking Group are a nasty reminder of what can happen if you don't have an investment banking arm to set things right.
Thanks to the truly rancid loan portfolio it inherited from HBOS, Lloyds booked a 4bn pre-tax loss in the first half. Its measly wholesale banking operation was unable to compensate.
Other banks have been spared. For example, at HSBC, profits from global banking and markets offset the $3bn writedown at its US consumer lending business. At most banks with a wholesale banking arm, investment banking activities account for a high and rising proportion of profits.
In the circumstances therefore, it's surely right to wise your investment bankers for keeping you afloat?
Historical precedent dictates that banks should pay around 50% of their investment banking revenues as compensation. At Goldman Sachs, where traders made $100m on 46 out of 65 trading days in Q2, 48% of revenues were set aside for comp.
Some banks are bucking this trend. As we've noted, BNP Paribas and HSBC are paying a significantly lower proportion of investment banking revenues to staff.
Longer term, analysts such as Peter Thorne at Helvea in London are predicting that compensation as a percentage of revenues will fall far below 50% at most banks. For the moment, however, organizations that don't reward employees of their successful investment banking businesses are liable to shoot themselves in the foot.
Profits from investment banking activities as a percentage of the total
